What are Necessary Elements of Agreement to Arbitrate in California?
The necessary elements of an agreement to arbitrate a contract claim in California were the subject of the recent case of West v. Solar Mosaic LLC.
A home improvement and solar panel salesperson visited the home where senior citizens Harold and Lucy West lived with their adult daughter Deon.
By the time he left, a loan agreement package had been completed electronically with Harold’s electronic signature.
A subsequent dispute led to litigation, and lender Solar Mosaic LLC (Mosaic) petitioned the court to compel arbitration based on arbitration provisions in the loan agreement.
The trial court declined on the ground that Mosaic had failed to establish the existence of an agreement to arbitrate.
The appellate court affirmed the court’s order.
In July 2022, Ilai Mitmiger, a sales representative for Elite Home Remodeling, Inc. (Elite), visited Harold, Lucy and Deon at the Wests’ home. Harold and Lucy were both in their 90’s and suffered from dementia. Neither used e-mail, computers, or mobile phones.
When Mitmiger arrived, Deon woke Harold and brought him from bed into the living room. There, in Mitmiger’s account, Mitmiger informed the Wests of the home solar installation Elite could provide and the availability of financing through Mosaic.
He examined a recent electric bill and told the Wests he “believed they could potentially reduce their electric bill by going solar” and “might be eligible to receive tax credits.”
According to Mitmiger, “all three family members” asked him questions about “how solar works.” Harold and Lucy, Mitmiger declared, “appeared to be excited about moving forward with a home solar system.”
Also according to Mitmiger, Deon told him “the family had previously spoken with two other contracting companies about a potential home solar installation but that Elite seemed to be the right company for the job.” Mitmiger said he heard Deon suggest to her parents that Elite should perform the work.
In Mitmiger’s version of events, when Mitmiger mentioned that Elite offered home renovation services, Harold and Lucy insisted he inspect their bathroom, which was in disrepair and had visible mold growth. They informed him the bathroom needed plumbing and electrical work and asked about replacing the tile. Mitmiger said he told them Elite could perform this work.
According to Deon, Mitmiger never mentioned being associated with Elite or Mosaic and instead claimed to work with a government program that helped senior citizens to fix up their homes.
Harold and Lucy had previously had their home painted at no cost by Habitat for Humanity, and Deon asked if the program Mitmiger was working for was similar to Habitat for Humanity.
Mitmiger said it was.
In Deon’s account, Mitmiger said he could obtain a new shower for the only bathroom in the house that had a shower and bathtub. He said it would cost $25,000 to renovate the bathroom, but did not specify who would pay for it.
Mitmiger also said he could include solar panels on the home at no additional cost.
To Deon’s knowledge, her parents had never considered installing solar panels, but Mitmiger said solar panels could lower Harold and Lucy’s taxes and electric bills.
According to Deon, they never discussed how her parents would pay any of the cost of this work, and Mitmiger did not ask for any financial information from them. Harold and Lucy lived on their retirement and Social Security benefits, and they could not afford to pay $25,000 for a home renovation.
Based on what Mitmiger told them, Deon believed the renovations would be paid for, at least in part, by Mitmiger’s government program.
During this conversation, in Deon’s view, Harold “did not seem to understand what was going on.” According to Deon, Mitmiger obtained her e-mail address so he could send a “quote.”
In Mitmiger’s account, Harold and Lucy informed him they wanted to proceed with the installation and financing of the home solar system and a bathroom renovation, so Mitmiger asked Mosaic to send a loan agreement package by e-mail for their review and signature.
Mosaic uses DocuSign for its contracts. The signature process is: (1) documents are e-mailed from Mosaic to the signer; (2) the signer receives an e-mail requesting that they sign online; (3) the signer clicks the link in the e-mail to open the document for review, and the document has areas marked for the signer to execute; (4) the signer creates a DocuSign electronic signature and clicks to place their signature in the document; and (5) once the signature has been inserted in all the required locations, the signer confirms signing as the final step and clicks a button saying “Finish.”
