ADR Case Updates
"No Rehire" Provision Goes Too Far; Meaning of "Approved As To Form & Content;" PAGA Waiver Unenforceable; and More, 09/12/2018
"No Rehire" Provision In Settlement Agreement Void As A Substantial Restraint On Former Employee's Right To Pursue Lawful Profession, Trade, Or Business (9th Cir.)
In Golden v. California Emergency Physicians Medical Group, 896 F.3d 1018 (9th Cir. 2018), Dr. Donald Golden worked as an emergency room physician for California Emergency Physicians Medical Group ("CEP"). After his employment was terminated, he brought an action in Alameda County Superior Court alleging racial discrimination. CEP removed the action to federal court. The parties reached an oral agreement at a settlement conference before a magistrate judge. The settlement agreement was later reduced to writing. However, Golden refused to sign it, claiming that one of its provisions, Paragraph 7, was contrary to California's statutory prohibition on contracts (Cal. Bus. & Prof. Code §16600) "by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind." The restriction provided that Golden would not work nor be reinstated at any "CEP-contracted facility or at any facility owned or managed by CEP." In addition, Paragraph 7 went on to state that "if CEP contracts to provide services to, or acquires rights in, a facility that is an emergency room as defined and regulated by California law at which Golden is employed or rendering services, CEP has the right to and will terminate Golden from any work in the emergency room without any liability whatsoever."
After Golden refused to sign the settlement agreement, his attorney withdrew and then moved to intervene and enforce the settlement to collect his attorney fees. The district court granted the motion and ordered Golden to sign the agreement reasoning that because Paragraph 7 would not prevent Golden from competing with CEP, it was not a restraint on his medical practice, and section 16600 did not apply. Golden appealed. A divided panel in the first appeal reversed the district court's order, holding that the court had misconstrued section 16600. The statute applies not only to noncompetition agreements but also to any contractual provision that places a "restraint of a substantial character" on a person's ability to practice a profession, trade, or business. (See Golden I, 782 F.3d at 1085.)
The case was remanded to the district court to determine in the first instance whether Paragraph 7 "constitutes a restraint of a substantial character to Dr. Golden's medical practice." On remand, the district court again ordered Golden to sign the settlement agreement, concluding this time that Paragraph 7 was not a restraint of a substantial character. The court also denied Golden's request for a jury trial and ruled that an evidentiary hearing was unnecessary. Golden timely appealed, challenging both the district court's order directing him to sign the agreement and its decision not to hold an evidentiary hearing.
Reversed and remanded: A divided panel reversed the district court's order directing Golden to sign the settlement agreement. The text of section 16600, the California courts' interpretation of that text, and the statute's underlying legislative policy lead to the conclusion that the statute applies to any professional restraint that substantially - i.e., significantly or materially - restrains a person's lawful profession, trade, or business. Under this standard, Paragraph 7 survives to the extent that it bars Golden from working at facilities that are owned or operated by CEP, but it fails to the extent that it prevents him from working for employers that have contracts with CEP and to the extent that it permits CEP to terminate him from existing employment in facilities that are not owned by CEP. Because Paragraph 7 is material to the settlement agreement, the entire agreement was void and the district court abused its discretion in ordering Golden to sign it.
Dissenting, Judge Milan Smith wrote that the settlement agreement did not violate Cal. Prof. & Bus. Code §16600, and the district court did not abuse its discretion in granting defendants' motion to enforce the agreement.
Analysis: The opinion raises questions regarding the scope of "no-rehire" provisions commonly used in employment settlement agreements. Employers typically wish to prevent former employees from seeking re-employment and make such a restriction a condition of the settlement. Here, the restriction placed on Golden was enforceable to the extent it prevented him from seeking reemployment at facilities owned or operated by CEP. The problem was with the broader restrictions on employment with employers that had contracts with CEP. In addition, Paragraph 7 applied to facilities that CEP may in the future contract to provide services to, or acquires rights in, thereby constituting a significant restraint on Golden's right to practice medicine.
