California Mediation and Arbitration

Scope, Equitable Estoppel: 9th Circuit Holds Discrimination Claims Were Outside Scope Of Arbitration, And Equitable Estoppel Prevented Bank From Arguing Borrower Couldn't Opt Out

There Were Two Agreements To Arbitrate And Neither Worked.

        Iliana Perez entered into two arbitration agreements: one, with Citibank in 2010 in connection with a student loan, the second, with Discover Bank in 2018, in connection with a consolidation loan for her student loan. She sued Discover Bank after her application for a consolidation loan was denied in, based on her undocumented immigration status. Discover Bank moved unsuccessfully in the trial court to compel arbitration under the two arbitration agreements, a result that was affirmed on appeal. Perez v. Discover Bank, 22-15322 (9th Cir.  7/24/23) (S.R. Thomas, Holly Thomas, Rakoff).

        The dispute centered around the denial of the consolidation loan, which occurred some eight years after Perez entered into the arbitration agreement relating to the student loan. The consolidation loan was not within the scope of the earlier agreement.

        As for the second agreement, Perez argued that it was unconscionable. However, in court, Discover Bank's attorney argued that it could not be unconscionable, because Perez still had 30 days to opt out. After the hearing, Perez did opt out of arbitration under the second agreement. After Perez opted out, the court addressed the matter again. Now Discover Bank's attorney argued that Perez's exercise of her opt out only applied to future discrimination, not past discrimination. But that position was inconsistent with the earlier representation to the court, and the Ninth Circuit invoked the doctrine of equitable estoppel to reject Discover Bank's argument that Perez could not opt out of arbitration for past discrimination. Indeed, Discover Bank's argument that the second agreement was not unconscionable relied, at least in part, on its representation to the court that Perez could still opt out. So it would have been unfair not to hold the bank to a representation upon which the court had earlier relied.

Arbitration, Scope: 9th Circuit Ruled Amazon Arbitration Agreement With Flex Drivers Did Not Apply To Spying On Drivers On Facebook

Two Judge Majority With Judge Susan P. Graber Concurring And Dissenting.

        Amazon Flex Drivers sued Amazon for allegedly spying on them in a closed Facebook group where the drivers discussed employment-related issues when they were not working. A panel of the 9th Circuit held that a 2016 arbitration agreement applied, because the employer seems not to have given adequate notice of the terms of a later agreement to the drivers. However, a majority of the panel held that the allegations of spying did not come within the scope of the arbitration agreement; in fact, the drivers' claim that spying and invasion of privacy were wrongful acts would have been wrongful acts even if they had not been drivers. Drickey Jackson v. Amazon, No. 21-56107 (9th Cir.  4/19/23) (Schroeder, Friedland; Graber conc. & dsst.).

        Judge Graber concurred that the 2016 agreement applied and that denial of a motion to compel arbitration was appealable. However, she believed that the conduct alleged did arise from the employment relationship, and therefore the drivers should have been required to arbitrate."In sum," Judge Graber wrote, "Defendant allegedly spied on Plaintiff solely because of Plaintiff’s independent contractor relationship with Defendant and in order to defeat, preempt, or combat work-related activities by Plaintiff and other Flex drivers." (emphasis by Judge Graber). 

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.

 

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, Scope, Stay: Fifth District Agrees Equitable Issues Were Outside Scope Of Arbitration Agreement, And Arbitrable Claims Could Be Stayed

The Arbitration Provision Was Not Ambiguous.

        The arbitration provision in Eminence Healthcare, Inc. v. Centuri Health Ventures, LLC, et  al., F079993 (5th Dist.  2/2/22) (Franson, Hill, Pena), carved out equitable causes of action from arbitration. Because the Court of Appeal agreed the clause was unambiguous, the Court affirmed the trial court's decision that six equitable claims should be heard by the trial court. In an unpublished part of the opinion, the Court of Appeal agreed that the arbitration of the remaining arbitrable claims was  properly stayed because the resolution of the litigated claims might dispose of the need to arbitrate.

Arbitration, Construction Of Scope Of Agreement: Second Dist.Div. 7 Reverses Arbitration Award Because Narrow Scope Of Arbitration Agreement Did Not Cover The Dispute

The Court Of Appeal Construes The Arbitration Provision As "Narrow" Rather Than "Broad."

        The Court of Appeal reverses confirmation of an arbitration award in Thomas Ahern et al. v. Asset Management Consultants, Inc., et al., B309935 (2/7  2/1/22) (Perluss, Segal, Feuer).

        The underlying dispute was between a co-tenant, Ahern, who purchased a co-tenant interest in an office building from Asset Management Consultants, who acquired the building from iStar. Asset Management Consultants compelled arbitration against Ahern based on an arbitration provision in the co-tenancy agreement. This was reversed on appeal, because Ahern's dispute with Asset Management Consultants did not "arise under" the co-tenancy agreement. The dispute related to representations made during the acquisition of the building, not to the management and operation of the building under the co-tenancy agreement.

