Arbitration | CALIFORNIA CLASS ACTION LAW

August 19, 2014

Ninth Circuit Nixes “Browsewrap” Arbitration Agreement, Even Where Link Appeared Near Buttons

Yesterday the Ninth Circuit affirmed the denial of a motion to compel arbitration where the arbitration agreement was part of a “browsewrap” agreement. Nguyen v. Barnes & Noble Inc., No. 12-56628, __ F.3d __ (N.D. Cal. Aug. 18, 2014). The motion arose in a putative class action relating to a cancelled order for a Hewlett-Packard Touchpad on the Barnes & Noble website. Id. at *4. The browsewrap agreement was contained in the site’s Terms of Use, which was available via a link at the bottom left-hand corner of every page of the website. Id. at *5. The Terms of Use link also appeared either directly below the relevant button a user must click on to proceed in the checkout process or just a few inches away. Id. at *13. (“Unlike a clickwrap agreement, a browsewrap agreement does not require the user to manifest assent to the terms and conditions expressly . . . [a] party instead gives his assent simply by using the website.” Id. at *9-10 (citing Hines v. Overstock.com, Inc., 668 F. Supp. 2d 362, 366–67 (E.D.N.Y. 2009).)

The panel held that the plaintiff had insufficient notice of the terms of use, and thus did not enter in an agreement to arbitrate.

[W]here, as here, there is no evidence that the website user had actual knowledge of the agreement, the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract. . . . Whether a user has
inquiry notice of a browsewrap agreement, in turn, depends on the design and content of the website and the agreement’s webpage. . . . Where the link to a website’s terms of use is buried at the bottom of the page or tucked away in obscure corners of the website where users are unlikely to see it, courts have refused to enforce the browsewrap agreement.

Id. at *11-12 (internal citations omitted).

The court noted that there was no evidence that the plaintiff had actual knowledge of the agreement. “[T]he proximity or conspicuousness of the hyperlink alone is not enough to give rise to constructive notice . . . .” Id. at *14.

[W]e therefore hold that where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice. While failure to read a contract before agreeing to its terms does not relieve a party of its obligations under the contract, Gillman v. Chase Manhattan Bank, N.A., 73 N.Y.2d 1, 11 (1988), the onus must be on website owners to put users on notice of the terms to which they wish to bind consumers. Given the breadth of the range of technological savvy of online purchasers, consumers cannot be expected to ferret out hyperlinks to terms and conditions to which they have no reason to suspect they will be bound.

Id. at * 15-16.

Judges and Attorneys:

Before Circuit Judges John T. Noonan and Kim McLane Wardlaw and Senior District Judge Roslyn O. Silver, Senior District
Judge. Judge Noonan delivered the opinion.

Appeal from the Central District of California, Judge Josephine L. Staton presiding.

Michelle C. Doolin (argued), Leo P. Norton, and Erin E. Goodsell, of Cooley LLP, San Diego, California, for Defendant-
Appellant.

Gretchen Carpenter (argued), and Brian R. Strange, of Strange & Carpenter, Los Angeles, California, for Plaintiff-Appellee.

By CHARLES H. JUNG

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June 5, 2013

Arbitration Clause on Back of Pre-Printed Auto Purchase Contract Is Unconscionable

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Yesterday, in Vargas v. SAI Monrovia B, Inc., No. B237257, __ Cal. App. 4th __ (2d Dist. June 4, 2013), a putative class action, the Second District revisited its holding in Sanchez v. Valencia Holding Co., LLC, 201 Cal.App.4th 74 (2012), review granted March 21, 2012, S199119. In Sanchez the court held that a “Retail Installment Sale Contract” used to purchase an automobile is unconscionable and unenforceable. In Vargas, the court again concluded that the identical sale contract does not require the arbitration of disputes between a purchaser and a car dealer because it is permeated by unconscionability.

The arbitration provision, entitled, “ARBITRATION CLAUSE,” was on the back at the bottom of the page, outlined by a black box; the arbitration provision was the last provision in the Sale Contract concerning the purchase of the vehicle; a provision related to the assignment of the contract appeared below it. The buyers’ final signatures appeared near the bottom of the front side. The only signature line on the back was at the very bottom of the page; it required the seller’s signature to assign the contract to a third party.

