California Mediation and Arbitration

Deadlines, FAA: First Dist. Div. 1 Sides With Courts Holding FAA Does Not Preempt Prompt Payment Of Arbitrator CA Statute

The Court Distinguishes The Case From Hernandez v. Sohnen Enterprises, Inc.

        Jenny-Ashley Colon-Perez sued her former employer, Security Industry Specialists, Inc. (SIS), for various employment-related claims. After agreeing to arbitrate, SIS failed to pay arbitration fees within the 30-day deadline required by California Code of Civil Procedure section 1281.98. Colon-Perez chose to withdraw from arbitration, and the trial court ruled that SIS had materially breached the arbitration agreement. SIS attempted to vacate the order, citing the Federal Arbitration Act (FAA) and other arguments, but the trial court denied the motion.

        The court held that section 1281.98 applied and was not preempted by the FAA. The failure to pay the arbitration fees within the statutory period constituted a material breach, allowing Colon-Perez to proceed with her claims in court. Colon-Perez v. Security Industry Specialists, Inc., A168297 (1/1  1/29/2025) (Banke, Humes, Langhorne Wilson).

        Justice Kathleen Banke explained: "We recently addressed whether the FAA preempts section 1281.98 in Keeton v. Tesla, Inc. (2024) 103 Cal.App.5th 26, 32 (Keeton), review granted September 11, 2024, S286860. We concluded it does not, as have all but one of the Courts of Appeal that have considered the issue. We are not persuaded to depart from our conclusions in Keeton."

        The Court of Appeal also addressed whether the denial of arbitration violated the Contract Clause of the Constitution. It concluded that it did not violate the clause, because insisting on prompt payment of the arbitrator did not substantially interfere with arbitration.

        Also of note, the Court distinguished Colon-Perez from Hernandez v. Sohnen Enterprises, Inc., which holds that when the agreement is governed by the Federal Arbitration Act, § 1281.98 is preempted. Unlike the Hernandez arbitration provisions, the Colon-Perez provisions mentioned California state law and did not only refer to procedures in the FAA. 

        COMMENT: This last argument distinguishing Hernandez seems a bit sketchy. The arbitration clause in Colon-Perez provided: "Any proceeding pursuant to this Employment Dispute Arbitration Procedure is deemed to be an arbitration proceeding subject to the Federal Arbitration Act, 9 U.S.C. §§ 1–16, if applicable, to the exclusion of any state law inconsistent therewith; or, if the FAA is not applicable, to the law of the state of venue . . ." 

        I wrote an article for the Daily Journal published April 10, 2024, entitled: California: Friend or Foe of Arbitration?, addressing the preemption issue presented by the statutory deadline for paying attorney fees to the arbitrator. The article is available online here.

Reviews: Who Owns This Sentence? -- Book Reviewed By Your Blogger Marc Alexander

A History Of Copyrights And Wrongs.

        David Bellos, an academic, translator, and biographer, and Alexandre Montagu, an IP attorney and founder of MontaguLaw, have written an engaging history of copyright law. Blogger Marc Alexander has written a review of the book. The review is republished here with the permission of the Journal of the Litigation Section of the California Lawyers Association and the CLA. The review appears in the Journal, Vol. 37, issue 3, p. 53. Here's a link to the review: Download Who Owns This Sentence reviewed.

Agency: Third District Agrees Durable Power Of Attorney At Issue Did Not Confer Authority To Agent To Agree To Arbitrate

Authority To Make Medical Decisions Is Not The Same As Authority To Consent To Arbitration.

        In Lombardo v. Gramercy Court, C098857 ( 3rd Dist. 12/31/24) (Robie, Earl, Mauro) the plaintiffs, Lisa Lombardo and others, sued Gramercy Court for wrongful death, negligence, elder abuse, and gross negligence after Elizabeth Stein, their relative, died following inadequate care at the defendant's facility. Gramercy Court sought to compel arbitration based on an agreement signed by Lombardo as Stein's agent under a durable power of attorney (DPOA). The trial court denied the motion, finding Lombardo lacked the authority to bind Stein to arbitration. The appellate court affirmed this decision.

        The court determined that Stein’s DPOA did not grant Lombardo authority to sign arbitration agreements. Specifically, Stein left unchecked the section authorizing the agent to handle “claims and litigation,” which would have included arbitration authority. Furthermore, the DPOA explicitly excluded healthcare decisions, and arbitration agreements are distinct from medical decisions. The court also rejected Gramercy Court's argument that Lombardo had ostensible authority to bind Stein, finding no evidence of Stein’s conduct to justify such a conclusion.

        The appellate court similarly ruled that the arbitration agreement did not bind Lombardo or other heirs individually. It interpreted the agreement's language as ambiguous and construed it against the drafter, Gramercy Court.

