California Mediation and Arbitration

Arbitration/Enforceability: Cal Supreme Court Reverses Judgment To Compel Arbitration To Enforce Collective Bargaining Provisions, But Remands For Further Findings

Supreme Court Faced “Tension Between Two Principles”

     In United Teachers of Los Angeles v. Los Angeles Unified School District, S177403 (Cal. Sup. Ct. June 28, 2012) (Liu, J., author), the Supreme Court found itself “required to resolve a tension between two principles:  (1) collective bargaining provisions in conflict with the Education Code are unenforceable, and (2) courts generally do not examine the merits of the underlying dispute in deciding whether to enforce arbitration agreements.”

      The underlying dispute arose after the LA Unified School District approved the conversion of an existing public school into a charter school, and the UTLA filed grievances that the District failed to comply with provisions of a collective bargaining agreement concerning school charter conversions.

      Reversing the trial court, the Court of Appeal had concluded that it was not for the court, on a petition of the  UTLA to compel arbitration, to decide whether there was a conflict between the collective bargaining provisions and charter school statutes.  The sole function of the Court of Appeal was to determine whether there was a valid arbitration agreement that had not been waived.  The Court of Appeal ordered the petition to compel arbitration granted.  The Supreme Court reversed the Court of Appeal.

     The Supreme Court concluded that the petition to compel arbitration should be denied “if the collective bargaining provisions at issue directly conflict with provisions of the Education Code – that is, if they would annul, replace, or set aside Education Code provisions.”  The Supreme Court further held that under the Education Code, “an arbitrator has no authority to deny or revoke a school charter, as UTLA requests.”  However, the Supreme Court then remanded the case to the trial court to give the UTLA an opportunity to identify specific provisions which the collective bargaining provisions allegedly violated, because the UTLA had not identified those provisions with sufficient particularity. 

    NOTE:  The case has no discussion, common in cases involving efforts to compel arbitration, of the federal cases involving federal preemption and the Federal Arbitration Act.   We assume this is because a charter school conversion may involve entirely local matters that do not involve the Commerce Clause.

Arbitration/Res Judicata/Mediation/Confidentiality/Settlement: Fourth District, Division 3 Offers Interesting Analysis Of Settlement Provision’s Effect On Res Judicata And Mediation Privilege

 

Settlement Provision Conferred Limited Authority On Arbitrator to Amend Settlement Agreement to Make It Enforceable

     A cleverly drafted settlement provision, which had implications for the res judicata effect of an arbitration award, and for the confidentiality of mediation, is the reason this next case earns a blawg post. The underlying dispute was a messy partnership buyout and accounting, complicated by the defendant’s misstatement of his authority to bind a group of real estate businesses to the settlement. (One who signs as an agent can take on liability if authority is lacking).  Litigation led to mediation, followed by arbitration, followed by a bifurcated bench/jury trial, followed by cross appeals. Kurtin v. Elieff, Case No. G043999 (4^th Dist. Div. 3 June 27, 2012) (Rylaarsdam, Acting P.J., author) (published). The Court of Appeal affirmed most of the trial court’s judgment, with some interesting analysis of a settlement provision resulting from the mediation. (Famed mediator Tony Piazza was involved).

Arbitration/Res Judicata

     The settlement resulting from mediation included a clever provision addressing a bedeviling problem – how to efficiently handle settlement enforcement problems resulting from ambiguity:

“The sole act of the arbitrator shall be to issue an amendment to this Settlement Agreement implying such additional terms, curing any ambiguity or otherwise curing any defect in the Settlement Agreement that would make this Settlement Agreement unenforceable.” (italics in the opinion).

     Defendant Elieff contended that an arbitration decision that followed the mediation/settlement precluded the subsequent civil court judgment by way of res judicata or collateral estoppel. However, the Court of Appeal rejected that argument, because of how severely the settlement agreement limited the power of the arbitrator. All the arbitrator could do was clear up ambiguity or defects in the settlement agreement to make it enforceable. It followed that the res judicata effect of the arbitrator’s decision was limited.

