Updated February 9, 2010
Paul Dubow Arbitration Case Report 2005 to 2007
ARBITRATION
Case List By Name
Aral v. EarthLink, Inc. (2005) (Forum Selection)
Baker v. Osborne Development Corp. (2007) (Arbitrability), (Unconscionability)
Berg v Traylor (2007) (Minors)
Boghos v Certain Underwriters at Lloyds of London (2005) (Forum Fees), (Service of Suit Clause)
Boucher v. Alliance Title Company, Inc. (2005) (Nonsignatories)
Buckeye Check Cashing, Inc. v. Cardegna (2006) (Arbitrability)
Cable Connection, Inc. v. DirecTV, Inc. (2006) (Class Action Permitted), (Errors of Law), (Refusal to Admit Evidence), (Severance)
Comer v. Micor, Inc. (9th Cir 2006) (Nonsignatories)
Credit Suisse First Boston Corp. v. Grunwald (9th Cir 2005) (Ethics Standards), (Preemption)
Cronus Investments, Inc. v. Concierge Services (2005) (Consolidation in Litigation)
Cummings v. Future Nissan (2005) (Appeal to Second Arbitrator), (Waiver of Issue)
Davis v. O’Melveny & Myers (2007) (Unconscionability), (Unconscionability – Opt Out Provisions)
Discover Bank v. Superior Court (2005) (Class Action Waivers), (Preemption)
Ervin Cohen Jessup LLP v. Kassel (2007) (Attorney/Client Fee Arbitration)
Gentry v. Superior Court (2007) (Class Action Waivers)
Guisenov v. Burns (2006) (Disclosure), (Waiver of Appeal)
Higgins v. Superior Court (2006) (Unconscionability)
Hotels Nevada v. L.A. Pacific Center, Inc. (2006) (Fraud in the Execution)
Independent Association of Mailbox Center Owners, Inc. v. Superior Court (2005) (Forum Fees), (Remedy Restrictions), (Unconscionability)
Klussman v. Cross Country Bank (2005) (Injunctive Relief)
Lee v. Southern CaliforniaUniversity for Professional Studies (2007) (Injunctive Relief), (Nonsignatories)
Morgan Phillips, Inc. v. JAMS/Endispute (2006) (Immunity)
Nagrampa v. Mailcoups, Inc. (9th Cir 2006) (Arbitrability), (Forum Fees), (Forum Selection), (Repeat Players), (Severance), (Unconscionability), (Waiver of Litigation)
New Regency Productions, Inc. v. Nippon Herald Films, Inc. (2007) (Disclosure)
Nguyen v. Tran (2007) (Nonsignatories)
Ovitz v. Schulman (2005) (Disclosure), (Preemption)
Reigelsperger v. Siller (2007) (Agreement to Arbitrate), (Medical Services Agreement)
Rodriguez v. American Technologies, Inc. (2006) (Consolidation in Litigation)
Roehl v. Ritchie (2007) (Award Correction)
Sanford v. Member Works, Inc. (9th Cir 2007) (Appeal - Federal), (Arbitrability)
Schatz v. Allen Matkins Leek Gamble & Mallory LLP (2007) (Attorney/Client Fee Arbitration)
Schoenduve Corporation v. Lucent Technologies, Inc. (9th Cir 2006)
Shepard v. Edward Mackay Enterprises, Inc. (2007) (Preemption)
Shroyer v New Cingular Wireless Services, Inc. (9th Cir 2007) (Class Action Waivers), (Preemption)
Titolo v. Cano (2007) (Medical Services Agreement)
Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) (Nonsignatories)
Veliz v. Cintas Corp. (ND Cal 2005) (Forum Fees), (Venue)
Woolls v. Superior Court (2005) (Preemption), (Residential Contracts)
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Case List By Subject/Full Review
Agreement to Arbitrate
Reigelsperger v. Siller, 40 Cal 4th 574, 53 Cal Rptr 3d 887 (2007)-An agreement to arbitrate that pertains to all transactions “now or in the future” applies to future transactions even if the parties did not contemplate future transactions at the time that the agreement was executed. This does not mean that the agreement binds the parties in perpetuity. Arbitration agreements that do not specify a term of duration are terminable at will after a reasonable time has elapsed.
Appeal-Federal Court
Sanford v. Member Works, Inc., 483 F 3d 956, 961 (9th Cir 2007)-Defendant t moved to compel arbitration of plaintiff’s class action complaint. The motion was granted, but the court stated that if the arbitration were not completed within twelve months, it would dismiss the case. After the arbitration was completed within the requisite period, plaintiff moved to vacate, continuing to argue that the dispute was not arbitrable. The motion was denied and plaintiff appealed. Defendant argued that plaintiff had waived her right to appeal because she should have appealed from the initial ruling compelling arbitration, citing Section 16(a)(3) of the FAA which provides for an immediate appeal of a “final decision with respect to an arbitration”. The Ninth Circuit rejected this argument. The order compelling arbitration was not a final decision. An order granting a motion to compel arbitration and dismissing the action without prejudice constitutes an appealable final decision. An order compelling arbitration and staying the case is not immediately appealable. Here, there was no final decision because the court did not dismiss plaintiff’s claim and instead stated that it would terminate the action if the arbitration were not completed within twelve months.
Appeal to Second Arbitrator
Cummings v. Future Nissan, 128 Cal App 4th 321, 27 Cal Rptr. 3d 10, n. 4 (2005)-A second level of review, even if it imports judicial standards for review of a civil judgment on appeal and therefore erodes the traditional informality of arbitration is not invalid so long as there is no dollar amount threshold for invoking it (which would make it almost exclusively an employer remedy). The Court also held, at p. 331, that the second arbitrator was not limited by the holding in Moncharsh v Heily & Blasé, 3 Cal 4th 1 (1992) when ruling on the appeal.
Arbitrability
Buckeye Check Cashing, Inc. v. Cardegna, 546 US 440, 126 S.Ct. 1204, 163 L.Ed 2d 1038(2006)-A decision by the Florida Supreme Court denying the arbitration of a dispute arising out of a contract that was alleged to be void because it was usurious was reversed. Previous Supreme Court rulings in Prima Paint v Conklin and Southland v. Keating established three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, then the issue of the contract’s validity is considered by the arbitrator in the first instance. Third, this arbitration law applies in state as well as federal courts. Thus, because the plaintiffs challenged the agreement but not the arbitration clause specifically, the arbitration provisions are enforceable apart from the remainder of the contract. This decision effectively overruled Hotels-Nevada LLC v Bridge Banc LLC, 130 Cal App 4th 1431, 30 Cal Rptr 3d 903 (2005).
