NON-SIGNATORY
Davis v. Nissan North America, Inc., 100 Cal. App. 5th 825
Gonzalez v. Nowhere Beverly Hills LLC., 107 Cal. App. 5th 111
Herrera v. Cathay Pacific Airways Unlimited, 94 F. 4th 1083
Mahram v. The Kroger Co., 104 Cal. App. 5th 303
Rivera v. Superior Court, 105 Cal. App. 5th 288
Soltero v. Precise Distribution, Inc., 102 Cal. App. 5th 887
Davis v. Nissan North America, Inc., 100 Cal. App. 5th 825
The plaintiffs sued Nissan North America and a dealer that repaired their automobile for breach of warranty. They did not sue the dealer from whom they purchased the vehicle. The defendants moved to compel arbitration, based on an arbitration clause in the purchase agreement. They asserted that they were entitled to arbitrate under the doctrine of equitable estoppel, citing Felisilda v. FCA US LLC, 53 Cal. 5th 486 (2020). The trial court declined to follow Felisilda, citing four subsequent Court of Appeal decisions that rejected it. The plaintiffs appealed and the Court of Appeal affirmed.
Equitable estoppel would apply if the plaintiffs had sued Nissan based on the terms of the sale contract. But equitable estoppel did not apply here because the plaintiffs were not relying on the terms of the sale contract to impose liability on Nissan. The complaint did not allege that Nissan breached any obligations under the sale contract between the plaintiffs and the dealership. Rather, the complaint alleged violations of manufacturer warranties under the Song-Beverly Act and a related tort claim. Under California law, manufacturer warranties that accompany the sale of a vehicle without regard to the substantive terms of the sale contract between the buyer and the dealer are independent of the sale contract. The sale contract between the plaintiffs and the dealership included no warranty, nor any assurance regarding the quality of the vehicle sold, nor any promise of repairs or other remedies in the event problems arose. To the contrary, the sale contracts disclaimed any warranty on the part of the dealer, while acknowledging no effect on any warranties covering the vehicle that the vehicle manufacturer may provide. This differentiation demonstrated an intent to distinguish and distance the dealership's purchase agreement from any warranty that Nissan might provide.
Gonzalez v. Nowhere Beverly Hills LLC., 107 Cal. App. 5th 111
Nowhere Santa Monica LLC was one of nine holding companies with the Nowhere name, each of which operated an organic grocery store in southern California. They were managed by a tenth holding company, Nowhere Holdco LLC. Gonzalez was employed by Nowhere Santa Monica and executed an arbitration agreement when he was hired. He neither worked for nor executed an arbitration agreement with the other Nowhere entities. After he was terminated, he sued all ten Nowhere entities for Labor Code violations, alleging that they were joint employers. The defendants moved to compel arbitration based on Gonzalez’ agreement with Nowhere Santa Monica. The trial court granted Nowhere Santa Monica’s motion but denied the motions filed by the other defendants, holding that Gonzalez did not have or allege a contract of employment with them nor were defendants seeking any benefits from Gonzalez’ employment agreement with Nowhere Santa Monica.
In doing so, it relied on Soltero v. Precise Distribution, Inc., infra.
Defendants appealed and the Court of Appeal reversed. Gonzalez's claims against the nonSanta Monica joint employers all depended on and were founded in and inextricably intertwined with the employment agreement between Gonzalez and Nowhere Santa Monica. That agreement contained an arbitration provision. Because Gonzalez agreed to arbitrate his wage and hour claims against Nowhere Santa Monica, and because his theory of liability against the non-Santa Monica entities was that they exercised significant control over Nowhere Santa Monica's employees so as to share its legal obligations, he was equitably estopped from raising the non-Santa Monica entities' non-signatory status to oppose arbitrating his wage and hour claims against them. In other words, it would be unfair for Gonzalez to group the non-Santa Monica entities with Nowhere Santa Monica for purposes of wage and hour liability as joint employers while at the same time denying the joint relationship to avoid arbitration.
