SONIC-CALABASAS A, INC. v. MORENO

Respondent’s Supplemental Reply Brief

Cal.March 27, 2012

S174475 IN THE SUPREME COURT OF CALIFORNIA SONIC-CALABASASA,INC., Plaintiff and Appellant SILERa ntift and Appe la , : Vs | MAR 27 “42 FRANK MORENO, Frederick K. Ohlrich Clerk Defendant and Respondent. Deputy Following a Decision of the Court ofAppeal, Case No. B204902 Second Appellate District, Division Four Appealfrom an order of the Superior Court of California, County ofLos Angeles Case No. BS107161, Hon. Aurelio N. Munoz, Judge REPLY BRIEF FOLLOWING REMAND FROM UNITED STATES SUPREME COURT LOCKER FOLBERG LLP Miles E. Locker (Bar No. 103510) Rachel Folberg (Bar No. 209143) 235 MontgomeryStreet, Suite 835 San Francisco, CA 94104 Telephone: 415-962-1626 Facsimile: 415-962-1628 Attorneys for Defendant and Respondent FRANK MORENO ‘ $174475 IN THE SUPREME COURT OF CALIFORNIA SONIC-CALABASASA,INC., Plaintiff and Appellant, V. FRANK MORENO, Defendant and Respondent. Following a Decision of the Court ofAppeal, Case No. B204902 Second Appellate District, Division Four Appealfrom anorderofthe Superior Court of California, County ofLos Angeles Case No. BS107161, Hon. Aurelio N. Munoz, Judge REPLY BRIEF FOLLOWING REMAND FROM UNITED STATES SUPREME COURT LOCKER FOLBERG LLP Miles E. Locker (Bar No. 103510) Rachel Folberg (Bar No. 209143) 235 Montgomery Street, Suite 835 San Francisco, CA 94104 Telephone: 415-962-1626 Facsimile: 415-962-1628 Attorneys for Defendant and Respondent FRANK MORENO II. III. TABLE OF CONTENTS INTRODUCTION .. 2.0...cece neces 1 ARGUMENT.... 2.0.0 ceeee een eens 3 1. Armendariz Challenges To The Enforceability of Arbitration Agreements Survive Concepcion ........... 00 ccc cee eee 3 2. The State Rule of Law Adopted By This Court In Its Prior Decision Survives Concepcion oo. keee eee 8 3. Concepcion Does Not Authorize The Enforcement of Mandatory Employment Arbitration Agreements That Deprive Employees of Substantive Rights .............. 12 4. Concepcion Does Not Authorize the Preemptionofthe State Rule of Law Adopted by This Courtin Its Prior Decision .... 17 CONCLUSION TABLE OF AUTHORITIES Federal Cases AT&T Mobility LLC v. Concepcion (2011) 563 U.S.131 S.Ct.1740 oeeeee passim Circuit City Stores, Inc. v. Adams (2001) 532 US.105.......... 12 Doctor’s Associates, Inc. v. Cassarotto (1996) 517 U.S. 681 ...... 1 In re American Express Merchants’ Litigation [“Amex’”] (2™ Cir. 2012) 667 F.3d 204 2.0... 6,7 Kilgore v. KeyBank National Ass’n (9" Cir. 3-7-2012) __F.3d_, 2012 WL 718344 ..... ee. 7,8 MarmetHealth Care Center v. Brown (2-21-2012) __US.,1328.Ct.1201 2...ee. 3 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) A738 US.614cece eee ee ... 6,15 Perry v. Thomas (1987) 482 U.S. 483 2.0000. eee 1,4 Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967) 388US.395ccccece eee 12 Preston v. Ferrer (2008) 52 U.S. 346...... 0.0.00... eee eee passim Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp. (2010) 130S.Ct.1758eeeeee 6 State Cases Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24Cal.4th 83 L eeepassim Cuadra v. Millan (1998) 17 Cal.4th 855.000.000.000. .0...00000. 21 il Discover Bank v. Superior Court (2005) 36 Cal.4th 148 ........... 2 Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, cert. granted, vacated and remanded at 132 S.Ct. 496....... passim Statutes Federal Arbitration Act... 2.0.0.0... 0.00 ccc ccc ee cece eens passim Code of Civil Procedure § 631.8 2.0.0.0... ccc cece 17 Labor Code § 98.2 ...Feeeee eee eee 9,16 Labor Code § 98.4 0.0.00ccc cece cee eeees 9,17 Labor Code § 229 1.0.0... ccc cece cece ene e neues 4 Labor Code § 1700.44 .........000000.0000 0.0... cece es 4,16 ili INTRODUCTION In addressing the significance ofAT&TMobility LLC v. Concepcion (2011) 563 U.S.___, 131 S.Ct. 1740, Sonic-Calabasas A,Inc. (“Sonic”) proclaims that Concepcion “makesclear that any argument of unconscionability that is based on public policy... is preempted by the FAA.” (Sonic Supp. Brief filed 3/12/12, p. 22.) Concepcion said nothing ofthesort, and thereis nothing in the reasoning of Concepcion that would support a reading of the Federal Arbitration Actthat utterly obliterates its Section 2 savings clause. Quite the opposite — Concepcion expressly acknowledgedthat the Section 2 “saving clause permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress or unconscionability”that are not arbitration-specific. (Concepcion, supra,131 S.Ct. at 1746, citing Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687, and Perry v. Thomas (1987) 482 U.S. 483, 492-493, n. 9.) Sonic conflates the reasoning expressed in Justice Thomas’ solo concurrence with the reasoning of the Concepcion majority. The majority decision did not in any way embrace Justice Thomas’ unique view that “contact defenses unrelated to