Font Failure Dooms Arb Clause, for Now

Domestic Linen Supply Co. v. L.J.T. Flowers, Inc., No. B292863 (D2d6 Dec. 4, 2020)

The arbitration clause in the parties’ contract in this case was set out in paragraph 15 of the text of the contract. It appeared in ordinary type on the back of the document, while the parties’ signatures were on the front. Under the California Supreme Court’s opinion in Sanchez v. Valencia Holding Co., LLC, 61 Cal. 4th 899, 914 (2015), that might be evidence of some procedural unconscionability, but it’s not per se fatal. Indeed, a per se rule like that would probably be preempted by the FAA. See Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 684, 687–688 (1996) (FAA preempted state statute requiring arbitration clause to be in underlined capital letters on the first page of a contract).  

The Court of Appeal here, however, doesn’t do an unconscionability analysis. In a brief analysis short on citations to authority, it finds, instead, that the appearance of the clause in boilerplate on the backside of the contact supports the trial court’s finding that the defendant, who signed the contract, never actually agreed to arbitrate. There’s no discussion of substantive unconscionability at all. And in getting there, the court further suggests that the constitutional right to jury trial means that any doubts should be resolved against waiver, i.e., against arbitration. That, of course, is contrary to the settled rule that ambiguities in an arbitration agreement are to be construed in favor of arbitration.

The Court further affirms a contractual attorney’s fee award in favor of defendant. Although there are cases that say a party that defeats a motion to compel isn’t entitled to a separate prevailing party fee award divorced from the underlying merits, the Court says this case is different because the trial court was dealing with a freestanding petition to compel. Arbitration, in such cases, is the whole show. Since the case was done once the petition was denied, there was no underlying merits case to prevail in. In those circumstances, the party who prevails on the petition is the winner, entitled to fees under a prevailing party fee contract.

Affirmed.

I’m not exactly enthusiastic about the current trends towards forcing everyone into arbitration based on pre-dispute agreements. Were arbitration truly mutually advantageous, parties would agree to it even after a dispute arises. But the first part of this opinion is pretty far over the line. I would not be surprised to see a petition granted. Or perhaps more likely, a grant and transfer.