Amicus Curiae Brief — MHN Gov't Servs., Inc. v. Zaborowski, 136 S. Ct. 27 (2015) (No. 14-1458)

Supreme Court, U.S.

FILED

DEC 2- 2015

OFFICE OF THE CLERK

No. 14-1458

In the Supreme Court of the Anited States

MHN GOVERNMENT SERVICES, INC., AND

MANAGED HEALTH NETWORK, INC.,

Petitioners,

v.

THOMAS ZABOROWSKI, ET AL.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

For the Ninth Circuit

BRIEF OF CHAMBER OF COMMERCE OF THE

UNITED STATES OF AMERICA AS AMICUS

CURIAE IN SUPPORT OF PETITIONERS

KATE COMERFORD TODD ANDREW J. PINCUS

WARREN POSTMAN Counsel of Record

U.S. Cnamber Litigation ARCHIS A. PARASHARAMI

Center, Inc. Mayer Brown LLP

1615 H Street, NW 1999 K Street, NW

Washington, DC 20062 Washington, DC 20006

(202) 463-5337 (202) 263-3000

apincus@mayerbrown.com

Counsel for Amicus Curiae

i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES. .................000000.0000000000000- ii

INTEREST OF THE AMICUS CURIAE.................... 1

INTRODUCTION AND SUMMARY OF

f _ERREE TREN SSEERESM EES UEEE Seren ov eamennnmteenerE 2

PE ih iiiaiarnaiincth iii 4

California’s Armendariz Rule Discriminates

Against Arbitration Agreements In

, | ELE EET 4

A. The FAA Requires States To Put

Arbitration On At Least Equal Footing

With Other Contract Provisions. ..................... 5

B. California Treats Arbitration

Agreements Less Favorably Than Other

Contracts When Deciding Whether To

Sever Invalid Provisions,..................cccsccccsseseeee 7

C. The Armendariz Decision As A Whole

Rests On Impermissible Hostility To

f EERE LESSEE TAILS ENE RIT 13

IY ccrnncsressnasermsnmenenmmansesastennionmmnaat 19

‘3

TABLE OF AUTHORITIES

CASES

A&M Produce Co. v. FMC Corp.,

135 Cal. App. 3d 473 (Cal. Ct. App.

SRI cccnsansesentnnseansesiapretsstninnmmnnetenammmenenin

Adair v. Stockton Unified Sch. Dist.,

162 Cal. App. 4th 1436 (2008) ................

Allied-Bruce Terminix Cos. v. Dobson,

DED CED, BD Qo cccccccccstsccnccscessessesesecees

American Express Co. v. Italian Colors

Rest.,

133 S. Ct. 2304 (2013)...................csssceesees

Armendariz v. Found. Health Psychcare

Services, Inc.,

6 P.3d 669 (Cal. 2000)....................cccsssrees

Arthur Andersen LLP v. Carlisle,

556 U.S. 624 (BO08)...........cccrccessrscsesssereee

AT&T Mobility LLC v. Concepcion,

EE

Birbrower, Montalbano, Condon &

Frank, P.C. v. Superior Court,

949 P.2d 1 (Cal. 1906)................ccc.-cccssseee

Bradford v. Rockwell Semiconductor

Sye., Inc.,

238 F.3d 549 (4th Cir. 2001).................00

Page(s)

‘TABLE OF AUTHORITIES—continued

Page(s)

Buckeye Check Cashing, Inc. v.

Cardegna,

TIT sincncirinrinentsitarepemmnimemnnenl 6

Carmona v. Lincoln Millennium Car

Wash, Inc.,

226 Cal. App. 4th 74 (2014) .................ccccceeeeeee 9, 10

DIRECTV, Inc. v. Imburgia,

No. 14-462 (U.S. argued Oct. 6, 2015)............. 1,14

Doctor’s Assocs. v. Casarotto,

gL Fee 5, 6, 17

EEOC v. Waffle House, Inc.,

Ee aereraeers 3, 5, 13

Fields v. QSP, Inc.,

2012 WL 2049528 (C.D. Cal. June 4,

Fitz v. NCR Corp.,

118 Cal. App. 4th 702 (2004) 00.0.0... cece eeeeeeees 11

FLF, Inc. v. Barney & Barney, LLC,

2012 WL 4897750 (Cal. Ct. App. Oct.

ee I occcrrsceentnnsneenpunnnenssnsunneenens 8

Foley v. Interactive Data Corp.,

oo 17

iv

TABLE OF AUTHORITIES—continued

Gerald F. Moore, P.C. v. Orthodontic

Ctrs.,

2002 WL 32351 (Cal. Ct. App. Jan.

11, 2002) (unpublished) .........................