The documents were sent to Deon’s e-mail address at 6:29:20 p.m. They were viewed on a mobile device at 6:29:30 p.m. The documents were signed electronically in Harold’s name and completed at 6:29:43 p.m.
Harold’s electronic signature appears in seven places in the 33-page long loan document package.
According to Deon, workers came to the house the following day and demolished the bathroom that was to be renovated. Deon tried to contact Mitmiger to ask how much, if anything, the work would cost her parents, but Mitmiger never responded.
Deon declared that in August 2022 she discovered the construction contract and loan agreement.
Deon denied she and/or her parents had entered into a contract, and she attempted to cancel it. Elite refused.
Work ceased on the West home, leaving Harold and Lucy to bathe in their kitchen sink because Elite had demolished their only shower and bathtub.
Elite contended it was refused access to the home, attempted to collect payment from Harold and Lucy, and filed a mechanic’s lien on the property. Harold and Lucy sued Elite and Mosaic.
Mosaic petitioned the trial court to compel arbitration based on arbitration provisions in the electronically-completed loan agreement.
The trial court denied the petition on the ground that Mosaic had not met its ultimate burden of proving the existence of an arbitration agreement, specifically finding Mosaic had not proven Harold was the person who completed the loan documents or that Deon had the authority to bind Harold to an arbitration agreement. Mosaic appealed.
When a party to a civil action asks the trial court to compel arbitration of the pending claim, the court must determine whether an “agreement to arbitrate the controversy exists.” (Code Civ. Proc., § 1281.2.)
Because the existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.
The trial court determines whether an agreement to arbitrate exists using a three-step burden-shifting process.
First, the party petitioning to compel arbitration must state the provisions of the written agreement and the paragraph that provides for arbitration. The provisions must be stated verbatim or a copy must be physically or electronically attached to the petition and incorporated by reference.
Signatures on the arbitration agreement need not be authenticated at this initial stage.
If the petitioner meets their initial burden, the burden of production shifts to the party opposing the petition to compel arbitration, who must offer admissible evidence creating a factual dispute as to the agreement’s existence.
When the dispute centers on the authenticity of signatures, the opponent need not prove that his or her purported signature is not authentic, but must submit sufficient evidence to create a factual dispute and shift the burden back to the arbitration proponent, who retains the ultimate burden of proving, by a preponderance of the evidence, the authenticity of the signature.
Mosaic argues the trial court’s ruling on the motion to compel arbitration was erroneous because once Mosaic met its initial burden of production and the burden shifted to the Wests, they failed to submit evidence sufficient to meet their burden of demonstrating a factual dispute as to the authenticity of Harold’s electronic signatures.
The appellate court ruled Mosaic was incorrect.
The loan documents were sent to Deon’s e-mail address, Deon told the Mosaic representative she would go check her e-mail, the documents were opened on a mobile phone 10 seconds after being sent, they were completed with seven electronic signatures within the space of 13 seconds, and Deon confirmed the documents’ completion.
Harold was in his 90’s, suffered from dementia, did not use a computer, mobile phone, or e-mail, and was unable to answer simple questions such as his birthdate and telephone number without assistance and significant delay.
The evidence strongly suggested Harold lacked the technical facility to open his daughter’s e-mail on what was presumably her mobile phone, create a digital signature, electronically click through and execute the loan agreement in seven locations, and submit those signatures, all in the space of 23 seconds, and it unquestionably demonstrates the existence of a factual dispute as to whether Harold actually executed the electronic signatures on the loan documents.
Mosaic argued the evidence was insufficient to demonstrate a factual dispute because “Harold himself never submitted any declaration or affidavit to support the assertion that he did not sign the Loan Agreement.
Mosaic offers no authority to support its contention that a personal declaration from Harold was required to shift the burden of production back to Mosaic.
An agent is someone who represents another—the principal—in dealings with third parties. (Civ. Code, § 2295.)
‘An agent has such authority as a principal actually or ostensibly confers upon him. (§ 2315.)
