Petition for Writ of Certiorari — Circuit City Stores, Inc. v. Gentry, 128 S. Ct. 1743 (2008) (No. 07-998)

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IN THE

Supreme Court of the United States

CIRCUIT CITY STORES, INC.,

Petitioner,

v.

ROBERT GENTRY,

Respondent.

On Petition for a Writ of Certiorari

to the Supreme Court of California

PETITION FOR A WRIT OF CERTIORARI

REX DARRELL BERRY CARTER G. PHILLIPS*

BERRY & BLOCK, LLP PAUL J. ZIDLICKY

2150 River Plaza Drive ILEANA MARIA CIOBANU

Sacramento, CA 95833 HL ROGERS

(916) 564-2000 SIDLEY AUSTIN LLP

1501 K Street, N.W.

STEVEN B. KATZ Washington, D.C. 20005

THELEN REID BROWN (202) 736-8000

RAYSMAN & STEINER LLP

333 South Hope Street

29th Floor

Los Angeles, CA 90071-3048

(213) 576-8072

Counsel for Petitioner

January 29, 2008 * Counsel of Record

FALL LE ES LS SE OG GT TSS RL OTT SiR GE OE

Wiiso0n-EPes Printine Co., inc. — (202) 789-0006 — WastincTon, D.C. 20002

QUESTIONS PRESENTED

1. Whether the Federal Arbitration Act permits a

court to refuse to enforce an agreement calling for

individual arbitration based on state labor law

policies that do not apply generally to “any contract.”

9 U.S.C. § 2.

2. Whether the Federal Arbitration Act permits a

state court to refuse to enforce an agreement to

arbitrate based upon an unconscionability analysis

“that takes its meaning precisely from the fact that a

contract to arbitrate is at issue.” Perry v. Thomas,

482 U.S. 483, 492 n.9 (1987).

(1)

il

LIST OF PARTIES AND AFFILIATES

The parties to the proceeding are set forth in the

caption to this Petition.

Pursuant to Rule 29.6 of the Rules of this Court,

petitioner Circuit City Stores, Inc. states that it has

no parent corporation and that no publicly held

company owns more than 10 percent petitioner's

publicly traded stock.

TABLE OF CONTENTS

QUESTIONS PRESENTED..............c cee eeeccceseeeees

LIST OF PARTIES AND AFFILIATESG...............

TABLE OF AUTHORITIES ....................eeeeeesseeees

SEE SURI OT seicnnsnsacarcansnthasenencicianbenasienions

PAE sais cotsinnincinicanccnnnsinaacninaiininaninn

CONSTITUTIONAL AND STATUTORY PRO-

VERAPEGED REO UUIREU BOP icceasccccensnnncsnsscssersnsnnssonses

STATUTORY BACKGROUND ............ cece

FACTUAL BACKGROUND ...................ccccceseeeeeeee

REASONS FOR GRANTING THE PETITION...

I.

{T.

THE DECISION BELOW IMPLICATES A

DEEP CONFLICT ON WHETHER A

COURT MAY REFUSE TO ENFORCE

THE TERMS OF AN AGREEMENT TO

ARBITRATE BASED ON _ STATE

POLICIES THAT DO NOT APPLY TO

"GARE CRETE URE sirennsiinennenconinunsccnomainbinatens

THE UNCONSCIONABILITY RULING IN

THE DECISION BELOW CONFLICTS

WITH DECISIONS OF THIS COURT

AND THE THIRD CIRCUIT .......0000 ee.

CASNULAIIIIN cccceccnsesncsnsaccaceeess sieiieKcanlenanetataaiinanste

APPENDIX A: Gentry v. Superior Court, 165

Te SEED kine dS es laanenaie

APPENDIX B: Gentry v. Superior Court, No.

B169805 (Cal. Ct. App. Jan. 19, 2006)..............

(111)

Page

ao ow —

13

lv

TABLE OF CONTENTS—continued

APPENDIX C: Gentry v. Superior Court, No.

B169805 (Cal. Ct. App. Nov. 30, 2005) (order).

APPENDIX D: Gentry v. Superior Court, No.

$119334 (Cal. Aug. 31, 2005) (order)................

APPENDIX E: Gentry v. Superior Court, No.

B169805 (Cal. Ct. App. Sept. 18, 2003) (order)

APPENDIX F: Gentry v. Superior Court, No.

B189805 (Cal. Ct. App. Sept. 9, 2003) (order) ..

APPENDIX G: Gentry v. Superior Court, No.

B169805 (Cal. Ct. App. July 11, 2003)

oa aise sin cua npennanenasagmeunnesanidurenes

APPENDIX H: Gentry v. Circuit City Stores,

Inc., No. BC280631 (Super. Ct. Los Angeles

EEE RA aa i a SRR a eC SR

APPENDIX I: Gentry v. Circuit City Stores,

Inc., No. BC280631 (Super. Ct. Los Angeles

is is I NN ec scinnansdiaeonnonainnes

APPENDIX J: Gentry v. Circuit City Stores,

Inc., No. BC280631 (Super. Ct. Los Angeles

BP Bey, Se CI iachedinntnseancecsscrrizntiusnioxsacess

APPENDIX K: Geniry v. Superior Court, No.

S141502 (Cal. Oct. 31, 2007) (order denying

I ee aed hts Ai ea ais sideutadaeeel

APPENDIX L: State Statute......................2........

Page

65a

67a

68a

69a

70a

73a

75a

T7Va

Vv

TABLE OF AUTHORITIES

CASES Page

Banc One Acceptance Corp. v. Hill, 367

FA A re Gn a tivesiticenvancacccensess 29

Bradley v. Harris Research, Inc., 275 F.3d

O64 (Sth Cir. BOOT) ......ciescs.ssse... 3, 15, 16, 21, 24

Brutoco Eng’g & Constr., Inc. v. Superior

Court, 107 Cal. App. 4th 1326 (2008)........ 28

Circuit City Stores, Inc. v. Adams, 532 U.S.

RN I iiainstinclastuccduchkstacciadmecsetohadekiinnss 5, 6, 27

Dean Witter Reynolds Inc. v. Byrd, 470

BF RII sk catscinadansaiasstaansciamnsaaneeanehane 23

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S.

I I initas cscs ciciiatiaetisiaeaNi nail passim

Doctor’s Assocs., Inc. v. Hamilton, 150 F.3d

SOF Ce ae FI cvnissnscsnceascnccs a, 16, &¢, 16, Z1

Gay v. CreditInform, ___ F.3d ___, 2007

WL 4410362 (3d Cir. Dec. 19, 2007)..... 4, 28, 29

Gilmer v. Interstate/Johnson Lane Corp.,

A BF Es FP CP eis wines ntkedncanncaercces 5, 6, 27

Iberia Credit Bureau, Inc. v. Cingular

Wireless LLC, 379 F.3d 159 (5th Cir.

