California Mediation and Arbitration

Arbitration, Estoppel, Waiver: Failure To Timely Exercise Right To Baseball Arbitration Is “The Whole Ball Game”

 

Court Of Appeal Rejects Waiver, Estoppel And Forfeiture Arguments Made By Lessor Who Failed To Timely Exercise Right To “Baseball Arbitration” In Rental Dispute.

     Miss Myrtle Rowe holding a baseball bat.  March 14, 2010.  Library of Congress.

     “Baseball arbitration” takes its name from salary arbitration in Major League Baseball, in which the arbitrator must choose which of two positions is the more reasonable position.  Baseball arbitration is sometimes employed in lease disputes, as it was in Zawtocki v. Black Angus Steakhouses, LLC, No. E062969 (4/2 8/11/16) (Ramirez, Hollenhorst, Miller) (unpublished).

      Zawtocki leased to Black Angus Steakhouse.  The lessee exercised an offer to extend the lease, the lessor offered to do so for $220,000/year, and the lessee countered with $140,000.

      However, instead of timely exercising a right to require baseball arbitration under the lease, the lessor went sideways by failing to make a timely demand.  As a consequence, the trial court denied the lessor’s petition to compel arbitration.  The lessor appealed, contending, among other things, that he was entitled to relief from forfeiture, and that the forfeiture should be excused by waiver or estoppel.

      The Court of Appeal rejected waiver, estoppel, and forfeiture arguments, analogizing the failure to timely exercise the right to arbitrate to a failure to timely exercise an option – something that is not a forfeiture.  Affirmed.

       Presumably the lessor is now stuck with the $140,000 rental amount.  Or, as the Court of Appeal put it:  “The arbitration petition is, so to speak, the whole ball game.”

 

Arbitration, Nonsignatories, Equitable Estoppel and Third-Party Beneficiaries: Temporary Staffing Agency’s Arbitration Clause With Workers Did Not Allow Client With Whom Workers Were Placed To Compel Arbitration

 

Third-Party Non-Signatory Owed Duties Under Labor Code To Plaintiff, Independent Of Plaintiff’s Contract.

     Zepeda v. Paramount Citrus Packing Company LLC, F071593 (5th Dist. 7/14/16) (Pena, Levy, Smith) (unpublished) distinguishes two situations:  (1) a plaintiff whose relationship with a third-party non-signatory merely presumes the existence of a contract; and (2) a plaintiff whose rights against a third-party non-signatory rely on the existence of a contract.  In the first situation – which is the situation in Zepeda – the non-signatory might not be able to use the arbitration provision in the contract to compel arbitration.  In the second situation, which is not the situation in Zepeda, the plaintiff relies on the contract to sue the third party, and the third party can take advantage of the arbitration provision to compel arbitration.

     Ranstad, in the business of providing temporary workers to its client companies, provided workers, including Zepeda, to Paramount, a grower and processor of citrus crops.  Ranstad had an arbitration clause with Zepeda, and Paramount unsuccessfully invoked the arbitration clause after Zepeda sued alleging class-wide labor violations resulting from uncompensated time for donning and doffing, and interrupted meal and rest break periods.  Paramount argued that Zepeda was equitably estopped to deny the right to arbitrate, and alternatively, that Paramount was the third-party beneficiary of the arbitration agreement.

      Paramount relied on a federal district court case, Lucas v. Hertz Corp., 875 F.Supp.2d 991 (N.D. Cal. 2012), for the proposition that, because the relationship with Paramount presumed the existence of the contract with Zepeda, Paramount could rely on the arbitration clause in the Rantstad/Zepeda contract.  However, the Court of Appeal found the district court case to be non-persuasive and non-binding authority. 

      Instead, the Court of Appeal found Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013) to be better reasoned.  Kramer held that equitable estoppel was inapplicable where the plaintiff’s claims against the third party non-signatory are not founded on any provision in the plaintiff’s contract, but instead arise from independent duties owed by the third party to the plaintiff.  In Zepeda, the independent duties owed by the third party Paramount were owed under the Labor Code, not under the contract with Ranstad.

