Arbitration/Automobiles/Unconscionability: Second District, Div. 1 Revisits Ruling In Sanchez v. Valencia Holding Company, And Again Concludes That Arbitration Provision In Automobile Sales Contract Is Unconscionable
Split In Appellate Opinion
I have a separate sidebar category on “automobiles” because the auto industry spawns many decisions about the enforceability of arbitration clauses in sales contracts. As I have previously posted on August 26, 2012, and January 7, 2013, Sanchez v. Valencia Holding Co. LLC, 201 Cal.App.4th 74 (2012) is pending before the California Supreme Court, and presents as an issue whether unconconscionability defenses to arbitrating auto sales disputes are preempted by AT&T Mobility v. Concepcion, 563 U.S. __ , 131 S.Ct. 1740 (2011).
In Vargas v. Sai Monrovia B, Inc., B237257 (June 4, 2013) (Mallano, J., author; Rothschild, J. writing separate concurrence) (for publication), the Second District, Division 1 has revisited its ruling in Sanchez. Unsurprisingly, it concludes that unconscionability defenses are not preempted. As in Sanchez, the Court again concludes “that the identical sale contract does not require the arbitration of disputes between a purchaser and a dealer because it is permeated by unconscionability.”
The split in appellate opinion is expressly noted in footnote 4: “In Goodridge and Natalni, the Courts of Appeal concluded the Sale Contract was unconscionable. In Flores and Vasquez, the Courts of Appeal reached the opposite conclusion.”
Above: 1965 Monte Carlo Rally winner: 1964 Morris Mini Cooper S. Source: Wikimedia Commons/License. Author: “DeFacto.” (Note: The subject of Vargas v. Sai Monrovia B, Inc. was a Mini Cooper S.)
Arbitration/Agents/Third Party Beneficiaries/FINRA: Financial Advisor May Be Allowed to Compel Arbitration As Agent and Third-Party Beneficiary of Defunct Member of FINRA
The Twist Here: A Defunct Member of FINRA Cannot Compel Arbitration – But Its Agent or Third Party Beneficiary Could Do So Here (Maybe)
The Ronay Family Limited Partnership (Ronay) sued its financial advisor Robert R. Tweed, his investment firm TFI, and others, claiming Ronay had lost $4M as a result of bum investment advice. Tweed, in his capacity as a registered representative of CapWest Securities, Inc., had signed an arbitration agreement between Ronay and CapWest covering the subject matter of Ronay’s claims. However, CapWest, a member of the Financial Industry Regulatory Authority (FINRA), was defunct, and under the rules of FINRA, it could not compel arbitration. The issue here is whether anyone can enforce the arbitration provision.
Tweed moved to compel arbitration, and the trial court denied his request, reasoning that because CapWest could not compel arbitration, neither could its agent Tweed. Tweed appealed. Ronay Family Limited Partnership v. Tweed, D062195 (4th Dist. Div. 1 May 23, 2013) (Irion, J., author 3:0) (certified for partial publication except for part III.C).
Held: Tweed and TFI may enforce the arbitration clause of the account agreement between Ronay and CapWest as agents and third-party beneficiaries. Though CapWest became defunct and under FINRA rules lost its right to enforce the arbitration clause, Tweed and TFI retained rights to do so. It probably helped that, though Tweed himself was not a member of FINRA, he was registered as an associated person with FINRA at all relevant times.
Note that we’ve said Tweed “may be allowed to compel arbitration.” It is hardly a foregone conclusion, however, because the Court, in the unpublished part of the opinion, remanded for further consideration of an issue that wasn’t briefed: whether the possibility of conflicting rulings among multiple parties should lead to denial of arbitration under Cal. Code Civ. Proc. section 1281.2(c).
Que sera, sera.
