Updated July 9, 2010
Paul Dubow Arbitration Case Report 2008 to 2010
ARBITRATION
Case List By Name
Paul Dubow Arbitration Case Report 2008 to 2010
ARBITRATION
Case List By Name
14 PennPlaza LLC v Pyett, 129 S. Ct. 1456 (2009) (Collective Bargaining Agreements)
Adolph v Coastal Auto Sales, Inc. (2010) (Waiver of Arbitration)
Advantage Medical Services LLC v Hoffman (2008) (Disclosure)
Agri-Systems, Inc. v. Foster Poultry Farms (2008) (Disclosure)
Aral v. EarthLink, Inc. (2005) (Forum Selection)
Arthur Andersen LLP v Carlisle (2009) (Appeal - Federal), (Nonsignatories)
Bak v MCL Financial Group, Inc. (2009) (Nonsignatories)
Balen v Holland America Line, Inc. (9th Cir 2009) (United Nations Convention)
Berglund v. Arthroscopic & LaserSurgeryCenter of San Diego LP, (2008) (Discovery Disputes)
Birl v Heritage LLC (2009) (Consolidation in Litigation),
(Nonsignatories – Physician Patient Agreements)
Bosack v Seward (9th Cir 2009) (Functus Oficio), (Irrationality)
Brodke v Alphatec Spine, Inc. (2008) (Petition to Compel Arbitration)
Bruni v Didion(2008) (Arbitrability), (Unconscionability)
Burks v Kaiser Foundation Health Plan, Inc. (2008) (Medical Services Agreement)
Burlage v Superior Court (2009) (Failure to Admit Material Evidence)
CasdenPark La Brea Retail LLC v. Ross Dress for Less, Inc. (2008) (Disclosure)
Century 21 Chamberlain & Associates v. Haberman (2009) (Anti-SLAPP Statute)
Christensen v. Smith (2009) (Disclosure) (Errors of Law)
Coffman Specialties, Inc. v Department of Transportation, (2009) (Repeat Players)
Comedy Club, Inc. v Improv West Associates (2009) (Arbitration Clause) (Irrationality), (Manifest Disregard of the Law), (Nonsignatories)
Compulink Management Center, Inc. v. St. Paul Fire and Marine Insurance Company, (2008) (Cumis Counsel)
D.C. v Harvard-WestlakeSchool (2009) (Attorney Fees-Hate Crimes), (Forum Fees-Enforceability), (Unconscionablility)
Dornbirer v. Kaiser Foundation Health Plan, Inc. (2008) (Disclosure)
Duffens v. Valenti, (2008) (Arbitrability)
Fagelbaum & Heller LLP v. Smylie (2009) (Appeal-Order Compelling Arbitration), (Arbitration Clause), (Attorney/Client Fee Arbitration)
Flores v Axxis Network & Telecommunications, Inc. (2009) (Collective Bargaining Agreements)
Franco v. Athens Disposal Company, Inc. (2009) (Class Action Waivers), (Private Attorney General Waiver)
Geographic Expeditions, Inc. v Estate of Lhotka (2010) (Federal Jurisdiction)
Gilbert Street Developers LLC v. LaQuinta Homes, LLC (2009) (Arbitrability)
Granite Rock Co v International Brotherhood of Teamsters (2010) (Arbitrability)
Gravillis v Coldwell Banker Residential Brokerage Co. (2010) (Errors of Law)
Gueyffier v. Ann Summers, Ltd. (2008) (Exceeding Powers), (Preemption), (Vacatur - International)
Hall Street Associates Inc v Mattel Inc (2008) (Errors of Law)
Haworth v Superior Court, (2008) (Disclosure)
International Union of Operating Engineers v. County of Plumas (2009) (Federal Jurisdiction)
Jakks Pacific Inc v Superior Court (2008) (Disclosure)
Kam-Ko Biopharm Trading Co. Ltd-Australasia v Mayne Pharma (USA) Inc. (2009) (Forum Fees)
Lagstein v Certain Underwriters at Lloyd’s London (2010) (Award Timing), (Disclosure), (Irrationality), (Vacatur)
Law Offices of David S. Karton v. Segreto (2009) (Award Correction), (Award Enforcement)
Laster v AT&T Mobility LLC (2009) (Class Action Waivers), (Preemption)
Lhotka v Geographic Expeditions, Inc. (2010) (Forum Selection Clause), (Severance), (Unconscionability)
Loeb v Record (2008) (Attorney/Client Fee Arbitration), (Confirmation of Award)
Long v Century Indemnity Co. (2008) (Cumis Counsel)
Luce Forward Hamilton & Scripps LLP v Koch (2008) (Disclosure)
Mahnke v. Superior Court (2009) (Disclosure)
Mansouri v Superior Court (2010) (Petition to Compel Arbitration)
Metters v Ralphs Grocery Company (2008) (Agreement to Arbitrate)
Mossman v. City of Oakdale (2009) (Award Correction) (Vacatur)
Oaktree Capital Management v Bernard(2010) (Errors of Law), (Vacatur-Timeliness)
Olvera v El Pollo Loco, Inc. (2009) (Class Action Waivers), (Unconscionability – Opt-Out Provision)
Ontiveros v. DHL Express (USA), Inc. (2008) (Arbitrability), (Discovery Restrictions), (Forum Fees), (Repeat Players), (Severance)
Parada v Superior Court (2009) (Arbitrability), (Forum Fees – Effect on Unconscionability), (Severance)
Pearson Dental Supplies, Inc. v. Superior Court (2008) (Errors of Law) (Tolling)
Perez v Grajales (2008) (Attorney/Client Fee Arbitration)
Pokorny v Quixtar, Inc. (2010) (Unconscionability)
Preston v Ferrer (2008) (Arbitrability), Preemption)
Rent-A-Center, West, Inc. v Jackson (2010) (Arbitrability)
RN Solution, Inc. v. Catholic Healthcare West. (2008) (Arbitration Clauses), (Consolidation in Litigation)
Rodriguez v Blue Cross of California (2008) (Medical Services Agreement)
Rodriguez v Superior Court, (2009) (Medical Service Agreements)
Roman v. Superior Court (2009) (Severance), (Unconscionability), (Waiver of Arbitration)
Ruiz v. Podolsky (2009) (Nonsignatories – Physician Patient Agreements)
San Francisco Housing Authority v Service Employees International Union Local No. 790 (2010) (Exceeding Powers)
Sanchez v Western Pizza Enterprises, Inc. (2009) (Arbitrability), (Class Action Waivers), (Repeat Players), (Severance Clause), (Unconscionability)
Stolt-NielsenS.A. v. AnimalFeeds International Corp., (2010) (Class Action Not Mentioned)
Taheri Law Group A.P.C. v Sorokurs (2009) (Vacatur)
Toal v. Tardif (2009) (Arbitrability-Stipulation to Arbitrate)
Toyo Tire Holdings of America, Inc. v Continental Tire North America, Inc. (2010) (Injunctive Relief)
Turner v. Schultz, (2009) (Attorney Fees – Court Proceedings)
United States Life Insurance Co. v. Superior National Insurance Co., (2010) (Refusal to Admit Evidence)
Vaden v. Discover Bank (2009) (Federal Jurisdiction)
Valencia v Smyth (2010) (Consolidation in Litigation)
Valentine Capital Asset Management, Inc. v. Agahi (2009) (Arbitrability – Securities Cases)
Villa Vicenza Homeowners Association v Nobel Court Development LLC (2010) (Agreement to Arbitrate), (Preemption)
Wade v. Schrader (2008) (Award Correction)
Winter v Window Fashions Professionals, Inc. (2008) (Agreement to Arbitrate) (Arbitration Clauses)
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Case List By Subject/Full Review
Agreement to Arbitrate
Winter v Window Fashions Professionals, Inc., 116 Cal App 4th 943, 950,83 Cal Rptr 3d 89 (2008)-The arbitration clause in the franchise agreement that was the subject of this suit provided that Texas law would apply and that any arbitration would be held in Dallas. But it also stated that these clauses might not be enforceable in California. This was so because Business & Professions Code Section 20040.5 prohibited franchisors from requiring that the choice of law and the forum be outside of California. After suit was filed, the franchisor moved to compel arbitration in Dallas. The court affirmed a decision by the trial court that because there was no meeting of the minds with respect to the choice of law and forum, that therefore California law applied and the arbitration agreement was not enforceable.
Metters v Ralphs Grocery Company, 161 Cal App 4th 696, 702, 74 Cal Rptr 3d 210 (2008)-After plaintiff made a complaint to defendant employer about racial discrimination, he received and was instructed to fill out a form entitled “Notice of Dispute & Request for Resolution”. The form contained an arbitration clause. After suit was filed, plaintiff responded to defendant’s motion to compel arbitration by alleging that he was not aware of the arbitration clause. The defendant argued that plaintiff signed the agreement and therefore he was bound by it. But the court disagreed. An exception to the general rule exists when the writing does not appear to be a contract and the terms are not called to the attention of the recipient. In such a case, no contract is formed with respect to the undisclosed term.
Villa Vicenza Homeowners Association v Nobel Court Developments LLC, 2010 Cal App LEXIS 774, 185 Cal App 4th 23 (2010)-A clause giving a developer the right to arbitrate disputes with a homeowners association which the developer inserted into CC&Rs that were created when the developer formed the homeowners association was found not to be enforceable. Civil Code Section 1354, which sets forth the rights and obligations under CC&Rs, provides a right of enforcement only to owners and the association.
Anti-SLAPP Statute
Century 21 Chamberlain & Associates v. Haberman, 173 Cal App 4th 1, 92 Cal Rptr 3d 249 (2009)-Plaintiff filed suit in which it alleged, inter alia, that it was not obliged to arbitrate its dispute with defendant. Defendant replied by filing an anti-SLAPP motion to strike the complaint. She asserted that plaintiff was attempting to interfere with her right to file an arbitration complaint against it. The motion was denied. The anti-SLAPP statute does not protect the right of initiating private, contractual arbitration. The anti-SLAPP statute protects statements made in a “judicial proceeding or any other official proceeding authorized by law.” Private, contractual arbitration is neither. It is a private alternative to a judicial proceeding. It is not an “official proceeding” because it is a nongovernmental activity not reviewable by administered mandate nor required by statute. Nor is defendant’s alleged demand to arbitrate a public issue or an issue of public interest.
Appeal-Federal Court
Arthur Andersen LLP v Carlisle, 129 S.Ct. 1896, 173 L.Ed. 2d 832, 2009 US LEXIS 3463 (2009)-In this case, the Court held that a party who is not a signatory to an arbitration agreement can nevertheless appeal from a denial of a motion to stay pending arbitration pursuant to Section 16(a)(1)(A) of the FAA and rejected the argument that the right to appeal belonged only to agreement signatories. The statute reads that “an appeal may be taken from…an order…refusing a stay of any action under section 3 of this title.” By that provision’s clear and unambiguous terms, any litigant who asks for a stay under section 3 is entitled to an immediate appeal from denial of that motion----regardless of whether the litigant is in fact eligible for the stay.
Appeal-Order Compelling Arbitration
Fagelbaum & Heller LLP v. Smylie, 174 Cal App 4th 1351, 1359-60, 95 Cal Rptr 3d 252 (2009)-A party who raises arbitrability issues for the first time on appeal from a judgment confirming the award, without having objected prior to submission or filing a timely motion to vacate the award, forfeits its right to appeal on the issue of arbitrability. But if a court compels arbitration, the party resisting arbitration may seek review of the ruling on appeal from an order that confirms the award.
Arbitrability
Preston v Ferrer, 552 U.S. 346, 128 S. Ct 978, 169 L.E. 2d 917 (2008)-Plaintiff filed an arbitration proceeding to collect sums due him from defendant, a television personality, pursuant to their contract. Defendant claimed that plaintiff was a talent agent and that the contract was void because plaintiff had failed to obtain the license required by the Talent Agencies Act (“TAA”), Labor Code Sections 1700 et seq. Plaintiff asserted that he was a personal manager and therefore did not have to obtain the license required by the TAA. The TAA gives the California Labor Commissioner exclusive jurisdiction to hear disputes involving it. A party dissatisfied with the Commissioner’s decision can seek a trial de novo in Superior Court or file an arbitration demand if there is a valid arbitration agreement. The Court of Appeal enjoined plaintiff from proceeding with the arbitration unless and until the Commissioner ruled that she did not have jurisdiction to hear the dispute. It held that Buckeye Check Cashing, Inc. v. Cardegna, supra, was inopposite because it did not apply to administrative proceedings. In his argument before the Supreme Court, defendant asserted that allowing parties to proceed directly to arbitration would undermine the Labor Commissioner’s ability to stay informed of potential illegal activity and would deprive artists protected by the TAA of the Commissioner’s expertise. He also argued that his position to did not deprive plaintiff of his right to arbitrate, it merely postponed it. The Court rejected defendant’s arguments and reversed. With respect to the postponement argument, a prime objective of an agreement to arbitrate is to achieve streamlined proceedings and expeditious results. That objective would be frustrated even if plaintiff could compel arbitration in lieu of de novo Superior Court review. With respect to the other argument, plaintiff’s petition presents only a question concerning the forum in which the parties’ dispute will be heard. Defendant relinquishes no substantive rights the TAA may accord him. But under the contract he signed, he cannot escape resolution of those rights in an arbitral forum.
