California Mediation and Arbitration

Unconscionability: Second District, Div. 8 Holds That Illegible Contract Is Fair, And Therefore Not Unconscionable

Majority Of Panel Holds That Substantive Unconscionability Was Missing. Justice Stratton Dissents. 

        Writing for the majority, Justice John Shepard Wiley Jr. explains that the above contract is enforceable, requiring the plaintiff employee to arbitrate her dispute. Though the document is manifestly illegible, Justice Wiley concludes that the contract is fair. Therefore, there is no "substantive unconscionability." And as we know, California law requires both procedural and substantive unconscionability for a contract to be unenforceable on the basis of unconscionability. Fuentes v. Empire Nissan, Inc., B314490 (2/8   4/21/23) (Wiley, Harutunian; Stratton, dissenting). 

        Justice Maria E. Stratton dissents.  She writes, " '[W]atering down' unconscionability analysis is not what I have in mind. Acknowledging the obvious is my intention. Holding a signatory to an illegible contract that is also as prolix as this one strains the concepts of mutuality, fairness and common sense. If an employee literally cannot read the contract, how is that substantively fair?"

        COMMENT: Perhaps a simpler approach than "unconscionability," which requires satisfying two prongs, is a contract formation approach. Was there ever a meeting of the minds? Was there consent to the terms of the contract, when the contract was illegible and prolix? Justice Arthur Gilbert has written, "An arbitration clause in a contract is invalid because the clause is as inconspicuous as a frog in a thicket of water lilies." Domestic Linen Supply, Inc. v. L J T Flowers, Inc., 58 Cal.App.5th 180 (2020). Here, the job seeker wouldn't see the frog or the water lilies, just a typographic mess. Thus, in addition to the two-prong unconscionability analysis, arbitration clauses can also be analyzed under a contract formation analysis.

        Suppose the prospective employee had said she wanted to come back the next day when she could read what was actually written. And the employer had replied that if she wanted to go to work, she should sign. So she signed. Then the court could have said she signed because she wanted to start work. But since that was simply evidence of additional "procedural unconscionability," everything was copacetic. Or is it?

        This case stretches to the breaking point the legal fiction that agreements to arbitrate are always a matter of consent.

Same Outcome In A Tandem Case: Mohammad Basith v. Lithia Motors, Inc., B316098 (2/8  4/21/23) (Wiley, Harutunian; Stratton, dissenting).

        In Basith, a tandem case involving a contract substantially similar to the one in the Fuentes case, the Second District, Div. 8, reaches the same conclusion that the arbitration provision is valid and enforceable. It's another split decision, with Wiley and Harutunian in the majority, and Stratton again dissenting.

        Here, we get bit of policy to justify the outcome: "Our holding is that, unless we are to imperil the vast online world of take-it-or-leave-it contracts, substantive unconscionability must retain meaningful independent content. For that reason, the contracts here and in Fuentes are valid and enforceable, despite their procedural unconscionability."

        COMMENT: While it is true that the contracts are substantially the same, there is a factual difference between Basith and Fuentes. "We note at the outset that this case poses no issue of small or unreadable font. It is a striking coincidence that, not only do we encounter substantially similar form contracts in two simultaneous and otherwise unrelated cases, but also that font size should be a dominating issue in one case—Fuentes—and entirely absent as an issue in Basith’s case. The difference stems from the media: in Fuentes, the contract was printed only on paper, and was printed in a largely unreadable way, whereas Basith’s main contract was online."

        Nevertheless, Justice Wiley explains that a complaint about prolix legalese and a complaint about font size are just examples of procedural unconscionability, not substantive unconscionability. In short, the court majority does not recognize a situation in which the employer drafts a contract and thus knows its terms, and an employee is unable to read the illegible contract, as being one-sided and substantively unfair. This appears to be dictum in Basith, but it helps to further explain the majority's thinking in Fuentes, where font size and prolixity were issues, not to mention the poor condition of the tiny font.

