PAGA: California Cases In the Wake Of Viking Cruises
We Examine Whether California Cases Are Following Justice Alito's or Justice Sotomayor's Opinion About Standing To Bring PAGA Representative Claims.
The Daily Journal published a special issue on April 26, 2023, entitled "The Resolution Issue." My article entitled PAGA Arbitration: California Courts in the wake of Viking Cruises, is at p. 20 of the issue. It has been republished on the website of ARC (Alternative Resolution Centers).
The Viking Cruises opinion required that the plaintiff employee's individual PAGA claim against the cruise line be arbitrated. However, Justice Alito, in the majority opinion, took the position in what is arguably dictum that once individual PAGA claims are referred to arbitration, the plaintiff lacks standing to litigate PAGA representative claims in court. Justice Sotomayor concurred with the majority, but explained that the standing issue was one of state law and California courts might decide that after individual claims are sent to arbitration, the plaintiff still had standing to bring representative PAGA claims in court. California appellate courts have now addressed these issues, and the question of standing to bring representative PAGA claims is pending before the California Supreme Court.
Unconscionability: Second District, Div. 8 Holds That Illegible Contract Is Fair, And Therefore Not Unconscionable
Majority Of Panel Holds That Substantive Unconscionability Was Missing. Justice Stratton Dissents.
Writing for the majority, Justice John Shepard Wiley Jr. explains that the above contract is enforceable, requiring the plaintiff employee to arbitrate her dispute. Though the document is manifestly illegible, Justice Wiley concludes that the contract is fair. Therefore, there is no "substantive unconscionability." And as we know, California law requires both procedural and substantive unconscionability for a contract to be unenforceable on the basis of unconscionability. Fuentes v. Empire Nissan, Inc., B314490 (2/8 4/21/23) (Wiley, Harutunian; Stratton, dissenting).
Justice Maria E. Stratton dissents. She writes, " '[W]atering down' unconscionability analysis is not what I have in mind. Acknowledging the obvious is my intention. Holding a signatory to an illegible contract that is also as prolix as this one strains the concepts of mutuality, fairness and common sense. If an employee literally cannot read the contract, how is that substantively fair?"
COMMENT: Perhaps a simpler approach than "unconscionability," which requires satisfying two prongs, is a contract formation approach. Was there ever a meeting of the minds? Was there consent to the terms of the contract, when the contract was illegible and prolix? Justice Arthur Gilbert has written, "An arbitration clause in a contract is invalid because the clause is as inconspicuous as a frog in a thicket of water lilies." Domestic Linen Supply, Inc. v. L J T Flowers, Inc., 58 Cal.App.5th 180 (2020). Here, the job seeker wouldn't see the frog or the water lilies, just a typographic mess. Thus, in addition to the two-prong unconscionability analysis, arbitration clauses can also be analyzed under a contract formation analysis.
Suppose the prospective employee had said she wanted to come back the next day when she could read what was actually written. And the employer had replied that if she wanted to go to work, she should sign. So she signed. Then the court could have said she signed because she wanted to start work. But since that was simply evidence of additional "procedural unconscionability," everything was copacetic. Or is it?
This case stretches to the breaking point the legal fiction that agreements to arbitrate are always a matter of consent.
Same Outcome In A Tandem Case: Mohammad Basith v. Lithia Motors, Inc., B316098 (2/8 4/21/23) (Wiley, Harutunian; Stratton, dissenting).
In Basith, a tandem case involving a contract substantially similar to the one in the Fuentes case, the Second District, Div. 8, reaches the same conclusion that the arbitration provision is valid and enforceable. It's another split decision, with Wiley and Harutunian in the majority, and Stratton again dissenting.
Here, we get bit of policy to justify the outcome: "Our holding is that, unless we are to imperil the vast online world of take-it-or-leave-it contracts, substantive unconscionability must retain meaningful independent content. For that reason, the contracts here and in Fuentes are valid and enforceable, despite their procedural unconscionability."
COMMENT: While it is true that the contracts are substantially the same, there is a factual difference between Basith and Fuentes. "We note at the outset that this case poses no issue of small or unreadable font. It is a striking coincidence that, not only do we encounter substantially similar form contracts in two simultaneous and otherwise unrelated cases, but also that font size should be a dominating issue in one case—Fuentes—and entirely absent as an issue in Basith’s case. The difference stems from the media: in Fuentes, the contract was printed only on paper, and was printed in a largely unreadable way, whereas Basith’s main contract was online."