Nagrampa v. Mailcoups,Inc., 2006 US App LEXIS 29687(9th Cir 2006)-When the crux of the complaint is not the invalidity of the contract as a whole, but rather the arbitration provision itself, then the court, not the arbitrator, must decide whether the arbitration clause is invalid and unenforceable.
Sanford v. Member Works, Inc., 483 F 3d 956, 963-4 (9th Cir 2007)-Plaintiff purchased a set of fitness tapes in response to a television advertisement and when the tapes were sent to her, they were accompanied by a membership in a program operated by defendant that provided discounts to program members. The membership material also contained a contract with an arbitration clause. Plaintiff’s credit card was charged $72. She filed a class action alleging violation of 39 USC 3009, which makes the mailing of unordered merchandise an unfair trade practice. Defendant moved to compel arbitration. Plaintiff argued that no contract was formed. The District Court ruled that since plaintiff challenged the contract as a whole, the decision whether there was a valid contract belonged to the arbitrator. Plaintiff’s motion to vacate the arbitrator’s award of $72 was denied by the District Court but that decision was reversed by the Ninth Circuit. Issues regarding the validity or enforcement of a putative contract mandating arbitration should be referred to an arbitrator, but challenges to the existence of a contract as a whole must be determined by the court prior to ordering arbitration.
Baker v. Osborne Development Corp., 159 Cal App 4th 884, 893-4, 71 Cal Rptr 3d 854 (2007)-The arbitration clause in this contract provided that all issues concerning enforceability or validity of the contract would be decided by the arbitrator. But the same section of the agreement contained a severability provision in the event that “any provision of this arbitration agreement shall be determined by the arbitrator or by any court to be unenforceable”. Plaintiffs opposed defendant’s motion to compel arbitration on the ground that the contract was unconscionable. The trial court found the issue of who decides arbitrability to be ambiguous and denied the motion to compel. The appellate court agreed. Although one provision of the arbitration agreement stated that issues of enforceability and voidability were to be decided by the arbitrator, another provision indicated that the court might find a provision to be unenforceable. Thus, the arbitration agreement did not clearly and unmistakably reserve to the arbitrator the issue of whether the arbitration agreement was enforceable.
Attorney Client Fee Arbitrations
Ervin Cohen Jessup LLP v. Kassel, 147 Cal App 4th 821, 54 Cal Rptr 3d 685 (2007)-Once a client waives his right to proceed under the MFAA, he cannot invoke the MFAA as a means of avoiding the agreement for binding arbitration of all disputes contained in the retainer agreement.
Award Correction
Roehl v. Ritchie, 147 Cal App 4th 338, 351, 54 Cal Rptr 3d 185 (2007)- An arbitrator may use a multiple incremental or successive award process as a means, in an appropriate case, of finally deciding all submitted issues. In such event, the second award stands on its own, is not considered to be an award correction, and is not subject to the 30 day limitation for An arbitrator may use a multiple incremental or successive award process as a means, in an appropriate case, of finally deciding all submitted issues. In such event, the second award stands on its own, iscorrecting awards set forth in CCP Section 1286.6. On the other hand, there are limitations to such incremental awards and an arbitrator has no power to use the incremental award process to correct or modify the terms of an original award.
Class Action Waivers
Discover Bank v. Superior Court, 36 Cal 4th 148, 30 Cal Rptr 3d 76 (2005)-Although all class action waivers are not necessarily unconscionable, when the waiver is found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages, and when it is alleged that the party with superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money, then the waiver will be held to be unconscionable. On remand, the provision was upheld because the contract contained a Delaware choice of law clause, the complaint was filed on behalf of a nationwide class and alleged violation of Delaware law, and no California causes of action were contained therein. Discover Bank v Superior Court, 134 Cal App 4th 886, 36 Cal Rptr 3d 456 (2005). In Aral v. EarthLink, Inc., 134 Cal App 4th 544, 36 Cal Rptr 3d 229 (2005), where the plaintiff sued on behalf of a class of California residents only under a contract that contract that contained a Georgia choice of law clause and alleged only violations of California law, and in Klussman v. Cross Country Bank, 134 Cal App 4th 1283, 36 Cal Rptr 3d 728 (2005) where the plaintiffs sued a Delaware corporation under a contract that did not contain a choice of law clause on behalf of a nationwide class, asserting violations of both Delaware and California law, the court held that California law applied and found the class action waiver to be unconscionable. See also Independent Association of Mail Box Center Owners, Inc. v.Superior Court, 136 Cal App 4th 396, 34 Cal Rptr 3d 659 (2005)where the court found a JAMS ban on group arbitration to be unenforceable.
Shroyer v New Cingular Wireless Services, Inc., 498 F 3d 976 (9th Cir 2007)-A class action waiver is unconscionable if 1) it is a consumer contract of adhesion drafted by the party with superior bargaining power; 2) it involves small amounts of damages suffered by each member of the class; and 3) it is alleged that the party with superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small amounts of money. All three prongs applied here. The contract was one of adhesion, involving consumers and drafted by the party with superior bargaining power. It involved small amounts of damages by the individual members of the class because the monthly charges ranged from $9.99 to $59.99. And the third prong was met because plaintiffs alleged that defendant had entered into a scheme to deliberately cheat large numbers of consumers by representing to them that their services would be improved only if they entered into contract extensions with defendant following its merger with AT&T Wireless Services. See also Lowden v T-Mobile USA, Inc., 512 F 3d 1213 (9th Cir 2008).
Gentry v. Superior Court, 42 Cal 4th 443, 463, 64 Cal Rptr 3d 773 (2007)-The Court here refused to enforce a class action waiver in an arbitration agreement where the gravamen of the suit was failure to pay for overtime. Although the Court stated that not in every case will class action arbitration be demonstrably superior to individual action, when it is alleged that the employer has systematically denied proper overtime to a class of employees and a class action is requested notwithstanding the presence of a class action waiver in the employment agreement, the Court will consider such factors as the modest size of potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration.