 

 

Existence Of Agreement: There Is No Agreement Where Nursing Home Stroke Victim Lacked Capacity To Contract

Nursing Homes Continue To Create Arbitration Problems.

        If our readers use the sidebar search box, they will discover other cases involving nursing homes. Sometimes the problem of enforcing an arbitration agreement involving a nursing home resident arises because a relative signs for the resident, and issues arise as to whether the relative had authority to bind the non-signatory. Here, it was the resident himself, a stroke victim, who signed the agreement. However, there was substantial evidence that he was mentally impaired and lacked the ability to contract. The Court of Appeal affirmed the trial court's order denying the skilled nursing home's petition to compel arbitration. Pemilady Algo-Heyres v. Oxford Manor, LP, B319601 (2/6  2/28/23) (Baltodano, Gilbert, Yegan). A rebuttable presumption exists that all persons have the capacity to make decisions and to be responsible for their acts or decisions. 

Internet Commerce: Ninth Circuit Agrees Online Ticket Purchasers Were Bound By Agreement To Arbitrate

CONSPICUOUS NOTICE.

        In a putative antitrust class action, plaintiffs sued Live Nation Entertainment, Inc./Ticketmaster LLC for charging "supra-competitive fees" for tickets to events. Defendants moved successfully to compel arbitration in the trial court, and the Ninth Circuit affirmed. Oberstein et al v. Live Nation Entertainment, Inc. et al (9th Cir.  2/13/23) (Boggs, Wardlaw, Ikuta).

        Two BigLaw firms squared off against one another in the appeal to address an issue that will be familiar to readers of this blog: whether an agreement on the internet that fell somewhere between a click-wrap and a browserwrap was sufficient to create an agreement between the consumer and the seller. As a refresher, see our post dated 3/26/2016: Internet contracts “come primarily in two flavors: ‘clickwrap’ (or ‘click-through’) agreements, in which website users are required to click on an ‘I agree’ box after being presented with a list of terms and conditions of use; and ‘browsewrap’ agreements, where a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen,” quoting from Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014)."

        Here, the court concluded that the agreement sufficiently noticed the consumer that the consumer was agreeing to arbitrate: the font was conspicuous, in color other than the rest of the text, near buttons the consumer had to click on, and by clicking on buttons and proceeding through the process of purchasing the ticket, the consumer evidenced consent.  

        COMMENT: The keys to a binding agreement in internet commerce are reasonably conspicuous notice of the arbitration agreement and action by the consumer to unambiguously manifest consent. That's enough to impart constructive notice.

 

First District, Div. 1 Affirms Order Denying Petition To Compel Arbitration Because Defendant Failed To Establish Existence Of Arbitration Agreement

No Evidence Of Signed Agreement.

        Bruno Fleming sued Oliphant Financial for allegedly violating the California Rosenthal Fair Debt Collection Practices Act. Oliphant unsuccessfully petitioned the trial court to compel arbitration. The Court of Appeal affirmed the trial court's order denying Oliphant's petition to compel arbitration. Fleming v. Oliphant Financial, LLC, A165837 (1/1  1/31/23) (Devine, Humes, Margulies).

        Oliphant failed to meet its burden of establishing the existence of an arbitration agreement. Fleming had signed a credit card application, but apparently there was a lack of evidence that he had signed an arbitration agreement or that he had received one. 

        This is pretty basic stuff. Rejecting Oliphant's efforts to finesse the threshold issue, the court addresses a few points.

• • As the party moving to compel arbitration, Oliphant had the burden of proof of establishing that the parties agreed to arbitrate.
  • An argument that the arbitration agreement delegates the question of arbitrability to the arbitrator fails if the arbitration agreement doesn't exist.
  • Contract formation will be addressed under state law.
  • The court, not the arbitrator, gets to decide whether an agreement to arbitrate exists.
  • Oliphant's choice-of-law argument that the arbitration agreement requires the application of Delaware law fails if there is no arbitration agreement.

