California Mediation and Arbitration

Arbitration/Automobiles/Appealability: Order Compelling Arbitration Is Not Appealable, Nor Is It “Death Knell” Of Plaintiff’s Case

Second District, Division 2 Decision Motivates Us To Create New Sidebar Category – Arbitration:  Automobiles

     Our California car economy has spawned a plethora of decision concerning automobiles and arbitration.  I have posted on these over the past year.  Rather than link now to all the previous posts involving automobiles, I have simply created a new sidebar category – Arbitration: Automobiles.  I am confident that we will see more such cases. 

     In the second appeal in DeSiqueira v. Toyota Motor Insurance Services, Inc., Case No. B237534 (2nd Dist. Div. 2 January 14, 2013) (Boren, P.J., author) (unpublished), the Court of Appeal addressed the argument of an automobile purchaser that the trial court erred by staying his lawsuit and ordering contractual arbitration.  Toyota successfully challenged appellate jurisdiction, because an intermediate order compelling arbitration is not a final judgment, and thus is not appealable. 

     Plaintiff contended that the “death knell” doctrine applied, allowing him to appeal from a trial court’s order that effectively terminated his class claims.  However, the “death knell doctrine only applies ‘when it is unlikely the case will proceed as an individual action.’”  Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1098 (2002).  Here, plaintiff’s argument that he might recover $1,145, coupled with the right to recover fees and costs, undercut any argument that the individual action would not proceed.  The death knell did not toll for Weber DeSiqueira.

     That left plaintiff with one remaining argument:  the Court should treat the purported appeal as a petition for writ of mandate because of exceptional or unusual circumstances.  But the Court said that there was nothing exceptional here.  Why?  “Multiple cases are pending before the Supreme Court involving the issue presented in this appeal, i.e., the effect on state law of the federal decision in Concepcion.”

     Appeal dismissed.

International Arbitration/Disclosures: Second District Division 5 Affirms Orders In International Arbitration Denying Vacatur Motion and Confirming Award and Judgment

 

California’s Code of Civil Procedure Provisions Governing International Arbitration Differ From Ordinary Domestic Arbitration Provisions

     With this post, we inaugurate a new sidebar category: “Arbitration: International.”

     Comerica Bank v. Howsam, et al. Case No. B232749 (2^nd Dist. Div. 5 August 20, 2012) (Turner, P.J., author)(partially published) involves appeals from orders confirming three international arbitration awards. The underlying disputes concerned Comerica Bank’s loans totaling $37 million to Mr. Howsam, a Canadian resident, and various Canadian corporations controlled by him. The loans were to fund the production of seven films. The loans, which the bank alleged had been obtained through fraud, were not repaid. The bank initiated legal action, and several defendants moved to compel arbitration. The arbitrator found in favor of the bank, the superior court denied a motion to vacate the awards (vacatur), and appeals followed.

     The Court of Appeal affirmed across the board, after addressing four issues.

     First, the Court of Appeal discussed whether the arbitrator’s failure to timely disclose an alleged disqualifying factor – he had once had signature authority for a client on a Comerica Bank account – is a proper vacatur ground (i.e., a ground upon which the trial court judge could have vacated the arbitration award). However, the failure to timely disclose potential disqualifying circumstances, as required by “Arbitration and Conciliation of International Commercial Disputes” provisions of the Code of Civil Procedure, specifically, section 1297.121, simply is not a ground for vacatur under section 1286.2(a)(6)(A) , the ground relied upon by Defendants, and governing vacatur by the trial judge of an arbitration award. Therefore, the trial judge did not err by failing to vacate an award on the basis of a disqualifying factor in international arbitrations that is not a basis for vacatur under 1286.2(a). The Court of Appeal notes, however, that failure of the arbitrator to disclose disqualifying factors in an international arbitration is not immune to review – but it requires following a different procedural path:  “A litigant remains free to raise the failure to disclose issue in a writ petition.”  Beware:  trap for the unwary.

     Second, the Court of Appeal concluded that the award was not secured by corruption, fraud, or other undue means. Billing errors of the arbitrator had no bearing on the outcome, and were explainable by procedural complexities “with fast moving substantive changes being pursued by both sides.”