Nevertheless, Justice Wiley explains that a complaint about prolix legalese and a complaint about font size are just examples of procedural unconscionability, not substantive unconscionability. In short, the court majority does not recognize a situation in which the employer drafts a contract and thus knows its terms, and an employee is unable to read the illegible contract, as being one-sided and substantively unfair. This appears to be dictum in Basith, but it helps to further explain the majority's thinking in Fuentes, where font size and prolixity were issues, not to mention the poor condition of the tiny font.
PAGA: Fourth District, Div. 1 Holds Employee Has Standing To Litigate Representative Claims In Superior Court, Notwithstanding Agreement To Arbitrate
Individual PAGA Claims Must Be Arbitrated.
One more California Court of Appeal follows the US Supreme Court in Viking Cruises v. Moriana, holding that arbitration of individual PAGA claims can be arbitrated. But the court also concludes that the employee "has standing to litigate nonindividual PAGA claims in the superior court notwithstanding his agreement to arbitrate individual PAGA claims." Nickson v. Shemran, Inc., No. D080914 (4/1 4/7/23) (Dato, Huffman, Buchanan).
Justice Dato explains in footnote 11: "As Justice Sotomayor made clear, the Supreme Court was opining on what it conceded could be a mistaken view of California law. (Viking River, at p. 1925 (conc. opn. of Sotomayor, J.) [“[I]f this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word.”]." Justice Dato relies on the California Supreme Court's opinion in Kim v. Reins, 9 Cal.5th 73 (2020): "As Kim explained, 'the Legislature did not intend to link PAGA standing to the maintenance of individual claims when such claims have been alleged' and '[t]his expansive approach to standing serves the state’s interest in vigorous enforcement.'”
COMMENT: Nickson joins other California decisions concluding that arbitration of individual PAGA claims can be compelled, but that the plaintiff has standing to pursue representative claims in court. See 3/30/23 post for references to other cases. But note that the Nickson also states: "We leave management of the superior court litigation during the pendency of arbitration to the trial court’s sound discretion." If trial courts stay litigation pending the outcome of arbitration, it remains to be seen how much this will dilute the strength of PAGA.
MFAA: Losing Trial De Novo After Mandatory Fee Arbitration Award Can Lead To Serious Reversal Of Fortune
Mandatory Fee Arbitration Act Fee Provisions Prevailed Over Contract Fee Provisions.
Oscar Wilde. c1882. N. Sarony. Library of Congress.
Oscar Wilde is credited with the paraprosdokian, "One would have to have a heart of stone to read the death of Little Nell without laughing." Our next case provokes similar sentiments. Surjit P. Soni v. Cartograph, B316270 (2/5 4/5/23) (Moor, Baker, Kim). File this one under, "Be careful what you ask for."
Soni, an attorney, got into a billing dispute with a client Tierney. All California attorneys are required to offer their clients the option of Mandatory Fee Arbitration in case of a fee dispute, and Tierney exercised the option. This procedure is governed by California Bus. & Prof. Code, § 6200 et seq., which has its own timing requirements and attorney fee provisions.
The arbitrator awarded attorney Soni $2.50. Evidently displeased with the outcome, Soni filed a complaint for a trial de novo in Superior Court. Disagreeing with the arbitrator, the trial judge entered judgment in Soni's favor in the amount of $2,890. Soni requested fees in the amount of $281,191.65, which the trial court reduced to $79,898. Tierney appealed, and the Court of Appeal reversed the trial court judgment, ordering the judge to confirm the $2.50 award. We previously blogged about this portion of the case. (Soni blew the 30-day deadline for filing his complaint for a trial de novo, because the deadline is not extended by mailing). But wait, there's more!
On remand, the trial court confirmed the $2.50 arbitration award. Soni filed a motion to recover attorney's fees, arguing that he prevailed in the trial court with an award of $2,890, and $79,898 in fees. Soni now sought fees of $543,365. Tierney, who may have litigated more efficiently, sought fees of $339,603. The trial judge denied Soni's motion for fees, and awarded Tierney fees of $328,166.50. Tierney prevailed.
The problem with Soni's argument is that he was not the prevailing party. There is a single final judgment, and at the end of the day, Soni had done worse with his trial de novo (0) than with his arbitration award ($2.50). Furthermore, the Court of Appeal held that the fee provisions in the MFAA governed the fee award, rather than contractual provisions. Under the MFAA fee rules, Soni's unsuccessful trial de novo entitled Tierney to fees.
