California Mediation and Arbitration

Unconscionability, Severance: 9th Maj. Says Arb Agreement Is Unconscionable; Dissent Favors Severance

To Sever Unconscionable Provisions Or Not To Sever . . . That Is The Question.

        The Ninth Circuit affirmed the district court’s decision denying USF Reddaway, Inc.’s motion to compel arbitration, finding the agreement procedurally and substantively unconscionable under California law. The court held the arbitration agreement was moderately procedurally unconscionable due to its adhesive nature and oppressive conditions under which it was signed. It also found substantive unconscionability in a one-sided preliminary injunction carve-out and a filing provision imposing notice requirements and a shortened statute of limitations exclusively on the plaintiff. The court determined the multiple unconscionable provisions rendered the agreement permeated with illegality, justifying the refusal to sever them. Jose Emilio Ronderos v. USF Reddaway Inc., No. 21-55685 (9th Cir. Sung, Foote; dissenting, Bennett).

        Judge Mark J. Bennett, dissenting, argued the district court erred in declining to sever the agreement’s unconscionable provisions, asserting the agreement was minimally procedurally unconscionable and that the one-sided filing and injunction carve-out provisions were collateral to the agreement’s purpose. Judge Bennett contended these terms could be easily severed without reforming the agreement, preserving its core intent to arbitrate disputes. He emphasized California law’s strong preference for severance and the existence of a severability clause. Bennett criticized the majority’s decision as inconsistent with the FAA’s policy favoring arbitration and accused the court of improperly disfavoring arbitration agreements.

FAA, Interstate Transportation Workers: 9th Circuit Affirms Airline Fuel Technician Falls Within FAA Transportation Worker Exception

Interstate Transportation Workers Are Exempted From Arbitration Under The Federal Arbitration Act.

        We have been remiss reporting on 9th Circuit cases since mid-July 2024. Now, we're doing a little catch-up.

        An airline fuel technician qualifies as a transportation worker engaged in foreign or interstate commerce, and thus he is exempt from the FAA's arbitration requirements under Section 1. Danny Lopez v. Aircraft Service, Int'l, Inc., and Menzies Aviation (USA), Inc. , No. 23-55015 (9th Cir. 7/19/24) (Rawlinson, Melloy, Thomas). The case reinforces the FAA's exemption for transportation workers, emphasizing the functional role of such workers in facilitating interstate and international commerce.

        COMMENT. What is the rationale behind the FAA exemption for seamen and interstate transportation workers? In 1925, when the FAA was enacted, maritime and railroad workers already had developed specialized labor dispute resolution procedures, and perhaps Congress did not want to interfere. Such workers are essential to the flow of commerce, perhaps too explaining their special treatment.

PAGA, Issue Preclusion: Employee Losing Labor Code Claims In Arbitration Ceases To Be Aggrieved Person With Standing To Sue For PAGA Claims

This Case Makes It Easier For Employers To Beat Back PAGA Lawsuits When Employee Loses Labor Code Claims In Arbitration -- The Legal Tool Is Issue Preclusion.

        In Julian Rodriguez v. Lawrence Equipment, Inc., B325261 (2/3  pub. 11/8/24) (Bershon, Edmon, Egerton), the plaintiff, Julian Rodriguez, alleged wage-and-hour violations under California’s Labor Code and pursued civil penalties under the Private Attorneys General Act (PAGA). An arbitrator ruled in favor of Lawrence Equipment, finding Rodriguez failed to prove the alleged violations of the Labor Code. The trial court entered judgment on the arbitration award and dismissed Rodriguez’s class claims. When Rodriguez later pursued his PAGA claim, the trial court dismissed it, holding that issue preclusion barred Rodriguez from relitigating the violations already resolved in arbitration. The court found that his standing under PAGA—predicated on his status as an "aggrieved employee"—was invalid since the arbitrator determined no Labor Code violations occurred.

