Recently in Arbitration Category

Does trial court lack authority to rule on enforceability of arbitration agreement where delegation of this authority to arbitrator was clear and not revocable?

arbitration.jpgIn Tiri v. Lucky Chances, Inc. (filed 5/15/14) A136675, Plaintiff Tiri had signed an arbitration agreement with defendant, her employer. Included in the agreement was a provision that the arbitrator, instead of the court, would determine all issues of enforceability of the agreement. Upon her termination, plaintiff sued for wrongful termination, and defendant filed a motion to compel arbitration. The trial court denied the petition on the ground the agreement was unenforceable as being unconscionable. On defendant's appeal, the Court of Appeal, First Appellate District, Division Four, reversed, holding the trial court lacked the authority to rule on unenforceability of the agreement because the parties had made a clear, non-revocable delegation of this authority to the arbitrator.

Principle reliance was placed on the United States Supreme opinion in Rent-A-Center, Inc. v. Jackson (2010) 561 U.S.63, 71, which held a party's challenge to the arbitration agreement does not invalidate the delegation clause; accordingly the arbitrator, and not the court, must consider any challenge to the arbitration agreement as a whole. If the enforceability challenge were specific to the delegation clause, the court may consider the challenge. (Id. at p. 73.)

It was not clear in the instant case whether there was a challenge specifically aimed at the delegation clause. In fact, the ruling of the trial court sounded as if the challenge was broader. The trial court found the agreement unconscionable, focusing on the fact that the agreement stated that the arbitration was governed by the AAA rules, but failed to attach those rules. Nonetheless, the appellate court set out to analyze the enforceability of the delegation clause itself. It concluded the delegation clause was procedurally unconscionable (it gave plaintiff no choice), but was not substantively unconscionable as the trial court impliedly found. (Some measure of each of procedural and substantive unconscionableness needed to be present.)

The Court of Appeal found the delegation clause enforceable because it was clear and not revocable. While the law presumes such delegation unenforceable, defendant here carried its burden to show clear and unmistakable evidence that the parties intended the delegation. The question of whether the clause was revocable turns on whether the agreement was unconscionable. Even though this was an adhesion agreement and thus procedurally unconscionable, there was nothing about the delegation clause that was substantively unconscionable: both parties were bound by it thus demonstrating mutuality, and there was nothing ambiguous or misleading about the clause. The court thus found the denial of the petition to compel was improper; it was the arbitrator's call to determine whether the agreement as a whole was unconscionable.

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Is the stipulation to "high-low" arbitration binding only if reflected in the judgment in the case?

arbitration.jpgIn Horath v. Hess (filed 4/10/14) D063124 & D063709, prior to arbitration of an automobile personal injury case, the parties stipulated in writing to the acceptance of a minimum award of $44,000 and a maximum of $100,000; the agreement was not disclosed to the arbitrator who was to independently determine his award. Any costs awarded by the arbitrator would be added to the stipulated amount. The arbitrator awarded plaintiff $329, 644.61 in damages, plus $36,882.61 in costs. Plaintiff petitioned the trial court to confirm that award. After more than 100 days had passed, defendant filed two motions: the first to limit the judgment for damages to $100,000, and the second for relief from default. Both motions were denied, and the arbitrator's award was confirmed.

After having paid the stipulated $100,000, plus $36,882.61 in costs, to plaintiff, defendant filed a motion in a separate action for acknowledgment of satisfaction of judgment. The trial court denied the motion, determining that judgment was as confirmed from the arbitrator's award, the face of the arbitrator's award governed, and defendant had untimely challenged that award.

On appeal of the two consolidated cases, the Court of Appeal, Fourth Appellate District, Division One, concluded the trial court erred by denying defendant's motion for satisfaction of judgment. Determinative of the appeal was the application of Code of Civil Procedure section 724.050, the section under which defendant sought to obtain a court-entered satisfaction of judgment. That section provides, at subdivision (d), that a judgment debtor may apply to the court for satisfaction where the creditor refuses the debtor's demand for such. Section 724.010, subdivision (a) states that a satisfaction does not require full payment of the amount of judgment where there has been "acceptance by the judgment creditor of a lesser sum in full satisfaction of the judgment." The trial court had agreed with plaintiff that the parties' pre-arbitration award stipulation did not exempt defendant from the requirement of timely seeking to vacate or correct the award before entry of judgment.