 

 

Existence Of Agreement, Unconscionability: First District, Div. 4 Concludes Arbitration Agreement Was Signed, Not Unconscionable, And Reverses

Proof Of Handwritten Signature May Be Easier Than Proof Of Electronic Signature.

        The trial court found that the employer failed to prove employees had signed an arbitration agreement, that the agreement was unconscionable, and the court rejected the employer's efforts to compel arbitration. The Court of Appeal reversed. Leroye Iyere et al. v. Wise Auto Group, A163967 (1/4  1/19/23) (Pollak, Brown, Goldman).

        In the trial court, the employees provided declarations that they had been given many documents to hurriedly sign, that they had not read them, and that if they had read them, they would not have signed them, knowing that they were giving up rights by agreeing to arbitrate. But they did not squarely deny that handwritten signatures of their names were their signatures. While the trial court refused under those circumstances to find that the employees had signed, Justice Pollak explained: "It is hornbook law that failing to read an agreement before signing it does not prevent formation of a contract."

        The panel disagrees with Gamboa v. Northeast Community Clinic, 72 Cal.App.5th 158. (2021), which cited cases rejecting proof of electronic signatures under similar circumstances in order  to reject proof of a handwritten signature. Justice Pollak explains:  "Authenticating an electronic signature if challenged can be quite daunting. . . If a party confronted with his or her handwritten signature on an arbitration agreement is unable to allege that the signature is inauthentic or forged, the fact that that person does not recall signing the agreement neither creates a factual dispute as to the signature’s authenticity nor affords an independent basis to find that a contract was not formed." 

        The employees argued that the arbitration provision, which was governed by the Federal Arbitration Act, was unconscionable, because California Labor Code § 925 provides that an employer cannot require an employee who resides and works in California, as a condition of employment, to agree to adjudicate a claim arising in California outside of California. But the FAA does not displace state substantive law, which can be asserted in arbitration, so this argument failed.

            The employees also argued that the contract, which allowed the party against whom a claim was made to choose between two arbitration providers, and that this would benefit the employer as the party against whom a claim was more likely to be made. But the panel believed this would not provide a significant advantage to the employer, as both dispute resolution providers were well recognized and respected dispute resolution providers.

Existence Of Arbitration Agreement: Arbitration Agreement For Website Did Not Apply To In-Store Purchases

Existence Versus Scope Of Arbitration Agreement -- See How It Makes A Difference.

Tire recapping. A service attendant points out a worn tire that may be recapped under a new plan which removes restrictions on reclaimed camelback rubber for passenger tires. The plan to recap passenger car tires with reclaimed rubber camelback, approved by rubber director William M. Jeffers, was put into effect in February 1943 to reduce the demand for replacement tires and still keep civilian cars in service. Library of Congress. Alfred T. Palmer, photographer. February, 1943.

        A label can make a difference. Doubts concerning the scope of an arbitration agreement are generally resolved in favor of arbitration. That's the presumption in favor of arbitration at work. But that presumption does not apply when there are doubts as to the existence of an arbitration agreement. The panel deciding Kevin Johnson v. Walmart, Inc., 21-16423 (9th Cir.  1/10/23) (Sessions, Tashima, Paez), agreed that the issue concerned the existence of an arbitration agreement, rather than its scope, making their decision a bit easier, since application of the label "existence" rather than "scope" meant the panel did not have to deal with a presumption in favor of arbitration.

        Kevin Johnson used a Walmart website that included an arbitration agreement to purchase tires. When he went to the store to have the tires installed, he purchased a lifetime tire balancing and rotation agreement. The in-store purchase did not come with an arbitration agreement. At some point, Walmart allegedly stopped balancing and rotating tires for Johnson, so he sued on behalf of a putative class. Despite broad language in the arbitration agreement that “. . . all disputes arising out of or related to these Terms of Use or any aspect of the relationship between you and Walmart . . . will be resolved through final and binding arbitration", the court held that the arbitration agreement did not apply to the in-store purchase.