        COMMENT: We have posted many times on nursing facilities that ran in to trouble enforcing arbitration agreements. Frequently a relative signs documents for an older relative, and unless all i's are carefully dotted and t's are carefully crossed, courts may find that authority was not conferred on the agent. There is also the issue with durable powers of attorney as to the scope of powers conferred under the DPOA -- does it just cover medical decisions, or does it include the power to agree to arbitrate disputes. And if there is an agency, does it cover the patient's disputes, or the disputes of heirs?

 

PAGA: Reversing Trial Court, Second District, Div. 1 Requires Arbitration Of Individual PAGA Claim

Every PAGA Claim Necessarily Includes An Individual PAGA Claim.

        We like it when judges neatly summarize a case and its ruling. It makes it much easier to do a quick post. Justice Frances Rothschild has made our job easier:

Shipt, Inc. (Shipt) and its parent company Target Corporation (Target) (collectively, appellants) appeal from an order denying their motion to compel arbitration in an action brought against them by respondent Christina Leeper under the Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.) (PAGA). The court denied the motion on the basis that Leeper’s PAGA action did not allege any individual claims subject to arbitration under the parties’ arbitration agreement.

        Based on the unambiguous, ordinary meaning of the relevant statutory language and the legislative history of that language, however, we conclude that every PAGA action necessarily includes an individual PAGA claim.2 Accordingly, we reverse and direct the court to enter a new order (1) compelling the parties to arbitrate Leeper’s individual PAGA claim and (2) staying the representative PAGA claim portion of the lawsuit.

Christina Leeper v. Shipt, Inc., et al, B339670 (2/1  12/30/24) (Rothschild, Weingart, Klatchko).

Happy New Year To All Our Readers

And Wishing You A Happy, Healthy, Productive 2025.

Library of Congress. Photographer: Carol M. Highsmith. Date: 12/31/21. "This old auto-body shop in Paxton, a village west of North Platte in southwest Nebraska, isn't fixing cars any more but someone's around to wish passersby a happy new year."

Legislation: Roundup Of 2024 California Legislation Relating To Mediation

In 2024,Three Mediation-Related Measures Passed, One Did Not.

As of December 22, 2024, the status of the four California legislative measures from 2024 impacting mediation practices is as follows:

Senate Bill 940 (SB 940): Enacted into law on September 29, 2024, this bill establishes a voluntary certification program for Alternative Dispute Resolution (ADR) providers and practitioners, including mediators, administered by the State Bar of California.    

Assembly Bill 1755 (AB 1755): Signed into law in October 2024, this legislation updates the California Lemon Law by introducing a mandatory mediation process for consumers and vehicle manufacturers before litigation.

Senate Bill 1141 (SB 1141): This bill proposed increasing the monetary threshold for court-ordered mediation in superior courts from $50,000 to $150,000. However, it did not pass; on August 28, 2024, it was returned to the Chief Clerk pursuant to Joint Rule 62(a), indicating that it failed to advance through the legislative process.

Assembly Bill 2011 (AB 2011): This bill makes permanent the small employer family leave mediation program. Governor Newsom signed it into law on July 23, 2024.

        In summary, SB 1141 is the only measure among the four that was not enacted into law in 2024.

        COMMENT: The impetus for SB 1141 was court congestion. Also, the $50,000 threshold for court-ordered mediation was enacted in 1994, and inflation has more than doubled since then. SB 1141 passed 38-0 in the California Senate, but foundered in the Assembly Judiciary Committee. Hence, it was never voted on by the Assembly. Would a measure that simply adjusted the threshold amount to the inflation index make sense?

Arbitration: Issue Decided In Arbitration May Preclude Federal Claim In Case Where Employee Is Protected From Arbitration

Sarbanes-Oxley Federal Whistleblower Claim Is Precluded By Issues Decided In Arbitration, Though Employees Are Protected Against Mandatory Arbitration Of Whistleblower Claims.

        Section 806 of the Sarbanes-Oxley Act (SOX) provides whistleblower protections, including protection against mandatory arbitration. Can issues decided against a former Tesla employee in arbitration preclude the employee's relitigation of issues in a whistleblower retaliation claim under SOX? Yes, holds a Ninth Circuit panel majority. Karl Hansen v. Elon Musk, Tesla Motors, Inc., and U.S. Security Associates, Inc., No. 23-15296 (9th Cir.  12/10/24) (H.A. Thomas, Johnstone; partial conc. and dsst. by Collins).

        The Ninth Circuit affirmed the district court, holding that while SOX claims cannot be compelled to arbitration under predispute agreements, a confirmed arbitral award may preclude relitigation of issues common to arbitrable and non-arbitrable claims.

        Judge Daniel Collins dissented from the majority's decision to apply issue preclusion to Hansen’s SOX claim, arguing that doing so was contrary to the statutory protections provided under SOX. SOX prohibits its claims from being subject to predispute arbitration agreements (18 U.S.C. § 1514A(e)). By granting preclusive effect to the arbitrator's findings on issues related to the SOX claim, the court circumvented this statutory safeguard.

 

Puzzled about how to enforce restrictions?