the making of the agreement — such as public policy — could not be the basis for declining to enforce an arbitration clause.” (Concecpcion, Thomas, J., concurring at 1755.) That is no more the majority view of the United States Supreme Court than the proposition, advanced by Justice Thomasin numerouscases, that the Federal Arbitration Act does not apply to proceedings in state courts. (Preston v. Ferrer (2008), 552 U.S. 346, 363 (Thomas, J., dissenting).) Though Concepcion wentfurther than prior United States Supreme Court decisions dealing with the enforceability of arbitration agreements, by holding that the state law rule at issue, a rule based on the doctrine of unconscionability, was preempted by the FAA, Concepcion neither said nor suggested that every state law rule based on unconscionability, and/or public policy is preempted by the FAA. Preemption under Concepcion will only override a generally applicable contract defense that does not discriminate against arbitration agreements where that defense is “absolutely inconsistent with the provisions of the [A]ct,” i.e., where the state law rule based on that generally applicable contract defense “interferes with fundamental attributes of arbitration and thus creates a schemeinconsistent with the FAA.” (Concepcion, supra, 131 S.Ct. at 1748.) Preemption resulted, in Concepcion, only because the class proceedings required under California’s state law rule in Discover Bank v. Superior Court (2005) 36 Cal.4th 148, were held to “interfere[] with fundamental attributes of arbitration.” (Concepcion, supra, at 1748.) There is no preemption under Concepcion whenthestate law rule is based on a generally applicable Section 2 contract defense that does not “prohibit outright” the arbitration of a particular claim, does notdiscriminate against arbitration agreements, and does not “Interfere with fundamentalattributes of arbitration.” Here, because thestate law rule adopted by this Courtin its prior decision was based on generally applicable contract defenses, that neither “prohibits outright” the arbitration of wage disputes, nor discriminates against arbitration agreements, nor “interferes with fundamentalattributes of arbitration,” there is no FAA preemption under Concepcion. ARGUMENT 1. Armendariz Challenges To The Enforceability of Arbitration Agreements Survive Concepcion No matter how fundamentally unfair, oppressive, one-sided, and contrary to public policy a provision may be within an adhesive arbitration agreement imposed by an employeras a condition of employment, in Sonic’s view, Concepcion “madeit clear that the saving clause does not permit state interference with arbitration where,as here,the arbitration procedures are not honored as drafted.” (Sonic Supp. Brief, p. 19.) This incredibly sweeping assertion, which reduces the savings clause to a nullity, has no basis in Concepcion. It certainly cannot be reconciled with the subsequent U.S. Supreme Court decision in Marmet Health Care Center v. Brown (2/21/2012) 132 S.Ct. 1201, in which the Court, after concluding that a state’s public policy 3 of categorically denying enforcement of pre-dispute agreementsto arbitrate claimsof negligence resulting in injury or death of nursing home residents was preempted by the FAA,nonetheless remanded the matter for consideration “whether, absent that general public policy, the arbitration clauses[at issue] are unenforceable under state commonlaw principles that are not specific to arbitration and preempted by the FAA.” Of course, preemption must be found whena state public policy categorically denies enforcementto arbitration agreements solely on the basis of choice of forum,i.e., that “prohibits outright”arbitration. That was why Labor Code § 229 was preempted in Perry v. Thomas (1987) 482 U.S. 483, and Labor Code § 1700.44(a) was preempted in Preston v. Ferrer (2008) 552 U.S. 346. Sonic grossly misrepresents this Court’s prior decision in an attempt to pigeonhole it along with state law rules solely based upon choice of forum grounds — “[t]he decision would require that any arbitration agreement which ‘required binding arbitration of all wage claimsto first proceed through the California Labor Commissioner’s administrative adjudication process, notwithstanding the Federal Arbitration Act.” (Sonic Supp.Brief, p. 12.) That is not what this Court held. While holdingthat state public policy prohibits pre- dispute waivers of the various protections and remedies associated with the Labor Commissioner’s wage adjudication (“Berman”) process, this Court did not adopta state law rule that categorically prohibits arbitration as a substitute for the Berman process. “It may be possible for an arbitration system to be designed so that it provides an employeeall the advantages of the Berman