California Mediation and Arbitration

Non-Signatories' Efforts To Compel Arbitration Based On Equitable Estoppel, Agency, and Third-Party Bene Theories All Failed

The Trial Judge Said He Had An Issue Of First Impression.

        Jessica Hernandez sued Meridian Management Services, LLC and other entities for employment violations. The defendants sought to piggyback on to an arbitration agreement that Ms. Hernandez had entered into with her employer Intelex in order to compel her to arbitrate. Her lawyer, however, was careful with the pleadings, for Hernandez apparently did not name Intelex as a party, nor did she claim that Intelex and her other employers, the defendants (Other Firms) were joint employers. The trial judge denied the motion of the Other Firms to compel arbitration based on a contract with an arbitration agreement they had not signed. And the Court of Appeal held that the trial judge was right. Hernandez v. Meridian Management Services, LLC, B312814 (2/8  1/30/23) (Wiley, Stratton, Grimes).

        It was not as if there was no relationship between Intelex and the Other Firms. After all, Ms. Hernandez worked for both. Moreover, though the Other Firms were separate legal entities from Intelex, they were "functionally related." Hernandez "alleged the Other Firms shared the same legal and physical address; the same human resources person; the same controller; the same payroll department; the same risk management and legal services; and the same centralized information technology." But whatever the functional relationships, they were not enough for defendants to compel arbitration based on theories of equitable estoppel, agency, or third party beneficiary.

        Equitable estoppel. This is the issue that led the trial judge to state he had an issue of first impression on his hands: “[t]ypically the doctrine of equitable estoppel is applied where a signatory has sued both another signatory and certain non-signatories on identical claims. . . . [¶] But what happens if the other party to the contract is not also a party to the case, and never was?" Intelex, the party with the arbitration agreement in its contract, was not a party to the case, yet it was the Intelex agreement that the Other Firms wished to take advantage of. In any case, the Court of Appeal concluded that equitable estoppel could not apply because there was no evidence Hernandez was trying to take advantage of anything she had done wrong.

        Agency. The Other Firms offered no evidence that they were empowered to act on behalf of Intelex.

        Third-party beneficiary. There was no evidence that it was a motivating purpose of Intelex and Hernandez to provide a benefit for a third party.

        Affirmed.

 

Arbitration, Agency, Choice Of Law, Discovery: 9th Circuit Holds District Court Should Allow Discovery To Determine If Client Authorized Attorney To Agree To Arbitrate

Factual Questions Existed As To Whether Lawyer's Client Authorized Agreement To Arbitrate.

        Plaintiff Barbara Knapke sued PeopleConnect, the owner of Classmates.com, for allegedly making unauthorized use of her name and likeness. Before filing the lawsuit, Knapke's attorney Reilly logged in to the Classmates.com website, and in doing so, agreed to arbitrate. Did Knapke authorize her attorney to agree to arbitrate? The district court ruled that there was no evidence that she had authorized her attorney to arbitrate. PeopleConnect appealed. Barbara Knapke v. People Connect, Inc., No. 21-35690 (9th Cir.  6/29/22) (Bennett, Wardlaw, Gould).

        Judge Mark J. Bennett first explained that the district court should have applied Washington State law rather than Ohio law. Knapke is a resident of Ohio, and PeopleConnect's principal place of business is in Seattle. But it made no difference, since Ohio and Washington law were not in conflict.

        Second, a question of fact existed as to whether Knapke authorized her attorney to agree to arbitrate. That question required inquiring into "the contours of Knapke’s agreement with Reilly’s law firm and the limits, if any, on Reilly’s authority to act on Knapke’s behalf." In addition to authorization, there was a question as to whether later conduct could have ratified the attorney's actions. Because of such questions, PeopleConnect should have been allowed to conduct discovery.

        When the matter returns to the district court, where PeopleConnect will get "another bite of the apple", there will be additional questions to resolve: does privilege prevent discovery into attorney communications relevant to the scope of authority? Plaintiff's claim that there was a lack of authority makes her communications with her attorney a relevant area of inquiry. Has there been a waiver of privilege? If the plaintiff rests on a claim of privilege, what effect will that have upon her claim that she did not convey authority to her attorney to agree to arbitrate? 

Arbitration, Agents: Residential Care Facility Failed To Establish That Father Was Bound By Son's Signature To Arbitrate

Based On Generally Applied Principles Of Agency, The Care Facility Failed To Establish Son Acted As Father's Agent.