        On appeal, Rodriguez argued that the arbitration findings should not preclude his PAGA claim. The appellate court rejected this, adopting the reasoning in Rocha v. U-Haul Co. that issue preclusion applies to PAGA claims when the same alleged violations were adjudicated in arbitration. The court concluded that Rodriguez lacked standing for his PAGA claim as he could not establish any Labor Code violations. The judgment dismissing Rodriguez’s PAGA claim was affirmed.

        We previously blogged about the Rocha case on 3/7/23. At the same time that the Rodriguez court followed Rocha, it refused to follow Gavriiloglou, a case we previously blogged about on 9/25/22. In Gavriiloglou, the court held that the arbitrator’s findings on the plaintiff’s individual Labor Code claims did not preclude the plaintiff from asserting PAGA standing. The court reasoned that the individual claims were pursued in a personal capacity, while PAGA claims represent the state’s interest, treating these as fundamentally different capacities, resulting in different claims. The Rodriguez court did not follow Gavriiloglou, distinguishing it as a case relying on claim preclusion rather than issue preclusion. 

        COMMENT. The confusing law concerning PAGA standing may be stabilizing in the following respect: the individual employee who loses Labor Code claims in arbitration loses standing, by virtue of issue preclusion, to sue for PAGA violations. As a result of losing individual Labor Code violations, the employee ceases to be an aggrieved person with standing to bring the PAGA claims.

Awards, Jurisdiction: Interim Award Dismissing Claims While Allowing Additional Submissions Was Not Final.

On The Difference Between A Final Award And An Interim Award Dismissing Claims But Leaving The Door Open For Additional Claims.

        In Ortiz v. Elmcrest Care Center, LLC, B330377 (2/3  pub. 11/7/24) (Egerton, Adams, Bershon), Ericka Ortiz, representing the Estate of Jose de Jesus Ortiz, sued Elmcrest Care Center and its staff, alleging elder abuse, neglect, negligence, and fraud. The trial court compelled arbitration. The arbitrator issued an initial "First Interim Award" dismissing the claims, but allowing for additional submissions if issues were identified. Following the Estate’s submission, the arbitrator issued a "Second Interim Award," finding Elmcrest liable for pre-death pain and suffering and awarding damages.

        Elmcrest contested this award, arguing the first was final, and the arbitrator’s amendment was outside her authority. The trial court sided with Elmcrest, confirming the First Interim Award and vacating the Final Award. On appeal, the Court of Appeal reversed the decision, holding that the arbitrator retained jurisdiction to amend the award to resolve omitted issues and directed the trial court to confirm the Final Award, which included the damages awarded for pre-death pain and suffering.

        COMMENT: An interim arbitration award expressly leaving open the door for additional submissions identifying additional issues is not a final award. 

Arbitration Agreement: No Agreement With Insufficient Evidence Of Signing Or Authorization Of Agent To Sign

A Reference To "Dementia" Signals Where The Court Was Headed.

        Harold and Lucy West and their adult daughter Deon were approached by a salesperson from Elite Home Remodeling, Inc. regarding solar panel installation and bathroom renovation. Harold and Lucy, in their 90s and suffering from dementia, did not use email, computers, or mobile phones. A loan agreement with Solar Mosaic LLC for financing was processed using Deon’s email and signed electronically with Harold’s name. However, a recorded call with Harold raised doubts about his understanding of the transaction. He struggled to answer basic questions. When the bathroom was demolished, Deon tried to cancel the contract. Elite refused. The trial court denied Mosaic’s petition to compel arbitration, citing a lack of evidence that Harold had entered into the agreement or that Deon had authority to bind him. Mosaic appealed. Lucy West, et al. v. Solar Mosaic LLC, B334178 (2/8  10/16/24) (Stratton, Grimes, Wiley).

        Affirmed. Solar Mosaic LLC did not establish an enforceable arbitration agreement. There was insufficient evidence Harold West signed the loan documents or authorized Deon to do so on his behalf.