Consolidation with Other Matters in Litigation (Section 1281.2(c) )
Cronus Investments, Inc. v. Concierge Services, 35 Cal 4th 376, 25 Cal Rptr 2d 540 (2005)-Plaintiffs and defendants entered into six concurrent agreements that related to the transfer of a home management business from one of the plaintiffs to one of the defendants. Four of the six agreements contained arbitration clauses. Each of the agreements that contained an arbitration provision stated that they were subject to the law of California but that “the designation of …a governing law for this agreement or the arbitration shall not be deemed an election to preclude application of the [FAA] if it would be applicable”. After a disagreement arose, plaintiffs filed suit pursuant to all six agreements and thus their complaint contained both arbitrable and non-arbitrable causes of action. Defendants filed a cross complaint against plaintiffs and others who were not subject to the arbitration agreements. Plaintiffs moved to compel arbitration and stay the litigation while defendants moved to stay the arbitration pending the outcome of the litigation and to consolidate the arbitration proceeding with the litigation. Both motions were filed pursuant to Section 1281.2(c). The court granted defendants’ motion. On appeal, plaintiffs argued that Sections 3 and 4 of the FAA applied, thus superseding the California choice of law clause as provided in the agreements and that, in any event, the FAA preempted Section 1281.2(c). The decision is affirmed. The Court holds that the generic reference to California law included its arbitration law, citing the decision in Mount Diablo Medical Center, 101 Cal App 4th 711,124 Cal Rptr 2d 607 (2002). Section 3 of the FAA requires “the courts of the United States” to grant a party’s request for a stay of litigation on an arbitrable issue, pending completion of the arbitration. Section 4 concerns petitions for enforcement of an arbitration agreement where one party refuses to arbitrate. It requires a “United States district court” to entertain an application to compel arbitration. Thus, they apply to federal, not state, court proceedings. Section 1281.2(c) is not preempted by the FAA. It is not a special rule limiting the authority of arbitrators. It is an evenhanded law that allows the trial court to stay arbitration proceedings while the concurrent lawsuit proceeds or stay the lawsuit while arbitration proceeds to avoid conflicting rulings on common issues of fact and law among interrelated parties.
Rodriguez v. American Technologies, Inc., 136 Cal App 4th 1110, 1122, 39 Cal Rptr. 3d 437 (2006)-In the Cronus case, above, although the Court found that the FAA did not apply and invoked Section 1281.2(c), it also held that parties to an arbitration contract could expressly designate that the FAA would apply, in which event there would be a different result. In this case, the arbitration contract provided that disputes between the parties would be settled by arbitration “pursuant to the FAA” and the Court held that this met the exception cited in Cronus. The phrase ‘pursuant to the FAA” is broad and unconditional, unlike the Cronus clause, which deferred to the contract’s California choice of law provisions by invoking only “applicable” provisions of the FAA. The parties thus adopted the FAA---all of it---to govern their arbitration. The FAA controls, including Section 3, which requires the court to stay the judicial proceedings and compel arbitration. Although Section 3 may not generally apply to state courts, here the parties did as Cronus suggested they could. They expressly designated that their arbitration proceeding should move forward under the FAA’s procedural provisions rather than under state procedural law.
Disclosure
Ovitz v. Schulman, 133 Cal App 4th 830, 35 Cal Rptr 3d 117 (2005)-Section 12(b) of the Ethical Standards requires an arbitrator to state whether he will accept assignments from parties in an arbitration or their counsel while the arbitration is pending. If he so states and a party thereupon renders an objection, the arbitrator is disqualified. If he does not so state, then he cannot accept an assignment from a party in the arbitration or its counsel while the arbitration is pending and if he does so, he has violated Section 12(b) and the underlying award that he renders can be vacated upon the motion of an objecting party.
Guisenov v. Burns, 145 Cal App 4th 944, 958, 51 Cal Rptr 3d 903 (2006)-When the arbitrator was first appointed in this case, he did not disclose any prior contacts with counsel. But at the first day of the hearing, he realized that he had been the uncompensated mediator in a court connected mediation in which plaintiff’s counsel had represented a party. He revealed this fact and neither party objected. However, ten months later, defendant moved to disqualify the arbitrator because of this disclosure. The motion was denied and defendant appealed after the arbitrator had ruled in plaintiff’s favor. The court concluded that the arbitrator did not have a duty to disclose and affirmed. An arbitrator’s duty to disclose is set forth in Code of Civil Procedure Section 1281.9. This statute sets forth matters which must be disclosed and also incorporates any matter required to be disclosed by the ethical standards for neutral arbitrators and any ground specified in Code of Civil Procedure Section170.1 for the disqualification of a judge. Standard 7(d)(5) requires disclosure where the arbitrator served as a dispute resolution neutral in a matter involving a lawyer for a party and the arbitrator received or expected to receive compensation therefore. Here, the arbitrator was not and did not expect to be compensated for his service as a mediator in the prior action. Section 1281.9(a)(6) requires that the arbitrator disclose any professional relationship that he or she has had with a lawyer for a party. Although an arbitrator must disclose any repeated or significant contacts that he or she may have had with a party to the dispute, a single prior uncompensated mediation is not in this category. Section 170.1 requires an arbitrator to disclose any facts which might cause one to entertain a doubt that the [arbitrator] would be impartial. Here there were no facts which would cause one to doubt that the arbitrator would be impartial. The arbitrator had been an unpaidvolunteer in the previous matter. He had no independent recollection of the event. The mediation had taken place one year before the present arbitration. The contact between the arbitrator and plaintiff’s counsel hadbeen limited to this one instance. Hence, there was no ongoing relationship between the arbitrator and plaintiff’s counsel.
New Regency Productions, Inc. v. Nippon Herald Films,, Inc., 501 F. 3d 1101, 1109 (9th Cir. 2007)-This arbitration involved a dispute between two film companies and they chose as their arbitrator an individual with extensive experience in the film industry. During the course of the arbitration, the arbitrator accepted a position overseeing the business and legal affairs of another film company. The arbitrator’s new employer was in the process of financing and distributing films by other companies. One of the projects that it was engaged in was the distribution of a film that was developed by New Regency and produced by the daughter of the chief executive and principal owner of New Regency. The arbitrator did not reveal his new employment and ruled in favor of New Regency. Nippon Herald moved to vacate the award when it learned of this development. New Regency argued that the arbitrator did not have actual knowledge of the dealings between it and the arbitrator’s employer. The District Court vacated the award on grounds of evident partiality and the decision was affirmed. The arbitrator had a duty to investigate potential conflicts when he accepted this position. A decision to accept a new high level executive job at a company in the same industry as the parties during the arbitration is precisely the type of situation where an arbitrator has reason to believe that a nontrivial conflict of interest might exist and he must investigate to determine the existence of such potential conflicts.
Ethics Standards
Credit Suisse First Boston Corp. v. Grunwald, 400 F 3d 1119 (9th Cir. 2005)-Section 1281.85, which gave the Judicial Council the authority to enact the Ethics Standards, specified that the standards would apply to neutral arbitrators. CSFB argued that the Standards therefore did not apply to NASD arbitrations because its arbitrators were not neutral arbitrators as defined by California law. Section 1280(d) defines a neutral arbitrator, inter alia, as an arbitrator who is selected jointly by the parties. Under the NASD Code of Arbitration Procedure, the parties receive a list of potential arbitrators and can strike one or more of them from the list for any reason. The parties then rank the order of the remaining arbitrators and the Director of Arbitration must appoint the arbitrators that have the best consolidated rankings, subject only to availability and disqualification. Because the parties have unlimited strikes and the power to choose arbitrators through the consolidated ranking process, NASD arbitrators are “selected jointly by the parties” and therefore qualify as “neutral arbitrators”.