        Language introducing the arbitration provision stated: “These Terms of Use govern your access to and use of all Walmart Sites.” The court interpreted this to mean that the arbitration agreement did not apply to the in-store purchase. And since the opinion explained this was a question of the existence rather than the scope of an agreement, it did not need to deal with a presumption in favor of arbitrability.

        So: two separate contracts, one with an arbitration agreement, one without, both contracts involving tires, both contracts involving the same parties, but one contract applying to Walmart [online] sites, and the other contract applying to in-store purchases. Conclusion: no arbitration agreement existed for the in-store purchase.

 

Ninth Circuit Holds Inmate Receiving Debit Card For Confiscated Cash Did Not Consent To Debit Card Agreement To Arbitrate

Once You Know The Facts, Your Going To Know How This Case Turns Out . . .

        Plaintiffs in Reichert v. Rapid Investments, Inc., 21-35530 (9th Cir.  12/30/22) (Berzon, Christen, Block) (per curiam) were inmates discharged from Kitsap County Jail and given a debit card for cash confiscated by the jail earlier upon their entry. The cards, referred to as a Rapid debit card or "release card" were activated and ready to use. The cards also incurred a weekly maintenance fee of $2.50, as well as transaction costs when used to withdraw money. The cards also included an arbitration clause, and stated that use of the card would be evidence of agreement to contractual terms. The discharged inmates, in effect, were receiving their own money back in a card that they had not asked for, and that they needed to use to get back their confiscated cash.

        The plaintffs brought a lawsuit alleging that the release card fees violated the Electronic Funds Transfer Act and Washington state law. And -- drum roll -- defendant Rapid brought a motion to compel arbitration. The district court held that retention and use of the release card did not demonstrate acceptance of the terms of the arbitration agreement. The Court of Appeals affirmed.

        First, under Washington state law, inaction in response to an offer does not constitute acceptance.

        Second, under the circumstances, use of the release card did not constitute acceptance. "We hold that because the money Moyer withdrew was his own, because the card he was issued came pre-activated and there was no other way to obtain immediate use of his own funds, and because Rapid structured its fees to begin deducting after three days regardless of use, Moyer’s decision to withdraw his own money cannot reasonably be understood to manifest assent to the contract."

 

 

Unconscionability, PAGA, 1281.2, FAA: CCA 2nd Dist. Div. 6 Holds Iskanian Survives, Sort Of

Court Of Appeals Affirms Denial Of Motion To Compel Arbitration.

 

It's alive, it's alive !

        We harbor the suspicion that Navas v. Fresh Venture Foods, LLC, B31288A (2/6  11/21/22) (Gilbert, Yegan, Perren), was published so that the Court of Appeal could tell us that while Viking River Cruises v. Moriana overrules Iskanian, to the extent that Iskanian does not allow PAGA claims to be split between individual and representantive claims, "Nevertheless, Iskanian still survives."

        Navas, Lopez, and Ramos sued their employer FVF for various wage and hour violations, including a PAGA claim. The trial court denied FVF's motion to compel arbitration. It held that the employer had not proved that Lopez and Ramos had signed the agreement. As to Navas, the court ruled his agreement was unconscionable. The employer appealed.,

        The Court of Appeal agreed that there was a lack of sufficient evidence to establish that Lopez and Ramos signed the employment agreement. The Court also agreed that Navas' agreement was unconscionable.

        The comments about PAGA are most interesting. The Court explains that in Viking River Cruises, "the United States Supreme Court held 'the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.'" In Viking, the trial court refused to allow arbitration of the individual claim because it could not be split from the representative claim. Under Viking, the employer and employee can agree to arbitrate an individual PAGA claim.

        In Navas, however, the Court of Appeal concludes that though an individual PAGA claim can be arbitrated by agreement, here, the employer failed to observe standards required for a purported waiver of a PAGA claim by the employee. The employer failed to explain the employee waiver to a Spanish-speaking employee and to obtain the employee's consent to waiver of the right to bring a PAGA claim in court. So here the employee will be able to bring individual and representative PAGA claims in court.

