California Mediation and Arbitration

Third Party Beneficiaries: Second Dist., Div. 6 Rejects Argument Third-Party Ford Could Benefit From Arbitration Clause With Non-Party Dealer

One More Opinion Rejects Reasoning In Felisilda.

        In Rivera et al. v. Superior Court of Ventura County, B334522 (2/6  9/23/24) (Gilbert, P.J.) petitioners Rivera and Espinosa sued Ford Motor Company under California's Song-Beverly Consumer Warranty Act (the "lemon law") after their Ford F-250 truck experienced repeated mechanical issues. They also included Ford of Ventura, an authorized repair service, in their complaint but did not sue the selling dealer. FMC moved to compel arbitration based on an arbitration clause in the sale contract signed between the petitioners and the non-party dealer.

        The trial court granted FMC's motion, relying on the case Felisilda v. FCA US LLC, which allowed a manufacturer to enforce an arbitration clause as a third-party beneficiary of the sale contract. However, the petitioners sought reconsideration after several appellate courts disapproved Felisilda. The trial court denied reconsideration, citing the unresolved status of Felisilda. The petitioners then sought a writ of mandate. The appellate court ruled that Ford Motor Company was not a third-party beneficiary and that petitioners were not equitably estopped from rejecting arbitration. The appellate court thus granted the writ and ordered the trial court to vacate its order compelling arbitration.

        COMMENT. Why did the court reject Felisilda?  Unlike Felisilda, the petitioners in this case sued only the manufacturer, and not the selling dealer. The obligations under manufacturer's warranty are independent of the sale contract, and the manufacturer is neither a party to nor a beneficiary of that contract. The court emphasized that petitioners’ claims stemmed from statutory warranty obligations under the lemon law, not the sale contract, thus rendering Felisilda inapplicable. We posted on the Felisilda case way back on 8/29/20. Since then, the law has tipped against Felisilda.

Ford F-250. Photo: Scott Beeton.  Creative Commons Attribution-Share Alike 4.0 International license

 

Delegation, Arbitrability, Third-Party Beneficiary: Ralph's Wasn't Third-Party Beneficiary Of Agreement Between Customer And Instacart

Delegation Of Threshold Issue To Arbitrator Must Be Unmistakably Clear.

        Mahram used Instacart to purchase groceries and later sued Ralphs (The Kroger Co.) for allegedly raising prices after applying a coupon, claiming violations under false advertising and unfair competition laws. Ralphs moved to compel arbitration based on an agreement between Mahram and Instacart, even though Ralphs was not a signatory to that contract. The Court of Appeal affirmed the trial court's denial of Ralphs' motion to compel arbitration. Payam Mahram v. The Kroger Co., B324405 (2/8  8/19/24) (Wiley, J.).

        While Mahram did enter into an arbitration agreement with Instacart by signing up for its services, the agreement only applied to disputes between Mahram and Instacart.

        Whether Ralphs could compel arbitration was for the court to decide, not an arbitrator, because the contract did not make it "unmistakably clear" that Mahram agreed to arbitrate with any party other than Instacart.

        And Ralphs was not a third-party beneficiary of the contract between Mahram and Instacart, because the contract's purpose was to facilitate grocery deliveries, not to benefit Ralphs specifically.

        In sum, Ralphs could not enforce the arbitration agreement between Mahram and Instacart, and the trial court's denial of Ralphs' motion to compel arbitration was affirmed.

 

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.

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]. 

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.

 

Arbitration, Nonsignatories: Third Party Beneficiary And Estoppel Arguments Fail To Convince First District Div. 3 That Nonsignatories Can Arbitrate

But Arbitration Is Enforceable Between Employee And His Employer (Except As To PAGA Claims).

    Enforcing an arbitration clause can sometimes become a sticky wicket, glue pot, or dog's breakfast when the party seeking enforcement must rely on more than one document. Such was the case for the defendants seeking to compel arbitration in Thomas Jarboe v. Hanlees Auto Group, et al., No. A156411 (4/3  8/14/20) (Siggins, Fujisaki, Jackson).

    Plaintiff Jarboe sued individually and on behalf of a putative class Hanlees Auto Group (Hanlees), 12 affiliated dealerships, and three individual defendants for various labor claims. Defendants moved to arbitrate, and the trial court required arbitration as to 11 causes of action against DKD of Davis, denied the motion as to the 12th PAGA cause of action, and denied the motion as to the affiliate and individual defendants. The affiliates and individuals were nonsignatories. 

    When hired, Jarboe signed two agreements with arbitration provisions. The first, an application, contained an arbitration clause that also referred to other companies/employers. The second, an Employment Agreement, was between DKD of Davis, named as "Company" and Jarboe. It included an integration clause and superseded other agreements. Because the affiliates and individuals were non-signatories, the second agreement superseded the first, and the second agreement defined "Company" as Employer, the Court of Appeal was not convinced that nonsignatory individuals and affiliates could depend on the agreement to arbitrate.

