California Mediation and Arbitration

Arbitration: Fourth District Div. 2 Addresses Issues Of Unconscionability, Delegation, Severability, And Fraud In Employee Arbitration Agreement

Ineffective Delegation Clauses, Fraud In The Execution, And Unconsciconability Result In Reversals.

        In Najarro v. Sup. Ct. of the County of San Bernardino; Horizon Personnel Services Inc., et al, E076328   (4/2  10/22/21) (Raphael, Codrington, Slough), the court does plenty of slicing and dicing, because there  are two arbitration agreements, two sets of employees, employees who read Spanish, employees who don't read Spanish, a valid delegation clause, an ineffective delegation clause, evidence of unconscionability, and undecided issues of procedural unconscionability. It's a lengthy opinion, and here is the  court's own summary: "Because the first version [of the arbitration agreement] does not clearly and unmistakably delegate questions of arbitrability to the arbitrator, we grant the writ petition as to the employees who signed that version. As to two of these employees, the trial court must decide whether this first version is unconscionable, guided by our discussion below. As to the other two employees who signed this version, we find that the arbitration agreement is unenforceable for the separate reason of fraud in the execution. We also find that fraud in the execution voids the agreement for two of the employees who signed the other, second version of the arbitration agreement."

        COMMENT: One interesting takeaway is that a delegation clause that delegates issues to the arbitrator to decide may stumble and become ineffective if it is coupled with a severability clause allowing a court to decide some issues. So delegation clauses and severability clauses can interact and must therefore be drafted with care. A second takeaway is that when, as here, there was evidence as to some employees of fraud in the execution that was not rebutted, the court can decide there was no agreement to arbitrate, and need not move on to decide other defenses such as unconscionability. And a  third takeaway is that when the employees speak a foreign language (here, Spanish), or are illiterate, the courts have heightened awareness of the issue of procedural unconscionability.

Arbitration, Appealability, Jurisdiction, Existence of Agreement: District Court Should Have Summarily Ruled On Existence Of Agreement Before Denying Motion To Arbitrate

There Is A Method To This . . . 

        Before I get to the case, I should mention that I'm playing "catch up." I've fallen somewhat behind on posting, between a busy mediation calendar and some travel to visit a newly born child in the family. But it's the weekend, so let's see how much we can get done.

        Bill Hansen v. LMB Mortgage Services, Inc., et al., No. 20-15272 (9th Cir.  6/11/21) (Ikuta, Nguyen, Eaton) presented a jurisdictional question. Plaintiff Hansen opposed LMB Mortgage Services, Inc and CPL Assets, LLC's (collectively LMB) motion to compel arbitration. The district court issued a nonfinal order denying the motion and decided to schedule a  trial to determine whether there was a binding agreement to arbitrate. LMB appealed.

        LMB's appeal presented a threshold jurisdictional issue. Ordinarily interim orders are not appealable. However, as Judge Ikuta explains, under 9 USC §16, an order denying a petition to compel arbitration under §4 of the FAA is appealable, whether it is an interim or final order. So the  Ninth Circuit could consider the appeal of the interim order.

        What should the district court have done? It should have summarily tried the issue of whether an agreement to arbitrate existed, before deciding the motion to arbitrate. So the Ninth Circuit vacated the district court's denial of the motion to compel and  remanded for the district  court to  "proceed summarily to the trial" on the  question of  whether plaintiff is required to arbitrate. 

Arbitration, PAGA, Delegation: Employees Who Entered Into Agreement To Arbitrate Before They Brought PAGA Representative Action Could Not Bind State To Arbitrate

How The Issue Presented Was Framed Made All The Difference.

                              View of a frame-maker's workshop circa 1900. Wikipedia article "Picture frame."

        As putative members of the so-called Guerra class action, Bautista and Garcia signed settlement agreements containing an arbitration clause and waiver of  representative actions in 2014. The Guerra action did not  include a PAGA claim. In 2018, Bautista and Garcia brought PAGA representative actions against their employer. The trial judge denied the employer's motion to compel arbitration, and it appealed. Bautista v. Fantasy Activewear, Inc., et al, B297070 (2/1  7/24/20) (Chaney, Rothschild, Bendix).

