California Mediation and Arbitration

Delegation, Arbitrability, Third-Party Beneficiary: Ralph's Wasn't Third-Party Beneficiary Of Agreement Between Customer And Instacart

Delegation Of Threshold Issue To Arbitrator Must Be Unmistakably Clear.

        Mahram used Instacart to purchase groceries and later sued Ralphs (The Kroger Co.) for allegedly raising prices after applying a coupon, claiming violations under false advertising and unfair competition laws. Ralphs moved to compel arbitration based on an agreement between Mahram and Instacart, even though Ralphs was not a signatory to that contract. The Court of Appeal affirmed the trial court's denial of Ralphs' motion to compel arbitration. Payam Mahram v. The Kroger Co., B324405 (2/8  8/19/24) (Wiley, J.).

        While Mahram did enter into an arbitration agreement with Instacart by signing up for its services, the agreement only applied to disputes between Mahram and Instacart.

        Whether Ralphs could compel arbitration was for the court to decide, not an arbitrator, because the contract did not make it "unmistakably clear" that Mahram agreed to arbitrate with any party other than Instacart.

        And Ralphs was not a third-party beneficiary of the contract between Mahram and Instacart, because the contract's purpose was to facilitate grocery deliveries, not to benefit Ralphs specifically.

        In sum, Ralphs could not enforce the arbitration agreement between Mahram and Instacart, and the trial court's denial of Ralphs' motion to compel arbitration was affirmed.

 

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."

Arbitrability, Delegation: When Two Arbitration Contracts Conflict, Court Decides Which One Supersedes The Other

The Supreme Court Does Not Decide Whether The Ninth Circuit's Decision Was Correct, Only Whether The Decision Was For The Court To Make.

        The parties "had executed two contracts: the User Agreement, which sent disputes about arbitrability to arbitration, and the Official Rules, which appeared to send disputes to California courts." Coinbase, Inc. v. Suski, No. 22-3 (S. Ct. 5/23/24). The Official Rules governed a sweepstakes to enter for a chance to win Dogecoin, and in fact, respondents had entered the sweepstakes. The Ninth Circuit held that the Official Rules, which sent disputes to California courts, superseded the User Agreement which would have delegated arbitration and arbitrability matters to an arbitrator. The United States Supreme Court affirmed.

        However, the Supreme Court ruling is narrow. It does not decide whether the Ninth Circuit was correct. Rather, as Justice Ketanji Brown Jackson explains, "We granted certiorari to answer the question of who—a judge or an arbitrator—should decide whether a subsequent contract supersedes an earlier arbitration agreement that contains a delegation clause." All the Supreme Court decides is that in a case where there are multiple agreements that conflict over whether the dispute is to be arbitrated, a court decides which agreement prevails.

        Justice Neil Gorsuch concurred with the understanding that the Court was not deciding whether the Ninth Circuit was applying contract principles correctly.

Delegation: Ninth Circuit Addresses How To State A Challenge To Delegation Of The Issue Of Arbitrability And How To Analyze Issue

Judge Eric D. Miller Agrees Majority's Analysis, But Disagrees That The Ninth Circuit Rule Is Any Different From The Rule In Other Circuits.

        Abraham Bielski has already made law in his case against Coinbase, Inc., a cryptocurrency exchange. Earlier this year, the Supreme Court held in Bielski's case that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. See our 7/03/23 post about the SCOTUS decision in Bielski v. Coinbase, Inc. In the newest iteration of Bielski v. Coinbase, Inc., 22-15566 (9th Cir. 12/5/23) (Mendoza (maj.), Sanchez, Miller (partially concurring)), the Ninth Circuit examined whether a delegation clause in Bielski's contract with Coinbase, Inc. effectively delegated the issue of arbitrability to the arbitrator. Bielski continues to make law, though not necessarily in his favor.

        In deciding the delegation issue, the Ninth Circuit decided three issues, two of which Judge Mendoza described as issues of first impression. 

