Opposition Brief — Circuit City Stores, Inc. v. Gentry, 128 S. Ct. 1743 (2008) (No. 07-998)

St

6) FILED

No. 07-998 FEB 23 2008

SUPREME COURT US.

3u The

Supreme Court of the United States

*

CIRCUIT CITY STORES, INC.,

Petitioner,

V.

ROBERT GENTRY,

Respondent.

+

On Petition For Writ Of Certiorari

To The Supreme Court Of California

%

BRIEF IN OPPOSITION

*

MATTHEW RIGHETTI ELLEN LAKE

RIGHETTI LAW FIRM, P.C. Counsel of Record

456 Montgomery Street, LAW OFFICES OF ELLEN LAKE

Suite 1400 4230 Lakeshore Avenue

San Francisco, CA 94104 Oakland, CA 94610

(415) 983-0900 (510) 272-9393

DENNIS P. RIORDAN

RIOKDAN & HORGAN

523 Octavia Street

San Francisco, CA 94102

(415) 431-3472

Attorneys for Respondent Robert Gentry

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964

OR CALL COLLECT (402) 342-2831

i

TABLE OF CONTENTS

Page

EIU PAPA PO div anessnciseeicccondaancduaceeunmiansi eel 1

STATEMENT OF THE CASE. ...........ccecceeceeeeereee 5

A. Gentry’s Class Action Suit and Circuit

City’s Arbitration Agreement ...................6. 5

B. The California Supreme Court’s Decision.. 9

1. The Class Arbitration Ban .................... 9

2. BARA Prem veiccincinctaunmnnsinnins 11

3. Procedural Unconscionability ............... 12

REASONS FOR DENYING THE WRIT ............... 14

I. THE COURT LACKS JURISDICTION

OVER THIS CASE BECAUSE THE DE-

CISION BELOW, REMANDING FOR

FURTHER PROCEEDINGS TO DETER-

MINE THE FEDERAL QUESTION, IS

NOT A FINAL JUDGMENT UNDER 28

U.S.C. $ TRG) oc .siscinctevsscnsecemaneeeanns 14

II. THIS IS NOT AN APPROPRIATE CASE

FOR DECIDING THE FIRST QUESTION

PRESENTED BECAUSE THAT ISSUE

WAS NEVER RAISED BELOW AND NO

CON PLAC T Beer 0 ee viiickccscnsssssdreaenne 16

A. Circuit City’s First Question Presented

Was Not Raised Below .......................405 17

B. The “Any Contract” Argument Does

Not Present a Basis for Review in Any

Event Because the Allegedly Conflict-

ing Decisions Are Distinguishable........ 17

il

TABLE OF CONTENTS - Continued

Page

Ill. THE SECOND QUESTION PRESENTED

DOES NOT WARRANT REVIEW BE-

CAUSE IT WAS NOT RAISED BELOW

AND IS BASED ON A MISCHARAC-

TERIZATION OF THE DECISION BE-

NEEDY sivanssnorcdccesertsasscssesaocessinuneiiannsdenapeenh

iil

TABLE OF AUTHORITIES

Page

CASES

A & M Produce Co. v. FMC Corp., 135

CE A re re Cesk hccceisendosnnenthtintanancentnicnaien 23

Adams v. Robertson, 520 U.S. 83 (1997)...............000.. 17

America Online, Inc. v. Superior Court, 90

CE I EIA Be Ca icine cetasiccinccesesnctneeddensnbasns 25

Armendariz v. Foundation Health Psychcare

Services, 24 Cal.4th 83 (2000) ...................ccceeeeseeees 26

Baker Pacific Corp. v. Suttles, 220 Cal.App.3d

PN iciscy tain bdciaccantiindaptanctiabsieessee tues 20

Bradley v. Harris Research, Inc., 275 F.3d 884

Ce i I sis tcencsicdcasceias ncaiennsinaetsteoeersasieecinatalaincs 17, 18

Corning Glass Works v. Brennan, 417 U.S. 188

CID eikictipnicshiaia sce palace apapeain klbatepatdacibeastdaaso 7

Cortez v. Purolator Air Filtration Products Co.,

ee Be iyi heacidentatcinenbionbicenesncanonsecnd 6

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469

CI Mth dadacsscuritians tdeusedum alot nGetn ete eee eae 14

Discover Bank v. Superior Court, 36 Cal.4th

CD cceininn Vinknnhaciinsshnsiinnith vse encicibiaipandigeciaina Passim

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

Re SR i ieccceachisninnouserancenvactensnisasteanganatoeel 18, 21, 24

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

Br ae I kink tcaceienigienaec oni aiccnas oe 19

Ellis v. McKinnon Broadcasting Co., 18

UE AE FU CED settee scneitachacenscesceussbinnsnense 23

iv

TABLE OF AUTHORITIES ~— Continued

Page

Gavin W. v. YMCA of Metropolitan Los Angeles,

BOS Cal Ami. 460 GES (Q00B) a iccniccccssccisssscccsascssscescaee 19

Gay v. CreditInform, __ F.3d __, 2007 WL

4410362 (3d Cir. Dec. 19, 2007).................... 4, 24, 25

Gilmer v. Interstate/Johnson Lane Corp., 500

CF 7): BERR RCS ye mitra en Reno meer yn n ners 9, 20

Halliday v. Greene, 244 Cal.App.2d 482 (1966)......... 20

Ilkhchooyi v. Best, 37 Cal.App.4th 395 (1995)........... 23

In re Marriage of Fell, 55 Cal.App.4th 1058

sendin cel anand Jedd aa oa nial saniceleuncaniiens 20

Jefferson v. City of Tarrant, Ala., 522 U.S. 75

5 RETESET aC pe ute PA ty RL ane My RO Se RE TSE MONEMME 14

KKW Enterprises, Inc. v. Gloria Jean’s Gourmet

Coffees Franchising Corp., 184 F.3d 42 (1st

a I iain dak csediatacsits sco ancsesanchaa cies cineina esasbatstaaeiecaabnlis 18

