California Mediation and Arbitration

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.

Scope Of Arbitration Agreement Did Not Encompass Pre-Employment Disputes

Court of Appeal Also Held That Trial Court Properly Declined To Require Arbitration Of  FEHA Claim For "Public Injunction."

        Defendant and Appellant Tesla, Inc. -- you've probably heard of the company -- appealed from denial of Tesla's motion to compel arbitration as to employees Chatman and Hall, plaintiffs. Marcus Vaughn et al v. Tesla, Inc., A164053 (1/5   1/4/23) (Simons, Burns, Wiseman). Plaintiffs alleged that they and other Black employees had been discriminated and harassed while working at Tesla.

        The wrinkle to this case is that, while an arbitration agreement provided all "disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration . . . ", the agreement did not cover pre-employment claims. And Chatman and Hall claimed some claims arose pre-employment, at a time when a hiring agency had provided them as workers to Tesla. So the trial court concluded that Chatman and Hall were required to arbitrate claims after they became employees, but not before. 

        The Court of Appeal affirmed the order denying arbitration in part and allowing arbitration in part. The Court also agreed that the trial court properly declined to mandate arbitration of plaintiffs' claim for a public injunction for two reasons: "First, we hold that injunctions sought under the Fair Employment  Housing Act (FEHA) (Gov. Code, §§ 12900 et seq.) may be considered 'public injunctions.' Second, we rule the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.), as interpreted in Viking River Cruises, Inc. v. Moriana (2022) ___ U.S. ___ [142 S.Ct. 1906, 213 L.Ed.2d 179] (Viking River), does not preempt the California rule prohibiting waiver of the right to seek such injunctions."

Arbitration, PAGA, FAA, Delegation: Second District Div. 8 Holds That Viking River Cruises Requires Reversal Of Order That Denied Motion To Compel Arbitration

Court Holds That Viking River Cruises Requires Enforcement Of Pre-Dispute Arbitration Agreement.

        Judge Harutunian explains that the trial court "understandably" denied the employer's motion to compel arbitration based on a rule in California that "predispute agreements to arbitrate PAGA claims are unenforceable." He concludes: "We hold that this rule cannot survive the U.S. Supreme Court’s recent decision in Viking River Cruises, Inc. v. Moriana (2022) ___U.S.___ [142 S.Ct. 1906] (Viking River)." Sylvester Lewis v. Simplified Labor Staffing, B312871 (2/8  12/5/22) (Harutunian, Stratton, Grimes).  

        However, because the AAA rules delegate the issue to the arbitrator, the arbitrator, rather than the court, must decide the scope of the arbitration agreement, specifically, whether non-individual PAGA claims are arbitrable in the same way that individual PAGA claims are arbitrable.

        COMMENT: The opinion rejects what Judge Harutunian describes as the "State-must-consent" rule. Cases that held pre-dispute agreements to arbitrate PAGA claims were unenforceable reasoned that the PAGA dispute was between the employer and the state, and thus the employee could not agree to arbitrate until a dispute arose and the employee was "delegated" by the state to pursue the PAGA claim on behalf of the state. But Viking River allows the employer and employee to enter into a pre-dispute arbitration agreement to arbitrate the employee's PAGA claim. So Viking River destroys the reasoning behind the "State-must-consent" rule, though it does not explicitly name such a rule. In any case, Judge Harutunian concludes that the rule is preempted by the FAA, because state law that withdraws the power to enforce an arbitration agreement is preempted.

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.

Enforceability, FAA Preemption: Second Dist. Div. 7 Holds That Failure To File Fictitious Business Name Statement Makes Arbitration Agreement Unenforceable -- With A Wrinkle

The Wrinkle Is That After A Year, Defendant/Appellant Filed A Fictitious Business Name Statement.

       Wrinkles. "Val Morgan, a retired attorney for the U.S. agency that oversees federal health-care payments, relaxes with two of her three wrinkly-faced, short-muzzle pug dogs, 14-year old Loretta, left, and 17-year-old Gus." Library of Congress. Photographer: Carol M. Highsmith.

        Plaintiff Albert Villareal sued his employer after he injured his knee and his employer terminated his employment. The employer moved to compel arbitration. The trial court and the Court of Appeal both agreed that the employer's failure to file a fictitious business name statement prevented it from enforcing an arbitration provision at the time defendant moved to compel arbitration. Albert Villareal v. LAD-T, LLC et al, No. B313681 (2/7  10/27/22) (Feuer, Perluss, Segal).

        Business and Professions  Code § 17918 provides that a party who fails to file a valid fictitious business name statement cannot “maintain any action upon or on account of any contract made . . . in the fictitious business name in any court of this state until the fictitious business name statement” has been filed. Section 17918 would be dispositive, but for the fact that the failure to file the fictitious business statement only abates the action (in this case, a motion to compel arbitration, i.e., a suit in equity to compel performance of the arbitration agreement). And here, the defendant corrected the problem a year after filing its motion to compel.

