California Mediation and Arbitration

Automobiles, Consumers: Buyer’s Arbitration Award Exceeded $100K, And Auto Dealer Gets A “Do-Over” If Not Exactly An Appeal

Dealer Wanted To Go To Three-Arbitrator Panel After Receiving Adverse Arbitration Award, And Everyone Agreed That ADR Arbitral Forum Lacked “Appellate” Rules.  So?

      Plenty of arbitration disputes arise from arbitration clauses in auto sales contracts and leases – hence our sidebar category, “Automobiles.”.  Here’s an unusual one, based on fairly common arbitration provisions.  Condon v. Daland Nissan, Inc., No. A145613 (1/1 filed 11/4/16, order to pub. 11/29/16) (Banke, Humes, Dondero).

     Many auto sales agreements now contain an arbitration provision allowing a party to request a new arbitration under the rules of the arbitration organization if the arbitration award for a party is $0, or against a party in excess of $100K, or includes an award of injunctive relief against a party.  Here, the buyer, Mr. Condon, received an award in excess of $100K (based on attorney’s fees and costs), and the defendants, which were the dealership, the insurer, and the entity acquiring the sales contract, sought a new arbitration with the arbitral forum, ADR, in accordance with the terms of the parties’ arbitration provision. 

      The prevailing party, Mr. Condon, objected, and ADR punted, concluding “it lacked authority to resolve the parties’ disagreement over whether a new arbitration was proper,” absent a court order.  We surmise that ADR and the parties could not agree as to whether a “new arbitration” was an “appeal,” and whether deciding that issue by ADR was within the scope of the arbitration clause.

      The trial court concluded that ADR lacked “a process by which a new arbitration may be had before a three-arbitrator panel,” and denied a request for an order to further arbitrate with a three-member panel.  This was a bit of a head-scratcher, because in fact, ADR does have a process for appointing a three-arbitrator panel following an initial arbitration. 

      The way to make sense of this dispute is to note that the parties and the Court of Appeal addressed whether the arbitration clause provided for “an appeal” – because everyone agreed that ADR did not have rules providing for an appeal.  The Court made sense of the dealership’s request by explaining that the dealership was really asking for a “do-over” or “repeat” of the arbitration with a three-member panel, and that the arbitration clause reference to the “appealing party” in the arbitration context simply meant a do-over of the arbitration with a three-person panel.  

     COMMENT:  If the arbitration clause had referred to the “party requesting new arbitration in the arbitral forum” rather than to the “appealing party requesting new arbitration,” perhaps some confusion would have been avoided.

PAGA: Agreement To Arbitrate “Aggrieved Person Status” Under PAGA Does Not Enable Employer To Enforce Arbitration Of Any Portion Of Representative Claim

Employer Sought To Distinguish Its Case Based On Specific Language Of Arbitration Clause . . . No Go.

     Williams v. Superior Court, 237 Cal.App.4th 642 (2015) recognizes that a representative action waiver of a PAGA claim is ineffective because the PAGA claim is not divisible into separate individual and representative claims.  Because a representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim, an employee with a representative PAGA claim cannot be forced to arbitrate whether he or she is an “aggrieved person” with standing under PAGA.

      Does the result change if the arbitration clause specifically provides for arbitration of aggrieved person status under PAGA?

     No, holds Irving v. Solarcity Corporation, No. A143961 (1/3 11/29/16) (Siggins, Pollak, Jenkins) (unpublished).  As the Court explains, “A PAGA claim is representative and does not belong to an employee individually, and an employer should not be able to force an individual employee to arbitrate any portion of the claim.”  Slip Op. at *6.

     COMMENT:  The twist in the case – an arbitration clause that specifically calls for the arbitration of aggrieved person status under PAGA – may be new in the case law.  It was to be anticipated that resourceful employers’ counsel would employ such contract language after Iskanian and Williams.  However, despite facts that may be unique, the Irving case is unpublished and therefore cannot be cited as authority.

Conflicts: Disqualification Of Conflicted Attorney Does Not Extend To Law Firm Whose Retention Attorney Facilitates And To Whom Attorney Transfers Files

Mediation Of Dispute Between Brothers Drew Our Attention To This Case.

     Jogani v. Jogani, B268162 (2/1 11/25/16, mod. 11/28/16) (Chaney, Rothschild, Johnson) (unpublished) is about attorney disqualification and conflicts.  The underlying dispute among the Jogani brothers appears to have been sliding up and down the California courts for fifteen years, involving a number of reversals by the Courts of Appeal.  Perhaps the intensity of the brotherly dispute about how to carve up profits of a real estate portfolio has been fueled by “apartment units with a value in excess of $1 billion and equity of around $550 million.”

