Construction Of Agreement And Unconscionability: Confidentiality Agreement And Arbitration Clause Were Construed Together
File This Under "More Ways Than One To Skin A Cat."
Woman wearing a blue robe with Buzzer the cat. Photographer: Arnold Genthe. Library of Congress.
Alberto v. Cambrian Homecare, B14192 (2/4 filed 4/19/23, cert for pub. 5/10/23) (Daum, Collins, Currey), affirms the trial court's order finding an arbitration clause unconscionable.
Here's the wrinkle. Ordinarily, a contract and an arbitration provision are separately construed, and the court must decide whether the arbitration provision is unconscionable. Here, there was a confidentiality agreement, and a separate agreement to arbitrate. Or were they separate? Neither agreement incorporated by reference the other agreement.
But as we said above, there's more than one way to skin a cat. Here, the court construed the two agreements together, applying Civil Code §1642. That section provides: "Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together."
The confidentiality agreement allowed the employer to obtain immediate injunctive relief for a breach of confidentiality and apparently was not symmetrical. The discussion of wages among employees was prohibited. In contravention of PAGA, the arbitration agreement created a blanket prohibition of representative actions, absent mutual consent. The agreements, construed together, infected one another.
Happy July 4th To All My Readers !
On The Occasion Of Our 247th Fourth Of July . . .
Photo credit to Amy Widdowson, publisher of The Morning Missive https://substack.com/@amy
Stays: Supreme Court Overrules 9th Circuit And Orders Trial Court Proceedings Must Be Stayed Pending Appeal Over Arbitrability
The Supreme Court Created A New Rule For Staying Cases Pending Interlocutory Appeal Of Order Denying Motion To Compel Arbitration.
Prof. Ronald Mann provides an excellent review in ScotusBlog of the Supreme Court's decision in Coinbase v. Bielski, No. 22-105 (S.Ct. 6/23/23). The majority opinion, authored by Justice Brett Kavanaugh, holds that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing.
In federal court, the general rule is that an interlocutory review of a trial court order leaves the rest of the case intact in the trial court. However, a party that wants to stay the case pending the review can seek a particularized determination from the trial court as to whether its proceedings should be stayed. As the dissent summarizes in Coinbase, the determination will hinge on consideration of "likelihood of success on the merits, irreparable harm, favorable balance of equities, and alignment with the public interest."
However, in Coinbase, the Supreme Court considered whether there should be a blanket stay rule, rather than a particularized determination, in the context of 9 USC § 16(a). This section of the Federal Arbitration Act allows a party to immediately appeal from an order denying a petition to order arbitration.
Justice Kavanaugh acknowledged that § 16 does not state whether proceedings should be stayed pending appeal. However, he believed a stay would prevent a detrimental result if the matter could be entirely litigated without a stay, only to find out that it should have been arbitrated.
COMMENTS. Justice Ketanji Brown Jackson dissented, joined by Justices Elena Kagan and Sonia Sotomayor and mostly by Justice Clarence Thomas. Aside from the legal arguments, it is pretty easy to understand why the liberal justices dissented. The majority created a bespoke rule for defendants who oppose arbitration — in this case, for a cryptocurrency company seeking to avoid class action litigation. This ability to stay is not symmetrical, because under § 16(b), an interlocutory appeal may not be taken from an order requiring arbitration. Therefore, employees and consumers bringing class action litigation will not be able to appeal from orders requiring them to arbitrate, and thus will not be able to stay arbitration. Why Justice Thomas joined with his liberal brethren is less easy to explain. Perhaps he agreed with their reasoning?
Ronald Mann notes that this case concerning arbitration may have much broader impact, if its ruling is extended to other federal cases where interlocutory appeals are available. If there is an across-the-board rule that in such cases, there should be a stay to prevent further proceedings below, then the rule requiring particularized examination of the justification for a stay will no longer apply.
We note that the result in Coinbase v. Bielski is likely the same result that would have occurred if the case had been brought in California state court (we only say "likely", because California state courts are more likely to push back against mandatory arbitration). In California, an order denying a motion to compel arbitration is appealable, and the appeal will stay proceedings below. But an order granting a motion to compel arbitration is not appealable. In some circumstances, it may be challenged by writ. Zembesch v. Superior Court, 146 Cal.App.4th 153 (2006).
Mediation Confidentiality: California Mediation Confidentiality Survives New Rule Requiring Reporting Of Professional Misconduct
California Supreme Court Approves New Rule of Professional Conduct On June 2, 2023.
The California Supreme Court approved a much discussed Rule of Professional Conduct requiring lawyers, without undue delay, to report professional misconduct.
Much as lawyer misconduct in the Watergate Scandal resulted in professional ethics requirements and testing in California, the Girardi Affair has triggered a response from the State Bar and the California Supreme Court requiring the reporting of professional misconduct. Fortunately for mediators, the new rule does not override mediation confidentiality.
Part (d) of the Rule, which is linked here, states: "This rule does not require or authorize disclosure of information gained by a lawyer while participating in a substance use or mental health program, or require disclosure of information protected by Business and Professions Code section 6068, subdivision (e) and rules 1.6 and 1.8.2; mediation confidentiality; the lawyer-client privilege; other applicable privileges; or by other rules or laws, including information that is confidential under Business and Professions Code section 6234."
BONUS: From Wikipedia: "An informant (also called an informer or, as a slang term, a "snitch", "rat", "stool pigeon", "stoolie" or "grass", among other terms) is a person who provides privileged information, or (usually damaging) information intended to be intimate, concealed, or secret, about a person or organization to an agency, often a government or law enforcement agency."
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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.