Mediation/Confidentiality

     Defendant Elieff also argued that Kurtin’s invocation of the mediation privilege, which made it impossible to bring in extrinsic evidence from the mediation to interpret the settlement, denied Elieff a fair trial. Once again, however, the settlement agreement provided the answer:

“The mechanism set up by the settlement agreement was one where the parties first would resolve any ambiguities in the contract before going to court. Thus, in asserting the mediation privilege, Kurtin was only following the settlement agreement’s own logic, not sandbagging Elieff.”

    Tip:  The settlement provision here is one to keep in mind if you are concerned that enforcement of the settlement agreed to in mediation may be difficult because of some unforeseen ambiguity or defect.

Arbitration/Fees/Construction: Fifth District Agrees Attorney’s Fees Clause Provided For Recovery Of Fees Only In Arbitration, Not In Superior Court

 

Parties’ Agreement To Litigate In Superior Court Proved Fatal To Prevailing Party’s Fee Recovery

     Plaintiff Mari sued Defendant Hawkins for professional negligence in connection with a survey, and prevailed in the trial court. However, the trial court denied Plaintiff’s request for attorney’s fees, because the fee provision was part of an arbitration provision stating, “[t]he arbitrator will award attorney’s fees to the prevailing party” -- and the parties agreed to proceed in superior court rather than to arbitrate. Mari v. Hawkins, Case No. F062563 (5^th Dist. June 25, 2012) (Kane, J., author) (unpublished). Plaintiff appealed the adverse fee ruling.

     The contract between the parties contained three separate fee provisions. However, the broadly worded fee provision, quoted above, applied only to arbitration. Plaintiff argued that the provision applied, and the parties simply substituted a judge for an arbitrator. Nope, that didn’t work.

     The second fee provision provided, “[i]f any proceeding is brought to enforce or interpret the provisions of this Agreement, the prevailing party therein shall be entitled to receive from the losing party therein, its reasonable attorney’s fees . . . “ Plaintiff ingeniously argued that prevailing on the claim for professional negligence required interpreting the contract. Nope, that didn’t work either. Suing for professional negligence is different than suing to enforce or interpret the provisions of a contract.

     The third fee provision provided, “[i]n the event [plaintiff] institutes a proceeding against [defendants], either directly or by way of cross-complaint, including a claim for . . . alleged negligence . . . wherein [defendants prevail], [plaintiff] agrees to pay [defendants] immediately following the proceedings all costs of defense, including . . . reasonable attorneys’ fees . . . .” Nope, that too didn’t work. The problem here is that the clause is not reciprocal – it provides recovery to a prevailing defendant, but not to a prevailing plaintiff. But I thought attorney’s fees provisions were reciprocal? Well might you ask. Attorney’s fees provisions are reciprocal when the action is on a contract (Civ. Code section 1717). Here, you will recall that Plaintiff prevailed on a cause for professional negligence, not for breach of contract. Therefore, the third provision is valid, despite the fact that it is not reciprocal.  However, because that fee provision is not reciprocal, the prevailing Plaintiff derived no benefit from it here.  Too late for tears . . . .

     The order of the trial court was affirmed.

     Comment: Consider the economics of this case. The parties went to trial, filed post-trial briefs, and went through an appeal. At trial, Plaintiff was found to be damaged in the amount of $155,134, but the damage amount was reduced by the trial judge to $50,000, due to a contractual fee limitation. Then, because the parties had agreed to litigate in superior court, Plaintiff was denied fees. The opinion does not tell us how much the fees were, but you can guess.

     Practice Tip: When confronted with a choice of an arbitral or judicial forum, consider the fee implications.  Also, consider whether agreeing to litigate in one forum rather than another forum means the attorney’s fees provisions ought to be revisited and revised.

