CDRC

 

2011 ADR RELATED COURT DECISIONS

In 2011, there are a number of California court decisions related to Arbitration.  So far, there have only been two decisions related to mediation – but the Cassel decision has been very controversial and it may spark new legislation.

CDRC has plans to construct an archive of mediation and arbitration cases going back to 2000.  This will be a searchable archive cross indexed alphabetically by decision and by ADR related issues.  We believe this would be very useful for the ADR Community. However, we need your help to make this a reality and ask you to email our Webmaster if you are interested in participating. 

 List of 2011 Mediation Case Issues

• Class Action Settlements
• Coercion
• Confidentiality-Attorney Client Communications
• Confidentiality-Conduct
• Confidentiality-Criminal Violation Exception
• Confidentiality-Securties Law Violations
• Settlement Agreement-Enforceability-Execution by Attorney for Party
• Settlement Agreement-Enforceability-Execution by Employee of Party
• Settlement Agreement-Enforceability-Execution by Some but not All Parties

2011 Mediation Related Cases:

                  The Facebook Inc. v ConnectU, Inc., 2011 US App LEXIS 7430 (2011)

ISSUE: Class Action Settlements

In re Bluetooth Headset Products Liability Litigation, 645 F 3d 935, 948 (9th Cir 2011)

The court remanded a class action settlement achieved after a mediation to determine if the attorney fee agreed upon was reasonable and not collusive. The mere presence of a neutral mediator, though a factor weighing in favor of a finding of non-collusiveness, is not on its own dispositive of whether the end product is a fair, adequate, and reasonable settlement.

ISSUE: Coercion

Provost v Regents of the University of California, 201 Cal App 4th 1289, 1302-03, 2011 Cal App LEXIS (2011)

Plaintiff sought to set aside a settlement agreement on the ground that he was coerced into signing it by both his and defendant’s attorneys. They purportedly told him that defendant would file criminal charges against him if he did not sign and that his civil case would fail because Orange County juries were pro-defense. The argument was rejected. Evidence Code Section 1119 unqualifiedly bars disclosure of communications made during mediation, absent an express statutory exception, even where this protection may sometimes result in the unavailability of valuable civil evidence.

 

ISSUE: Confidentiality – Attorney Client Communications

Cassel v Superior Court, 51 Cal 4th 113, 119 Cal Rptr 3d 437 (2011)

Plaintiff sued his attorney for malpractice because he allegedly coerced plaintiff into agreeing to a settlement during a mediation. Prior to trial of the malpractice suit, the attorney filed a motion in limine seeking to bar admission of communications between the attorney and client during a pre-mediation session and during the mediation, all of which conversations occurred outside of the presence of the mediator and adverse party.

The trial court granted the motion and the Court of Appeal reversed, holding that the attorney and client were a single “participant” in the mediation and so the confidentiality provisions did not apply.

The Supreme Court reversed. The attorney and client were separate participants. All oral and written communications between them are covered by the confidentiality statutes if they are made “for the purpose of” or “pursuant to” a mediation. It follows that, absent an express statutory exception, all discussions conducted in preparation for a mediation, as well as all mediation related communications that take place during the mediation itself, are protected from disclosure. Plainly, such communications include those between a mediation disputant and his or her own counsel, even if these do not occur in the presence of the mediator or other disputants.

ISSUE: Confidentiality-Conduct

Provost v Regents of the University of California, 201 Cal App 4th 1289, 1303, 2011 Cal App LEXIS 1565 (2011)

Plaintiff sought to void a mediation settlement agreement by asserting that he was coerced into signing it by his attorney who told him that his civil claim would fail because Orange County juries were pro-defense and by defendant’s attorney who told him that his client would file a criminal complaint against him if he did not sign the settlement agreement.. He claimed that the attorneys’ actions constituted conduct and hence this evidence was admissible. He further alleged that even if the conduct included communications, it was so egregious that it should not be shielded by the confidentiality doctrine.

The claim was rejected. The evidence that plaintiff wished to introduce was not conduct, but communications. Furthermore, in banning any court created exceptions to the statutory confidentiality protections concerning communications in prior rulings, the  California Supreme Court emphasized that the Legislature had weighed the possibility of some unfair results against the strong public policy supporting mediation and came down on the side of mediation.

ISSUE: Confidentiality-Criminal Violation Exception

Provost v Regents of the University of California, 201 Cal App 4th 1289, 1303-04, 2011 Cal App LEXIS 1565 (2011)

Plaintiff sought to void a mediation settlement agreement by asserting that he was coerced into signing it as a consequence of criminally prosecutable statements by his and defendant’s attorneys. Hence, their statements were admissible under the criminal violation exception to confidentiality. The argument was rejected. The action in which plaintiff sought admission of this evidence was not a criminal action and there was no curtailment of plaintiff’s due process rights. Thus, his claim that the statements “constitute” a crime does not exempt him from the statutory mandate of confidentiality.

ISSUE: Confidentiality – Securities Law Violations

The Facebook, Inc. v ConnectU, Inc., 2011 US App LEXIS 7430 (2011)

Appellants herein sought to set aside a mediation settlement in which they received shares of a corporation on the ground that the appellees misrepresented the value of the shares during the course of the mediation, thereby inducing them to accept a lesser number of shares. Their suit asserted a violation of Section 10(b) of the Securities and Exchange Act of 1934. They argued that mediation confidentiality rules could not be enforced because such enforcement was precluded by Section 29(a) of the 1934 Act. Plaintiff asserted that enforcing confidentiality would constitute a waiver of the right to sue for a securities law violation.

The Ninth Circuit rejected the argument. Section 29(a) only applies to express waivers of non-compliance with the substantive obligations imposed by the Exchange Act. The confidentiality agreement merely precluded both parties from introducing evidence of a certain kind. Although this frustrated the claims that appellants chose to bring, the confidentiality agreement did not purport to limit or waive their right to sue.

ISSUE: Settlement Agreement-Enforceability-Execution by Attorney for Party

Provost v Regents of the Universityof California, 201 Cal App 4th 1289, 1296, 2011 Cal App LEXIS 1565 (2011)

Plaintiff argued that the settlement agreement in this case was not enforceable because it was signed by defendant’s in-house counsel. The argument was rejected. She was not attorney of record as to the complaint and appeared only on the cross complaint as one of six attorneys. She was not authorized to sign “merely by virtue of her retention in litigation”. She did not bind defendant as attorney-agent, but signed as a designated employee of the corporate party. Just because she happened to be an attorney should not and does not prohibit her from acting on defendant’s behalf. There is no authority for the proposition that a settlement agreement signed in mediation by someone who is both counsel and a party cannot be enforced under Code of Civ Proc Section 664.6.

ISSUE: Settlement Agreement-Enforceability-Execution by Employee of Party

Provost v Regents of the University of California, 201 Cal App 4th 1289, 1296-97, 2011 Cal App LEXIS 1565 (2011)

Plaintiff argued that the settlement agreement in this matter was not enforceable because it was signed by an in-house counsel who was not an officer of defendant. The argument was rejected. She was designated as party representative by defendant’s general counsel who, pursuant to defendant’s bylaws, had “general charge of all legal matters pertaining to the Corporation”.

The decision in this case should not apply to any employee of any corporation in any circumstance. But when the signer is an employee, under the circumstances present here, there is no reason why, merely by virtue of their size, large organizations or entities that are involved in a multitude of lawsuits should be deprived of access to the summary process of Code of Civ Proc Section 664.6. That statute was enacted to provide “an expedient and cost effective means of enforcing a settlement agreement” and as “a valid alternative to a motion for summary judgment” and the other methods of enforcement.

ISSUE: Settlement Agreement-Enforceability-Execution by Some but not All of the Parties

Provost v Regents of the University of California, 201 Cal App 4th 1289, 1299, 2011 Cal App LEXIS 1565 (2011)

Plaintiff sued his former employer and two of its employees. After a mediation, plaintiff and the employer executed a stipulated settlement wherein the employer agreed to pay plaintiff $475,000 in full settlement of the dispute. The agreement was signed by the employer but not the employees. Plaintiff argued that this made the settlement agreement unenforceable in a suit by the employer to enforce the settlement.

 The argument was rejected. A settlement agreement may be enforced under Code of Civ. Proc .Section 664.6 by the parties who signed it. But the statute does not require that the agreement be executed by every party to the action who benefits from it, even if indirectly, such as a third party beneficiary. In this case, the language of the stipulated settlement stated that “the case is settled as to all claims…and the entire action is dismissed with prejudice.” Performance of those acts disposes of the case against all parties, even without the signatures of the individual defendants on the stipulated settlement.

