Arbitration, Standard Of Review: The Parties Can Agree That Arbitrator Will Follow The Law
An Exception To The General Rule That Errors Of Fact And Law Are Not A Basis For Reversing An Arbitrator's Award.
If you need an example of a recent case in which the parties agreed that the arbitrator shall follow the law, see Samuelian v. Life Generations Healthcare, LLC, No. G061911, G062416 & G062426 (4/3 8/20/24) (Moore, Acting P.J.).
While the general rule is that an arbitrator's mistake of law or fact is not cause for reversal, there is an exception in California. The parties can agree that the arbitrator shall follow the law. Here, the parties agreed in writing: “The Arbitrator shall not have the power to commit errors of law or legal reasoning and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” That meant that the arbitrator's award could be reviewed de novo as to matters of law. Here, the arbitrator made a legal error, and as a result the award was not confirmed and was vacated instead.
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.
Severability: Cal Supreme Court Explains There Is No Bright Line For Severing Unconscionable Provisions
Multiple Unconscionable Provisions Does Not Necessarily Make An Arbitration Agreement Unenforceable.
In Ramirez v. Charter Communications, Inc., No. S273802 (S.Ct. 7/15/24) (Corrigan, J.), Angelica Ramirez, a former employee of Charter Communications, sued the company for employment discrimination, harassment, and retaliation. Charter sought to compel arbitration based on an agreement Ramirez signed during her onboarding. Ramirez challenged the arbitration agreement, arguing it was procedurally and substantively unconscionable.
The trial court found the agreement unconscionable and denied Charter's motion to compel arbitration. The Court of Appeal affirmed, identifying several problematic provisions, including: a lack of mutuality in the claims subject to arbitration, a shortened statute of limitations for filing claims, and restricted discovery rights that could prevent a fair hearing. Additionally, the agreement included a fee-shifting provision that violated the Fair Employment and Housing Act (FEHA), which only allows fee awards to employers if an employee's claim is frivolous.
The California Supreme Court agreed with the lower courts, holding that the arbitration agreement was unenforceable due to its unconscionable terms. The Court highlighted that the agreement unfairly disadvantaged Ramirez as an employee, lacked mutuality, and violated public policy concerning arbitration in employment disputes, particularly under FEHA.
However, the Supreme Court held that the presence of multiple unconscionable provisions does not automatically make an agreement unenforceable. Instead, the court emphasized that courts should focus on whether the central purpose of the contract is tainted with illegality. If the illegal provisions are collateral to the main purpose, the court should try to sever them and enforce the remainder of the agreement. The Supreme Court concluded that the Court of Appeal had erred by not properly considering whether the unconscionable provisions could be severed and remanded the case for further consideration on this point.
Deadlines, Vacatur: Party Challenging Arbitration Award Must Satisfy Deadlines After Service Of Petition To Confirm Or Service Of The Award
Party Seeking To Vacate Arbitration Award Must Satisfy Separate Deadlines.
The thirty-two page slip opinion in Valencia v. Mendoza, B325803 (2/7 7/1/24) (Feuer, Martinez, Segal) affirms a $432 K award in favor of plaintiffs/respondents the Valencias. The underlying dispute concerned failure to disclose defects in a home sale.
The most important point relates to deadlines to challenge an award. The challenger seeking to vacate the award must respond within 10 days to service of a petition to confirm the award, and within 100 days to service of the award. And, not or: the challenger must satisfy both deadlines. Here, Mendoza satisfied the 100-day deadline, but not the 10 day deadline, which put Mendoza behind the 8 ball.
Deadlines, Preemption: First Dist. Div. 1 Agrees That 30-Day Deadline To Pay Arbitration Fees Is Not Preempted
The California Courts Are Divided.
One more case lines up with those courts holding the 30-day deadline requirement in consumer and employment cases, set by Cal. Code of Civ. Proc. § 1281.98, for the drafting party to pay arbitration fees, is not preempted by the Federal Arbitration Act. Keeton v. Tesla, Inc., A166690 (1/1 6/26/24) (Wilson, Humes, Siggins).
COMMENT: We agree that Keeton v. Tesla, Inc. is in accord with most California cases that have addressed the subject. See our sidebar category "Deadlines". However, the law is unsettled. On 7/3/24, we blogged about Hernandez v. Sohnen Enterprises, Inc., which holds that when the agreement is governed by the Federal Arbitration Act, § 1281.98 is preempted. Justice Wiley in a dissent has staked the same preemption position in Hohenshelt v. Superior Court. See my 4/11/24 blog post.
Eventually this split of opinion will need to be decided by a higher court. That's my opinion.
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.