Arbitration, Automobiles, Nonsignatories: Cal Sup Ct Ruled Ford Could Not Arbitrate Via Dealer Arbitration Agreement With Customer
The Court Disapproved of Felisilda v. FCA US LLC (2020) To The Extent It Suggested Manufacturers Could Make Use Of Dealers' Arbitration Clauses.
An issue knocking about in California Courts of Appeal has been whether Ford Motor Company and other automobile manufacturers could piggyback off arbitration clauses found in the contracts between dealerships and their customers. Ford has relied on an estoppel theory that sometimes arbitration can be compelled by a nonsignatory to the arbitration provision when claims are “intimately founded in and intertwined with” the sales contracts. While Ford wanted to drive the disputes to arbitration, the California Supreme Court took a different road. Ford Motor Warranty Cases, S279969 (Cal. Sup.Ct. 7/3/25) (Corrigan, author).
The arbitration clauses only applied to the disputes between the buyers and the dealers. However, consumer claims against Ford rested on statutory obligations and fraud, not the sales contract.
COMMENT: Given the existing paperwork, many Lemon Law cases will go to court.
A Model T Ford that has "come to rest half on and half off a a streetcar boarding platform in Washington, D.C." 1922. Library of Congress.
Settlement: Lack Of Judicial Evaluation Of Derivative Lawsuit Settlement Results In Reversal
Judicial Review Of The Fairness Of A Derivative Lawsuit Settlement Is Much Like Review Of The Settlement Of A Class Action.
Norman v. Strateman, A170356 (1/3 6/20/25) (Petrou, Fujisaki, Rodriguez), involved a cryptocurrency exchange dispute requiring judicial approval of derivative settlements. Donald Norman, Patrick Strateman, and Amir Taaki established Intersango, a cryptocurrency exchange that Patrick eventually shuttered. Norman filed a derivative action alleging Patrick excluded partners from operations, closed the exchange without consent, and retained assets while refusing to return customer bitcoins.
During trial, parties reached a settlement before Judge Harold Kahn, who memorialized terms on the record. Over a year later, Norman moved to set aside the settlement, claiming it lacked required judicial approval for derivative actions. The Stratemans moved to enforce the settlement. Judge Rochelle East granted enforcement and denied Norman's motion, finding all shareholders were parties and the settlement protected their interests.
The Court of Appeal reversed, holding that derivative settlements require independent judicial review to ensure fairness and reasonableness, not mere memorialization. Neither Judge Kahn nor Judge East conducted the necessary analysis considering factors like case strength, litigation risks, settlement adequacy, and discovery completeness. The court remanded for proper judicial review, emphasizing that derivative settlements protect absent shareholders and corporate interests, requiring more than party consent.
COMMENT: Approval of a derivative action lawsuit requires more than a handshake. The process, requiring judicial oversight and evaluation of fairness and reasonableness, entails review much like what is required when a court reviews a class action settlement.
Arbitration, Unconscionability: Unconscionable Terms In Employment Agreement Vitiated Separate Arbitration Agreement
The Two Agreements Were Read Together As One Agreement.
In Silva v. Cross Country Healthcare, Inc., B337435 (2/5 6.13/25) (Hoffstadt, Moor, Kim), employees Isabel Silva, Alejandro Garcia, and Janai Velasco challenged their employer’s attempt to compel arbitration of their wage-and-hour and related claims. Each plaintiff had signed two agreements at hiring: (1) an Arbitration Agreement requiring binding arbitration of nearly all employment-related claims, and (2) an Employment Agreement containing restrictive covenants and granting the employer the unilateral right to seek injunctive relief in court without posting a bond. The Employment Agreement also superseded contemporaneous agreements, including the Arbitration Agreement.
The employees argued that the two documents must be read together under Civil Code section 1642, which provides that multiple contracts executed as part of one transaction should be construed jointly. The trial court agreed, finding that the combined effect of the two agreements was substantively unconscionable: employees had to arbitrate all claims they were likely to bring (e.g., wage, hour, and statutory claims), while the employer preserved court access for claims it was likely to bring (e.g., confidentiality, non-compete, and non-solicitation). The court further noted one-sided attorney fee provisions and forced concessions that breaches caused “irreparable harm” justifying injunctions without bond. It declined to sever offending terms, holding that the arbitration framework was “permeated by an unlawful purpose.”
On appeal, the Court of Appeal affirmed. It rejected the employer’s arguments that the contracts should be considered separately, that mutuality existed, or that severance was required under federal law. The court stressed that allowing employers to evade precedent by splitting terms across multiple contracts would reward manipulative drafting.
An employer cannot sidestep unconscionability precedent by requiring employees to sign separate contracts that, when read together, create an unconscionable arbitration framework favoring the employer.
