Arbitration/Nonsignatories: Fourth District, Division 1 Affirms Trial Court’s Order Denying Petition to Compel Arbitration With Nonsignatory
Parties Moving to Compel Arbitration Were Unable to Take Advantage of Nonsignatory’s Admissions Where Moving Parties Denied Existence of Agreement Between Themselves and Nonsignatory
Our next case is an odd one in which each of the adversaries took seemingly inconsistent positions. PMCI and Gregory, a contractor and its principal, were moving parties seeking to compel arbitration of a construction defects lawsuit with Quattro, a nonsignatory to a construction contract. While moving to compel arbitration, PMCI and Gregory claimed that the nonsignatory Quattro lacked standing to sue and was not a party to the agreement. The nonsignatory claimed that he had standing to sue under the agreement to construct a house, but that as a nonsignatory, he was not bound by the contract’s arbitration provision. In another related lawsuit, Quattro had filed a declaration stating that another person, Truppi, was the record owner of the property, and that Quattro “had only a prospective beneficial interest in the property. . . “
The arbitration clause provided that it bound signatories, and the trial court denied the petition to compel arbitration on the simple basis that signatures were lacking (Gregory had also failed to sign in his individual capacity). Truppi v. Pasco Engineering, Inc. and Quattro v. Property Management Contractors, Inc., Case No. D059494 (Dist. 1 Div. 1 October 22, 2012) (Nares, Acting P.J.) (unpublished).
Several arguments were advanced by appellants in favor of compelling arbitration, including estoppel and third-party beneficiary arguments, all to no avail.
The chief stumbling block for appellants appears to have been that they were not allowed to take advantage of Quattro’s admissions that the contract was for his benefit and that he had performed the contract – admissions that might have supported an estoppel argument. Why couldn’t appellants take advantage of their opponent’s admissions? Because “in both their demurrers, general denial, and indeed in their petition to compel arbitration, PMCI and Gregory denied the existence of an agreement between themselves and Quattro . . . “ See Brodke v. Alphatec Spine, Inc., 160 Cal.App.4th 1569, 1575 (2008) (“While plaintiffs’ admissions are an appropriate means by which the existence of an agreement may be proved, there is simply no reason to prove anything until the moving party alleges the existence of that which is to be proved.”).
Above: Engine for drawing the fuse out of a shell and cross-section of a Petard. 1779. Library of Congress.
If you seek to compel arbitration under a contract,yet deny that there is a binding contract, well, that could be a problem. It was here for appellants. See the diagram above referring to a “Petard”, and see the Wikipedia article for the origin of the expression, “hoist with his own petard.”
Order affirmed.
Arbitration/Employment/Estoppel/Implied in Fact Agreement: Court of Appeal Concludes That Trial Court Properly Denied Motion to Compel Arbitration With Former HR Director Charged With Getting Employees to Sign Arbitration Provision, Yet Not Signing Herse
Employer’s Equitable Estoppel and Implied-in-Fact Arbitration Agreement Arguments Are Both Rejected
Plaintiff, Susan Gorlach, sued her former employer, The Sports Club Company, for wrongful termination, retaliation, paramour sexual harassment, intentional infliction of emotional distress, defamation, breach of contract, and negligence. She did not sign an arbitration agreement. When the employer petitioned to compel arbitration in the trial court, it lost – after all, the employee had not signed the arbitration agreement. Seems pretty straightforward so far. Oh, we should mention that the Plaintiff was the HR Director, charged with the task of getting all the employees to sign the arbitration provision. Also, she purportedly led her employer to believe that she had signed the agreement, and did not mention that she was one of four holdouts among several hundred employees, the rest of whom had signed. Also, the arbitration agreement had to be signed as a condition of continued employment. The Sports Club appealed. Gorlach v. The Sports Club Company, B233672 (2nd Dist. Div. 4 October 16, 2012) (Suzukawa, J.) (certified for publication).