Thus, the holding suggests no-rehire provisions will be enforceable to the extent they are limited in scope to restrict employment from entities currently owned and operated by the employer. Conversely, the more the no-rehire provision prevents a former employee from engaging in a lawful profession, trade, or business with an entity not currently owned or affiliated with the former employer, the less likely a court is to uphold the restriction and enforce the settlement agreement.
Counsel's Signature "Approving As To Form And Substance" Does Not Make Him Liable For Breach Of Confidentiality Provision In Settlement Agreement
In Monster Energy Co. v. Schechter, (2018) 26 Cal.App.5th 54, the parties in a wrongful death action reached a settlement and reduced it to writing. The settlement agreement included a confidentiality clause stating the parties and counsel would keep the terms confidential. Plaintiffs' counsel, Bruce Schechter, signed the agreement "approving as to form and content," and then gave an interview to a reporter who published an on-line article about the case. Monster Energy Co. filed suit against Schechter and his firm for breach of contract. In turn, the attorneys filed a motion to strike under Code of Civil Procedure section 425.16, and argued that Monster could not show a probability of prevailing on its breach of contract claim because they were not parties to the settlement agreement. In opposition to the SLAPP motion, Monster countered that Schechter's statements were commercial speech and, therefore, unprotected; and the attorneys were bound by the settlement agreement. The trial court denied the motion with respect to the breach of contact cause of action, observing that "Schechter's suggestion that he is not a party to the contract merely because he approved it as to form and content only is beyond reason."
Reversed and remanded: An essential element of any contract is mutual consent of the parties to be bound that must be clearly communicated to the other parties. Although the settlement agreement purported to bind the parties and their respective counsel, the attorneys never consented to be parties to the contract. "[A] party cannot bind another to a contract simply by so reciting in a piece of paper. It is rudimentary contract law that the party to be bound must first accept the obligation." Thus, no matter how unequivocally the settlement agreement purported to bind the attorneys, they were not subject to its terms, including the confidentiality clause, unless they specifically manifested their consent to be parties.
Nor did any exceptions apply to this general principle of contract law. While an agent can bind a principal to a contract, the converse is not true - a principal may not bind the agent. Therefore, the plaintiffs could not bind their counsel to the settlement agreement. Approving as to form and content merely means the attorneys were signing solely in their role as counsel who had reviewed the settlement agreement and given the clients their professional approval to sign it. It does not make the attorneys parties to the agreement nor subject them to any of its terms, including the confidentiality clause. Since Monster was unable to show a probability of prevailing on the merits of its breach of contract claim, the trial court erred in failing to grant the attorneys' SLAPP motion.
Analysis: Approving settlement agreements as to form and content is a very common practice, and some practitioners may assume (incorrectly) the terms of a settlement, especially a confidentiality clause, would be binding on the parties and their respective counsel. However, the Monster holding makes clear this is not so. Counsel are not bound by merely signing the agreement approving as to form and content.
Nevertheless, the opinion suggests a solution for parties, especially defendants, who will want to ensure that the parties and their counsel will keep confidential the terms of any settlement. "It seems easy enough, however, to draft a settlement agreement that explicitly makes the attorneys parties (even if only to the confidentiality provision) and explicitly requires them to sign as such."
Finding PAGA Waiver In Employee Handbook Unenforceable As Against Public Policy, Court Declined To Sever Provision And Compel Arbitration Of Individual Claims
In Juarez v. Wash Depot Holdings, Inc., (2018) 24 Cal.App.5th 1197, Wash Depot Holdings employed Carlos Juarez at its hand-car wash, and provided him with a handbook setting forth its employment policies. The handbook was written in English and Spanish, and required arbitration of employment disputes. It also denied an employee's right to bring an action under the California Private Attorneys General Act (PAGA). The English version stated that the denial of the right to bring a PAGA action was severable if such denial was found by a court to be unenforceable. The Spanish version provided that the PAGA denial was not severable. After Juarez filed a wage-and-hour-violations lawsuit, individually and on behalf of others, Wash Depot sought to compel arbitration pursuant to that policy. The trial court denied Wash Depot's motion, concluding that the arbitration agreement was unenforceable according to Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, and declined to sever the PAGA waiver, which would have resulted in arbitration of Plaintiff's individual claims.