       Arbitration clauses requiring a dispute to "arise under" an agreement are interpreted to be narrower in scope than clauses providing for arbitration of "any dispute" or clauses providing for disputes "arising from or related to" an agreement. The clause at issue here was construed to be a narrow one.

        COMMENT: It seems that  Ahern will get another bite out of the apple. But we don't know whether a judge will rule differently on the merits of the underlying dispute, or  whether the reversal of fortune will lead to a settlement.

Arbitration: Construction Of Agreement; Delegation; Scope: Plaintiff Uber/Lyft Driver’s Suit Relating To Uber Use Of Fake Lyft Accounts Was Not Within Scope Of Arbitration Agreements With Uber

Appellate Court Accepted Delegation Of Arbitrability Gateway Determination To Arbitrator, But Found Uber’s Arbitrability Assertion Was “Wholly Groundless” Because Dispute Was Patently Beyond The Scope of Parties’ Arbitration Agreement.

            Smythe v. Uber Technologies, Inc., Case No. A149891 (1^st Dist., Div. 3 June 8, 2018) (published) (Siggins, J., concurred in by McGuiness, Acting P.J. (retired justice sitting by assignment) and Pollak, J.) was an interesting case involving whether a controversy raised by a driver for both Uber and Lyft fell within the scope of an arbitration clause between driver and Uber. Both the lower and appellate courts decided it did not.

            Plaintiff driver, on both of himself and a putative class of Lyft drivers, sued Uber for a practice of directing its drivers and others to create/use fake Lyft accounts to request rides such that Lyft drivers were sent on wild good chases to pick up nonexistent passengers—all designed to discourage drivers from driving Lyft and causing Lyft customers to divert their patronage to Uber. In response, Uber moved to compel arbitration and stay the class actions based on two agreements plaintiff signed with Uber having arbitration clauses.   Those provisions required arbitration with respect “to any dispute arising out of or related to this Agreement or termination of the Agreement,” expressly mentioning wage/hour, trade secrets, unfair competition, compensation, expense reimbursement, termination, harassment and claims arising under various trade secret/discrimination/wage hour statutes. The agreements also included a delegation clause specifying that disputes over arbitrability were to be decided by the arbitrator and not a court/judge.

            The lower court found driver’s complaint allegations were beyond the scope of the arbitration agreement and that the delegation provision was unenforceable in the context of driver’s advanced claims.

            The 1/3 DCA agreed.

            It accepted Uber’s premise that the arbitrator decided the gateway arbitrability issue, but decided an important exception applied. Relying upon Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006) which was found consistent with California law on the particular issue, the trial court did not have to defer to the arbitrator where the assertion of arbitrability is “wholly groundless,” but could deny the motion to compel arbitration and the request to stay the action. That exception carried the day in Smythe.

            Like the lower court, the appellate panel determined that driver Smythe brought his action in his capacity as a driver for Lyft, not Uber, and that the complaint allegations fell outside the ambit of the arbitration clause between Smythe and Uber. “Indeed, the same allegations could just as well be pursued by a Lyft driver who does not drive for Uber.” (Slip Op., at p.5.)

International Arbitration, Gateway Issue, Delegation, Scope: Ninth Circuit Holds That Incorporation Of ICC Rules Delegates Issue Of Scope Of Arbitration To The Arbitrator

Ninth Circuit Joins Second And First Circuits.

        In Portland General Electric Company v. Liberty Mutual Insurance Company, et al., No 16-35628 (9th Cir. 7/10/17) an opinion authored by Senior District Judge Jed S. Rakoff, the 9th Circuit joins the 2nd and 1st Circuits to conclude that "incorporation of the rules of the ICC [International Chamber of Commerce] constitutes clear and unmistakable evidence of a delegation of gateway issues to the arbitrator . . . "

        The case involves a dispute among Portland General Electric Company (PGE), its Contractor, its Contractor's parent and guarantor (Guarantor) and its Sureties.  The construction agreement between PGE and its Contractor, which did not provide for arbitration, required that the Contractor obtain a Guaranty from its parent, and that the Sureties issue a Bond to PGE.  The Bond was also silent about arbitration.  However, the Guaranty did include a broad arbitration clause covering disputes arising out of the same transaction, and allowing PGE or the Guarantor to implead third parties, provided that the third parties consented to participate in the arbitration. 

        The Guarantor sought to interplead the Sureties in the ICC arbitration, and the Sureties consented to be impleaded, claiming no obligation to pay under the Bond.  However, PGE objected in the district court that it had not initiated the impleader, that the Sureties' Bond did not provide for arbitration, and that the dispute was outside the scope of its arbitration agreement with the Guarantor.  The district court agreed with PGE, and entered a preliminary injunction prohibiting the Sureties from pursuing claims against PGE in arbitration and denying a mandatory stay of the judicial proceedings under section 3 of the FAA.

