2023 Appellate court opinions: Arbitration

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As has been the case in the last several years, 2023 saw numerous opinions from the California and Federal courts relating to the enforcement of arbitration provisions. The opinions relate to arbitration provisions in the commercial context as well as arbitration in the employment context. Unfortunately, for those seeking to enforce arbitration agreements — particularly employers — the courts upheld virtually all trial court rulings denying motions to compel arbitration.

For employers, in particular, it has become increasingly more difficult to move employment-related matters into arbitration no matter how sound the underlying agreement. This is especially true in cases involving PAGA where the California Supreme Court held in Adolph v. Uber that, while an employee’s individual PAGA claims may be subject to arbitration, the representative claims must remain in court.

General arbitration

In a class action case, a California Court of Appeals upholds trial court’s ruling denying a motion to compel arbitration filed by a collection operation on the grounds that the named plaintiff never officially consented to arbitration with the creditor.

In Fleming v. Oliphant Financial, LLC, plaintiff Fleming filed a class action complaint, alleging Oliphant violated the California Rosenthal Fair Debt Collection Practices Act. Oliphant filed a petition to dismiss Fleming’s class action claims and compel binding arbitration of his individual claims under the Federal Arbitration Act (9 U.S.C. § 2). According to Oliphant’s records custodian, Fleming electronically applied for a credit card in December 2013. The electronic application included no reference to an arbitration agreement. Fleming received the card, used his card for purchases, made payments on his account, and received account statements, which did not include any reference to arbitration. There is no evidence of any signed agreement. Oliphant provided no evidence that it even sent such an agreement to Fleming. Oliphant proffered three Cardmember Agreements—or exemplars—that were in effect when Fleming opened his account, when he made his last payment to the account in March 2018, and when the account was charged off in May 2018, which included arbitration agreements. Fleming denied receiving any of the exemplars.

The court of appeal affirmed the denial of the petition to compel arbitration on the grounds that Oliphant did not meet its burden of proving the existence of a valid arbitration agreement with Fleming. Nothing in the record suggests that Fleming might have consented to an arbitration.

In a class action, the Ninth Circuit affirms District Court’s denial of Walmart’s motion to compel arbitration on grounds that plaintiff’s claims arose out of an in-store transaction that was not governed by the arbitration agreement relating to use of Walmart’s online resources and content.

In Johnson v. Walmart, Inc., plaintiff Kevin Johnson purchased a set of tires from Walmart.com, which included a Terms of Use with an arbitration provision. Plaintiff had the tires shipped to and installed at a Walmart Auto Center, and while waiting for the tires to be installed, he purchased the lifetime balancing and rotation Service Agreement. Plaintiff received tire services once in 2019 but was later denied service on several occasions in 2020 at multiple Walmart Auto Centers. Plaintiff brought a putative class action alleging breach of contract and breach of the duty of good faith and fair dealing. Walmart sought to compel individual arbitration of its dispute with plaintiff pursuant to the arbitration provisions of the Terms of Use. The district court found that the plain meaning of the Terms of Use precluded the applicability of the arbitration provision to in-store purchases.

The Ninth Circuit affirmed the district court’s denial of Walmart’s motion to compel arbitration and agreed with the district court that plaintiff contested the existence, not the scope, of an arbitration agreement that would encompass this dispute. As the party seeking to compel arbitration, Walmart bore the burden of proving the existence of an agreement to arbitrate by a preponderance of the evidence. The panel held that substantial evidence supported that the two contracts between plaintiff and Walmart were separate, independent agreements. The two contracts—though they involved the same parties and the same tires—were separate and not interrelated. Therefore, the arbitration agreement in the first did not encompass disputes arising from the second.

Court of Appeal affirms trial court’s decision to deny defendant’s motion to vacate arbitrator’s award since arbitrator’s disclosure of facts he was not required to disclose could not serve as the basis for vacating his arbitration award.

In Sitrick Group v. Vivera Pharmaceuticals, Vivera Pharmaceuticals, Inc. (“Vivera”) was developing a medical test kit but had received “negative publicity” from its litigation with a rival company. Vivera hired Sitrick Group, LLC (“Sitrick”) to manage a public relations campaign. Vivera did not make any payments and Sitrick filed demands for arbitration with Judicial Arbitration and Mediation Services (“JAMS”). Judge Swart was selected to serve as an arbitrator in a separate matter between Sitrick and Legacy Development (the Legacy matter). In that matter, Sitrick was employing the same law firm (but a different lawyer) as was representing it in the arbitration with Vivera. Sitrick prevailed in arbitration, and filed petitions to confirm the arbitration award. Vivera asked the trial court to vacate the arbitrator’s award due to Judge Swart’s inadequate disclosure of the Legacy matter. The trial court issued an order confirming the arbitrator’s award.

The Second Appellate District affirmed. The court explained that the California Arbitration Act (“CAA”) requires arbitrators to disclose, among other things, matters that the Ethics Standards for Neutral Arbitrators in Contractual Arbitration (“Ethics Standards”) dictate must be disclosed. At issue here is whether the Ethics Standards require a retained arbitrator in a noncommercial case to disclose in one matter that he has been subsequently hired in a second matter by the same party and the same law firm. The court held “no,” at least where the arbitrator has previously informed the parties—without any objection thereto—that no disclosure will be forthcoming in this scenario. Because the arbitrator’s disclosures were proper here, the trial court properly overruled an objection based on inadequate disclosure.

In a class action suit, the Court of Appeal affirms trial court’s ruling denying Ring’s motion to compel arbitration since the arbitration provision was unenforceable where clause contained ambiguous language regarding arbitrability as well as language prohibiting injunctive relief.

In Jack v. Ring LLC, Ring was a manufacturer and seller of home security and smart home devices including video doorbells, security cameras, and alarms. The plaintiffs purchased video doorbell and security camera products from Ring and subsequently filed a class action complaint against Ring asserting claims under the Consumer Legal Remedies Act, false advertising law, and Unfair Competition Law. They sought injunctive relief requiring Ring to prominently disclose to consumers certain information about its products and services.