    Nor was the evidence sufficient to convince the Court that the affiliates and individuals were expressly intended to be third-party beneficiaries of the integrated and superseding Employment Agreement.

    Sometimes nonsignatories can rely on an equitable estoppel theory to compel arbitration when the plaintiff relies on an agreement with an arbitration clause to state claims. But here, the key document, the Employment Agreement between only the Employee and one company, DKD of Davis, was not so clearly factually bound up with the claims, including class action claims, that the plaintiff stated against the individuals and affiliates.

    Comment. Defendants may have wanted to require arbitration of any and all claims against any of the  affiliates, and the individuals. However, the Application and Employment Agreement should have been drafted very carefully and consistently to do so, and the integration clause and superseding clause created a landmine in this case.

Arbitration: Equitable Estoppel And Third Party Beneficiary Theories Required Additional Insured To Arbitrate Coverage Claims

Additional Insured Had Tried To Avoid Arbitration By Arguing It Was Not A Party To Arbitration Agreement.

        Philadelphia Indemnity Insurance Company v. SMG Holdings, Inc., No. C082841 (3rd Dist.  12/31/19) (per curiam), "concerns whether a binding arbitration clause in an insurance policy issued by plaintiff Philadelphia Indemnity Ins. Co., applies to a third party, defendant SMG Holdings, Inc." The trial court ruled it did not apply, and the Court of Appeal ruled it did apply.

        Future Farmers of America had licensed the use of the Fresno Convention Center for an event from the Convention Center's manager, SMG. As a condition for doing so, SMG required that Future Farmers of America obtain an insurance policy that also provided coverage for SMG. When someone stepped into a parking lot pothole and suffered serious injury during the event, the injured person sued Fresno and SMG, and SMG tendered the claim to Philadelphia Indemnity Ins. Co. The insurance company claimed there was no coverage, and after a standoff, moved to compel arbitration.

        The trial court determined that SMG was not a  party to the arbitration clause, and denied the insurance company's motion to compel arbitration. The Court of Appeal, however, concluded that SMG was bound by the arbitration clause. SMG was an intended third party beneficiary; after all, it had insisted that Future Farmers of America provide it with insurance for the event. And SMG was equitably estopped from avoiding avoiding arbitration, because one cannot claim the benefits of a contract -- in this case, insurance coverage -- while denying the burdens -- in this case, binding arbitration of a coverage dispute.

Arbitration, Nonsignatories, Agents, 3d Party Benes, Equitable Estoppel: 4th District Div. 2 Rejects Harley Davidson Dealer's Argument That It Can Compel Arbitration Based On Arbitration Clause In Security Agreement

The Security Agreement Included An Arbitration Clause, But The Purchase Agreement Did Not.

    It is not unusual for a consumer to execute more than one agreement at the time of purchase, only one of which contains an arbitration clause. Such was the case in Fuentes v. TMCSF, Inc., E066242 (4/2  8/23/18) (Ramirez, Slough, Fields). Fuentes, who bought a Harley-Davidson motorcycle, and Riverside Harley-Davidson (Riverside) were parties to a purchase agreement without an arbitration clause. Fuentes and Eaglemark Savings Bank (Eaglemark) were parties to a simultaneously executed Security Agreement that did contain an arbitration clause. When Fuentes sued Riverside in a putative class action, Riverside petitioned to compel arbitration.

    Cases like this present a standard set of questions: are the two agreements to be interpreted as a single agreement? Is the party seeking arbitration (Riverside here) an agent of the party (Eaglemark) to the contract with the arbitration provision? Does the party seeking arbitration have standing as a third-party beneficiary of the contract with the arbitration provision? Is the non-signatory plaintiff equitably estopped from refusing to arbitrate because he asserts claims "inextricably intertwined with" the underlying contractual obligations of the agreement containing the arbitration clause? To which the Court of Appeal answered, no, no, no, and no. AFFIRMED.

    We suspect that in the future some drafting changes will be made by Riverside to its sales documents.

 

Above: Jimmy Murphy, winner of 500-mile auto race at Indianapolis, Ind., May 30, 1922, and Ernie Olson, mechanic, seated on Harley-Davidson motorcycle and in sidecar.  Library of Congress.

Enforcement Of Arbitration Agreement, Non-Signatories: Ninth Circuit Affirms Order Denying Samsung’s Motion To Compel Arbitration Of Class Complaint Filed By Purchaser Of Galaxy S4 Phone

Customer Agreement With Verizon And Samsung Product And Safety & Warranty Agreement In The Box Failed To Bind Plaintiff To Arbitrate.

