California Mediation and Arbitration

Second District CCA Reverses Two Trial Court Rulings That Had Denied Requests To Arbitrate

Stephnie Trujillo v. J-M Manufacturing Company, Inc.,  B327111 (2/8  12/2/24) (Stratton, Grimes, Wiley).

        This case involves an employer's obligation to make timely payment to the arbitrator, as required by statute, or face the prospect of losing the right to arbitrate. The facts are unusual.

        Stephnie Trujillo filed a complaint against her former employer, J-M Manufacturing Company (JMM), and four coworkers alleging sexual/gender discrimination, harassment, retaliation, and other claims. The parties entered into a post-dispute arbitration stipulation, which was court-approved. JMM made timely payments to the arbitrator for over a year but failed to pay an invoice within the required 30-day grace period under California Code of Civil Procedure section 1281.98. Despite promptly paying the overdue amount upon notice, Trujillo sought to withdraw from arbitration, citing JMM’s late payment as a material breach under section 1281.98.

        The trial court granted Trujillo’s motion to withdraw. On appeal, JMM argued section 1281.98 did not apply because the arbitration was based on a post-dispute stipulation, not a pre-dispute agreement, and JMM was not the “drafting party” as defined in the statute.

        The Court of Appeal agreed with JMM, holding section 1281.98 applies exclusively to pre-dispute arbitration agreements where the employer or business is the drafting party. Since the arbitration arose from a negotiated post-dispute stipulation primarily drafted by Trujillo, the statute was inapplicable. The appellate court reversed the trial court’s order and directed reinstatement of arbitration proceedings.

Edgar Gonzalez v. Nowhere Beverly Hills LLC et al., B328959 (2/1  12/3/24) (Kline, Rothschild, Bendix).

        In this case, an employee finds himself required by equitable estoppel to arbitrate.

        Edgar Gonzalez, a former employee of Nowhere Santa Monica (one of the 10 Nowhere entities operating Erewhon markets in Los Angeles), filed a lawsuit alleging violations of California labor laws, including unpaid wages and failure to provide required breaks. Gonzalez signed an employment agreement with Nowhere Santa Monica that included an arbitration clause. However, his claims were against all 10 Nowhere entities, which he alleged were joint employers.

        The trial court compelled arbitration against Nowhere Santa Monica but denied the motion for the other entities, ruling there was no evidence to show equitable estoppel applied. Gonzalez later dismissed his claims against Nowhere Santa Monica.

        On appeal, the court reversed the trial court's decision, holding that Gonzalez’s claims against the non-Santa Monica entities were so intertwined with his employment agreement that he could not avoid arbitration. The appellate court found Gonzalez equitably estopped from denying arbitration with the non-signatory entities because his joint-employer theory relied on shared obligations stemming from the employment agreement with Nowhere Santa Monica.

        BONUS. Nowhere Beverly Hills LLC operates the Erewhon organic products markets in Los Angeles. Erewhon is an anadrome derived from nowhere -- it is nowhere spelled backswards (almost, since the wh did not get reversed). Erewhon: Or, Over the Range, is also the title of Samuel Butler's 1872 novel about a satirical utopia.

 

The Second District, Div. 1 Agrees That Ending Forced Arbitration Of Sexual Assault And Sexual Harassment Act Applies To "Mixed Cases"

The Agreement Is With The Second District, Division 3.

        The Ending Forced Arbitration Of Sexual Assault and Sexual Harassment Act (EFAA) amended the Federal Arbitration Act by exempting claims of sexual assault and sexual harassment from forced arbitration. An issue that cases addressing the EFAA have faced is whether in a mixed case, involving claims of sexual assault and harassment as well as other claims, the EFAA exempts just the assault and harassment claims or the entire case from arbitration.

        The California Court of Appeal, Second District, Div. 1, agrees with the Second District, Div. 3, that in mixed cases, the entire case is exempt from arbitration. Yongtong Liu v. Minisco Depot CA, Inc., et al., B338090 (2/1  10/7/24) (Weingart, Rothschild, Kline).

