Arbitrations/Automobiles: Fourth District, Division 2, Finds Form Purchase And Sale Agreement Used By Many New Car Dealers Not Unconscionable
Appellate Opinion Is Divided And Issue Is Before The California Supreme Court
Automobile wreck. Between 1918 and 1920. Library of Congress.
The Fourth District, Division 2, has added one more appellate opinion to the mix of opinions concerning whether a form purchase and sale contract used by many new car dealers in California and including a form arbitration clause is unconscionable. It’s not unconscionable, says the Court, reversing the trial court judge. The Court finds “minimal” procedural unconscionability and no substantive unconscionability. Gonzalez v. Metro Nissan of Redlands, Case No. E056160 (4th Dist. Div. 2 Sept. 12, 2013) (Richli, J. author 3:0) (unpublished). As noted by the Court, the California Supreme Court has granted review of the issue in no fewer than five published appellate opinions so far, but has yet to decide any of them.
California Mediation and Arbitration has its own sidebar category for “automobiles”, because automobile dealers make widespread use of arbitration clauses in consumer contracts. Those clauses have generated quite a few appellate opinions – and those opinions are divided on the question of unconscionability.
Arbitration/Enforceability: Arbitration Agreement Is Valid Notwithstanding Absence Of Agreed Method For Appointing Arbitrator
California Code of Civil Procedure Section 1281.6 to the Rescue
The failure of an arbitration agreement to provide a method for appointing an arbitrator need not be fatal.
Our next case arose from Plaintiffs’ efforts to recover allegedly unpaid progress payments under a construction contract for remodeling Defendants’ home. Plaintiffs sued Defendants for money, and Defendants petitioned to arbitrate under an arbitration provision prepared by Plaintiffs. The trial court denied the petition, reasoning that the arbitration agreement was uncertain because it did not specify “before what agency o[r] person the matter will be arbitrated, [or] how the arbitrator will be selected, but merely sets for[th] alternative options for these terms.” Defendants appealed the order denying their petition. HM DG, Inc. v. Amini, Case No. B242540 (2nd Dist. Div. 3 Sept. 20, 2013) (Heeseman, J., author 3:0).
A “plain reading” of Cal. Code of Civ. Proc., section 1281.6 makes clear the parties needn’t agree upon a specific method for appointing an arbitrator to form a binding arbitration agreement. Here, the arbitration provision evinced an intention to arbitrate, and set forth alternative options. That did not make the arbitration agreement unenforceable, as the court, in the absence of an agreed method, or if the agreed method fails for appointing an arbitrator, shall appoint the arbitrator. Section 1281.6. Consequently, the trial court’s order was reversed.
That does not mean that the trial court is authorized to appoint an arbitrator in a manner inconsistent with the parties’ arbitration agreement. Thus, if the arbitration agreement had provided for arbitration before the AAA, pursuant to the rules of the AAA, and the AAA refused to accept arbitration, the trial court would not be able to send the dispute to JAMS arbitration pursuant to JAMS rules – that would be inconsistent with the agreement of the parties.
Arbitration/Employment/Class Action/Waiver: Fourth District, Division 2 Reverses Trial Court’s Denial Of Petition To Compel Arbitration Of Employee Claims
The Court Of Appeal Also Directs Entry Of Order Granting Employer’s Petition To compel Arbitration On An Individual Basis
Employee Arroyo’s complaint alleged his employer engaged in wage and hour practices that violated the California Labor Code. The trial court denied the employer’s petition to compel arbitration, but this denial was reversed on appeal with directions to compel arbitration of employee claims on an individual (as opposed to a class) basis. Arroyo v. Riverside Auto Holdings, Inc., Case No. E056256 (4th Dist. Div. 2 Sept. 13, 2013) (Richli, J. author 3:0) (unpublished).
We glean three points of interest from this unpublished decision.
First, the Court of Appeal reads AT&T Mobility LLC v. Concepcion, __ U.S. __ [131 S.Ct. 1740 (2011) (Concepcion) as broadly holding that the FAA preempted class action arbitration, and refuses to distinguish between consumer and employment situations.
Second, the Court of Appeal acknowledges that “[o]ne of the most volatile issues in this area of the law concerns the argument that the FAA preempts class action claims in arbitration agreements, particularly when statutory rights, such as the Labor Code provisions cited in this case, are asserted.”
Third, the Court of Appeal, while discerning “a strong argument for preemption,” continues to assume that “Gentry remains good law until it is expressly overruled by our Supreme Court.” Gentry held that class arbitration waivers in employment arbitration agreements may be unenforceable when certain conditions – the “Gentry factors” – are satisfied. However, Arroyo had failed to meet the factual burden of proof required by Gentry.