 

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List of 2011 Arbitration Case Issues

• Appeal – Order Denying Petition to Compel Arbitration
• Appeal to Second Arbitrator
• Arbitrability
• Arbitrability – Agreement with Unlicensed Contractor
• Arbitrable and Non Arbitrable Clauses
• Arbitration Clause
• Arbitration – Judicial Arbitration
• Attorney-Client Fees – Arbitration
• Attorney-Client Fees – Court Proceedings
• Award – Confirmation
• Award – Correction
• Award – Defamation Cases
• Class Action Waivers
• Common Carriers
• Cumis Counsel
• Declaratory Relief – Federal Abstention
• Disclosure
• Errors of Law
• Errors of Law – Damages
• Exceeding Powers
• Failure to Read Agreement
• Forum Fees – Effect on Unconscionability
• Immunity
• Inability to Pay Cost of Arbitration
• Injunctive Relief
• International Arbitration-Attorney Fees-Bad Faith
• International Arbitration-Confirmation-Public Policy Defense
• International Arbitration-Post Award Prejudgment Interest
• Jurisdiction
• Labor Contracts-Former Employees
• Nonsignatories
• Petition to Compel Arbitration
• Physician-Hospital Disputes
• Preemption
• Punitive Damages – Due Process
• Reference Agreements
• Severance
• Stay of Litigation – Lifting
• Stipulations – Appeal Courts
• Unconscionability
• Unconscionability-Remedies Exempt from Arbitration
• Wage Claims – Arbitrability
• Wage Claims – Unconscionability
• Waivers – of Arbitration
• Waivers – of Arbitration-Nonsignatory as Class Representative
• Waivers – Sovereign Immunity
• Warranties

 

List of 2011 Arbitration Related Cases

  

 

 

 

Burch v Premier Homes LLC, 199 Cal App 4th 730, 744, 131 Cal Rptr 3d 855 (2011)

Issues:

Petition to Compel Arbitration

 

 

 

 

 

 

                   Johnson v Wells Fargo Home Mortgage, Inc., 635 F 3d 401 (9th Cir 2011)

 

 

 

 

 MKJA, Inc. v 123 Fit Franchising LLC, 191 Cal App 4th 643, 655, 119 Cal Rptr 3d 634 (2011)

 

 

 

 

 

 

 

 

 

 

 

 

ISSUE: Appeal – Court Stipulation

Johnson v Wells Fargo Home Mortgage, Inc., 635 F 3d 401 (9th Cir 2011)

After a year of litigating, the parties stipulated to “participate in a binding arbitration with appeal rights”. Plaintiff prevailed at the arbitration and defendant moved to vacate.

The District Court ruled that the phrase “appeal rights” meant that it had no jurisdiction to review the motion to vacate on its merits. It therefore confirmed the award and passed that obligation to the Ninth Circuit.

The Ninth Circuit determined that it had no jurisdiction to initially review the decision of a private arbitrator. It distinguished the dicta in Hall Street Associates v Mattel, Inc., 552 US 576, 591 (2008) where the Court speculated that an arbitration agreement entered into in the course of litigation and adopted by a district court as an order might be treated as an exercise of the district court’s authority to manage its cases under FRCP 16. Here, the district court did not once reference its independent case management powers in approving the arbitration agreement or in confirming the resulting award.

Consequently, the case was remanded to the District Court with directions to rule on the motion to vacate.

 

ISSUE: Appeal – Order Denying Petition to Compel Arbitration

MKJA, Inc. v 123 Fit Franchising LLC, 191 Cal App 4th 643, 655, 119 Cal Rptr 3d 634 (2011)

A Colorado court granted defendant’s motion to compel arbitration of plaintiffs’ claims. Plaintiffs then sued defendant in California and the trial court held that the arbitration agreement was unconscionable.

Defendant appealed and the Court of Appeal ruled that it could hear the appeal. If the trial court’s decision were not appealable, defendant would be forced to proceed to litigate to a final judgment and its alleged right to arbitrate would thus be frustrated.

Thus, a trial court’s order declaring an arbitration agreement to be unenforceable is appealable pursuant to Code of Civil Procedure Section 1294(a) as the functional equivalent of a decision denying a motion to compel arbitration.

ISSUE: Appeal to Second Arbitrator

Sanchez v Valencia Holding Co., LLC,  201 Cal App 4th 74, 2011 Cal App LEXIS 1467 (2011)

Here a car dealer attempted to avoid the holding in Little v Auto Stiegler, 29 Cal 4th 1064 (2003) that an arbitration clause was unconscionable because it only allowed appeals to a second arbitration panel if there was an award in excess  of $50,000. The clause favored the stronger party because it was most likely to be the respondent. The agreement herein provided for an appeal if there was an award in excess of $100,000, but also provided for an appeal if a party recovered nothing and so neither party appeared to be favored.

 Nevertheless, the clause was  found to be unconscionable. If the buyer prevailed but believed that the award was too low because it was under $100,000, the arbitration would be at end. But if the buyer recovered a substantial sum, the dealer could appeal. A truly bilateral clause would have allowed the buyer to appeal an award below $100,000.  

In addition, the clause allowed for an appeal from an injunction granted by the arbitrator. The court reasoned that the buyer was more likely to obtain an injunction. Thus, the buyer was disfavored because the dealer could delay the effect of a permanent injunction by appealing or delay the hearing by appealing from a preliminary injunction.

Finally, the contract provided that a party pursuing an appeal had to pay all arbitration filing fees and costs in advance subject to reallocation at the end of the proceeding. The amount of the advance could be substantial because the appellate panel consisted of three persons and this could discourage a consumer from pursuing the appeal.  

ISSUE: Arbitrability

Chin v Advanced Fresh Concepts Franchise Corp., 194 Cal App 4th 704, 710-11, 123 Cal Rptr 3d 547(2011)

There is substantial authority  that a delegation clause in an adhesion contract is unconscionable. It has been held that such a clause is not within the adhering party’s reasonable expectations since arbitrators are not normally expected to determine their own jurisdiction.

In addition, the delegation clause creates a conflict of interest for the arbitrator because an arbitrator who finds an arbitration agreement to be unconscionable would not only have nothing further to arbitrate, but could also reasonably expect to obtain less business in the future, at least from the provider in question.

But declaring the delegation clause unconscionable would serve no purpose unless some other term of the arbitration provision is unconscionable. The court then examined the other clauses in the contract and found them not to be unconscionable.

Momot v Mastro, 652 F 3d 982 (9th Cir 2011)

The parties clearly and unmistakably agreed to arbitrate the question of arbitrability where the contract stated that “if a dispute arises out of or relates to this agreement, the relationships that result from thisagreement, or the validity or application of any of the provisions of [the agreement]…the dispute shall be resolved exclusively by binding arbitration.”

The contract herein did not clearly and unmistakably delegate to the arbitrator the issue of arbitrability because of two clauses. One clause stated that “nothing contained in this agreement shall in any way deprive a party of its right to obtain provisional, injunctive, or other equitable relief from a court of competent jurisdiction”. A claim that a contract is unenforceable on the ground of unconscionability is an equitable matter.

Another clause stated that “in the event that any provision of this agreement shall be determined by a trier of fact of competent jurisdiction to be unenforceable in any jurisdiction….the remainder of the Agreement shall be binding”.

Hartley v Superior Court, 196 Cal App 4th 1249, 1257, 127 Cal Rptr 3d 174 (2011)

The contract herein did not clearly and unmistakably delegate to the arbitrator the issue of arbitrability because of two clauses.

One clause stated that “nothing contained in this agreement shall in any way deprive a party of its right to obtain provisional, injunctive, or other equitable relief from a court of competent jurisdiction”. A claim that a contract is unenforceable on the ground of unconscionability is an equitable matter. Another clause stated that “in the event that any provision this agreement shall be determined by a trier of fact of competent jurisdiction to be unenforceable in any jurisdiction….the remainder of the Agreement shall be binding”.

Cape Flattery Limited v Titan Maritime LLC, 647 F 3d 914, 921 (9th Cir 2011)

The arbitration agreement in this matter provided that any dispute “arising under this agreement shall be settled…in accordance with the English Arbitration Act of 1996 and….English law”. Plaintiff argued that the dispute was not arbitrable because it was a tort claim and hence did not “arise under” the contract. Defendant claimed that under English law, the dispute was arbitrable.

The court held that federal law normally is applied to determine arbitrability unless the parties clearly and unmistakably opt for non-federal law. Here, English arbitration law clearly applied to disputes that were subject to arbitration. But the agreement was ambiguous concerning whether English law also applied to determine whether a given dispute was arbitrable in the first place.

 

 

ISSUE: Arbitrability – Agreement with Unlicensed Contractor

Templo Calvario Spanish Assembly of God v Gardner Construction Co., 198 Cal App 4th 509, 520, 129 Cal Rptr 3d 574 (2011)

The parties herein entered into an agreement to construct a church. A dispute arose and the church filed an arbitration claim against the contractor based on an arbitration clause in the contract. The arbitrator found that the contractor was unlicensed and ordered it to return all funds paid to it by the church, as provided by the Contractors State Licensing Law (“CSLL”). The Superior Court vacated the award, holding that the contractor’s unlicensed status rendered the contract void and that included the arbitration clause.

The Court of Appeal reversed. Contracts between a consumer and an unlicensed contractor are not void. The CSLL does not mandate that a consumer cannot proceed to arbitrate its dispute with a contractor simply because the contractor was unlicensed at the time of the signing of the contract. The statute permits a consumer to bring an action to recover monies paid to an unlicensed contractor. Public policy favoring arbitration also permits the consumer to file an arbitration claim to recover these monies.