In the News: $5M Award In FINRA Arbitration, $21.6M Award in JAMS Arbitration

Are Arbitrators Stingier Than Trial Court Judges?

Payback in FINRA Arbitration

     Bill Singer comments about a FINRA (Financial Industry Regulatory Authority) arbitration in the June 20, 2012 on-line edition of Forbes, under the heading, “Former Morgan Stanley Smith Barney Brokers Win $5 Million Employment Dispute Arbitration Award.”  We surmise some of the conduct may have occurred in California, because the Respondent was also ordered to pay $354,816.54 in attorneys’ fees pursuant to California Civil Code Section 1717 (contract provides for fees to party prevailing on contract cause of action).  

Both Sides Declare Victory in JAMS Arbitration

     In another arbitration, JAMS awarded the Marin General Hospital Corporation $21.6 million in a dispute  with Sutter Health, and $721,000 to Sutter Health.  Evidently Marin General Hospital Corporation’s claims were larger still, for both sides are reported to declare themselves pleased with the outcome.  So reports the June 20, 2012 edition of the San Anselmo-FairfaxPatch.

      The arbitrator was retired Judge Rebecca Westerfield.

Mediation/Settlement/CCP Section 664.6: Those Who Signed The Settlement Agreement Could Enforce It, And Those Who Didn't Couldn't

 

Enforcing Settlement Agreement Under CCP 664.6 Requires Strict Compliance With Statute

     The next case teaches us about the need to strictly comply with Cal. Code Civ. Proc. section 664.6 in order to enforce a settlement agreement under that provision. Hampton-Mitchell v. Mitchell, Case No. B228988 (2nd Dist. Div. 7 June 20, 2012) (Zelon, J., author) (not for publication).

     The case started out as a lawsuit between wife (Hampton-Mitchell) and ex (Mitchell). A property dispute concerning their house, which was found to be a community asset, resulted in a mediation involving the wife, the buyer of the house, the buyer’s lender lender, the broker, and the agent. This resulted in a stipulation for settlement reached through mediation that the trial court enforced, at the request of the defendants who mediated, under CCP section 664.6. However, the wife wanted to set aside the settlement agreement, and appealed.

     The broker and agent signed the stipulation ten days after the mediation. The buyer and lender, however, had not personally signed the stipulation, though they too wished to enforce it.

     Mitchell's counsel conceded that the agreement was enforceable by the broker and agent, as they signed before it was revoked. That was dispositive in favor of the broker and the agent's effort to enforce the stipulation.

     The buyer and the buyer's lender, however, had not personally signed the stipulation. Section 664.6 requires that the parties to pending litigation either stipulate in a writing signed by the parties outside the presence of the court or orally before the court, for settlement of the case.

     Buyer and lender argued that their attorney at the mediation was authorized to sign for them. Not good enough: "the term 'parties' as used in section 664.6 . . . means the litigants themselves, and does not include their attorneys of record." Levy v. Superior Court, 10 Cal.4^th 578, 586 (1995). There is policy behind this: "The litigants' direct participation tends to ensure that the settlement is the result of their mature reflection and deliberate assent." Id. at 585. (Note the difference between enforcement of a contract and enforcement under section 664.6. Having the signature of the person against whom a contract is to be enforced often suffices; not so in the case of section 664.6.)

     COMMENT: If the parties really don't want the stipulation for settlement to take effect until all parties have signed it, they could say so explicitly in the stipulation. If such language had been included in the stipulation, then all the parties would have had a tough time enforcing the stipulation, as two parties did not sign it.

