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

FILED

MAR 3 - 2008 |

© ICE OF THE CLERK |

No. 07-998 Or OREME COURT, U.S. _|

}

IN THE

Supreme Court of the United States

CIRCUIT CITY STORES, INC.,

Petitioner,

Vv.

ROBERT GENTRY,

Respondent.

On Petition for a Writ Of Certiorari

to the Supreme Court of California

BRIEF AMICUS CURIAE OF THE CHAMBER OF

COMMERCE OF THE UNITED STATES OF

AMERICA IN SUPPORT OF PETITIONER

ROBIN S, CONRAD W. STEPHEN CANNON

AMAR D. SARWAL RAYMOND C. Fay*

NATIONAL CHAMBER JEAN KIM

LITIGATION CENTER, INC. CONSTANTINE CANNON LLP

‘1615 H Street, N.W. 1627 I Street, N.W., Suite 1000

Washington, D.C. 20062 Washington, D.C. 20006

(202) 463-5337 (202) 204-3500

Counsel for Amicus Curiae

Dated: March 3, 2008 * Counsel of Record

TABLE OF CONTENTS

INTEREST OF THE AMICUS CURIAE.......:...s00s0000 1

SUMMARY OF ARGUMENT. ................:::csssceeseeeerseeee 2

ITT oss sinnsstcasatcericionniecocinmmamnmanninenmaaale 5

I. The Statutory History of the FAA and the

Prior Decisions of this Court Strongly Favor

the Enforcement of Arbitration Agreements.... 5

II. The Decision Below Calls into Question the

Validity of Numerous Arbitration Agreements

Intended to Govern Employment Disputes ...... 7

III. The California Supreme Court's Decision

Flies in the Face of National Policy and

PACK PRODI occisiinsicnttincieseerkneees 12

IV. The Decision Below Discourages the Use of

Arbitration Agreements ..........-...ccesesssssessessees 17

CONCLUSION ............... -insoniskkentnioenentiiel enamel 17

il

TABLE OF AUTHORITIES

Cases

Bradley v. Harris Research, Inc.,

275 F.3d 884 (Sth Cir. 2001)............0ccncssccsseessossnoee 14

Circuit City Stores, Inc. v. Adams,

SE Et. WIN TONED vicicins concsassascxinsnsacsesneciseacummananead 7

Dean Witter Reynolds, Inc. v. Byrd,

Et Ee CRI se icesicécoansvecentisclaianssorevncnsadaeianeuea 7

Doctor's Assocs., Inc. v. Casarotto,

Be a ORE OD sovksiicocientasinsosuniiicsccesniaamnanenniens 4,16

Doctor's Assocs., Inc. v. Hamilton,

Be Oe BT Ck Ce, BO oi cssscocexsnescsenevsevsiciounnns 14

Gilmer v. Interstate/Johnson Lane Corp.,

EI, WP ONDE avcisnidisanneninncsorcsateshionsntecieseaeiosaceniaen 5

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

Coffees Franchising Corp.,

Be ce SS Chat Che, LGD) nnccccicnccescncsacesscsseressencon 14

Mitsubishi Motors Corp. v. Soler Chrysler:

Plymouth, Inc.,

EE OE 6 NNO sisiss.s nn codavadoncnsnscunsssiabasnabersnceniniens 6

Moses H. Cone Mem'] Hosp. v. Mercury Constr.

