Arbitration, Equitable Estoppel: Non-Signatory Plaintiffs Are Not Required By Equitable Estoppel To Arbitrate
First District Division 1 Explains What Will And What Will Not Result In Equitable Estoppel Requiring Non-Signatory To Arbitrate.
After plaintiffs in coordinated cases hired the Fertility Center (Pacific) to provide fertility-related services, a tank used by Pacific to freeze eggs failed. The tank was manufactured by Chart, Inc., (Chart), and sold to Pacific by Praxair, which also helped with installation. Plaintiffs' contract with Pacific included an arbitration provision, and thus plaintiffs agreed to arbitrate claims with Pacific. Naturally, defendants Chart and Praxair tried to piggyback onto Pacific's arbitration agreement. Though Chart and Praxair were non-signatories to the arbitration agreement, they argued that plaintiffs were equitably estopped from refusing to arbitrate. Both the trial court and the Court of Appeal rejected Chart's and Praxair's effort to compel arbitration. Pacific Fertility Cases, A158155 (1/1 pub. 12/1/22) (Banke, Margulies, Devine).
Chart and Praxair argued that but for plaintiffs' contract with Pacific, their claim against Chart and Praxair would never have arisen. The case is helpful because it explains that this "but-for test" is insufficient to establish equitable estoppel. In explaining why the "but-for test" was insufficient, Justice Banke distinguished the situation from that in a case in which consumers had sued Apple and AT&T for allegedly conniving to get consumers to subscribe to a network and buy an Apple phone that could not be used properly with the network. In the case involving Apple, the court had found that the consumers were equitably estopped from refusing to arbitrate.
Here, however, the situation was different: "[A]s the court correctly stated, the analysis is not a simple 'but for' test, but whether plaintiffs’ claims demonstrate ' "actual reliance on the terms of the [Pacific] agreement[s] to impose liability." ' Plaintiffs’ claims against Chart and Praxair do not rely on the terms of their agreements with Pacific. Nor do plaintiffs allege concerted action or an ongoing relationship among Pacific, Praxair, and Chart. Thus, the circumstances here are distinguishable from those in Appel II."
Arbitration, PAGA, FAA, Delegation: Second District Div. 8 Holds That Viking River Cruises Requires Reversal Of Order That Denied Motion To Compel Arbitration
Court Holds That Viking River Cruises Requires Enforcement Of Pre-Dispute Arbitration Agreement.
Judge Harutunian explains that the trial court "understandably" denied the employer's motion to compel arbitration based on a rule in California that "predispute agreements to arbitrate PAGA claims are unenforceable." He concludes: "We hold that this rule cannot survive the U.S. Supreme Court’s recent decision in Viking River Cruises, Inc. v. Moriana (2022) ___U.S.___ [142 S.Ct. 1906] (Viking River)." Sylvester Lewis v. Simplified Labor Staffing, B312871 (2/8 12/5/22) (Harutunian, Stratton, Grimes).
However, because the AAA rules delegate the issue to the arbitrator, the arbitrator, rather than the court, must decide the scope of the arbitration agreement, specifically, whether non-individual PAGA claims are arbitrable in the same way that individual PAGA claims are arbitrable.
COMMENT: The opinion rejects what Judge Harutunian describes as the "State-must-consent" rule. Cases that held pre-dispute agreements to arbitrate PAGA claims were unenforceable reasoned that the PAGA dispute was between the employer and the state, and thus the employee could not agree to arbitrate until a dispute arose and the employee was "delegated" by the state to pursue the PAGA claim on behalf of the state. But Viking River allows the employer and employee to enter into a pre-dispute arbitration agreement to arbitrate the employee's PAGA claim. So Viking River destroys the reasoning behind the "State-must-consent" rule, though it does not explicitly name such a rule. In any case, Judge Harutunian concludes that the rule is preempted by the FAA, because state law that withdraws the power to enforce an arbitration agreement is preempted.
Employers Take Heed: Promptly Pay Arbitration Fees Or Lose The Right To Arbitrate.
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. The consequences are serious, as an employee or consumer can withdraw from arbitration and proceed to court.
That was the situation in Kail De Leon v. Juanita's Foods, B315394 (2/3 11/23/22) (Edmon, Egerton, Richards (Anne.K.)). Following the commencement of arbitration proceedings, De Leon's employer failed to timely pay fees. As a consequence, the trial court held that there was a material breach, and allowed De Leon to proceed with his claims in court.
The upshot was that, despite various efforts by the employer to argue that De Leon was not prejudiced by a delay, the Court of Appeal affirmed the order granting De Leon's motion to vacate the order compelling arbitration. In sum, the Court of Appeal strictly applies §§ 1281.97 and 1281.98. It does not read in to the statutory language "but there was no prejudice" or other excuses.
COMMENT: When the language of a statute is clear, the task of statutory interpretation is (usually) straightforward. As I wrote in a previous post dated 10/3/22 concerning the same statutory requirement, "Substantial Compliance With CCP § 1281.97 Just Won't Cut It."
Unconscionability, PAGA, 1281.2, FAA: CCA 2nd Dist. Div. 6 Holds Iskanian Survives, Sort Of
Court Of Appeals Affirms Denial Of Motion To Compel Arbitration.
It's alive, it's alive !
We harbor the suspicion that Navas v. Fresh Venture Foods, LLC, B31288A (2/6 11/21/22) (Gilbert, Yegan, Perren), was published so that the Court of Appeal could tell us that while Viking River Cruises v. Moriana overrules Iskanian, to the extent that Iskanian does not allow PAGA claims to be split between individual and representantive claims, "Nevertheless, Iskanian still survives."