        An elder care facility argued that aged father, who died of severe sunstroke while in care of facility, was bound to arbitrate by son's signature on Residency Agreement. The basic problem was that, though it was uncontested that the son signed the Residency Agreement with the arbitration provision, the elder care facility failed to establish that the son was acting as an agent for his father. Agency is ordinarily established by the words and acts of the principal, not the agent. And here, there was no power of attorney, and no evidence that the father, who had mild cognitive problems, had given authority to the son to enter into a binding arbitration agreement. The signature block did not show the capacity in which the son was signing. And the representative of the care facility did not discuss the Residency Agreement with the father. So the trial court's order denying a petition to compel arbitration was affirmed. Rogers v. Roseville SH, LLC, et al., No. C089561 (3d Dist.  3/4/22) (Mauro, Robie, Krause).

Arbitration, Delegation, Agents: Two Cases In Medical Settings Show California Courts Scrutinize Arbitration Agreements Entered Into For The Sick And The Aged

        California courts continue to scrutinize cases in which hospitals and nursing homes seek to enforce arbitration provisions. The medical settings often involve patients who are old, quite sick (or both), hurried admission processes, and urgency. These cases remind me of a story my law school torts professor told, about taking his daughter, who had injured her arm, to emergency care. Presented with the  paperwork, the law professor asked, "where do I sign?"

Oh What A Difference A Little Thereof Makes.

        In Sandoval-Ryan v. Oleander Holdings LLC, et al., C089486 (3rd Dist.  12/7/20) (Hull, Murray. Duarte), the Court of Appeal affirms an order of the trial court, holding that defendants, a skilled nursing facility, claimed the issue of arbitrability had been delegated to the arbitrator rather than the court to decide, lacked merit.

        Defendants did not question the trial court's ruling against them on their motion to compel arbitration, only that the decision had been made by the trial court, instead of an arbitrator. Defendants argued that clear and unmistakable language delegated threshold arbitrability issues to the arbitrator. Their argument foundered on two shoals.

        First, the language  of the arbitration agreement provided that  claims "arising out of the provision of services by the Facility, the  admission agreement, the validity, interpretation, construction, performance and enforcement thereof . . . " were to be submitted to the arbitrator. The court concluded that "thereof" referred to the admission agreement only. OK, I had to read the clause twice myself.

        Second, even if, arguably, the clause could be interpreted to cover issues of arbitrability concerning the provision of  services, the "clear and unmistakable language" burden had not been carried by defendants.

Shaky Custom, Habit, And Practice Testimony That Is Contradicted Fails To Establish Agreement To Arbitrate.

        Maria Garcia v. KND Development 52, LLC, et al., B301929 (2/4  12/15/20) (Manella, Willhite, Collins) is another case in a medical setting where the trial and appeal courts refuse to enforce an arbitration provision. The underlying case involved a patient who was allegedly injured, becoming infected with bedsores, and later dying. 

        The hospital did not carry its burden of establishing a binding arbitration clause (a) because it relied on the custom and practice testimony of a supervisor who did not interact with the patient; (b) because it relied on the custom and practice testimony of a receptionist who lacked first-hand recollection; and (c) the custom and practice testimony was contradicted by relatives of the  patient who testified from first-hand personal knowledge. As a result of the thin evidence, the hospital was unable to establish that the relative who signed the hospital documentation had acted as an agent of the patient and had been authorized by the patient to agree to arbitration. 

 

 

Arbitration, Agency, Enforceability, Section 1281.2: Nursing Facility Is Unable To Enforce Arbitration Provision Because Children's Claims Were Not Subject To Arbitration

And Prospect Of Inconsistent Results Meant Father's Claims Could Not Be Arbitrated While Children's Claims Were Litigated.

        Nursing homes continue to be a fertile source of cases concerning the enforcement of arbitration clauses. This is not surprising, because a patient, especially an elderly patient, who enters a nursing facility may be infirm or incompetent; when the patient enters the home, i's may not be dotted and t's may not be crossed; and, bad things can happen in nursing homes. The latest published California opinion involving a nursing home and the enforceability of an arbitration provision is Valentine v. Plum Healthcare Group, LLC, et al., C080940 (3rd Dist.  7/25/19) (Raye, Hull, Hoch). Valentine combines certain of the factual elements that seem to lead to enforceability of arbitration issues: an elderly patient who may be confused, arbitration provisions, and a terrible medical outcome.