Bruni v, Didion, 160 Cal App 4th 1272, 1287, 73 Cal Rprtr 3d 395 (Ct App Cal 2008)-Where a party asserts that it has never agreed to an arbitration provision, it cannot be required to arbitrate anything—note even arbitrability—until a court has made a threshold determination that the party did, in fact, agree to arbitrate something. In such a case, the court makes the determination even if the arbitration clause provides that the arbitrator decides arbitrability.
Ontiveros v. DHL Express (USA), Inc., 164 Cal App 4th 1460, 1472, 79 Cal Rptr 3d 471 (2008)-The court found here that a clause providing that the arbitrator shall decide arbitrability set forth in an adhesion contract that contained multiple examples of unconscionability is itself substantively unconscionable and hence unenforceable. The court also followed the holding in Bruni v Didion, supra, that the court decides arbitrability if it finds that the party opposing arbitration never agreed to arbitrate. Plaintiff herein met that threshold because the undisputed circumstances in which she received and signed the agreement—including her receipt of the one page document in a binder file along with numerous other employment related documents, the lack of time for any real review of the documents, and the failure of anyone to explain the significance of the agreement—supported her claim that she did not know that she had signed an agreement to arbitrate until she filed suit and the defendant filed a motion to compel arbitration.
Duffens v. Valenti, 161 Cal App 4th 434, 455, 74 Cal Rptr 3d 311 (2008)-The court here refused to enforce a contract entered into by an entity which it determined was a dating service because the contract did not comply with statutory requirements for dating service contracts and therefore was illegal. A statute prohibiting the making of a particular kind of a contract except in a certain manner renders such contract void if made in any other way. When the statute prescribes the only mode by which the power to contract is to be exercised, that mode is the measure of the power. A contract made otherwise than as so prescribed is not binding or obligatory as a contract, and the doctrine that there is an implied liability arising from the receipt of benefits has no application.
Sanchez v. Western Pizza Enterprises, Inc., 172 Cal App 4th 154, 90 Cal Rptr 3d 818 (2009)-A provision in the arbitration agreement that states that the arbitrator will resolve “any disputes over the interpretation or application of this arbitration agreement” does not encompass disputes concerning the enforceability of the agreement based on unconscionability, public policy, or other grounds.
Gilbert Street Developers LLC v. LaQuinta Homes, LLC, 174 Cal App 4th 1185, 1190, 94 Cal Rptr 3d 918 (2009)-California common law is settled that parties to an arbitration contract must clearly and unmistakably agree that arbitrators will have power to decide their own jurisdiction, otherwise the question of whether arbitrators have jurisdiction is for the courts. To go beyond the incorporation of an extant rule and allow for the incorporation of a rule that might not even come into the existence in the future, however, contravenes the clear and unmistakable rule.
Parada v Superior Court, 176 Cal App 4th 1554, 98 Cal Rptr 3d 743 (2009)-The arbitration clause herein stated that all disputes concerning enforcement of the arbitration clause be decided by the arbitrators but it also contained a paragraph stating that “in the event that any provision of this Agreement shall be determined by a trier of fact of competent jurisdiction to be unenforceable….the remainder of this Agreement shall remain binding…”. Use of the term “trier of fact of competent jurisdiction” suggests that the trial court may find a provision to be unenforceable. Thus, the agreement was ambiguous with respect to whether the arbitrators had the exclusive right to determine arbitrability.
Rent-A-Center, West, Inc. v Jackson, 2010 US LEXIS 4981 (2010)-Plaintiff entered into an arbitration agreement with defendant that was a condition of employment. Arbitration was the sole subject of the contract. After he was terminated, plaintiff filed suit in court, asserting that he could do so because the arbitration agreement was unconscionable. Defendant moved to compel arbitration on the ground that the agreement provided that the arbitrator had exclusive authority to resolve any dispute relating to the enforceability of the agreement. The Supreme Court agreed with defendant. Under the Prima Paint decision, a court decides challenges to the arbitration clause, but the arbitrator resolves challenges to the contract as a whole. In this case, the underlying contract was itself an arbitration agreement. But that makes no difference. Application of the severability rule does not depend on the substance of the remainder of the contract.
Granite Rock Co v International Brotherhood of Teamsters, 2010 US LEXIS 5255 (2010)-On July 2, the employer and the union apparently settled a strike by ratifying a new collective bargaining agreement (“CBA”) which contained a no strike clause and an arbitration agreement. However, the employer refused the union’s request to hold it harmless for striking under the prior CBA. The union thereupon ordered its members not to go back to work pending resolution of this dispute. In August, the union members again ratified the agreement and went back to work shortly thereafter. The employer then sued the union for violating the no strike clause, claiming that the CBA was ratified on July 2. The union argued that the new CBA was not ratified until August and that an arbitrator should determine the effective date of the agreement, citing the presumption in favor of arbitration. The Supreme Court reversed a Ninth Circuit ruling in favor of the union. The presumption in favor of arbitration applies only where it reflects, and derives its legitimacy from, a judicial conclusion that arbitration of a particular dispute is what the parties intended because their express agreement to arbitrate was validly formed and, absent a provision clearly and validly committing such issues to an arbitrator, is legally enforceable. For purposes of determining arbitrability, when a contract is formed can be as critical as whether it was formed. That is the case where the date on which an agreement was ratified determines the date the agreement was formed, and thus determines whether the agreement’s provisions were enforceable during the period relevant to the parties’ dispute.
Arbitrability-Securities Cases
Valentine Capital Asset Management, Inc. v. Agahi, 174 Cal App 4th 606, 616, 94 Cal Rptr 3d 526 (2009)-The mandate to arbitrate disputes arising out of “business activities” of an associated person must require arbitration of disputes only if they arise out of the business activities of an individual as an associated person or FINRA member.
Arbitrability-Stipulation to Arbitrate
Toal v. Tardif, 178 Cal App 4th 1208, 101 Cal Rptr 3d 97 (2009)-An attorney, merely by virtue of his employment as such, has no apparent authority to bind his client to an agreement for arbitration unless the client expressly authorizes the attorney to sign the agreement. The attorney’s unauthorized act may also bind the client if the client ratifies such act.
Arbitration Clause
RN Solution, Inc. v. Catholic Healthcare West. 165 Cal App 4th 1511, 1523, 81 Cal Rptr 3d 892 (2008)-RN and its founder-president, Woo, brought suit against Catholic Healthcare West (“CHW”) and a former employee of CHW arising largely out of the termination of a contract between RN and CHW. The individual defendant was the CHW employee who administered the contract. There was no dispute that the contractual claims were arbitrable. However, Woo also alleged claims of gender discrimination and sexual battery against the defendants arising from an intimate relationship between Woo and the CHW employee. The employee moved to compel arbitration of these claims as well. The motion was denied and the decision was affirmed on appeal. The arbitration clause in issue was part of an agreement between two business entities governing their business relationship. While the language of the arbitration provision might be broadly construed to cover every type of business dispute that might arise between the two signators, it cannot be seriously argued that the parties intended it to cover tort claims arising from a violent physical assault by an employee of one company against an employee of the other in the context of an intimate domestic relationship between them.
Winter v Window Fashions Professionals, Inc., 116 Cal App 4th 943, 949, 83 Cal Rptr 3d 89 (2008)-The arbitration clause in the franchise agreement that was the subject of this suit provided that Texas law would apply and that the site of the arbitration would be in Dallas. But the agreement also stated that these clauses might not be enforceable in California. This was so because Business & Professions Code Section 20040.5 barred franchisors from requiring that the choice of law and forum be in a state other than California. The trial court denied the franchisor’s motion to compel arbitration. The franchisor argued that this issue should have been decided by the arbitrator. The decision was affirmed. Based on the statement in the franchise agreement that the arbitration agreement may not be enforceable under California law, the franchisee claimed that there was no meeting of the minds as to that provision. If the party resisting arbitration claims that it never agreed to the arbitration clause at all, the court must consider that claim.
Comedy Club, Inc. v Improv West Associates, 553 F 3d 1277 (9th Cir 2009)-The arbitration clause in controversy provided that “all disputes relating to or arising under this Agreement…shall be resolved by arbitration” but also provided that “in addition to arbitration”, the parties could pursue equitable remedies in state or federal court. The arbitrator issued an injunction against the losing party, which moved to vacate on the ground that he exceeded his powers because he did not have the authority to grant equitable relief. The argument was rejected. The language “in addition to arbitration” suggests that arbitration still applies to all disputes, but that in addition, the parties are “entitled to pursue equitable remedies” before courts. If the parties intended to carve out an exception to arbitration for all equitable claims, they could have done so without the language “in addition to arbitration”
Fagelbaum & Heller LLP v Smylie, 174 Cal App 4th 1351, 1364, 95 Cal Rptr 3d 252 (2009)-Claimant law firm entered into a sublease agreement which provided for the arbitration of all disputes “arising out of or relating to” the sublease. The law firm later performed legal work for the sublessor and, after the sublessor failed to pay the fees, the parties agreed that the unpaid fees could be credited to the rent. Subsequently, the sublessor reneged from the agreement, alleging that the firm had committed malpractice and he sought to evict the firm. The firm countered by filing an arbitration proceeding seeking to prevent the eviction. It also filed a second arbitration seeking to collect its fees, even though it could not produce the retainer agreement that contained the arbitration clause. The two arbitrations were consolidated, the law firm prevailed, the award was confirmed, and the sublessor appealed. The sublessor argued that the arbitrators had no jurisdiction to award fees to the law firm absent production of the arbitration agreement. The Court of Appeal affirmed. The sublessor’s refusal to accept any more offsets against outstanding legal fees based on his claim of malpractice was clearly related to the sublease. Thus, the arbitration clause in the sublease was broad enough to consider the issue of the fees.
Attorney Client Fee Arbitrations
Loeb v Record, 162 Cal App 4th 431, 447, 75 Cal Rptr 3d 551 (2008)-The dispute between the attorney and client in this matter began when the attorney made an offer of settlement in a personal injury action which was accepted by the defendant. The client asserted that the offer was made without his permission and he refused to execute a satisfaction of judgment. As a consequence, the settlement funds were deposited with the clerk of the court and the attorney filed a lien on his share of the settlement. In the interim, the parties took part in a MFAA arbitration and the arbitrator awarded the attorney his one third contingency fee. The client, within 30 days, filed a motion in the personal injury action to prevent the court from disbursing the attorney’s share of the settlement. The attorney countered with a motion for disbursement of his share. The court found the arbitration to be binding because the client had failed to file suit in Superior Court seeking a trial on the fee dispute within 30 days, as required by the MFAA. The client claimed that his motion satisfied that requirement. The appellate court disagreed. Business and Professions Code Section 6204(c) requires the suit to be filed “in a court having jurisdiction over the amount of money in controversy”. The motion in the personal injury action did not satisfy this requirement because it did not result in the attorney becoming a party to the personal injury action or otherwise give the court jurisdiction over the attorney. (The court overruled that part of the judgment which ordered funds disbursed to the attorney because he did not seek a confirmation of the award, but merely an order seeking disbursement.)
Perez v Grajales, 169 Cal App 4th 580, 602, 2008 Cal App LEXIS 2044 (2008)-Allowing a party to avoid the consequences of an unfavorable mandatory fee arbitration award by failing to prosecute the case to a de novo trial would produce absurd consequences and promote mischievous lawyering.
Schatz v. Allen Matkins Leek Gamble & Mallory LLP, 45 Cal 4th 557, 87 Cal Rptr 3d 700 (2009)-Unless the parties agree to be bound by arbitration conducted pursuant to the Mandatory Fee Arbitration Act (“MFAA”) and thus to end the dispute then and there, the case may, following MFAA arbitration, proceed by normal means. Those normal means may include not only court litigation, but “other proceedings” such as binding arbitration pursuant to a predispute agreement between the parties.
Fagelbaum & Heller LLP v. Smylie, 174 Cal App 4th 1351, 1362, 95 Cal Rptr 3d 252 (2009)-The law firm here filed an arbitration proceeding pursuant to its retainer agreement to collect its fees. The client, who was also the law firm’s landlord, had initially agreed to credit the unpaid fees to the law firm’s rent but then reneged from this agreement. The law firm then filed a second arbitration pursuant to the lease agreement seeking to prevent the client from evicting it. The client filed a cross demand in that arbitration seeking a refund of rent that it credited to the firm because of the firm’s malpractice. The client also filed a fee arbitration proceeding under the MFAA. The trial court consolidated the arbitration proceedings filed by the law firm holding that the client had waived his rights under the MFAA because he filed a pleading alleging malpractice by the law firm. After the law firm prevailed and confirmed the award, the client appealed, arguing that he did not waive his MFAA rights because his cross demand was to collect unpaid rent and not collect damages for malpractice. The Court of Appeal affirmed. In order for the client to prevail on the cross demand, the arbitrator would have had to find that the law firm committed malpractice. Hence, the cross demand was a pleading alleging malpractice and the client waived his rights under the MFAA.
