California Mediation and Arbitration

Employment, Civil Rights, FAA: The Second District, Div. 3 Applies The Ending Force Arbitration of Sexual Assault And Sexual Harassment Act

The Case Clarifies How The EFAA Should Apply To Arbitrating Cases Stradling The Effective Date Of The EFAA, And To Mixed Cases Involving Sexual Harassment And Other Claims.

        Jane Doe brought claims of sexual harassment and related violations by her employer, The Huntley Hotel. The employer sought to compel arbitration. The court ruled that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) applies, which makes arbitration agreements unenforceable at the plaintiff's discretion in sexual harassment disputes. The Court of Appeal affirmed the trial court's order denying a motion to compel arbitration. Jane Doe v. Second Street Corp., B330281 (2/3  9/30/24) (Edmon, J.). Since Doe's harassment claims included conduct both before and after the EFAA’s effective date (March 3, 2022), the arbitration clause is invalid for her entire case, not just the sexual harassment claims. Additionally, the court determined that the arbitration provision in the employee handbook cannot be enforced for any of Doe's claims, as they are part of the same case. 

        COMMENT:  The case applies the EFAA in a significant and evolving area of employment law, regarding arbitration agreements in cases involving sexual harassment. The decision clarifies key legal points: 1. Application of the EFAA: The court interpreted how the EFAA applies to cases involving ongoing sexual harassment that straddles the act’s effective date (March 3, 2022), applying the EFAA to preclude arbitration of a case straddling the effective date.  Arbitration in Mixed Claims: The ruling emphasized that under the EFAA, arbitration agreements are unenforceable not just for the sexual harassment claims but for the entire case if any part relates to sexual harassment. This broad interpretation is significant because it would prevent employers from compelling arbitration in cases that contain a mix of claims (sexual harassment alongside other employment violations), expanding protections for plaintiffs in similar cases.

Arbitration, Health Care: An LPS Conservatorship Only Confers Authority To Make Health Decisions, Not To Bind The Patient To Arbitrate

An LPS Conservatorship Only Created Authority To Make Decisions Concerning Health Care And Treatment, Not Authority To Agree To Arbitration.

        Health care facilities are a fertile breeding ground for problems enforcing arbitration agreements. The problems usually stem from deciding who has authority to agree to arbitration, who has capacity, and whether the claims to be arbitrated are survival actions or wrongful death actions. Our next case, a tragic case, involves such issues.

        In Enmark v. KC Community Care, LLC, B333022 (2/2  9/25/24) (Lui, J.), the plaintiffs, Scott Enmark and Marilyn Warhol, sued KC Community Care following the death of their daughter, Lisa Enmark, who was under an LPS (Lanterman-Petris-Short) conservatorship due to mental illness. Lisa was a resident at Community Care Center, where Scott signed two arbitration agreements on her behalf. After Lisa was sexually assaulted at the facility and died days later, her parents brought both wrongful death and survivor claims against the facility. The defendants moved to compel arbitration based on the agreements Scott signed.

        The trial court denied the motion to compel arbitration, finding that Scott lacked the authority to bind Lisa to arbitration under the LPS conservatorship order and that the wrongful death claim was not subject to arbitration since neither Scott nor Marilyn signed the agreements in their individual capacities. The appellate court affirmed the ruling, holding that the LPS conservatorship did not grant Scott the authority to sign arbitration agreements on Lisa’s behalf as it did not involve health care decisions. The court also ruled that wrongful death claims could not be compelled into arbitration under the agreements.

        COMMENT: Survival actions are brought by the personal representative of the deceased's estate for injury to the deceased. Here, however, Lisa did not sign an arbitration agreement that would have bound her estate representative to arbitrate her claims.  As for the wrongful death claims, those were personal to Lisa's surviving family members. However, Marilyn hadn't signed an arbitration agreement. And Scott did not sign in his individual capacity. He signed under the LPS conservatorship to admit Lisa for care. An LPS conservatorship is a legal arrangement where a conservator is appointed for individuals who are gravely disabled due to mental illness, allowing the conservator to make decisions regarding the person's care and treatment but not to waive legal rights such as jury trials through arbitration agreements​.

