California Mediation and Arbitration

Arbitration Gateway And Delegation Issues: In A 4-3 Decision, California Supreme Court Rules That Deciding Whether Arbitration Agreement Permits Classwide Arbitration Is The Arbitrator’s Decision To Make

Dissent Argues That Classwide Arbitrability Is A Gateway Question The Court Should Get To Decide.

     The courts have treated gateway arbitrability issues concerning the existence of an arbitration agreement and the scope of the agreement as  “gateway” issues for the courts to decide, whereas so-called procedural issues are to be resolved by the arbitrator.  So under which rubric should the availability of classwide arbitration be placed?  Gateway or procedural issue?

     The California Supreme Court ruled today in Sandquist v. Lebo Automotive, Inc., et al., No. S220812 (Cal. Sup. Ct. 7/28/16) (Werdegar, J., writing for majority), that the arbitrator gets to decide whether the arbitration agreement permits or prohibits classwide arbitration.  The underlying lawsuit involves allegations by Mr. Sandquist and other non-Caucasian employees that they were subjected to racial discrimination, harassment, and retaliation by their employer.

      Justice Werdegar acknowledges “[t]he question has divided the many state and federal courts to consider it.”  In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), a plurality of the SCOTUS took the view that classwide arbitrability was a procedural issue, failing to definitively resolve the issue. 

      The majority concludes “no universal rule allocates this decision in all cases to either arbitrators or courts.”  Instead, one must look to the specific agreement, subject to interpretation under state contract law, and here, the broad arbitration agreement allocated the decision to the arbitrator.  Furthermore, “[u]nder federal arbitration law, no contrary presumption requires a different result, so the issue remains one for the arbitrator.”  Here, the availability of classwide arbitration was not treated as a gateway issue, but rather as a procedural issue.

       Authoring the dissent, Justice Kruger viewed the availability of class arbitration under the parties’ agreement as a “gateway question of arbitrability” presumptively for the court to decide. 

        The dissent noted that the switch from bilateral to class arbitration “is one that strikes at the heart of the bargain the parties make.”  Viewed as an issue of consent, and expectations of the parties, the availability of classwide arbitration may be viewed as a gateway issue for the court to decide.  Classwide arbitration also implicates the rights of third parties who did not sign an arbitration agreement  – something that a court is perhaps best able to safeguard. 

       The immediate upshot of the Court’s decision is that the order of the Court of Appeal is affirmed, meaning that the matter is remanded by the Court of Appeal 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.”  I previously posted on the Court of Appeal decision on July 22, 2014.

       COMMENT:  The positions of the parties may appear a bit unusual in this case.  Usually the employee prefers to be in court, and the employer prefers to be in arbitration  -- especially because individual arbitration has become useful as a tool for employers to eliminate classwide arbitration.  Here, the trial court dismissed the employee’s classwide claims with prejudice.  But now the employee – and the class – will get a “second bite of the apple” in front of an arbitrator.  That is no guarantee, of course, that the outcome will be any different.

Waiver, Gateway Issues: Waiver: Ninth Circuit Affirms District Court’s Ruling That Defendants Waived Right To Arbitration By Litigation Conduct

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Panel Holds That Lengthy Amount of Time Litigating In Federal Court “Will Almost Inevitably” Cause Parties To Expend More Time, Money, And Effort Than Had They Proceeded Directly To Arbitration.
 
      In Martin v. Yasuda, No. 15-55696 (9th Cir. 7/21/16) (Reinhardt, Wardlaw, Bennet), defendants, a cosmetology school and its principal, petitioned the 9th Circuit to hear an appeal of the district court’s order denying their motion to compel arbitration with cosmetology students who claimed they should be paid as employees.  The Ninth Circuit stayed the district court action and agreed to hear the appeal, but then affirmed the district court’s order that defendants had waived their right to arbitrate by their litigation conduct.

     Defendants argued unsuccessfully that (a) the issue of waiver should have been decided by the arbitrator under the broad language of an AAA delegation rule; and (b) plaintiffs were not prejudiced by the delay. 
 
     The panel disagreed, holding that waiver, like other so-called “gateway issues” involving arbitrability, must be decided by the court.  The panel acknowledged that the 8th Circuit has held that the arbitrator presumptively should decide if a party has waived the right to arbitration by litigation conduct, but sought to distinguish that holding on the grounds that the litigation conduct occurred in state court.  Nat’l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462 (8th Cir. 2003).
     