STE vu Sicsadinca dir aseiae vanipaaincccanaeacies emia sil ade 29

KKW Enters., Inc. v. Gloria Jean's

Gourmet Coffees Franchising Corp., 184

F.3d 42 (ist Cir. 1999) ......ccsccccscsces 3, 16, 17, 21

Keystone, Inc. v. Triad Sys. Corp., 971 P.2d

Re FE siti snstilcdaticsiesreuseaencnenees 20

Lowden v. T-Mobile USA, Inc., F.3d

___, 2008 WL 170279 (9th Cir. Jan. 22,

BINED cinsccicsvisdintaeamonidicn vena 4, 30

Management Recruiters Intl v. Bloor, 129

Fk BG) CGC Cat. FBT) iesicincescretenscccscessaes 3, 16

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985).......... 6

vi

TABLE OF AUTHORITIES—continued

Page

Moses H. Cone Mem’ Hosp. v. Mercury

Constr. Corp., 460 U.S. 1 (1983)........... 5, 22, 23

OPE Intl LP v. Chet Morrison Contractors,

Inc., 258 F.3d 443 (5th Cir. 2001).. 3, 16, 17, 21

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

Scott v. Cingular Wireless, 161 P.3d 1000

__, : RES nen ame 19

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

FARES eRe eee een Eee 1, 6, 21, 23

Stawski Distrib. Co., Inc. v. Browary

Zywiec S.A., 349 F.3d 1023 (7th Cir.

ERR Sage re eee eae rey 3, 16, 18, 21

Ting v. AT&T, 319 F.3d 1126 (9th Cir.

RTA An oe eae OE TNE A aE 17, os

Volt Info. Scis., Inc. v. Board of Trs. 489

I eteenle 5

Wisconsin Auto. Title Loans, Inc. v. Jones,

714 N.W.2d 155 (Wis. 2006) ...........cccces0-0- 19

CONSTITUTION AND STATUTES

Re, SI, MEE We TR, OF sncccecennsinusnnvesetosnceenens 1

I da sas euiinincnceauanh passim

i Ge, EL, RAEI Oy OD cncsscccnncscccnenecceusvesenns 8

8 Ae Et Oe 8

es NG I hc niccnecconentesnnitancasones 2

SCHOLARLY AUTHORITIES

Christopher _ R. Drahozal, Federal

Arbitration Act Preemption, 79 Ind. L.J.

ERE ECC et ee er eee 20

Stephen Hayford & Alan Palmiter, Arbi-

tration Federalism: A State Role in

Commercial Arbitration, 54 Fla. L. Rev.

Sa a oc eenapeieaaieuent 20

vil

TABLE OF AUTHORITIES—continued

Michael G. McGuinness & Adam J. Karr,

California’s “Unique” Approach to Arbi-

tration: Why This Road Less Traveled

Will Make All the Difference on the Issue

of Preemption Under the _ Federal

Arbitration Act, 2005 J. Disp. Resol. 61

SEPT lcicucteiinicsiddeeridiumdabdheceamiiaaeasduateheinnabindabains

Susan Randall, Judicial Attitudes Toward

Arbitration and the Resurgence of

Unconscionability, 52 Buff. L. Rev. 185

ED icsiiasitiasisstninioash batilcatesinndidhacconiediahanidbbubibesaaietabeees

Jean R. Sternlight, The Rise and Spread of

Mandatory Arbitration as a Substitute

for the Jury Trial, 38 U. San Fran. L.

Rev. 17 (2003)...... ES MOR RE OORT RT BON RITE

Stephen J. Ware, Arbitration and Uncon-

scionability After Doctor’s Associates,

Inc. v. Casarotto, 31 Wake Forest L. Rev.

Be Ce ahanlicchasesscsesabecadenaiisedionacamasddcadins

Page

28

28

20

PETITION FOR A WRIT OF CERTIORARI

Petitioner Circuit City Stores, Inc. (“Circuit City”)

respectfully requests that this Court grant the

petition for a writ of certiorari to review the decision

and judgment of the California Supreme Court.

OPINIONS BELOW

The opinion of the California Supreme Court is

reported at 165 P.3d 556 (Cal. 2007) and is

reproduced in the Appendix to this Petition (“Pet.

App.”) at la to 55a. The California Supreme Court’s

denial of rehearing is unpublished and appears at

Pet. App. 8la. The decision of the California Court of

Appeal, Second Appellate District, Division Five,

compelling arbitration appears at Pet. App. 56a-64a.

The decision of the California Superior Court

compelling arbitration appears at Pet. App. 75a-80a.

JURISDICTION

The California Supreme Court entered judgment on

August 30, 2007, Pet. App. la, and denied a petition

for rehearing on October 31, 2007, id. at 8la. This

Court has jurisdiction over this petition for certiorari

under 28 U.S.C. § 1257(a). Although the decision of

the California Supreme Court envisions further

proceedings in the lower courts, this Court has

jurisdiction to review such judgments. See, e.g.,

Southland Corp. v. Keating, 465 U.S. 1, 6-7 (1984);

Perry v. Thomas, 482 U.S. 483, 489 n.7 (1987).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Article VI, Clause 2 of the United States

Constitution provides in pertinent part:

2

This Constitution, and the Laws of the United

States which shall be made in Pursuance there-

of ... shall be the supreme Law of the Land; and

the Judges in every State shall be bound thereby,

any Thing in the Constitution or Laws of any

State to the Contrary notwithstanding.

Section 2 of the Federal Arbitration Act, 9 U.S.C.

§ 2, provides in pertinent part:

A written provision in any .. . contract

evidencing a transaction involving commerce to

settle by arbitration a controversy thereafter

arising out of such contract or transaction .

shall be valid, irrevocable, and enforceable, save

upon such grounds as exist in law or equity for

the revocation of any contract.

Section 1194 of the California Labor Code is

reproduced in the Appendix at Pet. App. 822

STATEMENT OF THE CASE

This case presents issues of surpassing importance

concerning the proper application of the Federal

Arbitration Act (“FAA”). Respondent Robert Gentry

was employed by Circuit City and later voluntarily

agreed to resolve all employment disputes he might

have with Circuit City through individual arbitration.

He was given the opportunity to opt out of Circuit

City’s arbitration program, but declined to do so.

Thereafter, Respondent ignored his agreement to

arbitrate and instead filed a class action in state

court claiming entitlement to overtime pay for

himself and a class of other employees.

Both the California Superior Court and Court of

Appeal applied generally applicable contract rules

and held that Respondent must arbitrate his claims

individually. In the decision below, the California

3

Supreme Court reversed and, in doing so, interposed

two unlawful barriers to the enforcement of

arbitration agreements that implicate broad conflicts

with contrary federal circuit decisions and that

cannot be reconciled with this Court’s decisions.

First, the California Supreme Court refused to

enforce the parties’ agreement to arbitrate in

accordance with its terms and remanded the case for

an evaluation whether individual arbitration was

consistent with California labor law. Pet. App. 23a,

4la. Conditioning enforcement of an arbitration

agreement on compliance with state labor law runs

contrary to Section 2 of the FAA, which provides that

agreements to arbitrate are enforceable save upon

grounds available for the “revocation of any contract.”

9 US.C. § 2.

The California Supreme Court’s contrary conclusion

conflicts directly with the decisions of the Ninth

Circuit and federal courts of appeals across the

country. See Bradley v. Harris Research, Inc., 275

F.3d 884, 889-90 (9th Cir. 2001); Stawski Distrib. Co.

v. Browary Zywiec S.A., 349 F.3d 1023, 1024-26 (7th

Cir. 2003); OPE Intl LP v. Chet Morrison

Contractors, Inc., 258 F.3d 443, 447 (5th Cir. 2001)

(per curiam); KKW Enters., Inc. v. Gloria Jean’s

Gourmet Coffees Franchising Corp., 184 F.3d 42, 50-

51 (ist Cir. 1999); Doctor’s Assocs., Inc. v. Hamilton,

150 F.3d 157, 163 (2d Cir. 1998); cf. Management

Recruiters Intl v. Bloor, 129 F.3d 851, 856 (6th Cir.

