California Mediation and Arbitration

Nonsignatories, Automobiles: Ford Motor Company Could Not Rely On Dealership Agreements To Compel Arbitration With Auto Buyers

Order Denying Ford Motor Company's Motion To Compel Arbitration Is Affirmed.

        In the Ford Motor Warranty Cases, No. B312261 (2/2  4/4/23) (Grimes, Stratton, Viramontes), FMC  sought to compel arbitration with plaintiffs who purchased automobiles and complained about manufacturing defects. However, FMC's argument relied on dealership contracts with arbitration clauses to which FMC was not a signatory. The trial court denied the motion, and the Court of Appeal affirmed.

        Justice Grimes explained: "Equitable estoppel does not apply because, contrary to FMC’s arguments, plaintiffs’ claims against it in no way rely on the agreements. FMC was not a third party beneficiary of those agreements as there is no basis to conclude the plaintiffs and their dealers entered into them with the intention of benefitting FMC. And FMC is not entitled to enforce the agreements as an undisclosed principal because there is no nexus between plaintiffs’ claims, any alleged agency between FMC and the dealers, and the agreements."

Non-Signatories' Efforts To Compel Arbitration Based On Equitable Estoppel, Agency, and Third-Party Bene Theories All Failed

The Trial Judge Said He Had An Issue Of First Impression.

        Jessica Hernandez sued Meridian Management Services, LLC and other entities for employment violations. The defendants sought to piggyback on to an arbitration agreement that Ms. Hernandez had entered into with her employer Intelex in order to compel her to arbitrate. Her lawyer, however, was careful with the pleadings, for Hernandez apparently did not name Intelex as a party, nor did she claim that Intelex and her other employers, the defendants (Other Firms) were joint employers. The trial judge denied the motion of the Other Firms to compel arbitration based on a contract with an arbitration agreement they had not signed. And the Court of Appeal held that the trial judge was right. Hernandez v. Meridian Management Services, LLC, B312814 (2/8  1/30/23) (Wiley, Stratton, Grimes).

        It was not as if there was no relationship between Intelex and the Other Firms. After all, Ms. Hernandez worked for both. Moreover, though the Other Firms were separate legal entities from Intelex, they were "functionally related." Hernandez "alleged the Other Firms shared the same legal and physical address; the same human resources person; the same controller; the same payroll department; the same risk management and legal services; and the same centralized information technology." But whatever the functional relationships, they were not enough for defendants to compel arbitration based on theories of equitable estoppel, agency, or third party beneficiary.

        Equitable estoppel. This is the issue that led the trial judge to state he had an issue of first impression on his hands: “[t]ypically the doctrine of equitable estoppel is applied where a signatory has sued both another signatory and certain non-signatories on identical claims. . . . [¶] But what happens if the other party to the contract is not also a party to the case, and never was?" Intelex, the party with the arbitration agreement in its contract, was not a party to the case, yet it was the Intelex agreement that the Other Firms wished to take advantage of. In any case, the Court of Appeal concluded that equitable estoppel could not apply because there was no evidence Hernandez was trying to take advantage of anything she had done wrong.

        Agency. The Other Firms offered no evidence that they were empowered to act on behalf of Intelex.

        Third-party beneficiary. There was no evidence that it was a motivating purpose of Intelex and Hernandez to provide a benefit for a third party.

        Affirmed.

 

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."

 

 

Arbitration, Equitable Estoppel: Non-Signatory Plaintiffs Are Not Required By Equitable Estoppel To Arbitrate

First District Division 1 Explains What Will And What Will Not Result In Equitable Estoppel Requiring Non-Signatory To Arbitrate.

        After plaintiffs in coordinated cases hired the Fertility Center (Pacific) to provide fertility-related services, a tank used by Pacific to freeze eggs failed. The tank was manufactured by Chart, Inc., (Chart), and sold to Pacific by Praxair, which also helped with installation. Plaintiffs' contract with Pacific included an arbitration provision, and thus plaintiffs agreed to arbitrate claims with Pacific. Naturally, defendants Chart and Praxair tried to piggyback onto Pacific's arbitration agreement. Though Chart and Praxair were non-signatories to the arbitration agreement, they argued that plaintiffs were equitably estopped from refusing to arbitrate. Both the trial court and the Court of Appeal rejected Chart's and Praxair's effort to compel arbitration. Pacific Fertility Cases, A158155 (1/1  pub. 12/1/22) (Banke, Margulies, Devine).

