Cal Biz Lit

Ninth Circuit Rules “No, You Can’t Just Stash the Binding Arbitration Agreement in the Box”

We know that under the “shrink-wrap doctrine,” the manufacturer of software can place language on the outside of its package stating that by opening the shrink-wrap around the DVD or CD-ROM that contains the software, the user agrees to the terms of a license, which may be inside the packaging, on the wide world web or elsewhere. That’s Wall Data Inc. v. L.A. Cty. Sheriff’s Dep’t, 447 F.3d 769, 782 (9th Cir. 2006). And we also know that when a manufacturer puts provides a warranty in a use and care guide, which the buyer doesn’t see until she has bought the product, taken it home opened the package and put the product to use, if those things happen at all, the warranty is enforceable against the manufacturer. Weinstat v. Dentsply International Inc., 180 Cal. App. 4th 1213 (2010).

So how about when the manufacturer, or distributor, or seller puts a provision that reduces consumer rights in the box, in a manual, such as, say, a binding arbitration provision? That was the issue in Norcia v. Samsung Telecomm ___ F.4^th___ (9^th Cir. 2017) decided just a few days ago.

Norcia bought a cell phone and a plan at a Samsung Galaxy GS4 phone at a Verizon store (Fortunately, it wasn’t a Note 7). He sued Verizon, and Verizon moved to compel contractual arbitration.

At the store, Norcia had signed a “Customer Agreement” with the following provisions:.

I agree to the current Verizon Wireless Customer Agreement, including the calling plan, (with extended limited warranty/service contract, if applicable), and other terms and conditions for services and selected features I have agreed to purchase as reflected on the receipt, and which have been presented to me by the sales representative and  which I had the opportunity to review.

Consumer Legal Remedies Act: Court of Appeal Provides a Guide to How Defendants Can Shut These Actions Down

It’s nice once in awhile when a court understands how the real world works. It’s also nice when a court holds a statute means what it says. The Court of Appeal recently did both those things in Benson v. Southern California Auto Sales, Inc. (August 27, 2015) ___ Cal.App.4^th ___ (Fourth Appellate Dist. G050484). This was a case involving California’s Consumer Legal Remedies Act, Civil Code Section 1750 and following, (often known as the “CLRA”).

First, some background: Section 1790 of the CLRA declares some 23 practices in the sale of goods or services to be “unfair methods of competition” and “unfair or deceptive acts or practices.” The itemized proscribed practices are quite broad, including “Passing off goods or services as those of another,” “Representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another,” or “Inserting an unconscionable provision in the contract.” The 23 practices are sufficiently broad that consumer plaintiff attorneys can often find one that matches just about anything their clients are unhappy about.

More after the jump.

CAL SUPREMES DECIDE SANCHEZ V. VALENCIA HOLDINGS – UPHOLD ARBITRATION AGREEMENT

Well, it only took 3 ½ years since the Petition for Hearing was filed, and just a year and a half since the case was fully briefed (see CBL’s posts whining about the long delay here and here) but we finally have a decision in Sanchez v. Valencia Holdings (August 3, 2015) ___Cal.4^th___, S1999119, the eagerly awaited consumer arbitration agreement case.

 

Short version:  the binding arbitration agreement in the Form 553 CA ARB retail installment sale contract predominantly used by California automobile dealers in 2010 was valid and enforceable.  But this is not just important for automobile dealers. The overall decision is important for all consumer goods businesses that want to use class action waiver and binding arbitration provisions. Because it confirms that they can.

More after the jump.

So What the Heck is Happening With Contractual Arbitration in California?

CBL is not just about Proposition 65 – it just sometimes seems that way.  But the goal here is to provide out-of-state lawyers, general counsel, and other interested parties with some useful information about cutting edge issues facing litigants here in the Golden State.  And today, we’re talking about the seemingly never-ending battle about contractual arbitration. There is a lot going on, resulting, no doubt, in an overly long post.  Here goes.

OK, so if you haven’t been sleeping under a rock the past three years, you know this:  In 2011, SCOTUS decided AT & T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).  Up until then, California Courts followed the “Discover Bank rule” (Discover Bank v. Superior Court (2005) 36 Cal.4th 148) to rule that in consumer contracts with binding arbitration clauses and class action waivers, the class action waiver rendered the arbitration clause unconscionable and therefore unenforceable.  But in Concepcion, SCOTUS invalidated Discover Bank, ruling that it conflicted with the Federal Arbitration Act (“FAA”), 9 U.S.C. § 2.  More broadly, SCOTUS noted:

[The FAA] permits arbitration agreements to be declared unenforceable "upon such grounds as exist at law or in equity for the revocation of any contract." This saving clause permits agreements to arbitrate to be invalidated by "generally applicable contract defenses, such as fraud, duress, or unconscionability," but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue. 