Plaintiff argued in its respondent's appellate brief that, even if the statute provided the method for a judgment debtor to enforce a judgment creditor's agreement to accept less than the full judgment, the statute calls for a situation where the stipulation or agreement arose after the judgment was entered rather than before entry, as was the case here. The court of appeal saw this as a distinction without a difference. Under general contractual principals, the parties mutually agreed to the "high-low" provision including that both parties benefited by taking a degree of the risk out of the arbitrator's independent determination. It was understood that this independent award would not govern the payment necessary to satisfy the judgment; rather their stipulation would govern.

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May an adhesive, yet bilateral, employment arbitration clause that is not unduly harsh, oppressive or one-sided be found unconscionable and unenforceable?

In Sanchez v. CarMax Auto Superstores California, LLC (filed 2/6/14, publication ordered 3/4/14) B244772, plaintiff signed an arbitration agreement as a part of his employment application. He was hired as service manager and remained in that position until he was terminated about 4½ years later. In his lawsuit, plaintiff claimed the reason cited for his termination, unsatisfactory performance, was not the true reason; rather, he had been terminated because he raised safety issues about cars sold by CarMax. CarMax's motion to compel arbitration was denied by the trial court, which found the arbitration agreement to be unconscionable and thus unenforceable. CarMax appealed. The Court of Appeal, Second Appellate District, Division One, reversed, directing the matter to arbitration.

The appellate court, in its de novo review, did find the agreement evidenced some degree of procedural unconscionability due to its adhesive nature. However, continued the court, the arbitration agreement must also be substantively unconscionable to be unenforceable. That would require a contract term to be unduly harsh, oppressive, or one-sided. The trial court had found unenforceability here because it viewed the arbitration agreement as not sufficiently allowing discovery, as placing certain requirements on an employee that were not placed on employer, as not giving the arbitrator authority to require just cause for an employment termination, and as not allowing claims of multiple employee claimants to be adjudicated in a single arbitration. The appellate court disagreed on each of these points.

The arbitration agreement here limited each side to 20 interrogatories and 3 depositions; discovery could be expanded by the arbitrator if there is a showing of "substantial need" and additional discovery "is not unduly burdensome and will not unduly delay the conclusion of the arbitration." The trial court concluded the permitted amount of discovery is too low and the burden of showing a need for more discovery is so high as to thwart the ability to prove ones claims. The Court of Appeal disagreed because plaintiff here made no showing of any need for additional discovery. While a requesting party should not have to"demonstrate that a fair hearing would be impossible without additional discovery" (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 716), the standard here was merely a showing of substantial need.

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What is the effect of the U.S. Supreme Court's invalidation of a California rule imposed to refuse enforcement of arbitration provisions upon similar cases?

u-s--supreme-court-1-1038827-m.jpgThe U.S. Supreme Court found in At&t Mobility LLC v. Concepcion (2011) 563 U.S. ___ [131 S.Ct. 1740] that a California Supreme Court rule stated in that case, which found the arbitration clause agreed upon between the parties was invalid due to unconscionability, was preempted by the Federal Arbitration Act. Shortly before Concepcion, the state high court held in Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal. 4th 659 (Sonic I), as a categorical rule, that it was contrary to public policy and unconscionable for an employer to require as part of an arbitration clause that employee waive the right to a "Berman" hearing, which had been provided by the state legislature to assist employees in recovering wages claimed owed by the employer. Very predictably, the U.S. Supreme Court granted certiorari in Sonic I, vacated the judgment and remanded the case back to the California Supreme Court for reconsideration in light of Concepcion.

