ASSEMBLY THIRD READING

ATR Bill Id:AB 3271

Author:(Kiley)

As Amended Ver:June 10, 2020

Majority vote

SUMMARY:

Finds and declares that it is unconscionable to require a minor to waive legal rights as a condition of enrollment in a public or private K-12 educational institution with respect to any claim arising from sexual assault or sexual battery, and therefore allows a minor to disaffirm any waiver of such rights with respect to claims arising from a sexual assault or sexual battery.

Major Provisions

1. Finds and declares that it would be unconscionable for a parent, on behalf of their minor child, to be required to waive any legal right, remedy, forum, proceeding, or procedure, including the right to file and pursue a civil action, belonging to that minor child with respect to claims arising out of a criminal sexual assault or criminal sexual battery, as a condition of enrollment in a private or public K-12 educational institution.
2. Allows a minor to disaffirm a provision in an enrollment agreement that purports to waive a legal right, remedy, forum, proceeding, or procedure, regardless of whether or not a parent or legal guardian has signed it on the minor's behalf, to the extent that it is construed to require the minor to waive any legal right, remedy, forum, proceeding, or procedure arising out of criminal sexual assault or criminal sexual battery on that minor. Specifies that disaffirming a waiver according to this provision does not affect the validity or enforceability of any other part of the enrollment agreement.

COMMENTS:

This bill presumes that a person should not be required to waive their legal rights and remedies as part of a school enrollment agreement, at least insofar as such a waiver would be enforced against claims of childhood sexual assault. Specifically, the bill would allow a minor to disaffirm any provision in an enrollment agreement that purports to waive the student's legal rights, remedies, or forums – including the right to bring a civil action – if the minor's claim alleges sexual assault. Existing law already makes any contract to which a minor is a party voidable at the choice of the minor. However, this bill would allow the minor to disaffirm a waiver, even if the agreement had been signed by the minor's parent or legal guardian.

To illustrate the need for this bill, the author's background material describes a shocking case in which a chemistry teacher at Brentwood School in Los Angeles was indicted for twelve felony counts of unlawful acts with a minor, including indictments for sexual intercourse, oral copulation, and sodomy with a minor, as well as for penetration of a minor with a foreign object. In 2017, the victim of these crimes brought a civil suit against the school in Los Angeles Superior Court. However, the superior court granted the school's motion to compel arbitration based on a clause in the enrollment agreement used by Brentwood School. The California Supreme Court denied a petition for review.

State Laws Limiting the Validity and Enforceability of Arbitration Agreements. Unfortunately, despite often compelling justifications, proposed legislation seeking to use and enforce waiver provisions, including arbitration clauses, have not met with much success. Over the past few years, the Legislature has heard several bills seeking to limit the use of arbitration provisions in consumer and employment agreements or to make such provisions unenforceable under certain circumstances. Prior bills, for example, presumed that consumers do not meaningfully negotiate an arbitration agreement when they sign (or "click") a "take-it-or-leave-it" adhesion contract. Similarly, applicants hoping for a job are not likely to challenge a boilerplate provision in an employment contract that requires them, as a condition of employment, to submit all disputes with the employer to arbitration. In addition to sparking debates over the relative merits of arbitration versus litigation, these bills have also been questioned as to whether or not they are preempted under the Federal Arbitration Act (FAA). The remainder of this analysis considers, in light of prevailing case law, whether this bill would likely be preempted by the FAA.

The Federal Arbitration Act and Standard Preemption Analysis. Because the FAA expresses a strong federal policy favoring arbitration, any state law or court rule that frustrates that purpose is preempted by federal law. The preemption doctrine derives from the Supremacy Clause of the United States (U.S.) Constitution (Article VI, clause 2), which makes the U.S. Constitution and federal statutes "the supreme Law of the Land," and gives them priority over any conflicting state law. [McCulloch v. Maryland (1819) 17 U.S. 316.] This does not mean that a state may not enact different laws on the same subject; rather, it means that state law cannot conflict with, or frustrate the purpose of, federal law.

The courts have recognized three broad areas of preemption: express, field, and conflict preemption. "Express" preemption occurs when the language of a federal statute expressly forbids states from legislating in a particular area. "Field" preemption occurs when federal regulation is so extensive as to "occupy the field," even if it does not expressly prohibit state legislation. Finally, "conflict" preemption comes in two variations. Federal and state laws are in "direct" conflict if it is impossible to comply with both state and federal law simultaneously. However, state law also conflicts with federal law if it "frustrates" the purpose of the federal law. FAA does not expressly prohibit state legislation, and the federal government certainly does not "occupy the field" of contract law, an area of traditional state concern. Nor can it be said that this bill directly conflicts with FAA, as it would be possible to abide by both federal and state law. Therefore, if this bill is preempted by the FAA, it can only be because it "frustrates the purpose" of the FAA.