       Though no evidence was actually presented that proceeding in arbitration will be more expensive than proceeding in court going forward, it appears that the 9th Circuit will infer that a lengthy amount of time litigating in the federal court system “will almost inevitably cause the parties to expend more time, money, and effort than had they proceeded directly to arbitration.”

        Finally, the panel concluded that a motion to dismiss filed by defendants had resulted in prejudice to plaintiffs, because the dismissal of the motion without prejudice constituted an “adverse ruling”.  As a consequence, any party that now brings a motion to dismiss and loses must be concerned that ipso facto they have waived their right to arbitrate.

        DISCLOSURE:   I participated in drafting the appellant’s petition to the 9th Circuit to stay the district court action while an appeal was pending, and my colleague Mike Hensley argued the appeal for appellants.

Arbitration: Roger Dodger – Ailes, Carlson, And Arbitration

Roger Ailes/Gretchen Carlson Dispute May End Up In Arbitration.

     Empirical studies support the perceptions of employees that they do better in court than in arbitration.  See, for example, the study by Alexander Colvin of Cornell:  “An Empirical Study of Employment Arbitration: Case Outcomes and Processes.”

     Roger Ailes’ defense team knows this too.

     CNN Legal Analyst Danny Cevallos reported on July 18, 2016 about the strategic maneuvers of Mr. Ailes’ attorneys to move Gretchen Carlson’s sexual harassment suit from the the court to arbitration – and presumably to enforce confidentiality, so that dirty linen need not be washed in public.

     Ms. Carlson’s lawsuit was filed in New Jersey State Court on July 6, 2016.  Under diversity jurisdiction, the case was removed by Mr. Ailes to federal court in New Jersey.  Mr. Ailes’ attorneys are seeking to change venue to New York federal court, and to compel arbitration.

     “Overall, the defendants have a good chance of sending this back to arbitration,” concludes Mr. Cevallos.

     TRIVIA:  Wikipedia attributes the phrase “Roger Dodger” to an apocryphal World War II story.  The punch line of the story is, “"Roger Dodger, you ol' codger. I'm a Commander too!”

         HAT TIP:  Hat tip to my wife, Catherine Campbell, who brought the Ailes/Carlson arbitration story to my attention, and who also suggested the “Roger Dodger” title.

Arbitration, Nonsignatories, Equitable Estoppel and Third-Party Beneficiaries: Temporary Staffing Agency’s Arbitration Clause With Workers Did Not Allow Client With Whom Workers Were Placed To Compel Arbitration

 

Third-Party Non-Signatory Owed Duties Under Labor Code To Plaintiff, Independent Of Plaintiff’s Contract.

     Zepeda v. Paramount Citrus Packing Company LLC, F071593 (5th Dist. 7/14/16) (Pena, Levy, Smith) (unpublished) distinguishes two situations:  (1) a plaintiff whose relationship with a third-party non-signatory merely presumes the existence of a contract; and (2) a plaintiff whose rights against a third-party non-signatory rely on the existence of a contract.  In the first situation – which is the situation in Zepeda – the non-signatory might not be able to use the arbitration provision in the contract to compel arbitration.  In the second situation, which is not the situation in Zepeda, the plaintiff relies on the contract to sue the third party, and the third party can take advantage of the arbitration provision to compel arbitration.

     Ranstad, in the business of providing temporary workers to its client companies, provided workers, including Zepeda, to Paramount, a grower and processor of citrus crops.  Ranstad had an arbitration clause with Zepeda, and Paramount unsuccessfully invoked the arbitration clause after Zepeda sued alleging class-wide labor violations resulting from uncompensated time for donning and doffing, and interrupted meal and rest break periods.  Paramount argued that Zepeda was equitably estopped to deny the right to arbitrate, and alternatively, that Paramount was the third-party beneficiary of the arbitration agreement.

      Paramount relied on a federal district court case, Lucas v. Hertz Corp., 875 F.Supp.2d 991 (N.D. Cal. 2012), for the proposition that, because the relationship with Paramount presumed the existence of the contract with Zepeda, Paramount could rely on the arbitration clause in the Rantstad/Zepeda contract.  However, the Court of Appeal found the district court case to be non-persuasive and non-binding authority. 