Given this directive, the state supreme court majority, in Sonic-Calabasas A Inc. v. Moreno (filed 10/17/13) S174475 (Sonic II), concluded that "because compelling the parties to undergo a Berman hearing would impose significant delays in the commencement of arbitration, we now hold, that the FAA pre-empts our state-law rule categorically prohibiting waiver of a Berman hearing in a predispute arbitration agreement imposed on an employee as a condition of employment." (Slip opinion, page 2.) However, the court went on to say that state courts may continue to enforce unconscionablity rules that don't interfere with the "fundamental attributes of arbitration", and remanded this matter back to the trial court to allow further development of the unconscionability claim to determine whether this arbitration agreement is unconscionable.

Predictably again, the majority opinion drew very lively concurring and dissenting/concurring opinions. In spite of the 70 pages of discussion found in the majority opinion, a concurring justice astutely notes that the majority failed to clearly state what standards of unconscionability it is talking about. The majority stated that the trial court on remand should weigh the Berman advantages waived against its benefits to determine if the agreement is "unreasonably one-sided." But as the concurring justice and the two concurring/dissenting justices agreed, the agreement would have to be "so one-sided as to shock the conscience."

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May City avoid, based on policymaking powers, collectively bargained MOU arbitration regarding grievance over mandatory employee furloughs?

City.jpgIn City of Los Angeles v. Superior Court ( filed 6/21/13) S192828, City, after declaring a fiscal emergency, placed civilian employees on a mandatory unpaid furlough requiring one less 8-hour work day during each 80-hour work period. Employees filed grievances. Wage and hour provisions of the collectively bargained MOU provided that employees would be compensated for 40 hours per week based on 52 weeks per year. Contractually, MOU grievances were to be submitted to arbitration. City refused to arbitrate the grievances because arbitration here would constitute an unlawful delegation to the arbitrator of discretionary policymaking powers.

Employees through their union petitioned the Superior Court to compel arbitration. The court granted the petition. City then petitioned the Court of Appeal, which agreed with City that it could not be compelled to arbitrate. In its 4-3 majority opinion, the California Supreme Court reversed the Court of Appeal, finding arbitration of this dispute does not constitute an unlawful delegation of discretionary authority, and City is contractually obligated to arbitrate.

The City argued its right to unilaterally impose furloughs is found in the MOU provision that City could "relieve City employees from duty because of . . . lack of funds;" that a grievance can only be brought as to the practical consequence of a furlough decision. The Union countered that the quoted provision authorized layoffs, not furloughs and does not override the MOUs' wage and workweek provisions. While saying the contractual language is not free of ambiguities, the Supreme Court majority agreed with the Union. It found that, by ratifying the MOU, City made discretionary choices regarding salaries and the overall budget; what was being determined in these grievances is a matter of contractual interpretation typically vested in the courts, or in this case an arbitratorial tribunal; the arbitrator would not be exercising any discretionary policymaking authority as complained of by City.

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Does arbitrator's failure to disclose membership in same ADR organization as defense counsel void award even if information of conflict available to plaintiff?

defense counsel void award.jpgIn Gray v. Chiu (filed January 22, 2013) 2013 DJDAR 944, Judge Haber (Retired), a member of ADR Services, Inc., the dispute provider resolution organization in this case, was selected as the third member of an arbitration panel to preside as a neutral arbitrator in this medical malpractice matter. He sent disclosure statements to the parties in January and April of 2010 stating that he had no significant personal or business relationship with any party or lawyer in the matter. During the arbitration that ensued starting January 31, 2011, George Peterson, a partner in Peterson & Bradford represented the respondent, John Chiu, M.D. as lead counsel. Dr. Chiu retained William Ginsburg as his personal counsel, although his name was not listed as a participant on the disclosure statement. The arbitrators rendered a binding arbitration award in favor of Dr. Chiu.