Case Law on State Laws Limiting Arbitration. In AT&T Mobility v Concepcion (2011) 533 U.S. 333, perhaps the leading case on FAA preemption, the U.S. Supreme Court effectively negated an earlier rule established by the California Supreme Court in Discover Bank v. Superior Court (2005). Discover Bank held that a provision in a consumer adhesion contract waiving the right to bring a class action suit was "unconscionable." In addition to pointing out that "take-it-or-leave-it" consumer contracts are not meaningfully negotiated, the California Supreme Court reasoned that class action waivers were especially apt in disputes where the damages suffered by a single consumer would be too small to justify the expense of a lawsuit. Unless several consumers can bring a class action, the party that drafted the adhesion contract could cheat a large number of people out of individually small sums of money. Therefore, the Court concluded, "such waivers are unconscionable." In AT&T Mobility v. Concepcion, the U.S. Supreme Court considered just such a waiver. The plaintiff sued AT&T, alleging that the company engaged in fraud when it offered "free" phones but then charged $30 in fees and taxes on the retail value of the phone. The district court consolidated the case into a class action with other consumers who had also signed service agreements that included an arbitration clause and a class action waiver. AT&T moved to compel each consumer to submit to individual arbitration. The plaintiffs argued that the waivers were unconscionable and unenforceable under the Discover Bank rule. A federal district court sided with the plaintiffs, and the U.S. Court of Appeals for the Ninth Circuit affirmed the lower court's interpretation that California law made class action waivers in consumer adhesion contracts unenforceable, at least where the individual amounts in dispute were relatively small. The U.S. Supreme Court reversed, however, finding that the Discover Bank rule was preempted by the FAA, because the FAA mandates that "courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms." (Id., at p. 339.)

Subsequent decisions by the courts have fairly consistently affirmed this ruling, striking down, on federal preemption grounds, state laws that interfere with either the making or enforcing of arbitration agreements. [See Kindred Nursing Center Limited Partnership v Clark (2017) 137 S. Ct. 1421; Epic Systems Corp. v. Lewis (2018) 584 U.S.; and Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308.]

This Bill Compared to Recently Challenged Legislation. As compelling as the justification for this bill may be, the opponents of this measure correctly note that the courts have taken a dim view of legislative efforts to limit the making or enforcement of contract waivers, especially arbitration clauses that require the party to waive their right to bring a civil action. Two relatively recent bills, in particular, have been overturned or stayed by the courts. First, AB 2617 (Weber) Chapter 910, Statutes of 2014, would have made unenforceable any waiver of one's right to bring an action under two California civil rights statutes, the Ralph Civil Rights Act and the Tom Bane Civil Rights Act. A California appellate court invalidated AB 2617 on federal preemption grounds, and the California Supreme declined to review that decision. (Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308.) More recently, AB 51 (Gonzalez) Chapter 711, Statutes of 2019, which prohibits requiring an employee or applicant from waiving legal rights as a condition of employment, was enjoined earlier this year by a federal district court. That case is now pending before the U.S. Ninth Circuit Court of Appeal.

However, this bill is significantly different from those prior bills. To be sure, this bill is similar to AB 2617 insofar as it deems enforcement of waivers for certain kinds of claims as "unconscionable" and therefore unenforceable. (As noted, AB 2617 made waivers unenforceable with respect to claims filed under civil rights statutes.) The Saheli court concluded, however, that it was impermissible to single out arbitration clauses for different treatment, even if the limitation on arbitration clauses is part of a broader limitation on any waiver of "legal rights, remedies, or forums." This bill is similar, therefore, in its target. Unlike AB 2617, however, this bill only applies to minors (who, after all, did not sign the agreement) and only those who become victims of childhood sexual assault. Consider, for example, the Brentwood School case that the author cites as the impetus for this bill. If the arbitration clause had actually been negotiated – and as boilerplate language it most likely was not – the parents or legal guardians would have reasonably assumed that it covered disputes concerning the education program and services that the school promised to provide in exchange for tuition and any other parental or student obligations – in short, that it would apply to disputes over tuition payments, the quality of educational programs, or any other matter in which one party falls short of promises in the terms of agreement. Most parents or legal guardians do not anticipate at the time of signing that their child will become a victim of sexual assault. Moreover, this bill takes cognizance of the fact that the person signing the enrollment agreement is not the victim, which was not the case in AB 2617. Finally, allowing a minor to disaffirm the obligations of a contract is – unlike AB 2617 – fully consistent with California law and policy. [See Family Code Section 6710; see also Berg v. Traylor (2007) 148 Cal App. 809, allowing a minor to disaffirm provisions of a contract even if signed by the parent.] In sum, this bill is more narrowly tailored than AB 2617 and is rooted in a clear public policy of protecting minors from harmful contract provisions, whether the minor has signed the contract or a parent or guardian has signed on the minor's behalf.

According to the Author:

According to the author, compelling arbitration when doing so would restrict the legal rights of victims of childhood sexual abuse is unconscionable. Therefore, provisions in an enrollment agreement that force the minor to waive legal rights should be unenforceable as contrary to public policy. As the plaintiffs in the Brentwood School case argued, at the time that agreement was signed the minor's parents, to say nothing of the minor, the parents did not contemplate that sexual abuse would be part of the "educational experience" covered by the enrollment agreement.

Arguments in Support:

Writing in support, the Consumer Attorneys of California (CAOC) argue that "AB 3271 is an important measure to protect victims of childhood sex abuse in our schools. When a chemistry teacher at a Los Angeles School was indicted for twelve felony counts including sex assault and rape, the school successfully brought a motion to compel arbitration based on a clause in the enrollment agreement. Parents signing an arbitration agreement in an enrollment clause could not have anticipated that they would be waiving their child's right to justice after suffering sex abuse at school. . . AB 3271 allows a minor to disaffirm any waiver of legal right, remedy, or forum in an educational enrollment agreement for claims arising out of childhood sexual assault."

Arguments in Opposition:

The California Chamber of Commerce, while expressing sympathy for the bill's intent, argues that this bill targets the validity of arbitration agreements and is therefore preempted by the FAA. Specifically, the Chamber's letter makes two central points. First, it argues that arbitration should be encouraged because it provides "an important, efficient alternative to litigation." Second, AB 3271 "is likely preempted" because it attempts to craft an arbitration-specific defense into state contract law, which the U.S. Supreme Court rejected in Concepcion. AB 3271, the Chamber contends, does just what the Court has said a state law cannot do: "it provides that a generally applicable contract defense (unconscionability) applies specifically to arbitration clauses in otherwise valid enrollment agreements." [Emphasis in original.]