hearing and posthearing protections. Butthere is no indication that the present arbitration system is so designed.” (Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659, 681, fn. 4.) In Sonic’s view, the FAA gives employersthe right to enforce arbitration agreements that were imposed as a condition of employment “according to their terms,” even when those terms are substantively unconscionable and contrary to public policy. Forthis view to prevail, Concepcion must be read to overturn Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83. As explainedin this Court’s prior decision: “In Armendariz, we concluded that [mandatory employmentarbitration] agreements were enforceable, provided they did not contain features that were contrary to public policy or unconscionable. We concluded that arbitration agreements cannot be made to serve as a vehicle for the waiver of [unwaivable] statutory rights.” (Sonic- Calabasas A, Inc., supra, 51 Cal.4th at 676-677, internal quotation marks and citations omitted.) Concepcionitself cited Armendariz in discussing the elements of unconscionability under California law. (Concepcion, supra, 131 S.Ct. at 1746.) Yet, nowhere in the decision did the U.S. Supreme Court so much as question the holding or rationale of Armendariz. Federal court decisions since Concepcion confirm the continuing vitality of Armendariz. “Arbitration is also recognized as an effective vehicle for vindicating statutory rights, but only ‘so long as the prospectivelitigant may effectively vindicate its statutory cause of action in the arbitral forum.’” (In re American Express Merchants’ Litigation [“Amex’] (2™ Cir, 2012) 667 F.3d 204, 214, citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) 473 U.S. 614, 632.) Of course, the Second Circuit decision did not refer to Armendariz, as Amex did not involve a California state law rule. But the Court’s reasoning, in refusing to.enforce arbitration where “the cost of plaintiffs’ individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws,” (Amex, supra, 667 F.3d at 217), parallels this Court’s reasoning that “an arbitration agreement cannot be made to serve as a vehicle for the waiverof statutory rights.” (Armendariz, supra, 24 Cal.4th at 101.) It was this reasoning that led the Second Circuit, in Amex, to hold — for the third time — oncepriorto the U.S. Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. (2010) __U.S.__, 130 S.Ct. 1758, once following remand from the U.S. Supreme Court whenit heldthatits original analysis was unaffected by Stolt- Nielsen,andfinally, following supplemental briefing on the impact, if any, of Concepcion on the prior decisions — that the FAA does not require enforcement of an arbitration agreement where arbitration would deprive plaintiffs of the opportunity to vindicate their statutory rights. (See discussion of procedural history at Amex, supra, 667 F.3d at 206.) In another post-Concepcion case, this one involving a California state rule of law, the Ninth Circuit expressly reaffirmed the continuing validity of Armendariz: “Concepcion did not overthrow the common law contract defense of unconscionability whenever an arbitration clause is involved. Rather, the Court reaffirmed that the savings clause preserves generally applicable contract defenses such as unconscionability, so long as those doctrines are not ‘applied in a fashion that disfavors arbitration.’” (Kilgore v. KeyBank National Ass’n. (9" Cir. 2012) _ F.3d__, 2012 WL 71834 *13, citing Concepcion, supra, 131 S.Ct. at 1747.) In deciding whetherarbitration clauses in student loan agreements were unconscionable underCalifornia law, the Ninth Circuit specifically applied the Armendariz test: Unconscionability under California law “has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one sided results.” Armendariz [supra, 24 Cal.4th at 99] Courts use a “sliding scale” in analyzing these two elements: “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to cometo the conclusion that the term is unenforceable, and vice versa.” /d. No matter how heavily one side of the scale tips, however, both procedural and substantive unconscionability are required for a court to hold an arbitration agreement unenforceable. Id. (Kilgore, supra, 2012 WL *13.) 2. The State Rule of Law Adopted By This Court In Its Prior Decision Survives Concepcion The focus of the analysis, under Armendariz, is simply put and derives from Section 2 of the FAA:“Are there reasons, based on general contract law principles, for refusing to enforce [an] arbitration agreement? In the present case, the answer turns on whether and to what extent the arbitrationagreement was unconscionable or contrary to public policy....”