Arbitration/Gateway Issues: Judge, Not Arbitrator, Gets To Decide Whether Agreement To Arbitrate Authorizes Class Arbitration When Contract Is Silent – And That Goes For Representative Arbitration Too
PAGA Is A Representative, Not A Class Action, And So Judge Gets To Decide Whether PAGA Action Is Subject To Arbitration.
Defendant and employer Garden Fresh Restaurant Corporation petitioned for a writ of mandate seeking a writ directing the trial court to vacate part of an order leaving it to the arbitrator to determine whether the plaintiff employee and defendant employer had agreed to class or representative arbitration. “The question that Garden Fresh’s petition presents is: who decides whether an agreement to arbitrate disputes between the parties to the agreement authorizes class and/or representative arbitration when the contract is silent on the matter – the arbitrator or the court?” Garden Fresh Restaurant Corporation v. Superior Court, D066028 (4/1 Nov. 17, 2014) (Aaron, Huffman, McIntyre).
Answer: the court does.
This is the second recent California decision rejecting the plurality conclusion in the SCOTUS case Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) (plurality opinion) (Bazzle) that the availability of class arbitration is not a question of arbitrability, and thus not a “gateway issue” for judges to decide. Garden Fresh Restaurant Corporation is thus consistent with Network Capital Funding Corporation v. Papke, which also rejected the non-binding plurality reasoning in Bazzle. I posted about Network Capital Funding Corporation on October 13, 2014.
Regarding the arbitrability “gateway” issue, Garden Fresh Restaurant Corporation does not distinguish between class actions, and representative PAGA actions. Therefore, a judge also gets to decide as a “gateway” issue whether the parties agreed to arbitrate representative claims, such as a PAGA claim, in the face of a silent arbitration provision. (We note that the Court also drops a footnote 3, suggesting that based on language in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), “one might reasonably conclude that a court could never compel arbitration of a PAGA claim unless the state, as opposed to the individual plaintiff, had entered into an arbitration agreement with the defendant.”)
COMMENT: If the reasoning in Iskanian and Garden Fresh Restaurant Corporation continues to be good law, it could have far-reaching consequences, not just for the courts, but also for the Legislature. For example, by creating consumer statutes that provide for more “representative” actions in which the private party acts for the state as a private attorney general, the Legislature might be able to expand consumers’ opportunities to litigate rather than arbitrate their claims – leaving it to the courts to decide whether the representative action allows for bilateral arbitration. This could lead to an end-run around the growing body of law that permits class action waivers in arbitration agreements.
Arbitration/Collective Bargaining/Federal Arbitration Act: Court of Appeal Finds That Individual Arbitration Agreement Not Inconsistent With Collective Bargaining Agreement Is Enforceable
Where Federal Preemption Applies, The Employee’s Contract Cannot Deprive The Employee Of A Benefit – Such As The Right to File a Lawsuit Instead Of Arbitrating – If The Collective Bargaining Agreement Provides The Benefit.
Denying employer’s motion to compel arbitration, and both parties’ sanction motions, the trial judge explained: “It’s clear to me both subjectively and objectively that counsel are just on different planets on this case.”
1905. Library of Congress.
Defendant/employer appealed the denial of its petition to compel arbitration, and Plaintiff/employee appealed the denial of her sanctions motion. Willis v. Prime Healthcare Services, Inc., B253712 (2/5 Nov. 14, 2014) (Turner, Kriegler, Mink) (certified for partial publication).
The gravamen of Plaintiff’s wage and hour claim was that, “she and other potential members did not receive proper pay because an electronic system rounded the number of hours worked to their detriment.”
Critical to the outcome of the case are the relationships between the employee/employer collective bargaining agreement, the employee’s individual employment agreement with an arbitration clause, and federal preemption, discussed in the published part of the opinion.
Plaintiff argued that the employer’s collective bargaining agreement was inconsistent with her individual employment agreement that did not require arbitration, rendering the arbitration agreement inapplicable. Defendant argued that the employee was bound by the arbitration clause in her individual employment agreement.
First, because Defendant received reimbursement from Medicare payments, and other aspects of interstate commerce were involved, the individual arbitration agreement was subject to the Federal Arbitration Act.