     In Norcia v. Samsung Telecommunications America, LLC, et al., No 14-16994 (9th Cir. 10/17/17) (Ikuta, Thomas, Bea), Judge Ikuta provides in depth analysis of whether a 101 page brochure containing an arbitration provision and placed in the box containing a purchaser’s Galaxy S4 phone bound Daniel Norcia to arbitrate.  For a number of reasons, the panel concludes that Mr. Garcia was not bound to arbitrate.  He had not signed the brochure, the box did not state that opening it meant he agreed to the terms found in the brochure, generally, “silence or inaction does not constitute acceptance of an offer” (Golden Eagle Ins. Co. v. Foremost Ins. Co., 20 Cal.App.4th 1372, 1385 (1993), and the brochure stated that Norcia was entitled to “the benefits of the Limited Warranty” regardless whether he opted out of the arbitration agreement.  As the party seeking to compel arbitration, Samsung bore the burden of proving the existence of an arbitration agreement, and it failed to carry its burden.

    Samsung also argued that Norcia agreed to arbitrate by signing a Customer Agreement with Verizon, an argument that Judge Ikuta dismissed in three paragraphs as “meritless.”  Samsung was not a signatory, nor was there evidence that Samsung was intended as a third-party beneficiary of the Verizon agreement.   

     COMMENT:  The Federal Arbitration Act, embodying the national policy favoring arbitration, applies to this case.  However, the parties agreed that California law governs the issue of contract information, and thus Judge Ikuta applies basic principles of California contract law.

     Samsung sought to rely on several cases involving licenses and warranties, arguing that those cases are analogous to the brochure in the box.  Because the panel’s analysis involves contract law, the opinion examines differences between contract, license, and warranty cases.   For example, a shrink-wrap license imposing limits on the number of authorized licenses has been held to be enforceable in California.  Wall Data Inc. v. L.A. Cty. Sheriff’s Dep’t, 447 F.3d 769, 782 (9th Cir. 2006).  Such a license states that by opening a package or wrapper, the user agrees to the terms of the license.    In Wall Data Inc., the court avoided the issue of contract formation.  Norcia explains it makes sense that a user who opens a box with notice of a shrink-wrap license cannot do more than what the license permits -- say, installing software on 6,007 computers when the license is only for 3,663 computer.  In Norcia, “the outside of the Galaxy S4 box did not notify the consumer that opening the box would be considered agreement to the terms set forth in the brochure.” 

Arbitration, Nonsignatories, Equitable Estoppel and Third-Party Beneficiaries: Temporary Staffing Agency’s Arbitration Clause With Workers Did Not Allow Client With Whom Workers Were Placed To Compel Arbitration

 

Third-Party Non-Signatory Owed Duties Under Labor Code To Plaintiff, Independent Of Plaintiff’s Contract.

     Zepeda v. Paramount Citrus Packing Company LLC, F071593 (5th Dist. 7/14/16) (Pena, Levy, Smith) (unpublished) distinguishes two situations:  (1) a plaintiff whose relationship with a third-party non-signatory merely presumes the existence of a contract; and (2) a plaintiff whose rights against a third-party non-signatory rely on the existence of a contract.  In the first situation – which is the situation in Zepeda – the non-signatory might not be able to use the arbitration provision in the contract to compel arbitration.  In the second situation, which is not the situation in Zepeda, the plaintiff relies on the contract to sue the third party, and the third party can take advantage of the arbitration provision to compel arbitration.

     Ranstad, in the business of providing temporary workers to its client companies, provided workers, including Zepeda, to Paramount, a grower and processor of citrus crops.  Ranstad had an arbitration clause with Zepeda, and Paramount unsuccessfully invoked the arbitration clause after Zepeda sued alleging class-wide labor violations resulting from uncompensated time for donning and doffing, and interrupted meal and rest break periods.  Paramount argued that Zepeda was equitably estopped to deny the right to arbitrate, and alternatively, that Paramount was the third-party beneficiary of the arbitration agreement.

      Paramount relied on a federal district court case, Lucas v. Hertz Corp., 875 F.Supp.2d 991 (N.D. Cal. 2012), for the proposition that, because the relationship with Paramount presumed the existence of the contract with Zepeda, Paramount could rely on the arbitration clause in the Rantstad/Zepeda contract.  However, the Court of Appeal found the district court case to be non-persuasive and non-binding authority. 

      Instead, the Court of Appeal found Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013) to be better reasoned.  Kramer held that equitable estoppel was inapplicable where the plaintiff’s claims against the third party non-signatory are not founded on any provision in the plaintiff’s contract, but instead arise from independent duties owed by the third party to the plaintiff.  In Zepeda, the independent duties owed by the third party Paramount were owed under the Labor Code, not under the contract with Ranstad.

      The Court of Appeal also concluded that a third-party beneficiary argument was not supported by the contractual language.

      Affirmed.

      COMMENT:  Too bad the case is unpublished.  Cases involving non-signatory third parties seeking to compel arbitration arise with some frequency, and it would be helpful to have more guidance in this area.