California Mediation and Arbitration

Arbitration, Class Actions, Waiver, Construction of Agreement: SCOTUS Rules That Class Arbitration Is Not Allowed When Agreement Is Ambiguous

Majority Rejects State Law Rule That Ambiguous Contracts Are Interpreted Against The Drafter Because . . . 

    Frank Varela, an employee of Petitioner Lamps Plus, Inc., sued Lamps Plus because a hacker tricked Varela's employer into disclosing tax information about 1,300 employees. Mr. Varela was understandably miffed after a fraudulent income tax return was filed in his name. Lamps Plus sought to compel arbitration on an individual basis, relying on an arbitration provision. The District Court rejected the request for individual arbitration, but authorized class arbitration, and the Ninth Circuit affirmed. So Lamps Plus petitioned to the Supreme Court. Lamps Plus, Inc., et al. v. Varela, No. 17-988 (S.Ct.  4/24/19).

    It is established law that classwide arbitration may not be compelled when an agreement is silent about its availability. Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (2010). However, the Ninth Circuit believed that Stolt-Nielsen was not controlling, because in that case, the parties stipulated the agreement was silent, but here, the agreement was ambiguous. Therefore, the rule of interpreting an agreement against the drafter (contra proferentem) allowed the court to interpret the ambiguity against the draftsman/employer, and in favor of the employee.

    AT&T v. Concepcion, 559 U.S. 333 (2011) allowed for the application of defenses to arbitration when the defenses were neutral and did not uniquely burden arbitration. And it would seem that the contra preferentem rule of contractual interpretation, applied here by the employee to defend against individual arbitration, and to use in favor of class arbitration, would qualify as a neutral rule, since the rule applies to arbitration clauses as well as to other contractual clauses. 

    However, the SCOTUS majority, which is very much in favor of arbitration and specifically, individual arbitration, concluded that under the Federal Arbitration Act, an ambiguous agreement cannot provide a basis for class arbitration.

    Here's the scorecard with a brief summary of the opinions:

    1. Chief Justice Roberts delivered the Court's opinion, in which Thomas, Alito, Gorsuch, and Kavanaugh joined. The majority held that it had jurisdiction to hear the appeal, because even though the District Court compelled arbitration, the fact that it allowed for class arbitration instead of individual arbitration, meant a "fundamental" change, and resulted in a denial of the relief Lamps Plus was requesting. The FAA, rather than the state rule of contract interpretation, provided the default rule for resolving ambiguities in arbitration agreements, and here the majority concluded that ambiguity meant a lack of consent to class arbitration.

    2. Justice Thomas filed a concurring opinion. Thomas remains "skeptical of this Court's implied pre-emption precedents." But he remained comfortable with the majority opinion, because he believed that the contract was silent about class action, and thus Stolt-Nielsen applied, and he believed that California law would also reach the conclusion that the arbitration  provision did not provide a basis for class arbitration.

    3.  Justice Ginsburg, with whom Justices Breyer and Sotomayor joined, dissented, and joined Justice Kagan's dissent in full. The thrust of Ginsburg's dissent is that the FAA was intended "to enable merchants of roughly equal bargaining power to enter into binding agreements to arbitrate commercial disputes" (quoting from her own dissent in Epic Systems Corp.), and current jurisprudence has taken a turn to thwart "effective access to justice" for those who lack power and encounter violations of their rights (to quote another Ginsburg dissent in DIRECTV).

    4. Justice Breyer dissented, believing that there was no jurisdiction, based on Lamps Plus' appeal from an order allowing arbitration. Typically, there is no appeal from an order allowing arbitration, because such an order is interlocutory, rather than final, unlike a district court order refusing to compel arbitration. And because the order granting Lamps Plus' motion to compel was interlocutory, the District Court's dismissal of the case in the very same order was improper, according to Breyer. Lastly, Breyer disagreed with the majority's conclusion that class arbitration is so "fundamental[l]y" different from individual arbitration, that the District Court did not really grant a motion to arbitrate (which would be interlocutory), but rather denied the relief Lamps Plus really wanted. While class arbitration may be different than individual arbitration, Breyer argued that class arbitration was still arbitration, and that an order allowing class arbitration was still interlocutory.