Arbitration/Enforceability/Employment: Requiring Employee To Agree To Arbitration Provision Is Not By Itself Wrongfully Coercive, Despite Loss Of Right To A Jury

 

Labor Code Section 206.5 Prohibits Employer From Obtaining Release of Claim For Wages Under Specified Circumstances, But Does Not Preclude Employee From Waiving Right to Jury By Agreeing To Arbitrate

     The scenario is familiar: Employee (Pulli) sues employer (Pony International, LLC), for wrongful termination and other claims. Because employee signed an arbitration provision, employer moves to compel arbitration. The twist: Does Labor Code section 206.5 void the employment agreement and the arbitration provision by precluding employer from requiring employee to give up a right to a jury trial as a condition for future employment and future wages? Yes, concluded the trial court, denying the motion to compel arbitration. Employer appealed. Pulli v. Pony International, LLC , Case No. D059137 (4^th Dist. Div. 1 June 19, 2012) (Aaron, J., author) (certified for publication).

     No, concluded the Court of Appeal.

     Labor Code section 206.5 provides in part:

“(a) An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. . . . ”

     After reviewing the plain language of the statute, related code sections, the purpose of section 206.5, and legislative history, the Court concluded, “section 206.5 merely prohibits an employer from requiring an employee to execute a release of a claim for wages due, and places no limitations on the enforceability of arbitration provisions.”

     Furthermore, the language of the statute was interpreted narrowly, so an invalid release of a wage claim only renders the release itself “null and void” – it does not “render unenforceable the arbitration provision. . . “

     Thus, the Court of Appeal concluded the arbitration provision was valid and enforceable. The agreement did not require the employee to release a claim for wages due, but even if it had done so, such a release would not have invalidated the arbitration clause. The Court of Appeal reversed the order denying the motion to compel arbitration.

Arbitration/Fees/Rules/Scope: Trial Court Affirmed in Case Involving Arbitrator’s Authority, Rules, Sanctions, and Fees

Plus We Learn Some Legal Arcana

    The next case, though unpublished, covers several interesting issues concerning the arbitrator’s authority, rules, sanctions, and fees. Prime Associates Group, LLC v. NAMA Holdings, LLC, Case No. B226167 (2nd Dist. Div. 4 June 19, 2012) (Suzukawa, J., author) (not for publication). 

     The case involved a messy dispute arbitrated among participants in a real estate project.  After 26 days of arbitration, the panel ordered, among other things, that Claimant Alliance Network pay NAMA $12,750,405.  NAMA was also granted monetary relief against Claimants Alliance Network, Alliance Holdings, and Network as sanctions for discovery misconduct. Another party, Crescent, prevailed against NAMA, entitling it to recover fees, costs, and expenses in the amount of $350,000 from NAMA. Appeals followed  How did it all shake out?

    First, the Court of Appeal held that the arbitration panel did have authority to order Alliance Network to pay damages to NAMA, though Alliance was not named as a counterrespondent.  Alas, Alliance forfeited its argument by failing to raise it with the arbitration panel.

     Second, the Court held that the $12M award to NAMA did not exceed the scope of the panel’s authority pursuant to the rules under which it was operating.  The issue here was that the panel was proceeding under the rules of the International Centre for Dispute Resolution (ICDR), which rules provide:  “The tribunal shall not decide as amiable compositeur or ex aequo et bono unless the parties have expressly authorized it to do so.”  “Ex aequo et bono” means “according to what is just and good.” Arbitrators, acting as “amiables compositeurs”, are authorized to disregard legal technicalities and strict constructions, and not required to hew closely to the contract.  We note, as did the Court of Appeal, that generally “arbitrators are not bound to award on principles of dry law” – unless the rules require otherwise.However, if the panel strayed from the cold and harsh ground of law into the warm and fuzzy domain of equity, this issue too had been forfeited. 

     Third, the Court held that the award of sanctions for discovery misconduct was not subject to judicial review, citing Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992):  “Absent a clear expression of illegality or public policy undermining this strong presumption in favor of private arbitration, an arbitral award should ordinarily stand immune from judicial scrutiny.”  Id. at 32.

