California Mediation and Arbitration

Arbitration, Construction of Agreement, Scope: Law Firm’s Efforts To Compel Arbitration Of Malpractice Claim Are Doomed By Arbitration Provision That Did Not Clearly Encompass Earlier Transactional Work

Arbitration Provision Clearly Applied To Litigation, But Not To Earlier Transactional Work.

     Nordman Cormany Hair & Compton, formerly in business for 75 years in Ventura County, appealed an order denying its petition to compel arbitration of a legal malpractice lawsuit. Aggeler v. Nordman Cormany Hair & Compton, B253566 (2/6 April 27, 2015) (Gilbert, Yegan, Perren) (unpublished).

     The Nordman firm had done transactional work for plaintiffs in 2005 in connection with their ownership of a mobilehome park.  After the owners became embroiled in a legal dispute with the residents in 2009, the Nordman firm represented the owners in litigation.  The retention agreement for the litigation matter contained an arbitration provision.

      In 2013 the owners sued the Nordman firm for malpractice.  However, the owners’ alleged malpractice claims involved the Nordman firm’s “drafting of a contract” in 2005.  Unfortunately for the law firm, it was not clear that the arbitration provision, prepared in connection with the 2009 litigation, applied retroactively to cover the 2005 transactional work that was the source of the malpractice claim. 

     Affirmed.

     COMMENT:  The Court explains, “We consider how a reasonable client would interpret the provision as well as the reasons why the client sought the professional services.”  The problem here was that the agreement did not explicitly mention legal services provided in 2005, and thus a reasonable client would not necessarily know that the agreement would apply retroactively.  Lawyers get saddled with the consequences of poorly drafted retention agreements “because of the fiduciary nature of the relationship.”

Arbitration, Scope, Nonsignatories, Agents: Broadly Worded Arbitration Clause Not Broad Enough To Include Labor Code Claims

But Court Of Appeal Does Reject Arguments That Nonsignatories Lacked Standing And That They Waived Right To Compel Arbitration – Before Addressing “Crucial Issue Of Scope

     In Williams v. Digius, et al., D064183 (4/1 April 24, 2015) (McDonald, McConnell, Haller) (unpublished), the Court of Appeal agreed with appellants, who had not signed an arbitration agreement, that they nevertheless had standing as agents of a signatory to demand arbitration, and also agreed that, despite appellants’ conduct inconsistent with arbitration, they had not caused so much prejudice to respondent as to have waived their right to arbitrate.  Then, however, the Court of Appeal addressed the “crucial issue”  – the scope of the arbitration clause – and sided largely with respondent, concluding that his Labor Code section 229 claims were outside the scope of the broad arbitration clause.

     This case involved an employment dispute between Williams, an on-site property manager, and parties whom he alleged were agents of his employer.  A plaintiff who wishes to avoid arbitration must be careful with his allegations:  “[A] plaintiff’s allegations of an agency relationship among defendants is sufficient to allow the alleged agents to invoke the benefit of an arbitration agreement executed by their principal even though the agents are not parties to the agreement.”  Thomas v. Westlake, 204 Cal.Ap.4th 605, 614-615 (2012).

      The arbitration provision included broad language that would include contract and tort claims -- “arising out of or related to this Agreement.”  However, the Court held that this language did not clearly cover statutory claims based on violations of the Labor Code that arise independently of the contract.  Spared from the net of the arbitration clause were six causes of action for failure to pay minimum wage, failure to provide accurate itemized wage statements, failure to comply with the request to inspect personnel file, failure to pay wages on discharge, fees, costs and penalties for violations of the Labor Code, and unfair competition.  Captured by the arbitration net were causes of action for breach of the implied covenant of good faith and fair dealing, and for conversion. 

