No. 07-

IN THE

CIRCUIT CITY STORES, INC.,

V.

ROBERT GENTRY,

Petitioner,

Respondent.

On Petition for a Writ of Certiorarito the Supreme Court of California

PETITION FOR A WRIT OF CERTIORARI

REX DARRELL BERRYBERRY & BLOCK, LLP2150 River Plaza DriveSacramento, CA 95833(916) 564-2000

CARTER G. PHILLIPS*PAUL J. ZIDLICKYILEANA MARIA CIOBANUHL ROGERSSIDLEY AUSTIN LLP1501 K Street, N.W.Washington, D.C. 20005(202) 736-8000

STEVEN B. KATZTHELEN REID BROWNP~YSMAN & STEINER LLP

333 South Hope Street29th FloorLos Angeles, CA 90071-3048(213) 576-8072

Counsel for Petitioner

January 29, 2008 * Counsel of Record

WlLSON-EPES PRINTING CO., INC. - (202) 789-0096 - WASHINGTON, D. C. 20002

QUESTIONS PRESENTED

1. Whether the Federal Arbitration Act permits acourt to refuse to enforce an agreement calling forindividual arbitration based on state labor lawpolicies that do not apply generally to "any contract."9 U.S.C. § 2.

2. Whether the Federal Arbitration Act permits astate court to refuse to enforce an agreement toarbitrate based upon an unconscionability analysis"that takes its meaning precisely from the fact that acontract to arbitrate is at issue." Perry v. Thomas,482 U.S. 483, 492 n.9 (1987).

ii

LIST OF PARTIES AND AFFILIATES

The parties to the proceeding ,’Ire set forth in thecaption to this Petition.

Pursuant to Rule 29.6 of the Rules of this Court,petitioner Circuit City Stores, Inc. states that it hasno parent corporation and that no publicly heldcompany owns more than 10 ]~ercent petitioner’spublicly traded stock.

TABLE OF CONTENTSPage

QUESTIONS PRESENTED .................................i

LIST OF PARTIES AND AFFILIATES ...............ii

TABLE OF AUTHORITIES .................................v

OPINIONS BELOW .............................................

JURISDICTION ....................................................

CONSTITUTIONAL AND STATUTORY PRO-VISIONS INVOLVED .......................................1

STATEMENT OF THE CASE ..............................2

STATUTORY BACKGROUND ............................5

FACTUAL BACKGROUND .................................6

REASONS FOR GRANTING THE PETITION...13

I. THE DECISION BELOW IMPLICATES ADEEP CONFLICT ON WHETHER ACOURT MAY REFUSE TO ENFORCETHE TERMS OF AN AGREEMENT TOARBITRATE BASED ON. STATEPOLICIES THAT DO NOT APPLY TO"ANY CONTRACT" .......................................15

II. THE UNCONSCIONABILITY RULING INTHE DECISION BELOW CONFLICTSWITH DECISIONS OF THIS COURTAND THE THIRD CIRCUIT ........................24

CONCLUSION .....................................................30

APPENDIX A: Gentry v. Superior Court, 165P.3d 556 (Cal. 2007) ..........................................la

APPENDIX B: Gentry v. Superior Court, No.B169805 (Cal. Ct. App. Jan. 19, 2006) ..............56a

(iii)

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TABLE OF CONTENTS--continuedPage

APPENDIX C: Gentry v. Superior Court, ~No..B169805 (Cal. Ct. App. Nov. 30, 2005) (order).65a

APPENDIX D: Gentry v. Superior Court, No..Sl19334 (Cal. Aug. 31, 2005) (order) ................67a

APPENDIX E: Gentry v. Superior Court, No.B169805 (Cal. Ct. App. Sept. 18,. 2003) (order)68a

APPENDIX F: Gentry v. Superior Court, No.B169805 (Cal. Ct. App. Sept. 9, 2003) (order)..69a

APPENDIX G: Gentry v. Superior Court, No.B169805 (Cal. Ct. App. July 11, 2003)(dismissal order) ................................................70a

APPENDIX H: Gentry v. Circuit City Stores’,Inc., No. BC280631 (Super. Ct. Los Angeles2003) (order) ........................................................73a

APPENDIX I: Gentry v. Circuit City Stores,Inc., No. BC280631 (Super. Ct. Los AngelesFeb. 28, 2003) (ruling) .......................................75a

APPENDIX J: Gentry v. Circuit City Stores,Inc., No. BC280631 (Super. C~. Los AngelesFeb. 28, 2003) (ruling) ........................................77a

APPENDIX K: Gentry v. Superior Court, No.$141502 (Cal. Oct. 31, 2007) (order denyingrehearing) ..........................................................81a

APPENDIX L: State Statute ...............................82a

V

TABLE OF AUTHORITIESCASES Page

Banc One Acceptance Corp. v. Hill, 367F.3d 426 (5th Cir. 2004) ..............~ ............... 29

Bradley v. Harris Research, Inc., 275 F.3d884 (9th Cir. 2001) .................... 3, 15, 16, 21, 24

Brutoco Eng’g & Constr., Inc. v. SuperiorCourt, 107 Cal. App. 4th 1326 (2003) ........28

Circuit City Stores, Inc. v. Adams, 532 U.S.105 (2001) ............................................... 5, 6, 27

Dean Witter Reynolds Inc. v. Byrd, 470U.S. 213 (1985) ...........................................23

Doctor’s Assocs., Inc. v. Casarotto, 517 U.S.681 (1996) .......................................... ~ .... passim

Doctor’s Assocs., Inc. v. Hamilton, 150 F.3d157 (2d Cir. 1998) ...................... 3, 16, 17, 18, 21

Gay v. CreditInform, ~ F.3d ~, 2007WL 4410362 (3d Cir. Dec. 19, 2007) ..... 4, 28, 29

Gilmer v. Interstate~Johnson Lane Corp.,500 U.S. 20 (1991) .................................. 5, 6, 27

Iberia Credit Bureau, Inc. v. CingularWireless LLC, 379 F.3d 159 (5th Cir.2004) ...........................................................29

KKW Enters., Inc. v. Gloria Jean’sGourmet Coffees Franchising Corp., 184F.3d 42 (lst Cir. 1999) ................... 3, 16, 17, 21

Keystone, Inc. v. Triad Sys. Corp., 971 P.2d1240 (Mont. 1998) ......................................20

Lowden v. T-Mobile USA, Inc., ~ F.3d~, 2008 WL 170279 (9th Cir. Jan. 22,2008) ...........................................................4, 30

Management Recruiters Int’I v. Bloor, 129F.3d 851 (6th Cir. 1997) .............................3, 16

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) ..........6

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TABLE OF AUTHORITIE~C~-continuedPage

Moses H. Cone Mem’l Hosp. v. MercuryConstr. Corp., 460 U.S. 1 (1983) ........... 5, 22, 23

OPE Int’l LP v. Chet Morrison Contractors,Inc., 258 F.3d 443 (5th Cir. 2001).. 3, 16, 17, 21

Perry v. Thomas, 482 U.S. 483 (1987) ...... passimScott v. Cingular Wireless, 161 P.3d 1000