Affirmed: Pursuant to code of civil procedure section 1281, courts will not enforce arbitration agreements that are unconscionable or in violation of public policy. To review an order denying a motion to compel arbitration, the question is whether it was "legally enforceable pursuant to general principles of California contract law." Relying upon Iskanian, "The trial court properly concluded that the PAGA waiver set forth in the handbook is unenforceable as against public policy." Furthermore, "the trial court did not abuse its discretion by declining to sever the PAGA waiver and enforce the remaining arbitration agreement." The difference in the severability clauses in the English-language and Spanish-language versions of the handbook was negligent at best and deceptive at worse. Where "the written agreement has been prepared entirely by the employer, it is a 'well established rule of construction' that any ambiguities must be construed against the drafting employer." The rule applies with particular force in adhesion contracts. "The party of superior bargaining power prescribes the words of the agreement but the subscribing party lacks the economic power to challenge the language." In short, the trial court correctly concluded that the PAGA waiver was unenforceable. Additionally, the trial court's refusal to sever the PAGA waiver and compel arbitration of Plaintiff's individual claims was not an abuse of discretion.
Rideshare Driver Driving For Both Uber And Lyft Not Bound By Arbitration Agreement With Uber When Suing In His Capacity As Lyft Driver
In Smythe v. Uber Technologies, Inc., (2018) 24 Cal.App.5th 327, Ryan Smythe worked as a driver for both Uber and Lyft, Inc., Uber's direct competitor. He filed a complaint alleging that Uber engaged in a practice of directing its drivers and others to create and use fake Lyft accounts to request rides, thereby sending Lyft drivers on wild goose chases to pick up nonexistent passengers. Uber allegedly did this to discourage drivers from driving for Lyft and cause Lyft customers to steer their patronage to Uber. The complaint asserted causes of action for unfair business practices and intentional interference with prospective economic damage on behalf of a putative class of Lyft drivers affected by the alleged scheme. Uber moved to compel arbitration under an arbitration agreement signed by Smythe ("the Rasier agreements") that required arbitration "without limitation, to disputes arising out of or related to this Agreement and disputes arising out of or related to your relationship with the Company, including termination of the relationship." The Raiser agreements included a delegation clause specifying that the disputes subject to arbitration "include without limitation disputes arising out of or relating to interpretation or application of this Arbitration Provision, including the enforceability, revocability or validity of the Arbitration Provision or any portion of the Arbitration Provision. All such matters shall be decided by an arbitrator and not by a court or judge." The trial court found Smythe's allegations were beyond the scope of the arbitration agreement and that the delegation provision was unenforceable in the context of the claims advanced in Smythe's complaint. "[P]laintiff's claims are independent of the rights and responsibilities conferred upon him under the Rasier agreements. Therefore, no part of the Rasier Agreements, including the delegation clause, can be enforced against plaintiff in this case."
Affirmed: Delegation clauses "will be given effect where there is a plausible argument that the arbitration agreement requires the merits of the claim to be arbitrated." However, Kubala v. Supreme Productions, Inc., 830 F.3d 199 (5th Cir. 2016), provides for an exception where the assertion of arbitrability is "wholly groundless." In Sandquist v. Lebo Automotive (2016) 1 Cal. 5th 233, the California Supreme Court held, "a party cannot be required to submit to arbitration any dispute which he had not agreed to so submit." Therefore, the trial court's ruling denying Uber's motion to compel arbitration was correct because it was clear that Smythe's complaint was based upon his capacity as a Lyft driver, and did not relate to his employment with Uber. Because no plausible argument could be made that the claims were related to Smythe's employment, the delegation clause was unenforceable.