Gilmer v. Interstate/Johnson Lane

Corp..,

ee Ce Ce ee ccccncnsessnnsseenieevvanaseenes

Green Tree Fin. Corp.-Ala. v. Randolph,

581 U.S. 79 (2000)..................ccccessssessoees

Greenlake Capital, LLC v. Bingo Invs.,

LLC,

185 Cal. App. 4th 731 (2010).................

In re FirstMerit Bank, N.A.,

52 S.W.3d 749 (Tex. 2001).............00.....

In re Marriage of Facter,

212 Cal. App. 4th 967 (2013)................

KPMG LLP v. Cocchi,

132 S. Ct. 23 (2011) (per curiam) .........

Kuhlman v. New Santana Band, Inc.,

2006 WL 1589716 (Cal. Ct. App.

PN nsiiesiacinsimttbirtnlintitiiniaianenimats

LaPrade v. Kidder, Peabody & Co., Inc.,

246 F.3d 702 (D.C. Cir. 2001)...............

Page(s)

v

TABLE OF AUTHORITIES—continued

Page(s)

Lhotka v. Geographic Expeditions, Inc.,

181 Cal. App. 4th 816 (2010) .........ccccccccsseseeeees 9, 10

Mailand v. Burckle,

EE, SI itsttcntiniicnessiidideniniieiiia 11

Marathon Entm’t, Inc. v. Blasi,

174 P.3d 741 (Cal. 2008)..........................000 7, 8,11

Marmet Heath Care Ctr., Inc. v. Brown,

132 S. Ct. 1201 (2012) (per curiam) ...................... 6

Martinez v. Master Protection Corp.,

118 Cal. App. 4th 107 (2004) .......... 0... 9

MKB Mgmt., Inc. v. Melikian,

184 Cal. App. 4th 796 (2010) .......0000.000. eee. 7,8

Murphy v. DIRECTV, Inc.,

724 F.3d 1218 (9th Cir. 2013).............cccccccccceeeeeee 14

Musnick v. King Motor Co.,

325 F.3d 1255 (11th Cir. 2003)...............ccccccceeeees 18

O’Hare v. Mun. Res. Consultants,

107 Cal. App. 4th 267 (20038) .............. eects 9

Oblix, Inc. v. Winiecki,

374 F.3d 488 (7th Cir. 2004)..............00.ccccccce ec eee 17

Ontiveros v. DHL Express (USA), Inc.,

164 Cal. App. 4th 494 (2008) ..............cc cece 9

vl

TABLE OF AUTHORITIES—continued

Page(s)

Oxford Health Plans LLC v. Sutter,

I er 1

Perry v. Thomas,

a eseenel passim

Pinedo v. Premium Tobacco Stores, Inc.,

85 Cal. App. 4th 774 (2000) ..........cccccccccccsssssrsssseee fs)

Preston v. Ferrer,

I irae ntetntetnrcnteel 5, 6, 14

Rent-A-Center, W., Inc. v. Jackson,

tel 6

Samaniego v. Empire Today LLC,

205 Cal. App. 4th 1138 (2012) ....0.... eee 9

Scherk v. Alberto-Culver Co.,

nL Ee 6

Shopoff & Cavallo LLP v. Hyon,

167 Cal. App. 4th 1489 (2008) .......0...00.. eee 8

Soto v. State Indus. Prods., Inc.,

642 F.3d 67 (1st Cir. 2011) 200.0... eee eeeeeeeeees 17

Southland Corp. v. Keating,

eee 5, 6, 13

Trivedi v. Curexo Tech. Corp.,

189 Cal. App. 4th 387 (2010) .........cccccscessesssesseeseee 9

vu

TABLE OF AUTHORITIES—continued

Page(s)

Volt Info. Scis., Inc. v. Board of Trs. of

Leland Stanford Jr. Univ.,

ETN nea nE meee 6

Wertheim, LLC v. Currency Corp.,

2012 WL 1854944 (Cal. Ct. App. May

By Se III ccscccccscoscssccsecescecescsossescsoee 11

Williams v. Cigna Fin. Advisors Inc.,

197 F.3d 752 (6th Cir. 1999)................................ 18

CONSTITUTION AND STATUTES

Federal Arbitration Act,

SARS ete passim

Cal. Civ. Code

SSRN Roe An Teen ee ee OE ote 7

Si ITI inniicaehehitinnieaieinannnaiieantentiiinintietiil 8

OTHER AUTHORITIES

Stephen A. Broome, An Unconscionable

Application of the Unconscionability

Doctrine: How the California Courts

Are Circumventing the Federal

Arbitration Act, Hastings Bus. L.J.

RASA OLE A ee oe 14

TABLE OF AUTHORITIES—continued

Page(s)

Susan Randall, Judicial Attitudes

Toward Arbitration and the

Resurgence of Unconscionability, 52

BORED Be, BRBU. BED GO cccccecccccccscccccccccccevcccseses 14

BRIEF OF CHAMBER OF COMMERCE OF THE

UNITED STATES OF AMERICA AS AMICUS

CURIAE IN SUPPORT OF PETITIONERS

INTEREST OF THE AMICUS CURIAE

The Chamber of Commerce of the United States

of America is the world’s largest business federation.

It represents 300,000 direct members and indirectly

represents the interests of more than three million

companies and professional organizations of every

size, in every industry sector, and from every region

of the country. An important function of the Chamber

is to represent the interests of its members in mat-

ters before the courts, Congress, and the Executive

Branch.!

