Prompt Payment: California Common Law Provides A Basis For Shifting Arbitration Fees When A Party Is Unable To Pay Its Share
Yet Another Skilled Nursing Home Case.
One of our sidebar categories is "Prompt payment" referring to statutory provisions applying to consumer and employment cases requiring the drafting party to promptly pay arbitration fees and costs or waive its right to arbitrate. But California case law, upon which the next case relied, also provides that in circumstances where a party is unable to pay, it may petition the court to have the counterparty choose between paying the expenses in arbitration or litigating in court. That's what happened in Jimmy Hang v. RG Legacy I, LLC, et al., G061265 (4/3 2/7/23) (Motoike, Goethals, Sanchez).
"Citing Roldan v. Callahan & Blaine (2013) 219 Cal.App.4th 87 (Roldan), the trial court found Daniel [plaintiff] was indigent at the time of his death and granted the petition to compel arbitration on the condition that, within 15 days, the RG Legacy parties agree to pay all arbitration fees and costs, else waive the right to arbitrate the matter." RG Legacy appealed rather than pay fees and costs, and the Court of Appeal affirmed the trial court's order.
Note that the named plaintiff is "Jimmy Hang." One twist is that the alleged victim of elder abuse and nursing home negligence, plaintiff Daniel Hang, was dead. He had been indigent, and his estate lacked assets. The remaining plaintiffs, Jimmy Hang and Daniel's widow, dropped their wrongful death suit, eliminating the issue of whether they had assets. Jimmy continued in the lawsuit solely as successor to Daniel, i.e., as successor to an indigent.
COMMENT: California case law has developed so that the contractual right to arbitrate can be trumped by the right to a forum of the indigent plaintiff unable to pay for arbitration. The leading cases relied upon in Jimmy Hang v. RG Legacy are Roldan and Weiler v. Marcus & Millichap Real Estate Investment Services, Inc., 22 Cal.App.5th 970 (2018) (Weiler). We have posted about Roldan on 8/28/13 and about Weiler on 5/1/18. The party who questions whether the indigent party really has assets could petition the court to conduct limited discovery on the issue. Apparently that was not done in the Jimmy Hang case.
PAGA, FAA Preemption: Fourth District, Div. 3 Holds Arbitration Of Individual PAGA Claims Can Be Compelled, But Not Representative Claims
Texas Longhorn.
Clinton & Charles Robertson from Del Rio, Texas & San Marcos. Wikipedia. Between Scylla and Charybdis. Wikipedia.
Between Horns Of A Dilemma And Between Scylla And Charybdis.
In a PAGA case, the Court of Appeal, employing mixed salad metaphors, explains that it is between the horns of a dilemma and between Scylla and Charybdis. Tom Piplack v. In-N-Out Burgers, G061098 (4/3 3/7/23) (Sanchez, Bedsworth, Delaney). This is a PAGA case in which the Court of Appeal held that plaintiff Piplack's individual PAGA claims could be arbitrated and plaintiff Sherrod's individual PAGA claims had to be sent back to the trial court for consideration of Sherrod's argument that Sherrod had been underage when he agreed to arbitrate. However, the Court of Appeal held that the plaintiffs' representative claims could be litigated.
Returning to horns, dilemmas, Scylla and Charybdis, quandaries, plights, puzzles, and predicaments, Justice Sanchez explains that the court must follow SCOTUS's ruling in Viking River Cruises, Inc. v. Moriana, ___ U.S. ___ [142 S.Ct. 1906] (2022) (Viking), holding that Iskanian's ruling that PAGA claims could not be forced into arbitration was preempted by the Federal Arbitration Act. But Viking only requires this result as to individual PAGA claims. Viking did not preempt the portion of Iskanian prohibiting waiver of the right to pursue representative PAGA actions. Yet Viking apparently concluded that if the individual PAGA claim was arbitrated, then no one was left with standing under California law to bring the representative claim, even if the right to litigate the representative claim was not preempted.
