A California Court of Appeal recently found that under the circumstances presented in a particular case, the class action waiver clause in a contract between two sophisticated commercial parties is enforceable according to its terms. In contrast, a class action waiver in an employment arbitration agreement is unenforceable in California, if it prevents a person from vindicating unwaivable statutory rights such as overtime pay or freedom from discrimination. Similarly, class action waivers are invalid in certain contracts between banks or telecom providers and consumers; and another state Court of Appeals has invalidated a class action waiver in a standardized franchise agreement, which is a commercial contract but typically between parties of disproportionate size and bargaining power.
In its new decision, the Court of Appeals conducted the traditional analysis of substantive and procedural unconscionability, under the state Supreme Court’s “sliding scale” analysis whereby a significant degree of either procedural or substantive unconsionability may render a provision unenforceable. Based on that analysis, the court here found that a mandatory arbitration provision including a class action waiver, was enforceable by national nut marketer Diamond Foods against the grower-members of a state farmers’ cooperative. (Walnut Producers of California v. Diamond Foods, California Courts of Appeal No. C060346, August 16, 2010) In contrast the same week, another district of the state Courts of Appeal easily invalidated a class action waiver clause used by an auto dealer in its consumer finance contracts. (Fisher v. DCH Temecula Imports LLC, California Courts of Appeal No. E047802, August 13, 2010)