California Mediation and Arbitration

Delegation, Gateway Issues: Ninth Circuit Affirms Judgment Of District Court To Compel Arbitration With Tribe Because Of Effective Delegation Clause

The Opinion Sets Forth The Steps For Analyzing A Delegation Issue.

        The Chicksaw Nation opposed arbitrating a dispute with Caremark, the pharmacy benefit manager for health-insurance plans that cover many tribal members. The Nation argued that it could not be compelled to arbitrate because it had not waived tribal immunity and because a provision of the Indian Health Care Improvement Act, referred to as the “Recovery Act, would be violated by compelled arbitration. However, the question before the district court and the Ninth Circuit was not whether the tribe had waived sovereign immunity and whether there was a violation of the Recovery Act, but whether a delegation clause effectively delegated determination of those issues to an arbitrator or to a court. The district court held that the delegation clause was effective, and the Ninth Circuit agreed. Caremark v. Chicksaw Nation, et al, No. 21-16209 (9th Cir.  8/15/22) (Friedland, Wallace, Boggs).

        "[A] delegation clause," explains Judge Friedland, "is essentially a mini-arbitration agreement, nested within a larger one."

        The utility of this opinion is found in Judge Friedland's description of the principles in a delegation clause analysis: "First, a court must resolve any challenge that an agreement to arbitrate was never formed, even in the presence of a delegation clause. Next, a court must also resolve any challenge directed specifically to the enforceability of the delegation clause before compelling arbitration of any remaining gateway issues of arbitrability. Finally, if the parties did form an agreement to arbitrate containing an enforceable delegation clause, all arguments going to the scope or enforceability of the arbitration provision are for the arbitrator to decide in the first instance."

        COMMENT: Note that delegation to the arbitrator means that the arbitrator now gets to decide whether there has been an effective waiver of tribal immunity and whether there is a violation of the Recovery Act.

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, Delegation, Unconscionability: CCA 4/3 Affirms Order Denying Motion To Compel Arbitration Because Of Flawed Delegation And Unconscionability

Substantive Unconscionability To Trip Over.

        This is a tragic case involving the death of a recently graduated UCLA engineering student in the throes of an acute psychotic episode. He was briefly in a care facility where the precariousness of his condition was recognized. Allegedly he required constant supervision, which was not provided, and he killed himself. When the young man's parents sued,  the facility moved to compel arbitration. The trial court denied the request, and the Court of Appeal affirmed. Brandon Nelson, et al. v. Dual Diagnosis Treatment Center, No. G059565 (4/3  4/19/22) (Goethals, O'Leary, Moore).

        Defendants argued that a broad arbitration clause had delegated the issue of arbitrability to the arbitrator. The court disagreed, finding the language of delegation less than "clear and unmistakable." (Note: because the presumption is that this threshold issue will be decided by a judge, the "clear and unmistakable" standard must be overcome to undo the presumption.)  Furthermore, there was contradictory language in the contract leaving areas of review to a court, and this undermined the argument that delegation of issues to the arbitrator was effective.

        On the issue of procedural unconscionability, the Court of  Appeal concluded, "the adhesive nature of the alleged contract, failing to provide Brandon with the AAA arbitrability terms on which Sovereign now relies while providing contrary terms in the emollment [?] agreement it drafted, and Brandon's impaired mental state all combine to result in a high level of procedural unonscionability." The court noted that during intake, Brandon could not focus and concentrate for more than 10 to 20 seconds at a time. Indeed, the court wondered, "how a 26-year-old man in the throes of an acute psychotic episode could be legally competent but, due to our dispositional analysis, we need not resolve that issue here."

        As to substantive unconscionability, the court observed: "Here, the contract imposed on Brandon not just a damages cap, but required a unilateral release of almost any conceivable claim he could assert against Sovereign."

        Best Line: The best line in the opinion was borrowed from the late Justice David G. Sills, who often had the best line: sometimes "substantive unconscionability was 'so present that it [was] almost impossible to keep from tripping' over it."

 

Arbitration, Internet Commerce: Fourth District, Div. 1 Enforces Arbitration Provision In Sign-In Wrap Contract

Sign-In Wrap Contracts Are Hybrids Of Browserwrap (Hard To Enforce) And Clickwrap (Easier To Enforce) Contracts.