Actual authority is such as a principal intentionally confers upon an agent, or intentionally or by want of ordinary care allows the agent to believe himself to possess. ([Id.,] § 2316.)
Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess.
Agency may be created, and authority conferred, by a principal’s subsequent ratification of an agent’s conduct. (Civ. Code, § 2307.)
Ordinarily, the law requires that a principal be apprised of all the facts surrounding a transaction before he will be held to have ratified the unauthorized acts of an agent. However, where ignorance of the facts arises from the principal’s own failure to investigate and the circumstances are such as to put a reasonable man upon inquiry, he may be held to have ratified despite lack of full knowledge.
In the trial court, Mosaic argued that even if Harold did not physically sign the agreement, it was nonetheless binding upon him. First, Mosaic asserted that Deon’s actions “in holding herself out as a representative of [Harold] on the recorded Welcome Call with a representative of [Mosaic] supported a finding that she was authorized to act as [his] agent with regard to the Loan Agreement transaction.”
Second, Mosaic argued Harold later ratified the agreement through the recorded telephone call in which he responded affirmatively to information regarding the loan.
The trial court, however, ruled that the brief conversation between Harold and the Mosaic representative was “insufficiently clear to demonstrate any ratification or even awareness of Deon West having just executed a loan agreement or arbitration agreement on his behalf,” and that Mosaic had not presented evidence that Deon had actual or ostensible authority to bind Harold to the agreement containing the arbitration provision.
On appeal, Mosaic argued that the recorded telephone call does in fact demonstrate Harold’s ratification of the loan agreement.
Mosaic pointed out that its representative repeatedly referred to a loan during the conversation.
Sensibly, Mosaic does not renew the argument it made in the trial court that Deon was Harold’s actual or ostensible agent. Mosaic presented no evidence that Harold consented to Deon acting as his agent, and the Mosaic representative did not ask Harold whether he had authorized Deon to act on his behalf.
The hallmarks of actual agency are consent and control: Agency is the relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
As for ostensible agency, it is plain that Mosaic did not believe Deon was authorized to act as Harold’s agent. Had Mosaic believed Deon was entitled to act for Harold, there would have been no reason for the representative to ask Deon to put Harold on the phone—the representative would have run through the required disclosures with Deon and inquired of Deon, not Harold, whether she understood.
Where, as here, the judgment is against the party who has the burden of proof, it is almost impossible for him to prevail on appeal by arguing the evidence compels a judgment in his favor.
Here, the court found the telephone call lacked sufficient weight to carry Mosaic’s burden of proof regarding ratification, and the record does not compel a contrary finding as a matter of law.
Mosaic contended at oral argument that it may be inferred that Harold understood the arrangements being made because he had been fully informed about and discussed the contract with Mitmiger in the family’s living room.
However, Mitmiger’s declaration does not indicate that Harold personally discussed any contract during this meeting, nor does it identify any specific statement or action by Harold indicating any understanding of the transactions entered into in his name.
To the contrary, Deon observed in her declaration that Harold did not appear to understand what was happening.
At oral argument, Mosaic argued that the trial court did not expressly find that Harold lacked capacity, so the evidence does not establish he was incapable of entering into or ratifying the contract.
There was no need for the court to make any finding about Harold’s overall competence or lack of capacity; all that matters in this analysis is whether Harold understood what was happening here, and the trial court found the recorded conversation did not demonstrate any awareness on Harold’s part that Deon had just entered into a loan agreement on his behalf.
LESSONS:
1. When a party to a civil action asks the trial court to compel arbitration of the pending claim, the court must determine whether an “agreement to arbitrate the controversy exists.” (Code Civ. Proc., § 1281.2.)
2. The existence of the agreement is a statutory prerequisite to granting the petition, the petitioner bears the burden of proving its existence by a preponderance of the evidence.
3. An agent is someone who represents another—the principal—in dealings with third parties. (Civ. Code, § 2295.)
4. The hallmarks of actual agency are consent and control: Agency is the relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.