Arbitration, Public Policy: An Arbitration Provision Purporting To Waive Consumer’s Right To Seek Public Injunctive Relief Is Invalid And Unenforceable
McGill Is Still Good Law.
The action in Joe Maldonado v. Fast Auto Loans, Inc., G058645 (4/3 2/8/21) (O'Leary, Aronson, Thompson) centered on whether McGill v. Citibank, N.A., 2 Cal.5th 945 (2017) is still good California law and whether it has been preempted by the Federal Arbitration Act. McGill, which we posted about on April 6, 2017, held that an arbitration provision was invalid and unenforceable because it required consumers to waive their right to pursue public injunctive relief. See also the September 29, 2020 post on Mejia v. DACM Inc., 54 Cal.App.5th 691 (2020).
Maldonado and others brought a putative class action alleging Fast Auto Loans, Inc. charged unconscionable interest rates on loans in violation of the Financial Code. Fast Auto Loans moved to compel arbitration, based on a broad arbitration provision that would have resulted in a waiver of class actions and the plaintiffs' ability to bring an action for public injunctive relief. The trial court held that the McGill rule made the arbitration provisions unenforceable, and the Court of Appeal affirmed the order denying the motion to compel arbitration.
The Court of Appeal concluded that McGill is good law. Fast Auto Loans' argument that FAA preemption applied foundered, because SCOTUS recently denied review of Ninth Circuit cases applying McGill, leaving the Court of Appeal to apply McGill, a case decided by the California Supreme Court.
COMMENT: What is the reasoning that explains why McGill is not preempted by the FAA? "The contract defense at issue here—'a law established for a public reason cannot be contravened by a private agreement' (Civ. Code, § 3513)—is a generally applicable contract defense, i.e., it is a ground under California law for revoking any contract. . . . It is not a defense that applies only to arbitration or that derives its meaning from the fact that an agreement to arbitrate is at issue." McGill v. Citibank, N.A., 2 Cal. 5th 945, 962 (2017). In short, the defense does not unduly burden an arbitration agreement, because it would also apply to another contract.
Arbitration, Unconscionability: An Appellate Arbitral Review Provision Is Held Substantively Unconscionable, But Severable
Motion To Compel Arbitration Should Have Been Granted, And One Substantively Unconscionable Provision Was Severable.
In Erendira Cisneros Alvarez v. Altamed Health Services Corp., B305155 (2/8 2/4/21) (Stratton, Bigelow, Grimes), the Court of Appeal reversed a trial court's order denying a motion to compel arbitration. The arbitration provision, which is part of an employer-employee contract, is found to be enforceable, while a provision requiring a second level of arbitral review is found to be substantively unconscionable but severable.
Most interesting is the Court of Appeal's conclusion about the unfairness in the employer-employee context of a provision allowing for arbitral review of the arbitrator's award. Why unfair? Because it was likely that only the employer would take advantage of this additional review, in case of a large award in favor of the employee; because it would add a layer of expense for the employee; because it would delay the ability of the employee to confirm an award; and because it was ambiguous, since it was unclear what rules for appellate arbitral review would apply. But since this was the only example of substantive unconscionability, the offending provision could be severed, and the arbitration provision could be enforced.
COMMENT: The trial court held that the employee had not knowingly waived her right to a jury trial, and that in fact the word "jury" had not been mentioned in the relevant document. The Court of Appeal explained this was clear error, because "[t]he arbitration agreement does contain the word 'jury' and it uses the word as part of an express waiver provision …." Twisting the knife, the Court added, "We are surprised by the trial court’s inability to find the word 'jury' or the jury provision in the arbitration agreement." Did this slip up motivate the Court of Appeal to review the case in considerable detail?
Videoconferencing: Tips For Using Zoom For Remote Mediation
Tips For Using Zoom For Remote Mediation
Since the beginning of the pandemic, I have been conducting remote mediations with Zoom. Based on my experience with Zoom, I have collected tips for mediators, attorneys, clients, and other persons who will be participating in remote mediations conducted via Zoom. While a number of other platforms have been used, Zoom still appears to be the one most commonly used by mediators in Southern California. Many of the tips, though based on my experience with Zoom, are applicable to other platforms. I invite readers to add to my list of "Tips" either by emailing me at malexander@alvaradosmith.com, or by adding a comment to this post.
Mediation, Attendance, And Settlement: Parties Failing To Attend Probate Court-Ordered Mediation Could Not Complain About Settlement Reached By Participating Parties
Potential Beneficiaries Of Trust Received Notice, But Failed To Participate.
