California Mediation and Arbitration

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). 

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. 

Construction Of Agreement And Unconscionability: Confidentiality Agreement And Arbitration Clause Were Construed Together

File This Under "More Ways Than One To Skin A Cat."

Woman wearing a blue robe with Buzzer the cat. Photographer: Arnold Genthe. Library of Congress.

        Alberto v. Cambrian Homecare, B14192 (2/4   filed 4/19/23, cert for pub. 5/10/23) (Daum, Collins, Currey), affirms the trial court's order finding an arbitration clause unconscionable.

        Here's the wrinkle. Ordinarily, a contract and an arbitration provision are separately construed, and the court must decide whether the arbitration provision is unconscionable. Here, there was a confidentiality agreement, and a separate agreement to arbitrate. Or were they separate? Neither agreement incorporated by reference the other agreement.

        But as we said above, there's more than one way to skin a cat. Here, the court construed the two agreements together, applying Civil Code §1642. That section provides: "Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together."

        The confidentiality agreement allowed the employer to obtain immediate injunctive relief for a breach of confidentiality and apparently was not symmetrical. The discussion of wages among employees was prohibited. In contravention of PAGA, the arbitration agreement created a blanket prohibition of representative actions, absent mutual consent. The agreements, construed together, infected one another.

Employment, Uncionscionability, Delegation: Fourth Dist. Div. 3 Agrees With Trial Court That Arbitration Agreement Is Unconscionable

Ambiguous And Unconscionable.

        The threshold question in Bernell Gregory Beco v. Fast Auto Loans, Inc., G059382 (4/3  12/14/22) (Moore, Bedsworth, Sanchez) was whether the court or the arbitrator should determine the issue of arbitrability. The arbitration agreement included a delegation provision stating that covered: "any dispute concerning the arbitrability of any such controversy or claims." The Court of Appeal held that the provision was ambiguous at best, because "arbitrability" here could refer to deciding to the arbitrability of a substantive claim, rather than to who should decide the issue of arbitrability. Therefore, the delegation of the question "who should decide" was not "clear and unmistakable," the standard for finding a valid delegation of decision-making authority to the arbitrator. Nor did incorporation by reference of AAA rules concerning arbitrability help here, because the the court concluded that Mr. Beco, an employee of a payday lender¹ who earned $13.50 per hours, was not a legally sophisticated person who should be charged with knowledge of the incorporated rules.

        The court's analysis that the arbitration provisions were procedurally and substantively "unconscionable" is unremarkable. Well, perhaps the following is worth remarking: the court found that a three-month period allotted to the employee to provide notice of a claim was "particularly onerous."

¹A US government website defines "payday loan" as follows: "While there is no set definition of a payday loan, it is usually a short-term, high cost loan, generally for $500 or less, that is typically due on your next payday. Depending on your state law, payday loans may be available through storefront payday lenders or online."

Arbitration, Construction Of Scope Of Agreement: Second Dist.Div. 7 Reverses Arbitration Award Because Narrow Scope Of Arbitration Agreement Did Not Cover The Dispute

The Court Of Appeal Construes The Arbitration Provision As "Narrow" Rather Than "Broad."

        The Court of Appeal reverses confirmation of an arbitration award in Thomas Ahern et al. v. Asset Management Consultants, Inc., et al., B309935 (2/7  2/1/22) (Perluss, Segal, Feuer).

        The underlying dispute was between a co-tenant, Ahern, who purchased a co-tenant interest in an office building from Asset Management Consultants, who acquired the building from iStar. Asset Management Consultants compelled arbitration against Ahern based on an arbitration provision in the co-tenancy agreement. This was reversed on appeal, because Ahern's dispute with Asset Management Consultants did not "arise under" the co-tenancy agreement. The dispute related to representations made during the acquisition of the building, not to the management and operation of the building under the co-tenancy agreement.

       Arbitration clauses requiring a dispute to "arise under" an agreement are interpreted to be narrower in scope than clauses providing for arbitration of "any dispute" or clauses providing for disputes "arising from or related to" an agreement. The clause at issue here was construed to be a narrow one.

        COMMENT: It seems that  Ahern will get another bite out of the apple. But we don't know whether a judge will rule differently on the merits of the underlying dispute, or  whether the reversal of fortune will lead to a settlement.

Arbitration, FAA, Construction: Second Dist. Div. 1 Holds FAA Preempts Applying Contra Proferentum Rule In Case Of Contractual Ambiguity

Trial Court Must Now Enter Order Compelling Binding Arbitration Between Western Bagel Company And Employee.