Employment, Civil Rights, FAA: The Second District, Div. 3 Applies The Ending Force Arbitration of Sexual Assault And Sexual Harassment Act

The Case Clarifies How The EFAA Should Apply To Arbitrating Cases Stradling The Effective Date Of The EFAA, And To Mixed Cases Involving Sexual Harassment And Other Claims.

        Jane Doe brought claims of sexual harassment and related violations by her employer, The Huntley Hotel. The employer sought to compel arbitration. The court ruled that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) applies, which makes arbitration agreements unenforceable at the plaintiff's discretion in sexual harassment disputes. The Court of Appeal affirmed the trial court's order denying a motion to compel arbitration. Jane Doe v. Second Street Corp., B330281 (2/3  9/30/24) (Edmon, J.). Since Doe's harassment claims included conduct both before and after the EFAA’s effective date (March 3, 2022), the arbitration clause is invalid for her entire case, not just the sexual harassment claims. Additionally, the court determined that the arbitration provision in the employee handbook cannot be enforced for any of Doe's claims, as they are part of the same case. 

        COMMENT:  The case applies the EFAA in a significant and evolving area of employment law, regarding arbitration agreements in cases involving sexual harassment. The decision clarifies key legal points: 1. Application of the EFAA: The court interpreted how the EFAA applies to cases involving ongoing sexual harassment that straddles the act’s effective date (March 3, 2022), applying the EFAA to preclude arbitration of a case straddling the effective date.  Arbitration in Mixed Claims: The ruling emphasized that under the EFAA, arbitration agreements are unenforceable not just for the sexual harassment claims but for the entire case if any part relates to sexual harassment. This broad interpretation is significant because it would prevent employers from compelling arbitration in cases that contain a mix of claims (sexual harassment alongside other employment violations), expanding protections for plaintiffs in similar cases.

Deadlines, Preemption: First Dist. Div. 1 Agrees That 30-Day Deadline To Pay Arbitration Fees Is Not Preempted

The California Courts Are Divided.

        One more case lines up with those courts holding the 30-day deadline requirement in consumer and employment cases, set by Cal. Code of Civ. Proc. § 1281.98, for the drafting party to pay arbitration fees, is not preempted by the Federal Arbitration Act. Keeton v. Tesla, Inc., A166690 (1/1  6/26/24) (Wilson, Humes, Siggins).

        COMMENT: We agree that Keeton v. Tesla, Inc. is in accord with most California cases that have addressed the subject. See our sidebar category "Deadlines". However, the law is unsettled. On 7/3/24, we blogged about Hernandez v. Sohnen Enterprises, Inc., which holds that when the agreement is governed by the Federal Arbitration Act, § 1281.98 is preempted. Justice Wiley in a dissent has staked the same preemption position in Hohenshelt v. Superior Court. See my 4/11/24 blog post.

        Eventually this split of opinion will need to be decided by a higher court. That's my opinion.

Employment: Employee Who Refused To Accept Arbitration Agreement As Condition Of Employment And Promptly Told Employer So Was Not Bound To Arbitrate Despite Continuing Employment

Is An Employee Who Continues To Be Employed After Being Informed That Arbitration Is A Condition Of Continued Employment Bound By The Arbitration Agreement?

        “California law in this area is settled: when an employee continues his or her employment after notification that an agreement to arbitration is a condition of continued employment, that employee has impliedly consented to the arbitration agreement.” Diaz v. Sohnen, 34 Cal.App.5th 126, 130 (2019). But Diaz did not govern the outcome in Winston Mar v. Lawrence Perkins, B327665 (2/7  5/22/24) (Feuer, Martinez; Segal separately conc.). 