Navas, Lopez, and Ramos sued their employer FVF for various wage and hour violations, including a PAGA claim. The trial court denied FVF's motion to compel arbitration. It held that the employer had not proved that Lopez and Ramos had signed the agreement. As to Navas, the court ruled his agreement was unconscionable. The employer appealed.,
The Court of Appeal agreed that there was a lack of sufficient evidence to establish that Lopez and Ramos signed the employment agreement. The Court also agreed that Navas' agreement was unconscionable.
The comments about PAGA are most interesting. The Court explains that in Viking River Cruises, "the United States Supreme Court held 'the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate.'" In Viking, the trial court refused to allow arbitration of the individual claim because it could not be split from the representative claim. Under Viking, the employer and employee can agree to arbitrate an individual PAGA claim.
In Navas, however, the Court of Appeal concludes that though an individual PAGA claim can be arbitrated by agreement, here, the employer failed to observe standards required for a purported waiver of a PAGA claim by the employee. The employer failed to explain the employee waiver to a Spanish-speaking employee and to obtain the employee's consent to waiver of the right to bring a PAGA claim in court. So here the employee will be able to bring individual and representative PAGA claims in court.
COMMENT: The trial court also stayed the arbitration pending litigation, relying on CCP §1281.2. There is no provision in the Federal Arbitration Act like 1281.2, so defendant argued that the stay was preempted by the FAA, which required the arbitration to go forward. However, the Court of Appeal explains that while the agreement incorporated FAA law, it also incorporated California civil procedure, and California procedure had not been preempted by a reference to FAA law.
News: Is Mediation A Path To Settling The UC Strike?
To Mediate Or Not To Mediate.
On November 14, 2022, the Los Angeles Times reported: "About 48,000 unionized academic workers across the University of California’s 10 campuses . . . walked off the job Monday morning, calling for better pay and benefits."
Is mediation the path to resolution? “'At this time, we believe that the best path to an agreement is with the aid of a third-party mediator,”'Ryan King, a UC spokesperson, said in a statement Monday afternoon. 'We continue to encourage the union’s partnership in pursuing mediation.'”
But Rafael Jaime, president of United Auto Workers Local 2865, representing 19,000 of the workers, had a different opinion. “'At this point, the priority should be round-the-clock bargaining in good faith as opposed to switching to a mediation process,' he said."
COMMENT: Choosing, rejecting, or delaying mediation can be a strategic decision.
Jurisdiction, Delegation, Stay: NY Court Is Court Of Competent Jurisdiction To Rule On Motion To Compel Arbitration Involving California Lawyer
At Play: Applicability Of Labor Code § 925 And California Code Of Civ. Proc. § 1981.4.
The scenario in Jinshu "John" Zhang, Petitioner v. Superior Court of Los Angeles, Respondent; Dentons US LLP et al, real parties in interest, B314386 (2/8 11/9/22) (Grimes, Stratton, Wiley), while not exactly common, is also to be expected. It involves a jurisdictional turf war arising from the circumstance that California employees generally prefer to litigate claims in court on their home turf, to wit, California, whereas employers prefer to arbitrate, and if the employee can be compelled to arbitrate out of state on the employer's home turf, so much the better. But was lawyer Zhang an "employee" of Dentons US, and who decides that question? — there's the rub!
The spat between Zhang and Dentons arose over a multi-million dollar contingency fee for a client Zhang brought to the law firm. The lawyer and the law firm had an agreement to arbitrate disputes in Chicago or New York. The arbitration agreement also included a delegation clause providing all issues of arbitrability are to be decided by the arbitrator. Dentons moved in NY to compel arbitration in NY, alleging claims for breach of fiduciary duty, and Zhang sued in LA Superior Court for wrongful termination and other causes of action. Petitioner Zhang moved to enjoin the NY proceedings, and Respondent Dentons moved to stay the LA proceedings pending arbitration in NY.
Two statutory provisions are particularly relevant to the outcome. First, Labor Code § 925 provides that an employer cannot require, as a condition of employment, that an employee who primarily resides and work in California, agree to adjudicate a claim arising in California outside California. In other words, if Zhang is an employee, then he gets to adjudicate California claims on his home turf.
Here, Code of Civ. Proc. 1281.4 comes into play, for it allowed Dentons to argue in the LA court that it should stay its proceedings pending the arbitration in NY. Section 1281.4 provides in part: "If a court of competent jurisdiction, whether in this State or not [i.e., in NY], has ordered arbitration of a controversy [in NY] which is an issue involved in an action or proceeding pending before a court of this State [California], the court in which such action or proceeding is pending [LA Superior Court] shall, upon motion of a party [Dentons] to such action or proceeding, stay the action or proceeding [in LA] until an arbitration is had [in NY] in accordance with the order to arbitrate or until such earlier time as the court specifies."
Much of the argument centered on whether the NY court ordering arbitration was a "court of competent jurisdiction," with Zhang arguing that it could not possibly be competent to adjudicate the motion to compel arbitration if he was an employee, because Labor Code § 925 did not allow him as an employee to be forced to adjudicate a California employment claim outside of California. The obstacle that Zhang could not overcome was that the trial court in California, and our Court of Appeal, agreed that the arbitration clause "clearly and unmistakably" delegated issues of arbitrability, including a determination as to whether Zhang was an employee, to the arbitrator. And the court in NY was competent to decide that the issue was delegated to the NY arbitrator.
COMMENT: If the NY arbitrator decides Zhang was an employee, then jurisdiction will belong in California. But if the arbitrator decides Zhang was not an employee, then the NY arbitrator will decide the merits of the dispute.