Slip Op. at 3.

The court found that the arbitration provision satisfies the two elements of procedural unconscionability: oppression and surprise. Read the rest of this entry »

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April 19, 2013

Employer’s Right to Alter Handbook’s Terms Doesn’t Render Illusory Mutual Obligation to Arbitrate

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The Second District ordered published today Serpa v. California Surety Investigations, Inc., et al., No. B237363, __ Cal. App. 4th __ (filed Mar. 21, 2013, modified Apr. 19, 2013). In Serpa, the Court of Appeal reversed the denial of a motion to compel arbitration.

At the trial court level, the court denied defendants’ motion to compel arbitration, finding the agreement to arbitrate lacked mutuality. Defendants argued that the requisite mutuality was provided by the bilateral arbitration provisions in the employee handbook, incorporated by reference into the arbitration agreement. The trial court rejected this argument because defendant could change the handbook at its sole discretion and without notice. The Second District reversed.

Because the agreement incorporated the arbitration policy in the employee handbook, the Court concluded that this “salvages the agreement by establishing an unmistakable mutual obligation on the part of [employer and plaintiff] to arbitrate ‘any dispute’ arising out of her employment.” Plaintiff argued that the while the arbitration policy in the handbook establishes a bilateral obligation to arbitrate, she insisted that the mutual obligation is illusory because, the employer is authorized to alter the terms of any policy contained in the handbook at its sole discretion and without notice. The Court disagreed, reasoning that the right to alter the terms was limited by the covenant of good faith and fair dealing implied in every contract.

You can read more here.

By CHARLES H. JUNG

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April 17, 2013

Second District Draws Distinction Between Allegations and Judicial Admissions in Denying Arbitration

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In a tax day ruling that may have implications for co-defendants seeking to compel arbitration, the Second District affirmed a trial court’s denial of a motion to compel arbitration. Barsegian v. Kessler & Kessler, et al., No. B237044, __ Cal.App.4th __ (2d Dist. Apr. 15, 2013). Some defendants moved to compel arbitration, but the remaining defendants did not. Slip Op. at 2. The trial court denied on the grounds of waiver and the possibility of inconsistent rulings.

Moving defendants sought a reversal, arguing that plaintiff’s complaint alleged that all defendants are agents of one another, and that allegation is a binding judicial admission that gives the non-moving defendants the right to enforce the arbitration agreement. The court disagreed, noting that:

[N]ot every factual allegation in a complaint automatically constitutes a judicial admission. Otherwise, a plaintiff would conclusively establish the facts of the case by merely alleging them, and there would never be any disputed facts to be tried. . . . A judicial admission is therefore conclusive both as to the admitting party and as to that party’s opponent. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 454, p. 587.) Thus, if a factual allegation is treated as a judicial admission, then neither party may attempt to contradict it—the admitted fact is effectively conceded by both sides.

Here, the moving defendants sought to reserve the right to argue at arbitration that the allegation of mutual agency was false, and thus it was not conceded by both sides.

Although the Kessler defendants frame their argument using the term “judicial admission” and rely on case law concerning judicial admissions, their counsel confirmed at oral argument that they do not in fact wish to treat Barsegian‟s allegation of mutual agency as a judicial admission, because the Kessler defendants do wish to be able to contest the truth of that allegation, either in court or before an arbitrator. That is, the Kessler defendants wish to hold Barsegian to the mutual agency allegation only for purposes of the motion to compel arbitration, but, should they succeed in compelling arbitration on the basis of that allegation, they wish to retain the right to prove to the arbitrator that the allegation is false. That is not how judicial admissions operate.

You can read more here.

By CHARLES H. JUNG

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March 20, 2013

California Court of Appeal Cites Death Knell Doctrine to Assert Jurisdiction Over Appeal of Order Granting Arbitration

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Yesterday, in a proposed wage and hour class action, the California Court of Appeal for the Second District reversed the lower court’s order granting a petition to compel arbitration. Compton v. Superior Court of Los Angeles County, No. B236669, — Cal.Rptr.3d —-, 2013 WL 1120619 (2d Dist. Mar 19, 2013). Plaintiff was a property manager who was required to sign an arbitration agreement that also barred arbitration of class claims. The trial court granted defendants’ petition to compel arbitration.

