Court of Appeal Was Unable To Find Precedent On Whether CCP 1284.3, Pertaining To Consumer Arbitrations, Applies To Employer-Employee Arbitrations, And Reaches Its Own Conclusion
On March 12, 2014, I posted about an earlier Court of Appeal decision involving the same parties and the same arbitration agreement as here, in which the Court held that, with the exception of a claim for unpaid wages, other claims in the case could be arbitrated. Unfortunately, the decision in that case apparently came down too late to offer guidance to the trial judge in this case, who denied plaintiff’s motion to compel the former employee to arbitrate, only to be reversed on appeal. Francis Capital Management LLC v. Martin Keith Lane, Jr., B253559 (2/1 Sept. 9, 2014) (Manella, Epstein, Willhite) (unpublished).
The most interesting issue presented by the case is the application of Cal. Code of Civ. Proc., section 1284.3. (I posted about 1284.3 earlier on May 1, 2014). Subpart (a) of this provision states:
“No neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party, if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider, organization, attorney, or witnesses.”
The parties had designated the AAA as the arbitration organization. The issue presented by section 1284.3 was whether a prevailing party fee shifting provision in the arbitration agreement prohibited the AAA from arbitrating the dispute. The trial court concluded that the answer was “yes”, but the Court of Appeal concluded here, on the facts, that the answer was “no.”
A threshold question is whether employee-employer arbitrations even qualify as “consumer arbitrations.” Finding an absence of case law, and looking to guidance in California Rules of Court, Ethics Standard for Neutral Arbitrators, promulgated pursuant to section 1281.85, the Court of Appeal answered the threshold question in the affirmative.
Several factors here saved the fee shifting provision from the clutches of section 1284.3.
First, the fee shifting was not “mandatory,” but rather “discretionary.” The clause provided that the arbitrator “may” award reasonable fees.
Second, the arbitrator was given authority to award costs and fees “authorized by law.” That meant that if 1284.3 didn’t allow for fee shifting, then the arbitrator lacked the authority to shift fees. DRAFTING TIP: the phrase “authorized by law” can be useful to save a questionable provision.
Third, there was a severability provision.
Fourth, plaintiff had agreed to waive fees.
In short, the Court of Appeal concluded “no legal bar prohibits the AAA from accepting the arbitration.” The Court remanded the matter to the trial court “to enter an order granting FCM’s motion to compel Lane to submit to arbitration of FCM’s claims.”
If published, this case would provide useful guidance about section 1284.3 to parties drafting fee clauses in consumer arbitration agreements, and to arbitrators having to confront the impact of such clauses on their ability to accept the arbitration.