After Don Kirchner died in 2018, the successor trustee of Kirchner's living trust found a document listing 24 charities with handwritten notes appearing to be percentages for distributing the estate. The probate court confirmed the successor trustee and ordered mediation among interested parties. Apparently the parties received notice, but several parties, designated as the "Pacific parties," did not attend the mediation. The participating parties reached a settlement, the non-participating Pacific parties objected to the petition to confirm the settlement, and the probate court confirmed the settlement. The Pacific parties appealed. Breslin v. Breslin, B301382 (2/6 1/26/21) (Gilbert, Yegan, Tangeman).
Affirmed. "The probate court has the power to order the parties into mediation. (See Prob. Code, section 17206 . . . .)" The dispositive case is Smith v. Szeyller, 31 Cal.App.5th 450 (2019), holding that "a party who chooses not to participate in the trial of a probate matter cannot thereafter complaint about a settlement reached by the participating parties." True, the Breslin case involved a mediation, not a trial, but the mediation was court-ordered, and parties receiving notice could not blow it off without consequences.
COMMENT: An online obituary for Don Kirchner states, "Don was a generous man who loved God, loved his wife, loved his country, and his dogs (especially Lola, who was with him through his retirement years)."
Arbitration, Unconscionability: Third District Agrees That Solar Power Lease Agreement Contained Unconscionable Arbitration Provision
The Court Avoided Deciding Whether The McGill Rule Applied.
The Cabatits entered into a solar power lease agreement, and sued Sunnova Energy Corporation, alleging roof damage. The Court of Appeal affirmed the trial court's order denying Sunnova's motion to compel arbitration, because the arbitration provision was unconscionable. Cabatit v. Sunnova Energy Corporation et al., C089576 (3rd Dist. 1/29/21) (Mauro, Blease, Duarte).
Sunnova forfeited arguing that the issue of enforceability had been delegated to the arbitrator by failing to raise it in the trial court. Substantive unconscionability existed because the agreement was one-sided, allowing Sunnova to file lawsuits, while requiring customers to arbitrate, and the one-sidedness was not justified and supported by a showing of commercial need based on evidence. Procedural unconscionability existed because it was a "take it or leave it" contract of adhesion.
Sunnova argued that the arbitration provision was conspicuous. However, as the Court of Appeal explains, "[a] finding of procedural unconscionability is highly dependent on context." Here, the agreement was presented by a salesperson on an electronic device. The salesperson showed the Cabatits where to sign, but did not point out or explain the arbitration provision, and the Cabatits were not given a hard copy of the agreement.
COMMENT: The trial court had also concluded that the contract was unenforceable under the rule announced in McGill, which held an arbitration agreement waiving statutory remedies under the Consumer Legal Remedies Act, unfair competition law, and false advertising law is unenforceable. The Court of Appeal avoided the issue, since it agreed the agreement was unconscionable. Perhaps it also avoided the issue so as not to confront whether interstate commerce was involved, and whether the McGill rule was preempted by the Federal Arbitration Act?
Arbitration, Waiver: Second District, Div. 5 Holds Delay + Conduct Inconsistent With Arbitration + Prejudice Adds Up To Waiver Of Right To Arbitrate
Complaint Filed November 11, 2016 And Motion To Compel Arbitration Filed November 20, 2018.
Given two years elapsed between the time Plaintiff filed his putative class action wage and hour lawsuit, and the time Defendant filed its motion to compel arbitration, Defendant was going to have an uphill battle convincing the Court of Appeal that Defendant had not waived its right to arbitrate. Paul Garcia v. Haralambos Beverage Co., B296923 (2/5 1/4/21) (Kim, Baker, Moor).
The leading California case for analyzing waiver of the right to arbitrate is Agnes Medical Center v. PacifiCare of California, 31 Cal. $th 1187 (2003). Agnes lays out six factors to examine to determine if there has been a waiver of the right to arbitrate. Here, the court found three of the six to be present: undue delay, conduct inconsistent with asserting the right to arbitrate, and prejudice to the Plaintiff.
COMMENT: Courts do not like it when they whiff defendants delayed moving to compel arbitration while waiting to see if they could first accomplish favorable results in litigation. Perhaps the court caught a scent of that here, for Justice Kim wrote, "defendant here raised arbitration as a belated strategy, if not as a strategy of last resort."