Arbitration Agreements Are Enforceable Even When Executed After Litigation is Initiated

The recent case of Salgado v. Carrows Restaurant, Inc., et al. presented the unique issue of whether an arbitration agreement must pre-date the lawsuit to be enforceable. Although the trial court initially ruled against arbitration, the court of appeal reversed the ruling in an arbitration-friendly decision that upheld precedent supporting the proposition that the agreement need not pre-date the lawsuit.

On November 22, 2016, Plaintiff Maureen Salgado filed a lawsuit for employment discrimination and violation of civil rights against Food Management Partners dba Carrows Restaurant, and later amended the complaint on April 18, 2017 to name Carrows Restaurants, Inc. (“Carrows”) and Catalina Restaurant Group, Inc. as defendants.

Notably, however, Ms. Salgado entered into an arbitration agreement with Carrows on December 7, 2016, approximately four months before the company was named as a defendant in her lawsuit, but after Ms. Salgado’s claims arose and litigation commenced. Accordingly, when Carrows brought a motion to compel arbitration, Ms. Salgado made the argument that the agreement applied only to claims arising after the agreement’s execution.

Ms. Salgado’s argument was largely premised on the specific wording of the agreement, which stated that the parties entered into a binding and enforceable agreement to arbitrate all claims “which may arise out of or be related in any way to” Ms. Salgado’s employment. Specifically, she argued that the phrase “may arise out of” suggests that it applies to future disputes and not disputes over which a lawsuit has already been filed.

The trial court agreed with Ms. Salgado’s position, but the court of appeal for the second appellate district overturned the ruling. Notably, the court of appeal’s decision turned, in part, on the inclusion of a single word in the arbitration provision: “or.” The court of appeal reasoned that Ms. Salgado’s claims against Carrows were related to her employment with Carrows, and therefore fell under the arbitration provision, which covered all claims “which may arise out of or be related in any way to” (emphasis added) Ms. Salgado’s employment. Accordingly, it did not matter that Ms. Salgado had already filed suit by the time she entered into the arbitration provision, because the lawsuit was nevertheless related to her employment.

The court of appeal also relied on a second part of the same arbitration provision, which similarly indicated that Ms. Salgado agreed to arbitrate “any claim, dispute, and/or controversy” she may have against Carrows. The court of appeal again pointed out that this provision was broad in scope, and unrestricted and unlimited as to the age of the claim.

In overturning the trial court’s ruling with regard to Carrows’ motion to compel arbitration, the court of appeal relied on and upheld both California and federal precedent holding that arbitration agreements need not pre-date the actions giving rise to the dispute. (See Zink v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (10th Cir. 1993) 13 F.3d 330, 332; Desert Outdoor Advertising v. Superior Court (2011) 196 Cal.App.4th 866, 877.)

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March 29, 2019