        Chart and Praxair argued that but for plaintiffs' contract with Pacific, their claim against Chart and Praxair would never have arisen. The case is helpful because it explains that this "but-for test" is insufficient to establish equitable estoppel. In explaining why the "but-for test" was insufficient, Justice Banke distinguished the situation from that in a case in which consumers had sued Apple and AT&T for allegedly conniving to get consumers to subscribe to a network and buy an Apple phone that could not be used properly with the network. In the case involving Apple, the court had found that the consumers were equitably estopped from refusing to arbitrate. 

        Here, however, the situation was different: "[A]s the court correctly stated, the analysis is not a simple 'but for' test, but whether plaintiffs’ claims demonstrate ' "actual reliance on the terms of the [Pacific] agreement[s] to impose liability." '  Plaintiffs’ claims against Chart and Praxair do not rely on the terms of their agreements with Pacific.  Nor do plaintiffs allege concerted action or an ongoing relationship among Pacific, Praxair, and Chart.  Thus, the circumstances here are distinguishable from those in Appel II."

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, Nonsignatories, Equitable Estoppel: Ninth Circuit Holds Nonsignatory BMW Could Not Enforce Dealer's Arbitration Agreement With Customer

Nonsignatories Can Sometimes Enforce An Arbitration Agreement Based On A Third-Party Beneficiary Or  Equitable Estoppel Theory - But Such Was Not The Case Here.

         After Kim Ngo purchased a BMW that Ngo alleged was a lemon, BMW sought to enforce an arbitration agreement between the Dealer and Ngo, to which BMW was not a signatory. The trial court agreed that BMW was a third-party beneficiary that could enforce the agreement. The Ninth Circuit reversed.  A significant fact is that Ngo sued BMW for breach of warranty, but did not sue the Dealer under the agreement containing the arbitration provision. Ngo v. BMW of North America, No. 20-56027 (9th Cir.  1/13/22) (Parker, sitting by desig., Wardlaw, Hurwitz).

        For the three-part third-party beneficiary test applied by Judge Parker, which the panel concluded BMW failed, see Goonewardene v. ADP, LLC, 6 Cal. 5th 817 (2019) (third-party must benefit from contract; contracting parties must have "motivating purpose" to benefit third-party; enforcement must be consistent with "reasonable expectations" of the contracting parties and contract objectives).

        As to "equitable estoppel", (a) there was not concerted misconduct between BMW and the Dealer; (b) Ngo did not rely on contract terms or make claims closely intertwined with the contract. Under California law, the manufacturer's warranty is separate from the Dealer's contract terms.

 

Arbitration, Unconscionability, Existence Of Agreement, Internet Commerce: Three Recent Cases Affirm Orders Denying Motions To Compel Arbitration

Three Recent Cases Affirm Orders Denying Motions To Compel Arbitration.

Anthony De Leon v. Pinnacle Property Management Services, LLC et al., No. 059801 (4/3  Dec. 8, 2021) -- Unconscionability.

        Superior Court Judge Marks, sitting by assignment, authors the opinion, agreeing with the trial judge's denial of a motion to compel arbitration, on the grounds that  the agreement was procedurally and substantively unconscionable, and that it was proper  not to sever objectionable provisions.

Roseana Garcia v. Expert Staffing West, No. B307371 (2/6  12/29/21) -- Employment, Nonsignatories.

        Writing for the court, Justice Tangeman affirms the trial judge's order denying a motion to compel arbitration on the grounds that no agreement to arbitrate existed. 

        Plaintiff Garcia was added to a class action wage and hour dispute against Expert Staffing West, Essential Seasons, and Cool-Pak, LLC. Essential Seasons, which provided contract-based labor services for agricultural and foodservice companies, hired Garcia in 2017, placing her with Cool-Pak, LLC, a company that labeled, packed, and shipped produce. In 2019, Garcia applied to Expert Staffing West, and the application included an arbitration provision applying to disputes with Expert Staffing West and all related entities. Expert Staffing West provided payroll services and staffing to the other defendants, and claimed to be related, though apparently in the case of Garcia, it only provided payroll services. An important fact is that Expert Staffing West rejected Garcia's application.

        "We conclude that the arbitration clause between a job applicant and her prospective employer does not apply to disputes between the applicant and her former employers based on the existence of a business relationship between the prospective employer and the applicant’s past employers," wrote Justice Tangeman.

