Arbitration, Enforceability: Minor’s Right To Disaffirm Contract Makes Arbitration Delegation Provision Unenforceable
Defendant Electronic Arts (EA) Fails To Shoot Down Plaintiff J.R.
J.R., a minor, sued video game producer EA. J.R. "alleged that EA deceptively induced players of Apex Legends, 'especially impressionable minors,' to purchase digital game-specific currency in order 'to purchase cosmetic items, characters, lootboxes, and other items within the Apex Legends virtual world.'” The trial court denied EAs motion to compel arbitration and EA appealed. J.R. v. Electronic Arts, Inc. E080414 (4/2 1/1724) (Menetrez, Fields, Raphael).
EA argued that the arbitration agreement clearly and unmistakably delegated the decision as to whether to arbitrate to the arbitrator. Indeed, the trial court did not disagree with the clarity of the delegation provision. However, the trial judge concluded that J.R., invoking his right to do so under Family Code § 6170, effectively disaffirmed the entire contract, including the delegation clause.
EA argued that the disaffirmance was ineffective, because J.R. failed to specifically refer to the delegation provision.
The Court of Appeal, however, disagreed. It held that the following language was effective to disaffirm the contract and every part thereof, which logically included the delegation clause: "J.R. 'disaffirm[s] the entirety of any [user agreement], contract or agreement that was accepted through [his] EA account.' J.R. II thereby unequivocally disaffirmed 'any . . . contract or agreement' that he entered into with EA through his EA account. (Italics
added.)"
1Family Code. 6710. "Except as otherwise provided by statute, a contract of a minor may be disaffirmed by the minor before majority or within a reasonable time afterwards or, in case of the minor's death within that1 period, by the minor's heirs or personal representative."
BONUS. Dallas episode: the big reveal. Who shot J.R.?
Arbitration, Unconscionability: 3rd District Agrees That American Automobile Association Arbitration Agreement Is Unconscionable
Court Affirms Order Denying Motion To Compel Arbitration.
"On a sliding scale, the procedural and substantive unconscionability as to this arbitration agreement is high." Hasty v. American Automobile Assn. of Northern Cal., Nev. & Utah , C097674 (3rd Dist. pub. 1/6/24) (Robie, Mauro, Krause). The order denying the AAA's petition to compel arbitration is affirmed.
COMMENT. Drafting an employee-employer arbitration agreement involves competing considerations. On the one hand, there is a natural desire on the part of employer's counsel to include provisions that advantage the client. On the other hand, there is the risk that the drafter will make the adhesion arbitration agreement too one-sided, and a court will find the arbitration agreement unconscionable.
Arbitration, PAGA, Waiver: First District, Div. 3 Holds Employee’s Waiver Of Representative PAGA Claims Is Ineffective
California Courts of Appeal Continue To Side With California Supreme Court Regarding Standing To Bring Representative PAGA Claims.
Affirming the trial court's denial of an employer's motion to compel arbitration, the Court of Appeal holds that the employees' waiver of a right to bring representative PAGA claims is unenforceable. Nicole DeMarinis et al. v. Heritage Bank of Commerce, A167091 (1/3 1/8/24) (Fujisaki, Tucher, Petrou).
Let's summarize the PAGA standing issue in California: Under Iskanian, California courts had not allowed employers to "split" PAGA claims between individual and representative claims, because Iskanian treated a PAGA claims as a dispute between the employer and the State, which did not waive the right to arbitrate, and not a dispute between an employer and an employee. However, the SCOTUS, in Viking River Cruises, Inc. v. Moriana, 596 U.S. ___ (2022) [142 S. Ct. 1906], held that precluding the splitting of PAGA causes of action into a representative and an individual cause of action was preempted by the Federal Arbitration Act, to the extent that this resulted in the inability to compel arbitration of individual PAGA claims in California. Once the individual cause was moved to arbitration, Justice Samuel Alito concluded, the employee had no standing to bring the PAGA representative action in court. Justice Sonia Sotomayor concurred, but added that California courts, which have the role of interpreting California law, might conclude instead that employees do have standing to bring PAGA representative actions. The California Supreme Court, in Adolph v. Uber Technologies, Inc., S274671 (Cal. Sup. Ct. 7/17/23) (Liu; Guerrero, Corrigan, Kruger, Groban, Jenkins, Evans), has had the last word, if not the final word, agreeing that employees have standing to bring representative PAGA claims. See our post dated 9/5/23.
Arbitration, Service: 9th Circuit Accepts Service On Foreign Party By Mail — Under The Circumstances
District Court Was Right, But For The Wrong Reasons.
