Waiver: Second District, Division 5 Holds Trial Court, Not Arbitrator, Should Decide Merits Of Waiver Of Arbitration By Litigation Conduct
Judicial Expertise And Judicial Economy Weigh In Favor Of Letting The Trial Court Make The Call On This Waiver Issue
In a 3-0 opinion penned by Presiding Justice Turner, the Court of Appeal holds, “[t]he trial court correctly ruled it, rather than an arbitrator, should decide the merits of the waiver by litigation conduct defense to arbitration asserted by plaintiffs.” Hong v. CJ CGV America Holdings, Inc., B246945 (2nd Dist. Div. 5 Dec. 18, 2013) (partially certified for publication with exception of part III D concerning substantial evidence). In so ruling, the Court of Appeal was persuaded by four federal appellate court decisions holding issues of waiver by litigation conduct are properly decided by a court, not an arbitrator.
Waiver of the right to arbitrate may occur for a variety of reasons. However, here, judicial economy and efficiency seemed to weigh heavily in favor of letting the judge decide the issue of waiver, when waiver results from litigation conduct. In that circumstance, the parties are already in front of the judge, not the arbitrator, and the judge has observed the conduct of the parties.
I see that Ben Scheibe, a former law school classmate of mine at UCLA, represented the prevailing Plaintiffs/Respondents. Congratulations, Ben!
Unconscionability/Preemption/Class/Consumers: Ninth Circuit Upholds Denial Of Arbitration In Two Cases
Ninth Circuit Judge William Fletcher is the author of two recent Ninth Circuit opinions affirming district court denials of motions to arbitrate against class action plaintiffs. Like his mother, the distinguished late Ninth Circuit Judge Betty Binns Fletcher, W. Fletcher was born in the State of Washington, and the next two cases involve Washington law.
Beware the “Click” Signature!
The consumer in Lee v. Intelius Inc. v. Adaptive Marketing LLC v. Adaptive Marketing LLC, No. 11-35810 (9th Cir. Dec. 16, 2013) purchased a background check on the Internet from Intelius – and inadvertently purchased a “Family Safety Report” by clicking a button on the website. Plaintiff filed a state-law class action against Intelius, and Intelius then sued Adaptive, the company that actually provided the unwanted Family Safety Report. Adaptive moved to compel arbitration of Plaintiff Lee’s and Intelius’s claims, and the district court denied the motion to compel.
The Ninth Circuit affirmed the denial. Buttons on the website were confusing, there was “small, light grey print that did not stand out prominently from the beige background’, the text was long, and there were multiple hyperlinks. However, “Washington courts have not decided whether or under what circumstances a ‘click’ constitutes a signature.” Therefore, the Court rested its conclusion on the safer ground that the webpage insufficiently identified Adaptive as a contracting party.
As to the specific arbitration provision embedded in Adaptive’s terms and conditions, the “careful consumer would reasonably have understood . . . that the hyperlink to ‘Terms and Conditions’ was to Intelius’s rather than Adaptive’s terms and conditions.”
Court Recognizes That Plaintiffs Who Don’t Want To Arbitrate Don’t Raise The Issue In Their Complaint
Under Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), the court gets to decide whether the arbitration clause is invalid, but the arbitrator gets to decide whether the whole contract is invalid, when the complaint attacks the validity of the contract as a whole, rather than just the arbitration clause.
What happens when plaintiff doesn’t want to arbitrate, files a complaint that doesn’t address arbitration, and then opposes a motion to compel? The district court gets to consider the validity of the arbitration clause, where the arbitration clause’s invalidity is entirely distinct from the contract claims in the case. Smith v. Jem Croup, Inc., No. 11-35964 (9th Cir. Dec. 12, 2013). As Judge Fletcher notes, many contracts provide for compulsory arbitration at the choice of one or both parties, but if neither party asks for arbitration, the dispute may be brought as a lawsuit. Under those circumstances, it would be unrealistic to expect the plaintiff to challenge the arbitration clause in its complaint, but it would make sense to challenge the clause in the context of opposing a motion to compel.
Moreover, the arbitration clause here was found to be unconscionable – under Washington law. Here, I note that there appears to be a difference between Washington and California law, as Judge Fletcher writes that “[u]nder Washington law, a contractual provision is unenforceable if it is procedurally unconscionable.” Under California law, a finding of unconscionability requires procedural and substantive unconscionability.
The opinion also provides a rationale for why the Federal Arbitration Act and Concepcion do not preempt Washington procedural unconscionability law, including among other factors, that Washington law applicable to the disclosure of material terms in an attorney retainer agreement “is not specifically aimed at arbitration clauses.”
