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

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Supreme Gourt, U.S.

FILED

DEC 2- 201

OFFICE OF Tit CLEFA

No. 14-1458

IN THE

Supreme Court of the United States

MHN GOVERNMENT SERVICES, INC.

AND MANAGED HEALTH NETWORK, INC.,

Petitioners,

Vv .

THOMAS ZABOROWSKI, ET AL..,

Respondents.

On Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

BRIEF OF THE EMPLOYERS GROUP AS AMICUS

CURIAE IN SUPPORT OF PETITIONERS

THEANE EVANGELIS

Counsel of Record

CATHERINE A. CONWAY

GIBSON, DUNN & CRUTCHER LLP

333 South Grand Avenue

Los Angeles, CA 90071-3197

(213) 229-7000

tevangelis@gibsondunn.com

Counsel for Amicus Curiae

QUESTION PRESENTED

The Federal Arbitration Act (“FAA”) provides

that an arbitration agreement shall be enforced

“save upon such grounds as exist at law or in equity

for the revocation of any contract.” 9 U.S.C. § 2. Cal-

ifornia law applies a different rule of contract sever-

ability to agreements to arbitrate. The arbitration-

only rule disfavors arbitration and applies even

when the agreement contains an express severability

clause. Its application in this case conflicts with

binding precedent of this Court and with opinions of

four other courts of appeals.

The question presented is whether California’s

arbitration-only severability rule is preempted by the

Federal Arbitration Act.

‘3

TABLE OF CONTENTS

Page

INTEREST OF AMICUS CURIAE ...........0.ccccccceeeeeees 1

SUMMARY OF ARGUMENT. ...................cccseesseeeeeeseees 2

TT iii ceri eateneersieidieicneihinniaaioaiiadindete 3

I. California Courts Have Repeatedly

Sought To Undermine The Federal Policy

Favoring Arbitration Agreements ...................... 3

II. The Armendariz Rule Is Deeply Flawed

And Violates This Court’s Precedents And

Congress’s Intent In Enacting The FAA............ 7

III. This Court Should Reverse The Ninth

Circuit’s Decision And Enforce The FAA’s

Command To Respect The Contractual

Expectations Of The Parties.....................00c0008 17

NII sintesscunsniintasinsoncssnntavncsnesesveasennincenememets 20

ill

TABLE OF AUTHORITIES

Cases

Abramson v. Juniper Networks,

9 Cal. Rptr. 3d 422 (Ct. App. 2004).........

Ajamian v. CantorCOQ2e, L.P.,

137 Cal. Rptr. 3d 773 (Ct. App. 2012).....

American Express Co. v. Italian Colors

Restaurant,

es rs I GP ccccccccsessccseseccntccenses

Armendariz v. Foundation Health

Psychcare Services, Inc.,

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

AT&T Mobility LLC v. Concepcion,

| a

Birbrower, Montalbano, Condon &

Frank, P.C. v. Superior Court,

DP aS BG Be ecccsnecesseensccccnnssnsseces

Bolter v. Super. Ct.,

104 Cal. Rptr. 2d 888 (Ct. App. 2001).....

Buckeye Check Cashing, Inc. v.

Cardegna,

ee ye Ce ccccnnsecnvsnscnestemnosennseten

Carmona v. Lincoln Millennium Car

Wash, Inc.,

171 Cal. Rptr. 3d 42 (Ct. App. 2014).......

Page(s)

