California Mediation and Arbitration

Arbitration, Existence Of Agreement, Unconscionability, Automobiles: Automobile Purchaser Reasonably Relied On Spanish Translation, Which Did Not Contain Arbitration Clause, Of English Contract That Did Contain Arbitration Clause

Relying On Common Law Principles Of Contract Formation, The Court Of Appeal Ducks Deciding Whether Failure To Comply With Statutory Provision Requiring Spanish Translation Of Contract Resulted In Unconscionability.

     Ordinarily, one who signs a contract without understanding its contents will nevertheless be bound by it, just as one who fails to wear reading glasses when reviewing a contract will nevertheless be treated as one who has read the contract.  What happens when the purchaser of an automobile signs a contract in English that contains an arbitration clause, and receives a Spanish translation that does not contain the arbitration clause?  In the case of Ramos v. Westlake Services LLC, A141353 (1/2 Nov. 24, 2015) (Miller, Richman, Stewart), the Court of Appeal held that the Spanish speaking purchaser, who negotiated the purchase in Spanish, and who received a Spanish translation of the contract that he initialed, “reasonably relied on a Spanish translation of the English Contract . . . provided him and that did not include the arbitration agreement.”  As a result, the Court of Appeal held that mutual assent to the arbitration was lacking, and the arbitration agreement was void – affirming the trial court order denying defendant’s motion to compel arbitration.

     While the Court of Appeal affirmed the order of the trial court, it did not rely on the trial court’s reasoning.  Unlike the Court of Appeal, the trial court had relied on Civil Code section 1632, requiring that “[a]ny person engaged in a trade or business who negotiates primarily in Spanish” in certain transactions, including auto sales, “shall deliver to the other party to the contract . . . a translation of the contract . . . in the language in which the contract . . . was negotiated, that includes a translation of every term and condition in that contract . . . “  The trial court had held that the failure to properly translate the contract into Spanish was unconscionable.  The Court of Appeal held that it did not have to address “arguments regarding the scope of section 1632’s remedies or the trial court’s finding that the arbitration agreement was unenforceable due to unconscionability,” because it reached the same result with traditional contract formation concepts. 

     While strictly speaking, the Court of Appeal did not rely on section 1632 to affirm the trial court’s order, it did note that “it would be anomalous” to hold that the seller was required to provide Ramos a translation, and that the buyer “was not entitled to rely on the accuracy of that translation.”

Arbitration, Class, Severability, Delegation, Class Action: Court Of Appeal Holds Arbitration Clause Enforceable, Except For Severable Fees And Costs Provision In Consumer Arbitration

Fees And Costs Provision In Consumer Arbitration Was Unconscionable Here.

     This case involves a common scenario in which a business sells a good or service that is financed, the business is unable to fully perform, and the lender seeks to enforce an arbitration provision when it gets sued.  Here, the Court of Appeal held that the arbitration clause was enforceable, with one exception:  the provision that shifted fees and costs to the prevailing party in a consumer arbitration was held to be substantively unconscionable.  Why?  Because a prevailing plaintiff consumer would have been entitled to fees under the Consumer Protection Act, the “loser pays” provision only benefits a prevailing defendant.  Brinkley v. Monterey Financial Services, Inc., D066059 (4/1 Nov. 11, 2015) (Aaron, McIntyre, O’Rourke).  However, the Court also determined that because the agreement was not permeated with unconscionability, the one unconscionable provision could be severed, saving the rest of the arbitration provision.

     This is also a case in which incorporation by reference of AAA arbitration rules resulted in incorporation by reference of the AAA Supplementary Class Arbitration Rules.  And that in turn meant here that the decision to determine whether a class-wide arbitration will be allowed is a decision delegated to the arbitrator under the AAA rules.  The same delegation of the decision to decide whether to allow class-wide arbitration, with the same result, has been addressed in a case we blogged about earlier on August 20, 2015, Universal Protection Services, LP v. Superior Court of Yolo County (Michael Parnow, et al., Real Parties in Interest), C078557 (3d Dist. August 18, 2015)(published).

Audio Interview With Jessica Silver-Greenberg, Author Of The NYT Special Report On Arbitration, Is Now Available Online

“Have We Lost A Constitutional Right In The Fine Print?”

     On the November 12, 2015 edition of  Fresh Air, Dave Davies interviews New York Times reporter Jessica Silver-Greenberg, co-author of the New York Times Special Report on arbitration.  I have blogged about the series, as well as the retort by the U.S. Chamber of Commerce, in November 1, 2 and 5, 2015 posts.  Now you can learn the gist of the report by listening to the interview with Jessica Silver-Greenberg.

U.S. Chamber Of Commerce Trashes NYT Special Report Dumping On Arbitration

U.S. Chamber Of Commerce Is Not Amused.

     On November 1 and 2, I reported on the NYT Special Report about arbitration – articles highly critical of the spread of arbitration.  While the report is one-sided in its approach, it does serve to highlight the revolution that is quietly occurring in our legal system, as arbitration clauses become increasingly widespread – and enforceable – in employment law, and consumer law.

    Predictably, the U.S. Chamber of Commerce has not taken the attack on arbitration lying down.  In a spirited defense of arbitration, the U.S. Chamber describes the NYT investigation as “little more than an opinion piece masquerading as fact. . . .  incomplete, misleading, and one-sided . . . underscored by the article’s resort to innuendo about the ethics of a Supreme Court Justice . . . “

    COMMENT: U.S. Chamber of Commerce v. NYT is only the latest sign that the role to be played by arbitration in the American legal system is now highly politicized.  The fault lines are apparent in the liberal/conservative split in SCOTUS arbitration decisions, and the polarization in the statements of labor and consumer versus business interests.