(Wash. 2007) ...............................................19Southland Corp. v. Keating, 465 U.S. 1

(1984) ................................................. 1, 6, 21, 23.Stawski Distrib. Co., Inc. v. Browary

Zywiec S.A., 349 F.3d 1023 (7th Cir.2003) ................................................ 3, 16, 18, 21

Ting v. AT&T, 319 F.3d 1126 (9th Cir.2003) ..........................................................17, 21

Volt Info. Scis., Inc. v. Board of Trs. 489U.S. 468 (1989) ............................................5

Wisconsin Auto. Title Loans, Inc. v. Jones,714 N.W.2d 155 (Wis. 2006) .......................19

CONSTITUTION AND STATUTES

U.S. Const. art. VI, cl. 2 ................................19 U.S.C. § 2 .................................................passimCal. Civ. Proc. Code § 85 ................................8Cal. Civ. Proc. Code § 88 ................................8Cal. Lab. Code § 1194 .....................................2

SCHOLARLY AUTHORITIES

Christopher R. Drahozal, FederalArbitration Act Preemption, 79 Ind. L.J.393 (2004) ...................................................20

Stephen Hayford & Alan Palmiter, Arbi-tration Federalism: A State Role inCommercial Arbitration, 54 Fla. L. Rev.175 (2002) ....................................................20

vii

TABLE OF AUTHORITIES--continued

Michael G. McGuinness & Adam J. Karr,California’s "Unique" Approach to Arbi-tration: Why This Road Less TraveledWill Make All the Difference on the Issueof Preemption Under the FederalArbitration Act, 2005 J. Disp. Resol. 61(20O5) ..........................................................

Susan Randall, Judicial Attitudes TowardArbitration and the Resurgence ofUnconscionability, 52 Buff. L. Rev. 185(2004) ..........................................................

Jean R. Sternlight, The Rise and Spread ofMandatory Arbitration as a Substitutefor the Jury Trial, 38 U. San Fran. L.Rev. 17 (2003) .............................................

Stephen J. Ware, Arbitration and Uncon-scionability After Doctor’s Associates,Inc. v. Casarotto, 31 Wake Forest L. Rev.1001 (1996) .................................................

Page

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PETITION FOR A WRIT OF CERTIORARI

Petitioner Circuit City Stores, Inc. ("Circuit City")respectfully requests that this Court grant thepetition for a writ of certiorari to review the decisionand judgment of the California Supreme Court.

OPINIONS BELOW

The opinion of the California Supreme Court isreported at 165 P.3d 556 (Cal. 2007) and isreproduced in the Appendix to this Petition ("Pet.App.") at la to 55a. The California Supreme Court’sdenial of rehearing is unpublished and appears atPet. App. 81a. The decision of the California Court ofAppeal, Second Appellate District, Division Five,compelling arbitration appears at Pet. App. 56a-64a.The decision of the California Superior Courtcompelling arbitration appears at Pet. App. 75a-80a.

JURISDICTION

The California Supreme Court entered judgment onAugust 30, 2007, Pet. App. la, and denied a petitionfor rehearing on October 31, 2007, id. at 81a. ThisCourt has jurisdiction over this petition for certiorariunder 28 U.S.C. § 1257(a). Although the decision ofthe California Supreme Court envisions furtherproceedings in the lower courts, this Court hasjurisdiction to review such judgments. See, e.g.,Southland Corp. v. Keating, 465 U.S. 1, 6-7 (1984);Perry v. Thomas, 482 U.S. 483, 489 n.7 (1987).

CONSTITUTIONAL AND STATUTORYPROVISIONS INVOLVED

Article VI, Clause 2 of the United StatesConstitution provides in pertinent part:

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This Constitution, and the Laws of the UnitedStates which shall be made in Pursuance there-of... shall be the supreme Law of the Land; andthe Judges in every State shall be bound thereby,any Thing in the Constitution or Laws of anyState to the Contrary notwithstanding.

Section 2 of the Federal Arbitration Act, 9 U.S.C.§ 2, provides in pertinent part:

A written provision in any contractevidencing a transaction involving commerce tosettle by arbitration a controversy thereafterarising out of such contract or transaction . . .shall be valid, irrevocable, and enforceable, saveupon such grounds as exist in law or equity forthe revocation of any contract.

Section 1194 of the California Labor Code isreproduced in the Appendix at Pet. App. 82a.

STATEMENT OF THE CASE

This case presents issues of surpassing importanceconcerning the proper application of the FederalArbitration Act ("FAA"). Respondent Robert Gentrywas employed by Circuit City and later voluntarilyagreed to resolve all employment disputes he mighthave with Circuit City through individual arbitration.He was given the opportunity to opt out of CircuitCity’s arbitration program, but declined to do so.Thereafter, Respondent ignored his agreement toarbitrate and instead filed a class action in statecourt claiming entitlement to overtime pay forhimself and a class of other employees.

Both the California Superior Court and Court ofAppeal applied generally applicable contract rulesand held that Respondent must arbitrate his claimsindividually. In the decision below, the California

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Supreme Court reversed and, in doing so, interposedtwo unlawful barriers to the enforcement ofarbitration agreements that implicate broad conflictswith contrary federal circuit decisions and thatcannot be reconciled with this Court’s decisions.

First, the California Supreme Court refused toenforce the parties’ agreement to arbitrate inaccordance with its terms and remanded the case foran evaluation whether individual arbitration wasconsistent with California labor law. Pet. App. 23a,41a. Conditioning enforcement of an arbitrationagreement on compliance with state labor law runscontrary to Section 2 of the FAA, which provides thatagreements to arbitrate are enforceable save upongrounds available for the "revocation of any contract."9 U.S.C. § 2.

The California Supreme Court’s contrary conclusionconflicts directly with the decisions of the NinthCircuit and federal courts of appeals across thecountry. See Bradley v. Harris Research, Inc., 275F.3d 884, 889-90 (9th Cir. 2001); Stawski Distrib. Co.v. Browary Zywiec S.A., 349 F.3d 1023, 1024-26 (7thCir. 2003); OPE Int’l LP v. Chet MorrisonContractors, Inc., 258 F.3d 443, 447 (5th Cir. 2001)(per curiam); KKW Enters., Inc. v. Gloria Jean’sGourmet Coffees Franchising Corp., 184 F.3d 42, 50-51 (lst Cir. 1999); Doctor’s Assocs., Inc. v. Hamilton,150 F.3d 157, 163 (2d Cir. 1998); cf. ManagementRecruiters Int’l v. Bloor, 129 F.3d 851, 856 (6th Cir.1997). These courts, applying Section 2 of the FAAand this Court’s decisions in Southland and Perry,have held that agreements to arbitrate cannot beavoided based upon narrow state-law policies that donot apply generally to "any contract." The decisionbelow thus interposes a barrier to arbitration thatcannot be reconciled with these conflicting decisions.

