California Mediation and Arbitration

Arbitration/Class Action/Waiver: Two Ninth Circuit Opinions Hold Class Action Waivers In Arbitration Agreements Are Valid

     Yesterday, June 23, 2014, the California Supreme Court agreed that an arbitration class action waiver in Iskanian v. CLS Transportation Los Angeles was enforceable.  See my June 23 post.   On the same day, the Ninth Circuit Court of Appeals agreed that class action waivers are valid – at least in the circumstances of the two cases decided that day.  One case involved an opportunity to “opt out” of arbitration.  The other case concluded that the employer had given employees reasonable notice of a change in its arbitration policy.

Johnmohammadi v. Bloomingdale’s, Inc., No. 12-55578 (9th Cir. June 23, 2014) (Judge Watford, author). 

     The panel in Johnmohammadi addressed, then ducked, an issue raised by Justice Werdegar’s dissent yesterday in Iskanian:  whether the class-action waiver, enforceable under California law, is nevertheless unenforceable under the Norris-LaGuardia Act, and the National Labor Relations Act, making it illegal for an employer “to interfere with, restrain, or coerce employees in the exercise” of certain rights, including certain “concerted activities” protected by the Norris-LaGuardia Act.  While the panel concluded that “[t]here is some judicial support for her position,” the plaintiff failed to show interference, restrain, or coercion.  Why?  Because the employer, Bloomingdale’s, offered plaintiff an opportunity to “opt out” of arbitration, and she did not take that opportunity.  Had she opted out, explained Judge Watford, “she would be free to pursue this class action in court.” 

Davis v. Nordstrom, Inc., No. 12-17403 (9th Cir. June 23, 2014) (Judge Smith, author).

     In an opinion penned by Judge Smith, the panel reversed the district court’s order denying Nordstrom’s motion to compel arbitration of an employee’s claims brought as a putative class action.  The key issue here was whether Nordstrom’s complied with a provision requiring it to give employees 30 days written notice of any substantive changes to the arbitration provision – and the change in arbitration policy, precluding most class action lawsuits, was substantive.   Here, sending a letter to Davis and other employees “informing them of the modification, and not seeking to enforce the arbitration provision during the 30 day notice period,” constituted reasonable notice of a change. 

Arbitration/Employment/Class/Waiver/FAA/Public Policy: California Supreme Court Rules in Iskanian: Yes On Waiver Of Class Action, No On Waiver Of PAGA Claims

 

Iskanian Decision Yields Opinion Of Four, Plus Justice Chin, Concurring, Plus Justice Werdegar, Concurring And Dissenting

     In a much-awaited decision, the California Supreme Court has ruled that a state's refusal to enforce a class action waiver on grounds of public policy or unconscionability is preempted by the Federal Arbitration Act (FAA), but that the FAA does not preempt a state law that prohibits waiver of Labor Code Private Attorneys General Act of 2004 (PAGA) representative actions in an employment contract.  Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032 (Sup. Ct. June 23, 2014).

Class Action Waiver

     In a majority opinion penned by Justice Lui, with Chief Justice Cantil-Sakauye and Justices Corrigan and Kennard concurring, the court holds that Gentry v. Superior Court, 42 Cal.4^th 443 (2007) has been abrogated by SCOTUS precedent. The Justices reject the argument that the employee class action waiver is unlawful under under the National Labor Relations Act.

PAGA Representative Action.

     In March 12, and March 16, 2014 posts, I wrote that we are,

"in a somewhat fuzzy area regarding FAA preemption of California statutory rights to file a court action – especially in those instances where the beneficiary of the statutory right may include the public, and not just the individual who is a party to the arbitration agreement. Example: Private Attorney General Act (PAGA) employment claims.”

     Not so fuzzy anymore with respect to PAGA.

     The Iskanian majority explains that “an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”  The PAGA action is analogous to a qui tam action, brought by an individual, but benefitting the public.  Furthermore, the majority concludes that a PAGA action does not frustrate the FAA’s objectives:

     “Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship.  It is a dispute between an employer and the state, which alleges directly or through its agents . . . that the employer has violated the Labor Code.”

Concurrences and Dissent.

     Justice Chin agrees that Gentry is inconsistent with SCOTUS precedent interpreting the FAA, while disagreeing with some of the majority’s reasoning.  He does not agree that the approach to unconsionability of a majority of the court “may ‘be' squared’ with the high court’s FAA decisions.”  While agreeing the PAGA waiver is unenforceable, Justice Chin takes a different route to get there:  he believes that “the conclusion that the arbitration agreement here is invalid insofar as it forbids Iskanian from asserting his statutory right under PAGA in any forum does not run afoul of the FAA.”