Ring moved to compel arbitration based on an arbitration provision in its terms of service. The plaintiffs did not dispute that they agreed to Ring’s terms of service but argued the arbitration provision violates the California Supreme Court’s 2017 “McGill” holding that a pre-dispute arbitration agreement is invalid and unenforceable under state law insofar as it purports to waive a party’s statutory right to seek public injunctive relief.

The court of appeal affirmed the denial of Ring’s motion to compel arbitration. The court held that the parties did not “clearly and unmistakably” delegate to the arbitrator exclusive authority to decide whether the arbitration provision is valid under McGill. Furthermore, the contract language at issue is commonly understood to preclude public injunctive relief in arbitration. The court also held that the Federal Arbitration Act does not preempt McGill’s holding. Finally, the court held that the contract’s severability clause means the plaintiffs’ claims cannot be arbitrated and may be brought in court.

In an Elder Abuse case, the Court of Appeal affirms trial’s court’s ruling denying arbitration based on an agreement since by the plaintiff’s children since defendant failed to prove that plaintiff’s children were her agents.

In Kinder v. Capistrano Beach Care Center, plaintiff Nancy Kinder was a resident at a residential skilled nursing facility when she sustained injuries in a fall. She sued the facility, Capistrano Beach Care Center, LLC dba Capistrano Beach Care Center (“CBCC”), and its operator, Cambridge Healthcare Services, LLC (collectively, Defendants). Defendants petitioned to compel arbitration, claiming plaintiff was bound by arbitration agreements purportedly signed on her behalf by her adult children. The trial court denied the petition, concluding defendants had failed to prove plaintiff’s adult children had actual or ostensible authority to execute the arbitration agreements on plaintiff’s behalf.

The Second Appellate District affirmed. The court explained that CBCC did not meet its initial burden to make a prima facie showing that plaintiff agreed to arbitrate by submitting arbitration agreements signed by plaintiff’s adult children. Furthermore, the court held that CBCC presented no evidence that the children had actual or ostensible authority to execute the arbitration agreement on plaintiff’s behalf beyond their own representations in the agreements. The court wrote that a defendant cannot meet its burden to prove the signatory acted as the agent of a plaintiff by relying on representations of the purported agent alone.

In a contract dispute between a borrower and a lender the California Supreme Court holds that the deadline for seeking vacatur of an arbital award under Code of Civil Procedure section 1288.2 is a nonjurisdictional statute of limitations and subject to equitable tolling or estoppel.

In Law Finance Group v. Key, a contract dispute was governed by an arbitration agreement. Defendant Sarah Plott Key prevailed in an arbitration against defendant and petitioned the trial court to confirm the award. Plaintiff moved to vacate the award on the grounds that the motion to confirm was untimely. The trial court granted the motion and vacated the award despite the fact that defendant filed her motion to vacate outside the 100-day deadline set forth in Code of Civil Procedure section 1288.2.

The court of appeal reversed, concluding that the 100-day deadline was jurisdictional and that the parties could not extend the deadline by agreement.

The Supreme Court reversed the court of appeal holding (1) defendant’s motion was filed outside the applicable statutory period; and (2) section 1288.2’s deadline for seeking vacatur of an arbitral award is a nonjurisdictional statute of limitations that is subject to equitable tolling and equitable estoppel. The Supreme Court remanded the case to the court of appeal to determine in the first instance whether Key was entitled to equitable relief from the 100-day deadline.

In arbitration arising out of a business dispute, the Court of Appeal held that subpoenas issued by arbitrator on a nonparty requiring production of documents at a hearing set for that purpose was an impermissible use of the arbitrator’s subpoena for discovery purposes.

McConnell v. Advantest America involved a business dispute arose between Advantest America and Kabbani. During the arbitration process, Kabbani purposefully deleted relevant text messages from his phone. Advantest asked the arbitrator to issue subpoenas to several individuals to appear at arbitration and produce screenshots of text messages. The arbitrator agreed and issued subpoenas to compel two individuals, who were not parties to the arbitration, to appear and produce documents at a hearing specially set “for the limited purpose of receiving documents” from them, or to download the documents to a website controlled by counsel for the party requesting the subpoenas. The subpoenas provided that after the production of documents, the “hearing” would be adjourned to a later date, at which time the subpoenaed nonparties would be summoned to appear and testify. The date for their compliance with the document production was nearly 12 months before the scheduled arbitration hearing on the merits. After the nonparties refused to comply with the subpoenas, the arbitrator compelled compliance.

The nonparties petitioned the trial court to vacate the order compelling their compliance with the subpoenas. The trial court denied the petition to vacate the order, concluding the subpoenas were statutorily authorized “hearing” subpoenas under California Arbitration Act section 1282.6, not subpoenas issued for the purposes of discovery. The nonparties argued the judgment should be reversed because the subpoenas were improper discovery subpoenas, despite being labeled “hearing” subpoenas.

Under the specific facts of this case, the Court of Appeal agreed with the nonparties. Specifically, the court held: “Because discovery is not a permissible purpose of an arbitration hearing subpoena, the arbitrator abused his discretion by overstepping his statutory authority under section 1282.6 Accordingly, under the specific facts presented here, we conclude the trial court erred when it denied” the petition to vacate the arbitration discovery order.

Court of Appeal holds that the trial court erred in declining to review an arbitration award on the merits, where the parties’ agreement expressly provides for such a review.

In Housing Authority of City of Calexico v. Multi-Housing Tax Credit Partners, Housing Authority of the City of Calexico (“Housing Authority”) and AMG & Associates, LLC (“plaintiffs”) filed a lawsuit against defendants Multi-Housing Tax Credit Partners XXIX, L.P., Multi-Housing Investments, LLC, and Highridge Costa Investors, LLC (“defendants”) relating to a project to develop affordable housing. The dispute was governed by an arbitration agreement.

Plaintiffs appealed a judgment from the superior court confirming an arbitration award, declining to undertake a review of the award on the merits for errors of fact or law (review on the merits), and declining to grant their petition to partially reverse or vacate the award. Plaintiffs contended the superior court should have undertaken a review on the merits because the parties had specifically agreed to such a review. Plaintiffs further contended that, had the superior court undertaken such a review, it would have concluded that no substantial evidence supported the award and that the award was contrary to law. Additionally, plaintiffs contended that, in denying their motion to partially reverse or vacate the award, the superior court left in place a finding by the arbitrator that not only exceeded the arbitrator’s powers but worked as a forfeiture against the Housing Authority.