        The first issue of first impression is how much must a party challenging a delegation clause do to successfully allege a challenge? The answer is that specifically mentioning the delegation clause and presenting arguments against its enforceability is sufficient. Judge Mendoza suggests, however, that some other circuits require more substance in the challenge than does the Ninth Circuit.

        The second issue of first impression is how should the court conduct its analysis? Should it just look at the delegation clause, or should it be able to interpret that provision in the context of the agreement as a whole? The answer here is that "the district court correctly considered the whole context surrounding the delegation provision in its analysis of the provision’s validity." 

        The third issue is whether the delegation clause was unconscionable -- not an issue of first impression. The court found that it was not unconscionable, and therefore reversed the  district court’s order denying Coinbase’s motion to compel arbitration.  

        COMMENT: Judge Miller partially concurred in the opinion. He agreed with the court’s holding that “'to sufficiently challenge a delegation provision, the party resisting arbitration must specifically reference the delegation provision and make arguments challenging it' and that 'a party may use the same arguments to challenge both the delegation provision and the arbitration agreement, so long as the party articulates why the argument invalidates each specific provision.' I do not join it, however, because I do not agree with the court’s characterization of the rule applied in other courts of appeals." In other words, he doesn't believe there is any real difference between the Ninth Circuit test and how other circuits address delegation.

        Based on the Ninth Circuit majority opinion, there would appear to be a split among the circuits, and thus a firm basis for Supreme Court review. Based on Judge Miller's dissent there would be no reason for the Supreme Court to consider the case again, and if it did do so, it might conclude, as did Judge Miller, that the Ninth Circuit rule is a difference without a difference.

First District, Div. 1 Affirms Order Denying Petition To Compel Arbitration Because Defendant Failed To Establish Existence Of Arbitration Agreement

No Evidence Of Signed Agreement.

        Bruno Fleming sued Oliphant Financial for allegedly violating the California Rosenthal Fair Debt Collection Practices Act. Oliphant unsuccessfully petitioned the trial court to compel arbitration. The Court of Appeal affirmed the trial court's order denying Oliphant's petition to compel arbitration. Fleming v. Oliphant Financial, LLC, A165837 (1/1  1/31/23) (Devine, Humes, Margulies).

        Oliphant failed to meet its burden of establishing the existence of an arbitration agreement. Fleming had signed a credit card application, but apparently there was a lack of evidence that he had signed an arbitration agreement or that he had received one. 

        This is pretty basic stuff. Rejecting Oliphant's efforts to finesse the threshold issue, the court addresses a few points.

• • As the party moving to compel arbitration, Oliphant had the burden of proof of establishing that the parties agreed to arbitrate.
  • An argument that the arbitration agreement delegates the question of arbitrability to the arbitrator fails if the arbitration agreement doesn't exist.
  • Contract formation will be addressed under state law.
  • The court, not the arbitrator, gets to decide whether an agreement to arbitrate exists.
  • Oliphant's choice-of-law argument that the arbitration agreement requires the application of Delaware law fails if there is no arbitration agreement.

 

 

Waiver: Fourth District Div. 2 Holds Lengthy Delay And Failure To Timely Take Affirmative Steps To Arbitrate Results In Waiver Of Right To Arbitrate

Thirty-Nine Page Slip Opinion Hinges On Issue Of Waiver.

        The Court of Appeal addresses a variety of issues in the context of a complicated procedural history in Desert Regional Medical Center v. Leah Miller and Desert Regional Medical Center v. Lynn Fontana, E076058 and E076069 (4/2  1/6/23) (Codrington, Ramirez, Raphael). 

        The procedural history was complicated by the overlapping pendency of a collective bargaining grievance procedure and the lawsuits brought by individual employees, who were employees at the Desert Regional Medical Center (DRMC). Did the individual actions need to be stayed while the union procedure was exhausted? Did the arbitrability of these cases need to be decided by the court or the arbitrator? Did the Federal Arbitration Act or the California Arbitration Act apply? Did the Labor Commissioner have jurisdiction to hear claims brought by the employees, or did the claims need to be arbitrated? Were the employees estopped from arguing that the employer waived the right to arbitrate? Was prejudice necessary to find a waiver of the right to arbitrate? Interesting questions, but in the end the outcome hinged on whether the employer waived the right to arbitrate.

