Nonsignatories: Successor By Merger Can Enforce Arbitration Agreement That It Did Not Sign
DLA Piper Rudnick Gray Cary US LLP Had Standing To Enforce Arbitration Agreement.
One of our more prolific sidebar categories is “Nonsignatories.” Quite a few disputes have been spawned when a nonsignatory to an arbitration agreement seeks to enforce it, under various theories that include incorporation by reference, assumption, agency, veil-piercing or alter ego, estoppel, and third-party beneficiary status. In our next case, the nonsignatory enforcement issue arose because the signatory law firm, Gray Cary, merged into DLA Piper Rudnick Gray Cary US LLP (DLA Piper), a nonsignatory to an arbitration agreement with one of its employee attorneys.
Plaintiff M. Todd Jenks, a former associate attorney at DLA Piper, sued the law firm, alleging it had wrongfully prevented him from receiving certain disability benefits. DLA Piper successfully moved to compel arbitration as the successor by merger to an arbitration agreement between Mr. Jenks and his former employer, Gray Cary, which had signed an arbitration agreement with Mr. Jenks. Mr. Jenks received an award of $93,545.67 that included contract damages, emotional distress damages, and costs, and that was later adjusted upwards to $120,112, plus $12,142 in postaward interest, plus costs. Evidently, DLA Piper was not too ruffled by the award, because it petitioned to confirm it as a judgment, which petition was granted. Mr. Jenks, however, appealed. Jenks v. DLA Piper Rudnick Gray Cary US LLP, A143990 (1/1 Dec. 16, 2015) (Dondero, Margulies, Banke) (published).
Judgment affirmed. Marenco v. DirecTV LLC, 233 Cal.App.4th 1409 (2015) is dispositive. Marenco involved an employment dispute between the plaintiff Marenco, and DirectTV, which acquired Marenco’s former employer 180 Connect, and retained its employees. By doing so, DirecTV assumed 180 Connect’s rights and obligations, including those arising from employment relationships. Furthermore, equitable estoppel kicked in: “By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” Marenco at 1420. The result is also supported by Cal. Corp. Code section 16914, sub. (a)(1), providing that after merger, a surviving partnership, succeeds “to all the rights and property . . . of the disappearing partnerships . . . and shall be subject to all the debts and liabilities of each . . . “
Arbitration, Class, FAA Preemption: Professor Ronald Mann Provides Analysis Of SCOTUS Ruling In DirectTV v. Imburgia
His Opinion Analysis Is Titled, “Justices rebuke California courts (again) for refusal to enforce arbitration agreement” — And That About Says It All.
On December 14, 2015, the United States Supreme Court decided DirecTV v. Imburgia, The SCOTUS syllabus states the holding: “Because the California Court of Appeal’s interpretation is pre-empted by the Federal Arbitration Act, that court must enforce the arbitration agreement.” Professor Ronald Mann of Columbia previewed the case earlier on SCOTUSBlog, and I recommend his post-opinion analysis for its brevity and clarity.
The arbitration agreement between DirecTV, a satellite television provider, and two of its customers, provided for binding arbitration and waiver of class arbitration, unless the “law of your state” made waiver of class arbitration unenforceable. In case the waiver of class arbitration was unenforceable, then the entire arbitration provision became unenforceable.
When the plaintiff entered into the arbitration agreement, existing California law (Discover Bank), made class action waivers unenforceable, in those situations where it would have been simply infeasible for a single aggrieved party to pursue rights in arbitration. Since then, however, SCOTUS has made it clear in Concepcion and other cases that state laws placing arbitration agreements on an unequal footing with other contracts will be preempted by the Federal Arbitration Act (assuming interstate commerce is involved). And the FAA requires that arbitration agreements be enforced according to their terms – even though pragmatically, this can be harsh, leaving would-be plaintiffs with rights, but without an effective remedy. Who will bother to arbitrate over a very small monetary dispute, unless it can be aggregated with similar disputes in a class arbitration or lawsuit?
The majority opinion makes it clear that the reference to state law means “valid state law” – not state law that has been preempted by SCOTUS.
Justice Breyer was assigned to write the opinion – an interesting choice, given that he was one of the dissenters in Concepcion, the case that spearheaded the current FAA preemption juggernaut.
Justices Ginsburg and Sotomayor dissented, on the ground that the reference to state law was at best ambiguous, and that an ambiguous agreement should be interpreted against the drafter, DirecTV. Ever feisty, Justice Ginsburg wrote: “Demeaning that [state] court’s judgment through harsh construction, this Court has again expanded the scope of the FAA, further degrading the rights of consumers and further insulating already powerful economic entities from liability for unlawful acts.”
In a three-sentence dissent, Justice Thomas propounded his view that the FAA does not apply to state court proceedings.
Arbitration, Collective Bargaining: Ninth Circuit Reversed District Court’s Order Denying Arbitration, Because Six-Month Statute of Limitations Had Not Run Under Section 301 Of The Labor Management Relations Act
Ninth Circuit Panel Blames Employer For Not Making Good Faith Effort To Address Merits Of Dispute.