After review, the Court of Appeal concluded the superior court erred in declining to undertake a review on the merits since the parties expressly agreed for review by the superior court. The agreement did not give the Court of Appeal jurisdiction to review the arbitration award. As held by the Court of Appeal: “[I]n instances in which the parties have agreed that an arbitration award may be subjected to judicial review, it is the superior court and not the Court of Appeal that has original jurisdiction to undertake that review in the first instance, that the superior court is without power to yield that original jurisdiction to the Court of Appeal, and that the superior court should thus have performed the review.”

Court of Appeal vacates arbitration award because arbitrator’s credibility finding was based on linguistic bias, giving rise to arbitrator’s own possible bias.

FCM Investments v. Grove Pham, LLC was an arbitration dispute involving a canceled real estate deal, an arbitrator found the defendant seller in breach based largely on an assessment of witness credibility. In the arbitrator’s view, defendant Phuong Pham, the owner of the defendant seller, lacked credibility because she used an interpreter during the arbitration proceedings. Reasoning that Pham had been in the country for decades, engaged in sophisticated business transactions, and previously functioned in some undisclosed capacity as an interpreter, the arbitrator felt that her use of an interpreter at the arbitration was a tactical ploy to seem less sophisticated. Based primarily on the credibility issue, the arbitrator ruled in favor of the plaintiff FCM Investments. The defendant seller appealed.

The Court of Appeal found the arbitrator’s credibility finding rested on unacceptable misconceptions about English proficiency and language acquisition. “These misconceptions, in turn, give rise to a reasonable impression of possible bias on the part of the arbitrator requiring reversal of the judgment and vacating the arbitration award.”

Court of Appeal affirmed the trial court’s order denying defendant’s motion to compel arbitration on the grounds that the elderly care facility’s arbitration clause was procedurally and substantively unconscionable, provision was unenforceable against former facility resident’s Elder Abuse Act claim.

In Haydon v. Elegance at Dublin plaintiff, Sally Ann Haydon, a former resident of Elegance at Dublin, a residential care facility for the elderly, sued the facility and its affiliated entities for elder abuse and other claims. The defendants moved to compel arbitration based on an arbitration clause in the resident agreement that Haydon had signed. Haydon had lived at the facility for a few days and had dementia. The agreement she signed, which contained the arbitration clause, was over 40 pages long, and the arbitration clause was one of over 20 “miscellaneous” provisions at the end of the document. Haydon claimed she signed the agreement under duress and without understanding its contents. The trial court denied the motion, finding the arbitration agreement to be unconscionable. The defendants appealed this decision.

The Court of Appeal found that there was a high degree of both procedural and substantive unconscionability in the arbitration clause, and therefore affirmed the trial court's decision not to enforce it. The court found procedural unconscionability in the circumstances of the agreement’s formation, considering the pressure Haydon was under to sign the agreement, the lack of explanation about the arbitration clause, and the confusing presentation of the clause. The court found substantive unconscionability in the confidentiality provision of the arbitration agreement, the limitations on discovery under the applicable arbitration rules, and the requirement that parties bear their own costs and fees in connection with the arbitration. The court also found that the trial court did not abuse its discretion by refusing to sever the unconscionable provisions from the arbitration clause, given the extent of the unconscionability.

The Ninth Circuit held that Plaintiff was an inadequate class representative for class action lawsuit against Tinder’s age-discriminatory pricing policy because she was subject to a binding arbitration order that other class members were not.

In Kim v. Allison (Tinder) the Ninth Circuit Court of Appeals reversed a district court’s approval of a class action settlement between Tinder and Lisa Kim, a user of the dating app, ruling that Kim was not an adequate class representative. This class action lawsuit against Tinder was over its former age-based pricing model. Kim had agreed to arbitration, unlike over 7,000 potential members of the class, creating a fundamental conflict of interest that violated Federal Rule of Civil Procedure 23(a)(4). The court found that Kim had a strong interest in settling her claim as she had no chance of going to trial, unlike the other members. The court also noted that Kim failed to vigorously litigate the case on behalf of the class, with her approach to opposing Tinder’s motion to compel arbitration not suggesting vigor. The court remanded the case for consideration of Kim’s individual action against Tinder.

The Ninth Circuit and the United States Supreme Court publish crucial opinions relating to compelling arbitration and the impact thereof in the Bielski v. Coinbase case.

Abraham Bielski, a user of cryptocurrency exchange Coinbase, brought a lawsuit alleging that Coinbase failed to investigate the unauthorized transfer of funds from his account. Coinbase moved to compel arbitration based on an arbitration agreement in its User Agreement, which included a delegation provision stating that any dispute arising out of the agreement, including enforceability, should be decided by an arbitrator, not a court. Bielski argued that the delegation provision and arbitration agreement were unenforceable due to unconscionability.

The United States District Court denied Coinbase’s motion on the grounds that the arbitration agreement was unconscionable. Coinbase then filed an interlocutory appeal with the Ninth Circuit. In addition, Coinbase filed a motion to stay the proceedings in court while the appeal was pending. The district court denied the motion to stay, and Coinbase appealed to the United States Supreme Court.

In Coinbase, Inc. v. Bielski the United States Supreme Court held that a district court must say its proceedings while an interlocutory appeal on the question of arbitrability is pending. As a result, the district court proceedings were stayed while the Ninth Circuit ruled on Coinbase’s appeal of the district court’s order denying its motion to compel arbitration.

In Bielski v. Coinbase, Inc. the Ninth Circuit held that a party must specifically reference and challenge the delegation provision for a court to consider it, and that a party may use the same arguments to challenge both the delegation provision and the arbitration agreement, as long as they articulate why the argument invalidates each specific provision. The court also held that when evaluating whether a delegation provision is unconscionable under California law, a court must interpret the provision in the context of the entire agreement, which may require examining the underlying agreement.

After analyzing the Coinbase delegation provision in context, the court determined that it was not unconscionable. The court reversed the district court’s order denying Coinbase’s motion to compel arbitration.

Employment arbitration

Court of Appeal affirms trial court’s order denying employer’s motion to compel arbitration because the employer continued on the path of litigation, delaying filing to compel arbitration for over four years; the employer waived any right to arbitrate individual employee claims.