    5. Justice Sotomayor dissented, joining Justice Ginsburg's dissent in full and Part II of Justice Kagan's dissent. She believed "[t]his Court went wrong years ago in concluding that a 'shift from bilateral arbitration to class-action arbitration' imposes such 'fundamental changes,' . . . that class-action arbitration 'is not arbitration as envisioned by the' Federal Arbitration Act. . . " She also disagreed that the FAA could be read "to pre-empt the neutral principle of state contract law on which the court below relied." 

    6. Justice Kagan, dissenting, is joined by Justices Ginsburg and Breyer, and as to Part II, by Justice Sotomayor. Part I of Kagan's dissent explains why she believes the arbitration provision authorizes class arbitration, and Part II explains why, even if the provision is ambiguous, California law provides a clear answer by construing ambiguities against the drafter. Justice Kagan explains that the FAA does not federalize basic contract law, except when state contract law discriminates against arbitration agreements. She happens to interpret the arbitration clause as allowing for class arbitration, and even if it doesn't unambiguously do so, then "a plain-vanilla rule of contract interpretation" applied in California and all other states, requires interpretation against the drafter. In effect, the majority has made a policy decision that class arbitration "undermine[s] the central benefits of arbitration itself" -- a policy decision with which Kagan disagrees, and that in she believes does not justify displacing applicable state law regarding the interpretation of ambiguous contracts.

    COMMENT. Back in December 2016, I wrote an article entitled "The Politics of Arbitration," describing how arbitration had become one more "hot button" issue for the Supreme Court, dividing the Justices along political lines. Notwithstanding the six different opinions described above in Lamps Plus, the fault line is along predictable political lines: Justices Roberts, Thomas, Alito, Gorsuch and Kavanaugh, all appointed by Republican presidents, formed the majority, while the dissenters, Justices Ginsburg, Breyer, Sotomayor, and Kagan, were all appointed by Democratic presidents.

    The majority's opinion brought to mind the title of David Lodge's satirical novel, How Far Can You Go? (1980). If the majority's policy decision that class arbitration is (fundamentally) not arbitration means it will not countenance a state rule of contract interpretation leading to a different result, just how far will it go to discard other background principles of contract law in arbitration cases?

 

    

Arbitration, Employment, Choice Of Law: California Choice Of Law Provision Does Not Mean Employee Gets To Avoid Arbitration

Choice-Of-Law Provision Is Interpreted To Exclude Special Rules Limiting The Authority Of Arbitrators Where The Federal Arbitration Act Governed The Agreement.

    California Labor Code section 229 provides that wage disputes "may be maintained without regard to the existence of any private agreement to arbitrate." In Bravo v. RADC Enterprises, Inc., B289506 (2/8  3/29/19) (Wiley, Grimes, Adams), the trial court had interpreted a California choice-of-law provision to mean that a store manager could avoid arbitrating his wage dispute with his employer.  On appeal, the Court reversed the part of the order denying arbitration of claims (except for a PAGA claim that did not need to be arbitrated).

    As the Court of Appeal noted, the "first textual clue" that the parties intended to arbitrate was in the title of the parties' agreement: "'ARBITRATION AGREEMENT.' This agreement is for arbitration and not against it."

    So how was California law to be applied? The Court interpreted the California choice-of-law provision to mean that California substantive law principles were to be applied, but that "special rules limiting the authority of arbitrators" were to be excluded.

Arbitration, Construction Of Agreement, Employment, Enforceability: Court of Appeal Remands Case To Determine If Plaintiff Was Represented By Counsel When She Signed Arbitration Agreement

Language Of Arbitration Agreement Was Sufficient To Require Arbitration, But . . . .

    In Salgado v. Carrows Restaurants, Inc., B285756 (2/6  2/26/19) (Gilbert, Yegan, Tangeman), the trial court denied employer's motion to compel arbitration, on the grounds that "Defendants have failed to demonstrate that the arbitration agreement applies to a suit that was filed prior to its signature." However, the Court of Appeal reversed, concluding the language of the arbitration agreement, which covered claims "related in any way to my application for employment and/or employment" was broad enough to cover the prior dispute.

    However, the Court also remanded, to determine if the employer knew when the employee signed the arbitration agreement, that she was represented by counsel. Plaintiff's attorney stated his client was "forced to sign" at a time the lawsuit had already been filed, the employer's restaurant manager had been served with the lawsuit, and the attorney was representing his client in the lawsuit. 