Standing to bring the representative claim is an issue of state law that Justice Sanchez explains was decided in Kim v. Reins International California, Inc., 9 Cal.5th 73 (Kim) (2020). Because Kim is a recent case decided by the California Supreme Court, and because SCOTUS does not decide state law, Justice Sanchez resolved the court's dilemma by following Kim on the issue of state law standing. Kim has only two requirements for a plaintiff to have standing to bring a representative action: “The plain language of [Labor Code] section 2699(c) has only two requirements for PAGA standing. The plaintiff must be an aggrieved employee, that is, someone ‘who was employed by the alleged violator’ and ‘against whom one or more of the alleged violations was committed.’” (quoting Kim).
In short, the court followed "Viking on FAA preemption and Kim on PAGA standing."
Existence Of Agreement: There Is No Agreement Where Nursing Home Stroke Victim Lacked Capacity To Contract
Nursing Homes Continue To Create Arbitration Problems.
If our readers use the sidebar search box, they will discover other cases involving nursing homes. Sometimes the problem of enforcing an arbitration agreement involving a nursing home resident arises because a relative signs for the resident, and issues arise as to whether the relative had authority to bind the non-signatory. Here, it was the resident himself, a stroke victim, who signed the agreement. However, there was substantial evidence that he was mentally impaired and lacked the ability to contract. The Court of Appeal affirmed the trial court's order denying the skilled nursing home's petition to compel arbitration. Pemilady Algo-Heyres v. Oxford Manor, LP, B319601 (2/6 2/28/23) (Baltodano, Gilbert, Yegan). A rebuttable presumption exists that all persons have the capacity to make decisions and to be responsible for their acts or decisions.
Delegation, Unconscionability: First District Div. 2 Affirms Order Denying Petition To Compel Arbitration
On-Line Gaming Was The Context For The Case.
The world of on-line gaming presents challenges to companies wishing to bind players to arbitration. As our next case illustrates, gamers are likely to be treated as unsophisticated consumers with unequal bargaining power. Pavel Gostev v. Skillz Platform, Inc., A164407 (1/2 2/28/23) (Miller, Stewart, Richman).
Gostev, a gamer, alleged that Skillz Platform, Inc.'s game amounted to gambling and that it engaged in predator practices. By establishing an account, tapping next, and clicking on a hyperlink to Terms of Service, Gostev allegedly agreed that disputes would be delegated to an arbitrator to decide. Skillz moved to compel arbitration, and Gostev argued that the agreement failed to delegate decisions to an arbitrator by clear and unmistakeable evidence, and that the arbitration agreement was unconscionable. The trial court agreed with Gostev, and the Court of Appeal affirmed.
The problem with the delegation argument was that language that delegated decisions concerning disputes about Terms, Services, and Product was not clear enough. It could mean that the threshold dispute was delegated to the arbitrator to decide, or it could mean that only substantive disputes about the Terms, Services, and Product were delegated. The agreement also referenced the rules of the AAA which have sometimes been applied successfully to make a delegation argument. But the Court of Appeal explained that here, where the consumer was likely to be in a position of unequal bargaining power and sophistication, it would not accept reference to AAA rules as good enough to establish effective delegation.
The agreement was a take-it-or leave-it agreement, and hence, there was some degree of procedural unconscionability. Also the agreement was one-sided to substantively favor the company: plaintiff's monetary damages were limited to $50, arbitration was to be held in San Francisco, though the consumer was located in Washington, there was a one-year limitations period for bringing a claim, and a split of arbitration fees and costs limited consumer rights under the California Consumer Legal Remedies Act. Given the procedural and substantive unconscionability, the court agreed the arbitration agreement was unenforceable.
PAGA: Fifth District Holds PAGA Claim Can Be Split Into Arbitrable Claims And Non-Arbitrable Representative Claims
A Typology Of PAGA Claims.