In Desert Regional Medical Center, Inc. v. Miller employer Desert Regional Medical Center (“DRMC”) owned and operated an acute care hospital and hired the three nurses under a collective bargaining agreement (“CBA”) between DRMC and the California Nurses Association. An article of the CBA stated that individual nurses and DRMC could voluntarily agree to arbitrate disputes not otherwise arbitrable under the CBA under the fair treatment process (“FTP”), which provided dispute resolution procedures for employment-related disputes. The nurses also signed an employment arbitration agreement, where they agreed to submit non-CBA covered disputes to final and binding arbitration before the American Arbitration Association.

Three nurses filed labor claims alleging rest and meal break violations by DRMC. DRMC filed petitions to compel arbitration of the labor claims and requested a stay. The trial court denied DRMC’s petitions and request.

The Court of Appeal affirmed the trial court’s order denying DRMC’s petitions to compel arbitration and request for a stay. First, the appellate court ruled that the trial court had the jurisdiction to determine whether waiver was an issue for the court or for the arbitrator, regardless of whether federal or state law was applicable in deciding that issue. Second, the Court of Appeal held that the three nurses were not required to arbitrate their individual claims against DRMC under the CBA, the employment arbitration agreement, and the FTP.

Third, the Court of Appeal held that DRMC’s conduct was inconsistent with an intent to arbitrate the nurses’ individual claims. Even assuming that DRMC met its burden to show an applicable written contract requiring arbitration of individual claims, it waived any such right by delaying filing the petitions to compel arbitration for a period of time (over four years) that was substantial and prejudicial to the nurses.

Court of Appeal holds that denial in part of motion to compel arbitration of workplace discrimination claims was proper because the arbitration provision only encompassed claims based on conduct following the commencement of direct, contractual employment.

In Vaughn v. Tesla, Inc., plaintiffs first worked for Tesla through staffing agencies. When Tesla offered them employment, effective August 2, 2017, most of the plaintiffs electronically signed offer letters, including an arbitration provision that provided: “any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration.”

A complaint filed under the Fair Employment and Housing Act (“FEHA”) alleged that the plaintiff and other black workers “suffered severe and pervasive harassment” by Tesla. In response, Tesla moved to compel arbitration of the claims. The trial court partially granted Tesla's motion reasoning that the arbitration clauses required the plaintiffs to arbitrate disputes that arose on or after August 2, 2017 while claims based on alleged wrongs before that date are not within the scope of the agreements. The trial court also denied the motion to the extent that the plaintiffs sought a public injunction.

The Court of Appeal affirmed on several grounds. First, the court held that the arbitration provision in employment offer letters did not apply to claims which arose when employees were employed by staffing company but worked at employer. Second, court held that the trial court could temporally divide employees’ claims and send to arbitration only those based on conduct during the period of direct, contractual employment. Third, plaintiffs’ request for a public injunction had primary purpose and effect of prohibiting unlawful acts that threatened future injury to the general public, and thus was an available remedy under FEHA. Finally, relying on the United States Supreme Court’s 2022 opinion in Viking River, the court held that the Federal Arbitration Act (“FAA”) did not preempt California’s rule prohibiting waiver of employees’ right to seek a public injunction under FEHA

Court of Appeal affirms trial court’s order granting exotic dancer’s arbitration award against her employer since the employer’s motion to vacate the award was statutorily untimely.

In Darby v. Sisyphian, LLC, an exotic dancer sued her employer, Sisyphian, for (1) failure to pay minimum wage, (2) failure to pay overtime wages, (3) failure to pay wages for missed meal periods, (4) failure to pay wages for missed rest breaks, (5) waiting time penalties (6) failure to provide accurate wage statements and (7) unfair competition. In reliance on the arbitration clause in the Entertainment Agreement, the trial court granted Sisyphian’s motion to compel arbitration of Plaintiff’s claims. Following compelled arbitration, the employee petitioned to confirm final arbitration award, including award of attorney fees, and employer petitioned to vacate or correct award with respect to attorney fees.

Plaintiff filed a petition to confirm the final arbitration award. Following the entry of judgment for Plaintiff in the amount of $105,109.75, Sisyphian appealed. Sisyphian argued that the trial court erred in confirming the final arbitration award because, in reconsidering its initial attorney fees order, the arbitrator exceeded his powers.

The Court of Appeal for the Second Appellate District affirmed. The Court of Appeal answered the following questions: (1) Under the California Arbitration Act (Code Civ. Proc., § 1280 et seq.) (“Act”), a party seeking to vacate or correct an arbitration award must do so prior to the expiration of the Act's statutory deadlines (§§ 1288.2, 1290.6). Sometimes, the party seeking such relief misses those deadlines. If another party to the arbitration has filed a competing petition to confirm that award, is the trial court allowed to consider any of the objections to confirmation raised in untimely filings seeking to vacate or correct the award? (2) If the judgment confirming the award is appealed, may the party who untimely sought to vacate or correct the award renew on appeal their challenges to the award's confirmation?

The court concluded that the answer to both questions is “no.” Because well-settled law dictates the finding that the employer did not meet the Act’s deadlines for vacating or correcting the arbitration award, the court affirmed the judgment confirming that arbitration award and granted the prevailing party her attorney fees on appeal.

Note: The Darby opinion was disapproved of by the California Supreme Court in Law Finance Group, LLC v. Key (see above) to the extent Darby held that the statutory deadline was “jurisdictional in the fundamental sense.” Therefore, Darby is not citable for that proposition.

Court of Appeal reverses trial court’s order denying employer’s motion to compel arbitration since employees offered no evidence disputing the authenticity of their signatures on the arbitration agreement, and did not prove that the agreement was unconscionable.

In Iyere v. Wise Auto Group three plaintiffs began working for Wise Auto Group dba Infiniti of Marin (“Wise”) on separate dates. Each purportedly signed an arbitration agreement, “governed by the Federal Arbitration Act and the California Arbitration Act.” The agreement also bans “class arbitration and waives the employees’ right to join class litigation, noting that the employee “may wish to consult with an attorney.” An acknowledgment indicates that the employee has read the agreement and understands that he can choose not to sign and still be employed by Wise, without retaliation. Wise fired the plaintiffs. They filed a joint complaint asserting 25 causes of action against Wise including claims for discrimination, harassment, retaliation, breach of contract, torts, violation of statutory rights, and wrongful termination in violation of public policy.