Moose figure outside the Bagels Plus store in North Conway, New Hampshire. Photographer: Carol M. Highsmith. 2017. Library of Congress.

        When Jose Calderon, a  Spanish speaking employee of Western Bagel Company, Inc. brought a  putative class action lawsuit against his employer, the employer moved to compel binding arbitration -- unsuccessfully in the trial court, but successfully in the Court of Appeal. Western Bagel Company, Inc. v. The Superior Court of Los Angeles, No. B305625 (2/1  7/16/21) (Bendix, Rothschild, Chaney).

        The issue facing the trial court was whether Calderon had agreed to binding arbitration, which is what the employer wanted, or to non-binding arbitration. The employer had two versions of its employment agreement, one in English not given to Calderon, and one in Spanish given to Calderon. The English and Spanish versions had several references to binding arbitration, but the severability clause in the Spanish version created ambiguity, because it referred to non-binding arbitration. Applying the principle of contra proferentum, which requires that ambiguity must be construed against the drafter, the trial court ordered the dispute to non-binding arbitration.

        Because Western Bagel engages in interstate commerce, the Federal Arbitration Act applied. The Court of Appeal held that the FAA preempts applying the contra proferentum rule, and the FAA requires the court to construe any ambiguity in favor of binding arbitration. And so the court directed the trial court to vacate its order compelling nonbinding arbitration and enter a new order compelling binding arbitration.

Arbitration, Contract Interpretation, FAA: 9th Circuit Holds California's "Absurd Results" Rule Of Contract Interpretation Is Not Preempted By FAA

Provisions Requiring Arbitration With AT&T's Affiliates Did Not Apply To A Future Affiliate.

        Plaintiff contracted with AT&T for service, and sued an affiliate DIRECTV acquired later by AT&T. The Court of Appeal had to "decide whether a satellite television company, which became an affiliate years after the agreement was signed, may use the wireless services agreement to compel arbitration in a suit brought against it under the Telephone Consumer Protection Act." Jeremy Revitch v. DIRECTV, LLC, No. 18-16823 (9th Cir.  9/30/20) ( O’Scannlain, McKeown; conc. O'Scannlain; dsst, Bennett).

        The service agreement required arbitration with AT&T and its affiliates. However, both the  district court and the 9th Circuit held that "affiliates" did not include DIRECTV, LLC, an affiliate acquired by AT&T after the service agreement was signed. The interesting part of the opinion is the analysis of California's "absurd results" rule of contract interpretation, providing, "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.” (Cal. Civ. Code section 1639). The majority opinion explained that if "affiliates" was interpreted to include after-acquired affiliates, then Revitch could be required to arbitrate with a party who had not contracted with him, and who was acquired later, regardless of the affiliate's connection to the dispute.

        Judge Bennett dissenting disagreeing that such an interpretation of the contract resulted in an absurd result. Judge Bennett argued that the word "affiliates" was clear and included DIRECTV, that if there was any ambiguity, it had to be interpreted to favor arbitration, and that agreeing to a broadly worded arbitration agreement was not an absurd result. 

        COMMENT: California's "absurd results" rule of contract interpretation is not preempted by the FAA, because the rule would apply to contracts in general, and thus would not unduly burden arbitration  agreements.

Arbitration, Class, Waiver, Construction: Third District Holds Plaintiff Only Waived Right To Bring Class Action Lawsuit, Not Class Arbitration

Court Of Appeal Reverses Order Denying Motion To Compel Arbitration Of Class Claim.

        In an employment dispute, the trial court denied plaintiff' Garner's ability to  pursue class action claims in arbitration, relying on "language in the arbitration agreement stating that Garner waived his right to participate in class action lawsuits." Chris Garner v. Inter-State Oil Company, C088374 (3rd Dist.  7/23/20) (Mauro, Robie, Duarte). Garner appealed.

        One clause in the arbitration expressly provided for arbitration of  class actions, i.e., "any and all claims arising out of or related to your employment that could be filed ina a court of law, including . . . class action . . . shall be submitted to final and binding arbitration . . ."

        Therefore, respondent Inter-State Oil Company argued a second clause -- the one relied on by the trial court -- resulted in a waiver of the right to arbitrate a class action, because it provided that the employee "waived his right to 'participation in a civil class action lawsuit . .  .'" 