Attorney Fees-Court Proceedings
Turner v. Schultz, 175 Cal App 4th 974, 983-4, 96 Cal Rptr 3d 659 (2009)-The arbitration clause in this matter not only provided for attorney fees for the party who prevailed in the arbitration but also had an additional clause allowing the prevailing party to obtain attorney fees in “any legal action or arbitration…to enforce the provisions” of the arbitration agreement. Defendants prevailed in a suit filed by plaintiff to enjoin the pending arbitration and were awarded attorney fees. Plaintiff appealed, arguing that fees could not be awarded because the arbitration had not yet occurred and hence there was no prevailing party. The lower court decision was affirmed. The legal action was independent of the outcome of the arbitration. There was a prevailing party for purposes of Civil Code Section 1717 in a discrete proceeding on the underlying contract.
Attorney Fees-Hate Crimes
D.C. v Harvard-Westlake School, 176 Cal App 4th 836, 866, 98 Cal Rptr 3d 300 (2009)-Claimants in this arbitration were a young boy, a student at defendant school, and his parents. They alleged that the boy was a victim of a hate crime because students at the school sent death threats to him in violation of the Ralph Civil Rights Act and Tom Bane Civil Rights Act. The school prevailed and the arbitrator awarded it $521,000 in legal fees pursuant to a provision in the school’s Enrollment Agreement awarding attorney fees to the prevailing party. The two statutes in question only allowed attorney fees for a prevailing plaintiff and on appeal, the award of attorney fees is vacated. The one way attorney fees provisions in the hate crimes laws serve a public purpose, to wit, to increase the financial feasibility of bringing suits under those laws. Thus, the one way provisions are unwaivable statutory rights and render the award of attorney fees invalid. (Note: The case was remanded to determine if any of the attorney fees could be attributed to other causes of action which did not involve unwaivable statutory rights.)
Award Correction
Wade v. Schrader, 168 Cal App 4th 1039, 1048-9, 85 Cal Rptr 3d 865 (2008)-Where the fact and amount of the settlement credit are undisputed, the use of a motion to compel acknowledgment of satisfaction of judgment does not modify the arbitration award upon which the judgment is based and is an acceptable method of securing the settlement credit afforded a nonsettling defendant by Code of Civil Procedure Section 877.
Mossman v. City of Oakdale, 170 Cal App 4th 83, 92, 87 Cal Rptr 3d 764 (2009)-In this employment case, the arbitrator ordered the respondent to make the employee claimant whole. The respondent moved to vacate the award because of its lack of specifics. The court held that the normal course of action when financial terms of an award are unenforceable due to ambiguity is to remand the matter to the original arbitrator for clarification pursuant to CCP Section 1283.4.
Law Offices of David S. Karton v. Segreto, 176 Cal App 4th 1, 10, 97 Cal Rptr 3d 329 (2009)-In this proceeding filed under the MFAA, the arbitrator awarded the plaintiff attorney his fees and nothing more. He then asked the Court to award him prejudgment interest and compensation for additional fees and costs not previously awarded. The Court said that it did not have the power to do this and directed plaintiff to return to the arbitrator, who duly awarded him the additional monies. The amended award was confirmed and the decision reversed on appeal. The Court should not have remanded the matter to the arbitrator. The only statutory basis for correcting the award is an “evident miscalculation of figures”. Prejudgment interest and additional compensation and fees are outside the scope of a statutorily permitted correction.
Award Enforcement
Law Offices of David S. Karton v. Segreto, 176 Cal App 4th 1, 10, 97 Cal Rptr 3d 329 (2009)-In this proceeding filed under the MFAA, the arbitrator awarded the plaintiff attorney his fees and nothing more. He then asked the Court to award him prejudgment interest and compensation for additional fees and costs not previously awarded. The Court said that it did not have the power to do this and directed plaintiff to return to the arbitrator, who duly awarded him the additional monies. The amended award was confirmed and the decision reversed on appeal. Code of Civ Proc 1286 provides that if the Court does not correct or vacate the award, it must confirm it. Since the Court neither corrected nor vacated the original award, it should have confirmed it, in which event there was no need for the amended award.
Award Timing
Lagstein v Certain Underwriters at Lloyd’s London, 2010 US App LEXIS 11836 (9th Cir 2010)-The court denied respondent’s motion to vacate the punitive damages portion of an arbitration award because it was rendered beyond the limit set forth in the AAA rules. The question of a time frame within which an arbitration panel may issue an award is a procedural matter. AAA Commercial Rule R-53 which provides that “the arbitrator shall interpret and apply these rules insofar as they relate to the arbitrator’s powers and duties” clearly contemplates that arbitrators will decide the meaning of the AAA’s procedural rules.
Class Action Not Mentioned
Cable Connection, Inc. v. DirecTV, Inc., 44 Cal 4th 1334, 82 Cal Rptr 3d 229 (2008)-The agreement herein, entered into between DirecTV and its dealers, made no reference to class actions. The agreement did require the arbitrators to apply the substantive law of California. The dealers commenced a class action in arbitration. Following the procedure required by AAA rules, the arbitrators initially determined that the class action could proceed. The Court of Appeal affirmed this determination, holding that the right to pursue classwide arbitration is substantive, based on the decision in Keating v Superior Court, 31 Cal 3d 584 (1982). The Supreme Court reversed. The Keating rule is that courts have the authority to order classwide arbitration when an arbitration clause appears in a contract of adhesion and gross unfairness would result from the denial of the opportunity to proceed on a classwide basis. The Keating court did not speak to whether arbitrators have that authority. It has since been held by the Supreme Court that whether an arbitration clause is unconscionable is for the courts to decide, not the arbitrator. Here, the dealers did not claim and the arbitrators did not find that the contract was adhesive, or that a denial of classwide arbitration would lead to gross unfairness. Furthermore, the arbitrators did not need to turn to Keating for authority to order classwide arbitration. The AAA rule required them to “determine as a threshold matter in a reasoned partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf or against a class”.
Stolt-NielsenS.A. v. AnimalFeeds International Corp., 130 Sup. Ct. 1262, 176 L. Ed 2d 605, 2010 US LEXIS 3672 (2010)-Plaintiff filed a class action complaint in arbitration arising from defendant’s admitted price fixing of maritime contracts. The arbitration agreement was silent with respect to whether it permitted class actions and the parties stipulated that they never reached an agreement one way or the other on this subject and so they left the decision of whether the agreement permitted a class action to the arbitrators. The arbitrators concluded that the class action could proceed as a matter of public policy because there was never an agreement to preclude class actions. The Supreme Court rejected this ruling. Arbitrators must give effect to the intent of the parties. It follows therefore that a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the parties agreed to do so. In this case, the parties reached no agreement on that issue and there was no tradition of class arbitration under maritime law. Hence, the panel’s conclusion was fundamentally at war with the foundational FAA principle that arbitration is a matter of consent.
Class Action Waivers
Franco v. Athens Disposal Company, Inc., 171 Cal App 4th 1277, 90 Cal Rptr 3d 539 (2009)-The Court here refused to enforce a class action waiver in an arbitration agreement where the gravamen of the suit was a systematic failure to provide meal and rest periods. The factors considered by the Court were 1)the maximum individual recovery of $37,000 provides insufficient incentive to obviate the need for class action; 2)the difficulty of suing a current employer is likely greater for employees further down the corporate hierarchy (and the fact that plaintiff was a former employee enhanced this factor because current employees reluctant to sue would benefit from the class action); 3)some individual employees might not sue because they would be unaware that their legal rights might have been violated (particularly in this case where many of the employees were Spanish speakers); and 4) class actions may be needed to assure the effective enforcement of statutory policies even though some claims may be large enough to provide incentive for individual action.
Sanchez v Western Pizza Enterprises, Inc., 172 Cal App 4th 154, 90 Cal Rptr 3d 818 (2009)-Plaintiff filed a class action against his employer alleging that drivers were inadequately reimbursed for their expenses and were paid below the minimum wage. The Court refused to enforce a class action in the parties’ arbitration agreement after applying the four Gentry factors. It found that individual recoveries would be modest, delivery drivers were low wage earners and thus more likely would be subject to retaliation, and that most of the drivers were immigrants with limited language skills who would likely be unaware of their legal rights.
Olvera v El Pollo Loco, Inc., 173 Cal App 4th 447, 457, 93 Cal Rptr 3d 65 (2009)-Plaintiff, general manager of a restaurant operated by defendant, filed a class action against his employer alleging that exempt managerial workers spent the majority of their time in nonmanagerial duties and were wrongfully denied overtime. Defendant moved to compel arbitration of plaintiff’s individual claim, citing an arbitration agreement that plaintiff had signed which contained a class action waiver. The court found the class action waiver to be unconscionable, notwithstanding that defendant did not require that its employees sign the agreement. The class action waiver would insulate defendant from employee class actions and class arbitrations on behalf of those employees who signed the agreement. The arbitration agreement not only applied to restaurant general managers, but to all employees, many of whom were low wage earners. A class action or class arbitration might perhaps be the only effective way for these employees to vindicate their statutory rights, particularly those with limited English language skills who were likely to be ill informed of their statutory rights. Moreover, the waiver is one sided because the defendant would be unlikely to sue its employees in a class action lawsuit.
Laster v AT&T Mobility LLC, 584 F 3d 849, 855 (9th Cir 2009)-One of the bases for finding a class action waiver clause in an adhesion contract to be unconscionable is the plaintiff’s predictably small damages. Here plaintiff’s damages were $30.22. But defendant argued that its arbitration clause was not unconscionable because it provided for a bonus of $7500 if plaintiff’s recovery was greater than defendant’s last settlement offer or if defendant failed to make any settlement offer at all. The court rejected the argument. If a customer files for arbitration, predictably, the defendant will simply pay the face value of the claim to avoid paying $7500. Thus, the actual damages that a customer will recover remains predictably small.
Omstead v Dell, Inc., 594 F 3d 1081 (9th Cir 2010)-This matter was a class action based on defendant’s sale of allegedly defective computer notebooks. The purchase agreement contained an arbitration clause which prohibited the filing of a class action or the consolidation of claims. The court found the arbitration clause to be unenforceable under the Discover Bank test, to wit, 1) the waiver was found in a consumer contract of adhesion; 2) the contractual settin was one in which the disputes between the contracting parties predictably involve small amounts of damages; and 3) it was alleged that the party with the superior bargaining power carried out a scheme to deliberately cheat large numbers of consumers out of individually small amounts of money.
Collective Bargaining Agreements
14 Penn Plaza LLC v Pyett, 129 S. Ct. 1456, 173 L.Ed. 2d 398, 2009 US LEXIS 2497 (2009)-The Court rejected an argument that an arbitration clause in a collective bargaining agreement was not enforceable when the individual union member brought an age discrimination claim. The National Labor Relations Act provided the union with statutory authority to collectively bargain for arbitration of workplace discrimination claims and Congress did not terminate that authority with federal age discrimination claims in the ADEA.
Flores v Axxis Network & Telecommunications, Inc., 173 Cal App 4th 802, 807, 93 Cal Rptr 3d 1 (2009)-An arbitration clause in a collective bargaining agreement covers a statutory claim if the CBA makes compliance with the statute a contractual commitment subject to the arbitration clause. An alternate test for determining whether a dispute was subject to arbitration is the coupling of a general arbitration clause with an explicit incorporation of statutory requirements elsewhere in the agreement.
Confirmation of Award
Loeb v Record, 162 Cal App 4th 431, 450-51, 75 Cal Rptr 3d 551 (2008)-An attorney was awarded his one third contingency fee in a fee dispute arbitration following settlement of a personal injury action. The settlement had been deposited with the clerk of the court and, following the issuance of the award, the attorney moved to have the court disburse his share of the settlement, but he did not seek confirmation of the award. On appeal, the order of disbursement was reversed because the motion seeking disbursement was not akin to a motion to confirm. Neither the notice of motion nor the supporting memorandum of points and authorities mentioned confirmation of the award or requested the entry of a judgment of confirmation. The papers only requested disbursement of the funds.
Consolidation with Other Matters in Litigation (Section 1281.2(c) )
RN Solution, Inc. v. Catholic Healthcare West, 165 Cal App 4th 1511, 1521-22, 81 Cal Rptr 3d 892 (2008)-RN Solution and its founder-president, Woo, filed suit against Catholic Healthcare West (“CHW”) and a former employee arising primarily as a consequence of the termination by CHW of a contract that it had with RN. The individual defendant was the person at CHW who administered the contract. However, the complaint also contained allegations of gender discrimination and sexual battery alleged by Woo as a consequence of an intimate relationship that she had had with the individual defendant. Because Woo and the individual defendant were not parties to the contract, the court invoked Section 1281.2(c) and denied defendants’ motion to compel arbitration. The decision was reversed. Woo benefited financially and professionally from the contract and thus was bound by the arbitration agreement. The individual defendant was CHW’s agent with respect to the contract and, as such, was also bound by the arbitration agreement and could enforce it. The gender discrimination and sexual battery claims were non-arbitrable. Hence, the court should have ordered all the arbitrable claims to arbitration. The court would then have had the discretion to delay its order to arbitrate the arbitrable claims under Section 1281.2(c), only if it first determined that the adjudication of the non-arbitrable claims in court might make the arbitration unnecessary.