     COMMENT:  The Court actually offers drafting advice for requiring arbitration of Labor Code or other statutory claims:  “[T]hey could have expressly provided for arbitration of any and all disputes or claims arising out of, or related to, Williams’s employment, including but not limited to claims for damages and violation of state or federal laws, including claims for violation of the Labor Code.”  Even so, the Court expressly refuses to “decide whether some or all of Williams’s statutory claims may not be subject to arbitration regardless of our interpretation of the Contract’s arbitration provision . . . “  As readers of this blog know, PAGA and other statutory claims may not be subject to arbitration.  This is an area of dispute “in flux.”

Arbitration, Vacatur: Death Of Party Arbitrator Provided No Basis For Panel To Continue Arbitration Hearing Date Given Party’s “Total Noncompliance With The Governing Rules And Procedures”

Court Shows No Sympathy For Circumstance Of Defendant/Appellant Whose Party Arbitrator Died.

     Here, the arbitration panel proceeded with arbitration after the death of defendant/appellant Mitchell’s party arbitrator, refusing to continue the hearing to permit Mitchell to select another party arbitrator.  That sounds pretty harsh, but read on:  “As troublesome as this circumstance may appear at first blush, the record fully supports the finding of the panel that Mitchell had ‘evinced his unwillingness to participate in [the arbitration] proceedings repeatedly during the scheduling of this matter . . . ‘“  Perhaps we should add that Mitchell is an attorney, and that the arbitration involved a fee dispute between Mitchell and his own attorneys who represented him in marital dissolution proceedings.  Schapiro-Thorn, Inc. v. Mitchell, A140800 (1/3 April 21, 2015) (Pollak, McGuiness, Siggins) (unpublished).

      The Court suggested AAA rules “reflect the fundamental policy that a recalcitrant party should not be permitted to obstruct the expeditious resolution of disputes submitted to arbitration.”  The Court concluded the decision of two panel members to proceed in the absence of Mitchell’s party arbitrator, who had died,  “given Mitchell’s total compliance with the governing rules and procedures, was in full accord with this policy and neither an abuse of discretion nor beyond the arbitrators’ authority.”

Moral:   Parties – especially attorneys – who wish to take advantage of the rules, do well to play by the rules.  Live by the sword, die by the sword.

Review: The Perils Of Blogging

Daily Journal Publishes My April 17, 2015 Article On The Perils Of Blogging

     Published by The Daily Journal on April 17, 2015, my article on the legal perils of blogging will interest those of you who blog, or who are considering blogging. With the permission of the Daily Journal, I am making it available to my readers. Click here if you wish to read it. Note you may have to rotate the article in your viewer or enlarge the text to make it easier to read.

Arbitration, Scope, Unconscionability: First District, Div. 3 Holds Oakland Raiders’ Asst. Football Coach Was Properly Required To Arbitrate With Raiders And Its Head Coach

 

Scope Of Arbitration Provision Was Broad And Unconscionability Was Lacking.

     This case will be of interest to football fans, and maybe even to lawyers.  Hanson v. Cable, A138208 (1st Dist. Div. 3 April 15, 2015) (Jenkins, McGuiness, Pollak) (unpublished). 

     Plaintiff/appellant Randy Hanson sued The Oakland Raiders and its former head coach Tom Cable, alleging Cable attacked him at the Raiders’ training camp, causing him physical injuries.

     The beginning of the cock fight.  Edwin Rosskam, photographer.  1937.  Library of Congress.

     Respondents/defendants successfully move to compel arbitration pursuant to Hanson’s employment agreement.  Arbitration awards denied most of Hanson’s claim.  He petitioned unsuccessfully to vacate the arbitration awards, and then appealed from a judgment dismissing his complaint after confirmation of the arbitration awards. 

     Hanson’s appeal mounted two challenges.  First, he argued the arbitration clause was not broad enough to encompass his tort claims.  However, the arbitration clause included “arising out of” type language – and claims arising out of a contractual relationship have been held to include tort claims.