FISCAL COMMENTS:

None

VOTES:

ASM JUDICIARY: 10-0-1

YES: Mark Stone, Gallagher, Chau, Chiu, Gonzalez, Holden, Kalra, Kiley, Obernolte, Reyes

ABS, ABST OR NV: Maienschein

UPDATED:

VERSION: June 10, 2020

CONSULTANT: Thomas Clark / JUD. / (916) 319-2334 FN: 0003034

ASSEMBLY THIRD READING

ATR Bill Id:AB 3271

Author:(Kiley)

As Amended Ver:May 18, 2020

Majority vote

SUMMARY:

Finds and declares that it is unconscionable to require a minor to waive legal rights as a condition of enrollment in an educational institution with respect to any claim arising from sexual assault or sexual battery, and therefore allows a minor to disaffirm any waiver of such rights with respect to claims arising from a sexual assault or sexual battery.

Major Provisions

1. Finds and declares that it would be unconscionable for a parent, on behalf of their minor child, to be required to waive any legal right, remedy, forum, proceeding, or procedure, including the right to file and pursue a civil action, belonging to that minor child with respect to claims arising out of a criminal sexual assault or criminal sexual battery, as a condition of enrollment in an educational institution.
2. Allows a minor to disaffirm a provision in an enrollment agreement that purports to waive a legal right, remedy, forum, proceeding, or procedure, regardless of whether or not a parent or legal guardian has signed it on the minor's behalf, to the extent that it is construed to require the minor to waive any legal right, remedy, forum, proceeding, or procedure arising out of criminal sexual assault or criminal sexual battery on that minor. Specifies that disaffirming a waiver according to this provision does not affect the validity or enforceability of any other part of the enrollment agreement.

COMMENTS:

This bill presumes that a person should not be required to waive their legal rights and remedies as part of a school enrollment agreement, at least insofar as such a waiver would be enforced against claims of childhood sexual assault. Specifically, the bill would allow a minor to disaffirm any provision in an enrollment agreement that purports to waive the student's legal rights, remedies, or forums – including the right to bring a civil action – if the minor's claim alleges sexual assault. Existing law already makes any contract to which a minor is a party voidable at the choice of the minor. However, this bill would allow the minor to disaffirm a waiver, even if the agreement had been signed by the minor's parent or legal guardian.

To illustrate the need for this bill, the author's background material describes a shocking case in which a chemistry teacher at Brentwood School in Los Angeles was indicted for twelve felony counts of unlawful acts with a minor, including indictments for sexual intercourse, oral copulation, and sodomy with a minor, as well as for penetration of a minor with a foreign object. In 2017, the victim of these crimes brought a civil suit against the school in Los Angeles Superior Court. However, the superior court granted the school's motion to compel arbitration based on a clause in the enrollment agreement used by Brentwood School. The California Supreme Court denied a petition for review.

State Laws Limiting the Validity and Enforceability of Arbitration Agreements. Unfortunately, despite often compelling justifications, proposed legislation seeking to use and enforce waiver provisions, including arbitration clauses, have not met with much success. Over the past few years, the Legislature has heard several bills seeking to limit the use of arbitration provisions in consumer and employment agreements or to make such provisions unenforceable under certain circumstances. Prior bills, for example, presumed that consumers do not meaningfully negotiate an arbitration agreement when they sign (or "click") a "take-it-or-leave-it" adhesion contract. Similarly, applicants hoping for a job are not likely to challenge a boilerplate provision in an employment contract that requires them, as a condition of employment, to submit all disputes with the employer to arbitration. In addition to sparking debates over the relative merits of arbitration versus litigation, these bills have also been questioned as to whether or not they are preempted under the Federal Arbitration Act (FAA). The remainder of this analysis considers, in light of prevailing case law, whether this bill would likely be preempted by the FAA.

The Federal Arbitration Act and Standard Preemption Analysis. Because the FAA expresses a strong federal policy favoring arbitration, any state law or court rule that frustrates that purpose is preempted by federal law. The preemption doctrine derives from the Supremacy Clause of the U.S. Constitution (Article VI, clause 2), which makes the U.S. Constitution and federal statutes "the supreme Law of the Land," and gives them priority over any conflicting state law. [McCulloch v. Maryland (1819) 17 U.S. 316.] This does not mean that a state may not enact different laws on the same subject; rather, it means that state law cannot conflict with, or frustrate the purpose of, federal law.

The courts have recognized three broad areas of preemption: express, field, and conflict preemption. "Express" preemption occurs when the language of a federal statute expressly forbids states from legislating in a particular area. "Field" preemption occurs when federal regulation is so extensive as to "occupy the field," even if it does not expressly prohibit state legislation. Finally, "conflict" preemption comes in two variations. Federal and state laws are in "direct" conflict if it is impossible to comply with both state and federal law simultaneously. However, state law also conflicts with federal law if it "frustrates" the purpose of the federal law. FAA does not expressly prohibit state legislation, and the federal government certainly does not "occupy the field" of contract law, an area of traditional state concern. Nor can it be said that this bill directly conflicts with FAA, as it would be possible to abide by both federal and state law. Therefore, if this bill is preempted by the FAA, it can only be because it "frustrates the purpose" of the FAA.