Circuit City Stores, Inc. v. Adams,

I eseiiaimaneanniiel 4

CompuCredit Corp. v. Greenwood,

I sueniinial 7

Discover Bank v. Superior Court,

ke be ee 5,18

Ferguson v. Countrywide Credit

Industries, Inc.,

- x fy | Lo SR eeee 17

Fittante v. Palm Springs Motors Inc.,

129 Cal. Rptr. 2d 659 (Ct. App. 2003)................... 9

Fitz v. NCR Corp.,

13 Cal. Rptr. 3d 88 (Ct. App. 2004)... 16

Flores v. Transamerica HomeFirst, Inc.,

113 Cal. Rptr. 2d 376 (Ct. App. 2001)................. 16

Granite Rock Co. v. Int'l Bhd. of

Teamsters,

I email 17, 20

Hall Street Assocs. LLC v. Mattel, Inc.,

EE arco: 5

Harper v. Ultimo,

7 Cal. Rptr. 3d 418 (Ct. App. 2003)... 9

Ingle v. Circuit City Stores,

838 F.3d 1166 (Stina Cir. BOOB).......ccccscccccccccecescceees 17

Iskanian v. CLS Transport Los Angeles, LLC,

327 P.3d 129 (Cal. 2014)...................... 3, 17, 18, 19

Lhotka v. Geographic Expeditions,

104 Cal. Rptr. 3d 844 (Ct. App. 2010)... 16

Marathon Entm’t v. Blasi,

174 P.3d 741 (Cal. BOOB) ........c0cccccceccseessecceees. 12,13

Martinez v. Master Prot. Corp.,

12 Cal. Rptr. 3d 663 (Ct. App. 2004)............... 9,16

Mercuro v. Super. Ct.,

116 Cal. Rptr. 2d 671 (Ct. App. 2002)................. 16

Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc.,

a ee 5

MKB Management Inc. v. Melikian,

108 Cal. Rptr. 3d 899 (Ct. App. 2010)................. 14

Moses H. Cone Mem’! Hosp. v. Mercury

Constr. Corp.,

IEE, SIT iciiictasecitteceidinnnttianieimenneninngtonmnaiedmecnie 7

Nyulassy v. Lockheed Martin Corp.,

16 Cal. Rptr. 3d 296 (Ct. App. 2004) ............000.... 16

O’Hare v. Mun. Res. Consultants,

132 Cal. Rptr. 2d 116 (Ct. App. 2003)............. 9,16

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

79 Cal. Rptr. 3d 471 (Ct. App. 2008) ...........00.0.... 16

Parada v. Superior Court,

98 Cal. Rptr. 3d 743 (Ct. App. 2009) ...............0... 15

Pardee Constr. Co. v. Super. Ct.,

123 Cal. Rptr. 2d 288 (Ct. App. 2002)................... 8

Pearson Dental Supplies, Inc. v. Super. Ct.,

EE eee 7

Perry v. Thomas,

ee 4, 7, 8, 12,19

Pinedo v. Premium Tobacco Stores,

102 Cal. Rptr. 2d 435 (Ct. App. 2000)................. 16

Pinela v. Neiman Marcus Grp., Inc.,

190 Cal. Rptr. 3d 159 (Ct. App. 2015)................. 15

Preston v. Ferrer,

EE ee a ee 4,5

Roman v. Superior Court,

92 Cal. Rptr. 1462 (Ct. App. 2009)...................... 12

Sakkab v. Luxottica Retail North

America, Inc.,

803 F.3d 425 (9th Cir. 2015)................ 3, 17, 18, 19

Samaniego v. Empire Today LLC,

140 Cal. Rptr. 3d 492 (Ct. App. 2012).................. 15

Sanchez v. Valencia Holding Co.,

iv 4 4% Secs 10, 11

Sanchez v. Western Pizza Enters.,

90 Cal. Rptr. 3d 818 (Ct. App. 2009)................... 16

Sonic-Calabasas A, Inc. v. Moreno, 247

a ieniendabaall 6, 10

Sonic-Calabasas A, Inc. v. Moreno,

I 6,9

vii

Sonic-Calabasas A, Inc. v. Moreno,

ee fs 5 — ann 10

Southland Corp. v. Keating,

GP a 0h Ge cerntcciieristnceitesinticitincaileaiapiiaamminia 4

Suh v. Super. Ct.,

105 Cal. Rptr. 3d 585 (Ct. App. 2010)................. 16

Szetela v. Discover Bank,

118 Cal. Rptr. 2d 862 (Ct. App. 2002) ......c.cccseeseen -

Trivedi v. Curexo Tech. Corp.,

116 Cal. Rptr. 3d 804 (Ct. App. 2010)................. 16

Wherry v. Award, Inc.,

123 Cal. Rptr. 3d 1 (Ct. App. 2011)..................... 16

Statutes

ete EE OID sctccsnestecincntemennsiensibaiiammanl passim

a Bs Se a icscnscvececcnsivsiicinseceiicamaniaadaaiaan 4,19

a SR Ge Be hacccentcccicnnsistisiteiitiadiiieaiaienia 13, 16

Other Authorities

Stephen A. Broome, An Unconscionable

Application of the Unconscionability

Doctrine: How California Courts Are

Circumventing the Federal Arbitration

Act, 3 Hastings Bus. L.J. 39 (2006)....................... 8

INTEREST OF AMICUS CURIAE!

The Employers Group is the nation’s oldest and

largest human resources management organization

for employers. It represents nearly 3,500 California

employers of all sizes in every industry, which collec-

tively employ nearly three million employees. The

Employers Group has a vital interest in seeking clar-

ification and guidance from this Court for the benefit

of its employer members and the millions of individ-

uals they employ. As part of this effort, the Employ-

ers Group seeks to enhance the predictability and

fairness of the laws and decisions regulating em-

ployment relationships. It also provides online, tele-

phonic, and in-company human resources consulting

services to its members.

Because of its collective experience in employ-

ment matters, including its appearance as amicus

curiae in state and federal forums over many dec-

ades, the Employers Group is uniquely able to assess

both the impact and implications of the issues pre-

sented in employment cases such as this one. The

Employers Group has been involved as amicus in

many significant employment cases before the U.S.

Supreme Court, the California Supreme Court, and

the U.S. Court of Appeals for the Ninth Circuit.

This case is of exceptional importance to employ-

ers in California and to the Employers Group’s thou-

1 Pursuant to this Court’s Rule 37.3(a), both parties submit-

ted letters to the Clerk granting blanket consent to amicus cu-

riae briefs. Pursuant to this Court’s Rule 37.6, amicus states

that this brief was not authored in whole or in part by counsel

for any party, and that no person or entity other than amicus,

its members, or its counsel made a monetary contribution in-

tended to fund the preparation or submission of this brief.

sands of members. For years, state and federal

courts in California have issued decisions that con-

flict with the Federal Arbitration Act (“FAA”) 9

U.S.C. § 1 et seq. and with this Court’s jurisprudence.