Party Must Immediately Object To Arbitrator's Jurisdiction Or Waive Challenge (9th Cir.)
In ASARCO v. United States Steel, 893 F.3d 621 (9th Cir. 2018), ASARCO, a miner and refiner of copper and other precious metals, entered into a Basic Labor Agreement ("BLA") with its employees' union (Union) that included an arbitration provision. The Union filed a grievance after an amendment to the BLA that curtailed a pension bonus to certain employees. After the case proceeded to arbitration, ASARCO stipulated that the dispute was properly before the arbitrator and that the arbitrator had jurisdiction. The arbitrator's award made findings of mutual mistake in the modification to the BLA and ordered the revision of various provisions. ASARCO sought to vacate the award in district court by challenging the arbitrator's jurisdiction. The district court affirmed the award, but rejected the Union's argument that ASARCO waived the objection to jurisdiction.
Affirmed on additional grounds: A party seeking to resist arbitration has several options. One is to initially object to the arbitrator's authority, decline to argue the jurisdictional question before the arbitrator, proceed to the merits of the grievance, and then raise the issue with the court on a petition to vacate. Alternatively, the party may take the initiative and seek an independent judicial examination by filing an action for declaratory and injunctive relief at the outset of the arbitration proceeding. ASARCO did neither. Instead, it conceded the grievance was arbitrable, then argued to the arbitrator the he lacked jurisdiction to reform the BLA in crafting a remedy. Consequently, ASARCO submitted the issue to the arbitrator and evinced a subsequent agreement for private settlement of that issue. Clearly, a party may not voluntarily submit its claim to arbitration, await the outcome and then, if dissatisfied with the arbitrator's award, challenge his jurisdiction. For those reasons, ASARCO waived its right to challenge the arbitrator's authority.
Nursing Home May Compel Arbitration Of Resident's Claim Under Arbitration Agreement Notwithstanding Integration Clause In Residency Agreement Signed Before Arbitration Agreement
In Williams v. Atria Las Posas, (2018) 24 Cal.App.5th 1048, John Williams, M.D., suffered traumatic brain injury in a bicycle accident. Atria Las Posas (Atria) is a residential care facility. After his bicycle accident, Williams was admitted to Atria. Williams signed a "Residency Agreement." The agreement contained an integration clause that provided: "This Residency Agreement and all of the Attachments and documents referenced in this Residency Agreement constitute the entire agreement between you and us regarding your stay in our Community and super[s]edes all prior agreements regarding your residency." The Residency Agreement did not contain an arbitration clause. Immediately after signing the Residency Agreement, Williams signed a separate "Agreement to Arbitrate Disputes." "Article I: Arbitration" provided in relevant part as follows: "It is understood that any and all legal claims or civil actions arising out of or relating to care or services provided to you at [Atria] . . . or relating to the validity or enforceability of the Residency Agreement for [Atria], will be determined by submission to arbitration as provided by: (1) the Federal Arbitration Act (FAA), 9 U.S.C., Sections 1-16, or (2) CA law, in the event a court determines that the FAA does not apply."
Shortly after his admission to Atria, Williams walked away from the facility and was found several hours later lying in a ditch five miles away. He suffered severe injuries and brought an action against Atria. Atria petitioned to compel arbitration based upon the arbitration agreement. Williams argued that the integration clause in the Residency Agreement barred proof of the arbitration agreement. The trial court denied the petition after concluding that the integration clause of the Residency Agreement was "dispositive."
Reversed and remanded: An integration cannot be contradicted by other agreements and occurs when the parties to an agreement "express their intention that it is the final and complete expression of their agreement." Here, although the trail trial court concluded that the parties intended the residency agreement as their complete and final agreement, the facts demonstrated the contrary. The timing and contents of the agreements (the residency agreement and the arbitration agreement), establish that the residency agreement was signed before the arbitration agreement and was not intended as the final agreement. Moreover, the arbitration agreement stated that it applied to claims regarding the residency agreement's validity or enforceability. Therefore, the trial court erred in finding that the integration clause precluded proof of the arbitration agreement.