ISSUE:Arbitrable and Non Arbitrable Claims

KPMG LLP v Cocchi, 181 L.Ed. 2d 323, 2011 US LEXIS 7924(2011)

When a complaint contains both arbitrable and non arbitrable  claims, the FAA requires courts to compel arbitration of pendent arbitrable claims, when one of the parties files a motion to compel, even where the result would be the possible inefficient maintenance of separate proceedings in different fora. Here, the lower court found two of the four claims to be non arbitrable and therefore denied the petition to compel arbitration. By not addressing the other two claims, the lower court failed to give effect to the plain meaning of the FAA.

 

 

ISSUE: Arbitration Clause

Cape Flattery Limited v Titan Maritime LLC, 647 F 3d 914, 922 (9th Cir 2011)

Defendant contracted with plaintiff to remove plaintiff’s ship from a reef, Defendant removed the ship but damaged the reef and, under maritime law, plaintiff became liable for this damage. Plaintiff, asserting that defendant was grossly negligent, brought a suit for indemnification against defendant. Defendant moved to compel arbitration under a clause in the contact that provided that “any dispute arising under this agreement shall be settled by arbitration”. The court held that the dispute was not arbitrable. It did not turn on any clause in the contract nor did it turn on defendant’s performance under the contract. Instead, the dispute involved a tort claim based on Hawaii and maritime law.

ISSUE: Attorney-Client Fee Arbitrations

Glaser Weil Fink Jacobs & Shapiro LLP v Goff, 194 Cal Ap4th 423, 440-43, 125 Cal Rptr 3d 26 (2011)

The clients herein demanded binding arbitration pursuant to the rules of the Los Angeles County Bar Association (“LACBA”). The law firm rejected the request, but after the panel was appointed, it agreed to binding arbitration. The clients then stated that they would not agree to binding arbitration. The LACBA, as provided in its rules, asked for authorization from the parties for the arbitrators to make a ruling on binding arbitration. Authorization was granted, the arbitrators ruled that the arbitration would be binding, and ruled in favor of the law firm.

The clients appealed and the award was vacated. When the law firm unequivocally rejected the request for binding arbitration, the offer was terminated and could not later be accepted by the law firm. When the firm changed its mind and submitted its own request for binding arbitration, the clients rejected the offer. The clients did not vacillate from that decision and so when they authorized the arbitrators to rule on the issue of bindingness, they were in fact authorizing the arbitrators to make a nonbinding ruling on the issue of whether the arbitration was binding, just as the clients had authorized the arbitrators to make nonbinding rulings on all of the other issues in the arbitration.

The law firm also argued that the clients had waived their right to assert that the arbitration was nonbinding because they rejected an offer from the arbitrators to make the arbitration nonbinding in return for their agreement to the law firm’s request for a continuance. The clients’ rejection of the offer was not a waiver. Before the offer was made, the clients had an absolute right to nonbinding arbitration. The effect of the offer was to charge the clients a fee for exercising that right—they would have to agree to the firm’s request for a continuance if they wanted the arbitration to be nonbinding. In fact, the clients’ rejection of the offer was fully consistent with and an expression of their position that they had an unfettered right to nonbinding arbitration.

Benjamin Weill & Mazur v Kors, 195 Cal App 4th 40, 55-56, 125 Cal Rptr 3d 467 (2011)

The parties herein entered into an arbitration agreement which mandated arbitration pursuant to the rules of the Bar Association of San Francisco (“BASF”). But the agreement was not enforceable under either the BASF rules or the MFAA because both bar predispute agreements. The law firm rejected the client’s demand for nonbinding arbitration pursuant to the MFAA and she then demanded arbitration pursuant to the CAA based on the arbitration agreement that the parties signed. The law firm argued that the client waived her rights by demanding arbitration pursuant to the MFAA.

The trial court rejected that argument and granted the client’s motion. The Court of Appeal held that the trial court properly determined that the client’s effort to commence nonbinding arbitration pursuant to the MFAA did not waive her right to binding arbitration under the CAA. The two statutes do not cover the same subject. The MFAA concerns nonbinding arbitration that the parties did not agree to in advance while the CAA concerns binding arbitration agreed to in advance. But the two statutes may be rationally harmonized. Nothing in the MFAA makes binding arbitration unenforceable. Clients may request and obtain nonbinding arbitration under the MFAA. But if the client does not request nonbinding arbitration or if it is held but does not resolve the dispute, then the MFAA has played its role, and the matter may continue without it. Either party then may pursue judicial action unless the parties had agreed to binding arbitration. In that event, the CAA would apply and the dispute would go to binding arbitration.

Giorganni v Crowley, 197 Cal App 4th 1462, 1477-8, 129 Cal Rptr 3d 546 (2011)

Plaintiff client filed an arbitration proceeding under the MFAA alleging that the defendant attorney had overcharged her by $40,000. The attorney filed a cross claim seeking $11,000 in unpaid fees. The arbitrators awarded plaintiff $29,713 and rejected the cross claim.

Within the 30 day period required to reject the arbitration award, the attorney filed a complaint in Small Claims Court seeking a trial de novo and asking for damages of $5000. The plaintiff moved to confirm the arbitration award in Superior Court, arguing that the defendant was obliged to file his request for a trial de novo in Superior Court because the amount in controversy was in excess of the jurisdictional limits of Small Claims Court and that his failure to do so made the arbitration award final.

The award was confirmed but the Court of Appeal reversed. The use of a prior demand in the superseded arbitration as “the amount of money in controversy” to establish the court’s jurisdiction for a de novo request is not consonant with the MFAA. So long as a party files the request for a trial de novo in any court within the 30 day period, the arbitration award is nullified.

 

 

ISSUE: Attorney Fees – Court Proceedings

Benjamin Weill & Mazur v Kors, 195 Cal App 4th 40, 74-79, 125 Cal Rptr 3d 469 (2011)

The defendant herein filed a motion to recover attorney fees after she successfully moved to compel arbitration of a fee dispute, based on a provision in the agreement that “the prevailing party in any arbitration  or litigation pertaining to [any fee] dispute may recover the full value of attorney’s fees incurred [in] any dispute over enforcement of this agreement”. The Court of Appeal ruled that the defendant was entitled to the fees. The petition to compel arbitration of the fee dispute sought to stay the plaintiff’s suit for breach of the fee agreement had the purpose of enforcing the fee agreement and thus entitled the defendant to her attorney fees after she prevailed.

 

ISSUE: Award – Defamation Cases

Kelly Sutherlin McLeod Architecture, Inc. v. Schneickert, 194 Cal App 4th 519, 529-34, 125 Cal Rptr 3d 83 (2011)

In this defamation case, the arbitrator awarded monetary damages to the claimant and ordered the respondent to send a retraction letter, the terms of which were set forth by the arbitrator. In the letter, the specific defamatory statements to be retracted were identified as “false statements” and the letter further provided that respondent retracted the statements and apologized for them.

Respondent asserted that the arbitrator exceeded his powers by requiring him to write the letter. The court disagreed. Although a California court arguably may not have the power to compel a party to retract defamatory statements, the parties may allow an arbitrator to do so. Here, the arbitration was conducted under the AAA rules, which permit equitable relief.

But the court made two changes to the letter. It deleted the word “false” because that word may suggest that the respondent agreed with the arbitrator’s finding. The paragraph in which respondent retracted the statements and apologized for them was also stricken. The arbitrator could require the respondent to set the record straight but he could not be compelled to include a mea culpa.

 

ISSUE: Award Correction

Kelly Sutherlin McLeod Architecture, Inc. v. Schneickert, 194 Cal App 4th 519, 535, 125 Cal Rptr 3d 83 (2011)

The arbitrator in this defamation case awarded monetary damages to the claimant and ordered the respondent to send a letter of retraction and apology. The court corrected the award by amending the letter. This was a valid correction and did not affect the award of monetary damages.

Portico Management Group LLC v Harrison, 2011 Cal App LEXIS 1642 (2011)

Plaintiff commenced an arbitration proceeding against a trust and its trustees for breach of a contract to sell an apartment house. The arbitrator issued a $1.6 million award against the trust, but not the trustees. Plaintiff confirmed the award, entered judgment, and levied on the company that the managed the apartment so that it could collect the rents. Successor trustees moved to set aside the judgment on the ground that the trust was not a legal person and hence not the owner of the property and therefore the levies were improper. The motion was granted and affirmed on appeal. The successor trustees  were even able to win attorney fees as the prevailing parties. Although the contract was clearly breached, the court noted that plaintiff  could have taken other avenues to recover its damages. It could have applied to the arbitrator to correct the award within ten days of service of a signed copy of the award. Or  it could have petitioned the court to correct the award within 100 days of service. The time to make sure that the i’s are dotted, t’s are crossed, and that the award decides all necessary issues in a single, final, and self contained award is before the award is confirmed, not after.

ISSUE: Class Action Waivers

AT&T Mobility LLC v Concepcion, 131 S Ct 1740, 179 L Ed 2d 742, 2011 US LEXIS 3367 (2011)

AT&T appealed from a Ninth Circuit decision that held that a class action waiver in its arbitration contract was unconscionable. The lower court relied on the holding in Discover Bank v Superior Court, 36 Cal 4th 148 (2005), where it was held that a class action waiver in a contract was unconscionable and hence unenforceable where the effect of the waiver was to “cheat” consumers out of small sums of money.

