California Mediation and Arbitration

Arbitration/Record/1281.2: Second District, Division 2 Affirms Trial Court’s Order Denying Petition To Compel Arbitration, Based On Slim Record

A Statement of Decision Couldn’t Have Hurt Appellants Here

     The facts are somewhat odd here.  Defendants/Appellants were involved in a fee dispute with Plaintiff/Respondent, a law firm.  Defendants moved to compel arbitration, while arguing that the parties’ agreement, governed by the Los Angeles County Bar Association rules, did not allow the arbitrators to decide an alter ego claim. Plaintiff pointed out some of the interested parties were not subject to arbitration, but expressed a willingness to arbitrate, “noting that the only issue in dispute was whether the arbitration would include the alter ego claim.”  The trial court said that if the parties “’really want to arbitrate, I’ll let you stipulate to arbitrate’ but emphasized that any arbitration must be ‘all or nothing.’”  You guessed it – no stipulation, so no arbitration.  Defendants appealed.  Tesser Ruttenberg & Grossman LLP v. Forever Entertainment LLC, B249042 (2/1 Aug. 27, 2014) (Chavez, Boren Ashmann-Gerst) (unpublished). 

     The appellants failed to establish reversible error, perhaps because they failed to request a statement of decision.   An order denying a petition to compel arbitration “is presumed to be correct, and all intendments and presumptions are indulged to support the order on matters at to which the record is silent.”  Here, the record appeared to be silent on matters as to which Appellants argued the trial court had gone sideways.  “The presumption of correctness is particularly applicable when, as was the case here, defendants failed to request a statement of decision explaining the factual and legal basis for the trial court’s ruling denying their motion to compel arbitration.”

     That meant that the Court of Appeal only had to find one ground that would support the trial judge’s order, and it did in Cal. Code of Civ. Proc., section 1281.2(c), giving the trial court discretion to deny arbitration so all issues between the parties are resolved in a judicial proceeding. 

     Defendants argued that the record contained no ruling under section 1281.2(c).  No matter.  “Their failure to request a statement of decision resulted in the forfeiture on appeal of any objection based on the absence of such findings or ruling.”  Surely there is a moral here.

    Comment:

    If the Federal Arbitration Act alone had governed the arbitration, Cal. Code Civ. Proc. section 1281.2(c) would have been preempted, and would not have been a basis for denying arbitration.

Arbitration/Employment/Enforceability/Unconscionability: 2nd District, Div. 1 Reverses Order Denying Motion To Compel Arbitration (Published), And 4th District, Div. 3 Affirms Order Denying Motion To Compel Arbitration (Unpublished) In Employment Cases

The Divergent Outcomes Are Explained By The Peculiar Facts (Of Course)

1.  Cruise v. Kroger Co., B248430 (2/3 Aug. 27, 2014) (Aldrich, Klein – third member of panel unavailable).

     Employer Kroger Co., parent of Ralphs, which had loaded an arbitration policy with one-sided provisions favoring the employer, moved to compel arbitration of an employment discrimination action.  Unpersuaded that the arbitration policy really existed when the employee read and signed the employment application, the trial court denied Kroger’s motion. 

     In what could only be described as an ironic twist, the Court of Appeal accepted the trial judge’s finding that the stand-alone four-page arbitration policy may not have been part of the employment agreement, and concluded that here, that helped the employer  -- and possibly saved Kroger from having to defend an unconscionable arbitration policy.

     Here, the employment application itself contained a broad agreement to arbitrate employment-related disputes, separate and apart from the arbitration policy document.  The failure to incorporate the additional arbitration policy simply meant that the relationship between the parties would be governed by the California Arbitration Act, requiring an arbitrator to be chosen pursuant to the provisions of the CAA.

     Also, the employer’s failure to incorporate the arbitration policy document very possibly stopped the Court of Appeal from torpedoing that policy, because the arbitration policy presented serious lopsidedness issues.  Under the terms of the arbitration policy, arbitrators from the AAA and JAMS were not permitted to administer the arbitration – making it more likely, in the view of the trial judge, that Kroger would be able to hand-pick an individual arbitrator dependent on Kroger’s patronage.  The trial judge also found that a fee provision requiring plaintiff to pay 50% up front for the arbitration was unconscionable under Armendariz.  Also, the arbitrator was only empowered to resolve a fee dispute if there was on-point US Supreme Court authority . 