 

 

 

Administrative Arbitration: City Manager Had Discretionary Authority Under MOU To Review Non-Binding Arbitration Decision And Reject It

A Non-Binding Arbitrator's Decision Recommended Reinstatement Of Police Officer. . . The Court of Appeal Allowed The City Manager To Reject It.

        Former police officer Ramirez administratively appealed the decision of the City of Indio Police Department's decision to terminate his employment at the conclusion of the “Appeals Procedure” set forth in the Memorandum of Understanding (MOU) between the City and the Indio Police Officers’ Association. A non-binding arbitrator's decision recommended the reinstatement of Ramirez. However, the City Manager upheld the decision of the Chief of Police to terminate Ramirez. After unsuccessfully petitioning the superior court, Ramirez appealed. Sergio Ramirez v. City of Indio et al., D082997 (4/1  pub. 10/10/24) (Kelety, McConnell, Rubin).

        The chief issue was whether the City Manager, who the parties agreed could make the ultimate decision, should have deferred to the arbitrator's determinations of credibility and evidence. The Court held that under the MOU, discretion rested with the City Manager, and the MOU provide for due process: notice and an opportunity to respond, right to an evidentiary hearing, final review by the City Manager, and an option for judicial review. Affirmed.

Settlement: Simultaneous Section 998 Offers Are Not Valid

But If One Of Two Simultaneous Offers Is Invalid, Section 998 Can Be Applied To The Remaining Section 998 Offer.

        Our next case, which does not involve mediation or arbitration, involves settlement. But since section 998 settlement offers can be made in both arbitration and litigation, our next case is worth considering. Gorobets v. Jaguar Land Rover North America, LLC , B327745 (2/2 10/10/24) (Hoffstadt, Chavez; Ashmann-Gerst, dsst), is a Lemon law case in which Land Rover offered simultaneous settlement offers to the Jaguar purchaser, one of which offers ultimately turned out to be invalid. The plaintiff did not respond to the 998 offer, thereby rejecting both valid and invalid offers.

        The panel majority held that simultaneous offers under section 998 are invalid, because it makes the court's task of applying section 998 at the end of the case impossible. The court offered the following hypothetical: the offeror offers $100,000 or $200,000 simultaneously, and the plaintiff recovers $150,000. Should the plaintiff's success be measured against the rejection of $100,000, or the rejection of $200,000? It becomes impossible for the court to apply section 998 to a simultaneous offer.

        However, in the instant case, there was a further wrinkle: one of the simultaneous offers was for $85,000, an amount that Land Rover beat at trial, because damages were less than $85,000. But the other simultaneous offer was for the recovery of statutory categories of damages, and in the case of disagreement between the offeror Land Rover and the offeree plaintiff, the dispute would be shunted over to a third party to decide. The court deemed the second simultaneous offer invalid, because a court couldn't determine its value. That meant only one valid offer remained, the offer for $85,000. "Because plaintiff failed to obtain a more favorable judgment than that offer at trial," explained Justice Hoffstadt, "the trial court was correct in ruling, pursuant to section 998, that plaintiff is limited to recovering his pre-offer costs and attorney fees and is required to pay Land Rover’s post-offer costs."

        Justice Ashmann-Gerst dissented. She agreed that simultaneous offers are invalid. But she did not agree that invalidating one of the simultaneous offers left the offeror with a single valid offer. The fact that one of the offers was ultimately found to be invalid placed too much burden on the plaintiff offeree. How was he to know that years later, one of the two offers would be found to be invalid? The result seemed unfair to the dissenting Justice.

        Suggestion. When making a section 998 settlement offer, review the statute to make sure you have dotted the i's and crossed the t's. Avoid simultaneous offers. Try to keep it simple.

The Second District, Div. 1 Agrees That Ending Forced Arbitration Of Sexual Assault And Sexual Harassment Act Applies To "Mixed Cases"

The Agreement Is With The Second District, Division 3.

