California Mediation and Arbitration

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.

Arbitration, Employment: Fourth District, Div. 3 Holds Employee's Unfair Competition Law Claim Seeking Private Injunctive Relief Is Arbitrable

Court Of Appeal Distinguishes The Broughton-Cruz Rule.

        Clifford v. Quest Software, Inc., G055858 (4/3  8/14/19) (Aronson, O'Leary, Goethals) addresses, "whether an employee's claim against his employer for unfair competition under Business and Professions Code section 17200 (the UCL) is arbitrable." Assuming the arbitration clause is valid and enforceable, the Court holds that a UCL claim including a request for private injunctive relief is arbitrable. The Court distinguishes the so-called Broughton-Cruz rule, explaining that the "rule distinguishes between public injunctive relief and private injunctive relief, and it only bars arbitration of claims for public injunctive relief."

        COMMENT:  The Court observes that several courts have concluded that the Federal Arbitration Act preempts the Broughton-Cruz restriction on arbitrability. But the Court does not address that issue, since it concludes that even if the rule is not preempted by the FAA, it does not prevent the arbitration of a UCL claim requesting private injunctive relief and restitution. We've posted before about the Broughton-Cruz rule on March 7, 2012, December 18, 2014, and  April 6, 2017.

Arbitration, Agency, Enforceability, Section 1281.2: Nursing Facility Is Unable To Enforce Arbitration Provision Because Children's Claims Were Not Subject To Arbitration

And Prospect Of Inconsistent Results Meant Father's Claims Could Not Be Arbitrated While Children's Claims Were Litigated.

        Nursing homes continue to be a fertile source of cases concerning the enforcement of arbitration clauses. This is not surprising, because a patient, especially an elderly patient, who enters a nursing facility may be infirm or incompetent; when the patient enters the home, i's may not be dotted and t's may not be crossed; and, bad things can happen in nursing homes. The latest published California opinion involving a nursing home and the enforceability of an arbitration provision is Valentine v. Plum Healthcare Group, LLC, et al., C080940 (3rd Dist.  7/25/19) (Raye, Hull, Hoch). Valentine combines certain of the factual elements that seem to lead to enforceability of arbitration issues: an elderly patient who may be confused, arbitration provisions, and a terrible medical outcome.

    In Valentine, a woman was admitted to a nursing home. Her husband handled the paperwork, signing documentation providing for arbitration of his claims as successor and as individual. As a result of alleged neglect, the woman's condition deteriorated, resulting in sepsis, and she died of cardiac arrest.

        The trial court held that the husband did act as an agent to bind his wife, because evidence did not show she had created an agency. However, the husband was bound by arbitration agreements to arbitrate his claims as an individual and as a successor to his wife's claims. But the children, who were not parties to an arbitration agreement, were not bound to arbitrate their individual claims for wrongful death or for negligent infliction of emotional distress. Because arbitration of the husband's claims, which were subject to a valid arbitration clause, could have led to inconsistent results if the children's claims were separately litigated, the trial court acted within its discretion when it denied a petition to arbitrate pursuant to CCP section 1281.2. AFFIRMED.

Florence Nightingale. c1856. Library of Congress.

News: Two Employment Cases Involving Enforceability Of Arbitration Provisions Reach Different Results

Quinn Emanuel And Spin-off LawFirm Selendy and Gay.

    Jack Newsham authored an April 24, 2019 article, appearing in New York Law Journal, and entitled, "Judge Dismisses Suit Against Quinn Emanuel by Partners of Spinoff, Sends to Arbitration." Newsham begins by quoting the judge, who wrote, "It is for the arbitrator in the first instance to [determine] whether the provision at issue is an unenforceable forfeiture-for-competition clause. Any further inquiry on my part is precluded by the broad arbitration provision and the strong public policy compelling its enforcement." And Newsham ends by quoting John Quinn, "The dispute is only about money and will eventually be resolved one way or another for an immaterial amount." [emphasis added].

    Note: A 2017 article reported that JD Journal reported the previous year that of all law firms, "Quinn Emanuel topped the list with $1,077,586 per non-equity partner." [emphasis added]. Evidently "immaterial" is a relative term.

Cantor Fitzgerald.

    In 2018, Lee Stowell, a junk-bond saleswoman at Cantor Fitzgerald, sued her former employer, after being dismissed as "part of a round of layoffs." She alleged that she had been subjected to a pattern of sexual harassment at Cantor Fitzgerald. Katia Porzecanski and Max Abelson reported on April 25, 2019 in Bloomberg News about Lee Stowell's experience as an employee, her lawsuit, and Cantor Fitzgerald's thus far unsuccessful effort to enforce its arbitration agreement. The article is entitled, "Cantor Fitzgerald Doesn't Want This Woman Talking About Her Mug in Court." The title of the article is a reference to Stowell's mug at work, which she found filled with feces one day. Whether or not she gets her day in court -- Cantor Fitzgerald is appealing -- you and I now know about the mug.

