California Mediation and Arbitration

Arbitration/Enforceability: District Court of Nevada Finds “Browsewrap Agreement” To Arbitrate Unenforceable

“Browsewrap Agreement” Did Not Evidence That Plaintiffs Consented To Arbitrate, Plus It Was An Illusory Agreement That Could Be Changed At Any Time

     Generally, we focus on California law, but the next case, arising from the United States District Court for the District of Nevada, is an important one for e-commerce.  In Re Zappos.Com, Inc., Customer Data Security Breach Litigation, 3:cv-00325-RCJ-VPC  MDL No. 2357 (filed 9/27/12).

     This lawsuit arose from “a security breach of servers” belonging to Amazon.com, Inc., doing business as Zappos.com, and Zappos.com, Inc. (Zappos).  Since Zappos is the largest online shoe store, we assume that quite a few people may have been affected. 

     Zappos moved to compel arbitration based on an arbitration provision in what the court characterized as a “browsewrap agreement.”  A browsewrap agreement is one whereby a website owner seeks to bind users to terms and conditions “by posting the terms somewhere on the website, usually accessible through a hyperlink located somewhere on the website.”  In contrast, “a ‘clickwrap’ agreement requires users to expressly manifest assent to the terms by, for example, clicking an ‘I accept’ button.” 

     The court concluded that, “[w]ithout direct evidence that Plaintiffs click on the Terms of Use, we cannot conclude that Plaintiffs ever viewed, let alone manifested assent to, the Terms of Use.”  (If only Zappos had used a “clickwrap” contract . . . )

     There was a second problem with the arbitration agreement:  the Terms of Use, including the Arbitration Clause, could be changed at any time, without notice to the customer.  “We join those other federal courts,” wrote Chief Judge Robert C. Jones, “that find such arbitration agreements illusory and therefore unenforceable.”  This reenforces another theme of ours:  companies that want enforceable arbitration provisions should strive to make them fair (or at least, not illusory or unconscionable).

   Blog Bonus:  “Zappos.com is an online shoe and apparel shop currently based in Henderson, Nevada.  In July 2009, the company announced it would be acquired by Amazon.com in an all-stock deal worth about $1.2 billion. Since its founding in 1999, Zappos has grown to be the largest online shoe store.”  Wikipedia (footnotes omitted).

Arbitration/Scope/Fees: Court of Appeal Affirms Arbitration Award Leaving Out Attorney Who Refused Arbitration

Standing On One’s Right May Not Always Be The Best Way To Protect One’s Rights

     The stake in the next case was a share of a $380,000 attorney’s fees award in a class action lawsuit.  The parties included the class, whose representative was McCall, and two law firms that had represented the class:  Morris Polich & Purdy (Morris) and The Quisenberry Law Firm (Mr. Quisenberry).   McCall, Plaintiff and Respondent, v. Morris Polich & Purdy et al., Defendants and Respondents; The Quisenberry Law Firm, Objector and Appellant, Case No. B239142 (2nd Dist. Div. 5 October 30, 2012) (Turner, J.) (not for publication). 

     Morris represented the clients first, substituting out in favor of Mr. Quisenberry, the attorney who actually negotiated the settlement on behalf of the class.  Morris, which had an arbitration provision in its fee agreement, arbitrated with the class, and based on quantum meruit, was awarded 65% of the award – $270,000.  The arbitrator also held that Mr. Quisenberry was entitled to 35% of the award, though Mr. Quisenberry was not a party to the arbitration provision, and had in fact successfully resisted efforts of Morris to compel Mr. Quisenberry to arbitrate.  The superior court confirmed the award in favor of Morris, but corrected the arbitrator’s award by deleting the 35% allocation in favor of Mr. Quisenberry, because the issue of Mr. Quisenberry’s rights to fees was not part of the “controversy submitted” to the arbitrator.  Mr. Quisenberry appealed from the judgment correcting and confirming the arbitration award.

     Affirmed. 

     Standing on his rights, Mr. Quisenberry asserted the arbitrator did not have the power to allocate the fee, as Mr. Quisenberry was not a party to the arbitration, and the Court of Appeal agreed:  the allocation to Mr. Quisenberrry was in excess of the arbitrator’s powers.  However, the Court of Appeal found no basis for overturning the quantum meruit award in favor of Morris.

     Mr. Quisenberry also argued that “the award as corrected interferes with and constitutes an involuntary forfeiture of his property rights.”  But the Court of Appeal was entirely unsympathetic to that claim.  The superior court judge had earlier ruled:  “If [Mr. Quisenberry] refuses to participate in the arbitration, [he] will have little practical opportunity to provide input to the arbitrator.”  The judge called that one correctly.  The Court of Appeal pointed out that Mr. Quisenberry could have protected his rights by participating in the arbitration, or filing suit to adjudicate his rights to the attorney’s fees fund, instituting litigation to bring in all interested parties (Cal. Code Civ. Proc. section 1281(c), and seeking to stay the arbitration to resolve the dispute in a judicial forum.