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Second, the California Supreme Court also violatedthe FAA when it reversed the Court of Appeal’s andSuperior Court’s determination that the parties’agreement to arbitrate was not unconscionable;. TheCalifornia Supreme Court held that the arbitrationagreement was "procedurally unconscionable"because even though Circuit City disclosed to Gentrythe rules that would govern arbitration and explained"some of the shortcomings of arbitration," it "did notmention any of the additional sign.ificantdisadvantages that this particular arbitrationagreement had compared to litigation." Pet. App. 37a(emphasis added).

That ruling conflicts with the FAA and this Court’sdecisions holding that a court may not refuseenforcement based upon state-law principles that arehostile to arbitration or depend on the fact that anarbitration agreement is at issue. See Perry v.Thomas, 482 U.S. 483, 492-93 n.9 (1987); Doctor’sAssocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996).Further, the decision below conflicts with the ThirdCircuit’s conclusion that state unconscionabilitystandards are preempted by the FAA when they taketheir meaning from the fact that an agreement toarbitrate is at issue. See Gay v. CreditInform, __F.3d k, 2007 WL 4410362 (3d Cir. Dec. 19, 2007).Resolution of this conflict is even more important nowthat the Ninth Circuit has weighed in and declined"to follow the holding in Gay." Lowden v. T-MobileUSA, Inc., __ F.3d __, 2008 WL 170279, at *8 n.3(9th Cir. Jan. 22, 2008).

Review is warranted to resolve these mature andpersistent conflicts between the decision of theCalifornia Supreme Court and the decisions of thisCourt and federal courts of appeals interpreting therequirements of the FAA. As explained by the

dissenting justices, the decision of the CaliforniaSupreme Court undermines the benefits ofarbitration by "alter[ing] the arbitral terms to whichthe parties agreed, and defeat[ing] the essentialpurposes and advantages of arbitration, bytransforming that process, against the parties’expressed will at the time they entered theagreement, into something more and more like thecourt litigation arbitration is intended to avoid." Pet.App. 52a (Baxter, J., dissenting).

STATUTORY BACKGROUND

Section 2 of the FAA reflects "a congressionaldeclaration of a liberal federal policy favoringarbitration agreements, notwithstanding any statesubstantive or procedural policies to the contrary."Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,460 U.S. 1, 24-25 & n.32 (1983). Congress enactedthe FAA in response "to hostility of American courtsto enforcement of arbitration agreements." CircuitCity Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001).The "primary purpose" of the FAA is "ensuring thatprivate agreements to arbitrate are enforcedaccording to their terms." Volt Info. Scis., Inc. v.Board of Trs., 489 U.S. 468, 479 (1989). Under theFAA, "questions of arbitrability must be addressedwith a healthy regard for the federal policy favoringarbitration" and "any doubts concerning" a "defenseto arbitrability" "should be resolved in favor ofarbitration." Moses H. Cone, 460 U.S. at 24-25.

"[B]y agreeing to arbitrate, a party ’trades theprocedures and opportunity for review of thecourtroom for the simplicity, informality, andexpedition of arbitration."’ Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991). Indeed,"it is typically a desire to keep the effort and expense

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required to resolve a dispute within manageablebounds that prompts [parties] to forgo access tojudicial remedies." Mitsubishi Motors Corp. v. SolerChrysler-Plymouth, Inc., 473 U.S. 614, 633 (1985). Asthis Court has explained, enforcement of arbitrationagreements provides "real benefits" in the "employ-ment context," which "often inw~lves" disputes over"smaller sums of money." Adams, 532 U.S. at 122-23;accord Gilmer, 500 U.S. at 24.

In Section 2 of the FAA, Congress limited thesubstantive grounds available for refusing to enforcean agreement to arbitrate to "grounds as exist at lawor in equity for the revocation of any contract." Perryv. Thomas, 482 U.S. 483, 489 (1987) (quoting 9 U.S.C.§ 2); accord Southland Corp. v. Keating, 465 U.S. 1,10-11 (1984). Congress "intended to foreclose statelegislative attempts to undercut the enforceability ofarbitration agreements" based on state laws t~hat donot provide a basis for the revocation of "anycontract."’ Id. at 16 n.ll (quoting 9 U.S.C. § 2). TheFAA’s preemptive effect extends to state laws of"judicial origin" so that a "state-law principle thattakes its meaning precisely from the fact that acontract to arbitrate is at issue does not comportwith... § 2." Perry, 482 U.S. at 492-93 n.9; Doctor’sAssocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)("Courts may not . . . invalidate arbitration agree-ments under state laws applicable only to arbitrationprovisions").

FACTUAL BACKGROUND

a. In March 1995, Respondent Robert Gentry wasemployed by Circuit City as a Customer ServiceManager. On March 29, 1995, Gentry attended apresentation about Circuit City’s "Associate IssueResolution Program ("AIRP"). That presentation

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included a video and written materials describing theAIRP. Following the video presentation, Respondentsigned a form confirming that he (i) had watched thevideo, (ii) had received copies of the explanatorymaterials, and (iii) had received a "Circuit CityArbitration Opt-Out Form." See Cal. S. Ct. ExhibitsIn Support of Petition for Writ of Mandate and/orProhibition ("Cal. Exhs.") at 38. Gentry was advisedthat he should review these materials, consult withCircuit City or seek to consult with an attorneyregarding Circuit City’s arbitration proposal. Id.Respondent was given 30 days to decide whether toopt out of the arbitration agreement, and could do sosimply by returning a one-page form. Id. Gentrychose not to do so. Id. at 35-36.

Respondent instead agreed to be bound by theDispute Resolution Agreement ("Agreement"). TheAgreement provides that "any and all employment-related legal disputes, controversies or claims arisingout of, or relating to an Associate’s... employment orcessation of employment with Circuit City . . . shallbe settled exclusively by final and bindingarbitration." Id. at 63, Agreement, Rule 2. Asrelevant here, the Agreement provides that "[t]heArbitrator shall not consolidate claims of differentAssociates into one proceeding, nor shall theArbitrator have the power to hear a class action." Id.at 68, Rule 9(f)(ii). Finally, the "Agreement and anyaward rendered pursuant to it shall be enforceableand subject to the Federal Arbitration Act, and theUniform Arbitration Act of Virginia, regardless of theState in which the arbitration is held or thesubstantive law applied in the arbitration." Id. at 70,Rule 16 (citations omitted).

b. On August 29, 2002, Robert Gentry ignored hisAgreement to arbitrate with Circuit City and instead

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filed a class action in Superior Court of California.Gentry alleged that the "monetary damages sought"by plaintiff and "on behalf of each and every memberof the class" exceeded the $25,000 "minimaljurisdiction limits of the Superior Court." Compl. ¶ 1;Cal. Civ. Proc. Code §§ 85, 88.

