California Mediation and Arbitration

Arbitration, Unconscionability, Employment: California Supreme Court Holds That Carve-Out For Preliminary Injunctive Relief Does Not Make Agreement Substantively Unconscionable

The Exception To Arbitration Simply Restates Existing Law.

    The California Supreme Court has ruled that an employment agreement providing for arbitration of disputes, but authorizing the parties to seek preliminary injunctive relief in the superior court, does not make the agreement one-sided and substantively unconscionable, even if employers are more likely to seek injunctive relief than employees.  Baltazar v. Forever 21, Inc., S208345 (Sup. Ct. March 28, 2016) (Kruger, J.).  Here, the contract simply restates existing law, which has a carve-out for preliminary injunctive relief.  Code Civ. Proc., section 1281.8(b).

     We posted earlier about the judgment of the Court of Appeal on December 21, 2012.  The Supreme Court affirms the judgment of the Court of Appeal.

    COMMENT:  Note that here, the clause excepted preliminary injunctive relief from arbitration, and this restates existing law.  A provision that excepted injunctive relief from arbitration would not restate existing law.  Compare Carbajal v. CWPSC, Inc., G050438 (4/3 Feb. 26, 2016) (Aronson, Bedsworth, Ikola) (arbitration provision resulting in substantive unconscionability included allowing the employer, but not the employee, to seek injunctive relief in court) about which we posted on February 28, 2016.

Arbitration/Employment: Arbitration Award Of Fees Against Employee Losing Overtime Claim Properly Vacated Under Public Policy Exception To Arbitral Finality

 

Arbitral Award Was Properly Corrected To Take Into Account That Labor Code Section 1194 Is A One-Way Fee Shifting Award.

    California Attorney’s Fees posts today on  Ling v. P.F. Chang’s China Bistro, Inc., Case No. H039367 (6th Dist. Mar. 25, 2016) (published), an employment law case in which the Court of Appeal agreed (in part) with the trial judge that Labor Code section 1194 works as a one-way fee shifting provision in favor of the employee, such that a substantial arbitral award fee award in favor of the employer required correction.  This is an example of the “public policy” exception to arbitral finality applied in the employment law context.

 

    

Arbitration: Enforceability/Nonsignatories: Arbitration Provision In Internet Browsewrap Agreement Fails For Lack Of Conspicuousness

 

Court Of Appeal Advises Online MerchantsTo Include Conspicuous Textual Notice With Terms Of Use.

     Consumers may be bound by arbitration provisions in internet “clickwrap” or “browsewrap” agreements – except when they are not – as was the case in Long v. Provide Commerce, Inc., B257910 (2/3 March 17, 2016) (Jones, J.).  

     Internet contracts “come primarily in two flavors: ‘clickwrap’ (or ‘click-through’) agreements, in which website users are required to click on an ‘I agree’ box after being presented with a list of terms and conditions of use; and ‘browsewrap’ agreements, where a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen,” quoting from Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014).  The Second District panel informs us, “[N]o California appellate court has yet addressed what sort of website design elements would be necessary or sufficient to deem a browsewrap agreement valid in the absence of actual notice.” 

     Nguyen, which I previously posted about on August 18, 2014, explained, “the defining feature of browsewrap agreements is that the user can continue to use the website or its services without visiting the page hosting the browsewrap agreement or even knowing that such a webpage exists.”  The determination of the validity of the browsewrap agreement turns on whether the user has actual or constructive knowledge of a website’s terms and conditions – and that, in turn, depends on how conspicuous the terms and conditions are.

      The Ninth Circuit in Nguyen, and now the California Court of Appeal in Long, agreed that the browsewrap agreement at issue was not enforceable.  In Long, the hyperlink to terms of use appeared at the bottom of pages, in a light green typeface on a lime green background, and was situated among many other hyperlinks of the same color, font, and size.  Clicking on the hyperlink would have led to the Terms of Use, and proceeding further would have led to the Agreement to Arbitrate Disputes.  The consumer plaintiff argued that the placement of the Terms of Use hyperlinks, the checkout flow, and the hyperlink to “Terms” in a subsequent order confirmation email were too inconspicuous to put the plaintiff on inquiry notice of the contents of the agreement. 