      Fortunately (at least for the employer), because Kroger was unable to establish the contents of the arbitration policy were effective, the arbitration was controlled by California statutory and case law.  Therefore, plaintiff’s arguments “that Kroger’s Arbitration Policy is procedurally and substantively unconscionable are meritless.”

2.  Carter v. Fannie Mae, G049112 (4/3 Aug. 26, 2014) (Bedsworth, Fybel, Thompson) (unpublished).

     Carter sued her former employer, Fannie Mae, for whistleblower retaliation.  Fannie Mae moved, unsuccessfully, to compel arbitration, and appealed.  The Court of Appeal explains that Carter did have an implied-in-fact agreement to arbitrate, but that the agreement is one-sided, and therefore substantively unconscionable.  Specifically, “the contract cannot be enforced because it exempts the kinds of claims that Fannie Mae is likely to bring against employees, such as trade secret claims.”  

    The Court of Appeal refused to sever the unconscionably one-sided provisions:  “We would have to rewrite the arbitration clause – which we cannot do – or somehow choose ‘what to leave in, what to leave out’ [quoting ‘Against the Wind,’ Bob Seger, 1980] which is also beyond our mandate.”

    Comment:  Note that Cruise v. Kroger, supra, didn’t address the need to sever, presumably because Kroger failed to establish that the provisions in its four-page arbitration policy, lopsided or otherwise, were ever part of the arbitration agreement.

Arbitration/Disclosure/Waiver: 5th District Narrowly Construes Statutory Language That Ethics Requirements Applicable To Arbitrators “Are Nonnegotiable And Shall Not Be Waived”, Concluding Certain Disclosure Requirements Can Be Waived

It All Depends On What “Waiver” Means

     In United Health Centers Of The San Joaquin Valley, Inc. v. Superior Court of Fresno County, Case No. FO67763 (5th Dist. Aug. 25, 2014) (Gomes, Kane, Detjen), Dr. Jennifer Vradenburg-Haworth, the Real Party in Interest, sued her employer UHC in a wrongful termination case, was compelled to arbitrate, didn’t like the arbitrator’s award, and tried to get the trial court to vacate the arbitration award because the arbitrator admittedly failed to comply with the mandatory disclosure requirements of Cal. Code Civ. Proc., sections 1281.9 and 1281.85.  And in fact she succeeded in getting the trial judge to vacate the arbitration award, prompting UHC to initiate a writ proceeding.. 

     The trial court refused to follow Dornbirer v. Kaiser Foundation Health Plan, Inc., 166 Cal.App.4th 831 (2008), “in which the appellate court held that the statutory scheme does not require an arbitration award be vacated when the arbitrator has disclosed the grounds for disqualification generally, but has not provided all of the specific details required by section 1281.9, and the parties nevertheless agreed to proceed with the arbitration.”  Why didn’t the trial court believe that Dornbirer was good law?  Because Cal. Code Civ. Proc., section 1281.85(c) provides that ethics requirements and standards applicable to arbitrators “are nonnegotiable and shall not be waived.”

     This required the Court of Appeal to confront whether Dornbirer has been overruled by the explicit statutory language – and just exactly what “waiver” means.

     The Court of Appeal explains that “'’waiver’ can have multiple meanings.”  The Court endorses the position that section 1281.85(c), was enacted to “prohibit contractual waivers of the statutory right to disqualify an arbitrator, not forfeitures of rights resulting from the failure to perform an act.”  Given this narrow reading of the meaning of “waiver”, the Court rejects “Vradenburg-Haworth’s contention that Dornbirer has been overruled by statute.”

     Because the trial court rejected the applicability of Dornbirer, it never reached "[t]he issue in this case . . . whether the facts, as presented in the declarations filed below, show that Vradenburg-Haworth’s attorneys had actual knowledge of a ground for disqualification before the arbitration commenced.”  Therefore, the Court of Appeal granted the writ petition, and the superior court must now reconsider the parties’ petitions in light of the Court’s view that Dornbirer is good law, and that “waiver” can occur by sitting on one’s rights after learning of grounds for disqualification.