        The 9th Circuit vacated the judgment of the district court, and remanded for further proceedings consistent with the opinion.  Now, the ICC will need to rule on the scope of the arbitration provision in the Guaranty.

        COMMENT:  In a footnote, the Court notes that a few circuits have held that delegation to the arbitrator only applies to claims that are at least "arguably" covered by the agreement to arbitrate.  Here, however, the Court did not need to take a side in the circuit split, because the arbitration agreement arguably covered the Sureties' claims against PGE.

 

    

 

    

Arbitration, Enforceability, Existence Of Agreement, Employment: Orders Denying Motions To Compel Arbitration And Staying Arbitration Survive Appeals In Fourth, Sixth, And Fifth Districts

     The next three cases show that, notwithstanding the trend to uphold agreements to arbitrate, there are still plenty of situations in which our California Courts of Appeal will agree that arbitration should be denied or stayed, and allow litigation to go forward.

Tran v. Integra LifeSciences Corporation, No. G051620 (4th Dist. Div. 3 8/18/16) (unpublished):  Order Denying Motion To Compel Arbitration Affirmed.

     In Tran, the trial court denied defendants’ motion to compel arbitration on the grounds that the arbitration provision was superseded by a different, later arbitration provision, and the later provision was unconscionable.  The operative arbitration provision was “take it or leave it” and unconscionable because it required Tran, a California employee, to arbitrate her claims in New Jersey, and because the arbitration provision had various provisions reflecting the unilateral nature of the arbitration requirement.  Justice Thompson authored the decision.   Affirmed.

Scheiber v. Shoe Palace Corporation, No. H041495 (Sixth Dist. 8/16/16) (unpublished):  Appeal Of Order Staying Arbitration Of Plaintiff’s Individual Claims And Allow PAGA Claim To Proceed In Court Declared Moot.

     Defendant’s appeal was limited to challenging the trial court’s decision to stay the arbitration of plaintiff’s individual claims, and did not challenge order that representative claims could be litigated in court.  However, because the plaintiff sought dismissal of his individual claims in the trial court, and represented in the Court of Appeal that he would dismiss those claims before they were ever arbitrated, the appeal was dismissed as moot.  Justice Bamattre-Manoukian authored the decision.

Ashbury Heights Capital, LLC v. FactSet Research Systems Inc., No. A145806 (1st Dist. Div. 1 8/16/16) (unpublished):  Order Denying Motion To Compel Arbitration Is Affirmed.

     The trial court denied defendant’s motion to compel arbitration, because plaintiff’s claims pertained only to defendants’ conduct in the years after the contract was terminated.  Affirmed.

     One interesting question here is why the court, rather than the arbitrator, decided the issue.  After all, the Commercial Arbitration rules of the AAA entitled the arbitrator to decide disputes over the scope of the arbitration agreement.  The Court of Appeal, however, viewed the issue as turning “on the continued validity of the arbitration clause, not the clause’s scope.”  So essentially the Court viewed the validity issue as a gateway issue that the Court should decide.  Justice Margulies authored the decision.

Arbitration, Scope, Enforceability, Construction: Employees Get To Litigate Class Action Claims, Because Arbitration Agreement Excluded Class Action Claims From Its Scope

Court Looks At Evolution Of Class Action Waiver Law In California For Help Construing Meaning Of The Contractual Language.

     In 2011, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) held the Discover Bank rule, invalidating a class arbitration waiver, had been preempted by the Federal Arbitration Act.  After Concepcion, employers frequently insert class arbitration waivers in their employment agreements and dispute resolution policies.

     But that’s not what happened in Licon v. Wish-I-Ah Skilled Nursing & Wellness Centre LLC, F070304 (Fifth Dist. 6/15/16) (Hill, Kane, Franson) (unpublished), where the Employment Dispute Resolution (EDR) Program was written before Concepcion was decided.  Instead, the EDR Program provided that it “covers only claims by individuals and does not cover class or collective actions.”  (italics in the Court’s opinion).  Construing the plain meaning of the words, the Court of Appeal agreed with the trial judge that the arbitration agreement excluded class and collective actions from its scope, so plaintiffs were not required to arbitrate class or private attorney general claims.

      Of course, the employer argued “other language in the EDR program booklet demonstrates an intent to arbitrate all claims on an individual, nonclass basis . . . “ 

      The Court found it helpful to consider the extrinsic evidence of how the employer’s EDR policy had evolved from before to after Concepcion, for after Concepcion, the employer changed the wording of its EDR policy to take advantage of Concepcion’s evisceration of the Discover Bank rule.  The Court concluded that the pre-Concepcion ERP, which governed the situation, meant what it said, because it had been drafted at a time when the employer “had to be concerned with the possibility a court would invalidate a class action or class arbitration waiver.”