     Third, the award did not result from a manifest disregard of the law – an issue forfeited in any case by Defendants who withdrew from the arbitration and who therefore failed to raise the point before the arbitrator.

     Fourth, the arbitrator did not exceed his power when he decided alter ego issues. The rules of the arbitral organization (Independent Film & Television Alliance) and Code of Civ. Proc. section 1297.161, providing that in international arbitration, the arbitrator may rule on his or her own jurisdiction, allowed him to do decide alter ego issues.

     COMMENT: We gleaned interesting tidbits from this case.

     First, title 9.3 of the Code of Civil Procedure, entitled “Arbitration and Conciliation of Commercial Disputes”, sections 1297.11 et seq., while similar to domestic arbitration provisions, also differs substantially in some respects, for reasons that are not intuitively obvious. For example, “the disclosure duties and the consequences of a failure to disclose differ in domestic and international arbitrations.” Therefore, if you have a case involving international arbitration, we urge you to read Cal. Code of Civ. Proc. sections 1297.11 et seq. Comerica Bank v. Howsam will also be a useful case to read.

     Second,”federal Courts of Appeals are divided as to whether the arbitrator’s manifest disregard of the law remains a basis for vacatur in federal court . . . . But one thing is clear, an arbitrator’s manifest disregard of the law is not a ground for vacatur under California law.”

Arbitration/Employment/Class Actions/Enforceability: First District, Division 1 Affirms Order Compelling Employee To Individual Arbitration

Viability of Gentry v. Superior Court is Sidestepped By Court of Appeal

     Plaintiff/employee Lorena Nelsen filed a putative class action lawsuit against her former employer LPI for multiple Labor Code violations.  Because Nelsen signed an arbitration agreement when she was hired, the employer, LPI moved, successfully, to compel arbitration with Nelsen all alone.  Nelsen appealed the order compelling arbitration, arguing it was unconscionable, and the order violated state or public policy, because it precluded class arbitration by its terms.  Nelsen v. Legacy Partners Residential, Inc., A132927 (1st Dist. Div. 1 July 18, 2012) (Margulies, J., author) (certified for publication).

     First, the Court of Appeal had to deal with the issue of appealability, because ordinarily an order compelling arbitration is not appealable.  An exception is the “death knell doctrine” when it is unlikely that the case will proceed as an individual action. Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1098 (2002).  Here, however, there was no explanation by Nelsen as to whether her complaint could proceed as an individual action.  Nevertheless, the Court exercised its discretion to treat her appeal as a petition for a writ of mandate, thereby preserving her claims long enough to dispatch them.

    Second, unconscionability had to be considered.  While several factors supported a finding that the agreement was procedurally unconscionability, that was not enough to nix the agreement to arbitrate, unless there was also substantive unconscionability.  Because nearly the same arbitration clause language had already passed muster in Little v. Auto Stiegler, Inc., 29 Cal.4th 1064 (2003), LPI’s agreement was not substantively unconscionable.  The only difference between the agreement in issue in Little and that in Nelsen actually weighed in favor of finding Nelsen’s agreement was not unconscionable.  In Little, only awards exceeding $50,000 required the arbitrator’s “written reasoned opinion”  -- precisely the awards an employer would be more likely to appeal -- whereas in Nelsen’s case, there was no such distinction to favor the employer.   The agreement in Nelsen did not appear to work in a lopsided, unilateral fashion.

     Third, all the relevant contractual language contemplated a two-party arbitration, not class arbitration.  See Kinecta Alternative Financial Solutions, Inc. v. Superior Court, 205 Cal.App.4th 506 (2012), also concluding there was no contractual basis for finding an arbitration agreement authorized class arbitration.

     And this takes us to the issue of enforceability under Gentry v. Superior Court, 42 Cal.4th 443 (2007) – the important issue the Court sidestepped.  In Gentry, the California Supreme Court concluded that, in wage and hour cases, a class action waiver would frequently have an exculpatory effect and would undermine enforcement of the statutory right to overtime pay.  Gentry treated the statutory Labor Code rights as unwaivable, regardless of unconscionability.

     However, “the continuing vitality of Gentry has been called into serious question by a recent decision of the United States Supreme Court holding [AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011)] that a state law rule requiring classwide arbitrations based on public policy grounds rather than the parties’ arbitration agreement itself does violate the FAA.”  