SEIU United Health Care Workers-West v. Los Robles Regional Medical Center, No. 13-55672 (9th Cir. Dec. 3, 2015) (Pregerson, Parker, Nguyen) holds “that it is a breach of the duty of good faith performance under Section 301 [of the Labor Management Relations Act, 29 U.S.C. section 189] for an employer to fail to respond within a reasonable time to a union’s communication which seeks to abide by a grievance process set forth in a collective bargaining agreement.’
In this case, the union followed a three-step grievance process, the last step of which can lead to arbitration. Responding to the first and second steps, the employer took the position that the matter was not arbitrable. However, a demand for arbitration did not have to be made until the third step of the grievance process, and when the union made the arbitration demand, the employer waited nearly five months to reject the demand. When the union petitioned to compel arbitration, the employer took the position that the six-month statute of limitations under section 301 had run earlier, when the employer had staked the position that the matter could not be arbitrated.
That was good enough for the district court judge, Manuel Real, to deny the union’s request for arbitration. However, the Ninth Circuit disagreed, explaining:
“Only an ‘unequivocal, express rejection of the union’s request for arbitration’ will start the six-month limitations period under Section 301. There is no such thing as constructive notice of an employer’s refusal to arbitrate; if an employer offers varying responses to a request to arbitrate, its responses do not constitute an unequivocal, express rejection.”
The Ninth Circuit panel panel reversed the district court’s summary judgment and vacated its order dismissing a petition to compel arbitration under Section 301
Arbitration, Existence Of Agreement, Unconscionability, Automobiles: Automobile Purchaser Reasonably Relied On Spanish Translation, Which Did Not Contain Arbitration Clause, Of English Contract That Did Contain Arbitration Clause
Relying On Common Law Principles Of Contract Formation, The Court Of Appeal Ducks Deciding Whether Failure To Comply With Statutory Provision Requiring Spanish Translation Of Contract Resulted In Unconscionability.
Ordinarily, one who signs a contract without understanding its contents will nevertheless be bound by it, just as one who fails to wear reading glasses when reviewing a contract will nevertheless be treated as one who has read the contract. What happens when the purchaser of an automobile signs a contract in English that contains an arbitration clause, and receives a Spanish translation that does not contain the arbitration clause? In the case of Ramos v. Westlake Services LLC, A141353 (1/2 Nov. 24, 2015) (Miller, Richman, Stewart), the Court of Appeal held that the Spanish speaking purchaser, who negotiated the purchase in Spanish, and who received a Spanish translation of the contract that he initialed, “reasonably relied on a Spanish translation of the English Contract . . . provided him and that did not include the arbitration agreement.” As a result, the Court of Appeal held that mutual assent to the arbitration was lacking, and the arbitration agreement was void – affirming the trial court order denying defendant’s motion to compel arbitration.
While the Court of Appeal affirmed the order of the trial court, it did not rely on the trial court’s reasoning. Unlike the Court of Appeal, the trial court had relied on Civil Code section 1632, requiring that “[a]ny person engaged in a trade or business who negotiates primarily in Spanish” in certain transactions, including auto sales, “shall deliver to the other party to the contract . . . a translation of the contract . . . in the language in which the contract . . . was negotiated, that includes a translation of every term and condition in that contract . . . “ The trial court had held that the failure to properly translate the contract into Spanish was unconscionable. The Court of Appeal held that it did not have to address “arguments regarding the scope of section 1632’s remedies or the trial court’s finding that the arbitration agreement was unenforceable due to unconscionability,” because it reached the same result with traditional contract formation concepts.
While strictly speaking, the Court of Appeal did not rely on section 1632 to affirm the trial court’s order, it did note that “it would be anomalous” to hold that the seller was required to provide Ramos a translation, and that the buyer “was not entitled to rely on the accuracy of that translation.”
Arbitration, Class, Severability, Delegation, Class Action: Court Of Appeal Holds Arbitration Clause Enforceable, Except For Severable Fees And Costs Provision In Consumer Arbitration
Fees And Costs Provision In Consumer Arbitration Was Unconscionable Here.
This case involves a common scenario in which a business sells a good or service that is financed, the business is unable to fully perform, and the lender seeks to enforce an arbitration provision when it gets sued. Here, the Court of Appeal held that the arbitration clause was enforceable, with one exception: the provision that shifted fees and costs to the prevailing party in a consumer arbitration was held to be substantively unconscionable. Why? Because a prevailing plaintiff consumer would have been entitled to fees under the Consumer Protection Act, the “loser pays” provision only benefits a prevailing defendant. Brinkley v. Monterey Financial Services, Inc., D066059 (4/1 Nov. 11, 2015) (Aaron, McIntyre, O’Rourke). However, the Court also determined that because the agreement was not permeated with unconscionability, the one unconscionable provision could be severed, saving the rest of the arbitration provision.
This is also a case in which incorporation by reference of AAA arbitration rules resulted in incorporation by reference of the AAA Supplementary Class Arbitration Rules. And that in turn meant here that the decision to determine whether a class-wide arbitration will be allowed is a decision delegated to the arbitrator under the AAA rules. The same delegation of the decision to decide whether to allow class-wide arbitration, with the same result, has been addressed in a case we blogged about earlier on August 20, 2015, Universal Protection Services, LP v. Superior Court of Yolo County (Michael Parnow, et al., Real Parties in Interest), C078557 (3d Dist. August 18, 2015)(published).