Forum Fees-Effect on Unconscionability
Veliz v. Cintas Corp., 2005 US Dist LEXIS 9230 (ND Cal 2005)-This was an employment class arbitration before the AAA. Under the AAA’s supplementary class action rules, the plaintiffs may have been required to pay $25,000 in fees. However, they would not have been required to pay any fees in excess of $125 if they had filed individual claims. The court rejected plaintiffs’ claims that the $25,000 fee was unconscionable. Since they were able to pursue their statutory claims through individual arbitration at no substantial cost, the costs for pursuing arbitration on a class or collective basis are not a condition of access to the arbitration forum and are therefore not unconscionable. Furthermore, since over 2000 plaintiffs had opted into the lawsuit, it was possible that the cost to the individual plaintiffs might be insubstantial, depending upon how the court allocated the fees.
Boghos v. Certain Underwriters at Lloyds of London, 36 Cal 4th 495, 507, 30 Cal Rptr 3d 787 (2005)-This case involved an insurance contract and plaintiff argued that the provision requiring him to share the cost of arbitration with the insurer was unconscionable under the holding in Armendariz v Foundation Health Psychare Services, 24 Cal 4th 83 (2000). The Court held that Armendariz was limited to statutory and constitutional claims. That holding was later extended to cases seeking to enforce public policies that were tethered to fundamental policies in statutory and constitutional provisions. See Little v Auto Stiegler, 29 Cal 4th 1064 (2003). But insurance bad faith claims cannot be properly described as tethered to a statute. While the business of insurance is sufficiently affected with a public interest to justify its regulation by the state, the fact of regulation does not suffice to demonstrate that any given claim seeks to enforce a public policy articulated in a statute.
Independent Association of Mail Box Center Owners, Inc. v. Superior Court, 133 Cal App 4th 396, 34 Cal Rptr 3d 659 (2005)-In this case, plaintiffs asserted both common law claims that would not be affected by the fee shifting rule set forth in Armendariz, but they also alleged violation of the Franchise Investment Law, the Cartwright Act, the Uniform Trade Secrets Act, and the Unfair Competition Law. These statutory claims did affect the public interest. It was important to determine the allocation of fees at the outset and the trial court was directed to do so.
Nagrampa v. Mailcoups, Inc., 493 F 3d 1257 (9th Cir 2006)-Plaintiff’s complaint included violation of the Franchise Investment Law, Unfair Competition Law, and Consumer Legal Remedies Act. The arbitration clause that she executed had a fee splitting provision. The court held that the fee splitting provision was not per se substantively unconscionable, but to the extent that it impeded plaintiff from vindicating these statutory rights, it was unenforceable and illegal.
Forum Selection Clause
Aral v. EarthLink, Inc., 134 Cal App 4th 544, 561, 36 Cal Rptr 3d 229 (2005)-Although a forum selection clause in an adhesion contract might be enforced if it were fair and reasonable, a forum selection clause that requires a consumer to travel 2000 miles to recover a small sum is not reasonable and will, for practical purposes, deprive the consumer of his day in court.
Nagrampa v. Mailcoups, Inc.. 493 F 3d 1257 (9th Cir 2006)-Forum selection clauses are generally welcomed. But this favorable treatment is conditioned on their free and voluntary procurement with the place chosen having some nexus to one of the parties to the dispute so long as the substantial legal rights of California consumers are not significantly impaired. Thus, to be enforceable, the selected jurisdiction must be suitable, available, and able to accomplish substantial justice. The contract in issue here was one of adhesion between a franchisor headquartered in Massachusetts and a franchisee domiciled in ContraCostaCounty and was executed and performed in California. It required all hearings to be held in Boston. Thus, the provision was substantively unconscionable. It would force the franchisee to fly 3000 miles from her home, and incur substantial travel and living expenses and increased costs associated with having counsel familiar with Massachusetts law. Arguably, the franchisor understood that these terms would effectively preclude its franchisees from ever raising claims against it, knowing that the increased costs and burden on their small businesses would be prohibitive.
Fraud in the Execution
Hotels Nevada v. L.A. Pacific Center, Inc., 144 Cal App 4th 754, 50 Cal Rptr 3d 700 (2006)-Plaintiff sought rescission of a real estate contract on the ground that it was defrauded. Plaintiff asserted that it had agreed to let defendant hold back $5 million from the transaction for one year but that, after it executed the agreement, the contract that was returned to it and recorded with the county register provided for a five year holdback clause. The trial court denied defendant’s motion to compel arbitration and ordered an evidentiary hearing because “if the circumstances alleged here occurred as alleged, there would have been no contract” and hence no arbitration clause. This was error because in those cases where the enforceability of an arbitration clause depends upon which of two sharply conflicting factual accounts is to be believed, the court must hold an evidentiary hearing before it determines whether the contract should or should not be enforced. If, based on evidence submitted by the plaintiff at the evidentiary hearing, the court determines that there was fraud in the execution, then the arbitration agreement will not be enforced. The court also rejected plaintiff’s argument that there was no need for any type of evidentiary hearing because defendant met its burden of showing a written agreement and the provision that provided for arbitration.
Immunity
Morgan Phillips, Inc. v. JAMS/Endispute, 140 Cal App 4th 795, 801, 44 Cal Rptr 3d 782 (2006)-California common law has recognized a narrow exception to arbitral immunity. The immunity does not apply the arbitrator’s breach of contract by failing to make any decision at all. The failure to render an award is not integral to the arbitration process; it is, rather, a breakdown of that process. However, a decision to withdraw because of substantial doubt of the ability to be fair and impartial, or because of a conflict of interest, is entitled to immunity.
Injunctive Relief
Klussman v. Cross Country Bank, 134 Cal App 4th 1283, 1290, 36 Cal Rptr 3d 728 (2005)-Claims for injunctive relief under the Consumers Legal Remedies Act and Unfair Competition Law are intended to remedy public wrongs and further the public interest and are not subject to arbitration.
Lee v. Southern California University for Professional Studies, 148 Cal App 4th 782, 787, 56 Cal Rptr 3d 134 (2007)-Plaintiff filed a class action against defendant on behalf of all students who had been denied refunds. Among other things, plaintiff sought injunctive relief under the Consumer Legal Remedies Act and Unfair Competition Law. Defendant moved to compel arbitration even though plaintiff was one of the 111 class members (out of 519) who had not signed arbitration agreements. The Court denied the motion to compel arbitration on that fact. But it added that even if plaintiff had signed an arbitration agreement, her causes of action for injunctive relief would not be arbitrable. This is so because she was asking for injunctive relief on behalf of the public as opposed to restitution or disgorgement of profits.