Comment.

    Porzecanski and Abelson write about Stowell, "She says she wants to help harassment victims escape forced arbitration." Similarly, in 2018, the California Legislature sought to pass AB 3080, a bill that, had it become law, would have prohibited an applicant for employment or employee from being required to waive his or her right to a judicial forum as a condition of employment or continued employment. The theory behind the bill was that it did not invalidate arbitration agreements, but rather made it illegal to require entry into an arbitration agreement as a condition of employment. However, Gov. Brown, at the end of his term, vetoed the bill, explaining, "Since this bill plainly violates federal law, I cannot sign this measure." In 2019, AB 51, a do-over of efforts to end mandatory arbitration, is currently placed in a legislative suspense file.

 

 

 

    

Arbitration, Employment, Standard Of Review: Employee Who Explicitly Rejects Arbitration Agreement Is Bound By It By Continuing To Work

Justice Segal Dissents.

    An employee can impliedly accept an arbitration agreement by continuing to work for his or her employer. But what happens when the employee explicitly rejects the arbitration agreement yet continues to work, after the employer has said that continuing to work will bind the employee to arbitration? The trial court said that there was no meeting of the minds in Diaz v. Sohnen Enterprises (Los Angeles County Super. Ct. No. BC644622). The Court of Appeal reversed, saying the facts were undisputed, and the employee had impliedly agreed to arbitrate by continuing to work. Diaz v. Sohnen Enterprises, No. B283077 (2/7  4/10/19) (Zelon, author, Feuer, conc., Segal, dsst.).

    Justice Segal, dissenting, took issue with the de novo standard of review applied by the majority. As Justice Segal explained, the trial court found the employer had failed to meet its burden of proving the existence of an implied arbitration contract: "In this situation, we do not review the record to determine whether substantial evidence supports the trial court's finding, but whether the evidence compels the opposite finding as a matter of law." This standard applies when the appeals turns on a failure of proof.

    And Justice Segal did not believe the evidence compelled a finding the parties agreed to arbitrate. The employee explicitly rejected an agreement to arbitrate and stated an intention to continue to work. While the employee's continued employment may be viewed as an implied agreement to arbitrate from the perspective of the employer, the trial judge, and Justice Segal, did not see a clear meeting of the minds. And there was some ambiguous evidence in the record. The arbitration agreement stated it had to be accepted in writing, but the employer's Chief Operating Officer stated she told employees they could accept the agreement even if they did not sign it.

    It will be interesting to see whether, in light of the split opinion, this appeal has a further life.

    

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: Three Unpublished Employment Opinions Side With Employers' Positions

Issues Covered Include Class Action, Unconscionability, Powers Of Arbitrator, Enforcement, Non-Signatories, PAGA, Severability, Costs.

Martinez v. Ready Pac Produce, Inc., B279225 (2/3  11/20/18) (Lavin, Egerton, Dhanidina) (Unpublished): Waiver Of Class Action Meant Employee Could Not Participate In Pending Class Action.

    The Court of Appeal reverses order denying employer Read Pac's motion to compel arbitration. The superior court had found the arbitration agreement to be unconscionable because it included a provision waiving the right to participate in a class action, including a pending class action. Relying on Concepcion, the Court of Appeal stated, "It is well settled that class action waivers in arbitration agreements are generally enforceable." While the employee lost the right to participate in a pending class action, the employee still had the right to pursue her individual claims in arbitration.

O'Brien v. Sajahtera, Inc., B282037 (2/3  11/20/18) (Lavin, Egerton, Dhanidina) (Unpublished): Arbitrator Did Not Exceed Powers.

    The Court of Appeal affirms judgment entered after the superior court denied the plaintiff employee's petition to vacate an arbitration award in favor of defendant. 

    Plaintiff/appellant argued that the arbitrator had violated unwaivable statutory rights -- something that  would in fact be a basis for vacating an arbitrator's award. The Court of Appeal, however, disagreed, explaining plaintiff "improperly equates the violation of unwaivable statutory rights -- which may support vacatur of an arbitration award -- with an unfavorable resolution of a claim relating to unwaivable statutory right -- which does not."

Albarran v. Midwest Roofing Co., Inc., B284151 (2/1  11/19/18) (Bendix, Rothschild, Johnson) (Unpublished): Court Reverses And Orders Arbitration, Except For PAGA Claim.

    The Court of Appeal rejected trial court's finding that arbitration agreement was unconscionable because it lacked mutuality (a) because it was not signed by defendants; and (b) because it only required employees to arbitrate their claims. Generally an agreement can be enforced when signed by the parties against whom enforcement is  sought. As to the claim that the agreement was not mutual, the Court explained that the employee' agreement to arbitrate is read as mutual under existing case law. The Court added two caveats: first, certain of the cost-shifting provisions, which were unconscionable, had to be severed; second, the arbitration agreement did not apply to PAGA claims brought in the state's name.