A bit of history on attorney Ginsburg: for many years he represented Dr. Chiu as of counsel at Peterson & Bradford. In September 2009, Ginsburg left that firm to start his own arbitration/mediation business. On October 6, 2009, he became a member of ADR Services, where he was an independent contractor, with no financial interest in ADR. He additionally declared that he did not "actively participate" in the Gray trial, although he attended some depositions and was present during the entire arbitration hearing on the merits. He also stated that in 2010 he had given his ADR business card to petitioner Gray's counsel, Eugene Locken. Locken recalled receiving a business card from Ginsburg, but denied it showed he was a member of ADR; that was something he had no actual knowledge of through the time of the hearing on the merits. Judge Haber was aware that Ginsburg worked through the ADR Services offices, but they never discussed the Gray matter.

After the arbitration panel's issuance of the award in favor of Chiu, Gray filed a petition in Santa Barbara Superior Court to vacate the arbitration award because of Judge Haber's failure to disclose that Ginsburg too was an ADR Services member. The trial court denied the petition stating that the Ginsburg relationship "may not have been disclosed at the arbitration hearing, but it wasn't hidden." The California Court of Appeal, Second Appellate District, Division Six, reversed directing the trial court to vacate the arbitration award, finding arbitrator Haber failed to disclose a ground upon which he could have been disqualified. It was unconvinced that this ground was waived; only the arbitrator was in a position to effectively disclose under the present circumstances.

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Arbitration covenant that runs with the land binds homeowners and their association even though neither was a direct party to the covenant

November 13, 2012

Supreme Court.jpgOne of the earlier blog articles that I wrote on this site commented on the trend of California appellate cases questioning the fairness of arbitration clauses that often left the non-drafting party without any bargaining power. While many of these situations arise in the context of disadvantaged consumers and employees directly contracting with the drafting party, the circumstance stated in my February 7, 2011 blog concerned homeowners and homeowners associations. As was stated in the opinion which was the subject of that blog, Villa Vicenza Homeowners Association v. Nobel Court Development LLC 185 Cal.App.4th 23 (2011), in spite of the provisions of California Civil Code section 1354 generally providing that recorded covenants in deeds are enforceable as equitable servitudes binding future property owners, that court resorted to the exception: "unless unreasonable." I questioned whether there was a substantial enough basis establishing unreasonableness in that homeowners had record notice of these covenants; they could simply choose not to buy these homes realizing that claims against the developer would require arbitration, waiving the right to a public trial.

The Villa Vicenza published opinion and others like it had a short "shelf-life." They were granted review by the California Supreme Court. And just this past month that case name appeared again in the published body of law, this time in a minute order of the Supreme Court stating the grant of review was vacated and the matter was remanded to the Court of Appeal to decide the matter in light of the Supreme Court's recent opinion in Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US) LLC (2012) 55 Cal.4th 223.

In Pinnacle, a homeowners association sued a condominium developer for construction defect, seeking damage to its property and damage to the separate interests of the condominium owners who compose its membership. The developer filed a motion to compel arbitration, based on a clause in the recorded declaration of covenants, conditions, and restrictions providing that the association and the individual owners agree to resolve any construction dispute with the developer through binding arbitration in accordance with the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.).

The Supreme Court granted review to determine whether the arbitration clause is binding on the association, and if so, whether it must be invalidated as unconscionable. The high court determined that, even though the association did not exist as an entity independent of the developer when the declaration was drafted and recorded, it is settled under the statutory and decisional law pertaining to common interest developments that the covenants and terms in the recorded declaration reflect written promises and agreements that are subject to enforcement against the association. The court concluded that the arbitration clause binds the association and is not unconscionable

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Former human resource director's deceiving employer she had executed arbitration agreement neither implies agreement nor estops her from denying.

dec.jpgIn Gorlach v. The Sports Club Company. B233672 (filed October 16, 2012), the Court of Appeal, Second Appellate District, Division Four, affirmed the trial court's denying defendant's motion to compel arbitration. While the defendant conceded that plaintiff never signed a written contract to arbitrate, defendant claimed equitable estoppel or implied-in-fact agreement.