"Respondents Timothy Tierney and Cartograph, Inc., formerly known as Simplelayers, Inc., are awarded their costs on appeal."
COMMENT. Tread very carefully before rejecting an award in Mandatory Fee Arbitration and filing a complaint for a trial de novo. If you don't do better in the trial, you risk an adverse award of attorney's fees under the MFAA.
Nonsignatories, Automobiles: Ford Motor Company Could Not Rely On Dealership Agreements To Compel Arbitration With Auto Buyers
Order Denying Ford Motor Company's Motion To Compel Arbitration Is Affirmed.
In the Ford Motor Warranty Cases, No. B312261 (2/2 4/4/23) (Grimes, Stratton, Viramontes), FMC sought to compel arbitration with plaintiffs who purchased automobiles and complained about manufacturing defects. However, FMC's argument relied on dealership contracts with arbitration clauses to which FMC was not a signatory. The trial court denied the motion, and the Court of Appeal affirmed.
Justice Grimes explained: "Equitable estoppel does not apply because, contrary to FMC’s arguments, plaintiffs’ claims against it in no way rely on the agreements. FMC was not a third party beneficiary of those agreements as there is no basis to conclude the plaintiffs and their dealers entered into them with the intention of benefitting FMC. And FMC is not entitled to enforce the agreements as an undisclosed principal because there is no nexus between plaintiffs’ claims, any alleged agency between FMC and the dealers, and the agreements."
Disclosures: Second District Div. 2 Holds Arbitrator Did Not Need To Disclose In First Arbitration Later Arbitration With Same Firm And Party In First Arbitration
Different Disclosure Rules Apply To Consumer Arbitrations And This Was Not A Consumer Arbitration.
"Do the Ethics Standards require a retained arbitrator in a noncommercial [sic] case to disclose in one matter that he has been subsequently hired in a second matter by the same party and same law firm? We hold that the answer is 'no,' at least where the arbitrator has previously informed the parties—without any objection thereto—that no disclosure will be forthcoming in this scenario. Because the arbitrator’s disclosures were proper here, the trial court properly overruled an objection based on inadequate disclosure. We accordingly affirm." Sitrick Group, LLC v. Vivera Pharmaceuticals, Inc., B317546 (2/2 3/30/23) (Hoffstadt, Lui, Ashmann-Gerst). We added the "sic" only because we believe the court meant to write that this was a nonconsumer arbitration, though the opinion refers to a "noncommercial" arbitration.
The arbitrator would have been required to disclose during a pending arbitration that he was taking on another arbitration that had the same law firm and the same party (Sitrick) involved in the pending arbitration, but for disclosures that the arbitrator made at the beginning of the first arbitration pursuant to a JAMS checklist.
The arbitrator had disclosed: (1) that he “will . . . entertain offers of employment or new professional relationships . . . from a party [or] lawyer in the arbitration . . . while [the] arbitration is pending, including offers to serve as a dispute resolution neutral in another case,” and relatedly advised that “[i]f this is a nonconsumer arbitration, the arbitrator will not inform the parties if he or she subsequently receives an offer or new matter while the arbitration is pending"; that based on the submissions of the parties, it was a nonconsumer arbitration; (3) that disclosures #1 and #2 “constitute[] a waiver of any further requirement to disclose subsequent employment involving the same parties or lawyers or law firms.”
As a courtesy, the arbitrator disclosed the subsequent arbitration. Vivera argued he should have been removed as arbitrator, because he would have the beneficial relationship in the future with Sitrick and its law firm, who were in the pending arbitration. The trial court and the Court of Appeal both agreed that, given the disclosures upfront, there was no obligation to disclose the second arbitration.
Did the subsequent disclosure trigger a new opportunity to strike the arbitrator? No, the subsequent disclosures was unnecessary. Or, as we and the maxims of equity might say, superfluity does not vitiate.
COMMENT: If this had been a consumer arbitration, there would have been an ongoing obligation to disclose. Perhaps then the "courtesy disclosure" would have triggered an opportunity to peremptorily strike the arbitrator, because the disclosure would have been more than a mere courtesy: it would have been a necessary disclosure.
In the pending nonconsumer arbitration, Vivera was not exactly hung out to dry. When the arbitrator disclosed that he would accept future business, Vivera could have objected at that time.