      But by standing on his right not to arbitrate, “Mr. Quisenberry’s [sic] declined to opt for any of these courses of action to protect his rights.” 

Arbitration/Enforceability: First District, Division 1 Affirms Order Denying Sprint’s Motion To Compel Arbitration, Based On Trial Court’s Limited Jurisdiction Following Remittitur

 

Dispositional Language Of Prior Appellate Opinion Deprived Trial Judge Of Jurisdiction To Rule On Motion To Compel Arbitration

     On September 26, 2012, we posted about Phillips v. Sprint, a case in which a 2006 denial of a motion to compel mediation was reversed in 2011 only after the United States Supreme Court decided AT&T Mobility LLC v. Concepcion, __ U.S. __, 131 S.Ct. 1740 (2011), making it easier to compel arbitration.  The Court of Appeal, First District, Division 3, affirmed the trial judge’s reversal of the earlier denial of the motion to compel arbitration.  In Phillips v. Sprint, the Court of Appeal explained that an earlier effort by Sprint to compel arbitration would have been futile before Concepcion was decided.

     In Ayyad v. Sprint Spectrum, L.P., Case No. A133824 (1st Dist. Div. 5 October 29, 2012) (Needham, J.) (certified for publication), the Court of Appeal, in one of the so-called “Cellphone Termination Fee Cases”, rejected Sprint’s argument that it should be allowed to compel arbitration because an earlier effort to compel arbitration before Concepcion was decided would have been futile.

      The different outcomes in Ayyad v. Sprint Spectrum, L.P. and in Phillips v. Sprint hinge on a procedural/jurisdictional issue:  In Cellphone Termination Fee Cases, 193 Cal.App.4th 298 (2011), the Court of Appeal “affirmed the trial court’s order granting Plaintiffs a partial new trial on the issue of Sprint’s actual damages and the calculation of a setoff to which Sprint might be entitled.  In our disposition, we remanded for further proceedings limited to those issues.” (italics added for emphasis).  Ayyad was a plaintiff in the Cellphone Termination Fee Cases, and thus the trial court was jurisdictionally limited by the directional language in the remittitur to consider the remaining issues, which issues did not include the right to arbitrate.  (In the appellate context, the remittitur is the order by which the Court of Appeal hands back jurisdiction to the trial court to retry the case, or to enter orders in conformance with the appellate court’s directions.  See Cal.Rules of Court, Rule 8.272).

     Does the outcome mean that Sprint was completely deprived of any opportunity to ask the the appellate courts to address the question of arbitrability?  Not entirely.  The Court of Appeal noted a window of opportunity in footnote 6: “While its petition for review was pending, Sprint could certainly have requested that the California Supreme court examine the effect, if any, of Concepcion on this case.”  But once the remittitur issued, the window of opportunity had closed.  Sprint failed to sprint. 

      Evidently the Court of Appeal felt rather strongly about Sprint’s argument.   Saying that it was “extremely troubled by Sprint’s argument” that “rests on a refusal to acknowledge the very obvious limitations our prior opinion imposed on the remand proceedings in this case,” the Court of Appeal called Sprint’s arguments “spurious.”  Ayyad v. Sprint Spectrum, L.P., at footnote 5.    Ouch.

Arbitration/Nonsignatories: Fourth District, Division 1 Affirms Trial Court’s Order Denying Petition to Compel Arbitration With Nonsignatory

Parties Moving to Compel Arbitration Were Unable to Take Advantage of Nonsignatory’s Admissions Where Moving Parties Denied Existence of Agreement Between Themselves and Nonsignatory

     Our next case is an odd one in which each of the adversaries took seemingly inconsistent positions.  PMCI and Gregory, a contractor and its principal, were moving parties seeking to compel arbitration of a construction defects lawsuit with Quattro, a nonsignatory to a construction contract.  While moving to compel arbitration, PMCI and Gregory claimed that the nonsignatory Quattro lacked standing to sue and was not a party to the agreement.  The nonsignatory claimed that he had standing to sue under the agreement to construct a house, but that as a nonsignatory, he was not bound by the contract’s arbitration provision.  In another related lawsuit, Quattro had filed a declaration stating that another person, Truppi, was the record owner of the property, and that Quattro “had only a prospective beneficial interest in the property. . . “  

     The arbitration clause provided that it bound signatories, and the trial court denied the petition to compel arbitration on the simple basis that signatures were lacking (Gregory had also failed to sign in his individual capacity).  Truppi v. Pasco Engineering, Inc. and Quattro v. Property Management Contractors, Inc., Case No. D059494 (Dist. 1 Div. 1 October 22, 2012) (Nares, Acting P.J.) (unpublished). 