Wise moved to compel each plaintiff to submit to individual arbitration. Wise submitted a declaration from its HR director, authenticating the documents, bearing the handwritten signature of each plaintiff. Each plaintiff alleged that, on his first day of work, he was handed a stack of documents and was not given any time to review them nor given a copy of the documents, adding “I do not recall ever reading or signing any Binding Arbitration Agreement ... I do not know how my signature was placed on [either document].”

The trial court denied Wise’s motion to compel arbitration on the grounds that Wise failed to bear its burden of proving the authenticity of the signatures, and that the agreement was procedurally and substantively unconscionable. The trial court based the latter ruling on its determination that the agreement violates section Labor Code section 925 by stating it is governed by the Federal Arbitration Act (“FAA”), and that its provision allowing the party against whom the claim is made to choose between two arbitration providers unfairly favored Wise, which is more likely to be that party.

The court of appeal reversed. The court held that plaintiffs offered no admissible evidence creating a dispute as to the authenticity of their physical signatures and did not prove that the agreement was unconscionable. Furthermore, the court held that the FAA does not prescribe substantive rules of law for resolving disputes. It does not displace the substantive law of California.

Court of Appeal holds that issue preclusion (or collateral estoppel) bars a derivative Private Attorneys General Act (“PAGA”) claim where the plaintiff litigates individual Labor Code claims in arbitration and loses.

In Rocha v. U-Haul Co. of California plaintiffs a lawsuit against their direct employer and multiple co-defendants, including their alleged joint employer, U-Haul. The complaint alleged whistleblower retaliation under Labor Code Section 1102.5 and other non-wage/hour claims. When the defendants moved to compel arbitration, the plaintiffs moved to amend their complaint to add a Private Attorney General Act (“PAGA”) claim against U-Haul for the alleged Section 1102.5 violation. The trial court denied leave to amend on the grounds that the plaintiffs lacked standing and compelled arbitration. The arbitrator ruled against the plaintiffs on all claims, and the trial court confirmed the award. The employees appealed.

On appeal, the Court of Appeal for the Second Judicial District rejected the plaintiffs’ argument that the trial court abused its discretion by denying leave to amend to add the PAGA claim against U-Haul, finding that issue preclusion destroyed their standing. Because the arbitrator ruled against the plaintiffs on all of their claims—including the Section 1102.5 claim—the “arbitrator’s finding addressed the same issue the [plaintiffs] want to relitigate in connection with PAGA standing: whether U-Haul . . . retaliated against the [plaintiffs] in violation of section 1102.5.” The arbitrator’s conclusion that they experienced no violation therefore bound them in court and meant they were not “aggrieved employees.”

In applying issue preclusion, Rocha expressly disagreed with Gavriiloglou v. Prime Healthcare Mgmt., Inc. (2022) 83 Cal.App.5th 595 which was discussed here. [NEED LINK TO LAST YEAR’S ARTICLE.] In Gavriiloglou, after the plaintiff lost on several individual Labor Code claims in arbitration, the Court of Appeal for the Fourth Appellate District concluded that issue preclusion did not apply to a subsequent PAGA action alleging the same Labor Code violations. Citing Code of Civil Procedure section 1909(a)(2) and three earlier cases, Gavriiloglou concluded that the plaintiff must act in the “same capacity” in the two proceedings for issue preclusion to apply, and the plaintiff “was acting in different capacities in the arbitration and in the litigation of the PAGA claim.” Rocha criticized this holding, explaining that the authorities Gavriiloglou relied on apply only to claim preclusion and found no “basis in the case law or log for creating an identical capacity requirement for issue preclusion[.]”

The Rocha decision still assists employers despite the California Supreme Court’s opinion in Adolph v. Uber discussed here [NEED LINK TO LAST YEAR] which held that a PAGA plaintiff has standing to pursue a non-individual PAGA claim in court even if the individual component of that PAGA claim is severed and sent to arbitration. Despite Adolph employers can still defeat the entire PAGA claim under Rocha by proving in arbitration that the plaintiff suffered no Labor Code violation. The arbitrator’s finding would then bind plaintiffs in court, precluding them from proving that they are “aggrieved employees.” Gavriiloglou would not seem to suggest a different result, because both in arbitration and in court, the plaintiff acts in the “same capacity” of a private attorney general representing the State of California. Therefore, Rocha may provide some valuable insurance to employers irrespective of the otherwise anti-employer opinion in Adolph.

Court of Appeal affirms trial court order denying employers’ motion to compel arbitration where employers were not signatories to the arbitration agreement signed by employee in connection with a related entity.

In Hernandez v. Meridian Management Services, LLC the plaintiff signed an arbitration contract with an employer called Intelex Enterprises, LLC (“Intelex”). While working for Intelex, plaintiff also worked for other firms (“Other Firms”). These Other Firms were legally separate from Intelex but functionally related to it. The Other Firms did not contract for arbitration with plaintiff. After termination, plaintiff sued the Other Firms but not Intelex: Intelex has never been a party to the case. The Other Firms moved to compel arbitration based on plaintiff’s agreement with Intelex. The trial court denied the Other Firms’ motion to enforce a contract they had not signed.

The Court of Appeal affirmed. The court held that the Other Firms cannot equitably estop plaintiff because they do not show she is trying to profit from some unfair action. They have no proof of agency. And they are not third-party beneficiaries of Intelex’s contract. The court explained that the Other Firms point to six places in the record they say show agency, but these materials do not measure up. The citation to plaintiff’s complaint spotlights text that omits Intelex and cannot show agency. A different citation is to their attorney’s declaration recounting irrelevant procedural history. Other citations refer to plaintiff’s admission that she worked for both Intelex and the Other Firms. This admission does not establish agency.

Court of Appeal reverses trial court order granting employer’s motion to compel arbitration when employment contract was unconscionable because it was presented on a take-it-or-leave-it basis and contained consuming and decidedly one-sided terms in favor of the employer.