Corp.,

TCE, By RIO ne. cnsicassecanhnsscnnvenessesverssonssensraai aan 6

iii

OPE Int'l LP v. Chet Morrison Contractors, Inc.,

258 F.3d 448 (5th Cir. 2001) .0...........ccceesserrceesoeees 14

Perry v. Thomas,

ee ER stisscsantcecsneccsivinsnsncones 4, 12, 15, 16

Preston v. Ferrer,

No. 06-1463, 2008 WL 440670,

Se, Bs iG MI rceinsnh sicdshsnttiseninentiveinninnxoaxs 15

Rodriquez de Quijas v. Shearson/American Express,

Inc.,

Fe ATT Se pisetnscniastsenxcnpntenesnninnicinnsnnchinesenas 6

Shearson/American Express, Inc. v. McMahon,

Oe ee I aaah sc esennnennniinescdanennentasadlbcnsiinsi 6

Southland Corp. v. Keating,

eh wine ihscinkseinsnsiinivesisascsicsnprnnnniinnoien 5,13

Stawski Distrib. Co., Inc. v. Browary Zywiec S.A.,

BED F.Bd LORS ithe Cir. BOG) vvccacccsccsessacceccssscosesnee 14

Statutes

Be es Ie citi ccc vec ccalerenkacseeeeneeeruenmnanenncies 5, 13, 14

BER. Beir. Ie. GO-OG (1G oi. sascecscnscsssicnesacssssnssesnaas 6

FR. Rep. No. 97-42 (GBD)... ..0..:.scorsassasecnossersnserrsansds 8

iV

Joint Hearings on S. 1005 and H.R. 646 Before

the Subcomms. of the Comms. on the Judiciary,

GOth Come., 2at Beas. 7 (IG RO).n.oicccccsssccsessececsocsssessess 8

Other Authorities

AAA, Analysis of the American Arbitration

Association's Consumer Arbitration

Caseload (2007),

http://www.adr.org/si.asp?id=5027............sseessessereees 9

AAA, Employment Due Process Protocol (1995),

http://www.adr.org/sp.asp?id=28535..............:.008 10

Bureau of Justice Statistics, Contract Trials and

Verdicts in Large Counties, 2001 (2005),

http://www.ojp.usdoj.gov/bjs/pub/pdf/ctvlcO1.pdf.....9

Michael Delikat & Morris M. Kleiner, An

Empirical Study of Dispute Resolution

Mechanisms: Where do Plaintiffs Better

Vindicate Their Rights?, DISP. RESOL. J.

I aia a aaa dE at asa cas gicinicissid aie 11

Harris Interactive Survey, U.S. Chamber

Institute for Legal Reform, Arbitration: Simpler,

Cheaper, and Faster Than Litigation (2005),

http://www.adrforum.com/rcontrol/documents/

ResearchStudiesAndStatistics/2005Harris

SUNN rari kekirsb bi dada sn basimaneba taken eaabacataneekonhandciaaG 11

Deborah R. Hensler, Our Courts, Ourselves:

How the Alternative Dispute Resolution

Movement is Re-Shaping our Legal System, 108

PRE GT. 1 ME, BEG GID ovaries ccccnccccccsecseccssacsscesee 9

Elizabeth Hill, Due Process at Low Cost: An

Empirical Study of Employment Arbitration

under the Auspices of the American Arbitration

Association, 18 OHIO ST. J. ON DISP. RESOL. 777

Tee ad ccanncactiwenerocseens g

JAMS, Policy on Employment Arbitration

Minimum Standards of Fairness (2005),

http://www.jamsadr. com/ rules/employment_

PRR RRENENOE_ TAETE BOGE.OOD .........20ccccncccccsssececcsesencees 10

National Arbitration Forum, Arbitration Bill of

Rights (2007), http://adrforum.com/users/naf/

resources/ArbitrationBillOfRights3.pdf ................ 10

National Arbitration Forum, Code of Procedure

(2007), http://www.adrforum.com/ users/naf/

resources/20070801CodeofProcedure.pdf .............. 10

National Workrights Institute, Employment

Arbitration: What Does the Data Show?

(2004), http:/Awww.workrights.org/current/

I NE .....nncnsusncssaacsacasssacossesscccces 10

U.S. Courts, U.S. District Court - Judicial Caseload

Profile (2007),

http://www.uscourts.gov/cgi-bin/emsd2006.pl.......... 8

INTEREST OF THE AMICUS CURIAE

The Chamber of Commerce of the United

States of America (amicus, its members) respectfully

submits this amicus curiae brief in support of

petitioner Circuit City Stores, Inc.'s (“Circuit City”)

petition for a writ of certiorari to review the decision

and judgment of the California Supreme Court (the

“Petition”).!

The Chamber is the world's largest business

federation, representing an underlying membership

of more than 3,000,000 businesses and organizations

of every size. Chamber members operate in every

sector of the economy and transact business

throughout the United States, as well as in many

countries around the world.

A central function of the Chamber is to

represent the interests of their members in

important matters before the courts, Congress and

the Executive Branch. To that end, the Chamber

has filed amicus curiae briefs in numerous cases that

1 Pursuant to Supreme Court Rule 37.6, no counsel for a party

authored this brief in whole or in part and no counsel or party

made a monetary contribution intended to fund the preparation

or submission of this brief. No person other than the Chamber

or its counsel made a monetary contribution to its preparation

or submission. Further, Counsel of Record for all parties

received notice at least 10 days prior to the due date of the

Chamber's intention to file this brief. All parties have also

consented to the submission of this amucus curiae brief.

