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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0561%3A11

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2015

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0561%3A11. Public record. Not legal advice.