In Murrey v. Superior Court (General Electric) Casandra Murrey, a single, 46-year-old female, worked for General Electric Company (“GE”) as a product sales specialist for ultrasound equipment. GE sent all new hires a “welcome e-mail” to the new hire’s personal e-mail address that contained a link to GE’s electronic onboarding system/portal. Each document was assigned a separate task and the new hire signed employment-related agreements using his or her electronic signature. Based on this process and GE’s other security measures, GE’s lead HR specialist Michelle Thayer concluded Murrey’s electronic signature on an Acknowledgment was made by Murrey that Murrey assented to an included arbitration in the onboarding materials.

The complaint alleged GE hired Murrey in early 2018 and she was a “top performer.” In 2019, GE hired Joseph Gorczyca, III. In January 2020, he became Murrey’s direct supervisor, and he engaged in continuous sexual harassment in the workplace with Murrey and others.

Eight months after Murrey filed the complaint, GE moved to compel arbitration. The trial court granted the motion to compel arbitration, concluding:(1) GE met its burden of showing the arbitration agreement covered Murrey’s claims; (2) all of Murrey’s causes of action arose out of or were connected with her employment; and (3) Murrey met her burden showing procedural unconscionability because it was a contract of adhesion; but (5) Murrey failed to show a sufficient degree of substantive unconscionability to render the agreement unenforceable.

The Court of Appeal reversed, finding the arbitration agreement in this case contained a high degree of procedural unconscionability. “When we consider the procedural and substantively unconscionable provisions together, they indicate a concerted effort to impose on an employee a forum with distinct advantages for the employer.”

In Adolph v. Uber, a long-anticipated opinion, the California Supreme Court follows the lead of several Courts of Appeal and holds that PAGA plaintiffs do not lose standing to litigate non-individual claims in court when plaintiffs’ individual claims are subject to arbitration.

As we have reported [LINK TO ADOLPH ARTICLE] in Adolph v. Uber the California Supreme Court held that an aggrieved employee who has been compelled to arbitrate individual claims under the Private Attorneys General Act of 2004 (“PAGA”) that are “premised on Labor Code violations actually sustained by Plaintiff” maintains statutory standing to pursue representative PAGA claims arising out of events involving other employees in court.

The Supreme Court reversed the judgment of the court of appeals holding that the trial court properly found, among other things, that PAGA claims are not subject to arbitration, holding (1) to have PAGA standing, a plaintiff must be an “aggrieved employee” - i.e., one who was employed by the alleged violator and against whom one or more of the alleged violations was committed; and (2) when a plaintiff brings a PAGA action composed of both individual and non-individual claims, “an order compelling arbitration of the individual claims does not strip the plaintiff of standing to proceed as an aggrieved employee to litigate claims on behalf of other employees under PAGA.”

The California Supreme Court agreed with the opinions by several Courts of Appeal that earlier in 2023 published opinions on the subject including Gregg v. Uber Technologies, Inc. (Second Appellate District), Nickson v. Shemran, Inc. (Fourth Appellate District), Seifu v. Lyft, Inc. (Second Appellate District), Duran v. EmployBridge Holding (Fifth Appellate District), and Galarsa v. Dolgen California, LLC (Fifth Appellate District).

Similarly, Courts of Appeal have applied Adolph subsequent to its publication, including Barrera v. Apple American Group LLC(First Appellate District).

As a result of Adolph, employers are finding themselves in the difficult and costly situation where they are forced to defend individual PAGA claims in arbitration, followed by representative PAGA claims in the trial court.

California Supreme Court grants petitions to review two opinions from the Second Appellate District to clarify California’s test for unconscionability of arbitration agreements in the employment context.

In Fuentes v. Empire Nissan, Inc. plaintiff signed an arbitration agreement with Empire Nissan, Inc. (“Nissan”). Nissan fired Fuentes, she sued, and Nissan moved to compel arbitration. The trial court denied the motion ruling that the arbitration contract was unconscionable. The unconscionability defense requires a finding of both procedural and substantive unconscionability.

The Court of Appeal reversed finding that the agreement was not substantively unconscionable. Finding that virtually all arbitration agreements are procedurally unconscionable: because the employee usually has no choice but to sign it if she wants the job. Thus, the Court of Appeal focused on whether the agreement was substantively unconscionable. It found that it was not. Plaintiff’s primary argument was that the agreement was substantively unconscionable because of the font size. On this point, the Court of Appeal said: “Tiny font size and unreadability go to the process of contract formation, however, and not the substance of the outcome. Font size and readability thus are logically pertinent to procedural unconscionability and not to substantive unconscionability. To make this logical point plain, imagine shrinking a contract fair in substance down to less than one–point font: a font so minute as to be completely unreadable without a strong magnifying glass. The fairness of the contract's substance, however, remains unchanged. Font is irrelevant to fairness.”

The Court of Appeal determined that the substance of the arbitration agreement was fair, therefore, substantive unconscionability was lacking.

Note: The California Supreme Court granted plaintiff’s petition for review of the Court of Appeal opinion.

Similarly, in Basith v. Lithia plaintiff signed an online arbitration agreement before starting to work at a Nissan dealership. The agreement was virtually identical to the one in Fuentes. Plaintiff had to sign if he wanted a job: the car dealership presented it as a take-it-or-leave-it mandatory condition. Basith took the mandatory step, signed the arbitration contract, and the dealership hired him. The employment relationship turned out to be unsuccessful.

Basith sued the dealership for firing him. The dealership moved to compel arbitration. The trial court denied the motion finding that the arbitration contract was unconscionable which requires a finding of both procedural and substantive unconscionability. As in Fuentes, plaintiff argued that the agreement was substantively unconscionable because of the font size.

The Court of Appeal reversed finding that plaintiff suffered no substantive unconscionability, which is indispensable to the unconscionability defense. As to the font size argument, the Court of Appeal held: “If the substance of a contract is fair, how the contract is expressed cannot change that. Font size, format style, or verbal obscurantism does not affect the fairness of the final allocation of rights and duties. This contention does not address, and cannot establish, substantive unfairness. To rule otherwise would drain the element of substantive unconscionability of meaningfully independent content and effectively would turn the unconscionability doctrine into a one-element test of vast and unsettling sweep.”