To that end, the Chamber regularly files amicus

curiae briefs in cases that raise issues of vital con-

cern to the Nation’s business community, including

cases involving the enforceability of arbitration

agreements. See, e.g., DIRECTV, Inc. v. Imburgia,

No. 14-462 (U.S. argued Oct. 6, 2015); American Ex-

press Co. v. Italian Colors Rest., 133 S. Ct. 2304

(2013); Oxford Health Plans LLC v. Sutter, 133 S. Ct.

2064 (2013); AT&T Mobility LLC v. Concepcion, 563

U.S. 333 (2011).

Arbitration agreements allow the parties to re-

place expensive, time-consuming, and contentious in-

court litigation with speedy, inexpensive, fair, and of-

ten far less adversarial dispute-resolution proce-

1 The Chamber affirms that no counsel for a party authored

this brief in whole or in part and that no person other than the

Chamber, its members, or its counsel made a monetary contri-

bution intended to fund the brief’s preparation or submission.

The parties’ consents to the filing of amicus briefs are on file

with the Clerk’s office.

2

dures. For these reasons, many of the Chamber’s

members and affiliates routinely employ arbitration

agreements as a key element in millions of their con-

tractual relationships. As Congress intended when it

enacted the Federal Arbitration Act, 9 U.S.C. §§ 1-16,

the result has been not only conservation of judicial

resources but also substantial litigation cost savings

for the parties, which in turn have allowed for lower

prices for consumers, higher wages for employees,

and benefits for the national economy as a whole.

The many benefits of arbitration agreements—

secured by the FAA’s prohibition against discrimina-

tory treatment of arbitration contracts—are threat-

ened when courts impose or enforce state-law rules

that do not apply uniformly to all contracts or are in-

consistent with the strong federal presumption in fa-

vor of arbitration. Although this Court has consist-

ently condemned such hostility to arbitration, some

courts have persisted in their efforts to circumvent

federal law. Accordingly, the Chamber has a strong

interest in ensuring that decisions like the one here

that are starkly inconsistent with this Court’s FAA

precedents are not allowed to stand.

INTRODUCTION AND

SUMMARY OF ARGUMENT

This Court has observed that “the judicial hostil-

ity towards arbitration that prompted the FAA had

manifested itself in ‘a great variety of ‘devices and

formulas.” AT&T Mobility LLC v. Concepcion, 563

U.S. 333, 342 (2011). Congress enacted the FAA to

“reverse the longstanding judicial hostility to arbi-

tration agreements,” “to place [these] agreements

upon the same footing as other contracts,” and to

“manifest a liberal federal policy favoring arbitration

3

agreements.” EEOC v. Waffle House, Inc., 534 U.S.

279, 289 (2002) (internal quotation marks omitted).

The special severability rule set forth in

Armendariz v. Foundation Health Psychcare Services,

Inc., 6 P.3d 669 (Cal. 2000}—on which the court of

appeals relied in this case—is a discriminatory legal

rule prohibited by the FAA. Armendariz holds that

whenever an “arbitration agreement contains more

than one unlawful provision,” a trial court may strike

down the agreement in its entirety rather than sev-

ering the unlawful clauses. Jd. at 696-97. California

courts have repeatedly applied this mechanical rule

to invalidate arbitration agreements.

The Armendariz rule stands in stark contrast to

California’s approach to severability outside the arbi-

tration context. When faced with contracts that do

not involve arbitration, California courts stress the

importance of case-by-case evaluation and apply a

liberal policy in favor of severability. Armendariz

thus, in purpose and effect, treats arbitration agree-

ments less favorably than other contract terms—the

precise discriminatory treatment forbidden by the

FAA.

The Ninth Circuit in this case applied

Armendariz’s severability rule to invalidate an arbi-

tration agreement solely on the ground that it con-

tained multiple provisions found to be invalid. This

Court should reverse the holding below, reaffirm that

the FAA prohibits state law from singling out arbi-

tration agreements for disfavored treatment, and re-

quire the court below to apply to the arbitration con-

tract at issue here California’s generally applicable

pro-severability principles.

4

ARGUMENT

California’s Armendariz Rule Discriminates

Against Arbitration Agreements In Viola-

tion Of The FAA.

The FAA “embodies a clear federal policy of re-

quiring arbitration unless the agreement to arbi-

trate * * * is revocable ‘upon such grounds as exist at

law or in equity for the revocation of any contract.”

Perry v. Thomas, 482 U.S. 483, 489 (1987) (emphasis

added) (quoting 9 U.S.C. § 2; emphasis added by the

Court). While courts may refuse to enforce arbitra-

tion agreements based upon rules of contract law

that apply to all contracts, they may not apply con-

tract-law doctrines in a manner that discriminates

against arbitration clauses.

The court below violated this fundamental pre-

cept by applying a virtually automatic rule—the

Armendariz severability rule—that allows a court to

strike down an entire arbitration agreement on the

basis of two invalid provisions without undertaking

the severability analysis that applies to non-

arbitration contracts. The Armendariz rule was born

out of an arbitration agreement, has been applied on-

ly to arbitration agreements, and is overwhelmingly

likely to affect only arbitration agreements. In short,

it singles out arbitration agreements for less favora-

ble treatment than other contracts.