     Several arguments were advanced by appellants in favor of compelling arbitration, including estoppel and third-party beneficiary arguments, all to no avail.

      The chief stumbling block for appellants appears to have been that they were not allowed to take advantage of Quattro’s admissions that the contract was for his benefit and that he had performed the contract – admissions that might have supported an estoppel argument.  Why couldn’t appellants take advantage of their opponent’s admissions?  Because “in both their demurrers, general denial, and indeed in their petition to compel arbitration, PMCI and Gregory denied the existence of an agreement between themselves and Quattro . . . “  See Brodke v. Alphatec Spine, Inc., 160 Cal.App.4th 1569, 1575 (2008) (“While plaintiffs’ admissions are an appropriate means by which the existence of an agreement may be proved, there is simply no reason to prove anything until the moving party alleges the existence of that which is to be proved.”).

Above:  Engine for drawing the fuse out of a shell and cross-section of a Petard. 1779.  Library of Congress.

     If you seek to compel arbitration under a contract,yet deny that there is a binding contract, well, that could be a problem.  It was here for appellants.  See the diagram above referring to a “Petard”, and see the Wikipedia article for the origin of the expression, “hoist with his own petard.”

     Order affirmed.

        

    

Arbitration/Employment/Estoppel/Implied in Fact Agreement: Court of Appeal Concludes That Trial Court Properly Denied Motion to Compel Arbitration With Former HR Director Charged With Getting Employees to Sign Arbitration Provision, Yet Not Signing Herse

Employer’s Equitable Estoppel and Implied-in-Fact Arbitration Agreement Arguments Are Both Rejected

     Plaintiff, Susan Gorlach, sued her former employer, The Sports Club Company, for wrongful termination, retaliation, paramour sexual harassment, intentional infliction of emotional distress, defamation, breach of contract, and negligence.  She did not sign an arbitration agreement.  When the employer petitioned to compel arbitration in the trial court, it lost – after all, the employee had not signed the arbitration agreement.  Seems pretty straightforward so far.  Oh, we should mention that the Plaintiff was the HR Director, charged with the task of getting all the employees to sign the arbitration provision.  Also, she purportedly led her employer to believe that she had signed the agreement, and did not mention that she was one of four holdouts among several hundred employees, the rest of whom had signed.  Also, the arbitration agreement had to be signed as a condition of continued employment.  The Sports Club appealed. Gorlach v. The Sports Club Company, B233672 (2nd Dist. Div. 4 October 16, 2012) (Suzukawa, J.) (certified for publication).

     The Sports Club argued that its employee was equitably estopped from denying the existence of the arbitration agreement, because she misled the executive committee into believing she signed the agreement.  However, an element of estoppel is that the party claiming estoppel must rely upon the conduct to its injury.  Though The Sports Club advised that signing the agreement was a “condition of employment,”  there was “no evidence that, as of the date of Gorlach’s resignation, Sports Club had decided what it would do if an employee refused to sign the arbitration agreement or had terminated any employee for failing to sign the agreement.”  Absent evidence of detrimental reliance on the part of The Sports Club, there could be not equitable estoppel.

     What about an employed-in-fact agreement to arbitrate, based on the fact that Ms. Gorlach continued to work for The Sports Club, and the employer had insisted that the employees sign an arbitration agreement as a condition of continued employment?  As the Court of Appeal acknowledges, “California law permits employers to implement policies that may become unilateral implied-in-fact contracts when employees accept them by continuing their employment.  Whether employment policies create unilateral contracts is ‘a factual question in each case.’”

      Here, the messy fact for the employer was that its handbook told employees, “As a condition to employment, all Team Members must sign the Mutual Agreement to Arbitrate Claims.” (italics added in the Court’s opinion).  And Ms. Gorlach had not signed – evidencing an intention not to be bound.  That messy fact also distinguished her case from Craig v. Brown & Root, Inc., 84 Cal.App.4th 416 (2000), a case in which the employee was not asked to sign an arbitration agreement, was informed that any employment-related dispute would henceforth be subject to arbitration, and was found to be bound by an implied-in-fact agreement to arbitrate.

     Moral:  If you are the employer, be careful what you ask for.  If the employer insists on getting a signature, and does not get it, the employer could have a problem.  So if you do decide to ask for a signature, get it.  And if you decide not to ask for a signature, take a look at Craig v. Brown & Root, Inc., supra.