        Relying on Diaz, defendant argued that after it informed Mar that an arbitration agreement was a condition of his further employment, and he continued to be employed, he was required to arbitrate. The trial court disagreed because Mar stated he refused to sign the arbitration agreement and defendant could terminate his employment if it objected. Therefore, there was no agreement. Agreeing that Mar promptly refused to sign the employee handbook and be bound by arbitration, and that he informed the employer that he could be fired, the Court of Appeal affirmed the trial court's denial of defendant's motion to compel arbitration.

        Justice Feuer sought to distinguish Diaz on the grounds that Mar acted more quickly than Diaz, and Mar explicitly told the employer that he could be fired if the employer didn't like his decision to refuse to be bound by arbitration.

        Concurring separately, Justice Segal believed that Mar's case showed Diaz was wrongfully decided because it could not be effectively distinguished from Mar's case. Diaz, an unsophisticated party, took time to consult an attorney, but also acted promptly. And there was no need to remind the employer that it could fire the employee, because an employer can fire at-will employees for cause and without cause.

Authentication: Failure To Authenticate Electronic Signing Means Arbitration Agreement Is Unenforceable

Shifting Burdens Of Proof.

        Isabel Garcia sued her employer and its sales manager, alleging sexual harassment. Defendants petitioned to compel arbitration, and carried their initial burden by producing an arbitration agreement. But Garcia pushed back, claiming she had not signed, putting the employer to the test of authenticating her electronic signature. The employer was not able to authenticate to the satisfaction of the trial judge or the Court of Appeal. Garcia v. Stoneledge Furniture LLC et al., A166785 (1/3  5/17/24) (Petrou, Fujisaki, Rodriguez).

        The employer relied on a declaration of a person who did not have personal knowledge that Garcia signed. Furthermore, the employer did not explain its security system to establish that only Garcia could have signed the document. Also, the employer used Taleo, described as a third-party electronic workforce management platform. However, "the arbitration agreement lacked the appearance of an electronically signed document as it contained no date, time, or IP address, nor any indication it was created within the Taleo system."

        The order denying defendants' petition to compel arbitration was affirmed.

        COMMENT: In the age of the internet, there are still some advantages to ink signatures on paper with a witness signature. Authenticating electronic signatures can be tricky. Here, it might have helped to have a date, time, or IP address. One wants a verification system that identifies the signer and the authenticity of the signature, and there are electronic tools such as DocuSign that can be effective. Indeed, perhaps Taleo would have provided the necessary authentication, but the opinion states that there was "no indication [the document] was created within the Taleo system."

Waiver: Waiting Too Long To Move To Compel Arbitration While Propounding Discovery Leads To Waiver

Lawsuit Was Filed In March 2015 And Motion To Compel Arbitration Was Filed In March 2023.

        Plaintiff Joseph Semprini sued his employer Wedbush in March 2015, alleging 11 causes of action unique to him, and 7 putative class action claims for wage and hour violations. He added a representative PAGA claim in April 2015. For several years, the class and PAGA claims were litigated, the parties having stipulated that the 11 personal causes of action would be arbitrated. In 2022, however, two events occurred to give the employer an argument that the litigated claims should be arbitrated, notwithstanding the earlier stipulation.

        First, Viking River Cruises was decided in June 2022, holding that an employer could enforce an agreement to arbitrate PAGA claims. Second, in the wake of Viking River Cruises, the employer was able to get a number of employees to execute arbitration agreements. Perhaps this could have opened up an opportunity to compel arbitration of the remaining claims. However, the employer did not move to compel until March 2023, and meanwhile conducted discovery. If the employer might have resuscitated a right to arbitrate, that right was waived and died because of the employer's delay and continuing litigation conduct.

        The order denying Wedbush's motion to compel arbitration was affirmed. Semprini v. Wedbush Securities, Inc., G062662 (4/3  4/18/24) (Goethals, Sanchez, Delaney).

        This is an example of the "you snooze you lose" adage.

Employment, Existence Of Arbitration Agreement: Employer Failed To Show Arbitration Agreement Existed During Second Employment Stint

Termination Of Employment Stint #1 Terminated Arbitration Agreement.

