California Mediation and Arbitration

Deadlines, Federal Preemption: California Judges Disagree About Whether 30-Day Deadline To Pay Fees Furthers Purpose Of Arbitration

Thirty-Day Deadline Applies.

        The Court of Appeal, Fifth District, following the weight of California precedent, applies California Code of Civ. Proc. § 1281.98, requiring that the party who has drafted an arbitration agreement must pay arbitration fees within 30 days of when they are due, or else the other party gets an option to reject arbitration and litigate instead. In Reynosa v. Superior Court (Real Party in Interest Advanced Transportation Services, Inc., F086342 (5th Dist.  5/6/24) (Detjen, Meehan, Snauffer), employee Reynosa did not expressly agree to the extension of a due date for his employer to pay arbitration fees, and the employer did not pay within 30 days, in violation of 1281.98. The Court of Appeal issued  a writ of mandate issue directing the Superior Court to vacate its  order denying plaintiff Reynosa’s motion to withdraw from arbitration. and to enter an order granting Reynosa's motion to withdraw from arbitration.

Thirty-Day Deadline Does Not Apply If There Is Federal Preemption.

        The arbitration agreement stated "this agreement is governed by the FAA" in Hernandez v. Sohnen Enterprises, Inc. B323303 (2/5  5/22/24). Justice Moor, writing for the majority, explains that this results in federal preemption of California procedural and substantive provisions. Furthermore, the majority takes the position that the California requirement of payment within 30 days unduly burdens arbitration. Usually, a payment deadline is only enforce in a contract if time is of the essence and the breach is material. Thus, the majority opinion aligns with Justice Wiley's dissent in Hohenshelt, and in fact cites to Wiley's dissent in footnote 8 of the Hernandez opinion.

        Justice Baker, dissenting, believes there is no preemption. He takes the position, consistent with other California cases, that the statutory 30-day limit to pay fees furthers the goal of arbitration by preventing employers from compelling arbitration and then delaying arbitration by not paying fees. "The majority’s opinion rather obviously invites a grant of review from our Supreme Court," writes Justice Baker.

        COMMENT: I have written about conflicting California and Federal views of whether California is a friend or foe of arbitration, as well as about Justice Wiley's dissent in Hohenshelt. For my April 10, 2024 article in the Daily Journal, use this link to the ARC website. I also have an April 11, 2024 blog post on the subject.

 

Health Care: Provider Complied With Arbitration Disclosure Requirements In Health & Safety Code Section 1363.1

Necessary Disclosures Were Found In The Group Subscriber Agreement And Enrollment Form.

        Dougherty v. U.S. Behavioral Health Plan, 101 Cal. App. 5th 682 (4/2  4/24/24) (Codrington, Miller, Fields) involves the application of Health & Safety Code § 1363.1 to determine whether a dispute had to be arbitrated with a health care provider. While reading the legal analysis, it is very easy to skip by the human tragedy in the case.

        Christine Dougherty enrolled herself and her son Ryan in a health care plan. Ryan had a severe addiction problem. He admitted himself to a treatment facility which the plan initially agreed to cover, but denied coverage three days later on the ground that Ryan could be treated at home. Shortly after discharge, Ryan fatally overdosed.

        Defendant USB moved to compel arbitration. The trial court denied the motion on the ground that USB had failed to comply with § 1363.1(d), which requires that, "In any contract or enrollment agreement for a health care service plan, the disclosure required by this section shall be displayed immediately before the signature line provided for the representative of the group contracting with a health care service plan and immediately before the signature line provided for the individual enrolling in the health care service plan.” 

        USB's argument that the issue of arbitrability had been delegated to the arbitrator had been forfeited. However, the Court of Appeal determined that the necessary disclosures were included in the Group Subscriber Agreement and enrollment form. USB's argument that 1363.1 was preempted by federal law did not need to be addressed.

Delegation: Delegation Of Arbitrability To Arbitrator Fails When Delegation Is Not Clear And Unmistakable

Reference To The URL For AAA Rules Is Not Clear And Unmistakable Evidence Of Delegation Of Arbitrability.

        In an employment-related disputed, employee Mondragon argued that an arbitration provision that did not cover PAGA claims to the extent possible excluded all PAGA claims from arbitration, whereas the employer argued that it was only intended to exclude claims brought by the employee as a representative of other workers. Also, the employer argued that the issue of arbitrability had been delegated by reference to AAA rules to the arbitrator to decide. The employee's position prevailed in the trial court as well as the Court of Appeal. Mondragon v. Sunrun Inc., 101 Cal. App. 5th 592 (2/7  4/23/24) (Segal, Feuer, Martinez).

