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Court Split

Order Denying Arbitration Reversed, Trial Court Must Decide Existence of Arbitration Agreement First — But a Strong Dissent Disagrees

Tim Kowal     November 3, 2021

This will surprise appellate attorneys. The Court of Appeal in Pettie v. Amazon.com, Inc. (D4d2 Sep. 21, 2021) 2021 WL 4270631 (no. E074241) (nonpub. opn.) recently reversed an order denying a motion to compel arbitration — but not because the trial court did not cite valid grounds to deny the motion. Instead, the majority reversed because the trial court failed to determine the threshold factual issue whether there existed an agreement to arbitrate. In a forceful dissent, Justice Slough noted: this was a denial of a motion. A denial of a motion must be affirmed on any available grounds.

Justice Slough went on to provide some useful appellate standards that practitioners will want to clip-and-save.

In Pettie, Amazon workers alleged they were misclassified as independent contractors. Amazon moved to compel arbitration under its electronic terms of service, but there was some doubt as to whether or how the workers agreed to those terms of service. The trial court skipped that issue and denied Amazon's motion on other legal grounds — exemption under the Federal Arbitration Act, and inapplicability of state law.

The Court of Appeal reversed. The majority reasoned "we need not consider any of these arguments [FAA exemption and CAA enforceability] at this stage because the trial court failed to make a threshold factual finding regarding the existence of an agreement to arbitrate." The majority cited Toal v. Tardif (2009) 178 Cal.App.4th 1208, 1219-1220 (Toal), which held that “a court, before granting a petition to compel arbitration, must determine the factual issue of ‘the existence or validity of the arbitration agreement.’ ” (The dissent will emphasize Toal was reviewing an order granting arbitration, not denying it, a key distinction.)

The majority said the trial court's failure to decide this "threshold" question amounted to "abdicat[ing] its role as a trier of fact," with the result that "the case must be remanded to that court to resolve any factually disputed issues ....” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 973 [reversing order denying petition to compel arbitration and remanding for determination of unresolved factual disputes].)

Dissent:

Justice Slough penned a strong dissent that begins: "The majority's decision ignores bedrock principles of appellate review and because of that pointlessly extends this dispute. I therefore respectfully dissent." Justice Slough sums up the majority's holding as "revers[ing] the trial judge's order because he denied the petition for the wrong reason," and then provides several reasons why the majority is wrong.

Appellate courts do not "sally forth each day looking for wrongs to right":

"First, courts decide cases as the parties frame and argue them. We typically avoid going out of our way to find issues the parties don't raise on appeal. “Courts are essentially passive instruments of government. They do not, or should not, sally forth each day looking for wrongs to right. They wait for cases to come to them, and when cases arise, courts normally decide only questions presented by the parties.” (United States v. Sineneng-Smith (2020) 140 S.Ct. 1575, 1579 [cleaned up].)"

(Note the deployment of the new case parenthetical "cleaned up.")

Justice Slough also notes that, when the court reverses on grounds not addressed in the briefs, the court is required to afford an opportunity to address them in supplemental briefing. (Gov. Code, § 68081.)

Courts may deny relief for any reason — and one is plenty:

Justice Slough's second argument is, in my view, the strongest, and one that all attorneys should bear in mind on appeal: "Second, courts are free to decide a case on any dispositive ground. It's simply not correct to say the trial judge was required to find the parties had entered an agreement to arbitrate before deciding the other issues in the appeal. ... It was completely within the discretion of the trial judge to assume there was a valid agreement but decide the case on the basis of the exemption under the FAA and the inapplicability of state law—both legal issues. ... It doesn't follow that to defeat a petition to compel arbitration an opposing party must obtain a ruling on the existence of an agreement to arbitrate before prevailing on the ground that the agreement isn't valid or is unenforceable on other grounds."

"Third—and relatedly—we review the trial judge's decision for the correctness of its result, not the correctness of its reasoning. ... Among other reasons, we follow this principle because “there can be no prejudicial error from erroneous logic or reasoning if the decision itself is correct.” (Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 610.) And absent prejudicial error, we are not permitted to reverse the trial judge under article VI, section 13 of the California Constitution."

Finally, Justice Slough raises the practical point that the effect of the majority's decision will be nothing more than a waste of the courts' and the parties' resources:

"So, what will happen when we remand this case to the trial court? I posit one of two things. Either the trial judge will find the parties did enter an agreement but reinstate his ruling on the same grounds set out in the order we are reversing. Or he'll find the parties didn't enter an agreement and deny the petition on two alternative grounds—lack of agreement and the grounds of his original order.

"In either event, the majority's decision in this case is likely to keep the parties mired in the same disputes for years. No doubt after the trial judge rules a second time, the parties will appeal the same issues again. I would decide them now. Perhaps the parties can take some comfort that they'll be able to economize by recycling in a subsequent appeal the briefs they prepared to no effect in this one."

Comment: Justice Slough seems to me correct, and clearly so, on all points. The majority's opinion is baffling.

Tim Kowal is an appellate specialist certified by the California State Bar Board of Legal Specialization. Tim helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at CALpodcast.com, and publishes summaries of cases and appellate tips for trial attorneys. Contact Tim at [email protected] or (949) 676-9989.
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