Sellers v. JustAnswer LLC, No. D077868 (4/1   12/30/21) -- Internet Commerce.

        In a case of first impression, the California Court of Appeal addresses the enforceability of an internet "sign-in wrap" agreement with an arbitration provision, holding that, under the specific circumstances of the case, the arbitration provision was not enforceable:  "[W]e hold that none of the textual notices on the JustAnswer website were sufficiently conspicuous to bind Plaintiffs to the arbitration provision set forth in the terms of service."

        The long opinion, authored by Justice Do, is interesting for several reasons. First, it addresses that annoying practice of "automatically renewing" contracts on the internet. Here, the plaintiff signed up for a service expected to cost five dollars. However, by proceeding on the website without having to read the hyperlinked terms of a lengthy agreement, and without having to click "I accept," the plaintiff nevertheless automatically accepted the terms of that agreement.

        Second, California has a new Automatic Renewal Law, Business & Professions Code §§ 17600 et seq. This law seeks to protect consumers against unfair automatic renewal practices, and requires that there be clear and conspicuous notice that the consumer is being bound to the terms of the contract. Justice Do takes the "clear and conspicuous" statutory requirements into account.        

        Third, the opinion reviews other cases that have examined whether internet-based contracts are binding, and educates us about the typology for such contracts: browserwraps (browsing the website results in acceptance of the contract); clickwraps (clicking "I accept" with a link to the terms results in acceptance); scrollwraps (like a clickwrap, except that the consumer  must first scroll through the entire contract before clicking "I accept"), and finally "sign-in wraps" (one signs up to use the service, and is notified that continuing on the website leads to an acceptance of the terms, without having to click "I accept", and in the Seller case, without having to go to the hyperlinked terms). The courts have often refused to enforce browserwraps, while enforcing scrollwraps. The "sign-in wrap" evidently falls somewhere between the extremes.

        Finally, we do not read the case as necessarily saying that all "sign-in wraps" are non-binding. However, here, where the notice was not clear and conspicuous, a binding contract was not formed.

 

 

 

 

 

 

 

Arbitration, Celebrities, : Second Circuit Rejects Efforts By Trump Organization To Compel Arbitration

Effort To Compel Arbitration Failed Because Trump And Company Were Nonsignatories Who Distanced Themselves From Contract.

"A full-sized figure of then-President Donald Trump inside the doorway of an abandoned building in Marble Hill, the surviving name of what were the neighboring rural towns of Lutesville and Marble Hill in Bollinger County, Missouri." Carol Highsmith, photographer. 11/20/20. Library of Congress. 

        While we generally limit our posts to California, Ninth Circuit, and SCOTUS cases, we sometimes stray when a celebrity is involved. In Doe v. The Trump Corporation, Donald J. Trump, Donald J. Trump Jr., Eric Trump, Ivanka Trump, Docket Nos. 20-1228-cv/20-1278-cv (2d Cir. 7/28/21) (Sack, Chin, and Lohier), the celebrity was, well, you know.

            In a  Politico article, Josh Gerstein writes, "A federal appeals court has rejected an attempt by former President Donald Trump and three of his children to force arbitration in a class-action lawsuit accusing him of fraud during the decade he spent as a pitchman for ACN, a business services company featured on 'Celebrity Apprentice.'"

        Plaintiffs alleged Trump and family members induced them with false information to enter into business relationships with non-party appellant, ACN, a "multi-level marketing" company that enlists individuals to work as "Independent Business Owners." While purportedly independent of  ACN, Trump and family allegedly accepted large, secret payments to  pitch ACN. 

        The effort to compel arbitration failed because defendants were not signatories to the arbitration agreement. Claiming they were independent of ACN, Trump and family were unable to benefit from ACN's arbitration clause.

 

Arbitration, Nonsignatories, Equitable Estoppel, International, Choice Of Law: 9th Cir. Affirms District Court's Order Denying Motion To Compel Arbitration Pursuant To NY Convention

And Judge Bea Dissents.