        So the Court of Appeal vacated the order denying the motion to compel arbitration, and remanded with directions. Plaintiff Villareal can argue in the trial court on remand that defendant LAD-T, LLC's year delay in filing a fictitious business name statement resulted in waiver of the right to arbitrate, an issue that the trial court would then need to decide.

        COMMENT: Why isn't the § 17918 requirement to file a fictitious business name statement preempted by the Federal Arbitration Act, since the FAA applied to this case? As the Court of Appeal explains, the requirement to file a fictitious business name statement doesn't uniquely burden a motion to compel arbitration, because it also applies to the filing of lawsuits in general.

 

Arbitration, Employment, FAA Preemption: Employers Must Strictly Comply With Requirement To Pay Arbitration Fees By Statutory Deadline

Substantial Compliance With CCP § 1281.97 Just Won't Cut It.

        In July 2022, the California Court of Appeal ruled in Sunny Gallo v. Wood Ranch that Cal. Code of Civ. Proc. § 1281.97 is not preempted by the Federal Arbitration Act. The court reasoned that 1281.97, which requires  the drafting party  -- usually the employer -- to pay arbitration fees and costs within 30 days after the due date, does not thwart arbitration, but rather encourages promptly proceeding with arbitration. See our post dated 8/1/22 on Gallo. In Rosa Espinoza v. Superior Court,  B314914 (2/1  9/27/22) (Bendix, Rothschild, Chaney), the court, agreeing with Gallo, held there was no federal preemption of California's statutory rule. 

        However, the court went one step further in Espinoza. The court held that substantial compliance, unintentional nonpayment, and absence of prejudice did not excuse the employer from making timely payment. Thus, it is not enough to pay fees and costs. Rather, fees and costs must be paid within the statutory deadline, or else the employer will waive the right to enforce the arbitration agreement.

        COMMENT. Here's one consequence that the employer may not have thought about. If failure to pay within the statutory deadline constitutes a material breach of the agreement, the employer might also get stuck paying the employee's attorney fees.

Pending Cases: Viking Cruises Is No Longer "Pending" And 9th Circuit Withdraws Opinion Re AB 51 And Mandatory Arbitration

Catching Up From Last Week . . .

Viking Cruises v. Moriana, PAGA, And Federal Preemption. 

        We posted on June 19, 2022 about the Viking Cruises case, in which SCOTUS ruled individual PAGA claims can be arbitrated. In a concurrence, Justice Sotomayor wrote, "As a whole, the Court’s opinion makes clear that California is not powerless to address its sovereign concern that it cannot adequately enforce its Labor Code without assistance from private attorneys general." She so much as invited the California Supreme Court and the Legislature to address the interpretation of state law, and to clarify the issue of standing to bring representative claims. SCOTUS denied a request for rehearing of Viking Cruises on August 22, 2022. See the August 24, 2022 post by attorneys Mia Farber and Scott P. Lang.

Chamber of Commerce v. Bonta. California, ABA 51, And Federal Preemption.

        We posted on September 19, 2021 about Chamber of Commerce v. Bonta, the 9th Circuit case holding the Federal Arbitration Act does not preempt AB 51, the California legislation forbidding employers from requiring agreement to mandatory arbitration as a condition of employment. The majority opinion drew a dissent from Judge Ikuta.

        As we wrote in our post at the time, "The Ninth Circuit has probably set up a conflict between federal circuits in Chamber of Commerce v. Bonta, and with Judge Ikuta's dissent, there is a reasonable probability that the majority opinion will not be the last word on the subject." That turns out to have been an understatement, as the 9th Circuit took the unusual step of withdrawing the opinion and granting a panel rehearing. See August 23, 2022 post by attorneys Mia Farber, Scott P. Lang, and Cecilie E. Read.

Ninth Circuit Holds Jurisdiction Exists To Enforce Arbitral Document Subpoena In California For International Arbitration Pending In DC

Fighting About Obtaining Discovery In International Arbitration Pending In US . . . 

 

        A problem occasionally encountered in arbitration is getting a court to enforce a document subpoena issued by the arbitrator. That was the problem in Jones Day v. Orrick, Herrington & Sutcliffe, LLP, Michael D. Torpey, Mitchell Zuklie, 21-16642 (9th Cir.  8/1/22) (Wardlaw, Ikuta, Bade).  

        The situation here was that Jones Day sought discovery from Orrick in an arbitration involving a partnership dispute and an attorney who was a German national, the arbitration was in Washington DC, and Orrick is headquartered in San Francisco. The problem that required a solution was finding subject matter jurisdiction in federal court and a means to enforce a subpoena in California.