The Library of Congress caption reads: "What's a fellow to do?' Washington, D.C., Nov. 8, 1939. A policeman whose beat is on Washington's waterfront seems puzzled over how he is going to enforce the restrictions in the sign, especially as applied to seagulls. Maybe the seagulls don't read or believe in signs." 

 

Settlement, Costs, Fees: First District, Div. 3 Emphasizes Primacy Of Employee-Protective Statutes Over General Cost-Shifting Provisions

Labor Code Sections Prohibiting Cost-Shifting To Employees Prevailed Over Section 998 Cost-Shifting.

        The next case does not involve ADR. We blog about it because it does involve settlement offers and cost-shifting.

        Employees sued California Collision LLC (CCL) and its owner for labor law violations. The case involved several settlement offers under California Code of Civil Procedure section 998. Jorge Chavez, et al. v. California Collision, LLC et al., A167658 (1/3  12/10/24) (Petrou, Fujisaki, Rodriguez).

        The appellate court reversed the trial court’s award of post-offer costs to CCL. It held that Labor Code sections 1194 and 218.5, which prohibit cost-shifting to employees absent bad faith, override section 998 in wage claims.

        The court found no abuse of discretion in the trial court’s award of significantly reduced attorney fees to the plaintiffs. It upheld the trial court’s reasoning that the attorney's submitted billing records were inadequately segregated by plaintiff and claim, and his hourly rate was appropriately set at $200 based on the evidence.

 

Second District CCA Reverses Two Trial Court Rulings That Had Denied Requests To Arbitrate

Stephnie Trujillo v. J-M Manufacturing Company, Inc.,  B327111 (2/8  12/2/24) (Stratton, Grimes, Wiley).

        This case involves an employer's obligation to make timely payment to the arbitrator, as required by statute, or face the prospect of losing the right to arbitrate. The facts are unusual.

        Stephnie Trujillo filed a complaint against her former employer, J-M Manufacturing Company (JMM), and four coworkers alleging sexual/gender discrimination, harassment, retaliation, and other claims. The parties entered into a post-dispute arbitration stipulation, which was court-approved. JMM made timely payments to the arbitrator for over a year but failed to pay an invoice within the required 30-day grace period under California Code of Civil Procedure section 1281.98. Despite promptly paying the overdue amount upon notice, Trujillo sought to withdraw from arbitration, citing JMM’s late payment as a material breach under section 1281.98.

        The trial court granted Trujillo’s motion to withdraw. On appeal, JMM argued section 1281.98 did not apply because the arbitration was based on a post-dispute stipulation, not a pre-dispute agreement, and JMM was not the “drafting party” as defined in the statute.

        The Court of Appeal agreed with JMM, holding section 1281.98 applies exclusively to pre-dispute arbitration agreements where the employer or business is the drafting party. Since the arbitration arose from a negotiated post-dispute stipulation primarily drafted by Trujillo, the statute was inapplicable. The appellate court reversed the trial court’s order and directed reinstatement of arbitration proceedings.

Edgar Gonzalez v. Nowhere Beverly Hills LLC et al., B328959 (2/1  12/3/24) (Kline, Rothschild, Bendix).

        In this case, an employee finds himself required by equitable estoppel to arbitrate.

        Edgar Gonzalez, a former employee of Nowhere Santa Monica (one of the 10 Nowhere entities operating Erewhon markets in Los Angeles), filed a lawsuit alleging violations of California labor laws, including unpaid wages and failure to provide required breaks. Gonzalez signed an employment agreement with Nowhere Santa Monica that included an arbitration clause. However, his claims were against all 10 Nowhere entities, which he alleged were joint employers.

        The trial court compelled arbitration against Nowhere Santa Monica but denied the motion for the other entities, ruling there was no evidence to show equitable estoppel applied. Gonzalez later dismissed his claims against Nowhere Santa Monica.

        On appeal, the court reversed the trial court's decision, holding that Gonzalez’s claims against the non-Santa Monica entities were so intertwined with his employment agreement that he could not avoid arbitration. The appellate court found Gonzalez equitably estopped from denying arbitration with the non-signatory entities because his joint-employer theory relied on shared obligations stemming from the employment agreement with Nowhere Santa Monica.

        BONUS. Nowhere Beverly Hills LLC operates the Erewhon organic products markets in Los Angeles. Erewhon is an anadrome derived from nowhere -- it is nowhere spelled backswards (almost, since the wh did not get reversed). Erewhon: Or, Over the Range, is also the title of Samuel Butler's 1872 novel about a satirical utopia.

 

Happy Thanksgiving And A Toast To All Our Readers

Happy Thanksgiving!

"A Thanksgiving Truce"

A Thanksgiving Truce. 1905. Puck. Library of Congress description: Illustration shows Theodore Roosevelt, wearing his rough rider uniform, sharing a feast with many wild animals sitting around a large banquet table in the wilderness. A bear is making a toast. "Teddy Jr.", wearing buckskin, is sitting on a rock at a small table with a bear cub.

The bear's toast: The Bear (with deep feeling) -- Here's hoping that when next we meet, we see you first.