Medical Service Agreements
Reigelsperger v. Siller, 40 Cal 4th 574, 53 Cal Rptr 3d 887 (2007)-Code of Civil Procedure Section 1295(c), which was enacted as part of the Medical Injury Compensation Reform Act (“MICRA”) provides for arbitration of “all subsequent open book account transactions for medical services for which the contract was signed until or unless rescinded”. The arbitration agreement in controversy here also provided that it would apply to treatments “now or in the future”. The patient plaintiff argued that the agreement did not apply because the treatment that gave rise to the claim was not for “services for which the contract was signed” and that he did not contemplate future services when he executed the agreement. Nevertheless, the arbitration agreement was found to be enforceable. Nothing in Section 1295 states that medical malpractice arbitration agreements may not include additional provisions. Regardless of whether plaintiff had a present intention to return for treatment when he signed the agreement, he agreed that if he did decide to do so, the arbitration provision would apply.
Titolo v. Cano, 157 Cal App 4th 310, 68 Cal Rptr 3d 616 (2007)-An arbitration agreement covered by Section 1295(c) applied to a suit by a patient against a physician who presumably defamed her in connection with a report to the patient’s insurer. The agreement covered the rendering of medical services. Communications between physicians and insurance companies regarding the diagnosis and treatment of patients are a necessary part of the provision of medical services. The physician obtained the patient’s medical information by rendering medical services to her and the patient requested that the physician communicate with the insurer only because those medical services had been provided.
Minors
Berg v Traylor, 148 Cal App 4th 809, 56 Cal Rptr 3d 140 (2007)-This case involved a dispute arising under a “artist/manager agreement”. The defendant artist was ten years old. He did not sign the agreement but his mother did. The contract provided that any action that the minor “may take…pertaining to disaffirmance of the agreement” would not affect the mother’s liability. Plaintiff manager filed suit against mother and son because of their alleged breach of the agreement. The agreement contained an arbitration clause and the parties stipulated to arbitration. Throughout the arbitration, the son was represented by the same attorneys who represented the mother. Plaintiff prevailed at the arbitration and moved to confirm the agreement. Defendants responded to the motion to confirm and also moved to vacate. At the same time, the son filed a notice of disaffirmance of the contract, the stipulation to arbitrate, and the arbitration itself. The trial court ruled in favor of plaintiff, but the Court of Appeal vacated the award against the son (but not the mother). It held that the son could disaffirm the contract at any time. He also could disaffirm the arbitration because a guardian ad litem was not appointed to represent him. Plaintiff argued that the mother, as parent, was her son’s guardian. The Court rejected this argument because there was an inherent conflict of interest between the mother and son from the outset. It was not in the mother’s interest to allow her son to disaffirm the contract because of the provision which allowed the plaintiff to look to her should the son disaffirm.
Nonsignatories
Boucher v. Alliance Title Company, Inc., 127 Cal App 4th 262, 271-2, 25 Cal Rptr 3d 440 (2005)-Under federal and California decisional authority, a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are intimately founded in and intertwined with the underlying contract obligations. By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement. The focus is on the nature of the claims asserted by the plaintiff against the nonsignatory defendant. The fundamental point is that a party may not make use of a contract containing an arbitration clause and then attempt to avoid the duty to arbitrate by defining the forum in which the dispute will be resolved.
Comer v. Micor, Inc., 436 F 3d 1098, 1102 (9th Cir 2006)-A participant in an ERISA plan who was a nonsignatory to the agreement between the plan and the investment manager and who filed a claim against the investment manager for breach of fiduciary duty was not required to arbitrate his claim. A nonsignatory is held to an arbitration agreement where he or she knowingly exploits the agreement notwithstanding the lack of signature. In this case, the participant was found not to have exploited the agreement. He was simply a participant in trusts managed by others for his benefit. He did not seek to enforce the terms of the management agreements, nor otherwise take advantage of them. Nor did he do so by bringing the lawsuit, which was based entirely on ERISA, not on the investment management agreements.
Turtle Ridge Media Group, Inc. v. Pacific Bell Directory, 140 Cal App 4th 828, 833-835, 44 Cal Rptr 3d 817 (2006)-Pacific Bell entered into a contract with Clientlogic to distribute its Yellow Pages directory. With Pacific Bell’s authorization, Clientlogic entered into a distribution subcontract with Turtle Ridge which, with certain exceptions, incorporated the main contract. The contract between Pacific Bell and Clientlogic contained an arbitration clause, but the subcontract did not. After the contracts were signed, Turtle Ridge allegedly discovered that Pacific Bell had fraudulently increased the number of customers who received the directory which in turn had caused Turtle Ridge to make a lower bid than it would have done if it knew the true number of Pacific Bell customers. Turtle Ridge sued Pacific Bell. The trial court denied Pacific Bell’s demand for arbitration but this decision was reversed by the Court of Appeal. The doctrine of equitable estoppel applies. Turtle Ridge’s claims against Pacific Bell arose from its business dealings with Pacific Bell and Clientlogic. Outside of the contracts, Turtle Ridge had no business relationship with Pacific Bell. The following emerges from consideration of the contract and subcontract together: Pacific Bell and Clientlogic expressly agreed to arbitrate any disputes. Their agreement was expressly incorporated by reference in the subcontract between Clientlogic andTurtle Ridge. Although the subcontract explicitly excluded certain Pacific Bell/Clientlogic terms in the incorporation process, the arbitration clause was not one of them. The result wasthat either expressly or by incorporation each agreement contained an arbitration provision. The court rejected Turtle Ridge’s argument that equitable estoppel did not apply because Pacific Bell could not show that it detrimentally relied on Turtle Ridge being obligated to submit to arbitration. The test for applying equitable estoppel to an arbitration agreement is whether the causes of action are intertwined with the contract containing the agreement. As such, the phrase “equitable estoppel” is a bit of a misnomer, for detrimental reliance is not necessary.
Lee v. Southern California University for Professional Studies, 148 Cal App 4th 782, 786-7, 56 Cal Rptr 3d 134 (2007)-Plaintiff, a law student who had dropped out of classes because of illness, commenced a class action against the school because its refund policy violated state guidelines. The class consisted of all students who had been denied refunds. There were 519 members of the class, including 111 law students. Defendant moved to compel arbitration. Defendant had not entered into arbitration agreements with any of the law students, including plaintiff, but it did have arbitration agreements with the rest of the class. Thus, it argued that it could arbitrate because potential members of the class had signed arbitration agreements. The court rejected this argument. Except under very limited circumstances, a party cannot be compelled to arbitrate a dispute that he has not agreed to resolve by arbitration and here the only party plaintiff did not agree to arbitrate. Plaintiff represented nobody but herself until a class is certified and it could be possible that when plaintiff seeks class certification, she might limit the class to the 111 law students.