Birl v. Heritage Care LLC, 172 Cal App 4th 1313, 1318-19, 91 Cal Rptr 3d 777 (2009)-Plaintiffs sued a group of nursing homes, a hospital, and several physicians who were alleged to have negligently treated decedent, the husband and father of plaintiffs, during his final illness. The last nursing home in the chain moved to compel arbitration but the Court exercised its discretion under Section 1281.2(c) and denied the motion. On appeal, the nursing home’s argument that the statute did not apply because the actions of its co-defendants were not part of “a series of related transactions” was rejected. It was of no consequence that the nursing home’s services were separated by time from the sequential services provided by the other defendants. A temporal separation does not necessarily negate the existence of the requisite series of related transactions. Furthermore, even though some of the causes of action brought by plaintiffs were in their capacities as successors in interest to the decedent, their claims for wrongful death and emotional distress were brought in their individual capacities and hence they were “third parties” as defined by Section 1281.2(c).
Valencia v Smyth, 2010 Cal App LEXIS 789, 185 Cal App 4th 153 (2010)-The FAA does not have a procedure similar to Section 1281.2(c). Rather, Section 3 requires the court to grant a motion to compel arbitration in a case where one or more of the issues may not be arbitrable or where a party to the lawsuit is not subject to the arbitration agreement and then stay the litigation pending the outcome of the arbitration. In this case, the agreement stated that by signing the agreement, the parties could be compelled to arbitrate under the California Code of Civil Procedure but that the agreement “shall be interpreted “ in accordance with the FAA. Not all the parties to the litigation were covered by the arbitration agreement and so the court denied the motion to compel arbitration pursuant to Section 1281.2(c). It rejected the argument of one of the parties subject to the agreement that the FAA applied. The FAA’s procedural provisions do not apply in state court unless the parties expressly adopt them. The question is not whether the parties adopted the CAA’s procedural provisions because Congress intended that Section 3 apply in federal court. Under the plain meaning rule, the agreement’s references to California law and the California Code of Civil Procedure do not expressly adopt the FAA’s procedural provisions.
Cumis Counsel
Long v Century Indemnity Co., 163 Cal App 4th 1460, 1472, 78 Cal Rptr 3d 483 (2008)-Plaintiff attorney tendered his client’s defense in a matter to the defendant insurance company. The insurer denied coverage but agreed to defend the insured under a reservation of rights. It did not retain its own counsel but asked plaintiff to defend the insured as Cumis counsel. However, the insurer also informed plaintiff that it would only pay him the capped rate (the amount that it normally paid attorneys whom it retained) as provided in Civil Code Section 2860. Plaintiff at first refused but then agreed with the proviso that he reserved the right to demand the difference between the capped rate and his own rate. After the underlying case settled, plaintiff filed suit to recover the difference and defendant moved to compel arbitration as provided in Section 2860(c). Plaintiff argued that the statute was not applicable because Section 2860(b) provided for the appointment of Cumis counsel “when an insurer reserves its right on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the issuer for the defense of the claim”. Defendant’s motion was granted and affirmed on appeal. The potential conflict exists because the interests of the insurer and its insured diverge. It is not the presence of the insurer-selected attorney that creates the conflict, rather, the existence of the conflict or potential conflict creates the need for independent or Cumis counsel.
Compulink Management Center, Inc. v. St. Paul Fire and Marine Insurance Company, 169 Cal App 4th 289, 297-8, 2008 Cal App LEXIS 2425 (2008)-Plaintiff brought suit against its insurer, alleging both that the insurer did not pay sufficient fees to Cumis counsel and that it acted in bad faith. The insurer’s motion to compel arbitration pursuant to Civil Code 2860(c) was denied on the ground that the statute was limited to fee disputes and did not apply where there was also a claim of bad faith. The Court of Appeal reversed. The language of the statute clearly requires arbitration of all Cumis fee disputes unless the insurance contract provides for a different type of alternate dispute procedure and does not exempt from arbitration fee disputes that are coupled with additional bad faith claims. It distinguished cases that held to the contrary because those cases were in federal court. Within the California court system, Cumis fee issues are to be decided in an arbitration forum, not the state’s judicial forum, but federal actions involving Cumis fee issues are not subject to Section 2860(c).
Disclosure
Jakks Pacific, Inc. v. Superior Court, 160 Cal App 4th 596, 72 Cal Rptr 3d 914 (2008)-CCP 1281.6 sets forth a procedure where arbitrators are appointed by the court when the parties fail to agree on an arbitrator. The statute provides that the court will select five proposed arbitrators from lists supplied by the parties and the parties then can choose the arbitrator from the list or choose someone else. If they fail to agree, the court will appoint an arbitrator from the list of five nominees. Petitioner argued that the nominees must make the required disclosures set forth in CCP 1281.9 once nominated by the court and it moved to disqualify those nominees selected by its adversary because they did not make the disclosures. The argument is rejected. The five nominees are not selected until the parties appoint one of them or the court appoints the arbitrator if the parties fail to agree. Section 1281.9 does not require the arbitrator to make disclosures until he has received written notice of his proposed appointment and then he must do so within ten days thereafter. Since proposed arbitrators are not informed of their nomination by the court, the ten day period is not triggered until after one of them is appointed by either the parties or the court.
Advantage Medical Services, LLC v. Hoffman, 160 Cal App 4th 806, 72 Cal Rptr 3d 935 (2008)-In this AAA case, the arbitrator granted the claimant’s request that coverage counsel be allowed to attend the hearing but denied respondent’s request that the name of the carrier be revealed prior to the hearing. At the hearing, coverage counsel stated that she represented Lloyd’s. After the arbitrator ruled in favor of the claimant, respondent’s counsel discovered that the arbitrator and his firm represented various “correspondent clubs” which did business with Lloyd’s, and that three correspondent clubs, none of which were represented by the arbitrator or his firm, insured the claimant. Respondent moved to disqualify the arbitrator, and accompanied her motion with a declaration from an expert that it would be impossible for an attorney who represented these correspondent clubs to act in a manner contrary to the interest of any correspondent club. The AAA rejected the motion and ruled that respondent had waived her right to a peremptory challenge because her motion was filed more than fifteen days after she learned the name of the arbitrator. Respondent’s motion to vacate was granted and affirmed on appeal. CCP 1286.2(a)(6)(A) mandates that a court must vacate an arbitrator’s award if the arbitrator failed to disclose within the time required for disclosure aground for disqualification of which the arbitrator was then aware. Here, the arbitrator was on notice of the claimant’s connection to Lloyd’s prior to the hearing but refused to disclose this fact. Therefore, the respondent had a statutory right to vacatur of the award. Respondent did not waive her rights under the statute by agreeing to the AAA Commercial Rules that permitted the AAA staff to rule on motions to disqualify arbitrators because the statutory rights in issue cannot be waived.
Casden Park LaBrea Retail LLC v. Ross Dress for Less, Inc., 162 Cal App 4th 468, 477-78, 75 Cal Rptr 3d 763 (2008)-The parties agreed to tripartite arbitration to determine the appropriate rental rate on a lease. The party arbitrators chose Bower, a broker employed by CB Richard Ellis, as the neutral. At the outset of the arbitration, Bower stated that because of Ellis’ size, he would expect that the parties had done business with Ellis many times, but that he personally was not aware of any such transactions. Ross prevailed at the arbitration because Bower sided with Ross’ party arbitrator, Soboroff. After the arbitration, Casden discovered that Ellis had engaged in several large transactions in which Ross was a party, one of which involved Soboroff. Bower was not involved in or aware of these transactions. It also discovered that Bower had contributed $500 to Soboroff’s mayoral campaign and that other Ellis employees and Ellis itself had contributed $4500. Bower was not aware of the latter contributions. Casden’s motion to vacate was granted but reversed by the Court of Appeal. By any reasonable definition, Bower’s campaign contribution was ordinary and insubstantial. Bower had no knowledge of Ross’ or Soboroff’s dealings with other Ellis brokers or the contribution made to Soboroff’s campaign by other Ellis employees and Ellis itself, Thus, he had no duty to disclose those transactions because an arbitrator cannot be faulted for failing to disclose facts of which he was unaware. Furthermore, Bower had no duty to disclose these transactions because he had no financial interest in them and did not benefit from any of them, financially or otherwise. In short, a neutral arbitrator who has no pecuniary interest in profits generated by his employer’s business relationship with a party or a party’s representative has no substantial business relationship with the party or its representative and therefore no duty to disclose such transactions.
Luce Forward Hamilton & Scripps LLP v Koch, 162 Cal App 4th 720, 735-36, 75 Cal Rptr 3d 869 (2008)-The arbitrator learned shortly before the evidentiary hearing was to begin that he had served with the lawyer representing the claimant, the ultimate prevailing party, on the boards of two professional organizations and that he had also served on one of the boards with the claimant’s proposed expert (who ultimately did not testify). He disclosed these relationships at the outset of the hearing but denied the respondent’s request that he disqualify himself. Respondent’s motion to vacate was denied and the decision was affirmed on appeal. The arbitrator was not legally required to make these disclosures. There is no disclosure requirement when the contact between the arbitrator and counsel is slight and attenuated and the same is true of professional obligations involving service to the legal community and the public, continuing education for bar members, and mentoring for new lawyers. Nor is the arbitrator required to disqualify himself under CCP 1281.91 simply because he made a disclosure of any type to which an objection was lodged within 15 days. The statute gives parties an unqualified right to remove a proposed arbitrator based on a disclosure “required by law”. Thus, disqualification based on a disclosure is an absolute right only when the disclosure is legally required.
Haworth v Superior Court, 164 Cal App 4th 930, 940, 79 Cal Rptr 3d 800 (2008)-The obligation to disclose falls squarely on the shoulders of the arbitrator and the arbitrator is not excused from disclosing a matter simply because it is an item of public record.
Dornbirer v. Kaiser Foundation Health Plan, Inc., 166 Cal App 4th 831, 842-44 (2008)-In
this matter, the arbitrator disclosed at the outset that he had presided over fifteen matters involving Kaiser’s counsel and “previously presided over eleven other matters involving Kaiser”. Contrary to CCP 1281.9(a)(4), he failed to reveal the dates of the arbitration awards involving Kaiser, identification of the prevailing party, names of the parties’ attorneys and the amount of monetary damages awarded, if any. Claimant did not object to the arbitrator’s service but, after he had ruled against her, she sought vacatur because of his failure to adhere to the statute and because his disclosure led her to believe that he had presided over eleven arbitrations involving Kaiser, when in fact he had presided over 26. The motion to vacate was denied. Not every item of information that is that is required to be disclosed under Section 1281.9 constitutes a “ground for disqualification” as the term is used in Section 1286.2. Rather, the language refers to a failure to disclose the existence and nature of any relationship between the arbitrator and the parties or the parties’ attorneys, not the specifics of each such relationship. Although the disclosure was incomplete, it provided sufficient information to allow claimant to either request that the arbitrator provide additional information concerning the prior arbitrations so that she could make a more informed decision about retaining him or to move to disqualify him based on the information that was provided.
Agri-Systems, Inc. v. Foster Poultry Farms, 168 Cal App 4th 1128, 1139-40, 85 Cal Rptr 3d 917 (2008)-Ethical Standard 7(d)(7) which requires an arbitrator to disclose “any attorney client relationship the arbitrator has or has had with a party” should not be interpreted to require disclosure of an arbitrator’s legal representation of a third party with interests adverse to a party in the arbitration. However, disclosure in such a case might be required pursuant to the general provision in Standard 7(d) that disclosure of matters “that cause a person aware of the facts to reasonably entertain a doubt that the proposed arbitrator would be able to be impartial”. But here disclosure was not required because the arbitrator’s law firm had ceased representing the third party two years before he was appointed in this case and the third party was represented by a partner of the arbitrator, not the arbitrator himself.
Christensen v. Smith, 171 Cal App 4th 931, 90 Cal Rptr 3d 57 (2009)-The respondent moved to vacate the award on the ground of arbitrator bias because he failed to reveal that he and the claimant’s counsel were both members of the Celtic Bar Association and that they had gone on a trip to Scotland sponsored by that organization, along with 65 other people. The claimant’s counsel declared that he had had only casual contact with the arbitrator during his four years in the association and had had just two encounters with the arbitrator on the Scotland trip. The motion to vacate was denied. Mere membership in the same professional organization is not a credible basis for inferring an impression of bias. Furthermore, no reasonable observer would view the two interactions with the arbitrator on the Scotland trip as a significant personal relationship.
Mahnke v Superior Court, 180 Cal App 4th 565, 103 Cal Rptr 3d 197 (2009)-A “competent and disinterested” appraiser appointed by a party in a fire loss dispute pursuant to Insurance Code Section 2071 is not subject to the disclosure requirements of Code of Civil Procedure Section 1281.9 because that statute only pertains to arbitrators who are jointly selected by the parties or by the court. Instead, the “impression of bias” standard is used. A present or past business relationship between the arbitrator and a party can create an impression of bias, but the business relationship must be substantial. In this case, there was no impression of bias where the appraiser had been retained in another case by a client of the same law firm that was retained by a party in this case. The result might have been different if the parties in both cases were the same.