        B.D., a minor, and his father sued the videogame company Blizzard, contending that the game Overwatch encouraged gambling. Specifically, they alleged Overwatch used “real money” to make in-game purchases of “Loot Boxes”—items that offer “randomized chances . . . to obtain desirable or helpful ‘loot’ in the game.” The trial court denied Blizzard's motion to compel arbitration. The Court of Appeal reversed, applying the test  in Sellers that the existence of a contract turns “on whether a reasonably prudent offeree would be on inquiry notice of the terms at issue.”  The Court of Appeal also held that whether the contract made public injunctive relief unavailable, such that  the arbitration provision could not be enforced under the McGill rule, was a gateway issue that had been clearly and unmistakably delegated to the arbitrator to decide. B.D. v. Blizzard Entertainment, Inc., D078506 (4/1  3/29/22) (Haller, Huffman, Irion).

        The decision is very fact specific. It seems to this reader that a little confusion was introduced by a screenshot of a pop-up that required clicking on a "CONTINUE" button to proceed. The visible part of the screenshot refers to a Dispute Resolution provision "below". However, because the screenshot in the opinion is static, one does not see the Dispute Resolution provision "below". And presumably B.D. and his father, looking at the pop-up, would not have seen the entire license agreement unless they scrolled through the pop-up. But the pop-up allows scrolling to the end, in which case one can read the entire Blizzard license, which contains a blue hyperlink to the terms of  the dispute resolution provision. The Court of Appeal believed there was a clear and unmistakable incorporation by reference of  the dispute resolution provisions. The Court also observed that Sellers and other decisions take context into account, and are more likely to enforce a sign-in wrap agreement when the commercial transaction involves a "continuing, forward-looking relationship," as was the case here with a minor who continued to play the game during several updates of  the agreement with Blizzard.

        COMMENTS: The plaintiff was a minor, and it is hard to believe that he was capable of giving consent. However, B.D. acknowledged that a parent or guardian had reviewed and agreed to the license agreement. Of course, it is a central principle that arbitration is  contractual, voluntary, and requires agreement. And that principle requires assuming responsibility for  reading a contract, understanding it, following an incorporation by reference, and reading and understanding the terms of the dispute resolution provision. Like the law of contract in general, the law governing enforceability of arbitration provisions relies on legal fictions. Justices of the Court of Appeal, after proper briefing, read the contract, understand it, follow the incorporation by reference, and read and understand the terms of the dispute resolution provision. Are you a gamer and do you do that? Are you a lawyer and a gamer, and do you do that? Are you a judge and a gamer, and do you do that at home, outside the courtroom?

        On April 5, 2022, we posted about the 9th Circuit decision holding a sign-in wrap agreement did not result in binding arbitration, Berman v. Freedom Financial Network. Because these cases concerning wrap contracts are fact-specific, we can expect to see more of them unless and until commerce uses standardized clauses that pass muster with the courts.

Arbitration, Delegation, Choice Of Law: Sixth District Affirms Denial Of Motion To Compel Arbitration Because There Was No Agreement To Arbitrate

Whether An Arbitration Agreement Exists Was A Gateway Issue For The Court To Decide.

        Agreeing with the trial court that there was no agreement express or implied to arbitrate, the Court of Appeal affirms the trial court's order denying employer's motion to compel arbitration in a putative class action wage and hours case brought by a trucker. Mendoza v. Trans Valley Transport et al., H044372 (6th Dist.  3/1/22) (Greenwood, Elia, Grover). This is a 55-page opinion and I will be brief.

        First, the opinion addressed choice of law: did the California Arbitration Act or the Federal Arbitration Act apply? Answer: the CAA applied, because of the carve-out in the FAA for "workers engaged in foreign or interstate commerce," meaning transportation workers. And Mr. Mendoza fell into the carve-out category because he was a trucker. Therefore, the CAA applied.

        Second, the Court of Appeal refused to enforce a delegation clause delegating the issue of contract formation to an arbitrator. It found the issue to have been forfeited because it was only raised in reply papers. Nevertheless, addressing the merits, the Court concluded that not all gateway issues are delegable, and the issue of whether an agreement to arbitrate existed was one for the courts to decide.

        Third, the Court agreed that the parties had not agreed to arbitrate. The problem was that, while the employee acknowledged receipt of a handbook and 14 other items, and acknowledged that any questions he had were answered, nothing in the mass of documents pointed him to an arbitration clause, and there was no signature line for the arbitration policy that could have been found in the handbook.  Nor would the Court conclude that there was an "implied in fact" contract, simply because the employee received the handbook and continued to work for the company, because nothing drew the employee's attention to the arbitration policy. 