     The Court of Appeal avoided having to address whether Gentry has been vitiated by Concepcion with an explanation that there was no evidence in the record of the “Gentry factors” – “a predicate showing that (1) potential individual recoveries are small; (2) there is a risk of employer retaliation; (3) absent class members are unaware of their rights; and (4) as a practical matter, only a class action can effectively compel employer overtime law compliance.”  So Gentry, like Wile E. Coyote¹, is still “up in the air.”

     Finally, the Court of Appeal was not persuaded by the argument in D.R. Horton, Inc., 27 NLRB No. 184 (2012) that it was a violation of the National Labor Relations Act to require employees as a condition of employment to waive the filing of a class action claim regarding wages.  The Court of Appeal treated Horton as an outlier case, and instead followed the analysis in Iskanian v. CLS Transportation, 206 Cal.App.4th 949 (2012), , 206 Cal.App.4th that the NLRB went beyond its administrative expertise in interpreting a statute.  Besides, Horton is not a California state court decision.

     For some of our related blawg posts see:  June 14, 2012, June 4, 2012, May 3, 2012, March 18, 2012 (Concepcion); April 25, 2012 (Kinecta); June 5, 2012 (Horton); April 25, 2012 (Gentry). June 14, 2012, June 5, 2012 (Iskanian).

     ¹BLAWG BONUS:  The animator Chuck Jones based his Wile E. Coyote on Mark Twain’s description of the coyote as "a long, slim, sick and sorry-looking skeleton" that is "a living, breathing allegory of Want. He is always hungry."   

Appealability: Court Of Appeal Dismisses Appeal From Order Staying Action And Compelling Arbitration

Affirm? Reverse? No, Dismiss, Because the Order is Unappealable

     Plaintiff Brian Zulli “purports to appeal from an order staying an action and compelling arbitration . . . “  Purports?  Yes, “purports”, because the order is not appealable.  Zulli v. Toll Brothers, Inc., Case No. B231622 (2nd Dist. Div. 6 July 10, 2012) (Perren, J., author) (not to be published). 

     “’The rationale behind the rule making an order compelling arbitration nonappealable is that inasmuch as the order does not resolve all of the issues in the controversy, to permit an appeal would delay and defeat the purposes of the arbitration statute. .  . However, a party compelled to arbitrate is entitled to have the validity of the order reviewed on his appeal from a judgment confirming an award.’. . . “ State Farm Fire & Casualty v. Hardin, 211 Cal.App.3d 501, 506 (1989).  “Accordingly, the appeal must be dismissed.”

Arbitration: Parties Not “Aggrieved” May Not Appeal From An Order Denying Their Cross-Petition to Compel Arbitration

An Order Denying Defendants’ Cross-Petition To Compel An Arbitration They Already Initiated Does Not Adversely Affect Them – And Therefore They Can’t Appeal It

     O’Malley v. Avenatti, Case No. G045806 (4th Dist. Div. 3 June 13, 2012) (Ikola, J., author) (not for publication) is the kind of lawsuit only lawyers can love – a lawsuit among former law partners fueled by high-octane gamesmanship.  The opinion also provided Justice Ikola, trained in electrical engineering at the University of Michigan, with an opportunity to display his mathematical skill and astringent wit.

    O’Malley sued defendants in Orange County, then moved to compel arbitration in Orange County.  Defendants opposed – sort of – stating “there is no disagreement that this dispute should proceed to arbitration,” while disputing the scope of the arbitration, who was  to make the determination of scope, and where the arbitration was to proceed.  Alternatively, defendants cross-petitioned to compel arbitration in San Francisco. 

     The superior court granted O’Malley’s petition to arbitrate in Orange County.  Defendants appealed, but an order granting a petition to arbitrate is not appealable.  The Court of Appeal solved this problem by pointing out that defendants’ notice of appeal identified the order as the “order denying [their cross-] Petition to Compel Arbitration . . . “ – an appealable order.  But defendants had a further and higher hurdle to surmount. 

     Because defendants had already initiated an arbitration in San Francisco, and O’Malley had apparently appeared in that arbitration, the denial of defendants’ motion to compel arbitration in San Francisco meant that they were not “aggrieved.”  Only a party aggrieved may appeal.  Code Civ. Proc., section 902.

