April 2020 Update
Although spouses are fiduciaries and owe a duty of support in the family law context, this alone does not make a spouse an agent of the other spouse under general contract law. Valentine v Plum Healthcare Group, LLC (2019) 37 CA5th 1076, 1089 (agency cannot be implied from marital relationship alone). In Valentine, the court held that the patient did not designate her husband as her agent, nor did her silence or any other conduct establish ostensible agency. See §§2.30, 2.33, 2.35. 9.50.
In Juen v Alain Pinel Realtors, Inc. (2019) 32 CA5th 972, the court found that the language of the arbitration clause as a whole, including its initialing provision, contemplated that the parties’ assent would be shown only by their initials in the indicated space; therefore, the failure of both parties to initial the provision rendered the clause unenforceable See §§3.7, 4.40, 9.48.
In general, a party seeking to rescind an agreement for fraud must show that he or she actually relied on the misrepresentation and that such reliance was justified. However, in Orozco v WPV San Jose, LLC (2019) 36 CA5th 375, 392, the court held that the plaintiff’s failure to read the entire lease was not dispositive, given that there was ample evidence of fraud. The court found that even if the plaintiff had read the entire contract, he would not necessarily have been alerted to the defendant’s false oral representations that there would be no leases by competing businesses, and that the plaintiff’s reliance on the defendant’s multiple false oral representations was reasonable. See §§3.15, 3.33, 5.41, 6.3.
Contract formation may be implied from the conduct of a party. In Diaz v Sohnen Enters. (2019) 34 CA5th 126, 130, the court stated that “California law in this area is settled: when an employee continues his or her employment after notification that an agreement to arbitration is a condition of continued employment, that employee has impliedly consented to the arbitration agreement.” See §§4.31, 9.48.
Statute of frauds.
In Zakk v Diesel (2019) 33 CA5th 431, 453, the court held that full performance of obligations under an oral agreement that could not be performed within 1 year took the contract outside the statute of frauds. The court distinguished cases that involved oral contracts to make will, oral contracts not to be performed during the promisor’s lifetime, and oral contracts involving the sale of real property or an interest in real property. See §4.50.
In Fabian v RenovateAmerica, Inc. (Nov. 19, 2019, No. D075519) ___CA5th___, 2019 Cal App Lexis 1215, *11, the court refused to enforce an arbitration agreement when the defendant company offered no evidence about the process used to verify the plaintiff’s electronic signature via DocuSign, including who sent the contract to the plaintiff, how it was sent, how the plaintiff’s electronic signature was placed on the contract, who received the signed contract, how the signed contract was returned to the company, and how the plaintiff’s identification was verified as the person who actually signed the contract. See §§4.55, 4.61A.
In Lamps Plus, Inc. v Varela (2019) 587 US ___, 139 S Ct 1407, 1415, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) (9 USC §§1–16) in effect preempted the rule that ambiguities in a contract should be construed against the drafter (in this case, the employer), holding that an ambiguous agreement cannot provide the necessary contractual basis for compelling class arbitration. The Court held that state contract rules of interpretation calling for ambiguities to be construed against the drafter are preempted by FAA to the extent they stand “as an obstacle to the accomplishment and execution of the full purposes and objectives” of the FAA. Emphasizing that arbitration relies on the affirmative consent of the parties, the Court held that “[c]ourts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis.” See §§5.17, 5.22, 5.78, 9.40.
Concerning integration clauses, Oxford Preparatory Academy v Edlighten Learning Solutions (2019) 34 CA5th 605, 610 held that a termination agreement with an integration clause restricted to the “subject matter” of the termination agreement did not supersede an arbitration clause in the original agreement for purposes of resolving pretermination disputes. See §5.36.
Forum selection clauses.
Even if a forum selection clause is in an adhesion contract, it will be enforced “absent a showing that it was outside the reasonable expectations of the weaker or adhering party or that enforcement would be unduly oppressive or unconscionable.” Drulias v 1st Century Bancshares, Inc. (2018) 30 CA5th 696, 708 (corporate forum selection bylaw, adopted by Delaware corporation without stockholder consent, designating Delaware as exclusive litigation forum held reasonable and enforceable). See §5.44.
In Handoush v LeaseFinanceGroup, LLC (2019) 41 CA5th 729, the court held that a forum selection clause in an equipment lease agreement that designated New York as the forum and included a predispute jury trial waiver was unenforceable as contrary to California public policy. See §5.44.
Severance of unlawful provisions.