     Second, he argued the arbitration agreement was unconscionable.  His most compelling, albeit unsuccessful argument, was that the arbitration clause contained built-in bias, because it required the dispute be referred to the NFL Commissioner, whose salary is paid for by the NFL teams, and who might therefore be expected to have a pro-team, anti-player bias.  Unfortunately for Hanson, however, the arbitration provision also offered him an opportunity to seek an arbitration conducted in a “manner  [as the NFL Commissioner] deems appropriate, and in a matter designed to reach a fair and prompt outcome, consistent with the circumstances of the particular dispute.”  The Court interpreted this provision to create “a contractual obligation to arbitrate or to propose alternative methods of arbitrating the dispute.”  And Hanson did not pursue an alternative method. 

     COMMENT:  We cannot know if Hanson’s alternative of seeking an unbiased arbitrator would have proved to be illusory.  However, if Hanson had requested an unbiased arbitrator, only to find that door slammed shut, perhaps his unconscionability argument would have then gained more traction.

     NOTE:  The on-line biography of Justice Jenkins, who penned the opinion, states he entered law school, “after a brief period of employment with the Seattle Seahawks Professional Football Team.”

Arbitration Stay: “Settled Principles Of Law” Justify Peremptory Writ Staying Action While Application To Compel Arbitration Remains “Undetermined”

And Application To Compel Arbitration Remains “Undetermined” As Long As Dissatisfied Party Is Pursuing Appellate Review.

     The Fourth District, Division 2 made short shrift of this case, issuing a peremptory writ of mandate directing the Superior Court of Riverside County to vacate its order denying petitioner Carmax’s motion to stay the action for Labor Code violations while its appeal of the denial of its application to compel arbitration remains “undetermined.”  Carmax Auto Superstores California, LLC v. Superior Court, E062879 (4/2 April 15, 2015) (King, Ramirez, Hollenhorst) (unpublished).

Arbitration, Automobiles, Enforceability: Fraud In The Inception Means No Enforceable Arbitration Agreement

Automobile Trade-In Goes Sideways.

    Above:  Old car and truck outside the “Vehicles-You-Deserve” Used Car Dealership in Mesquite, Texas.  Photographer:  Carol M. Highsmith.  2014.  Library of Congress.

      At first glance, this seems like a fairly common scenario.  A daughter trades in her father’s used car for a new one, and payments are not made for the new car.  Bank sues alleged buyers, buyers cross-claim against bank and dealership, and assert affirmative defenses.  Because automobile sales contracts typically contain arbitration clauses (indeed, “Arbitration: Automobiles” is one of our sidebar categories), cross-defendants then petition to compel arbitration.  The trial court denies the petition based on “unconscionability.”  But this case involves more than mere unconscionability.  Bank of the West v. Ruiz, B253980 (2/5 April 13, 2015) (Turner, Mosk, Kriegler) (unpublished).

      This case involves fraud in the inception – fraud that “goes to the inception or execution of the agreement, so that the promisor is deceived as to the nature of his act and actually does not know what he is signing . . . “

      The Court of Appeal held that substantial evidence supported “implied findings” of fraud in the inception.  The dealer’s agent allegedly went to the father’s home late at night to obtain his signature.  The father did not speak or read English, and was shown documents solely in English.  The father was told that he needed to sign the documents in connection with the trade-in, not in connection with the purchase, as the car was for his daughter.  He was pressured to sign quickly.  He never received a copy of the sales contract, despite asking for it.  Supposedly, he was told in Spanish by the agent that the documents would be changed to his daughter’s name, but this was never done.

      Affirmed.

     COMMENTS:    Several cases are currently pending before the California Supreme Court addressing the issue of unconscionability in automobile sales contracts.  Those cases should have no impact on this case, because the dispositive issue is now defined as fraud in the inception.

     We have blogged about cases in which the fact that a customer or an employee spoke only a foreign language, but received documents in English, weighed on the scale of unconscionability.  Here, that factor was one among several that supported the implied finding of fraud in the inception.

Arbitration, Class Action, Delegation, Collateral Estoppel, Standard Of Review: Federal Order Vacating Arbitration Award Binds State Court

“Manifest Disregard Of The Law” Federal Standard For Vacating Award Worked To Employee’s Advantage Here.