      The Court of Appeal also concluded that a third-party beneficiary argument was not supported by the contractual language.

      Affirmed.

      COMMENT:  Too bad the case is unpublished.  Cases involving non-signatory third parties seeking to compel arbitration arise with some frequency, and it would be helpful to have more guidance in this area.

Arbitration, Employment: Second Dist., Div. 7 Reverses Judgment Denying Petition To Compel Arbitration And First Dist., Div. 4, Affirms Order Denying Employer’s Petition To Compel Arbitration

     Notwithstanding the trend in SCOTUS to uphold arbitration agreements, including waiver of class arbitration, our next two unpublished cases show that the California courts look closely at arbitration agreements, sometimes enforcing and sometimes not enforcing arbitration agreements.  On the same day, one California Court of Appeal reversed an order denying an employer’s effort to compel arbitration, while another California Court of Appeal affirmed an order denying a motion to compel. 

Second District, Division 7, Reverses Judgment Denying Arbitration.

     Finding the existence of an arbitration agreement and the lack of any substantive unconscionability, the Court of Appeal reversed the trial court’s denial of a petition to arbitrate.  Urchasko v. Compass Airlines, LLC, B264672 (2/7 6/27/16) (Perluss, Segal, Blumenfeld) (unpublished). 

      The Court concluded the trial courted erred in ruling that the employee failed to agree to arbitrate.  The trial court had based its ruling on lack of evidence that the employee checked a box on his electronic application; however, the Court of Appeal pointed out that there was no dispute the employee signed the printed application.

       While there was some procedural unconscionability in a take-it-or-leave it contract, the Court concluded that the absence of any substantive unconscionability meant the arbitration agreement was enforceable.

First District, Division 4, Affirms Order Denying Employer’s Petition To Compel.

        Collateral estoppel was the issue in Williams v. U.S. Bancorp Investments, Inc., A141199 (1/4 6/27/16) (Rivera, Reardon, Streeter) (unpublished):  did a ruling in Burakoff et al. v. U.S. Bancrop, (L.A. Super. Ct., 2008), collaterally estop plaintiff/respondent Williams from bringing claims as a class action and bind him to an agreement to arbitrate individual disputes? 

     Williams, a financial consultant, filed a class action complaint against USBI in 2010 in the present case.  The defendant argued that Williams belonged to a class that was certified, then decertified, in Burakoff, that because he was bound by collateral estoppel as a member of the decertified class, he could not file a class action, and that under a rule of the Financial Industry Regulatory Authority’s Code of Arbitration Procedure for Industry Disputes (FINRA rules), he would have to arbitrate.

      No one disputed that Williams was a party to an arbitration provision, or that the FINRA rules provided that the arbitration provision could not be enforced against a class member.  Therefore, under the FINRA rules, if Williams could not sue as a member of a class, because he was estopped by the class decertification in Burakoff, then Williams could not avoid having to arbitrate his individual claims.

     California law provides that denial of class certification cannot establish collateral estoppel against unnamed putative class members on any issue because unnamed putative class members are not parties to the prior proceeding or represented in it.  Bridgeford v. Pacific Health Corp., 202 Cal.App.4th 1034, 1044 (2012).  Here, the situation was not so clear, because in the prior proceeding, the putative class members had first been certified, and thus arguably the interests of the absent class members were, at least for a time, represented. 

     The Court punted, and did not decide whether absent class members are bound by an earlier proceeding in which a class is first certified, then decertified.  Instead, the Court simply ruled that the record was insufficient to compel a conclusion that the class to which Williams belonged was the same as the decertified class in Burakoff.  Therefore, collateral estoppel did not apply.  

     This is probably not the end of the matter, because “the classes here and in Burakoff might ultimately be found to be indistinguishable.”  Just not yet.

     The order appealed from, denying a motion to compel arbitration and to dismiss the class complaint, was affirmed.