Arbitration/Fees/: HOA’s Dismissal of Arbitration Against Management Company Results In Award of Attorney’s Fees Against HOA

HOA Was Not Spared Fees Because It Initiated Arbitration, And Fees Clause Was Broad Enough To Cover Situation

     Plaintiff homeowners association, Lakeside Club Villas, Inc., settled with developer defendants, and therefore voluntarily dismissed an arbitration against defendant property management company.  The management company brought a successful motion to obtain attorney fees.  The HOA appealed, arguing that, because it voluntarily dismissed the arbitration, the management company was not the prevailing party.  Lakeside Club Villas, Inc. v. LB Property Management, Inc., Case No. B236001 (2nd Dist. Div. 5 October 16, 2012) (Armstrong, J.) (unpublished).

     Under Civil Code section 1717, a voluntary dismissal may save a losing party from having to pay attorney’s fees on a contract claim.  But that didn’t work here, because the fees clause was “sufficiently broad to allow such fees on the noncontract claim, but are limited to those associated with the arbitration of the dispute.”

     The HOA’s contention depended “upon the premise that there was no arbitration.”  No go.  “A JAMS arbitration is commenced by filing the Demand for Arbitration, a copy of the agreement containing the arbitration provision, and the filing fee.”  And the HOA did that.

Arbitration/Class/Waiver/Consumers/Enforceability: Second District Division 6 Reverses Denial of Automobile Dealership’s Motion to Compel Arbitration

 

Ducks Addressing Viability of Gentry v. Superior Court By Distinguishing It As Case Dealing With Employment Issues, Not Consumer Issues

     Plaintiff purchased a BMW, and filed a complaint alleging a violation of the Consumers Legal Remedies Act (CLRA) and other consumer protection statutes, because some BMWs do not come with a spare tire, but are equipped instead with tires that allow one to drive a short time after a tire is punctured.  The trial court denied the dealership’s motion to compel arbitration, on the ground that the arbitration agreement included an unenforceable class action waiver.  The dealership appealed.  Sherf v. Rusnak/Westlake, Case No. B237275 (2nd Dist. Div. 6 Oct. 16, 2012) (Perren, J.) (unpublished).

     The Court of Appeal reversed the trial court’s order denying arbitration.   AT&T Mobility LLC v. Concepcion, ___ U.S. ___ , 131 S.Ct. 1740 (2011) preempts state law prohibiting a consumer from waiving class action rights.  However, the Court of Appeal remanded to the trial court to determine whether the arbitration agreement was unconscionable under California law.

     Along the way, the Court of Appeal pointed out that the California Supreme Court “has relied on statutory rights to invalidate a class action waiver in the context of employee rights.” Gentry v. Superior Court, 42 Cal.4th 443 (2007).  Rather than address the continuing viability of Gentry, the Court of Appeal simply ducked that issue by pointing out that Gentry dealt with employment issues, not consumer issues.  Besides, the California Supreme Court has granted review for Iskanian v. CLS Transp. Los Angeles, 208 Cal.App.4th 949 (2012), a case that concluded that Concepcion invalidated Gentry.  So the issue of using unwaivable statutory rights to nix enforcement of arbitration agreements should come up again soon. 

Spare wheels and tires.  Between 1940 and 1946.  Alfred T. Palmer, photographer.  Library of Congress.

Arbitration/FAA Preemption: Justice Gilbert Answers Question of Federal Arbitration Act Preemption

It All Depends

     Justice Gilbert addresses the issue of when federal preemption applies in consolidated appeals of Mastick v. TD Ameritrade, Inc. and Mastick v. Oakwood Capital Management, Inc., LLC, Nos. B237475 and B238070 (2nd Dist. Div. 6 October 9, 2012) (published).  “We answer the question when it does with judges’ and lawyers’ habitual, exasperating response:  it all depends.”

      In the first appeal involving Mastick and Oakwood, the arbitration agreement provided for California choice of law.  California Code of Civ. Proc. section 1281.2(c) provides that a court may deny a petition to arbitrate because of the risk of inconsistent rulings.  Though the FAA governs arbitration provisions in contracts that involve interstate commerce (9 U.S.C. section 1), which happened to be the case here, nevertheless, the FAA is not inconsistent with section 1281.2 if the arbitration agreement is expressly governed by California law.  Why?  Because the FAA requires that the agreement be carried out according to the intent of the parties.  Following those principles, the trial correct correctly applied section 1281.2 to deny the petition to compel arbitration.

      The TD Ameritrade agreements, however, did not contain a California choice-of-law provision.  Instead, the agreements provided that they would “be governed by the laws of the State of Nebraska,” and that disputes would be resolved by arbitration “in accordance with the rules of FINRA.”  But Nebraska law, like the FAA, and unlike California law, does not expressly authorize a court to stay arbitration or refuse to enforce an arbitration provision to avoid duplicative proceedings or conflicting rulings. So here, the trial court erred by relying on California law and section 1281.2(c) to deny a petition to compel arbitration.

      Thus, the denial of Oakwood’s petition to compel arbitration was affirmed, and the denial of TD Ameritrade’s petition to compel arbitration was reversed.

      It just depends.