     Our next case involves arbitration issues addressed in three forums:  a Labor Management Committee, state courts, and federal district court.  Plaintiff/Petitioner Wawock petitioned for a writ of mandate, seeking an order directing the superior court to deny defendant CSI’s petition to confirm arbitration brought by CSI – and the Court of Appeal granted the petition.  Wawock v. Superior Court (CSI Electrical Contractors, Inc., Real Party in Interest), No. B261315 (2/5 April 8, 2015) (Mosk, Kriegler, Goodman) (unpublished).  Plaintiff Wawock was able to leverage a win on the issue of arbitrability in federal court to obtain the Court of Appeal’s order directing the superior court to deny CSI’s petition to confirm arbitration.  The opinion is a scant 7 pages, but the case is procedurally gnarly and interesting.

      Wawock filed a class action complaint against CSI alleging failure to pay wages to electricians for time spent attending mandatory training classes.  CSI successfully petitioned to compel arbitration pursuant to a collective bargaining agreement.  The superior court committed the threshold issue of arbitrability to the “Labor Management Committee.”  Wawock petitioned for review, and the Court of Appeal, in an earlier 2013 case, agreed that the parties intended to commit the question of arbitrability to the Labor Management Committee.  Critically, back then, the court did not decide the question of arbitrability –important later on, when CSI argued that the issue of arbitrability had been decided and collateral estoppel applied.

      Wawock then invoked federal question jurisdiction, and sued in federal district court to vacate the adverse arbitration award on the ground that the Labor Management Committee “manifestly disregarded federal law” in finding his statutory claims arbitrable.  The federal court agreed, and granted granted Wawock’s request to vacate the award. 

      CSI then petitioned in state court to confirm the award, but the superior court stayed the matter, and Wawock filed his petition for writ of mandate.

      Because “full faith and credit must be given to a final order or judgment of a federal court”, the superior court was held to be bound by collateral estoppel and the order of the federal court vacating the arbitration award.  Therefore, the superior court could not confirm the arbitration award.  Nor could CSI rely on “law of the case”, because rather than deciding the issue of arbitrability, the trial court and court of appeal had simply directed the issue of arbitrability to the Labor Management Committee.

     COMMENT:  The key to the outcome here is that in federal district court, the judge was able to apply the “manifest disregard of the law” standard to vacate the arbitration award.  That standard does not apply in state court, where an arbitrator’s mistakes of law or fact generally do not provide a basis for vacating the award.  See Siegel v. Prudential Insurance Company of America, 67 Cal.App.4th 1270 (1999).  Plaintiff’s attorney showed tenacity in seeking the federal forum.

Arbitration, Class, Existence of Agreement: Court Of Appeal Affirms Order Denying FATCO’s Motion To Compel Arbitration With Potential Class Of 272,037 Members

Failure To Establish Existence Of Actual Agreements To Arbitrate With Any Class Members Dooms Effort To Compel Arbitration.

      How should one move to compel arbitration with members of a potential class who are parties to arbitration agreements giving them the opportunity to opt out of arbitration?  Apparently, not the way First American Title Company and its parent First American Title Insurance Company (together, “First American”) did so here. Kirk v. First American Title Insurance Company and First American Title Company, B252238 (2/5 April 7, 2015) (Goodman, Turner, Mosk) (unpublished).  Unpublished this case may be, but it is nevertheless a BIG case, because it involves a potential class of 272,037 members.

     The action was filed in 2007.  The complaint alleged First American charged illegal fees during the escrow process to purchasers of residential real estate.  By April 2013, First American produced an electronic list of 272,037 potential class members.  The motion to compel arbitration was filed on July 3, 2013 and heard on October 24, 2013, nine days after conclusion of the class action opt-out period.  Apparently the date for the motion to compel arbitration was pushed back to October 24, 2013 by agreement of the parties. 

