Can California ban arbitration?

California and the U.S. Supreme Court have been engaged in a vigorous back and forth regarding arbitration for many years. In Southland Corp. v. Keating, 465 U.S. 1 (1984), the Supreme Court overturned a ban on arbitration imposed by the California Franchise Investment Law, because it violated the Federal Arbitration Act. That Act provides: "A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, 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. section 2.

The ensuing years have seen the Supreme Court rebuff various attempts to get around the Act's requirement that courts must enforce arbitration agreements. Perry v. Thomas, 482 U.S. 483 (1987) (California could not refuse to enforce arbitration of wage disputes); Preston v. Ferrer, 552 U.S. 346 (2008) (California Labor Commissioner's authority could not supplant that of the arbitrator); AT&T Mobility LL C v. Concepcion, 563 US 321 (2011) (California cannot refuse to enforce arbitration agreements that bar arbitration of class actions).

Two recent developments, one from the California Supreme Court and one from the California Legislature promise to keep the conflict alive:

In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), the California Supreme Court refused to enforce an arbitration clause that required the claimant to waive representative claims under the Private Attorneys General Act of 2004, because enforcement would violate public policy. CLS filed a petition for certiorari with the Supreme Court on September 22, 2014.

On September 30, 2014, Governor Brown signed Assembly Bill 2617, which bars enforcement of arbitration agreements that are extracted as a condition of entering into a contract for goods or services, to the extent that such an agreement purports to include claims based on the right to be free from any violence, or intimidation by threat of violence. It seems unlikely that the statute will survive a challenge under the Federal Arbitration Act.