        The Court of Appeal harmonized the two provisions in favor of the employee, pointing out the obvious:  "Lawsuits generally refer to court actions." Therefore, the parties had agreed that the employee could arbitrate class actions, and also agreed that the  employee could not litigate class action lawsuits in court. 

        The Court of Appeal concluded that both the employee's individual and class claims required arbitration. 

 

Arbitration, Construction Of Agreement, Reference: Trial Court Properly Denied Motion To Compel Arbitration Or For A Reference

An Order Denying A Judicial Reference Is Not Appealable, Even When Coupled With An Order Denying Arbitration, Which Is Appealable.

    A frequent source of confusion with motions to arbitrate is an arbitration provision that refers to both the Federal Arbitration Act (FAA) and California law. Indeed, that was the source of confusion (somewhat amplified, as the Court of Appeal ultimately determined there was no ambiguity) in J.H. Boyd Enterprises, Inc. v. Kenneth Robert Boyd, F078292 (5th Dist.  9/10/19) (DeSantos, Smith, Meehan). 

    Defendants/Appellants, the Boyd Trust, moved to compel arbitration after their tender of payment of a promissory note to J.H. Boyd Enterprises, Inc., was rejected.  It was clear that an agreement between the Boyd Trust and J.H. Boyd Enterprises, Inc. included a broad arbitration clause that governed the dispute over the refusal to accept the tender. However, there was an exception: If California law governed a dispute that involved a promissory note secured by property, as happened to be the case here, then arbitration could not be compelled, unless J.H. Boyd Enterprises, Inc. elected to arbitrate, which it assuredly did not do. And as many arbitration agreements do, this one provided that any arbitration proceeding shall be governed by the FAA. 

    So was the dispute governed by California law or the FAA? Basically, the Court of Appeal concludes that even if the FAA applies to an arbitration proceeding, the parties agreed to arbitrate this particular dispute, alleged in the complaint to involve a defaulted promissory note, by applying ordinary state law principles. The term "Dispute" was defined to encompass "any dispute, claim or controversy", which encompassed a promissory note default, and forum was not included in the definition of Dispute.

    Defendants/Appellants alternatively sought a reference, and that too had been denied by the trial judge. We see plenty of cases involving orders denying motions to compel arbitration, but orders denying a motion to deny a reference? Not so much. The short answer here is that orders denying a motion to compel a reference are not appealable.

    However, Appellants made a rather ingenious argument. Orders denying a motion to arbitrate are appealable, and Code of Civ. Proc. section 1294.2 creates ancillary appellate jurisdiction over orders affecting appealable arbitration orders. For example, if the Court denies an order to compel arbitration and to deny a stay, ancillary jurisdiction exists to consider the denial of the stay. No go here. The ancillary jurisdiction that allows an appeal of the order denying a stay is necessary to effectuate an appellate ruling on an arbitration order. An appellate ruling allowing arbitration becomes pointless if the litigation is not stayed. But that's not the case here, where review of the order denying the reference is not necessary to effectuate the order denying arbitration. It's apples and oranges.

Construction And Enforceability Of Arbitration Agrement: Broad Arbitration Agreement May Be Applied Retroactively

Employee's Claims Arose Before He Signed Arbitration Agreement.

        Is an arbitration agreement enforceable when the employee's claim arises before he signs the arbitration agreement? Yes, says the Court of Appeal in Franco v. Greystone Ridge Condominium, et al., G056559 (4/3  8/27/19) (Fybel, Aronson, Thompson). In this case, "[t]he parties' arbitration agreement is clear, explicit, and unequivocal with regard to the claims subject to it and contains no qualifying language limiting its applicability to claims that had yet to accrue."

        The employees of Greystone, including plaintiff, had been presented with an arbitration agreement to sign. Instead of signing, plaintiff consulted with an attorney, and about ten days after receiving the agreement, filed claims for employment discrimination and wage and hour claims. Two days later, he signed the arbitration agreement. The trial court, finding that the agreement could not be applied retroactively, held that the the employee could not be compelled to arbitrate. The Court of Appeal reversed, interpreting the clear and broad language of the agreement not to be limited to prospective claims.

        COMMENT: Under California law, the result would be different if the employer had unilaterally made the changes, and the employee had continued to work, without expressly agreeing to the changes. Under those circumstances, the implied covenant of good faith and fair dealing would require an interpretation that the unilateral change was intended to be prospective only. In Franco, however, unilateral modification of the arbitration agreement was not involved, because it was not disputed that the plaintiff agreed to the arbitration provision.