California Mediation and Arbitration

Arbitration/Res Judicata/Waiver/Consumers/Class Action: 2006 Denial Of Mediation Is Reversed In 2011 And Reversal Is Affirmed In 2012–Concepcion Made The Difference

Court of Appeal Says It Would Have Been Futile To Seek Reversal Earlier

     In Phillips v. Sprint, Case No. A134371 (First Dist. Div. 3 Sept. 26, 2012) (Pollak, J., author) (published), the Court of Appeal considered a situation in which the trial court denied a request to arbitrate in 2006 in a consumer class action, but granted the request in 2011, following the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, ___ U.S. ___ ,131 S.Ct. 1740 (2011)(Concepcion).  In 2011, Concepcion abrogated the California rule, and upheld the validity of class action waivers in consumer contracts requiring arbitration.

     Plaintiffs in Phillips v. Sprint argued the failure to appeal the earlier denial was “res judicata.”  But a motion does not result in a judgment, and therefore the earlier decision was not res judicata. 

     Plaintiffs also argued that the failure to appeal the earlier denial constituted a waiver of arbitration.  “However, as Sprint argues, pursuing an appeal would have been futile given the state of law at the time. ‘Waiver should not be found on the basis of a party’s failure to undertake a futile act.’ (In re Apple & AT&TM Antitrust Litigation (N.D. Cal. 2011) 826 F.Supp.2d 1168, 1174.)”

     Phillips v. Sprint is in line with Reyes v. Liberman Broadcasting Inc., Case No. B235211 (2nd Dist. Div. 1 Aug. 31, 2012), a case we posted about on September 2, 2012.  The court in Reyes also held that an employer that quickly asserted its right to arbitrate after Concepcion was decided did not waive its right to arbitrate.

News: Gerard I. Nierenberg, Founder of The Negotiation Institute, Dies at 89

     The website of The Negotiation Institute describes the institute as “the longest running negotiation skills training organization in the world.”  Its founder, Gerard J. Nierenberg, died on September 19, 2012, as reported in a September 24, 2012 NY Times obituary.  Mr. Nierenberg authored several books, including one entitled “How to Read a Person Like a Book”  -- advice on reading body language.  We liked his wife’s observation that he practiced what he preached at home:  “’I could always rely on reminding him, or he would remind me, about the principles of negotiation,’ she said.”

News: Cowabunga: City of Half Moon Bay Wins $10 Million In Arbitration

Arbitrator Finds Insurance Coverage For Land Use Fiasco

     Famous for its big wave surfing, the City of Half Moon Bay got hit with a big one a while back, when it committed to pay $18M as a legal settlement to a private developer.  That’s a “big wave” for a city reported to have a population of 11,324 in the 2010 census.  Finding coverage for at least part of the problem, retired Supreme Court Justice, Edward Panelli, acting as arbitrator, has now awarded $10M to the City against Insurance Company of the West.  So reports Aaron Kinney on September 21, 2012, in the San Mateo County Times.

Arbitration/Consumers: Consumer Advocates Urge Consumers To Take Advantage Of Opt-Outs In Nursing Home Agreements

    

     On March 27, 2012, we posted about Marmet Health Care Center, Inc. v. Brown, 565 U.S. ___ (2012).  Marmet Health, a Supreme Court case, concluded the Federal Arbitration Act does pre-empt the state public policy of West Virginia against predispute arbitration agreements applying to personal injury or wrongful death claims against nursing homes.  So if you check Mom or Dad into a nursing home, and an arbitration clause is signed, Mom or Dad can generally be compelled to arbitrate (unless the clause is found to be unconscionable for reasons other than that it offends a pre-empted state policy against such clauses).

     A September 18, 2012 article by Michelle Andrews on the National Public Radio website points out many such arbitration clauses have “opt-out” agreements giving the party additional time to back out of the arbitration agreement.  It’s good business, because if the arbitration agreement is not “take it or leave it”, it is more likely to be enforceable.  Consumer advocates, however, advise against signing the arbitration agreement, arguing arbitration results in additional costs, and results in smaller awards for plaintiffs.

Arbitration/Disclosures/FINRA: San Diego Superior Court Overturns $5M Award To Brokers Because Of Failure To Disclose Relationship By Arbitrator

FINRA Begin Again?

     On June 21, 2012, we posted about a $5M award by FINRA to brokers John Paladino and Todd G. Vitale.  FINRA is the Financial Industry Regulatory Authority, and its awards are generally difficult to overturn.  However, San Diego Judge Lisa Schall has overturned the award, based on the failure of one of three arbitrators in the case to relationships.  As reported by Corrie Driebusch on September 18 for the Dow Jones Newswires, the arbitral award was overturned because one arbitrator “failed to disclose this his daughter worked for a brokerage firm and maintains an account with Morgan Stanley.”  Ouch.