    COMMENT. We will be interested to learn if, on remand, the facts provide a basis for making the arbitration agreement unenforceable. Unconscionability? Duress? And if Defendant's counsel knew of the lawsuit, we could see a problem if an end-run was done around Plaintiff's counsel, though ordinarily the parties can deal directly. 

    In the first paragraph, the opinion states, "[W]e remand to determine a factual issue where time is not relative, but relevant." That, plus knowing the opinion issued from the Ventura County Court of Appeal, was all the information I needed to know that the opinion was penned by Justice Gilbert, who knows how to turn a phrase.

 

Arbitration, Employment, Confidentiality, Construction, Unconscionability: First District, Division 1: Armendariz Is Good Law, Making Law Firm's Arbitration Agreement Unconscionable

Under Armendariz Framework, Court Finds Parties' Arbitration Agreement Is Unconscionable.

     Constance Ramos, "an experienced litigator and patent practitioner with a doctorate in biophysics" petitioned the Court of Appeal to vacate superior court Judge John Stewart's order granting the motion of her erstwhile employer, Winston & Strawn, to compel arbitration of her employment/FEHA dispute. Ramos v. Superior Court, A153390 (1/1  11/2/18) (Margulies, Humes, Banke). 

     Ramos had filed a complaint against Winston asserting causes of action for sex discrimination, retaliation, violation of California's Equal Pay Act, and wrongful termination. Relying on the arbitration agreement between Ramos and Winston, the superior court had granted Winston's motion to compel arbitration, while severing portions of the arbitration agreement deemed unconscionable, prompting Ramos's petition to the Court of Appeal.

    The Court of Appeal vacated the superior court's order, finding that the arbitration agreement contained four unconscionable terms: "The provisions requiring Ramos to pay half the costs of arbitration, pay her own attorney fees, restricting the ability of the panel of arbitrators to "override" or "substitute its judgment" for that of the partnership, and the confidentiality clause, are unconscionable and significantly inhibit Ramos's ability to pursue her unwaivable statutory claims." The agreement was too flawed to allow for severance -- in effect, the court would have had to rewrite the agreement between the parties to make it enforceable.

    This case has a number of interesting aspects:

• The opinion clearly states that Armendariz is still good law, notwithstanding AT&T Mobility v. Concepcion  and the  FAA -- probably dictum, since Winston failed to show that the  FAA applied in the case.
• The reason the confidentiality provision was substantively unconscionable was because it required all aspects of the arbitration to be secret, hindering the ability of Ramos to develop a case.
• An issue in the case, given Ramos's status as an "Income Partner" was whether she was to be considered as an employee or as a partner, for purposes of applying the law firm's partnership agreement, and the procedural protections of Armendariz. The Court explained that it did not need to decide whether Ramos was an employee or a partner, because the critical points, requiring that the Armendariz protections apply, were that Ramos asserted statutory rights Armendariz held to be unwaivable, and Winston was in a superior bargaining position vis-a-vis Ramos.
• In construing the scope of the arbitration clause, the Court reminds us that "arise under" or "relate to" is broader than "arising from" or "arising out of" an agreement.

    COMMENT. Why not include a provision in an employee/employer arbitration agreement to the effect that, if any provisions are determined by a judge or an arbitrator to be inconsistent with the five minimum requirements for the lawful arbitration of unwaivable statutory rights, as set forth in Armendariz, then the five requirements in Armendariz shall take precedence and govern the application of the agreement. Would this make it easier for employers to enforce arbitration agreements precisely because it would protect employees with Armendariz minimum requirements?

     

Arbitration: Construction Of Agreement; Employment; PAGA; Severability: 2/6 DCA Decides PAGA Waiver Is Unenforceable And PAGA Waiver Was Not Severable From Remainder Of Agreement Due To Differences Between English And Spanish Versions Signed By Employee

Different Handbook Versions Seen As Negligent Or, At Worse, Deceptive.

            This case involved interesting PAGA waiver and severability issues under a very specific factual setting fraught with confusion.

            The situation went this way: Employer, during the employment of plaintiff hourly employee in Ventura, adopted a policy requiring arbitration of legal claims arising from the employment relationship. Plaintiff employee had signed both an English and a Spanish version of employer’s dispute resolution agreement, although there was a major difference between the two. Both handbooks required arbitration of employment disputes and denied an employee’s right to bring an action under the California Private Attorneys General Act. The English version stated that the denial of the right to bring a PAGA action was severable if such denial was found unenforceable, while the Spanish version provided that the PAGA denial was not severable.