     Comment:  The rule applied by the trial court – that disclosure requirements are nonnegotiable and shall not be waived – is a bright and broad line.  The narrower reading of the meaning of waiver, allowing for waiver of disclosure requirements when a party is “on notice of a ground for disqualification, yet failed to inquire further,” will require a more probing and complicated inquiry.  

News/Employment/Arbitration: Outcomes Of Employment Arbitration Versus Litigation Are Quantified In Recent Study

Mark D. Gough Of The Cornell University School Of Industrial & Labor Relations Has Studied The Outcomes

     Mark D. Gough has published in the Berkeley Journal of Employment and Labor Law the results of a study of some 700 employment discrimination cases – and the results  are striking, whether looked at from the perspective of management or labor.

     Matthew M. Sonne, an attorney with an employer-based practice, draws the following conclusion from Dr. Gough’s study:  “Should the Company Utitilize Arbitration Agreements?  A Recent Empirical Study Says, ‘Yes.’” The Pros and Cons of Employment Arbitration Agreements, Orange County Business Journal, August 18, 2014, p. B-53.

    Hunter Pyle, an attorney with an employee-based practice, surely agrees that arbitration agreements benefit employers, but has a different slant, as represented by his blog post entitled, “The Profoundly Negative Impact of Arbitration on Workers’ Rights.”  Workers’ Rights Blog, March 2, 2014, published by Sundeen Salinas & Pyle. 

    While I have not found Dr. Gough’s article on line, Mssrs. Sonne and Pyle have summarized some of the key findings:

• Employees pursuing employment discrimination litigation in courts were nearly 40% more likely to win.  (Sonne).
• Employee discrimination awards in court were nearly twice as large as in arbitration.  (Sonne).
• The average award to a successful discrimination plaintiff in court was  $802,487, versus $412,052 in arbitration.
• “Arbitration decreases the odds of an employee win by 59%.” (Pyle).
• “Award amounts decrease by 35% in arbitration.”  (Pyle).

    Take a look at my earlier August 15, 2014 post entitled, “Executive Order Limits Pre-Dispute Arbitration Clauses For Federal Contracts Exceeding $1 Million In Title VII And Sexual Assault/Harassment Cases” – and draw your own conclusions.

Arbitration/Nonsignatories: Ninth Circuit Raps Browsewrap Contract, Affirming Order Denying Motion To Compel Arbitration

A Progression:  From Shrink Wrap To Browsewrap To Clickwrap Contracts 

     Above:  Shrink wrapped helicopters to be shipped to Iraq.  US Navy photo, Bart Jackson.  Wikimedia Commons.

     In a case that will be important to e-commerce merchants, and on-line consumers, a Ninth Circuit panel holds that Barnes & Noble’s website provided insufficient notice of its Terms of Use, and thus, insufficient notice of an agreement to arbitrate claims.  Kevin Khoa Nguyen v. Barnes & Noble Inc., No. 12-56628 (9th Cir. Aug. 18, 2014) (Noonan, Wardlaw, Silver). 

     The Terms of Use, available via a hyperlink in the corner of every page of the Barnes & Noble website, was part of a “browsewrap” agreement.  The Court explains that contracts formed on the Internet “come primarily in two flavors” – “clickwrap” and “browsewrap.”  With a clickwrap agreement, the user affirmatively consents to the terms and conditions of use by clicking on an “I agree” box.  With a browsewrap agreement, however, “a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen.”

     The Court does not exactly chuck browsewrap agreements out the window, because it explains that “the validity of the browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.” 

     “[P]roximity or conspicuousness of the hyperlink alone is not enough to give constructive notice,” explains the Court.  Instead, something more is needed, “to capture the user’s attention and secure her assent.”  Fn. 1.  Here, even though the website link to Terms of Use may have been conspicuous, “there is no evidence that the website user had actual knowledge of the agreement . . . “

     The Court holds, “in keeping with courts’ traditional reluctance to enforce browsewrap agreements against individual consumers”, that:

“where a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on – without more – is insufficient to give rise to constructive notice.”

      NOTE:  This case should help e-commerce merchants see the benefits of clickwrap over browsewrap agreements.