Gentry sought to represent "[a]ll California salariedcustomer service managers who worked overtime for[Circuit City] and were not paid overtime wages fromwithin the four years preceding the filing of thiscomplaint and up to the time defendants re-classifiedthe position to non-exempt status." Compl. ¶ 11.Gentry advanced causes of action under Section 1194of the California Labor Code, Section 17200 of theCalifornia Business and Professions Code, andcommon law conversion. Id. ¶¶ 10, 20, 24. Inconnection with these claims, Gentry sought recoveryof (i) compensatory damages, (ii) "waiting timepenalties" under California Labor Code § 203, (iii)"restitution and disgorgement of monies" under§ 17200, (iv) "punitive and exemplary damages" forconversion, (v) "pre-judgment interest as allowed byCalifornia Labor Code Sections 1.194 and 218.6," and(vi) "reasonable attorneys fees, expenses and costsprovided by California Labor Code Sections 1194,"and "other applicable California laws." Compl. at 14-15.

c. On February 28, 2003, the Superior’ Courtgranted Circuit City’s motion to compel arbitrationand ordered "plaintiff to arbitrate his claims on anindividual basis." Pet. App. 75a. The court held thatthe agreement to arbitrate was not unconscionablebecause "Gentry was given the option of opting out ofthe arbitration agreement" but he "did not opt out."Id. at 79a.

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The California Court of Appeal dismissed Gentry’sappeal and subsequently denied his petition for writof mandate. Pet. App. 72a. On November 19, 2003,the California Supreme Court granted Gentry’spetition for review, and deferred further actionpending its decision in Discover Bank v. SuperiorCourt. Id. at 4a. On August 31, 2005, the CaliforniaSupreme Court remanded this case to the Court ofAppeal for reconsideration in light of its ruling inDiscover Bank. Id. at 67a. On remand, the Court ofAppeal again enforced the agreement to arbitratebecause the "class action waiver" in the arbitrationagreement "is neither procedurally nor substantivelyunconscionable." Id. at 59a.

The Court of Appeal explained that "the agreementat issue here does not have [an] adhesive element andtherefore is not procedurally unconscionable" because"[s]igning the arbitration agreement was not made acondition of Gentry’s employment" and "he was given30 days to decide whether or not to opt out of theagreement, and chose not to do so." Pet. App. 61a.As such, Gentry was "free to decide whether or notthe advantages of arbitration outweigh thedisadvantages." Id. at 62a. The Court of Appealdistinguished Discover Bank because the Agreementwas not a ’"consumer contract of adhesion"’ and didnot ’"predictably involve small amounts of damages."’Id. at 63a. The court underscored that "Gentry hasalleged statutory violations that could result insubstantial damages and penalties should he prevailon his individual claims." Id. at 64a.

d. The California Supreme Court reversed. Itconcluded that enforcement of the parties’ agreementto arbitrate individually turned on an evaluation ofwhether individual arbitration "would pose a seriousobstacle to the enforcement of the state’s overtime

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laws." Pet. App. la. Specifically, the court ruled that"the statutory right to receive overtime pay embodiedin section 1194 [of the California Labor Code] isunwaivable," id. at 12a, and that "under somecircumstances [a provision requiring individualarbitration] would lead to a de facto waiver andwould impermissibly interfere with employees’ abilityto vindicate unwaivable rights and to enforce theovertime laws," id. at 13a.1

The California Supreme Court held thatenforcement of an agreement to arbitrate individuallywas contingent on an assessment whether a classaction "is likely to be a significantly more effectivepractical means of vindicating the rights of theaffected employees than individual litigation orarbitration" and whether "disallowance of the classaction will likely lead to a less comprehensiveenforcement of overtime laws for the employeesalleged to be affected by the employer’s violations."Pet. App. 23a. That inquiry would require a court toassess factors such as (i) "the potential for retaliationagainst members of the class," (ii) "the fact thatabsent members of the class may be ill informed oftheir rights," and (iii) a catch-all categoryencompassing "other real world obstacles to thevindication of class members’ right to overtime paythrough individual arbitration." Id. The court notedthat this inquiry is "similar to the one [a court]

1 The court, however, ruled that "nothing in this opinion"prevents an employee from "entering into an individualpostdispute arbitration agreement with Circuit City." Pet. App.31a n.9 (emphasis added).

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already makes to determine whether class actions areappropriate." Id. at 24a-25a.2

The court below rejected the argument that theFAA foreclosed its ruling. Pet. App. 26a-29a. Thecourt acknowledged that the "United States SupremeCourt has since held that the FAA does not permitstates to legislatively prohibit arbitration of wagedisputes," id. at 29a n.8 (emphasis added), butconcluded that the FAA did not prohibit the court’srefusal "to enforce, under some circumstances and inan arbitration-neutral manner . . , provisions ofarbitration agreements that significantly underminethe ability of employees to vindicate their statutoryright to overtime pay." Id.

Separately, the California Supreme Court held thatthe agreement to arbitrate was procedurallyunconscionable because although Circuit City"alluded to some of the shortcomings of arbitration ina general sense, it did not mention any of theadditional significant disadvantages that thisparticular arbitration agreement had compared tolitigation." Pet. App. 37a. Likewise, the courtspeculated that "it is not clear that someone inGentry’s position would have felt free to opt out." Id.at 39a.

2 The court dismissed the argument that "Gentry as an

individual has not shown himself to be burdened by the classarbitration waiver" because it reasoned that "it makes littlesense to focus only on whether the class representative himselfor herself would be stymied in the pursuit of an individualarbitration remedy, rather than considering as well thedifficulties for the class of employees affected by Circuit City’sallegedly unlawful practices." Pet. App. 24a n.7 (citationomitted).

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e. Justice Baxter, joined by Justices Chin andCorrigan, dissented. They explained that "there is noindication in the record that Gentry himself--theperson whose contract for individual arbitration isactually before us~annot, as a practical matter,vindicate his statutory overtime rights exceptthrough class proceedings." Pet. App. 46a. Theyhighlighted that the practical impact of the majority’sruling was that notwithstanding an agreement toarbitrate individually, "the trial court may certify aclass, in an overtime-wage case, in any circumstancewhere it could otherwise do so." Id. at 47a.

The dissenters objected because the majorityimpermissibly "elevate[d] a mere judicial affinity forclass actions as a beneficial device for implementingthe wage laws above the policy expressed by .Congress .... that voluntary individual agreementsto arbitrate--by which parties give up certainlitigation rights and procedures in return for therelative speed, informality and cost efficiency ofarbitration--should be enforced according to theirterms." Pet. App. 48a-49a. The dissent explainedthat the majority had manifested its hostility toarbitration by "alter[ing] the arbitral terms to whichthe parties agreed, and defeat[ing] the essentialpurposes and advantages of arbitration, bytransforming that process, against the iparties’expressed will at the time they entered theagreement, into something more and more like thecourt litigation arbitration is intended to avoiid." Id.at 52a.

Finally, the dissent would have affirmed the Courtof Appeal’s ruling that the Agreement was notprocedurally unconscionable because "Circuit Cityprovided Gentry, and other employees, with anextensive orientation about the program, then

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allowed them a reasonable time to ’opt out.’ withoutpenalty simply by mailing back a form." Pet. App.53a. They reasoned that because Gentry wasafforded reasonable time to consult an attorney aboutthe program, there was no basis for concluding thatCircuit City misled its employees and there was no"evidence that it implied, threatened, or imposed anysanction for an employee’s decision to opt out of theprogram." Id. at 55a.