In Koenig v Warner Unified School Dist. (2019) 41 CA5th 43, the court held that an agreement to pay certain health benefits was unlawful because the benefits exceeded a statutory maximum; however, the unlawful provision could be severed. It was the sole illegality and was easily separated from the remainder of the agreement. Moreover, severance was consistent with the parties’ expressed intent. See §5.70.
At issue in Quidel Corp. v Superior Court (2019) 39 CA5th 530, petition for review granted (Nov. 13, 2019, No. S258283) ___C5th___ , 2019 Cal Lexis 8397, was a clause in an exclusive dealing agreement between two sophisticated biotechnology companies, each of which had been represented by legal counsel during negotiations. The clause prohibited the seller from certain potentially competing research and development until two years before the agreement’s expiration. Relying on case law that predated Edwards v Arthur Andersen LLP (2008) 44 C4th 937, the court of appeal held that the per se ban on noncompetition clauses as outlined in Edwards was limited to employment agreements. Quidel, 39 CA5th at 539. Instead, the court held that a rule of reason should apply, stating that “as long as a noncompetition provision does not negatively affect the public interests, is designed to protect the parties in their dealings, and does not attempt to establish a monopoly, it may be reasonable and valid.” 39 CA5th at 542. The California Supreme Court granted review of this decision on November 13, 2019. See §6.38.
Third party beneficiary doctrine.
In a major case concerning third party beneficiary doctrine in California, Goonewardene v ADP, LLC (2019) 6 C5th 817, 830, the California Supreme Court held that, to bring a breach of contract action against a party to a contract, a third party must establish each of the following three elements: “(1) that [the third party] is likely to benefit from the contract, ... (2) that a motivating purpose of the contracting parties is to provide a benefit to the third party, and ... (3) that permitting the third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties.” Moreover, “the contracting parties must have a motivating purpose to benefit the third party, and not simply knowledge that a benefit to the third party may follow from the contract.” 6 C5th at 830. Courts examine “the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine . . . . whether a motivating purpose of the contracting parties was to provide a benefit to the third party. . . .It is not enough that the third party would in fact be benefited by the contract.” 6 C5th at 830. The court held that an employee who was not an intended beneficiary of a payroll service provider’s contract with her employer could not bring a claim for negligent misrepresentation against the provider. See §§3.16, 7.61, 7.63, 7.64. 7.66.
Breach of contract actions.
In Magic Carpet Ride LLC v Rugger Investment Group, L.L.C. (2019) 41 CA5th 357, 364, the court held that substantial performance is a corollary of the doctrine of immaterial breach. As the court explained (41 CA5th at 364) (citations and internal quotation marks omitted):
[S]ubstantial performance is sufficient, and justifies an action on the contract, although the other party is entitled to a reduction in the amount called for by the contract, to compensate for the defects. . . . What constitutes substantial performance is a question of fact, but it is essential that there be no wilful departure from the terms of the contract, and that the defects be such as may be easily remedied or compensated, so that the promisee may get practically what the contract calls for. . . . The doctrine of substantial performance also applies when a party performs but misses a deadline. [W]here time is not of the essence of a contract, payment made within a reasonable time after the due date stated in the contract constitutes compliance therewith.
In Magic Carpet Ride, at issue was the enforceability of an aircraft sales agreement with a time-of-the-essence clause. The seller of the aircraft delivered the required lien release 8 days late, but the sale closed nevertheless and the aircraft was delivered free of liens. There was no evidence that the seller's failure to deliver the release by the specified date caused the buyer damages or that the seller had acted wilfully. Noting that strict compliance with the original deadline would not be required if the result would be an unjust forfeiture , the court held there was support for a finding of substantial performance in this case. The court emphasized that, to enforce a time of the essence clause, the court must know “[w]hat performance at what time is a condition of what party's duty to do what?” Sometimes the answer is simple and obvious, but at other times the answer is not clear. 41 CA5th at 366. See §§8.2, 8.3.
Successive causes of action for breach of contract may arise from a single contract with continuing obligations. CCP §1047 (“[s]uccessive actions may be maintained upon the same contract or transaction, whenever, after the former action, a new cause of action arises therefrom”). When a liability or an obligation arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period. Aryeh v Canon Business Solutions, Inc. (2013) 55 C4th 1185, 1199; Jenni Rivera Enterprises, LLC v Latin World Entertainment Holdings, Inc. (2019) 36 CA5th 766, 784. See §8.67.
Dane-Elec Corp., USA v Bodokh (2019) 35 CA5th 761, 774 (in absence of claim brought in bad faith, Lab C §218.5(a) “prohibits, as a matter of law, an award of attorney fees to a prevailing party for successfully defending a wage claim that overlaps with claims subject to a contractual prevailing-party attorney fees provision”). See §9.28A.
