California Mediation and Arbitration

Arbitration/Agents/Nonsignatories/Scope: Executives Sued As Agents Of Company Entitled To Take Advantage Of Arbitration Provision In Contract Between Company And Shareholder

     Plaintiff Alston, the founder of GB, brought a private equity firm into GB in exchange for the firm’s investment in GB to help build the company.  Fast forward -- Alston is terminated by GB as a director, and sues GB and two executives, alleging misrepresentation, declaratory relief, defamation, interference, and wrongful termination.  Because Alston has an arbitration agreement with GB, defendants successfully move to compel arbitration.  Arbitration does not go well for Alston, who unsuccessfully petitions to vacate an adverse award.  Alston timely appeals from judgment, arguing the trial court erred by sending the entire case to arbitration.   Alston v. Hoge, A139778 (1/1 July 29, 2014) (Margulies, Dondero, Banke) (unpublished).

     Alston’s chief argument on appeal is that the executives, who are not signatories to his agreement with GB, cannot enforce the arbitration agreement.  However, the Court of Appeal disagrees, relying on the principle, “that agents of a signatory party, sued in that capacity by another party to an agreement, are entitled to the benefit of the agreement’s arbitration provisions.” 

      The remaining issue was whether the scope of the arbitration agreement was sufficiently broad to cover all of Alston’s claims.  Yes:  “The arbitration agreement in this case covered all claims, disputes, and controversies of any nature arising out of or relating to (1) the Agreement; (2) the interpretation, enforcement, breach, performance, or execution of the Agreement; and (3) Alston’s ‘relationship’ with GB or the termination of that relationship.”

     A simple affirmance of the judgment.

Arbitration/Employment/Unconscionability/Severance: Court Affirms Order Denying Employer’s Petition To Compel Arbitration

 

Permeated With Unconscionability, Agreement Did Not Require Severance.

     Mr. Ryan, an employee in the construction industry, claimed that he was fired in a retaliatory move by his employer.  The employer petitioned to compel arbitration.  The trial court denied the request, finding the mandatory employment arbitration agreement contained unconscionable provisions, and refusing to sever those provisions.  Employer appealed.  Barnum v. Paul Ryan Associates, Inc., A138345 (1/2 July 30, 2014) (Kline, Richman, Brick) (unpublished).

      Affirmed.

      Here, the employment agreement incorporated, but did not attach applicable AAA rules.  The Court of Appeal acknowledged that whether that renders the agreement unconscionable “turns heavily on the circumstances.”  As is common, the employment contract was adhesive.  But the real zinger here was that the agreement incorporated a pre-arbitration internal dispute resolution mechanism within the control of the employer, and not requiring use of a neutral mediator, resulting in a procedure that “even the most diligent employees could not learn of or anticipate at the time they agreed to arbitrate.”  Thus, the circumstances added up to procedural unconscionability.

     Lack of mutuality resulted in substantive unconscionability.  Claims likely to be brought by the employee, concerning hiring, employment, or termination, had to be arbitrated, whereas equitable or injunctive relief claims likely to be brought by the employer could be brought in court.  In addition, the pre-arbitration internal dispute resolution procedure added to the lack of mutuality by giving the employer a “free peek” at the employee’s case, without giving the employee the benefit of a neutral mediator.

     The Court held that “the trial court did not abuse its discretion in determining that the agreement is permeated with unconscionability and cannot be enforced.”

Arbitration/Employment/Class/Waiver: Second District, Div. 1 Follows Supreme Court Iskanian Precedent Holding That Right To Bring A Representative Action Under The Private Attorneys General Act (PAGA) Can’t Be Waived

Waiver Is Contrary To Public Policy And PAGA Dispute Is Between Employer And The State.

     “The sole issue presented on appeal is the enforceability of a waiver of the right to bring a representative action . . . under PAGA . . . That issue has recently been resolved against Pep Boys by the Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC (June 23, 2014, S204032) ___ Cal.4th ___ (Iskanian).  We therefore affirm.”  Venegas v. The Pep Boys Manny Moe & Jack of California, B249579 (2/1 July 30, 2014) (Rothschild, Chaney, Miller) (unpublished).

     In my June 23, 2014 post on Iskanian, I quoted from the majority opinion:

“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.”

     That seems to succinctly explain why the class action waiver need not be enforced.  In Venegas, because “the parties agreed that representative actions must be litigated if the representative action waiver is found unenforceable,” the Court of Appeal ordered Venegas’s PAGA claim to proceed in court, not in arbitration. 