Lagstein v Certain Underwriters at Lloyd’s London, 2010 US App LEXIS 11836 (9th Cir 2010)-After the arbitrators ruled against Lloyd’s, it discovered that one of the arbitrators had failed to reveal that he had been removed as a state court judge because of ethical violations, that he had been reinstated by the Nevada Supreme Court, and then had resigned from the judiciary following an FBI investigation. But its motion to vacate for failure to disclose was denied. The alleged misconduct occurred more than a decade before the arbitration and there was no evidence of any connection between the parties and the arbitrator’s past difficulties that would give rise to a reasonable impression of partiality toward the claimant. In addition, the court declined to create a rule that encouraged losing parties to challenge arbitration awards on the basis of pre-existing, publicly available background information on the arbitrators that had nothing to do with parties to the arbitration.
Discovery Disputes
Berglund v. Arthroscopic & Laser Surgery Center of San Diego LP, 44 Cal 4th 528, 535-6, 79 Cal Rptr 3d 370 (2008)-Discovery disputes arising out of arbitration must be submitted first to the arbitral, not the judicial, forum. Furthermore, noncompliance can result in sanctions imposed by the arbitrator. Those conclusions stem logically from CCP 1283.05, which grants parties to an arbitration proceeding the right to discovery, including discovery from nonparties. Existing law provides for limited judicial review against a party, because the parties have agreed to the arbitral forum. But nonparties are entitled to full judicial review because without consent a nonparty to an arbitration agreement cannot be compelled to arbitrate a dispute.
Discovery Restrictions
Ontiveros v. DHL Express (USA), Inc., 164 Cal App 4th 494, 507-08, 2008 Cal App LEXIS 964 (2008)-The court found that a provision in an adhesive employment contract that provided for one individual deposition and one expert deposition on each side was unenforceable, even though it also provided that the arbitrator had the authority to amend this provision on a showing of “substantial need”. The case involved sexual harassment that extended over a four year period at two job sites and plaintiff’s counsel estimated that he needed 15 to 20 depositions, an assertion not disputed by defendant. The court concluded that the permitted amount of discovery was so low while the burden of showing a need for more discovery was so high that plaintiff’s ability to prove her claims would be thwarted by the discovery provisions in the agreement.
Dotson v Amgen, Inc., 181 Cal App 4th 975, 983, 104 Cal Rptr 3d 341 (2010)-An arbitration clause that provided for one deposition by each side plus expert depositions but also permitted the arbitrator to extend discovery “upon a showing of need” was not substantively unconscionable. Arbitration is meant to be a streamlined procedure. Limitations on discovery, including the number of depositions, is one of the ways that streamlining may be achieved. The court distinguished the Ontiveros decision by noting that the arbitrator could only extend discovery in that case by a showing of “substantial” need.
Errors of Law
Cable Connection, Inc. v. DirecTV, Inc., 44 Cal 4th 1334, 82 Cal Rptr 3d 229 (2008)-Arbitrators do not ordinarily exceed their contractually created powers simply by reaching an erroneous conclusion on a contested issue of law or fact, and arbitral awards may not ordinarily be vacated because of such error for the arbitrator’s resolution of these issues is what the parties bargained for in the arbitration agreement. Therefore, to take themselves out of the general rule that the merits of the award are not subject to judicial review, the parties must clearly agree that legal errors are an excess of arbitral authority that is reviewable by the courts.
Hall Street Associates, LLC v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 170 L.Ed. 2d 254 (2008)-A provision in an arbitration contract that permits a court to vacate an award because of errors of law by the arbitrator is not enforceable under the Federal Arbitration Act. Section 10 of the Act addresses egregious departures from the standards that arbitrators must follow, such as corruption, fraud, evident partiality, misconduct, misbehavior, exceeding powers, evident material miscalculation, evident material mistake, and award upon a matter not submitted. Given this emphasis on extreme arbitral conduct, one must consider the rule of ejusdem generis that holds that when a statute sets out a series of specific items ending with a general term, that general term is confined to covering subjects comparable to the specifics it follows. Since a general term included in the text is normally so limited, then surely a statute with no textual hook for expansion cannot authorize parties to supplement review for specific instances of outrageous conduct wih review for just legal error. The Court left open the issue of whether such agreements might be enforced under state arbitration law.
Oaktree Capital Management v. Bernard, 182 Cal App 4th 60, 67-68, 106 Cal Rptr 3d 16 (2010)-The arbitration agreement in this case stated that “the arbitrator shall make all rulings in accordance with…governing law…and shall have authority equivalent to that of a California Superior Court judge…”. The court held that this language did not allow a court to review the arbitrator’s decision because of errors of law.
Gravillis v Coldwell Banker Residential Brokerage Company, 182 Cal App 4th 503, 106 Cal Rptr 3d 70 (2010)-An arbitration provision requiring the arbitrator to render an award in accordance with substantive California law does not, by itself, mandate review of the awards on the merits. The fact that the arbitrator must also render a reasoned award does not change this rule.
Pearson Dental Supplies, Inc. v. Superior Court, 108 Cal Rptr 3d 171, 48 Cal 4th 665, 680 (2010)-Where an employee subject to a mandatory arbitration agreement is unable to obtain a hearing on the merits of his FEHA claims or claims based on other statutory rights, because of an arbitration award based on legal error, the award should be vacated. Stated in other terms, an arbitrator whose legal error has barred an employee subject to a mandatory arbitration agreement from obtaining a hearing on the merits of a claim based on such right has exceeded his or her powers within the meaning of Code of Civ Proc 1286.2(a)(4).
Exceeding Powers
Gueyffier v. Ann Summers, Ltd., 43 Cal 4th 1179, 1185, 77 Cal Rptr 3d 613 (2008)-This case involved the alleged breach of a franchise agreement. The agreement provided that no contract breach could be found unless the plaintiff gave written detailed notice of the alleged violation of contractual terms and defendant had a reasonable opportunity to cure and that this was a material term. The contract further provided that the arbitrator had no power to change any material term of the agreement. The plaintiff franchisee did not give the requisite notice, but the arbitrator, in finding for the franchisee, concluded that at the time of the breach the contract violations were not curable and hence giving the opportunity to cure would have been an idle act. The franchisor argued that the arbitrator exceeded his powers. The award was affirmed. While the contractual limitation on arbitral powers to change the parties’ agreement was explicit, it did not unambiguously prohibit the arbitrator from excusing performance of a contractual condition where the arbitrator concluded performance would have been an idle act. The arbitrator was empowered to interpret and apply the parties’ agreement to the facts that he found to exist. Included therein was the power to decide when particular clauses of the contract applied. In concluding the notice and cure provision was inapplicable on the facts as he found them, the arbitrator did no more than exercise this power.
San Francisco Housing Authority v Service Employees International Union Local No. 790, 182 Cal App 4th 933, 107 Cal Rptr 3d 62 (2010)-The union member in this matter was laid off following a budget cut because there was no lower position into which she could bump. But the union contract provided that, after a notice of layoff, the parties could meet and confer to determine “alternate means” of placing an employee following a layoff notice in order to protect seniority rights. The parties met and the union proposed that the employee be bumped into a position which she held years before. The employer rejected the proposal because it would cause the bumped employee to file a grievance. The arbitrator found that the employer’s position rendered the “alternate means” provision to be meaningless. She held further that if the grieved employee was bumped into a new position, the bumped employee could not file a grievance because the new agreement in effect amended the contract. She ordered that the grieved employee be reinstated with back pay. The employer moved to vacate on the ground that the arbitrator had exceeded her powers by revising the contract. The trial court granted the motion and the Court of Appeal reversed. The question is whether the arbitrator’s remedy bears a reasonable relationship to the underlying contract. The fact that the arbitrator arguably misinterpreted a contract does not mean that she did not engage in the act of interpreting it because the courts have no business overruling the arbitrator because their interpretation of the contract is different from hers. Here, the remedy imposed by the arbitrator did not modify the layoff provision of the contract, as temporary or term employees had no seniority rights. Indeed, as expressed by the arbitrator, the meet and confer provision of the contract required the parties to consider alternatives to layoff not expressly addressed in the layoff article.
Failure to Admit Material Evidence
Burlage v Superior Court, 177 Cal App 4th 166, 99 Cal Rptr 3d 142, affd on rehearing, 178 Cal App 4th 524, 101 Cal Rptr 531(2009)-Claimant alleged in his arbitration demand that when respondent sold her home to him she fraudulently concealed the fact that the pool encroached onto the property of a neighboring country club. Prior to commencement of the hearing, the encroachment was cured by a readjustment of the lot line and a payment of $10,950 to the country club by the title company. Nevertheless, the arbitration proceeded. The arbitrator refused to admit evidence of the encroachment cure on the ground that damages were set as of the date that the arbitration demand was filed. He awarded damages of $1.5 million to claimant. The award was vacated on the ground that the arbitrator failed to admit material evidence as required Code of Civ Proc 1286.2(a)(5). Although all rulings disallowing evidence will not give rise to vacatur, nothing could be more material than evidence that the problem was fixed and that there were no damages.
Federal Jurisdiction
Vaden v. Discover Bank, 129 S. Ct. 1262, 173 L.Ed. 2d 206, 2009 US LEXIS 1781 (2009)-A federal court may “look through” a petition to compel arbitration filed pursuant to Section 4 of the FAA to determine whether it is predicated on an action that “arises under” federal law; but in keeping with the rule which provides that federal question jurisdiction depends on the contents of a well pleaded complaint, a federal court may not entertain a Section 4 petition based on the contents, actual or hypothetical, of a counterclaim.
International Union of Operating Engineers v. County of Plumas, 559 F 3d 1041 (9th Cir 2009)-In a labor law case, federal jurisdiction does not arise because California has adopted principles of federal labor law. “Arising under” federal jurisdiction only arises when the federal law does more than shape a court’s interpretation of state law; the federal law must be at issue. Here, the state law right to compel arbitration did not turn on a construction of federal law. Rather, it is influenced by an application of the federal law to the arbitration clause. California courts are not bound by federal law, they merely have voluntarily adopted parts of it.
Geographic Expeditions, Inc. v Estate of Lhotka, 599 F 3d 1102, 1106-07
(9th Cir 2010)-Plaintiff, a California resident, filed suit in federal court to compel arbitration of a court suit filed in state court by defendants, Colorado residents. In the underlying arbitration demand, the claimants/defendants asked for unspecified damages. One of the plaintiff/respondent’s defenses was that the contract limited claims to the cost of the service rendered, to wit, $16,131. The district court denied the petition on the ground that plaintiff failed to prove by a preponderance of the evidence that the claim was worth $75,000 because it averred that the damages were limited to $16,131. The circuit court reversed. Where the petition is originally filed in federal court, the amount in controversy is determined from the face of the pleadings and, in order to justify dismissal, it must appear to a legal certainty that the claim is really for less than the jurisdictional amount. If the petition is initially filed in state court and then removed, then the proponent of federal jurisdiction must prove by the preponderance of the evidence that removal was proper. Furthermore, just because a defendant might have a valid defense that will reduce recovery to below the jurisdictional amount does not mean that the defendant will ultimately prevail on that defense. If a district court had to evaluate every possible defense that could reduce recovery below the jurisdictional amount, the district court essentially would have to decide the merits of the case before it could determine if it had subject matter jurisdiction.
Forum Fees-Effect on Unconscionability
Ontiveros v. DHL Express (USA) Inc. 164 Cal App 4th 494, 510-11, 2008 Cal App LEXIS 964 (2008)-The standard employee arbitration agreement in this case provided that the arbitration fees would be split and that each party would bear its share of the attorney fees and costs. Defendant argued that the clause was not unconscionable because the arbitration fees would be less than the claimant would pay to initiate a case in court. The court rejected this argument. The fact that the fees would be small is irrelevant. The fees are unique to arbitration and are unlawful. Furthermore, because the agreement stated that “except as provided in this agreement” the arbitration shall be in accordance with the AAA or JAMS rules, such provision trumped AAA and JAMS rules that prohibited assessment of fees against an employee.
Kam-Ko Biopharm Trading Co. Ltd-Australasia v Mayne Pharma (USA) Inc.,560 F 3d 935, 941 (2009)-A forum fee of $220,000 charged by the ICC was found not to be unconscionable because 1) Kam-Ko itself proposed the arbitration clause; 2) it effectively controlled the fee charged by the sum it chose to claim in dispute and the number of arbitrators it requested; and 3) the ICC rules that it had in its possession before it sought to compel arbitration clearly indicated what the expenses would be.
Parada v Superior Court, 176 Cal App 4th 1554, 98 Cal Rptr 3d 743 (2009)-The three plaintiffs in this matter were of limited financial means and their individual claims ranged from $44,000 to $140,000. The arbitration agreement called for arbitration before three JAMS arbitrators and prohibited consolidation or joinder. Plaintiffs showed that they would have had to pay $20,800 up front if the arbitration were held before the three lowest priced JAMS arbitrators. The court followed the approach taken in Gutierrez v Autowest, Inc., 114 Cal App 4th 77 (2003), and ruled that the agreement was substantively unconscionable. The amount of arbitration fees and costs and the ability of the party resisting arbitration to pay them are factors in assessing substantive unconscionability of a predispute arbitration agreement.