Arbitration, Estoppel: Fifth District, Division Two Holds That Law Firm Is Judicially Estopped From Seeking Default Judgments, Because It Included Cause Of Action Seeking To Compel Arbitration

Presiding Justice Turner Respectfully Dissents.

     The Fifth Circuit, Division Two, holds that because a law firm’s cause of action to compel arbitration with its client “admitted the existence of a binding agreement to arbitrate the fee dispute, the trial court’s jurisdiction over the merits of plaintiff’s claims was initially limited to a determination of the gateway issue of arbitrability.”  Cox, Castle & Nicholson, LP v. Wan et al., B262017 (2/5 6/23/16) ((Kumar [judge of the superior court], author, Baker, concurring); Turner (dissenting)) (unpublished).  Alternatively, plaintiff was judicially estopped from seeking default judgments because it “admitted in its complaint that the fee dispute was subject to binding arbitration and defendants relied to their detriment on that admission.”  As a result, plaintiff was not allowed to pursue defaults, and an order denying defendants’ motion to vacate and the default judgments were reversed.

     This case has a somewhat unusual procedural history.  It was originally argued on October 8, 2015, when Justice Richard Mosk was a member of the panel.   Because Justice Mosk was unable to further participate, the Court vacated the submission, and appointed Judge Kumar to the panel.  Letter briefs were submitted on the issue of judicial estoppel on March 22 and 25, 2016.  Justice Mosk died on April 17, 2016.  On March 30, 2016, the case was re-argued, and on June 23, 2016, the unpublished opinion was filed.

     The majority conclusion that the cause of action to compel arbitration constituted “a binding agreement to arbitrate,” and stripped the Court of jurisdiction, may not be intuitively obvious, given that the cause of action, unlike a free-standing petition to arbitrate, was not verified, did not include evidence, and was denied in an answer, which, however, was only lodged and not filed, because a default had occurred.  Furthermore, in other cases, the existence of an arbitration agreement has not resulted in a loss of jurisdiction.  At least, the majority conclusion was not obvious to Justice Turner, who penned a pithy dissent.

      Presiding Justice Turner’s dissent made several points:  first, that existence of an arbitration agreement does not preclude a party from pursuing claims (citing Brock v. Kaiser Foundation Hospitals, 10 Cal.App.4th 1790, 1795 (1992) and cases in accord); second, that the cause of action did not accrue, because plaintiff failed to allege that defendants refused to arbitrate – a necessary element; third, that the record was inadequate, because there was no transcript; fourth, that the defendants were not artless rubes, as one was a certified public accountant, and the other a licensed realtor; and finally, that there were questions of credibility, leading to Justice Turner’s belief that the trial court did not abuse its discretion in denying the motion to set aside the default.

      Though the case is unpublished, today’s post in California Attorney’s Fees rightly observes:  “This decision, if correct, counsels that plaintiffs carefully think about whether they should include an arbitration claim in a complaint; otherwise, the trial court may not be able to proceed on the merits.”  So be aware of another trap for the unwary.

      Given that there is a majority opinion and a dissent, we wonder whether the case will be appealed.  As far as the parties themselves are concerned, this may be a tempest in a teacup, for if the lawsuit does not proceed further in the trial court, the parties could end up in arbitration.  And there is always the option to settle . . .

    

Arbitration, Nonsignatories, Equitable Estoppel: Nonsignatory Defendant Is Able To Compel Nonsignatory Plaintiff Because All The Claims Are “Inextricably Intertwined”

 

Plaintiffs’ Pleading Allegations Didn’t Help Their Argument.

      The somewhat anomalous circumstances in this case allowed a nonsignatory defendant to arbitrate its claims with a nonsignatory plaintiff.  O’Donnell Strategic Industrial REIT v. Super. Ct., G049498 (4/3 Jan. 28, 2015) (Thompson, Bedsworth, Moore) (unpublished).