Since Concepcion was decided, there have been scores of arbitration decisions coming out of the California Courts of Appeal, and three subject to review by Cal Supremes.  Two of the three Cal Supremes cases have been decided, as follows:

Sonic-Calabasas A, Inc. v. Moreno (2011) 51 Cal.4th 659 (“Sonic I”) and Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109 (“Sonic II”) arrived on the scene, respectively, before and after Concepcion.  In Sonic I, before Concepcion, the Cal Supremes considered an employee/employer contract that (a) had binding arbitration provision and (b) waived the right to a “Berman hearing,” a California administrative hearing mechanism for wage claims.  The Cal Supremes held that the waiver of the Berman hearing was unconscionable, that the employee had a right to the hearing, but that if the arbitration provision was valid, arbitration would supplant the post-Berman court processes.

More after the jump.

California Courts of Appeal Continue to Declare Independence From SCOTUS in Arbitration Matters

The California courts’ post-Concepcion Kabuki theater involving binding arbitration requirements in consumer and employment contracts continues.  CBL’s post on the course of events up to mid-July is here.

First, we had Brown v. Ralph’s Grocery Company (2011) ___ Cal.App.4^th ___ (2^nd Dist., B222689).  In Brown, an employment case, the Court of Appeal held that Concepcion only applies to class action waivers in arbitration agreements, not to “representative action waivers,” which are void as against public policy.  Last week, the Cal Supremes denied a hearing, so Brown is the law throughout California at least until the US Supremes get their talons into it.

Now we have Sanchez v. Valencia Holding Company, LLC (2011) ___Cal.App.4^th___ (2^nd Dist., B228027) a consumer case.  The short version:  an arbitration provision in an automobile dealership Retail Installment Sales Contract was held invalid as procedurally and substantively unconscionable.  The long version is after the jump.

What's New At Cal Supremes

Here are a couple of updates on cases CBL has reported on over the last few months.

First, under the category "Court of Appeals Pokes SCOTUS in Eye," binding arbitation division, CBL reported on July 14 about Brown v. Ralph's Grocery Stores (July 12, 2011) ___Cal.App.4th ___ (2nd Dist., B222689) wherein the Court of Appeals used some extremely convoluted reasoning to try to get around the US Supremes' disapproval of  Discover Bank v.  Superior Court (2005) 36 Cal.4th 148.  The Brown court essentially tossed a  binding arbitration provision with a class action waiver in an employment action brought under California's Private Attorney General Act.  The employer has petitioned the Cal Supremes for a hearing.  They have until November 21 to grant or deny a  hearing (if they grant themselves a 30-day extension).  The Cal Supremes' case number is S195850.

Second, under the category "Who just took my $15 million verdict away?" ancient precedent division, CBL reported in March on Leung v. Verdugo Hills Hospital (now an unciteable case) where the Court of Appeal relied on some very old authority to hold that release of one defendant in a multi-defendant lawsuit could result in the release of all defendants.  The Court of Appeal begged the Cal Supremes to take the case up.  The Cal Supremes have obliged and granted a hearing, and the first brief on the merits is due September 7.  The Cal Supremes' case number for this one is S192768.

Stay tuned.  CBL will keep you up to date.

Cal Court of Appeal to US Supremes: "Oh yeah, says who?"

Let's review where we are on arbitration agreements and class action waivers. 

• First, there was Discover Bank v.  Superior Court (2005) 36 Cal.4th 148,  where the Cal Supremes held that "at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable, whether the consumer is being asked to waive the right to class action litigation or the right to classwide arbitration” and that “the FAA [does not preempt] California law in this respect."
• Next, we had AT&T Mobility LLC v. Concepcion (2011) ___ US ___, overruling Discover Bank and holding that the rules it established were preempted by the FAA.
• And now we have a mad scramble in California to try to find the cracks and crevices and exceptions that will keep consumer lawsuits and employment lawsuits out of the clutches of FAA preemption and alive in the good old fashioned California court system..

First out of the box in this regard:  plaintiff in Brown v. Ralph's Grocery Stores (July 12, 2011) ___Cal.App.4th ___ (2nd Dist., B222689).