The Court of Appeals decided three issues in Voltage Pictures, LLC v. Gussi, S.A., No. 23-55123 (9th Cir. 2/5/24) (M. Smith, Lee, Vandyke): subject matter jurisdiction, service, and comity. The underlying dispute, concerning rights under a Distribution and License Agreement, resulted in an arbitration award in favor of Voltage Pictures, which the district court had confirmed.
The district court held that it had jurisdiction to confirm the arbitration award because there was diversity between US-based Voltage Pictures and Gussi. While the Federal Arbitration Act enables federal courts to confirm arbitration awards, there must still be an independent basis for jurisdiction, and the Court of Appeals, doubtful that complete diversity had been established, rejected diversity as the district court's basis for accepting jurisdiction. However, 9 U.S.C. 203 "vests federal district courts with subject matter jurisdiction over motions seeking to confirm non-domestic arbitral awards." Gussi was a non-domestic party, and that provide the independent basis for jurisdiction.
Second, the district court erred in finding that California law provided the basis for service for mail on the foreign entity. However, Judge Smith found another way find that service by mail on Gussi's attorney was sufficient under the circumstances. Gussi did not reside in the Central District of California, and was not available for service in any other federal district in the US. Therefore, the FAA provisions, 9 USC § 9, governing service of residents of the district or elsewhere in the US, simply did not apply to the serving someone unavailable in the US. Relying on 9 USC § 61, Judge Smith explained that a summons was not required to confirm an arbitration award, only an application, and that notice of an application could be accomplished by the same means as providing notice of a motion: service on the party's attorney.
Third, the district court did not abuse authority by refusing to extend comity to an order from a Mexican court to enjoin the confirmation of the arbitration award. Gussi failed to properly authenticate the foreign order.
COMMENT. As Judge Smith observed, "We may affirm a district court’s decision 'on any ground supported by the record even if not explicitly relied upon by the district court.' Johnson v. Barr, 79 F.4th 996, 1003 (9th Cir. 2023)." And that's what happened here.
1"Any application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions, except as otherwise herein expressly provided."
Happy New Year To All My Readers !
Another Trip Around The Sun — Happy New Year !
WELCOME! And Let Us Hope You Will Be A Real HAPPY New Year. Puck. 1895.
Delegation: Ninth Circuit Addresses How To State A Challenge To Delegation Of The Issue Of Arbitrability And How To Analyze Issue
Judge Eric D. Miller Agrees Majority's Analysis, But Disagrees That The Ninth Circuit Rule Is Any Different From The Rule In Other Circuits.
Abraham Bielski has already made law in his case against Coinbase, Inc., a cryptocurrency exchange. Earlier this year, the Supreme Court held in Bielski's case that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. See our 7/03/23 post about the SCOTUS decision in Bielski v. Coinbase, Inc. In the newest iteration of Bielski v. Coinbase, Inc., 22-15566 (9th Cir. 12/5/23) (Mendoza (maj.), Sanchez, Miller (partially concurring)), the Ninth Circuit examined whether a delegation clause in Bielski's contract with Coinbase, Inc. effectively delegated the issue of arbitrability to the arbitrator. Bielski continues to make law, though not necessarily in his favor.
In deciding the delegation issue, the Ninth Circuit decided three issues, two of which Judge Mendoza described as issues of first impression.
The first issue of first impression is how much must a party challenging a delegation clause do to successfully allege a challenge? The answer is that specifically mentioning the delegation clause and presenting arguments against its enforceability is sufficient. Judge Mendoza suggests, however, that some other circuits require more substance in the challenge than does the Ninth Circuit.
The second issue of first impression is how should the court conduct its analysis? Should it just look at the delegation clause, or should it be able to interpret that provision in the context of the agreement as a whole? The answer here is that "the district court correctly considered the whole context surrounding the delegation provision in its analysis of the provision’s validity."
The third issue is whether the delegation clause was unconscionable — not an issue of first impression. The court found that it was not unconscionable, and therefore reversed the district court’s order denying Coinbase’s motion to compel arbitration.
COMMENT: Judge Miller partially concurred in the opinion. He agreed with the court’s holding that “'to sufficiently challenge a delegation provision, the party resisting arbitration must specifically reference the delegation provision and make arguments challenging it' and that 'a party may use the same arguments to challenge both the delegation provision and the arbitration agreement, so long as the party articulates why the argument invalidates each specific provision.' I do not join it, however, because I do not agree with the court’s characterization of the rule applied in other courts of appeals." In other words, he doesn't believe there is any real difference between the Ninth Circuit test and how other circuits address delegation.
Based on the Ninth Circuit majority opinion, there would appear to be a split among the circuits, and thus a firm basis for Supreme Court review. Based on Judge Miller's dissent there would be no reason for the Supreme Court to consider the case again, and if it did do so, it might conclude, as did Judge Miller, that the Ninth Circuit rule is a difference without a difference.