Tricia Galarsa v. Dolgen California, LLC, F082040A (5th Dist. 2/24/23) (Franson, Pena, Snauffer), is an addition to the growing cottage industry of cases seeking to make sense of Viking River Cruises, Inc. v. Moriana, 596 U.S. ___ [142 S.Ct. 1906] (2022) (Viking River). The case reverses a trial court order rejecting arbitration of individual PAGA claims and affirms insofar as it also rejected arbitration of representative PAGA claims.
The logic of Viking River is something like this: California case law rejected the splitting of PAGA claims into individual and representative claims. California law allowed representative claims to be litigated. The Federal Arbitration Act (FAA) and Supreme Court cases require individual PAGA claims subject to arbitration to be arbitrated. If representative claims cannot be arbitrated, individual claims must be arbitrated, and individual and representative claims can't be split, then the individual claims get to be arbitrated and severed from the representative claims, which must be dismissed, because no "aggrieved" individual will then have standing for the representative claims in litigation.
Galarsa develops a typology of PAGA claims. Type A claims are those seeking a civil penalty for violation of the Labor Code suffered by the plaintiff and covered by an arbitration agreement subject to the FAA. Type O claims are for those harms suffered by an employee other than plaintiff. Type A and Type O both apply to claims for which, before the enactment of PAGA, the civil penalties sought could only be enforced by the state's labor enforcement agencies. Type A and O claims exclude restitution of wages, and include only claims subject to civil penalties and the 75-25 % split of the penalties between the State and the plaintiff.
Galarsa concludes that under Viking River, waiver of litigation of the representative claims was invalid. Galarsa explains the federal court's interpretation of state law does not bind the state court, and in particular, Galarsa concludes that Type A and Type O claims can be split. If the waiver of litigation of Type O claims is invalid even under Viking River, and Type A and Type O claims can be split, then Type A claims can be sent to arbitration, the invalid waiver of the right to litigate Type O claims can be severed, and Type O claims will not get sent to arbitration.
COMMENT: The creative argument in Galarsa is its prediction that the California Supreme Court would rule that Type A and Type O claims can be split. The argument is splitting of Type A and Type O claims is necessary to carry out effective enforcement of labor laws, by protecting Type O claims, and Type A and Type O claims do not involve the same primary right, with harms to the plaintiff and harms to others being different injuries. However logical this argument may be, it would seem to put Galarsa at odds with other California appellate cases insisting that PAGA claims cannot be split. A creative argument that has not yet been considered has not yet been decided.
PAGA, Issue Preclusion: Arbitrator’s Ruling In Favor Of Corporation Did Not Preclude Employees From Suing Manager For Wage And PAGA Claims
Trial Court's Denial Of Right To Amend Was Error.
The Rocha brothers, Thomas and Jimmy, sued their former employer U-Haul Co. of California, and their manager Sandusky, alleging Sandusky had harassed them at work. The matter was arbitrated and the brothers lost their claim against U-Haul. However, before the matter went to arbitration, the trial judge denied the brothers' effort to amend their claims to add PAGA claims against U-Haul and to add wage and hour and PAGA claims against Sandusky. The brothers appealed confirmation of the arbitrator's award in favor of U-Haul, arguing that the arbitration agreement was unconscionable, and that they should have been allowed to amend their complaint. Thomas Rocha et al. v. U-Haul Co. of California, et al., B322599 (2/1 2/2/23) (Rothschild, Bendix, Benke) (partially published).
After a discussion of unconscionability (unpublished), and concluding that the agreement was not unconscionable, the court moved on to the trial judge's refusal to allow amendment of the complaint. Split decision on appeal: the court's refusal to amend and add a PAGA claim against U-Haul was affirmed, because the arbitrator had found no labor violations by U-Haul, and that precluded a PAGA claim against the employer by virtue of issue preclusion. But the Court of Appeal saw no reason to deny the brothers' request to add wage claims against Sandusky for work the brothers allegedly did for Sandusky personally outside their work for U-Haul, and thus no reason to deny the request to add a PAGA claim against Sandusky personally. So that part of the order denying the request to amend was reversed.