Case Law on State Laws Limiting Arbitration. In AT&T Mobility v Concepcion (2011) 533 U.S. 333, perhaps the leading case on FAA preemption, the U.S. Supreme Court effectively negated an earlier rule established by the California Supreme Court in Discover Bank v. Superior Court (2005). Discover Bank held that a provision in a consumer adhesion contract waiving the right to bring a class action suit was "unconscionable." In addition to pointing out that "take-it-or-leave-it" consumer contracts are not meaningfully negotiated, the California Supreme Court reasoned that class action waivers were especially apt in disputes where the damages suffered by a single consumer would be too small to justify the expense of a lawsuit. Unless several consumers can bring a class action, the party that drafted the adhesion contract could cheat a large number of people out of individually small sums of money. Therefore, the Court concluded, "such waivers are unconscionable." In AT&T Mobility v. Concepcion, the U.S. Supreme Court considered just such a waiver. The plaintiff sued AT&T, alleging that the company engaged in fraud when it offered "free" phones but then charged $30 in fees and taxes on the retail value of the phone. The district court consolidated the case into a class action with other consumers who had also signed service agreements that included an arbitration clause and a class action waiver. AT&T moved to compel each consumer to submit to individual arbitration. The plaintiffs argued that the waivers were unconscionable and unenforceable under the Discover Bank rule. A federal district court sided with the plaintiffs, and the U.S. Court of Appeals for the Ninth Circuit affirmed the lower court's interpretation that California law made class action waivers in consumer adhesion contracts unenforceable, at least where the individual amounts in dispute were relatively small. The U.S. Supreme Court reversed, however, finding that the Discover Bank rule was preempted by the FAA, because the FAA mandates that "courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms." (Id., at p. 339.)

Subsequent decisions by the courts have fairly consistently affirmed this ruling, striking down, on federal preemption grounds, state laws that interfere with either the making or enforcing of arbitration agreements. [See Kindred Nursing Center Limited Partnership v Clark (2017) 137 S. Ct. 1421; Epic Systems Corp. v. Lewis (2018) 584 U.S.; and Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308.]

This Bill Compared to Recently Challenged Legislation. As compelling as the justification for this bill may be, the opponents of this measure correctly note that the courts have taken a dim view of legislative efforts to limit the making or enforcement of contract waivers, especially arbitration clauses that require the party to waive their right to bring a civil action. Two relatively recent bills, in particular, have been overturned or stayed by the courts. First, AB 2617 (Weber) Chapter 910, Statutes of 2014, would have made unenforceable any waiver of one's right to bring an action under two California civil rights statutes, the Ralph Civil Rights Act and the Tom Bane Civil Rights Act. A California appellate court invalidated AB 2617 on federal preemption grounds, and the California Supreme declined to review that decision. (Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308.) More recently, AB 51 (Gonzalez) Chapter 711, Statutes of 2019, which prohibits requiring an employee or applicant from waiving legal rights as a condition of employment, was enjoined earlier this year by a federal district court. That case is now pending before the U.S. Ninth Circuit Court of Appeal.

However, this bill is significantly different from those prior bills. To be sure, this bill is similar to AB 2617 insofar as it deems enforcement of waivers for certain kinds of claims as "unconscionable" and therefore unenforceable. (As noted, AB 2617 made waivers unenforceable with respect to claims filed under civil rights statutes.) The Saheli court concluded, however, that it was impermissible to single out arbitration clauses for different treatment, even if the limitation on arbitration clauses is part of a broader limitation on any waiver of "legal rights, remedies, or forums." This bill is similar, therefore, in its target. Unlike AB 2617, however, this bill only applies to minors (who, after all, did not sign the agreement) and only those who become victims of childhood sexual assault. Consider, for example, the Brentwood School case that the author cites as the impetus for this bill. If the arbitration clause had actually been negotiated – and as boilerplate language it most likely was not – the parents or legal guardians would have reasonably assumed that it covered disputes concerning the education program and services that the school promised to provide in exchange for tuition and any other parental or student obligations – in short, that it would apply to disputes over tuition payments, the quality of educational programs, or any other matter in which one party falls short of promises in the terms of agreement. Most parents or legal guardians do not anticipate at the time of signing that their child will become a victim of sexual assault. Moreover, this bill takes cognizance of the fact that the person signing the enrollment agreement is not the victim, which was not the case in AB 2617. Finally, allowing a minor to disaffirm the obligations of a contract is – unlike AB 2617 – fully consistent with California law and policy. [See Family Code Section 6710; see also Berg v. Traylor (2007) 148 Cal App. 809, allowing a minor to disaffirm provisions of a contract even if signed by the parent.] In sum, this bill is more narrowly tailored than AB 2617 and is rooted in a clear public policy of protecting minors from harmful contract provisions, whether the minor has signed the contract or a parent or guardian has signed on the minor's behalf.

According to the Author:

According to the author, compelling arbitration when doing so would restrict the legal rights of victims of childhood sexual abuse is unconscionable. Therefore, provisions in an enrollment agreement that force the minor to waive legal rights should be unenforceable as contrary to public policy. As the plaintiffs in the Brentwood School case argued, at the time that agreement was signed the minor's parents, to say nothing of the minor, the parents did not contemplate that sexual abuse would be part of the "educational experience" covered by the enrollment agreement.