       In a dispute concerning the setting up and operation of a real estate investment trust, plaintiffs sued defendants for breach of contract, fraud, breach of fiduciary duty, and declaratory relief.  Defendants/respondents successfully sought to compel arbitration of the dispute under a broad clause in an Advisor Operating Agreement providing for arbitration of, “[a]ny dispute, controversy, or claim arising out of or in connection with this Agreement . . . “  Furthermore, the Advisor Operating Agreement, together with a related Dealer Management Agreement, had to be read as a single unified contract.  As a result of the broadly construed arbitration provision and the unified contract, the trial court and Court of Appeal found all claims were covered by the arbitration clause.

      The greater problem was that not all the parties were signatories to the arbitration agreement, and in fact, not all the parties existed at the time the arbitration agreement was signed.  The Court dealt with this problem by noting – based on plaintiffs’ pleadings -- “Plaintiffs also acknowledge the causes of action against each of the defendants are substantially intertwined with those against the others.”  Also, all the parties were related to and affiliated with each other.  The Court reasoned, “nonsigning parties could be compelled to arbitrate if the claims were sufficiently dependent on each other.”  Petition denied.

      If all the parties, except for one, could be compelled to arbitrate, proceedings could have gotten messy, so perhaps pragmatic considerations also played a part.

Arbitration/Nonsignatories/Equitable Estoppel: Dentist Who Voluntarily Arbitrated But Did Not Sign Arbitration Agreement Was Not Equitably Estopped From Refusing To Arbitrate Again

In Which The Trial Court Sums It Up Neatly For The Court Of Appeal.

     In Chan v. Delta Dental of California, A138402 (1st Dist. Div. 2 July 10, 2014) (Kline, Richman, Brick) (unpublished), a dental service provider sought to enforce an unsigned arbitration agreement based on an arbitration agreement that a dentist had not signed.  The trial court summarized its reasons for denying defendant Delta’s petition to compel arbitration of a contract dispute between it and plaintiff, Susan Chan, D.D.S. (Dr. Chan).  Complimenting the trial judge, the Court of Appeal said, “We could not have summed up the proper result in this case better than that.”  And so all we need to do now is quote the trial court:

“[Delta] has admitted that there is no signed, written agreement and is seeking to compel arbitration on an estoppel theory.  Even if that were possible as a basis to compel arbitration, I find that [Delta] has not shown that Dr. Chan was estopped.  The fact that Dr. Chan voluntarily availed herself of the right to mediation or arbitration does not mean there was a binding agreement to arbitrate where under all the evidence that’s before me in this case there’s no evidence she ever signed the 2006 contract.”

Affirmed.

Above:  Pulling monkey teeth.  5/29/24.  Library of Congress.

Arbitration/Nonsignatories: In Case Of First Impression, First District, Div. 5 Holds That An Arbitration Clause In Trust Document Does Not Bind Trust Beneficiary

Court Would Not Compel Arbitration Here Where The Beneficiary Had Not Sought The Benefits Of The Trust Instrument, But Rather Challenged Its Validity

      Pamela McArthur v. Kristi McArthur, A137133 (1st Dist. Div. 5 March 11, 2014) (Bruiniers, Jones, Needham) is a case arising out of an inharmonious “sister act.”

     The scenario is not uncommon.  In 2001, mom McArthur creates trust for her three daughters, making them equal beneficiaries.  In 2011, mom amends trust in a way that favors daughter Kristi over daughter Pamela.  In 2012, mom dies.The trust, as amended in 2011, contains a “Christian Dispute Resolution” provision that did not exist in the 2001 trust.  The provision, which requires mediation and if necessary arbitration, states in part:

“The Trustor and Co-Trustees [(Frances and Kristi)] are Christians and believe that the Bible commands them to make every effort to live at peace and to resolve disputes with each other in private or within the Christian church (see Matthew 18:15-20; 1 Corinthians 6:1-8). Therefore, the Trustor and Co-Trustees agree that any claim or dispute arising from or related to the Trust as amended shall be settled by biblically based mediation and, if necessary, legally binding arbitration before the Institute for Christian Conciliation^TM, a division of Peacemaker® Ministries, in accordance with its Rules of Procedure for Christian Conciliation (the ‘Rules’ found at www.peacemaker.net).”