Little v. Auto Stiegler, Inc., 29 Cal.4th 1064

5 APRESS eR aa ER UIE 9, 11, 19, 26

Lowden v. T-Mobile USA, __ F.3d __, 2008

WL 170279 (9th Cir. Jan. 22, 2008)..............cccceceees 25

Mitchell v. Robert DeMario Jewelry, Inc., 361

Be ich sistas aechenela nihan wn aineaseinanoaaloaiei 10

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985)................ ee 20

OPE International LP v. Chet Morrison Con-

tractors, Inc. , 258 F.3d 443 (5th Cir. 2001)............. 18

Pardee Construction Co. v. Superior Court, 100

FG BR CH ov sda ictccstacessscnsisvrasscaneccesees 22

Vv

TABLE OF AUTHORITIES — Continued

Page

Perry v. Thomas, 482 U.S. 483 (1987)............ 15, 16, 24

Preston v. Ferrer, ___ U.S. ___, 2008 WL 440670

sus sckndssisnaatinvecsaaensenancnces 20

Radio Station WOW, Inc. v. Johnson, 326 U.S.

Ne ccaausbunsednnsadconccnaes 14

Ramirez v. Yosemite Water Co., 20 Cal.4th 785

Neen cn enceahhstabeesenenaseien 7

Southland Corp. v. Keating, 465 U.S. 1 (1984)....15, 16

Stawski Distributing Co. v. Browary Zywiec

S.A., 349 F.3d 1023 (7th Cir. 2008)..................c00 18

Ticknor v. Choice Hotels Intern., Inc., 265 F.3d

Nee casstiinacndeccasansssoaseancanaci 18

Tunkl v. Regents of University of California, 60

Neen ee iiss cnchkadendsvacasceccuersaeneanscesss 19

STATUTES

iain c dccicnesuavsesndnsccnsasderessnvssenens passim

i ID so cccssnennanancnacasensaacscenss 4,14, 15, 16

Neen ciiccccnwssvatancssncccacsecs 7

om, meee, Ge Pe. CORO S TP TBOG................0ccccccccccc.sces 6, 7

cs sccanacecansnonsencecsenccess 3, 19, 20

I I Oe I, ans cc xeccanveccnccccaccecencescccsssce 6,7

A I cca cacactcncunacvenccacansancessarsanae 7,9

NE ce a 7

TABLE OF AUTHORITIES -— Continued

OTHER AUTHORITY

U.S. Supreme Court Rule 14(1)(g) ........ eee eee 1

1

INTRODUCTION

Circuit City’s petition for writ of certiorari does

not comply with the requirement of Supreme Court

Rule 14(1\(g) that a petitioner must state “when the

federal questions sought to be reviewed were raised,

the method or manner of raising them, and the way

in which they were passed on by those courts.” Cir-

cuit City cannot comply with this rule because it did

not raise either of its Questions Presented in the

California courts. Neither should be considered by

this Court.

Section 2 of the Federal Arbitration Act (“FAA”),

which is its preemption provision, states that arbitra-

tion 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. Circuit City argued below that a state law

rule invalidating its contractual class arbitration ban

would be preempted by the FAA because such a rule

would discriminate against arbitration clauses only.

Indeed in the California Supreme Court, Circuit

City’s preemption argument was much narrower; it

asserted that if the Supreme Court held that class

action bans in wage and hour cases were always or

presumptively invalid, such a bright-line rule would

be preempted. The California high court rejected any

across-the-board rule, opting instead for a case-by-

case approach in which a given plaintiff must prove

that a particular class action ban is exculpatory

under the facts of the specific case.

2

In this Court, Circuit City now asserts new and

significantly different preemption claims that the

California courts never had an opportunity to ad-

dress. In its first Question Presented, Circuit City

focuses on the last two words in FAA §2 — “any

contract” — and contends that the decision below

violates the FAA because its rationale is based on

state labor policies that do not apply generally to “any

contract.” In its second Question Presented, Circuit

City argues that the California Supreme Court’s

procedural unconscionability analysis improperly

discriminates against arbitration because it imposes

a unique requirement that arbitration agreements

must expressly compare the relative “disadvantages”

of arbitration to the “advantages” of litigation.

Circuit City’s failure to raise these issues below,

where they could have been thoroughly litigated, is

compounded by its strategy in this Court of mis-

characterizing the reasoning of the decision below in

an effort to create conflicts with decisions of the

federal circuit courts and this Court. In reality, such

conflicts do not exist, further undercutting any claim

for a grant of review.

The first Question Presented is based on a hand-

ful of federal circuit decisions involving state statutes

or cases that affect only contracts in a single industry.

Because of the narrowness of the state laws, the

circuit courts held that they did not apply to “any

contract” and were thus preempted by the FAA.