This severability rule is just one of a broad set of

arbitration-only rules announced by the California

Supreme Court in Armendariz that are each

preempted by the FAA. The continuing application of

Armendariz in federal and state courts in California

amplifies California’s traditional, and continuing,

hostility towards arbitration. This Court should

9)

(once again) reject California’s discriminatory treat-

ment of arbitration contracts and reaffirm that the

FAA requires States to determine the meaning and

enforceability of arbitration agreements by applying

generally applicable contract law principles, and

prohibits rules holding arbitration agreements to dif-

ferent, more restrictive standards.

A. The FAA Requires States To Put Arbitra-

tion On At Least Equal Footing With

Other Contract Provisions.

Congress enacted the FAA to “reverse the

longstanding judicial hostility to arbitration agree-

ments,” “to place [these] agreements upon the same

footing as other contracts,” and to “manifest a liberal

federal policy favoring arbitration agreements.” Waf-

fle House, 534 U.S. at 289 (internal quotation marks

omitted); see also, e.g., Preston v. Ferrer, 552 U.S.

346, 353 (2008) (“Section 2 ‘declare[s] a national poli-

cy favoring arbitration’ of claims that parties con-

tract to settle in that manner.”) (quoting Southland

Corp. v. Keating, 465 U.S. 1, 10 (1984)); Allied-Bruce

Terminix Cos. v. Dobson, 513 U.S. 265, 272 (1995)

(FAA “seeks broadly to overcome judicial hostility to

arbi.ration agreements’).

The heart of the FAA is Section 2, which “embod-

ies a clear federal policy of requiring arbitration un-

less the agreement to arbitrate * * * is revocable ‘up-

on such grounds as exist at law or in equity for the

revocation of any contract.” Perry, 482 U.S. at 489

(quoting 9 U.S.C. § 2). “By enacting § 2, * * * Con-

gress precluded States from singling out arbitration

provisions for suspect status, requiring instead that

such provisions be placed ‘upon the same footing as

other contracts.” Doctor’s Assocs. v. Casarotto, 517

U.S. 681, 687 (1996) (quoting Scherk v. Alberto-

6

Culver Co., 417 U.S. 506, 511 (1974)). State-law rules

that discriminate against arbitration are flatly for-

bidden.?

A state-law rule discriminates against arbitra-

tion not only when it “prohibits outright the arbitra-

tion of a particular claim,” but also when it is “ap-

plied in a fashion that disfavors arbitration” or has a

“disproportionate impact on arbitration.” Concepcion,

563 U.S. at 341-42. Put another way, the FAA per-

mits States to apply state-law principles of contract

interpretation and enforcement to an arbitration

agreement as long as those rules “govern * * * the

validity, revocability, and enforceability of contracts

generally.” Perry, 482 U.S. at 492 n.9 (emphasis add-

ed). “A court may not * * * construe [an arbitration]

agreement in a manner different from that in which

it otherwise construes nonarbitration agreements

under state law.” Ibid.; see also, e.g., Doctor’s Assocs.,

517 U.S. at 686-88; Allied-Bruce, 513 U.S. at 281.

In sum, Section 2’s “substantive command” is

that state and federal courts must “treat[]” arbitra-

tion agreements “like all other contracts.” Buckeye

Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 447

(2006); see also, e.g., Marmet Heath Care Ctr., Inc. v.

Brown, 132 S. Ct. 1201, 1204 (2012) (per curiam)

2 See, e.g., Marmet Heath Care Ctr., Inc. v. Brown, 132 S. Ct.

1201, 1204 (2012) (per curiam); Concepcion, 131 S. Ct. at 17465;

Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 67-68 (2010); Ar-

thur Andersen LLP v. Carlisle, 5566 U.S. 624, 630 (2009); Pres-

ton, 652 U.S. at 356; Buckeye Check Cashing, Inc. v. Cardegna,

546 U.S. 440, 443 (2006); Allied-Bruce, 513 U.S. at 270-271; Volt

Info. Scis., Inc. v. Board of Trs. of Leland Stanford Jr. Univ., 489

U.S. 468, 474 (1989); Perry, 482 U.S. at 492 n.9; Southland, 465

US. at 10-11 & 16 n.11.

7

(summary reversal); KPMG LLP v. Cocchi, 132 S. Ct.

23, 25 (2011) (per curiam) (summary reversal).

B. California Treats Arbitration Agree-

ments Less Favorably Than Other Con-

tracts When Deciding Whether To Sever

Invalid Provisions.

California law generally “take[s] a very liberal

view of severability, enforcing valid parts of an ap-

parently indivisible contract where the interests of

justice or the policy of the law would be furthered.”

In re Marriage of Facter, 212 Cal. App. 4th 967, 987

(2013) (quoting Adair v. Stockton Unified Sch. Dist.,

162 Cal. App. 4th 1436, 1450 (2008)). This view is

codified in two sections of the California Civil Code.

