California Mediation and Arbitration

Arbitration/Class Action Waiver/FAA/Consumers: Court of Appeal Holds That Agreement Inviting Consideration Of Unenforceability Of Class Arbitration Procedures Allowed Trial Court To Invalidate Class Action Waiver

 

Sticking To Its Contract Interpretation Guns, Second District, Division One, Shoots Down Federal Decisions

     The Court of Appeal has upheld a trial court order denying a motion to dismiss or stay class action litigation and to compel arbitration, basing its conclusion on principles of contract interpretation.  Imburgia v. DIRECTV, Inc., B239361 (2nd Dist. Div. 1 April 7, 2014) (Rothschild, Chaney, Miller).

     AT&T Mobility LLC v. Concepcion, 563 U.S. __, 131 S.Ct. 1740 (2011) (Concepcion) held that the Federal Arbitration Act (FAA) preempts the rule of Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), which case held that class action waivers in consumer contracts may be unconscionable and unenforceable.  (Under California law, the Consumer Legal Remedies Act would also preclude waiver of the right to bring a class action under the CRLA). 

     But Concepcion does not necessarily invalidate all class action waivers.  The objective of the FAA is to carry out the intent of the parties, and contract interpretation may lead to the conclusion that the parties intended to proceed under state law rules that allow for the invalidation of class action waivers.  In Imburgia v. DIRECTV, Inc., the Court of Appeal concluded that here, the parties intended to proceed under California state law, allowing the trial judge to invalidate the class action waiver.

     The Court of Appeal summarized:  “the 2007 customer agreement provides that ‘if . . . the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration] section is unenforceable.’  The class action waiver is unenforceable under California law, so the entire arbitration agreement is unenforceable.” 

      To reach its conclusion, the Court of Appeal applied two principles of contract interpretation. 

     First, in case of inconsistency, the specific provision takes precedence over the general provision in a contract.  Here,  the contract generally adopted the FAA, but specifically adopted “the law of your state” with respect to the specific issue of enforceability of class action waivers.  Therefore, California state law took precedence over the FAA with respect to the specific issue of enforceability of the class action waiver.

     Second, if the contract was ambiguous, then it had to be interpreted against the drafter, namely, against DIRECTV, Inc. 

      The Court of Appeal disagreed with two federal decisions, In re DIRECTTV Early Cancellation Fee Marketing and Sales Practices Litigation, 810 F.Sup.2d 1060, 1071 (C.D.Cal. 2011), and Murphy v. DIRECTV, Inc., 724 F.3d 1218 (9th Cir. 2013), finding that the courts that rendered those decisions failed to properly apply important principles of contract interpretation.  Because “the dispositive issue” was the intent of the contracting parties, contract interpretation was highly relevant and deserved more weight than the federal courts had given to it.  (See my August 4, 2013 post on Murphy.)

      While consumer advocates may have found a gap in the fortress wall in Imburgia, allowing the consumers, at least for now, to beat arbitration and a class action waiver, one can count on DIRECTV, Inc. and other corporations finding drafting solutions to plug the gap in the future.   And one can also count on ever imaginative consumer advocates searching for new ways to scale the fortress wall.

Arbitration/Deadlines: After Time Ran Out To Modify Arbitration Award, Plaintiff Could Still Seek To Amend Judgment To Add Additional Party

Plaintiff Finds Way Around JAMS Deadline

     The next case illustrates the fundamental point that an arbitration award is not the same as a judgment, and that even after the time has expired under the governing arbitration rules to amend the award, it may still be possible to amend the judgment confirming the award.  Butler v. Lyons & Wolivar, Inc., Case No. G04766 (4th Dist. Div. 3 March 3, 2014) (Fybel, Rylaarsdam, Aronson) (unpublished).

     Plaintiff Butler arbitrated with his franchisor, the investigation firm Lyons & Wolivar Investigatins (Lyons), obtaining a net award of $512,244.67 against Lyons.  So far, pretty good for Plaintiff.  But when Plaintiff petitioned to confirm the arbitration award against both Lyons and its successor corporation, LWI, Inc. (LWI), the trial court refused to confirm the award against LWI, because the award only named Lyons.

     So Plaintiff went back to the arbitrator to seek “clarification” that the award included LWI.  Now the deadline in JAMS Rule 24 kicked in:  the arbitrator had lost any power to modify the Final Award, because that award was more than 30 days old.

      California Rule of Civil Procedure, section 187 came to the rescue:  “Under section 187, the court has the authority to amend a judgment to add additional judgment debtors.”  NEC Electronics Inc. v. Hurt, 208 Cal.App.3d 772, 778 (1989).

      The Court of Appeal complimented Defendants for correctly setting forth “the law regarding judicial review of arbitration awards.”  But then the Court retracted its compliment by pointing out that judicial review of an arbitration award is not the same as judicial review of a judgment – and here, the only issue was the correctness of the trial court’s order amending the judgment. 

     Judgment affirmed – also affirming the adage that “there’s more than one way to skin a cat.”

Arbitration/FINRA: Ninth Circuit Rules That Federal District Court Forum Selection Clause Trumps Financial Industry Regulatory Authority Arbitration

Court, Rather Than FINRA, Gets To Determine Arbitrability Of Dispute

      Reno, Nevada, issued $211M in complex securities, known as auction rate securities (ARS).  After the market for ARS collapsed in 2008, Reno sought FINRA arbitration with Goldman, Reno’s underwriter and broker-dealer.  Reno’s theory was that if it had known that ARS were routinely propped up by companies such as Goldman, which withdrew market support during the 2008 financial market meltdown, it would never have made the investment in the first place. 

     In turn, Goldman sought a preliminary injunction in the federal district court to enjoin the FINRA arbitration. After the district court denied Goldman’s request for injunctive relief, Goldman appealed.  Goldman, Sachs & Co. v. City of Reno, No. 13-15445 (9th Cir. March 31, 2014) (Bybee, Schroeder, Battaglia).  

    First, the Court of Appeals determined that the Court, rather than FINRA, had jurisdiction to determine arbitrability.   “[W]hether the court or the arbitrator decides arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” Oracle Am., Inc. v. Myriad Group A.G.,
724 F.3d 1069, 1072 (9th Cir. 2013).

     Second, the Court easily concluded that Reno was a “customer” of Goldman, giving it a right to invoke FINRA arbitration – unless Reno and Goldman contracted around arbitration.

     Third, the Court held that through the forum selection clauses, the parties had indeed agreed to litigate claims in the USDC for the District of Nevada, thus contracting around FINRA arbitration.

     However, because a preliminary injunction is within the discretion of the trial judge, the matter was remanded for further determination by the district judge.

     Dissenting, Judge Battaglia would have affirmed the district court’s denial of Goldman’s motion to preliminarily enjoin FINRA arbitration.

     BLAWG BONUS:  “I shot a man in Reno just to watch him die.”

I shot a man in Reno