Normally an order compelling arbitration is not appealable. But the Court of Appeal determined it had jurisdiction, citing the “death knell” doctrine:

An order compelling arbitration is not appealable. (Elijahjuan v. Superior Court (2012) 210 Cal.App.4th 15, 19.) The parties argue over whether this matter is appealable under the “death knell” doctrine, which applies when an order effectively terminates a class action. Rather than parse the case law on that issue, we conclude that we have jurisdiction to treat this nonappealable order as a petition for writ of mandate in this unusual case because: (1) the unconscionability issue is one of law based on undisputed facts and has been fully briefed; (2) the record is sufficient to consider the issue and it appears that the trial court would be only a nominal party; (3) if we were to dismiss the appeal, and the ultimate reversal of the order is inevitable, it would come in a post-arbitration award after the substantial time and expense of arbitrating the dispute; and (4) as a result, dismissing the appeal would require the parties to arbitrate nonarbitrable claims and would be costly and dilatory.

The Court concluded that the arbitration agreement was unconscionably one-sided because (1) it exempted from arbitration claims the employer would more likely bring, such as claims for injunctive or equitable relief from trade secret disclosures; (2) it limited the time to demand arbitration to a period shorter than the relevant statutes of limitation; (3) it retained the statute of limitations period for itself and (4) it suggested that the arbitrator had the discretion not to award mandatory attorney’s fees under the Labor Code.

The Court determined that it was not violating Concepcion by enforcing Armendariz’s bilaterality rule:

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March 19, 2013

California’s First District Invalidates Auto Dealer’s Arbitration Agreement Due to Lack of Mutuality

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The California Court of Appeal struck down an arbitration agreement by a car dealer defendant in a putative class action, rejecting an argument that an unconscionability analysis that focuses on the lack of mutuality in an arbitration contract violates Concepcion. Natalini v. Import Motor, Inc., 213 Cal. App. 4th 587 (1st Dist., mod. February 5, 2013).

Relying on the U.S. Supreme Court’s holding in AT & T Mobility LLC v. Concepcion, 563 U.S. –––– , 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), appellant car dealer argued that an “unconscionability analysis that focuses on the lack of mutuality or bilaterality in an arbitration provision is ‘an example of applying a generally applicable contract defense in a manner which disfavors arbitration.'” The First District declined to read Concepcion so broadly, and noted that:

Recent California and federal district court decisions addressing arbitration provisions very similar to that in the present case and in the identical car purchase context have not read Concepcion so broadly. (See Trompeter v. Ally Financial, Inc. (N.D.Cal., June 1, 2012, No. C–12–00392 CW) 2012 WL 1980894 [p. *8] [nonpub. opn.] ( Trompeter ); Smith v. Americredit Financial Services, Inc. (S.D.Cal., Mar. 12, 2012, No. 09cv1076 DMS (BLM)) 2012 WL 834784 [pp. *2–*4] ( Smith ); Lau v. Mercedes–Benz USA, LLC (N.D.Cal., Jan. 31, 2012, No. CV 11–1940 MEJ) 2012 WL 370557 [pp. *6–*7] ( Lau ); see also Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 804, fn. 18, 137 Cal.Rptr.3d 773.) Read the rest of this entry »

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March 16, 2012

Ninth Circuit Holds that FAA Under Concepcion Broadly Preempts State Law Invalidating Class-Action Waivers in Arbitration Agreements

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The Ninth Circuit Court of Appeals in a published opinion today, held that the Federal Arbitration Act broadly preempts state law invalidating class-action waivers in arbitration agreements, even where the waivers would preclude effective vindication of statutory rights. The opinion can be found here: http://www.ca9.uscourts.gov/datastore/opinions/2012/03/16/09-35563.pdf.

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February 21, 2012

Broad “Any Disputes” Language in Arbitration Agreement Insufficient to Manifest Clear and Unmistakable Intent to Delegate Threshold Arbitrability Determination to Arbitrators

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Editorial note: The author of California Class Action Law appeared for respondent Ajamian in the opinion summarized below, Ajamian v. CantorCO2e, L.P., et al.