However, the California Supreme Court’s analysis

3

applies to all contracts that effectively bar individu-

als from vindicating rights under remedial statutes,

thus causing a waiver of unwaivable rights. The

governing principle is codified in California Civil

Code § 1668, which provides, “All contracts which

have for their object, directly or indirectly to exempt

anyone from responsibility for his own fraud, or

willful injury to the person or property of another, or

violation of law, whether willful or negligent, are

against the policy of the law.” Ital. added. See Pet.

App. 7a-8a. Circuit City’s characterization of this

generally applicable principle of California contract

law as being limited to “state labor law policies” is

plainly inaccurate.

In its second Question Presented, Circuit City

claims that the California Supreme Court’s ruling

on procedural unconscionability conflicts with this

Court’s decisions cn arbitration neutrality by requir-

ing an arbitration-specific notice concerning the

disadvantages of arhitration as compared to litiga-

tion. Once again, Circuit City has seriously misread

the decision below. The California Court did not

impose a notice requirement solely on arbitration

agreements. Rather it held that procedural uncon-

scionability was implicated in this case because

Circuit City deceived its employees into not opting

out of arbitration by touting the theoretical benefits

of arbitration while concealing the many ways in

which its particular arbitration rules actually strip

employees of important statutory rights. Many

California decisions apply the same reasoning to

4

non-arbitration contracts that deprive individuals of

such rights.

Finally, Circuit City’s contention that the deci-

sion below conflicts with a Third Circuit case, Gay v.

CreditInform, F.3d___, 2007 WL 4410362 (3d Cir.

Dec. 19, 2007), also provides no basis for a grant of

review. In Gay, the Third Circuit dealt with unique

Pennsylvania law that “obvious(ly]” applied uncon-

scionability differently to arbitration agreements

than to non-arbitration agreements. Jd. at *21. That

is not true of the decision below. California courts

have struck as unconscionable class action bans that

were contained in contracts that did not involve

arbitration.

This Petition for Certiorari should also be re-

jected for lack of a final judgment under 28 U.S.C.

§ 1257(a). The California Supreme Court did not deny

Circuit City’s petition to compel arbitration. Instead,

it remanded to the trial court for fact-finding as to

whether petitioner’s class arbitration ban is actually

exculpatory. Pet. App. 29a, 41a. Thus there has been

no final determination of any federal question. By

asking this Court to review the case at this stage,

petitioner not only seeks to avoid the jurisdictional

“final judgment” requirement but also implicitly

asserts that it does not matter what the facts are

because federal law requires that Circuit City be

allowed to misuse arbitration to deprive individuals

5

of substantive statutory rights. This Court should

reject petitioner’s unsupported and extreme position.

+

STATEMENT OF THE CASE

A. Gentry’s Class Action Suit and Circuit City’s

Arbitration Agreement

Robert Gentry was employed as a customer

service manager for Circuit City Stores, Inc. In Au-

gust 2002, he filed a class action against Circuit City.

The suit alleged that Circuit City was violating

California statutes and wage orders by failing to pay

overtime compensation to its customer service man-

agers, who were wrongfully classified as “exempt”

employees. Cal. S. Ct. Exhibits in Support of Petition

for Writ of Mandate and/or Prohibition (“Cal. Exhs.”)

1-15. In support of the class action remedy, the com-

plaint alleged that the claims of the individual class

members were not sufficiently large to warrant

vigorous prosecution and that if each employee were

required to file an individual lawsuit, Circuit City

would gain an unconscionable advantage because of

its vastly superior resources. Id. 9. The complaint

also alleged that, without class actions, many em-

ployees would not pursue their rights because of their

“real and justifiable fear of retaliation.” [bid.

Circuit City petitioned to compel arbitration of

Gentry’s individual claims and to dismiss the lawsuit.

It alleged that Gentry had entered into an agreement

6

in which he agreed to submit all employment-related

claims to arbitration. Jd. 16-71. Circuit City did not

claim that Gentry had actually signed an arbitration

agreement. Instead, it argued that in March 1995

Gentry had failed to send in a form that would have

allowed him to opt out of its arbitration program and

thus he was bound to the agreement by his inaction.

Id. 31-38.

The arbitration materials that Circuit City gave

to Gentry and other employees in March 1995

strongly encouraged them not to opt out and con-

cealed that Circuit City’s 1995 arbitration rules

drastically limited substantive rights guaranteed by

California law. The Circuit City handbook pro-

claimed: “WHY ARBITRATION IS RIGHT FOR YOU

AND CIRCUIT CITY” and set forth general state-

ments about the benefits of arbitration. Cal. Exhs. 46.

The handbook did not inform employees that Circuit

City’s arbitration program stripped workers of the

following legal rights. Pet. App. 37a.

¢ Circuit City’s arbitration rules restricted

employees to one year of back pay from

the point the employee knew or should

have known of the legal violation. Cal.

Exhs. 59. Under California law, an em-

ployee can recover back pay for a three-

year or four-year period from the date

the cause of action accrued. Cal. Code

Civ. Proc. § 338; Cal. Bus. & Prof. Code

§ 17208; Cortez v. Purolator Air Filtra-

tion Products Co., 23 Cal.4th 163, 168,

178-179 (2000).

7

Circuit City’s arbitration rules imposed

a one-year statute of limitation on all

claims. Cal. Exhs. 59. California law

provides a three-year statute of limita-

tions for recovering overtime wages (Cal.

Code Civ. Proc. § 338) and a four-year

statute for an unfair competition claim.

Bus. & Prof. Code § 17208.