This case—in which the Ninth Circuit refused to ap-

ply to arbitration agreements the same liberal policy

toward severance that California courts routinely

apply to ordinary contracts—is only the latest mani-

festation of California courts’ historic hostility to ar-

bitration agreements. That hostility violates this

Court’s precedents and Congress’s intent in enacting

the FAA. The Employers Group therefore submits

this brief to explain the importance of the issues pre-

sented and to urge this Court to reverse the Ninth

Circuit’s deeply flawed decision.

SUMMARY OF ARGUMENT

For the last several decades, California courts—

including both the California Supreme Court and the

Ninth Circuit—have waged a systematic campaign

against arbitration. Through a series of decisions,

these courts have undercut the FAA by applying

purported state public policies that exist only to undo

arbitration agreements. Underlying this campaign is

a fundamental hostility towards arbitration that vio-

lates the FAA. Although this Court has repeatedly

stepped in to defend the FAA, California courts con-

tinue to find new ways around this Court’s prece-

dents.

The decision below is symptomatic of this larger

problem. Beginning with the California Supreme

Court’s decision in Armendariz v. Foundation Health

Psychcare Services, Inc., 6 P.3d 669, 678 (Cal. 2000),

California courts have applied a rule of severability

that discriminates against arbitration contracts. In-

stead of adhering to California’s longstanding prefer-

ence for severing contractual provisions that are un-

lawful or invalid as long as the remainder of the con-

tract is lawful, Armendariz and cases following its

lead hold that arbitration agreements containing two

or more unlawful provisions are per se oppressive,

and on that basis cannot be enforced. Dozens of arbi-

tration agreements have been struck down for this

reason. This disparate treatment plainly violates

this Court’s admonition in AT&T Mobility LLC v.

Concepcion, 563 U.S. 333 (2011), that arbitration

agreements must be treated equally both in theory

and practice, id. at 342, and makes it more difficult

for parties to contract for arbitration.

California’s persistent distaste for arbitration

and its repeated efforts to undermine it at every turn

show no sign of abating. Rather, two recent deci-

sions—Iskanian v. CLS Transport Los Angeles, LLC,

327 P.3d 129 (Cal. 2014), and Sakkab v. Luxottica

Retail North America, Inc., 803 F.3d 425 (9th Cir.

2015)—confirm that California courts will continue

to defy this Court’s FAA preemption caselaw and the

scope of the FAA’s savings clause in the name of

serving purported policy objectives that plainly con-

flict with the FAA. This Court should halt this dis-

turbing trend by reversing the Ninth Circuit’s deci-

sion.

ARGUMENT

I. CALIFORNIA COURTS HAVE REPEATEDLY

SOUGHT TO UNDERMINE THE FEDERAL POLICY

FAVORING ARBITRATION AGREEMENTS

In this case, the Ninth Circuit relied on Califor-

nia law to invalidate an arbitration agreement that,

had it been an ordinary contract, would have been

deemed severable and enforceable, at least in part.

This case is not an anomaly; rather, it is the latest

example in an ongoing effort by California state

courts, and federal courts following them, to end-run

the FAA and the federal policy favoring arbitration

agreements.

This Court has repeatedly stepped in to protect

the FAA from the hostility of California courts. Be-

ginning in Southland Corp. v. Keating, 465 U.S. 1

(1984), this Court reversed a California Supreme

Court decision refusing to compel arbitration of cer-

tain claims which, under state law, had to be brought

in state court. This Court held that such a law “di-

rectly conflicts with § 2 of the Federal Arbitration

Act and violates the Supremacy Clause.” Jd. at 10.

Likewise, in Perry v. Thomas, 482 U.S. 483

(1987), this Court reversed a California Court of Ap-

peal decision that refused to compel arbitration of an

employee’s claims under section 229 of the California

Labor Code. This Court concluded that the “clear

federal policy” favoring arbitration was in “unmis-

takable conflict with California’s § 229 requirement

that litigants be provided a judicial forum for resolv-

ing wage disputes” and as such, “the state statute

must give way.” Id. at 490, 491.

Fourteen years later, in Circuit City Stores, Inc.

v. Adams, 532 U.S. 105, 114-15 (2001), this Court

reversed a decision by the Ninth Circuit that sought

to narrow the reach of the FAA by holding that sec-

tion 1, which sets forth the types of disputes that are

arbitrable, exempted all employment contracts from

arbitration, rather than merely those pertaining to

certain transportation workers.

This Court intervened twice more seven years

later. See Preston v. Ferrer, 552 U.S. 346 (2008);

Hall Street Assocs. LLC v. Mattel, Inc., 552 U.S. 576

(2008). In Preston, the Court reversed a California

Court of Appeal decision denying a motion to compel

arbitration and held that the FAA preempted state

laws lodging primary jurisdiction for the dispute in

another forum. 552 U.S. at 359. To hold otherwise,

the Court observed, would “frustrate[]” arbitration’s

goal of achieving “streamlined proceedings and ex-

peditious results.” Jd. at 357-58 (quoting Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473

U.S. 614, 633 (1985)). In Hall, the Court reversed

the Ninth Circuit for relying on the doctrine of “man-

ifest disregard” as a ground for vacating arbitration

awards, even though that phrase appears nowhere in

the text of the FAA. 552 U.S. at 588-90.