First, Section 1599 provides that “[w]here a con-

tract has several distinct objects, of which one at

least is lawful, and one at least is unlawful, in whole

or in part, the contract is void as to the latter and

valid as to the rest.” Cal. Civ. Code § 1599. The Cali-

fornia Supreme Court has explained that

“[njotwithstanding any * * * illegal[]” contract provi-

sion, Section 1599 “preserves and enforces any lawful

portion of a parties’ contract that feasibly may be

severed.” Marathon Entmt, Inc. v. Blasi, 174 P.3d

741, 750-51 (Cal. 2008) (emphasis added). In constru-

ing this provision, California courts have recognized

that severance has two purposes: “to prevent parties

from gaining undeserved benefit or suffering unde-

served detriment * * * [and] more generally, * * * to

conserve a contractual relationship if to do so would

not be condoning an illegal scheme.” MKB Mgmt.,

Inc. v. Melikian, 184 Cal. App. 4th 796, 803-04 (2010)

(emphasis added; internal quotation marks omitted).

8

Second, Section 1670.5(a) codifies the common

law approach as applied to a contract clause that is

invalid because it was unconscionable at the time it

was made. In that circumstance, “the court may re-

fuse to enforce the contract, or it may enforce the

remainder of the contract without the unconsciona-

ble clause, or it may so limit the application of any

unconscionable clause as to avoid any unconsciona-

ble result.” Cal. Civ. Code § 1670.5(a). Section 1670.5

thus endows courts with extensive discretion, mak-

ing the decision whether and what provisions to sev-

er “equitable and fact specific” and requiring “case-

by-case consideration.” Marathon, 174 P.3d at 755.

That is the theory, at any rate. In practice,

whether these principles are honored depends entire-

ly on whether an arbitration agreement is at issue.

California courts frequently engage in equitable

and fact specific analysis in non-arbitration cases,

with a liberal preference for severability. See

Birbrower, Montalbano, Condon & Frank, PC. v. Su-

perwr Court, 949 P.2d 1, 12-13 (Cal. 1998); FLF Inc.

v. Barney & Barney, LLC, 2012 WL 4897750, at *12

(Cal. Ct. App. Oct. 16, 2012) (unpublished);

Greenlake Capital, LLC v. Bingo Invs., LLC, 185 Cal.

App. 4th 731, 739-40 (2010); MKB Mgmt., 184 Cal.

App. 4th at 803-805; Shopoff & Cavallo LLP v. Hyon,

167 Cal. App. 4th 1489, 1523-24 (2008); Fields v.

QSP. Inc., 2012 WL 2049528, at *10 (C.D. Cal. June

4, 2012).

But the approach is very different when the

agreements at issue involve arbitration. In those

cases, California courts instead apply a different rule

that discourages severance and encourages courts to

invalidate arbitration agreements in their entirety—

9

and virtually always results in the invalidation of

the entire arbitration agreement.

The source of this rule is Armendariz v. Founda-

tion Health Psychcare Services, in which the Califor-

nia Supreme Court held that refusal to sever is prop-

er any time an “arbitration agreement contains more

than one unlawful provision.” 6 P.3d at 696-97. “Such

multiple defects,” the court said, “indicate a system-

atic effort to impose arbitration on an employee not

simply as an alternative to litigation, but as an infe-

rior forum that works to the employer's advantage.”

Id. at 697. The trial court may accordingly conclude

that such an agreement “is permeated by an unlaw-

ful purpose” as a matter of California law and is

therefore wholly unenforceable. Ibid.

California courts mechanically apply

Armendariz’s holding by counting the number of in-

valid provisions and proceeding to hold the entire ar-

bitration contract unenforceable—and they do so

consistently. In Ontiveros v. DHL Express (USA),

Inc., for example, the California Court of Appeal up-

held the trial court’s refusal to sever because “at

least three provisions of the arbitration agreement

are substantively unconscionable.” 164 Cal. App. 4th

494, 515 (2008). See also, e.g., Carmona v. Lincoln

Millennium Car Wash, Inc., 226 Cal. App. 4th 74, 90

(2014); Samaniego v. Empire Today LLC, 205 Cal.

App. 4th 1138, 1149 (2012); Trivedi v. Curexo Tech.

Corp., 189 Cal. App. 4th 387, 398 (2010); Lhotka v.

Geographic Expeditions, Inc., 181 Cal. App. 4th 816,

826 (2010); Martinez v. Master Protection Corp., 118

Cal. App. 4th 107, 119 (2004); O’Hare v. Mun. Res.

Consultants, 107 Cal. App. 4th 267, 282 (2003);

Pinedo v. Premium Tobacco Stores, Inc., 85 Cal. App.

4th 774, 780-81 (2000).

10

None of these cases so much as cites California's

“liberal view” favoring severance (Facter, 212 Cal.

App. 4th at 987), much less applies it. None mean-

ingfully analyzes whether severance is possible or

whether it would serve the interests of justice. They

begin and end with Armendariz. Nor could they ap-

ply such an approach and reach the same result—

after all, in the vast majority of cases, any conclusion

that enforcement of an arbitration agreement with-

out unconscionable provisions conflicts with the in-

terest of justice would itself be preempted by the

FAA.

This parsimonious approach to severance—which

California eschews outside the arbitration context—

rests expressly on the California courts’ distaste for

arbitration agreements. In the words of Armendariz,

arbitration is “an inferior forum that works to the

employer's advantage.” 6 P.3d at 697. This Court has

warned against just this sort of “generalized attack]

on arbitration that rest[s] on suspicion of arbitration

as a method of weakening the protections afforded in

the substantive law to would-be complainants.”

Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79,

89-90 (2000) (internal quotation marks omitted).

Armendariz recited that under its rule, “arbitra-

tion agreements are neither favored nor disfavored,

but simply placed on an equal footing with other con-

tracts.” 6 P.3d at 698. But that statement cannot con-

ceal the clear reality: the same lower courts that me-

chanically apply the “multiple defects” rule describe

it as applying to arbitration in particular rather than

as stating a generic contractual test. See, e.g., Car-

mona, 226 Cal. App. 4th at 90 (“When an arbitration

agreement contains multiple unconscionable provi-

sions * * *.”); Lhotka, 181 Cal. App. 4th at 826 (“An

11

arbitration agreement can be considered permeated

by unconscionability if * * *”); Kuhlman v. New San-

tana Band, Inc., 2006 WL 1589716, at *11 (Cal. Ct.

App. June 12, 2006) (unpublished) (“Armendariz es-

tablished that more than one objectionable term in

an arbitration agreement weighs against sever-

ance.”); Fitz v. NCR Corp., 118 Cal. App. 4th 702, 726

(2004) (“In Armendariz the California Supreme

Court held that more than one unlawful provision in

an arbitration agreement weighs against sever-

ance.”).

And California courts in non-arbitration contexts

do not appear to invoke Armendariz to treat the

presence of more than one invalid provision as a per

se basis for declaring entire contracts invalid. See

Wertheim, LLC v. Currency Corp., 2012 WL 1854944,

at *14-15 (Cal. Ct. App. May 22, 2012) (unpublished)

(multiple provisions in assignment agreements were

void, but severable; citing Marathon); Gerald F

Moore, PC. v. Orthodontic Ctrs., 2002 WL 32351, at

*7-9 (Cal. Ct. App. Jan. 11, 2002) (unpublished) (pro-

visions dictating operating hours and requiring full-

time employment unlawful, but severable in light of

contractual severability provision); A&M Produce Co.

v. FMC Corp., 135 Cal. App. 3d 473, 481-82 (1982);

Mailand v. Burckle, 572 P.2d 1142, 1144-45 (Cal.

1978).

Indeed, a search of publicly available decisions in

the Westlaw database does not reveal a single case in

which a California court—state or federal—has cited

Armendariz’s “multiple defects” language outside of

the arbitration context.

Of course, as the dissenting judge below pointed

out, some arbitration agreements may be so funda-

mentally unfair that severance is improper. Pet. App.

12

10a-lla n.1 (Gould, J., concurring in part and dis-

senting in part) (“I recognize that one can imagine an

arbitration agreement where the number and con-

tent of unconscionable provisions are so pervasive

that they rebut the presumption in favor of sever-

ance.”). The same is true of other types of contracts.

But Armendariz’s per se rule impermissibly

stacks the deck against arbitration agreements,

heavily weighting the analysis against severability

and pretermitting the equitable analysis that applies

to non-arbitration contracts. That is why the

Armendariz rule violates Section 2’s_ anti-

discrimination mandate.

In fact, Armendariz’s blanket rule not only dis-

criminates against arbitration, but also threatens to

undermine the very features—“simplicity, informali-

ty, and expedition” (Gilmer v. Interstate/Johnson

Lane Corp., 500 U.S. 20, 31 (1991))}—that the Su-

preme Court has said make this form of dispute reso-

lution so valuable in the first place. Arbitration con-

tracts, by their nature, will often contain a variety of

procedural provisions tailoring the arbitration pro-

cess to the parties’ needs. As this Court recognized in

Concepcion, this opportunity for customization is one

of arbitration’s main advantages:

The point of affording parties discretion in de-

signing arbitration processes is to allow for ef-

ficient, streamlined procedures tailored to the

type of dispute. It can be specified, for exam-

ple, that the decisionmaker be a specialist in

the relevant field, or that proceedings be kept

confidential to protect trade secrets. And the

informality of arbitral proceedings is itself de-

sirable, reducing the cost and increasing the

speed of dispute resolution.

13

563 U.S. at 344-45. Under Armendariz, however,

each one of these procedures is a possible source of

invalidity—especially given the jaundiced eye with

which California courts view arbitration agree-

ments—and two unenforceable procedures will for

practical purposes void the entire agreement. The

likely result if the Armendariz rule were upheld

would be arbitration agreements that are less flexi-

ble and more court-like, undermining the basic pur-

poses of the FAA.

C. The Armendariz Decision As A Whole

Rests On Impermissible Hostility To Ar-

bitration

California has frequently run afoul of the FAA's

basic command that arbitration agreements should

be placed “upon the same footing as other contracts.”

Waffle House, 534 U.S. at 289 (internal quotation

marks omitted). Time and again, this Court has had

to intervene.

In 1984, for example, the Court struck down a

California law that had been interpreted by the Cali-

fornia Supreme Court to prohibit parties from agree-

ing to arbitrate claims under the California Fran-

chise Investment Law. Southland Corp. v. Keating,

465 U.S. 1, 16 (1984).

Three years later, the Court invalidated a state

provision providing that wage collection actions un-

der the California Labor Law could be maintained

without regard to the existence of a private arbitra-

tion agreement. Perry v. Thomas, 482 U.S. 483, 492

(1987).

