Ninth Circuit Holds Inmate Receiving Debit Card For Confiscated Cash Did Not Consent To Debit Card Agreement To Arbitrate
Once You Know The Facts, Your Going To Know How This Case Turns Out . . .
Plaintiffs in Reichert v. Rapid Investments, Inc., 21-35530 (9th Cir. 12/30/22) (Berzon, Christen, Block) (per curiam) were inmates discharged from Kitsap County Jail and given a debit card for cash confiscated by the jail earlier upon their entry. The cards, referred to as a Rapid debit card or "release card" were activated and ready to use. The cards also incurred a weekly maintenance fee of $2.50, as well as transaction costs when used to withdraw money. The cards also included an arbitration clause, and stated that use of the card would be evidence of agreement to contractual terms. The discharged inmates, in effect, were receiving their own money back in a card that they had not asked for, and that they needed to use to get back their confiscated cash.
The plaintffs brought a lawsuit alleging that the release card fees violated the Electronic Funds Transfer Act and Washington state law. And — drum roll — defendant Rapid brought a motion to compel arbitration. The district court held that retention and use of the release card did not demonstrate acceptance of the terms of the arbitration agreement. The Court of Appeals affirmed.
First, under Washington state law, inaction in response to an offer does not constitute acceptance.
Second, under the circumstances, use of the release card did not constitute acceptance. "We hold that because the money Moyer withdrew was his own, because the card he was issued came pre-activated and there was no other way to obtain immediate use of his own funds, and because Rapid structured its fees to begin deducting after three days regardless of use, Moyer’s decision to withdraw his own money cannot reasonably be understood to manifest assent to the contract."
Payment: Arbitration Prompt Payment Requirements Are Strictly Enforced
California Code of Civil Procedure Sections 1281.97 and 1281.98 Will Be Strictly Enforced.
California Code of Civil Procedure, sections 1281.97 and 1281.98 provide that if a company or business that drafts an arbitration agreement does not pay arbitration fees within 30 days of when fees are due, the company or business is in material breach of the agreement. Ann Williams v. West Coast Hospitals, Inc. (6th Dist. 12/22/22) (Lie, Greenwood, Grover) continues to strictly apply the payment requirement. We have previously posted about the application of those code sections on 12/11/22 and 10/3/22.
COMMENT: The court declined to decide whether the issue of the application of sections 1281.97 and .98 had been effectively delegated to the arbitrator to decide, holding instead that the issue had not been preserved for appeal. In order to reach that conclusion, the court also had to conclude that the code provisions were not jurisdictional, because jurisdictional issues can be reached at any time.
Happy New Year To All My Readers !
Happy New Year To All My Readers !
May The New Year Do Better!
Puck. Jan. 4, 1899. J.S. Pughe, artist. Library of Congress.
Jurisdiction, International Arb, FAA, Standard Of Review: Ninth Circuit Reminds Us Of Its Limited Ability To Fix Things In Arbitration When They Go Wrong To
It Is With A Heavy Heart That A Ninth Circuit Panel Tells Us It Can't Fix A Mess.
"This award shows in stark terms the real risks that parties assume when they trade away their right to adjudicate their claims in court for the potential efficiencies of arbitration. When, as here, things go wrong, our power to fix them is uncomfortably, but plainly, limited under the FAA." HayDay Farms, Inc. et al. v. FeeDx Holdings, Inc., 21-55650 anhd 21-55698 (9th Cir. 12/19/22) (Smith, Nelson, Drain).
The underlying arbitration involved a contract dispute between HayDay Farms, Inc. and Nippon Kokusai Agricultural Holdings, Inc., on the one hand, and FeeDx Holdings, Inc., on the other. A panel of three arbitrators, after four years of arbitration, issued a final award in excess of $21 million in favor of HayDay Farms, Inc. and Nippon. The trial court judge then confirmed the award in part, but removed $7 million from the award. On appeal to the Ninth Circuit, FeeDx argued that the award put HayDay and Nippon in a better shape than if both sides had fully performed the contract, something that California Civil Code § 3358 does not allow: "Except as expressly provided by statute, no person can recover a greater amount in damages for the breach of an obligation, than he could have gained by the full performance thereof on both sides." That was the justification for the district court's decision to remove the $7 million component of the award.
Before it could address the merits, the Court of Appeals had to address its jurisdiction. HayDay and Nippon had sought to confirm the award in state court, and FeeDx had removed the proceeding to federal court, purportedly under diversity jurisdiction. The federal district court did not address its jurisdiction. In fact, complete diversity was lacking, because a California, Samoa, and Cayman Island corporation were involved, and diversity jurisdiction does not apply to a foreign entity suing a foreign entity. But the Court of Appeals, analyzing its own jurisdiction, found the trial court's jurisdiction to lie in 9 USC § 203, which provides that an action or proceeding falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards shall be deemed to arise under the laws and treaties of the United States. And if the district court had jurisdiction, then the Court of Appeals had jurisdiction under 9 USC § 16 and 28 USC § 1291.