     All may not be lost for the e-merchant who relies on a browsewrap agreement.  “Online retailers would be well-advised to include a conspicuous textual notice with their terms of use hyperlinks going forward,” says the Court of Appeal.  For now, clickwrap agreements are a safer bet than browsewrap agreements.

Foreign Arbitration/Enforceability: Wake Up And Smell The Coffee: Ninth Circuit Holds Foreign Arbitration Foiled By Sham Agreement Concerning Coffee Franchise

. . .  In Which We Inaugurate A New Sidebar Category (Foreign Arbitration) And Petitioners Who Successfully Compelled Arbitration In District Court Lawsuit Concerning Coffee Franchise Dispute Get Roasted On Appeal.

     Our next case involves a dispute between an Italian corporation seeking to open a coffee franchise in the United States, and two entrepreneurs planning to open an Italian-style coffee house in the United States.  Casa Del Caffe Vergnano v. ItalFlavors, No. 13-56091 (9th Cir. March 15, 2016) (Korman, J., writing for maj.; Callahan, J., dissenting).  The Rabellinos’ dream of opening a successful coffee shop as a franchise of the Italian corporation, Casa Del Vergnano, failed, and the Rabellinos sued in federal district court in San Diego, alleging that they did not receive the support they had been promised.

     The parties, however, had executed a Commercial Contract with an arbitration provision providing for the application of Italian law to contract construction, and arbitration in Geneva under the UNCITRAL Arbitration Rules.  Along with the Commercial Contract containing the arbitration clause, the parties had also executed a Hold Harmless Agreement providing that the Commercial Contract “does not have any validity or effectiveness between the parties, as it was prepared and delivered by Casa del Caffe Vergnano S.p.A. solely for the purpose of allowing Mr. Hector Rabellino to submit a copy of it to the pertinent international agencies in order to obtain an entry visa to work in the United States . . .”

     The district court held that “the issue of whether the broad arbitration clause contained in the Commercial Contract survives after the [Hold Harmless Agreement] took effect should be submitted to the arbitrator.”

     The panel majority held that the parties’ Commercial Contract was not binding, because the Hold Harmless Agreement showed that there was no mutual intention to be bound – and if the Commercial Contract was a sham, the arbitration provision within it could not be enforced, anymore than other terms of a sham contract could be enforced.  To reach this conclusion, the Court had to address the parol evidence rule, because the Hold Harmless Agreement, evidencing the sham nature of the Commercial Contract, was executed after the Commercial Contract.

     However, because the Commercial Agreement and the Hold Harmless Agreement were executed on the same day, and the latter referred to the former, the panel majority construed the agreements together.  Applying principles of federal common law, the panel also held that the parol evidence rule “does not prohibit us from considering the Hold Harmless Agreement because that agreement goes to the issue of whether the parties entered into a binding contract.”

     Judge Callahan, dissenting, agreed the majority cited the applicable law, but disagreed on the factual conclusion.  She believed that the facts sufficiently supported the district court’s conclusion that the Hold Harmless Agreement was signed separately, and that a dispute over whether and when the Commercial Contract was terminated should have been referred to arbitration.  She also observed that the subsequent conduct of the parties showed that they intended to be bound by a contract.     

    

    

 

 

 

 

 

 

 

 

 

BONUS:  (1) A YouTube link to Bach’s coffee cantata.  (2) The Wikipedia article includes the translation:  “If I couldn't, three times a day, be allowed to drink my little cup of coffee, in my anguish I will turn into a shriveled-up roast goat”; (3) and – a link to Frank Sinatra’s 1946 hit, “They’ve got an awful lot of coffee in Brazil.”