     Alas, a more apt biblical citation for the case could be Gospel of John, chapter 11, verse 35, the shortest verse in the King James Version:  Jesus wept.  For after mom died, sister Pamela sued Kristi, alleging financial elder abuse and undue influence on mom, and challenging the validity of the 2011 trust amendment.  Sister Kristi moved to compel arbitration of Pamela’s claims.  After the trial court denied sister Kristi’s motion, because Pamela was not a signatory, Kristi appealed.

      The Court of Appeal affirmed the order denying Kristi’s motion to compel arbitration, because Pamela was neither a signatory to the arbitration clause, nor did she seek benefits under the 2011 trust instrument.  Instead, Pamela sought benefits of the 2001 trust, which trust did not contain an arbitration clause.  If Pamela had sought benefits under the 2011 trust, this would be a different case.

      The Court of Appeal recognized that in some situations, there will be a “statutory scheme that justified flexibility in binding nonsignatories to arbitration clauses”, leaving it up to the Legislature to devise such rules if it wants to. 

       

Arbitration/Nonsignatories/Equitable Estoppel/Agency/Third Party Beneficiaries: Ninth Circuit Holds Parties Remain Bound By Agreements They Made And Not By Agreements They Didn’t Make

Many “Imaginative Arguments” Rejected To Get To Simple Conclusion

     I’ve had the unpleasant experience of purchasing electronic equipment, only to discover later that the seller had booked the sale as a lease.  Therefore, our next case, Murphy v. DirectTV, Inc., No. 11-57163 (9th Cir. July 30, 2013) (Wardlaw, J. author 3:0) (published) struck a familiar chord (except that I solved my problem without a lawsuit).

     Plaintiffs bought DirectTV service equipment through Best Buy, and sued because transactions plaintiffs understood to be sales were treated by defendants as lease transactions, rather than as outright sales.  Plaintiffs sued for state law violations, claiming a scheme to deceive customers, and defendants sought to arbitrate.  DirectTV’s Customer Agreement required arbitration, but Best Buy was not a party to that agreement.  The district court ordered plaintiffs to arbitrate with DirectTV and with Best Buy.  Plaintiffs appealed.

     The case includes discussion of the retroactivity of AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011) (holding the Federal Arbitration Act preempts California’s rule rendering unenforceable, as unconscionable, arbitration provisions in consumer contracts that waive class action proceedings) as well as equitable estoppel, agency, and third-party beneficiary arguments typically raised by nonsignatories to arbitration agreements, such as Best Buy, who want to arbitrate.

     The bottom line?  “Notwithstanding the parties’ many imaginative legal arguments, in this case they remain bound by the agreements they made and not by any they did not make.”  The district court’s order compelling arbitration with DirectTV was affirmed, and the order compelling arbitration with Best Buy – the nonsignatory – was reversed. 

 

 

    

 

Arbitration/3rd Party Beneficiaries/Equitable Estoppel: 9th Circuit Holds District Court Correctly Concluded Defendant Could Not Invoke Arbitration Clause As 3rd Party Beneficiary or Through Equitable Estoppel

Defendant Admitted It Did Not Enter Into Contract With Student To Provide Him With Debt Relief Services

     Student loan debt is an area of our economy ripe to generate cases on arbitration and class action.  See for example my April 12, 2013 post about Kilgore v. Keybank, No. 09-16703 (9th Cir. April 11, 2013), a case in which students of a failed helicopter flight-training school, in which the 9th Circuit, sitting en banc, found that the class action waiver was not unconscionable. 

     Rajagopalan v. NoteWorld, LLC, No. 12-35205 (9th Cir. May 20, 2013) (per curiam) (for publication), is yet another student loan debt case. 

