Clear and Unmistakeable Intent Gives Arbitrator Decision of Arbitrability of Class Claims

In Universal Protection Service, LP v. Superior Court (2015 Cal. App. LEXIS 189), employer Universal sought a writ of mandate challenging the superior court’s order granting employee Franco’s demand for arbitration and ruling that the arbitrator decides the arbitrability of class action claims. In 2008, Franco signed an arbitration agreement pursuant to her employment with Universal.  The agreement provided arbitration of “any and all disputes or claims” related to the employment and that it be conducted “in accordance with the National Rules for the Resolution of Employment disputes set forth by the American Arbitration Association.”  In 2014, Franco filed a class action suit against Universal for various Labor Code and wage orders violations.  Universal sought declaratory judgment regarding the decision-maker for arbitrability of class claims and on the grounds that the agreement required arbitration on an individual basis only.  The trial court agreed with Franco that reference to the AAA rules placed the question of class arbitrability in the hands of the arbitrator and granted Franco's petition to compel arbitration.

The Court of Appeals held that the order compelling arbitration based on Garcia v. DIRECTV, Inc (115 Cal.App.4th 297) was an error.  The court in Garcia cited to Green Tree Financial Corp. v. Bazzle, where the Supreme Court held (in a nonbinding, plurality decision) that the arbitrator must decide whether an agreement prohibits or permits class arbitrations.   Although improperly based on Garcia, the trial court was nevertheless correct.

The Court stated that in deciding whether parties’ agreed to arbitrate certain claims, ordinary state-law principles governing contract formation should be applied, subject to the qualification that courts should not assume an agreement to arbitrate without clear and unmistakable evidence of the parties’ intent.  Here the parties referred to the AAA rules in the arbitration agreement, including specifically, AAA rules for class action arbitration.  In addition to the reference to the specific rules, the AAA Employment Rules include the Supplementary Rules for Class Arbitrations.  These rules place the question of arbitrability in the hands of the arbitrator.  The Court also held the decision to be consistent with general contract law principles.

The Court denied Universal’s petition.

Arbitration Clause on Employment Application Sufficient to Bind Arbitration

The Second Appellate District of the California Court of Appeal reversed a decision refusing to compel arbitration in Cruise v. Kroger Co., et al. (2015 Cal. App. LEXIS 44).  Although Kroger could not establish the actual language of the agreement in effect, provisions of the California Arbitration Act (§1280 et seq.) provided the terms for arbitration. In 2007, Cruise applied for an HR position at Kroger.  The employment application contained an arbitration clause for employment related disputes and referenced Kroger’s Arbitration Policy.  When Cruise was fired 5 years later, she filed suit against Kroger for statutory violations of the FEHA for retaliation, sexual harassment, discrimination, failure to investigate, and common law claims.  Kroger moved to compel arbitration and Cruise opposed.  Cruise argued she never signed the agreement, it was vague, she wasn’t provide with a copy of it, no contract was formed with respect to the undisclosed terms, and the policy was procedurally and substantively unconscionable.  The trial court agreed.

The Court reversed on appeal.  The Court found that the application language clearly indicated the parties’ agreement to arbitrate.  Since all the claims were related to her employment, they fell within the ambit of the agreement.  The Court also rejected Cruise’s argument for lack of mutuality.  The employment application indicated that Kroger intended to be bound by the agreement and the fact that they did not sign it was irrelevant.

However, the Court agreed with Cruise that the terms of the agreement were unclear.  Kroger submitted a four-page document as the policy referenced in the employment application.  The trial court rejected the undated policy.  On appeal, the Court held this only meant that procedures prescribed in the California Arbitration Act governed.

The Court clarified that an employer cannot enforce a non-existent arbitration agreement, but if the agreement is proven to exist and cannot be produced, the employer is precluded from enforcing the provisions from that policy.

Insufficient Notice from Website Terms and Conditions Agreement Prevents Arbitration

It is likely that you have encountered a webpage terms and conditions agreement if you have used the internet.  Some are prompted upon visiting the site, while others are hidden in small text off in the bottom corner.  In Nguyen v. Barnes & Noble (763 F.3d 1171), the Ninth Circuit addressed the sufficiency of notice through Barnes & Noble’s “browsewrap” terms and conditions agreement and whether the plaintiff was bound by the arbitration agreement contained within. In 2011, B&N offered to sell their Touchpad tablets at a highly discounted price due to the model being discontinued.  Nguyen purchased two, but his order was cancelled because of the unexpected high demand.  He filed a class action against B&N alleging violations of deceptive business practices and false advertising under both California and New York law.  B&N moved to compel arbitration pursuant to the Federal Arbitration Act, arguing that Nguyen was bound by the website’s use agreement.