        In the end, the Court of Appeal affirmed the trial court's order denying a motion to arbitrate, agreeing that the employer waived its right to arbitrate. There was an issue as to how long the employer had delayed bringing a motion to arbitrate. That delay was at least a year, possibly up to four years. The court concluded that even during a one year delay, the employer acted inconsistently with asserting a right to arbitrate by engaging in further litigation procedure.

 

 

 

Arbitration, Enforceability: No Agreement Where Company Was Unable To Establish Automatic Sending Of Electronic Receipt

Existence Of Agreement Was Not An Issue To Delegate To Arbitrator.   

              Fiona Trinity sued Life Insurance Company of North America and individuals (LINA parties) for employment-related claims. The LINA Parties moved unsuccessfully to compel arbitration in the trial court, and the Court of Appeal affirmed. The LINA parties could not establish the existence of an agreement to arbitrate, and even if they could, the agreement would have been unconscionable. Trinity v. Life Insurance Company of America et al., B312302 (2/7  5/23/22) (Perluss, Segal, Feuer).

        The defendant's PMK had testified as to the contract procedure, explaining that  once the employee had  clicked on a link indicating he or she had read an online employee handbook, which included an arbitration agreement, they would receive an email confirming their assent to the terms of the handbook. The problem was that the employer could not produce the automatically generated receipt and did not know how to retrieve it, and the employee did not remember reading or agreeing to the handbook. 

        While issues of arbitrability were delegated to the arbitrator here, whether there is an agreement to arbitrate in the first place is an issue for the judge to decide. The issue of arbitrability cannot be delegated under the terms of a nonexistent agreement.

        COMMENT: In the 21st century, there is still at least one advantage to the use of a paper document with an inked signature. Electronic signing is permissible, but then one must carefully follow procedure and have a good storage and retrieval system for electronic data.

Arbitration: Fourth District Div. 2 Addresses Issues Of Unconscionability, Delegation, Severability, And Fraud In Employee Arbitration Agreement

Ineffective Delegation Clauses, Fraud In The Execution, And Unconsciconability Result In Reversals.

        In Najarro v. Sup. Ct. of the County of San Bernardino; Horizon Personnel Services Inc., et al, E076328   (4/2  10/22/21) (Raphael, Codrington, Slough), the court does plenty of slicing and dicing, because there  are two arbitration agreements, two sets of employees, employees who read Spanish, employees who don't read Spanish, a valid delegation clause, an ineffective delegation clause, evidence of unconscionability, and undecided issues of procedural unconscionability. It's a lengthy opinion, and here is the  court's own summary: "Because the first version [of the arbitration agreement] does not clearly and unmistakably delegate questions of arbitrability to the arbitrator, we grant the writ petition as to the employees who signed that version. As to two of these employees, the trial court must decide whether this first version is unconscionable, guided by our discussion below. As to the other two employees who signed this version, we find that the arbitration agreement is unenforceable for the separate reason of fraud in the execution. We also find that fraud in the execution voids the agreement for two of the employees who signed the other, second version of the arbitration agreement."

        COMMENT: One interesting takeaway is that a delegation clause that delegates issues to the arbitrator to decide may stumble and become ineffective if it is coupled with a severability clause allowing a court to decide some issues. So delegation clauses and severability clauses can interact and must therefore be drafted with care. A second takeaway is that when, as here, there was evidence as to some employees of fraud in the execution that was not rebutted, the court can decide there was no agreement to arbitrate, and need not move on to decide other defenses such as unconscionability. And a  third takeaway is that when the employees speak a foreign language (here, Spanish), or are illiterate, the courts have heightened awareness of the issue of procedural unconscionability.

Arbitrability, Delegation, Enforceability, Jurisdiction, Unconscionability: A Trifecta of Ninth Circuit Published Opinions

August 12, 2021 Was A Day Rich In 9th Circuit Arbitration Decisions.