Mechanic's Lien Claimant Waives Right To Arbitration Where He Fails To Comply With Statutory Requirements To Preserve Arbitration Option
In Von Becelaere Ventures, LLC, v. Zenovic, (2018) 24 Cal.App.5th 243, James Zenovic doing business as James Zenovic Construction (Zenovic) built a single-family residence for Von Becelaere Ventures, LLC (VBV) in San Diego County. After a payment dispute arose, Zenovic filed a complaint in Orange County to foreclose on a mechanics lien he had recorded against the property.
In turn, VBV filed a construction defect suit against Zenovic in San Diego County. The matters were consolidated. Zenovic moved to compel arbitration of the construction defect suit pursuant to an arbitration clause in the contract between the parties. The trial court denied the motion. According to the trial court, Zenovic waived his right to compel arbitration of the construction defect suit by failing to comply with provisions in Code of Civil Procedure section 1281.5 in his Orange County suit to foreclose on the mechanics lien. He failed to make clear his intent to preserve his arbitration rights.
Affirmed: Section 1281.5 "means what it says: A party who files an action to enforce a mechanic's lien, but who does not at the same time request that the action be stayed pending arbitration, waives any right to arbitration." The trial court's finding of waiver does not conflict with the parties' contractual agreement.
The construction contract contained a paragraph stating, "Despite the Arbitration of Disputes provision hereinabove, Contractor shall have the right to preserve and pursue any statutory mechanic's lien and/or stop notice rights that Contractor may have separate and apart from the arbitration provisions hereof; provided, however, that the Arbitrators shall make a final determination of the amounts due and owing from Owner to Contractor, which determination shall be binding upon Owner and Contractor, and may be enforced as a judgment in a court of competent jurisdiction." That clause did not mean Zenovic could choose not to arbitrate his mechanics lien issue without impairing his right to arbitrate other construction disputes. Rather, this clause allowed him to comply with statutory provisions to record a mechanics lien and commence an enforcement action for that lien.
However, the second portion of the clause required Zenovic to submit to arbitration the issue of the amounts due and owing. The arbitrator's decision on that issue would then be enforceable by a court of competent jurisdiction. Had Zenovic preserved his arbitration rights by complying with section 1281.5 (a)(1) or (a)(2) he would have complied with both the statute and the arbitration agreement by obtaining a stay for an arbitrator to decide the amounts due. This could have been done by including in the mechanic lien foreclosure action an allegation that he did not intend to waive the right to arbitration and would move the court for a stay, or filed an application for a stay with the complaint. His failure to do so supported the trial court's finding of waiver.
Employees Not Bound By Arbitration Provisions In Employment Agreement Because Claims Are Brought On Behalf Of ERISA Plans And Not As Individuals (9th Cir.)
In Munro v. University of Southern California, 896 F.3d 1088 (9th Cir. 2018), plaintiffs were current and former employees of defendant, who participated in two ERISA plans. They signed arbitration agreements as part of their employment contracts with the university. Claiming defendant breached its fiduciary duties in administering both plans, plaintiffs sued in district court. Defendant moved to compel arbitration. The district court denied the motion concluding the arbitration agreements did not apply to the plans.
Affirmed: The dispute fell outside the scope of the arbitration agreements because the parties consented only to arbitrate claims brought on their own behalf, and the employees' claims were brought on behalf of the ERISA plans.
Arbitrator's Failure To Disclose Other Matters With Defense Counsel Mandated Reversal
In Honeycutt v. JPMorgan Chase Bank, N.A., (2018) 25 Cal.App.5th 909, Patricia Honeycutt sued her former employer, JPMorgan Chase Bank, N.A., for discrimination, retaliation, and wrongful termination. Chase moved to compel arbitration. The American Arbitration Association (AAA) administered the arbitration and appointed a retired judge as the arbitrator. The arbitrator failed to disclose eight other arbitrations involving counsel for Chase, and two other cases involving Chase, including one employment case. After the arbitrator found in favor of Chase, Honeycutt move to vacate the award and Chase moved to confirm the award. The trial court confirmed the award.
