California Mediation and Arbitration

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.

 

Mass Arbitration: 9th Circuit Holds Mass Arbitration Approach Employed By Ticketmaster Is Unconscionable

Mass Arbitration Model For Batching Together Claims With Common Legal Or Factual Issues Held To Be Unconscionable.

        The Ninth Circuit affirmed the district court's denial of Live Nation and Ticketmaster’s motion to compel arbitration in a Sherman Act antitrust class action. Skot Heckman et al. v. Live Nation Entertainment, Inc.; Ticketmaster, LLC, No. 23-55770 (9th Cir. 10/28/24) (Fletcher, Christen; dissenting, VanDyke). Plaintiffs alleged anticompetitive practices in online ticket sales. The arbitration agreement, involving mass arbitration through a novel entity (New Era ADR), was deemed unconscionable under California law and unenforceable. The court also ruled that the Federal Arbitration Act (FAA) does not preempt California's unconscionability principles or its Discover Bank rule prohibiting class action waivers in consumer adhesion contracts.

        Judge VanDyke concurred in the judgment, arguing the FAA does not apply to New Era’s mass arbitration model because it fundamentally deviates from the bilateral arbitration Congress envisioned when enacting the FAA in 1925. Consequently, California’s Discover Bank rule applies, rendering the class action waiver in the agreement unconscionable and unenforceable.

        COMMENT: The ruling underscores the difficulty devising fair mass arbitration models. And the concurrence points to the incompatibility of bilateral arbitration with multiparty mass or class arbitration.

Unconscionability, Severance: 9th Maj. Says Arb Agreement Is Unconscionable; Dissent Favors Severance

To Sever Unconscionable Provisions Or Not To Sever . . . That Is The Question.

        The Ninth Circuit affirmed the district court’s decision denying USF Reddaway, Inc.’s motion to compel arbitration, finding the agreement procedurally and substantively unconscionable under California law. The court held the arbitration agreement was moderately procedurally unconscionable due to its adhesive nature and oppressive conditions under which it was signed. It also found substantive unconscionability in a one-sided preliminary injunction carve-out and a filing provision imposing notice requirements and a shortened statute of limitations exclusively on the plaintiff. The court determined the multiple unconscionable provisions rendered the agreement permeated with illegality, justifying the refusal to sever them. Jose Emilio Ronderos v. USF Reddaway Inc., No. 21-55685 (9th Cir. Sung, Foote; dissenting, Bennett).

        Judge Mark J. Bennett, dissenting, argued the district court erred in declining to sever the agreement’s unconscionable provisions, asserting the agreement was minimally procedurally unconscionable and that the one-sided filing and injunction carve-out provisions were collateral to the agreement’s purpose. Judge Bennett contended these terms could be easily severed without reforming the agreement, preserving its core intent to arbitrate disputes. He emphasized California law’s strong preference for severance and the existence of a severability clause. Bennett criticized the majority’s decision as inconsistent with the FAA’s policy favoring arbitration and accused the court of improperly disfavoring arbitration agreements.

FAA, Interstate Transportation Workers: 9th Circuit Affirms Airline Fuel Technician Falls Within FAA Transportation Worker Exception

Interstate Transportation Workers Are Exempted From Arbitration Under The Federal Arbitration Act.

        We have been remiss reporting on 9th Circuit cases since mid-July 2024. Now, we're doing a little catch-up.

        An airline fuel technician qualifies as a transportation worker engaged in foreign or interstate commerce, and thus he is exempt from the FAA's arbitration requirements under Section 1. Danny Lopez v. Aircraft Service, Int'l, Inc., and Menzies Aviation (USA), Inc. , No. 23-55015 (9th Cir. 7/19/24) (Rawlinson, Melloy, Thomas). The case reinforces the FAA's exemption for transportation workers, emphasizing the functional role of such workers in facilitating interstate and international commerce.

        COMMENT. What is the rationale behind the FAA exemption for seamen and interstate transportation workers? In 1925, when the FAA was enacted, maritime and railroad workers already had developed specialized labor dispute resolution procedures, and perhaps Congress did not want to interfere. Such workers are essential to the flow of commerce, perhaps too explaining their special treatment.