1997). These courts, applying Section 2 of the FAA

and this Court’s decisions in Southland and Perry,

have held that agreements to arbitrate cannot be

avoided based upon narrow state-law policies that do

not apply generally to “any contract.” The decision

below thus interposes a barrier to arbitration that

cannot be reconciled with these conflicting decisions.

4

Second, the California Supreme Court also violated

the FAA when it reversed the Court of Appeal’s and

Superior Court’s determination that the parties’

agreement to arbitrate was not unconscionable. The

California Supreme Court held that the arbitration

agreement was “procedurally unconscionable”

because even though Circuit City disclosed to Gentry

the rules that would govern arbitration and explained

“some of the shortcomings of arbitration,” it “did not

mention any of the _ additional significant

disadvantages that this particular arbitration

agreement had compared to litigation.” Pet. App. 37a

(emphasis added).

That ruling conflicts with the FAA and this Court’s

decisions holding that a court may not refuse

enforcement based upon state-law principles that are

hostile to arbitration or depend on the fact that an

arbitration agreement is at issue. See Perry v.

Thomas, 482 U.S. 483, 492-93 n.9 (1987); Doctor’s

Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996).

Further, the decision below conflicts with the Third

Circuit’s conclusion that state unconscionability

standards are preempted by the FAA when they take

their meaning from the fact that an agreement to

arbitrate is at issue. See Gay v. CreditInform, __

F.3d ___, 2007 WL 4410362 (3d Cir. Dec. 19, 2007).

Resolution of this conflict is even more important now

that the Ninth Circuit has weighed in and declined

“to follow the holding in Gay.” Lowden v. T-Mobile

USA, Inc., ___ F.3d ___, 2008 WL 170279, at *8 n.3

(9th Cir. Jan. 22, 2008).

Review is warranted to resolve these mature and

persistent conflicts between the decision of the

California Supreme Court and the decisions of this

Court and federal courts of appeals interpreting the

requirements of the FAA. As explained by the

5

dissenting justices, the decision of the California

Supreme Court undermines the benefits of

arbitration by “alter[ing] the arbitral terms to which

the parties agreed, and defeat[ing] the essential

purposes and advantages of arbitration, by

transforming that process, against the parties’

expressed will at the time they entered the

agreement, into something more and more like the

court litigation arbitration is intended to avoid.” Pet.

App. 52a (Baxter, J., dissenting).

STATUTORY BACKGROUND

Section 2 of the FAA reflects “a congressional

declaration of a liberal federal policy favoring

arbitration agreements, notwithstanding any state

substantive or procedural policies to the contrary.”

Moses H. Cone Mem’ Hosp. v. Mercury Constr. Corp.,

460 U.S. 1, 24-25 & n.32 (1983). Congress enacted

the FAA in response “to hostility of American courts

to enforcement of arbitration agreements.” Circuit

City Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001).

The “primary purpose” of the FAA is “ensuring that

private agreements to arbitrate are enforced

according to their terms.” Volt Info. Scis., Inc. v.

Board of Trs., 489 U.S. 468, 479 (1989). Under the

FAA, “questions of arbitrability must be addressed

with a healthy regard for the federal policy favoring

arbitration” and “any doubts concerning” a “defense

to arbitrability” “should be resolved in favor of

arbitration.” Moses H. Cone, 460 U.S. at 24-25.

“(Bly agreeing to arbitrate, a party ‘trades the

procedures and opportunity for review of the

courtroom for the simplicity, informality, and

expedition of arbitration.” Gilmer v. Interstate/

Johnson Lane Corp., 500 U.S. 20, 31 (1991). Indeed,

“it is typically a desire to keep the effort and expense

6

required to resolve a dispute within manageable

bounds that prompts [parties] to forgo access to

judicial remedies.” Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985). As

this Court has explained, enforcement of arbitration

agreements provides “real benefits” in the “employ-

ment context,” which “often involves” disputes over

“smaller sums of money.” Adams, 532 U.S. at 122-23;

accord Gilmer, 500 U.S. at 24.

In Section 2 of the FAA, Congress limited the

substantive grounds available for refusing to enforce

an agreement to arbitrate to “grounds as exist at law

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

v. Thomas, 482 U.S. 483, 489 (1987) (quoting 9 U.S.C.

§ 2); accord Southland Corp. v. Keating, 465 U.S. 1,

10-11 (1984). Congress “intended to foreclose state

legislative attempts to undercut the enforceability of

arbitration agreements” based on state laws that do

not provide a basis for the revocation of “any

contract.” Jd. at 16 n.11 (quoting 9 U.S.C. § 2). The

FAA’s preemptive effect extends to state laws of

‘Judicial origin” so 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... § 2.” Perry, 482 U.S. at 492-93 n.9; Doctor’s

Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)

(“Courts may not... invalidate arbitration agree-

ments under state laws applicable only to arbitration

provisions’).

FACTUAL BACKGROUND

a. In March 1995, Respondent Robert Gentry was

employed by Circuit City as a Customer Service

Manager. On March 29, 1995, Gentry attended a

presentation about Circuit Citys “Associate Issue

Resolution Program (“AIRP”). That presentation

7

included a video and written materials describing the

AIRP. Following the video presentation, Respondent

signed a form confirming that he (i) had watched the

video, (ii) had received copies of the explanatory

materials, and (iii) had received a “Circuit City

Arbitration Opt-Out Form.” See Cal. S. Ct. Exhibits

In Support of Petition for Writ of Mandate and/or

Prohibition (“Cal. Exhs.”) at 38. Gentry was advised

that he should review these materials, consult with

Circuit City or seek to consult with an attorney

regarding Circuit City’s arbitration proposal. Id.

Respondent was given 30 days to decide whether to

opt out of the arbitration agreement, and could do so

simply by returning a one-page form. Jd. Gentry

chose not to do so. Id. at 35-36.

Respondent instead agreed to be bound by the

Dispute Resolution Agreement (“Agreement”). The

Agreement provides that “any and all employment-

related legal disputes, controversies or claims arising

out of, or relating to an Associate’s . .. employment or

cessation of employment with Circuit City ... shall

be settled exclusively by final and _ binding

arbitration.” Jd. at 63, Agreement, Rule 2. As

relevant here, the Agreement provides that “[t]he

Arbitrator shall not consolidate claims of different

Associates into one proceeding, nor shail the

Arbitrator have the power to hear a class action.” Id.

at 68, Rule 9(f)(@i). Finally, the “Agreement and any

award rendered pursuant to it shall be enforceable

and subject to the Federal Arbitration Act, and the

Uniform Arbitration Act of Virginia, regardless of the

State in which the arbitration is held or the

substantive law applied in the arbitration.” /d. at 70,

Rule 16 (citations omitted).

b. On August 29, 2002, Robert Gentry ignored his

Agreement to arbitrate with Circuit City and instead

8

filed a class action in Superior Court of California.