Circuit City’s arbitration rules placed

the burden of proof on the employee in

all instances. Cal. Exhs. 56. Under Cali-

fornia law (as under the Fair Labor

Standards Act, 29 U.S.C. § 201 et seq.),

the employer has the burden to prove

that an employee is exempt and thus

ineligible for overtime pay. Ramirez v.

Yosemite Water Co., 20 Cal.4th 785,

794-795 (1999); Corning Glass Works v.

Brennan, 417 U.S. 188, 196-197 (1974).

Circuit City’s arbitration rules provided

that parties will “generally” be liable for

their own attorney fees, with the arbi-

trator having “discretion” to award fees

to a prevailing employee. Cal. Exhs. 59.

Under California law, a prevailing em-

ployee in an overtime case is “entitled”

to recover reasonable attorney fees and

costs. Cal. Lab. Code § 1194(a).

Circuit City’s arbitration rules prohib-

ited all class actions and even the con-

solidation of different employees’ claims.

Cal. Exhs. 57. California law permits

8

consolidation of claims and class actions

where appropriate. '

Over Gentry’s objections, the trial court granted

Circuit City’s petition to compel arbitration and

ordered Gentry to arbitrate his claims individually.

Pet. App. 75a. Gentry’s petition for writ of mandate to

the California Court of Appeal was summarily denied.

Id. 68a. The California Supreme Court granted

review and deferred action pending its decision in

Discover Bank v. Superior Court, a consumer case

involving a form arbitration agreement prohibiting

class actions. After its decision in Discover Bank, 36

Cal.4th 148 (2005), the California Supreme Court in

August 2005 remanded this case to the Court of

Appeal with directions “to vacate its decision and to

reconsider the cause in light of Discover Bank.” Pet.

App. 4a, 67a. On remand, the Court of Appeal ruled

that Circuit City’s class action prohibition was not

substantively unconscionable under Discover Bank

and was not procedurally unconscionable because of

the opt-out provision. Jd. 5a, 56a-66a. The California

Supreme Court again granted review.

' Circuit City’s arbitration rules imposed other one-sided or

highly restrictive provisions. Employees were required to

arbitrate but the company was free to go to court. Cal. Exhs. 52.

Circuit City had the unilateral right to modify the arbitration

rules every year. Id. 60. Front pay was available only in “rare”

cases, for a maximum of 24 months, and punitive damages were

limited to $5000. Id. 59.

9

B. The California Supreme Court’s Decision

1. The Class Arbitration Ban

The California Supreme Court reversed and

remanded for further proceedings. The Court rea-

soned as follows. Gentry’s lawsuit was filed pursuant

to California Labor Code § 1194, which provides an

unwaivable private right of action to enforce viola-

tions of California’s overtime laws. Employees’ rights

to timely payment of overtime are rooted in the

important public policy of protecting the health and

welfare of the workers themselves as well as the

general health and welfare. Pet. App. lla. Even

though a party may be compelled to arbitrate such

statutory rights and thus to “submit[ ] to their resolu-

tion in an arbitral, rather than a judicial, forum,” the

arbitration rules cannot be used to accomplish a de

facto, exculpatory waiver of these rights. Little v.

Auto Stiegler, Inc., 29 Cal.4th 1064 (2003), quoting

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

26 (1991); Pet. App. 12a.

“Under some circumstances,” the Court reasoned,

a class arbitration ban would cause a de facto waiver

of statutory rights and would impermissibly interfere

with employees’ ability to enforce the overtime laws,

just as such waivers in some consumer cases are

unconscionable and unenforceable where they make

it unduly difficult for affected consumers to pursue

legal remedies. See Discover Bank v. Superior Court,

supra, 36 Cal.4th 148; Pet. App. 13a, ital. added.

Class action prohibitions in wage and hour cases may

10

have such an exculpatory effect under California law

for several reasons.

First, awards in wage cases tend to be modest,

making it less likely that many employees will bring

individual actions. Jd. 13a-14a. Second, a current

employee will hesitate to bring an individual action

against his or her employer because of the risk of

retaliation. Id. 17a-19a, citing Mitchell v. Robert

DeMario Jewelry, Inc., 361 U.S. 288, 292 (1960) (“[Ilt

needs no argument to show that fear of economic

retaliation might often operate to induce aggrieved

employees quietly to accept substandard conditions.”).

Third, some individual employees will not pursue

their legal rights because they are unaware the rights

have been violated, especially where, as alleged here,

the employer affirmatively tells its employees they

are not eligible for overtime. Jd. 20a. These problems

may be reduced by class actions, in which workers

band together to assert their rights. Jd. 21a-23a.

The Court emphasized that not all class arbitra-

tion prohibitions in overtime cases are unenforceable

and that a trial court must evaluate their exculpatory

impact on a case-by-case basis, determining on the

facts of each case whether the ban interferes with

enforcement of unwaivable statutory rights. Pet. App.

22a-23a. The Court remanded the case to enable the

trial court to decide the validity of Circuit City’s class

ban under these guidelines. The Court noted that if

the ban were invalidated, the parties would proceed

to class arbitration (if the class was certified), unless

they stipulated to have the matter heard in court or

11

unless the entire arbitration agreement was held

unconscionable because of its other allegedly uncon-

scionable terms, which Gentry timely challenged but

the California Supreme Court did not reach. Id. 29a.

Thus, under the Court’s decision, invalidating a class

arbitration ban leaves the parties in an arbitration

forum, not in court. Id. 25a.