Forum Fees-Enforceability
D.C. v Harvard-Westlake School, 176 Cal App 4th 836, 855-60, 98 Cal Rptr 3d 300 (2009)-The claimants in this arbitration proceeding were a young boy, a student at the defendant school, and his parents who filed a claim under the Ralph Civil Rights Act and the Tom Bane Civil Rights Act alleging that the boy was a victim of a hate crime because other students had sent messages to him threatening to kill him because of his alleged sexual preference and the school declined to do anything about it. The school prevailed and the arbitrator ruled that the claimants had to pay forum fees, pursuant to the arbitration contract. On appeal, the decision was reversed. The legislative history of the hate crimes laws shows that they were enacted for a public reason. They therefore constitute unwaivable statutory rights and an award of forum fees against them is not enforceable under Armendariz.
Forum Selection Clause
Lhotka v Geographic Expeditions, Inc., 181 Cal App 4th 816, 104 Cal Rptr 3d 844 (2010)-The arbitration clause in this case limited plaintiffs’ damages to the cost of the expedition and further required plaintiffs, residents of Colorado, to mediate and arbitrate the dispute in San Francisco. The court found the agreement to be unconscionable. The combination of the limitation of liability and the costs that plaintiffs would have incurred to travel from Colorado to San Francisco guaranteed that any recovery plaintiffs might have obtained would be devoured by the expense that they would incur in pursuing their remedy.
Functus Oficio
Bosack v Seward, 573 F 3d 891, 898, reh. den. and amended 586 F 3d 1096 (9th Cir 2009)-The panel herein issued five interim awards. Only award #3 was deemed to be final. The appellants argued that awards #4 and #5 should be vacated because the arbitrators were functus oficio. The court held that an interim award may be deemed final for functus oficio purposes if the award states that it is final. The panel explicitly stated that interim awards #1, #2, #4, and #5 were not final. The panel expressly reserved jurisdiction over all issues (except the accounting performed in award #3) until issuance of its final award. Of the five interim awards, only award #3 was expressly made final. Thus, only award #3 may be deemed final for purposes of the functus oficio doctrine. (Note, however, that the Court expressed an opposite view in footnote 11 of United States Life Insurance Co v Superior National Insurance Co., 591 F 3d 1167 (2010) wherein it stated: “The title of the February 1, 2007 Phase II Interim Final Award belies the argument that the February 1, 2007 award was final.” (Emphasis in the original)).
Injunctive Relief
Toyo Tire Holdings of America, Inc. v Continental Tire North America, Inc., 2010 US App LEXIS 12475 (9th Cir 2010)-A court may issue interim injunctive relief on arbitrable claims if interim relief is necessary to preserve the status quo and the meaningfulness of the arbitration process—provided, of course, that the requirements for granting injunctive relief are otherwise satisfied.
Irrationality
Comedy Club, Inc. v. Improv West Associates, 553 F 3d 1277 (9th Cir 2009)-The arbitrator in this matter found that a licensee had breached the licensing agreement by opening less comedy clubs than required by the agreement. He prohibited the licensee from opening or operating any comedy clubs for the balance of the life of the agreement pursuant to a covenant not to compete save for the clubs that it had already opened. The licensee argued that the award was irrational because if the licensing agreement was breached and no longer in effect, then the covenant not to compete was also not in effect. The argument was rejected. The award makes sense insofar as the licensee should no longer have an exclusive license to open Improv comedy clubs absent complying with the contract’s designated performance. But so long as the licensee was running some Improv clubs, a restrictive covenant to some degree could protect the licensor from damage caused by improper competition.
Bosack v Soward, 573 F 3d 891, 901, reh. den. and amended 586 F 3d 1096 (9th Cir 2009)-In this case, the panel issued five interim awards and then combined them into a final award. Appellants contend that the final award should be vacated because interim awards 4 and 5 were irrational because they were “irreconcilable” with interim awards 1 and 3 and further that interim award 4 was “internally incoherent”. The court declined to vacate the award. Even if the awards are based on contradictory findings of fact, this argument is beyond the scope of review. Under the “completely irrational” doctrine, the question is whether the award is “irrational” with respect to the contract, not whether the panel’s findings of fact are correct or internally inconsistent.
Lagstein v Certain Underwriters at Lloyd’s London, 2010 US App LEXIS 11836 (9th Cir 2010)-After the arbitrators ruled against Lloyd’s, it discovered that one of the arbitrators had failed to reveal that he had been removed as a state court judge because of ethical violations, that he had been reinstated by the Nevada Supreme Court, and then had resigned from the judiciary following an FBI investigation. But its motion to vacate for failure to disclose was denied. The alleged misconduct occurred more than a decade before the arbitration and there was no evidence of any connection between the parties and the arbitrator’s past difficulties that would give rise to a reasonable impression of partiality toward the claimant. In addition, the court declined to create a rule that encouraged losing parties to challenge arbitration awards on the basis of pre-existing, publicly available background information on the arbitrators that had nothing to do with parties to the arbitration.
Lis Pendens
Manhattan Loft LLC v Mercury Liquors, Inc., 173 Cal App 4th 1040, 1051-4, 93 Cal Rptr 3d 457 (2009)-Code of Civ Proc 405.20 provides that “a party to an action who asserts a real property claim” may record a lis pendens. Code of Civ Proc 22 defines an “action” as “an ordinary proceeding in a court of justice”. Thus, it would appear that a party can only file a lis pendens if a court proceeding were pending and cannot do so where the only proceeding that is pending is an arbitration. Furthermore, one purpose of the lis pendens statutory scheme is to protect property owners. Code of Civ Proc 405.30 allows a property owner to “apply to the court in which the action is pending to expunge the notice”. In an arbitration proceeding, there is no “court in which the action is pending”. Code of Civ Proc 1298.5 provides a method by which a party who has a right to arbitrate can file a lis pendens. It states that a party does not waive its right to arbitrate if, after filing suit, it files the lis pendens and then moves to stay the action pending arbitration.
Manifest Disregard of the Law
Comedy Clubs, Inc. v. Improv West Associates, 553 F 3d 1277 1634 (9th Cir 2009)-In this matter, the Ninth Circuit held that in Hall Street Associates L.L.C. v Mattel, Inc., the Supreme Court did not abrogate manifest disregard of the law as a ground for vacatur. Manifest disregard is shorthand for a statutory ground under Section 10(a)(4) of the FAA, which states that the court may vacate “where the arbitrators exceed their powers”. In this case, it held that the arbitrator manifestly disregarded the law because he enforced a covenant not to compete that was broader than allowed by California law.
Medical Service Agreements
Rodriguez v Blue Cross of California, 162 Cal App 4th 330, 339, 75 Cal Rptr 3d 754 (2008)-Plaintiff filed suit against defendant alleging that it breached its contract of insurance by rescinding it because of unintentional misrepresentations by plaintiff. Defendant moved to compel arbitration. Its contract purported to comply with Health and Safety Code Section 1363,1 with respect to arbitration. The clause appeared at the end of the contract and most of it was not in bold face. The first sentence stated that the clause applied to all disputes. But the balance discussed medical malpractice only and did not state that the plaintiff was waiving his right to a jury trial. After this clause was a clause in bold face and capital letters that stated that plaintiff was agreeing to have all disputes arising out of medical malpractice decided by a neutral arbitrator and that plaintiff was giving up his right to a jury trial on this issue. The court denied the motion. It found that the clause did not comply with Section 1363.1 because it was not prominently displayed. The bold face clause complied with CCP Section 1295 but only applied to a medical malpractice claim, which was not the subject of the lawsuit. The Court of Appeal affirmed. Significantly absent from the disclosure is any indication that the subscriber is waiving his or her right to a jury trial for “delivery of service under the plan” other than medical malpractice. The discrepancy between the first sentence, which is expansive, and the remainder of the disclosure, which is limited to medical malpractice, creates confusion. The confusion regarding the extent of the jury trial waiver violates Section 1363.1(c), which requires a clear statement of the extent of the waiver.
Burks v Kaiser Foundation Health Plan, Inc., 160 Cal App 4th 1021, 1027, 73 Cal Rptr 3d 257 (2008)-Health and Safety Code Section 1363.1(b) provides that an arbitration agreement must be “prominently displayed” on the enrollment form. Section 1363.1(d) requires that the agreement must be displayed immediately above the signature line. Kaiser argued that it complied with subsection (b) by virtue of its compliance with subsection (d). The Court disagreed. It is a maxim of statutory construction that courts should give meaning to every word of a statute and avoid a construction making any word surplusage. If placement of a legible arbitration disclosure immediately before the signature line were sufficient to make that disclosure stand out from its surroundings, then there would have been no reason for the Legislature to separately mandate that the disclosure be “prominently displayed” on the enrollment form.
Rodriguez v Superior Court, 176 Cal App 4th 1461, 1471, 98 Cal Rptr 3d 728 (2009)-Plaintiff, a minor, sued defendant, alleging medical malpractice in connection with the death of plaintiff’s mother. The mother executed an arbitration agreement provided by defendant four days before she died. The agreement contained the language set forth in Code of Civil Procedure 1295(e), which is part of the Medical Injury Compensation Reform Act (“MICRA”) giving the patient the right to rescind the agreement within thirty days of execution. Defendant moved to compel arbitration, arguing that equitable tolling applied and that plaintiff’s guardian had the responsibility to rescind within thirty days of his appointment or at least within thirty days of defendant’s written notice that he intended to enforce the agreement. The argument was rejected. Section 1295 expressly provides for equitable tolling on behalf of the patient and only if the patient becomes incapacitated or is a minor. In this case, the plaintiff was not the patient.
Nonsignatories
Comedy Club, Inc. v. Improv West Associates. 553 F 3d 1277 (9th Cir 2009)-The arbitrator in this matter issued an injunction that enjoined plaintiff and all of its affiliates and defined affiliates as including “family members, family members of shareholders, all collateral relatives, former spouses, and all collateral relatives of former spouses”. The court held that the arbitrator exceeded his powers. A contract may bind nonparties such as an intended third party beneficiary, an agent, or an assignee. But generally arbitration clauses and contracts do not bind nonparties in the absence of such extraordinary relationships.
Bak v MCL Financial Group, Inc.. 170 Cal App 4th 1118, 1126, 88 Cal Rptr 3d 800 (2009)-Defendants’ attorney appealed from an award of sanctions imposed upon him by a FINRA panel on the ground that the arbitrators had no jurisdiction over him because he was not a party to the arbitration agreement. The Court affirmed. FINRA’s rules provide that the parties shall have the right to representation by counsel at any stage of the proceedings. It is well recognized that the law of principal and agent is generally applicable to the relationship of attorney and client. By voluntarily appearing for defendants in the arbitration proceeding, the attorney subjected himself to the jurisdiction of the arbitration panel and was subject to its rulings.
Arthur Andersen LLP v Carlisle, 129 S.Ct. 1896, 173 L.Ed. 2d 832, 2009 US LEXIS 3463 (2009)-A nonsignatory to an arbitration contract has the right under Section 3 of the FAA to move to stay a lawsuit pending arbitration. State law is applicable to determine which contracts are binding under Section 2 and enforceable under Section 3 “if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally”. Because traditional principles of state law allow a contract to be enforced by or against nonparties to the contract through “assumption, piercing the corporate veil, alter ego, incorporation by reference, third party beneficiary theories, waiver, and estoppel”, nonparties to a contract are not categorically barred from Section 3 relief.
Suh v Superior Court, 181 Cal App 4th 1504, 1513, 105 Cal Rptr 3d 585 (2010)-Plaintiffs, anesthesiologists, brought suit against a hospital alleging discrimination on account of age and national origin. The hospital moved to compel arbitration based on an agreement that it signed with HP, Inc., a corporation in which plaintiffs were shareholders. Plaintiffs did not sign the agreement. The court rejected the hospital’s contention that plaintiffs were third party beneficiaries of the agreement. The uncontradicted evidence indicated that by the time that the agreement was signed, plaintiffs were no longer getting any work from the hospital. That they were employees of HP does not mean that they were bound by an agreement between HP and the hospital.
Nonsignatories-Physician Patient Agreements
Birl v Heritage LLC, 172 Cal App 4th 1313, 1320, 91 Cal Rptr 3d 777 (2009)-Plaintiffs sued several defendants arising out of the purported negligent treatment of decedent, the husband and father of the plaintiffs, during his final illness. A motion to compel arbitration filed by one of the defendants, a nursing home, was denied pursuant to the Court’s discretion under Code of Civ Proc Section 1281.2(c). The Court of Appeal held that the statute applied, inter alia, because the plaintiffs themselves were “third parties” as defined by the statute. Although the plaintiffs were heirs of the decedent and therefore may have been bound by the arbitration agreement as successors in interest, their claim for wrongful death was not brought as the decedent’s successors in interest, but rather was brought by persons statutorily authorized to assert a wrongful death cause of action in their own right. Similarly, plaintiffs did not step into the decedent’s shoes in pursuing their own personal injury claims for negligent infliction of emotional distress.