Plaintiff Susan Gorlach resigned as defendant's human resource director in August 2010. Prior to 2010, defendant had no arbitration agreement with its employees. It then revised its employee handbook to contain such an agreement and tasked plaintiff to get all employees to sign. Through July 2010, not all employees had signed, prompting plaintiff to write company executives to consider what to do about employees who failed to sign. She led executives to believe she had signed, when in fact she had not. She resigned August 6, 2010, and later sued defendant for constructive termination including a cause of action claiming paramour sexual harassment.

Defendant Sports Club moved to compel arbitration contending plaintiff assented to it by her continued employment, yet acknowledging that she had not executed the arbitration agreement. The trial court found that, while plaintiff "intentionally misled" defendant to believe she was "on board" with the new agreement, she never planned on signing it, thus there was no basis to find that an agreement to arbitrate existed between the parties.

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Purported appeal of order compelling arbitration treated as extraordinary petition; order compelling individual arbitration affirmed

Thumbnail image for Court House.jpgIn Nelsen v. Legacy Partners Residential, Inc. (filed July 18, 2012) 2012 DJDAR 9956, plaintiff Lorena Nelson worked for defendant as a property manager from 2006 to 2009. Early in her employment she received a 43-page pre-printed form employee handbook that included a small-print arbitration clause at page 42 headed "TEAM MEMBER ACKNOWLEDGMENT AND AGREEMENT." The handbook gave no option to arbitration as a means of resolving employment disputes. She signed the agreement. In 2010, she filed a class-action lawsuit against defendant primarily alleging violations of wage and hour laws.

Defendant moved the trial court to compel plaintiff to arbitrate the matter as an individual party pursuant to the arbitration clause. Plaintiff opposed the motion, claiming the arbitration clause was unconscionable and in violation of California public policy favoring class actions in this type of lawsuit; if arbitration was to be compelled, argued plaintiff, the court would have to allow class arbitration. The trial court granted the motion to compel individual arbitration, and plaintiff appealed.

To start, the California Court of Appeal, First Appellate District, Division One, questioned whether plaintiff is allowed to appeal this order because it is not a final judgment. (Civil Code section 906.) Nelson argued the "death knell" doctrine, citing Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277: that the order is effectively the death of the class litigation. However, the appellate court pointed to the applicability of this doctrine only where it is unlikely that any individual action will proceed. But the court stops short of deciding this issue of appealability, and instead exercised its discretion to treat the appeal as a petition for writ of mandate.

On the merits, the Court of Appeal determined that plaintiff failed to meet her burden of showing (1) the arbitration clause was both procedurally and substantively unconscionable, and/or (2) that the clause required class-wide arbitration.

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Public policy considerations no longer a bar to enforcement of class action waiver in employment arbitration agreement

publicpolicy_forum_300x300px.jpgAT&T Mobility LLC v. Concepcion (2011) __ U.S.__ [131 S. Ct 1740] changed the legal landscape concerning class arbitrations. The United States Supreme expressly overturned the California Supreme Court ruling in Discover Bank v. Superior Court (2005) 36 Cal.4th 153, which had held that class action waivers in contracts of adhesion subject to arbitration are unenforceable.

A more recent California Supreme Court opinion--Gentry v. Superior Court (2007) 42 Cal. 4th 443--is not referenced in Concepcion. having lead some to believe Gentry is still viable. (See Kinecta Alternative Financial Solutions, Inc v. Superior Court (Malone) (2012) __Cal.App.4th__.) Gentry determined that, under some circumstances, a class arbitration waiver would impermissibly interfere with an employee's ability to vindicate unwaivable rights concerning overtime laws, and that such a waiver was contrary to public policy. The case to be discussed, Iskanian v. CLS Transportation, LLC (filed June 4, 2012) 2012 DJDAR 7371, finds that the Concepcion decision conclusively invalidates Gentry.

Plaintiff Iskanian worked as a driver for the defendant transportation company. After about 9 months of employment, in December 2004 he signed an arbitration agreement that any and all claims arising out of employment would be submitted to binding arbitration and that class claims could not be asserted. The employment concluded in August 2005, and plaintiff filed a break/wage-and-hour class action lawsuit in August 2006. The order appealed from is the trial court's order compelling arbitration and dismissing class claims. Plaintiff claims he can meet the Gentry test to invalidate the class waiver, or alternatively he should not be compelled to arbitrate. The Court of Appeal, Second Appellate District, Division Two found Gentry inapplicable and affirmed.