     The problem with First American’s motion in the trial court was that it failed to identify any specific agreements to arbitrate with any specific class members.  Instead, First American produced four exemplar arbitration agreement forms – but forms are different than agreements.  And the forms provided individual customers the opportunity to opt-out of arbitration.  Unfortunately, First American’s motion to compel arbitration did not identify specific customers who had opted to arbitrate and specific customers who had opted out of arbitration.  Of course, it is the obligation of the party seeking to compel arbitration to establish an agreement to arbitrate.  Forms providing an option to opt in or out of arbitration are not the same as agreements to arbitrate.

     Unsympathetic to First American’s request for more time to identify which customers deleted the arbitration provision, the Court of Appeal noted, “they had the time from the class ruling in November 2012, or from their production of the FAST list by April 2013, or as of the date they obtained the July hearing date for the subject motion, to conduct the file review which, in October 2013, they sought additional time to commence.”

      Affirmed.

     COMMENT:  Quite a few of the arbitration cases we have posted about involve the threshold issue:  was there ever an agreement to arbitrate?  Today, we initiate a new sidebar category:  “Existence of Agreement.”

Arbitration, Waiver & Civil Rights – Recommended Reading: “ADR Update: Dealing with AB 2617”

Article By Mediator/Arbitrator Paul Dubow Anticipates Arbitration Issues Arising From California AB 2617 And Proposes Solutions.

     Paul J. Dubow’s article, “ADR Update: Dealing with AB 2617”, appearing in California Litigation, volume 28, No. 1, 2015, anticipates FAA preemption issues arising from AB 2617, passed by the California Legislature in 2014, and amending Civil Code sections 51.7, 52, and 52.1.

      By way of background, The Ralph Civil Rights Act of 1976, Civil Code section 51.7,  prohibits violence or threats of violence based on an individual’s race, color, religion, ancestry, age, disability, sex, sexual orientation, political affiliation, or position in a labor dispute.  Civil Code section 52.1, part of the Tom Bane Civil Rights Act of 1987, provides plaintiffs may sue those interfering by “threats, intimidation or coercion” with the plaintiff’s exercise or enjoyment of any state or federal constitutional or legal right.

     AB 2617 declares its legislative intent: “It is the purpose of this act to ensure that a contract to waive any of the rights, penalties, remedies, forums, or procedures under the Ralph Civil Rights Act or the Tom Bane Civil Rights Act, including any provision that has the effect of limiting the full application or enforcement of any right, remedy, forum, or procedure available under the Ralph Civil Rights Act or the Tom Bane Civil Rights Act, is a matter of voluntary consent, not coercion.” (italics added for emphasis).

     Dubow anticipates that AB 2617’s assurance that any contract to waive rights under sections 51.7 and 52.1 must be a matter of voluntary consent will spawn disputes over arbitrability.  While at first blush, AB 2617 is silent about arbitration, Dubow points out that the legislative history “makes clear that the bill was directed at arbitration provisions” – raising the specter of Federal Arbitration Act preemption.  Thus, to the extent that contracts for goods and services will now contain waivers of the right to sue in court under sections 51.7, and 52.1, and will contain provisions for binding arbitration, issues will invariably arise as to whether the waivers are involuntary and unenforceable under AB 2617, or enforceable under the FAA, which will preempt state law where interstate commerce is involved.

     Without arguing for or against preemption, Dubow offers drafting solutions for those who want to draft an arbitration waiver that will stick.  Those suggestions include:  (1) provide that arbitration is to be conducted under the FAA; (2) state that the court may not refuse to enforce the arbitration agreement and may not stay arbitration under Cal. Code of Civ. Proc., section 1281.2; (3) make the arbitration provisions prominent; (4) explain the consequences – e.g., that a jury trial is waived; (5) get the provision initialed; (6) include a prominent opt-out provision; (7) draft a fair agreement.

     Dubow’s tips for drafting enforceable arbitration provisions are generally useful advice for employer-employee and consumer contract situations.