Arbitration, Scope, Stay: Fifth District Agrees Equitable Issues Were Outside Scope Of Arbitration Agreement, And Arbitrable Claims Could Be Stayed
The Arbitration Provision Was Not Ambiguous.
The arbitration provision in Eminence Healthcare, Inc. v. Centuri Health Ventures, LLC, et al., F079993 (5th Dist. 2/2/22) (Franson, Hill, Pena), carved out equitable causes of action from arbitration. Because the Court of Appeal agreed the clause was unambiguous, the Court affirmed the trial court's decision that six equitable claims should be heard by the trial court. In an unpublished part of the opinion, the Court of Appeal agreed that the arbitration of the remaining arbitrable claims was properly stayed because the resolution of the litigated claims might dispose of the need to arbitrate.
Arbitration, Construction Of Scope Of Agreement: Second Dist.Div. 7 Reverses Arbitration Award Because Narrow Scope Of Arbitration Agreement Did Not Cover The Dispute
The Court Of Appeal Construes The Arbitration Provision As "Narrow" Rather Than "Broad."
The Court of Appeal reverses confirmation of an arbitration award in Thomas Ahern et al. v. Asset Management Consultants, Inc., et al., B309935 (2/7 2/1/22) (Perluss, Segal, Feuer).
The underlying dispute was between a co-tenant, Ahern, who purchased a co-tenant interest in an office building from Asset Management Consultants, who acquired the building from iStar. Asset Management Consultants compelled arbitration against Ahern based on an arbitration provision in the co-tenancy agreement. This was reversed on appeal, because Ahern's dispute with Asset Management Consultants did not "arise under" the co-tenancy agreement. The dispute related to representations made during the acquisition of the building, not to the management and operation of the building under the co-tenancy agreement.
Arbitration clauses requiring a dispute to "arise under" an agreement are interpreted to be narrower in scope than clauses providing for arbitration of "any dispute" or clauses providing for disputes "arising from or related to" an agreement. The clause at issue here was construed to be a narrow one.
COMMENT: It seems that Ahern will get another bite out of the apple. But we don't know whether a judge will rule differently on the merits of the underlying dispute, or whether the reversal of fortune will lead to a settlement.
Arbitration, Nonsignatories, Equitable Estoppel: Ninth Circuit Holds Nonsignatory BMW Could Not Enforce Dealer’s Arbitration Agreement With Customer
Nonsignatories Can Sometimes Enforce An Arbitration Agreement Based On A Third-Party Beneficiary Or Equitable Estoppel Theory – But Such Was Not The Case Here.
After Kim Ngo purchased a BMW that Ngo alleged was a lemon, BMW sought to enforce an arbitration agreement between the Dealer and Ngo, to which BMW was not a signatory. The trial court agreed that BMW was a third-party beneficiary that could enforce the agreement. The Ninth Circuit reversed. A significant fact is that Ngo sued BMW for breach of warranty, but did not sue the Dealer under the agreement containing the arbitration provision. Ngo v. BMW of North America, No. 20-56027 (9th Cir. 1/13/22) (Parker, sitting by desig., Wardlaw, Hurwitz).
For the three-part third-party beneficiary test applied by Judge Parker, which the panel concluded BMW failed, see Goonewardene v. ADP, LLC, 6 Cal. 5th 817 (2019) (third-party must benefit from contract; contracting parties must have "motivating purpose" to benefit third-party; enforcement must be consistent with "reasonable expectations" of the contracting parties and contract objectives).
As to "equitable estoppel", (a) there was not concerted misconduct between BMW and the Dealer; (b) Ngo did not rely on contract terms or make claims closely intertwined with the contract. Under California law, the manufacturer's warranty is separate from the Dealer's contract terms.
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.