Mediation/Confidentiality/Family Law/Settlement Agreement: Affirming Trial Court, Second District, Division 1 Agrees Stipulated Judgment Reached Through Mediation Is Enforceable, Despite Failure To File It In Dissolution Proceedings, And Dismissal Of Mari

Stipulated Judgment May Not Have Contained Magic Words, But It Was Sufficient To Express Parties’ Intent To Waive Confidentiality And Allow Enforcement

     Daly v. Oyster, B249255 (2/1 July 29, 2014) (Chaney, Johnson, Wiley) (published) deals with that nettlesome situation that sometimes arises after mediation when papers are not filed with the court, the case is eventually dismissed, and one of the parties then seeks to enforce the settlement. Does the confidentiality of mediation prevent introduction of the stipulated judgment into evidence? Has a party simply waited too long to enforce the agreement? Has the court lost jurisdiction to enforce?

    In 1981 Joanne Daly and David Oyster married. In 2004 they separated.  In 2005, Daly filed a marital dissolution petition.  In June 2006, the parties entered into a stipulated judgment following mediation.  In May 2011, the superior court dismissed Daly's petition for lack of prosecution.  In June 2011, Daly filed a second dissolution petition to enforce the stipulated judgment. Apparently wanting to open up the proceedings and seek modifications, Oyster objected to admission of the stipulated judgment on the ground it was protected by the mediation privilege, Evid. Code section 1119.

     The Court of Appeal, however, disagreed with Oyster.  One exception to mediation confidentiality is a written settlement agreement providing “that it is admissible or subject to disclosure or that it is enforceable or binding, or words to that effect.”  That little tail -- “words to that effect” – means that magic words are not necessary.  It is enough if the terms unambiguously signify the parties’ intent to disclose the agreement or be bound by it.  Such was the case here:  “The parties agreed the court would enforce the document, which it could not do unless the document was disclosed to it.” 

     Did the time to enforce the stipulated settlement run out, given that the divorce took longer than five years, and the underlying case was dismissed after five years?   No – there was no authority that the statute of limitations for asserting breach of the agreement created a deadline for seeking to enforce it.  But for good measure, even if a statute of limitations was running, Daly could have filed the stipulation until the case was dismissed in June 2011, after which she would have had four years to sue for breach of a written agreement.

     PRACTICE TIP:  Include language that your settlement agreement, achieved through mediation, is admissible, subject to disclosure to the court, enforceable, and binding, and you eliminate one problem encountered by Daly. 

Arbitration/Employment/Waiver: Employer Did Not Waive Right To Enforce An Arbitration Agreement By Waiting Until Employee’s Wage Claim Had Been Heard In A Berman Hearing

 

Employer Did Not Waive Its Right To Arbitrate Wage Claim And So Trial Court’s Order Denying Employer’s Motion To Compel Arbitration Is Reversed

     Fremont Automobile Dealership, LLC, A137266 (1/2 July 23, 2014) (Richman, Kline, Brick) (unpublished) addresses the still somewhat murky relationship between the interaction of an arbitration agreement and the statutory right to a Division of Labor Enforcement hearing under Labor Code section 98 – a so-called “Berman Hearing.”  “As an alternative to an ordinary civil action for unpaid wages, an employee may file a wage claim with the Labor Commissioner pursuant to Labor Code section 98, et seq.  This is commonly known as the ‘Berman’ hearing procedure.” Fremont Automobile Dealership, n.2.

     The issue here was that employee’s claim was successfully resolved in favor of employee through a Berman hearing, with the employer, just before the hearing, seeking to enforce an arbitration agreement.  The Court of Appeal seemed to think that the employee had not preserved the issue of “waiver” of the employer’s right to arbitration below.  However, even if waiver was an issue that had been preserved for the appeal, a critical issue in determining whether the right to compel arbitration has been waived is the presence or absence of prejudice.  Because Kim’s employer Fremont Toyota “was entitled to a de novo review by the trial court of Kim’s claim” pursuant to Labor Code section 98.2(a), the Court of Appeal found that the employer “did not gain any advantage for the arbitration that it would not hav e had in the trial court’s de novo review.”  No prejudice, no waiver here. 

     The trial court’s order denying employer’s petition to compel arbitration was reversed.

Arbitration: Arbitrator Did Not Exceed His Powers Nor Did Trial Court Err By Failing To Issue Statement Of Decision

     Here, the landlord-tenant dispute arose because the tenant’s husband tragically died in an automobile accident, sometime after which rent payments ceased.  The parties arbitrated their claims, and the arbitrator awarded $180,000 to landlord, discounting landlord’s claims of nearly $1.3M in damages chiefly because landlord failed to properly mitigate damages.  The trial court confirmed the award, and tenant appealed.  Gardyn v. Sangha, A134558 (1/3 July 21, 2014) (Siggins, Pollak, Jenkins) (unpublished.)