REASONS FOR GRANTING THE PETITION

Review of the decision of the California SupremeCourt is necessary to ensure the proper and uniforminterpretation of the Federal Arbitration Act. Thiscase presents an ideal vehicle to do so because thedecision below squarely implicates conflicts amongthe federal courts on two recurring issues of nationalimportance concerning the FAA. First, may courtsrefuse to enforce the terms of agreements to arbitratebased on narrow state policies that do not apply to"any contract" when the FAA mandates a ’"liberalfederal policy favoring arbitration agreements,notwithstanding state substantive or proceduralpolicies to the contrary."’ Perry v. Thomas, 482 U.S.483, 489 (1987) (quoting Moses H. Cone Mem’l Hosp.v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). And,second, does the FAA allow arbitration-specific rulesof unconscionability to provide a basis for refusing toenforce the terms of arbitration agreements. Perry,482 U.S. at 492 n.9.

As to the first issue, under the decision below,enforcement of the terms of agreements to arbitratecan be denied not only on the narrow textual groundsset forth in Section 2 for the "revocation of anycontract," 9 U.S.C. § 2, but also based upon countlesspolicy preferences interposed by state legislatures

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and courts in connection with virtually anysubstantive legal area from ~anchising law toconsumer law to labor law. The decision below thussets a dangerous precedent that threatens toundermine the benefits of arbitration under the FAA.Indeed, the FAA is predicated on the view thatarbitration is valuable because it provides analternative to litigation whereby parties can agree toresolve disputes through procedures that differ fromthose in litigation.

In adopting a broad view of the role that statepolicies should play in determining when the terms ofarbitration agreements will be enforced, theCalifornia Supreme Court brought itself into conflictwith decisions of five federal circuit courts - includingthe Ninth Circuit - which have held that agreementsto arbitrate are fully enforceable save upon thetextual grounds reflected in 9 U.S.C. § 2. Here, theCalifornia Supreme Court conditioned enforcement ofthe parties’ agreement to arbitrate on an analysiswhether individual arbitration was consistent withCalifornia labor law policies. That ruling is flatlyinconsistent with the rule adopted by the federalcircuits that have addressed this issue. See supra at3. Indeed, the need for review is particularly starkbecause the decision below conflicts with the NinthCircuit’s decision in Bradley so that the requirementsof the FAA in California depend on whether a case ispending in federal or state court.

As to the second issue, the California SupremeCourt’s separate "unconscionability" ruling likewisewarrants review because it conflicts directly with thedecisions of this Court explaining that enforcement ofagreements to arbitrate cannot be predicated on astate-law principle that "takes its meaning preciselyfrom the fact that an agreement to arbitrate is at

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issue." Perry, 482 U.S. at 493 n.9; Doctor’s Assocs.,517 U.S. at 687. The court below ruled that theAgreement was unconscionable because Circuit Cityhad failed to compare the relative "disadvantages" of"arbitration" to the advantages of litigation. Thatruling impermissibly creates an arbitration-specificrule to assess the enforceability of arbitrationagreements in direct contravention of this Court’sdecisions in Perry and Doctor’s Associates. Moreover,the ruling below conflicts with the Third Circuit’srecent decision explaining that the FAA imposessubstantial limitationsunconscionability lawagreements to arbitrate.

I. THE DECISION

on the application of stateto rewrite or strike down

BELOW IMPLICATES ADEEP CONFLICT ON WHETHER A COURTMAY REFUSE TO ENFORCE THE TERMSOF AN AGREEMENT TO ARBITRATEBASED ON STATE POLICIES THAT DONOT APPLY TO "ANY CONTRACT."

Review should be granted because the decision ofthe California Supreme Court conflicts directly with aseries of federal circuits on the question whetherstate-law policies other than those that apply to "anycontract" may preclude enforcement of the terms ofan agreement to arbitrate. 9 U.S.C. § 2.

a. On one side of the legal divide are federalcircuit courts that follow the language of Section 2 ofthe FAA, which requires that arbitration agreements"shall be valid, irrevocable, and enforceable, saveupon such grounds as exist at law or in equity for therevocation of any contract." 9 U.S.C. § 2 (emphasisadded). These courts hold that state law that appliesonly to some, but not all, contracts, cannot defeat anagreement to arbitrate. See Bradley v. HarrisResearch, Inc., 275 F.3d 884, 889-90 (9th Cir. 2001);

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Stawski Distrib. Co. v. Browary Zywiec S.A., 349 F.3d1023, 1024-26 (7th Cir. 2003); OPE Int’l LP v. ChetMorrison Contractors, Inc., 258 F.3d 443, 447 (5thCir. 2001) (per curiam); K_KW Enters., Inc. v. GloriaJean’s Gourmet Coffees Franchising Corp., 184 F.3d42, 50-51 (lst Cir. 1999); Doctor’s Assocs., Inc. v.Hamilton, 150 F.3d 157, 163 (2d Cir. 1998); cf.Management Recruiters Int’l v. Bloor, 129 F.3d 851,856 (6th Cir. 1997).

In Bradley, the Ninth Circuit held that Section 2 ofthe FAA preempted a state statute that would haveblocked enforcement of an arbitration agreementbecause the statute applied only to franchiseagreements. 275 F.3d at 890. Bradley reasoned that,under Section 2 of the FAA, "only state law thataddresses the enforcement of ’contracts generally’ isnot preempted by the FAA." Id. at 889 (quotingDoctor’s Assocs., 517 U.S. at 687) (quotation marksomitted). Relying on decisions of the First, Second,Fifth, and Sixth Circuits, the Ninth Circuit held thatthe franchise statute "does not apply to ’anycontract,"’ and therefore was preempted by the FAA.Id. at 890 (quoting 9 U.S.C. § 2).

In Bradley, appellees contended-like the CaliforniaSupreme Court in this case-that the state statutewas not preempted ’~because it treats arbitration andlitigation equally and does not single out arbitrationas a disfavored form of dispute resolution." Id. at889. The Ninth Circuit rejected that argument,holding that "only state law that addres,,~es theenforcement of ’contracts generally’ is not preemptedby the FAA." Id. (quoting Doctor’s Assocs., 517 U.S.at 686-87). As Bradley explained, even if a statestatute places arbitration on "equal footing" withlitigation, it is preempted by the FAA if it is notgenerally applicable to all contracts. Id.; see also

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Ting v. AT&T, 319 F.3d 1126, 1147-48 (9th Cir. 2003)(FAA preempts requirement in California’s ConsumerLegal Remedies Act (CLRA) that precluded waiver ofclass actions).

Likewise, the Fifth Circuit applied this samereasoning in OPE International LP, 258 F.3d 443.There, appellant argued that the arbitrationagreement in question was invalid under a Louisianastatute applicable to construction contracts. TheFifth Circuit disagreed, holding that a state law thatputs "a requirement" on arbitration clauses "notapplicable to contracts generally" is preempted bySection 2 of the FAA. Id. at 447. The Fifth Circuitheld that the state ’"statute directly conflicts with § 2of the FAA because the State’s law conditions theenforceability of arbitration agreements oncompliance with a... requirement not applicable tocontracts generally."’ Id. (quoting Doctor’s Assocs.,517 U.S. at 687) (alteration omitted).