            After the plaintiff filed wage/hour and PAGA claims, employer filed a motion to compel arbitration of plaintiff’s claims, relying on the handbook provisions. The trial judge denied the motion to compel, finding that (1) the differences in the two versions of the handbook were “propound” concerning a “very significant subject,” and (2) the arbitration agreement had to be construed against the drafter, namely, the employer.

            The 2/6 DCA affirmed in Juarez v. Wash Depot Holdings, Inc., Case No. B282667 (2d Dist., Div. 6 July 3, 2018) (published) (Gilbert, P.J., author, concurred in by Perren, J. and Tangeman, J.).

            Initially, the appellate court found that the trial judge properly concluded that the PAGA waiver found in the handbook was unenforceable as against public policy, based on Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4^th 348, 383-384 (2014). Beyond that, however, it was no abuse of discretion for the trial judge to decline to sever the PAGA waiver based on the differences between the English and Spanish versions. Finally, after finding that the difference in the severability clauses in the two versions was “negligent; at worse, it [was] deceptive,” the arbitration agreement ambiguity was construed against employer drafting party, with the appellate court concluding “[i]ndeed, Wash Depot may have left the meaning of severability ‘deliberately obscure, intending to decide at a later date what meaning to assert.’” (Slip Op., at p. 8.)

Arbitration: Construction Of Agreement; Delegation; Scope: Plaintiff Uber/Lyft Driver’s Suit Relating To Uber Use Of Fake Lyft Accounts Was Not Within Scope Of Arbitration Agreements With Uber

Appellate Court Accepted Delegation Of Arbitrability Gateway Determination To Arbitrator, But Found Uber’s Arbitrability Assertion Was “Wholly Groundless” Because Dispute Was Patently Beyond The Scope of Parties’ Arbitration Agreement.

            Smythe v. Uber Technologies, Inc., Case No. A149891 (1^st Dist., Div. 3 June 8, 2018) (published) (Siggins, J., concurred in by McGuiness, Acting P.J. (retired justice sitting by assignment) and Pollak, J.) was an interesting case involving whether a controversy raised by a driver for both Uber and Lyft fell within the scope of an arbitration clause between driver and Uber. Both the lower and appellate courts decided it did not.

            Plaintiff driver, on both of himself and a putative class of Lyft drivers, sued Uber for a practice of directing its drivers and others to create/use fake Lyft accounts to request rides such that Lyft drivers were sent on wild good chases to pick up nonexistent passengers—all designed to discourage drivers from driving Lyft and causing Lyft customers to divert their patronage to Uber. In response, Uber moved to compel arbitration and stay the class actions based on two agreements plaintiff signed with Uber having arbitration clauses.   Those provisions required arbitration with respect “to any dispute arising out of or related to this Agreement or termination of the Agreement,” expressly mentioning wage/hour, trade secrets, unfair competition, compensation, expense reimbursement, termination, harassment and claims arising under various trade secret/discrimination/wage hour statutes. The agreements also included a delegation clause specifying that disputes over arbitrability were to be decided by the arbitrator and not a court/judge.

            The lower court found driver’s complaint allegations were beyond the scope of the arbitration agreement and that the delegation provision was unenforceable in the context of driver’s advanced claims.

            The 1/3 DCA agreed.

            It accepted Uber’s premise that the arbitrator decided the gateway arbitrability issue, but decided an important exception applied. Relying upon Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006) which was found consistent with California law on the particular issue, the trial court did not have to defer to the arbitrator where the assertion of arbitrability is “wholly groundless,” but could deny the motion to compel arbitration and the request to stay the action. That exception carried the day in Smythe.

            Like the lower court, the appellate panel determined that driver Smythe brought his action in his capacity as a driver for Lyft, not Uber, and that the complaint allegations fell outside the ambit of the arbitration clause between Smythe and Uber. “Indeed, the same allegations could just as well be pursued by a Lyft driver who does not drive for Uber.” (Slip Op., at p.5.)

Arbitration, Construction of Agreement, International, FAA: Arbitration Agreement Not Signed By Parties Was Unenforceable, Based On Placement Of Comma

This Case Is For Grammar Afficionados; Or, What A Difference A Comma Makes.