Arguments in Support:

Writing in support, the Consumer Attorneys of California (CAOC) argue that "AB 3271 is an important measure to protect victims of childhood sex abuse in our schools. When a chemistry teacher at a Los Angeles School was indicted for twelve felony counts including sex assault and rape, the school successfully brought a motion to compel arbitration based on a clause in the enrollment agreement. Parents signing an arbitration agreement in an enrollment clause could not have anticipated that they would be waiving their child's right to justice after suffering sex abuse at school. . . AB 3271 allows a minor to disaffirm any waiver of legal right, remedy, or forum in an educational enrollment agreement for claims arising out of childhood sexual assault."

Arguments in Opposition:

The California Chamber of Commerce, while expressing sympathy for the bill's intent, argues that this bill targets the validity of arbitration agreements and is therefore preempted by the FAA. Specifically, the Chamber's letter makes two central points. First, it argues that arbitration should be encouraged because it provides "an important, efficient alternative to litigation." Second, AB 3271 "is likely preempted" because it attempts to craft an arbitration-specific defense into state contract law, which the U.S. Supreme Court rejected in Concepcion. AB 3271, the Chamber contends, does just what the Court has said a state law cannot do: "it provides that a generally applicable contract defense (unconscionability) applies specifically to arbitration clauses in otherwise valid enrollment agreements." [Emphasis in original.]

FISCAL COMMENTS:

None

VOTES:

ASM JUDICIARY: 10-0-1

YES: Mark Stone, Gallagher, Chau, Chiu, Gonzalez, Holden, Kalra, Kiley, Obernolte, Reyes

ABS, ABST OR NV: Maienschein

UPDATED:

VERSION: May 18, 2020

CONSULTANT: Thomas Clark / JUD. / (916) 319-2334 FN: 0002786

Date of Hearing: May 27, 2020

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 3271

Author:(Kiley) – As Amended Ver:May 18, 2020

SUBJECT: Enrollment agreements

KEY ISSUE: should a minor be allowed to disaffirm any waiver of legal right, remedy, or forum in an Educational enrollment agreement, even if the parent or guardian signed the agreement on the minor’s behalf, with respect to any claim arising out of a childhood sexual assault?

SYNOPSIS

This bill declares that it would be unconscionable to enforce a provision in an educational enrollment agreement that requires a minor to waive legal rights, including the right to bring a civil action, with respect to any claim alleging childhood sexual assault against the minor. The bill backs up this declaration by authorizing a minor who is a victim of childhood sexual assault to disaffirm (or void) any such provision. Under the common law, and as codified by statute in California, a contract between an adult and a minor is “voidable” at the option of the minor; that means while the adult is bound by the terms of the contract, the minor may, subject to certain exceptions, void or disaffirm the contract. However, where a parent or legal guardian signs on behalf of the minor, the contract is enforceable against the parent or legal guardian. This bill, however, would allow the minor to disaffirm a waiver provision in an enrollment agreement, even if the agreement were signed by the parent or legal guardian. In other words, the provision could not be enforced against the minor – or against the parent or legal guardian – for any claim alleging childhood sexual assault against the minor. The bill’s rationale is twofold: first, it is unconscionable to allow a parent or a legal guardian to waive rights on behalf of the child, especially if the child becomes a victim of sexual assault; second, when a parent or legal guardian signs a school enrollment agreement that contains an arbitration clause – or any other waiver of rights – they reasonably expect that the provision only applies to disputes naturally arising out of the educational experience; they do not expect that their child will be the victim of sexual assault as part of the usual educational experience. If it is unfair to hold the parent or legal guardian to such a provision, it seems doubly unfair to hold the child to that provision.

The California Chamber of Commerce opposes this bill for the same reason it has opposed past bills seeking to limit the enforcement of waiver provisions, including arbitration clauses that waive a party’s right to bring a civil action. The Chamber contends that such legislation, including this bill, is preempted by the Federal Arbitration Act (FAA). The author contends – and the analysis agrees – that, notwithstanding FAA, California retains the right to invalidate agreements based upon long-standing contract principles. In other words, this bill does not prohibit or discourage arbitration clauses in a way that offends the FAA; it makes an arbitration clause voidable where enforcement would be palpably unconscionable and contrary to public policy.

SUMMARY: Finds and declares that it is unconscionable to require a minor to waive legal rights as a condition of enrollment in an educational institution with respect to any claim arising from sexual assault or sexual battery, and therefore allows a minor to disaffirm any waiver of such rights with respect to claims arising from a sexual assault or sexual battery. Specifically, this bill:

1. Finds and declares that it would be unconscionable for a parent, on behalf of their minor child, to be required to waive any legal right, remedy, forum, proceeding, or procedure, including the right to file and pursue a civil action, belonging to that minor child with respect to claims arising out of a criminal sexual assault or criminal sexual battery, as a condition of enrollment in an educational institution.
2. Allows a minor to disaffirm a provision in an enrollment agreement that purports to waive a legal right, remedy, forum, proceeding, or procedure, regardless of whether or not a parent or legal guardian has signed it on the minor’s behalf, to the extent that it is construed to require the minor to waive any legal right, remedy, forum, proceeding, or procedure arising out of criminal sexual assault or criminal sexual battery on that minor. Specifies that disaffirming a waiver according to this provision does not affect the validity or enforceability of any other part of the enrollment agreement.

