Court Continues Temporary Hold on California’s Arbitration Statute

By Paul M. Smith and Daniel E. Richardson © Ogletree Deakins January 14, 2020
Court Continues Temporary Hold on California’s Arbitration Statute

California's AB 51, which attempts to ban certain mandatory arbitration agreements, was scheduled to go into effect on Jan. 1. However, a coalition of business organizations filed a suit on Dec. 9, 2019 seeking to enjoin AB 51. On December 30, 2019, a federal court in California issued a last-minute temporary restraining order blocking AB 51 from going into effect and scheduled a hearing on the motion for Jan. 10, 2020.

At the hearing, Chief U.S. District Judge Kimberly Mueller of the Eastern District of California heard oral argument on the motion for preliminary injunction in the Chamber of Commerce's challenge to AB 51. Judge Mueller had many questions—especially for the state. For now, the temporary restraining order remains in place and the matter has been taken under submission with supplemental briefing to be filed on Jan. 17 and Jan. 24 by the state and the Chamber of Commerce, respectively, on two issues: (1) jurisdiction/standing and (2) severability.

From the outset, the state argued that AB 51 does not target arbitration but rather focuses on the collective waiver of any "right, forum or procedure for a violation" of state law. The court immediately expressed skepticism on this point, asking the state how it can possibly ignore and in fact "divorce" the legislative history from the text of the statute that is so singularly focused on arbitration.

When asked about the availability of traditional contract defenses, such as consent, duress, and unconscionability, the state argued that AB 51 would not create a new defense to arbitration agreements and argued that nothing in the statute invalidates their effect. Rather, according to the state, AB 51 is intended only to influence employer behavior and that it was not directed at limiting the formation of arbitration agreements. The court again expressed concern and questioned the state on how one can draw the line between behavior and formation.

In commenting on the Chamber of Commerce's arguments, the court called it an "overstatement" to suggest that AB 51 "forces" employers to do away with arbitration agreements altogether. The Chamber had focused on the penal aspect of criminal and civil penalties for violations, to which the state responded that the statute would not actually invalidate agreements.

The court requested supplemental briefing on the issues of jurisdiction and standing and severability. The state argued that a provision in the statute regarding retaliation toward employees and applicants who refuse to sign arbitration agreements should be excluded from the enjoined provisions, but the court took exception. Finally, the court noted the possibility of this case making its way to the U.S. Supreme Court.

Paul M. Smith and Daniel E. Richardson are attorneys with Ogletree Deakins in Sacramento, Calif. © 2020 Ogletree Deakins. All rights reserved. Reposted with permission. 


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