The Supreme Court reversed. The Court recognized that the Discover Bank rule could conceivably be applied to all agreements which prohibit class actions and not merely arbitration agreements and thus differed from state laws that pertained only to arbitration agreements and thus were obviously preempted by the FAA. Nevertheless, a rule or law that may in theory be generally applicable could be preempted by the FAA if it disfavors arbitration. For example, a statute that required judicially monitored discovery in all disputes would disfavor arbitration because discovery is generally unavailable in arbitration.

The Court held that the Discover Bank rule disfavors arbitration for three reasons. First, the switch from bilateral to class arbitration sacrifices the principle advantage of arbitration–its informality–and makes the process slower, more costly, and more likely to generate procedural morass. Second, class arbitration requires procedural formality as evidenced by the AAA rules which mimic the Federal Rules of Civil Procedure for class litigation.

Third, class arbitration increases risk to defendants. Defendants might be willing to assume the risk of being unable to appeal from errors committed by an arbitrator, because this risk is limited to the size of individual disputes and presumably outweighed by savings from avoiding the courts. But when damages allegedly owed to tens of thousands of potential claimants are aggregated and decided at once, the risk of an error would become unacceptable.

Brown v Ralph’s Grocery Co., 197 Cal App 4th 489, 500, 128 Cal Rptr 3d 854 (2011)

Plaintiff filed a class action suit against defendant, her  employer, alleging, inter alia, violation of the Labor Code Private Attorney Generals Act (“PAGA”). Defendant moved to compel arbitration of her claim on an individual basis citing an arbitration clause in her employment agreement in which she waived the right to file a class action or bring suit as a private attorney general. The trial court found this clause to be unconscionable under the Discover Bank rule and denied the petition.

Subsequently, the Supreme Court decided AT&T Mobility LLC v Concepcion, in which it overruled Discover Bank. The appellate court ruled that while AT&T Mobility may have overruled Discover Bank, it did not overrule PAGA. AT&T does not purport to deal with the preemption of contractual efforts to eliminate representative private attorney general actions to enforce the Labor Code. PAGA creates a statutory right for civil penalties for Labor Code violations that otherwise would be sought by state labor law enforcement agencies. The aggrieved employee acts as the proxy or agent of state labor law enforcement agencies, representing the same legal right and interest as those agencies, in a proceeding that is designed to protect the public, not to benefit private parties. This purpose contrasts with the private individual right of a consumer to pursue class action remedies in court or arbitration, which right, according to AT&T, may be waived by agreement so as not to frustrate the FAA—a law governing private arbitrations.

(Note: The Court specifically declined to discuss whether AT&T also overturned Gentry v Superior Court, 42 Cal 4th 443, 64 Cal Rptr 3d 773 (2007) on the ground that issue was moot because plaintiff failed to provide the evidence necessary to establish the four Gentry principles.

Quevedo v Macy’s Inc., 2011 US Dist LEXIS 83046 (ND Cal 2011)

The court held that as a consequence of the AT&T Mobility decision, plaintiff’s PAGA claim was arbitrable but that he could only bring it on behalf of himself. Requiring arbitration agreements to allow for representative PAGA claims on behalf of other employees would be inconsistent with the FAA. A claim brought on behalf of others would, like class claims, make for a slower, more costly process. In addition, representative PAGA claims increase risks to defendants by aggregating the claims of many employees. Defendants would run the risk that an erroneous decision on a PAGA claim on behalf of many employees would go uncorrected given the absence of multilayer review. Just as arbitration is poorly suited to the higher stakes of class litigation, it is also poorly suited to the higher stakes of a collective PAGA action.

Plows v Rockwell Collins, Inc., 2011 US Dist LEXIS 88781 (CD Cal 2011)-The court herein held that while AT&T Mobility overruled Discover Bank, it did not overrule Gentry. Discover Bank is a rule about unconscionability, whereas the rule set forth in Gentry is concerned with the effect of a class action waiver on unwaivable rights regardless of unconscionability.

Note: The courts in Lewis v UBS Financial Services, Inc., 2011 US Dist LEXIS 82029 (ND Cal 2011) and Morse v Servicemaster Global Holdings, Inc., 2011 US Dist LEXIS 116423 (ND Cal 2011) saw no difference between Discover Bank and Gentry and ruled that AT&T Mobility overruled both decisions.

ISSUE: Common Carriers

Smallwood v Allied Van Lines, Inc., 660 F 3d 1115 (9th Cir 2011)

The Carmack Amendment precluded enforcement of an arbitration clause calling for arbitration in Dubai in a contract transporting goods from California to the United Arab Emirates. Carmack is designed to protect a shipper and provides that when suing a delivering carrier, a shipper may choose to file suit in either a judicial district through which the defendant carrier operates or the judicial district in which the loss or damage is alleged to have occurred. Arbitration is permitted but the shipper must agree to the arbitration after the loss has occurred.

ISSUE: Confirmation of Award

Tutti Mangia Italian Grill, Inc. v American Textile Maintenance Co., 197 Cal App 4th 741-42, 128 Cal App 3d 551 (2011)

Appellant argued that the award should not be confirmed because the trial court struck all of the declarations that accompanied the motion to confirm. The Court of Appeal disagreed. Under Code of Civ Proc Section 1286, a petition to confirm an arbitration award must include the arbitration agreement, the name of the arbitrator, a copy of the award, and the written opinion of the arbitrator. Here, the petition to confirm the award attached all of the required documents.

ISSUE: Covenants Conditions and Restrictions (CC&Rs)

Villa Vicenza Homeowners Association v Nobel Court Development LLC, 191 Cal App 4th 963, 973-5, 120 Cal Rptr 3d 217 (2011)

The court held here that a developer who created CC&Rs for a homeowners’ association that it also created cannot cite the arbitration clause in the CC&Rs as the basis for a petition to compel arbitration of a construction defect suit brought against the developer by the association. CC&Rs generally are adhesive and unilateral and those bound by their terms only have constructive notice of those terms and no contractual relationship with the developer who drafted the CC&Rs. While, notwithstanding these significant procedural shortcomings, CC&Rs may be a practical and necessary means of nonetheless governing the ongoing relationships of the owners of common interest developments and adjoining property, no such practicality or necessity exists with respect to the rights or obligations of developers or other third parties.

Promenade at Playa Vista Homeowners Association v Western Pacific Housing, Inc.. 200 Cal App 4th 849, 861-2, 133 Cal Rptr 3d 41 (2011)

Civil Code Section 1354(a) states that “(t)he covenants and restrictions in the declaration shall be enforceable equitable servitudes…and shall inure to the benefit of and bind all owners of separate interests in the development….these servitudes may be enforced by any owner of a separate interest or by the association, or both”. Under the plain meaning rule used to interpret statutes, the “benefit and bind” language of section 1354 links  ownership in the condominium complex with enforcement of the CC&Rs. The owners, the homeowners association, or both, may enforce the CC&Rs, unless they provide otherwise. But under  any rational interpretation of section 1354, the developer cannot enforce the CC&Rs once it has completed the project and sold all the units because it no longer has an ownership interest in the property.

Note: This issue is currently before the California Supreme Court. See Pinnacle Museum Tower Association v Pinnacle Market Development, 187 Cal App 4th 24, 113 Cal Rptr 3d 399, pet for review gtd, 117 Cal Rptr 3d 614 (2010). 

ISSUE: Cumis Counsel

Janopaul + Block Companies LLC v Superior Court, 200 Cal App 4th 1239, 1251, 133 Cal Rptr 3d 380 (2011)

To the extent that there is a dispute between the  parties concerning the amount of Cumis counsel fees owed in the defense of an insured in a third party suit, that dispute must ultimately be resolved by arbitration as required by subdivision (c) of Civil Code Section 2860.

 However, when an insured raises in a bad faith action the duty to defend, breach and bad faith by an insurer, those issues must be resolved first in the trial court before and Section 2860(c) arbitration because a determination of one or more of those issues in favor or the insured may eliminate altogether the need for arbitration under Section 2860.

ISSUE: Declaratory Relief – Federal Abstention

Countrywide Home Loans, Inc. v Mortgage Guaranty Insurance Corporation, 642 F 3d 849 (2011)

Plaintiff brought suit seeking declaratory relief. Defendant removed the case to federal court. There was no dispute that diversity existed but plaintiff moved to remand because the Declaratory Judgments Act (“DJA”) gives federal courts discretion not to accept a case seeking declaratory relief. Defendant opposed the motion and moved to compel arbitration. The motion to remand was granted and defendant appealed, arguing that the court was obliged to hear the motion to compel arbitration.

The Ninth Circuit agreed. Unlike the DJA, the FAA gives the adjudicating court no discretion as to whether to award relief. The Act mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. 

ISSUE: Disclosure

Benjamin Weill & Mazur v Kors, 194 Cal App 4th 40, 63-71, 125 Cal Rptr 3d 469 (2011)

In this fee dispute, the chief arbitrator failed to reveal that he was representing another law firm before the California Supreme Court arising from a fee dispute at the same time that he heard this case and that his website stated that a core part of his practice was defending attorneys in fee disputes and malpractice cases. After the  arbitrators ruled in favor of the law firm, the client moved to vacate the award based on the chief arbitrator’s failure to disclose. The law firm argued that Code of Civ. Proc. 1281.9 did not specifically require an arbitrator to reveal business relationships with persons or entities that are not parties or lawyers for parties in the subject arbitration.