To the same effect is KKW Enterprises, Inc., 184F.3d 42. There, the First Circuit held that a statestatute applicable only to franchise contracts waspreempted by Section 2 of the FAA because it "doesnot apply to all contracts and does not establish agenerally applicable contract defense." Id. at 52. TheFirst Circuit reasoned that only state statutes thatapply to "any contract" are consistent with the FAA.Id. at 50-51. That is, state statutes that apply only toone type of contract do not set forth "a generallyapplicable contract defense" and are thereforepreempted by the FAA. Id. at 51.

Similarly, in Doctor’s Associates, 150 F.3d 157, theSecond Circuit held that Section 2 of the FAApreempted state law applicable only to franchisecontracts because the law "did not establish agenerally applicable contract defense that applies to

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any contract." Id. at 163 (quotation marks omitted).Instead, the law simply "invalidated a franchiseagreement’s forum selection clause under the NewJersey Franchise Practices Act." Id. The Court notedthat its holding meant that "state law" would play amore "narrow role.., in FAA jurisprudence," id. at162, but that precise result was mandated by the"FAA’s strong policy in favor of rigorously enforcingarbitration agreements." Id.

Further, in Stawski Distributing, 349 F.3d 1023,the Seventh Circuit overturned the district court’sorder denying a "stay [oi~ litigation in favor ofarbitration" and held that state law governingcontracts between ’%rewers and distributors" waspreempted because it did not apply generally to allcontracts. Id. at 1024-25. The Seventh Circuitexplained that the FAA "disables states fromsubjecting arbitration to rules that are not generallyapplicable to other contract choices," and thereforethe result mandated by the F/kA under these factswas that the state law was :preempted mad thearbitration must continue. Id. at 1025.

Taken together, these cases establish that fivefederal circuit courts have applied the unambiguouslanguage of Section 2 of the FAA to hold that courtsmay not refuse to enforce agreements to arbitratebased onstate-law grounds other than "grounds thatexist at law or in equity for the revocation of anycontract." 9 U.S.C. § 2. Under the majorit:y view,state law applicable to a limited set of contractscannot, consistent with the F/Lt.~, provide a basis forrefusing to enforce the terms of an agreeraent toarbitrate.

b. In conflict with the majority rule is thedecision below as well as decisions by the Montanaand Washington Supreme Courts. These courts have

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invalidated arbitration agreements based on statelaw applicable only to a narrow subset of contractsand sought to support that result by noting that theyapply the same or similar standards to non-arbitration agreements.

In the decision below, the California SupremeCourt held that the enforceability of an agreement toarbitrate individually depends on a determinationwhether individual arbitration was consistent withstate labor law policy. Pet. App. 23a. The Courtfurther held that the state labor law is not preemptedby the FAA, even though such policies are notapplicable to contracts generally but only to laborcontracts. Id. at 26a-29a. The California SupremeCourt reasoned that its ruling was not preemptedbecause it was "arbitration-neutral," i.e., it treatedcontracts that called for litigation and arbitration thesame. Id. at 27a.

In a similar vein, the Washington Supreme Courtin Scott v. Cingular Wireless, 161 P.3d 1000 (Wash.2007), invalidated an arbitration agreement based ona state law applicable to consumer contracts. Id. at1008-09. Plaintiffs brought suit to invalidate anarbitration clause limiting class action arbitration, id.at 1002-03, and argued that the arbitration clauseviolated the state consumer protection act, which byits terms applies only to consumer contracts. Id. at1005. The Washington Supreme Court invalidatedthe arbitration agreement because it concluded thatindividual arbitration was contrary to the stateconsumer protection law. Id. at 1008.~

3 See Wisconsin Auto Title Loans, Inc. v. Jones, 714 N.W.2d

155, 177-78 (Wis. 2006) (stating, in dicta, that FAA "preemptsonly those laws that target arbitration specifically while

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In Keystone, Inc. v. Triad Systems Corp., 971 P.2d1240 (Mont. 1998), the Montana Supreme Court heldthat state law applying to contracts with arbitration

¯ clauses was not preempted by the FAA because it didnot place arbitration agreements on "unequalfooting." Id. at 1245 (internal quotation marksomitted). The Keystone Court examined the validityof an arbitration clause that required out-of-statearbitration against two Montana state statutes thatrequired such disputes to be resolved withinMontana. One statute applied, to contracts thatcontained no arbitration clauses, while the otherapplied to contracts with arbitration clauses. Id. at1244 (’"No agreement concerning venue.., is validunless the agreement requires that arbitration occurwithin the state of Montana."’) (.quoting Mont. CodeAnn. § 27-5-323). The Montana Supreme Court heldthat the arbitration-specific statute was notpreempted by the FAA, id. at 1244-45, and rested itsholding on the fact that evenL though the statearbitration law did not apply generally to "anycontract," Montana law ultimately treated arbitrationand litigation in the same manner. Id.4

preserving through the savings clause state laws affectingcontracts").

4 Scholars likewise have acknowledged this conflict over the

appropriate scope of the FAA. Compare Jean R. Sternlight, TheRise and Spread of Mandatory Arbitration as a Substitute forthe Jury Trial, 38 U. San Fran. L. Rev. 17, 36-38 (2003) (arguingfor narrow view of FAA preemption), with Christopher R.Drahozal, Federal Arbitration Act Preemption, 79 Ind. L.J. 393,409 (2004) ("Lower courts are split on whether" statutes thatgovern only specific types of contracts "fall under the savingclause and avoid preemption."), and Stephen Hayford & AlanPalmiter, Arbitration Federalism: A State Role in CommercialArbitration, 54 Fla. L. Rev. 175, 177 (2002) (discussing FAApreemption and noting that there "lies a murky sphere (a kind

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c. Review is warranted in this case to resolve thisfundamental conflict among the lower courts over theproper application of the FAA on issues that affectthe rights of countless individuals and businessesacross the country.

Under the majority rule, the FAA mandates theenforcement of agreements to arbitrate, in accordancewith their terms, save upon grounds available for therevocation of "any contract." 9 U.S.C. § 2. In thosecases, the lower courts hold that the FAA does notallow them to refuse to enforce agreements toarbitrate based upon narrow state policies such as:(i) franchise law (Bradley, 275 F.3d at 889-90 (9thCir.); Doctor’s Assocs., 150 F.3d at 163 (2d Cir.); KKWEnters., 184 F.3d at 51-52 (lst Cir.)); (ii) constructionlaw (OPE Int’l, 258 F.3d at 447 (5th Cir.)); (iii)consumer law (Ting, 319 F.3d at 1147-48 (9th Cir.));and (iv) brewer and distributor law (Stawski, 349F.3d at 1024 (7th Cir.)).

These decisions closely follow this Court’s decisionsholding that California franchise and labor law do notprovide a basis for refusing to enforce an agreementto arbitrate. See Southland Corp. v. Keating, 465U.S. 1, 16 n.ll (1984) ("IT]he defense to arbitrationfound in the California Franchise Investment Law isnot a ground that exists in law or at equity ’for therevocation of any contract"’); Perry, 482 U.S. at 490-91 (1987) (FAA preempts California state policy thatrequired litigation of labor disputes). Indeed, inPerry, this Court struck down a California statutethat precluded arbitration in cases involving labordisputes. This Court explained that, under the

of boundary) where the FAA speaks, but without the sameclarity and force as in the legislation’s provisions onenforceability and arbitrability").