       Only and exclusive photo of the Vestris as it went down.  Fred Hansen, photographer, active 1928.  Library of Congress.

           Mr. Yang, a seaman, died when the fishing vessel he worked on sank because of inadequate repairs and an incompetent crew.  There were two defendants:  Majestic Blue Fisheries, LLC, Mr. Yang's employer, and Dongwon Industries Co., Ltd., an affiliated company that provided the repairs and a crew for Majestic's vessel.  The district court denied a motion to compel arbitration with Dongwon, and Dongwon appealed.  Yang v. Dongwon Industries, 15-16881 (9th Cir.  11/30/17) (Nguyen, Fisher, Paez).

        The agreement containing an arbitration clause was signed by Mr. Yang and by Dongwon "on behalf of MAJESTIC BLUE FISHERIES, LLC."  Thus, the parties to the agreement were Mr. Yang and Majestic.  

        The key legal issue turned on the interpretation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention Act), which implements a Convention Treaty, and -- drum roll -- on the placement of a comma.  

        The Convention Act requires that a party seeking to compel arbitration must prove the existence and validity of "an agreement in writing withing the meaning of the Convention" Treaty.  And the Convention Treaty defines an "agreement in writing" to "include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams."  Dwell upon the placement of the comma.  Ponder what "signed by the parties" modifies.

        Under cannons of construction, when a comma is included, "the modifier is generally understood to apply to the entire series."  Thus, here, "signed by the parties" modifies both "an arbitral clause in a contract" and "an arbitration agreement."  Neither of which was "signed by the parties."  Hence, the arbitration provision could not be enforced by Dongwon.

        Nor could Dongwon rely on the Federal Arbitration Act to enforce the arbitration provision, "because the FAA expressly exempts from its scope any 'contracts of employment of seamen.'"

        And finally, the Court rejected as a "doctrinal sleight of hand" Dongwon's argument that the Convention Act requirements could be circumvented "by importing into our Convention Act analysis precedent permitting a 'litigant who is not a party to an arbitration agreement to invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement.'" 

        Affirmed.

            COMMENT:  It is sobering to think that the legal rights of the family of a drowned seaman depended on the placement of a comma.

    

        

Arbitration, Enforceability/Construction Of Agreement: Parties Agreeing To Arbitrate Under Rules Set By Third Party Is Bound By Rule Change That Product Liability Claims Will Not Be Heard

Defendant Seeking To Compel Arbitration Had Argued That Claim To Be Submitted To Arbitration Accrued Before Rule Changed.

        This case presents a somewhat unusual situation, in that the Court of Appeal had to construe an arbitration agreement that was not directly between the parties.  Instead, the parties independently agreed to participate in an industry arbitration program offered by a nonprofit organization, Arbitration Forums, Inc. (AF), which, however, was not a party to the lawsuit.   State Farm General Insurance Company v. Watts Regulator Co., B271236 (2/8  11/30/17) (Grimes, Rubin, Flier).  

        After damage was allegedly caused by a defect in a supply line manufactured by Watts, State Farm paid an insurance claim and filed a subrogation  lawsuit against Watts.  Because Watts and State Farm were part of the industry AF arbitration program, Watts sought to compel arbitration.  The trial court denied the motion, because AF had changed its rules so as to exclude product liability claims from arbitration.  Watts appealed, arguing it had a vested right to arbitrate, because AF had changed its rules after the claim accrued.  Therefore Watts argued it should be able to arbitrate under the agreement and rules in effect with AF before January 1, 2015.

        The Court  of Appeal, however, rejected the retroactivity argument.   The parties agreed to arbitrate under terms and rules set by a third party, AF, the third party informed the parties of the rule change, and the parties continued with the program.

         NOTE:  The Court distinguishes the situation in the case from that in which an employer and an employee enter directly into a dispute resolution agreement, and the employer unilaterally changes the rules after a claim accrues.  In that employment context, where the parties have directly contracted with one another, retroactivity does apply.   Changing the contract unilaterally could be a breach of the covenant of good faith and fair dealing between the parties.

Construction Of Arbitration Agreement: Ninth Circuit Holds That Agreement To Arbitrate Employment-Related Claims Does Not Include Qui Tam Action Against Employer

Court Ducks Ruling On The Enforceability Of Agreement To Arbitrate False Claims Claims, Saying It Is Only Ruling "On A Rather Unremarkable Textual Analysis."