      Instead, the Court of Appeal found Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013) to be better reasoned.  Kramer held that equitable estoppel was inapplicable where the plaintiff’s claims against the third party non-signatory are not founded on any provision in the plaintiff’s contract, but instead arise from independent duties owed by the third party to the plaintiff.  In Zepeda, the independent duties owed by the third party Paramount were owed under the Labor Code, not under the contract with Ranstad.

      The Court of Appeal also concluded that a third-party beneficiary argument was not supported by the contractual language.

      Affirmed.

      COMMENT:  Too bad the case is unpublished.  Cases involving non-signatory third parties seeking to compel arbitration arise with some frequency, and it would be helpful to have more guidance in this area.

Friend-Of-The-Blawg Briefs

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Articles About Mediation In July 2016 Edition Of Orange County Lawyer

The Subjects Are Appellate Mediation And Mediating Employment Disputes With Small Business Owners.

     The July 2016 edition of Orange County Lawyer includes two worthwhile articles about mediation.

Rethinking the Impossible:  Appellate Mediation.

     By the time a case is on appeal, many attorneys and their clients view a case as far beyond the point of settlement.  However, Kerry W. Franich, an attorney in Severson & Werson’s appellate practice group, emphasizes the benefits of appellate mediation.  A judgment may provide an opportunity for revisiting settlement negotiations.

     The opportunities presented by appellate mediation often flow from the passage of time:  decision makers may have changed, parties may have changed, litigation objectives may have changed, and the law may have changed.  In short, the door to settlement may not be shut.

      COMMENT:  Nevertheless, appellate mediation does not have as high a settlement rate as does mediation at the trial court level.  Do any of my readers have statistics on settlement rates for appellate mediation?

       We would add that a significant motivator for engaging in appellate mediation ought to be the rate of reversal on appeal in California.  “With an overall statewide reversal rate of 36% in civil cases, an appeal does not necessarily end the litigation process – it may be only another step in a seemingly endless and costly road to resolution.”  Hon. Jeff Kaplan (Ret.), “Practical Considerations for Post-Trial and Appellate Mediations,” Advocate (Fall 2013).

Reaching for Understanding:  Mediating Employment Disputes With Small Business Owners.

      David Ezra, an attorney with a practice focusing on ADR, insurance and employment law, considers the attributes of small business owners that “can make the mediation process especially challenging.”  Mr. Ezra points out that small business owners are accustomed to making decisions with “no opportunity for consensus building or a second opinion.”  Additionally, relationships in a small business can be highly personal and emotionally charged.  “The mediator,” Mr. Ezra counsels, “needs to resist passing judgment.” 

     Mr. Ezra offers useful suggestions for dealing with the small business owner in mediation – and perhaps he will follow up someday with suggestions for helping the employee through the mediation process.

Pending Cases/Unconscionability: Magno v. The College Network, Inc. Is Ordered Published

Case Held That Arbitration Agreement Between Indiana Based Distance-Learning Partnership And California Licensed Vocational Nurses Was Unconscionable.

      We can report that on July 8, 2016, Magno v. The College Network, Inc., D067687 (4/1 6/14/16) (McConnell, Nares, O’Rourke), a case we posted about on June 22, 2016, was ordered for publication.  Perhaps the most notable part of the case is the weight that the Court gave to an Indiana forum selection clause for binding arbitration in determining that substantive unconscionability existed.  Also, there was an absence of evidence that the plaintiffs, young nursing students, knew about the forum selection clause.

Arbitration, Fees, MFAA: Orange County Bar Association Co-Chairs Of Mandatory Fee Arbitration Committee Provide Helpful Tips On What Arbitrators Look For In Attorney Fee Arbitration

Interview In Orange County Lawyer Is Summarized Today In California Attorney’s Fees Blawg.

      My colleague Mike Hensley and I publish a blawg about California Attorney’s Fees.  A post today (July 10, 2016) in that blawg  summarizes highlights of an interview appearing in the July 2016 edition of the Orange County Lawyer, in which the co-chairs of the Orange County Bar Association’s Mandatory Fee Arbitration Committee offer tips on what arbitrators look for in mandatory attorney fee arbitration. 

      On May 4, 2016, I posted about the Committee on Mandatory Fee Arbitration of the State Bar of California’s two new Advisories on Mandatory Fee Arbitration (MFA) brought under the Business & Professions Code.  Advisory 2016-01, replacing Advisory 2011-02, is about the application of the Statute of Limitations for MFAs.  Advisory No. 2016-02, replacing Advisory 2003-01, is an analysis of bill padding and other billing issues.