Arbitration/Unconscionability/Automobiles: Fourth District, Div. 3 Finds Arbitration Provision In Common Automobile Sales Contract To Be Unconscionable
An Opportunity To Enjoy Some Vintage Justice Bedsworth
The unconscionability issue concerning the Retail Installment Sales Contract in the next case is currently pending before the California Supreme Court In Sanchez v. Valencia Holding Co., 201 Cal.App.4th 74 (2011), review granted March 21, 2012 (S199119) and several related cases. In an opinion authored by Justice Bedsworth, he Fourth District, Division 3 sided with those courts finding the standard arbitration provision to be procedurally and substantively unconscionable. Castellanos v. Quality Nissan, Inc., Case No.G047885 (Dec. 2, 2013) (unpublished). It weighed somewhat on the scales that the purchaser spoke Spanish, and that the English version of the contract required an acknowledgment of the arbitration provision, whereas the Spanish version did not require an acknowledgment.
Justice Bedsworth, who authors the column A Criminal Waste of Space, is well-known for his wit and colorful writing style. The following passage from Castellanos is an example:
“Let’s not beat about the bush. Businesses put arbitration provisions in their adhesion contracts because they think that if they are sued they will fare better in arbitration than they will before a jury. Consumers and employees think so too; that is why they fight arbitration clauses. Arbitration clauses are in a contract to protect the company proffering the agreement, not the person signing it. The arbitration provision in this contract is designed to give OC Nissan every possible advantage if it is sued for some cause of action that could yield substantial damages, such as the statutory violations alleged in Castellanos’ complaint. OC Nissan is not concerned about being sued because a car’s heater does not work or a hubcap fell off.”
Mediation/Condition Precedent: Following Its Own Precedent, 4th Dist. Div. 3 Reminds Us To Mediate First If Mediation Is A Condition Precedent For Receiving Attorney’s Fees
Here, The Prevailing Party Fails To Mediate, And Fails To Recover Attorney’s Fees
In our next case, plaintiffs’ claims arose from mismanagement of their property. They sued, and obtained a substantial recovery – but no attorney’s fees. Why? Because mediation was a precondition in their contract for the prevailing party to receive attorney’s fees, and they failed to mediate. Following its own precedent, the Fourth District, Division Three, upheld the denial of attorney’s fees. Brown v. Modaffari, Case No. G047443 (4th Dist. Div. 3, November 26, 2013) (unpublished); see Frei v. Davey, 124 Cal.App.4th 1506, 1508 (2004) (enforcing condition precedent in contractual attorney fee provision denying prevailing party right to recover fees if party does not attempt to mediate before suing).
Arbitration/Sanctions: Sixth District Holds CCP 128.7 Sanctions Are Unavailable In Arbitration Where Attorney Has Not “Presented” Pleading To Court
Trial Court’s Order Denying Sanctions Under CCP 128.7 Is Affirmed
In Optimal Markets, Inc. v. Salant, Case No. H038571 (6th Dist. Nov. 26, 2013) (unpublished), the Court explains: “There is no authority supporting the position that a superior court, after a matter has been stayed and ordered to binding arbitration, may impose section 128.7 sanctions for an attorney’s prosecution of a client’s meritless claim before the arbitrator.” Thus, the trial court did not err here, where the matter had been stayed and ordered to binding arbitration, in denying section 128.7 sanctions for matters presented to the arbitrator, but not to the trial court.
Employment: Fourth District, Div. 3 Upholds Trial Court’s Order That Employee Must Arbitrate Individual Claims And Dismisses Class Claims Without Prejudice
Court Summarizes Fractured Opinion About Gentry
Rivera v. Hilton Worldwide, Inc., Case No. G047644 (4th Dist. Div. 3 Nov. 26, 2013) (unpublished) is one more wage and hour case in which the employee is ordered to arbitrate individual claims and the Court upholds dismissal of class claims without prejudice. The Court finds that the arbitration clause is not unconscionable, that the parties did not agree to authorize class arbitration (following Stolt-Nielsen S.A. v. Animalfeeds International, 559 U.S. 662 (2010)), that individual substantive rights could be litigated in arbitration, and that the NLRB decision D.R. Horton, holding dismissal of class action claims violates substantive federal rights of employees, is not persuasive authority.
The Court also neatly summarizes the fractured state of law concerning application of the “four Gentry factors” to determine whether waiver of a class action is unconscionable:
“[C]ases are split as to whether Gentry remains viable.(Compare e.g., Kinecta, . . . 205 Cal.App.4th at p. 516 [‘Gentry appears to remain the
binding law in California’ despite Concepcion; dicta; italics added; Truly Nolen v. Superior Court, . . . 208 Cal.App.4th 487 [although Concepcion ‘implicitly disapproved’ Gentry, court will not ‘disregard’ decision without ‘specific guidance’ from California Supreme Court] with, e.g., Morvant v. P.F. Chang’s China Bistro, Inc. (N.D.Cal. 2012) 870 F.Supp.2d 831, 840-841 [no distinction between Discover Bank and Gentry and class action waiver must be enforced under Concepcion].) The California Supreme Court is considering this issue in Iskanian v. CLS Transportation of Los
Angeles, LLC (2012) 206 Cal.App.4th 949 (Iskanian), review granted September 19, 2012, S204032.”
And then, like many other Courts, the panel ducks the issue: “But we need not decide this question because even if the case remains good law, plaintiff has not satisfied his burden under Gentry.”