California Mediation and Arbitration

Preemption, Choice Of Law: Effort To Compel Arbitration With CAL Choice Of Law Provision Is Preempted

Can An Employer Avoid The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 With A California Choice Of Law Provision?

        No. The EFAA preempts California law, rendering the arbitration agreement unenforceable in cases of sexual harassment disputes. That's the holding of  Casey v. Sup. Ct.,  D.R. Horton, Inc., et al (Real Parties In Interest),  A170650 (1/1  2/3/2025) (Humes, Banke, Langhorne Wilson).

        Why? "The EFAA’s purpose is plainly obstructed by an attempt to use state law to force a person who is alleging sexual harassment to arbitrate their dispute."

Deadlines, FAA: First Dist. Div. 1 Sides With Courts Holding FAA Does Not Preempt Prompt Payment Of Arbitrator CA Statute

The Court Distinguishes The Case From Hernandez v. Sohnen Enterprises, Inc.

        Jenny-Ashley Colon-Perez sued her former employer, Security Industry Specialists, Inc. (SIS), for various employment-related claims. After agreeing to arbitrate, SIS failed to pay arbitration fees within the 30-day deadline required by California Code of Civil Procedure section 1281.98. Colon-Perez chose to withdraw from arbitration, and the trial court ruled that SIS had materially breached the arbitration agreement. SIS attempted to vacate the order, citing the Federal Arbitration Act (FAA) and other arguments, but the trial court denied the motion.

        The court held that section 1281.98 applied and was not preempted by the FAA. The failure to pay the arbitration fees within the statutory period constituted a material breach, allowing Colon-Perez to proceed with her claims in court. Colon-Perez v. Security Industry Specialists, Inc., A168297 (1/1  1/29/2025) (Banke, Humes, Langhorne Wilson).

        Justice Kathleen Banke explained: "We recently addressed whether the FAA preempts section 1281.98 in Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th 26, 32 (Keeton), review granted September 11, 2024, S286860. We concluded it does not, as have all but one of the Courts of Appeal that have considered the issue. We are not persuaded to depart from our conclusions in Keeton."

        The Court of Appeal also addressed whether the denial of arbitration violated the Contract Clause of the Constitution. It concluded that it did not violate the clause, because insisting on prompt payment of the arbitrator did not substantially interfere with arbitration.

        Also of note, the Court distinguished Colon-Perez from Hernandez v. Sohnen Enterprises, Inc., which holds that when the agreement is governed by the Federal Arbitration Act, § 1281.98 is preempted. Unlike the Hernandez arbitration provisions, the Colon-Perez provisions mentioned California state law and did not only refer to procedures in the FAA. 

        COMMENT: This last argument distinguishing Hernandez seems a bit sketchy. The arbitration clause in Colon-Perez provided: "Any proceeding pursuant to this Employment Dispute Arbitration Procedure is deemed to be an arbitration proceeding subject to the Federal Arbitration Act, 9 U.S.C. §§ 1–16, if applicable, to the exclusion of any state law inconsistent therewith; or, if the FAA is not applicable, to the law of the state of venue . . ." 

        I wrote an article for the Daily Journal published April 10, 2024, entitled: California: Friend or Foe of Arbitration?, addressing the preemption issue presented by the statutory deadline for paying attorney fees to the arbitrator. The article is available online here.

Settlement, Costs, Fees: First District, Div. 3 Emphasizes Primacy Of Employee-Protective Statutes Over General Cost-Shifting Provisions

Labor Code Sections Prohibiting Cost-Shifting To Employees Prevailed Over Section 998 Cost-Shifting.

        The next case does not involve ADR. We blog about it because it does involve settlement offers and cost-shifting.

        Employees sued California Collision LLC (CCL) and its owner for labor law violations. The case involved several settlement offers under California Code of Civil Procedure section 998. Jorge Chavez, et al. v. California Collision, LLC et al., A167658 (1/3  12/10/24) (Petrou, Fujisaki, Rodriguez).

        The appellate court reversed the trial court’s award of post-offer costs to CCL. It held that Labor Code sections 1194 and 218.5, which prohibit cost-shifting to employees absent bad faith, override section 998 in wage claims.

        The court found no abuse of discretion in the trial court’s award of significantly reduced attorney fees to the plaintiffs. It upheld the trial court’s reasoning that the attorney's submitted billing records were inadequately segregated by plaintiff and claim, and his hourly rate was appropriately set at $200 based on the evidence.

 

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.