Therefore, in accordance with Supreme Court Rule 37.2, the

Chamber will not file an accompanying motion for leave to file.

have raised issues of vital concern to the nation's

business community.

Many of the Chamber's members, constituent

organizations and affiliates routinely use uniform

contracts to provide order to their affairs. In the

course of their businesses, these members and

affiliate organizations have adopted provisions that

mandate the arbitration of disputes arising from or

related to contracts that they have entered into with

their employees, consumers or other parties. They

use arbitration because it is a speedy, fair,

inexpensive and effective method of resolving

disputes. Because many of these advantages would

be lost if the decision below is allowed to invalidate

or call into question the kind of agreements which

are at issue in this case, the Chamber has a strong

interest in having its views on the validity of such

agreements considered by the Court. Not only does

the Chamber have a strong interest in the proper

resolution of this case, its familiarity with

arbitration law and doctrine may be of assistance to

the Court.

SUMMARY OF ARGUMENT

This case presents the Court with the

opportunity to answer for millions of businesses and

their employees the persistent question of whether

the pro-arbitration objectives of the Federal

Arbitration Act (“FAA”) must be subordinated to the

mandates of state statutes and policies that are

alleged to conflict with these objectives. In

answering this question, the Court will either uphold

the validity of millions of contracts reflecting the

intent of parties to arbitrate employment and other

disputes, or throw these contracts into jeopardy by

subjecting them to the strictures of state decisions

that render these agreements unenforceable.

The statutory history of the FAA and ie

Court's prior decisions applying the FAA

demonstrate a clear national policy in favor of

arbitration. Businesses have taken this history and

court precedent to heart and have worked for

decades to provide arbitration as an alternative to

litigation for the resolution of employment and other

disputes. The decision below, however, attempts to

reverse these efforts. The invalidation of the kinds

of agreement at issue in the instant case would have

far-reaching, negative consequences for both

employers and employees and would call into

question the validity of hundreds of thousands of

similar contracts that have been carefully crafted to

take advantage of the arbitral forum. These

agreements reflect the parties' recognition of the

well-documented benefits of arbitration -- more

favorable outcomes, cost savings, and the speed of

resolving disputes -- as compared to litigation.

In March 1995, respondent Robert Gentry

entered into a Dispute Resolution Agreement (the

“Agreement”) with petitioner Circuit City in

connection with his employment by Circuit City as a

sales associate. The Agreement provided that any

disputes arising out of Gentry's employment with

Circuit City would be settled exclusively by

individual arbitration. Ignoring his obligations

under the Agreement, on August 20, 2002, Gentry

filed a class action in California state court against

Circuit City seeking to collect overtime pay on behalf

of himself and a class of other employees.

The California Superior Court and Court of

Appeal held that Gentry must arbitrate his claims

individually pursuant to the agreement he had

entered with Circuit City. The California Supreme

Court reversed and declined to apply the FAA to

enforce Gentry's arbitration agreement in two

similarly flawed ways. First, the court below refused

to enforce the parties’ arbitration agreement based

on state policies that do not apply to “any contract,”

in direct conflict with the language of Section 2 of

the FAA and this Court's decision in Ferry v.

Thomas, 482 U.S. 483 (1987). Second, the court

below applied an unconscionability analysis that was

hostile toward arbitration and thus in conflict with

this Court's decisions in Perry and Doctor's Assocs.,

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

Unless the Court intervenes to uphold the

vigorous application of the FAA and confirm the

enforceability of the arbitration agreement in this

case, the decision below will thwart the longstanding

efforts of Congress and United States businesses to

advance arbitration as a viable and efficient

alternative to litigation. This will be the case not

only for disputes that arise in the employment

context but also for those that arise in myriad other

contexts. As a result, businesses will be discouraged

from continuing to provide a forum for the

arbitration of disputes as the enforceability of these

agreements will be far from certain. Ultimately,

employees and others will no longer have the option

of choosing arbitration over costly and protracted

litigation.

ARGUMENT

I. The Statutory History of the FAA and the

Prior Decisions of this Court Strongly Favor

the Enforcement of Arbitration Agreements.