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Insufficient showing of third-party beneficiary status to compel arbitration of claim of nonsignatory to arbitration agreement

Court Gavel.jpgIn Epitech, Inc., v. Kann (filed April 16, 2012) 2012 DJDAR 4768), defendant Kann filed a petition to compel arbitration after a corporation's short term creditors brought suit against defendant, a financial advisor the corporation had retained to assist it in getting long-term financing to pay its short-term debts. Suit followed the corporation going bankrupt. Kann claimed the creditors were third-party beneficiaries of his financial advice contract with the corporation, which contained an arbitration clause. The Los Angeles Superior Court denied the petition; that order was affirmed by the Court of Appeal, Second Appellate District, Division Three.

Kann and the corporation signed an engagement letter that included an arbitration clause for any dispute arising out of the letter agreement or any issue concerning breach, termination, enforcement, interpretation or validity of it. The creditors allege that when the financing that Kann was to assist the corporation with failed to materialize, Kann induced the creditors to forbear on foreclosing upon their interests by assuring that financing was forthcoming. Their lawsuit does not allege breach of contract, rather that Kann committed fraud, negligent misrepresentation and concealment.

In his petition, Kann claimed he was being sued because of the way he performed his contract with the corporation and that plaintiffs were third-party creditor beneficiaries to the services Kann was to perform under the contract. The appellate court held the creditors were not, as a matter of law, third-party beneficiaries of Kann's agreement with the corporation, thus the denial of the petition was affirmed.

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Arbitration clause in employment contract superseded that in earlier agreement and made wrongful termination claim not subject to arbitration

contract.jpgIn the morass of paperwork accompanying the start of employment, an employer may ask the employee to sign multiple documents discussing arbitration: an employee handbook, an employer alternative resolution policy statement, and/or the contract of employment may be among the many documents. Which executed document concerning arbitration controls if their content differs?

This question is presented in Grey v. American Management Services (filed March 28, 2012) 2012 DJDAR 4075. When plaintiff applied for employment, defendant provided him with an application packet that contained an Issue Resolution Agreement (IRA) which he signed. The IRA required arbitration of any claim "arising out of or [in] relation to [the] application or candidacy of employment." After he accepted employment, plaintiff signed an employment contract that required arbitration of "a dispute arising out of the alleged breach of any provision of this Agreement." Plaintiff was terminated from his employment and filed a lawsuit primarily alleging employment discrimination and wrongful termination (no claim of "breach of contract"). Defendant successfully moved to compel arbitration, and the arbitrator found in its favor.

On appeal, the Court of Appeal, Second Appellate District, Division Four, reversed, finding that Grey was not required to submit his claims to arbitration under the terms of the employment contract.

The appellate court delineated the critical issue as whether the parties intended their writing (the employment agreement) to serve as the exclusive embodiment of their agreement. The employment agreement included an integration clause providing it was "the entire agreement of the parties and supersedes all prior and contemporaneous discussions and understandings."

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Parties wishing to enforce arbitration clause must take care not to forfeit right

arbitration .JPGEl Cajon Motors Inc. was sued by one of its customers, Yaube Roberts, acting for herself and the class of other customers, for El Cajon's allegedly backdating installment purchase contracts, failing to properly disclose finance charges, and charging illegal interest. El Cajon answered the complaint in mid-August 2009 with a general denial and 24 affirmative defenses, but made no mention of the existence of an arbitration provision.

The parties exchanged written discovery requests in mid-October 2009. In late January 2010, El Cajon responded to discovery and filed its motion to compel arbitration. Roberts opposed arbitration, claiming unconscionability.
Also during late January, El Cajon sent letters to putative class members: one offering individual settlements of $50, and a second letter enclosing a small refund check and admitting an oversight in the computation of interest. In Mid-February 2010, upon learning of these mailings, Roberts conducted discovery regarding the communications and briefed its additional claim that El Cajon had forfeited it s right to arbitrate. The motion to compel arbitration was denied. El Cajon appealed.