Nguyen v. Tran, 157 Cal App 4th 1032, 1036-8, 68 Cal Rptr 3d 906 (2007)-This dispute arose out of a real estate contract which provided that only parties who initialed the arbitration clause were subject to it. Because there were not enough boxes, neither broker initialed it. Subsequently, the buyer sued the seller and both brokers. The buyer’s broker moved to compel arbitration. The Court of Appeal ruled that he could arbitrate with the buyer because non-signatories to an arbitration agreement can compel arbitration if they are agents of a signatory. But he could not compel arbitration with the seller’s agent because non-signatories cannot compel other non-signatories to arbitrate.
Preemption
Credit Suisse First Boston Corp. v. Grunwald, 400 F. 3d 1119, 1128-36 (9th Cir 2005). The court found here that the California Ethics Standards were preempted by the Securities Exchange Act of 1934 insofar as they pertained to NASD arbitrations and, by implication, all SRO arbitrations. In Merrill Lynch v. Ware, the Supreme Court held that Congress’ aim in providing for supervised self regulation was to “insure fair dealing and to protect investors from harmful or unfair trading practices” and that securities arbitration “fell outside the federal shadow” because the relationship between it and investor protection was peripheral, if it existed at all. But, after Congress adopted the 1975 amendments, the SROs’ ability to regulate independently of the SEC’s control was substantially curtailed. SROs were required to file a policy statement with a proposed rule justifying the basis and purpose for the rule. The ultimate approval of the rule reflected the Commission’s determination that the proposed rule was consistent with the purposes of the Exchange Act. In 1989, the SEC specifically approved the NASD’s arbitration procedures. Thus, NASD rules preempt state law if the state law prevents the NASD from complying with its rules or if interferes with the Congressional goals underlying the Exchange Act. The Ethics Standards require the mandatory disqualification of an arbitrator if he fails to make a timely disclosure or if his disclosure reveals a possible conflict of interest once a party files a timely notice of disqualification. But the NASD rules state the Director of Arbitration has discretion to disqualify the arbitrator in such a situation. This puts the Director in a Catch 22 situation. He violates the Ethics Standards if he exercises his discretion, but if he determines that he is bound by the Ethics Standards, then he forfeits his right to exercise discretion. (The Court did find, however, that the disclosure requirements under the Ethics Standards, even though broader than the NASD disclosure requirements, are not preempted because there is nothing in the NASD Code that prevents an arbitrator from disclosing more information than is required.) In addition, the Ethics Standards also interfere with Congressional goals underlying the Exchange Act. They would increase the NASD’s administrative costs because the NASD would have to create and maintain a more extensive database for its arbitrators and these costs would either have to be shouldered by the parties, thereby making arbitration more expensive for investors and employees or they would be borne by the NASD, which would result in the NASD having fewer resources available for its regulatory responsibilities. The additional record keeping requirements may deter well qualified individuals from serving as NASD arbitrators, especially in light of their low honoraria. Finally, the increased potential for a party to seek vacatur could significantly undermine investor protection because the average investor is less likely than the average brokerage firm to bear the costs of protracted litigation.
Woolls v. Superior Court, 127 Cal App 4th 197, 212, 25 Cal Rptr 3d 426 (2005)-Defendant failed to establish that B&P Code 7191, which requires specific warning language in arbitration clauses contained in contracts for work on residential property of one to four units, was preempted by the FAA because he failed to introduce any evidence of interstate commerce, unlike the Basura case, above.
Discover Bank v. Superior Court, 36 Cal 4th 148, 30 Cal Rptr 3d 76 (2005)-The FAA does not preempt the California rule that class action waivers by consumers are unconscionable. This is so because it is a principle of California law that does not specifically apply to arbitration agreements. In other words, it applies equally to class action litigation waivers in contracts without arbitration agreements as it does to class arbitration waivers in contracts with such agreements.
Ovitz v. Schulman, 133 Cal App 4th 830, 35 Cal Rptr 3d 117 (2005)-By its terms, Code of Civ Proc 1286.2(a)(6)(A), which provides for the vacatur of arbitration awards because of an arbitrator’s failure to make the disclosures required by the California Ethical Standards, does not undermine the enforceability of arbitration agreements and thus is not preempted. It neither limits the rights of contracting parties to submit disputes to arbitration, nor discourages people from using arbitration. Since the statute merely requires the vacating of an award if the arbitrator failed timely to disclose a ground for disqualification of which he was aware. Indeed, because it applies to vacating an arbitration award, the statute presupposes that the arbitration agreement has been enforced and the arbitration held. If an award is vacated, the result is not a preclusion of further arbitration, but rather a new arbitration held in accordance with the disclosure requirements. Furthermore, the statute does not reflect hostility to arbitration or an attempt to limit the ability to enter arbitration agreements.
Gueyffier v. Ann Summers, Ltd., 144 Cal App 4th 166, 178, 50 Cal Rptr 3d 294 (2006), revd on other grounds, 43 Cal 4th 1179, 77 Cal Rptr 3d 613 (2008)-The FAA does not preempt Code of Civil Procedure 1286.2(a) (the California vacatur statute).
Shepard v. Edward Mackay Enterprises, Inc., 148 Cal App 4th 1092, 1101, 56 Cal Rptr 3d 326 (2007)-Plaintiff brought suit against defendant because of alleged construction and design defects. He asserted that the arbitration agreement in his contract was not enforceable pursuant to Code of Civil Procedure Section 1298.7. Because this statute had been held to have been preempted by the Federal Arbitration Act, Basura v. US Home Corporation, 98 Cal App 4th 1205, 1208-9 (2002); Hedges v. Carrigan, 114 Cal App 4th 578 (2004), the issue was whether the contract had a “substantial relation to interstate commerce”. Because the defendant introduced evidence that at least five products furnished to plaintiff were manufactured outside of California, the Court so held and refused to enforce Section 1298,7. The Court rejected plaintiff’s argument that the relation to interstate commerce was trivial because only one of the five products was among the defective items. The pertinent question is whether the contract evidences a transaction involving interstate commerce, not whether the dispute arises from a particular part of the transaction involving interstate commerce.
Shroyer v. New Cingular Wireless Services, Inc., 498 F 3d 976 (9th Cir 2007)-The holdings by the California courts that class action waivers are unconscionable in certain circumstances involving consumer contracts of adhesion are not preempted because this rule applies to all contracts, not just arbitration contracts. See also Lowden v T-Mobile USA, Inc., 512 F 3d 1213 (9th Cir 2008).