In an opinion certified for publication, the First District Court of Appeal held that a broadly worded arbitration agreement that stated that “[a]ny disputes, differences or controversies arising under” a contract shall be settled by a panel of arbitrators was insufficient to establish “clear and unmistakable” evidence of an intent to delegate issues of enforceability or arbitrability to the arbitration panel. Ajamian v. CantorCO2e, L.P., et al., No. A131025 (1st Dist., Div. 5 Feb. 6, 2012) (available at http://www.courtinfo.ca.gov/opinions/documents/A131025.PDF).

Although the arbitration provision was broadly worded and indicated that arbitration might be conducted under the rules of an arbitration service that gives arbitrators the power to decide the validity of arbitration agreements, it did not provide clear and unmistakable evidence that the parties intended to delegate authority to the arbitrator, rather than to the court, to decide the threshold issue of whether the arbitration provision itself was unconscionable.

Id.

Background

Plaintiff Ajamian filed a complaint against Defendants CantorCO2e and Margolis, asserting claims under the California’s Fair Employment and Housing Act, the California Labor Code, and other theories. Id. Defendants filed a petition to compel arbitration pursuant to the terms of a written employment agreement or, alternatively, an employee handbook. Id.

The arbitration provision of the employment agreement read: Read the rest of this entry »

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February 17, 2012

In a Wage Class Action, Defendants Waived Right to Arbitrate After Engaging in Extensive Discovery and Filing 2 Motions to Compel

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In an unpublished decision, the First District Court of Appeal affirmed the trial court’s denial of a motion to compel arbitration in a wage and hour class action, where defendants conducted voluminous discovery and filed and fully litigating two motions to compel further responses to discovery, a motion for sanctions and a motion for a protective order. Partridge, et al. v. Hott Wings, Inc., et al., No. A130266, 2012 WL 470458 (Feb. 14, 2012).

Discussion

The Court found that Defendants’ delay in filing their petition to compel arbitration “connotes an intent not to arbitrate”. Id. Defendants conducted substantial discovery:

Between March 2010 and the October 2010 hearing on defendants’ motion to compel arbitration, defendants engaged in voluminous written discovery to which plaintiffs responded. In addition, defendants deposed numerous plaintiffs and third party witnesses. Although plaintiffs had begun deposing witnesses, they had not yet obtained basic documents from defendants through discovery. The discovery focused on the liability of individual defendants and the franchise defendants that employ plaintiffs. As a result of defendants’ discovery requests, plaintiffs provided information regarding plaintiffs’ estimated damages, which defendants were responsible for which violations, and the liability of the individual as well as the franchise defendants. A reasonable inference is that the information gained from defendants’ discovery goes to significant issues in plaintiffs’ case.

Id.

In addition, the Court found that Defendants “substantially invoked the litigation machinery” by: Read the rest of this entry »

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October 4, 2010

Second District Compels Arbitration of Individual Claims in a Class Action Where Arbitration Agreement Contained an Unenforceable Class Arbitration Waiver

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The Second District compelled a class action plaintiff to arbitrate his individual claims in Maiorano v. Professional Community Management, Inc., No. B220127, 2010 WL 3786721 (Cal. Ct. App. 2d Dist. Sept. 30, 2010). Defendant, Professional Community Management, Inc., appealed from an order denying its petition to compel arbitration of a putative class action filed by plaintiff, Ray A. Maiorano. Id. *1. The Second District held that “based solely on the parties’ agreement, we conclude they cannot be compelled to arbitrate on a class basis”, but it directed the trial court to compel arbitration of plaintiff’s individual claims. Id. The court reasoned that the “presence of a provision limiting arbitration to individual rather than joined or representative claims did not present a basis upon which the trial court could conclude the present arbitration agreement was permeated by an unlawful purpose.” Id. *4.

Background

Plaintiff brought a class action complaint alleging violations of statutory meal and rest breaks, wage reporting and overtime requirements, and unlawful and unfair business practices. Id. *2. Plaintiff also asserted a cause of action for penalties under the Labor Code Private Attorneys General Act of 2004–Labor Code sections 2698 and 2699. Id. Defendant filed a petition to compel arbitration. The trial court denied defendant’s petition, ruling that: Read the rest of this entry »

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Tag: Arbitration