Three years later, California courts again found

themselves facing this Court’s scrutiny in AT&T Mo-

bility LLC v. Concepcion, 563 U.S. 333 (2011). Con-

cepcion reversed a Ninth Circuit decision affirming

the denial of a motion to compel arbitration on the

ground that the arbitration agreement included a

class-action waiver that was unconscionable under

the California Supreme Court’s decision in Discover

Bank v. Superior Court, 113 P.3d 1100 (Cal. 2005).

This Court held that the Discover Bank rule was

preempted by the FAA, reasoning that “[rjequiring

the availability of classwide arbitration,” as Califor-

nia did, while facially non-discriminatory, “interferes

with fundamental attributes of arbitration and thus

creates a scheme inconsistent with the FAA.” Con-

cepcion, 563 U.S. at 344. In particular, this Court

explained that permitting classwide arbitration

would eliminate any incentive for lawyers to arbi-

trate on behalf of individuals and for companies to

resolve such claims on an individual basis. Permit-

ting classwide arbitration would also require “addi-

tional and different procedures involving higher

stakes” than those the parties initially bargained for.

Id. at 347-48. With classwide arbitration in. play,

the parties would be required to exchange “informali-

ty” for a “slower, more costly” and necessarily more

cumbersome process in order to safeguard the rights

of absent class members and the rights of defendants

who might find themselves exposed to enormous lia-

bility. Id. at 348, 350-52.

Following Concepcion, this Court vacated and

remanded another California case, Sonic-Calabasas

A, Inc. v. Moreno, 132 S. Ct. 496 (2011), for reconsid-

eration. There, the California Supreme Court had

held that an arbitration agreement requiring an em-

ployee to waive his right to an administrative hear-

ing was unconscionable and that California’s law re-

quiring such a hearing to vindicate “important state

interests” was not preempted by the FAA. See Sonic-

Calabasas A, Inc. v. Moreno (“Sonic I”), 247 P.3d 130,

147, 151 (Cal. 2010).

Taken together, these decisions reveal an unmis-

takable pattern of discrimination against arbitration

by California courts that denies private parties the

ability to achieve quick, simple, and cost-effective

resolutions of their disputes through arbitration. As

the Court stated in Concepcion, parties “could agree

to arbitrate” pursuant to a variety of procedures, but

“[s]tates cannot require a procedure that is incon-

sistent with the FAA.” 563 U.S. at 351 (second em-

phasis added). California courts, however, stubborn-

ly refuse to accept this Court’s repeated admonition

that the FAA “requires courts to honor parties’ ex-

pectations” and that state laws which “stand[] as an

obstacle to the accomplishment and execution of the

full purposes and objectives of Congress” as set forth

in the FAA, are preempted. /d. at 351, 352.

Il. THE ARMENDARIZ RULE IS DEEPLY FLAWED

AND VIOLATES THIS COURT’S PRECEDENTS AND

CONGRESS’S INTENT IN ENACTING THE FAA

The Federal Arbitration Act demands that arbi-

tration agreements be placed on “equal footing” with

ordinary contracts if not “favor[ed]” over other

agreements. Concepcion, 563 U.S. at 339 (citing

Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.

440, 443 (2006)); Perry, 482 U.S. at 489. Such treat-

ment is consistent with the “liberal federal policy fa-

voring arbitration agreements notwithstanding any

state substantive or procedural policies to the con-

trary.” Moses H. Cone Mem'l Hosp. v. Mercury Con-

str. Corp., 460 U.S. 1, 24 (1983). And it is consistent

with this Court’s precedents that “require[] courts to

enforce agreements to arbitrate according to their

terms.” CompuCredit Corp. v. Greenwood, 132 S. Ct.

665, 669 (2012).

California courts purport to agree with these

holdings, noting that the state maintains a “public

policy in favor of arbitration as a speedy and rela-

tively inexpensive means of dispute resolution.”

Pearson Dental Supplies, Inc. v. Super. Ct., 229 P.3d

83, 94 (Cal. 2010). They also acknowledge the

“strong federal policy of enforcing arbitration agree-

ments” and the supposed parity between arbitration

agreements and other contracts. Armendariz v.

Foundation Health Psychcare Services, Inc., 6 P.3d

669, 678 (Cal. 2000). But while cases like Armendar-

iz—the basis for the Ninth Circuit’s decision in this

case—pay lip-service to these principles, they are

anything but faithful to them in practice.

The anti-arbitration animosity embedded within

Armendariz—and reflected in the Ninth Circuit’s de-

cision here—reveals itself on multiple levels.

1. Although this Court has declared that “a state-

law principle that takes its meaning precisely from

the fact that a contract to arbitrate is at issue does

not comport with [section] 2” of the FAA, Perry, 482

U.S. at 492 n.2, California courts nevertheless have

adopted the view that certain principles, including

unconscionability, “may manifest themselves in

forms peculiar to the arbitration context.” Armen-

dariz, 6 P.3d at 693. The “peculiar” form in which

such unconscionability appears is in a “lack!] [of]

mutuality.” Jd. For years, a “lack of mutuality” was

“the most common means employed by the [Califor-

nia) Courts of Appeal to void arbitration agree-

ments.” Stephen A. Broome, An Unconscionable Ap-

plication of the Unconscionability Doctrine: How

California Courts Are Circumventing the Federal Ar-

bitration Act, 3 Hastings Bus. L.J. 39, 54 (2006); see

also id. at 45-48 (conducting empirical study and

concluding that California courts struck down arbi-

tration agreements on the grounds of unconscionabil-

ity in 53 out of 114 cases, but struck down ordinary

contracts on these grounds in only 5 out of 46 cases).