2. FAA Preemption

The California Court rejected Circuit City’s

argument that a rule invalidating class arbitration

bans discriminates against arbitration clauses in

violation of the FAA. The Court reasoned that the

principle that a class action ban may be invalid where

it interferes with the enforcement of unwaivable

statutory rights is an “arbitration-neutral rule: it

applies to class waivers in arbitration and nonarbi-

tration provisions alike.” Pet. App. 27a. Such a prin-

ciple is an “application[ ] of general state law contract

principles regarding the unwaivability of public

rights to the unique context of arbitration, and ac-

cordingly [is] not preempted by the FAA.” Ibid.,

quoting Little, supra, 29 Cal.4th at 1079.

At no stage of the proceedings below did Circuit

City argue that an agreement to arbitrate cannot be

invalidated by state-law policies other than those

that apply to “any contract.” 9 U.S.C. § 2.

12

3. Procedural Unconscionability

The California Supreme Court reached the issue

of procedural unconscionability in connection with

Gentry’s challenge to the validity of provisions in the

Circuit City arbitration agreement other than the

class arbitration ban. The Court rejected the lower

courts’ determination that there was no procedural

unconscionability, which rested on Gentry’s supposed

right to opt out of arbitration in March 1995. The

Court found that the evidence demonstrated, under

longstanding California unconscionability standards,

that Gentry’s failure to opt out of arbitration did not

represent an “authentic informed choice.” Pet. App.

36a.

First, the explanation of arbitration in the Cir-

cuit City handbook was “markedly one-sided.” Ibid.

By emphasizing that arbitration was “much less

expensive” and that the “arbitrator can award money

damages to compensate you” without mentioning the

many significant disadvantages that Circuit City had

inserted into this particular arbitration agreement

(supra, pp. 6-8), the handbook presented a “highly

distorted picture of the arbitration Circuit City was

offering.” Pet. App. 38a. The legally unsophisticated

employees who would be the likely plaintiffs in suits

seeking overtime pay would not have understood that

these rules and procedures are considerably less

favorable to an employee than the rules normally

available in a judicial forum. Jd. 38a-39a.

Second, Circuit City employees would have felt

pressure not to opt out of arbitration because the

13

explanatory materials Circuit City provided — includ-

ing the all-caps heading “WHY ARBITRATION IS

RIGHT FOR YOU AND CIRCUIT CITY” —- made

unmistakably clear that Circuit City strongly pre-

ferred arbitration and wanted its employees not to

opt out. Id. 39a.’

These factors led the Court to conclude that

“some degree of procedural unconscionability” was

present, sufficient to potentially require judicial

scrutiny of substantive unconscionability by the trial

court on remand. /d. 40a. Under California uncon-

scionability analysis, a sliding scale is invoked; the

more substantively unconscionable contract terms

are, the less evidence of procedural unconscionability

is required to conclude that they are unenforceable,

and vice versa. Id. 34a.

At no stage of the proceedings below did Circuit

City argue that a finding of procedural unconscion-

ability based on the misleading representations in

petitioner’s handbook would be preempted as consti-

tuting an arbitration-specific requirement that arbi-

tration agreements must compare the relative

“disadvantages” of arbitration with the “advantages”

of litigation.

* Although the Circuit City handbook said that employees

could consult with an attorney about their legal mghts, the

Court found it “unrealistic” to expect anyone other than higher

echelon employees to hire an attorney to review what appears to

be a routine personnel document. Pet. App. 39a.

14

REASONS FOR DENYING THE WRIT

I. THE COURT LACKS JURISDICTION OVER

THIS CASE BECAUSE THE DECISION

BELOW, REMANDING FOR FURTHER

PROCEEDINGS TO DETERMINE THE

FEDERAL QUESTION, IS NOT A FINAL

JUDGMENT UNDER 28 U.S.C. § 1257(a).

This Court has jurisdiction to review “[flinal

judgments or decrees rendered by the highest court of

a State in which a decision could be had.... ” 28

U.S.C. § 1257(a). Section 1257(a) establishes a “firm

final judgment rule” in which the state court’s deci-

sion is “final as an effective determination of the

litigation and not of merely interlocutory or interme-

diate steps therein.” Jefferson v. City of Tarrant, Ala.,

§22 U.S. 75, 81 (1957). Section 1257’s requirement of

finality “is not one of those technicalities to be easily

scorned. It is an important factor in the smooth

working of our federal system.” Jd., quoting Radio

Station WOW, Inc. v. Johnson, 326 U.S. 120, 124

(1945). The principal exceptions to the final judgment

rule apply where the federal question has been finally

decided but there will be further proceedings in the

lower state courts. Cox Broadcasting Corp. v. Cohn,

420 U.S. 469 (1975).

Here, this Court lacks jurisdiction under

§ 1257(a) since the California Supreme Court did not

issue a final judgment or decree and did not finally

determine any federal question. Instead, the Court

set forth general principles, to be applied on a case-

by-case basis depending on the evidence presented,

15

and remanded to allow for further determinations by

the trial court on numerous issues, subject to further

appellate review.

On remand, the trial court must make factual

findings about whether, on the facts of this case,

Circuit City’s class arbitration ban is invalid because

it significantly interferes with the vindication of

unwaivable statutory rights of its employees. If the

trial court answers yes to this question, the parties

may proceed to arbitrate over the appropriateness of

class certification in this case — unless (1) they agree

to have the case heard in court after all, or (2) the

trial court invalidates the arbitration agreement

altogether because of its many other oppressive, one-

sided provisions. Pet. App. 29a, 41a. In short, there

has not yet been a final determination of the federal

question and there are so many contingencies to be

exhausted and issues to be decided that the decision

of the California Supreme Court is not a final judg-

ment under § 1257(a).

