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example of this impact is Mahmud v. Ralphs Grocery Company, B237636 (2/4 Nov. 10, 2014) (Manella, Epstein, Willhite) (unpublished), in which the Court of appeal holds, ‘[a]s the legal rationale that formed the basis for the trial court’s ruling [i.e., Gentry] has been abrogated [i.e., by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In an unpublished opinion, the Court of Appeal has affirmed the trial court’s order denying a nursing facility’s petition to arbitrate, because the plaintiff lacked mental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.
My Article On Summary Contempt and Due Process: England, 1631, California, 1888
The Article Is About Two Extraordinary Cases In Which Judges Exercised The Summary Contempt Power.
Thanks to the generous permission of California Litigation, The Journal of The Litigation Section, State Bar of California, “Summary Contempt and Due Process: England, 1631, California, 1888” is now available on my website by clicking here.
An abbreviated version of this article appeared earlier as an August 6, 2014 post on California Attorney’s Fees, a blawg to which I co-contribute.
Arbitration: Court Of Appeal Affirms Finding That Arbitration Agreement Is Unconscionable, But Concludes That Unconscionability May Be Cured Through Severance
Denying All Discovery In Arbitration Of Professional Malpractice Claims Is Unconscionable.
![Surgery [scalpels]](http://lcweb2.loc.gov/service/pnp/jpd/01200/01259r.jpg)
Surgery scalpels. 1878. Library of Congress.
The Second District, Division Four, has affirmed the trial court’s finding of unconscionability, but concludes that unconscionability may be cured through severance in an arbitration of professional malpractice claims. Lateral Link Group v. BLA Schwartz, Case No. B253862 (2/4 Oct. 31, 2014) (Collins, Willhite, Manella) (unpublished).
The unconscionability problem arose here because the retainer agreement containing the arbitration clause included the proviso, “except that in no event will the parties be entitled to conduct pre-hearing discovery.” The Court agreed that this carve-out resulted in a high degree of substantive unconscionability, because it greatly favored the attorneys over their clients. Though the plaintiffs were entitled to their client files, they could be denied access “to other essential documents and witnesses,” whereas the attorneys would have “the bulk of such documents and records.” The problem created by the discovery prohibition was compounded by a good faith meet-and-confer procedure requiring plaintiffs to disclose the basis of any claim against defendants before arbitrating. The Court labeled the resulting problem as one of “informational asymmetry.”
Interestingly, the lack of discovery also magnified problems of procedural unconscionability, because it clashed with the incorporation of AAA Commercial Rules giving arbitrators the right to control discovery.
Because the root of the unconscionability problem derived from the single phrase denying discovery, the Court concluded that the arbitration agreement was not “permeated” with unconscionability. Using the judicial scalpel, the Court severed the malignant provision – and presto ! – the arbitration agreement survived.
Defendants get to arbitrate, and plaintiffs get discovery.
Arbitration/Employment/Unconscionability: Perplexed Court Of Appeal Offers Pointers On Drafting An Enforceable Arbitration Provision
How To Avoid Drafting An Unconscionable Arbitration Agreement.
We usually summarize opinions, but here, the Court of Appeal does a good job itself of summing up how to draft an enforceable arbitration provision in an employment agreement. The case is Woods v. JFK Memorial Hospital, Inc., G050286 (4/3 Oct. 30, 2014) (Moore, Rylaarsdam, Thompson) (unpublished), in which the Court of Appeal reverses an order granting a motion to arbitrate, on the grounds that the arbitration agreement is both substantively and procedurally unconscionable.
Expressing the Court’s perplexity (exasperation?), Justice Moore explains how to draft an enforceable arbitration agreement:
We are, frankly, perplexed that we continue to see arbitration agreements such as this one. The years since Armendariz have produced a veritable flood of cases about arbitration between employers and employees. Employers should be well aware by now that to insulate their agreements from unconscionability claims, particularly when they are adhesive contracts, there is a simple list of do’s and don’ts. The arbitration agreement should be conspicuous (and preferably labeled as such, in a document separate from a lengthy handbook). The document should be written in plain English, attach or make readily available all referenced documents, be fundamentally fair and mutual, and in all respects abide by the guidance provided in Armendariz. Further, employers should give the employee a meaningful opportunity to review the agreement and decide whether to sign it (meaning a day or two rather than a minute or two). We do not understand why any of this is particularly difficult or challenging for employers, and yet time and time again, our courts see cases with confusing, convoluted and fundamentally unfair employer/employee arbitration schemes that are deemed unconscionable and unenforceable.