EXISTING LAW:

1. Regulates the formation of contracts and provides that anyone may waive the advantage of a law intended solely for that person’s own benefit but specifies that a law established for a public reason cannot be waived by a private agreement. (Civil Code Section 3513.)
2. Authorizes a court, if it finds as a matter of law that the contract or any clause of the contract was unconscionable at the time it was made, to refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (Civil Code Section 1670.5 (a).)
3. Allows a minor, subject to certain exceptions, to disaffirm a contract before majority or within a reasonable time thereafter, or in the case of a minor’s death within that period, by the minor’s heirs or personal representative. (Family Code Section 6710.)
4. Establishes the California Arbitration Act which provides that agreements to arbitrate shall be valid, irrevocable, and enforceable, except on such grounds as exist at law or in equity for the revocation of any contract. (Code of Civil Procedure Section 1280 et seq.)
5. Provides, pursuant to the United States Arbitration Act – commonly known as the Federal Arbitration Act – that agreements to arbitrate shall be valid, irrevocable, and enforceable, except on such grounds as exist at law or in equity for the revocation of any contract. (9 U.S.C. Section 2.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: This author-sponsored bill presumes that a person should not be required to waive their legal rights and remedies as part of a school enrollment agreement, at least insofar as such a waiver would be enforced against claims of childhood sexual assault. Specifically, the bill would allow a minor to disaffirm any provision in an enrollment agreement that purports to waive the student’s legal rights, remedies, or forums – including the right to bring a civil action – if the minor’s claim alleges sexual assault. Existing law already makes any contract to which a minor is a party voidable at the choice of the minor. However, this bill would allow the minor to disaffirm a waiver, even if the agreement had been signed by the minor’s parent or legal guardian.

To illustrate the need for this bill, the author’s background material describes a shocking case in which a chemistry teacher at Brentwood School in Los Angeles was indicted for twelve felony counts of unlawful acts with a minor, including indictments for sexual intercourse, oral copulation, and sodomy with a minor, as well as for penetration of a minor with a foreign object. In 2017, the victim of these crimes brought a civil suit against the school in Los Angeles Superior Court. However, the superior court granted the school’s motion to compel arbitration based on a clause in the enrollment agreement used by Brentwood School. The California Supreme Court denied a petition for review.

The author contends that compelling arbitration in such a case is unconscionable and that such agreements, when used to restrict the legal rights of victims of childhood sexual abuse, should be unenforceable as contrary to public policy. As the plaintiffs in the Brentwood School case argued, at the time that agreement was signed the minor’s parents, to say nothing of the minor, the parents did not contemplate that sexual abuse would be part of the “educational experience” covered by the enrollment agreement.

State Laws Limiting the Validity and Enforceability of Arbitration Agreements. Unfortunately, despite often compelling justifications, proposed legislation seeking to use and enforce waiver provisions, including arbitration clauses, have not met with much success. Over the past few years, this Committee has heard several bills seeking to limit the use of arbitration provisions in consumer and employment agreements or to make such provisions unenforceable under certain circumstances. Prior bills, for example, presumed that consumers do not meaningfully negotiate an arbitration agreement when they sign (or “click”) a “take-it-or-leave-it” adhesion contract. Similarly, applicants hoping for a job are not likely to challenge a boilerplate provision in an employment contract that requires them, as a condition of employment, to submit all disputes with the employer to arbitration. In addition to sparking debates over the relative merits of arbitration versus litigation, these bills have also been questioned as to whether or not they are preempted under the Federal Arbitration Act (FAA). The remainder of this analysis considers, in light of prevailing case law, whether this bill would likely be preempted by the FAA.

The Federal Arbitration Act and Standard Preemption Analysis. Because the FAA expresses a strong federal policy favoring arbitration, any state law or court rule that frustrates that purpose is preempted by federal law. The preemption doctrine derives from the Supremacy Clause of the U.S. Constitution (Article VI, clause 2), which makes the U.S. Constitution and federal statutes “the supreme Law of the Land,” and gives them priority over any conflicting state law. [McCulloch v. Maryland (1819) 17 U.S. 316.] This does not mean that a state may not enact different laws on the same subject; rather, it means that state law cannot conflict with, or frustrate the purpose of, federal law.

The courts have recognized three broad areas of preemption: express, field, and conflict preemption. “Express” preemption occurs when the language of a federal statute expressly forbids states from legislating in a particular area. “Field” preemption occurs when federal regulation is so extensive as to “occupy the field,” even if it does not expressly prohibit state legislation. Finally, “conflict” preemption comes in two variations. Federal and state laws are in “direct” conflict if it is impossible to comply with both state and federal law simultaneously. However, state law also conflicts with federal law if it “frustrates” the purpose of the federal law. FAA does not expressly prohibit state legislation, and the federal government certainly does not “occupy the field” of contract law, an area of traditional state concern. Nor can it be said that this bill directly conflicts with FAA, as it would be possible to abide by both federal and state law.

Therefore, if this bill is preempted by the FAA, it can only be because it “frustrates the purpose” of the FAA. The author would argue, of course, that this bill does not frustrate the purpose of federal law because it does not prohibit or even discourage arbitration clauses in enrollment agreements. Schools may continue to include arbitration clauses in enrollment agreements, and those clauses will be enforced, except in the rare instance that a dispute is about a claim of childhood sexual assault. Moreover, even with respect to a claim of child sexual assault, this bill would not automatically invalidate the arbitration clause relative to that claim; it would merely allow the minor to disaffirm any waiver of legal rights. It certainly does not appear that the intent of this narrowly tailored bill is to frustrate federal policy favoring arbitration, nor does it appear to be based on any hostility to arbitration as means of resolving disputes. Rather, the bill simply finds that enforcing waivers of any sort against a victim of child sexual assault is unconscionable. In other words, the author believes that no parent or legal guardian should be able to limit the legal remedies available to a sexually abused child. Moreover, it is unreasonable to assume that any parent or guardian who signed on behalf of the child anticipated that child sexual assault would be an educational matter covered by the agreement. Nonetheless, the opponents of this bill correctly point out that courts have generally held that the FAA preempts state laws that limit arbitration. As such, a brief review of the main points of relevant case law is in order.