Indeed, this Court recently observed that “Califor-

nia’s courts have been more likely to hold contracts

to arbitrate unconscionable than other contracts,”

usually on this basis. Concepcion, 563 U.S. at 342.

A lack of mutuality is not the only basis for inval-

idating arbitration agreements. California courts

have also declared arbitration agreements procedur-

ally unconscionable even where the plaintiff had an

opportunity to decline the defendant’s contract and

enter into a contract stripped of the offending term.

See, e.g., Szetela v. Discover Bank, 118 Cal. Rptr. 2d

862, 867 (Ct. App. 2002). They have also done so

where the contract was not otherwise presented on a

“take it or leave it” basis. Pardee Constr. Co. v. Su-

per. Ct., 123 Cal. Rptr. 2d 288, 283 (Ct. App. 2002)

(noting that “[iJn any event, even if the parties’

agreements were deemed not to be adhesive, plain-

tiffs have established the judicial reference provi-

sions of those agreements were unconscionable at the

time such agreements were made”).

Likewise, other restrictions typical of arbitration

agreements, such as those relating to the types of

remedies and claims available, the availability of ap-

peals, limits on the statute of limitations, and the

place and manner of arbitration have all been held to

be unconscionable. See, e.g., Harper v. Ultimo, 7 Cal.

Rptr. 3d 418, 421 (Ct. App. 2003) (limitations on

remedies); Fittante v. Palm Springs Motors Inc., 129

Cal. Rptr. 2d 659, 722 (Ct. App. 2003) (appeals);

Martinez v. Master Prot. Corp., 12 Cal. Rptr. 3d 663,

670-71 (Ct. App. 2004) (statute of limitations); Bolter

v. Super. Ct., 104 Cal. Rptr. 2d 888, 896 (Ct. App.

2001) (place of arbitration). Even provisions incorpo-

rating the mutual and established rules of the Amer-

ican Arbitration Association, which direct the parties

to share the cost of arbitration unless otherwise re-

quired by statute or by agreement, have been de-

clared unconscionable. See O’Hare v. Mun. Res. Con-

sultants, 132 Cal. Rptr. 2d 116, 125-26 (Ct. App.

2003). Yet these provisions are lightyears away from

the “shock-the-conscience” provisions that might

render an ordinary contract unconscionable.

Despite this Court’s repeated warnings, the Cali-

fornia Supreme Court has made clear that it will

continue to invoke the doctrine of unconscionability

to justify its practice of discriminating against arbi-

tration agreements. For example, on remand from

Sonic-Calabasas A, Inc. v. Moreno, 132 S. Ct. 496

(2011), the California Supreme Court doubled-down

on the unconscionability exception to enforcing arbi-

tration agreements, once again using public policy as

the purported hook for invalidating such agreements.

Sonic-Calabasas A, Inc. v. Moreno (“Sonic II”), 311

P.3d 184, 199, 201-03 (Cal. 2013).

Specifically, in Sonic IJ, the California Supreme

Court gave California courts a roadmap for using the

unconscionability doctrine to invalidate arbitration

agreements that could be “unfairly one-sided.” 311

P.3d at 202. The court explained that while a state

public-policy defense to arbitration would be FAA-

preempted, an unconscionability defense to arbitra-

tion would not be. The solution, therefore, is for

courts to infuse considerations of (anti-arbitration)

public policy into their unconscionability analysis.

See Sonic II, 311 P.3d at 202 (noting that the uncon-

scionability doctrine may be applied to terms that

“otherwise contravene the public interest or public

policy”).

The California Supreme Court’s most recent de-

cision in this area, Sanchez v. Valencia Holding Co.,

353 P.3d 741 (Cal. 2015), reaffirms that doctrines of

unconscionability and public policy may continue to

be used to invalidate arbitration agreements. “Con-

cepcion,” the court emphasized, “does not immunize

arbitration processes from state law unconscionabil-

ity principles.” Jd. at 750. As if oblivious to the cur-

rent treatment of arbitration agreements, the court

then warned that such principles would be “as rigor-

ous and demanding for arbitration clauses as for any

contract clause.” Id. at 749.

Justice Chin, in dissent, took issue with the ma-

jority’s decision to maintain California’s various un-

conscionability formulations while also declaring

that they “all mean the same thing.” 353 P.3d at

749; id. at 766 (Chin, J., dissenting). “Having multi-

ple formulations,” he wrote, “lends substantial cre-

dence to the ‘loud chorus of courts and commenta-

tors’ who assert that, contrary to the [U.S. Supreme

Court’s] decisions, we are using unconscionability ‘as

a ruse for a “new judicial hostility” to arbitration.”

Id. at 767 (quoting Aragaki, AT&T Mobility v. Con-

cepcion and the Antidiscrimination Theory of FAA

Preemption, 4 Y.B. Arb. & Mediation 39, 60 (2012-

2013)).