        What solution would have worked to create a binding arbitration agreement? Perhaps Lisa could have signed an arbitration agreement, but she suffered from mental disability, for which a conservatorship was necessary. Had she signed, this could have created an issue of capacity. Scott and Marilyn could have signed an agreement in their personal capacities, which would have bound them to arbitrate personal wrongful death claims.

Waiver Of Right To Arbitrate Results From Delay After Agreeing To Mediate And Not Mentioning Arb Agreement

Waiver Results From Delaying Bringing Motion To Compel Arbitration Without Adequate Explanation.

        Britnee Campbell, a former employee of Sunshine Behavioral Health, LLC, filed a class action lawsuit in May 2022 for wage and hour violations. Sunshine entered into litigation and mediation discussions, without mentioning an arbitration agreement allegedly signed by Campbell. In November 2022, Sunshine claimed it discovered the arbitration agreement but continued to engage in mediation discussions. In March 2023, Sunshine announced it would not mediate and instead sought to compel arbitration. The court ruled that Sunshine had waived its right to arbitration by delaying its motion and engaging in mediation efforts, leading to Campbell’s motions to compel discovery responses. The Court of Appeal affirmed the trial court’s decision that Sunshine’s actions constituted a waiver of arbitration. Campbell v. Sunshine Behavioral Health, LLC, G062886 (4/3  9/25/24) (Moore, J.).

 

 

Third Party Beneficiaries: Second Dist., Div. 6 Rejects Argument Third-Party Ford Could Benefit From Arbitration Clause With Non-Party Dealer

One More Opinion Rejects Reasoning In Felisilda.

        In Rivera et al. v. Superior Court of Ventura County, B334522 (2/6  9/23/24) (Gilbert, P.J.) petitioners Rivera and Espinosa sued Ford Motor Company under California's Song-Beverly Consumer Warranty Act (the "lemon law") after their Ford F-250 truck experienced repeated mechanical issues. They also included Ford of Ventura, an authorized repair service, in their complaint but did not sue the selling dealer. FMC moved to compel arbitration based on an arbitration clause in the sale contract signed between the petitioners and the non-party dealer.

        The trial court granted FMC's motion, relying on the case Felisilda v. FCA US LLC, which allowed a manufacturer to enforce an arbitration clause as a third-party beneficiary of the sale contract. However, the petitioners sought reconsideration after several appellate courts disapproved Felisilda. The trial court denied reconsideration, citing the unresolved status of Felisilda. The petitioners then sought a writ of mandate. The appellate court ruled that Ford Motor Company was not a third-party beneficiary and that petitioners were not equitably estopped from rejecting arbitration. The appellate court thus granted the writ and ordered the trial court to vacate its order compelling arbitration.

        COMMENT. Why did the court reject Felisilda?  Unlike Felisilda, the petitioners in this case sued only the manufacturer, and not the selling dealer. The obligations under manufacturer's warranty are independent of the sale contract, and the manufacturer is neither a party to nor a beneficiary of that contract. The court emphasized that petitioners’ claims stemmed from statutory warranty obligations under the lemon law, not the sale contract, thus rendering Felisilda inapplicable. We posted on the Felisilda case way back on 8/29/20. Since then, the law has tipped against Felisilda.

Ford F-250. Photo: Scott Beeton.  Creative Commons Attribution-Share Alike 4.0 International license

 

Arbitration, Health Care, Agents: Trial Court Must Reconsider Arbitration Agreements In Light Of Harrod Case

Health Care Cases Continue To Generate Problematic Arbitration Agreements.

