Arbitration, Unconscionability, Existence Of Agreement, Internet Commerce: Three Recent Cases Affirm Orders Denying Motions To Compel Arbitration
Three Recent Cases Affirm Orders Denying Motions To Compel Arbitration.
Anthony De Leon v. Pinnacle Property Management Services, LLC et al., No. 059801 (4/3 Dec. 8, 2021) — Unconscionability.
Superior Court Judge Marks, sitting by assignment, authors the opinion, agreeing with the trial judge's denial of a motion to compel arbitration, on the grounds that the agreement was procedurally and substantively unconscionable, and that it was proper not to sever objectionable provisions.
Roseana Garcia v. Expert Staffing West, No. B307371 (2/6 12/29/21) — Employment, Nonsignatories.
Writing for the court, Justice Tangeman affirms the trial judge's order denying a motion to compel arbitration on the grounds that no agreement to arbitrate existed.
Plaintiff Garcia was added to a class action wage and hour dispute against Expert Staffing West, Essential Seasons, and Cool-Pak, LLC. Essential Seasons, which provided contract-based labor services for agricultural and foodservice companies, hired Garcia in 2017, placing her with Cool-Pak, LLC, a company that labeled, packed, and shipped produce. In 2019, Garcia applied to Expert Staffing West, and the application included an arbitration provision applying to disputes with Expert Staffing West and all related entities. Expert Staffing West provided payroll services and staffing to the other defendants, and claimed to be related, though apparently in the case of Garcia, it only provided payroll services. An important fact is that Expert Staffing West rejected Garcia's application.
"We conclude that the arbitration clause between a job applicant and her prospective employer does not apply to disputes between the applicant and her former employers based on the existence of a business relationship between the prospective employer and the applicant’s past employers," wrote Justice Tangeman.
Sellers v. JustAnswer LLC, No. D077868 (4/1 12/30/21) — Internet Commerce.
In a case of first impression, the California Court of Appeal addresses the enforceability of an internet "sign-in wrap" agreement with an arbitration provision, holding that, under the specific circumstances of the case, the arbitration provision was not enforceable: "[W]e hold that none of the textual notices on the JustAnswer website were sufficiently conspicuous to bind Plaintiffs to the arbitration provision set forth in the terms of service."
The long opinion, authored by Justice Do, is interesting for several reasons. First, it addresses that annoying practice of "automatically renewing" contracts on the internet. Here, the plaintiff signed up for a service expected to cost five dollars. However, by proceeding on the website without having to read the hyperlinked terms of a lengthy agreement, and without having to click "I accept," the plaintiff nevertheless automatically accepted the terms of that agreement.
Second, California has a new Automatic Renewal Law, Business & Professions Code §§ 17600 et seq. This law seeks to protect consumers against unfair automatic renewal practices, and requires that there be clear and conspicuous notice that the consumer is being bound to the terms of the contract. Justice Do takes the "clear and conspicuous" statutory requirements into account.
Third, the opinion reviews other cases that have examined whether internet-based contracts are binding, and educates us about the typology for such contracts: browserwraps (browsing the website results in acceptance of the contract); clickwraps (clicking "I accept" with a link to the terms results in acceptance); scrollwraps (like a clickwrap, except that the consumer must first scroll through the entire contract before clicking "I accept"), and finally "sign-in wraps" (one signs up to use the service, and is notified that continuing on the website leads to an acceptance of the terms, without having to click "I accept", and in the Seller case, without having to go to the hyperlinked terms). The courts have often refused to enforce browserwraps, while enforcing scrollwraps. The "sign-in wrap" evidently falls somewhere between the extremes.
Finally, we do not read the case as necessarily saying that all "sign-in wraps" are non-binding. However, here, where the notice was not clear and conspicuous, a binding contract was not formed.
Employment, Legislation, FAA Preemption: Can California Protect Employees From Mandatory Pre-Dispute Arbitration Agreements And Avoid Federal Preemption?
Paul Dubow And Marc Alexander Have Published An Article About FAA Preemption And California's AB 51.
The article, entitled Can California Protect Employees From Entering Into Mandatory Pre-Dispute Arbitration Agreements?, appears in California Litigation, Vol. 34, No. 3 (2021). Paul Dubow is a seasoned mediator and arbitrator in the Bay Area, and Marc Alexander is your blogger.
