Incorporation of Rules/CCP section 1281.2: Arbitration Agreement is Self-Executing Where Arbitration Clause Incorporates Existing Rules of AAA
“Self-executing” Means Party Does Not Have to File Petition Pursuant to CCP 1281.2 to Compel Arbitration
In Tutti Mangia Italian Grill, Inc. v. American Textile Maintenance Co., 197 Cal.App.4th 733, 128 Cal.Rpr.3d 551 (2011) a dispute arose between ATM, a supplier of restaurant lines, and TMIG, a restaurant. ATM commenced an arbitration pursuant to an arbitration agreement. TMIG refused to participate, taking the position that an arbitration clause incorporating rules of the AAA is unenforceable, and citing Gilbert Street Developers, LLC v. La Quinta Homes, LLC, 174 Cal.App.4th 1185, 94 Cal.Rptr.3d 918 (2009) (Gilbert Street.)
Above: Chef in North Beach Italian Restaurant. 1941. John Collier, photographer. Library of Congress.
The arbitrator disagreed, and rendered an award, entered as a judgment, and affirmed by the Court of Appeal. Gilbert Street was distinguishable, for in that case, the arbitration provision incorporated by reference future rules of the AAA, rendering that agreement unenforceable.
The Court of Appeal also addressed whether the arbitration provision was self-executing, or whether a petition had to be filed with the Court under CCP section 1281.2 to get the arbitration ball rolling. Section 1281.2 was “designed to afford a remedy where the parties have not provided for the contingency that has arisen or where the contractual scheme has failed.” Brink v. Allegro Builders, Inc.,58 Cal.2d 577, 25 Cal.Rptr. 556 (1962). Section 1281.2 is not the exclusive means for starting an arbitration. Where the arbitration provision was sufficiently specific, as was the case here, no petition needed to be filed. The provision was indeed self-executing.
Unconscionability/Enforceability: Incorporation by Reference of Arbitration Policy in Employee Handbook Was Procedurally Unconscionable.
Employer Failed to Attach the Rules . . .
Petitioner Zullo sued her employer Inland Valley Publishing Co. (Inland), for wrongful termination. The superior court granted Inland’s petition to compel arbitration and stayed the civil proceedings. Petitioner challenged the ruling by way of writ of mandate. Zullo v. Sup. Ct., 197 Cal.App.4th 477, 127 Cal.Rptr.3d 461 (2011).
The Court of Appeal granted the writ of mandate, finding the arbitration provision to be unenforceable:
“Inland’s arbitration policy is a contract of adhesion, fails to give adequate notice of the arbitration rules that will apply, and allows Inland the full range of remedies and forums for resolution of whatever claims it might have against petitioner while limiting petitioner to binding arbitration of her claims against Inland. It also imposes strict time limits within which petitioner must respond to any arbitration-related communication without imposing similar requirements on Inland. Accordingly, the arbitration agreement is unconscionable and cannot be enforced as written.” Id. at 487.
Tip: A contract of adhesion 
need not be unconscionable. But to have the possibility of satisfying this court, the arbitration provision would need to attach the correct set of arbitration rules referred to, be symmetrical as to remedies and forums for employer and employee, and be fair and symmetrical regarding time limits for responding to arbitration-related communication.
Nonsignatories/Burden of Proof/Equitable Estoppel/Third-Party Beneficiaries: Third Party Non-Signatories Cannot Successfully Move to Compel Arbitration Agreement Where They Are Neither Sufficiently Tied to The Parties to the Agreement Nor Third Party Bene
Nonsignatory Has Burden of Proof to Establish It is Party to the Arbitration Agreement and Entitled to Enforce It.
In Jones v. Jacobson, 195 Cal.App.4th 1 (2011), Societe Generale and a related entity (SG appellants) were sued along with Jacobson by the Joneses in connection with a failed investment, and sought to arbitrate. The trial court denied the motion to compel, prompting the appeal.
The problem for the appellants was that the arbitration agreement was between the Joneses and an entity named SG Americas Securities LLC (SGAS) an entity different from the SG appellants.
The appeal was unsuccessful. The nonsignatory SG appellants and Jacobson had the burden to prove that they “are a party to, and thus are entitled to enforce, the arbitration provision in the account agreement.” It was not enough for nonsignatories to establish the existence of a valid and broadly worded arbitration provision.
