California Mediation and Arbitration

Scope, Equitable Estoppel: 9th Circuit Holds Discrimination Claims Were Outside Scope Of Arbitration, And Equitable Estoppel Prevented Bank From Arguing Borrower Couldn't Opt Out

There Were Two Agreements To Arbitrate And Neither Worked.

        Iliana Perez entered into two arbitration agreements: one, with Citibank in 2010 in connection with a student loan, the second, with Discover Bank in 2018, in connection with a consolidation loan for her student loan. She sued Discover Bank after her application for a consolidation loan was denied in, based on her undocumented immigration status. Discover Bank moved unsuccessfully in the trial court to compel arbitration under the two arbitration agreements, a result that was affirmed on appeal. Perez v. Discover Bank, 22-15322 (9th Cir.  7/24/23) (S.R. Thomas, Holly Thomas, Rakoff).

        The dispute centered around the denial of the consolidation loan, which occurred some eight years after Perez entered into the arbitration agreement relating to the student loan. The consolidation loan was not within the scope of the earlier agreement.

        As for the second agreement, Perez argued that it was unconscionable. However, in court, Discover Bank's attorney argued that it could not be unconscionable, because Perez still had 30 days to opt out. After the hearing, Perez did opt out of arbitration under the second agreement. After Perez opted out, the court addressed the matter again. Now Discover Bank's attorney argued that Perez's exercise of her opt out only applied to future discrimination, not past discrimination. But that position was inconsistent with the earlier representation to the court, and the Ninth Circuit invoked the doctrine of equitable estoppel to reject Discover Bank's argument that Perez could not opt out of arbitration for past discrimination. Indeed, Discover Bank's argument that the second agreement was not unconscionable relied, at least in part, on its representation to the court that Perez could still opt out. So it would have been unfair not to hold the bank to a representation upon which the court had earlier relied.

FAA, Transportation Workers: Domino's Pizza Drivers Involved In "Last-Leg" Of Interstate Commerce Are Exempt From Arbitration

Ninth Circuit Explains Drivers Inside California May Be Engaged In Interstate Commerce.

        The ingredients for Domino's pizzas are delivered from out-of-state to warehouses in California where they are weighed, redistributed, packaged, and delivered by truck drivers in California to Domino's Pizza franchisees located in California. Do the California drivers qualify as a class of transportation workers exempt from the Federal Arbitration Act under 9 USC § 1? That is the question addressed in Edmond Carmona, et al. v. Domino's Pizza, LLC, 21-55009 (9th Cir.  7/21/23) (Hurwitz, Wardlaw, Parker, Jr.).

        Yes, answers Judge Andrew D. Hurwitz, who authored the panel's opinion. So long as the so-called "last-leg" driver is engaged in an unbroken stream of interstate commerce, the driver qualifies as a transportation worker exempt from the coverage of the FAA. It doesn't matter here that the pizza ingredients are repackaged in the California warehouse and ordered by the California franchisees, because the ingredients are unaltered and travel through a continuous stream of interstate commerce. Judge Hurwitz relies on Rittmann v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020), which he does not find to be incompatible with the Supreme Court's opinion in Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022). In Saxon, the Supreme Court, focusing on the actual work performed by the class of workers, exempted from the FAA “workers who physically load and unload cargo on and off airplanes.”

Delegation: Ninth Circuit Concludes That Delegation Clause Is Enforceable, Regardless Of Whether Arbitration Clause Is Found To Be Enforceable

Nesting dolls (Matryoshka dolls). Wikipedia. Published under GNU Free Documentation License, Version 1.2, and any subsequent versions.

        We can analogize the next case to a nesting doll problem. The delegation clause in an arbitration agreement (Agreement) is a mini-agreement nested in the Agreement. The Agreement is nested in an employment contract, consumer contract, or some other contract. The different contracts can be analyzed separately, and their relationship to one another must be considered.

        Here, a district court judge found the nested delegation clause to clearly and unmistakably delegate arbitrability issues to the arbitrator. However, the judge also found the delegation clause to be substantively and procedurally unconscionable, and therefore unenforceable. This conclusion was based on the fact that the Agreement contained a pre-dispute jury trial waiver. The waiver, however, only kicked in if the Agreement was found to be unenforceable. Having determined that the delegation clause was unenforceable, the judge then concluded that the Agreement itself was unenforceable, based on the same pre-dispute jury waiver. The defendant employer, seeking to compel arbitration, appealed the adverse ruling. Kenneth Holley-Gallegly v. TA Operating, LLC, 22-55950 (9th Cir.  7/21/23) (Smith, Hamilton, Collins).

