Cohen v. CBR Systems, Inc.

Background

Plaintiffs alleged that CBR Systems, Inc. provides newborn stem-cell processing and preservation services as a private cord-blood bank and storage service. They alleged that CBR led consumers to believe that annual storage fees were fixed, then increased those fees and charged undisclosed costs. Plaintiffs asserted multiple claims involving breach of contract and deceptive marketing and billing practices against CBR and GI Partners. Plaintiffs alleged that GI Partners acquired CBR in August 2018.

Each plaintiff acknowledged entering into a contract with CBR governing storage of a child’s cord blood. The contracts contained arbitration provisions requiring disputes to be resolved through binding arbitration under Title 9 of the California Code of Civil Procedure. The contracts also provided that a court or arbitrator could award reasonable attorneys’ fees and costs to the prevailing party. All three contracts included California choice-of-law provisions.

CBR and GI Partners each moved to compel arbitration. GI Partners was not a signatory to the contracts.

Court’s analysis

The court held that the arbitration agreements were valid and applied to the plaintiffs’ claims against CBR because the provisions covered broadly worded disputes between the plaintiffs and CBR.

The plaintiffs argued that arbitration was improper under the California Supreme Court’s decision in McGill v. Citibank, N.A. because they sought public injunctive relief. The court rejected that argument, finding that the contracts’ references to “any other relief” could include public injunctive relief. The court therefore concluded that the contracts did not bar the plaintiffs from seeking that relief in arbitration.

The plaintiffs also argued that the arbitration provisions were unconscionable, meaning so unfair that they could not be enforced. The court found minimal procedural unconscionability because the contracts favored CBR’s bargaining position and were presented on a take-it-or-leave-it basis. But it found no substantive unconscionability. The court rejected challenges based on the provisions concerning collection of unpaid fees, CBR’s liability cap, and discretionary awards of attorneys’ fees and costs. The court concluded that the arbitration provisions were not so one-sided as to “shock the conscience.”

The court also held that GI Partners could compel arbitration even though it had not signed the contracts. Applying equitable estoppel, a doctrine that can prevent a party from avoiding contract-based arbitration when its claims are closely tied to that contract, the court found that the claims against GI Partners and CBR were based on the same facts and were inherently inseparable. The court also found that the claims against GI Partners fell within the scope of the arbitration provisions because plaintiffs alleged that GI Partners acted through CBR to increase storage fees.

Disposition

Judge Haywood S. Gilliam, Jr. granted CBR’s motion to compel arbitration and granted GI Partners’ motion to compel arbitration. The court stayed the action pending arbitration and directed that the plaintiffs’ individual claims proceed in individual arbitration because the contracts were silent about class-wide arbitration. The defendants’ alternative motions to dismiss were moot. The parties were ordered to file joint status reports every 120 days regarding the arbitration and to notify the court within 48 hours after the arbitration concluded.