Arbitration, Agents, Nonsignatories, Equitable Estoppel: U-Haul Can’t Enforce Arbitration Provision Against Nonsignatory Employee Of Employee Renting Truck
Court Of Appeal Rejects Third-Party Beneficiary, Agency, And Judicial Estoppel Arguments Made By U-Haul.
Unable to find "any authority addressing precisely analogous circumstances," the Court of Appeal decides a case of first impression in Jensen v. U-Haul Co. of California, E065887 (4/2 12/11/17) (Codrington, McKinster, Slough). The case involves "an attempt to enforce an arbitration clause in an equipment rental agreement against the nonsignatory employee of the party that rented the equipment."
Virgil Jensen was injured when the truck his employer rented from U-Haul blew a tire. Mr. Jensen sued U-Haul for negligence, and Glenda Jensen sued for loss of consortium. Mr. Jensen had not signed the contract with the arbitration clause with U-Haul, and did not know about the arbitration clause, but his employer had signed the contract. The general rule is: "persons are not normally bound by an agreement entered into by a corporation in which they have an interest or are employees." Suh v. Sup. Ct., 181 Cal.App.4th 1504, 1513 (2010). Could U-Haul shoehorn the case into an exception that would allow U-Haul to compel arbitration against a nonsignatory?
Third-party beneficiary. This exception did not work, because the contract was for the benefit of Mr. Jensen's employer, not for his benefit.
Agency. While there is an agency exception, allowing some nonsignatories to be bound by an arbitration provision, the Court finds that in each case where the nonsignatory was bound to arbitrate, the finding "is based on facts that demonstrate, in one way or another, the signatory's implicit authority to act on behalf of the nonsigntory." The Court did not find the facts warranted a finding here that the employer had implicit authority to bind the employee to arbitrate.
Equitable estoppel. This exception comes into play when the nonsignatory asserts claims that are "dependent upon, or inextricably intertwined with" the underlying contractual obligations of the agreement containing the arbitration clause. However, that was not the case here, because the plaintiffs did not rely on the terms of the rental agreement between the employer and U-Haul to assert their claims.
So the Court of Appeal affirmed the trial court's denial of U-Haul's motion to compel arbitration.
COMMENT: Mr. Jensen was an agent of his employer for some purposes, but that did not mean that the employer had "implicit authority" to bind Mr. Jensen to arbitrate. This is a very fact-specific finding, because it means that the focus must be not on whether an agency relationship exists (e.g., employer/employee), but on whether one party had "implicit authority" based on all the facts and circumstances, to bind another party to arbitrate. There is no bright line here: one must look at the facts and circumstances. The absence of a bright line may promote fairness at the same time that it engenders litigation.
Federal Arbitration Act, Consumers, Arbitration: First Amendment Challenge To Arbitration Clause Fails In Ninth Circuit
Does The Federal Arbitration Act Implicate "State Action"?
"No" is the short answer. However, read on if you want to know about the novel argument made by consumer plaintiffs in Roberts v. AT&T Mobility, No. 16-16915 (9th Cir. 12/11/17) (Tallman, Hawkins, Fletcher).
In Roberts, AT&T moved to compel arbitration against putative class action consumer plaintiffs, based on the ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). At first blush, one might consider the issue of the validity of AT&T's arbitration clause to have been settled by Concepcion, which held that the Federal Arbitration Act (FAA) preempted state law deeming AT&T's arbitration to be unconscionable. However, the plaintiffs in Roberts tried a different tack, challenging AT&T's arbitration clause on the constitutional ground that it violated the First Amendment Petition Clause.
The Petition Clause guarantees that we can petition the government to redress grievances without fear of retribution. Essentially, the plaintiffs argued that judicial and legislative encouragement of arbitration is so strong, through the enactment of the FAA and Supreme Court enforcement of the FAA to compel arbitration, that the government deprived the plaintiffs of the right to petition by depriving them of their ability to have a court adjudicate their claims.
The threshold question in deciding the First Amendment Petition Clause claim is whether state action is even involved. The district court did not find state action, and the Ninth Circuit agreed. The Court of Appeals concluded that AT&T's conduct is not attributable to the state, and, quoting Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 937 (1982), "private parties [do not] face constitutional litigation whenever they seek to rely on some [statute] governing their interactions with the community surrounding them."
Arbitration, Construction of Agreement, International, FAA: Arbitration Agreement Not Signed By Parties Was Unenforceable, Based On Placement Of Comma
This Case Is For Grammar Afficionados; Or, What A Difference A Comma Makes.
Only and exclusive photo of the Vestris as it went down. Fred Hansen, photographer, active 1928. Library of Congress.
Mr. Yang, a seaman, died when the fishing vessel he worked on sank because of inadequate repairs and an incompetent crew. There were two defendants: Majestic Blue Fisheries, LLC, Mr. Yang's employer, and Dongwon Industries Co., Ltd., an affiliated company that provided the repairs and a crew for Majestic's vessel. The district court denied a motion to compel arbitration with Dongwon, and Dongwon appealed. Yang v. Dongwon Industries, 15-16881 (9th Cir. 11/30/17) (Nguyen, Fisher, Paez).
The agreement containing an arbitration clause was signed by Mr. Yang and by Dongwon "on behalf of MAJESTIC BLUE FISHERIES, LLC." Thus, the parties to the agreement were Mr. Yang and Majestic.
