58 Cal.App.5th 180
Cal. Ct. App.2020Background:
- LJT Flowers rented uniforms from Domestic under a one-page, double-sided printed contract signed on the front; the contract’s arbitration clause (¶15) was on the back in 8‑point type with no heading or emphasis.
- The arbitration clause required AAA arbitration for disputes > $10,000 and said the judge or arbitrator shall include attorney fees and arbitration fees of the non‑breaching party if a breach is found.
- Sales practice evidence showed employees were not trained to call out the arbitration clause and were instructed to have customers read the guaranty while the salesperson filled out the front page.
- A dispute arose over roughly $30,515; Domestic filed independent petitions to compel arbitration (including requests for AAA expedited rules). The trial court denied Domestic’s petition, finding the arbitration clause inconspicuous and that LJT lacked meaningful consent.
- The trial court awarded LJT $32,757.04 in attorney fees under Civil Code §1717; the Court of Appeal affirmed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Enforceability of arbitration clause (inconspicuousness / consent) | Arbitration clause is valid and enforceable; public policy favors arbitration | Clause is hidden on back in tiny type, sales practices diverted attention; no meeting of the minds | Denied petition to compel; clause is inconspicuous and not agreed to |
| Entitlement to attorney fees under contract clause as written | Fees clause awards fees only to non‑breaching party when breach is found; cannot award fees to LJT because clause is unilateral | Clause is unilateral; Civil Code §1717 makes contractual fee provisions mutual so prevailing party may recover | §1717 applies; prevailing party on the contract (LJT) entitled to fees |
| Effect of Frog Creek on fee award when petition to compel arbitration is defeated | Frog Creek limits fee awards to the overall prevailing party in a contract action; defeating an arbitration petition in related litigation may not make you prevailing party | Frog Creek distinguishes independent petitions to compel arbitration; when petition is independent, defeating it terminates the action and the petitioner who loses is not the prevailing party | Court follows Frog Creek’s distinction: defeating an independent petition makes the petitioner non‑prevailing; LJT entitled to fees |
| Procedural and equitable objections (appeal stay; unclean hands / bad faith) | LJT acted in bad faith; appeal stayed fee proceedings; procedural errors prejudiced Domestic | Appeal does not stay fee motions; trial court found no bad faith; Domestic showed no prejudice | Court rejects those objections; no stay and no sufficient evidence of unclean hands |
Key Cases Cited
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000) (arbitration agreements are enforceable except on generally applicable contract defenses)
- Santisas v. Goodin, 17 Cal.4th 599 (Cal. 1998) (Civil Code §1717 renders contract fee provisions mutual so the prevailing party may recover)
- Frog Creek Partners, LLC v. Vance Brown, Inc., 206 Cal.App.4th 515 (Cal. Ct. App. 2012) (distinguishes fees when defeating an independent petition to compel arbitration from defeating a petition within an existing suit)
- Lacayo v. Catalina Restaurant Group, Inc., 38 Cal.App.5th 244 (Cal. Ct. App. 2019) (party seeking arbitration bears burden of proving a valid arbitration agreement)