Refusal to Admit Evidence
Cable Connection, Inc. v. DirecTV, Inc., 143 Cal App 4th 207, 228-9, 49 Cal Rptr 3d 187 (2006) revd on other grounds, 44 Cal 4th 1334, 82 Cal Rptr 3d 229 (2008)-Respondent sought vacatur of a decision allowing classwide arbitration on the ground that the arbitrators refused to hear evidence of the parties’ intent. The argument was rejected. Although the intent of the parties determines the meaning of the contract, the relevant intent is objective as evidenced by the words of the instrument, not a party’s subjective intent. The true intent of a contracting party is irrelevant if it remains unexpressed.
Remedy Restrictions
Independent Association of Mailbox Center Owners, Inc. v. Superior Court, 133 Cal App 4th 396, 412-13, 34 Cal Rptr 3d 659 (2005)-To the extent that the arbitration clauses purport to deny the arbitrators the ability to award full relief according to the merits of the respective showings, the arbitration clauses run contrary to statute and are unduly restrictive, possibly amounting to unconscionable waivers of statutory rights. The arbitration agreements should not be interpreted as written to deprive the arbitrators of authority to award punitive, consequential, or incidental damages, such as lost wages and/or profits, or attorney’s fees and/or costs, to the extent that these would otherwise be available under the substantive causes of action asserted. To the extent that the arbitration clauses in this respect seek to deprive the claimants of statutorily authorized remedies, or relief in court that would otherwise be available to them, they are unconscionable, and the trial court should have stricken them from the arbitration clause.
Repeat players
Nagrampa v. Mailcoups, Inc., 493 F 3d 1257 (9th Cir 2006)-Although the court in this case did find that the arbitration clause therein was both procedurally and substantively unconscionable, it did hold that merely raising the repeat player effect claim, without presenting more particularized evidence demonstrating partiality, is insufficient under California law to support an unconscionability finding.
Residential Contracts
Woolls v. Superior Court, 127 Cal App 4th 197, 208, 25 Cal Rptr 3d 426 (2005)-A statement in B&P Code 7191 that an arbitration clause contained in a contract for work on residential property of one to four units “may not” be enforced against persons other than the licensee if the clause does not comply with the statute is prohibitory, not discretionary.
Service of Suit Clause
Boghos v Certain Underwriters at Lloyds of London, 36 Cal 4th 495, 503, 30 Cal Rptr 787 (2005)-The contract in this case contained both an arbitration clause and a service of suit clause which provided that in the event of Lloyds’ failure to pay any claim under the contract, it would submit to the jurisdiction of any court of competent jurisdiction in the United States. Lower courts held that enforcement of the arbitration clause would render the service of suit clause to be surplusage and hence they refused to enforce the arbitration clause. The Supreme Court reversed, holding that the service of suit clause would continue to have real effect if the arbitration clause were enforced because it required Lloyds to submit to the jurisdiction of United States courts in actions to compel arbitration or enforce arbitral awards.
Severance
Cable Connection, Inc. v. DirecTV, Inc., 143 Cal App 4th 207, 232, 49 Cal Rptr 3d 187 (2006) revd on other grounds, 44 Cal 4th 1334, 82 Cal Rptr 3d 229 (2008)-The arbitration agreement herein provided that any “invalid or unenforceable provision” would be severed from the remainder of the contract. It was silent on whether classwide arbitration was permitted and the arbitrators found that therefore California substantive law required classwide arbitration. The respondent argued that “no rational corporate defendant would agree” to such an arbitration process and that hence the entire agreement was unenforceable. The court disagreed. The severance language was unambiguous. The parties plainly expressed the intention that the remainder of the agreement would not be affected by any invalid provision and the respondent failed to provide any evidence in support of the assertion that appellate review was critical to the entire agreement.
Nagrampa v. Mailcoups, Inc., 493 F 3d 1257 (9th Cir. 2006)-The arbitration clause herein was contained in a franchise agreement. Clauses that permitted the franchisor to go to court to enforce certain types of disputes while requiring the franchisee to arbitrate all of her claims and that forced the franchisee to arbitrate all disputes in Boston were found to be unconscionable. The contract also required all fees to be split. Under California law, fees pertaining to statutory claims cannot be split, but fees pertaining to non-statutory claims may be split. Thus, a portion of the arbitration agreement was enforceable. But the court declined to sever the unconscionable portions of the agreement from the balance. The arbitration provision had multiple defects that indicated a systematic effort to impose arbitration on the franchisee, not simply as an alternative to litigation, but as an inferior forum that worked to the franchisor’s advantage. There simply was no single provision that could be stricken in order to remove the unconscionable taint from the agreement. Hence the entire agreement was invalid and unenforceable.
Submission Agreement
Schoenduve Corporation v. Lucent Technologies, Inc., 442 F 3d 727, 73 (9th Cir 2006)-The parties herein entered into a manufacturers’ representative agreement (“MRA”) which permitted either party to terminate the contract on thirty days’ notice. Lucent terminated the contract while Schoenduve was negotiating a “whale sized” transaction with Apple Computer. Lucent then completed the negotiations. Schoenduve thereupon commenced an arbitration proceeding seeking to recover the commissions that it would have earned on the Apple deal. The arbitrator found that Lucent terminated the contract with proper notice and denied any recovery to Schoenduve under the MRA. But he also found that the MRA was not designed to cover a deal of this nature and did not in fact cover it. He then ruled that Schoenduve was entitled to recover its commissions under the doctrines of quasi contract and estoppel and that he had authority to rule on this issue because of the wording of the demand for arbitration. The demand was for “substantial damages arising from breach of contract…including Lucent’s failure to disclose and account for substantial monies owed to Schoenduve”. The arbitrator’s decision was affirmed. By not objecting to the demand for arbitration, Lucent essentially agreed to arbitrate all issues surrounding Schoenduve’s claim for commissions. The arbitrator thus had the authority to decide whether Schoenduve was entitled to damages based on quasicontract and estoppelbecause those issues were implicit within the submission agreement.
Unconscionability
Independent Association of Mailbox Center Owners v. Superior Court, 133 Cal App 4th 396, 410, 34 Cal Rptr 3d 659 (2005)-The test for unconscionability in adhesion contracts that was set forth in Armendariz was extended to franchisees. Franchise agreements also resemble employment agreements to the extent that the franchisees’ livelihoods are involved.
Higgins v. Superior Court, 140 Cal App 4th 1238, 45 Cal Rptr 3d 293 (2006)-The arbitration clause in this adhesion contract was found to be both procedurally and substantively unconscionable. It was procedurally unconscionable because it was not highlighted and was one of 12 paragraphs in a section entitled “miscellaneous”, notwithstanding that other paragraphs in the agreement were highlighted and some required initialing. It was substantively unconscionable because, as the result of phrases such as “I agree”, only the weaker party was bound. Although the agreement did state that “all disputes” were subject to arbitration and that “any effort by any party to enforce this agreement….shall be resolved by arbitration”, only the weaker party agreed to this language.