The website Nguyen visited used a “browsewrap” agreement.  It did not require assent, but defined assent as use of the site.  A hyperlink located at the bottom of B&N’s webpage brought the user to the agreement, but Nguyen neither clicked on the hyperlink, nor read the agreement.

The Ninth Circuit explained the validity of a browsewrap agreement depends on notice.  Without actual notice, inquiry notice can be present determined by: (1) the design and content of the website, and (2) the specific agreement’s webpage.  Inconspicuous links hiding agreements will not be enforced, while explicit textual notice is more likely to be.  B&N argued the proximity and conspicuous of the hyperlink, the fact the link was on every B&N webpage and located next to purchase buttons, would place a reasonably prudent user on constructive notice.  The Court disagreed and held that the agreement will not be enforced against individual users unless it provides notice or requires affirmative action for assent.

B&N also argued that Nguyen should be equitably estopped because he ratified the agreement by relying upon the choice of law provision.  The Court rejected this argument, finding no precedent to support it.  The Court stated that B&N reaped the benefit of the choice of law provision it unilaterally adopted, not the plaintiff.

The Ninth Circuit affirmed the district court order denying the motion to compel arbitration.

FINRA Rule 12200 Arbitration superseded by subsequent agreement

In two simultaneous appeals, the Second Circuit addressed whether a forum-selection clause supersedes mandatory FINRA arbitration under FINRA Rule 12200. In Goldman, Sachs & Co. v. Empire Schools Financing Authority (764 F.3d 210), the plaintiff commenced arbitration against underwriter Goldman for claims related to issued securities.  Around the same time, a nearly identical case was brought by North Carolina Eastern Municipal Power Agency against Citigroup Global Markets, Inc (2013 U.S. Dist. LEXIS 188771).  In both situations, the agreements contained both forum selection and merger clauses; the forum selection clauses mandated that “all actions and proceedings” shall be brought in U.S. District Court.  After the plaintiffs initiated arbitration, both Defendants moved to enjoin.  The courts enjoined arbitration, appeals followed, and both were addressed simultaneously by the Second Circuit.

FINRA Rule 12200 states that FINRA members, who the defendants were, must honor arbitration requests from their customers that arise in connection with the member’s business activities.  The defendants did not dispute this, but argued that the forum selection clause superseded the rule.

The Second Circuit held Applied Energetics, Inc. v. NewOak Capital Mkts., LLC (645 F.3d 522) controlling, delineating the differences of Bank Julius Baer & Co. v. Waxfield (424 F.3d 278).  In Applied Energetics, the arbitration agreement was superceded by an agreement stating “[a]ny dispute…” shall be adjudicated in New York courts, and included a merger clause.  Bank Julius, however, stated that “any Action may be heard” in the specific court, without any merger clause.  The Court held the clause at hand indistinguishable from Applied Energetics.  Plaintiff’s attempted to argue that “all actions and proceedings” did not encompass arbitration, citing UBS Fin. Servs., Inc. v. Carilion Clinic (706 F.3d 319).  The court rejected their argument, citing contrary decisions in the Second Circuit, and held the argument a mere linguistic trick.

The district courts' decisions enjoining arbitration were affirmed.

 

Statutory Labor Code Violations Subject to Contractual Arbitration

The Plaintiff in Galen v. Redfin Corp. (227 Cal.App.4th 1525) attempted to avoid contractual arbitration, arguing that Labor Code violations were statute-based and outside of the contract scope. Galen had entered into an employment agreement with Redfin as a real estate broker.  The agreement classified Galen as an independent contractor, required “all disputes arising out of or related to this Agreement” be resolved by arbitration, and provided Washington State as the choice of law.  Galen brought suit, alleging improper classification as an independent contractor under the California Labor Code, as well as other Labor Code and Unfair Competition Law violations.  The Defendant moved to compel arbitration, but was denied.  The trial court held under California law that the arbitration clause did not apply to the statutory claims, and alternatively, the agreement was unconscionable.  Redfin appealed.

The Court of Appeal rejected Galen’s claim that statutory violations were outside of the arbitration provision.  Supreme Court precedent held that the Federal Arbitration Act preempts Labor Code violations outside of a private arbitration agreement involving interstate commerce.  Galen could neither claim that the misclassification was extra-contractual, as the contract was the instrument that classified him.  The Court then found the choice of law immaterial, as either gave the same result.  Finally, the court rejected Galen’s unconscionability claim.  The agreement was neither procedurally nor substantively unconscionable.  The record demonstrated no evidence of surprise or oppression from unequal bargaining power, the arbitration provision was conspicuous, the attorney’s fee provision was mutual, and the forum-selection clause was fair. The court would not find an inconvenient forum unconscionable, unless other evidence demonstrated an attempt to deprive a plaintiff of judicial relief.

The Court of Appeal held the arbitration agreement not unconscionable and reversed the trial court’s order.