PAGA, Issue Preclusion: Employee Losing Labor Code Claims In Arbitration Ceases To Be Aggrieved Person With Standing To Sue For PAGA Claims

This Case Makes It Easier For Employers To Beat Back PAGA Lawsuits When Employee Loses Labor Code Claims In Arbitration -- The Legal Tool Is Issue Preclusion.

        In Julian Rodriguez v. Lawrence Equipment, Inc., B325261 (2/3  pub. 11/8/24) (Bershon, Edmon, Egerton), the plaintiff, Julian Rodriguez, alleged wage-and-hour violations under California’s Labor Code and pursued civil penalties under the Private Attorneys General Act (PAGA). An arbitrator ruled in favor of Lawrence Equipment, finding Rodriguez failed to prove the alleged violations of the Labor Code. The trial court entered judgment on the arbitration award and dismissed Rodriguez’s class claims. When Rodriguez later pursued his PAGA claim, the trial court dismissed it, holding that issue preclusion barred Rodriguez from relitigating the violations already resolved in arbitration. The court found that his standing under PAGA—predicated on his status as an "aggrieved employee"—was invalid since the arbitrator determined no Labor Code violations occurred.

        On appeal, Rodriguez argued that the arbitration findings should not preclude his PAGA claim. The appellate court rejected this, adopting the reasoning in Rocha v. U-Haul Co. that issue preclusion applies to PAGA claims when the same alleged violations were adjudicated in arbitration. The court concluded that Rodriguez lacked standing for his PAGA claim as he could not establish any Labor Code violations. The judgment dismissing Rodriguez’s PAGA claim was affirmed.

        We previously blogged about the Rocha case on 3/7/23. At the same time that the Rodriguez court followed Rocha, it refused to follow Gavriiloglou, a case we previously blogged about on 9/25/22. In Gavriiloglou, the court held that the arbitrator’s findings on the plaintiff’s individual Labor Code claims did not preclude the plaintiff from asserting PAGA standing. The court reasoned that the individual claims were pursued in a personal capacity, while PAGA claims represent the state’s interest, treating these as fundamentally different capacities, resulting in different claims. The Rodriguez court did not follow Gavriiloglou, distinguishing it as a case relying on claim preclusion rather than issue preclusion. 

        COMMENT. The confusing law concerning PAGA standing may be stabilizing in the following respect: the individual employee who loses Labor Code claims in arbitration loses standing, by virtue of issue preclusion, to sue for PAGA violations. As a result of losing individual Labor Code violations, the employee ceases to be an aggrieved person with standing to bring the PAGA claims.

Awards, Jurisdiction: Interim Award Dismissing Claims While Allowing Additional Submissions Was Not Final.

On The Difference Between A Final Award And An Interim Award Dismissing Claims But Leaving The Door Open For Additional Claims.

        In Ortiz v. Elmcrest Care Center, LLC, B330377 (2/3  pub. 11/7/24) (Egerton, Adams, Bershon), Ericka Ortiz, representing the Estate of Jose de Jesus Ortiz, sued Elmcrest Care Center and its staff, alleging elder abuse, neglect, negligence, and fraud. The trial court compelled arbitration. The arbitrator issued an initial "First Interim Award" dismissing the claims, but allowing for additional submissions if issues were identified. Following the Estate’s submission, the arbitrator issued a "Second Interim Award," finding Elmcrest liable for pre-death pain and suffering and awarding damages.

        Elmcrest contested this award, arguing the first was final, and the arbitrator’s amendment was outside her authority. The trial court sided with Elmcrest, confirming the First Interim Award and vacating the Final Award. On appeal, the Court of Appeal reversed the decision, holding that the arbitrator retained jurisdiction to amend the award to resolve omitted issues and directed the trial court to confirm the Final Award, which included the damages awarded for pre-death pain and suffering.

        COMMENT: An interim arbitration award expressly leaving open the door for additional submissions identifying additional issues is not a final award. 

Arbitration Agreement: No Agreement With Insufficient Evidence Of Signing Or Authorization Of Agent To Sign

A Reference To "Dementia" Signals Where The Court Was Headed.