Gentry alleged that the “monetary damages sought”

by plaintiff and “on behalf of each and every member

of the class” exceeded the $25,000 “minimal

jurisdiction limits of the Superior Court.” Compl. J 1;

Cal. Civ. Proc. Code §§ 85, 88.

Gentry sought to represent “[a]ll California salaried

customer service managers who worked overtime for

[Circuit City] and were not paid overtime wages from

within the four years preceding the filing of this

complaint and up to the time defendants re-classified

the position to non-exempt status.” Compl. 7 11.

Gentry advanced causes of action under Section 1194

of the California Labor Code, Section 17200 of the

California Business and Professions Code, and

common law conversion. Jd. 9 10, 20, 24. In

connection with these claims, Gentry sought recovery

of (i) compensatory damages, (11) “waiting time

penalties” under California Labor Code § 203, (iii)

“restitution and disgorgement of monies” under

§ 17200, (iv) “punitive and exemplary damages” for

conversion, (v) “pre-judgment interest as allowed by

California Labor Code Sections 1194 and 218.6,” and

(vi) “reasonable attorneys fees, expenses and costs

provided by California Labor Code Sections 1194,”

and “other applicable California laws.” Compl. at 14-

15.

c. On February 28, 2003, the Superior Court

granted Circuit City’s motion to compel arbitration

and ordered “plaintiff to arbitrate his claims on an

individual basis.” Pet. App. 75a. The court held that

the agreement to arbitrate was not unconscionable

because “Gentry was given the option of opting out of

the arbitration agreement” but he “did not opt out.”

Id. at 79a.

9

The California Court of Appeal dismissed Gentry’s

appeal and subsequently denied his petition for writ

of mandate. Pet. App. 72a. On November 19, 2003,

the California Supreme Court granted Gentry’s

petition for review, and deferred further action

pending its decision in Discover Bank v. Superior

Court. Id. at 4a. On August 31, 2005, the California

Supreme Court remanded this case to the Court of

Appeal for reconsideration in light of its ruling in

Discover Bank. Id. at 67a. On remand, the Court of

Appeal again enforced the agreement to arbitrate

because the “class action waiver” in the arbitration

agreement “is neither procedurally nor substantively

unconscionable.” Id. at 59a.

The Court of Appeal explained that “the agreement

at issue here does not have [an] adhesive element and

therefore is not procedurally unconscionable” because

“{[sligning the arbitration agreement was not made a

condition of Gentry’s employment” and “he was given

30 days to decide whether or not to opt out of the

agreement, and chose not to do so.” Pet. App. 61a.

As such, Gentry was “free to decide whether or not

the advantages of arbitration outweigh the

disadvantages.” Jd. at 62a. The Court of Appeal

distinguished Discover Bank because the Agreement

was not a “consumer contract of adhesion” and did

not “predictably involve small amounts of damages.”

Id. at 63a. The court underscored that “Gentry has

alleged statutory violations that could result in

substantial damages and penalties should he prevail

on his individual claims.” Jd. at 64a.

d. The California Supreme Court reversed. It

concluded that enforcement of the parties’ agreement

to arbitrate individually turned on an evaluation of

whether individual arbitration “would pose a serious

obstacle to the enforcement of the state’s overtime

10

laws.” Pet. App. la. Specifically, the court ruled that

“the statutory right to receive overtime pay embodied

in section 1194 [of the California Labor Code] is

unwaivable,” id. at 12a, and that “under some

circumstances [a provision requiring individual

arbitration] would lead to a de facto waiver and

would impermissibly interfere with employees’ ability

to vindicate unwaivable rights and to enforce the

overtime laws,” id. at 13a.!

The California Supreme Court held _ that

enforcement of an agreement to arbitrate individually

was contingent on an assessment whether a class

action “is likely to be a significantly more effective

practical means of vindicating the rights of the

affected employees than individual litigation or

arbitration” and whether “disallowance of the class

action will likely lead to a less comprehensive

enforcement of overtime laws for the employees

alleged to be affected by the employer’s violations.”

Pet. App. 23a. That inquiry would require a court to

assess factors such as (1) “the potential for retaliation

against members of the class,” (i) “the fact that

absent members of the class may be ill informed of

their rights,” and (iii) a_ catch-all category

encompassing “other real world obstacles to the

vindication of class members’ right to overtime pay

through individual arbitration.” Id. The court noted

that this inquiry is “similar to the one [a court]

1The court, however, ruled that “nothing in this opinion”

prevents an employee from “entering into an_ individual

postdispute arbitration agreement with Circuit City.” Pet. App.

31a n.9 (emphasis added).

11

already makes to determine whether class actions are

appropriate.” Id. at 24a-25a.2

The court below rejected the argument that the

FAA foreclosed its ruling. Pet. App. 26a-29a. The

court acknowledged that the “United States Supreme

Court has since held that the FAA does not permit

states to legislatively prohibit arbitration of wage

disputes,” id. at 29a n.8 (emphasis added), but

concluded that the FAA did not prohibit the court’s

refusal “to enforce, under some circumstances and in

an arbitration-neutral manner ... , provisions of

arbitration agreements that significantly undermine

the ability of employees to vindicate their statutory

right to overtime pay.” Id.

Separately, the California Supreme Court held that

the agreement to arbitrate was_ procedurally

unconscionable because although Circuit City

“alluded to some of the shortcomings of arbitration in

a general sense, it did not mention any of the

additional significant disadvantages that this

particular arbitration agreement had compared to

litigation.” Pet. App. 37a. Likewise, the court

speculated that “it is not clear that someone in

Gentry’s position would have felt free to opt out.” Id.

at 39a.

2The court dismissed the argument that “Gentry as an

individual has not shown himself to be burdened by the class

arbitration waiver” because it reasoned that “it makes little

sense to focus only on whether the class representative himself

or herself would be stymied in the pursuit of an individual

arbitration remedy, rather than considering as well the

difficulties for the class of employees affected by Circuit City’s

allegedly unlawful practices.” Pet. App. 24a n.7 (citation

omitted).

12

e. Justice Baxter, joined‘ by Justices Chin and

Corrigan, dissented. They explained that “there is no

indication in the record that Gentry himself—the

person whose contract for individual arbitration is

actually before us—cannot, as a practical matter,

vindicate his statutory overtime rights except

through class proceedings.” Pet. App. 46a. They

highlighted that the practical impact of the majority’s

ruling was that notwithstanding an agreement to

arbitrate individually, “the trial court may certify a

class, in an overtime-wage case, in any circumstance

where it could otherwise do so.” Id. at 47a.

The dissenters objected because the majority

impermissibly “elevate[d] a mere judicial affinity for

class actions as a beneficial device for implementing

the wage laws above the policy expressed by .. .

Congress .... that voluntary individual agreements

to arbitrate—by which parties give up certain

litigation rights and procedures in return for the

relative speed, informality and cost efficiency of

arbitration—should be enforced according to their

terms.” Pet. App. 48a-49a. The dissent explained

that the majority had manifested its hostility to

arbitration by “alter[ing] the arbitral terms to which

the parties agreed, and defeat[ing] the essential

purposes and advantages of arbitration, by

transforming that process, against the parties’

expressed will at the time they entered the

agreement, into something more and more like the

court litigation arbitration is intended to avoid.” Id.

at 52a.