Here, the third parties were unable to sustain their burden, for they could not establish either a close enough relationship to SGAS to justify being able to compel arbitration, nor a third-party beneficiary relationship. The SG appellants were unable to argue that they were agents or employees of SGAS.
The doctrine of equitable estoppel can sometimes be used by a nonsignatory to argue that it would be inequitable for the party to base its claims on a contract containing an arbitration provision, but then avoid arbitration under an arbitration clause in the contract. Here, however, the account agreement containing the arbitration provision was not the basis of the claims against the SG appellants.
Finally, the Jacobson appellants relied on the additional argument that he was a “broker-dealer” and entitled to arbitrate as a “third party beneficiary.” However, that argument was also rejected on the grounds that there was an insufficient nexus between the account agreement containing the arbitration provision and the claims against the Jacobson appellants.
The opinion was authored by Justice Benke in San Diego.
Enforceability/Mandatory Fee Arbitration/Fee Dispute/Standard of Review: Binding Fee Arbitration Under the Mandatory Fee Arbitration Act is an Oxymoron and Resulting Award is Unenforceable
Arbitration Agreement Containing Inconsistencies Between California Arbitration Act (CAA) and Mandatory Fee Arbitration Act (MFAA) is Interpreted Against the Law Firm That Drafted It
“The fundamental problem in this case . . . arises from an internal inconsistency in the arbitration clause, which states that “[a]ny dispute pertaining to the fees owed under this agreement . . . shall, to the extent permitted by law, be submitted to binding arbitration pursuant to the rules of the Bar Association of San Francisco [BASF], and shall take place in San Francisco.” Benjamin, Weill & Mazer v. Kors, 195 Cal.App.4th 40 (2011).
The law firm (BWM) sued its client, Nancy Kors, for fees, and she moved to compel arbitration under the CAA. Binding arbitration pursuant to the rules of the BASF took place. The arbitrator did not make disclosures required under the CAA, but not under the BASF, and did not disclose a purported institutional bias representing law firms in malpractice disputes. The outcome of the arbitration was not to Ms. Kors’ liking, and she moved to vacate the award, based on the arbitrator’s failure to disclose, and also moved for attorney’s fees incurred in enforcing the arbitration position. The trial court denied the motion to vacate the award, as well as the request for fees. She appealed.
Unconscionability: Delegation Clause in Arbitration Agreement Does Not Render Entire Arbitration Agreement Unconscionable
Arbitration Agreement Wasn’t Permeated With Unconscionability
Htay Htay Chin sued Advanced French Concepts Franchise Corp. (AFC) over a sushi franchise. AFC then moved to compel arbitration. Chin argued that the arbitration agreement, which included a “delegation provision”, was unconscionable – and the trial court agreed, denying the motion to compel arbitration. This resulted in an appealable order, and Chin duly appealed. Chin v. Advanced Fresh Concepts Franchise Corp., 194 Cal.App.4th 704, 123 Cal.Rptr.3d 547 (2011).
Above: Bowl of sushi by Hiroshige. Wikipedia.
Judicial Arbitration: Losing Party in Arbitration’s Dismissal of Complaint Repudiated Request for Trial De Novo
Result: 1st District, Div. 5 Holds That Trial Court Properly Vacated Dismissal and Entered Judgment on Unfavorable Reward
In Lee v. Kwong, 193 Cal.App.4th 1275, 123 Cal.Rptr.3d 633 (2011), plaintiff entered into an agreement to purchase a Chinese restaurant from seller, but seller ended up selling to a third party, leaving buyer with a sour taste. The purchase and sale agreement included an arbitration provision, and judicial arbitration ensued.
The outcome of the arbitration was unfavorable to the buyer, who moved for a trial de novo, and then voluntarily dismissed the complaint without prejudice. As a result, the trial court vacated the dismissal, and entered judgment on the award.
Appellants argued that, since they requested a trial de novo, and since they had only judicially arbitrated, they were entitled to a dismissal without prejudice. Unfortunately for them, precedent was to the contrary: “[A]n arbitration is viewed as a trial on the merits,” pursuant to section 581. [citations omitted] Accordingly, appellate courts have uniformly held that a party repudiates its request for a trial de novo after judicial arbitration when it subsequently voluntarily dismisses a complaint. Such action by a party who has received an unfavorable judicial arbitration award triggers finalization of the judicial arbitration award as judgment.”
For a blog post on the other part of the opinion concerning attorney’s fees, see the post on California Attorney’s Fees.