     The kludgy result is two overlapping arbitrations in two different JAMS offices.  And this is the part that triggered Justice Ikola’s merciless display of mathematical reasoning:

     “Having two overlapping arbitrations in two different JAMS offices is hardly ideal, but it is the entirely foreseeable consequence of defendants’ tactics.  Defendants responded to O’Malley’s petition to compel arbitration by initiating their own arbitration the very next day.  Faced with the prospect of one arbitration being compelled by a nonappealable order, defendants chose to initiate another one.  One plus one equals two.”  (our italics).

Song of Two

Arbitration/Fees/Appealability: Order Denying Petition to Compel Arbitration Is Not (Necessarily) An Appealable Order

 

Some Orders Denying Petitions to Compel Arbitration Are More Equal than Others

     Defendant and Appellant Zani Mansouri spent over $200,000 in a patio improvements dispute with her HOA, Plaintiff and Respondent Fleur Du Lac Estates Association.  Naturally, she hoped to recover her fees and costs after the trial court earlier granted the HOA’s motion to compel arbitration, and the Court of Appeal, in a prior writ proceeding, reversed, agreeing with Mansouri that the HOA had failed to establish that it had requested arbitration and that she had refused.

      Mansouri sought fees and costs on the theory that she was the prevailing party in a proceeding to compel arbitration.  But the trial court concluded her fee motion and costs memoranda were untimely.  She moved for reconsideration, or relief due to excusable neglect.  The trial court denied that motion too in a May 2011 order.  All that law and commotion led to a writ petition, denied on the ground that Mansouri had a remedy by appeal, followed by her present appeal from the May 2011 order.  Fleur du Lac Estates Association v. Mansouri, C0968693 (3d Dist. April 23, 2012) (certified for publication) (authored by Justice Robie).

        In the opinion now certified for publication, the Court of Appeal holds that the May 11 order appealed from was non-appealable.  Why?

     First, an order denying reconsideration is typically non-appealable – to hold otherwise would permit, in effect, two appeals from every appealable decision.

     Second, the appealability of an order under the California Arbitration Act is governed by Cal. Code of Civ. Proc. section 1294 – and Mansouri was unable to successfully  shoehorn her appeal into an appealable situation under section 1294.   Mansouri argued that under Otay River Constructors v. San Diego Expressway, 158 Cal.App.4th 796 (2008), an order denying a petition to compel arbitration is a “judgment” in a petition to compel proceeding, and that a subsequent order denying fees is an appealable post-judgment order, expressly appealable under section 1294 (e).

     The Court of Appeal drew a distinction between an order in an arbitration proceeding resolving the only issue before the court in that proceeding – essentially a judgment and therefore appealable – and an order in an arbitration proceeding that did not foreclose the HOA here from “making a proper demand for arbitration under the CC&R’s on remand . . . .”  And that is what the HOA did here:  after its motion to compel arbitration was nixed by the Court of Appeal earlier because the HOA failed to demand arbitration and failed to establish a refusal to arbitrate, the HOA simply retraced its steps, and made the demand required by section 1281.2 as a predicate for bringing a petition to compel. The second time around, Mansouri didn’t oppose arbitration – the HOA had dotted its i’s and crossed its t’s. 

     There are several lessons to be drawn from this case.  First, before seeking to compel arbitration under section 1281.2, establish that you asked for arbitration, and that the opposing party refused.  Second, appealing from denial of a motion to reconsider may be futile – you may be appealing from a non-appealable order.  Third, not all orders denying a petition to compel arbitration are created equal:  some resolve all issues in a case, some do not.  Fourth, an order denying a motion to compel arbitration that resolves all issues in a case may be a final and appealable order.  Fifth, a special order after final judgment is appealable in a proceeding under the California Arbitration Act – but only if you first have a final judgment.

     Is the door shut to Mansouri’s recovery of fees?  No:  “because it appears that Mansouri still has an adequate remedy by appeal from the final judgment in this matter by which to seek review of the trial court’s denial of her motion for attorney fees and the granting of the Association’s motion to strike her costs memoranda. . . “  In fact, that was the basis for denying her alternative request to treat her premature appeal as a writ petition.  It ain’t over. . . .