Finally, the dissent would have affirmed the Court

of Appeal’s ruling that the Agreement was not

procedurally unconscionable because “Circuit City

provided Gentry, and other employees, with an

extensive orientation about the program, then

13

allowed them a reasonable time to ‘opt out.’ without

penalty simply by mailing back a form.” Pet. App.

53a. They reasoned that because Gentry was

afforded reasonable time to consult an attorney about

the program, there was no basis for concluding that

Circuit City misled its employees and there was no

“evidence that it implied, threatened, or imposed any

sanction for an employee’s decision to opt out of the

program.” Id. at 55a.

REASONS FOR GRANTING THE PETITION

Review of the decision of the California Supreme

Court is necessary to ensure the proper and uniform

interpretation of the Federal Arbitration Act. This

case presents an ideal vehicle to do so because the

decision below squarely implicates conflicts among

the federal courts on two recurring issues of national

importance concerning the FAA. First, may courts

refuse to enforce the terms of agreements to arbitrate

based on narrow state policies that do not apply to

“any contract” when the FAA mandates a “liberal

federal policy favoring arbitration agreements,

notwithstanding state substantive or procedural

policies to the contrary.” Perry v. Thomas, 482 U.S.

483, 489 (1987) (quoting Moses H. Cone Mem1 Hosp.

v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). And,

second, does the FAA allow arbitration-specific rules

of unconscionability to provide a basis for refusing to

enforce the terms of arbitration agreements. Perry,

482 US. at 492 n.9.

As to the first issue, under the decision below,

enforcement of the terms of agreements to arbitrate

can be denied not only on the narrow textual grounds

set forth in Section 2 for the “revocation of any

contract,” 9 U.S.C. § 2, but also based upon countless

polic. preferences interposed by state legislatures

14

and courts in connection with virtually any

substantive legal area from franchising law to

consumer law to labor law. The decision below thus

sets a dangerous precedent that threatens to

undermine the benefits of arbitration under the FAA.

Indeed, the FAA is predicated on the view that

arbitration is valuable because it provides an

alternative to litigation whereby parties can agree to

resolve disputes through procedures that differ from

those in litigation.

In adopting a broad view of the role that state

policies should play in determining when the terms of

arbitration agreements will be enforced, the

California Supreme Court brought itself into conflict

with decisions of five federal circuit courts — including

the Ninth Circuit — which have held that agreements

to arbitrate are fully enforceable save upon the

textual grounds reflected in 9 U.S.C. § 2. Here, the

California Supreme Court conditioned enforcement of

the parties’ agreement to arbitrate on an analysis

whether individual arbitration was consistent with

California labor law policies. That ruling is flatly

inconsistent with the rule adopted by the federal

circuits that have addressed this issue. See supra at

3. Indeed, the need for review is particularly stark

because the decision below conflicts with the Ninth

Circuit’s decision in Bradley so that the requirements

of the FAA in California depend on whether a case is

pending in federal or state court.

As to the second issue, the California Supreme

Court’s separate “unconscionability” ruling likewise

warrants review because it conflicts directly with the

decisions of this Court explaining that enforcement of

agreements to arbitrate cannot be predicated on a

state-law principle that “takes its meaning precisely

from the fact that an agreement to arbitrate is at

15

issue.” Perry, 482 U.S. at 493 n.9; Doctor’s Assocs.,

517 U.S. at 687. The court below ruled that the

Agreement was unconscionable because Circuit City

had failed to compare the relative “disadvantages” of

“arbitration” to the advantages of litigation. That

ruling impermissibly creates an arbitration-specific

rule to assess the enforceability of arbitration

agreements in direct contravention of this Court’s

decisions in Perry and Doctor’s Associates. Moreover,

the ruling below conflicts with the Third Circuit’s

recent decision explaining that the FAA imposes

substantial limitations on the application of state

unconscionability law to rewrite or strike down

agreements to arbitrate.

I. THE DECISION BELOW IMPLICATES A

DEEP CONFLICT ON WHETHER A COURT

MAY REFUSE TO ENFORCE THE TERMS

OF AN AGREEMENT TO ARBITRATF

BASED ON STATE POLICIES THAT DO

NOT APPLY TO “ANY CONTRACT.”

Review should be granted because the decision of

the California Supreme Court conflicts directly with a

series of federal circuits on the question whether

state-law policies other than those that apply to “any

contract” may preclude enforcement of the terms of

an agreement to arbitrate. 9 U.S.C. § 2.

a. On one side of the legal divide are federal

circuit courts that follow the language of Section 2 of

the FAA, which requires that arbitration agreements

“shall be valid, irrevocable, and enforceable, save

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

revocation of any contract.” 9 U.S.C. § 2 (emphasis

added). These courts hold that state law that applies

only to some, but not all, contracts, cannot defeat an

agreement to arbitrate. See Bradley v. Harris

Research, Inc., 275 F.3d 884, 889-90 (9th Cir. 2001);

16

Stawski Distrib. Co. v. Browary Zywiec S.A., 349 F.3d

1023, 1024-26 (7th Cir. 2003); OPE Intl LP v. Chet

Morrison Contractors, Inc., 258 F.3d 443, 447 (£th

Cir. 2001) (per curiam); KKW Enters., Inc. v. Gloria

Jean’s Gourmet Coffees Franchising Corp., 184 F.3d

42, 50-51 (1st Cir. 1999); Doctor’s Assocs., Inc. v.

Hamilton, 150 F.3d 157, 163 (2d Cir. 1998); ef.

Management Recruiters Int’ v. Bloor, 129 F.3d 851,

856 (6th Cir. 1997).

In Bradley, the Ninth Circuit held that Section 2 of

the FAA preempted a state statute that would have

blocked enforcement of an arbitration agreement

because the statute applied only to franchise

agreements. 275 F.3d at 890. Bradley reasoned that,

under Section 2 of the FAA, “only state law that

addresses the enforcement of ‘contracts generally’ is

not preempted by the FAA.” ld. at 889 (quoting

Doctor’s Assocs., 517 U.S. at 687) (quotation marks

omitted). Relying on decisions of the First, Second,

Fifth, and Sixth Circuits, the Ninth Circuit held that

the franchise statute “does not apply to ‘any

contract,” and therefore was preempted by the FAA.

Id. at 890 (quoting 9 U.S.C. § 2).

In Bradley, appellees contended—like the California

Supreme Court in this case-that the state statute

was not preempted “because it treats arbitration and

litigation equally and does not single out arbitration

as a disfavored form of dispute resolution.” Id. at

889. The Ninth Circuit rejected that argument,

holding that “only state law that addresses the

enforcement of ‘contracts generally’ is not preempted

by the FAA.” Id. (quoting Doctor’s Assocs., 517 U.S.

at 686-87). As Bradley explained, even if a state

statute places arbitration on “equal footing” with

litigation, it is preempted by the FAA if it is not

generally applicable to all contracts. Id.; see also

17

Ting v. AT&T, 319 F.3d 1126, 1147-48 (9th Cir. 2003)

(FAA preempts requirement in California’s Consumer

Legal Remedies Act (CLRA) that precluded waiver of

class actions).

Likewise, the Fifth Circuit applied this same

reasoning in OPE International LP, 258 F.3d 443.