        The case James Maxwell v. Atria, A168043 (1/1  9/19/24) (Siggins, J.) involves the death of 93-year-old Trudy Maxwell, a resident at Atria Park of San Mateo, who passed away after drinking industrial-strength cleaner mistakenly served by an Atria employee. Trudy's children, including James Maxwell III, filed a lawsuit against Atria, alleging negligence, wrongful death, and elder abuse. A central issue in the case was James III's authority to sign an arbitration agreement on behalf of his mother, as he held a durable power of attorney, while his sister, Marybeth, held the health care power of attorney. The trial court denied Atria's motion to compel arbitration, ruling James III lacked the authority to sign the agreement and the wrongful death claims by Trudy’s heirs were not bound by it. Atria appealed, arguing James III was authorized to sign the arbitration agreement and all claims should be arbitrated. 

        The Court of Appeal reversed the trial court's denial of the motion to compel arbitration and remanded the case. The appellate court held that it was necessary for the trial court to reconsider the enforceability of the arbitration agreement in light of Harrod v. Country Oaks Partners, LLC, which clarified that signing an arbitration agreement may not constitute a health care decision under a health care power of attorney. The case was sent back for further proceedings to resolve the remaining issues.

        COMMENT. In Harrod v. Country Oaks Partners, LLC, the California Supreme Court held signing an optional arbitration agreement with a skilled nursing facility is not considered a "health care decision" under a health care power of attorney. The court reasoned decisions regarding arbitration agreements involve legal rights, including waiving the right to a jury trial, and are distinct from decisions necessary for the patient's well-being or medical care. Therefore, even if a person holds a health care power of attorney, they may not have authority to bind the patient to an arbitration agreement unless the power to make such decisions is explicitly granted. We blogged about Harrod on 7/1/24.

Deadlines: 30-Day Deadline To Pay Arbitration Fees Not Violated Where Mistake Was Made By Provider, Not Employer

First Invoice Was Paid By Employee And Marked "Paid" And Employer Timely Paid Second Invoice.

        In Anoke v. Twitter, Inc., A168675 (1/5 pub. 9/18/24) (Burns, J.), Sarah Anoke and other employees initiated arbitration against Twitter ("X") for employment-related disputes. Under California Code of Civil Procedure section 1281.97, an employer must pay its share of arbitration fees within 30 days of receiving the invoice, or the employer may face penalties, including paying the employee’s attorney fees.

        Here, the arbitration provider mistakenly accepted payment from the employees' counsel for the employer's portion of the fees. The arbitration provider later refunded this mistaken payment and issued a new invoice to X, which was paid within the 30-day window. Anoke argued X’s payment was untimely because it was not made within 30 days of the first invoice. However, the court ruled that since the first invoice was marked “paid” and a new invoice was issued, the 30-day period started from the second invoice.

        Held: X timely paid its share of arbitration fees within the 30-day grace period after receiving a second invoice. As a result, X was not in default under section 1281.97, and Anoke was not entitled to recover attorney fees under the statute. The superior court’s denial of Anoke’s petition was affirmed.

 

Arbitration, Standard Of Review: The Parties Can Agree That Arbitrator Will Follow The Law

An Exception To The General Rule That Errors Of Fact And Law Are Not A Basis For Reversing An Arbitrator's Award.

        If you need an example of a recent case in which the parties agreed that the arbitrator shall follow the law, see Samuelian v. Life Generations Healthcare, LLC, No. G061911, G062416 & G062426 (4/3   8/20/24) (Moore, Acting P.J.).

        While the general rule is that an arbitrator's mistake of law or fact is not cause for reversal, there is an exception in California. The parties can agree that the arbitrator shall follow the law. Here, the parties agreed in writing: “The Arbitrator shall not have the power to commit errors of law or legal reasoning and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” That meant that the arbitrator's award could be reviewed de novo as to matters of law. Here, the arbitrator made a legal error, and as a result the award was not confirmed and was vacated instead.

Delegation, Arbitrability, Third-Party Beneficiary: Ralph's Wasn't Third-Party Beneficiary Of Agreement Between Customer And Instacart

Delegation Of Threshold Issue To Arbitrator Must Be Unmistakably Clear.