(Ralph's Grocery Stores sure has been active in high profile appellate news this year.)

In this latest Ralph's case, the Plaintiff brought an action against his employer under Calfiornia's Private Attorney General Act, or "PAGA."  PAGA says that an aggrieved employee who is entitled to Labor Code penalties against his or her employer can sue on his own behalf of "other current or former employees" to recover those penalties for everybody (although 75% of the penalties go the State). 

Brown files a PAGA case against Ralph's.  Ralph's says:  "oh no you don't, you signed an arbitration agreement and class action waiver."  Ralph's loses at the trial court, the case goes to the Court of Appeal, everybody briefs, argues, submits it.  And then the US Supremes decide AT&T.  At which point Ralph's and its lawyers are feeling pretty good.  The Court of Appeal invites more briefing.  And then it lowers the boom.

On Ralph's. 

The purpose of the PAGA is not to recover damages or restitution, but to create a means of “deputizing” citizens as private attorneys general to enforce the Labor Code. . . . Here, the relief is in large part “for the benefit of the general public rather than the party bringing the action” . . . .

Dontcha' know, it's not a class action.  It's a representative action.  And AT&T doesn't say anything about representative actions.

So Ralph's comes in second in the case.  So says the Court of Appeal, 2 - 1.

To which I've got two words in response.

 

NINO SCALIA.

 

Waiting For Insurance Coverage For Your Proposition 65 Case? Not Such A Good Idea

 Update:  The case discussed here has now been certified for publication.  Which means it's citeable for the proposition that liability insurance policies don't cover Proposition 65 matters.  Cal Biz Lit hardly ever reports on unpublished appellate decisions.  Citing them in court is verboten, so I generally figure that discussing them here just confuses things. 

But there are always exceptions, and hey, it’s my law blog, so I guess I can decide when an exception applies.  All of which brings us to Ulta Salon Cosmetics Fragrance Inc. v. Travelers Property Casualty Insurance Company of America  (June 10, 2011), Link provided to Google Scholar – see those great big bold letters that say “NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS” ?  This means you!)

The case stands for a really simple proposition:  A commercial general liability policy neither affords coverage nor provides a defense duty for a claim under Proposition 65.  This is because there is no allegation of bodily injury or property damage. Although we’ve heard an occasional rumor about some insurance company agreeing to defend a Proposition 65 enforcement matter, we’ve never seen one do it. 

But Ulta Salon, and the two other cases we discuss today, offer important cautionary tales for companies sued in Proposition 65 cases.  To learn today’s moral, you’ll have to stick around to the end of the post.

We are aware of two previous published cases relevant to insurance coverage and Proposition 65 cases. Oddly enough, neither are California cases and both are from Illinois.  In Crawford Laboratories, Inc. v. St. Paul Insurance Company of Illinois (1999) 715 N.E. 2^nd 653, the Illinois based plaintiff fell into the clutches of a California bounty hunter was sued by a private party enforcer under Proposition 65.  It sued its insurer seeking a declaration that it was entitled to a defense.  The Illinois Court said nix, based on the same grounds recently cited in the unpublished Ulta Salon opinion:  no bodily injury, so no duty to defend.  Four years later, the same court decided HPF, L.L.C. v. General Star Indemnity (2003) 788 N.E.2d 753.  The insured there had been sued under the old version of California’s Unfair Competition Law, which in the bad old days allowed plaintiffs to sue in the alleged public interest without showing they had been injured (or, for that matter, that they ever had anything to do with the business they were suing – a nifty feature the voters abolished in the 2004 election with Proposition 64). 

And that’s it! No reported California decisions on point at all.   Until this one.  On July 11, the Court of Appeal certified the case for publication.  Which means the scenarios described below are a whole lot less likely.

So why in the world did the Court of Appeal decide not to publish this?  California Rules of Court Rule 81105(c) provides a long list of grounds for publishing appellate decisions, including the following:

(c) Standards for certification

An opinion of a Court of Appeal or a superior court appellate division-whether it affirms or reverses a trial court order or judgment-should be certified for  publication in the Official Reports if the opinion:

(1)  Establishes a new rule of law;

(2)  Applies an existing rule of law to a set of facts significantly different from those stated in published opinions . . . .

Well, CBL doesn’t know if this is a “new rule of law,” or “an existing rule of law” but it isn’t stated anywhere in any California published opinion that CBL has been able to find.