This argument was rejected. Subsection (a)(2) of Section 1281.9 specifically requires disclosure of any matters required to be disclosed by the Ethics Standards for Neutral Arbitrators. Standard 7(d)(14)(A) requires disclosure of “of any other matter that might cause a person aware of the facts to reasonably entertain a doubt that the arbitrator would be able to be impartial.” Here, the chief arbitrator was extremely involved in the defense of lawyers and law firms. Hence, a reasonable person might believe that the arbitrator’s dependence on business from lawyers and law firms sued by former clients would prevent him from taking the side of a client in a fee dispute with a former law firm because doing so might put at risk his ability to secure business from the lawyers and law firms whose business he solicits.

Rebmann v Rohde, 196 Cal App 4th 1283, 1292-93, 127 Cal Rptr 3d 510 (2011)

After the arbitrator ruled against claimant and awarded substantial attorney fees to respondent, claimant ran an internet search on the arbitrator and discovered that he was of German Jewish heritage, had lost family members in the Holocaust, and was a member of the 1939 Club, an organization dedicated to preventing future holocausts. Claimant’s father had served in the German army during World War II and his wife’s father had served in the SS.  Claimant argued that the arbitrator “punished” him because of his family background, even though there was no evidence that the arbitrator was aware of that background and he appealed from a confirmation of the award, asserting that he would have challenged the arbitrator if he provided the information about his family.

The Court of Appeal affirmed. There was nothing in the arbitrator’s professional record that indicated bias toward Germans. His background was entirely irrelevant to the case, which had nothing to do with World War II or the Holocaust. The background of the families of claimant and the arbitrator were irrelevant. Furthermore, the information about the arbitrator’s background was available prior to the arbitration. If claimant was concerned about the cultural and religious background of the arbitrator, he should have done his Googling prior to the arbitration, rather than sit back and wait only to raise the issue when an unfavorable outcome resulted. Finally, claimant’s argument implied that an arbitrator who is a member of a minority cannot be fair when a case somehow related to that minority status comes before him or her. An arbitrator’s impartiality should never be questioned simply because of who he or she is. 

ISSUE: Errors of Law

Chin v Advanced Fresh Concepts Franchise Corp., 194 Cal App 4th 704, 711-12, 123 Cal Rptr 3d 547 (2011)

The arbitration agreement in this case provided that “any award shall be based on established law and shall not be made on broad principles of justice and equity”. The court found that this language was an accepted way of limiting the arbitrator’s broad powers and allowing judicial review on the merits of an arbitration award.

ISSUE: Errors of Law – Damages

Shahinian v Cedars-Sinai Medical Center, 194 Cal App 4th 987, 1001, 1006-07, 124 Cal Rptr 3d 128 (2011)

Respondent argued that the arbitrator’s award of emotional distress damages was arbitrary because they were precisely double the amount of compensatory damages awarded. It also argued that the arbitrator exceeded her powers by awarding punitive damages. The Court of Appeal affirmed, stating that, under Moncharsh, it had no authority to review the reasoning by which the arbitrator reached the conclusions that she reached and that included the amount of emotional distress damages to be awarded.

With respect to punitive damages, the arbitration agreement gave the arbitrator broad authority to grant remedies available in court and made no limitation on the amount of punitive damages to be awarded. If the punitive damages award was excessive, the arbitrator’s error would be no different from other errors of law, which generally are not reviewable. 

ISSUE: Exceeding Powers

Kelly Sutherlin McLeod Architecture, Inc. v. Schneikert, 194 Cal App 4th 519, 536, 125 Cal Rptr 3d 83 (2011)

The court here rejected respondent’s argument that the arbitrator exceeded his powers by awarding damages to the claimant notwithstanding that the claimant did not submit any evidence of its damages. Arbitrators do not exceed their powers merely because they assign an erroneous reason for their decision.

ISSUE: Failure to Read Agreement

Desert Outdoor Advertising v Superior Court, 196 Cal App 4th866, 874, 127 Cal Rptr 3d 158 (2011)

Plaintiffs retained defendant, an attorney, to represent them in a lawsuit. They signed a three page retainer agreement, which did not contain an arbitration clause. In the midst of the litigation, defendant changed firms and his new firm sent plaintiffs a new seven page agreement which contained an arbitration clause and which plaintiffs duly signed. After plaintiffs lost the lawsuit, they sued defendant for malpractice. His motion to compel arbitration was granted. Plaintiffs appealed, arguing that defendant had a fiduciary duty to explain that the new agreement was different from the first and, in particular, that it contained an arbitration clause.

The Court of Appeal affirmed. The scope of defendant’s fiduciary duties did not include separately explaining the new retainer agreement to plaintiffs. The cover letter made it clear that the retainer agreement was new and even anticipated that plaintiffs might be unwilling to sign it because it stated that arrangements would be made for new counsel if that was the case. Plaintiffs were knowledgeable businesspersons and the new seven page agreement was obviously different from the old three page agreement 

ISSUE: Forum Fees – Effect on Unconscionability

Chin v Advanced Fresh Concepts Franchise Corp., 194 Cal App 4th 704, 712-13, 123 Cal Rptr 3d 547 (2011)

Claimant argued that the requirement for a three member arbitration panel was unconscionable in an adhesion contract, citing Parada v Superior Court, 176 Cal App 4th 1554 (2009). The court held that, in contrast with Parada, the three arbitrator requirement was limited to claims above $150,000. Thus, the respondent reasonably justified the requirement as providing a measure of protection against exaggerated damage claims. (Claimant herein asked for damages of $1 million.) 

ISSUE: Immunity

Sacks v Dietrich, 2011 US App LEXIS 23382 (9th Cir 2011)

Plaintiff sued two FINRA arbitrators after they disqualified him from representing a claimant. He argued that the doctrine of arbitral immunity did not apply because  FINRA rules precluded the arbitrators from deciding a representational issue and hence the arbitrators exceeded their powers and because he was not a party to the arbitration agreement and could not be bound by the panel.

 The suit was dismissed and the Ninth Circuit affirmed. The arbitrators were acting within their jurisdiction. Plaintiff’s client formally submitted the dispute to FINRA and agreed to be bound by FINRA’s rules. Rule 13413 provides that the arbitral panel “has the authority to interpret and determine the applicability of all provisions under the Code” and Rule 13208 provides that a  party cannot be represented by an individual who had been barred from the securities industry and that “issues regarding the qualifications of a person to represent a party…may be determined by an appropriate court or other regulatory agency”. Because plaintiff was indisputably barred from the securities industry, there was no issue regarding his lack of qualification under FINRA rules to represent a party in a FINRA arbitration. Even if there were an issue, the fact that courts or other agencies “may” resolve such an issue did not preclude the arbitral panel from doing so.

 Furthermore, although plaintiff was not a party to the arbitration agreement, he was still bound by it under ordinary contract and agency principles.

ISSUE: Inability to Pay Cost of Arbitration

MKJA, Inc. v. 123 Fit Franchising LLC, 191 Cal App 4th 643, 660-1, 119 Cal App 3d 634 (2011)

Once a stay of litigation is granted, the stay cannot be lifted because a party determines that it cannot pay the cost of the arbitration.

ISSUE: Injunctive Relief 

Sanchez v Valencia Holding Co LLC,  201 Cal App 4th 74, 2011 Cal App LEXIS 1467 (2011)

The contract herein dictated  that all claims for injunctive relief were subject to arbitration even though Code of Civil Procedure Section 1281.8 permits a party to an arbitration agreement to seek provisional relief in court. The contract also allowed a party to  appeal a decision by the arbitrator to a second panel of three arbitrators. Thus, the stronger party could delay the effect of a permanent injunction under the Consumer Legal Remedies Act by appealing or could delay the hearing by appealing if a preliminary injunction were granted.

Nelson v AT&T Mobility LLC,  2011 US Dist LEXIS 92290 (ND Cal 2011)

Plaintiff filed suit under the CRLA  to enjoin defendant from engaging in certain practices. He opposed defendant’s motion to compel arbitration on the ground that a request for issuance of a public injunction is inarbitrable, relying on Broughton v Cigna Healthplans of California, 21 Cal 4th 1066 (1999) and Cruz v PacifiCare Health Systems, Inc., 30 Cal 4th 303 (2003). Broughton held that public injunctive relief claims under the CLRA are inarbitrable and Cruz extended this ruling to the Unfair Competition Law. When state law prohibits outright the arbitration of a particular type of claim, the conflicting rule is displaced by the FAA. Plaintiff claimed that Broughton and Cruz are not state law as contemplated by Congress, but interpretations of federal law. The court herein disagreed. Although the court in both of the aforementioned cases considered federal law, their ultimate conclusions were interpretations of state law—namely, that two California statutory schemes, the CLRA and UCL, do not provide for arbitration of public injunctive relief claims.