Nagrampa v. Mailcoups, Inc., 493 F 3d 1257 (9th Cir 2006)-The standard for procedural unconscionability is satisfied by a finding that the arbitration provision was presented on a take it or leave it basis and that it was oppressive because of an inequality of bargaining power that resulted in no real negotiation and an absence of meaningful choice. This is so even if the weaker party had business experience, alternate business opportunities, and the ability to read and understand the terms of the agreement. The agreement is substantively unconscionable if the stronger party reserves for itself the ability to litigate some or all claims in court and/or requires that the hearing be held in a location so far from the weaker party’s residence that it becomes a disincentive for the weaker party to arbitrate in the first place.
Davis v. O’Melveny & Myers, 485 F. 3d 1066 (9th Cir. 2007)- The agreement herein was substantively unconscionable for several reasons. It had a one year limitations period on all claims. The fact that the employer was also so bound was of no consequence because the types of claims brought under the agreement were likely only to be brought by employees. The confidentiality provision was also unconscionable. An inability to mention even the existence of a claim to current or former employees would stifle an employee’s ability to investigate and engage in discovery. The limitation that allowed only the employer to file injunctions or other equitable actions was unconscionable. The employer, a law firm, argued that this was necessary to prevent breach of the attorney client privilege. Preservation of the attorney client privilege could constitute a legitimate business justification for such a limitation, but the agreement herein went beyond that because it allowed the employer to seek “other equitable relief” not only for violation of the attorney client privilege or work product doctrine, but also for “the disclosure of other confidential information”.
Baker v. Osborne Development Corporation, 159 Cal App 4th 884, 895. 71 Cal Rptr 3d 854 (2007)-Plaintiffs purchased a new home from defendant. The purchase and sale agreement contained an arbitration clause which dealt only with disbursement of the deposit. At the close of escrow, plaintiffs were presented with a document which purported to be an application for a warranty. The document did state that the warranty would contain an arbitration clause but its terms were not presented to plaintiffs. Plaintiffs signed the “application” without reading it. Later, they received a warranty booklet which contained the arbitration terms, which were restrictive and highly favorable to defendant. When plaintiffs brought suit against defendant for construction defects, defendant moved to compel arbitration. Plaintiffs countered that the arbitration agreement was unenforceable because it was unconscionable. The trial court denied the motion to compel and the decision was affirmed on appeal. The restrictive terms of the agreement made it substantively unconscionable. It was procedurally unconscionable because of the way that it was presented to plaintiffs. For the terms of another document to be incorporated into the document executed by the parties the reference must be clear and unequivocal, the reference must be called to the attention of the other party and he must consent thereto, and the terms of the incorporated document must be known or easily available to the contracting parties.
Unconscionability-Opt Out Provision
Davis v. O’Melveny & Myers, 485 F. 3d 1066 (9th Cir 2007)- The defendant argued that its standard employment contract was not procedurally unconscionable because it was in bold print, employees were given the opportunity to discuss its terms with human resources personnel, and they had three months to decide whether to accept the agreement. The court rejected this argument because the only choice given to an employee who did not want to execute the agreement was to resign. An agreement is procedurally unconscionable if an employee who opts out cannot preserve his or her job
Venue
Veliz v. Cintas Corp., 2005 US Dist LEXIS 9230 (ND Cal 2005)-This was a class action that was compelled to arbitration. One of the arguments opposing arbitration was that the arbitration contracts of many of the individual plaintiffs required the arbitration to be held in locations outside the jurisdiction of the District Court and hence the court could not order arbitration in these cases pursuant to Section 4 of the FAA. The Court solved this problem by ordering that the arbitration would be held within the district.
Waiver of Appeal
Guseinov v. Burns, 145 Cal App 4th 944, 952-4, 51 Cal Rptr 3d 903 (Ct App 2006)-This case arose out of the arbitration of a failed settlement agreement. The settlement agreement provided for arbitration but also stated “the parties waive any right to appeal the arbitral award….[but that]…each party retains the right to seek judicial assistance…..to enforce any decision of the arbitrator”. The arbitration clause also provided that the arbitration proceeding would be confidential but that “this confidentiality provision shall not prevent a petition to vacate or enforce the award”. After the arbitrator denied the defendant’s motion to disqualify plaintiff’s counsel, defendant moved to disqualify the arbitrator The motion was denied and the arbitrator ultimately ruled in favor of plaintiff on the merits. The plaintiff’smotion to confirm was granted and defendant appealed. As a threshold question, plaintiff argued that defendant had waived the right to appeal. This argument was rejected. Although parties may waive the right to appeal, such waiver must be clear and express. That was not the case here because the arbitration agreement also gave the parties the right to enforce any decision of the arbitrator and the parties contemplated that a petition to vacate or confirm would be permitted because the confidentiality provision would not apply to such an action.
Waiver of Issue
Cummings v Future Nissan, 128 Cal App 4th 321, 329-30, 27 Cal Rptr 3d 10 (2005)-After plaintiff filed her suit in court, defendants moved to compel arbitration. The arbitration agreement contained a provision for an appeal to a second arbitrator, but plaintiff did not raise this point when she opposed the motion to compel. The motion was granted, plaintiff prevailed in the first arbitration, but the decision was reversed by the second arbitrator. On appeal from the granting of a motion to confirm the award, plaintiff raised the issue of the second arbitration for the first time. The judgment was affirmed. Unless the plaintiff did not expect to prevail, the defendant’s invocation of the second level review would be an inevitable prospect. She was thus obliged to raise any challenge to its unconscionability at the time she initially resisted arbitration.
Waiver of Litigation
Nagrampa v. Mailcoups, Inc., 493 F 3d 1257 (9th Cir 2006)-Plaintiff’s participation in the arbitration consisted of a letter to seek a ninety day continuance, a letter objecting to the validity of the arbitration provision, a conference call that resulted in a scheduling order, an unsuccessful attempt to file a counterdemand that was not accepted when she could not afford to pay the filing fee, and one set of discovery requests. Both the counterdemand and the discovery requests were filed to avoid losing her right to do so in the event that contested venue, fee, and costs issues were amicably resolved before the proceeding reached the merits of the contract dispute. Hence, plaintiff did not waive her right to challenge the arbitration clause and litigate. Unlike arbitration cases where waiver was found, plaintiff forcefully objected to arbitrability at the outset of the dispute, never withdrew that objection, and did not proceed to arbitration on the merits of the contract claim.