The California Court of Appeal, Fourth Appellate District, Division One, affirmed the order denying the motion to compel arbitration in Roberts v. El Cajon Motors, Inc. (filed November 8, 2011) 2011 DJDAR 16358. The court rejected El Cajon's arguments that it engaged in no conduct inconsistent with its right to arbitrate, and that a 5-month delay without prejudice to Roberts was insufficient delay to show waiver or forfeiture. The court found it need not decide whether a 5-month delay is insufficient as a matter of law because there was ample proof that the conduct was inconsistent with the intent to arbitrate and such conduct prejudiced Roberts.

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JLo wins right to arbitrate claim ex-husband and agent plan video disparaging her

Long before there was Marc Anthony, there was Ojani Noa. Now that Jennifer Lopez is apparently amicably ending her 7-year marriage to Marc Anthony, the battle with her first husband, Noa continues. Lopez requested arbitration of the complaint she filed against Noa and his agent Ed Meyer regarding their collaborative attempts to produce and sell "The JLo and Ojani Noa Story," as well as unseen home video footage. She alleges a previous settlement agreement provided that Noa would not disparage certain parties including Lopez; that agreement included an arbitration clause.

The Los Angeles Superior Court denied the motion to compel arbitration, finding there was an insufficient showing by Lopez that (1) Noa agreed to arbitrate any future disputes with Lopez and (2) Meyer either benefitted from the settlement agreement or had a relationship with Noa that pre-existed that agreement. In the unpublished opinion of Lopez v Noa, B222183, filed July 29, 2011, the California Court of Appeal, Second Appellate District, Division 4, reversed the trial court and directed the court to grant the motion to compel arbitration.

The appellate court found sufficient proof established Noa's agreement to arbitrate the present subject of litigation because, even though the settlement agreement was primarily between Noa and Mojo Restaurant, Lopez was specifically named in the agreement as a releasee: that "[a]ny future dispute between Noa and Mojo or others released herein . . . will be submitted to confidential arbitration," and that Noa would not " in any way or mode, criticize, denigrate, cast in a negative light, or otherwise disparage or cause disparagement to Mojo, Lopez or any of the Releasees." The agreement was specific that Noa would not disclose for financial gain any intimate details about his relationship with Lopez. So regardless of whether Lopez was a signatory to the settlement agreement, she was entitiled to enforce the arbitration provision in the present case as a third party beneficiary, even if she is not considered as a direct party to it.

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Employee handbook not a good place for an arbitration clause: ruled unenforceable as "take it or leave it"

dave_writing.jpgWe have here yet another opinion where an arbitration clause strikes out. Not surprising, in the light of the California Supreme Court "crack-down" more than a decade ago in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114.

Zullo v. Superior Court (filed June 21, 2011, certified for publication July 12, 2011) 2011 DJDAR 10519 came before the Court of Appeal, 6th Appellate District on petition for writ of mandate after the Santa Clara Superior Court granted the petition to compel arbitration filed by real party in interest, Inland Valley Publishing, Inc, petitoner Zullo's former employer, who had been sued for wrongful termination under California's Fair Employment and Housing Act (Government Code section 12920 et seq. (FEHA). After staying the arbitration and issuing an order to show cause, the appellate court granted the petition and issued a writ vacating the trial order with directions to deny the motion, allowing plaintiff's court action to proceed.

The Court of Appeal found that the purported agreement was actually an employer policy, implemented like the rest of the policies in the employer handbook, on a take it or leave it basis. The arbitration clause was on page 54 of a 58-page handbook and made arbitration the exclusive means to resolve any dispute an employee might raise arising out of termination of employment. Petitioner had signed an "acknowledgement of receipt" of the handbook. Petitioner claimed the clause was unconscionable as an adhesion contract and relied upon the Armendariz case which set forth a procedural element (oppression and surprise) and a substantive element (overly harsh or unjustifiable result).

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