Arbitration: Construction Of Agreement; Employment; PAGA; Severability: 2/6 DCA Decides PAGA Waiver Is Unenforceable And PAGA Waiver Was Not Severable From Remainder Of Agreement Due To Differences Between English And Spanish Versions Signed By Employee
Different Handbook Versions Seen As Negligent Or, At Worse, Deceptive.
This case involved interesting PAGA waiver and severability issues under a very specific factual setting fraught with confusion.
The situation went this way: Employer, during the employment of plaintiff hourly employee in Ventura, adopted a policy requiring arbitration of legal claims arising from the employment relationship. Plaintiff employee had signed both an English and a Spanish version of employer’s dispute resolution agreement, although there was a major difference between the two. Both handbooks required arbitration of employment disputes and denied an employee’s right to bring an action under the California Private Attorneys General Act. The English version stated that the denial of the right to bring a PAGA action was severable if such denial was found unenforceable, while the Spanish version provided that the PAGA denial was not severable.
After the plaintiff filed wage/hour and PAGA claims, employer filed a motion to compel arbitration of plaintiff’s claims, relying on the handbook provisions. The trial judge denied the motion to compel, finding that (1) the differences in the two versions of the handbook were “propound” concerning a “very significant subject,” and (2) the arbitration agreement had to be construed against the drafter, namely, the employer.
The 2/6 DCA affirmed in Juarez v. Wash Depot Holdings, Inc., Case No. B282667 (2d Dist., Div. 6 July 3, 2018) (published) (Gilbert, P.J., author, concurred in by Perren, J. and Tangeman, J.).
Initially, the appellate court found that the trial judge properly concluded that the PAGA waiver found in the handbook was unenforceable as against public policy, based on Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 383-384 (2014). Beyond that, however, it was no abuse of discretion for the trial judge to decline to sever the PAGA waiver based on the differences between the English and Spanish versions. Finally, after finding that the difference in the severability clauses in the two versions was “negligent; at worse, it [was] deceptive,” the arbitration agreement ambiguity was construed against employer drafting party, with the appellate court concluding “[i]ndeed, Wash Depot may have left the meaning of severability ‘deliberately obscure, intending to decide at a later date what meaning to assert.’” (Slip Op., at p. 8.)
Arbitration: Existence Of Agreement; Nonsignatories; Section 1281.2: 2/6 DCA Reverses Denial Of Motion To Compel Arbitration Based On Integration Clause Being Found Dispositive
However, Wife’s Loss Of Consortium Claim Not Subject To Arbitration And Trial Court On Remand Had To Consider Third Litigation Exception As Basis To Deny Motion To Compel.
In Williams v. Atria Las Posas, Case No. B282513 (2d Dist., Div. 6 June 27, 2018) (published; Tangeman, J., author, concurred in by Gilbert, P.J. and Perren, J.), a trial court denied an elder/dependent adult residential care facility operator’s motion to compel arbitration under a separate arbitration agreement signed after a severely injured man also signed a Residency Agreement. (Wife did not sign.) The trial judge reasoned that the integration clause in the prior Residency Agreement barred proof of the subsequent arbitration agreement, not considering other issues raised by the parties.
The 2/6 DCA reversed, based on the timing of when agreements were signed. In this instance, the arbitration agreement was signed after the Residency Agreement, with the arbitration agreement expressly providing that it applied to claims regarding the validity or enforceability of the Residency Agreement. Under this sequence of events, the integration clause did not bar proof of the arbitration agreement.
However, that did not end the matter. The appellate panel did agree that arbitration was not available for wife’s loss of consortium claim because it was an independent claim and she did not sign the arbitration agreement. Next, operator’s argument that the FAA rules applied to the exclusion of CAA rules did not resonate given the wording of the arbitration clause which did not rule out the applicability of the CAA. Finally, with respect to whether the third party litigation exception in CCP § 1281.2(c) applies to justify the order denying the motion to compel arbitration, the trial judge needed to examine this issue on remand.