. (Armendariz, supra, 24 Cal.4th at 99.) This Court proceeded to hold, based upon the application of general state law contractprinciples regarding the unwaivability of public rights (id., at 100) that California courts must refuse to enforce mandatory employment arbitration agreements, or provisions in such agreements, that violate public policy or are unconscionable, including provisions, inter alia, that limit statutorily imposed remedies such as attorneys’ fees (id., at 103) andthat subject employees to any type of expense that the employee would not be required to bear if he or she werefree to bring the action in court (id., at 107- 111). In its prior decision in this matter, the Court proceeded,as it had in Armendariz, to determine that the underlying claim — here, the right to payment of unpaid wages — “is not merely an individual right but an important public policy goal.... [that] cannot be contravened bya private agreement.” (Sonic- Calabasas A, Inc., supra, 51 Cal.4th at 679.) Then, applying Armendariz, this Court concluded that the Berman hearing and post-hearing process was “chiefly designed to reducethe costs and risks of pursuing a wage claim,” and that the protections provided by that process — including,inter alia, the one-way fee provision under Labor Code § 98.2(c) that immunizes an employee from exposure to the employer’s attorneys’ fees, the provision for no-costlegal representation of the employee by a Labor Commissioner attorney under Labor Code § 98.4, the requirement that the employer post an undertaking under Labor Code § 98.2(b), and the provision for the Labor Commissionerto enforce any judgment under Labor Code § 98.2(i) — are “central to that purpose” of reducing the costs andrisks of pursuing wage claims. (/d.,at 679-680.) The Court thus held that a Berman waiver — i.e., a waiver of these protections,is contrary to public policy. (/d., at 684.) The Court also found the agreementto waive these protections was procedurally unconscionable, in that “the agreement was one of adhesion and imposedas a condition of employment,” and substantively unconscionable in that the waiverof these protections “can only benefit the employer at the expense of the employee,” and thus “is markedly one-sided.” (/d., at 685-686.) Indeed,it is beyond comprehension how any other conclusion could have been reached. How could this sort of agreement not been beyond the reasonable expectations of the weaker party? Not only did Sonic’s arbitration agreement result in a sweeping deprivation of substantive rights that are critical for pursuing wage claims (one wayfee shifting to immunize employees from the risk of employer attorneys’ fees, employee access to no-cost legal representation provided bythe Labor Commissioner, the Labor Commissioner’s assistance in enforcing any judgment, and the security provided by an employer posted undertaking), but as Sonic itself acknowledges, the deprivation ofthese rights was hidden from the employee, as the deprivation was not mentioned anywhere in the agreement. In Sonic’s words: “Also important to a proper understanding is acknowledging the fact that the arbitration agreementin the present case did not have any so-called ‘Berman Waiver.’ Instead, the arbitration agreement broadly required that any andall claims betweenthe parties be submitted to binding arbitration in the first instance and there was simply no exception spelled out for wage claims.”' (Sonic Supp. Brief, at 12.) Instead of an express ' Sonic misrepresents its agreement whenit asserts thatit applies “to any andall claims between theparties.” In actuality, the mandatory agreement expressly does not apply to certain types of administrative claims — namely, “claims for medical and disability benefits under the California Workers Compensation Act and Employment Development Departmentclaims.” (See Court Transcript 0009.) Notably, these sorts of administrative claims providefor limited and only indirect employer exposure to liability. 10 Berman waiverthat clearly notifies employees ofthe rights that are forfeited by operation of thismandatory agreement, Sonic cleverly created an agreementthat silently operates to deprive employeestheserights. This Court’s conclusions, that this arbitration agreementviolates public policy and is unconscionable, are not in any way affected by Concepcion. As discussed in our Initial Brief Following Remand, Concepcion had nothing to say about the standard for determining whether a contractualprovision is contrary to public policy or unconscionable under state law. Moreover, as this Court noted in its prior decision, “our conclusion that a Berman waiveris contrary to public policy and unconscionable is equally applicable whether the waiver appears within an arbitration agreement or independent ofarbitration.” (/d., at 689.) This decision is thus of critical importance, not just for employees