The California Court of Appeal for the Second Appellate District recently added clarity to a somewhat puzzling trial court decision that had sent an employment dispute to nonbinding arbitration. See Western Bagel Co. Inc. v. Superior Court of Los Angeles County and Jose Calderon, Case No. B305625 California Court of Appeal, Second Appellate Dist. (filed June 24, 2021, certified for publication July 16, 2021). In the case, Jose Calderon filed a putative class action against Western Bagel Company claiming that the company failed to give its employees proper meal and rest breaks. Western Bagel responded by seeking to compel binding arbitration based on an arbitration agreement Calderon signed.

Because Calderon was a Spanish-speaker with only a basic English vocabulary, he was provided with both original English and Spanish versions of the arbitration agreement. And therein lies the rub! While other clauses in the English and Spanish versions of the agreement provide for or “strongly support the conclusion” of binding arbitration, the severability clause in the Spanish version of the agreement stated otherwise. It provided:

“If any provision of this Agreement . . . is found to be unenforceable . . . this finding will not affect the validity of the rest of the Agreement and the Agreement will be carried out to the fullest possible extent to ensure that the resolution of all disputes between the parties . . . are resolved via neutral non-binding arbitration.” (Paragraph 10.)

Paragraph 10 of the Spanish version also was, however, at odds with Paragraph 1 of the same version, which declared:

“To the maximum extent permitted by law, [Western Bagel] and I mutually agree to resolution through binding arbitration for all claims or causes of action . . . that [Western Bagel] may bring against me or that I may bring against [Western Bagel]. . . .” (Emphasis added.)

Western Bagel asserted that the differing language of the Spanish severability clause was due to a typographical error by the third-party translation company that created the Spanish-language version of the agreement.

The trial court concluded that the Federal Arbitration Act (FAA) was applicable to the arbitration agreement but that the differences in the language of the severability clause created an ambiguity concerning the parties’ agreement to binding or nonbinding arbitration and applied the constructive canon of contra proferentem (an ambiguity in a contract is interpreted against the drafter) to order only nonbinding arbitration. Treating Western Bagel’s appeal as a petition for writ of mandate, the appellate court disagreed.

The Court of Appeal questioned whether an ambiguity truly exists, because the agreement states in multiple provisions that the parties agreed to binding arbitration, and Paragraph 10 of the Spanish agreement (that the trial court relied upon) applied only if a portion of the agreement was found to be illegal. And the trial court ignored that a third-party translator, not the company, apparently created the ambiguity.

Putting those significant issues aside, the appellate court focused on the use of contra proferentem doctrine in an agreement where the FAA governs. The Supreme Court decision in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1417-1419 (2019), provided the analytical tools to resolve the case. First, the contra proferentem canon “is by definition triggered only after a court determines that it cannot discern the intent of the parties’ using ‘ordinary methods of contract interpretation.’” Id. at 1417. Second, the FAA provides a “default rule” that “ambiguities about the scope of arbitration must be resolved in favor of arbitration.” Id. at 1418-1419. Consequently, “the trial court erred in applying contra proferentem to determine whether the parties agreed to binding or nonbinding arbitration.” Moreover, the FAA default rule requires “us to construe any ambiguity on this point in favor of binding arbitration,” “a fundamental attribute” of arbitration.

Bottom Line

Where an ambiguity exists as to the scope of coverage in an arbitration agreement subject to the FAA, it must be resolved in favor of binding arbitration.