Case Law on State Laws Limiting Arbitration. In AT&T Mobility v Concepcion (2011) 533 U.S. 333, perhaps the leading case on FAA preemption, the U.S. Supreme Court effectively negated an earlier rule established by the California Supreme Court in Discover Bank v. Superior Court (2005). Discover Bank held that a provision in a consumer adhesion contract waiving the right to bring a class action suit was “unconscionable.” In addition to pointing out that “take-it-or-leave-it” consumer contracts are not meaningfully negotiated, the California Supreme Court reasoned that class action waivers were especially apt in disputes where the damages suffered by a single consumer would be too small to justify the expense of a lawsuit. Unless several consumers can bring a class action, the party that drafted the adhesion contract could cheat a large number of people out of individually small sums of money. Therefore, the Court concluded, “such waivers are unconscionable.” In AT&T Mobility v. Concepcion, the U.S. Supreme Court considered just such a waiver. The plaintiff sued AT&T, alleging that the company engaged in fraud when it offered “free” phones but then charged $30 in fees and taxes on the retail value of the phone. The district court consolidated the case into a class action with other consumers who had also signed service agreements that included an arbitration clause and a class action waiver. AT&T moved to compel each consumer to submit to individual arbitration. The plaintiffs argued that the waivers were unconscionable and unenforceable under the Discover Bank rule. A federal district court sided with the plaintiffs, and the U.S. Court of Appeals for the Ninth Circuit affirmed the lower court’s interpretation that California law made class action waivers in consumer adhesion contracts unenforceable, at least where the individual amounts in dispute were relatively small. The U.S. Supreme Court reversed, however, finding that the Discover Bank rule was preempted by the FAA, because the FAA mandates that “courts must place arbitration agreements on an equal footing with other contracts, and enforce them according to their terms.” (Id., at p. 339.)

Subsequent decisions by the courts have fairly consistently affirmed this ruling, striking down, on federal preemption grounds, state laws that interfere with either the making or enforcing of arbitration agreements. [See Kindred Nursing Center Limited Partnership v Clark (2017) 137 S. Ct. 1421; Epic Systems Corp. v. Lewis (2018) 584 U.S.; and Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308.]

The “Savings Clause” of Section 2 of the FAA. A key issue in Concepcion and subsequent cases – and an issue relevant to this bill – has been whether state law that renders an arbitration agreement void and unenforceable is justified under the “savings clause” of Section 2 of the FAA. Specifically, Section 2 declares that arbitration agreements shall be valid, irrevocable, and enforceable “save on such grounds as exist at law and equity for the revocation of any contract.” [Emphasis added.] Traditional grounds at law and equity that justify revocation include, among other things, fraud, duress, coercion, lack of consent, and unconscionability. This bill declares that, as a matter of public policy, it would be “unconscionable” to enforce any purported waiver of rights in a school enrollment agreement against a claim alleging childhood sexual assault. Following from this, the bill would allow a minor who is a victim of child sexual assault to disaffirm any waiver of rights. The bill’s findings and declaration, as well as the author’s background, suggest two compelling reasons why enforcement of any waiver relating to claim of childhood sexual assault would be unconscionable. First, it would be unconscionable for a parent or legal guardian to waive legal rights on behalf of the child victim, when it is the child after all who suffers the harm. Second, the author notes that arbitration agreements usually cover disputes that are likely to arise under the agreement. However, the parent or legal guardian – much less the child – does not anticipate, when signing the enrollment agreement, that the child will be a victim of sexual assault as part of the usual educational experience.

Significantly, this bill does not argue that arbitration clauses in enrollment agreements are unconscionable per se, and nothing in this bill would prevent, or even discourage, schools from using enrollment agreements. Rather, the bill is simply declaring that enforcing such a waiver provision in an enrollment agreement, in the very narrow and limited case of a childhood sexual assault claim, would be unconscionable and well within the savings clause. It is difficult to see how such a narrow exception could frustrate the overall purpose of the FAA. After all, the bill would not dissuade the use of arbitration clauses in enrollment agreements, given that they would still apply to any claim other than one based on childhood sexual assault. If the FAA does preempt such a limited exception, it is difficult to understand any purpose served by the savings clause. Presumably, Congress had a reason for adding a savings clause.

This Bill Compared to Recently Challenged Legislation. As compelling as the justification for this bill may be, the opponents of this measure correctly note that the courts have taken a dim view of legislative efforts to limit the making or enforcement of contract waivers, especially arbitration clauses that require the party to waive their right to bring a civil action. Two relatively recent bills, in particular, have been overturned or stayed by the courts. First, AB 2617 (Ch. 910, Stats. 2014), would have made unenforceable any waiver of one’s right to bring an action under two California civil rights statutes, the Ralph Civil Rights Act and the Tom Bane Civil Rights Act. A California appellate court invalidated AB 2617 on federal preemption grounds, and the California Supreme declined to review that decision. (Saheli v. White Memorial Medical Center (2018) 21 Cal.App.5th 308.) More recently, AB 51 (Ch.711, Stats. 2019), which prohibits requiring an employee or applicant from waiving legal rights as a condition of employment, was enjoined earlier this year by a federal district court. That case is now pending before the U.S. Ninth Circuit Court of Appeal.