subject to mandatoryarbitration agreements, but also, for the millions of California employees whoare not covered by such agreements, as it prohibits their employers from requiring them to adjudicate any wage disputes in court rather than before the Labor Commissioner, and thereby ensuresthat they cannot be deprived ofthe various protections provided by the Berman process. Furthermore, the FAA provides for only partial coverage of employment agreements, as the Act expressly provides that “nothing herein shall apply to contracts of employment of seamen,railroad employees, or any otherclass of ll workers engaged in foreign or interstate commerce.” (FAA § 1.) As the U.S. Supreme Court madeclear in Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105, Section 1 exempts transportation workers from the FAA, so as to that category of workers, there can be no FAA preemption ofthe state law rule adopted by this Courtin its prior decision. 3. Concepcion Does Not Authorize The Enforcement of Mandatory Employment Arbitration Agreements That Deprive Employees of Substantive Rights This leaves us with the question of whether, as a result of Concepcion, there is FAA preemption ofthe state law rule adopted by this Courtin its prior decision as to those employees subject to mandatoryarbitration agreements that are covered by the FAA. That could only besoif a provision thatis not part of an arbitration agreementthat strips employees of substantive rights that are -founded uponstate public policy, and thus, is unenforceable becauseit is contrary to public policy and unconscionable, is somehow made enforceable under the FAA for the sole reason that this same provision is contained within an arbitration agreement. This would comeasa surprise to the drafters of the FAA,as “[t]he purpose of Congress in 1925 [whenit enacted the FAA] wasto makearbitration agreements as enforceable as other contracts, but not more so.” (Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967) 388 U.S. 395, 404, n. 12.) There is certainly nothing in the text of the FAA that would suggest it was 12 intended to preemptsubstantive state law rights of general application. Noris there anything in Concepcion that would suggest that arbitration would have been enforced if the arbitration agreement would operate to deprive a consumer filing an arbitration claim of any individual remedyhe or she could obtain in a non-arbitral proceeding. In its decision, the U.S. Supreme Courtcarefully spelled out not only how the AT&Tarbitration agreement provided individual claimants with every conceivable remedythat might be available in a non- arbitral forum, but also, how the remedies provided by the agreement exceeded those available in a non-arbitral forum: In the eventthe parties proceed to arbitration, the agreement specifies that AT&T mustpayall costs for nonfrivolousclaims.... and that the arbitrator may award any form of individualrelief, including injunctions and presumably punitive damages. The agreement, moreover, denies AT&T anyability to seek reimbursementofits attorney’s fees, and in the event that a customer receives an arbitration award greater than AT&T’s last written settlement offer, requires AT&T to pay a $7,500 minimum recovery and twice the amountof the claimant’s attorney’s fees. (Concepcion, supra, 131 S.Ct. at 1744.) The Court further noted: The District Court found this schemesufficient to provide incentive for the individual prosecution of meritorious claims that are not immediately settled, and the Ninth Circuit admitted that aggrieved customers whofiled claims would be ‘essentially guarantee[d]’ to be made whole. Indeed, the District Court concluded that the Concepcionswere better offunder their arbitration agreement with AT&T than they would have been as participants in a class action.... (Id., at 1753.) 13 In short, Concepcion did not present the issue of whether a mandatory arbitration agreementcan be enforcedif the agreement deprives the weaker party of substantive rights because the agreementat issue in that case provided the consumerwith all substantive rights and more. Having concludedthatthe arbitration agreement in Concepcion did not limit remedies otherwise available to individual claimants in a non-arbitral forum, the Court held that California’s state law rule denying enforcement of any agreementthat waivesclass proceedings is preempted by the FAA,becausethis state law rule is inconsistent with a fundamentalattribute of arbitration — individual, non-class adjudications. Thefact that this state rule of law was intended to prevent large companies from escapingliability for small dollar claims where individuals with such claims are unlikely to bring individual actions was held to be of no consequence: “States cannot require a procedurethat is