        In Setty v. Shrinivas Sugandhalaya LLP, No. 18-35573 (9th Cir. 7/7/21) (Nelson, Rawlinson; Bea, dsst.), the court holds that the district court did not  abuse its discretion by rejecting defendant SS Mumbai's argument that  plaintiff SS Bangalore should be equitably estopped from avoiding arbitration. Defendant SS Mumbai was a non-signatory to an arbitration agreement contained in a  partnership deed to which plaintiff SS Bangalore was a  party. Because it was not a party to the arbitration agreement, which was contained in a document executed in India by Indian parties, SS Mumbai tried to rely on the doctrine of equitable estoppel to argue that if the plaintiff was claiming the benefits of the partnership deed, it  could not equitably disclaim its obligation to arbitrate. (Quisensit commodum debet et sentire onus.)   But the Ninth Circuit concluded plaintiff's intellectual property federal claims were not  sufficiently intertwined with the  partnership deed, and as a result, the court could not look to the partnership deed to determine whether Indian law should apply to decide the estoppel question. Instead, the court concluded federal common law governs, and decided under federal common law that the facts did not support equitable estoppel.

        Dissenting, Judge Bea wrote: "I would hold, simply, that  whether a particular contract is governed by the New York Convention or not, a nonsignatory's equitable estoppel claim to compel arbitration is brought pursuant to the FAA, which requires that state contract law (or in the case of a foreign contract, perhaps the foreign state's contract law, depending on the state's choice of law rules) govern the issue."

        Comment: This case has a lively procedural history. In a prior opinion, the Ninth Circuit held that SS Mumbai, the defendant and non-signatory to a partnership deed that contained an arbitration provision, could not equitably estop plaintiff SS Bangalore from avoiding arbitration. (See my 1/23/21 post on this case). The Supreme Court granted cert, remanding for further consideration in light of GE Energy Power Conversion Power France SAS v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020). GE Energy held the New York Convention does not conflict with enforcing arbitration agreements by non-signatories under domestic-law equitable estoppel doctrines. The Ninth Circuit took up the case again, leading to the current majority opinion and dissent. Given the lengthy dissent, might the procedural history still have legs?

Arbitration, Choice Of Law, Nonsignatories: Foreign Nonsignatory To Partnership Deed Could Not Invoke Equitable Estoppel To Compel Arbitration

The Partnership Deed With The Arbitration Clause Was Entered Into In India, But The Court Applied US Federal Substantive Law To The Equitable Estoppel Issue.

Incense for sale in Bangalore. Author: Meanest Indian. Creative Commons License.

        Appellant/Defendant Shrinivas Sugandhalaya LLP (SS Mumbai), in a lawsuit with Appellees/Plaintiffs (SS Bangalore), sought to enforce an arbitration provision in a Partnership Deed, relying on the doctrine of equitable estoppel. SS Mumbai failed in its efforts to compel arbitration, and appealed. Setty v. Shrinivas Sugandhalaya, No. 18-3557 (9th Cir.  1/20/21) (Nelson, Rawlinson, dissent, Bea).

        The doctrine of equitable estoppel provides that one cannot accept the benefits of a contract and avoid the burdens, in this case, a requirement to arbitrate. SS Mumbai's problem was that the Partnership Deed containing the arbitration clause had been signed by two brothers, but SS Mumbai was a company and a nonsignatory. The majority opinion holds that federal substantive law must be applied to determine whether equitable estoppel can be applied to prevent the plaintiff from avoiding arbitration. Judge Nelson explains that under federal substantive law, for equitable estoppel to apply, "it is 'essential . . . that the subject matter of the dispute [is] intertwined with the contract providing for arbitration.' Rajagopalan v. NoteWorld, LLC, 718 F.3d 844, 847 (9th Cir. 2013)." Finding intertwinement to be lacking here, the majority held equitable estoppel did not apply, and thus, the arbitration provision could not be enforced against the nonsignatory.

        Judge Bea has written an interesting dissent. For one thing, the facts of the case are interesting. Two brothers took over their father's incense business in India after the father died, and ended up as incensed competitors in a lawsuit involving federal trademark claims and state tort claims. The Partnership Deed was negotiated and entered into in India under Indian law.  The father's firm was in Mumbai. SS Bangalore and SS Mumbai, nonsignatories to the agreement, were Indian companies owned by Indian nationals. Applying choice of law principles, Judge Bea opines that substantive Indian law would likely apply to the estoppel issue. He would have remanded to the district court to apply choice of law principles. The district court would then have had to determine which substantive law applied, and then apply the correct law to determine whether equitable estoppel could be applied.

        COMMENT: Following the route proposed by the dissent would have added complexity, though it might have led to the same destination.