        Harold and Lucy West and their adult daughter Deon were approached by a salesperson from Elite Home Remodeling, Inc. regarding solar panel installation and bathroom renovation. Harold and Lucy, in their 90s and suffering from dementia, did not use email, computers, or mobile phones. A loan agreement with Solar Mosaic LLC for financing was processed using Deon’s email and signed electronically with Harold’s name. However, a recorded call with Harold raised doubts about his understanding of the transaction. He struggled to answer basic questions. When the bathroom was demolished, Deon tried to cancel the contract. Elite refused. The trial court denied Mosaic’s petition to compel arbitration, citing a lack of evidence that Harold had entered into the agreement or that Deon had authority to bind him. Mosaic appealed. Lucy West, et al. v. Solar Mosaic LLC, B334178 (2/8  10/16/24) (Stratton, Grimes, Wiley).

        Affirmed. Solar Mosaic LLC did not establish an enforceable arbitration agreement. There was insufficient evidence Harold West signed the loan documents or authorized Deon to do so on his behalf.

 

 

 

Administrative Arbitration: City Manager Had Discretionary Authority Under MOU To Review Non-Binding Arbitration Decision And Reject It

A Non-Binding Arbitrator's Decision Recommended Reinstatement Of Police Officer. . . The Court of Appeal Allowed The City Manager To Reject It.

        Former police officer Ramirez administratively appealed the decision of the City of Indio Police Department's decision to terminate his employment at the conclusion of the “Appeals Procedure” set forth in the Memorandum of Understanding (MOU) between the City and the Indio Police Officers’ Association. A non-binding arbitrator's decision recommended the reinstatement of Ramirez. However, the City Manager upheld the decision of the Chief of Police to terminate Ramirez. After unsuccessfully petitioning the superior court, Ramirez appealed. Sergio Ramirez v. City of Indio et al., D082997 (4/1  pub. 10/10/24) (Kelety, McConnell, Rubin).

        The chief issue was whether the City Manager, who the parties agreed could make the ultimate decision, should have deferred to the arbitrator's determinations of credibility and evidence. The Court held that under the MOU, discretion rested with the City Manager, and the MOU provide for due process: notice and an opportunity to respond, right to an evidentiary hearing, final review by the City Manager, and an option for judicial review. Affirmed.

Settlement: Simultaneous Section 998 Offers Are Not Valid

But If One Of Two Simultaneous Offers Is Invalid, Section 998 Can Be Applied To The Remaining Section 998 Offer.

        Our next case, which does not involve mediation or arbitration, involves settlement. But since section 998 settlement offers can be made in both arbitration and litigation, our next case is worth considering. Gorobets v. Jaguar Land Rover North America, LLC , B327745 (2/2 10/10/24) (Hoffstadt, Chavez; Ashmann-Gerst, dsst), is a Lemon law case in which Land Rover offered simultaneous settlement offers to the Jaguar purchaser, one of which offers ultimately turned out to be invalid. The plaintiff did not respond to the 998 offer, thereby rejecting both valid and invalid offers.

        The panel majority held that simultaneous offers under section 998 are invalid, because it makes the court's task of applying section 998 at the end of the case impossible. The court offered the following hypothetical: the offeror offers $100,000 or $200,000 simultaneously, and the plaintiff recovers $150,000. Should the plaintiff's success be measured against the rejection of $100,000, or the rejection of $200,000? It becomes impossible for the court to apply section 998 to a simultaneous offer.

        However, in the instant case, there was a further wrinkle: one of the simultaneous offers was for $85,000, an amount that Land Rover beat at trial, because damages were less than $85,000. But the other simultaneous offer was for the recovery of statutory categories of damages, and in the case of disagreement between the offeror Land Rover and the offeree plaintiff, the dispute would be shunted over to a third party to decide. The court deemed the second simultaneous offer invalid, because a court couldn't determine its value. That meant only one valid offer remained, the offer for $85,000. "Because plaintiff failed to obtain a more favorable judgment than that offer at trial," explained Justice Hoffstadt, "the trial court was correct in ruling, pursuant to section 998, that plaintiff is limited to recovering his pre-offer costs and attorney fees and is required to pay Land Rover’s post-offer costs."

        Justice Ashmann-Gerst dissented. She agreed that simultaneous offers are invalid. But she did not agree that invalidating one of the simultaneous offers left the offeror with a single valid offer. The fact that one of the offers was ultimately found to be invalid placed too much burden on the plaintiff offeree. How was he to know that years later, one of the two offers would be found to be invalid? The result seemed unfair to the dissenting Justice.

        Suggestion. When making a section 998 settlement offer, review the statute to make sure you have dotted the i's and crossed the t's. Avoid simultaneous offers. Try to keep it simple.