California Mediation and Arbitration

Arbitration/3rd Party Beneficiaries/Equitable Estoppel: 9th Circuit Holds District Court Correctly Concluded Defendant Could Not Invoke Arbitration Clause As 3rd Party Beneficiary or Through Equitable Estoppel

Defendant Admitted It Did Not Enter Into Contract With Student To Provide Him With Debt Relief Services

     Student loan debt is an area of our economy ripe to generate cases on arbitration and class action.  See for example my April 12, 2013 post about Kilgore v. Keybank, No. 09-16703 (9th Cir. April 11, 2013), a case in which students of a failed helicopter flight-training school, in which the 9th Circuit, sitting en banc, found that the class action waiver was not unconscionable. 

     Rajagopalan v. NoteWorld, LLC, No. 12-35205 (9th Cir. May 20, 2013) (per curiam) (for publication), is yet another student loan debt case. 

     After losing his job, Plaintiff Rajagopalan, an electrical engineer who accumulated $15,000 in student debt, sought a professional loan work out solution by contacting a company on the Internet.  He signed a contract that contained an arbitration clause.  After some months passed, Plaintiff cancelled his subscription, only to find out that the company responsible for the payment processing had had withdrawn $8,290.15 from his account, and he had received no debt relief.

      NoteWorld, which was responsible for payment processing, was not a signatory to the contract.  Its in-house counsel explained that NoteWorld was an “independent third-party and does not act as an agent for the [debt relief service provider], nor does it take on any of the contractual obligations of the DRSP.”

     Plaintiff filed a lawsuit against NoteWorld, and NoteWorld sought to take advantage of the arbitration provision in the contract between Plaintiff and the debt relief company.  The district court denied NoteWorld’s motion to compel arbitration.

     Under Washington state law, “both contracting parties must intend that a third party beneficiary contract be created.”  Here, evidence was lacking that Plaintiff intended to designate NoteWorld as a third-party beneficiary, or that NoteWorld assumed any duties or obligations under the contract.

      In order to successfully invoke equitable estoppel, it was essential “that the subject matter of the dispute was intertwined with the contract providing for arbitration.”  Such was not the case here, because Plaintiff’s claims against NoteWorld were statutory claims separate from the contract itself.

      Affirmed.

  

Arbitration/Section 1295/Section 1281.2: Fourth District, Division 2 Affirms Denial Of Petition To Arbitrate Wrongful Death Claim Against Senior Living Center Outside Context of CCP Section 1295

In Which We Inaugurate A New Side Bar Category:  Section 1295 (Medical Malpractice)

 

 

     “The Patient.”  Frederic Dorr Steele, artist.  1901.  Library of Congress.

    The plaintiff in the next case, Norma Daniels, is alive.  Her mother, Margaret Barcenas, is dead.  Ms. Daniels sued a residential care facility for the elderly (RCFE), its owners and its operators, for elder abuse and related claims (survivor claims), as well as for wrongful death.  The trial court denied defendants’ petition to compel arbitration on the grounds(i) that Daniels was a third party to the arbitration agreement, and also, (ii) that there was a possibility of conflicting rulings if the survivor claims were arbitrated, and the wrongful death claim was not arbitrated.  Daniels v. Sunrise Senior Living, Inc., E054472 (4th Dist. Div. 2 January 4, 2013) (King, J., author) (certified for publication).

     The Court of Appeal affirmed, despite the fact that the agreement with the RCFE contained a broad arbitration clause, covering all claims relating to the mother’s care received at the RCFE, the clause was binding on the mother’s heirs, and Daniels had signed the agreement.  Notwithstanding those bumps in the road, the road to affirmance was relatively direct.

     First, Daniels did not sign in her personal capacity, but as her mother’s attorney in fact, allowing her to be treated as a third party to the agreement.

     Second, while the survivor claims were brought in Daniel’s capacity as an heir, the wrongful death claim was brought in her personal capacity.  “Unlike some jurisdictions wherein wrongful death actions are derivative, Code of Civil Procedure section 377.60 ‘creates a new cause of action in favor of the heirs as beneficiaries, based upon their own independent pecuniary injury suffered by loss of a relative, and distinct from any the deceased might have maintained had he survived. . . . ‘”  Horwich v. Superior Court, 21 Cal.4th 272, 283 (1999).  In her personal capacity, Daniel retained her third party status.

     Third, the case is distinguishable from Ruiz v. Podolsky, 50 Cal.4th 838 (2010) and Herbert v. Superior Court, 169 Cal.App.3d 718 (1985), cases holding nonsignatories to an arbitration agreement must arbitrate wrongful death claims against a health care provider when the decedent agreed to arbitrate medical malpractice claims pursuant to Cal. Code Civ. Proc. 1295.  Section 1295 governs agreements to arbitrate professional negligence or medical malpractice claims in medical services contracts.  Section 1295, however, includes notice safeguards to ensure a person makes an informed choice about arbitration – none of which were present here.  The Court explains that “this is the critical distinction between Herbert and Ruiz and the present case.”” Thus, a policy argument based on an analogy to cases involving 1295, which has its own built-in safeguards, held no attraction here.  (Note:  the Court points out there is no “statutory analog to section 1295, applicable to RCFE’s nonhealth care providers or to claims other than professional negligence . . . “.  Perhaps a lobbyist will now step forward to try and plug the gap.) 