The article is republished here, with the permission of the California Lawyers Association and California Litigation, the journal of the Litigation Section of the CLA.
Pending Case, PAGA, FAA: Viking Cruises, Inc. v. Moriana Is A Case To Watch
The United States Supreme Court Granted Cert On December 15, 2022.
The issue: "Whether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under the California Private Attorneys General Act."
Readers of this blog will know that California courts have repeatedly ruled, following Iskanian, that employees cannot be forced to arbitrate PAGA representative claims. The basic reason underlying this conclusion is that PAGA representative claims are in the nature of qui tam actions, and therefore the interest of the state of California is involved. But since the state is not a party to the employee's arbitration agreement, arbitration of representative claims cannot be compelled. The issue before the United States Supreme Court is whether this "carve-out" of mandatory arbitration is preempted by the Federal Arbitration Act.
COMMENT: I have been publishing this blog since 2012, and I don't think I have ever before predicted the outcome of a case. This time, I'm going to stick my neck out and predict that the Supreme Court's decision, given the current composition of the court and its decision to take the case, will not go well for the employee. We shall see. If my prediction proves to be accurate, I will let you know. And if I'm wrong . . . well, we'll see.
Arbitration, Existence Of Agreement, Delegation: Ninth Circuit Holds Formation Of Arbitration Agreement Is To Be Decided By Court, Not Arbitrator
Failure To Communicate . . .
Cool Hand Luke. "What we've got here is failure to communicate."
Reversing the district court's order to compel arbitration, the Ninth Circuit holds that the issue of formation of the contract to arbitrate should have been decided by the court, despite delegation of issues of validity and arbitrability to an arbitrator in the employment agreement. Ahlstrom v. DHI Mortgage Company, Ltd., L. P., No. 20-15114 (9th Cir. 12/29/21) (Pregerson, Wardlaw, Berzon).
The procedural history is somewhat complicated and the facts are screwball. Cutting to the chase, what happened is this: Ahlstrom signed an employment agreement with D.R. Horton containing an arbitration clause and a provision delegating certain gateway isssues to an arbitrator. However, the parties ended up agreeing that Ahlstrom's actual employer was DHI Morgage Company, not D.R. Horton. So the purported employment agreement described a relationship that did not exist.
As Judge Pregerson, sitting by designation, explains, "Put simply, the [Mutual Arbitration Agreement], as drafted, describes and governs a relationship between Ahlstrom and D.R. Horton that does not exist, and thus does not constitute a properly formed agreement to arbitrate."
COMMENT: What is the difference between arbitrability and validity, on the one hand, and formation, on the other? Arbitrability and validity issues can be delegated, but formation issues cannot be delegated, even though all might be described as "gateway issues." Formation goes to the very existence of the contract. If a contract does not exist, there is no need to delegate issues of validity and arbitrability.
A Happy, Healthy, Productive New Year To All Our Readers!
A Happy New Year To All Our Readers !
Puck's Magazine. December 28, 1910. Library of Congress. Summary by Library of Congress: Illustration shows Father Time ringing bells proclaiming "The Greatest Good for the Greatest Number", while a crowd in the street celebrates the New Year by using noisemakers, horns, drums, and cymbals to sound their personal causes, such as "Partisanship" and "Partisan Politics", "Ring Politics", "Spoils System", "Women's Rights", and "Calamity Howling".
Pending Case, Waiver: Ninth Circuit Panel Denies Petition For Rehearing And En Banc In Hodges v. Comcast
Panel Denies Motion For Rehearing And Request For En Banc.
On September 15, 2021, we posted about Hodges v. Comcast, No. 19-16483 (9th Cir. 9/10/21) (Collins, VanDyke; Berzon, dsst.) In that case, the court held that non-waivable public injunctive relief (i.e., relief that falls under the McGill rule), must be forward looking and benefit the general public. Judge Berzon dissented, believing that relief that would require Comcast to rewrite its contract with its customers would be forward looking and benefit the public, given the size of Comcast's customer base. On December 23, 2021, the panel denied a petition for a rehearing, and denied on behalf of the court a petition for a rehearing en banc.