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Enforcing Arbitration Clauses

Last month, my colleague, Alan Steinbrecher, discussed the risks of electing to litigate despite the existence of a binding arbitration provision.  This month, I will explore two recent California court decisions that demonstrate the different views courts take of the enforceability of such provisions.

In the first case, the Ninth Circuit held that a motion to compel arbitration was properly granted despite plaintiffs’ claim that the arbitration clause was unconscionable. Tompkins v. 23andMe, Inc., 2016 DJDAR 8771 (9th Cir. August 23, 2016).  Defendant 23andMe, Inc. offered genetic-testing services through its website.  To avail themselves of the service, consumers were required to create an online account and agree to a multipage “Terms of Service” document which included a compulsory arbitration clause.

Plaintiffs brought class actions against the company, alleging various misrepresentations and unfair business practices.  In response to Defendant’s motion to compel arbitration, Plaintiffs argued that the arbitration clause was unconscionable because it required the losing party to pay the costs of arbitration, required arbitration in San Francisco, and excluded certain types of claims from mandatory arbitration.

The Ninth Circuit, applying established US and California Supreme Court precedent favoring arbitration, rejected Plaintiffs’ arguments and held the clause to be enforceable.

In the second case, a California appellate court affirmed the trial court’s denial of a motion to compel arbitration.  Esparza v. Sand & Sea, Inc., 2016 DIDAR 8745 (2nd Dist., August 22, 2016).  The different result here is explained by the court’s holding that the Plaintiff never agreed to the arbitration clause.  In Esparza, plaintiff was a hotel employee.  She received an employee handbook that contained a mandatory arbitration provision, but was never required to sign any document agreeing that the clause would apply.  Instead, the handbook explicitly stated that it was not intended to be a contract. Plaintiff signed only an acknowledgment of receipt of the handbook.  Defendant argued that Plaintiff’s continued employment after reading the handbook was evidence of agreement to the arbitration clause.  The court rejected that argument, noting that any waiver of a right to file litigation must be clear.

The take-away from these cases is that while California courts will apply the strong public policy favoring arbitration of disputes, that policy does not extend to parties who have not specifically agreed to arbitrate.