Circuit City contends that this Court has juris-

diction based on Southland Corp. v. Keating, 465 U.S.

1 (1984) and Perry v. Thomas, 482 U.S. 483 (1987).

Pet. 1. Neither case controls because in both, the

lower courts had rendered final decisions on the

federal questions at issue. In Southland, the Califor-

nia Supreme Court had ruled that the California

Franchise Investment Law guaranteed a judicial (not

arbitral) forum for claims under that statute and that

this requirement was not preempted by the FAA. This

Court held it had jurisdiction because the California

16

Supreme Court had finally determined the federal

issue as to these parties. Southland Corp, supra, 465

U.S. at 6-8. In Perry v. Thomas, the California courts,

rejecting a claim of FAA preemption, had refused to

compel arbitration of an action for wages in reliance

on a California statute that guaranteed a judicial

forum for wage suits. Citing Southland, this Court

held, without discussion, that it had jurisdiction.

Perry, supra, 482 U.S. at 489 n. 7.

Because in this matter there has been no decision

of the federal question as to these parties, this case

presents no basis to depart from § 1257(a)’s imposi-

tion of a “firm final judgment rule.” The Court lacks

jurisdiction, and the Petition must therefore be

denied.

Il. THIS IS NOT AN APPROPRIATE CASE

FOR DECIDING THE FIRST QUESTION

PRESENTED BECAUSE THAT ISSUE WAS

NEVER RAISED BELOW AND NO CON-

FLICT EXISTS.

In its first Question Presented, Circuit City

asserts that the California Supreme Court decision

conflicts with several 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;

Pet. 15. This issue is not worthy of review because it

was not presented below and because there is no split

of authority.

17

A. Circuit City’s First Question Presented

Was Not Raised Below.

Circuit City did not present its current “any

contract” argument to the California courts. To the

extent it argued FAA preemption below, Circuit City

contended that a rule invalidating class arbitration

waivers discriminates against arbitration clauses in

violation of the FAA. Pet. App. 26a-27a; Circuit City

Brief in Cal. Supreme Court, pp. 46-52. Accordingly,

the California courts did not have the opportunity to

address Circuit City’s new “any contract” argument.

This Court “will not consider a petitioner’s fed-

eral claim unless it was either addressed by, or prop-

erly presented to, the state court that rendered the

decision” under review. Adams v. Robertson, 520 U.S.

83, 86 (1997). In Adams, the Court refused to con-

sider issues raised in the state court for the first time

on a petition for rehearing. Here, where the argument

was never raised in the state courts, there is even less

reason to make it the basis for a grant of review.

B. The “Any Contract” Argument Does Not

Present a Basis for Review in Any

Event Because the Allegedly Conflicting

Decisions Are Distinguishable.

On the merits as well, Circuit City’s first ques-

tion does not warrant review because the cases it

cites for the alleged conflict are all distinguishable.

The principal case on which Circuit City relies is

Bradley v. Harris Research, Inc., 275 F.3d 884 (9th

18

Cir. 2001). In Bradley, a California statute imposed

specific venue requirements on all! franchise agree-

ments (including franchise arbitration agreements)

that involved businesses operating within California.

The Ninth Circuit held that, because the statute

applied only to franchise agreements — not to con-

tracts generally — and had the effect of invalidating

some provisions of arbitration agreements, it violated

the FAA § 2.

The Bradley court carefully distinguished the

case before it from cases in which the party opposing

arbitration raised generally applicable contract

defenses, such as unconscionability. Jd. at 889-890

and n. 7, citing Ticknor v. Choice Hotels Intern., Inc.,

265 F.3d 931 (9th Cir. 2001). In the latter type of case,

the Ninth Circuit recognized this Court’s often-quoted

statement in Doctor’s Associates, Inc. v. Casarotto,

517 U.S. 681 (1996) that “generally applicable con-

tract defenses, such as fraud, duress or unconscion-

ability, may be applied to invalidate arbitration

agreements without contravening § 2.” Id. at 687.

The four other cases cited by Circuit City are

similarly distinguishable. Three involve state stat-

utes governing contracts in a single industry (fran-

chise, construction and beer). KKW Enterprises, Inc.

v. Gloria Jean’s Gourmet Coffees Franchising Corp.,

184 F.3d 42 (ist Cir. 1999); OPE International LP v.

Chet Morrison Contractors, Inc., 258 F.3d 443 (5th

Cir. 2001); Stawski Distributing Co. v. Browary

Zywiec S.A., 349 F.3d 1023 (7th Cir. 2003). The fourth

involves state case law applicable only to franchise

19

contracts. Doctor’s Associates, Inc. v. Hamilton, 150

F.3d 157 (2d Cir. 1998) In each case, the court held

that state law was preempted because it was limited

to one type of contract.

By contrast, this case involves a “generally

applicable contract defense” under California law —

namely, that contract terms are invalid if they pre-

vent individuals from effectively vindicating unwaiv-

able statutory rights and are effectively exculpatory.

Little v. Auto Stiegler, Inc., supra, 29 Cal.4th at 1079.

That defense is not limited to “state labor law policy,”

as Circuit City contends, but applies to any exculpa-

tory contract contrary to public policy. Pet. App. 27a.