    First, the tenant argued that arbitrator exceeded his powers, because he had taken equity into account, despite the fact that the arbitration clause required disputes between the parties to be decided “in accordance with substantive California law.”  The Court of Appeal, however, believed that the arbitrator, in considering fairness and equity, properly took into account the landlord’s mitigation efforts and other factors, so as not to depart from substantive California law.  For good measure, the Court added:  “’Even where application of a particular law or body of law is required by the parties’ arbitration agreement, an arbitrator’s failure to apply such a law is not in excess of an arbitrator’s powers within the meaning of section 1286.2, subdivision [(a)(4)],” citing Marsch v. Williams, 23 Cal.App.4th 238,244 (1994).  (Evidently the arbitration agreement needs a tighter drafting solution for the arbitrator to exceed his powers!).

     Second, the Court rejected the argument that the trial court erred by failing to issue a statement of decision.  Findings of fact are not required in arbitration matters if the issues presented and determined raise only questions of law – as was the case here.

     Affirmed.

Class Arbitration/Appealability: Second District, Div. 2 Agrees With Those Courts That Have Ruled That Arbitrator, Rather Than Court, Decides Whether Parties Agreed To Class Arbitration

Law Concerning “Gateway Issues” Is Messy

Court Of Appeal Also Had To Overcome Procedural Hurdle Of Appealability To Address The “Gateway” Procedural Issue

     So-called “gateway” issues concerning whether the parties have submitted a particular dispute to arbitration are generally decided by a judge, not an arbitrator, unless the parties have agreed to delegate the power to decide the issue to the arbitrator.  The question presented in Sandquist v. Lebo Automotive, Inc., B244412 (2/7 July 22, 2014) (Segal, Perluss, Woods), is “whether the parties agreed to class arbitration was for the arbitrator rather than the court to decide. . . .”  Put another way, is that issue a gateway issue?

     The Court of Appeal acknowledges, “[c]ourts that have decided the issue have reached conflicting conclusions.”  However, the Court of Appeal finds persuasive the plurality opinion in Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (2003) that the arbitrator, not the court, determines whether the arbitration agreement provides for class arbitration where the arbitration agreement is silent.  The Court views the issue presented as one concerning a “procedural device,” rather than a “gateway” issue, and thus as an issue for the arbitrator to decide.

      This seems to be an issue that the Court really wanted to reach, because in order to address it, the Court had to “liberally construe” the notice of appeal of an August 14, 2012 order “to encompass the trial court’s October 5, 2012 order.”  The August 14 order, granting a motion compelling the plaintiff to arbitrate his individual claims, and dismissing class claims without prejudice was not appealable, A) because motions granting an order to compel arbitration are not appealable; and B) the “death knell” doctrine, applying to orders that effectively terminate class claims but permit individual claims to continue, did not apply here to class claims dismissed without prejudice.  But the October 5, 2012 order, dismissing class claims with prejudice, was appealable under the death knell doctrine.  So with the application of a little appellate court judicial jujutsu, Mr. Sandquist’s appeal was successful. 

     Photo from 1922 publication.  Wikipedia article, “Jujutsu.”

     The trial court’s order dismissing class claims was reversed and the matter remanded to the trial court “with directions to vacate its order dismissing class claims and to enter a new order submitting the issue of whether the parties agreed to arbitrate class claims to the arbitrator.”

Mediation/Settlement Agreement: When Class Has Not Yet Been Certified, Putative Class Rep Cannot Consent To Temporary Judge On Behalf of Absent Putative Class Members

Trial Judge Refuses To Appoint Retired Judge Who Mediated The Class Action Dispute As Temporary Judge

      Petitioner Luckey’s mediation of a class action lawsuit with defendants resulted in a settlement agreement pursuant to which the parties stipulated to appoint a temporary judge to hear the matter “until final determination thereof.”  The parties intended that the temporary judge would decide issues related to preliminary and final approval of the class action settlement, and that the same retired judge who had served as mediator would act as the temporary judge and be privately compensated.  The trial judge, however, declined to appoint a temporary judge, leading to plaintiff/petitioner Luckey’s writ petition seeking relief.  Luckey v. Super. Ct., B253892 (2nd Dist. Div. 3 July 22, 2014) (Croskey, Kitching, Aldrich).

     The Court of Appeal denied the writ petition:

“We conclude that the California Constitution, the California Rules of Court, and public policy concerns all preclude the appointment of a temporary judge for purposes of approving the settlement of a pre-certification class action. When the class has not yet been certified, the putative class representative has no authority to consent to a temporary judge on behalf of the absent putative class members.”

