California Mediation and Arbitration

Nonsignatories: Employer Could Not Take Advantage Of Arbitration Agreement In A Temporary Staffing Agency's Contract

Equitable Estoppel, Third-Party Beneficiary, And Agency Arguments Of Employer Failed To Gain Traction.

        Nelida Soltero sued her employer, which sought to compel arbitration, based on an arbitration agreement in a contract between Soltero and Real Time Staffing Services, a temporary worker staffing agency. However, the employer was not a signatory to the agreement between Soltero and Real Time Staffing Services. The trial judge denied the employer's motion to compel arbitration, the employer appealed, and the Court of Appeal affirmed. Soltero v. Precise Distribution, Inc., D083308 (4/1  6/18/24) (Buchanan, Do, Irion).

        COMMENT: We have posted before about cases in which employers have relied on an arbitration clause in a temporary staffing agency company on 7/18/16, 4/26/17, 5/17/17. In fact, the two posts in 2017 relate to Garcia v. Pexco, 11 Cal.App.5th 782 (2017), a case that also involved the staffing agency Real Time. But that case had a different result than Soltero: the employer Garcia was required to arbitrate.

        Cases such as Soltero and Garcia, in which the nonsignatory seeks to take advantage of a third-party's arbitration provision, rely on theories of equitable estoppel, third-party beneficiary, or agency. The Soltero court does not follow Garcia's theory of equitable estoppel, explaining that Soltero's claims did not rely on her contract with the staffing agency. Nor was the employer an intended third-party beneficiary of the staffing agency contract. Finally, while Garcia had sued his employer Pexco, alleging that it and the staffing agency were "joint employees", Soltero did not allege joint employment or agency.

Automobiles, Nonsignatories: Fourth Dist. Div. 2 Rejects Equitable Estoppel Doctrine Of Felisilda

One More California Appellate Case Rejects Felisilda.

        We have written before about courts rejecting the application of the equitable estoppel doctrine to allow vehicle manufacturers to piggyback on to the arbitration provision in sales contracts between customers and automobile dealerships. In Davis v. Nissan North America, Inc. v. Nissan North America, Inc., D083006 (4/1  3/15/24) (Buchanan, Do; Irion dsst) an automobile manufacturer and an authorized vehicle repair facility tried to take advantage of the arbitration agreement in the dealership contract, even though the manufacturer and the repair facility were not signatories to the arbitration agreement. Once more, the Court of Appeal rejected the equitable estoppel doctrine of Felisilda that would have allowed nonsignatories to rely on the arbitration agreement.

        Justice Irion dissented, relying on the equitable estoppel doctrine.

Automobiles, Nonsignatories: Hyundai Is Unable To Piggback Onto Dealership's Arbitration Agreement

California Court of Appeal, 3rd District, Disagrees With California Court of Appeal, 3rd District.

        A Third District California Court of Appeal panel composed of Justices Renner, Earl, and Hull, disagrees with an earlier Third District panel composed of Justices Hoch, Robie, and Murray. The issue is whether an automobile manufacturer can rely on an arbitration agreement between a dealership and a customer to compel the customer to arbitrate a breach of warranty claim with the nonsignatory automobile manufacturer. The earlier case, Dina C. Felisilda et al., v. FCA US LLC, 53 Cal.App.5th 486 (2020), held that the manufacturer could rely, because the customer had to rely on the contract with the dealer to sue the manufacturer. We posted about the Felisilda case on 8/29/20.

        In light of developing case law, Justice Renner, writing for the court, disagrees with Felisilda. The customer's claim that the manufacturer breached its warranty does not rely on the customer's contract with the dealership. The manufacturer's warranty is not part of the dealership contract. Mark Kielar v. Superior Ct. of Placer County (Hyundai Motor America, Real Party in Interest), C096773 (3rd Dist. 8/16/23).

Nonsignatories: Second Dist., Div. 7 Holds Ford Motor Company Cannot Compel Arbitration Under Dealership Contract

Second District, Div. 7 Sides With Second Dist., Div. 8, Rejects Reasoning In Third District Case.

        Rejecting equitable estoppel and third-party beneficiary theories, the Court of Appeal holds that Ford Motor Company cannot piggyback on to the arbitration provision in a dealership contract, and thus Ford is unable to compel arbitration with the buyer of its vehicle. The plaintiff's claim for breach of express warranty against Ford was not based on or intertwined with the dealership's contract with the buyer. In fact, the dealership contract provided it offered no express manufacturer's warranties, though the manufacturer, Ford, could do so. Rosanna Montemayor et al. v. Ford Motor Company, B20477 (2/7  6/26/23) (Feuer, Perluss, Escalante).

        The opinion is in line with the reasoning in the Ford Motor Warranty Cases, 89 Cal.App.5th 1324 (2023) [see my 5/3/23 post] and at odds with the reasoning in Felisilda v. FCA US LLC , 53 Cal.App.5th 486 (2020) [see my 8/29/2020 post]. 

Nonsignatories, Agents: Absence Of Ostensible Or Actual Authority Means Arbitration Agreement Is Unenforceabler

Keep In Mind That Authority Must Be Created By The Principal, Not The Agent.

        Kinder v. Capistrano Beach Care Center, LLC, B316937 (2/7  5/18/13) (Escalante, Perluss, Feuer) is a lawsuit brought by a resident of a residential skilled nursing facility who broke her hip in a fall and sued. The nursing facility tried, unsuccessfully, to enforce an arbitration agreement, and was no more successful in the Court of Appeal.

        The problem is that Nancy Kinder, who broke her hip, did not sign the arbitration agreement. Her children did, but there was a lack of proof that they had actual or ostensible authority to sign.

        COMMENT: There are many lawsuits brought by aged residents of nursing homes in which the defendant seeks to enforce the arbitration agreement. Sometimes, as here, the injured person is a nonsignatory to the agreement. When that is the case, it may not be possible to enforce the agreement. The arbitration agreement might have been enforceable if the resident had signed and had capacity, if there had been an effective power of attorney, or if the signatory had acted under a conservatorship. Perhaps the difficulty of obtaining a power of attorney or a conservatorship is the simple explanation for why this is not done. And if the resident lacks capacity at the time the power of attorney is entered into, that's yet another problem.

 

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.