2. As Justice Chin’s dissent in Sanchez suggests,

the anti-arbitration animus underlying the “lack of

mutuality” standard, the unconscionability doctrines,

and the heightened scrutiny they generate is hardly

a secret: according to Armendariz, “even a fair arbi-

tration system” is filled with “disadvantages” and a

“lack of choice” for employees, such that courts “must

be particularly attuned to claims that employers

with superior bargaining power have imposed one-

sided, substantively unconscionable terms as part of

an arbitration agreement.” 6 P.3d at 690, 692.

Consistent with that underlying suspicion of ar-

bitration, Armendariz also applies an arbitration-

specific standard of severability that permits Cali-

fornia courts to invalidate arbitration agreements

while saving ordinary agreements by applying the

traditional severability doctrine.

Animated by an inherent bias against arbitra-

tion, Armendariz restates the facially neutral con-

tract interpretation principle that a court may “re-

fuse to enforce the contract as a whole if it is perme-

ated by ... unconscionability,” 6 P.3d at 695, but then

creates a special rule for arbitration agreements:

They are “permeated” by unconscionability, and

therefore, incapable of severance, where they have

“more than one unlawful provision.” Jd. at 696-97.

Under Armendariz, multiple unlawful provisions

purportedly “indicate a systematic effort” to promote

an “unlawful purpose”; namely, “to impose arbitra-

tion on an employee not simply as an alternative to

litigation, but as an inferior forum that works to the

employee’s disadvantage.” Jd. (emphasis added).

This flawed logic conflates the desirability of sev-

erance with its feasibility. Instead of examining the

interplay between the relevant contractual provi-

sions and asking whether the arbitration agreement

is capable of being enforced (as California courts do

with ordinary contracts, see, e.g., Marathon Entm’t v.

Blasi, 174 P.3d 741, 751 (Cal. 2008)), the Armendariz

rule allows a court to ask whether a given arbitration

agreement should be enforced. And it permits the

court to answer in the negative for just about any

reason.

The Armendariz rule flies in the face of this

Court’s repeated admonition that courts may not

“rely on the uniqueness of an agreement to arbitrate

as a basis for a state-law holding that enforcement

would be unconscionable.” Concepcion, 563 U.S. at

341 (quoting Perry, 482 U.S. at 493 n. 9). This warn-

ing has gone largely unheeded in California: Cali-

fornia courts apply Armendariz’s “two-strikes-you’re-

out” rule to arbitration agreements when they would

not do so to ordinary agreements, as to which there

is supposedly a “strong legislative and judicial pref-

erence [of] sever[ing] [an] offending term and en-

forc[ing] the balance of the agreement.” Roman v.

Superior Court, 92 Cal. Rptr. 1462, 1477-78 (Ct.

App. 2009).

The traditional severability rule, which flows

from section 1599 of the Civil Code, is quite different.

It provides that “[w]here a contract has several dis-

tinct 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.” Un-

der this rule, California courts typically treat ordi-

nary agreements with deference, enforcing those

agreements regardless of how many unenforceable

provisions they contain or how indivisible they are.

In Marathon Entertainment, a case involving an ac-

tor and a talent agency, the California Supreme

Court rejected the plaintiff's argument that an entire

agreement for the procurement of employment

should be voided because it had been pervaded by

“illegal” provisions and would undermine certain

statutes governing the relationship between actors

and talent agencies. 174 P.3d at 775. The Court did

not take the “two-strikes” route here: instead, citing

the traditional severability rule set forth in section

1599, it dutifully examined the lawful portions of the

contract and determined that they “feasibly may be

severed.” Id. at 751.

Marathon is not an isolated example: In

Birbrower, Montalbano, Condon & Frank, P.C. v.

Superior Court, 949 P.2d 1, 13 (Cal. 1998), the Cali-

fornia Supreme Court once again applied the tradi-

tional severability rule to sever offending provisions

instead of invalidating the contract in its entirety.

In Birbrower, a client sued its law firm for breach of

the parties’ fee agreement for legal services per-

formed in New York and California because the firm

had performed legal work in California without a li-

cense. Jd. at 4. The California Supreme Court

agreed that the firm had engaged in the unauthor-

ized practice of law in California and that the par-

ties’ fee agreement “became illegal” when it did so,

but nevertheless upheld the portion of the agreement

permitting fees for the work lawfully performed in

New York. Jd. at 12-13.

Likewise, in MKB Management Inc. v. Melikian,

108 Cal. Rptr. 3d 899, 903 (Ct. App. 2010), the Cali-

fornia Court of Appeal reversed the trial court’s rul-

ing that a property management agreement provid-

ing for multiple services was unenforceable because

its “principal object” was for the defendant, who had

no real estate license, to provide services for which a

real estate license was required. The trial court,

which had applied Armendariz-like reasoning, had

stated that severance of the provisions relating to

services for which the license was required would be

impossible because it would “undermine the real es-

tate licensing statutes.” Jd. at 906. But the Court of

Appeal disagreed with that premise and did not ap-

ply anything resembling the Armendariz “two-

strikes” rule. Instead, it declared that it could not

conclude “as a matter of law ... that all of the ser-

vices provided under the property management

agreement were dependent upon or inextricably re-

lated to the acts for which a real estate broker li-

cense was required” and declined to invalidate the

entire agreement. Jd.