Section 2 of the FAA provides that arbitration

agreements “shall be valid, irrevocable, and

enforceable, save upon such grounds that exist at

law or in equity for the revocation of any contract.” 9

U.S.C. § 2. In enacting Section 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

that the contracting parties agreed to resolve by

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

10 (1984). The primary purpose of the FAA “was to

reverse the longstanding judicial hostility to

arbitration agreements that had existed at English

common law and had been adopted by American

courts, and to place arbitration agreements on the

same footing as other contracts.” Gilmer v.

Interstate/Johnson Lane Corp., 500 U.S. 20, 24

(1991). Indeed, Congress recognized early on the

benefits of offering an arbitral forum as an

alternative to litigation for settling disputes:

It is practically appropriate that the

action should be taken at this time

when there is so much agitation against

the costliness and delays of litigation.

These matters can be largely eliminated

by agreements for arbitration, if

arbitration agreements are made valid

and enforceable.

H.R. Rep. No. 68-96, at 2 (1924).

Since its enactment in 1925, this Court has

interpreted the FAA to hold that “questions of

arbitrability must be addressed with a healthy

regard for the federal policy favoring arbitration”

and that “any doubts concerning the scope of

arbitrable issues should be resolved in favor of

arbitration.” Moses H. Cone Mem Hosp. v. Mercury

Constr. Corp., 460 U.S. 1, 24-25 (1983). This Court

has applied the FAA to enforce arbitration

agreements in connection with a variety of statutory

claims. See Mitsubishi Motors Corp. v. Soler

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

(Sherman Act claims); Shearson/American Express,

Inc. v. McMahon, 482 U.S. 220 (1987) (Securities

Exchange Act claims); Rodriguez de Quias v.

Shearson/American Express, Inc., 490 U.S. 477

(1989) (civil RICO claims). In all these cases, the

Court has consistently endorsed the pro-arbitration

policy embodied in the FAA.

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

105 (2001), the Court specifically confirmed the

enforceability of agreements to arbitrate in the

employment context, reasoning that “[alrbitration

agreements allow parties to avoid the costs of

litigation, a benefit that may be of particular

importance in employment litigation, which often

involves smaller sums of money than disputes

concerning commercial contracts.” Jd. at 123.

II. The Decision Below Calls into Question the

Validity of Numerous Arbitration Agreements

Intended to Govern Employment Disputes.

Businesses have been encouraged by the

Court's intent to “rigorously enforce agreements to

arbitrate.” Dean Witter Reynolds, Inc. v. Byrd, 470

U.S. 213, 221 (1985). Relying on the pro-arbitration

policy espoused by the FAA and the Court's decisions

supporting that policy, businesses over the past

several decades have invested significant effort and

resources to develop and implement policies that

facilitate arbitration in the employment context.

Many of the Chamber's 3,000,000 members,

constituent organizations and affiliates have

adopted, as standard features of their contracts,

provisions that mandate the arbitration of disputes

arising from or related to those contracts. These

businesses have done so recognizing the advantages

to both employers and employees of arbitration in

resolving employment disputes.

“

Arbitration “saves time, saves trouble, saves

money.” Joint Hearings on S. 1005 and H.R. 646

Before the Subcomms. of the Comms. on the

Judiciary, 68th Cong., Ist Sess. 7 (1924) (statement

of Charles Bernheimer, N.Y. Chamber of

Commerce); see also H.R. Rep. No. 97°542, at 13

(1982) (arbitration is “cheaper and faster than

litigation,” has “simpler procedural and evidentiary

rules,” “minimizes hostility,” and is “more flexible in

regard to scheduling”). Arbitration has proven to be

an inexpensive, prompt, fair and effective method of

resolving disputes with employees and other

contracting parties. Employees may file and pursue

arbitration at minimal cost. In contrast to the high

costs of litigation, a large percentage of individuals

who bring claims in arbitration pay nothing to

pursue their claim. Elizabeth Hill, Due Process at

Low Cost: An Empirical Study of Employment

Arbitration under the Auspices of the American

Arbitration Association, 18 OHIO ST. J. ON DISP.

RESOL. 777 (2003). Indeed, a growing number of

arbitration agreements provide that businesses will

pay or advance all fees associated with them. This is

certainly the case here where the parties’ arbitration

agreement provides that petitioner Circuit City will

pay all arbitration-related fees.