    The Court mentioned two interesting issues that, however, it did not decide: (1) following class certification, does the class representative have authority to consent to a temporary judge on behalf of absent class members?  (2) are any ethical issues raised by having the same individual who mediated a settlement agreement act as a temporary judge in the matter?

Arbitration/Choice of Law/FAA/Employment/Unconscionability: Court of Appeal Concludes Plaintiff’s Wage Claims Are Encompassed By Parties’ Contractual Agreement, Reversing Trial Court’s Denial Of Petition To Compel Arbitration

 

Also, Burdens Upon The Employee Were Not So Great As To Make Arbitration Provision Unconscionable

     In our next case, the Court of Appeal, in a published opinion, reversed the trial court’s denial of a petition to compel arbitration.  Galen v. Redfin Corporation, A138642 (1st Dist. Div. 1 July 21, 2014) (Dondero, Margulies, Becton) is an indication the law concerning arbitrability of employment claims is in a state of flux, sometimes creating substantial uncertainty as to whether an arbitration provision will be enforced.

     The trial court concluded that plaintiff’s claims were based on statutory violations that were not encompassed by the parties’ agreement, and that if the claims were encompassed, the arbitration provision was unconscionable.  The Court of Appeal disagreed on both points.

     The trial court concluded that the Federal Arbitration Act (FAA) applied to the agreement; that California law applied because a Washington choice-of-law provision disclaimed the application of Washington law; that wage claims were outside the arbitration agreement; and that the arbitration provision was procedurally and substantively unconscionable.

     The Court of Appeal agreed that the FAA applied.  The Court found the choice-of-law provision, disclaiming the application of Washington “conflict or choice of law” laws  to be ambiguous, and therefore applied California law.  The Court interpreted the arbitration provision, which applied to disputes “arising out of or related to” the employment agreement, to include Labor Code section 229 wage claims.  The Court’s discussion distinguishing and disagreeing with other California appellate cases is worth reading.

     The Court assumed some element of procedural unconscionability – the contract was adhesive – but did not view the procedural issues as serious ones creating surprise or oppression.

     Most interesting were the Court’s holdings on substantive unconscionability. 

     First, the Court was not troubled by the fact that the agreement included a reciprocal attorney’s fees provision, even though California Labor Code provisions did not allow the employer to get fees: 

“It is true that a plaintiff employee is not responsible for the employer’s attorney fees if the employer prevails on an employee’s overtime claim. (Lab. Code, § 1194, subd. (a); Earley v. Superior Court (2000) 79 Cal.App.4th 1420, 1429.) Nevertheless, we cannot conclude that a mutual attorney fee provision ‘shocks the conscience’ simply because it fails to contemplate that there are some Labor Code claims that do not allow a prevailing employer to recover attorney’s fees from an employee.”

    Second, the Court did not believe that plaintiff had “shown that the forum-selection clause is so one-sided as to ‘shock the conscience,’ or that it imposes harsh or oppressive terms.”  The forum selection clause required plaintiff to arbitrate his employment claims in Washington, though he lived in Danville, California.

     Reversed.

Arbitration/Enforceability/Nonsignatories: Defendant Fails To Sustain Burden Of Showing Plaintiff Signed Arbitration Agreement

Declarants Lacked Personal Knowledge

     If you want to compel arbitration, it sure helps to have a signed arbitration agreement, as defendant Wells Fargo discovered in Bachenheimer v. Wells Fargo Bank, N.A., B251980 (2nd Dist. Div. 5 July 21, 2014) (Turner, Mosk, Mink) (unpublished). 

     Plaintiff, who suffered from traumatic brain injury, invested her savings with Wachovia, and lost those savings.  Because Wells Fargo took over assets from Wachovia, Wells Fargo was sued.  The trial court denied Wells Fargo’s petition to compel arbitration, because Wells Fargo was unable to prove the existence of an arbitration agreement.

     Wells Fargo did, however, produce declarations establishing that the ordinary course of business required the investor to sign an arbitration agreement, before an account would be opened. Wells Fargo conceded that the original documents had been lost or destroyed.

     The declarations were not good enough to establish an arbitration agreement, because the declarants lacked first-hand knowledge that plaintiff had signed an arbitration agreement. 

     Thus, the order denying the motion to compel arbitration was affirmed.

     Coffey v. Beverages & More, a case that I posted about on April 14, 2014 dealing with an on-line signing procedure, is another example of a defendant failing to establish that the arbitration agreement had been signed.