Arbitration/Burden of Proof: Second District Division 2 Affirms Trial Court’s Finding That Defendant Carried Prima Facie Burden of Proof to Make Finding of Existence of Arbitration Agreement
Second District, Division 4 and Division 7 Disagree About Need to Fully Authenticate Arbitration Agreement to Meet Initial Burden
On May 22, 2013, we blogged about The Fine Living Trust v. Merrill Lynch, Pierce, Fenner & Smith, B240869 (2nd Dist. Div. 7 May 20, 2013) (Jackson, J. author 3:0) (unpublished), holding that the party seeking to compel arbitration must carry the initial burden of properly authenticating the arbitration agreement. In that case, Merrill Lynch relied on Condee v. Longwood Management Corp., 88 Cal.App.4th 215 (2001), holding that once the party seeking arbitration alleged the existence of an arbitration agreement, the burden shifts to the opposing party to prove the falsity of the agreement. However, in that case, District 7 disapproved of Condee, to the extent it conflicts with Rosenthal v. Great Western Fin. Securities Corp., 14 Cal.4th 394 (1996), which places the burden of proving the existence of the arbitration agreement by a preponderance of the evidence upon the party seeking to compel arbitration. The panel concluded that Merrill Lynch, by failing to properly authenticate the arbitration agreement, "failed to meet its burden of proving by a preponderance of the evidence the existence of an arbitration agreement. . . . "
Brown v. UBS Financial Services, Inc., B242971 (2nd Dist. Div. 4 May 24, 2013) (Manella, J., author 3:0) (unpublished), views Condee differently, citing with apparent approval the statement in Condee that, in the context of a petition to compel arbitration, "it is not necessary to follow the normal procedures of document authentication.. . . as a preliminary matter the [trial] court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity." In the Brown case (like The Fine Living Trust case, another case involving a financial institution),UBS produced the arbitration agreement and a declaration purporting to authenticate it. Plaintiff ?Brown challenged the authentication of the arbitration agreement, but it appears that producing the agreement with a declaration was enough to get past the initial burden of making a prima facie showing of the "existence" of an arbitration agreement.
The 4th and the 7th District seem somewhat as if they are talking past one another. The 4th Division says that the prima facie burden is to prove the "existence" of an agreement, not the "validity" of the agreement. The 7th Division appears to be saying that one who hasn't properly authenticated the agreement has not met the prima facie burden of establishing its existence.
In Brown, the Court affirmed the trial's judgment, finding no error in granting UBS's motion to compel arbitration.
Arbitration/Burden of Proof: Defendant Merrill Lynch Could Not Compel Arbitration Because It Failed To Authenticate Arbitration Agreement
Party Seeking To Arbitrate Has Burden of Proving Existence of Arbitration Agreement
Trustee and beneficiaries sued Merrill Lynch, Pierce, Fenner & Smith for freezing an investment account and wrongfully precluding trustee from distributing funds to the beneficiaries. Merrill Lynch moved to compel arbitration, based on a Client Relationship Agreement (CRA) signed by the original trustees of the trust, who were now deceased. The trial court denied the motion, because Merrill Lynch failed to include a declaration authenticating the CRA – and Plaintiff filed a declaration stating he was “unable to determine in any definitive sense whether the signatures appearing on the CRA are the signatures of my parents.” Merrill Lynch appealed. The Fine Living Trust v. Merrill Lynch, Pierce, Fenner & Smith, B240869 (2nd Dist. Div. 7 May 20, 2013) (Jackson, J. author 3:0) (unpublished).
Merrill Lynch relied on Condee v. Longwood Management Corp., 88 Cal.App.4th 215 (2001), holding that once the petitioner alleged the existence of an arbitration agreement, the burden shifts to the respondent to prove the falsity of the agreement. However, another case, Toal v. Tardif, 178 Cal.App.4th 1208 (2009), holds that to the extent Condee conflicts with Rosenthal v. Great Western Fin. Securities Corp., 14 Cal.4th 394 (1996), which places the burden of proving the existence of the arbitration agreement by a preponderance of the evidence upon petitioner, then Rosenthal, a Supreme Court case, controls.
