Arbitration / Court Decisions

The Ninth Circuit affirmed a ruling holding an arbitration agreement to be unconscionable under California contract law. Attempting to narrow the limits of the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion, the Ninth Circuit found the agreement unconscionable in a manner not “uniquely applicable to arbitration.” The arbitration agreement at issue was part of an employment contract, and the district court found the arbitrator selection process to be peculiarly unfair, insofar as it essentially left the choice of arbitrator to the employer. The provision employed a process allowing both sides to nominate three choices, and then strike out choices until only one selection remained. It allowed the party against whom arbitration was sought to make the first deletion from the list, with the parties to take turns thereafter. The district court found that this effectively meant that the last arbitrator standing would be one of the three employer-chosen names. It also found other terms in the contract unfairly balanced in the employer’s favor and “shocked the conscience.” The Ninth Circuit affirmed the district court’s finding that the contract was unconscionable under state contract law, in a way that did not unfairly target its arbitration provision, thus avoiding the strictures of Concepcion and the FAA, which presumptively favor arbitration. Chavarria v. Ralph’s Grocery Co., No. 11-56673 (9th Cir. Oct. 28, 2013).

This post written by John Pitblado.

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On September 25, 2012, we reported on an order finding unconstitutional the confidentiality provision of Delaware’s novel business arbitration procedures, in which a sitting judge of the Court of Chancery presides in court as arbitrator. The federal district court held that since the arbitration process essentially functions like a civil trial, the confidentiality provision violated the qualified right of access to criminal and civil trials protected by the First Amendment. On appeal, the Third Circuit affirmed (with one dissenting judge), but not before conducting the First Amendment “experience and logic test,” which the lower court had failed to do. As to “experience” the court explored the history of both civil trials and arbitrations and concluded that “both the place and process of Delaware’s proceeding have historically been open to the press and general public.” Regarding the “logic” of public access to the arbitration proceedings, the court held that the “benefits of openness weigh strongly in favor of granting access to Delaware’s arbitration proceedings” and in “comparison, the drawbacks of openness” are relatively slight. The court did not give much weight to the Delaware chancellor and judges’ arguments that: (1) privacy is necessary to protect closely held information, (2) privacy is necessary to prevent the “loss of prestige and goodwill” of the disputants, (3) privacy encourages a “less hostile, more conciliatory approach,” and (4) that public access would “effectively end Delaware’s arbitration program.” The court concluded, “the interests of the state and the public in openness must be given weight, not just the interests of rich businesspersons in confidentiality.” Delaware Coalition for Open Government, Inc. v. Strine, Case No. 12-3859 (3d Cir. Oct. 23, 2013).

This post written by Michael Wolgin.

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