        COMMENT: The trial court also stayed the arbitration pending litigation, relying on CCP §1281.2. There is no provision in the Federal Arbitration Act like 1281.2, so defendant argued that the stay was preempted by the FAA, which required the arbitration to go forward. However, the Court of Appeal explains that while the agreement incorporated FAA law, it also incorporated California civil procedure, and California procedure had not been preempted by a reference to FAA law.

Arbitration, Nonsignatories: There Is No Agreement To Arbitrate Between San Diego And Instacart

PAGA Cases Are Not A Good Analogy For A Lawsuit Brought Directly By The City, Rather Than By Workers.

        If the City of San Diego city attorney sues Instacart for violating the Unfair Competition Law, Business and Professions Act, §§ 17200 et seq., is the City bound by arbitration agreements between Instacart's Shoppers and Instacart? No, says the Court of Appeal, agreeing with the trial court, in The People v. Maplebear Inc., D079209M.PDF (4/1  6/6/22) (McConnell, Irion, Dato).

        Maplebear Inc., doing business as Instacart, hires Shoppers to connect with buyers and help get products to the buyers. The Shoppers are characterized by Instacart as "independent contractors" and required to sign arbitration agreements with Instacart. However, the City is not a signatory, and the court explained that the City was suing under its enforcement powers on behalf of the people of California. The City claimed that misclassifying Shoppers as independent contractors denied them employee benefit protections, resulted in a loss of payroll tax, and created unfair advantage over competitors.

        COMMENT: Much of the opinion is devoted to a detailed discussion of Iskanian, the California Supreme Court case holding that employees are not required to arbitrate PAGA claims, because PAGA claims are analogous to qui tam claims in which the state has an interest, and the state is not a signatory to arbitration agreements between employers and employees. However, the city attorney and Instacart must recognize that the California rule that PAGA claims are not subject to mandatory arbitration is now the subject of a case that has been argued before the US Supreme Court in a case awaiting a decision. Instacart argued that the City is really suing for the benefit of the employees, and should therefore be bound by their arbitration agreements -- an argument that has been repeatedly made in PAGA cases by critics of Iskanian. If the rule in Iskanian falls in SCOTUS, then the City's argument could be weakened  -- but only if the rule in Iskanian applies to the City's argument.

        The Court of Appeal explained that Instacart "inverted" the ruling of Iskanian, and therefore Iskanian did not apply. Iskanian allowed the worker to sue on behalf of the state. That was not the case with the Shoppers, who did not bring the suit. Rather, the City of San Diego sued directly on behalf of the People's enforcement powers, not primarily for the benefit of the workers, and the City was not party to an arbitration agreement.

Arbitration, Enforceability: No Agreement Where Company Was Unable To Establish Automatic Sending Of Electronic Receipt

Existence Of Agreement Was Not An Issue To Delegate To Arbitrator.   

              Fiona Trinity sued Life Insurance Company of North America and individuals (LINA parties) for employment-related claims. The LINA Parties moved unsuccessfully to compel arbitration in the trial court, and the Court of Appeal affirmed. The LINA parties could not establish the existence of an agreement to arbitrate, and even if they could, the agreement would have been unconscionable. Trinity v. Life Insurance Company of America et al., B312302 (2/7  5/23/22) (Perluss, Segal, Feuer).

        The defendant's PMK had testified as to the contract procedure, explaining that  once the employee had  clicked on a link indicating he or she had read an online employee handbook, which included an arbitration agreement, they would receive an email confirming their assent to the terms of the handbook. The problem was that the employer could not produce the automatically generated receipt and did not know how to retrieve it, and the employee did not remember reading or agreeing to the handbook. 

        While issues of arbitrability were delegated to the arbitrator here, whether there is an agreement to arbitrate in the first place is an issue for the judge to decide. The issue of arbitrability cannot be delegated under the terms of a nonexistent agreement.

        COMMENT: In the 21st century, there is still at least one advantage to the use of a paper document with an inked signature. Electronic signing is permissible, but then one must carefully follow procedure and have a good storage and retrieval system for electronic data.