        Justice Segal explained, "We conclude that, by signing an arbitration agreement that (1) merely referred to the rules of the American Arbitration Association; (2) included a carve-out that arguably covered the dispute; and (3) included a severability clause stating a court may not enforce certain provisions, Mondragon, an unsophisticated party, did not delegate arbitrability decisions to the arbitrator. We also conclude the language of the arbitration agreement did not require Mondragon to arbitrate his individual PAGA claims."

Waiver: Waiting Too Long To Move To Compel Arbitration While Propounding Discovery Leads To Waiver

Lawsuit Was Filed In March 2015 And Motion To Compel Arbitration Was Filed In March 2023.

        Plaintiff Joseph Semprini sued his employer Wedbush in March 2015, alleging 11 causes of action unique to him, and 7 putative class action claims for wage and hour violations. He added a representative PAGA claim in April 2015. For several years, the class and PAGA claims were litigated, the parties having stipulated that the 11 personal causes of action would be arbitrated. In 2022, however, two events occurred to give the employer an argument that the litigated claims should be arbitrated, notwithstanding the earlier stipulation.

        First, Viking River Cruises was decided in June 2022, holding that an employer could enforce an agreement to arbitrate PAGA claims. Second, in the wake of Viking River Cruises, the employer was able to get a number of employees to execute arbitration agreements. Perhaps this could have opened up an opportunity to compel arbitration of the remaining claims. However, the employer did not move to compel until March 2023, and meanwhile conducted discovery. If the employer might have resuscitated a right to arbitrate, that right was waived and died because of the employer's delay and continuing litigation conduct.

        The order denying Wedbush's motion to compel arbitration was affirmed. Semprini v. Wedbush Securities, Inc., G062662 (4/3  4/18/24) (Goethals, Sanchez, Delaney).

        This is an example of the "you snooze you lose" adage.

Employment, Existence Of Arbitration Agreement: Employer Failed To Show Arbitration Agreement Existed During Second Employment Stint

Termination Of Employment Stint #1 Terminated Arbitration Agreement.

        Plaintiff Jasmin Vazquez sued SaniSure, Inc. for Labor Code violations. SaniSure moved to compel arbitration based on the existence of a broad arbitration clause in Vazquez's employment agreement. SaniSure failed in the trial court and in the Court of Appeal. Vazquez v. SaniSure, Inc. (2/6  4/3/24) (Baltodano, Yegan, Cody).

        SaniSure was unsuccessful because the arbitration clause it relied upon only existed in a first stint of Vazquez's employment from July 2019 to May 2021. However, she terminated her employment, and the arbitration agreement terminated. The employer could not show that an agreement to arbitrate existed during her second stint of employment, and the court was not going to imply the existence of the agreement from the first employment stint.

        COMMENT: The employer could have avoided its predicament by the execution of another arbitration agreement during employment stint #2. 

Vestigial Jurisdiction: Once Trial Court Granted Motion To Compel Arbitration, It Lacked Jurisdiction To Dismiss

What Vestigial Jurisdiction Does The Court Retain After Granting A Motion To Compel Arbitration?

        Plaintiff Dee Lew-Williams, the successor in interest to her late physician husband, sued defendants for embezzlement. Defendants successfully moved to compel arbitration. But Lew-Williams, claiming lack of funds, was unable to prosecute the arbitration, and so defendants moved the trial court successfully to dismiss the case for lack of diligent prosecution. Lew-Williams appealed the dismissal. Lew-Williams v. Petrosian, B330387 (2/7  4/2/24) (Feuer, Segal, Raphael).

        Reversed. "If a party fails to diligently prosecute an arbitration, the appropriate remedy is for the opposing party to seek relief in the arbitration proceeding (and, if necessary, the opposing party may need to initiate the arbitration for this purpose)."

Bonus: Coccycx (Tailbone): Vestigial.

Settlement Agreements: An Agreement Is Enforced Under CCP 664.6 Despite $250K Liquidated Damages Clause

Liquidated Damages Of $250K Were Reasonable In Proportion To $2.2M Settlement.

        After an all-day tele-mediation the parties executed a term sheet providing that defendant/cross-complainant would pay $1.6M to plaintiff, and cross-defendant would pay $600K. Defendant/cross-complainant had second thoughts the next day and reneged on payment. Cross-defendant paid $600K. And plaintiff successfully enforced the settlement in the trial court under CCP § 664.6. Defendant appealed -- unsuccessfully. BTHHM Berkeley, LLC v. Stewart Johnson v. Holda Novelo, A166242 (1/4  3/28/24) (Goldman, Brown, Streeter).