     Justice Werdegar agrees that Iskanian’s PAGA claims are not foreclosed by his employment contract or by the FAA.  But she believes that “[t]oday’s class waivers are the descendants of last century’s yellow dog contracts.”  She believes that the enforcement of class waivers in employment contracts violates the employees’ rights to collective action, and thus constitutes an unfair labor practice.

      BLAWG BONUS:  Justice Werdegar explains that employment contracts prohibiting collective action date to the 19th century, and were first known as “ironclads,” also as “yellow-dog contracts.”  Wikipedia explains:

“A yellow-dog contract . . . is an agreement between an employer and an employee in which the employee agrees, as a condition of employment, not to be a member of a labor union. In the United States, such contracts were, until the 1930s, widely used by employers to prevent the formation of unions, most often by permitting employers to take legal action against union organizers. In 1932, yellow-dog contracts were outlawed in the United States under the Norris-LaGuardia Act.”

Further note:  Before the Norris-LaGuardia Act, SCOTUS declared an act banning yellow-dog contracts unconstitutional in Adair v. United States, 208 U.S. 161 (1908).

Arbitration/Waiver/Employment: Substantial Evidence Supported Finding That Employer Waived Right To Arbitrate

Substitution Of New Named Plaintiff To Represent Class Didn’t “Restart The Clock”.

     In Jacoby v. Islands Restaurants, L.P., No. B250886 (2nd Dist. Div. 5 June 20, 2014) (Turner, Kriegler, Mink) (unpublished), the Court of Appeal ruled that substantial evidence supported the trial court’s finding that defendant employer had waived its right to arbitrate. 

     As readers of this blawg know, findings of waiver are usually very fact specific.  Here, Islands Restaurants filed a demurrer, two motions to strike, a mandate petition, and a review petition in the Supreme Court, and the parties engaged in class-wide discovery.  The case was over two years old and there was a pending class certification motion when defendant filed its motion to compel.  That was “substantial evidence” to support a finding of waiver.

     The one wrinkle is that Chambless, not Jacoby, was the original named plaintiff.  Defendant contended that plaintiff’s substitution as class representative “’reset the clock for purposes of waiver’ jurisprudence.”  Not so, said the Court of Appeal.  Plaintiff Jacoby had always been a putative class member.

Arbitration/Unconscionability: Court of Appeal Concludes That One-Sided “Take It Or Leave It” Agreement With Financially Battered Spanish Speaking Parties Is Unconscionable

Dissenting Justice Would Have Waited For Further Guidance From Supreme Court On Pending Cases

     Nine plaintiffs sued their mortgage foreclosure consultant and others for fraud, breach of contract, and other claims, alleging they were duped into signing their agreements and lost money when they paid for services that were never rendered.  Defendants successfully petitioned to compel arbitration in the trial court, and plaintiffs appealed.  Sabia v. Orange County Metro Realty, Inc., No. B243141 (2nd Dist. Div. 8 June 18, 2014) (published). 

     Justice Rubin, who penned the Court of Appeal decision, concluded:

“[T]he Home Defender contract is unfairly one-sided in two significant respects:  by allowing only Home Defender unfettered access to the courts for any claims it might have against its clients, and by limiting plaintiffs’ access to the courts to only small claims actions, thus cutting off civil actions involving substantial damage claims.  We believe this places it somewhere beyond the middle of the sliding scale.

     The level of procedural unconscionability sits somewhere below the middle of that scale, but not toward the bottom.  Plaintiffs were effectively steered away from examining the contracts and other documents and were not given Spanish language versions even though the negotiations were conducted in Spanish.  Plaintiffs were also in economic distress at the time.”

     Thus, the scales tipped in favor of finding unconscionability, leading to reversal.  Justice Bigelow concurred.

     “I am unable to set aside my doubts,” wrote Justice Grimes, dissenting.  “I would have preferred to stay this case to obtain the benefits of the opinions in cases now pending decision in our Supreme Court . . . “ 

     Stay tuned to hear what the California Supreme Court will say in pending cases addressing enforcement of arbitration, such as Sanchez v. Valencia Holding Co. (review granted March 21, 2012, S199119). 