However, this bill is significantly different from those prior bills. To be sure, this bill is similar to AB 2617 insofar as it deems enforcement of waivers for certain kinds of claims as “unconscionable” and therefore unenforceable. (As noted, AB 2617 made waivers unenforceable with respect to claims filed under civil rights statutes.) The Saheli court concluded, however, that it was impermissible to single out arbitration clauses for different treatment, even if the limitation on arbitration clauses is part of a broader limitation on any waiver of “legal rights, remedies, or forums.” This bill is similar, therefore, in its target. Unlike AB 2617, however, this bill only applies to minors (who, after all, did not sign the agreement) and only those who become victims of childhood sexual assault. Consider, for example, the Brentwood School case that the author cites as the impetus for this bill. If the arbitration clause had actually been negotiated – and as boilerplate language it most likely was not – the parents or legal guardians would have reasonably assumed that it covered disputes concerning the education program and services that the school promised to provide in exchange for tuition and any other parental or student obligations – in short, that it would apply to disputes over tuition payments, the quality of educational programs, or any other matter in which one party falls short of promises in the terms of agreement. Most parents or legal guardians do not anticipate at the time of signing that their child will become a victim of sexual assault. Moreover, this bill takes cognizance of the fact that the person signing the enrollment agreement is not the victim, which was not the case in AB 2617. Finally, allowing a minor to disaffirm the obligations of a contract is – unlike AB 2617 – fully consistent with California law and policy. [See Family Code Section 6710; see also Berg v. Taylor (2007) 148 Cal App. 809, allowing a minor to disaffirm provisions of a contract even if signed by the parent.] In sum, this bill is more narrowly tailored than AB 2617 and is rooted in a clear public policy of protecting minors from harmful contract provisions, whether the minor has signed the contract or a parent or guardian has signed on the minor’s behalf.

This bill can also be distinguished from AB 51, which would have prohibited employers from requiring employees to waive legal rights, remedies, and forums as a condition of employment. To begin with, AB 51 was much broader than this bill in that it would have applied to any claims arising under the Labor Code or the Fair Housing and Employment Act. Moreover, while this bill only limits the enforcement of waivers for one relatively rare type of claim, AB 51 would have made it unlawful to include such provisions in the contract at its inception. As the court noted in its injunction order, AB 51 frustrated the purpose of FAA because it would have effectively made it a misdemeanor for an employer to include an arbitration clause in an employment agreement. The court rejected the defendant’s argument that under AB 51 an employer could still “offer” the arbitration clause to the employee; the employer simply could not force the employee to accept the clause as a condition of employment or retaliate against an employee who opted against the arbitration clause when offered. The court concluded that the “distinction that the defendants attempt to draw is one without a relevant difference . . . In its expressed purpose and operation, AB 51 singles out the requiring of entering into arbitration agreements and thus subjects these kind of agreements to unequal treatment.” (Chamber of Commerce of the United States v. Becerra, et. al., No. 2:19-c-v-02456-KJM-DB, “Order,” dated February 6, 2020, pp. 20-21.)

A closer look at the order enjoining AB 51 highlights other important differences. Of particular relevance, the order cited legislative history suggesting that AB 51 was rooted in a general hostility to mandatory arbitration in employment. By making the use of such provisions a criminal offense (a misdemeanor), AB 51 appeared, to the court, designed to deter the use of arbitration clauses in all employment contracts. Without opining on the court’s reading of AB 51, the bill under consideration shows no hostility to arbitration per se, and likely will not have any deterrent effect on the use of arbitration. Whereas AB 51 would have prohibited mandatory pre-dispute arbitration provisions for any type of dispute that might arise in the employment relationship, this bill only applies to claims for sexual childhood assault. The enrollment agreement can require all other disputes – and that would be the vast majority of them – to submit to arbitration. Unlike an employer who wants to compel arbitration for disputes that arise under the Labor Code or FEHA, the school does not primarily require arbitration clauses because it anticipates a childhood sexual assault claim. Rather, the school uses arbitration clauses because it anticipates more mundane disputes relating to the educational service that it provides, or fails to adequately provide, to the student. If this bill becomes law, enrollment agreements will still include arbitration clauses and students, parents, and legal guardians will still be bound by them in almost every conceivable dispute. However, under this bill, a minor who is a victim of sexual assault will have the option of disaffirming a provision that was agreed to by the victim’s parent or legal guardian.

Finally, both the court order enjoining AB 51, and the cases that it cites in support, stress that artful drafting will not save a state law that disfavors and singles out arbitration, even though it “oh so coincidentally” disfavors agreements that have the “defining features” of arbitration. (Kindred, supra, at p. 1426.) However, the narrowness of the bill before the Committee makes it clear that it is not rooted in general hostility to arbitration. Not only will the bill have no discernable effect on the use of arbitration clauses in enrollment agreements for the reasons previously stated, the author appears generally supportive of arbitration and, in fact, voted against AB 51 last year, both in this Committee and on the Assembly Floor.

ARGUMENTS IN OPPOSITION: The California Chamber of Commerce, while expressing sympathy for the bill’s intent, argues that this bill targets the validity of arbitration agreements and is therefore preempted by the FAA. Specifically, the Chamber’s letter makes two central points. First, it argues that arbitration should be encouraged because it provides “an important, efficient alternative to litigation.” Second, AB 3271 “is likely preempted” because it attempts to craft an arbitration-specific defense into state contract law, which the U.S. Supreme Court rejected in Concepcion. AB 3271, the Chamber contends, does just what the Court has said a state law cannot do: “it provides that a generally applicable contract defense (unconscionability) applies specifically to arbitration clauses in otherwise valid enrollment agreements.” [Emphasis in original.]

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

California Chamber of Commerce

Analysis Prepared by: Thomas Clark / JUD. / (916) 319-2334