    In Valentine, a woman was admitted to a nursing home. Her husband handled the paperwork, signing documentation providing for arbitration of his claims as successor and as individual. As a result of alleged neglect, the woman's condition deteriorated, resulting in sepsis, and she died of cardiac arrest.

        The trial court held that the husband did act as an agent to bind his wife, because evidence did not show she had created an agency. However, the husband was bound by arbitration agreements to arbitrate his claims as an individual and as a successor to his wife's claims. But the children, who were not parties to an arbitration agreement, were not bound to arbitrate their individual claims for wrongful death or for negligent infliction of emotional distress. Because arbitration of the husband's claims, which were subject to a valid arbitration clause, could have led to inconsistent results if the children's claims were separately litigated, the trial court acted within its discretion when it denied a petition to arbitrate pursuant to CCP section 1281.2. AFFIRMED.

Florence Nightingale. c1856. Library of Congress.

Arbitration, Nonsignatories, Agents, and Fees: Second District, Div. 7 Explains When Signatory To Arbitration Agreement Can Compel Nonsignatory Parent Of Signatory Subsidiary To Arbitrate

Court Of Appeals Also Distinguishes Between Arbitrator's Power To Deny Attorneys' Fees To Prevailing Party And Court's Error In Denying Attorneys' Fees Incurred In Postarbitration Proceedings.

    The Court of Appeal has done something very useful in this 57-page slip opinion concerning arbitration proceedings, and we like that. The Court has summarized its holding up front: "(1) an attorney does not have standing to petition to compel arbitration of his clients’ claims; (2) a signatory to an arbitration agreement can compel a nonsignatory parent company of a signatory subsidiary on an agency theory where (a) the parent controlled the subsidiary to such an extent that the subsidiary was a mere agent or instrumentality of the parent and (b) the claims against the parent arose out of the agency relationship; (3) the arbitrator did not exceed his authority by substituting the attorney’s clients as the real parties in interest in the arbitration; and (4) the arbitrator did not exceed his authority by denying attorneys’ fees to a party that prevailed in the arbitration. The last holding requires us to part company with DiMarco v. Chaney (1995) 31 Cal.App.4th 1809 (DiMarco) and agree with Safari Associates v. Superior Court (2014) 231 Cal.App.4th 1400." Cohen v. TNP 2008 Participating Notes Program, LLC, and TNP 2008 Participating Notes Program, LLC v. Mark Cohen, B266702 (7/2  1/29/19) (Segal, Perluss, Feuer).

    COMMENT: This case involved an attorney, his law firm, his clients, a parent company used for a real estate investment program, two subsidiaries, and a real estate investment plan that went south. The case is interesting for two reasons. First, some of the persons or entities had signed arbitration agreements, others had not. Therefore, the Court of Appeal delves in depth into when a signatory can bind a nonsignatory, when a principal can bind an agent, when an agent can bind a principal, and when a subsidiary can bind a parent corporation. Second, as Justice Segal explains, the Court parts company with DiMarco v. Chaney on the issue of attorney's fees. The Court holds that the arbitrator, acting in equity, need not award attorney's fees under a prevailing attorney's fees clause, unless the agreement is stated in mandatory terms that limit the arbitrator's discretion. However, post-arbitration fees are a different matter. Cal. Code of Civ. Proc., section 1293.2, provides, "The court shall award costs upon any judicial proceeding under this title as provided in Chapter 6 (commencing with Section 1021) of Title 14 of Part 2 of this code." Under the Code of Civil Procedure, costs must be awarded to the prevailing party, and attorney's fees may be costs. There is a nice blog post on the attorney's fees aspect of the case in the California Attorney's Fees blog today.

Arbitration, Employment, Nonsignatories: 2/6 Orders Produce Packers To Arbitrate Claims With Co-Employers

Staffing Agency Signed Arbitration Agreement, Packing Employer Did Not Sign.

 

                            Packing fresh prunes at night on Produce Row during busy season, wages two cents per box. Washington, Yakima. Dorothea Lange, photographer. August 1939. Library of Congress.