Jurisdiction: International Shoe Test For Minimum Contacts Does Not Apply To Foreign State Entities That Agreed To Arbitrate
A SCOTUS Case Of First Impression.
Our next case, a US Supreme Court case, shows that the Court can still issue unanimous opinions in cases that require the application of statutes and that are not politically polarizing.
In CC/Devas (Mauritius) Ltd. v. Antrix Corp. Ltd., No. 23-1201, 605 U.S. __ (6/5/25) (Justice Alito), Devas contracted with Antrix, an Indian government-owned satellite company, to lease satellite capacity. India later reclaimed the spectrum for government use, and Antrix terminated under a force majeure clause. An arbitral tribunal found Antrix liable, awarding $562.5 million plus interest. Devas sought confirmation of the award in U.S. federal court under the Foreign Sovereign Immunities Act (FSIA) arbitration exception. The District Court confirmed the award; the Ninth Circuit reversed, holding that FSIA personal jurisdiction also requires a separate International Shoe “minimum contacts” showing.
The Supreme Court unanimously held that under 28 U.S.C. § 1330(b), personal jurisdiction over a foreign state exists when (1) an FSIA immunity exception applies and (2) the defendant is properly served. There is no separate minimum-contacts requirement beyond the contacts embedded in the FSIA’s exceptions. The Ninth Circuit’s added requirement was contrary to the statute’s text and structure.
COMMENT. This was the Court’s first direct ruling on whether FSIA’s personal-jurisdiction provision independently incorporates the constitutional “minimum contacts” standard.
For Antrix, the jurisdictional test is: 1) Does the arbitration exception to immunity (§ 1605(a)(6)) apply? (Yes, because Antrix agreed to arbitrate and the award is covered by the New York Convention.) 2) Was service made under § 1608? (To be confirmed by the district court.) If both are satisfied, the federal court has personal jurisdiction.
Unconscionability: Fourth Dist. Div. 3 Agrees Arbitration Agreement Was Procedurally and Substantively Unconscionable
The Opinion Applies Established California Unconscionability Law.
In Velarde v. Monroe Operations, LLC, 111 Cal.App.5th 1009 (4/3 6/6/25) (Sanchez, Moore, Motoike), the California Court of Appeal affirmed denial of a motion to compel arbitration. Newport Healthcare required new hire Karla Velarde to sign an arbitration agreement as a condition of employment, presenting it among 31 documents to be signed immediately while an HR manager waited. Velarde expressed discomfort and lack of understanding, but the HR manager falsely assured her the agreement would resolve issues without needing or paying for lawyers. The agreement, however, mandated adversarial arbitration under the Federal Rules of Civil Procedure and Evidence, with each side bearing its own attorney fees unless ordered otherwise. The court found procedural unconscionability due to the adhesive nature, time pressure, and misrepresentations. It found substantive unconscionability because the agreement created expectations of an inexpensive, informal process but imposed a burdensome, lawyer-driven one-sided procedure favoring the employer. Taken together, these defects rendered the agreement unenforceable. The court did not reach the separate trial court finding that the agreement unlawfully barred judicial review.
Waiver: Second Dist. Div. 5 Applies Quach Standard, Which Does Not Require A Finding Of Prejudice To Find A Waiver Of The Right To Arbitrate
Activities Inconsistent With Right To Arbitrate, Without Showing Of Prejudice, Is Sufficient To Find Waiver Of Right To Arbitrate.
In Hofer v. Boladian, 111 Cal. App. 5th 1 (2/5 5/9/25) (Hoffstadt, Moor, Kim), the Califo In Hofer v. Boladian, 111 Cal. App. 5th 1 (2/5 5/9/25) (Hoffstadt, Moor, Kim), the Cali rnia Court of Appeal applied the California Supreme Court’s new waiver standard from Quach v. California Commerce Club (2024) to affirm denial of a motion to compel arbitration. Hofer and his entities sued Boladian and her new firm despite contractual arbitration clauses, vigorously litigating for six months before moving to compel arbitration. Their litigation activities included seeking injunctive relief, opposing a demurrer, propounding 734 discovery requests, demanding a jury trial, and paying jury fees—while rarely mentioning arbitration and never seeking to preserve the right early. Under Quach, waiver occurs when clear and convincing evidence shows a party knew of its right to arbitrate and intentionally relinquished or abandoned it; prejudice is no longer required. The court found Hofer knew of his right (having executed the agreements and raised arbitration pre-suit) but engaged in conduct so inconsistent with arbitration that waiver was established. The court rejected arguments that litigation was “necessary” for provisional relief or because of nonsignatory parties, noting that statutory non-waiver provisions require contemporaneous requests to stay proceedings, which Hofer did not make. Sporadic mentions of arbitration were outweighed by consistent pursuit of court litigation.