inconsistent with the FAA,evenifit is desirable for other reasons.” (Id.) Theissue here is not whether some procedure is moreorless desirable than someother procedure; but rather, whether a mandatory employment arbitration agreement must be enforced whenit deprives employees with wage claims of substantive rights they would otherwise have in a non-arbitral, administrative forum. Theissue here is not whether the FAA preemptsa state law rule that is designed to allow individual claimants to prosecute on a class- 14 wide basis the claims of persons who themselves havenotfiled claims; but rather, whether the FAA preemptsa state law rulethat is designed to ensure that an individual employee, whohasfiled a claim for unpaid wages,will haveall of the rights and remedies available to employees under substantive state law. Concepcion should not be extended beyondits facts to allow — something the Court did not do in Concepcion — the enforcement of a mandatory arbitration agreement that deprives the weakerparty of substantive rights otherwise available in a non-arbitral forum. The United States Supreme Court has neveroncesaid or suggested that an arbitration agreement can be usedto take away substantive rights. Indeed, in more than one occasion,it has said the precise opposite — that an arbitration agreement is no more than a choice of forum, and the choice of forum mustnot have any impact on substantive rights. This is exactly what the Court said aboutthis in Preston v. Ferrer (2008) 552 U.S. 346, 359, 128 S.Ct. 978, 987: Finally, it bears repeating that Preston’s petition [to compel arbitration] presents precisely and only a question concerning the forum in whichthe parties’ dispute will be heard. See supra, at 983. “By agreeing 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.” Mitsubishi Motors Corp., 473 U.S. at 628, 105 S.Ct. 3346. So here, Ferrer relinquishes no substantive rights under the TAA [Talent Agencies Act] or other California law may accord him. But underthe contract he signed, he cannot escapethe resolution of thoserights in an arbitral forum. {5 (Emphasis added.) Arbitration was enforced in Preston precisely because the arbitration agreement there did notresult in a deprivation of substantive rights provided by any California law. Here, in contrast, this Court held, in its prior decision, that compelled arbitration would deprive the employee of substantive rights provided by California laws. Because Labor Code § 1700.44(a), the TAA provision that vests initial exclusive jurisdiction with the Labor Commissioner, is nothing more than a restriction on choice of forum; i.e., because the TAA process,unlike the Bermanprocess,is not a source of substantive rights, the U.S. Supreme Court hadlittle difficulty holding Section 1700.44(a) preempted by the FAA. In contrast, the Bermanstatutes serveas the source of various substantive rights, all of which were “chiefly designed to reducethe costs and risks of pursuing a wage claim”so as to enable employeesto effectively vindicate their rights to payment of wages. (Sonic-Calabasas A, Inc., supra, 51 Cal.4th at 679.) The effect of depriving the wage claimantin this case of these substantive rights would be dramatic and would undoubtedly spell the end ofhis pursuit of this wage claim. Mostnotably, by depriving Mr. Morenoofthe protections of one-wayfee shifting under Labor Code § 98.2(c), he would be exposed to the 16 risk of paying his employer’s attorneys’ fees.” It is impossible to overstate how this risk, when put back into the equation if indeed this arbitration agreement can be enforcedso as to eliminate this substantive right, would necessarily cause any employee, with anything less than an extraordinarily high value wage claim, to abandon the wageclaim in orderto forego the exposure to employers’ attorneys’ fees that are likely to equal, or spectacularly exceed, the value ofthe wage claim. Likewise, by eliminating accessto an attorney, provided by the Labor Commissionerat no cost under Labor Code § 98.4,this arbitration agreement, if enforced, would compel a wage claimantto seek out and pay for his own legal counsel to represent him in the arbitration proceedings, or face the employer unrepresented in proceedings that include “all rules of pleading (including the right of demurrer), all rules of evidence,all rights to resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and judgment under Code of Civil Procedure Section 631.8.” (CT 0009.) The recitation of these consequences makesclear that if this arbitration agreementis enforced so as to deprive Mr. Moreno and other employeesof Sonic of the substantive rights provided by the Bermanstatutes, the inexorable result will be that Sonic will gain, through the vehicle of mandatoryarbitration, * Quite the contrast from the AT&T arbitration agreement considered by the U.S. Supreme Court, which expressly denied AT&T anyright to seek reimbursementofits attorneys’ fees. (Concepcion, supra, 131 S.Ct. at 1744.) 