Ruiz v Podolsky, 175 Cal App 4th 227, 95 Cal Rptr 3d 828 (2009)-The physician patient arbitration agreement in this matter bound the patient and “any spouse or heirs of the patient and any children” of the patient. After the patient’s death, his wife and adult children sued the physician under the wrongful death statute. The physician’s motion to compel arbitration was denied as to the children but granted as to the wife because she did not contest the motion. On appeal, the physician argued that the entire matter should be arbitrated because of the “one action” rule in wrongful death cases. The Court of Appeal disagreed. California law is clear that the cause of action created by the wrongful death statute is separate and distinct from the cause of action that the deceased would have had for personal injuries had he survived. Here, the decedent was not securing a medical plan for the adult children when he agreed to arbitration and they received no benefit from the contract. The contract was not created by a person having protective powers, such as those inherent with minors and employees. The case is not one involving a fiduciary, agency, or other preexisting relationship. The decedent entered into the agreement simply to obtain his own medical care. Although this ruling could result in two actions, the physician waived the one action rule by moving to compel arbitration. (Note: There is a split in authority in California whether physician patient arbitration agreements can extend to wrongful death and loss of consortium claims by family members of a decedent. See Herbert v Superior Court, 169 Cal App 3d 718, 215 Cal Rptr 477 (1985) and the line of cases which follow it.)
Petition to Compel Arbitration
Brodke v. Alphatec Spine, Inc., 160 Cal App 4th 1569, 1574-5, 73 Cal Rptr 3d 554 (Ct App 2008)-Plaintiffs, four physicians, brought suit against defendant alleging a violation of licensing agreements that each one of them purportedly entered into with defendant. An agreement executed by one of the plaintiffs was attached to the complaint. It contained an arbitration clause. Defendant denied that it had ever entered into contracts with plaintiffs but moved to compel arbitration asserting that “the alleged agreements compel arbitration” of the controversy. The motion was denied because of defendant’s denial that any contract existed. On appeal, defendant argued that it need not allege the existence of an agreement to arbitrate because plaintiffs admitted the existence of the agreements in their complaint. The Court of Appeal stated that this argument missed the point. A contracting party, such as each of the plaintiffs, is free to voluntarily relinquish its contractual right to arbitrate until such time as other parties to the contract, such as defendant, decide not to give up that right and seek to enforce the contractual arbitration provision. In seeking enforcement of the contract, defendant has the burden under Code of Civil Procedure 1281.2 to allege the existence of a written agreement to arbitrate. This petition serves the function of a complaint for specific performance. Absent an allegation of the existence of an agreement to arbitrate the petition fails to state a cause of action for specific performance. Defendant’s argument that if it conceded that there was an agreement when it petitioned to compel arbitration, it would give up its defense that there was no contract, is of no avail. All defenses remain available to it, including the claim that the contracts do not exist.
Mansouri v Superior Court, 181 Cal App 4th 633, 641, 104 Cal Rptr 3d 824 (2010)-Section 1281.2 expressly requires a petition to compel arbitration to allege “the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy”. The necessary implication of this language is that a request or demand for arbitration under the written agreement to arbitrate has been made and refused. Such demand and refusal is what requires and justifies the intervention of a court to order arbitration under the agreement.
Preemption
Preston v Ferrer, 552 U.S. 346, 128 S.Ct. 1396, 169 L.Ed. 2d 917 (2008)-Labor Code Section 1700.44(a) gives the Labor Commissioner exclusive jurisdiction to hear disputes arising under the Talent Agencies Act. The statute provides that after the Commissioner has ruled, an aggrieved party can seek a trial de novo in Superior Court or commence an arbitration proceeding if the parties have entered into an arbitration agreement that complies with Labor Code 1700.45. That statute requires that the arbitration agreement must provide for reasonable notice to the Commissioner of the time and place of all arbitration hearings and must give the Commissioner the right to attend all arbitration hearings. These procedural provisions conflict with the FAA’s dispute resolution regime in two basic respects. First, they grant the Commissioner exclusive jurisdiction to decide an issue that the parties agreed to arbitrate. Second, they impose prerequisites to enforcement of an arbitration agreement that are not applicable to contracts generally.
Laster v AT&T Mobility LLC, 584 F 3d 849, 857 (9th Cir 2009)-Defendant argued that the California law on the unconscionability of class action waivers as enunciated in Discover Bank v Superior Court was preempted by the FAA because it abandoned the sliding scale approach of general California unconscionability law and was therefore a new rule applicable only to arbitration agreements. The court found this contention to be incorrect. The best way to read Discover Bank in light of the sliding scale approach is that if a contract clause is, in practice, exculpatory, as long as there is any degree of procedural unconscionability, the element of substantive unconscionability is generally adequate as a matter of law.
Villa Vicenza Homeowners Association v Nobel Court Developments LLC, 2010 Cal App LEXIS 774, 185 Cal App 4th 23 (2010)-An agreement to create CC&Rs is in interstate commerce and hence an arbitration agreement contained therein is covered by the FAA. Congress has the power to regulate the sale and financing of a large residential development. The financing alone implicates the use of federally regulated and chartered financial institutions with well recognized impacts on interstate commerce and thus supports application of the FAA.
Private Attorney General Waiver
Franco v. Athens Disposal Company, Inc., 171 Cal App 4th 1277, 90 Cal Rptr 3d 539 (2009)-The Court here negated a provision in the arbitration agreement which prohibit an employee from acting as private attorney general. It held that the Legislature has made clear that an action under the Private Attorney General Act (“PAGA”) is in the nature of an enforcement action, with the aggrieved employee acting as a private attorney general to collect penalties from employers who violate labor laws. The arbitration agreement here sought to nullify the PAGA and preclude the plaintiff from seeking civil penalties on behalf of other current and former employees, that is, from the core function of a private attorney general. Yet, by prohibiting the enforcement of the PAGA, the arbitration agreement impeded the goal of comprehensively enforcing a statutory scheme through the imposition of statutory sanctions and fines. Thus, the provision is unconscionable.
Refusal to Admit Evidence
United States Life Insurance Co. v. Superior National Insurance Co., 591 F 3d 1177 (9th Cir 2010)-In the face of completely contradictory expert witness testimony in a billing dispute, the parties authorized the arbitrators to adopt special procedures to resolve the dilemma. The arbitrators agreed to retain two individuals who would review the bills in ex parte meetings with the arbitrators. The arbitrators then ruled in favor of respondent and claimant moved to vacate on the ground of refusal to admit evidence because it was denied the opportunity to cross examine the reviewers during the ex parte proceeding. The motion was denied. The process employed ensured due process by allowing the parties to present their respective arguments regarding the reviewers’ conclusions by 1) reviewing the written conclusions; 2) submitting briefing addressing these conclusions; 3) questioning the reviewers about their qualifications and conclusions subsequent to the ex parte proceeding; and 4) submitting post hearing briefing.
Repeat Players
Ontiveros v. DHL Express (USA), Inc., 164 Cal App 4th 494, 502, 79 Cal Rptr 3d 471 (2008)-In this case, involving an adhesive employment contract, the defendant argued that the arbitrator should decide the issue of unconscionability because the agreement provided that the arbitrator decided arbitrability issues. The court rejected the argument. It stated that it had a genuine concern that the potential for the inequitable use of such arbitration provisions in areas, such as employment, where the parties are not at arm’s length and do not have equal bargaining power. In such situations, in which one party tends to be a repeat player, the arbitrator has a unique self interest in deciding that such a dispute is arbitrable.
Sanchez v. Western Pizza Enterprises, Inc., 172 Cal App 4th 154, 2009 Cal App LEXIS 371 (2009)-The arbitration agreement in this case provided that the arbitrator would be selected from the panel maintained by Dispute Eradication Services. In fact, the panel consisted of a single arbitrator who was the former partner of the respondent’s counsel. The Court found that these circumstances indicated that the employee’s decision to enter into an arbitration agreement was not a free and informed decision but was marked by some degree of oppression and unfair surprise, i.e., procedural unconscionability.
Coffman Specialties, Inc. v Department of Transportation, 176 Cal App 4th 1135, 1152, 98 Cal Rptr 3d 643 (2009)-Plaintiff filed a declaratory judgment proceeding seeking to be absolved from arbitrating disputes with Caltrans before an arbitrator chosen from a certified panel pursuant to the State Contracts Act on the ground that Caltrans was often a party to these arbitrations causing the arbitrators to be biased in favor of Caltrans because it was a repeat player. The argument was rejected. If an arbitrator has presided over a Caltrans public works arbitration within the past five years, the contractor will have the right to this information under the Ethical Standards. And if the contractor learns that an arbitrator has consistently ruled in favor of Caltrans, the contractor will have the opportunity to disqualify the arbitrator. Thus, under the structure of the mutual disqualification system, an arbitrator who wishes to be selected for future arbitrations would not have a particular incentive to favor either party, but instead to rule in a fair and impartial manner.
Severance
Ontiveros v. DHL Express (USA), Inc., 164 Cal App 4th 494, 515, 79 Cal Rptr 3d 471 (2008)-The court found that, in this contract of adhesion, at least three provisions of the arbitration agreement were substantively unconscionable, including the provision for arbitration determination of enforceability issues; the provision requiring the employee to pay a portion of the arbitration related costs; and the provision severely limiting discovery. Given these multiple unlawful provisions, the agreement was permeated with unconscionability and cannot be enforced.
Sanchez v Western Pizza Enterprises, Inc., 172 Cal App 4th 154, 90 Cal Rptr 3d 818 (2009)-The arbitration agreement herein included a class arbitration waiver that was contrary to public policy and an unconscionable arbitrator selection clause. Although neither of these provisions alone would justify the refusal to enforce the entire arbitration agreement, the provisions considered together indicate an effort to impose upon an employee a forum with distinct advantages for the employer. This led to a conclusion that the agreement was permeated by an unlawful purpose and that none of it was enforceable.
Parada v Superior Court, 176 Cal App 4th 1554, 98 Cal Rptr 3d 743 (2009)-An arbitration agreement that required that arbitration to be conducted before a panel of three JAMS arbitrators and also prohibited consolidation and joinder made arbitration so prohibitively expensive to consumers that it was substantively unconscionable. The agreement was written after Armendariz and Gutierrez were decided and the vendor (Monex Deposit Company) failed to provide any justification for the clauses. The court therefore ruled that the clauses were inserted deliberately for the improper purpose of discouraging or preventing customers from vindicating their rights and it declined to sever the clauses from the balance of the agreement.
Roman v. Superior Court, 172 Cal App 4th 1462, 1478, 92 Cal Rptr 3d 153 (2009)-In this employment case, the claimant alleged that the arbitration agreement was unconscionable because the AAA rules in effect when the agreement was executed in 1997 provided that the parties share arbitration fees. The court severed this clause, thereby requiring the employer to pay all of the fees. This case differed from Armendariz because the arbitration requirement was mutual and there were no other unlawful provisions.
Lhotka v Geographic Expeditions, Inc., 181 Cal App 4th 816, 104 Cal Rptr 3d 844 (2010)-The agreement here was not severable because it contained multiple examples of unconscionability that indicated that defendant designed its arbitration clause not simply as an alternate to litigation, but as an inferior forum that would give it an advantage. The agreement not only limited plaintiffs’ recovery, but also required them to indemnify defendant for its legal fees and costs if they pursued any claims in excess of the damage limits. These one sided burdens were compounded by the requirements that plaintiffs pay half of any mediation fees and mediate and arbitrate in defendant’s choice of venue, far from plaintiffs’ home.
Dotson v Amgen, Inc., 181 Cal App 4th 975, 985-6, 104 Cal Rptr 3d 341 (2010)-The only purportedly unconscionable clause in this agreement was a clause that limited discovery. Although the court reversed a lower court decision holding that this clause was unconscionable, it also held that even if the clause were unconscionable, it could be severed. The presence of the discovery provision does not by itself indicate a systematic effort to impose arbitration on an employee not simply as an alternate to litigation, but as an inferior forum that works to the employer’s advantage.
Omstead v Dell, Inc., 594 F 3d 1081 (9th Cir 2010)-The court herein struck a class action waiver in the arbitration agreement and refused to sever it from the entire agreement because the class action waiver was “central” to the arbitration provision.
Suh v Superior Court, 181 Cal App 4th 1504, 1516-17, 105 Cal Rptr 3d 585 (2010)-Plaintiffs, anesthesiologists, brought suit against the hospital that formerly employed them, alleging discrimination on account of age and national origin. The arbitration agreement in this matter was found to be substantively unconscionable because it provided that the arbitrator could not award punitive damages except in tort cases “unrelated to employment or termination of employment” and thus deprived plaintiffs of a remedy that was available to them in court. It was found to be procedurally unconscionable because the arbitration clause appeared on page 13 of the agreement and was in the same type face as the rest of the agreement, it was a condition of practicing in the hospital, and the provider rules (which contained the offending clause) were not delivered to them.