Yet California courts deviate from the traditional

severability rule when asked to enforce an arbitra-

tion agreement. Instead of examining the lawful

portions of the agreement and analyzing whether

severability is feasible, courts follow an arbitration-

specific severability rule and focus almost exclusiveiy

on whether the agreement contains more than one

unenforceable provision. In Carmona v. Lincoln Mil-

lennium Car Wash, Inc., 171 Cal. Rptr. 3d 42, 55 (Ct.

App. 2014), for example, the California Court of Ap-

peal affirmed an order refusing to sever a single “en-

forceability” clause from an arbitration agreement

because the clause contained four unconscionable

provisions demonstrating a “systemic lack of mutual-

ity,” even though the contract easily could have been

reformed to exclude those “systemic” provisions. Id.

The court did not examine the remainder of the con-

tract to determine whether anything within it could

be enforced. Likewise, in Samaniego v. Empire To-

day LLC, 140 Cal. Rptr. 3d 492, 501 (Ct. App. 2012),

the Court of Appeal affirmed the trial court’s refusal

to enforce an arbitration agreement with “multiple

defects” without any discussion whatsoever of the

lawful portions of the contract.

Parada v. Superior Court, 98 Cal. Rptr. 3d 743,

770 (Ct. App. 2009), applied the same mode of analy-

sis. There, the California Court of Appeal reversed

an order compelling arbitration. It invalidated the

arbitra..on agreement not merely because it had

more than one offending provision, but because the

defendant had supposedly included the offending

provisions “deliberately” and for an “improper pur-

pose of discouraging or preventing its customers

from vindicating their rights.” Jd.

These are not unique examples. Since the Cali-

fornia Supreme Court decided Armendariz in 2000,

California state courts have used its “permeated”

language to invalidate more than 17 arbitration

agreements in published decisions, without applying

the traditional severability analysis that is used for

other contracts.2 Only two cases in that set even

mention the traditional rule set forth in section 1599,

and the ones that do mention it fail to apply it.

2 See, e.g., Pinela v. Neiman Marcus Grp., Inc., 190 Cal. Rptr.

3d 159, 183-84 (Ct. App. 2015) (invalidating arbitration agree-

ment containing three unconscionable provisions); Carmona v.

Lincoln Millennium Car Wash, Inc., 171 Cal. Rptr. 3d 42, 55

(Ct. App. 2014) (four unconscionable provisions); Ajamian v.

CantorCO2e, L.P., 137 Cal. Rptr. 3d 773, 799 (Ct. App. 2012)

(two unconscionable provisions); Wherry v. Award, Inc., 123

Cal. Rptr. 3d 1, 7-8 (Ct. App. 2011) (three unconscionable pro-

visions); Lhotka v. Geographic Expeditions, 104 Cal. Rptr. 3d

844, 852-53 (Ct. App. 2010) (two unconscionable provisions and

two provisions that “compounded” the unfairness); Suh v. Su-

per. Ct., 105 Cal. Rptr. 3d 585, 596-97 (Ct. App. 2010) (one un-

conscionable provision (limiting remedies)); Trivedi v. Curexo

Tech. Corp., 116 Cal. Rptr. 3d 804, 813 (Ct. App. 2010) (two un-

conscionable provisions); Sanchez v. Western Pizza Enters., 90

Cal. Rptr. 3d 818, 838-39 (Ct. App. 2009) (two unconscionable

provisions, including class-action waiver); Ontiveros v. DHL

Express. (USA) Inc., 79 Cal. Rptr. 3d 471, 488 (Ct. App. 2008)

(three unconscionable provisions); Abramson v. Juniper Net-

works, 9 Cal. Rptr. 3d 422, 444-45 (Ct. App. 2004) (two uncon-

scionable provisions); Fitz v. NCR Corp., 13 Cal. Rptr. 3d 88,

106 (Ct. App. 2004) (two unconscionable provisions); Martinez v.

Master Protection Corp., 12 Cal. Rptr. 3d 663, 673 (Ct. App.

2004) (three unconscionable provisions); Nyulassy v. Lockheed

Martin Corp., 16 Cal. Rptr. 3d 296, 311-12 (Ct. App. 2004) (two

unconscionable provisions); O’Hare v. Mun. Res. Consultants,

132 Cal. Rptr. 2d 116, 121, 125, 129 (Ct. App. 2003) (two uncon-

scionable provisions); Mercuro v. Super. Ct., 116 Cal. Rptr. 2d

671, 683-84 (Ct. App. 2002) (three unconscionable provisions);

Flores v. Transamerica HomeFirst, Inc., 113 Cal. Rptr. 2d 376,

385 (Ct. App. 2001) (lack of bilaterality tainted at least two pro-

visions); Pinedo v. Premium Tobacco Stores, 102 Cal. Rptr. 2d

435, 440 (Ct. App. 2000) (four unconscionable provisions).

Abramson v. Juniper Networks, 9 Cal. Rptr. 3d 422,

444-45 (Ct. App. 2004); Sanchez v. Western Pizza

Enters., 90 Cal. Rptr. 3d 818, 838-39 (Ct. App. 2009).

And the Ninth Circuit, applying California law, has

done the same on several other occasions. See, e.g.,

Ingle v. Circuit City Stores, 328 F.3d 1165, 1180 (9th

Cir. 2003) (six provisions combined to “stack the deck

unconscionably” in favor of the defendant); Ferguson

v. Countrywide Credit Industries, Inc., 298 F.3d 778,

787 (9th Cir. 2002) (three unconscionable provisions).