        The eventual solution, after some misfires, was to get the arbitrator to agree to sit for a hearing in California, have the arbitrator issue a by now "revised" subpoena, and file an action in the USDC, Northern District of California, to enforce the subpoena. While this solution eventually worked, it did not work in the USDC, Northern District, because the judge construed the Federal Arbitration Act to only allow the arbitrator to issue a subpoena where the arbitrator was sitting, i.e., DC. Jones Day then petitioned the Ninth Circuit -- successfully -- in order to enforce the arbitral summonses.

        Judge Wardlaw explains, "[W]e must decide whether an action to enforce an arbitral summons issued by the arbitrator in an ongoing international arbitration under the [New York] Convention also “falls under the Convention.” We join our sister circuits in holding that (1) if the underlying arbitration agreement or award falls under the Convention, and (2) the action or proceeding relates to that agreement or award, then the federal district court has jurisdiction over the action or  proceeding." Here, there was subject matter jurisdiction, because the international arbitration fell under the Convention, and the proceeding to issue summonses for the subpoenas related to the agreement.

        One question remained: where could the subpoenas be enforced? An arbitral subpoena can be enforced by the district court sitting in the district where the arbitration is located pursuant to 9 U.S.C. § 204, but the court in Washington DC lacked personal jurisdiction over Orrick in San Francisco. Solution: "[W]here, as here, that federal district court lacks personal jurisdiction over the party against whom enforcement is sought, we hold that the action may be brought in any district court deemed appropriate under the general venue statute, 28 U.S.C. § 1391, because [9 U.S.C.] § 204 supplements, rather than supplants, other venue rules."

        COMMENT: While Orrick may be displeased with the outcome of this discovery skirmish, the ruling will be welcomed by litigators who seek documents in international arbitration and are sometimes stymied by jurisdictional rules.

 

Consumers, Employment, FAA: Second Dist. Div. 1 Holds CA Statutes Protecting Employee From "Procedural Limbo" In Arbitration Are Not Preempted By Federal Law

Business That Dilly-Dally About Paying Arbitration Fees Face Consequences.

        In a case of first impression, the California Court of Appeal asks whether California Code of Civil Procedure, §§ 1281.97, 1281.98, and 1281.99 are preempted by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. Sunny Gallo v. Wood Ranch, USA, B311067 (2/1  7/25/22) (Hoffstadt, Ashmann-Gerst, Chavez). Those statutory provisions were enacted in California to protect employees and consumers from falling into a state of "procedural limbo" when a business that has drafted an arbitration agreement fails to pay arbitration fees within 30 days after the fees are due. This failure to pay fees can lead to delay and "procedural limbo" in an arbitration. The consequences are significant under the recent California statutes because the "drafter" can end up paying all the fees, or lose the right to arbitrate, or even face sanctions such as termination, evidence preclusion, monetary payment, and even contempt.

        The court holds that the California statutes are not preempted, "because the procedures they prescribe further—rather than frustrate—the objectives of the FAA to honor the parties’ intent to arbitrate and to preserve arbitration as a speedy and effective alternative forum for resolving disputes." 

        COMMENT: Businesses with arbitration provisions should not dilly-dally about paying their share of arbitration fees in employment and consumer disputes, given the severe consequences. Consumers and employees should also be alert to whether fees are timely paid, as the failure by the "drafter" to make timely payment creates options for the consumer or employee.

Arbitration, FAA: Federal Arbitration Act Applied To Intrastate Driver Who Worked For Paratransit Service For Persons With Disabilities

Federal Preemption Of California's Gentry Rule Means Class Action Waiver Can Be Enforced.

        David Evenskaas, a driver, filed a wage and hour lawsuit against his employer, California Transit, Inc., which operates paratransit services for persons with disabilities in West and Central Los Angeles.  Evenskaas's employment agreement included a broad arbitration agreement with a class action waiver that the employer tried, unsuccessfully, to enforce in the trial court. The employer appealed. Evenskaas v. California Transit, Inc., B308354 (2/7  7/15/22) (Segal, Perluss, Feuer). 

        The issue was whether the Federal Arbitration Act preempted California law and the rule in Gentry v. Superior Court, 42 Cal.4th 443 (2007), which holds that certain class action waivers in employment arbitration agreements are unenforceable. The trial court had determined that interstate commerce was not involved, because California Transit, Inc. operated in California, and absent involvement in interstate commerce, there could be no federal preemption by the FAA.

        However, the Court of Appeal reached a different result, distinguishing those cases holding intrastate activities not affecting interstate commerce do not trigger federal preemption. "None of them involved an arbitration agreement between an employer and an employee hired to provide commercial services required by federal law enacted by Congress under its commerce power. Moreover, in Carbajal, Lane, and Woolls the party arguing the FAA applied did not present evidence of the party’s business that would show a connection to interstate commerce." The ADA is enacted with Congress exercising its commerce powers to the fullest, and transportation through a paratransit service affects the ability of persons with disabilities to participate in the national economy.

        COMMENT: If the driver, like a trucker, fell within a class of workers who was actually engaged in interstate commerce, then he would specifically be excluded from coverage under the FAA. 9 USC § 1.