The FAA does not apply to employment contracts of interstate transportation workers. 9 USC §1; New Prime Inc. v Oliveira (2019) 586 US ___, 139 S Ct 532, 543 (FAA exemption applied to contract between truck driver and interstate trucking company, even if driver was independent contractor). See §9.39.
In Muller v Roy Miller Freight Lines, LLC (2019) 34 CA5th 1056, 1071, the court stated that “[w]hen an agreement drafted by an employer does not expressly permit or prohibit class arbitration, but states the arbitrator must resolve ‘all disputes,’ . . . it logically follows that the arbitrator must resolve issues of class arbitrability.” See §9.41.
By a specific reference in the arbitration agreement, however, the parties may delegate to the arbitrator the issue of arbitrability. Henry Schein, Inc. v Archer & White Sales, Inc. (2019) 586 US ___, 139 S Ct 524, 527. See §9.41.
Under both the California Arbitration Act (CAA) (CCP §§1280–1294.2) and the Federal Arbitration Act (FAA) (9 USC §§1–16), there is a heavy presumption in favor of arbitrability. OTO, L.L.C. v Kho (2019) 8 C5th 111, 125; Lacayo v Catalina Restaurant Group Inc. (2019) 38 CA5th 244, 257; Salgado v Carrows Restaurants Inc. (2019) 33 CA5th 356, 360. See §9.41A.
In Howard v Goldbloom (2018) 30 CA5th 659, 667, the court held that an arbitration agreement that applied to “any and all claims arising out of, relating to, or resulting from employment with the Company” (emphasis in original) did not apply to the former employee’s breach of fiduciary duty claims as a minority stockholder. See §9.41B.
In both Franco v Greystone Ridge Condominium (2019) 39 CA5th 221 and Salgado v Carrows Restaurants, Inc. (2019) 33 CA5th 356, the courts held that broadly worded arbitration agreements covering any claims relating to any aspect of employment with the employer could be applied retroactively to employee claims that arose before the agreements were signed. In Franco, the agreement referred expressly to “pre-hire” claims. 39 CA5th at 224. In Salgado, the agreement covered “all disputes which may arise out of or be related in any way to . . employment.” 33 CA5th at 360. See §9.41B.The procedural unconscionability element focuses on “oppression” or “surprise” due to unequal bargaining power. Pinnacle Museum Tower Ass’n v Pinnacle Mkt. Dev. (US), LLC (2012) 55 C4th 223, 246; Armendariz v Foundation Health Psychcare Servs., Inc. (2000) 24 C4th 83, 114. See, e.g., OTO, L.L.C. v Kho (2019) 8 C5th 111 (extraordinarily high degree of procedural unconscionability resulted from arbitration agreement's complexity, its presentation for immediate signing without explanation and without copies for the employee-signer, and fact that employee’s first language was Chinese); Subcontracting Concepts (CT), LLC v De Melo (2019) 34 CA5th 201, 211 (arbitration clause had “at least a moderate level” of procedural unconscionability; agreement was adhesion contract; respondent was not fluent enough in English to fully understand agreement’s terms, did not understand what arbitration was, and no one explained it to him; respondent was not provided with copy of governing rules); See §9.43.
Procedural unconsionabililty was found by the courts in the following three recent cases: OTO, L.L.C. v Kho (2019) 8 C5th 111 (extraordinarily high degree of procedural unconscionability resulted from arbitration agreement's complexity, its presentation for immediate signing without explanation and without copies for the employee-signer, and fact that employee’s first language was Chinese); Subcontracting Concepts (CT), LLC v De Melo (2019) 34 CA5th 201, 211 (arbitration clause had “at least a moderate level” of procedural unconscionability; agreement was adhesion contract; respondent was not fluent enough in English to fully understand agreement’s terms, did not understand what arbitration was, and no one explained it to him; respondent was not provided with copy of governing rules); Ramos v Superior Court (2018) 28 CA5th 1042, 1063 (arbitration agreement was procedurally unconscionable; it was condition of employment, with no opportunity to negotiate). See §5.76.
In Subcontracting Concepts (CT), LLC v De Melo (2019) 34 CA5th 201, 212, the court found that the arbitration clause was substantively unconscionable; the clause required the worker to bear his own costs and barred the worker from recovering attorney fees and from seeking any statutory or Labor Commissioner remedies for wage claims. The clause also barred Private Attorney General Act (PAGA) (Lab C §§2698–2699.6) claims). Moreover, the clause was not severable. See §§5.70, 5.77, 5.79, 9.44.