The Sports Club argued that its employee was equitably estopped from denying the existence of the arbitration agreement, because she misled the executive committee into believing she signed the agreement. However, an element of estoppel is that the party claiming estoppel must rely upon the conduct to its injury. Though The Sports Club advised that signing the agreement was a “condition of employment,” there was “no evidence that, as of the date of Gorlach’s resignation, Sports Club had decided what it would do if an employee refused to sign the arbitration agreement or had terminated any employee for failing to sign the agreement.” Absent evidence of detrimental reliance on the part of The Sports Club, there could be not equitable estoppel.
What about an employed-in-fact agreement to arbitrate, based on the fact that Ms. Gorlach continued to work for The Sports Club, and the employer had insisted that the employees sign an arbitration agreement as a condition of continued employment? As the Court of Appeal acknowledges, “California law permits employers to implement policies that may become unilateral implied-in-fact contracts when employees accept them by continuing their employment. Whether employment policies create unilateral contracts is ‘a factual question in each case.’”
Here, the messy fact for the employer was that its handbook told employees, “As a condition to employment, all Team Members must sign the Mutual Agreement to Arbitrate Claims.” (italics added in the Court’s opinion). And Ms. Gorlach had not signed – evidencing an intention not to be bound. That messy fact also distinguished her case from Craig v. Brown & Root, Inc., 84 Cal.App.4th 416 (2000), a case in which the employee was not asked to sign an arbitration agreement, was informed that any employment-related dispute would henceforth be subject to arbitration, and was found to be bound by an implied-in-fact agreement to arbitrate.
Moral: If you are the employer, be careful what you ask for. If the employer insists on getting a signature, and does not get it, the employer could have a problem. So if you do decide to ask for a signature, get it. And if you decide not to ask for a signature, take a look at Craig v. Brown & Root, Inc., supra.
Arbitration/Fees/: HOA’s Dismissal of Arbitration Against Management Company Results In Award of Attorney’s Fees Against HOA
HOA Was Not Spared Fees Because It Initiated Arbitration, And Fees Clause Was Broad Enough To Cover Situation
Plaintiff homeowners association, Lakeside Club Villas, Inc., settled with developer defendants, and therefore voluntarily dismissed an arbitration against defendant property management company. The management company brought a successful motion to obtain attorney fees. The HOA appealed, arguing that, because it voluntarily dismissed the arbitration, the management company was not the prevailing party. Lakeside Club Villas, Inc. v. LB Property Management, Inc., Case No. B236001 (2nd Dist. Div. 5 October 16, 2012) (Armstrong, J.) (unpublished).
Under Civil Code section 1717, a voluntary dismissal may save a losing party from having to pay attorney’s fees on a contract claim. But that didn’t work here, because the fees clause was “sufficiently broad to allow such fees on the noncontract claim, but are limited to those associated with the arbitration of the dispute.”
The HOA’s contention depended “upon the premise that there was no arbitration.” No go. “A JAMS arbitration is commenced by filing the Demand for Arbitration, a copy of the agreement containing the arbitration provision, and the filing fee.” And the HOA did that.
Arbitration/Class/Waiver/Consumers/Enforceability: Second District Division 6 Reverses Denial of Automobile Dealership’s Motion to Compel Arbitration
Ducks Addressing Viability of Gentry v. Superior Court By Distinguishing It As Case Dealing With Employment Issues, Not Consumer Issues
Plaintiff purchased a BMW, and filed a complaint alleging a violation of the Consumers Legal Remedies Act (CLRA) and other consumer protection statutes, because some BMWs do not come with a spare tire, but are equipped instead with tires that allow one to drive a short time after a tire is punctured. The trial court denied the dealership’s motion to compel arbitration, on the ground that the arbitration agreement included an unenforceable class action waiver. The dealership appealed. Sherf v. Rusnak/Westlake, Case No. B237275 (2nd Dist. Div. 6 Oct. 16, 2012) (Perren, J.) (unpublished).
The Court of Appeal reversed the trial court’s order denying arbitration. AT&T Mobility LLC v. Concepcion, ___ U.S. ___ , 131 S.Ct. 1740 (2011) preempts state law prohibiting a consumer from waiving class action rights. However, the Court of Appeal remanded to the trial court to determine whether the arbitration agreement was unconscionable under California law.