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Supremacy Clause, California’s requirement that"litigants be provided a judicial forum for resolvingwage disputes" "must give way" to the FAA’srequirement that arbitration agreements ’~be’rigorously enforce[d]."’ Id. at 490, 491 (quoting DeanWitter Reynolds Inc. v. Byrd, 470 U.S. 213, 221(1985)). This Court explained that the FAA con-strained state law "whether of legislative or judicialorigin," because otherwise a court could "effect whatwe hold today the state legislature cannot." Id. at492 n.9 (emphasis added).

In stark contrast, the decisio~a below holds thatenforcement of the terms of an agreement to arbitratecan be denied based on state law policies applicablenot to "any contract" but based on California laborlaw. Pet. App. la, 23a. Here, the California SupremeCourt made enforcement of the terms of the parties’agreement to arbitrate contingent on an assessmentwhether the individual arbitration agreed to by theparties is consistent with labor law. Enforcement isthus made to depend on matters such as (i) "thepotential for retaliation," (ii) the possibility that"members of the class may be ill :informed about theirrights," and (iii) "other real world obstacles to thevindication of class members’ right to overtime paythrough individual arbitration." Id. at 23a.

Such a broad and sweeping limitation of the federalpolicy mandating enforcement of arbitration agree-ments is a far cry from the specific textual groundsset forth in Section 2 of the FAA and fundamentallyinconsistent with "Congress’s clear intent.., to movethe parties to an arbitrable dispute out of court andinto arbitration as quickly and easily as possible."Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,460 U.S. 1, 22 (1983). Further, the open-endedanalysis of potential impact on third parties is flatly

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contrary to this Court’s precedent that the FAArequires (i) "an expeditious and summary hearing,with only restricted inquiry into factual issues," id.,and (ii) that, under the FAA, "an arbitrationagreement must be enforced notwithstanding thepresence of other persons who are parties to theunderlying dispute but not to the arbitrationagreement," id. at 20; see Dean Witter, 470 U.S. at221 (FAA "requires piecemeal resolution whennecessary to give effect to an arbitration agreement").

Further, the California Supreme Court squarelyrejected the argument that the federal "policy in favorof enforcing arbitration agreements as writtenoverrides the statutory policy in favor of vigorouslyenforcing overtime laws." Pet App. 28a n.8. Thatjudge-made preference for state-law labor law overbinding federal law violates the Supremacy Clause ofthe United States Constitution. Indeed, theCalifornia Supreme Court’s preference for narrowstate law policies as a basis for undoing privateagreements to arbitrate is indistinguishable from theimpermissible policies adopted by the Californialegislature that this Court held were preempted bythe FAA. See Southland, 465 U.S. at 10-11; Perry,482 U.S. at 491.~ In effect, the California SupremeCourt has, through judicial decision, refused toenforce the terms of an agreement to arbitrate basedon the same narrow state law grounds that this Courtrejected when attempted by the Californialegislature. Id. at 492-93 & n.9.

5 The court below sought to distinguish Perry, arguing that itstands solely for the proposition that "the FAA does not permitstates to legislatively prohibit arbitration of wage disputes."Pet. App. 29a n.8. The Perry Court, however, made clear thatthe FAA preempted state law "whether of legislative or judicialorigin." 482 U.S. at 492 n.9.

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The California Supreme Court’s conclusion that itsruling is not preempted by the FAA because it wasrefusing to enforce the parties’ agreement in an"arbitration-neutral manner," Pet. App. 29a n.8, isprecisely the argument that the federal circuit courtsapplying the majority rule have rejected. Thus, theNinth Circuit in Bradley held that the FAApreempted California law that "affect[ed] botharbitration and litigation" because it did not apply to"contracts generally." 275 F.3d at 889. A contraryrule would allow courts to show hostility toarbitration by altering the "arbitral terms to whichthe parties agreed.., into something more and morelike the court litigation arbitration is intended toavoid." Pet. App. 52a (Baxter, J., dissenting).

Lastly, the enforceability of arbitration clausesgoverned by the FAA should not depend on geographyunder any circumstances. But the decisional conflictis particularly acute here where the outcome willvary depending on whether the litigation arises infederal court on one side of the street (and thereforewill be governed by the Ninth Circuit’s rule inBradley) or is brought on the other side (and is thussubject to California’s rule in Gentry). This is anintolerable situation and the Court should grantcertiorari to eliminate the race to the courthouse thatno doubt will be engendered.

II. THE UNCONSCIONABILITY RULING INTHE DECISION BELOW CONFLICTS WITHDECISIONS OF THIS COURT AND THETHIRD CIRCUIT.

Review also should be granted because theCalifornia Supreme Court’s "unconscionability"ruling conflicts both with this Court’s decisions andimplicates a conflict among the federal circuits.

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a. In Perry, this Court ruled that a court may notavoid the preemptive effect of the FAA through "[a]state-law principle that takes its meaning preciselyfrom the fact that a contract to arbitrate is at issue."Perry, 482 U.S. at 493 n.9. Thus, "in assessing therights of litigants to enforce an arbitrationagreement," a court may not "construe thatagreement in a manner different from that in whichit otherwise construes nonarbitration agreementsunder state law" or "rely on the uniqueness of anagreement to arbitrate as a basis for a state-lawholding that enforcement would be unconscionable."Id.

Following Perry, this Court in Doctor’s Associatesexamined a state-law rule that made agreements toarbitrate unenforceable unless ’"notice that [the]contract is subject to arbitration [is] typed inunderlined capital letters on the first page of thecontract."’ 517 U.S. at 684. This Court held that theMontana law was preempted by the FAA because theState’s "first-page notice requirement" applied"specifically and solely" to "contracts ’subject toarbitration"’ and not to ’"any contract."’ Id. ThisCourt reasoned that Montana law was displacedbecause it "conditions the enforceability of arbitrationagreements on compliance with a special noticerequirement not applicable to contracts generally."Id. at 687.

b. The California Supreme Court’s unconscion-ability ruling conflicts with Perry and Doctor’sAssociates because it impermissibly imposesrequirements governing the enforceability of theterms of agreements to arbitrate that are notapplicable to non-arbitration agreements.

First, the court below concluded that the agreementto arbitrate was procedurally unconscionable--

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despite a 30-day period during which Gentry couldhave opted out without any adverse consequence--because Circuit City "did not mention any of theadditional significant disadvantages that thisparticular arbitration agreement had compared tolitigation." Pet. App. 37a.

An arbitration-specific requirement that anindividual be specifically provided an explanation ofthe "disadvantages" of arbitration as compared tolitigation is precisely what this Court has confirmedthe FAA precludes: "Nor may a court rely on theuniqueness of an agreement to arbitrate as a basis fora state-law holding that enforcement would beunconscionable.." Perry, 482 U.S. at 492 n.9. To beclear, there is no question that Circuit City disclosedthe rules governing arbitration. Indeed, the courtbelow acknowledged that "an employee who readCircuit City’s nine-page single-spaced documententitled Circuit City’s ’Dispute Resolution Ru].es andProcedures’ would have encountered" the provisionsgoverning the parties’ arbitration. Pet. App. 38a.What the court below required--and what the FAAprohibits--is an additional arbitration-specificobligation to disclose every possible way in which therules of arbitration might be deemed "less favorableto an employee than those operating in a judicialforum." Id.