        The Court of Appeals reversed, directing the district court to order the arbitrator to decide the arbitrability issue. The reason? The pre-dispute waiver of a jury trial did not infect the nested delegation clause. The arbitrator could still decide the issue of arbitrability. If the arbitrator decided that the case was arbitrable, then the waiver of a jury trial became irrelevant, because the case would never be litigated in court, and there could not be a jury trial. Thus, the jury waiver could only possibly have effect if the arbitrator decided the Agreement was unenforceable -- i.e., reached the same conclusion as the district court judge. Under the delegation clause, the arbitrator might conclude that the Agreement was unenforceable or enforceable, and either way, the delegation clause could be operable.

Settlement: Mediator settlement proposals: a perspective

My Perspective.

        I've written an article about mediator settlement proposals and it is published in the July 2023 issue of Advocate. For my readers interested in the topic, here is a link to the article: Download Alexander-July23-article 

 

Arbitration, Scope: 9th Circuit Ruled Amazon Arbitration Agreement With Flex Drivers Did Not Apply To Spying On Drivers On Facebook

Two Judge Majority With Judge Susan P. Graber Concurring And Dissenting.

        Amazon Flex Drivers sued Amazon for allegedly spying on them in a closed Facebook group where the drivers discussed employment-related issues when they were not working. A panel of the 9th Circuit held that a 2016 arbitration agreement applied, because the employer seems not to have given adequate notice of the terms of a later agreement to the drivers. However, a majority of the panel held that the allegations of spying did not come within the scope of the arbitration agreement; in fact, the drivers' claim that spying and invasion of privacy were wrongful acts would have been wrongful acts even if they had not been drivers. Drickey Jackson v. Amazon, No. 21-56107 (9th Cir.  4/19/23) (Schroeder, Friedland; Graber conc. & dsst.).

        Judge Graber concurred that the 2016 agreement applied and that denial of a motion to compel arbitration was appealable. However, she believed that the conduct alleged did arise from the employment relationship, and therefore the drivers should have been required to arbitrate."In sum," Judge Graber wrote, "Defendant allegedly spied on Plaintiff solely because of Plaintiff’s independent contractor relationship with Defendant and in order to defeat, preempt, or combat work-related activities by Plaintiff and other Flex drivers." (emphasis by Judge Graber). 

Arbitration, Deadlines, Prompt Payment, Fees: Plaintiff Successfully Exercises Option To Withdraw From Arbitration Because Defendant Employer Was Tardy Paying Arbitration Fees

Courts Have Been Unforgiving In Interpreting An Unambiguous Statute. See CCP § 1281.98.

        "A statute gave Milan Cvejic the option to get out of arbitration if Skyview was tardy in paying its arbitration fees. Skyview was tardy in paying its arbitration fee. Cvejic was entitled to get out." Milan Cvejic v. Skyview Capital, LLC, B318880 (2/8  6/28/23) (Wiley, Grimes, Viramontes).

        COMMENTS: (1) A panel of three arbitrators got it wrong. (2) Cvejic was smart and did not sit on his rights. "Within about an hour of the call [whereby the arbitration panel set a new deadline for defendant to pay the fees], Cvejic’s counsel wrote the panel to say Cvejic was withdrawing from the arbitration under section 1281.98." 

        See previous posts about § 1281.98 dated 8/1/22, 12/11/22, 1/2/23, 3/21/23.

Nonsignatories: Second Dist., Div. 7 Holds Ford Motor Company Cannot Compel Arbitration Under Dealership Contract

Second District, Div. 7 Sides With Second Dist., Div. 8, Rejects Reasoning In Third District Case.

        Rejecting equitable estoppel and third-party beneficiary theories, the Court of Appeal holds that Ford Motor Company cannot piggyback on to the arbitration provision in a dealership contract, and thus Ford is unable to compel arbitration with the buyer of its vehicle. The plaintiff's claim for breach of express warranty against Ford was not based on or intertwined with the dealership's contract with the buyer. In fact, the dealership contract provided it offered no express manufacturer's warranties, though the manufacturer, Ford, could do so. Rosanna Montemayor et al. v. Ford Motor Company, B20477 (2/7  6/26/23) (Feuer, Perluss, Escalante).

        The opinion is in line with the reasoning in the Ford Motor Warranty Cases, 89 Cal.App.5th 1324 (2023) [see my 5/3/23 post] and at odds with the reasoning in Felisilda v. FCA US LLC , 53 Cal.App.5th 486 (2020) [see my 8/29/2020 post]. 

