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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2008

## Text

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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.

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386010_0574%3A1. Public record. Not legal advice.