Gonzalez cited Jarboe v. Hanlees Auto Group 53 Cal. App. 5th 539 (2020), which held that alleged joint employers could not compel arbitration pursuant to an agreement between the employee and his direct employer. The court disagreed with the Jarboe court for three reasons. First, an equitable estoppel analysis focuses not on the relationships of the parties but the interrelatedness of the plaintiff's claims and any obligations arising from an agreement containing an arbitration provision. Second, Jarboe erred in requiring that a defendant moving to compel arbitration admit or prove a joint employment relationship with the plaintiff. It is the plaintiff's burden, not the defendant's, to prove joint employment. Reversing this burden puts the defendant in an inequitable bind—admit a contested issue or eschew arbitration. Third, the issue at this stage is not whether joint employment existed but in what forum that issue should be decided. It was enough that Gonzalez claimed joint employment while simultaneously avoiding arbitration of claims based on the same facts. In short, equitable estoppel prevented Gonzalez from simultaneously claiming defendants were joint employers with Nowhere Santa Monica for purposes of liability but strangers to the employment agreement for purposes of trial.
The court also disagreed with Soltero, which held that equitable estoppel did not apply because the complaint made no mention of the underlying employment agreement. To apply equitable estoppel only when a complaint expressly references the agreement containing an arbitration clause would either limit application of the doctrine to contractual claims or invite tort and statutory claimants to craft complaints to avoid any mention of the agreement.
Herrera v. Cathay Pacific Airways Unlimited, 94 F. 4th 1083
Mr. and Mrs. Herrera filed a class action against Cathay Pacific after Cathay Pacific declined to give them a cash refund following cancellation of a flight. The Herreras purchased their tickets through ASAP, a third-party booking website. Cathay Pacific moved to compel arbitration based on an arbitration clause in the Terms & Conditions that accompanied the purchase of the tickets. The District Court denied the motion on the ground that the transaction was not covered by the Terms & Conditions, but rather by Cathay Pacific’s general conditions of carriage (GCC), which did not contain an arbitration clause.
Cathay Pacific appealed, and the Ninth Circuit reversed. The court focused its inquiry on whether the Herreras' breach-of-contract claim against Cathay Pacific was intimately founded in and intertwined with ASAP's Terms & Conditions containing the arbitration clause. In determining whether equitable estoppel applied to the Herreras' claim, the court looked at the relationship between the parties and their connection to the alleged violations.
Article 11.1.1 of the GCC entitled Cathay Pacific to pay any refund owed for canceling flight to either "the person named in the Ticket, or to the person who has paid for the Ticket." In other words, although Cathay Pacific was not required to provide the refund for the Herreras' unused flight to ASAP as the travel agent, Article 11.1.1 entitled Cathay Pacific to do so. Cathay Pacific's instruction to the Herreras to make their refund request to ASAP effectively made ASAP a "middleman" for refund-processing purposes. When the Herreras requested a refund from ASAP, ASAP informed them that Cathay Pacific would only provide an expiring travel voucher rather than a monetary refund. Such communication by ASAP would be consistent with its Terms & Conditions, which provided that ASAP had no power to override any fare restrictions set by the airline, if the offer for the expiring travel voucher originated with Cathay Pacific. Cathay Pacific's position was that ASAP never communicated a refund request on behalf of the Herreras, and that the offer of expiring travel vouchers did not come from Cathay Pacific. In short, Cathay Pacific has placed ASAP's conduct at issue by asserting that ASAP violated its own Terms & Conditions by creating refund restrictions—restrictions that formed a basis for the Herreras' claim. Because the Herreras' allegations that Cathay Pacific breached the GCC were "intimately founded in and intertwined with" ASAP's alleged conduct under the Terms & Conditions, it was appropriate to enforce the arbitration clause contained in the Terms & Conditions.
Mahram v. The Kroger Co., 104 Cal. App. 5th 303
Mahram entered into a contract with Instacart for the delivery of the groceries to his home.
He purchased celery and cucumbers from Ralphs, an affiliate of Kroger, and later sued Ralphs, asserting that Ralphs cheated him by charging a higher price than set forth on coupons that he used for the purchase. The groceries were delivered to Mahram by Instacart and Ralphs moved to compel arbitration, arguing that it was a third-party beneficiary of the arbitration agreement between Mahram and Instacart. The trial court denied the motion and Ralphs appealed.
The Court of Appeal affirmed. Ralphs was not a third-party beneficiary of the MahramInstacart contract. Helping Ralphs, or extending contractual benefits to it, was not a motivating purpose behind the Mahram-Instacart arbitration agreement. Mahram wanted to get groceries; Instacart wanted Mahram's business for its slice of the profit. The identity and welfare of the grocer were incidental to the contracting parties. Instacart and the consumers with which it contracted typically would not have central concerns about which grocery store supplied the celery and cucumbers. Nothing suggested Ralphs was anything special either to Instacart or Mahram. The consumers' central goal was to get groceries without leaving home. From Instacart's perspective, the main thing was to keep getting the consumer's payments by pleasing it with the convenient delivery of groceries. Consumers and Instacart all want grocers to do a proper job, but—on this record—grocers were fungible to the consumers and to Instacart. Ralphs thus had no standing to compel Mahram to arbitration.