The lack of a definitive published California decision until now has resulted in the following perverse scenarios:

• In Crawford Laboratories, the insured company ran up attorneys’ fees and costs of $117,500 before settling with As You Sow, the bounty hunter, for $3,000.
• In H.P.F., L.L.C. the insured company wasn’t so lucky.  It ran up a fee and cost bill of $317,779.04 before reaching whatever disposition it  came to.
• In Ulta Salon, the case we’re talking about today, Ulta Salon paid fees and costs to its defense counsel of $214,684 before settling the case for – wait for it -- $25K.

Now, it may be that the $200K in legal work is why Ulta Salon only had to pay $25K in settlement, right?  CBL doesn’t know the answer to that question.  But CBL does know this:  Ulta Salon was one of 18 defendants sued by this bounty hunter for alleged Proposition 65 violations involving nail products.  If the Attorney General’s web site is correct, she settled with a grand total of three of them.  All three agreed to take the chemical (DBP) out of their nail products.  One paid her $2,500.  One paid her $6,000.  And Ulta Salon paid her $25,000.

So the moral of this story is this (remember?  CBL told you there was a moral):  If a company gets sued under Proposition 65, it needs to decide what it wants to do at the outset.  Want to defend the case?  Great.  Go for it.  Just prepare to go the distance.  Want to treat the case as an expensive traffic ticket, pay it and get it behind you?  Sorry to hear it.  But do it now.  Don’t do it after $100K or $200K or $300K worth of litigatin’. 

Looking at Wal-Mart Stores, Inc. v. Dukes Through A California Lens

In last week’s widely discussed reversal of a trial court order certifying “one of he most expansive class actions ever,” (Wal-Mart Stores, Inc. v. Dukes, ___US___(June 20, 
2011), the US Supremes seemingly narrowed by a significant amount the grounds for  certifying a class under FRCP 23(a) and 23(b).  Most notably, the Court held that Rule 23’s commonality requirement could be met only if “claims . . . depend on a common contention, ” which:

must be of such a nature that it is capable of classwide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

California – where we have lots of class action litigation – has no Rule 23.  In fact, except for our Consumer Legal Remedies Act, the only statutory guidance for class actions here is the second clause of Code of Civil Procedure section 382,

. . . when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.

Since the 1960s, California courts have allowed class actions when a class can be ascertained and when there is “a well defined community of interest in the questions of law and fact involved affecting the parties to be represented.”  Chance v. Superior Court (1962) 58 Cal.2d 275, 286; Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695.  More recently, our courts have somewhat conflated the Federal “common issues of law or fact” with the requirement that common issues “predominate.” 

The community of interest requirement embodies three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.

Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470.

While Calfornia courts have often looked to the Rule 23 jurisprudence for guidance (see City of San Jose v. Superior Court (1974) 12 Cal.3d 447;  Frazier v. City of Richmond (1986) 184 Cal.App.3d 1491) there is nothing that requires them to do so, and it may be that they decline to follow Dukes altogether.  But what will be the impact if they do?  CBL sees two areas worth looking at.

First, while Duke provides some pretty solid defense argument on the subject of commonality, there is no real California game changer here.  The US Supremes pretty much held that the decision on the common factual or legal issues must be outcome-determinative.  And that has been the law in California for a long time.  While our courts allow some room for individualized litigation by class members, they have generally held that common issues predominate only when class members, after the class proceedings are over, won’t have to litigate “numerous” or substantial” matters in order to establish liability in their favor.  City of San Jose v. Superior Court, supra, 12 Cal.3d 447;  Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906.  So even if courts follow Dukes, CBL is guessing there's no big change here.

The more interesting question is what happens now that the US Supremes have thrown Eisen v. Carlisle & Jacquelin (1974) 417 U.S. 156, 177 under the bus.  That case has been repeatedly cited by California courts (e.g., Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429 ) by plaintiffs and by defendants, depending on who it helps, for the proposition that courts cannot look at a case’s merits in ruling on class certification.  To which Justice Scalia and  the Supremes respond “booshwah.  Eisen says no such thing.”  And to the extent it does (as everybody in California thought it did), ‘it is the purest dictum and is contradicted by our other cases.”  (Id, fn. 6.) 

So in CBL’s view, the biggest impact of Dukes on California courts is the stake it casts through the heart (note the multitude of mixed metaphors) of the “no merits consideration” argument.   We're guessing that one is pretty much dead here and everywhere else.