Arbitration/Class: Trial Court’s Order Denying Class Certification Because Putative Members Signed Releases And Arbitration Agreements Is Reversed

Popping Affirmative Defenses Without Adequate Notice Surprised Plaintiffs

     The employer here tried to gut plaintiff’s efforts to certify a class of 53 individuals in a wage dispute by producing evidence that “44 of those individuals had settled their claims or agreed to arbitrate their claims against the defendant.”  The employer was successful in the trial court, because the trial judge denied certification on the ground that the putative class members were not numerous enough to be certified as a class.  Plaintiffs appealed. Hendershot v. Ready to Roll Transportation, Inc., B247730 (2/3 Aug. 14, 2014) (Croskey, Klein, Aldrich).

     The order was reversed on three grounds.

     First, the court’s analysis of the “numerosity” factor was incorrect.  There is no hard and fast rule on numerosity, and the trial court concluded that nine members was not numerous enough, without adequate explanation. 

     Second, by “essentially” ruling that the defendant’s affirmative defenses based on releases and arbitration agreements had merit, the trial court improperly considered the merits of the affirmative defenses – something it should not have done at the certification stage.  One problem with this was that “these agreements did not require that the parties arbitrate their disputes until a party requested arbitration” – and defendant had not stated whether it would request arbitration.  Fn. 8.

     Third – and perhaps this is what bothered the Court of Appeal most – there was a lack of proper notice, because the releases and arbitration agreements were sprung on plaintiffs late.  “The plaintiffs now argue that the assertion of these defenses took them by surprise and prejudiced them,” explained the Court of Appeal, adding:  “It clearly did.”  One senses a disapproval of sharp practices at work here.

News/Employment/Civil Rights: Executive Order Limits Pre-Dispute Arbitration Clauses For Federal Contracts Exceeding $1 Million In Title VII And Sexual Assault/Harassment Cases

Fair Play and Safe Workplaces Executive Order Is Announced July 31, 2014

     One of the impactful judicial trends in recent years has been the expanded use of arbitration in employment disputes.  Counter to that judicial trend is the recent Executive Order announced July 31, 2014 by the White House.

     Section 6 of the Executive Order provides:

“Complaint and Dispute Transparency.  (a) Agencies shall ensure that for all contracts where the estimated value of the supplies acquired and services required exceeds $1 million, provisions in solicitations and clauses in contracts shall provide that contractors agree that the decision to arbitrate claims arising under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment may only be made with the voluntary consent of employees or independent contracts after such disputes arise.  Agencies shall also require that contractors incorporate this same requirement into subcontracts where the estimated value of the supplies acquired and services required exceeds $1 million.”

     There are particular exclusions from this requirement for contracts or subcontracts for the acquisition of commercial items or commercially available off-the-shelf items; for employees covered by collective bargaining agreements; and, for valid contracts to arbitrate entered into prior to the bidding covered by this Executive Order.

     

Arbitration/Gateway Issues/Waiver/Employment: Court Of Appeal Affirms Order Denying Employer’s Motion Seeking To Compel Kurt The CyberGuy To Arbitrate

Opinion Addresses Substantive Versus Procedural Arbitrability – And Who Gets To Decide

     Kurt Knutsson, aka Kurt the CyberGuy, and his company, Woojivas, Incorporated, filed claims against KTLA, LLC, a television broadcaster, for breach of contract, misappropriating CyberGuy’s name and likeness, unfair business practices, and age discrimination.  The company brought a motion to compel arbitration that the trial court denied, leading to an appeal.  Knutsson v. KTLA, LLC, B251567 (2/5 Aug. 12, 2014) (Turner, Mosk, Kriegler). 

     Defendant argued that plaintiffs were bound by a personal services agreement to an arbitration clause in a collective bargaining agreement that contained a tiered grievance procedure.  That procedure included three steps:  (1) the union or employee were allowed to resolve a grievance by discussion with a supervisor; (2) if the union was dissatisfied with the supervisor’s resolution of the matter, it could formally present a grievance to a manger; (3) the union could (a) file an appeal followed by a discussion process; (b) if that did not resolve the dispute, arbitration could result.

     The defendant’s problems were several:  first, “defendant has forfeited the right to compel compliance with the collective bargaining agreement’s non-arbitration provisions” in the grievance process by moving to compel arbitration without mentioning steps one and two; second, the arbitration provisions simply did not say that the defendant could compel arbitration – only the union could compel arbitration; and third, the trial court, not the arbitrator, was entitled to resolve the substantive arbitrability issue – a so-called “gateway issue.”