    Fourth, the fact that NAMA did not fully prevail in the arbitration was irrelevant to its claim of post-arbitration fees to correct or vacate the award.  The arbitration provision was broadly written to include the post-arbitration fees, and the determination of the prevailing party in a post arbitration proceeding is a judicial function distinct from the arbitrator’s decision to award fees in the arbitration.

      The judgment was affirmed.

Arbitration/Waiver/Burden of Proof: Substantial Evidence Supported Waiver of FINRA Arbitration

 

St. Agnes Factors Weighted In Favor of Finding of a Waiver

     The leading California case for determining whether a waiver of the right to arbitrate has occurred is St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4^th 1187 (2003). St. Agnes provides a multi-factor test that the court handily applied in Alspaugh v. Dunham, Case No. D09673 (4^th Dist. Div. 1 June 14, 2012) (McDonald, J.) (author) (not for publication).

     In Alspaugh, Plaintiffs sued Defendants claiming investment fraud. Defendants moved to compel arbitration, losing that motion in the trial court. Defendants appealed the denial, claiming the trial court erred by finding they were not required to arbitrate pursuant to the written agreements, and that they had waived any rights to enforce arbitration.

     What were the critical facts resulting in a finding of waiver? Plaintiffs filed their case in February, 2009. Defendants did not file their motion to compel arbitration and stay litigation until March 23, 2011, and their actions were inconsistent with arbitration. Defendants filed multiple substitutions of attorney, bankruptcy filings, requests to continue trial, counter claims, multiple demurrers, took 40 depositions, and propounded thousands of discovery requests.

     True, St. Agnes states that “the party seeking to establish a waiver bears a heavy burden of proof.” 31 Cal.4^th at 1195. But a finding of waiver will usually be fact-based. Therefore, the standard of review will be whether there is substantial evidence to support the trial court’s finding of waiver.

     Here, the Court of Appeal affirmed the order based on the trial court’s finding of waiver. Therefore, the court did not need to address the merits of alternative grounds for the order denying defendants’ motion to compel arbitration.

Arbitration/Waiver: Cinel v. Barna Is Now Certified For Publication

Failure to Pay Arbitrator’s Fees Led to Waiver of Right to Arbitrate in Cinel v. Barna

     On May 20, 2012, we blogged about Cinel v. Barna, Case No. B232380 (2^nd Dist. Div. 1 May 18, 2012) (Johnson, J.) an unpublished case at the time.  As of today, the case is certified for publication.

Mediation/Condition Precedent/Fees: Listing Agreement Required Mediation Before Commencing Litigation – But Promissory Note Did Not Have That Requirement

 

. . . And So Party Suing and Prevailing On the Promissory Note Could Recover Fees Without Initiating Mediation

     We have a sidebar category, "Mediation: Condition Precedent," reflecting the fact that many contracts, such as real estate purchase and sale agreements, and listing agreements, now require a party to mediate before filing a lawsuit, as a condition precedent to the recovery of attorney's fees. File the next case under: "condition precedent: not." Keith v. Shuttleworth, Case No. D058881 (4th Dist. Div. 1 June 14, 2012) (McConnell, P.J., author) (not for publication).

     Plaintiff sued defendant for breach of a promissory note, and defendant cross-complained for breach of a listing agreement. The trial court awarded plaintiff $71,721 for breach of the note, $219,171.18 for fees, and $19,205.34 for other costs. Defendant/cross-complainant lost its cross-claim to recover a commission, and appealed.

     One of defendant's arguments was that the listing agreement required mediation first in order for plaintiff to be able to recover attorney's fees later. But you already know the answer to that: plaintiff sued on the promissory note, not the listing agreement, and the promissory note, though it did have an attorney's fees provision (lucky for the plaintiff), did not require mediation (lucky again for the plaintiff).

     But didn't the promissory note "arise from" the listing agreement transaction? Issue forfeited because not timely raised. Besides, said the court, we are satisfied that the "complaint for breach of the promissory note is not an action under the Listing Agreement."

     Judgment affirmed.