Most recently, the Court found that California’s

rule that class-action waivers in arbitration agree-

ments were unconscionable was inconsistent with

14

the FAA and was accordingly preempted. Concepcion,

563 U.S. at 352; see also Preston, 552 U.S. at 356

(FAA preempted California law granting state Labor

Commissioner exclusive jurisdiction to decide an is-

sue that the parties agreed to arbitrate).

The Ninth Circuit's uncritical adoption of

Armendariz will exacerbate this unfortunate trend.

This Court has aireacy recognized that it is “easy to

imagine” examples as to which purportedly neutral

defenses like unconscionability will “[i]n practice” be

applied with “a disproportionate impact on arbitra-

tion agreements.” Concepcion, 563 U.S. at 342. And it

has observed that “California’s courts have been

more likely to hold contracts to arbitrate unconscion-

able than other contracts.” Ibid. (citing Stephen A.

Broome, An Unconscionable Applicable of the

Unconscionability Doctrines How the California

Courts Are Circumventing the Federal Arbitration

Act, 3 Hastings Bus. L.J. 39, 54, 66 (2006); Susan

Randall, Judicial Attitudes Toward Arbitration and

the Resurgence of Unconscionability, 52 Buffalo L.

Rev. 185, 186—87 (2004)).

Armendariz turbocharges such dubious

unconscionability holdings by allowing courts to in-

validate not just the particular provisions deemed

unconscionable but the entire agreement to arbi-

trate, even where the objectionable snippets of the

contract can be easily excised and “the remainder of

the arbitration agreement can still be enforced.” Pet.

3In addition, this Court currently is considering DIRECTV v.

Imburgia, No. 14-462, in which a California state court adopted

a reading of an arbitration agreement that is so hostile to arbi-

tration that the Ninth Circuit declared it “nonsensical” (Murphy

v. DIRECTV, Inc., 724 F.3d 1218, 1226 (9th Cir. 2013)).

15

App. 8a (Gould, J., concurring in part and dissenting

in part).

Indeed, Armendariz itself not only created an

impermissible, arbitration-only rule governing sev-

erability, but applied that rule on top of

unconscionability holdings that are themselves hard

to reconcile with the FAA.

Armendariz was an action against an employer

under the California Fair Employment and Housing

Act (FEHA). The employees had signed agreements

to arbitrate any wrongful termination or employment

discrimination disputes. They argued, among other

things, that multiple provisions of the agreement

were unconscionable. The employees further con-

tended that in the event the court found the provi-

sions unconscionable, it should refuse to enforce the

entire agreement rather than severing the objection-

able provisions.

The California Supreme Court acknowledged

that, under this Court’s precedents, FEHA claims

can sometimes be arbitrated. But it declared that

agreements to arbitrate FEHA claims had to comply

with “minimum requirements” unique to a “manda-

tory employment arbitration agreement” in order to

be enforceable. Armendariz, 6 P.3d at 682. That is

precisely what the FAA says state courts may not do:

impose arbitration-specific rules to invalidate or con-

strain private agreements. See Concepcion, 563 U.S.

at 333 (‘Section 2’s saving clause permits agree-

ments to be invalidated by ‘generally applicable con-

tract defenses,’ but not by defenses that apply only to

arbitration or derive their meaning from the fact

that an agreement to arbitrate is at issue.”).

16

In justifying its list of “minimum requirements”

for arbitration agreements, the California Supreme

Court appeared to believe that Gilmer v. Inter-

state/Johnson Lane Corp., 500 U.S. 20 (1991), em-

powered it to mandate any terms that in the court’s

view would ensure that plaintiffs could “fully vindi-

cate” their state-law rights in arbitration. See

Armendariz, 6 P.3d at 681 (citing Gilmer, 500 U.S. at

27-28). But as this Court has recently clarified,

Gilmer said no such thing.

In fact, this Court has explained, “[t}he ‘effective

vindication’ exception” applies only in limited cir-

cumstances, such as when “a provision in an arbitra-

tion agreement forbid[s] the assertion of certain

statutory rights,” and “perhaps * * * filing and ad-

ministrative fees attached to arbitration that are so

high as to make access to the forum impracticable.”

American Express Co. v. Italian Colors Rest., 133 S.

Ct. 2304, 2310-11 (2013). That limited exception does

not come close to encompassing the extensive check-

list of requirements that Armendariz imposes.

In addition, the “effective vindication” doctrine

applies, if at all, only to “invalidate agreements that

prevent the ‘effective vindication’ of a federal statuto-

ry right.” American Express, 133 S. Ct. at 2310 (em-

phasis added); see also id. at 2320 (Kagan, J., dis-

senting) (“a state law,” like FEHA, “could not possibly

implicate the effective-vindication rule,” because

“[w]hen a state rule allegedly conflicts with the FAA,

we apply standard preemption principles, asking

whether the state law frustrates the FAA’s purposes

and objectives”). As Justice Kagan put it, “[w]e have

no earthly interest (quite the contrary) in vindicating

[a state] law” that is inconsistent with the FAA, so

the state law must “automatically bow” to federal

17

law; any effective-vindication exception that might

possibly exist would “come[] into play only when the

FAA is alleged to conflict with another federal law.”