Arbitration, Vacatur: California Supreme Court Rules 100-Day Deadline Is Not Jurisdictional And Equitable Tolling/Estoppel Could Apply

Missing The 100-Day Deadline For Seeking Vacatur Of An Arbitration Award Was Not The End Of The Story Here.

        It is not possible to improve on the California Supreme Court's summary of the case and its holding:

        "Law Finance Group, LLC, prevailed in an arbitration against Sarah Plott Key and filed a petition to confirm the award. Key filed a response seeking vacatur of the award, but she did so outside the 100-day deadline prescribed by Code of Civil Procedure section 1288.2. The primary questions now before us are whether, as the Court of Appeal held, this 100-day deadline is jurisdictional and, if not, whether the deadline is subject to the equitable doctrines of tolling and estoppel. We hold that the section 1288.2 deadline neither is jurisdictional nor otherwise precludes equitable tolling or estoppel. We remand for the Court of Appeal to determine in the first instance whether Key is entitled to equitable relief from the deadline." Law Finance Group, LLC v. Key, S270798 (S.Ct.  6/26/23).

        Justice Leondra R. Kruger authored the opinion of the court.

Arbitration, Discovery: A "Hearing" Subpoena That Is Functionally A Discovery Subpoena Is Improper In Arbitration

The Court Of Appeal Chose Substance Over Form.

        The subpoena provisions of the California Arbitration Act do not give an arbitrator the power to issue “prehearing discovery subpoenas.” Aixtron, Inc. v. Veeco Instruments, Inc., 52 Cal.App.5th 360 (2020).

        Tim McConnell v. Advantest America, Inc., D080532 (4/1  filed 5/4/23  pub. 6/15/23) (Do, Huffman, O'Rourke) involves a variation of the facts in Aixtron leading to the same result. In the McConnell matter, an arbitrator issued a hearing subpoena requiring McConnell and other third-parties to produce electronic communications at a hearing some 12 months before the hearing scheduled on the merits in the arbitration. At the merits hearing, the nonparties would be summoned to appear and testify. Provisions were also made allowing the producing party to directly upload documents for the requesting party, a procedure in which the arbitrator did not need to be directly involved. The arbitrator also made a finding that the third parties who were the target of the hearing subpoena "are likely to have discoverable information." (italics added in the Court of Appeal opinion).

        "Under the specific facts of this case" the Court of Appeal agreed with the third parties that the subpoena was improper, reversing the superior court judge who had found the subpoena proper. The workaround of subpoenaing the documents to a "hearing" was not successful, because under the specific facts, the subpoena was a discovery subpoena, whatever the label. "If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck."

        COMMENT: The result should have been different if the subpoena had been carefully tailored to preserve evidence, rather than broadly to find discoverable information. 

        Parties in California can incorporate by reference in to their arbitration agreement the broad discovery provisions of the Code of Civil Procedure: "Section 1283.1 - Provisions of section 1283.05 deemed incorporated into agreement. (a) All of the provisions of Section 1283.05 shall be conclusively deemed to be incorporated into, made a part of, and shall be applicable to, every agreement to arbitrate any dispute, controversy, or issue arising out of or resulting from any injury to, or death of, a person caused by the wrongful act or neglect of another. (b) Only if the parties by their agreement so provide, may the provisions of Section 1283.05 be incorporated into, made a part of, or made applicable to, any other arbitration agreement." However, in cases that do not involve injury to a person or death, one party often wants more discovery than its opponent. And if there is no agreement, the default position of the Code of Civil Procedure is to limit third-party discovery.

 

 

PAGA: Fifth District Affirms Denial Of Motion To Compel Arbitration Because Blanket Waiver Of PAGA Claims Is Unenforceable

Agreement Was Not Ambiguous.

        The court explained in Duran v. Employbridge Holding Company, F084167 (5th Dist. filed 4/27/23 pub. 5/30/23) (Franson, Hill, Smith) that the provision "claims under PAGA . . . are not arbitrable under this Agreement" is not ambiguous. "It is not objectively reasonable to interpret the phrase 'claims under PAGA' to include some PAGA claims while excluding others. Thus, the carve-out provision excludes all the PAGA claims from the agreement to arbitrate." 

        While the law in this area remains somewhat in flux, it appears that the rule is that an individual plaintiff's claim may be arbitrated, and under California law, as interpreted by California's courts, the PAGA plaintiff still has standing to pursue representative claims affecting other individuals in court. The standing issue is before the California Supreme Court.