21 Cal.App.5th 308
Cal. Ct. App.2018Background
- Plaintiff Gezel Saheli, a medical resident, sued White Memorial Medical Center and Dr. Juan Barrio alleging retaliation, sexual and national-origin harassment, and civil rights violations under the Ralph Act (Civ. Code § 51.7) and the Bane Act (Civ. Code § 52.1), among other claims.
- Defendants moved to compel arbitration under an employment/training agreement and employee handbook arbitration clause governed by the FAA; clause covered employment-related torts and statutory discrimination claims, with certain carve-outs (e.g., PAGA, workers’ compensation).
- The trial court compelled arbitration for most claims but denied arbitration as to the Ralph Act and Bane Act claims, reasoning the statutes (as amended by AB 2617) impose special requirements (knowing/voluntary waiver; express non-condition language) that the arbitration agreement did not satisfy.
- Defendants appealed, arguing (1) the arbitration agreement incorporates only state law not preempted by the FAA, and (2) the Ralph/Bane Act waiver requirements are preempted by the FAA because they single out arbitration and impose a special enforceability burden.
- The Court of Appeal reversed the trial court: it interpreted “applicable state . . . law” to mean state law not preempted by the FAA and held the Ralph Act and Bane Act restrictions (AB 2617 amendments) are preempted to the extent they condition enforceability of arbitration agreements on special requirements not applicable to contracts generally.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Meaning of phrase “applicable state . . . law” in arbitration clause | Phrase includes state law even if preempted by FAA; thus Ralph/Bane requirements apply | Phrase means state law only to the extent it is not preempted by federal law | Interpreted to mean only valid state law not preempted by the FAA (following DIRECTV v. Imburgia reasoning) |
| Are AB 2617 amendments to §51.7 and §52.1 preempted by the FAA? | Statutory restrictions apply generally to waivers of statutory rights and so fall within FAA §2 saving clause | Amendments single out arbitration by imposing special burdens and are therefore preempted | Preempted: statutes condition enforceability of arbitration on special requirements not applicable to contracts generally, so FAA preempts those restrictions |
| Do §§51.7/52.1 merely codify unconscionability doctrine (and thus survive preemption)? | Statutory rules reflect traditional unconscionability protections and are saved by FAA §2 | Statutory rules depart from unconscionability (change burden, create per se rules) and therefore target arbitration | Rejected: statutes are not a mere codification of general unconscionability and would impose per se or special rules inconsistent with FAA principles; preempted |
| Does arbitration of Ralph/Bane claims necessarily waive substantive remedies (injunctive relief, penalties)? | Arbitration would prevent meaningful access to substantive remedies and provisional relief | Arbitration agreement preserves court-like remedies and Code Civ. Proc. §1281.8 allows court provisional relief | Rejected: court found no inherent waiver of substantive remedies by arbitration clause; statutory concerns about relief addressed by existing rules (e.g., §1281.8) |
Key Cases Cited
- DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (U.S. 2015) (contract language referring to state law construed to exclude state law preempted by FAA)
- Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681 (U.S. 1996) (state laws that single out arbitration provisions for special treatment are preempted)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA preempts state-law rules that unduly interfere with enforcement of arbitration agreements)
- Volt Information Sciences, Inc. v. Leland Stanford Jr. Univ., 489 U.S. 468 (U.S. 1989) (parties may choose governing law for arbitration agreements and structure arbitration by contract)
- Southland Corp. v. Keating, 465 U.S. 1 (U.S. 1984) (state statutes cannot prohibit arbitration of certain claims where FAA applies)
- Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421 (U.S. 2017) (FAA requires arbitration agreements be placed on equal footing with other contracts)
- Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (Cal. 2015) (state rule preempted where it disfavors arbitration as applied)