Ibid.

Armendariz flouted the FAA in another respect.

The court thought the agreement in the case invalid

because it was a contract of adhesion that required

“arbitration of employee—but not employer—claims

arising out of a wrongful termination.” 6 P.3d at 694.

That lack of perfect mutuality with respect to the

claims subject to arbitration, the court held, ren-

dered the arbitration agreement unconscionable.

Numerous other courts, however, including

“[mjost federal courts,” have rejected Armendariz’s

“mutuality” requirement for arbitration contracts

otherwise supported by adequate consideration. In re

FirstMerit Bank, N.A., 52 S.W.3d 749, 757 & n.35

(Tex. 2001) (collecting cases); see also Soto v. State

Indus. Prods., Inc., 642 F.3d 67, 76-77 (1st Cir. 2011);

Oblix, Inc. v. Winiecki, 374 F.3d 488, 490-91 (7th Cir.

2004).

Indeed, California in other contexts does not re-

quire every provision of every contract to be mutual.

To the contrary, “[i]f the requirement of consideration

is met, there is no additional requirement of * * *

equivalence in the values exchanged, or mutuality of

obligation.” Foley v. Interactive Data Corp., 765 P.2d

373, 381 n.14 (Cal. 1988) (internal quotation marks

omitted); see also Restatement (Second) of Contracts

§ 79(c) (1981) (“If the requirement of consideration is

met, there is no additional requirement of * * * ‘mu-

tuality of obligation.”).

Imposing an arbitration-specific mutuality rule

therefore contravenes the FAA's bar on state-law

18

rules that “singl[e] out arbitration provisions for sus-

pect status.” Doctor’s Assocs., 517 U.S. at 687; see al-

80, e.g., Concepcion, 563 U.S. at 349; Perry, 482 U.S.

at 492 n.9.

The Armendariz court also violated this Court’s

precedents in announcing a blanket rule that “the

employer must bear the arbitration forum costs” in

an “employment arbitration agreement.” 6 P.3d at

689. That rule is inconsistent with Green Tree Finan-

cial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000),

which held that “the party seeking to avoid arbitra-

tion on the ground that arbitration would be prohibi-

tively expensive * * * bears the burden of showing

the likelihood of incurring such costs.” Jd. at 92.

In light of Green Tree, numerous federal courts

have concluded that provisions requiring that arbi-

tration forum costs be shared do not automatically

render an arbitration agreement invalid. Rather, in

each case the party seeking to avoid arbitration must

first satisfy the court that the costs faced in arbitra-

tion actually will be prohibitive.* Armendariz’s blan-

‘In the Fourth Circuit's words, “the appropriate inquiry * * *

focuses, among other things, upon the claimant's ability to pay

the arbitration fees and costs, the expected cost differential be-

tween arbitration and litigation in court, and whether that cost

differential is so substantial as to deter the bringing of claims.”

Bradford v. Rockwell Semiconductor Sys., Inc., 238 F.3d 649,

556 (4th Cir. 2001). See also, e.g., Musnick v. King Motor Co.,

325 F.3d 1256, 1259 (11th Cir. 2003) (“After Green Tree, an arbi-

tration agreement is not unenforceable merely because it may

involve some ‘fee-shifting.”); LaPrade v. Kidder, Peabody & Co.,

Inc., 246 F.3d 702, 708 (D.C. Cir. 2001) (“LaPrade makes no

claim that the possibility of a large assessment arising from ar-

bitration * * * prevented her from attempting to vindicate her

rights.”); Williams v. Cigna Fin. Advisors Inc., 197 F.3d 762, 764

(5th Cir. 1999) (‘Williams has not demonstrated that the arbi-

19

ket rule on the allocation of arbitral fees directly con-

flicts with those cases, which are far more faithful to

Green Tree.

In short, Armendariz’s “multiple defects” anti-

severability rule was tied to substantive limitations

on the enforceability of arbitration agreements that

are themselves highly suspect under the FAA. Both

aspects of Armendariz stem from the same underly-

ing hostility to enforcement of arbitration agree-

ments—the very hostility that the FAA was enacted

to eliminate.

= =

Armendariz’s arbitration-only severance rule dis-

favors arbitration in purpose and effect. Because the

FAA forecloses precisely this type of “judicial hostili-

ty towards arbitration” (Concepcion, 563 U.S. at

342), the decision below cannot stand.

CONCLUSION

The judgment of the court of appeals should be

reversed and the case remanded for further proceed-

ings.

trators’ order that he pay one-half of the forum fees prevented

him from having a full opportunity to vindicate his claims effec-

tively.”).

Respectfully submitted.

KATE COMERFORD TODD ANDREW J. PINCUS

WARREN POSTMAN Counsel of Record

U.S. Chamber Litigation ARCHIS A. PARASHARAMI

Center, Inc. Mayer Brown LLP

1615 H Street, NW 1999 K Street, NW

Washington, DC 20062 Washington, DC 20006

(202) 463-5337 (202) 263-3000

apincus@mayerbrown.com

Counsel for Amicus Curiae

DECEMBER 2015