        An interesting issue exists as to whether qui tam claims, brought by a private party (the "relator" or "private attorney general") are arbitrable.  The argument against arbitrability is that the qui tam claim (in our next case, a False Claims Act claim) is really brought on behalf of the government, which is not a signatory to the arbitration agreement.  The argument in favor of enforcing the arbitration agreement is that the claim is brought and prosecuted by a private party that is a party to the arbitration agreement, and that frequently the government has de minimis involvement in pressing a qui tam claim, leaving the hard lifting to the private party.   

         As explained by Judge Fisher in United States Ex Rel. Welch v. MLF, No. 16-16070 (9th Cir. Sept. 11, 2017) (Fisher, Schroeder, Smith), the District Court held that, "because FCA claims belong to the government and neither the United States nor Nevada agreed to arbitrate their claims, sending this dispute to arbitration would improperly bind them to an agreement they never signed."  The Ninth Circuit panel agreed with the result, but reached it through the route of contract interpretation.  

        Basically, the Court held that the arbitration provisions covered claims relating to the employment relationship.  However, the employee's qui tam claim that her employer was making false Medicaid claims did not arise from the employment relationship, and in fact, could have been brought by a non-employee.

       The broadest arbitration provision covered a claim, dispute, or controversy that the employee "may have against [the employer]."  As to this broad clause, the Court explained:

Indeed, though the FCA grants the relator the right to bring a FCA claim on the government's behalf, an interest in the outcome of the lawsuit, and the right to conduct the action when the government declines to intervene, our precedent compels the conclusion that the underlying fraud claims asserted in a FCA case belong to the government and not the relator.

        The Ninth Circuit affirmed the District Court's denial of the employer's motion to compel arbitration on the alternate ground that the employee's FCA claims did not fall within the scope of the arbitration agreement.

        COMMENT:  While the Court claims that it is simply engaging in "rather unremarkable textual analysis", is it also setting forth its substantive interpretation of the FCA, namely, that the qui tam claims permitted under the FCA are not claims of the relator, but rather claims of the government?  Has the Court through the backdoor of "contract interpretation" admitted the District Court's conclusion that the FCA claim is not arbitrable, because the government holds the claim, but unlike the relator, the government never signed the arbitration agreement?  Perhaps the Court's reluctance to take a deep dive into the weeds with a searching discussion of the respective roles played by the relator and the government in pressing the FSA claim in this case explains the Court's choosing the easy way out by following the route of "contract interpretation."

Arbitration/Construction Of Agreement: Order Denying Arbitration Is Affirmed Because Parol Evidence Rule Did Not Prevent Admission Of Oral Agreement Lacking Promise To Arbitrate

Two Separate Agreements, Rather Than One Fully Integrated Agreement, Governed The Relationship Between The Parties.

    Pacific Interventionalists, Inc. v. Pedes Orange County, Inc., G052815 (4/3 12/116/16) (O’Leary, Fybel, Ikola) (unpublished) delves into the application of the parol evidence rule to an agreement containing a promise to arbitrate.  In order to determine if parties intend that a written agreement serve as the exclusive embodiment of their agreement, the court may consider the instrument itself, surrounding circumstances, including prior negotiations, as well as “the collateral agreement itself to determine whether it was intended to be a part of the bargain.” 

     Here, the Court of Appeal concluded that the second agreement, which contained the arbitration provision, existed independently of an earlier oral agreement governing a physician’s compensation.  The written agreement, while fully integrated with respect to the “subject matter contained in it,” did not preclude the earlier oral agreement involving different subject matter.

      Accordingly, the Court of Appeal affirmed the trial court’s order denying arbitration, because the earlier oral contract lacking an arbitration provision continued to exist after the parties executed a written contract containing an arbitration provision.

    DRAFTING TIP:  California’s parol evidence rule is porous, since oral evidence of a collateral agreement can be admitted if a term is ambiguous or to show that the oral agreement is not part of the subject matter of the “integrated” agreement.  Nevertheless, how the written agreement is drafted is still very important.  Here, for example, the Court noted that the written agreement “was clearly limited in scope to its stated ‘subject matter,’” and that “there was no conclusive language stating, for example that, ‘there are no previous understandings or agreements not contained in the writing’ or an express intention to ‘nullify antecedent understandings or agreements.’”  The Court’s point is that an effective integration clause can be drafted more strongly than it was here.