            Under Iskanian v. CLS Transportation Los Angeles, LLC ,59 Cal.4th 348 (2014), PAGA claims are representative actions brought by an employee on behalf of the state, akin to qui tam actions. Because the state (here, the Labor and Workforce Development Agency) is the real party in interest, but not a signatory to  the arbitration agreement, PAGA claims generally are not arbitrated.

        Here, the defendant/appellant employer argued the 2014 settlement agreements incorporated JAMS rules, and the JAMS rules delegated the issue of arbitrability to the arbitrator. In other words, the issue of arbitrability was not for the court to decide.

        Disagreeing with the employer's argument, the Court of Appeal affirmed the trial court's order denying the motion to arbitrate. The Court framed the issue: "The question here is not whether a PAGA representative action may ever be arbitrable or who is empowered in any particular circumstance to determine arbitrability, but rather whether an arbitration agreement binds a real party in interest that never agreed to arbitrate." And when Bautista and Garcia entered into settlement agreements with arbitration clauses in 2014, they were not acting as agents of the state, nor was the state a signatory. So Bautista and Garcia could not be bound to arbitrate as proxies of the state when they brought PAGA claims in 2018.

        COMMENT: Deciding the issue of arbitrability can be delegated to the arbitrator. The teaching of this case and other California cases is "that arbitration agreements entered into before a plaintiff has been deputized for purposes of a PAGA representative action is [sic] not enforceable for purposes of the PAGA representative action." In other words, the existence of an arbitration agreement precedes even a determination of who decides arbitrability.

 

        

        

 

Internet Commerce: Ninth Circuit Holds A Mobile App Failed To Provide Constructive Notice Of Arbitration Agreement

An Issue Of First Impression -- Did A Smartphone App Impart Constructive Knowledge Of An Arbitration Agreement?

        The Ninth Circuit has decided an issue of first impression for the court:  "[U]nder what circumstances does the download or use of a mobile application ('app') by a smartphone user establish constructive notice of the app's terms and conditions?" Not under the circumstances here, holds the court in Wilson v. Huuuge, Inc., No. 18-36017 (9th Cir.  12/20/19) (McKeown, Bybee, Gaitan)..

      What were those circumstances? Plaintiff Wilson brought a class action alleging Huuuge Casino, which allows online gambling with a smartphone app, had violated Washington law by charging users for chips in its app. Huuuge moved to compel arbitration. The district court denied the motion, and the Court of Appeal affirmed: "Because Huuge did not provide reasonable notice of its Terms of Use . . . Wilson did not unambiguously manifest assent to the terms and conditions or the imbedded arbitration provision."

        Huuuge failed to establish actual knowledge of the terms and conditions, so the issue hinged on whether there was constructive knowledge. Unlike a "clickwrap agreement", requiring users to affirmatively assent to terms of use before accessing a website for its services, the agreement here at issue was a "browsewrap", not requiring "the user to take any affirmative action to assent to the website terms." And the hoops through which the user would have had to jump to obtain notice meant that a reasonably prudent user would not be "on constructive notice of the terms of the contract for a browsewrap agreement to be valid." If a picture is worth a thousand words, then the opinion is helpful, because it provides shots of the five screens a user would have had to follow through and read to find the arbitration agreement.

        Judge McKeown colorfully writes, "the user would need Sherlock Holmes's instincts to discover the terms."

Sherlock Holmes Portrait By Sidney Paget. 1904. Wikipedia.

        Judge McKeown adds: "When downloading the app, the Terms are not just submerged-- they are buried twenty thousand leagues under the sea." The user is urged to read the Terms, but there isn't a link to the Terms: "This is the equivalent to admonishing a child to 'please eat your peas' only to then hide the peas. . . . Only curiosity or dumb luck might bring a user to discover the terms."

        As the Judge sardonically concludes, "Huuuge chose to gamble on whether its users would have notice of its Terms" -- a gamble the online casino lost.

Arbitration, Internet Commerce: 9th Circuit Tests Limits Of "Reasonably Conspicuous" Provision In Internet Commerce Adhesion Contract

Plaintiff Had To Jump Through Hoops To Get To Arbitration Clause.