Next, the Ninth Circuit had to address a question of first impression in its own circuit: whether the standards for vacatur in the Federal Arbitration Act applied for awards governed by the Convention, when the Convention did not specifically say so. Agreeing with other circuits, the Ninth Circuit held that the FAA standards did apply. And the standard, expressed in different ways, is exceedingly tough.
A plausible interpretation of the contract cannot be overturned. An award that is manifestly irrational and completely disregards the law can be overturned under FAA standards. The "irrationality standard 'is extremely narrow and is satisfied only where the arbitration decision fails to draw its essence from the agreement.'" Does the decision fail to draw its essence from the agreement? Have we entered the realm of the metaphysical?
In any case, the Court of Appeal held that the arbitral decision was not irrational, and thus it affirmed the award, while reversing the district court, which had removed $7 million from the award.
And yet it seems to have done so with some pain. Judge Milan wrote that the losing party, FeeDx, "probably offers the best interpretation of the parties’ agreements . . .", while he assures us that the award "was not some form of vigilante justice . . . " And, he wrote, "We share the district court's concern about a seemingly unfair damages award that likely violate § 3358."
Small consolation for the losing party. However, these were sophisticated parties that agreed to arbitrate
Employment, Uncionscionability, Delegation: Fourth Dist. Div. 3 Agrees With Trial Court That Arbitration Agreement Is Unconscionable
Ambiguous And Unconscionable.
The threshold question in Bernell Gregory Beco v. Fast Auto Loans, Inc., G059382 (4/3 12/14/22) (Moore, Bedsworth, Sanchez) was whether the court or the arbitrator should determine the issue of arbitrability. The arbitration agreement included a delegation provision stating that covered: "any dispute concerning the arbitrability of any such controversy or claims." The Court of Appeal held that the provision was ambiguous at best, because "arbitrability" here could refer to deciding to the arbitrability of a substantive claim, rather than to who should decide the issue of arbitrability. Therefore, the delegation of the question "who should decide" was not "clear and unmistakable," the standard for finding a valid delegation of decision-making authority to the arbitrator. Nor did incorporation by reference of AAA rules concerning arbitrability help here, because the the court concluded that Mr. Beco, an employee of a payday lender1 who earned $13.50 per hours, was not a legally sophisticated person who should be charged with knowledge of the incorporated rules.
The court's analysis that the arbitration provisions were procedurally and substantively "unconscionable" is unremarkable. Well, perhaps the following is worth remarking: the court found that a three-month period allotted to the employee to provide notice of a claim was "particularly onerous."
1A US government website defines "payday loan" as follows: "While there is no set definition of a payday loan, it is usually a short-term, high cost loan, generally for $500 or less, that is typically due on your next payday. Depending on your state law, payday loans may be available through storefront payday lenders or online."
Arbitration: Setoff In Arbitration Award That Affected 3d Party Could Not Be Corrected By Trial Court
Can A Merits Award In Arbitration That Affects Rights Of Third Party Who Did Not Participate In Arbitration Be Corrected?
The majority opinion in E-Commerce Lighting, Inc. v. E-Commerce Trade LLC, E074525 (4/1 12/9/22) (Raphael, Ramirez; dsst. Mentrez), answered the above question with a "no", reversing the trial judge. Judge Menetrez, dissenting, answered "yes," under circumstances where the he believed the award could be corrected without affecting the merits.
Trade purchased ECL's assets for $11.5, financing the asset sale with several loans.
After the sale, E-Commerce Lighting, Inc. (ECL) and E-Commerce Trade LLC (Trade) arbitrated competing claims. The arbitrator's award setoff the claims against each other: $2,756.635.66 in favor of ECL and $2,611,463.58, yielding an award in favor of ECL of $145,172.08.
Trade then convinced the trial court that the setoff needed to be corrected, because it affected the rights of third party lenders who did not participate in the arbitration. The trial court agreed.
The Court of Appeal reversed, explaining that while an award on the merits could be corrected if it did not affect the merits, here, correction would affect the merits award.
Judge Menetrez disagreed, agreeing with the trial court that the arbitrator had exceeded the arbitrator's powers by issuing an award that affected the rights of third party lenders, including their security interest. Also, he argued that the award could be corrected without affecting the merits by simply removing the setoff.
COMMENT: This is an interesting case, and given the dissent, we will monitor to see whether there is an appeal.