Inconspicuous Nature Of Arbitration Clause Deprived Defendant Of Procedural Due Process, And Denial Of Plaintiff’s Petition Disposed Of The Action Entitling Prevailing Defendant To Attorney Fees Per Civil Code § 1717.
In Domestic Linen Supply Co., Inc. v. L J T Flowers, Inc., Case Nos. B292863/B294788 (2d Dist., Div. 6 December 4, 2020) (published), plaintiff filed a petition to compel arbitration based on an arbitration clause in its double-sided single page contract with defendant. Based on the “inconspicuous” nature of the arbitration provision – which was hidden among seventeen other closely spaced provisions on the backside, in 8-point type, with no heading, boldface, or italics, and with plaintiff’s sales reps not trained to bring attention to the arbitration clause – the trial court determined there was no agreement to arbitrate and denied. Defendant was subsequently awarded $32,757.04 in Civ. Code § 1717 attorney fees based on the fee provision in the arbitration clause. Plaintiff appealed both the denial of its petition and the award of attorney fees.
In a 3-0 opinion authored by Justice Gilbert, the 2/6 DCA held that “[a]n arbitration clause in a contract is invalid because the clause is as inconspicuous as a frog in a thicket of water lilies. The prevailing party is entitled to attorney fees per Civil Code section 1717.1. Speaking of frogs, Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515 (Frog Creek) does not prohibit the award of attorney fees.”
The trial court reasonably determined that there was no agreement to arbitrate – with the rental agreement being deceptive.
As to the fees, the arbitration provision contained a one-sided provision for fees in plaintiff’s favor. However, as the purpose of § 1717 is to ensure mutuality of remedy for attorney fees under contractual fee provisions, the panel treated the provision as providing for an award of fees to the prevailing party. Plaintiff argued that, under Frog Creek, defendant was not entitled to fees for defeating the arbitration provision as it had not prevailed on the contract. Not so, said the 2/6 DCA. Frog Creek distinguished between cases where an arbitration petition is filed in an existing contract action and those in which the action is initiated by filing an arbitration petition. Plaintiff brought an independent petition to compel arbitration. Defeat of that petition terminated the action and left defendant as the prevailing party entitled to fees.
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