Arbitration/Employment/Enforceability/Record: Unsigned Stand-Alone Arbitration Provision Is Insufficient Evidence To Require Arbitration

 Patchy Record Also Didn’t Help Appellant   

     When footnote 1 of an opinion begins, “Appellants omitted several key documents . . . “, followed by, “We therefore have little information . . . “ it does not augur well for the appellant.

    

An augur holding a lituus, the curved wand often used as a symbol of augury on Roman coins.  Wikipedia.

     This case arose from an employment suit.  Because the Employment Handbook provided for settling disputes “exclusively by final and binding arbitration,” the employer moved to compel arbitration.  The trial court denied the motion to compel arbitration, and the employer appealed.  Tisor v. Marketshare Partners, LLC, Case No. A134327 (1st Dist. Div. 4 September 13, 2012) (Sepulveda, J., author) (unpublished).

      The employee had allegedly signed an acknowledgment that “none of the statements in the handbook (other than this Acknowledgment and the agreement to arbitrate) are intended to create any contractual or other legal obligations.  I also understand that [MarketShare] may at any time modify or rescind any policy, benefit or practice described in the handbook, except for its policy of at-will employment, the arbitration agreement and policies required by law.”  The Handbook was 41 pages long.  (Seems like opinions that deny a motion to compel arbitration often mention the length of the document in which the arbitration provision is to be found).

     Here’s the rub:  the arbitration provision contained lines for dates and signatures of the employee and the employer, neither of which was signed or dated.  Therefore, the one part of the Handbook intended to create legal obligations, and contemplating a signature, was unsigned.  Concluding that the Handbook “contemplated that the arbitration of disputes provision would be effective only if both [employer and employee] assented to that provision” (Marcus & Millichap Real Estate Investment Brokerage Co. v. Hock Investment Co., 68 Cal.App. 4th  83, 91 (1998)), the Court of Appeal affirmed.  Well, this one didn’t look good for the appellant from the get-go (footnote 1, supra).

Arbitration/Enforceability/Unconscionability: Goodridge v. KDF Automotive Group, Inc. Ordered Published

Arbitration Clause In Contract To Purchase Used Automobile Was Found To Be Procedurally and Substantively Unconscionable 

    On August 26, 2012, we posted about Goodridge v. KDF Automotive Group, Inc., Case No. D060269 (4th Dist. Div. 1 August 24, 2012) (McDonald, Acting P.J., author).  On September 13, 2012, the Court ordered that the case be published.  Footnote 1 of Goodridge notes, “the circumstances (e.g., preprinted contract and arbitration clause) and issues in this case are virtually identical to those in Sanchez v. Valencia Holding Co., LLC (2011) (A201 Cal.App.4th, review granted Mar. 21, 2012, S199119 (Sanchez). The California Supreme Court will likely make the ultimate determination of the issues discussed in this case.”

Mediation/Confidentiality: Do The Special Confidentiality Requirements For Mediation Apply To Mandatory Settlement Conferences?

Special Confidentiality Provisions In The Evidence Code For Mediations Expressly Do Not Apply To MSCs

     California practitioners are aware that the court, on its own motion, or at the request of any party, may set a Mandatory Settlement Conference requiring the personal attendance of trial counsel, parties, and persons with full authority to settle.  Rule 3.1380, California Rules of Court.  MSCs are not voluntary settlement conferences.  But does the formal “mediation privilege” under Evidence Code section 1119 apply?  No.

      Rule 3.1380 states that a court must not “[a]point a person to conduct a mediation under this rule.”

     The Advisory Committee Note for California Rule of Court 3.1380 explains that the mediation privilege expressly does not apply:

[Rule 3.1380] Subdivision (d) This provision is not intended to discourage settlement conferences or mediations. However, problems have arisen in several cases, such as Jeld-Wen v. Superior Court of San Diego County (2007) 146 Cal.App.4th 536, when distinctions between different ADR processes have been blurred. To prevent confusion about the confidentiality of the proceedings, it is important to clearly distinguish between settlement conferences held under this rule and mediations. The special confidentiality requirements for mediations established by Evidence Code sections 1115-1128 expressly do not apply to settlement conferences under this rule. This provision is not intended to prohibit a court from appointing a person who has previously served as a mediator in a case to conduct a settlement conference in that case following the conclusion of the mediation.

     Comment:  Even though the formal mediation privilege does not apply, it may be better for all concerned to act as if it did apply (while remembering that it does not apply!).