Cal Biz Lit Re-emerges From Under Rock

Here at CBL, we were pretty overwhelmed with our day job for a number of weeks, and then left town with Mrs. CBL to lie on a beach for a week reading books about rock and roll and baseball.  All of which means it’s been awhile between posts. 

Meanwhile, the legal wheels in California (and all over the country) kept spinning along.  Here are a few glimpses of what’s new:

Class Actions:  Those who do not themselves live under rocks already know that the US Supremes poleaxed the employment discrimination case against Wal-Mart Stores in  Wal-Mart Stores, Inc. v. Dukes, No. 10–277, (U.S. June 20, 2011).  CBL thinks this decision may have some major impacts in California consumer litigation, and will have a post devoted to that subject coming soon.

Medicare Reporting:  A district court judge in Arizona took a big swipe at CMS’s practice of demanding that plaintiff’s and their attorneys cough up Medicare reimbursements when the amounts are contested.  Haro v. Sebelius, No. CV 09-134 TUC DCB, (D. Az., May 5, 2011).  The court granted summary judgment and class certification, ruling:

• . . .  Defendant's demand for payment of her MSP reimbursement claims, under threat of collection actions before there has been a resolution of an appeal regarding the amount of the Defendant's MSP claim or a waiver request, exceeds her authority under the Medicare statute, and Defendant is enjoined from demanding payment of a MSP reimbursement claim with threats of commencing collection actions before there is a resolution of an appeal or waiver request.

and

• . . . Defendant's demand that attorneys withhold liability proceeds from clients pending payment of amounts claimed by the Defendant as MSP reimbursement exceeds her authority under the Medicare statute, and Defendant is enjoined from demanding that attorneys withhold liability proceeds from their clients pending payment of disputed MSP reimbursement claims.

CMS has suspended the use of its heavy-handed “Rights and Responsibilities” letters, but NB:  all of the obligations on both sides to protect the interests of Medicare, and all of the MMSEA reporting requirements, are still in effect.

Civil Procedure:  Hey there, defense counsel.  You won an order granting summary judgment.  Good for you. But that’s not a “judgment.”  You still have to get the court to sign one of those.  And if you don’t, the plaintiff can get a writ of mandate from the Court of Appeal forcing the trial court to sign one.  That way, the plaintiff has a judgment to appeal from. Even if it's a year or more after the motion was granted. Davis v. Superior Court (City of Los Angeles), No. B230666 (Second Dist., Div. Eight, June 13, 2011).

Torts/Personal Injury Practice:  Nineteen years ago, in Knight v. Jewett (1992) 3 Cal.4th 296, the Cal Supremes pretty much reinvented the legal defense of “assumption of risk.” They held that assumption of risk was a complete defense to some personal injury actions involving sports and other rough activity involving inherent risks.  Put somewhat simplistically, the court held that the doctrine barred liability for injuries arising out of such activities, including acts or omissions that increased the risk, based on a judicial determination of 1) the nature of the activity or sport, and 2) the relationship between the parties.  So, unless the injury is inflicted intentionally, there’s usually no recovery for injuries caused by touch football games, baseball, skiing, fencing, raquet ball, etc. 

Which brings us to Nalwa v. Cedar Fair, LP, No. H034535 (Sixth Dist., June 10, 2011).  Dr. Nalwa went to Great America Amusement Park and rode the bumper cars.  The bumper cars ran into each other (Surprise!)  She broke her wrist.  She sued.  The trial court granted summary judgment on the basis of the assumption of risk doctrine.  The Court of Appeal reversed, holding the doctrine didn’t apply to bumper cars.  CBL’s prediction:  if the case doesn't settle, this goes to the Supremes and they either reverse or depublish.

Big Ol’ Product Liability Verdict:  And finally, from the Cal Biz Lit schadenfreude files, a $30 million product liability verdict in Butte County Superior Court (which used to be referred to as one of the “cow county courts”).  Design defect case against MasterCraft Boat Co. on a stability theory.  Really bad propeller injury (27 year old woman, loss of eye, frontal lobe damage, skull fracture).  Boat operator had been drinking, wasn’t legally drunk, was held for 20%.  But he’d apparently paid his $1 million policy for a covenant not to execute, meaning plaintiff intends to collect all the rest from MasterCraft.  The operator’s lawyer said he felt “vindicated.”  And in the now famous words of losing defense lawyers everywhere (and CBL has been there, done that, owns the T-shirt) MasterCraft’s attorney announced that "Obviously, we are very disappointed in the outcome," and they would explore their “appellate options.”