This principle is codified in California Civil Code

§ 1668, which expressly indicates its universal appli-

cation: “All contracts which have for their object,

directly or indirectly to exempt anyone from respon-

sibility for his own fraud, or willful injury to the

person or property of another, or violation of law,

whether willful or negligent, are against the policy of

the law.” Ital. added, see Pet. App. 7a-8a.

Civil Code § 1668 and the defense it codifies have

been applied to many types of contracts. E.g., Dis-

cover Bank, supra, 36 Cal.4th 148 (class arbitration

prohibition in consumer credit card transaction);

Tunki v. Regents of University of California, 60 Cal.2d

92, 99-100 (1962) (release from liability for future

negligence imposed as condition for patient’s admis-

sion to charity hospital); Gavin W. v. YMCA of

Metropolitan Los Angeles, 106 Cal.App.4th 662, 670-

671 (2003) (parental release of liability involving

20

child-care program); In re Marriage of Fell, 55

Cal.App.4th 1058, 1063-1065 (1997) (waiver of disclo-

sure by parties to a dissolution); Baker Pacific Corp.

v. Suttles, 220 Cal.App.3d 1148, 1153-1154 (1981)

(employee waiver of all employer liability for asbestos

exposure); Halliday v. Greene, 244 Cal.App.2d 482,

488 (1966) (exculpatory waiver of safety order in

residential lease).

The principle embodied in § 1668 is consistent

with this Court’s repeated holdings that “[bly agree-

ing to arbitrate a statutory claim, a party does not

forego the substantive rights afforded by the statute;

it only submits to their resolution in an arbitral ...

forum.” Preston v. Ferrer, __. U.S. __, 2008 WL

440670 *8 (U.S. Feb. 20, 2008); Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,

628 (1985); Gilmer, supra, 500 U.S. at 26.

Thus, review of the first Question Presented

should be denied because the issue was not raised

below and because the alleged conflict does not exist.

lil. THE SECOND QUESTION PRESENTED

DOES NOT WARRANT REVIEW BECAUSE

IT WAS NOT RAISED BELOW AND IS

BASED ON A MISCHARACTERIZATION

OF THE DECISION BELOW.

The second Question Presented is also not wor-

thy of review. It was not presented below and it is

premised on an erroneous construction of the decision

below. Circuit City contends that the California

21

Supreme Court’s analysis of procedural unconscion-

ability created an “arbitration-specific requirement

that an individual be specifically provided an expla-

nation of the ‘disadvantages’ of arbitration as com-

pared to litigation.” Pet. 26. That is simply not so.

It is, of course, well established that unconscion-

ability is a generally applicable contract defense that

is not preempted by the FAA. 9 U.S.C. § 2; Doctor’s

Associates, supra, 517 U.S. at 687. Under California

law, procedural unconscionability focuses on oppres-

sion or surprise due to unequal bargaining power

and, under California’s “sliding scale” analysis, the

more substantive unconscionability is present, the

less procedural unconscionability is required to

conclude that a contract term is unenforceable. Pet.

App. 34a; Discover Bank, supra, 36 Cal.4th at 160. In

analyzing procedural unconscionability in this case,

the California Supreme Court was responding to

Circuit City’s argument that because Gentry could

have opted out of arbitration, there could be no such

unconscionability. The Court concluded that the

Circuit City agreement was “at the very least, not

entirely free from procedural unconscionability”

because there were several indications that Gentry’s

failure to opt out did not represent “an authentic

informed choice.” Pet. App. 36a, 39a-40a.

First, the Circuit City handbook’s explanation of

the benefits of arbitration was “markedly one-sided,”

which meant that the employees would receive a

“highly distorted” picture of the arbitration Circuit

City was offering. Id. 36a, 38a. The handbook touted

22

the generic benefits of arbitration but concealed the

many provisions in Circuit City’s actual arbitration

program that deprived employees of statutory protec-

tions provided by California law, including the drastic

limitation on damages, the significantly shorter

statute of limitations, the reversal of the burden of

proof, the general denial of attorneys’ fees to a pre-

vailing employee, and the class action ban. See supra,

pp. 6-8. Additionally, employees likely felt pressure

not to opt out of arbitration because Circuit City’s

published materials made it “unmistakably clear”

that the company wanted its employees to participate

in the arbitration program. Pet. App. 39a.

Circuit City contends that the California Su-

preme Court’s analysis “required an additional arbi-

tration-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.’” Pet. 26. That argu-

ment seriously misconstrues the decision below and

takes the single-quoted phrase in the previous sen-

tence out of context to make its inaccurate point. See

Pet. App. 38a. The California court was not imposing

a notice requirement only on arbitration agreements.

It was simply saying that procedural unconscionabil-

ity is implicated where a stronger party tricks a

weaker party into being contractually bound by

concealing the unfavorable terms of an agreement.

California courts regularly apply this principle to

all manner of contracts. See, e.g, Pardee Construction

23

Co. v. Superior Court, 100 Cal.App.4th 1081, 1089-

1090 (2002) (residential construction contract held

unconscionable where oppressive provisions were

not explained and were buried in form contract);

Ilkhchooyi v. Best, 37 Cal.App.4th 395, 410 (1995)

(commercial lease provision held unconscionable

where profit-shifting clause was buried in small print

in long paragraphs under inaccurate heading and

lessor assured tenant that lease was the same as

earlier one); Ellis v. McKinnon Broadcasting Co., 18

Cal.App.4th 1796, 1804 (1993) (forfeiture provision in

employment contract held unconscionable because it

was not explained to employee); A & M Produce Co. v.