[Note: Other federal court decisions in California reached the same result. See Arellano v T-Mobile USA, 2011 US Dist LEXIS 52142 (ND Cal 2011); In re Gateway LX6810 Computer Products Litigation, 2011 US Dist LEXIS 84401 (CD Cal 2011); In re Apple & AT&T iPad Unlimited Data Plan Litigation, 2011 US Dist LEXIS 78276 (ND Cal 2011); Zarandi v Alliance Data Systems Corp., 2011 US Dist LEXIS 54602 (ND Cal 2011); and Cardenas v AmeriCredit Financial Services, Inc., 2011 US Dist LEXIS 78282 (ND Cal 2011).]

ISSUE: International Arbitration-Attorney Fees-Bad Faith

The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v Cubic Defense Systems, Inc., 2011 US App LEXIS 24839 (9th Cir 2011)

It is well settled that, even absent express statutory authority, federal courts have authority to award attorney’s fees when the losing party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons. Nothing in the New York Convention, or the federal statutes implementing it, expressly or impliedly negates this authority. Actions under the Convention “arise under the laws and treaties of the United States”. Hence, federal law permits an award of attorneys’ fees in an action under the Convention, as it does in other federal question cases.

ISSUE: International Arbitration-Confirmation-Public Policy Defense

The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v Cubic Defense Systems, Inc., 2011 US App LEXIS 24839 (9th Cir 2011)

Respondent opposed confirmation of an award obtained against it by claimant, an arm of the Iranian government, based on Section V(2)(b) of the New York Convention which disallowed confirmation of an award that is contrary to the public policy of the country in which the court is sitting. Respondent cited the fact that US sanctions against Iran prohibited it from paying the award unless the Treasury Department’s Office of Foreign Assets Control issued a specific license. The award was confirmed. The public policy defense against confirmation of an award is construed very narrowly. Rather, there is a strong public policy favoring confirmation of foreign arbitration awards.  There is a great deal of difference between payment and confirmation. Confirmation, standing alone, transfers no wealth to Iran. Further, the difference between confirmation and payment is accentuated when payment is subject to licensing rather than barred absolutely.

ISSUE: International Arbitration-Post Award Prejudgment Interest

The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v Cubic Defense Systems, Inc., 2011 US App LEXIS 24839 (9th Cir 2011)

Although the arbitrator awarded prejudgment interest to the claimant, the District Court declined to award post-award prejudgment interest when it confirmed the award on the ground that it did not have the power to do so. The Ninth Circuit reversed and remanded. Whether to award prejudgment interest in cases arising under federal law has, in the absence of a statutory directive,  been placed in the sound discretion of the district courts. Nothing in the federal statutes implementing the New York Convention, or in the Convention itself, reveals any intention on the part of Congress or the contracting states to preclude post-award prejudgment interest. Further, in the absence of authority to grant post-award prejudgment interest, the losing party in the arbitration has an incentive to withhold payment, a result contrary to the purposes of the Convention. 

ISSUE: Judicial Arbitration

Lee v Kwong, 193 Cal App 1275, 1281. 123 Cal Rptr 3d 633 (2011)

After defendant prevailed at a judicial arbitration, plaintiff filed a request for trial de novo, then withdrew it and entered a dismissal without prejudice. Defendant, who was due attorney fees as the prevailing party in the arbitration, successfully moved to remove the dismissal and enter judgment on the arbitration award. Plaintiff appealed, arguing that Code of Civ. Proc. 581 permitted a plaintiff to file a voluntary dismissal any time before trial commenced and the commencement of trial was defined as the opening statement.

The Court disagreed. Arbitration is viewed as a trial on the merits. Accordingly, a party that repudiates its request for a trial de novo after judicial arbitration when it subsequently voluntarily dismisses a complaint. Such action by a party who has received an unfavorable judicial arbitration award triggers finalization of the judicial arbitration award as a judgment.

ISSUE: Jurisdiction

Service Employees International Union Local 1021 v San Joaquin County, 2011 Cal App LEXIS 1639 (2011)

Plaintiff union sought to arbitrate the termination of one of its members by defendant pursuant to a MOU which provided for arbitration of such disputes. Defendant argued that the arbitrator no longer had jurisdiction because the member applied for retirement benefits after the arbitrator was appointed, citing a similar case where the dispute was to be heard by a county civil service commission. The court disagreed. A jurisdictional analysis makes sense in assessing whether a court or an adjudicatory commission retains power to decide a matter. By contrast, an arbitrator does not have jurisdiction over a dispute. The arbitrator’s powers are contractual.

ISSUE: Labor Contracts-Former Employees

Service Employees International Union Local 1021 v San Joaquin County, 2011 Cal App LEXIS 1639 (2011

The court rejected an argument by defendant county that an MOU between it and plaintiff union permitting arbitration of appeals from disciplinary actions by the county did not apply where it disciplined an employee by terminating him and the employee then applied for retirement benefits and ceased being an employee of the county. Termination from employment is the most serious type of disciplinary action. Where a former employee has been terminated, seeking retirement benefits does not result in a voluntary resignation from employment. The county’s interpretation would allow employment terminations to evade the provisions of the MOU addressing disciplinary actions and appeal rights.

ISSUE: Nonsignatories

JSM Tuscany LLC v Superior Court, 193 Cal App 4th 1222, 1239-40, 123 Cal Rptr 3d 429 (2011)

When a plaintiff brings a claim which relies on contract terms against a defendant, the plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement. But whether a nonsignatory plaintiff is also estopped is a novel question.

The court here held that there is no reason why this doctrine should not be equally applicable to a nonsignatory plaintiff. When the plaintiff is suing on a contract – on the basis that even though the plaintiff was not a party to the contract, the plaintiff is nevertheless entitled to recover for its breach – the plaintiff should be equitably estopped from repudiating the contract’s arbitration clause

Jones v Jacobson, 195 Cal App 4th 1, 19, 125 Cal Rptr 3d 522 (2011)

A corporation and one of its subsidiaries sought to compel arbitration of a lawsuit based on an arbitration agreement that the plaintiff had entered into with another subsidiary, not a party to the lawsuit. Their argument was based on allegations that some of the wrongs set forth in the complaint were committed by two individuals who were allegedly employees of the subsidiary that had entered into the arbitration agreement.

The argument was rejected. A nonsignatory defendant may invoke an arbitration agreement when the nonsignatory and one of the parties to the agreement have a preexisting agency relationship which makes it equitable to impose the duty to arbitrate on either of them. Here neither of the nonsignatories who are seeking the benefits of the arbitration agreement were agents or employees of any party to the agreement.

ISSUE: Petition to Compel Arbitration

Tutti Mangia Italian Grill, Inc. v American Textile Maintenance Co., 197 Cal App 4th 740-41, 128 Cal App 3d 551 (2011)

Appellant argued that an arbitration clause that stated that any dispute “shall be resolved pursuant to the rules of the American Arbitration Association” was not self executing because it failed to state which of the “over a dozen different sets of arbitration rules” of the AAA were being incorporated. The Court of Appeal disagreed. The fact that both the arbitrator and the trial court analyzed the dispute under the Commercial Arbitration Rules of the AAA creates an inference that only one set of arbitration rules was applicable to the dispute. Further, the Commercial Arbitration Rules of the AAA provide that those rules shall apply to an arbitration by the AAA of a domestic commercial dispute even if the particular set of rules was not specified in the arbitration clause.

Burch v Premier Homes LLC, 199 Cal App 4th 730, 744, 131 Cal Rptr 3d 855 (2011)

The court affirmed the decision of the trial court to take extrinsic evidence to determine whether a cross-out in an arbitration clause had the effect of limiting the clause’s effect to disputes between the homeowner and the warranty provider and did not include a dispute between the homeowner and the builder. Where the enforceability of an arbitration clause may depend upon which of two sharply conflicting factual accounts is to be believed, the better course would normally be for the trial court to hear oral testimony and allow the parties the opportunity for cross examination.

ISSUE: Physician-Hospital Disputes

Shahinian v Cedars-Sinai Medical Center, 194 Cal App 4th 987, 1003, 124 Cal Rptr 3d 128 (2011)

Claimant alleged that he was wrongfully terminated and deprived of his hospital privileges by respondent following a dispute over the cleaning and sterilization of surgical instruments. The arbitrator ruled in favor of claimant and, in the course of her decision, observed that respondent did not consider claimant to be competent. Respondent therefore asserted that the arbitrator exceeded her powers by awarding damages rather than ordering that the dispute be submitted to a peer review pursuant to Bus. & Prof. Code 809.1

The award was confirmed. Courts have consistently required that any dispute over a doctor’s competence to continue practicing medicine be submitted to a peer review determination before the dispute may proceed in court. This rule is not implicated when a hospital becomes embroiled in a dispute that has nothing to do with a doctor’s competence or the doctor’s professional conduct that puts patient care and safety at risk. When the dispute arises from business aspects of the doctor and hospital’s relationship, there is no need to submit the dispute to a panel of expert medical peers for determination. That is what happened here. This dispute arose from the parties’ inability to resolve claimant’s concerns about the durability, redundancy, and cleanliness of instruments.

ISSUE: Preemption

Villa Vicenza Homeowners Association v Noble Court Development LLC, 191 Cal App 4th 963, 973, 120 Cal Rptr 3d 217 (2011)

In this dispute, the plaintiff homeowners’ association opposed defendant developer’s motion to compel arbitration on the ground that the arbitration agreement contained in the CC&Rs written by the developer when it created the homeowners’ association did not comply with the restrictions placed on arbitration agreements for construction defect cases imposed by Code of Civil Procedure 1298 et seq. Plaintiffs also claimed that the agreement violated the California Constitution’s provision against an unknown waiver of the right to a jury trial.