There, appellant argued that the arbitration

agreement in question was invalid under a Louisiana

statute applicable to construction contracts. The

Fifth Circuit disagreed, holding that a state law that

puts “a requirement” on arbitration clauses “not

applicable to contracts generally” is preempted by

Section 2 of the FAA. ZId. at 447. The Fifth Circuit

held that the state “statute directly conflicts with § 2

of the FAA because the State’s law conditions the

enforceability of arbitration agreements on

compliance with a...requirement not applicable to

contracts generally.” Jd. (quoting Doctor’s Assocs.,

517 U.S. at 687) (alteration omitted).

To the same effect is KKW Enterprises, Inc., 184

F.3d 42. There, the First Circuit held that a state

statute applicable only to franchise contracts was

preempted by Section 2 of the FAA because it “does

not apply to all contracts and does not establish a

generally applicable contract defense.” Jd. at 52. The

First Circuit reasoned that only state statutes that

apply to “any contract” are consistent with the FAA.

Id. at 50-51. That is, state statutes that apply only to

one type of contract do not set forth “a generally

applicable contract defense” and are _ therefore

preempted by the FAA. Jd. at 51.

Similarly, in Doctor’s Associates, 150 F.3d 157, the

Second Circuit held that Section 2 of the FAA

preempted state law applicable only to franchise

contracts because the law “did not establish a

generally applicable contract defense that applies to

18

any contract.” Jd. at 163 (quotation marks omitted).

Instead, the law simply “invalidated a franchise

agreement's forum selection clause under the New

Jersey Franchise Practices Act.” Id. The Court noted

that its holding meant that “state law” would play a

more “narrow role ...in FAA jurisprudence,” id. at

162, but that precise result was mandated by the

“FAA’s strong policy in favor of rigorously enforcing

arbitration agreements.” Id.

Further, in Stawski Distributing, 349 F.3d 1023,

the Seventh Circuit overturned the district court’s

order denying a “stay [of] litigation in favor of

arbitration” and held that state law governing

contracts between “brewers and distributors” was

preempted because it did not apply generally to all

contracts. Jd. at 1024-25. The Seventh Circuit

explained that the FAA “disables states from

subjecting arbitration to rules that are not generally

applicable to other contract choices,” and therefore

the result mandated by the FAA under these facts

was that the state law was preempted and the

arbitration must continue. Jd. at 1025.

Taken together, these cases establish that five

federal circuit courts have applied the unambiguous

language of Section 2 of the FAA to hold that courts

may not refuse to enforce agreements to arbitrate

based on state-law grounds other than “grounds that

exist at law or in equity for the revocation of any

contract.” 9 U.S.C. §2. Under the majority view,

state law applicable to a limited set of contracts

cannot, consistent with the FAA, provide a basis for

refusing to enforce the terms of an agreement to

arbitrate.

b. In conflict with the majority rule is the

decision below as well as decisions by the Montana

and Washington Supreme Courts. These courts have

19

invalidated arbitration agreements based on state

law applicable only to a narrow subset of contracts

and sought to support that result by noting that they

apply the same or similar standards to non-

arbitration agreements.

In the decision below, the California Supreme

Court held that the enforceability of an agreement to

arbitrate individually depends on a determination

whether individual arbitration was consistent with

state labor law policy. Pet. App. 23a. The Court

further held that the state labor law is not preempted

by the FAA, even though such policies are not

applicable to contracts generally but only to labor

contracts. Id. at 26a-29a. The California Supreme

Court reasoned that its ruling was not preempted

because it was “arbitration-neutral,” i.e., it treated

contracts that called for litigation and arbitration the

same. Id. at 27a.

In a similar vein, the Washington Supreme Court

in Scott v. Cingular Wireless, 161 P.3d 1000 (Wash.

2007), invalidated an arbitration agreement based on

a state law applicable to consumer contracts. Id. at

1008-09. Plaintiffs brought suit to invalidate an

arbitration clause limiting class action arbitration, id.

at 1002-03, and argued that the arbitration clause

violated the state consumer protection act, which by

its terms applies only to consumer contracts. Id. at

1005. The Washington Supreme Court invalidated

the arbitration agreement because it concluded that

individual arbitration was contrary to the state

consumer protection law. Jd. at 1008.3

3 See Wisconsin Auto Title Loans, Inc. v. Jones, 714 N.W.2d

155, 177-78 (Wis. 2006) (stating, in dicta, that FAA “preempts

only those laws that target arbitration specifically while

20

In Keystone, Inc. v. Triad Systems Corp., 971 P.2d

1240 (Mont. 1998), the Montana Supreme Court held

that state law applying to contracts with arbitration

clauses was not preempted by the FAA because it did

not place arbitration agreements on “unequal

footing.” Jd. at 1245 (internal quotation marks

omitted). The Keystone Court examined the validity

of an arbitration clause that required out-of-state

arbitration against two Montana state statutes that

required such disputes to be resolved within

Montana. One statute applied to contracts that

contained no arbitration clauses, while the other

applied to contracts with arbitration clauses. Id. at

1244 (“No agreement concerning venue... is valid

unless the agreement requires that arbitration occur

within the state of Montana.”) (quoting Mont. Code

Ann. § 27-5-323). The Montana Supreme Court held

that the arbitration-specific statute was not

preempted by the FAA, id. at 1244-45, and rested its

holding on the fact that even though the state

arbitration law did not apply generally to “any

contract,” Montana law ultimately treated arbitration

and litigation in the same manner. Id.4

preserving through the savings clause state laws affecting

contracts’).

4 Scholars likewise have acknowledged this conflict over the

appropriate scope of the FAA. Compare Jean R. Sternlighi, The

Rise and Spread of Mandatory Arbitration as a Substitute for

the Jury Trial, 38 U. San Fran. L. Rev. 17, 36-38 (2003) (arguing

for narrow view of FAA preemption), with Christopher R.

Drahozal, Federal Arbitration Act Preemption, 79 Ind. L.J. 393,

409 (2004) (“Lower courts are split on whether” statutes that

govern only specific types of contracts “fall under the saving

clause and avoid preemption.”), and Stephen Hayford & Alan

Palmiter, Arbitration Federalism: A State Role in Commercial

Arbitration, 54 Fla. L. Rev. 175, 177 (2002) (discussing FAA

preemption and noting that there “lies a murky sphere (a kind

21

c. Review is warranted in this case to resolve this

fundamental conflict among the lower ccurts over the

proper application of the FAA on issues that affect

the rights of countless individuals and businesses

across the country.

Under the majority rule, the FAA mandates the

enforcement of agreements to arbitrate, in accordance

with their terms, save upon grounds available for the

revocation of “any contract.” 9 U.S.C. § 2. In those

cases, the lower courts hold that the FAA does not

allow them to refuse to enforce agreements to

arbitrate based upon narrow state policies such as:

Gi) franchise law (Bradley, 275 F.3d at 889-90 (9th

Cir.); Doctor’s Assocs., 150 F.3d at 163 (2d Cir.); KKW

Enters., 184 F.3d at 51-52 (1st Cir.)); (ii) construction

law (OPE Intl, 258 F.3d at 447 (5th Cir.)); (i)

consumer law (Ting, 319 F.3d at 1147-48 (9th Cir.));

and (iv) brewer and distributor law (Stawski, 349

F.3d at 1024 (7th Cir.)).