News: Federal District Court Strikes Down Delaware Chancery Court Experiment In Private Arbitration

Lost Opportunity to Use Outstanding Sitting Judges in Private Arbitration?

"Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." – Louis D. Brandeis

     Steven M. Davidoff reports on August 31, 2012 in the New York Times, about “The Life and Death of Delaware’s Arbitration Experiment.”  Thanks to the Delaware legislature’s amendment of its laws, the Delaware Chancery Court, acknowledged by many to be an excellent forum for adjudicating corporate disputes, was empowered to engage in private arbitration.

     The idea was that private companies, never eager to air their dirty linen in public, would seek out the expertise of the Chancery Court in private arbitration.  Arbitrations would also generate arbitration fees ($6,000 a day) and a $12,000 filing fee.  However, the secrecy of the proceedings was challenged in federal district court.  As described by Mr. Davidoff, “the federal court found that the arbitration proceedings were effectively a civil trial” and thus “required to be open.”

     An appeal to the Third Circuit is likely to follow.

Arbitration/Waiver: Employer That Quickly Asserted Right To Arbitrate After Concepcion Was Decided Did Not Waive Right To Arbitrate

Timing Is Everything

     Plaintiff Reyes, a security officer, filed a class complaint alleging wage and hour violations against Liberman Broadcasting, Inc. (LBI).  The trial judge denied a motion by LBI to compel arbitration, on the grounds that the employer failed to properly and timely assert its right to arbitrate.  LBI appealed the trial court’s order denying its motion to compel arbitration. Reyes v. Liberman Broadcasting, Inc., Case No. B235211 (2nd Dist. Div. 1 August 31, 2012) (Johnson, J., author) (published).

       Reyes filed his complaint on May 27, 2010.  LBI answered on August 5, 2010, asserting 22 affirmative defenses, but leaving out the existence of the arbitration agreement as an affirmative defense.  Reyes propounded discovery, LBI took a session of Reyes’ deposition, the parties engaged in lengthy meet and confer efforts, and the parties scheduled a class-wide mediation for July 1, 2011.  LBI did not file its motion to compel arbitration until July 5, 2011, more than a year after Reyes filed his complaint.  Aren’t the delay, the discovery, and the scheduling of class-wide mediation inconsistent with an intention to mediate? 

      Not so much here, said the Court of Appeal.  Timing was critical.  At the end of April 2011, the Supreme Court overruled California’s Discover Bank case in AT&T Mobility v. Concepcion, 563 U.S. __ , 131 S.Ct. 1740 (2011).  The court held in Concepcion that “a court may not ‘rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable.’” Id. at 1747.  “Before Concepcion,” explained the Court of Appeal in Reyes, “LBI reasonably concluded that it could not enforce the Arbitration Agreement.”  But after Concepcion was decided in April 2011, LBI promptly informed Reyes that LBI would move to compel, and filed its motion promptly in July 2011.

     What about the discovery?  “Very limited,” said the Court of Appeal.  Discovery had been propounded, but no discovery had actually been exchanged, as the parties bogged down in “extensive meet and confer efforts.”  True, one session of a deposition had been taken of the named plaintiff – but depositions can also be taken in discovery under the rules of the American Arbitration Association.  So no prejudice here.

     The Court of Appeal distinguished Hoover v. American Income Life Ins. Co., 206 Cal. App.4th 1193 (2012), a case we posted about on June 14, 2012.  In Hoover, the defendant “actively litigated.”  How?  “[B]y twice trying to remove the case to federal court, availing itself of ‘discovery mechanisms like depositions not available in arbitration,’ and soliciting putative class members ‘in an effort to reduce the size of the class.’”

     Showing just how fact-oriented waiver inquiries become, the Court of Appeal found “more problematic” the fact that LBI agreed to a private mediation on a class-wide basis.  Such a mediation could only have been fruitful if a settlement of class-claims had been blessed by a court.  However, rather than emphasizing that defendant’s actions were inconsistent with the right to arbitrate, the Court of Appeal instead decided to emphasize the lack of resulting prejudice:  “The agreement to mediate did not guarantee the parties would reach a class-wide agreement.  Therefore, we do not find prejudice from LBI’s agreement to nonbinding class-wide private mediation.”

      The trial court’s order denying the motion to compel arbitration was reversed.

     Comment:   St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003) sets forth the multi-factor test to apply for determining whether a waiver has occurred.  We note that a certain amount of “play” exists in the multi-factor test – depending, for example, on whether the court chooses to emphasize actions “inconsistent with the right to arbitrate” or prejudice.