California Mediation and Arbitration

Arbitration/Employment/Estoppel/Implied in Fact Agreement: Court of Appeal Concludes That Trial Court Properly Denied Motion to Compel Arbitration With Former HR Director Charged With Getting Employees to Sign Arbitration Provision, Yet Not Signing Herse

Employer’s Equitable Estoppel and Implied-in-Fact Arbitration Agreement Arguments Are Both Rejected

     Plaintiff, Susan Gorlach, sued her former employer, The Sports Club Company, for wrongful termination, retaliation, paramour sexual harassment, intentional infliction of emotional distress, defamation, breach of contract, and negligence.  She did not sign an arbitration agreement.  When the employer petitioned to compel arbitration in the trial court, it lost – after all, the employee had not signed the arbitration agreement.  Seems pretty straightforward so far.  Oh, we should mention that the Plaintiff was the HR Director, charged with the task of getting all the employees to sign the arbitration provision.  Also, she purportedly led her employer to believe that she had signed the agreement, and did not mention that she was one of four holdouts among several hundred employees, the rest of whom had signed.  Also, the arbitration agreement had to be signed as a condition of continued employment.  The Sports Club appealed. Gorlach v. The Sports Club Company, B233672 (2nd Dist. Div. 4 October 16, 2012) (Suzukawa, J.) (certified for publication).

     The Sports Club argued that its employee was equitably estopped from denying the existence of the arbitration agreement, because she misled the executive committee into believing she signed the agreement.  However, an element of estoppel is that the party claiming estoppel must rely upon the conduct to its injury.  Though The Sports Club advised that signing the agreement was a “condition of employment,”  there was “no evidence that, as of the date of Gorlach’s resignation, Sports Club had decided what it would do if an employee refused to sign the arbitration agreement or had terminated any employee for failing to sign the agreement.”  Absent evidence of detrimental reliance on the part of The Sports Club, there could be not equitable estoppel.

     What about an employed-in-fact agreement to arbitrate, based on the fact that Ms. Gorlach continued to work for The Sports Club, and the employer had insisted that the employees sign an arbitration agreement as a condition of continued employment?  As the Court of Appeal acknowledges, “California law permits employers to implement policies that may become unilateral implied-in-fact contracts when employees accept them by continuing their employment.  Whether employment policies create unilateral contracts is ‘a factual question in each case.’”

      Here, the messy fact for the employer was that its handbook told employees, “As a condition to employment, all Team Members must sign the Mutual Agreement to Arbitrate Claims.” (italics added in the Court’s opinion).  And Ms. Gorlach had not signed – evidencing an intention not to be bound.  That messy fact also distinguished her case from Craig v. Brown & Root, Inc., 84 Cal.App.4th 416 (2000), a case in which the employee was not asked to sign an arbitration agreement, was informed that any employment-related dispute would henceforth be subject to arbitration, and was found to be bound by an implied-in-fact agreement to arbitrate.

     Moral:  If you are the employer, be careful what you ask for.  If the employer insists on getting a signature, and does not get it, the employer could have a problem.  So if you do decide to ask for a signature, get it.  And if you decide not to ask for a signature, take a look at Craig v. Brown & Root, Inc., supra.

Arbitration: Third District Rules That FAA Does Not Preempt California Arbitration Statute Allowing for Denial of Arbitration Where There Is Possibility of Conflicting Rulings

 

Elder Abuse of Parent and Emotional Distress of Daughter Set Up Possibility of Conflicting Rulings

     The trial court denied motions of operators of skilled care nursing facilities to compel arbitration of parent’s Elder Abuse claim that was subject to arbitration. Why? Because the daughter’s claim of emotional distress caused by her mother’s alleged abuse created the possibility of conflicting rulings. Cal. Code Civ. Proc. section 1281.2. Defendants appealed. Bush v. Horizon West, C067277 (3^rd Dist. April 9, 2012) (not to be published).

     Above:  Nurse caring for elderly patient. c1906.  Library of Congress.

     Defendants’ chief argument was that the California statutory provision allowing for denial of the motions to compel arbitration was preempted by the Federal Arbitration Act. However, in an earlier case involving Stanford University, the Supreme Court held that “where the parties have agreed that their arbitration agreement will be governed by the law of California,” (which was also the case in Bush v. Horizon West), “application of [section 1281.2(c)] is not preempted by the [FAA].” Volt Info. Sciences v. Stanford Univ., 489 U.S. 468, 470 (1989).

     Okay, so section 1281.2(c) is not preempted where the parties have agreed that the contract will incorporate California law. But section 1281.2(c) also provides that “[t]his subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.” Section 1295 requires particular language be included in an agreement to arbitrate as to the professional negligence of a health care provider, and that language was employed in the agreement here. That gave Defendants a fall-back argument: the exemption for arbitration of medical malpractice claims meant that section 1281.2(c), by its terms, did not apply. The Court of Appeals brushed off that argument of Defendants, pointing out that here, neither the mother nor her daughter had sued for medical malpractice. Instead, the mother had sued for Elder Abuse, and the daughter sued for infliction of emotional distress.