Mediation: Condition Precedent; Arbitration: Unconscionability: 4/3 DCA Reverses Denial Of Motion To Compel Arbitration Based On Employee’s Failure To Follow Dispute Resolution Hierarchy And Rejects Unconscionability Challenges
Employee Was Required To Have Informal Meeting With Employer First, Formal Mediation Next, And Then Arbitration, With Employer Paying Costs Of ADR Remedies.
Justice Bedsworth, in his distinctively colorful writing style, reversed a denial of a motion to compel arbitration in line with an ADR agreement between employee and employer in Barati v. Ottno, Inc., Case No. G054960 (4th Dist., Div. 3 June 25, 2018) (unpublished; Bedsworth, J., author, concurred in by O’Leary, P.J. and Thompson, J.). In the process, he discussed a tailored ADR agreement and four unconscionability challenges advanced by employee on appeal.
The operative background was that employee and employer entered into a mediation and arbitration agreement which was pretty much a standalone and signed by employee—it was not just a handbook with an arbitration clause hidden in small print or at the back of the handbook. This agreement called for a three-tiered ADR process: first, all employment claims (including civil rights violations) had to be subject to an informal negotiation through a first meeting between employee and employer concerning a dispute; second, the case had to be referred to the nearest office of JAMS for a nonbinding conference before a retired judge or justice; and third, if those efforts were unsuccessful, an arbitration then could be requested by either party. The problem here was that employee balked at doing the first informal negotiation meeting and filed his own formal demand for arbitration with JAMS (complete with the filing fee, although griping that the employer should have paid it). Employer insisted on employee honoring the ADR scheme in the agreement, filing a motion to compel ADR compliance under the agreement. The trial judge denied the motion without explanation, triggering an appeal by employer resulting in a reversal.
The 4/3 DCA panel deciding the appeal decided there was no waiver of arbitration by employer not paying the JAMS mediation fees (“the elephant-in-the-room issue in the case”) because employee failed to follow the ADR process set forth in the agreement, more specifically, failure to engage in the initial informal negotiation session with employer.
The appellate court then discussed and rejected four unconscionability arguments.
First, the “take it or leave it” nature of the agreement was not unconscionable simply because the signing of it was a condition of employment. (Serafin v. Balco Properties Ltd., LLC, 235 Cal.App.4th 165, 179 (2015).)
Second, although it was true that the JAMS arbitration rules were not attached to the agreement and is a minor factor indicating procedural unconscionability, the failure to attach the rules—by itself—is not dispositive given employee failed to show that there was anything unfair about the JAMS rules. (Peng v. First Republic Bank, 219 Cal.App.4th 1462, 1472 (2013).)
Third, employee argued that the first informal negotiation session allowed employer an unfair “free peek” at his case. However, the 4/3 DCA panel found this unpersuasive because there was nothing in the ADR process requiring employee to reveal anything about his case and, in fact, employer was likely going to have to explain why employee was terminated—a reverse “free peek” favoring employee. The ADR structure under the agreement was unlike Nyulassy v. Lockheed Martin Corp., 120 Cal.App.4th 1267, 1282-1283 (2004), which required successive negotiations with higher-up supervisors (not the case here) and was unilateral (also not the case, because it was bilateral in nature). (See also Nguyen v. Applied Medical Resources Corp., 4 Cal.App.5th 232, 254-255 (2016).)
Fourth, employee argued that he had to pay for at least part of the mediation fees such that he was denied the benefit of filing with court and not bearing such expenses. Not so, said the appellate panel, because the agreement was silent on which side paid, meaning that the employer would bear the cost of both the mediation and arbitration. (Little v. Auto Stiegler, Inc., 29 Cal.4th 1064, 1082 (2003).)