Second, federal common law – specifically, J.I. Case Co. v. NLRB, 321 U.S. 332 (1944), requires that an individual employee contract cannot waive any benefit to which an employee otherwise would be entitled under a collective bargaining agreement, in an industry affecting commerce as defined in the Labor Management Relations Act of 1947. Applying that principle here, the individual contract requiring arbitration could not deprive the employee of the right to file a lawsuit, if such right was a benefit available in the collective bargaining agreement.
Third, however, the J.I. Case decision did not invalidate the arbitration provision in Plaintiff’s individual agreement, which provision covered “any dispute,” and thus covered Plaintiff’s statutory wage and hour claims. However, the collective bargaining agreement specifically covered “grievances.” Under the collective bargaining agreement, a grievance was defined, “as a dispute as to the interpretation, meaning or application of a specific provision of this Agreement.” And there was nothing in the collective bargaining agreement, “about the use of an electronic system to calculate hours and rounding those calculations in a manner detrimental to an employee.” Hence, there was no inconsistency between Plaintiff’s individual agreement and the collective bargaining. In other words, the necessary predicate for federal preemption purposes requiring application of the collective bargaining agreement – inconsistent benefits in the individual and collective bargaining agreements – was lacking. Therefore, the individual agreement with its binding arbitration provision, rather than the collective bargaining agreement, applied.
And the sanctions? The trial judge said: “This is just counsel, very able counsel, in good faith who are looking at opposite ends of the telescope.” The Court of Appeal found no abuse of discretion in denying the sanctions motion.
![[Telescope?]](http://cdn.loc.gov/service/pnp/hec/40100/40145r.jpg)
1936. Library of Congress.
Arbitration/Enforceability/Consumers: Reasonable Person Wouldn’t Understand Purchasing A Vehicle Would Simultaneously Bind To Contract With Satellite Radio Service And Require Arbitration
Lack Of Consent Is The Problem With The Arbitration Agreement Here.
In an opinion authored by Judge Pregerson, the Ninth Circuit reverses the district court’s order dismissing a putative class action and granting Sirius XM Radio Inc.’s motion to compel arbitration. Knutson v. Sirius XM Radio Inc., No. 12-56120 (9th Cir. Nov. 10, 2014) (Pregerson, Murphy, Berzon).
The customer purchased a vehicle from Toyota, and received unwanted solicitation calls from Sirius XM. He sued Sirius XM Radio Inc., alleging the unwanted telemarketing calls were violations of the Telephone Consumer Protection Act. Sirius XM Radio Inc. successfully petitioned to compel arbitration, and plaintiff appealed.
The Ninth Circuit panel held Sirius XM failed to prove the existence of an agreement to arbitrate. A reasonable person could not be expected to understand that purchasing the vehicle would simultaneously bind him to a contract with Sirius XM, and that the contract would require arbitration. The fact that the plaintiff received some benefit by listening to the radio did not manifest consent to an agreement the plaintiff didn’t know about.
COMMENT: I have asked on other occasions whether “consent” is something of a fiction in the arbitration context, given that a procedurally unconscionable agreement involving surprise and ambush, but that is not substantively unconscionable, can nevertheless survive scrutiny. Let’s just say that being able to apply the label “lack of consent” can still effectively kill an arbitration agreement, whereas applying the label “procedurally unconscionable” is not dispositive. The line between “lack of consent” and “procedurally unconscionable” is not necessarily a bright line.
Also, note that Judge Pregerson dissented in 2013 in Kilgore v. Keybank, attaching as an Appendix to his dissent, “the dense, small print, and blurry nine-page contract that Silver State thrust on the students at career fairs and open houses.” [Kilgore is the subject of my April 12, 2013 post]. The Kilgore case rejected an argument that the arbitration clause at issue was procedurally unconscionable. However, in the Knutson case, the Court of Appeals did not address substantive unconscionability, because its analysis hinged instead on lack of consent. This time, Judge Pregerson, rather than being the dissenter, penned the opinion.
Arbitration/Class Action Waiver: Iskanian v. CLS Transportation Los Angeles Compels Reversal Of Order Denying Ralphs’ Petition To Arbitrate
Legal Rationale Forming The Basis For The Trial Court’s Ruling Has Been Abrogated By Iskanian.