These decisions closely follow this Court’s decisions

holding that California franchise and labor law do not

provide a basis for refusing to enforce an agreement

to arbitrate. See Southland Corp. v. Keating, 465

U.S. 1, 16 n.11 (1984) (“(T]he defense to arbitration

found in the California Franchise Investment Law is

not a ground that exists in law or at equity ‘for the

revocation of any contract”); Perry, 482 U.S. at 490-

91 (1987) (FAA preempts California state policy that

required litigation of labor disputes). Indeed, in

Perry, this Court struck down a California statute

that precluded arbitration in cases invelving labor

disputes. This Court explained that, under the

of boundary) where the FAA speaks, but without the same

clarity and force as in the legislation’s provisions on

enforceability and arbitrability’).

22

Supremacy Clause, California’s requirement that

“litigants be provided a judicial forum for resolving

wage disputes” “must give way” to the FAA’s

requirement that arbitration agreements “be

‘rigorously enforce[d].” Id. at 490, 491 (quoting Dean

Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221

(1985)). This Court explained that the FAA con-

strained state law “whether of legislative or judicial

origin,” because otherwise a court could “effect what

we hold today the state legislature cannot.” Id. at

492 n.9 (emphasis added).

In stark contrast, the decision below holds that

enforcement of the terms of an agreement to arbitrate

can be denied based on state law policies applicable

not to “any contract” but based on California labor

law. Pet. App. 1a, 23a. Here, the California Supreme

Court made enforcement of the terms of the parties’

agreement to arbitrate contingent on an assessment

whether the individual arbitration agreed to by the

parties is consistent with labor law. Enforcement is

thus made to depend on matters such as (i) “the

potential for retaliation,” (41) the possibility that

“members of the class may be ill informed about their

rights,” and (iii) “other real world obstacles to the

vindication of class members’ right to overtime pay

through individual arbitration.” Jd. at 23a.

Such a broad and sweeping limitation of the federal

policy mandating enforcement of arbitration agree-

ments is a far cry from the specific textual grounds

set forth in Section 2 of the FAA and fundamentally

inconsistent with “Congress’s clear intent ... to move

the parties to an arbitrable dispute out of court and

into arbitration as quickly and easily as possible.”

Moses H. Cone Mem1 Hosp. v. Mercury Constr. Corp..,

460 U.S. 1, 22 (1983). Further, the open-ended

analysis of potential impact on third parties is flatly

23

contrary to this Court’s precedent that the FAA

requires (i) “an expeditious and summary hearing,

with only restricted inquiry into factual issues,” id.,

and (ii) that, under the FAA, “an arbitration

agreement must be enforced notwithstanding the

presence of other persons who are parties to the

underlying dispute but not to the arbitration

agreement,” id. at 20; see Dean Witter, 470 U.S. at

221 (FAA “requires piecemeal resolution when

necessary to give effect to an arbitration agreement”).

Further, the California Supreme Court squarely

rejected the argument that the federal “policy in favor

of enforcing arbitration agreements as_ written

overrides the statutory policy in favor of vigorously

enforcing overtime laws.” Pet App. 28a n.8. That

judge-made preference for state-law labor law over

binding federal law violates the Supremacy Clause of

the United States Constitution. Indeed, the

California Supreme Court’s preference for narrow

state law policies as a basis for undoing private

agreements to arbitrate is indistinguishable from the

impermissible policies adopted by the California

legislature that this Court held were preempted by

the FAA. See Southland, 465 U.S. at 10-11; Perry,

482 U.S. at 491.5 In effect, the California Supreme

Court has, through judicial decision, refused to

enforce the terms of an agreement to arbitrate based

on the same narrow state law grounds that this Court

rejected when attempted by the California

legislature. Jd. at 492-93 & n.9.

5 The court below sought to distinguish Perry, arguing that it

stands solely for the proposition that “the FAA does not permit

states to legislatively prohibit arbitration of wage disputes.”

Pet. App. 29a n.8. The Perry Court, however, made clear that

the FAA preempted state law “whether of legislative or judicial

origin.” 482 U.S. at 492 n.9.

24

The California Supreme Court’s conclusion that its

ruling is not preempted by the FAA because it was

refusing to enforce the parties’ agreement in an

“arbitration-neutral manner,” Pet. App. 29a n.8, is

precisely the argument that the federal circuit courts

applying the majority rule have rejected. Thus, the

Ninth Circuit in Bradley held that the FAA

preempted California law that “affect[ed] both

arbitration and litigation” because it did not apply to

“contracts generally.” 275 F.3d at 889. A contrary

rule would allow courts to show hostility to

arbitration by altering the “arbitral terms to which

the parties agreed . . . into something more and more

like the court litigation arbitration is intended to

avoid.” Pet. App. 52a (Baxter, J., dissenting).

Lastly, the enforceability of arbitration clauses

governed by the FAA should not depend on geography

under any circumstances. But the decisional conflict

is particularly acute here where the outcome will

vary depending on whether the litigation arises in

federal court on one side of the street (and therefore

will be governed by the Ninth Circuit’s rule in

Bradley) or is brought on the other side (and is thus

subject to California’s rule in Gentry). This is an

intolerable situation and the Court should grant

certiorari to eliminate the race to the courthouse that

no doubt will be engendered.

Il. THE UNCONSCIONABILITY RULING IN

THE DECISION BELOW CONFLICTS WITH

DECISIONS OF THIS COURT AND THE

THIRD CIRCUIT.

Review also should be granted because the

California Supreme Court’s “unconscionability”

ruling conflicts both with this Court’s decisions and

implicates a conflict among the federal circuits.

25

a. In Perry, this Court ruled that a court may not

avoid the preemptive effect of the FAA through “[a]

state-law principle that takes its meaning precisely

from the fact that a contract to arbitrate is at issue.”

Perry, 482 U.S. at 493 n.9. Thus, “in assessing the

rights of litigants to enforce an _ arbitration

agreement,” a court may not “construe that

agreement in a manner different from that in which

it otherwise construes nonarbitration agreements

under state law” or “rely on the uniqueness of an

agreement to arbitrate as a basis for a state-law

holding that enforcement would be unconscionable.”

Id.

Following Perry, this Court in Doctor’s Associates

examined a state-law rule that made agreements to

arbitrate unenforceable unless “notice that [the]

contract is subject to arbitration [is] typed in

underlined capital letters on the first page of the

contract.” 517 U.S. at 684. This Court held that the

Montana law was preempted by the FAA because the

State’s “first-page notice requirement” applied

“specifically and solely” to “contracts ‘subject to

arbitration” and not to “any contract.” Jd. This

Court reasoned that Montana law was displaced

because it “conditions the enforceability of arbitration

agreements on comphance with a _ special notice

requirement not applicable to contracts generally.”

Id. at 687.

b. The California Supreme Court’s unconscion-

ability ruling conflicts with Perry and Doctor’s

Associates because it impermissibly imposes

requirements governing the enforceability of the

terms of agreements to arbitrate that are not

applicable to non-arbitration agreements.

First, the court below concluded that the agreement

to arbitrate was procedurally unconscionable—

26

despite a 30-day period during which Gentry could

have opted out without any adverse consequence—

because Circuit City “did not mention any of the

additional significant disadvantages that this

particular arbitration agreement had compared to

litigation.” Pet. App. 37a.