    Plaintiffs/Respondents Vasquez and Zacarias were hired by a staffing agency, Employer's Depot, Inc. (EDI) which assigned them to a produce packing employer (San Miguel Produce, Inc.). Plaintiffs alleged labor violations by San Miguel Produce, with which they did not have an arbitration agreement, and San Miguel Produce cross-claimed against EDI, which did have an arbitration agreement with Plaintiffs. The superior court denied a motion by San Miguel Produce and EDI to compel arbitration (a) because Plaintiffs did not sue EDI; and (b) because Plaintiffs did not have an arbitration agreement with San Miguel Produce. Vasquez et al. v. San Miguel Produce, No. B287696 (2/6  1/3/19) (Perren, Gilbert, Tangeman) (unpublished).

    Reversed and remanded: "Appellants are co-employers with an identity of interests and mutual responsibility for complying with state law governing employers in the produce packing industry. It is inconsequential that respondents chose not to name EDI as a defendant. They agreed to arbitrate 'all disputes' arising from their employment."

Arbitration, Nonsignatories, Agents, 3d Party Benes, Equitable Estoppel: 4th District Div. 2 Rejects Harley Davidson Dealer's Argument That It Can Compel Arbitration Based On Arbitration Clause In Security Agreement

The Security Agreement Included An Arbitration Clause, But The Purchase Agreement Did Not.

    It is not unusual for a consumer to execute more than one agreement at the time of purchase, only one of which contains an arbitration clause. Such was the case in Fuentes v. TMCSF, Inc., E066242 (4/2  8/23/18) (Ramirez, Slough, Fields). Fuentes, who bought a Harley-Davidson motorcycle, and Riverside Harley-Davidson (Riverside) were parties to a purchase agreement without an arbitration clause. Fuentes and Eaglemark Savings Bank (Eaglemark) were parties to a simultaneously executed Security Agreement that did contain an arbitration clause. When Fuentes sued Riverside in a putative class action, Riverside petitioned to compel arbitration.

    Cases like this present a standard set of questions: are the two agreements to be interpreted as a single agreement? Is the party seeking arbitration (Riverside here) an agent of the party (Eaglemark) to the contract with the arbitration provision? Does the party seeking arbitration have standing as a third-party beneficiary of the contract with the arbitration provision? Is the non-signatory plaintiff equitably estopped from refusing to arbitrate because he asserts claims "inextricably intertwined with" the underlying contractual obligations of the agreement containing the arbitration clause? To which the Court of Appeal answered, no, no, no, and no. AFFIRMED.

    We suspect that in the future some drafting changes will be made by Riverside to its sales documents.

 

Above: Jimmy Murphy, winner of 500-mile auto race at Indianapolis, Ind., May 30, 1922, and Ernie Olson, mechanic, seated on Harley-Davidson motorcycle and in sidecar.  Library of Congress.

Arbitration: Agents: 2/2 DCA Reverses As A Matter Of Law Denial Of Motion To Compel Arbitration Given That Defendant Agent Was Not An Independent Third Party

Rather, Agents Of Statutory Defendant Are Entitled To Benefit Of An Arbitration Agreement.

          In Hernandez v. AutoZone, Inc., Case No. B280206 (2d Dist., Div. 2) (May 30, 2018) (unpublished; Justice Victoria Chavez, concurred in by Justice Judith Ashmann-Gerst, A.P.J., and Justice Brian M. Hoffstadt), ex-employer AutoZone moved to compel arbitration against a former employee based upon an alleged sexual harassment/battery/negligence suit arising from her employment with AutoZone, which had employees acknowledge that they read, understood, and agreed to be bound by a “Dispute Resolution Agreement” which required employees to arbitrate “any dispute arising out of or related to [their] employment with AutoZone or one of its affiliates,” including “disputes regarding the employment relationship . . . termination, retaliation, or harassment . . . and all other state statutory and common law claims.” It was governed by the Federal Arbitration Act.

          The trial judge denied AutoZone’s motion to compel arbitration on the theory that co-defendant Jose Vilchez, alleged to be an agent of AutoZone and plaintiff’s immediate supervisor, was actually a “third party” such that conflicting rulings were a possibility.

          The Second District, Division 2 panel reversed as a matter of law, ordering the matter to arbitration. Mr. Vilchez was not a “third party,” but an AutoZone agent entitled to the benefits of the arbitration agreement. (Thomas v. Perry, 200 Cal.App.3d 510, 516 (1988); 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4^th 119, 1210 (1998).)

Arbitration, Agents, Nonsignatories, Equitable Estoppel: U-Haul Can't Enforce Arbitration Provision Against Nonsignatory Employee Of Employee Renting Truck

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.