        For our next case, we add a new sidebar category: "Arbitration: Internet Commerce." "This case tests the outer limits of what constitutes a 'reasonably conspicuous' provision as part of the terms of usage so prevalent in the adhesion contracts of modern internet commerce," writes Senior Circuit Judge Michael Daly Hawkins in In re Randall Holl, No. 18-70568 (9th Cir.  5/30/19) (Hawkins, Smith, Lynn).

        Plaintiff Holl sued UPS alleging it systematically overcharges retail customers shipping packages through third-party facilities by applying Delivery Surcharge Rates higher than the rates it advertises. UPS successfully moved to arbitrate, and Holl sought a writ of mandamus.

        The issue here is the convoluted path Holl had to take to get to the arbitration clause. It takes the panel six pages just to describe how Holl gets to the arbitration clause. He must be able to proceed through the UPS Technology Agreement, which is lengthy; incorporation of rules, regulations, and documents by reference; and inclusion of a jurisdictional provision. And without agreement, there is no agreement to arbitrate.

        However, the Court concludes that mandamus is not justified because Holl assented to the service terms with a click, and the terms clearly incorporated the document containing the arbitration clause in question. Never mind that you, I, and even a learned judge sending a UPS package would likely never get to the arbitration clause, unless we were looking for it. After all, this is about mandamus relief. And the Court concludes: "Faced with the heavy burden of showing a 'clear and indisputable' right to the extraordinary remedy he seeks, Holl fails to establish the type of 'judicial usurpation of power' or 'clear abuse of discretion' that might justify issuance of the writ."

Existence Of Arbitration Agreement: First District, Div. 3 Finds Substantial Evidence Supports Court's Ruling That Binding Arbitration Took Place

Either Defendants Authorized Their Attorney To Agree To Binding Arbitration Or They Ratified The Agreement.

    Defendants and Plaintiffs arbitrated their dispute, the arbitrator's award was in favor of Plaintiffs, and Defendants appealed the judgment confirming the award. Dean v. Amado, A147660 (1/3  2/20/19) (Jenkins, Siggins, Pollak) (not for publication).

    Defendants' argument rested on the fact that their attorney, while agreeing in writing to arbitrate, did not believe he was agreeing to binding arbitration, and on Toal v. Tardif, 178 Cal.App.4th 1208 (2009), "in which the attorney's signed agreement to arbitrate, 'standing alone,' was not enough."

    However, here, there was more. The parties had previously mediated, so it didn't make much sense to treat the arbitration as another attempt at ADR. The Defendants' attorney had indicated that the parties would not move forward with a trial, because they were going to "binding arbitration." The Defendants paid for the arbitration, and participated in the arbitration. The arbitrator told the parties he would act as a judge and issue a decision, and thereafter issued a final award.

    And there was what the trial court characterized as a "credibility gap." If the Defendants' attorney always believed the arbitration was non-binding, he never said so, until Defendants received an unfavorable ruling.

    In short, substantial evidence supported the ruling of the Superior Court judge. Affirmed.

Arbitration: Tetrad Of Unpublished Cases Present Issues Concerning Mandatory Fee Arbitration, Res Judicata, Existence Of Agreement, 1281.2, Appealability

Ferguson v. Camarillo Health Care District, B281856 (2/6  11/28/18) (Tangeman, Gilbert, Yegan) (unpublished).

    When a an opinion begins, "Calling it an 'unproductive waste of time,' attorney Ralph T. Ferguson did not participate in mandatory arbitration of a fee dispute with his client Camarillo Health Care District (CHCD). The arbitrators ruled in favor of CHCD," you can make a pretty good guess how it will end.  And you would be right here.

    Attorney Ferguson blew off the Mandatory Fee Arbitration, failed to appeal the judgment on the award or the denial of relief from the judgment. Instead, he collaterally attacked the award in a separate lawsuit, then appealed. No go. The final award, confirmed by the trial court, was res judicata, and Ferguson failed to timely appeal. 