17 wholesale immunity from Labor Code’s wage payment laws. 4. Concepcion Does Not Authorize the Preemptionofthe State Rule of Law Adopted by This Court in Its Prior Decision Weareleft, then, with Sonic’s urging that Concepcion somehow super- charged Preston, transforming it from a case that had no applicability to a challenge to the enforcementofan arbitration agreement on generally applicable public policy and unconscionability grounds, to a case that makes FAA§ 2 anartifact of the past. An examination ofthe text of Concepcion reveals the falsity of Sonic’s contention. Preston first shows up in Concepcion in this passage: “Whena state law prohibits outright the arbitration of a particular type of claim,the analysis is straightforward: The conflicting rule is displaced by the FAA. Preston v. Ferrer, 52 U.S. 346, 353.” (Concepcion, supra, 131 S.Ct. at 1474.) Here, in contrast, the state law rule adopted by this Court in its prior decision did not “prohibit outright” the arbitration of wage claims, expressly allowing for such arbitration as an alternative to the Berman process so longas the arbitration agreement provides employeeswith all of the protections available under the Bermanstatutes. (Sonic-Calabasas A, Inc., supra, 51 Cal.4th at 681, n. 4.) Concepcion makes only one other reference to Preston: [I]n Preston v. Ferrer, holding preempted a state-law rule requiring exhaustion of administrative remedies before arbitration, we said: “A prime objective of an agreementtoarbitrate is to 18 achieve streamlined proceedings and expeditious results,” which objective would be “frustrated” by requiring a dispute to be heard by an agencyfirst. 52 U.S., at 357-358, 128 S.Ct. 978. That rule, wesaid, would at the least, hinder speedy resolution of the controversy. Id., at 358, 128 S.Ct. 978. (Concepcion, supra, 131 S.Ct. at 1749.) Sonic would take this excerpt from Preston, anduseit to strike down every conceivable challenge to the enforcementof an arbitration agreement because every single such challenge (particularly those challenges that are successful under the savings clause) will necessarily result in a delay of arbitration. But context is everything, and in ignoring context, Sonic fails to consider whetherthere are countervailing factors that would justify some delay — or, in some cases(i.e., where unconscionability permeates an agreement, or where the agreement wasprocured throughfraud or duress), permanentderailmentofarbitration. The context in Preston wasthat no Section 2 purpose could be served by the delay, in the delay would result from application of a state law that mandated an administrative hearing before the Labor Commissioneras the forum for any controversy arising under the TAA, without providingthe parties to the controversy with any substantive rights or protections founded upon public policy. As such, there could be no basis for any challenge to the arbitration agreement on public policy or unconscionability grounds, and there was no such challenge. In the words of the Supreme Court, by arbitrating this 19 controversy, “Ferrer relinquishes no substantive rights the TAA orother California law may accord him.” (Preston, supra, 128 8.Ct. at 359.) Without any Section 2 purpose for the delayof arbitral proceedings, the delay could not be justified under the FAA. The context in Concepcion wasthat the delay that would result from requiring class proceedings in an arbitration, which the U.S. Supreme Court found to “interfere[] with fundamentalattributes of arbitration.” (Concepcion, supra, 131 S.Ct. at 1748.) The Supreme Courtidentified specific ways in which required, non-consensual class proceedingsare inconsistent with these “fundamentalattributes of arbitration.” (Jd., at 1750-1752.) Atthe root of all of these inconsistencies, wasthe fact that “changes brought aboutbythe shift from bilateral arbitration to class action arbitration are fundamental.... as a structural matter.” (/d., at 1750.) There are no such “fundamental” or“structural” changesto arbitration brought about by ensuring that employeesare not deprived of the protections of the Bermanstatutes before enforcing a mandatory employmentarbitration agreement. Unlikeclass arbitrations, which require the express consentofthe parties because class proceedings are such an unusual sort of arbitration proceeding,i-e., so inherently different from the “model”of bilateral arbitration, the protections of the Bermanstatutes are not in any way “fundamentally” or “structurally” inconsistent with traditional bilateral 20 arbitration. According to Concepcion, the resolution of class-wide