    

Above:  Kirsten Flagstad

Arbitration/Arbitrator’s Fees/Appealability: Second District, Division One, Affirms Order Denying Petition to Confirm Arbitration Award Following Upon Failure of a Party to Pay Fees in Arbitration

 

Failure of Party to Pay Fees Here Resulted in Termination of Arbitration, and Case Bouncing Back to the Trial Court

     The next case grabbed Marc’s attention, because it involved a situation he has had to confront in arbitration: what to do when a party refuses to pay its share of arbitration fees. The resulting opinion, certified for publication, scrutinizes the problem -- apparently not so rare, given the comment of long-time Superior Court Judge Malcolm Mackey: “This happens all the time. People don’t want to pay fees.” Cinel v. Christopher, Case No. B231679 (2nd Dist., Div. 1 Jan. 20, 2012; pub. order Feb. 16, 2012) (Johnson, J.).

     Cinel purchased stock, commenced an action for securities fraud and related claims against defendants, and ended up in AAA arbitration. The AAA can pull the plug on an arbitration when parties don’t pay fees. That’s what happened here: the panel terminated the arbitration due to the nonpayment of fee deposits.

     Defendant Christopher then filed a motion in the Superior Court to confirm the purported fee-related “award”.  We say “award” advisedly, because that was Defendant Christopher’s way of characterizing the outcome.  The trial court denied the motion to confirm.

     The threshold question for the Court of Appeal was whether the order “denying” the petition to confirm the arbitrator’s ruling was appealable. The statutory scheme contemplates an arbitration award may be confirmed, vacated, or corrected in the trial court; in response, a party may request the court to dismiss the petition. The statutory scheme prescribes the options: an aggrieved party may appeal from an order dismissing a petition to confirm, correct, or vacate an award. Cinel argued that an order “denying” a petition to confirm is not appealable, because it is not a “dismissal.” However, under the circumstances, the Court of appeal construed the order “denying” the petition to confirm an award as a “dismissal”, making it immediately appealable by Christopher.

     Christopher then argued that the arbitrator’s termination of the proceedings for lack of payment of fees constituted an award that had to be confirmed. The argument relies on an assumption that there was an “award”, and that the trial court’s “denial” of the motion to confirm the award was an unauthorized vacation of the award, because the trial court can only confirm, vacate, or correct the award, or else “dismiss” a petition to confirm; and, furthermore, because the trial court did not “dismiss” the petition, vacate the award, or correct it, it had to confirm the award.

     The problem with this mind-bending technical argument is that the termination of the proceedings for failure to make a payment did not constitute an “award” within the mean of section 1283.4. The arbitrator’s order did not address any of the issues in controversy.

     Along the way to its conclusions, the Court of Appeal makes some nice distinctions between whether denial of a petition to vacate an award is an appealable order (no, in Mid-Wilshire Associates v. O’Leary, 7 Cal.App.4th 1450 (1992), because the order was appealable after confirmation), and whether denial of a petition to confirm is an appealable order (yes, here, where denial was tantamount to dismissal). The court also distinguished between a termination of proceedings that resulted in an award (Young v. Ross-Loos Medical Group, Inc., 135 Cal.App.3d 669 (1982), where the termination occurred because of a failure to prosecute with due diligence), and a termination of proceedings that did not result in an award (here, where proceedings were terminated for failure to pay, and not issues were reached on the merits). And the court distinguished between a petition to compel arbitration (Lifescan Inc. v. Premier Diabetic Servs., 363 F.3d 1010 (9th Cir. 2004) (petition to compel/continue arbitration should have been denied where fees were not paid, and arbitration was terminated, but parties’ agreement provided apportionment of fees would be left to arbitrators), and a petition to confirm an award (here).

     Nor did the trial court err in lifting a stay to set the matter for trial. Once a stay is granted, the court’s “vestigial powers” include the power to rule on a petition to confirm, correct, or vacate an award. Here, where the court dismissed the petition to confirm the award, the stay terminated, and the trial court properly set the matter for trial.

     Congratulations to Benjamin Shatz, an appeals specialist at Manatt, representing Plaintiff and Respondent Washington Umberto Cinel.  Kudos too to Bob Platt, spearheading this litigation at Manatt, and to associate Emil Petrossian, who argued the case as his first appeal and obtained the favorable published decision.