        Mahram used Instacart to purchase groceries and later sued Ralphs (The Kroger Co.) for allegedly raising prices after applying a coupon, claiming violations under false advertising and unfair competition laws. Ralphs moved to compel arbitration based on an agreement between Mahram and Instacart, even though Ralphs was not a signatory to that contract. The Court of Appeal affirmed the trial court's denial of Ralphs' motion to compel arbitration. Payam Mahram v. The Kroger Co., B324405 (2/8  8/19/24) (Wiley, J.).

        While Mahram did enter into an arbitration agreement with Instacart by signing up for its services, the agreement only applied to disputes between Mahram and Instacart.

        Whether Ralphs could compel arbitration was for the court to decide, not an arbitrator, because the contract did not make it "unmistakably clear" that Mahram agreed to arbitrate with any party other than Instacart.

        And Ralphs was not a third-party beneficiary of the contract between Mahram and Instacart, because the contract's purpose was to facilitate grocery deliveries, not to benefit Ralphs specifically.

        In sum, Ralphs could not enforce the arbitration agreement between Mahram and Instacart, and the trial court's denial of Ralphs' motion to compel arbitration was affirmed.

 

Severability: Cal Supreme Court Explains There Is No Bright Line For Severing Unconscionable Provisions

Multiple Unconscionable Provisions Does Not Necessarily Make An Arbitration Agreement Unenforceable.

        In Ramirez v. Charter Communications, Inc., No. S273802 (S.Ct. 7/15/24) (Corrigan, J.), Angelica Ramirez, a former employee of Charter Communications, sued the company for employment discrimination, harassment, and retaliation. Charter sought to compel arbitration based on an agreement Ramirez signed during her onboarding. Ramirez challenged the arbitration agreement, arguing it was procedurally and substantively unconscionable.

        The trial court found the agreement unconscionable and denied Charter's motion to compel arbitration. The Court of Appeal affirmed, identifying several problematic provisions, including: a lack of mutuality in the claims subject to arbitration, a shortened statute of limitations for filing claims, and restricted discovery rights that could prevent a fair hearing. Additionally, the agreement included a fee-shifting provision that violated the Fair Employment and Housing Act (FEHA), which only allows fee awards to employers if an employee's claim is frivolous.

        The California Supreme Court agreed with the lower courts, holding that the arbitration agreement was unenforceable due to its unconscionable terms. The Court highlighted that the agreement unfairly disadvantaged Ramirez as an employee, lacked mutuality, and violated public policy concerning arbitration in employment disputes, particularly under FEHA.

        However, the Supreme Court held that the presence of multiple unconscionable provisions does not automatically make an agreement unenforceable. Instead, the court emphasized that courts should focus on whether the central purpose of the contract is tainted with illegality. If the illegal provisions are collateral to the main purpose, the court should try to sever them and enforce the remainder of the agreement. The Supreme Court concluded that the Court of Appeal had erred by not properly considering whether the unconscionable provisions could be severed and remanded the case for further consideration on this point​.

 

Deadlines, Vacatur: Party Challenging Arbitration Award Must Satisfy Deadlines After Service Of Petition To Confirm Or Service Of The Award

Party Seeking To Vacate Arbitration Award Must Satisfy Separate Deadlines.

The thirty-two page slip opinion in Valencia v. Mendoza, B325803 (2/7  7/1/24) (Feuer, Martinez, Segal) affirms a $432 K award in favor of plaintiffs/respondents the Valencias. The underlying dispute concerned failure to disclose defects in a home sale.

The most important point relates to deadlines to challenge an award. The challenger seeking to vacate the award must respond within 10 days to service of a petition to confirm the award, and within 100 days to service of the award. And, not or: the challenger must satisfy both deadlines. Here, Mendoza satisfied the 100-day deadline, but not the 10 day deadline, which put Mendoza behind the 8 ball.