Along the way, the Court of Appeal pointed out that the California Supreme Court “has relied on statutory rights to invalidate a class action waiver in the context of employee rights.” Gentry v. Superior Court, 42 Cal.4th 443 (2007). Rather than address the continuing viability of Gentry, the Court of Appeal simply ducked that issue by pointing out that Gentry dealt with employment issues, not consumer issues. Besides, the California Supreme Court has granted review for Iskanian v. CLS Transp. Los Angeles, 208 Cal.App.4th 949 (2012), a case that concluded that Concepcion invalidated Gentry. So the issue of using unwaivable statutory rights to nix enforcement of arbitration agreements should come up again soon.
Spare wheels and tires. Between 1940 and 1946. Alfred T. Palmer, photographer. Library of Congress.
Arbitration/FAA Preemption: Justice Gilbert Answers Question of Federal Arbitration Act Preemption
It All Depends
Justice Gilbert addresses the issue of when federal preemption applies in consolidated appeals of Mastick v. TD Ameritrade, Inc. and Mastick v. Oakwood Capital Management, Inc., LLC, Nos. B237475 and B238070 (2nd Dist. Div. 6 October 9, 2012) (published). “We answer the question when it does with judges’ and lawyers’ habitual, exasperating response: it all depends.”
In the first appeal involving Mastick and Oakwood, the arbitration agreement provided for California choice of law. California Code of Civ. Proc. section 1281.2(c) provides that a court may deny a petition to arbitrate because of the risk of inconsistent rulings. Though the FAA governs arbitration provisions in contracts that involve interstate commerce (9 U.S.C. section 1), which happened to be the case here, nevertheless, the FAA is not inconsistent with section 1281.2 if the arbitration agreement is expressly governed by California law. Why? Because the FAA requires that the agreement be carried out according to the intent of the parties. Following those principles, the trial correct correctly applied section 1281.2 to deny the petition to compel arbitration.
The TD Ameritrade agreements, however, did not contain a California choice-of-law provision. Instead, the agreements provided that they would “be governed by the laws of the State of Nebraska,” and that disputes would be resolved by arbitration “in accordance with the rules of FINRA.” But Nebraska law, like the FAA, and unlike California law, does not expressly authorize a court to stay arbitration or refuse to enforce an arbitration provision to avoid duplicative proceedings or conflicting rulings. So here, the trial court erred by relying on California law and section 1281.2(c) to deny a petition to compel arbitration.
Thus, the denial of Oakwood’s petition to compel arbitration was affirmed, and the denial of TD Ameritrade’s petition to compel arbitration was reversed.
It just depends.
Arbitration/Res Judicata/Waiver/Consumers/Class Action: 2006 Denial Of Mediation Is Reversed In 2011 And Reversal Is Affirmed In 2012–Concepcion Made The Difference
Court of Appeal Says It Would Have Been Futile To Seek Reversal Earlier
In Phillips v. Sprint, Case No. A134371 (First Dist. Div. 3 Sept. 26, 2012) (Pollak, J., author) (published), the Court of Appeal considered a situation in which the trial court denied a request to arbitrate in 2006 in a consumer class action, but granted the request in 2011, following the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, ___ U.S. ___ ,131 S.Ct. 1740 (2011)(Concepcion). In 2011, Concepcion abrogated the California rule, and upheld the validity of class action waivers in consumer contracts requiring arbitration.
Plaintiffs in Phillips v. Sprint argued the failure to appeal the earlier denial was “res judicata.” But a motion does not result in a judgment, and therefore the earlier decision was not res judicata.
Plaintiffs also argued that the failure to appeal the earlier denial constituted a waiver of arbitration. “However, as Sprint argues, pursuing an appeal would have been futile given the state of law at the time. ‘Waiver should not be found on the basis of a party’s failure to undertake a futile act.’ (In re Apple & AT&TM Antitrust Litigation (N.D. Cal. 2011) 826 F.Supp.2d 1168, 1174.)”
Phillips v. Sprint is in line with Reyes v. Liberman Broadcasting Inc., Case No. B235211 (2nd Dist. Div. 1 Aug. 31, 2012), a case we posted about on September 2, 2012. The court in Reyes also held that an employer that quickly asserted its right to arbitrate after Concepcion was decided did not waive its right to arbitrate.