Arbitration is also faster than litigation. Data

on federal and state court caseloads reveal an

overburdened judicial system in which delays for

litigants are common. A civil case filed in a federal

district court today faces, on average, a delay of over

two years before reaching trial. U.S. Courts, U.S.

District Court - Judicial Caseload Profile (2007),

http://www.uscourts.gov/cgi-bin/emsd2007.pl.

Parties fare no better in state court where, in 2001, a

contract suit took 25 months on average to reach

judgment. Bureau of Justice Statistics, Contract

Trials and Verdicts in Large Counties, 2001 (2005),

http://www.ojp.usdoj.gov/bjs/pub/pdf/ctvlc01. pdf.

In contrast, arbitrations administered by the

American Arbitration Association (“AAA”), the

largest arbitration provider in the United States,

proceed to an award in an average of four to six

months. AAA, Analysis of the American Arbitration

Association's Consumer Arbitration Caseload (2007),

http://www.adr.org/si.asp?id=5027. Moreover, far

from supplanting the role of the courts in

adjudicating claims, arbitration in fact relieves the

judicial system of a significant volume of disputes

which otherwise would add to the already over-taxed

dockets of state and federal courts. In 2002, the

AAA reported that it had handled approximately

200,000 arbitrations. Deborah R. Hensler, Our

Courts, Ourselves: How the Alternative Dispute

Resolution Movement is Re-Shaping our Legal

System, 108 PENN ST. L. REV. 165, 167 n.11 (2003).

That is approximately 80 percent of the number of

civil cases handled in federal courts in 2006. Jd.

Adding these disputes to the current backlog in the

courts would only compound delays for litigants.

Arbitration also has evolved to address many

of the due process concerns raised by resolving

disputes outside of the judicial system. All three of

10

the nation's largest arbitration providers -- AAA,

JAMS and the National Arbitration Forum -- have

adopted policies to provide parties who submit to

arbitration with the highest standards of fairness

and due process. These policies include, giving

employees the right to pick or veto a particular

arbitrator, strict disclosure obligations for

arbitrators regarding potential conflicts, limitations

on arbitration costs for employees, and rules

governing discovery. AAA, Employment Due Process

Protocol (1995), http://www.adr.org/sp.asp?id=28535;

JAMS, Policy on Employment Arbitration Minimum

Standards of Fairness (2005),

http://www.jamsadr.com/rules/

employmentArbitration_min_stds.asp; National

Arbitration Forum, Code of Procedure (2007),

http://www.adrforum.com/users/naf/resources/

20070801CodeofProcedure.pdf; National

Arbitration Forum, Arbitration Bill of Rights (2007),

http://adrforum.com/users/naf/resources/Arbitration

BillOfRights3.pdf.

Finally, arbitration has yielded more

favorable outcomes for employees than litigation.

For example, the National Workrights Institute

found that employees were almost 20 percent more

likely to win employment cases in arbitration than

those litigated in court. National Workrights

Institute, Employment Arbitration: What Does the

Data Show? (2004),

http://workrights.org/current/cd_arbitration. html.

Another study shows that plaintiffs who opt for

employment arbitration in the securities industry

1]

are 12% more likely to win their disputes than

employees who litigate in federal court in the

Southern District of New York. Michael Delikat &

Morris M. Kleiner, An Empirical Study of Dispute

Resolution Mechanisms: Where do Plaintiffs Better

Vindicate Their Rights? Disp. RESOL. J. (2003-04).

With respect to monetary recoveries,

arbitration awards obtained by plaintiffs are

typically the same as or larger than court awards.

Id. In a recent study of parties who had participated

in an arbitration, over 70 percent were satisfied with

the fairness of the process and the outcome,

including a significant number of those who had lost

their arbitrations. Harris Interactive Survey, U.S.

Chamber Institute for Legal Reform, Arbitration:

Simpler, Cheaper, and Faster Than Litigation 24-26

(2005), http://www.adrforum.com/rcontrol/

documents/

ResearchStudiesAndStatistics/2005HarrisPoll.pdf.

It comes as no surprise then that businesses

increasingly have offered, and employees have

chosen, to arbitrate disputes arising in the context of

employment. Indeed, arbitration has become a

regular fixture in most dispute resolution schemes.

In this case, Circuit City provided Mr. Gentry with a

reasonable period to opt out of arbitration and in no

way conditioned continued employment on the

execution of an arbitration agreement. Indeed,

Circuit City’s arbitration agreement provides that

Circuit City will absorb all arbitration-related fees

and permits employees to recover remedies in

12

arbitration to the full extent that they may have

recovered in court. With all these indicia of fairness,

the parties were entitled to expect that their private

choice to arbitrate would be honored and

enforceable.