Tolling
Pearson Dental Supplies, Inc. v. Superior Court, 108 Cal Rptr 3d 171, 48 Cal 4th 665, 673-75 (2010)-Code of Civ Proc 1281.12 tolls the statute of limitations in an arbitration agreement from the date a lawsuit is filed until 30 days after the court orders arbitration. The court here rejected the defendant’s argument that the party resisting arbitration had to file the arbitration proceeding within 30 days of the court’s decision. Rather, the end of the tolling period simply means that the contractual limitations clock began to run again and not that the limitations period ended. Since there were four months left on the contractual limitations period when the suit was filed, plaintiff had four months plus 30 days to commence the arbitration.
Unconscionability
Bruni v. Didion, 160 Cal App 4th 1272, 1293-5, 73 Cal Rptr 3d 395 (Ct App 2008)-In this construction defects case, the builder’s motion to compel arbitration was denied and the decision was affirmed on appeal. The arbitration clause was in a separate warranty agreement that limited the plaintiffs’ rights. The court found a strong showing of surprise. The arbitration agreement was contained in one page of a 30 page booklet. The entire booklet was in 10 point type, and the arbitration clause was not distinguished by either initialing or bold type. The booklet, in turn, was presented to the plaintiffs among a voluminous number of documents that they needed to sign. Furthermore, any incentive that the plaintiffs may have had to read the booklet was lessened by the actions of the builder’s agents in describing the warranty as a benefit or a bonus.
Sanchez v Western Pizza Enterprises, Inc., 172 Cal App 4th 154, 2009 Cal App LEXIS 371 (2009)-The arbitration agreement herein included a class arbitration waiver that was contrary to public policy and an unconscionable arbitrator selection clause. Although neither of these provisions alone would justify the refusal to enforce the entire arbitration agreement, the provisions considered together indicate an effort to impose upon an employee a forum with distinct advantages for the employer. This led to a conclusion that the agreement was permeated by an unlawful purpose and that none of it was enforceable.
Roman v. Superior Court, 172 Cal App 4th 1462, 1478, 92 Cal Rptr 3d 153 (2009)-In this employment case, the claimant alleged that the arbitration agreement was unconscionable because the AAA rules in effect when the agreement was executed in 1997 provided that the parties share arbitration fees. The court severed this clause, thereby requiring the employer to pay all of the fees. This case differed from Armendariz because the arbitration requirement was mutual and there were no other unlawful provisions.
D.C. v. Harvard-WestlakeSchool, 176 Cal App 4th 836, 868-9. 98 Cal Rptr 3d 300 (2009)-The claimants in this matter were a young boy, a student at the defendant school, and his parents. They brought suit against the school alleging that the boy was a victim of hate crimes. The suit was compelled to arbitration pursuant to a clause in the enrollment agreement. The school prevailed at the arbitration and the arbitrator awarded it $521,000 in attorney fees under a prevailing party clause in the arbitration agreement. The Court of Appeal vacated the award on the ground that the hate crimes statutes constituted unwaivable statutory rights which prevented the award of attorney fees to the stronger party under Armendariz. The claimants also argued that the entire award should be vacated because the attorney fee provisions rendered the contract to be unenforceable. The Court rejected this argument. Claimants offered no evidence concerning inequality of bargaining power. It could not say, in the context of an enrollment contract with a private school that, as a matter of law, a student’s parents are unable to convince the school to remove a provision that they dislike. Hence, there was no evidence of procedural unconscionability.
Lhotka v Geographic Expeditions, Inc., 181 Cal App 4th 816, 104 Cal Rptr 3d 844 (2010)-This case arose out of a hiking expedition. Defendant’s motion to compel arbitration was denied on grounds of unconscionability. On appeal, it argued that the agreement was not procedurally unconscionable because plaintiffs were not obliged to go on the hiking expedition. The court held that such option, like any availability of market alternatives, is relevant to the existence and degree of oppression. But other factors must be considered. Defendant presented its limitation of liability clause as mandatory and unmodifiable and told plaintiffs that any other travel provider would impose the same terms. That established at least a minimum level of procedural unconscionability. The agreement was substantively unconscionable because damages were limited to the cost of the trip, plaintiffs would have exhausted this amount by traveling from their home in Colorado to defendant’s choice of venue in San Francisco, plaintiffs would have had to indemnify defendant for its attorney fees and costs if plaintiffs chose to challenge the liability limitation, and there was no reciprocal limitation on damages or indemnification obligations on the part of defendant.
Dotson v Amgen, Inc., 181 Cal App 4th 975, 984, 104 Cal Rptr 3d 341 (2010)-The arbitration agreement in this case was claimed to be unconscionable because it limited discovery to one deposition per party plus expert depositions. It also permitted the arbitrator to expand discovery “upon a showing of need”. The court found that the agreement was set forth in capital letters and encouraged plaintiff to seek legal advice before signing and that plaintiff was a sophisticated attorney. However, a minimum amount of procedural unconscionability was found because it was offered as a condition of employment on a take it or leave it basis. But there was no substantive unconscionability because the arbitrator was given broad discretion to expand discovery contrary to other cases which required a showing of “substantial” or “compelling” need.
Suh v Superior Court, 181 Cal App 4th 1504, 1516, 105 Cal Rptr 3d 585 (2010)-Plaintiffs, anesthesiologists, brought suit against the hospital that formerly employed them, alleging discrimination on account of age and national origin. The arbitration agreement in this matter was found to be substantively unconscionable because it provided that the arbitrator could not award punitive damages except in tort cases “unrelated to employment or termination of employment” and thus deprived plaintiffs of a remedy that was available to them in court. It was found to be procedurally unconscionable because the arbitration clause appeared on page 13 of the agreement and was in the same type face as the rest of the agreement, it was a condition of practicing in the hospital, and the provider rules (which contained the offending clause) were not delivered to them.
Unconscionability-Opt Out Provision
Davis v. O’Melveny & Myers, 485 F. 3d 1066 (9th Cir 2007)- The defendant argued that its standard employment contract was not procedurally unconscionable because it was in bold print, employees were given the opportunity to discuss its terms with human resources personnel, and they had three months to decide whether to accept the agreement. The court rejected this argument because the only choice given to an employee who did not want to execute the agreement was to resign. An agreement is procedurally unconscionable if an employee who opts out cannot preserve his or her job.
Olvera v El Pollo Loco, Inc.,173 Cal App 4th 447, 455-6, 93 Cal Rptr 3d 65 (2009)-The arbitration agreement herein was contained in an employee manual. The introduction to the manual contained explanatory material in English and Spanish, accompanied by drawings. The explanatory material stated that if a dispute could not be resolved through the internal dispute resolution process, it would be mediated. The actual policies were in English and did not contain drawings. The dispute resolution clause provided that disputes “may” be mediated but that the sole method to resolve a dispute not resolved by other means was by arbitration. The clause also contained a class action waiver. Although plaintiff signed the agreement, defendant did not make execution of the agreement a condition of employment. Plaintiff filed a class action alleging failure to pay overtime to employees erroneously designated as managers and defendant moved to compel arbitration of his individual claim. The court denied the motion, holding that the agreement was procedurally unconscionable. The inequality in bargaining power between the low wage employees and their employer made it likely that the employees felt at least some pressure to sign the agreement. Furthermore, the employees’ agreement to be bound by the agreement was not an informed decision. The description of the dispute resolution policy in the explanatory material was totally inaccurate. The dispute resolution policy itself required binding arbitration and stated that the parties “may agree to mediate”, not that mediation was required. Moreover, the policy itself appeared in much smaller type than the explanatory material, and in English only. This exacerbated the effect of the misrepresentation and made it more likely that employees would be misled.
Pokorny v Quixtar, Inc., 601 F 3d 987 (9th Cir 2010)-The contract between the defendant franchisor and plaintiff franchisees required that disputes first be subject to informal conciliation, then formal conciliation and, finally, arbitration. The Court found the entire process to be unconscionable. The contract was procedurally unconscionable because it was offered to the franchisees on a take it or leave it basis and the Rules of Conduct, which described the dispute resolution process in full, were not attached. It was substantively unconscionable for many reasons. 1) There was no requirement that the franchisor had to submit any claim that it had against a franchisee to the conciliation process; 2) the franchisor could reject any proposals that emanated from the conciliation process and so it in essence was a franchisor controlled dispute resolution process which gave the franchisor a free peek at the franchisee’s claim; 3) the franchisor could amend or modify the rules even in the midst of the conciliation but the franchisee did not have any such right; 4) the franchisee could not initiate any arbitration until after the conciliation process, which consumed a minimum of 90 days, was completed and then the franchisee had to initiate the arbitration within two years thereafter (or less if there were a shorter statute of limitations) while there was no similar time constraint on the franchisor; 5) once the franchisee became aware of any claim that it had against the franchisor, it had to keep the matter confidential, which meant its ability to discuss its claim with other potential plaintiffs was barred; 6) arbitration was before a JAMS arbitrator who was “trained” by the franchisor and, although the franchisee could select a “non-trained” arbitrator, the arbitrator’s fee would not be capped; and 7) the arbitrator had the power to award arbitration costs and attorney fees to the prevailing party.
United Nations Convention
Balen v Holland America Line, Inc., 587 F 3d 647, 654-5 (9th Cir 2009)-Plaintiff, a seaman, argued that he was not bound to arbitrate his dispute with defendant because of the seaman’s exemption set forth in the FAA. But the court held that plaintiff was bound to arbitrate under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards because he met all four criteria set forth in the Convention. Those criteria are 1) there is an agreement in writing within the meaning of the Convention; 2) the agreement provides for arbitration in the territory of a signatory of the Convention; 3) the agreement arises out of a legal relationship, whether contractual or not, which is considered commercial; and 4) a party to the agreement is not an American citizen, or that the commercial relationship has some reasonable relationship with one or more foreign states.
Vacatur
Mossman v City of Oakdale, 170 Cal App 4th 83, 90, 87 Cal Rptr 3d 764 (2009)-In this employment dispute, the arbitrator ordered the respondent to make the employee claimant whole but did not provide specifics. Respondent’s motion to vacate on the ground that the award was not enforceable was denied. The award decided the issue of remedy, even if it did not provide an enforceable judgment. The failure of an award to be enforceable as a judgment does not itself provide grounds for vacating the award. (The matter was remanded to the arbitrator for clarification under CCP 1283.4.)
Taheri Law Group A.P.C. v Sorokurs, 176 Cal App 4th 956, 962, 98 Cal Rptr 3d 634 (2009)-Defendant failed to respond to plaintiff’s petition to vacate an arbitration award within the ten day period required by Code of Civ Proc 1290 but filed a motion to confirm the award. The court denied the petition to vacate and granted the petition to confirm. Plaintiff appealed, arguing that the allegations of the petition to vacate were deemed admitted and therefore the petition should have been granted. The court affirmed. Under the plain language of Section 1290, the allegations “deemed admitted” when a petition to vacate is not timely opposed are only the factual allegations of the petition, not the legal conclusions pleaded. The admission of factual allegations does not require courts to grant an unopposed petition.
Lagstein v Certain Underwriters at Lloyd’s London, 2010 US App LEXIS 11836 (9th Cir 2010)-An arbitration award may not be vacated simply because the court disagrees with its size.
Vacatur-Timeliness
Oaktree Capital Management v. Bernard, 182 Cal App 4th 60, 67-68, 106 Cal Rptr 3d 16 (2010)- A response requesting that an award be vacated or corrected shall be served and filed not later than 100 days after the service of a signed copy of the award. A response to a motion to confirm (which would include a motion to vacate) must be served within ten days after service of the petition. The latter requirement shortens the 100 day period.
Waiver of Arbitration
Roman v. Superior Court, 172 Cal App 4th 1462, 1479, 92 Cal Rptr 3d 153 (2009)-Defendant herein did not file a motion to compel arbitration until after it filed a demurrer and requests for production of documents. At that point, there was no ruling on the demurrer nor were there responses to the document requests. Claimant asserted that there was a waiver of arbitration because she had incurred legal fees responding to the demurrer and reviewing the document request. The court held that these expenses were insufficient by themselves to support a finding of waiver. Waiver does not occur by mere participation in litigation if there has been no judicial litigation of the merits of arbitrable issues and no prejudice.
Adolph v Coastal Auto Sales, Inc., 2010 Cal App LEXIS 749, 184 Cal App 4th 1443
(2010)-Plaintiff filed suit against defendant in July 2008. Defendant demurred to the complaint in August and the demurrer was sustained. Plaintiff filed an amended complaint in September and defendant demurred in October. In the interim, plaintiff filed notices of depositions of defendant’s officers but defendant’s counsel averred that they were unavailable and did not provide dates of availability. Defendant was equally uncooperative with respect to plaintiff’s discovery requests, forcing plaintiff to file two meet and confer letters. After the demurrer to the amended complaint was denied in December, defendant produced an arbitration agreement but plaintiff declined to arbitrate. On January 28, three months before trial, defendant moved to compel arbitration. The trial court ruled that defendant had waived arbitration and the Court of Appeal affirmed. Defendant repeatedly used the court proceedings for its own purposes (filing demurrers) while steadfastly remaining uncooperative with a plaintiff who wished to use the proceedings for its purposes (taking depositions) all the while not breathing a word about the existence of an arbitration agreement. Arbitration is a speedy and relatively inexpensive means of dispute resolution. That goal was frustrated by defendant’s conduct.