The Court of Appeal agreed that Condee had been called into doubt by Toal, and determined that Merrill Lynch, by failing to authenticate the CRA, “failed to meet its burden of proving by a preponderance of the evidence the existence of an arbitration agreement. . . . “
Affirmed.
Arbitration/Enforcement: Arbitration Provision Fails Because Health Care Power of Attorney Is Invalid
Invalid Power of Attorney Did Not Constitute Sufficient Evidence of Ostensible Authority
Grandma’s birthday. 1896. Library of Congress.
Mother, in her 90s, suffering from dementia and osteoporosis, allegedly slipped and fell at a residential care facility for the elderly, after being left unattended in the dark on a wet pavement. Found lying in a pool of blood, mother was transported to a hospital, where she died. When daughter sued for elder abuse, fraud, wrongful death, and violation of a Health & Safety Code medical records provision, care facility unsurprisingly sought to compel arbitration. What defendant wants to try such a case before a jury? The trial court denied the motion to compel, and an appeal followed. Root v. Emeritus Corporation and Emeritus At Westwind Gardens, A134748 (1st Dist. Div. 5 May 17, 2013) (Needham, J., author 3:0) (unpublished).
First, the daughter signed an Agreement to Resolve Disputes by Binding Arbitration. But her authority to do so on behalf of her mother relied on an invalid health care power of attorney that was neither acknowledged by a notary nor signed by the requisite witnesses.
Second, the invalid health care power of attorney was insufficient to confer ostensible authority on the daughter to act on behalf of her mother. If it were otherwise, then it would permit health care and other decisions to be made based on the principal’s alleged signature alone, without the protective statutory formalities of acknowledgment before a notary or two witnesses.
Affirmed.
Arbitration/3rd Party Beneficiaries/Equitable Estoppel: 9th Circuit Holds District Court Correctly Concluded Defendant Could Not Invoke Arbitration Clause As 3rd Party Beneficiary or Through Equitable Estoppel
Defendant Admitted It Did Not Enter Into Contract With Student To Provide Him With Debt Relief Services
Student loan debt is an area of our economy ripe to generate cases on arbitration and class action. See for example my April 12, 2013 post about Kilgore v. Keybank, No. 09-16703 (9th Cir. April 11, 2013), a case in which students of a failed helicopter flight-training school, in which the 9th Circuit, sitting en banc, found that the class action waiver was not unconscionable.
Rajagopalan v. NoteWorld, LLC, No. 12-35205 (9th Cir. May 20, 2013) (per curiam) (for publication), is yet another student loan debt case.
After losing his job, Plaintiff Rajagopalan, an electrical engineer who accumulated $15,000 in student debt, sought a professional loan work out solution by contacting a company on the Internet. He signed a contract that contained an arbitration clause. After some months passed, Plaintiff cancelled his subscription, only to find out that the company responsible for the payment processing had had withdrawn $8,290.15 from his account, and he had received no debt relief.
NoteWorld, which was responsible for payment processing, was not a signatory to the contract. Its in-house counsel explained that NoteWorld was an “independent third-party and does not act as an agent for the [debt relief service provider], nor does it take on any of the contractual obligations of the DRSP.”
Plaintiff filed a lawsuit against NoteWorld, and NoteWorld sought to take advantage of the arbitration provision in the contract between Plaintiff and the debt relief company. The district court denied NoteWorld’s motion to compel arbitration.
Under Washington state law, “both contracting parties must intend that a third party beneficiary contract be created.” Here, evidence was lacking that Plaintiff intended to designate NoteWorld as a third-party beneficiary, or that NoteWorld assumed any duties or obligations under the contract.
In order to successfully invoke equitable estoppel, it was essential “that the subject matter of the dispute was intertwined with the contract providing for arbitration.” Such was not the case here, because Plaintiff’s claims against NoteWorld were statutory claims separate from the contract itself.
Affirmed.