        COMMENT: Employers who want to make an arbitration agreement "stick" should include signature lines, and make it clear and unmistakable in writing to the employee that the employee is agreeing to arbitrate. We note that Mendoza was Spanish speaking and did not read or write English. The employer's director of human resources testified that his custom and  practice was to explain the written material to employees and that a Spanish translation was provided, which, however, Mendoza did not recall. For employees who may not be fluent in English, it is preferable to have clear and unmistakable evidence that they have received a written translation.

Arbitration, Existence Of Agreement, Delegation: Ninth Circuit Holds Formation Of Arbitration Agreement Is To Be Decided By Court, Not Arbitrator

Failure To Communicate . . . 

 

Cool Hand Luke. "What we've got here is failure to communicate."

        Reversing the district court's order to compel arbitration, the Ninth Circuit holds that the issue of formation of  the contract to arbitrate should have been decided by the court, despite delegation of issues of validity and arbitrability to an arbitrator in the employment agreement. Ahlstrom v. DHI Mortgage Company, Ltd., L. P., No. 20-15114 (9th Cir.  12/29/21) (Pregerson, Wardlaw, Berzon).

        The procedural history is somewhat complicated and the facts are screwball. Cutting to the chase, what happened is this: Ahlstrom signed an employment agreement with D.R. Horton containing an arbitration clause and a provision delegating certain gateway isssues to an arbitrator. However, the parties ended up agreeing that  Ahlstrom's actual employer was DHI Morgage Company, not  D.R. Horton. So the purported employment agreement described a relationship that did not exist.

        As Judge Pregerson, sitting by designation, explains, "Put simply, the [Mutual Arbitration Agreement], as drafted, describes and governs a relationship between Ahlstrom and D.R. Horton that does not exist, and thus does not constitute a properly formed agreement to arbitrate."

        COMMENT: What is the difference between arbitrability and validity, on the one  hand, and formation, on the other? Arbitrability and validity issues can be delegated, but formation issues cannot be delegated, even though all might be described as "gateway issues." Formation goes to the very existence of the contract. If a contract does not exist, there is no need to delegate issues of validity and arbitrability. 

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.

 

 

 

 

Arbitration, PAGA, Delegation: Second District, Div. 5 Holds That Question Of Whether Plaintiff Is "Aggrieved Employee" Under PAGA Cannot Be Delegated To Arbitrator

Efforts By Employers To Have An Arbitrator Decide A Dispositive Part Of A PAGA Claim Continue To Founder.

The wreck of the Atlantic. c1873. Currier and Ives. Library of Congress.

        The Court of Appeal holds that the delegation of the question whether plaintiffs are "aggrieved employees" to an arbitrator frustrates the purpose of the Private Attorneys General Act of 2004, and is therefore prohibited under California Law. Robina Contreras et al. v. Superior Court of Los Angeles, Respondent; Zum Services, Inc., Real Party in Interest, B307025 (2/5  3/1/21) (Rubin, Baker, Moor).

        Contreras and Ets-Hokin alleged Zum misclassified them as independent contractors rather than employees, and committed PAGA violations. Zum, however, argued that an arbitration agreement required the parties to arbitrate, and that under applicable JAMS rules, the parties were required to arbitrate the issue of arbitrability. Zum further argued that the issue of arbitrability turned on whether the plaintiffs were "aggrieved employees." If the arbitrator determined plaintiffs were aggrieved employees, then the case could be litigated in court. But if the arbitrator decided the plaintiffs were not "aggrieved employees", because the plaintiffs were independent contractors instead, then there would be no need to litigate the PAGA claim. The trial court agreed with Zum that the issue of whether plaintiffs were "aggrieved parties" was an issue of arbitrability that had been delegated to the arbitrator to decide.. Plaintiffs sought a writ of mandate, and the Court of Appeal issued a peremptory writ directing the trial court to vacate its order granting the motion to compel arbitration, and issue a new order denying the motion.

        California courts have held that employees cannot be forced to arbitrate PAGA claims, unless the state consents, because PAGA claims are like qui tam claims, and the  ultimate holder of the claim is the state, which is not a party to the agreement to arbitrate. Like efforts to split a PAGA claim, Zum's effort to delegate to the arbitrator the narrow issue of whether the plaintiffs were "aggrieved employees" is an effort to delegate a dispositive issue of the entire PAGA claim to an arbitrator. Just as California Courts of  Appeal have not allowed the splitting of PAGA claims, the court in Contreras would not allow the delegation of a narrow issue that was in fact dispositive of the entire PAGA claim to the arbitrator. "We agree with the chorus that in California, a PAGA plaintiff may not be compelled to arbitrate whether he or she is an aggrieved employee."