So, this one got reversed with directions that the motion to compel be granted and ADR resolution proceed as described per the agreement between the parties. With respect to awarding appellate costs to any side just yet, the panel decided that the issue should be left to the discretion of the arbitrator depending on the eventual outcome of the arbitration (assuming that the first meeting or subsequent mediation did not resolve things).
Arbitration: Waiver: 3 ½ Years Of Litigation, Complete With Removals/Remands From Federal Court, Discovery, And Trial Continuances, Supported Trial Court’s Conclusion That Arbitration Was Waived On The Cusp Of Another Continued Trial Date
Prejudice Did Occur Plus Bad Faith Inference That Late Motion To Compel Arbitration Was Sought For Strategic Purposes.
The Fourth District, Division Three has a rich body of case law on arbitration waiver as enunciated through a trio of cases: Burton v. Cruise, 190 Cal.App.4th 939 (2010); Adolph v. Coastal Auto Sales, Inc., 184 Cal.App.4th 1443 (2010); and Lewis v. Fletcher Jones Motor Cars, Inc., 205 Cal.App.4th 436 (2012). These cases have been applied often in subsequent cases involving waiver scenarios.
In Masimo Corp. v. Welch, Case No. G054803 (4th Dist., Div. 3 June 18, 2018) (unpublished; Goethals, J., author, concurred in by Bedsworth, A.P.J. and Ikola, J.), the 4/3 DCA had to confront a trial court’s denial of a motion to compel arbitration in an unusual situation—an employee was seeking to arbitrate against a corporate employer filing a lawsuit for misappropriation of trade secrets. The problem was the late juncture in which employee attempted to invoke arbitration rights. The circumstances showed the following: (1) employee litigated employer’s claims for over 3 ½ years in superior court; (2) employee did not list entitlement to arbitration as an affirmative defense in his answer to the complaint; (3) employee actively participated in discovery at the superior court level; (4) employee obtained numerous continuances of scheduled trial dates; (5) employee sought to delay things further through the bankruptcy of his subsequent employer, removing to federal court and obtaining yet another trial continuance before the matter was remanded to state court; and (6) employee filed his petition to compel arbitration three weeks before the newly scheduled trial date, gaining yet another continuance. The trial judge denied the petition to compel arbitration based upon waiver, with employee appealing the denial (which introduced more delay because the appeal stayed further trial court proceedings).
The 4/3 DCA affirmed. It found that the substantial evidence review standard applied because of conflicting inferences from the evidence, with prejudice shown by depriving employer of the expedited benefits of an arbitration given how it was staked at the last moment on the cusp of another trial. Aside from facts showing litigation in a manner inconsistent with arbitration, the result was supported by the conclusion substantial evidence showed that employee’s invocation was strategic and done in bad faith—to obtain another delay of the trial and then appeal to introduce further delay. Lest someone think that an appeal alone will support bad faith, the appellate panel was careful to observe that this was confined to facts showing that it was strategically used in abusive fashion: “We do not mean to suggest that every attorney who appreciates the strategic significance of an immediate right to appeal would be acting in bad faith by pursuing that strategy.” (Slip Op., p. 16.)
BLAWG BONUS MILEAGE—Marc’s colleague Mike Hensley successfully defended an appeal of an order denying a motion to compel arbitration earlier in Eagle Iron Erectors, Inc. v. W&W Steel Co., Case No. G053406 (4th Dist., Div. 3 Aug. 25, 2017) (unpublished; Fybel, J., author, concurred in by Bedsworth, A.P.J. and Moore, J.). There, defendant brought a motion to compel 7 ½ months after the initial complaint was filed, although bringing two demurrers, engaging in discovery (with the plaintiff having to bring motions to compel which were granted along with sanctions), and bringing the motion so as to postpone a looming trial. It did rely on the trio of 4/3 DCA decisions when it came to affirming the waiver determination.