Arbitration/Enforcement: Lack Of Written Arbitration Agreement Proves Fatal To Funeral Director/Embalmer's Appeal Of Order Denying Petition To Compel

DOA: Neither Appellant Nor Respondents Were Able To Discover Copy Of A Written Agreement To Arbitrate

It was undisputed that in the ordinary course of business, respondents required all employees to sign an arbitration agreement, and it was not clear why the appellant, Mr. Corselli "might have been an exception to this rule." Apparently, the employer's general business practice was the hook upon which plaintiff/appellant hung his petition to arbitrate. The trial court found that Mr. Corselli had not carried his burden to prove the existence of an agreement to arbitrate -- and the Court of Appeal agreed. Corselli v. Service Corporation International, Case No. E056131 (4th Dist. Div. 2 June 13, 2014) (Hollenhorst, Richli, Miller) (unpublished). "In short," wrote Justice Hollenhorst, "Mr. Corselli's evidence shows that it is possible that he entered into an agreement to arbitrate with his employers, but it does not compel such a finding as a matter of law."

Embalming. Library of Congress.

 

Posted with Blogsy

Arbitration/Waiver: Litany Of Facts Supported Trial Court’s Finding Of Waiver

Waiver Of Right To Arbitrate Does Not Require Voluntary Relinquishment Of Known Right

     Plaintiff sued 1-800-GET THIN and several other parties, after undergoing an endoscopic screening procedure for gastric band surgery and allegedly suffering injury.  The trial court denied defendants’ petition to arbitrate, noting “delay and denial of discovery”, and that Plaintiff “will suffer prejudice if the petition is granted.”  Defendants appealed.  Prewitt v. 1-800 GET THIN, Case No. B246574 (2nd Dist. Div. 7 June 10, 2014) (Woods, Perluss, Segal) (unpublished). 

     The Court of Appeal had no trouble affirming the trial court, on the ground that substantial evidence supported the finding of waiver.  Often no one factor is dispositive in deciding whether waiver has occurred.  In fact, the leading case, St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003), sets forth a six factor test for waiver – factors that often overlap.

      Here, defendants had not proceeded expeditiously to request arbitration, they propounded discovery and obtained answers, apparently they did not provide much by way of discovery responses themselves, and they attended court appearances without mentioning arbitration. 

      COMMENT:  The Court notes that the typical meaning of waiver – voluntary relinquishment of a known right – is different from the meaning in the context of a waiver of the right to arbitrate:  “[A] party may be said to have ‘waived’ its right to arbitrate by an untimely demand, even without intending to give up the remedy.  In this context, waiver is more like a forfeiture arising from the nonperformance of a required act.”  Prewitt, supra, quoting Burton v. Cruise, 190 Cal.App.4th 939, 944 (2010).

Arbitration/Vacatur/Standard Of Review: Appellant, Who Failed To Appear At Arbitration, Failed To Show Sufficient Cause For Continuance

All Things Considered . . .

     Appellant Akin’s opening brief stated:  “All things considered . . . it was assumed that the May 30th arbitration had been cancelled.”  The lesson of our next case is that one who fails to show up for a scheduled arbitration hearing had better dot i's and cross t’s . . . or else. Akin v. Prado, No. F066482 (5th Dist. June 9, 2014) (unpublished).  

     Akin wanted to continue an arbitration hearing to complete discovery.  However, Prado refused to do so.  The arbitrator held the hearing, and entered an award in favor of Prado.  The trial court confirmed the award, and denied Akin’s petition to vacate.  Akin appealed.

     Appellant’s fate was sealed by the “substantial evidence” standard of review. “Pursuant to the applicable standard of review, we accept the version of events as found by the trial court, not the version presented by Akin.” 

     Interestingly, Cal. Code of Civ. Proc., section 1286.2(a)(5) specifically provides that an award shall be vacated if the court determines “rights of a party were substantially prejudiced by the refusal of the arbitrators to postpone a hearing upon sufficient cause being shown therefor . . .”  (italics in the opinion). 

    PRACTICE TIP:  The remedy for continuance is to make a proper noticed motion, rather than to assume that the hearing has been cancelled and fail to show.

    COMMENT:  The Court of Appeal’s application of a “de novo standard” to review the trial court’s order (not the arbitration award), coupled with a  “substantial evidence” standard to the extent that the trial court’s ruling rests on disputed factual issues, may at first seem confusing.  The Court of Appeal relies on Lindenstadt v. Staff Builders, Inc., 55 Cal.App.4th 882 (1997) (Masterson, J.), a case holding that a narrow exception to the rule that a court may not set aside an arbitration award even if the arbitrator made an error in law or fact, is the situation where the entire legality of a contract is at issue: public policy requires de novo review of the trial court’s order.  However, the facts of Lindenstadt seem rather afield from those in Akin.  