     After losing his job, Plaintiff Rajagopalan, an electrical engineer who accumulated $15,000 in student debt, sought a professional loan work out solution by contacting a company on the Internet.  He signed a contract that contained an arbitration clause.  After some months passed, Plaintiff cancelled his subscription, only to find out that the company responsible for the payment processing had had withdrawn $8,290.15 from his account, and he had received no debt relief.

      NoteWorld, which was responsible for payment processing, was not a signatory to the contract.  Its in-house counsel explained that NoteWorld was an “independent third-party and does not act as an agent for the [debt relief service provider], nor does it take on any of the contractual obligations of the DRSP.”

     Plaintiff filed a lawsuit against NoteWorld, and NoteWorld sought to take advantage of the arbitration provision in the contract between Plaintiff and the debt relief company.  The district court denied NoteWorld’s motion to compel arbitration.

     Under Washington state law, “both contracting parties must intend that a third party beneficiary contract be created.”  Here, evidence was lacking that Plaintiff intended to designate NoteWorld as a third-party beneficiary, or that NoteWorld assumed any duties or obligations under the contract.

      In order to successfully invoke equitable estoppel, it was essential “that the subject matter of the dispute was intertwined with the contract providing for arbitration.”  Such was not the case here, because Plaintiff’s claims against NoteWorld were statutory claims separate from the contract itself.

      Affirmed.

  

Arbitration/Nonsignatories/Equitable Estoppel: Ninth Circuit Puts Brakes On Toyota’s Attempt To Compel Prius Plaintiffs To Arbitrate Their Claims

District Court Could Decide Whether Nonsignatory Could Compel Arbitration

     Toyota has been enmeshed in arbitration concerning the ABS braking system of its 2010 Prius.  In Kramer v. Toyota Motor Corporation, et al., Case No. 12-55050 (9th Cir. January 1, 2013) (Quist, D. J., author 3-0) (published), owners of 2010 Priuses, parties to arbitration agreements with Toyota dealerships, were able to fend off a motion to compel arbitration by Toyota Motor Corporation and Toyota Motor Sales, U.S.A., Inc. (Toyota), nonsignatories to the arbitration agreement.

     The first issue addressed in Kramer was whether the district court or the arbitrator had authority to decide if Toyota, a nonsignatory, could compel arbitration.  This is typically a “threshold issue” determined by the courts, unless the arbitration clause explicitly and clearly delegates the authority to the arbitrator.  Here, the arbitration clause provided that it “applies to any claim or dispute about whether a claim or dispute should be determined by arbitration.”   Okay, that may work to delegate the authority to decide the issue of arbitrability as to signatories.  But as to nonsignatories, “[g]iven the absence of clear and unmistakable evidence that Plaintiffs agreed to arbitrate arbitrability with nonsignatories, the district court had the authority to decide whether the instant dispute is arbitrable.”

      Second, Kramer includes a detailed analysis of whether Plaintiffs were “equitably estopped from avoiding arbitration.”  To determine whether Toyota, a nonsignatory, could invoke equitable estoppel and require arbitration under the Federal Arbitration Act, the Court looked to California state contract law.  In particular, the Court drew on the test in Goldman v. KPMG LLP, 173 Cal.App.4th 209 (2009), whether the claims that the nonsignatory sought to arbitrate were “intimately founded in and intertwined with the underlying contract obligations.”  Id. at 221.  Without getting deep in the weeds, let’s just say that the Court did not find the Prius owners’ claims against Toyota sufficiently intertwined with the underlying contract obligations between the Prius owners and the dealerships to require arbitration of the claims against the nonsignatories.

     The panel affirmed the district court’s order denying Toyota’s motion to compel arbitration.

     Blawg Bonus:  Theodore J. Boutrous Jr., one of Toyota’s attorneys, was the lead attorney for Wal-Mart in Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), the case resulting in the decertification of a huge class of Wal-Mart female employees.