        The panel rejected arguments that the settlement agreement lacked enough specificity. Although it contemplated future events, such as execution of a stipulation, releases, and assistance if necessary by the mediator, those aspects did not negate the sufficiency of the agreement, which by its terms was "admissible and enforceable in court" and "a good faith settlement."

        Sometimes it is argued that the liquidated damages clause in an agreement amounts to an unreasonable forfeiture and is not enforceable. The argument did not fly here. Civil Code § 1671(b) creates a presumption that liquidated damages are valid unless the party challenging shows the damages are unreasonable. With a non-consumer contract and a $2.2M settlement, Justice Goldman explained that the liquidated damages were not unreasonable.

        However, the panel did remove some prejudgment interest. Prejudgment interest is an element of damages, and the settlement agreement set the damages. The panel would not create a new damage term that the parties did not agree to.

        COMMENT: What probably weighed in favor of enforcing the settlement? The trial judge found that defendant's declaration seeking to avoid enforcement was "self-serving." The parties were sophisticated, this was a commercial transaction, and they received legal advice. The settlement term sheet included the following language: "Parties agree the Agreement is admissible and enforceable in court pursuant to CCP § 664.6. The parties agree that this is a good faith settlement between adverse parties. . . ." And while defendant did not pay $1.6M toward the settlement, another party did pay its share of $600K.

Arbitration, Agents, Health Care: Arbitration Provision Failed Because Health Care Agent Was Not Making Health Care Decision

California Health Care Decisions Law Allows For Appointment Of A Health Care Agent.

        The problem in Harrod v. Country Oaks Partners, LLC, S276545 (CA S.Ct. 3/28/24) (Jenkins, J.)  is that the health care agent who signed an agreement with a skilled nursing home facility containing an arbitration clause was acting outside the scope of the agency.

        The California Health Care Decisions Law enables  a principal to "appoint a health care agent to make health care decisions should the principal later lack capacity to make them." That happened in the Harrod case. The "health care agent" signed two separate agreements with the nursing care facility. The first allowed the patient to enter and be cared for. The second agreement, which contained the arbitration provision, was optional, and required all disputes to be decided in arbitration. The California Supreme Court holds that the agent was not making a health care decision when executing the agreement with the arbitration provision, and thus the agreement does not bind the principal.

 

Internet Commerce: Second District Div. 2 Rejects Invitation To Broadly Enforce Browserwrap Arbitration Agreement

The Court Also Rejected Argument That Federal Preemption Required Enforcement Of Browserwrap Arbitration Provision.

        Plaintiff Brinan Weeks sued Interactive Life Forms, LLC in a putative class action, alleging that it made false claims, alleging "that he purchased a device called a Stamina Training Unit (STU) from the fleshlight.com website (the website) on or around September 21, 2021, on the basis of Interactive’s claims that the device would help him 'perform better,' 'last longer,' and 'improve [his] sexual stamina.'" Weeks v. Interactive Life Forms, LLC, B323430 (2/1  3/25/24) (Weingart, Chaney, Bendix). Interactive Life Forms, LLC tried to enforce an arbitration provision in a browserwrap.

        Justice Weingart explains, "Prior cases hold that so-called “browsewrap” provisions on a website, which deem a consumer to have agreed to the website’s terms of use simply by using the website and without taking any affirmative steps to confirm knowledge and acceptance of the terms of use, generally do not form an enforceable agreement to arbitrate under California law." The Court agrees with those prior cases, and also rejects an argument that federal law favoring the enforcement of arbitration agreements preempts California law. The law favoring the enforcement of arbitration agreements still requires that the party seeking arbitration establish the existence of an agreement to arbitrate.

 

 

Automobiles, Nonsignatories: Fourth Dist. Div. 2 Rejects Equitable Estoppel Doctrine Of Felisilda

One More California Appellate Case Rejects Felisilda.

        We have written before about courts rejecting the application of the equitable estoppel doctrine to allow vehicle manufacturers to piggyback on to the arbitration provision in sales contracts between customers and automobile dealerships. In Davis v. Nissan North America, Inc. v. Nissan North America, Inc., D083006 (4/1  3/15/24) (Buchanan, Do; Irion dsst) an automobile manufacturer and an authorized vehicle repair facility tried to take advantage of the arbitration agreement in the dealership contract, even though the manufacturer and the repair facility were not signatories to the arbitration agreement. Once more, the Court of Appeal rejected the equitable estoppel doctrine of Felisilda that would have allowed nonsignatories to rely on the arbitration agreement.

        Justice Irion dissented, relying on the equitable estoppel doctrine.