Reversed: The Code of Civil Procedure and the Ethics Standards for Neutral Arbitrators in Contractual Arbitration require arbitrators in contractual arbitrations to make various disclosures, including the arbitrator's involvement in other matters involving the parties and counsel. This duty of disclosure is an ongoing one. In this case, the arbitrator did not comply with those disclosure requirements, which gave rise to multiple grounds for disqualification. Because the arbitrator was actually aware of at least one of the grounds for disqualification, the resulting arbitration award was subject to vacatur pursuant to Code of Civil Procedure Section 1286.2(a)(6)(A). Although the disclosure rules the arbitrator violated here may seem technical, they are part of the Legislature's effort to ensure that private arbitrations are not only fair, but appear fair. "That all may drink with confidence from their waters, the rivers of justice," whether they flow through our public or private systems of dispute resolution, "must not only be clean and pure, they must appear so to all reasonable men and women." Therefore, the trial court's order denying the petition to vacate the award and granting the petition to confirm it was reversed.
"Partial Final Arbitration Award" Addressing Only Preliminary Issues Is Not An "Award" That Superior Court May Confirm
In In Maplebear v. Busick, (2018) 26 Cal.App.5th 394, Maplebear, Inc. (doing business as "Instacart"), was a same-day grocery delivery service. Donna Busick, who worked in Massachusetts as an Instacart shopper and driver, filed a class action arbitration demand on behalf of herself and similarly situated Massachusetts shoppers and drivers claiming that Instacart violated California law by classifying them as independent contractors rather than employees. Busick had signed an Independent Contractor Agreement stating that disputes would be submitted to binding arbitration. Under the terms of the Agreement, the arbitration would be conducted by JAMS under its rules and procedures; the arbitrator would apply California substantive law; the arbitrator had no "power or authority to commit errors of law or legal reasoning"; and "[a]ny action to review the arbitration award for legal error or to have it confirmed, corrected or vacated" would be decided under California law by "a California state court of competent jurisdiction." After Busick filed her class arbitration demand, and as required by Rule 2 of the JAMS Class Action Procedures, the parties submitted to the arbitrator the threshold issue whether the Agreement allowed Busick to seek certification of a claimant class within the arbitration. In a document entitled, "Partial Final Award on Clause Construction Regarding Putative Class Arbitration," the arbitrator answered the question in the affirmative, and stated that her ruling "determines only that [Busick] may move for class certification as part of the mandated arbitration. It does not address the appropriateness of such certification, nor the underlying claim that misclassified claimant and others similarly situated." Instacart filed a petition in superior court to vacate the partial final award, invoking Code of Civil Procedure sections 1285 and 1286.2. Instacart argued that the arbitrator made legal errors in concluding that the Agreement authorizes class arbitration, and therefore exceeded her authority, and that vacating the partial final award was necessary to remedy the arbitrator's errors. Busick, on the other hand, argued that the petition should be dismissed, claiming the partial final award was not subject to immediate judicial review because it was not an "award" within the meaning of section 1283.4. The superior court agreed with Busick, concluded it lacked jurisdiction to rule on Instacart's petition, and issued an order entitled, "Order Denying Petitioner [Instacart's] Petition to Vacate Partial Final Arbitration Award." Instacart appealed, arguing that the trial court should have ruled on the merits of its petition, and asking the appellate court to remand to the trial court with instructions to do so.