The key legal issue turned on the interpretation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention Act), which implements a Convention Treaty, and — drum roll — on the placement of a comma.
The Convention Act requires that a party seeking to compel arbitration must prove the existence and validity of "an agreement in writing withing the meaning of the Convention" Treaty. And the Convention Treaty defines an "agreement in writing" to "include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams." Dwell upon the placement of the comma. Ponder what "signed by the parties" modifies.
Under cannons of construction, when a comma is included, "the modifier is generally understood to apply to the entire series." Thus, here, "signed by the parties" modifies both "an arbitral clause in a contract" and "an arbitration agreement." Neither of which was "signed by the parties." Hence, the arbitration provision could not be enforced by Dongwon.
Nor could Dongwon rely on the Federal Arbitration Act to enforce the arbitration provision, "because the FAA expressly exempts from its scope any 'contracts of employment of seamen.'"
And finally, the Court rejected as a "doctrinal sleight of hand" Dongwon's argument that the Convention Act requirements could be circumvented "by importing into our Convention Act analysis precedent permitting a 'litigant who is not a party to an arbitration agreement to invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement.'"
Affirmed.
COMMENT: It is sobering to think that the legal rights of the family of a drowned seaman depended on the placement of a comma.
Arbitration, Enforceability/Construction Of Agreement: Parties Agreeing To Arbitrate Under Rules Set By Third Party Is Bound By Rule Change That Product Liability Claims Will Not Be Heard
Defendant Seeking To Compel Arbitration Had Argued That Claim To Be Submitted To Arbitration Accrued Before Rule Changed.
This case presents a somewhat unusual situation, in that the Court of Appeal had to construe an arbitration agreement that was not directly between the parties. Instead, the parties independently agreed to participate in an industry arbitration program offered by a nonprofit organization, Arbitration Forums, Inc. (AF), which, however, was not a party to the lawsuit. State Farm General Insurance Company v. Watts Regulator Co., B271236 (2/8 11/30/17) (Grimes, Rubin, Flier).
After damage was allegedly caused by a defect in a supply line manufactured by Watts, State Farm paid an insurance claim and filed a subrogation lawsuit against Watts. Because Watts and State Farm were part of the industry AF arbitration program, Watts sought to compel arbitration. The trial court denied the motion, because AF had changed its rules so as to exclude product liability claims from arbitration. Watts appealed, arguing it had a vested right to arbitrate, because AF had changed its rules after the claim accrued. Therefore Watts argued it should be able to arbitrate under the agreement and rules in effect with AF before January 1, 2015.
The Court of Appeal, however, rejected the retroactivity argument. The parties agreed to arbitrate under terms and rules set by a third party, AF, the third party informed the parties of the rule change, and the parties continued with the program.
NOTE: The Court distinguishes the situation in the case from that in which an employer and an employee enter directly into a dispute resolution agreement, and the employer unilaterally changes the rules after a claim accrues. In that employment context, where the parties have directly contracted with one another, retroactivity does apply. Changing the contract unilaterally could be a breach of the covenant of good faith and fair dealing between the parties.
Settlement Agreements: Party Seeking To Invoke CCP 664 To Enforce Settlement Did Not Preserve Court’s Jurisdiction Simply By Putting The Request In A Confidential Settlement Agreement
If You Want The Court To Retain Jurisdiction, Ask The Court.
"This case offers an object lesson on the requirements to invoke section 664.6 and the consequences of failure to comply with those requirements." Sayta v. Chu, A148823 (1/5 11/29/17) (Bruiniers, Jones, Simons).
Plaintiff/Apppellant Sayta settled a tenant dispute with the landlord Chu, entering into an agreement with a confidentiality provision, and a liquidated damages clause. The settlement agreement specifically stated: "[T]he Court may nevertheless retain jurisdiction to enforce the terms of the settlement, until such time as all of its terms have been performed by the parties, as the parties requested this specific retention of jurisdiction." Following the execution of the settlement agreement, the case was dismissed.
Sayta sought to invoke section 664.6 to enforce the liquidated damages clause after he believed Chu had breached the agreement. He was unsuccessful, for lack of jurisdiction. As the Court of Appeal explained, the parties to a settlement agreement are unable to confer jurisdiction on trial courts by including language in a settlement agreement, "but not asking the court to retain jurisdiction."
Best line: "Sayta fails to explain how the court could have fathomed a 'request' for retained jurisdiction, much less granted it sub silentio from a secret handshake of the parties."
Arbitration/Agents: Hutcheson v. Eskaton Fountainwood Lodge Is Filed On Rehearing
Deficient Power Of Attorney Was Used For Making Decisions Relating To Health Care.
Hutcheson v. Eskaton Fountainwood Lodge, C074846 (3rd Dist. 11/28/17) has been ordered filed on rehearing. We posted earlier about this case on June 15, 2017. The case held that a residential facility for care of the elderly could not enforce an arbitration provision, because the power of attorney under which the agreement was executed did not provide for making health care decisions.
COMMENT: This is a fact-specific outcome, depending on whether in this instance this residential care facility for the elderly provided health care for its residents. Nevertheless, prudence dictates that residential care facilities for the elderly also follow the requirements of the Health Care Decision Law, Probate Code sections 4600 et seq., in order to have enforceable arbitration clauses.