        The Ending Forced Arbitration Of Sexual Assault and Sexual Harassment Act (EFAA) amended the Federal Arbitration Act by exempting claims of sexual assault and sexual harassment from forced arbitration. An issue that cases addressing the EFAA have faced is whether in a mixed case, involving claims of sexual assault and harassment as well as other claims, the EFAA exempts just the assault and harassment claims or the entire case from arbitration.

        The California Court of Appeal, Second District, Div. 1, agrees with the Second District, Div. 3, that in mixed cases, the entire case is exempt from arbitration. Yongtong Liu v. Minisco Depot CA, Inc., et al., B338090 (2/1  10/7/24) (Weingart, Rothschild, Kline).

Public Injunctive Relief Means Case Is Not Arbitrable Under McGill Rule

McGill Lives On When California Law Applies.

        In Kramer v. Coinbase, Inc., A167779 (1/3  pub. 10/4/24) (Petrou, Tucher, Fujisaki), plaintiffs filed a lawsuit against Coinbase, Inc. for public injunctive relief under California's Consumer Legal Remedies Act, False Advertising Law, and Unfair Competition Law. Plaintiffs alleged Coinbase misrepresented the security of its platform, misleading the public and leading it to believe it was highly secure. This lawsuit seeks to stop Coinbase's alleged deceptive security claims directed at the public. Coinbase moved to compel arbitration based on the user agreement’s arbitration clause, arguing plaintiffs' relief was private and thus arbitrable. The trial court denied Coinbase’s motion, interpreting plaintiffs' request as public injunctive relief, which is non-arbitrable under California’s McGill rule, allowing claims for public injunctive relief to remain in court rather than arbitration. Coinbase appealed, contending the claims were private.

        Affirmed.The appellate court upheld the trial court's decision, agreeing that the complaint seeks public injunctive relief as it aims to prevent future public deception about Coinbase's security measures rather than solely benefiting existing users.

        Comment: Coinbase continues to generate published opinions. See our Sept. 27, 2024 post.

Employment, Civil Rights, FAA: The Second District, Div. 3 Applies The Ending Force Arbitration of Sexual Assault And Sexual Harassment Act

The Case Clarifies How The EFAA Should Apply To Arbitrating Cases Stradling The Effective Date Of The EFAA, And To Mixed Cases Involving Sexual Harassment And Other Claims.

        Jane Doe brought claims of sexual harassment and related violations by her employer, The Huntley Hotel. The employer sought to compel arbitration. The court ruled that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) applies, which makes arbitration agreements unenforceable at the plaintiff's discretion in sexual harassment disputes. The Court of Appeal affirmed the trial court's order denying a motion to compel arbitration. Jane Doe v. Second Street Corp., B330281 (2/3  9/30/24) (Edmon, J.). Since Doe's harassment claims included conduct both before and after the EFAA’s effective date (March 3, 2022), the arbitration clause is invalid for her entire case, not just the sexual harassment claims. Additionally, the court determined that the arbitration provision in the employee handbook cannot be enforced for any of Doe's claims, as they are part of the same case. 

        COMMENT:  The case applies the EFAA in a significant and evolving area of employment law, regarding arbitration agreements in cases involving sexual harassment. The decision clarifies key legal points: 1. Application of the EFAA: The court interpreted how the EFAA applies to cases involving ongoing sexual harassment that straddles the act’s effective date (March 3, 2022), applying the EFAA to preclude arbitration of a case straddling the effective date.  Arbitration in Mixed Claims: The ruling emphasized that under the EFAA, arbitration agreements are unenforceable not just for the sexual harassment claims but for the entire case if any part relates to sexual harassment. This broad interpretation is significant because it would prevent employers from compelling arbitration in cases that contain a mix of claims (sexual harassment alongside other employment violations), expanding protections for plaintiffs in similar cases.