The standard applied by the California SupremeCourt likewise conflicts with Doctor’s Associatesbecause the court below interposed an obligationmi.e., to catalog all of the potential disadvantages ofarbitration when compared to litigation - that appliessolely to agreements to arbitrate and not tononarbitration agreements. 517 U.S. at 687 ("Courtsmay not.., invalidate arbitration agreements understate laws applicable only to arbitration provisions.").

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Indeed, the court below nowhere suggested anyparallel obligation for nonarbitration agreements toidentify the disadvantages of litigation as comparedto arbitration. As such, the California SupremeCourt improperly ’"requir[ed] greater information...in the making of agreements to arbitrate than inother contracts."’ Id. (citation omitted).

The California Supreme Court’s ruling isparticularly pernicious because every arbitrationagreement can be deemed procedurally unconscion-able based upon the grounds advanced by thedecision below. As noted, at its core, arbitration isbeneficial because it provides individuals with analternative to litigation: "[B]y agreeing to arbitrate, aparty ’trades the procedures and opportunity forreview of the courtroom for the simplicity,informality, and expedition of arbitration."’ Gilmer v.Interstate~Johnson Lane Corp., 500 U.S. 20, 31(1991). Under the ruling below, an arbitrationagreement would be deemed procedurallyunconscionable based solely on a failure to anticipate,in an explanatory handbook, each and every possibledisadvantage of arbitration as compared to litigation.Such a ruling would cripple the ability of parties tochoose arbitration as an alternative to litigation, achoice that "may be of particular importance inemployment litigation, which often involves smallersums of money than disputes concerning commercialcontracts." Circuit City Stores, Inc. v. Adams, 532U.S. 105, 123 (2001).

The California Supreme Court also speculated that"it is not clear that someone in Gentry’s positionwould have felt free to opt out" because "Circuit Citypreferred that the employee participate in thearbitration program." Pet. App. 39a. UnderCalifornia law, however, the party opposing enforce-

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ment of a contract has the affirmative burden ofproving unconscionability. E.g., Brutoco Eng’g &Constr., Inc. v. Superior Court, 107 Cal. App. 4th1326, 1331 (2003). Here, "Gentry signed an easilyreadable, one-page form that accompanied receipt ofthe Associate Issue Resolution Package," whichexplained the procedures if he wanted to opt out ofarbitration with Circuit City. Pet.. App. 32a-33a. Themajority cited no support for its novel view thatwhere an employer has a preference for arbitration,its employees (even if offered an opt out) will bedeemed to have been coerced into agreeing toarbitrate. To the contrary, the law is settled that"[m]ere inequality in bargaining power . . . is. not asufficient reason to hold that arbitration agreementsare never enforceable in the employment context."Gilmer, 500 U.S. at 33.6

c. The California Supreme Court’s unconscion-ability ruling also conflicts with the Third Circuit’sdecision in Gay v. CreditInform, ~ F.3d I_ 2007

6 See Michael G. McGuinness & Ad.’~m J. Karr, Cai!ifornia’s

"Unique "Approach to Arbitration: Why This Road Less TraveledWill Make All the Difference on the Issue of Preemption Underthe Federal Arbitration Act, 2005 J. Disp. Resol. 61, 62 (2005)("California has created a new brand of unconscionability. It isfar more demanding--and it is unique to arbitration.’"); SusanRandall, Judicial Attitudes Toward Arbitration and theResurgence of Unconscionability, 52 Buff. L. Rev. 185, 186 (2004)("[J]udges find unconscionable specific features of arbitrationagreements, such as forum selection clauses and confidentialityrequirements, which are routinely erdbrced as unobjectionablein nonarbitration agreements"); Stephen J. Ware, Arbitrationand Unconscionability After Doctor’s Associates, Inc. v.Casarotto, 31 Wake Forest L. Rev. 1001, 1034 (1996) ("Judicialdecisions apply unconscionability, and other common lawdoctrines, more aggressively to arbitration agreements than toother contracts.").

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WL 4410362 (3d Cir. Dec. 19, 2007).7 In Gay, theThird Circuit applied this Court’s decision in Perryand explained that the FAA "distinguished state lawprinciples that apply to contracts generally fromthose that are unique to arbitration agreements." Id.at *20. The Gay Court ruled that an agreement toarbitrate a consumer dispute as a class action wasenforceable even if such an agreement would bedeemed "unconscionable" as a matter of Pennsylvaniadecisional law.

The Third Circuit rejected the argument thatPennsylvania unconscionability law was insulatedfrom further scrutiny under the FAA. Id. The ThirdCircuit instead concluded that the "unconscionability"rulings under Pennsylvania law would be preemptedby the FAA because those rulings "deal withagreements to arbitrate, rather than with contractsin general." Id. Specifically, the Gay Court explainedthat state-law "unconscionability" rules werepreempted when they "rel[y] on the uniqueness" ofthe arbitration provision. Id.

The Third Circuit’s decision is in direct conflict withthe decision below, because the California SupremeCourt’s unconscionability analysis centered on thefact that an agreement to arbitrate was at issue. Thecourt below adopted an unconscionability standardbased upon arbitration-specific rules that, by theirterms, do not apply to nonarbitration contracts. In

7 Accord Iberia Credit Bureau, Inc. v. Cingular Wireless LLC,

379 F.3d 159, 167 (5th Cir. 2004) ("Even when using doctrines ofgeneral applicability, state courts are not permitted to employthose general doctrines in ways that subject arbitration clausesto special scrutiny."); Banc One Acceptance Corp. v. Hill, 367F.3d 426, 432 (5th Cir. 2004) (same).

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stark contrast, the Third Circuit has explained thatsuch rules are preempted by the FAA.

The need to resolve this conflict is even morepressing now that the Ninth Circ.uit has consideredthe issue and declined "to follow the holding in Gay."Lowden v. T-Mobile USA, Inc., ~ F.3d __, 2008 WL170279, at *8 n.3 (9th Cir. Jan. 22, 2008).

CONCLUSION

For the foregoing reasons, the petition for a writ ofcertiorari should be granted.

Respectfully submitted,

REX DARRELL BERRYBERRY & BLOCK, LLP2150 River Plaza DriveSacramento, CA 95833(916) 564-2000

STEVEN B. KATZTHELEN REID BROWNRAYSMAN & STEINER LLP

333 South Hope Street29th FloorLos Angeles, CA 90071-3048(213) 576-8072

Counsel for Petitioner

January 29, 2008

CARTER G. PHILLIPS*PAUL J. ZIDLICKYILEANA MARIA CIOBANUHL ROGERSSIDLEY AUSTIN LLP1501 K Street, N.W.Washington, D.C. 20005(202) 736-8000

* Counsel of Record