        Plaintiff Jasmin Vazquez sued SaniSure, Inc. for Labor Code violations. SaniSure moved to compel arbitration based on the existence of a broad arbitration clause in Vazquez's employment agreement. SaniSure failed in the trial court and in the Court of Appeal. Vazquez v. SaniSure, Inc. (2/6  4/3/24) (Baltodano, Yegan, Cody).

        SaniSure was unsuccessful because the arbitration clause it relied upon only existed in a first stint of Vazquez's employment from July 2019 to May 2021. However, she terminated her employment, and the arbitration agreement terminated. The employer could not show that an agreement to arbitrate existed during her second stint of employment, and the court was not going to imply the existence of the agreement from the first employment stint.

        COMMENT: The employer could have avoided its predicament by the execution of another arbitration agreement during employment stint #2. 

Arbitration, Deadlines: Once Again, Requirement In Employment And Consumer Arbitration To Pay Fees In 30 Days Is Strictly Interpreted

California Courts Have Posted Plenty Of Warnings About The 30-Day Deadline To Pay The Arbitration Fees Or Lose The Right To Arbitrate.

        And we have posted plenty of times about those warnings about this particular deadline. The latest warning that the 30-day deadline found in Cal. Code of Civ. Proc. § 1281.97 will be strictly interpreted is to be found in an employment law case, Suarez v. Superior Court of San Diego; Real Party in Interest, Rudolph & Sletten, Inc., D082429 (4/2  1/24/24) (Dato, O'Rourke, Do).

        JAMS issued an e-mail invoice on December 2, 2022 marked "due upon receipt." It was undisputed that the employer did not pay its share before January 4, 2023, more than 30 days after the amount was due. The employer argued that its time to pay was extended for two reasons. First, January 1 was a Sunday and January 2 was a holiday. Second, the employer argued it should get two more days on top of the holiday, based on § 1010.6, pertaining to electronic filing of court documents. However, neither argument had traction, because the 30-day deadline provision for paying arbitration fees does not relate to motions or to documents filed with the court.

        COMMENT: It is surprising that parties miss the strict deadline by only a few days in reported cases. The lesson here, for employers and providers of consumer products who want to arbitrate, is do not wait till the last moment to pay fees.

        At the end of the opinion, the court lets drop, "[W]aiver and material breach do not automatically remove a matter from arbitration. Instead, the employee is given the option of resolving the stagnant dispute in an action before the court." Evidently the Court of Appeal is concerned that the strict deadline, if interpreted to impose an extra burden on arbitration, could result in an FAA preemption argument.

 

 

Prompt Payment: Along With Other Courts, 1st District Div. 3 Strictly Interprets Statutory Prompt Payment Requirement For Employer Wanting To Arbitrate

The Payment Must Be Received By The Arbitrator Within 30 Days Of When It Was Due.

        September 1, 20221 was the “due date” for the employer in a sexual harassment dispute to pay arbitration fees and costs to the arbitrator, making payment due October 3. Cal. Code of Civ. Proc., § 1281.98(a)(1). The employer mailed the check on September 30, and it was received on October 5, two days after the 30 day grace period expired. That was good enough for the superior order, which issued an order compelling arbitration, but not good enough for the Court of Appeal. "We do not find that the proverbial check in the mail constitutes payment and agree with petitioner that real parties’ payment, received more than 30 days after the due date established by the arbitrator, was untimely." Jane Doe v. The Superior Court of the City and County of San Francisco, Respondent, and Na Hoku, Inc., et al, Real Parties in Interest, A167105 (1/3  9/8/23) (Petrou, Tucker, Fujisaki).

        What can one say? Almost doesn't count? Close but no cigar? How about: close only counts in horseshoes.

        We have now posted a number of times that California courts have been real sticklers about strictly interpreting the 30 day requirement in § 1281.98. See posts of  7/10/23,  8/1/22, 12/11/22, 1/2/23, 3/21/23. Employers who do not comply with the requirement risk ending up outside arbitration and inside court.