Affirmed: The California Arbitration Act (CAA, Code. Civ. Proc., §1280 et seq.) allows a party to an arbitration to petition the superior court to confirm, correct or vacate an arbitrator's "award," an award that must be set out in writing and "include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy." (§1283.4.) In this case, the arbitrator issued a "partial final award" determining only that the parties' arbitration agreement permits the claimant to move for class certification. This was not an "award" that was immediately reviewable by the superior court and the trial court's ruling that it had no jurisdiction under the CAA was correct.
In Construction Defect Arbitration Brought By HOA Against Developer, Arbitrator Correctly Dismissed Claim Where HOA Did Not Obtain Prior Consent Of Members As Required By CC&Rs
In Branches Neighborhood Corp. v. CalAtlantic Group, Inc., (2018) 26 Cal.App.5th 743, Branches Neighborhood Corporation, a community association incorporated pursuant to the Davis-Stirling Common Interest Development Act (Civ. Code, §4000, et seq.), filed an arbitration claim against the association's developer, defendant CalAtlantic Group, Inc., for construction defects. The arbitrator granted summary judgment in defendant's favor, concluding the association did not receive the consent of its members to file the claim until after the claim was filed, in violation of its declaration of Covenants, Conditions and Restrictions (CC&Rs). The trial court subsequently denied the association's motion to vacate the award, concluding the court had no power to review the arbitrator's decision.
Affirmed: "Where an arbitrator's decision has the effect of violating a party's statutory rights or well-defined public policies - particularly those rights and policies governing the conduct of the arbitration itself - that decision is subject to being vacated or corrected." This applies only in "limited and exceptional circumstances." However, "without an explicit legislative expression of public policy, courts should be reluctant to invalidate an arbitrator's award on this ground." Here, Branches argued that ratification after the fact was an alternate method to obtaining the prior consent the CC&Rs required. To the contrary, the CC&Rs required affirmative consent of a quorum of members "prior to" initiating a construction defect action. "This is consistent with the aims of the Davis-Stirling Act - to balance the association's need to operate efficiently with the rights of its members to be informed and participate in decisions that could impact the association for years, if not decades, to come." Therefore, the trial court correctly affirmed the arbitrator's dismissal of Branches claim because the HOA had not obtained the prior consent of its members.
Nonsignatory To Arbitration Agreement May Not Compel Arbitration Unless Exception Found To General Rule That One Must Sign Arbitration Agreement In Order To Compel Arbitration
In Fuentes v. TMCSF, Inc., (2018) 26 Cal.App.5th 541, Alfredo Fuentes entered into a written agreement with defendant TMCSF, Inc., doing business as Riverside Harley-Davidson (Riverside), to buy a motorcycle. At the same time, he entered into a written agreement with Eaglemark Savings Bank (Eaglemark) to finance the purchase. The latter agreement included an arbitration clause; the former agreement did not. Fuentes then filed an action against Riverside, alleging that Riverside made various misrepresentations and violated several statutes in connection with the sale of the motorcycle. Riverside petitioned to compel arbitration. The trial court denied the petition.
Affirmed: "Code of Civil Procedure section 1281.2 allows a party to an arbitration agreement to petition to compel arbitration. By stating that a party to an arbitration agreement may petition to compel arbitration, the statute assumes that a proceeding to compel arbitration will be between the signatories to the agreement." "Nonsignatory defendants may enforce arbitration agreements where there is sufficient identity of parties." Enforcement is permitted where the nonsignatory is the agent for a party to the arbitration agreement, or the nonsignatory is a third party beneficiary of the agreement. In addition, a nonsignatory may enforce an arbitration agreement under the doctrine of equitable estoppel." Here, Riverside was not entitled to compel arbitration because it was not a party to the arbitration clause, it was not acting in the capacity of an agent of Eaglemark, a party to the arbitration clause, and it was not a third party beneficiary of the arbitration agreement between Fuentes and Eaglemark. Moreover, Fuentes was not equitably estopped to deny Riverside's claimed right to compel arbitration. Hence, the trial court's denial of Riverside's petition to compel arbitration was correct.
California opinions are posted at: click here, and the Ninth Circuit opinion at: click here.
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