     The following comment by the Court of Appeal helps us to make sense of how it applied the standard of review:  “The arguments presented by Akin on appeal are based on assertions of fact that are contrary to the findings of the trial court . . . “  In other words, the Court of Appeal is telling us that the trial court had to make findings to reach its conclusion that the rights of a party were not substantially prejudiced by the refusal of arbitrators to postpone a hearing upon sufficient cause – and those findings were supported by substantial evidence.

Arbitration/Disclosures/Vacatur: “Any Professional Relationship” Doesn’t Really Mean Any Professional Relationship With Party Is Basis To Disqualify Arbitrator

How About Two Years – Is Two Years Good For You?

     Brothers appealed from a superior court order denying their petition to vacate several awards of an arbitrator with whom they were dissatisfied.  They contended the arbitrator failed to disclose his professional relationship with opposing party’s counsel.  In 2011, one of the appellants discovered that the arbitrator was a former member of the same law firm as the opposing party’s attorney – a professional relationship that ended in 1996.  The arbitrator had been engaged in 2001, and had performed arbitration services for the parties until he resigned in 2011.  Estate of Mapes, A136086 (1st Dist. Div. 2 June 3, 2014) (Kline, Richman, Brick) (unpublished).

     Though Code of Civ. Proc., section 1281.9 requires disclosure of “any professional or significant personal relationship”, evolving case law doesn’t require disclosure of any professional relationship.  Pointing to rules that are concerned about only two years of relationships (Ethics Stds., std. 7(d)(8)(A), Code of Civ. Proc., section 170.1(a)(2)), the Court concluded a five year old relationship did not need to be disclosed.

      For good measure, the Court also concluded appellants were aware of the professional relationship, and failed to raise the issue timely.  Courts do not like sandbagging – waiting “until the arbitration was over, and then [moving] to vacate the award, despite having failed to move to disqualify the proposed arbitrator before the arbitration commenced.”  Dornbirer v. Kaiser Foundation Health Plan, Inc., 166 Cal.App.4th 831, 846 (2008).

      Affirmed.

     CAUTION:  Don’t view the two year limitation as an absolute safe harbor.  Section 1281.9(a) also requires that a proposed neutral arbitrator disclose “all matters that could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.”

Ninth Circuit Punts On Existence Of Federal Mediation Privilege

Maricopa County Waived Argument That Evidence Admitted To Show Settlement Should Be Privileged Under Federal Law

     87 Yard Punt . . .

     In Wilcox v. Arpaio, No. 12-16418 (9th Cir. Feb. 2, 2014) (Tashima, Farris, Reinhardt), the Ninth Circuit avoids having to “determine whether a mediation privilege should be recognized under federal common law and, if so, the scope of such a privilege.”  The panel punted on the issue when it determined that Maripoca County, which did not want a settlement agreement enforced, had failed to argue that evidence of settlement should be privileged under federal law, by instead staking the erroneous position that state law governed. 

      Here are the points about the “privilege” that we can glean from the opinion:

• Federal common law generally governs a claim of privilege.  Federal Rule of Evidence 501.
• In a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.  Id.
• The admissibility of evidence of settlement reached during mediation of federal and state law claims is governed by federal privilege law.

     How did these rules play out here?

     Plaintiffs brought claims against Maricopa County and certain officials alleging wrongful investigation, prosecution, harassment, and retaliation -- federal claims pleaded under 42 U.S.C. section 1983, and supplemental state law claims.   Therefore, the admissibility of evidence that plaintiffs reached a settlement with defendants will be decided under federal law.  Under federal law, there is no statutory mediation privilege – leaving the murky status of the privilege to be decided under federal common law.  But here, the Court of Appeal did not have to decide the interesting question.

     Because Maricopa County staked the (incorrect) position that the privileged status of the evidence had to be decided under Arizona state law, it forfeited the argument that the evidence was privileged under federal law.

     And so the district court did not err by admitting evidence of settlement and enforcing the settlement.  Affirmed.

     NOTE:  On February 24, 2012, I blogged about Facebook, Inc. v. Pac. New. Software, Inc., 640 F.3d 1034 (9th Cir. 2011), a case now described in Wilcox v. Arpaio as:

“applying state contract law to determine in mediation the parties reached an enforceable settlement of plaintiffs’ federal and state law claims, but applying federal privilege law to determine what evidence from mediation was admissible in support of that determination.”