     That was not the end of it, however. Defendants argued that the daughter was not a third party to the arbitration agreement, because of the closeness of the parties, and that therefore, the daughter could also be bound by the arbitration provision. In fact, the California Supreme Court recently held that, “when a person seeking medical care contracts with a health care provider to resolve all medical malpractice claims through arbitration,” the agreement applies “to the resolution of wrongful death claims, when the claimants are not themselves signatory to the arbitration agreement.” Ruiz v. Podolsky, 50 Cal.4^th 838, 841 (2010). At first blush, Ruiz seems close to the situation here, but courts are in the business of drawing distinctions. Here, neither the mother’s nor the daughter’s claims were for wrongful death, and the daughter’s claim for emotional distress – to her – was distinct from the mother’s claim for Elder Abuse. Therefore, Ruiz was not controlling.

     Separately, Defendants argued “equitable estoppel.” A nonsignatory who sues on a contract can sometimes be equitably estopped from disclaiming the binding effect of an arbitration provision in the contract sued upon. You take the benefits, you accept the burdens. The problem for Defendants here is that the daughter’s claim for negligent infliction emotional distress is not a contract claim.

     Finally, Defendants made a policy argument, reminding one of a variant of that old adage: if the facts are against you, argue the law, if the law is against you, argue the facts, and if both are against you, argue policy [or: bang the table]. Concluding that section 1281.2(c) is not preempted, and that the trial court did not abuse its discretion in exercising its power under the statute, the Court of Appeal said, “we can do no more.”

     Result: The orders denying the motions to compel arbitration were affirmed in a 3-0 decision authored by Justice Robie.

Arbitration/Section 1281.2/Equitable Estoppel: 4th District, Division 2 Applies Section 1281.2 and Equitable Estoppel To Reverse Trial Court’s Orders That Had Stayed Arbitration And Had Denied Petition To Arbitrate

 

Inland Empire Dustup Presented Unique Procedural Issue – But The Court Didn’t Resolve It

     The Court of Appeals noted at the outside that “we have not found a case that involves the same procedural facts as those presented here, namely, a case in which a party to an ongoing contractual arbitration files a lawsuit that names as defendants the other party to the arbitration as well as purported third parties, and alleges claims in its complaint that could have been but were not asserted in the arbitration, and then moves to stay the arbitration based on the new lawsuit.” PrimeCare of Corona, Inc. v. Hemet Community Medical Group, Inc., E051306 & E052577 (4^th Dist. Div. 2 March 26, 2012) (McKinster, J.) (not for publication).

     The Court questioned “whether a party to an ongoing arbitration can invoke section 1281.2(c) [allowing for denial of petition to arbitrate to avoid conflicting rulings] in such circumstances.” We got the drift that the Court may have thought this was sharp practice. The Court,however, did not resolve its own question, deciding the case on somewhat different grounds – thereby allowing this case to remain “not to be published in official reports.”

     The underlying dispute involved medical professionals allegedly contractually bound by restrictions on their practice, and competing independent physician associations. The trial court had stayed the arbitration of PrimeCare’s breach of contract claim against defendants and respondents Muller and Corona Family Care, Inc. [collectively “Muller”] and denied PrimeCare’s petition to arbitrate claims in Muller’s lawsuit filed against PrimeCare after arbitration began.

     PrimeCare appealed the denial of its petition to arbitrate Muller’s further claims, and the stay of an existing arbitration. Result?

Nonsignatories/Burden of Proof/Equitable Estoppel/Third-Party Beneficiaries: Third Party Non-Signatories Cannot Successfully Move to Compel Arbitration Agreement Where They Are Neither Sufficiently Tied to The Parties to the Agreement Nor Third Party Bene

 

Nonsignatory Has Burden of Proof to Establish It is Party to the Arbitration Agreement and Entitled to Enforce It.

     In Jones v. Jacobson, 195 Cal.App.4th 1 (2011), Societe Generale and a related entity (SG appellants) were sued along with Jacobson by the Joneses in connection with a failed investment, and sought to arbitrate. The trial court denied the motion to compel, prompting the appeal.

     The problem for the appellants was that the arbitration agreement was between the Joneses and an entity named SG Americas Securities LLC (SGAS) an entity different from the SG appellants.

     The appeal was unsuccessful. The nonsignatory SG appellants and Jacobson had the burden to prove that they “are a party to, and thus are entitled to enforce, the arbitration provision in the account agreement.” It was not enough for nonsignatories to establish the existence of a valid and broadly worded arbitration provision.

     Here, the third parties were unable to sustain their burden, for they could not establish either a close enough relationship to SGAS to justify being able to compel arbitration, nor a third-party beneficiary relationship. The SG appellants were unable to argue that they were agents or employees of SGAS.

     The doctrine of equitable estoppel can sometimes be used by a nonsignatory to argue that it would be inequitable for the party to base its claims on a contract containing an arbitration provision, but then avoid arbitration under an arbitration clause in the contract. Here, however, the account agreement containing the arbitration provision was not the basis of the claims against the SG appellants.

     Finally, the Jacobson appellants relied on the additional argument that he was a “broker-dealer” and entitled to arbitrate as a “third party beneficiary.” However, that argument was also rejected on the grounds that there was an insufficient nexus between the account agreement containing the arbitration provision and the claims against the Jacobson appellants.

     The opinion was authored by Justice Benke in San Diego.