That asymmetric treatment suggests not merely an

improper exercise of judicial discretion, but a sys-

tematic effort to disfavor arbitration agreements rel-

ative to other contracts. This double standard could

not conflict more with the purpose of the FAA, which

was to “overrule the judiciary’s longstanding refusal

to enforce agreements to arbitrate.” Granite Rock

Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 302

(2010).

Ill. THis COURT SHOULD REVERSE THE NINTH

CrmcurTT’s DECISION AND ENFORCE THE FAA’S

COMMAND TO RESPECT THE CONTRACTUAL

EXPECTATIONS OF THE PARTIES

California courts’ discrimination against arbitra-

tion agreements based on the belief that arbitration

by its nature is inferior to litigation has persisted de-

spite this Court’s numerous attempts to prevent and

correct it.

Two recent cases are illustrative. In Iskanian v.

CLS Transport Los Angeles, LLC, 327 P.3d 129 (Cal.

2014), and Sakkab v. Luxottica Retail North Ameri-

ca, Inc., 803 F.3d 425 (9th Cir. 2015), the California

Supreme Court and the Ninth Circuit invoked Cali-

fornia law in refusing to enforce provisions in arbi-

tration agreements that would have required an em-

ployee to waive the right to bring a representative

action under the Private Attorneys General Act

(PAGA). In both cases, the courts reasoned that the

FAA did not permit private parties to circumvent

California’s efforts to enforce its Labor Code by

agreeing to waive PAGA actions in arbitration. See

Iskanian, 327 P.3d at 149 (observing that allowing

employees to waive the right to bring PAGA actions

would “disable one of the primary mechanisms for

enforcing the Labor Code” and would undermine

statutes providing that laws established for a public

purpose may not be contravened by a private agree-

ment); Sakkab, 803 F.3d at 439 (noting that the

court’s conclusion that “the FAA does not preempt

the Jskanian rule is bolstered by the PAGA’s central

role in enforcing California’s labor laws”).

The logic of Iskanian and Sakkab cannot be rec-

onciled with this Court’s clear holding in Concepcion

that states “cannot require a procedure that is incon-

sistent with the FAA, even if it is desirable for unre-

lated reasons.” 563 U.S. at 341; see also Sakkab, 803

F.3d at 449 (N.R. Smith, J., dissenting) (“[I)f a state

law violates or frustrates the FAA, the state law

must give way, even if such a decision prevents the

state’s interest from being vindicated.”). Nor can

their logic be reconciled with this Court’s subsequent

holding in American Express Co. v. Italian Colors

Restaurant, 133 S. Ct. 2304, 2312 (2013), that policy

interests behind particular legislation do not over-

ride Congress’s desire for arbitration agreements to

be enforced.

The Jskanian rule, like the now-defunct rule set

forth in Discovery Bank v. Superior Court, 113 P.3d

1110 (Cal. 2005), overruled by Concepcion, 563 U.S.

333, interferes with the parties’ contractual expecta-

tions and deprives them of the benefits of arbitration

by making arbitration “more costly,” “slower,” and

more prone to generate a “procedural morass.” 803

F.3d at 445 (N.R. Smith, J., dissenting) (citing Con-

cepcion, 563 U.S. at 348); see also Concepcion, 563

U.S. at 349-50 (adding that class-action waivers may

be desirable to protect the rights of absent class

members and to reduce the financial risk to defend-

ants).

The Sakkab majority defended the Jskanian rule

by reasoning that the parties could theoretically

agree to procedures to simplify the arbitration of the

representative PAGA claims or could agree to arbi-

trate high-stakes issues posing greater financial risk

to defendants. See 803 F.3d at 437-38. But that de-

fense of Iskanian ignores that the FAA’s overriding

purpose is to ensure that the parties are empowered

to make those decisions, not a court bent on achiev-

ing policy objectives. See id. at 448 (“Parties to an

arbitration could agree to arbitrate high stakes is-

sues. However, a state court cannot ‘force such a de-

cision.”).

** *

As this Court stated nearly three decades ago in

Perry, courts may not use “the uniqueness of an

agreement to arbitrate as a basis for a state-law

holding that enforcement would be unconscionable,

for this would enable the court to effect what ... the

state legislature cannot.” 482 U.S. at 492 n. 9. Cog-

nizant that the FAA should preempt state laws that

are inconsistent with the goals of arbitration (such as

PAGA), Iskanian, Sakkab, and the instant case cir-

cumvent that obstacle by disguising those same poli-

cy objections as “neutral” state-law unconscionability

principles, and proceeding to apply those principles

unequally to arbitration agreements just as the Cali-

fornia Supreme Court did in Armendariz.

All three cases thus reflect the same embedded

animus against arbitration, and engage in the same

kind of judicial second-guessing that the FAA was

enacted to eradicate. See Granite Rock, 561 U.S. at

302. On the whole—particularly in light of the long

history of other California decisions undermining the

FAA at every turn—the anti-arbitration prejudices

that these cases display demonstrate the urgent need

for this Court to reverse the Ninth Circuit’s decision

in this case and put an end to California’s discrimi-

nation against arbitration once and for all.

CONCLUSION

For the reasons stated above and in Petitioners’

brief, the judgment of the court of appeals should be

reversed.

Respectfully submitted,