     Fourth, Cal. Code of Civ. Proc. 1281.2(c) allows a court to refuse to compel arbitration if there is a danger of inconsistent rulings on common questions of law or fact.  Here, the possibility that survivor claims could be ordered to arbitration, whereas Daniels’s wrongful death claim could not be, presented “a possibility of inconsistent rulings on the claims given that the claims are based on the allegation that Barcenas received inadequate care at Sunrise. . . . Because the trial court’s discretionary ruling does not exceed the bounds of reason, we will not disturb it.”

     This case involves no analysis of federal case law or of the Federal Arbitration Act.  Perhaps federal law was simply irrelevant, given the Court’s conclusion that Daniels was not a party to an arbitration agreement.

      Does anyone believe that the gross facts alleged in this case – pressure sores on heels and ankles, followed by “septic shock, pneumonia, dehydration, and a staph infection”, followed by death of the plaintiff’s 93 year old mother, had any impact on the judges’ decision allowing the plaintiff her day in court?

       

Arbitration/Nonsignatories/Third Party Beneficiaries: Financial Advisor of Corporation Can’t Compel Arbitration With Corporation’s Creditors on Third-Party Beneficiary Theory

 

Corporate Creditors Would Have Benefited Alright If Advisor Had Successfully Obtained Financing for Corporation -- But Benefit Alone Does Not a Third-Party Beneficiary Make

     One exception to the rule that a nonsignatory cannot be compelled to arbitrate a dispute is when the nonsignatory is a third-party beneficiary of the contract containing the arbitration agreement. Crowley Maritime Corp. v. Boston Old Colony Ins. Co., 158 Cal.App.4^th 1061, 1069 (2008). A financial advisor tried to avail himself of that exception to compel arbitration with secured creditors of a corporation who sued him for allegedly fraudulent misrepresentations made to induce the creditors to forbear from foreclosing on their security. The refinancing efforts did not succeed, and the corporation became bankrupt. Defendant Kann, the financial advisor, argued the nonsignatory creditors were third-party beneficiaries of the contract between him and the corporation who could be compelled to arbitrate. The trial court disagreed, and denied the financial advisor’s motion. The financial advisor appealed. Epitech, Inc. v. Kann, B230197 (2^nd Dist. Div. 3 April 16, 2012) (for publication) (Croskey, J.).

     The Court of Appeal also disagreed with Kann’s third-party beneficiary argument. For the creditors to qualify as creditor beneficiaries, Kann’s performance of the contract to obtain refinancing would have had to satisfy the corporation’s preexisting obligation to the creditors. But Kann did not contract to pay the creditors any money, or even to obtain financing; he only agreed to perform certain acts “geared toward possibly obtaining financing.” The corporation’s “only obligation to the secured creditors was to repay them, which Kann simply did not contract do do.” The mere fact that the corporate creditors might benefit by a successful refinancing was not enough to make them intended beneficiaries of the financial advisor’s contract with the corporation. Therefore, the order denying arbitration was affirmed.

     Third-party beneficiary analysis can be tricky. This case resulted in an opinion certified for publication.

Nonsignatories/Burden of Proof/Equitable Estoppel/Third-Party Beneficiaries: Third Party Non-Signatories Cannot Successfully Move to Compel Arbitration Agreement Where They Are Neither Sufficiently Tied to The Parties to the Agreement Nor Third Party Bene

 

Nonsignatory Has Burden of Proof to Establish It is Party to the Arbitration Agreement and Entitled to Enforce It.

     In Jones v. Jacobson, 195 Cal.App.4th 1 (2011), Societe Generale and a related entity (SG appellants) were sued along with Jacobson by the Joneses in connection with a failed investment, and sought to arbitrate. The trial court denied the motion to compel, prompting the appeal.

     The problem for the appellants was that the arbitration agreement was between the Joneses and an entity named SG Americas Securities LLC (SGAS) an entity different from the SG appellants.

     The appeal was unsuccessful. The nonsignatory SG appellants and Jacobson had the burden to prove that they “are a party to, and thus are entitled to enforce, the arbitration provision in the account agreement.” It was not enough for nonsignatories to establish the existence of a valid and broadly worded arbitration provision.

     Here, the third parties were unable to sustain their burden, for they could not establish either a close enough relationship to SGAS to justify being able to compel arbitration, nor a third-party beneficiary relationship. The SG appellants were unable to argue that they were agents or employees of SGAS.

     The doctrine of equitable estoppel can sometimes be used by a nonsignatory to argue that it would be inequitable for the party to base its claims on a contract containing an arbitration provision, but then avoid arbitration under an arbitration clause in the contract. Here, however, the account agreement containing the arbitration provision was not the basis of the claims against the SG appellants.

     Finally, the Jacobson appellants relied on the additional argument that he was a “broker-dealer” and entitled to arbitrate as a “third party beneficiary.” However, that argument was also rejected on the grounds that there was an insufficient nexus between the account agreement containing the arbitration provision and the claims against the Jacobson appellants.

     The opinion was authored by Justice Benke in San Diego.