Arbitration, Employment, FAA, Burden Of Proof: Berman Hearings Are Short-Circuited By Enforceable Arbitration Provision

Keep On Truckin’ . . . In Arbitration.

    We have posted before about the “Berman hearing”, named after Congressman Howard Berman, and providing workers with a procedure intended to provide “a speedy, informal, and affordable method of resolving wage claims” with the California Labor Commissioner.  Under California law, it cannot be waived.  However, if there is an arbitration clause governed by the Federal Arbitration Act, which preempts state law, then employers may use the arbitration clause to preempt the state Berman hearing. That is what ultimately happened in Performance Team Freight Systems, Inc. v. Garcia, B259146 (2/2 Nov. 2, 2015) (Boren, Ashmann-Gerst, Chavez) (published), where a trucking company, prior to commencement of Berman hearings, petitioned to compel arbitration with truck drivers filing wage claims.

     The trial court had denied the petition, ruling that the agreements fell under an FAA exemption for transportation workers engaged in interstate commerce.  Section 1 of the FAA exempts from FAA coverage “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” – and it has been held that transportation workers are included in this exemption.  Without determining whether the truckers, who may have been involved mostly in intrastate short-hauls were truly involved in interstate commerce, the Court of Appeal concluded that they had not met their burden of establishing that the the subject agreements were “contracts of employment.”

     And that leads us to the burden of proof.  The party opposing arbitration bears the burden of demonstrating the exemption to FAA coverage applies.  The agreements under which the truckers worked were labeled “Independent Contractor Agreements”.  The Court of Appeal stuck with the label “independent contractor” because “only minimal evidence was presented to the trial court relevant to the issue of whether the subject agreements were contracts of employment.”

     The Court also had little trouble finding that the clause was broad enough to cover the dispute.  Reversed.

    COMMENT:  The law respects form less than substance.  However, labels, light as they may be, are not weightless.  When minimal evidence is presented on whether a worker is a contractor or an employee, the label may tip the balance, as it did here.

New York Times Continues Its Special Report Series Critical Of Arbitration

     Yesterday I reported that the New York Times has kicked off its special report on arbitration with Part I, an article entitled “Arbitration Everywhere, Stacking the Deck of Justice.”  The NYT has now moved on with Part II, “Privatizing Justice,” and Part III, “In Religious Arbitration, Scripture Is The Rule Of Law.”

      The article on privatizing justice presents a litany of problems with arbitration.  Though the article does not exactly describe what “privatizing justice” means, it circles around certain aspects of arbitration:  the loss of judges and juries, the secretive nature of arbitration in a system where cases need not be reported and proceedings are confidential, the common perception that unlike judges, arbitrators are “beholden to companies” that are their real clients, and the inability to effectively appeal bad awards.  The authors’ point of view appears to be that if sunlight is the best disinfectant, then arbitration is a black hole.

     The article on religious arbitration presents some interesting examples involving Christian arbitration, as well as Scientology arbitration.   The article points out that in addition to the usual inability to review arbitration awards for mistakes of law or fact, judges will not review religious arbitration awards for fear of church-state entanglement issues.

NY Times Features Special Report Entitled, “Arbitration Everywhere, Stacking the Deck of Justice”

The Article Is Critical of Enforcement Of Individual Arbitration In Situations Where Only A Class Action Can Be Economically Prosecuted.

     Jessica Silver Greenberg and Robert Gebeloff have authored a special report appearing in the New York Times online edition on October 31 and November 1, 2015, under the title:  “Arbitration Everywhere, Stacking the Deck of Justice.”

     The article promises to be “the first part in a series examining how clauses buried in tens of millions of contracts have deprived Americans of one of their most fundamental constitutional rights: their day in court.”

     The issues discussed in the article will be familiar with readers who have followed arbitration decisions of the Roberts Court.  Still, without offering too many spoilers, here are a few interesting tidbits:

• “More than a decade in the making, the move to block class actions was engineered by a Wall Street-led coalition of credit card companies and retailers, according to interviews with coalition members and court records.”
• Attorney John G. Roberts Jr. – now Chief Justice Roberts - represented Discover Bank when it unsuccessfully petitioned the Supreme Court to hear a case involving class-action bans.
• The NYT studied 1,179 federal class actions filed between 2010 and 2014 that companies sought to push into arbitration, and found that judges ruled in their favor in four out of every five cases.
• Though there is no central database for arbitration, the NYT concluded that between 2010 and 2014, only 505 consumers went to arbitration over a dispute of $2,500 or less.
• Verizon and Times Warner have arbitration clauses in their consumer contracts, and from 2010 to 2014, “Verizon, which has more than 125 million subscribers, faced 65 consumer arbitrations . . . . Time Warner Cable, which has 15 million customers, faced seven.”
• “One federal judge remarked in an opinion that ‘only a lunatic or a fanatic sues for $30.’”
• Andrew J. Pincus of Mayer Brown, succinctly states one of corporate America’s economic arguments for arbitration:  “Arbitration provides a way for people to hold companies accountable without spending a lot of money.”
• Last year, “attorneys general in 16 states warned that ‘unlawful business practices’ could flourish with the proliferation of class-action bans.”
• Examples of companies that now have arbitration clauses in their consumer contracts include Netflix, at&t, TimeWarner, T Mobile, ebay, Expedia, Budget, Discovery, Starbucks, and Electronic Arts.