The California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) that Gentry v. Superior Court had been abrogated by the SCOTUS decision in AT&T Mobility LLC v. Concepcion, 563 U.S. __ [131 S.Ct. 1740] (2011). Gentry had established a four-factor test for determining whether a class action waiver in an employee-employer contract arbitration was valid.
Iskanian is having a significant impact on pending cases in which a class action waiver in connection with arbitration was invalidated by a trial court. The latest example of this impact is Mahmud v. Ralphs Grocery Company, B237636 (2/4 Nov. 10, 2014) (Manella, Epstein, Willhite) (unpublished), in which the Court of appeal holds, ‘[a]s the legal rationale that formed the basis for the trial court’s ruling [i.e., Gentry] has been abrogated [i.e., by Iskanian] and Mahmud presented no other basis for denial of the petition to compel, we reverse.” As a consequence, the trial court order denying the employer’s petition to compel arbitration was reversed.
Arbitration/Enforceability: Substantial Evidence Supporting Trial Court’s Determination Stroke Victim Lacked Capacity To Enter Into Arbitration Agreement
Consent To Contract Must Be Free, And An “Unsound Mind” Is Related To Concept Of Consent.
In an unpublished opinion, the Court of Appeal has affirmed the trial court’s order denying a nursing facility’s petition to arbitrate, because the plaintiff lacked mental capacity to enter into the arbitration agreement. Rodriguez v. Windsor Care Center National City, Inc., D065014 (4/1 Nov. 6, 2014) (O’Rourke, McDonald, Aaron).
The “substantial evidence” that the plaintiff lacked capacity to enter into the arbitration agreement included that she was 80 years old; that she had suffered a stroke; that she only spoke Spanish, could not read English, and had signed an arbitration agreement in English; and that a staff member at the rehabilitation center wrote that the plaintiff was “unable to make [d]ecisions.”
“Under California law,” the Court reminds us, “persons of unsound mind are not capable of contracting. (Civ. Code, section 1556.). Whether a person has an ‘unsound’ mind is related to the concept of consent because the parties’ consent to the contract must be free. (Civ. Code, section 1565.)”
QUERY: Is consent a legal fiction in the case of arbitration agreements in California? A person can be surprised and ambushed by signing a procedurally unconscionable agreement, yet the agreement (including an arbitration provision) will be enforceable, as long as it is not substantively unconscionable. In what sense has the person who signed a procedurally unconscionable contract freely consented to enter into the contract? Given its conclusion about lack of capacity in Rodriguez, the Court did not need to address the issue of unconscionability.
Arbitration/Preemption: Federal Arbitration Act Preempts Language, Font, Typeface Requirements In CCP 1298
California Code Of Civil Procedure Section 1298, Applying To Real Estate Purchase Agreements, Is Preempted By The FAA In Transactions Involving Interstate Commerce.
Plaintiff Loeffler appealed from a judgment entered after the trial court confirmed an arbitration award in favor of plaintiff Shea Homes Limited Partnership. The award resulted in rescission of Loeffler’s purchase of a home and a payment to Loeffler, but the payment was not as large as Loeffler wanted. Loeffler raised several arguments on appeal. One of the more creative arguments was that the arbitration agreement was unenforceable because it did not comply with Code of Civil Procedure section 1298. Shea Homes Limited Partnership v. Loeffler, G049358 (4/3 Nov. 3, 2014) (Thompson, Fybel, Ikola) (unpublished). This particular argument (together with other arguments) was rejected by the Court of Appeal, resulting in affirmance of the judgment.
California Code of Civil Procedure section 1298 prescribes certain language, font and typeface requirements for arbitration clauses in real estate contracts. However, section 1298 has been preempted by the Federal Arbitration Act in transactions involving interstate commerce. See Hedges v. Carrigan, 117 Cal.App.4th 578, 585 (2004). In the Shea Homes case, the contract was governed by the FAA.
COMMENT: Even if section 1298 requirements are preempted by the FAA, small font and lack of notice could still factor into a procedural unconscionability analysis. Thus far, standard contract defenses, such as unconscionability, have survived preemption analysis in AT&T Mobility LLC v. Concepcion. However, unconscionability requires both procedural and substantive unconscionability in California. Because the Court of Appeal also found an absence of substantive unconscionability in Shea Homes, procedural unconscionability wouldn’t have changed the outcome.