Note: The Supreme Court also granted plaintiff’s petition for review. In its order, the Supreme Court indicated: “Further action in this matter is deferred pending consideration and disposition of a related issue in Fuentes.” Since the arbitration agreements at issue in Basith and Fuentes are virtually identical, as are the legal arguments, it is possible that the Supreme Court will consolidate the two appeals and issue one opinion.

Ninth Circuit holds that Amazon Flex driver’s wiretapping and invasion of privacy claims do not fall within the scope of his arbitration agreement with Amazon; therefore, arbitration was properly denied.

In Jackson v. Amazon.com, Inc. the Ninth Circuit affirmed the district court’s order denying Amazon.com, Inc.’s (“Amazon”) motion to compel arbitration in a case brought by a proposed class of “Amazon Flex” drivers. Amazon Flex is a delivery program run through a smartphone app that Amazon uses to engage individuals to make Amazon deliveries in their personal cars.

The complaint alleged Amazon violated the drivers’ privacy under state and federal laws by monitoring and wiretapping the drivers’ off-hours conversations in closed Facebook groups. Amazon filed a motion to compel arbitration based on a broad arbitration clause in the Amazon Flex 2019 Terms of Service (“TOS”) agreement applicable to the drivers, which provided that the arbitrator had jurisdiction to determine whether a claim was subject to the arbitration provision. The named plaintiff, however, asserted that Amazon’s Amazon Flex 2016 TOS should apply, contending he had never received notice of the revised 2019 TOS. The parties agreed that if the 2016 TOS were applicable, then the court had the authority to decide whether the dispute is subject to arbitration and whether Amazon’s motion to compel arbitration should be granted. The district court found the 2016 TOS applicable and denied Amazon’s motion.

The Ninth Circuit agreed that the district court correctly concluded that the 2016 TOS applied and, further, that the parties’ dispute was outside the scope of the 2016 TOS’s arbitration clause. The Court held that Amazon, as the party seeking arbitration, had the burden to show that it provided adequate notice of the 2019 TOS and that there was mutual assent to the arbitration agreement contained therein, consistent with California law and principles of contract law.

Amazon argued that it circulated the 2019 TOS to its Flex drivers via email and that, even if it had not, by accepting the 2016 TOS its drivers had agreed to be bound by new terms so long as they continued to perform delivery services for Amazon or access the Flex app after receiving notice of the updated terms. Specifically, the 2016 TOS stated: “Amazon may modify this Agreement, including the Program Policies, at any time by providing notice to you through the Amazon Flex app or otherwise providing notice to you.” Because of this language, the Court reasoned that the key question to ask when considering which TOS applied was whether Amazon provided notice of the new terms. Amazon did not provide the court with a copy or description of the notice it claimed it delivered, nor did it make any showing that the driver had received such notice, leading the Court to conclude there was no mutual assent to the 2019 TOS and only the 2016 TOS could apply.

The 2016 TOS arbitration clause provided that it applied to “any dispute or claim … arising out of or relating in any way to this Agreement, including … participation in the program or … performance of services.” The Court interpreted this language as requiring that a dispute must relate to the contract in order for it to be arbitrable. Looking at the facts as laid out in the drivers’ complaint, the Court observed that there were no allegations that Amazon had violated any provision of the 2016 TOS, and none of the drivers’ claims depended upon the terms of the contract that contained the arbitration clause. Accordingly, the Court held that the drivers’ claims did not fall within the scope of the 2016 TOS’s arbitration clause.

Court of Appeal holds that arbitration provisions in two agreements signed by an employee must both be considered when ruling on a motion to compel arbitration, and if the provision in one of the agreements is unconscionable, arbitration must be denied even if the provision in the other agreement is valid and enforceable.

In Alberto v. Cambrian Homecare Jennifer Alberto was hired by Cambrian Homecare (“Cambrian”) in 2019. At that time, she executed a variety of agreements in conjunction with her orientation. Among the agreements were an Arbitration Agreement, a Confidentiality Agreement, and an Addendum thereto. The Arbitration Agreement called for the arbitration of any claims relating to Alberto’s employment. The Agreement contained a full waiver of class, collective, or representative claims.

The Confidentiality Agreement required Alberto to keep all employee information (e.g., names, addresses, and phone numbers) confidential. It stated that disclosure of such information would cause “irreparable injury,” entitling Cambrian to seek injunctive or equitable relief, without first posting a bond. Furthermore, the prevailing party in a dispute litigated under the Confidentiality Agreement would be entitled to its “reasonable attorney’s fees and costs.”

Plaintiff brought an action against Cambrian alleging wage-and-hour claims and that she was “aggrieved employee” under Private Attorneys General Act (“PAGA”). Cambrian moved for arbitration. The trial court denied the petition. The trial court found that even if the parties had formed an Arbitration Agreement, the agreement had unconscionable terms, terms that so permeated the agreement they could not be severed.

The Second Appellate District affirmed. The court held that the Arbitration Agreement and the Confidentiality Agreement, read together—as it must be—with other contracts signed as part of plaintiff’s hiring, contained unconscionable terms. The trial court had discretion to not sever the unconscionable terms and to refuse to enforce the agreement. The court explained that it has no difficulty concluding that the Arbitration Agreement and the Confidentiality Agreement should be read together. They were executed on the same day. They were both separate aspects of a single primary transaction—plaintiff’s hiring. They both governed, ultimately, the same issue—how to resolve disputes arising between plaintiff and Cambrian arising from plaintiff’s employment. Failing to read them together artificially segments the parties’ contractual relationship. Treating them separately fails to account for the overall dispute resolution process the parties agreed upon. So, unconscionability in the Confidentiality Agreement can and does affect whether the Arbitration Agreement is also unconscionable.

Court of Appeal affirms trial court’s order permitting employee from withdrawing from court-ordered arbitration due to the employer’s failure to timely pay arbitration fees

Cvejic v. Skyview Capital is similar to opinions we analyzed last year relating to the impact of an employer’s failure to pay arbitration fees within the time frame provided by statute. (See here and here [NEED LINK].) Simply put, plaintiff worked for Skyview Capital which he sued after he was terminated. Skyview moved to compel arbitration which the trial court granted. The trial court also stayed the proceedings in court while the arbitration was pending. The parties agreed to use AAA for the arbitration. The final hearing was set for August 5, 2021. Skyview had to pay arbitration fees ahead of the hearing. Pursuant to Code of Civil Procedure section 1281.98, the fees were due on June 4, 2021. Skyview did not pay on or before deadline. AAA extended the deadline to mid-July, a deadline that Skyview met. However, prior thereto plaintiff filed a motion to withdraw from arbitration and lift the stay on the grounds that the failure to pay the fees was a material breach of the arbitration agreement. The trial court granted the motion.