Santiago Lim v. TForce Logistics, LLC, No. 20-55564 (9th Cir.  8/12/21) (Smith, Owens, Robreno).

        This case is about the gateway decision of arbitrability, delegation of that decision, and unconscionability. The panel holds that the delegation and arbitration clauses are procedurally and substantively unconscionable. Because the delegation clause is unconscionable, the court, not the arbitrator, gets to decide whether the arbitration clause  is enforceable, and agrees that that too is unconscionable. The provisions are "take it or  leave it", require costs splitting between the employer and the purported "independent contractors", call for  fee-splitting, and have a Texas venue provision.

CLMS Management Services LP v Amwins Brokerage of Georgia, 20-35428 (9th Cir. 8/12/21) (Christen, Hawkins, McKeown).

        This case presents an international law question: does the doctrine of reverse-preemption apply to a clause in an insurance contract, such that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a multilateral treaty, is  preempted by a Washington State rule that arbitration clauses in insurance contracts are not enforceable? Ordinarily, state law applies to insurance contracts, and in fact the McCarran-Ferguson Act can operate to reverse-preempt laws that contradict state law. However, in the case of treaties, a rule applies that  treaties that are "self-enforcing" are not preempted by state law. What does that  mean?

        A treaty is "self-enforcing" if it can be directly enforced in court  without the need for implementing legislation. The panel holds that the Convention the the Recognition and Enforcement of Foreign is self-enforcing. And therefore, reverse preemption does not  apply. And because Washington State law cannot be applied to invalidate the arbitration provision, it is enforceable.

Al-Qarqani v. Chevron, No. 19-17074 (9th Cir. 8/12/21) (Thomas, Kelly, Miller). 

        No small potatoes here, as the panel affirms the district court's refusal to allow enforcement of an $18,000,000,000 Egyptian arbitration award against Chevron. The core ruling is about jurisdiction.

        The heirs of an official who entered into a land concession agreement with Chevron in 1949 claimed entitlement to rent, and evidently the Egyptian arbitrators agreed. But when it  came time to petition to enforce the arbitral award under an arbitration agreement entered into earlier in 1933, the district court held that the parties never agreed to arbitrate, and therefore it denied enforcement on the merits.

        The Court of Appeals held that the  heirs had failed to make a non-frivolous argument for jurisdiction as to Chevron USA, which was not named in the Egyptian award, and because no non-frivolous argument for jurisdiction had been made, the Court could affirm the dismissal for lack  of subject-matter jurisdiction. (If the heirs had made a non-frivolous argument in favor of jurisdiction, then the Court would have assumed subject-matter jurisdiction).

        As to Chevron Corporation, the facts were a little different. The 1949 agreement failed to incorporate the 1933 arbitration agreement. As for the 1933 agreement with the arbitration clause, it had been signed by Saudi Arabia, not the heirs, and Chevron Corporation's rights and obligations under that earlier agreement had expired. The absence of an agreement to arbitrate was a reason to dismiss the petition to enforce the award on the merits rather than for a lack of jurisdiction

 

 

 

Arbitration, Enforceability, Delegation: Ninth Circuit Holds Collective Bargaining Agreement As Drafted Did Not Cover Statutory Claims

Ninth Circuit Agrees With District Court That  Labor Dispute Was Not Arbitrable And That Arbitrability Was Properly Decided By The Court.

        In Tramon Wilson-Davis v. SSP America, et al., B306781 (2/3  4/9/21) (Edmon, Lavin, Egerton), a dishwasher sued his employer, individually and behalf of a putative class, for wage and hour violations. A collective bargaining agreement with an arbitration provision existed between Wilson-Davis's union and his employer, so the employer moved to compel arbitration. The district court held that the dispute was not arbitrable, and the Ninth Circuit affirmed, in a  decision originally filed on 3/11/21 and later certified for publication.

        The motion to compel arbitration failed because: "The collective bargaining agreement ... provides for arbitration of claims arising under the agreement, but it does not waive the right to a judicial forum for claims based on statutes." Also, the parties did not  "clearly and unmistakably" delegate to an arbitrator a determination about whether the  matter was arbitrable.