The Court of Appeal disagreed because of FAA preemption. The FAA applies because the financing of a large residential development implicates the use of federally regulated and chartered financial institutions. Hence, the court could not enforce Section 1298 because a state cannot place restrictions solely on arbitration clauses in contracts involving interstate commerce. The FAA also prevents a court from relying on the jury waiver provisions of the California Constitution to invalidate an arbitration clause. Those provisions improperly discriminate against arbitration clauses because they would not necessarily invalidate other provisions of an agreement which, although lacking actual notice and meaningful reflection, do not purport to waive the right to a jury.

Sonic Calabasas A Inc. v Moreno, 51 Cal 4th 659, 121 Cal Rptr 3d 58 (2011)

In this case, the Court held that an arbitration agreement did not prevent an employee from enforcing a wage claim before the Labor Commissioner pursuant to Labor Code 98 et seq and that the statute was not preempted by the FAA.

A public policy based solely on the supposed superiority of an administrative forum over arbitration could no more survive FAA preemption than could a policy based on the supposed superiority of a judicial forum. But the FAA does not preempt a state’s authority to impose various preliminary proceedings that delay both the adjudication and the arbitration of a cause of action in order to pursue important state interests. The Supreme Court has never suggested that the FAA requires that these preliminary proceedings be bypassed in order to go directly to arbitration. For example, a statutory cause of action for employment discrimination under FEHA cannot succeed in court, nor presumably in an arbitration applying California law, unless administrative remedies have been exhausted.

 

ISSUE: Punitive Damages – Due Process

Shahinian v Cedars-Sinai Medical Center, 194 Cal App 4th 987, 1007, 124 Cal Rptr 3d 128 (2011)

Respondent asserted that a punitive damages award rendered against it by an arbitrator violated due process and that the due process clause required some measure of judicial review of the size and basis for the award. The Court of Appeal rejected the argument. Due process does not require judicial review of arbitration awards of punitive damages. That clause only applies to state action. The arbitration in this case was not state action. It was a private proceeding, arranged by contract, without legal compulsion.

 

ISSUE: Reference Agreements

Tarrant-Bell Properties LLC v Superior Court, 51 Cal 4th 538, 542, 121 Cal Rptr 3d 312 (2011)

Residents of a trailer park brought suit against the park’s owner. The defendant’s motion to enforce a reference agreement was denied by the trial court on the ground that not all of the plaintiffs had signed the reference agreement and hence there would be no judicial efficiency if part of the case proceeded to litigation and part to a referee. Defendant appealed, arguing that the court had no discretion to refuse to enforce a valid reference agreement.

The Supreme Court affirmed. Code of Civ Proc 638 provides that a referee “may be appointed” if…a court finds that a reference agreement exists between the parties “that provides that any controversy arising therefrom shall be heard by a referee”. The word “may” is ordinarily construed as permissive and the word “shall” as mandatory, particularly when a statute uses both terms.

ISSUE:Severance

Sanchez v Valencia Holding Co LLC,  201 Cal App 4th 74, 2011 Cal App LEXIS 1467 (2011)-The contract herein had four unconscionable clauses. A clause allowing an appeal to a second arbitrator favored the stronger party, injunctive relief could only be obtained from the arbitrator meaning that the stronger party could negate the effect of the Consumer Legal Remedies Act by appealing the grant of an injunction to the appellate arbitration panel, a party wishing to appeal had to pay the arbitration fees and costs at the outset (although they could later be reallocated) thereby discouraging the weaker party from appealing, and the stronger party (a car dealer) could repossess the automobile without going through arbitration, These clauses permeated the arbitration contract making the entire contract unenforceable.

 

ISSUE: Statement of Decision Requirement

Metis Development LLC v Bohacek, 199 Cal App 4th 748, 755-8, 131 Cal Rptr 3d 162 (2011)

Code of Civil Procedure Section 1291 provides that “a statement of decision shall be made, if requested pursuant to [Code of Civil Procedure] Section 632, whenever an order or judgment….is made that is appealable under this title”. In this case, the trial court refused to issue a statement of decision when it denied a petition to compel arbitration, even though the decision was appealable, because Section 632 makes reference to trials, but not motions. The Court of Appeal reversed. A petition to compel arbitration is in essence a suit in equity to compel specific performance of a contract. A strict construction of the term “trial” in Section 632 would always preclude the issuance of a statement of decision mandated by Section 1291. In order to harmonize Sections 632 and 1291, at least where there is an adjudication of a statement of a question of fact by the court in deciding a petition to compel arbitration, a request for a statement of decision in the manner required by Section 632 obligates the court to issue one.

 

 

 

 

 

 

ISSUE: Stay of Litigation – Lifting

MKJA, Inc. v. 123 Fit Franchising LLC, 191 Cal App 4th 643, 660-1, 119 Cal Rptr 3d 634 (2011)

Litigation of this matter was stayed after defendant’s motion to compel arbitration was granted. Plaintiffs then moved to lift the stay after they determined that they could not afford the cost of arbitration. The trial court granted the motion and the Court of Appeal reversed.

Preserving the arbitrator’s jurisdiction through a stay of related litigation is essential to the enforceability of an arbitration agreement since, in the absence of a stay, a party could litigate claims which it had agreed to arbitrate. Given the purpose of the statute, the most reasonable interpretation of the stay provision is that it gives a trial court discretion to lift a stay prior to the completion of the arbitration only under circumstances in which lifting the stay would not frustrate the arbitrator’s jurisdiction. Lifting a stay merely based on a determination that a party cannot afford the costs associated with arbitration would directly and materially impede the arbitrator’s jurisdiction.

 

 

ISSUE: Unconscionability

Wherry v Award, Inc., 192 Cal App 4th 1242, 1247-50, 123 Cal Rptr 3d 1 (2011)

A contract was held to be procedurally unconscionable because plaintiffs were not given time to review it. The fact that plaintiffs initialed every page of the agreement did not vitiate the lack of time to review the agreement or have their attorney look at it. An argument that plaintiffs, employees of a real estate firm, could have found jobs at other realty firms failed because the form was promulgated by the California Association of Realtors and was probably in use by the other firms.

The contract was substantively unconscionable for three reasons. First, even though the contract did not require plaintiffs to pay arbitration costs, the arbitrator had the ability to impose costs upon them. Second, the contract provided for the award of attorney fees to the prevailing party. This was a FEHA case and FEHA only permits a prevailing defendant to recover fees if the plaintiff’s suit is frivolous or filed in bad faith. Third, the contract required all claims to be filed within 180 days of the event. Even though plaintiffs filed within this period, the one year statute of limitations in FEHA is for the benefit of the public, not just the plaintiffs.

Chin v Advanced Fresh Concepts Franchise Corp., 194 Cal App 4th 704, 711-12, 123 Cal Rptr 3d 547 (2011)

The trial court found two unconscionable terms in a contract between a franchisor and franchisee. The first was that “any award shall be based on established law and shall not be made on broad principles of justice and equity”.

The trial court found that this language eliminated equitable claims and defenses. This was not a correct interpretation. The language is an accepted way of limiting the arbitrator’s powers and allowing judicial review on the merits of an arbitration award.

The second fault was that recovery was limited to compensatory damages. A damages limitation may be unconscionable if it contravenes public policy by limiting remedies available in the statute under which the plaintiff proceeds or if it is one sided. Here, the two statutes cited by plaintiff in her complaint did not allow for any damages whatsoever. In addition, the damages limitation is facially mutual because there may be cases in which a franchisor seeks to vindicate its own statutory rights against a franchisee.

Zullo v Superior Court, 197 Cal App 4th 485-88, 127 Cal Rptr 3d 461 (2011)

The arbitration herein was found to be procedurally unconscionable because, in addition to being adhesive, it made reference to the AAA Rules but did not provide a copy of them.

It was found to be substantively unconscionable because it was one sided. It applied to claims arising out of termination, which were claims virtually certain to be filed against, not by, the employer. It added a nonexclusive list of the statutes and laws to which it applied, all of which were employment and non-discrimination laws, which were statutes under which employees, not employers, filed suit. It provided that the employee could bring no other claim against the employer, that the employee had to bring any action against the employer within one year, and that the employee would forfeit the claim if there was no response to any communication from the employer regarding the arbitration proceedings within ten days. There were no such restrictions placed on the employer.

In addition, the arbitration agreement was contained in a handbook that contained an acknowledgment of receipt by the employee “requiring me to submit any and all disputes” to arbitration. 

ISSUE: Unconscionability-Remedies Exempt from Arbitration

Sanchez v Valencia Holding Co. LLC,  201 Cal App 4th 74, 2011 Cal App LEXIS 1467 (2011)

The contract herein, between a car dealer and buyer, required the arbitration of a claim for injunctive relief but exempted self help remedies, such as the dealer’s ability to repossess the car. The clause was found to be unconscionable. By exempting repossession–to which only the car dealer would resort–from arbitration, while subjecting a request for injunctive relief–the buyer’s comparable remedy–to arbitration, the contract created an unduly repressive distinction in remedies. This is especially so, since the California Arbitration Code allows a claim for injunctive relief arising out of an arbitration contract to proceed in court. Here, the contract dictates otherwise. Arbitration agreements are unconscionable if they provide for the arbitration of claims most likely to be brought by the weaker party but exempt claims most  likely to be brought by the stronger party.