      The last issue – whether the court or the arbitrator gets to decide arbitrability – is the most interesting.  By labeling the issue as a substantive arbitrability issue, the Court of Appeal telegraphed that this was a gateway issue for the trial judge to decide. 

      When the issue of “arbitrability” is whether procedural prerequisites to arbitration have been complied with, the issue may be decided by the arbitrator.  See, e.g., our March 6, 2014 post on BG PLC v. Republic of Argentina, 573 U.S. __, 134 S. Ct. 1198 (2014).

      At first blush, John Wiley v. & Sons, Inc. v. Livingston, 376 U.S. 543, 556-558 (1986) should have supported defendant’s argument that an arbitrator should have decided the arbitrability issue, because “John Wiley held an arbitrator should decide whether the first two steps of a grievance procedure, which were prerequisites to arbitration, had been completed.”   However, John Wiley also “held the issue of whether the dispute must be arbitrated is decided by the court.”  And here in Knutsson, “as we have explained, defendant cannot compel plaintiffs to arbitrate anything – there is no agreement between them.”

     One curious point about the opinion is that the issue of “substantive arbitrability” decided by the Court of Appeal – the “gateway issue” – is seemingly resolved on the ground that there is no arbitration agreement between plaintiff and defendant, and therefore no duty to arbitrate.  The trial court’s reasoning, at least as described by the Court of Appeal, is different:  “Concluding the grievance procedure was a condition precedent for arbitration and it had not occurred, the trial court denied the motion.”     

     

Employment/Construction of Arbitration Agreement: Fourth District, Div. 3 Certifies Rebolledo v. Tilly’s, Inc. For Publication

Court Agreed With Trial Court That Parties’ Arbitration Agreement Expressly Excluded Statutory Claims From The Arbitration Obligation.

     On July 14, 2014, I blogged about Rebolledo v. Tilly’s, Inc., in which the Court of Appeal, 4th District, Division 3, affirmed the trial court’s order denying an employer’s motion to compel arbitration of an employee’s putative class action regarding statutory wage claims.  The key to the case was that the operative language in the employment agreement provided for arbitration, except for “matters governed by the California Labor Commissioner.”  The Court of Appeal held that the employee’s statutory wage claims were within the jurisdiction of the California Labor Commissioner if they would have fallen within its jurisdiction, even if the claims were not brought before the Commissioner – and that was the case.  Therefore, the statutory wage claims were excluded from arbitration.  On August 6, 2014, the Court certified the case for publication.

Arbitration/Celebrities/Vacatur: Narrow Grounds For Vacating Arbitrator’s Award Were Not Satisfied In Arbitration Involving Adam Sandler’s Children’s Nanny

In Which An In Pro Per Defendant/Appellant Takes On Adam Sandler’s Corporation . . .

     HP, a company owned by Adam Sandler, employed McDonald as a nanny for his children.  When her employment ended, she entered into a confidential settlement agreement, and as a result, $48K was paid to her, and $32K was paid to her attorneys.  After McDonald “purported to terminate the settlement agreement and threatened to sue,” HP invoked an arbitration provision.   Things did not go so well for McDonald in arbitration, because she was ordered to cough up the $48K, was permanently enjoined from filing suit against HP and from disclosing confidential information, and was directed to pay $33K in attorneys fees and costs.  The award was confirmed, and McDonald appealed in pro per.  HP Production, Inc. v. McDonald, B252175 (2/4 Aug. 5, 2014) (Epstein, Willhite, Edmon) (unpublished).

     The grounds for vacating a judgment under CCP 1286.2 are narrow.  And McDonald’s arguments that the fee award was “exorbitant,” and “obscene”; that HP breached the settlement agreement; that it was unconscionable for her to have to pay more than she could afford; that the disparity in net worth of the parties made consideration for settlement unfair; and that she signed the settlement agreement under economic duress, just didn’t cut it.  Nor did her argument that the trial court had no authority to issue an injunction, because the arbitration clause gave broad authority to the arbitrator to issue an injunction, and the trial court could confirm the award.

     Sometimes it’s better not to stir the pot.

Stirring the pot.  Thomas Fogarty.  Sometime between 1890 and 1938.  Library of Congress.