Arbitration: Burden Of Proof: 4/3 DCA Affirms Trial Court’s Conclusion That Arbitration Agreement Did Not Exist In The Face Of Conflicting Evidence
Former Employee Did Not Sign Arbitration Clause, Denied Receiving Letter Where Employer Tried To Create A Ratification, And Subsequent Compensation Program Signature Did Not Evince An Agreement To Arbitrate.
The facts of this case were hotly contested. Former employee, after 13 years with employer, was presented with a handbook containing an arbitration agreement to sign. He refused and was put on suspension. Company sent him a FedEx letter, left on his doorstep, indicating that if he returned to work, he agreed to the handbook with the arbitration clause. Employee claimed he never received the letter. Employee returned to work and, 7 ½ years later, defendant implemented a new compensation program replete with arbitration, which employee signed—although resigning months later. Importantly, the compensation program only indicated employee would agree to arbitration to the extent he had signed such an agreement or would execute one later.
In light of this conflicting testimony, the trial court found no agreement to arbitrate, triggering an appeal by the losing ex-employer.
The 4/3 DCA, in Vitters v. Solesbee Auto Crafts, Inc., Case No. G054926 (4th Dist., Div. 3 June 18, 2018) (unpublished; Goethals, J., author, concurred in by Bedsworth, A.P.J. and Moore, J.), affirmed.
The problem for appellant, ex-employer was the substantial evidence rule. The key issue was whether employee agreed to the FedEx letter, but the presumption of acceptance and agreement was rebutted by employee—as the trial court determined. The subsequent compensation agreement did not result in a different result, given the language that employee had to agree or would agree in the future to arbitration—which employee claimed he did not do.
Arbitration: Nonsignatories; Section 1281.2: Brokers Were Third Parties Not Compelled To Arbitrate And Prospect Of Conflicting Rulings Further Justified Denial Of Petition To Compel Arbitration In Seller-Purchaser Dispute
Different Tracks For Different Parties, Creating Chaos, Was Good Back-Up Reasoning For Denial.
In Kim v. Kim, Case No. B283786 (2d Dist., Div. 8 June 13, 2018) (unpublished) (Rogan, J., Orange County Superior Court Judge sitting by assignment, concurred in by Rubin, Acting P.J. and Grimes, J.), defendants (all residential property seller affiliates) appealed a trial court’s denial of their petition to compel buyers to arbitrate all of their claims against both buyer affiliates and brokers/sales agents acting in a dual agency capacity. The problem was that the broker parties never agreed to arbitration under the CAR form agreement, and both buyers and brokers opposed the motion to compel arbitration.
The trial judge denied the petition, finding that the brokers were “third parties” not bound by the arbitration agreement and that any other result would lead to the possibility of inconsistent rulings under Code of Civil Procedure section 1281.2(c). The 2/8 DCA agreed.
First of all, the brokers were indeed “third parties” under section 1281.2(c) given the fact that the CAR form agreement mandated that the brokers had to consent to arbitration—and they did not. (Cronus Investments, Inc. v. Concierge Services, 35 Cal.4th 376, 393 (2005).)
Next, the decision to deny arbitration and allow the litigation to proceed was warranted. The problem here is that permitting the arbitration and litigation to proceed simultaneously could have resulted in these representative conflicting adjudications: (1) a jury could find that brokers negligently repeated seller’s misrepresentations about the property while an arbitrator could find that sellers did not make such misrepresentations; and (2) a jury could have found that brokers worked with sellers to fraudulently misrepresent the value of the property but an arbitrator could find that sellers had no such involvement. Given the possibility of conflicting rulings based on these “different tracks,” no error was committed in denying the petition to compel arbitration, coupled with the fact that discovery had been conducted in the litigation such that it was not efficient to proceed to arbitration on this additional basis.
BLAWG OBSERVATION—Orange County Superior Court Judge James E. Rogan, sitting by assignment, has quite a pedigree. He was a former California and federal legislator and was a U.S. House of Representative manager in the impeachment trial of then President Bill Clinton, all before being appointed to the bench.