42 Cal.App.5th 22
Cal. Ct. App.2019Background
- Prima Donna opened commercial accounts at Wells Fargo in 2007; its president Chiu signed account and wire-transfer agreements that included an arbitration clause and CEO (online) transfer procedures.
- In Jan 2014, while Chiu was abroad, Prima Donna’s controller Tran (a company administrator) made multiple CEO-portal wire requests after receiving emails impersonating Chiu; $638,400 was unrecoverable.
- Prima Donna sued Wells Fargo in superior court under the California Commercial Code (Article 4A / sections 11202–11204), alleging failure to follow security procedures and lack of reasonable commercial standards.
- Wells Fargo moved to compel arbitration under the account agreement; the trial court granted the motion and stayed the action. The parties arbitrated before AAA; the arbitrator applied California law and found for Wells Fargo under sections 11202/11203.
- Prima Donna petitioned to vacate the award claiming the arbitrator exceeded his powers (failed to address bank’s lack of good faith); the trial court denied the petition and confirmed the award.
- The Court of Appeal affirmed both the order compelling arbitration and the judgment confirming the arbitration award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitration agreement was unenforceable as unconscionable because Article 4A is the exclusive statutory scheme for funds transfers | Prima Donna: enforcing arbitration here would deny statutory protections under Article 4A (Zengen) and allow waiver of jury rights; arbitration could ignore statutory rules | Wells Fargo: FAA governs; arbitration does not strip statutory rights and arbitrators can apply statutory law; unconscionability not shown | Court: FAA controls; arbitration clause requires application of California law and did not bar statutory rights; agreement enforceable |
| Whether arbitration clause was substantively unconscionable because it waived jury trial and limited judicial review | Prima Donna: section 11202’s reference to a question of law implies jury trial; limited review unfair | Wells Fargo: FAA preempts state rules requiring judicial forum; waiver of jury in arbitration is inherent and permissible | Court: even if statutory language suggested jury trial, FAA preempts such requirement; waiver not unconscionable |
| Whether Prima Donna forfeited unconscionability defenses by not raising them in trial court | Prima Donna: some unconscionability issues are pure law and can be raised on appeal | Wells Fargo: procedural unconscionability was fact-specific and forfeited | Court: procedural unconscionability forfeited; substantive unconscionability can be reviewed on appeal but fails on the merits |
| Whether arbitrator exceeded powers by not addressing whether Wells Fargo acted in good faith under section 11202(b), warranting vacatur | Prima Donna: arbitrator failed to decide good-faith element; award contradicts statutory protection and falls within Moncharsh exception | Wells Fargo: Prima Donna got full arbitration process; complained-of issue is legal error not subject to vacatur | Court: no exceptional circumstance; arbitrator applied Article 4A; alleged omission is legal error not grounds for vacatur; petition denied |
Key Cases Cited
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA preempts state rules that disfavor arbitration)
- Volt Info. Sciences v. Leland Stanford Jr. Univ., 489 U.S. 468 (U.S. 1989) (courts must enforce arbitration agreements according to their terms)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614 (U.S. 1985) (statutory claims may be resolved in arbitration)
- American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (U.S. 2013) (arbitration not invalid merely because it makes vindication of statutory rights harder)
- Moncharsh v. Heily & Blase, 3 Cal.4th 1 (Cal. 1992) (narrow judicial-review exception where arbitrator’s award violates unwaivable statutory rights or public policy)
- Zengen, Inc. v. Comerica Bank, 41 Cal.4th 239 (Cal. 2007) (Article 4A is the exclusive scheme for many funds-transfer disputes)
- OTO, L.L.C. v. Kho, 8 Cal.5th 111 (Cal. 2019) (arbitration doctrine and unconscionability principles)
- Richey v. AutoNation, Inc., 60 Cal.4th 909 (Cal. 2015) (courts generally do not review arbitrators’ legal or factual errors)
- Sonic-Calabasas A, Inc. v. Moreno, 57 Cal.4th 1109 (Cal. 2013) (unconscionability assessed at formation; FAA limits unconscionability rules that interfere with arbitration)
- Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (Cal. 2014) (FAA preempts state rules mandating procedures incompatible with arbitration)
- Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (Cal. 2015) (state cannot impose requirements incompatible with arbitration)
- McGill v. Citibank, N.A., 2 Cal.5th 945 (Cal. 2017) (arbitration cannot strip assertion of certain statutory rights)
- Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (Cal. 2000) (principles on unconscionability and waiver of public rights)