Court Of Appeal Rejects Third-Party Beneficiary, Agency, And Judicial Estoppel Arguments Made By U-Haul.
Unable to find "any authority addressing precisely analogous circumstances," the Court of Appeal decides a case of first impression in Jensen v. U-Haul Co. of California, E065887 (4/2 12/11/17) (Codrington, McKinster, Slough). The case involves "an attempt to enforce an arbitration clause in an equipment rental agreement against the nonsignatory employee of the party that rented the equipment."
Virgil Jensen was injured when the truck his employer rented from U-Haul blew a tire. Mr. Jensen sued U-Haul for negligence, and Glenda Jensen sued for loss of consortium. Mr. Jensen had not signed the contract with the arbitration clause with U-Haul, and did not know about the arbitration clause, but his employer had signed the contract. The general rule is: "persons are not normally bound by an agreement entered into by a corporation in which they have an interest or are employees." Suh v. Sup. Ct., 181 Cal.App.4th 1504, 1513 (2010). Could U-Haul shoehorn the case into an exception that would allow U-Haul to compel arbitration against a nonsignatory?
Third-party beneficiary. This exception did not work, because the contract was for the benefit of Mr. Jensen's employer, not for his benefit.
Agency. While there is an agency exception, allowing some nonsignatories to be bound by an arbitration provision, the Court finds that in each case where the nonsignatory was bound to arbitrate, the finding "is based on facts that demonstrate, in one way or another, the signatory's implicit authority to act on behalf of the nonsigntory." The Court did not find the facts warranted a finding here that the employer had implicit authority to bind the employee to arbitrate.
Equitable estoppel. This exception comes into play when the nonsignatory asserts claims that are "dependent upon, or inextricably intertwined with" the underlying contractual obligations of the agreement containing the arbitration clause. However, that was not the case here, because the plaintiffs did not rely on the terms of the rental agreement between the employer and U-Haul to assert their claims.
So the Court of Appeal affirmed the trial court's denial of U-Haul's motion to compel arbitration.
COMMENT: Mr. Jensen was an agent of his employer for some purposes, but that did not mean that the employer had "implicit authority" to bind Mr. Jensen to arbitrate. This is a very fact-specific finding, because it means that the focus must be not on whether an agency relationship exists (e.g., employer/employee), but on whether one party had "implicit authority" based on all the facts and circumstances, to bind another party to arbitrate. There is no bright line here: one must look at the facts and circumstances. The absence of a bright line may promote fairness at the same time that it engenders litigation.
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