Selected Developments in Business Law — California Law of Contracts

April 2026 Update

In Diamond v Schweitzer (2025) 110 CA5th 866, the court enforced a general release signed by a plaintiff injured at a sports event, finding that it satisfied the requirements for enforceable releases. The release barred negligence claims because it clearly expressed the intent to release all liability, and the injury-producing act (a third party punch during a dispute over a race) was reasonably related to the purpose for which the release was signed. See §5.95.

In Bartel v Chicago Title Ins. Co. (2025) 111 CA5th 655, the court found that a title insurer’s rejection of the insured’s tender of defense was a breach of contract and in bad faith, but it stopped short of finding malice. The insurer acted in bad faith by failing to fairly assess the possibility of coverage based on available facts; however, the court found the conduct did not meet the heightened standard of malice or oppression required for punitive damages. See §6.37.

In Thomson v Hodgson (9th Cir 2025) 150 F4th 1097, the court held that a 1977 royalty sharing agreement was not unilaterally terminable at will. Instead, the agreement contains an implied duration, continuing until the copyrights in the musical works cease generating royalties and enter the public domain. See §8.9.

Limitation of Liability

Two California Supreme Court cases set limits on general releases and limitation of liability provisions.

In New England Country Foods, LLC v VanLaw Food Prods., Inc. (2025) 17 C5th 703, the court held that CC §1668 prohibited an agreement between a manufacturer and its distributor to forgo consequential damages. The court declined to enforce the parties’ limitation of liability clause after the distributor intentionally stole its manufacturing partner’s secret formula for barbecue sauce.

In Whitehead v City of Oakland (2025) 17 C5th 735, the court held that CC §1668 invalidated a release that purported to exempt the city from liability for negligently violating its duty under Govt C §835 to maintain safe roadways. See §3.40A.

Online Agreements

The Ninth Circuit clarified the internet contract formation test in two cases.

In Chabolla v Classpass Inc. (9th Cir 2025) 129 F4th 1147, the court affirmed the denial of a motion to compel arbitration because the website failed to provide reasonably conspicuous notice of its terms and the user did not unambiguously manifest assent through the website’s action buttons. See §4.66.

In Plata v Lands’ End, Inc. (9th Cir, Aug. 20, 2025, No. 25-328) 2025 US App Lexis 21468, the court held that no contract was formed because the hyperlink to the “Terms of Use” was broken and inoperable at the time of the merchandise purchase. See §4.66.

Forum Selection

The California Supreme Court held in EpicentRx, Inc. v Superior Court (2025) 18 C5th 58 that forum selection clauses are not unenforceable solely because the selected forum (such as the Delaware Court of Chancery) lacks a civil jury trial right. The court clarified that California’s strong public policy favoring jury trials protects that right in California courts but does not extend to other jurisdictions.

Conversely, when statutory rights were involved in Lathrop v Thor Motor Coach, Inc. (review granted Jan 15, 2025, S287893; superseded opinion at 105 CA5th 808), the court held an Indiana forum selection clause was unenforceable because Indiana does not provide the same or greater rights as the Song-Beverly Act, diminishing the consumer’s unwaivable statutory protections. See §§5.44, 5.46.

In Casey v Superior Court (2025) 108 CA5th 575, the court held that the federal Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (EFAA) (9 USC §§401–402) superseded the parties’ prior agreement to apply California law. The EFAA permits plaintiffs alleging a sexual harassment claim to render arbitration agreements unenforceable. Furthermore the EFAA preempts state law attempts to compel arbitration in sexual harassment disputes, and applies to the entire case, including related wage-and-hour claims. See §§5.44, 9.40.

Arbitration

The California Supreme Court and the Court of Appeal revisited enforceability, unconscionability, and severance in several consumer, employment, and healthcare cases.

In Lombardo v Gramercy Court (2024) 107 CA5th 1028, the court held that a daughter lacked both actual and ostensible authority to bind her mother to a nursing facility’s arbitration agreement. Although the mother was silent while the daughter signed, there was no evidence the mother was competent or understood the situation enough to grant ostensible authority. Furthermore, the mother’s durable power of attorney did not provide actual authority because the “claims and litigation” section remained unchecked. See §2.33.