An arbitration agreement cannot serve as a mechanism for the forfeiture or waiver of statutory rights that are unwaivable, such as discrimination claims under the Fair Employment and Housing Act (FEHA) (Govt C §§12900–12996)), the Consumers Legal Remedies Act (CLRA) (CC §§1750–1784), the unfair competition law (UCL) (Bus & P C §§17200–17210), or the false advertising law (Bus & P C §§17500–17509). Such agreements are invalid and unenforceable. ZB, N.A. v Superior Court (2019) 8 C5th 175, 185. See §9.46A.
In Correia v NB Baker Elec., Inc. (2019) 32 CA5th 602, 624, the court held that a PAGA claim cannot be compelled to arbitration based on an employee’s predispute arbitration agreement absent some evidence that the state consented to a waiver of the employee’s right to bring the claim in court. See §9.47B.
In Cohen v TNP 2008 Participating Notes Program, LLC (2019) 31 CA5th 840, 857, the court held that a nonsignatory attorney lacked standing to enforce arbitration agreements as an agent of his client-investors. However, the court also held that a nonsignatory parent corporation exercised such control over its signatory subsidiary that the subsidiary was a mere instrumentality of the parent; thus, the arbitration agreement could be enforced against the parent on an agency theory. See §§9.50, 9.50B, 9.52.
In Monster Energy Co. v City Bevs., LLC (9th Cir 2019) 940 F3d 1130, 1138, the Ninth Circuit held that the arbitrator's failure to disclose his ownership interest in JAMS, which had previously conducted 97 arbitrations for Monster Energy, created a reasonable impression of bias and supported vacatur of the arbitration award. See §9.52C.
Election of remedies.
The doctrine of election of remedies does not apply when claims are brought by two distinct juridical persons or entities. Orozco v WPV San Jose, LLC (2019) 36 CA5th 375, 404 (tenant-restaurant and restaurant’s individual owner, who entered into guarantee regarding restaurant’s lease, were “legally distinct entities, th[at] may pursue—and receive—separate remedies for [landlord’s] fraud”). In Orozco, the restaurant entity brought tort actions for intentional misrepresentation and concealment relating to the lease, and the individual brought an action for rescission of the guarantee. See §9.56.
In Cheema v L.S. Trucking, Inc. (2019) 39 CA5th 1142, 1151, the court held that a legal dispute over defendant's liability or the proper measure of damages does not render damages unascertainable. See §§10.6, 10.23.
In Red & White Distribution, LLC v Osteroid Enterprises, LLC (2019) 38 CA5th 582, 588, the court found that a portion of a settlement was an unenforceable penalty. See §10.42.
In Mazik v Geico Gen. Ins. Co. (2019) 35 CA5th 455, 471, an insurance bad faith case, the court held that an approximate 3-to-1 ratio of punitive to compensatory damages was not excessive “[i]n light of the factors indicating significant reprehensible conduct.” The policyholder was financially vulnerable, the insurer’s approach to the claim was not isolated, and the insurer intentionally manipulated facts to create a favorable record justifying its offers below the policy limits. See §10.48.
Courts are required to consider meaningful evidence of a defendant’s financial condition before awarding punitive damages. Adams v Murakami (1991) 54 C3d 105, 118. The plaintiff has the burden of producing such evidence. 54 C3d at 119. Cases decided after Adams have elaborated on its meaning. See Farmers & Merchants Trust Co. v Vanetik (2019) 33 CA5th 638, 649 (expert evidence of defendants’ net worth that considered assets but not liabilities and defendants’ annual income 4 years before trial was inadequate evidence of financial condition). See §10.51.
The Consumers Legal Remedies Act (CLRA) (CC §§1750–1784) specifies a number of remedies available to a consumer “who suffers any damage” as a result of the use or employment by any person of any of the methods, acts, or practices that the CLRA declares unlawful. CC §1780(a). A consumer must suffer “lost money or property,” i.e., some form of economic injury, in order to have standing to sue under the CLRA. Kwikset Corp. v Superior Court (2011) 51 C4th 310, 323; Meyer v Sprint Spectrum LP (2009) 45 C4th 634, 644; Gutierrez v Carmax Auto Superstores (2018) 19 CA5th 1234, 1264. The court in Hansen v Newegg.com Ams., Inc. (2018) 25 CA5th 714, 727, held that the standing requirement was satisfied when the complaint alleged that: (1) electronics retailer Newegg.com used fictitious former price information in its advertisements that misled customers to believe they were receiving merchandise at a discounted price; (2) plaintiff had relied on the fictitious former price information in making two purchases from Newegg’s website; and (3) he would not have made the purchases had he known that the former price information was false. See §10.53.