California Mediation and Arbitration

Arbitration/Enforceability: Substantial Evidence Supporting Trial Court’s Determination Stroke Victim Lacked Capacity To Enter Into Arbitration Agreement

Consent To Contract Must Be Free, And An “Unsound Mind” Is Related To Concept Of Consent.

     In an unpublished opinion, the Court of Appeal has affirmed the trial court’s order denying a nursing facility’s petition to arbitrate, because the plaintiff lacked mental capacity to enter into the arbitration agreement.  Rodriguez v. Windsor Care Center National City, Inc., D065014 (4/1 Nov. 6, 2014) (O’Rourke, McDonald, Aaron). 

     The “substantial evidence” that the plaintiff lacked capacity to enter into the arbitration agreement included that she was 80 years old; that she had suffered a stroke; that she only spoke Spanish, could not read English, and had signed an arbitration agreement in English; and that a staff member at the rehabilitation center wrote that the plaintiff was “unable to make [d]ecisions.” 

     “Under California law,” the Court reminds us, “persons of unsound mind are not capable of contracting. (Civ. Code, section 1556.).  Whether a person has an ‘unsound’ mind is related to the concept of consent because the parties’ consent to the contract must be free. (Civ. Code, section 1565.)”

     QUERY:  Is consent a legal fiction in the case of arbitration agreements in California?  A person can be surprised and ambushed by signing a procedurally unconscionable agreement, yet the agreement (including an arbitration provision) will be enforceable, as long as it is not substantively unconscionable.  In what sense has the person who signed a procedurally unconscionable contract freely consented to enter into the contract?   Given its conclusion about lack of capacity in Rodriguez, the Court did not need to address the issue of unconscionability.

Arbitration/Preemption: Federal Arbitration Act Preempts Language, Font, Typeface Requirements In CCP 1298

California Code Of Civil Procedure Section 1298, Applying To Real Estate Purchase Agreements, Is Preempted By The FAA In Transactions Involving Interstate Commerce.

     Plaintiff Loeffler appealed from a judgment entered after the trial court confirmed an arbitration award in favor of plaintiff Shea Homes Limited Partnership.  The award resulted in rescission of Loeffler’s purchase of a home and a payment to Loeffler, but the payment was not as large as Loeffler wanted.  Loeffler raised several arguments on appeal.  One of the more creative arguments was that the arbitration agreement was unenforceable because it did not comply with Code of Civil Procedure section 1298.  Shea Homes Limited Partnership v. Loeffler, G049358 (4/3 Nov. 3, 2014) (Thompson, Fybel, Ikola) (unpublished).  This particular argument (together with other arguments) was rejected by the Court of Appeal, resulting in affirmance of the judgment.

     California Code of Civil Procedure section 1298 prescribes certain language, font and typeface requirements for arbitration clauses in real estate contracts.  However, section 1298 has been preempted by the Federal Arbitration Act in transactions involving interstate commerce.  See Hedges v. Carrigan, 117 Cal.App.4th 578, 585 (2004).  In the Shea Homes case, the contract was governed by the FAA.

     COMMENT:  Even if section 1298 requirements are preempted by the FAA, small font and lack of notice could still factor into a procedural unconscionability analysis.  Thus far, standard contract defenses, such as unconscionability, have survived preemption analysis in AT&T Mobility LLC v. Concepcion.  However, unconscionability requires both procedural and substantive unconscionability in California.  Because the Court of Appeal also found an absence of substantive unconscionability in Shea Homes, procedural unconscionability wouldn’t have changed the outcome.

My Article On Summary Contempt and Due Process: England, 1631, California, 1888

The Article Is About Two Extraordinary Cases In Which Judges Exercised The Summary Contempt Power.

     Thanks to the generous permission of California Litigation, The Journal of The Litigation Section, State Bar of California, “Summary Contempt and Due Process: England, 1631, California, 1888” is now available on my website by clicking here.

     An abbreviated version of this article appeared earlier as an August 6, 2014 post on California Attorney’s Fees, a blawg to which I co-contribute.