The decision below throws these and other

similar arrangements into jeopardy and threatens to

dismantle the carefully constructed arbitration

policies of countless businesses. The magnitude of

the number of contracts affected by the decision

below is at least in the hundreds of thousands, if not

millions. And because the holding can be read to

extend beyond the employment setting, the negative

effects will likely extend to a wide variety of other

contracts containing arbitration provisions.

lil. The California Supreme Court's Decision Flies

in the Face of National Policy and Judicial

Precedent.

The decision of the California Supreme Court

conflicts with not only the statutory history favoring

arbitration, but also with judicial precedent by

precluding the application of the FAA in two ways.

First, the California Supreme Court ruling ignores

this Court's prior decision in Perry v. Thomas, 482

U.S. 483 (1987), which provides that a court may not

decline to enforce an arbitration clause based on

state law principles that are hostile to arbitration, as

is the case here. Second, the court below applies an

arbitration-specific unconscionability analysis that 1s

not permitted under the FAA.

13

The California Supreme Court reversed the

decisions of the Superior Court and Court of Appeal

enforcing the arbitration agreement entered into

between respondent Gentry and petitioner Circuit

City because it required individual arbitration of

Gentry's claims and, in some instances, might

preclude Gentry from pursuing his unwaivable right

to overtime pay under California law. The court

identified a litany of factors to be considered in

determining the enforceability of the arbitration

agreement including, the size of any potential

individual recovery, the potential for retaliation

against members of the class, the fact that absent

members of the class may be ill-informed about their

rights and other “real world” obstacles to vindication

of class members’ right to overtime pay through

individual arbitration.

As relevant to this case, this Court in

Southland Corp. v. Corp. v. Keating, 465 U.S. 1, 16

(1984), held that the applicability of the FAA to

enforce arbitration agreements extends to state, as

well as federal, courts. Further, the Court in

Southland explained that “Congress intended to

foreclose state legislative attempts to undercut the

enforceability of arbitration agreements.” Jd. at 3.

This prohibition in South/and is precisely what the

California Supreme Court's decision accomplishes by

subordinating the FAA to state statutes governing

overtime pay that do not apply to “any contract.” 9

U.S.C. § 2. Under the Supremacy Clause, those

state policies are preempted by Congress's

14

overriding interest in upholding arbitration

agreements as embodied in the FAA.

Under Section 2 of the FAA, “only state law

that addresses the enforcement of contracts

generally is not preempted by the FAA.” Bradley v.

Harris Research, Inc., 275 F.3d 884, 889 (9th Cir.

2001) (internal quotations and citation omitted). Ifa

state law applies only to some but not ail contracts,

however, the state law cannot defeat an agreement

to arbitrate. See Bradley, 275 F.3d at 889-90;

Stawski Distrib. Co., Inc. v. Browary Zywiec S.A.,

349 F.3d 1023, 1024-26 (7th Cir. 2003); OPE Int? LP

v. Chet Morrison Contractors, Inc., 258 F.3d 443, 447

(5th Cir. 2001) ; 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). Here, the state

statute in question applies only to a narrow category

of employment contracts. As such, provisions of

California's state labor law do not constitute

“grounds that exist in law or equity for the

revocation of any contract” as required by Section 2

of the FAA for the invalidation of any arbitration

agreement. 9 U.S.C. § 2 (emphasis added).

Therefore, the state statute governing overtime pay

provides no basis for refusing to enforce the

agreement to arbitrate, and Gentry's agreement to

arbitrate must be enforced.

In addition to conflicting with decisions of the

Ninth, Seventh, Fifth, Second and First Circuits, the

lower court's holding conflicts with this Court's

15

decision in Perry. See Petition at 15-24. In Perry,

this Court found a conflict between Section 2 of the

FAA and a California Labor Code provision which

required that litigants be provided a judicial forum

for resolving wage disputes. The Court concluded

that, “under the Supremacy Clause, the state statute

must give way” when presented with such a conflict.

Perry v. Thomas, 482 U.S. 483, 491 (1987). The

Court recognized “the pre-emptive effect” of the FAA

and that “the preeminent concern of Congress in

passing the Act was to enforce private agreements

into which parties had entered... .” Jd. at 490

(quoting Byrd, 470 U.S. at 221).