FMC Corp., 135 Cal.App.3d 473, 489-491 (1982)

(warranty disclaimer and damage exclusion in com-

niercial contract held unconscionable where not

pointed out to weaker party).

Petitioner never raised below its current argu-

ment about the alleged preemption of this rule of

procedural unconscionability even though Gentry

made the procedural unconscionability argument that

the California Supreme Court ultimately accepted.

Gentry Opening Brief in Cal. Supreme Court, pp. 54-

57. If Circuit City had made such a preemption

argument, the California Court would have had the

opportunity to explain that it applied the same un-

conscionability analysis in this case that it would

have applied in any case involving a “markedly one-

sided” and “highly distorted” contract description.

This case is distinguishable from the two cases

Circuit City cites in an effort to establish a conflict,

24

Perry v. Thomas, supra, 482 U.S. 483 and Doctor’s

Associates, Inc., supra, 517 U.S. 681. In both cases,

state statutes clearly established arbitration-specific

rules. In Perry, the statute specifically exempted

wage collection actions from arbitration and guaran-

teed a judicial forum for such claims. In Doctor’s

Associates, the statute required contracts subject to

arbitration to display a unique notice in underlined

capital letters on the first page. The instant case, by

contrast, involves no such arbitration-specific rule.

This case is also distinguishable from Gay v.

CreditInform, supra, ___ F.3d ___, 2007 WL 4410362.

Circuit City’s contention that the two decisions con-

flict in their unconscionability analyses is incorrect.

In Gay, the Third Circuit refused to follow Pennsyl-

vania state court decisions that invalidated class

arbitration bans as unconscionable because, accord-

ing to the Third Circuit, “although written ostensibly

to apply general principles of contract law,” the

Pennsylvania decisions “hold that an agreement to

arbitrate may be unconscionable simply because it is

an agreement to arbitrate.” Jd. at *20. In other words,

the Gay court refused to follow Pennsylvania uncon-

scionability analysis because it concluded that the

Pennsylvania courts were treating arbitration clauses

more hostilely than they would have treated similar

clauses in non-arbitration agreements. The California

Supreme Court’s analysis, by contrast, applied the

well-established, arbitration-neutral California princi-

ple that procedural unconscionability may be impli-

cated where a weaker party is induced to enter into a

25

markedly unfavorable contract based on surprise or

other sharp practices.°

The Ninth Circuit in Lowden v. T-Mobile USA,

___F3d__, 2008 WL 170279 (9th Cir. Jan. 22, 2008)

refused to follow Gay because it found that Gay dealt

with unique Pennsylvania law that was in conflict

with the FAA. The Ninth Circuit stated, “Unlike the

Third Circuit’s conclusion as to the applicable state

law in Gay, we determine that the Washington Su-

preme Court in Scott does not hold ‘that an agree-

ment to arbitrate may be unconscionable simply

because it is an agreement to arbitrate.’” Id. at *8

n. 3.

In the decision below, as well as many others, the

California Supreme Court has shown its deference to

the principle that the FAA prohibits the imposition of

arbitration-specific requirements. Pet. App. 26a-27a;

* We anticipate that the amici curiae supporting Circuit

City may argue that Gay conflicts with the decision below for

broader reasons — namely, the Third Circuit flatly upheld the

validity of a class arbitration ban while the California Supreme

Court held such a ban may be unenforceable in some cases.

Besides being premature, such an argument would be wrong.

Gay found class bans valid because the state-law arguments

against them were based on hostility to arbitration. By contrast,

the California Supreme Court’s decision held such bans to a

standard that applies both to arbitration and non-arbitration

contracts. See, America Online, Inc. v. Superior Court, 90

Cal.App.4th 1 (2001) (choice of law provision in non-arbitration

contract, which had the effect of banning class actions, held

invalid), cited with approval in Discover Bank v. Superior Court,

supra, 36 Cal.4th at 158-159.

26

Armendariz v. Foundation Health Psychcare Services,

24 Cal.4th 83, 119 (2000) (“[T]he United States Su-

preme Court has taught ‘that a court may not rely

upon anything that is unique to an agreement to

arbitrate when assessing unconscionability of an

agreement governed by the FAA’”); Little, supra, 29

Cal.4th at 1080 (“We recognize that ‘{iln enacting § 2

of the [FAA], Congress declared a national policy

favoring arbitration and withdrew the power of the

states to require a judicial forum for the resolution of

claims which the contracting parties agreed to resolve

by arbitration’”); Discover Bank, supra, 36 Cal.4th at

167 (“[T]he FAA does not federalize the law of uncon-

scionability or related contract defenses except to the

extent that it forbids the use of such defenses to

discriminate against arbitration clauses”).

The decision below is consistent with these

principles and does not warrant review.

®

27

CONCLUSION

For the foregoing reasons, the Petition for Certio-

rari should be denied.

Respectfully submitted,

MATTHEW RIGHETTI ELLEN LAKE

RIGHETTI LAW FIRM, P.C. Counsel of Record

456 Montgomery Street, LAW OFFICES OF ELLEN LAKE

Suite 1400 4230 Lakeshore Avenue

San Francisco, CA 94104 Oakland, CA 94610

(415) 983-0900 (510) 272-9393

DENNIS P. RIORDAN

RIORDAN & HORGAN

523 Octavia Street

San Francisco, CA 94102

(415) 431-3472

Attorneys for Respondent Robert Gentry