Arbitration/Scope: Arbitration Provision In Operating Agreement Of LLC Investment Vehicle Does Not Govern Relationship Between Investors And Investment Advisor
Basis For The Wrongs Alleged By Plaintiffs Was A Separate Investment Services Agreement Containing No Arbitration Provision
Stephen Goldberg and Victoria Pynchon sued their investment advisors, Coggins Company, for breach of contract, professional negligence, and other claims relating to a real estate investment gone sour in Wildomar Investors, LLC. Among other things, Plaintiffs alleged that Defendants had an undisclosed interest in the LLC, resulting in a possible conflict of interest, and that Defendants mislead Plaintiffs into believing that they had purchased one investment unit, while concealing that Plaintiffs had purchased two units in the LLC. Defendants petitioned to compel arbitration, based on a broadly worded arbitration provision in the LLC operating agreement. The trial court denied the petition on the grounds that “defendants’ allegedly deceptive investment actions arose out of the investment services agreement, and not the Wildomar operating agreement.” Defendants appealed. Goldberg v. The Coggins Company, Case No. B245236 (2nd Dist. Div. 2 Sept. 14, 2013) (Chavez, J., author 3:0) (unpublished).
The Court of Appeal agreed with the trial court that the wrongs alleged by the investors were governed by the investment services agreement, which lacked an arbitration provision, rather than the the LLC operating agreement, which contained the arbitration provision. The investment services agreement and the LLC operating agreement “involved separate enterprises, separate risks, and separate contractual relationships.”
Affirmed.
“Cursed by those whose savings he has squandered and whose trust he has betrayed.” “Illustration shows a man, probably Charles Sanger Mellen, standing amid a crowd of angry investors who have lost their savings and investments due to mismanagement of the New Haven Railroad.” Puck, 1913. Library of Congress.
Arbitration/Unconscionability/Employment: First District, Division 1 Concludes Arbitration Agreement Is Not Unconscionable And Reverses Trial Court’s Order Denying Arbitration
Failure To Attach AAA Rules And Employer’s Unilateral Ability to Modify the Arbitration Agreement Were the Issues Here
Plaintiff Peng sued her employer for employment discrimination and related claims. After the trial court denied defendant’s motion to compel arbitration, the employer appealed. On appeal, the issues were whether the employer’s failure to attach AAA rules resulted in procedural unconscionability and whether the employer’s ability to unilaterally modify the arbitration agreement resulted in substantive unconscionability. Peng v. First Republic Bank, Case No. A135503 (1st Dist. Div. 1 October 2, 2013) (Dondero, J. author 3:0) (unpublished).
No, and no were the Court’s conclusions.
The failure to attach the AAA rules, “standing alone” was insufficient to support a finding of procedural unconscionability. Interestingly, the Court distinguished a case in which an arbitration agreement referenced the Better Business Bureau arbitration rules but failed to attach them. The distinction is that the Better Business Bureau rules are not just procedural, but also limit the scope of arbitral claims, thereby “substantively limiting the defendant’s exposure.” Harper v. Ultimo, 113 Cal.App.4th 1402, 1407 (2003).
As to the employer’s ability to unilaterally change the arbitration agreement, that does not necessarily lead to substantive unconscionability, because it is reined in by the implied covenant of good faith and fair dealing, which “saves that agreement from being illusory and thus unconscionable.” Serpa v. California Surety Investigations, Inc., 215 Cal.App.4th 695, 708 (2013).
Arbitration/Vacatur: Second District, Division 7 Refuses To Vacate $26.8 Million Arbitration Award
Quarrel With Arbitrator’s Reasoning And Conclusion Provides No Grounds For Reversing Trial Court’s Order Affirming Arbitration Award
Following a failed real estate investment, HCR Moorpark Investors, LLC obtained an order confirming a $26.8 million arbitration award in its favor. With so much at stake, it is not surprising that defendants appealed, but the case is a reminder of how impervious arbitration awards are to attack on appeal. The Court of Appeal handily rejected arguments that the arbitrator exceeded his powers by failing to decide certain issues submitted, had improperly decided an unsubmitted issue, had failed to provide a fair hearing, or had remade the parties’ agreements. Affirmed. HCR Moorpark Investors, LLC v. North Park Communities, LLC, et al., Case No. B240046 (2nd Dist. Div. 7 Aug. 21, 2013) (Perluss, J. author 3:0) (unpublished).