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Inconspicuous Arbitration Clause Is Unenforceable—C.A.
Presiding Justice Gilbert Says Provision Was ‘Simply Hidden in a Thicket of Fine Print’
By a MetNews Staff Writer
The Court of Appeal for this district on Friday upheld an order denying a motion to compel arbitration, saying that the arbitration provision in issue was a nullity because it was buried in the contract.
“An arbitration clause in a contract is invalid because the clause is as inconspicuous as a frog in a thicket of water lilies,” Presiding Justice Arthur Gilbert of Div. Six wrote. Justices Kenneth R. Yegan and Steven Z. Perren joined in the opinion.
“Speaking of frogs,” Gilbert added, the 2012 opinion in Frog Creek Partners v. Vance Brown by Div. Five of the First District Court of Appeal “does not prohibit the award of attorney fees.” He went on to discuss that case later in the opinion.
Then-Ventura Superior Court Judge Kent M. Kellegrew, who retired in September, denied a petition by plaintiff Domestic Linen Supply to compel arbitration. He determined the arbitration clause in a contract for the rental of uniforms was “inconspicuous” and that defendant LJT Flowers would be denied “procedural due process” by enforcing the provision.
Kellegrew awarded attorney fees to LJT Flowers in the amount of $32,757.
Small Type
Gilbert wrote:
“Here the trial court could reasonably determine that there was no agreement to arbitrate. The form of the rental agreement is deceptive. The arbitration clause is not above the purchaser’s signature, where one would expect to find it. Instead, it is after the purchaser’s signature, on the back of the agreement. The back is filled from top to bottom with closely spaced lines of small type. The arbitration clause is number 15 of 21 paragraphs. There is nothing to distinguish paragraph 15 from any other paragraph. There is no heading, boldface, italics, or capitalization that would draw attention to it.”
He continued:
“It is simply hidden in a thicket of fine print. The warning that the garments Domestic provides are not fire-resistant is in capitalized, boldface type, but not the provision waiving the purchaser’s constitutional right to a jury trial.”
The jurist noted that sales representatives for Domestic had not been trained to point out the provision.
“Instead, they are advised to have the purchaser read the personal guaranty while they fill out the contract, thus diverting the purchaser’s attention from the back of the contract,” Gilbert noted. “There is no mention of arbitration in the personal guaranty.
“If the contract is not intentionally deceptive, it has that effect. There was simply no agreement to arbitrate.”
Attorney Fees
LJT predicated its claim to attorney fees on the provision in the contract which says:
“The judge or arbitrator shall include as part of the award all costs including reasonable attorney fees and arbitration fees of the non-breaching party where it is determined that one of the parties has breached the agreement.”
Fee-shifting is only provided for, Domestic protested, where one of the parties has been determined to have breached the contract, and no such finding had been made.
“All that has been determined so far is that the arbitration clause is not enforceable,” Gilbert agreed.
However, LJT argued that the clause was phrased so as to create a prospect that Domestic could collect fees if it won, with no like prospect for it. Reciting LJT’s theory, Gilbert said:
“If Domestic prevails in its contract action, it will be entitled to fees because LJT will have been determined to have breached the contract. But if LJT prevails on the ground that it did not breach the contract, under the express language of the fee clause, it cannot obtain an award of fees. LJT claims that under the circumstances, [Civil Code] section 1717 should apply to make the attorney fee clause mutual, and to award fees to the prevailing party in the contract action.
“We agree with LJT.”
That section says that if one party is entitled, under a contract, to its attorney fees if it is the prevailing, so is the other side, even if that is not specified.
Frog Creek Opinion
Gilbert determined LJT was the prevailing party and entitled to fees based on Frog Creek, which distinguishes cases where a party petitions to compel arbitration in an existing contract action and cases where the action is initiated by filing a petition.
In the Frog Creek opinion, Justice Mark B. Simons wrote that “when a party defeats an independent petition to compel arbitration, the action is terminated and the prevailing party on the petition is entitled to fees under Civil Code section 1717.”
Gilbert declared:
“Here, unlike Frog Creek, Domestic did not petition to compel arbitration in an existing lawsuit. Where there is an existing lawsuit, the lawsuit continues if the petition is defeated. Instead, Domestic brought an independent petition to compel arbitration. The defeat of the petition terminated the action, leaving LJT as the prevailing party entitled to an award of fees.”
The case is Domestic Linen Supply v. LJT Flowers, 2020 S.O.S. 5772.
Counsel for Domestic Linen was South Pasadena practitioner Scott D. Wu. Representing LJT was Peter A. Goldenring of Goldenring & Prosser in Ventura.
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