 

    

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.

Arbitration, Enforceability, Consumers, Existence Of Agreement, Nonsignatories: Assignee Of Credit Card Account Agreement Could Enforce Arbitraiton Provision Against Credit Card Holder

Existence Of Agreement Was Established With Affidavit Of A Person With First-Hand Knowledge Of Procedures.

Early Example Of Credit Card.

        Plaintiff Yenko filed a putative class action lawsuit against Crown Asset Management, LLC, a debt buyer that purchased plaintiff's alleged charged-off credit card debt.  The trial court held that Crown, as the assignee of a Credit Card Account Agreement (CCAA), was entitled to enforce an arbitration provision contained therein.  The First Appellate District, Div. One, agreed.  Yenko v. Crown Asset Management, LLC, A148536 (1/1  8/1/17) (Margulies, Dondero, Banke) (unpublished).

        A tricky part in such cases where an assignee such as Crown, purchases debt and obtains paper, is finding a declarant who can authenticate the key documents.  Here, Crown did so with the affidavit of the manager of litigation support for the company that issued plaintiff her J.C. Penney credit card.  Obviously the affiant did not have first-hand knowledge of the individual transaction, but she did have knowledge of the company's business practices.  And she was able to testify, based on her personal knowledge of operations and records kept in the ordinary course of business with which she was familiar, that the company sent the CCAA to plaintiff; that it was the company's practice to send the CCAA with the credit card; and, that the effective agreement as of the date of the transaction was attached to her credit card.  Plaintiff admitted she had received the credit card and made purchases with it.  The evidence satisfied the trial court, and the Court of Appeal. 

        Plaintiff also argued that the arbitration agreement could not be enforced, because the assignee was only assigned a "receivable" and not an "account", and argument that had no traction with the Court of Appeal.  The Court stated, "We observe courts in many other jurisdictions have determined the assignment of accounts receivable transfers underlying contractual rights, including the right to arbitrate."

    

Enforceability Of Arbitration Clauses – A Spate Of Recent Cases

As Arbitration Clauses Proliferate, So Too Do Motions Concerning Enforcement Of Those Clauses.

    I have not done a statistical study, but it is certainly my perception that in recent years there is more and more law and motion practice concerning the enforceability of arbitration clauses in California courts. First, the clauses have proliferated in contracts. Second, litigators and their clients seem attuned to the fact that it can matter greatly whether the case is tried to a judge, a jury, or an arbitrator.

    Here are some recent examples in support of the proposition:

    Farrar v. Direct Commerce, Inc., A146944 (1/1 3/23/17) (Banke, Humes, Margulies).

    Trial court denied employer's petition to compel arbitration. Reversed and remanded. "While the arbitration provision is one-sided, as it excludes any claims arising from the confidentiality agreement . . . we conclude that offending exception is readily severable and, on this record, should have been severed."

    HPROF, LLC v. Bank of America, N.A., A147748 (1/3 3/21/17) (Pollak, Siggins, Jenkins) (unpublished).

    Trial court's order denying Defendants Bank of America and The Bank of New York Mellon's motion to compel arbitration is affirmed. The Banks waived the right to arbitrate by unreasonably and prejudicially delaying the arbitration. The waiver issue was not clearly delegated by the rules of the AAA to be decided by the arbitrator.

    Karel v. Dicarlo, No. D068443 (4/1 3/17/17) (Benke, Huffman, Haller) (unpublished).

    Trial court's order denying plaintiff Karel's motion to compel arbitration is affirmed. Substantial evidence supported trial court's finding of waiver. Substantial evidence supported findings of express waiver, implied waiver, including delay and prejudice.

    Williams v. Alorica, Inc., No. G052452 (4/3 3/17/17) (Bedsworth, O'Leary, Moore) (unpublished).

    Trial court's order denying employer's petition to compel arbitration is reversed. Trial court ruled employer had not established existence of an agreement to arbitrate. Court of Appeal disagreed: "Williams accepted Alorica's arbitration policy offer by continuing to work past a stated deadline."

    Mohsenin v. Adventure-16, Inc., B262528 (2/2 3/16/17) (Goodman, Ashmann-Gerst, Chavez) (unpublished).

    Trial court's order denying the motion by the employer and similarly aligned employees is reversed as to the employer, and affirmed as to the individual employees. The arbitration agreement between Mohsenin and his employer was not substantively unconscionable: the arbitration agreement was mutual, the fee provision was not substantively unconscionable, and the exclusion of equitable injunctive relief was permissible. Therefore, the employer could compel arbitration. However, the individual employee-appellants who had been sued by Mohsenin were another matter entirely, because they were not third-party beneficiaries of the arbitration agreement. So the employees aligned with the employer could not compel arbitration. .