An _arbitration-specific requirement that an

individual be specifically provided an explanation of

the “disadvantages” of arbitration as compared to

litigation is precisely what this Court has confirmed

the FAA precludes: “Nor may a court rely on the

uniqueness of an agreement to arbitrate as a basis for

a state-law holding that enforcement would be

unconscionable.” Perry, 482 U.S. at 492 n.9. To be

clear, there is no question that Circuit City disclosed

the rules governing arbitration. Indeed, the court

below acknowledged that “an employee who read

Circuit City’s nine-page single-spaced document

entitled Circuit City’s ‘Dispute Resolution Rules and

Procedures’ would have encountered” the provisions

governing the parties’ arbitration. Pet. App. 38a.

What the court below required—and what the FAA

prohibits—is an additional arbitration-specific

obligation to disclose every possible way in which the

rules of arbitration might be deemed “less favorable

to an employee than those operating in a judicial

forum.” Id.

The standard applied by the California Supreme

Court likewise conflicts with Doctor’s Associates

because the court below interposed an obligation—

i.e., to catalog all of the potential disadvantages of

arbitration when compared to litigation — that applies

solely to agreements to arbitrate and not to

nonarbitration agreements. 517 U.S. at 687 (“Courts

may not... invalidate arbitration agreements under

state laws applicable only to arbitration provisions.”).

27

Indeed, the court below nowhere suggested any

parallel obligation for nonarbitration agreements to

identify the disadvantages of litigation as compared

to arbitration. As such, the California Supreme

Court improperly “requir[ed] greater information .. .

in the making of agreements to arbitrate than in

other contracts.” Id. (citation omitted).

The California Supreme Court's ruling is

particularly pernicious because every arbitration

agreement can be deemed procedurally unconscion-

able based upon the grounds advanced by the

decision below. As noted, at its core, arbitration is

beneficial because it provides individuals with an

alternative to litigation: “(B]y agreeing to arbitrate, a

party ‘trades the procedures and opportunity for

review of the courtroom for the _ simplicity,

informality, and expedition of arbitration.” Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 31

(1991). Under the ruling below, an arbitration

agreement would be deemed procedurally

unconscionable based solely on a failure to anticipate,

in an explanatory handbook, each and every possible

disadvantage of arbitration as compared to litigation.

Such a ruling would cripple the ability of parties to

choose arbitration as an alternative to litigation, a

choice that “may be of particular importance in

employment litigation, which often involves smaller

sums of money than disputes concerning commercial

contracts.” Circuit City Stores, Inc. v. Adams, 532

U.S. 105, 123 (2001).

The California Supreme Court also speculated that

‘ft is not clear that someone in Gentry’s position

would have felt free to opt out” because “Circuit City

preferred that the employee participate in the

arbitration program.” Pet. App. 39a. Under

California law, however, the party opposing enforce-

28

ment of a contract has the affirmative burden of

proving unconscionability. E.g., Brutoco Engg &

Constr., Inc. v. Superior Court, 107 Cal. App. 4th

1326, 1331 (2003). Here, “Gentry signed an easily

readable, one-page form that accompanied receipt of

the Associate Issue Resolution Package,” which

explained the procedures if he wanted to opt out of

arbitration with Circuit City. Pet. App. 32a-33a. The

majority cited no support for its novel view that

where an employer has a preference for arbitration,

its employees (even if offered an opt out) will be

deemed to have been coerced into agreeing to

arbitrate. To the contrary, the law is settled that

“[mJere inequality in bargaining power... is nota

sufficient reason to hold that arbitration agreements

are never enforceable in the employment context.”

Gilmer, 500 U.S. at 33.6

c. The Calhfornia Supreme Court’s unconscion-

ability ruling also conflicts with the Third Circuit’s

decision in Gay v. CreditInform, __ F.3d ____ 2007

6 See Michael G. McGuinness & Adam J. Karr, California’s

“Unique” Approach to Arbitration: Why This Road Less Traveled

Will Make All the Difference on the Issue of Preemption Under

the Federal Arbitration Act, 2005 J. Disp. Resol. 61, 62 (2005)

(“California has created a new brand of unconscionability. It is

far more demanding—and it is unique to arbitration.”); Susan

Randall, Judicial Attitudes Toward Arbitration and _ the

Resurgence of Unconscionability, 52 Buff. L. Rev. 185, 186 (2004)

(“[Jjudges find unconscionable specific features of arbitration

agreements, such as forum selection clauses and confidentiality

requirements, which are routinely enforced as unobjectionable

in nonarbitration agreements”); Stephen J. Ware, Arbitration

and Unconscionability After Doctor's Associates, Inc. v.

Casarotto, 31 Wake Forest L. Rev. 1001, 1034 (1996) (“Judicial

decisions apply unconscionability, and other common law

doctrines, more aggressively to arbitration agreements than to

other contracts.”).

29

WL 4410362 (3d Cir. Dec. 19, 2007).7 In Gay, the

Third Circuit applied this Court’s decision in Perry

and explained that the FAA “distinguished state law

principles that apply to contracts generally from

those that are unique to arbitration agreements.” Id.

at *20. The Gay Court ruled that an agreement to

arbitrate a consumer dispute as a class action was

enforceable even if such an agreement would be

deemed “unconscionable” as a matter of Pennsylvania

decisional law.

The Third Circuit rejected the argument that

Pennsylvania unconscionability law was insulated

from turther scrutiny under the FAA. Jd. The Third

Circuit instead concluded that the “unconscionability”

rulings under Pennsylvania law would be preempted

by the FAA because those rulings “deal with

agreements to arbitrate, rather than with contracts

in general.” Jd. Specifically, the Gay Court explained

that state-law “unconscionability” rules were

preempted when they “rel[y] on the uniqueness” of

the arbitration provision. Jd.

The Third Circuit’s decision is in direct conflict with

the decision below, because the California Supreme

Court’s unconscionability analysis centered on the

fact that an agreement to arbitrate was at issue. The

court below adopted an unconscionability standard

based upon arbitration-specific rules that, by their

terms, do not apply to nonarbitration contracts. In

? Accord Iberia Credit Bureau, Inc. v. Cingular Wireless LLC,

379 F.3d 159, 167 (5th Cir. 2004) (“Even when using doctrines of

general applicability, state courts are not permitted to employ

those general doctrines in ways that subject arbitration clauses

to special scrutiny.”); Banc One Acceptance Corp. v. Hill, 367

F.3d 426, 432 (5th Cir. 2004) (same).

30

stark contrast, the Third Circuit has explained that

such rules are preempted by the FAA.

The need to resolve this conflict is even more

pressing now that the Ninth Circuit has considered

the issue and declined “to follow the holding in Gay.”

Lowden v. T-Mobile USA, Inc., ___ F.3d ___, 2008 WL

170279, at *8 n.3 (9th Cir. Jan. 22, 2008).

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

REX DARRELL BERRY CARTER G. PHILLIPS*

BERRY & BLOCK, LLP PAUL J. ZIDLICKY

2150 River Plaza Drive ILEANA MARIA CIOBANU

Sacramento, CA 95833 HL ROGERS

(916) 564-2000 SIDLEY AUSTIN LLP

1501 K Street, N.W.

STEVEN B. KATZ Washington, D.C. 20005

THELEN REID BROWN (202) 736-8000

RAYSMAN & STEINER LLP

333 South Hope Street

29th Floor

Los Angeles, CA 90071-3048

(213) 576-8072

Counsel for Petitioner

January 29, 2008 * Counsel! of Record