ISSUE: Wage Claims – Arbitrability

Sonic-Calabasas A Inc. v Moreno, 51 Cal 4th 659, 121 Cal Rptr 3d 58 (2011)

Under Labor Code sections 98 et seq, an employee with a claim for unpaid wages has a right to an informal hearing in front of the Labor Commissioner, a so-called Berman hearing. A party dissatisfied with the Commissioner’s ruling may file a de novo appeal in Superior Court. If the employer appeals, it is required to post a bond equal to the amount of the award. An attorney fee provision is imposed upon employers who unsuccessfully appeal but not on employees, and the Commissioner is statutorily mandated to represent an employee who is unable to afford an attorney.

The employer herein argued that the employee had waived his Berman rights because he signed an arbitration agreement. The Court disagreed and held that Berman hearings and arbitration proceedings are not incompatible. If the employer does not prevail at the Berman hearing, it could file the de novo appeal in Superior Court together with a petition to compel arbitration. If the appeal is timely and the petition to compel arbitration is meritorious, the arbitration will proceed but the employee will have the same benefits in the arbitration as he would have had the matter proceeded in court.

 

ISSUE: Wage Claims – Unconscionability

Sonic-Calabasas A Inc v Moreno, 51 Cal 4th 659, 121 Cal Rptr 3d 581 (2011)

An arbitration agreement containing a waiver of a Berman hearing is substantively unconscionable because Berman hearings and post hearing procedures were designed to provide wage claimants with meritorious claims unique protections that lower the costs and risks of pursuing such claims. This level a playing field that generally favors employers which normally have greater resources and bargaining power.

Requiring employees to forego these protections as a condition of employment can only benefit the employer at the expense of the employee. And the benefits the employee gains from arbitration compensate for what he or she loses by foregoing the option of a Berman hearing.

ISSUE: Waiver of Arbitration

Augusta v Keehn & Associates, 193 Cal App 4th 331,123 Cal Rptr 3d 595 (2011)

Plaintiff filed suit in December 2008. Defendant’s answer included an affirmative defense that the dispute should be arbitrated, but defendant did not petition to compel arbitration. Plaintiff then filed numerous discovery requests with which defendant complied. Plaintiff, on the other hand, refused to comply with defendant’s discovery requests. During a case management conference on June 24, 2009, defendant stated that it intended to file a petition to compel arbitration. Plaintiff continued to propound discovery requests upon defendant, but when defendant served plaintiff with its own discovery requests, plaintiff moved to compel arbitration on July 2.

The trial court denied the motion on the ground of waiver and the Court of Appeal affirmed. Plaintiff’s actions prejudiced defendant because plaintiff obtained new information during the course of discovery. To show some prejudice, the evidence need only show the party petitioning for arbitration used the discovery processes to gain information which it could not have gained in arbitration. Additionally, plaintiff prejudiced defendant by obtaining discovery from it and then refusing to reciprocate.

Plows v Rockwell Collins, Inc., 2011 US Dist LEXIS 88781 (CD Cal 2011)

Two employees filed a class action against their employer. Both plaintiffs signed employment agreements that contained an arbitration clause but there was a class action waiver in only one of the agreements. One year after the complaint was filed, the United States Supreme Court decided AT&T Mobility v Concepcion, in which it ruled that class action waivers in arbitration contracts were enforceable. Defendant then moved to compel arbitration. The court denied the motion with respect to the plaintiff whose arbitration agreement did not contain a class action waiver, holding that defendant had waived its right to compel arbitration. The fact that Concepcion might have made it easier for defendant to persuade a court to compel arbitration does not mean that it lacked knowledge of its potential  right to pursue arbitration prior to the Concepcion decision.

Defendant also engaged in acts inconsistent with arbitration. It made numerous discovery requests to this plaintiff which would not have been permitted under the limited discovery requirements in the arbitration contract and it also removed the case to federal court, moved to transfer it to the Central District, engaged in scheduling conferences, and entered into a protective order signed by the Court.

Finally, plaintiff was prejudiced because he responded to the discovery requests that would not have been permitted in arbitration and racked up thirteen months of legal fees defending a case in the court system.

But the court ruled that defendant did not waive its right to arbitrate with respect to the plaintiff who had signed an arbitration agreement with a class action waiver. Defendant reasonably could have believed that Concepcion altered the legal landscape surrounding the arbitration clause and that, prior to the Concepcion decision, the arbitration clause would have been deemed to be unenforceable.

In re California Title Insurance Antitrust Litigation, 2011 US Dist LEXIS 71621 (ND Cal 2011)

In this case, the arbitration agreement did not contain a class action waiver and in fact was silent on whether a class action was arbitrable.  Some time after discovery commenced, the Supreme Court decided AT&T Mobility v Concepcion. Defendants thereupon moved to compel arbitration for the first time. Plaintiffs argued that the defendants had waived arbitration because they could have moved to compel prior to the Concepcion decision. The court granted the motion. In Stolt Nielsen S.A. v Animal Feeds Intl Corp., supra, the Supreme Court, analyzing an arbitration agreement silent as to class actions, determined that a party may not be compelled to submit to class action arbitration unless there is a contractual basis for contending that the party agreed to do so. It therefore would indeed have been futile for defendants to have moved to compel arbitration prior to Concepcion.

 

Service Employees International Union Local 1021 v San Joaquin County, 2011 Cal App LEXIS 1639 (2011)

The trial court denied a demand for arbitration filed by the plaintiff union seeking to arbitrate an appeal from a disciplinary termination of one of its members pursuant to a MOU which permitted arbitration of such disputes. The court held that the employee waived his right to arbitration by applying for retirement benefits and thus ceasing his employment by the defendant county. The Court of Appeal reversed. A party normally waives arbitration by pursuing a lawsuit on the same issue as that to be arbitrated, expressly repudiating the arbitration agreement, unreasonable delay in demanding arbitration, acting in bad faith with respect to the arbitration, or failing to invoke the right to arbitration at all. The employee did none of these things. Although he did draw upon his vested right to retirement benefits, that right was independent of his interest in continued employment by the county. Claiming retirement benefits does not undermine a contractual right to arbitrate an employment termination dispute.

ISSUE: Waiver of Arbitration-Nonsignatory as Class Representative

Sky Sports, Inc. v Superior Court, 201 Cal App 4th 1363, 2011 Cal App LEXIS 1570 (2011)

Plaintiff filed a class action against his employer on behalf of  fellow employees. One year later, defendant filed a motion to compel arbitration. Plaintiff had never signed an arbitration agreement but a majority of the employees had done so. The trial court ruled that defendant had waived its right to file a motion to compel arbitration because of its delay and certified a class that included employees who signed arbitration agreements. The Court of Appeal issued a writ of mandate to permit defendant to file the motion to compel arbitration. Had defendant brought a motion to compel arbitration before class certification, the trial court would have denied it because plaintiff was not a party to any arbitration agreement. Thus, any delay in bringing the motion to compel arbitration until the class was certified cannot constitute a waiver. Until the class was certified, the pleading requirements to move to compel arbitration under Section 1281.2 were not satisfied.

 

ISSUE: Waiver of Sovereign Immunity

California Parking Services, Inc. v Soboba Band of Luiseno Indians, 197 Cal App 4th 814, 819, 128 Cal App 3d 560 (2011)

The denial of a petition to compel arbitration against an Indian tribe was affirmed because the tribe did not waive sovereign immunity when it entered into an  arbitration agreement that provided for the application of AAA rules excluding Commercial Arbitration Rule 48(c). That rule provides that “parties to an arbitration under these rules shall be deemed to have consented that judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof”. 

Arbitration awards are not self enforcing and are only given legal effect through court orders and judgments enforcing them. Thus, an award against the tribe could not be enforced. In order to avoid this exercise in futility, courts will generally assume that if a party did not consent to enforcement of the arbitral award, it did not consent to the court’s ability to compel arbitration.

ISSUE: Warranties

Kolev v Euromotors West, 658 F 3d 1024, 1029 (9th Cir 2011)

In this case, the 9th Circuit declined to follow prior decisions in the Fifth and Eleventh Circuits and upheld FTC Rule 703 which stated that warranty disputes under the Magnuson Moss Warranty Act (“MMWA”) were not arbitrable. The act provided for informal dispute settlement mechanisms (known as “IDSMs” or “mechanisms”) to resolve disputes but also stated that if settlement could not be achieved, then the consumer could proceed in court. The act also provided for rulemaking by the FTC concerning the mechanisms. The FTC considered arbitration to be a mechanism and that was the basis for its rule that arbitration agreements could not be enforced when the dispute involved a warranty. The Court gave three reasons for its decision. 1) Rule 703 implemented Congress’ intent, based on the legislative history of the MMWA, that mechanism decisions not be legally binding; 2) the FTC rule advanced the act’s purpose of protecting consumers from being forced into involuntary agreements that they cannot negotiate; and 3) the rule represented a long standing consistent interpretation of the act because it had been in effect for 35 years.