consumer arbitrations generally takes around 600. (/d., at 175 1.) In contrast, on average claims are resolved through the Labor Commissioner’s Berman processin four to six months. (Sonic-CalabasasA, Inc., supra, 51 Cal.4th at 681, fn. 5, citing Cuadra v. Millan (1998) 17 Cal.4th 855, 860-862,n. 7.) Sonot only are we looking at Bermanprotections that are consistent with traditionalbilateral arbitration, we are looking at a minor and inconsequential delay of arbitration — a delay that is necessary to ensure that mandatory employmentarbitration agreements do not becomethe vehicles of the deprivation of individual employee’s rights. This minordelay, for a purpose consistent with Section 2 of the FAA, cannotseriously be said to interfere with any “fundamentalattribute” of arbitration. CONCLUSION Forall of the reasonsset forth herein, we respectfully request thatthis Court reaffirm its prior decision in this matter, and hold that Concepcion does not warrant any changein he conclusionsset out in that prior decision. A contrary holding, that the FAA preemptsthe state law rule adopted by this Court in its prior decision — that a predispute waiverofthe protections that flow from the Bermanstatutes, imposed as a condition of employment, violates public 21 policy and is unconscionable — would represent a radical departure from the legal principle, articulated in an unbroken line of federal and state cases, that mandatory arbitration cannotserve as vehicle for the deprivation of substantive rights. The state law rule denying enforcement to any predispute agreementthat deprives employees of the substantive rights set out in the Bermanstatutes neither “prohibits outright” the arbitration of wage claims, nor discriminates against arbitration agreements, nor stands as an obstacle to the accomplishment of the purposes of the FAA,norinterferes with any of the “fundamental attributes of arbitration.” As such,there is no basis for finding preemption under Concepcion. Dated: March 26, 2012 LOCKER FOLBERG LLP fk @ Lob Miles E. Locker Attorney for Defendant/Respondent 22 CERTIFICATE OF WORD COUNT (Cal. Rules of Court, Rule 8.204) The text of this REPLY BRIEF FOLLOWING REMAND FROM UNITED STATES SUPREME COURTconsists of 5,040 words as counted by the Corel Word Perfect X4 word processing program used to generate this document. Dated: March 26, 2012 a i J c te Vv “é By: Miles E. Locker Attorneys for Defendant/Respondent PROOF OF SERVICE (CCP Section 1013a(2)) I, Miles E. Locker, hereby certify that I am an active memberofthe State Bar of California, and I am not a party to the within action. Mybusiness address is Locker _ Folberg LLP, 235 MontgomeryStreet, Suite 835, San Francisco, CA 94104. Onthe date hereof, I caused to be served the following document: REPLY BRIEF FOLLOWING REMAND FROM UNITED STATES SUPREME COURT on the interested parties in this action by addressing true copies thereof as follows: David J. Reese Fine, Boggs & Perkins, LLP 330 Golden Shore, Suite 410 Long Beach, CA 90802 John P. Boggs Fine, Boggs & Perkins, LLP 80 Stone Pine Rd., Suite 210 Half Moon Bay, CA 94019 William Reich, Esq. Deputy Labor Commissioner State of California, Department ofIndustrial Relations Division of Labor Standards Enforcement 1000 South Hill Road, Suite 112 Ventura, CA 93003 Clerk of the Superior Court Los Angeles County Superior Court Stanley Mosk Courthouse Los Angeles County Superior Court — Central District 111 North Hill Street Los Angeles, CA 90012 Cliff Palefsky Keith Ehrman McGuinn, Hillsman & Palefsky 535 Pacific Avenue San Francisco, CA 94133 Valerie T. McGinty Smith & McGinty 220 16th Avenue, Apt. 3 San Francisco, CA 94118 Hina B. Shah Women’s Employment Rights Clinic Golden Gate University School of Law 536 Mission Street’ San Francisco, CA 94105-2968 Cynthia Rice California Rural Legal Assistance, Inc. 631 Howard Street . San Francisco, CA 94105-3907 Jose Tello Neighborhood Legal Services of Los Angeles County 9354 Telstar Avenue El Monte, CA 91731 Miye Goishi Hastings Civil Justice Clinic UC Hastings College of the Law 100 McAllister Street, Suite 300 San Francisco, CA 94102 Fernando Flores Director, Wage and Hour EnforcementLitigation Program Legal Aid Society-Employment Law Center 180 MontgomeryStreet, Suite 600 San Francisco, CA 94104 By First Class Mail: I am readily familiar with the firm’s business practice of collection and processing of correspondencefor mailing with the United States Postal Service and said correspondence is deposited with the United States Postal Service the same day, postage-prepaid, in a sealed envelope. I declare under penalty of perjury underthe laws of the State of California that the aboveis true and correct. Executed at San Francisco, California, on Monday, March 26, 2012. Mad e L.A~ Miles E. Locker