In Ramirez v Charter Communications, Inc. (2025) 108 CA5th 1297, the court refused to sever unconscionable provisions because they indicated a systematic effort by the employer to secure an advantageous forum, rather than a neutral alternative to litigation. See §§5.71–5.79.

In Fuentes v Empire Nissan, Inc. (Feb. 2, 2026, No. S280256) 2026 Cal Lexis 481, the California Supreme Court clarified that an otherwise fair and mutual term is not made substantively unconscionable by printing it in a manner that makes it difficult to read; the fact that a term is printed in tiny, blurry font does not alone make it harsh, one-sided, or otherwise unreasonably unfair. Rather, small font size is indicative of procedural unconscionability because it contributes to the element of surprise. See §§5.75–5.76.

In Velarde v Monroe Operations, LLC (2025) 111 CA5th 1009, 1013, the court found an arbitration agreement unenforceable because a manager expressly misled the employee by claiming the agreement allowed dispute resolution “without having to pay lawyers,” directly contradicting the written terms. See §5.76.

In Silva v Cross Country Healthcare, Inc. (2025) 111 CA5th 1311, the court held an arbitration agreement unconscionable because it compelled arbitration for claims likely brought by employees while exempting claims likely brought by the employer. See §5.77.

In Vo v Technology Credit Union (2025) 108 CA5th 632, the court held that an agreement that requires the arbitrator’s prior approval to depose third parties is not substantively unconscionable. See §9.37.

In Brockman v Kaiser Found. Hosps. (2025) 114 CA5th 569, the court affirmed the denial of arbitration because the defense failed to establish the precise arbitration provision the parties incorporated into their agreement. The court noted that enrollees should not be required to “scour” various booklets to find the applicable terms. See §9.41.

In Villalobos v Maersk, Inc. (2025) 114 CA5th 1170, the court held that a delegation clause that was incorporated by reference to an arbitration provider’s rules did not provide “clear and unmistakable evidence” that the parties agreed to delegate to the arbitrator the threshold question of arbitrability. See §§9.41–9.41B.

In Hohenshelt v Superior Court (2025) 18 C5th 310, the California Supreme Court upheld CCP §1281.98, which provides that a company may forfeit its right to arbitrate if it misses a fee payment by more than 30 days. However, the court clarified that a party may avoid forfeiture if the nonpayment resulted from excusable neglect rather than willful or fraudulent conduct. See §9.48.

In Leeper v Shipt, Inc. (review granted Apr. 16, 2025, S289305; opinion at 107 CA5th 1001), the court held that every action under the Private Attorneys General Act of 2004 (PAGA) (Lab C §2698–2699.5) necessarily includes an individual claim. Therefore, a plaintiff cannot avoid arbitration by alleging only “representative” claims if a valid arbitration agreement covers the individual portion of the dispute. See §9.47B.

In LaCour v Marshalls of CA, LLC (2025) 117 CA5th 505, the court affirmed the denial of the motion to compel arbitration, holding that an agreement drafted before Viking River failed to demonstrate a mutual intent to arbitrate plaintiff’s individual PAGA claims. The court rejected defendants’ argument that the contract covered individual PAGA claims because the language did not clearly distinguish (1) individual claims for Labor Code violations and (2) individual and representative claims for civil penalties for Labor Code violations under PAGA. See §9.48.

In Holland v Silverscreen Healthcare, Inc. (2025) 18 C5th 364, the California Supreme Court held that a decedent’s arbitration agreement does not bind nonsignatory heirs in a wrongful death action unless the claim involves professional negligence. The court distinguished professional negligence from custodial neglect, which involves the failure to provide for a resident’s basic welfare and safety. A nonsignatory heir’s wrongful death claims predicated on custodial neglect, unlike professional negligence, are not subject to arbitration under the decedent’s agreement. See §9.50.

In Ford Motor Warranty Cases (2025) 17 C5th 1122 and Ballesteros v Ford Motor Co. (2025) 109 CA5th 1196, the courts held that a vehicle manufacturer, as a nonsignatory, cannot compel arbitration of Song-Beverly Act claims. These Song-Beverly Act warranty claims arise from statutory mandates rather than the sales contract and are not sufficiently “intertwined” with the contract to trigger equitable estoppel. See §§9.50–9.50B.