    It was obvious that the Court of Appeal was not amused by the way the attorney handled his fee dispute with his client. "He declined to give CHCD its legal files," writes Justice Tangeman, "asserting they are privileged, or too heavy to lift, or the subject of a ransomware attack on his computer."

    COMMENT: Perhaps the moral is that clients are entitled by statute to arbitrate fee disputes, and the attorney who does not treat mandatory fee arbitration seriously does so at the attorney's risk.

Massicotte v. A-One Janitorial LLC, G055604 (4/3  11/26/18) (Aronson, Bedsworth, Moore) (unpublished).

    The parties entered into an Asset Purchase Agreement under which "the parties agreed an independent accounting firm would render a conclusive and binding decision concerning any disagreement the parties had over a specific accounting issue." The buyers contended this provision did not constitute an arbitration agreement (a) because it did not include the word "arbitration" and (b) because it allowed the determination of the neutral (an accounting firm) to be challenged "for manifest error", as a result of which an award could not be final and binding. 

    The Court of Appeal wasn't buying it. The use of the word "arbitration" is not determinative, and case law is clear about this. If it looks like a duck, swims like a duck, and quacks like a duck, it is a duck. (No, the Court didn't write that, I did.) As to the "manifest error" language, an arbitration decision may be reviewed for legal errors if the parties contractually agreed to judicial oversight.  Cable Connection, Inc.  v. DIRECTV, Inc., 44 Cal. 4th 1334, 1355-1356 (2008).

Doan v. Nhan Hoa Comprehensive Health Care Clinic, Inc., G055323 (4/3 11/26/18) (Bedsworth, Moore, Fybel) (unpublished).

    This is one of the many cases in which an employer seeks to enforce an arbitration agreement against a former employee who did not sign the arbitration agreement. Sometimes those cases arise because of problems obtaining electronic signatures, but that was not the case here. And sometimes those cases arise because an employee who did not sign a change to an employment agreement that included an arbitration clause did not sign the new agreement, but continued to work for a long time, but that was not the case here. Here, the employee straight up didn't sign an arbitration provision that had lines for a date and an employee signature. The final paragraph included an acknowledgment that the agreement had been carefully read and understood, and that binding arbitration would apply, but those darn date and signature lines were blank. And Doan, a new hire, only worked at the company from early May till the end of July 2016. The Court of Appeal concluded that substantial evidence supported the decision of the trial court that the evidence did not establish an intent to be bound by an unsigned document.

Porter v. AG Arcadia, LLC, B285461 (2/5  11/26/18) (Jaskol, Baker, Moor) (unpublished).

    This lawsuit involved a dispute between a patient's relatives and a nursing home after the aged patient "died of sepsis related to her wound from the pressure sore and urinary infections." The arbitrator, the Hon. Judy Chirlin, ret., found that the defendants acted recklessly and awarded damages for elder abuse and wrongful death. The nursing home appealed. The appeal was dismissed under the "one judgment rule", because there was a pending claim for violation of the Patient's Bill of Rights that had not been decided. Thus, the appeal was taken from a non-appealable order.

    COMMENT: Interestingly, the Court of Appeal acknowledges, "we have a sufficient record for writ review and the issues have been fully briefed." Yet the Court concludes that writ review is not appropriate, because it has no information suggesting the Appellants lack of an adequate remedy at law by way of an appeal. The "adequate remedy at law" issue needs to be carefully briefed by appellants seeking writ review. Query whether that was done in this case.

    

Arbitration: Existence Of Agreement; Nonsignatories; Section 1281.2: 2/6 DCA Reverses Denial Of Motion To Compel Arbitration Based On Integration Clause Being Found Dispositive

However, Wife’s Loss Of Consortium Claim Not Subject To Arbitration And Trial Court On Remand Had To Consider Third Litigation Exception As Basis To Deny Motion To Compel.

            In Williams v. Atria Las Posas, Case No. B282513 (2d Dist., Div. 6 June 27, 2018) (published; Tangeman, J., author, concurred in by Gilbert, P.J. and Perren, J.), a trial court denied an elder/dependent adult residential care facility operator’s motion to compel arbitration under a separate arbitration agreement signed after a severely injured man also signed a Residency Agreement. (Wife did not sign.) The trial judge reasoned that the integration clause in the prior Residency Agreement barred proof of the subsequent arbitration agreement, not considering other issues raised by the parties.