Rivera v. Superior Court, 105 Cal. App. 5th 288
The plaintiffs sued Ford Motor Company (FMC) and Ford of Ventura under the lemon laws after Ford of Ventura was unable to repair a Ford truck that plaintiffs had purchased from Fairway Ford. The defendants moved to compel arbitration, asserting that they were third party beneficiaries of an arbitration agreement between plaintiffs and Fairway Ford. The motion was granted, and the plaintiffs appealed.
The Court of Appeal reversed. The sale contract contained no language showing the parties intended to benefit FMC. The initial reference to arbitration stated: “you or we may elect to resolve any dispute by neutral, binding arbitration and not by a court action.” The arbitration provision began with nearly identical language (“EITHER YOU OR WE MAY CHOOSE …”) and reiterated that claims and disputes “shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.” (Italics added.) The scope of the provision was “[a]ny claim or dispute … between you and us or our employees, agents, successors or assigns … .” (Italics added.) “[Y]ou” was defined as the buyers (petitioners) and “us” as the seller-creditor (Fairview Ford). FMC did not contend it was among the dealer's “employees, agents, successors, or assigns.” Nor did the language “third parties who do not sign this contract” bring FMC or Ford of Ventura within the sale contract's ambit. This phrase concerned what may be arbitrated, not who may arbitrate. Who may enforce an arbitration agreement is a separate matter from the types of disputes the agreement covers.
The trial court also found the plaintiffs were equitably estopped from opposing arbitration because their claims were “intertwined” with the sale. The sale contract clearly distinguished between dealer and manufacturer warranties where it stated, “WARRANTIES SELLER DISCLAIMS [¶] If you do not get a written warranty, and the Seller does not enter into a service contract within 90 days from the date of this contract, the Seller makes no warranties, express or implied, on the vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose. [¶] This provision does not affect any warranties covering the vehicle that the vehicle manufacturer may provide.”
Soltero v. Precise Distribution, Inc., 102 Cal. App. 5th 887
Soltero was hired by Real Time, a staffing agency, and assigned to work for Precise. When she was hired, she signed an arbitration agreement that required arbitration of disputes between her and Real Time and its parent and affiliates, but not with its clients. She filed a class action against Precise, alleging Labor Code violations. Precise moved to compel arbitration based on Soltero’s arbitration agreement with Real Time. Its main argument was that Soltero was equitably estopped from denying Precise’s right to arbitrate, citing Garcia v. Pexco, Inc., (2017) 11 Cal. App. 782, which also involved Real Time and one of its clients. The motion was denied and Precise appealed.
The Court of Appeal affirmed. Garcia misapplied California law on this issue. First, the court relied heavily on the fact that the arbitration clause applied to claims of Labor Code violations. Under the equitable estoppel doctrine, however, a non-signatory defendant cannot compel arbitration merely because the scope of the arbitration agreement extends to the types of claims asserted by the plaintiff. Rather, the critical question is whether the plaintiff's claims against the non-signatory defendant rely on terms of the contract containing the arbitration clause. If so, the plaintiff cannot avoid the arbitration clause.
Second, Garcia erred by relying on the fact that the Labor Code claims against the nonsignatory defendant presumed the existence of the employment agreement with the signatory defendant. Presuming the existence of an agreement is not a stand-alone principle, but merely an elaboration on the underlying principle, stated in all the cases: actual reliance on the terms of the agreement to impose liability on the non-signatory.
Finally, the Garcia court did not explain how Garcia's Labor Code claims against Pexco actually relied on the substantive terms of his employment agreement with Real Time. The court observed that “Garcia's claims against Pexco are rooted in his employment relationship with Real Time”, but that is not a legally sufficient basis for equitable estoppel absent actual reliance on the terms of the contract containing the arbitration agreement to establish liability. The court generally described Garcia's claims as being “for violations of the Labor Code and unfair business practices pertaining to payment of wages during his assignment with Pexco.” Although these statutory claims may have been rooted in Garcia's employment relationship with Real Time, that did not explain how they relied on the terms of his employment contract with Real Time as a basis for imposing liability against Pexco.