More recently, this Court reaffirmed its

holding in Doctors Associates, Inc. v. Casarotto, 517

U.S. 681 (1996), finding that the FAA supersedes

state laws when state laws do not apply to contracts

generally. Preston v. Ferrer, No. 06-1463, 2008 WL

440670, at *2 (Sup. Ct. Feb. 20, 2008) (state law

conflicts with the FAA when it “imposes

prerequisites to enforcement of an arbitration

agreement that are not applicable to contracts

generally”). The Court held that “when parties agree

to arbitrate all questions arising under a contract,

state laws lodging primary jurisdiction in another

forum, whether judicial or administrative, are

superseded by the FAA.” /d., at *3.

Second, the court below ruled that the

Agreement was procedurally unconscionable because

Circuit City did not inform Gentry of the

disadvantages of arbitration under the Agreement

16

compared to litigation. This holding too runs afoul of

this Court's decision in Perry which held 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 lof the FAA].” Perry,

482 U.S. at 492. Perry stands for the proposition

that a court may not construe an arbitration

agreement in a manner different from that which it

otherwise construes nonarbitration agreements

under state law. Jd. More specifically, the FAA

prohibits states from “conditionling] the

enforceability of arbitration agreements on

compliance with a special notice requirement not

applicable to contracts generally.” Casarotto, 517

U.S. at 687.

The reason for such a rule is clear -- Congress

did not intend to allow state legislatures to enact

state laws or allow courts to subject arbitration to

special scrutiny that would undercut the national

policy favoring arbitration. Although the FAA

allows certain general contract principles to remain

in force, 9 U.S.C. § 2, the FAA forbids the application

of state laws in a way that targets arbitration

agreements and renders them unenforceable. In

identifying Circuit City's failure to highlight the

disadvantages of arbitration to Gentry as a basis for

its unconscionability analysis, the court below

accomplishes exactly that which Congress has

forbidden state legislatures from doing, ze.,

“relyling] on the uniqueness of an agreement to

arbitrate as a basis for a state-law holding that

enforcement would be unconscionable.” Perry, 482

17

U.S. at 492. Therefore, the California Supreme

Court's arbitration-specific unconscionability

analysis is prohibited by the Court's decisions in

Perry and Casarotto, and violates the letter and

spirit of Section 2 of the FAA.

IV. The Decision Below Discourages the Use of

Arbitration Agreements.

The holding below creates widespread

confusion and uncertainty regarding’ the

enforceability of arbitration agreements. The

decision calls into question the validity of hundreds

of thousands of contracts containing arbitration

provisions. If employees are routinely permitted to

abandon arbitration agreements in favor of

litigation, employers will have no incentive to

promote arbitrate as an option to settle employment

disputes. With no assurance that arbitration

agreements will be enforced, businesses inevitably

will discontinue their use going forward. Employees

as well will suffer from the resulting lack of

opportunity to arbitrate employment disputes. The

impact will be particularly harsh on employees with

claims where arbitration provides the only hope of

quick and inexpensive redress of grievances.

Nothing could more frustrate the purpose of the

FAA.

CONCLUSION

The Petition raises a question of grave

concern to businesses, employees and other parties

18

to agreements to arbitrate. The reach and authority

of the FAA to enforce arbitration provisions in

employment and other contracts is seriously

undermined by the decision below. If not

overturned, the decision threatens to unravel

numerous contracts based upon agreements to

arbitrate and functionally diminish the use of

arbitration agreements in the future. Moreover, the

decision below clashes with the decisions of this

Court and circuit courts across the nation, including

decisions of the Ninth Circuit. For these reasons,

the Chamber respectfully requests that the Court

grant Circuit City's petition for writ of certiorari to

review the decision and judgment of the California

Supreme Court.

March 3, 2008 Respectfully submitted,

ROBIN S. CONRAD W. STEPHEN CANNON

AMAR D. SARWAL RAYMOND C. FAY*

NATIONAL CHAMBER JEAN KIM

LITIGATION CENTER, INC. CONSTANTINE CANNON LLP

1615 H Street, N.W. 1627 I Street, N.W.

Washington, D.C. 20062 Washington, D.C. 20006

(202) 463-5337 (202) 204-3500

Counsel! for Amicus Cur1ae

* Counsel of Record