            The 2/6 DCA reversed, based on the timing of when agreements were signed. In this instance, the arbitration agreement was signed after the Residency Agreement, with the arbitration agreement expressly providing that it applied to claims regarding the validity or enforceability of the Residency Agreement. Under this sequence of events, the integration clause did not bar proof of the arbitration agreement.

            However, that did not end the matter. The appellate panel did agree that arbitration was not available for wife’s loss of consortium claim because it was an independent claim and she did not sign the arbitration agreement. Next, operator’s argument that the FAA rules applied to the exclusion of CAA rules did not resonate given the wording of the arbitration clause which did not rule out the applicability of the CAA. Finally, with respect to whether the third party litigation exception in CCP § 1281.2(c) applies to justify the order denying the motion to compel arbitration, the trial judge needed to examine this issue on remand.

Arbitration: Existence Of Agreement/1281.2/Stay: Incorporation By Reference Works This Time, But It's Not The End Of The Story

Settlement Agreement Incorporated Arbitration Clause In Licensing Agreement -- But Only Claims Arising Out Of Or In Connection With Any Provision In The Licensing Agreement Could Be Arbitrated.

        On February 9, 2018, we posted about Cirile v. Petersen-Dean, an unpublished case, in which incorporation by reference was too amorphous and vague to incorporate an arbitration provision in a separate agreement.  In Advanced Charging Technologies, Inc. v. Flexible Manufacturing, LLC, G054671 (4/3  2/21/18) (Thompson, O'Leary, Ikola) (unpublished), incorporation by reference did work -- sort of.

        In Advanced Charging Technologies, a Settlement Agreement entered into one day after a Licensing Agreement, and including an integration clause, incorporated the terms and conditions of the Licensing Agreement.  And the Licensing Agreement included an arbitration provision applying to a dispute or claim arising out of or in connection with any provision of the Licensing Agreement.  The trial court denied a motion to compel arbitration, believing that the integration clause wiped out the Licensing Agreement, an argument rejected by the Court of Appeal, because the successful incorporation by reference preserved the terms of the Licensing Agreement.  The trial court also believed that the arbitration clause, which only applied to the disputes arising out of the Licensing Agreement, was too narrow to cover disputes arising out of the Settlement Agreement, a position that did have some traction in the Court of Appeal.

        The upshot is that Court of Appeal reversed and remanded, with directions to grant the motion to compel arbitration, and set up a three-step process.  First, the trial court had to decide whether the claims arose out of or  in connection with the License Agreement that was incorporated by reference.  Second, the trial court had to determine whether the resolution of "any nonarbitrable issues may make the arbitration unnecessary, as set forth in Code of Civil Procedure section 1281.2."  And finally, the trial court was directed to order any appropriate stay order.

Existence Of Arbitration Agreement Flops For Failure To Successfully Incorporate By Reference

An Agreement Need Not Expressly Provide For Arbitration But May Do So In A Document Incorporated By Reference.

        Petersen-Dean appealed from denial of its petition to compel arbitration.  The central question on appeal was "whether the mention of the warranty in the contract incorporated the warranty, with its arbitration clause, into the contract."  Cirile v. Petersen-Dean, Inc., B278075 (2/7  2/6/18) (Zelon, Segal, Bensinger) (unpublished).  The Court of Appeal explained that the warranty was not listed among the documents incorporated by reference, the contract language was "amorphous" and the contract language "did not guide the reader to the warranty as a source of terms incorporated into the contract."  Judgment affirmed.

        COMMENT:  A successful incorporation by reference should be conspicuous, specific, clear, and unambiguous.

        Perhaps the Court of Appeal was also irked by a lack of candor, for Justice Zelon wrote:  "In its petition to compel arbitration, Petersen-Dean did not disclose to the court that the arbitration provision was not set forth in the contract the parties signed in June 2014 but was contained in the owner's manual provided after the system had been installed."