The Court of Appeal affirmed. Skyview argued that AAA extended the deadline which it met. The Court of Appeal rejected this argument: “The statute does not empower an arbitrator to cure a party’s missed payment. There is no escape hatch for companies that may have an arbitrator’s favor. Nor is there a hatch for an arbitrator eager to keep hold of a matter.” The Court of Appeal then quoted the trial court which observed, “If . . . the drafting party were permitted numerous continuances for failure to pay arbitration fees, therefore delaying the proceedings, C.C.P. section 1281.98 would have no meaning, force, or effect.”

Court of Appeal reverses trial court’s order denying employee’s motion to withdraw from arbitration due to employer’s failure to pay arbitration fees on a timely basis even though the employer mailed a check for the fees prior to the deadline which was received by the arbitrator after the deadline.

Doe v. Superior Court is yet another case involving an employer’s failure to pay arbitration fees on a timely basis, the trial court denied the employee’s motion to withdraw from the arbitration and lift the stay on civil proceedings. After the employer successfully moved to compel the matter to arbitration, it failed to pay arbitration fees which had to be “received” by the arbitrator (in this case AAA) thirty days after September 1, 2022, pursuant to Code of Civil Procedure section 1281.98. The employer had the option of submitting the payment by credit card, electronic check or wire transfer. Instead, the employer opted to mail a check on Friday, September 30 for the full amount that was due on Monday, October 3. The check was received by AAA on October 5, after the deadline.

The employee moved to withdraw from the arbitration on the grounds the employer had failed to pay their arbitration fees and costs within 30 days of the due date as required by statute. She argued their late payment was a material breach of the arbitration agreement and waived their right to compel arbitration. The trial court denied the motion on the grounds that the employer mailed the check prior to October 3.

The Court of Appeal reversed. Section 1291.98 requires the fees to be “paid” within 30 days of the deadline. Relying on prior case law and the legislative intent, the Court of Appeal held that “paid” for purposes of the statute requires “receipt” of the fees prior to the deadline. Since AAA did not receive the check prior to the deadline, the court found the employer in material breach of the arbitration agreement entitling the employee to withdraw from the arbitration.

Court of Appeal holds that an agreement to arbitrate, as a material term, requires H-2A employers to disclose such waiver in job description submission to Department of Labor.

In State of California v. Alco Harvest a farm worker, who was participant in H-2A visa program, filed an action against his employer and farm operator to which the employer provided labor services, asserting individual employment claims and claim under the Private Attorneys General Act (“PAGA”). The California Labor Commissioner filed an enforcement action arising from the same alleged violations. The cases were consolidated along with a third case from Santa Barbara.

One of the defendants, Alco, moved to compel arbitration pursuant to an arbitration agreement presented to and signed by plaintiff at his orientation. The trial court found the agreement void and denied the motion. It considered arbitration a “material term and condition” of plaintiff’s employment and as such, a job requirement that Alco should have disclosed during the H-2A certification process.

The Second Appellate District affirmed. The court explained that Alco’s arbitration agreement required Plaintiff to forfeit his right to a jury trial in “any claim, dispute and/or controversy that [any] Employee may have against the Company . . . arising from, relating to or having any relationship or connection whatsoever with [or to the] Employee’s . . . employment by, or other association with the Company . . . .” The arbitration agreement also prohibited him from participating in any class action claims against Alco. Thus, the court considered the relinquishing of these rights as “material terms and conditions” of his employment.

Court of Appeal holds that the trial court should have stayed proceedings until completion of arbitration when common factual questions as to misappropriation of trade secret activities existed as to both former employee and competitor defendants.

As we previously reported (NEED LINK TO ARTICLE) in Mattson Technology v. Applied Materials Lai, an engineer for Applied Materials (“Applied”), had access to Applied’s trade secrets and participated in highly confidential meetings. Mattson, Applied’s direct competitor, recruited 17 Applied employees. Lai accepted a job with Mattson. Before his last day at Applied, Lai accessed proprietary information from Applied’s cloud-based storage system and sent emails attaching highly confidential Applied documents—many clearly marked as such—to his personal email accounts. He signed a separation certificate stating he had not retained any Applied information and confirmed this in two exit interviews. After starting his new job, Lai logged into his personal email accounts on his Mattson computer. Lai claims he never disclosed any Applied information to Mattson. Mattson denies any knowledge of Lai’s actions.

Applied sued Mattson and Lai pursuant to the Uniform Trade Secrets Act (Civ. Code section 3426) and breach of Lai’s employment agreement. Lai then deleted the emails he had sent to one account, and, after communicating with Mattson’s lawyers, downloaded a confidential Applied document to his Mattson laptop, deleting it a moment later. Mattson put Lai on leave, cut off his access to his personal email accounts, and sequestered his iPhone and computers.

Both Lai and Mattson moved to compel arbitration based on a provision in the Applied-Lai employment contract. The trial court granted Lai’s motion but denied Mattson’s on the grounds that it was not a signatory to the agreement. The trial court also denied Mattson’s motion to stay the litigation pending the outcome of the Applied v. Lai arbitration. Mattson appealed.

The Court of Appeal affirmed, in part. First, it agreed with the trial court that Mattson could not compel Applied to arbitrate its claims since Mattson was not a party to the Applied-Lai agreement. However, the court ruled that the trial court erred in denying Mattson’s motion to stay the Applied v. Mattson litigation. On this issue, the court found that Applied’s claim against Mattson is dependent upon the outcome of Applied’s claims against Lai, and involved similar facts and allegations. Specifically, the court reasoned that “the trade secret claims against Lai and Mattson thus share common factual questions concerning Lai’s activities during his last week at Applied and Mattson’s alleged involvement in them.” Thus, the civil proceedings against Mattson should have been stayed pending the outcome of the Applied-Lai arbitration.