     What caught my attention was that the transactional attorney who initially represented Shashikant and Haresh Jorgani in their real estate matters “at first attempted to mediate the dispute between the brothers, but ultimately ceased representing Haresh and continued representing only [Shashikant] Jogani by assisting Jogani’s trial attorneys . . . “  An attorney who tries to mediate a dispute between clients steps into a perilous situation.  As the saying goes, “no good deed goes unpunished.”  Resulting conflicts can become a quagmire.

     In a prior appeal, the Court held that the transactional attorney violated the Rule of Professional Conduct governing concurrent conflicting representation, that subsequent representation of Shashikant only, violated the ethical rule against successive conflicting representation, and that as a result, the transactional attorney was disqualified from representing.

     In the current appeal, the issue was whether the transactional attorney’s disqualification required that the trial attorneys to whom the transactional attorney transferred his file also had to be disqualified.

     While the disqualification of the transactional attorney would have resulted in the vicarious disqualification of his own law firm, it did not lead here to the disqualification of the law firm to whom he transferred files.  The record showed the transactional attorney had only assisted “to prosecute the lawsuit” by facilitating the retention of the trial attorneys and delivery of files to the law firm.  While that was enough to disqualify the transactional attorney, it was not enough to disqualify an independent law firm that did not employ him.  “To hold otherwise would be to disqualify not only a conflicted attorney but also any subsequent attorney to whom he delivered the client’s file.”

     COMMENT:  Rather than try to mediate a dispute among two existing clients, the transactional attorney could have suggested that the clients retain independent counsel and try mediating with someone other than himself.  Of course, given a soured relationship among the parties, legal nuclear warfare might still have been the unhappy result.

Settlement Agreements: California Court Won’t Interfere With Texas Judge’s Ruling Allowing Discovery Of Information Subject To Confidentiality Provisions In California Settlement

There Is No Absolute Bar To Discovery Of Information Designated Confidential In A Settlement Agreement.

     In 2007, Younan Properties entered into a settlement agreement with its CFO Thompson requiring confidentiality.  Thompson had claimed that Younan Properties had engaged in unfair business practices, and wrongfully discharged him.  In 2014, investors sued Younan Properties for fraud in Texas, and commenced to depose Thompson in Texas.

     Younan Properties sought a preliminary injunction in California to prevent Thompson from violating the confidentiality provisions of the parties’ 2007 settlement agreement.  After the trial court denied the request, Younan Properties appealed.

    Younan Properties, Inc. v. Thompson, B266507 (2/4 11/21/16) (Epstein, Manella, Collins) (unpublished) affirms the order of the California trial court declining to interfere with Texas discovery orders, based on comity and the lack of a showing appellants were likely to prevail on the merits.

     COMMENT:  By the time the California Court of Appeal ruled, Thompson had already been deposed in Texas.  Therefore, the Court of Appeal invoked the principle that it “may review moot issues if they are of broad public interest and likely to recur or cause another controversy among the parties.”  Yet the opinion is unpublished.

     An important lesson from this case should be that a confidentiality provision in a settlement agreement cannot absolutely bar court-ordered discovery of relevant information.  Information might be relevant in another lawsuit, there may be compelling reasons that override the right to privacy, and principles of comity may even be involved – as they were here.

Arbitration/CCP 1281.2: CCA 4/3 Affirms Order Denying Arbitration In Lawsuit Between Law Firm And Ex-Client Because Ex-Client’s Lawsuit Against Another Law Firm Created Possibility Of Conflicting Rulings

Key Issue:  Who Is A Third Party Within The Meaning of 1281.2(c)?

    Reger v. Glaser Weil Fink Howard Avchen & Shapiro, LLP, G052352 (4/3 11/22/16) (Aronson, Bedsworth, Ikola) (unpublished) shows how a party with an otherwise valid arbitration clause can be thwarted from arbitrating through the application of Cal. Code Civ. Proc., section 1281.2(c) “when pending litigation with a third party creates the possibility of conflicting rulings on common factual or legal issues.”

     Glaser Weil had represented Mr. Coxeter in an earlier lawsuit in which Mr. Coxeter’s business partner Mr. Bisno, alleged to have embezzled funds, paid for his and Mr. Coxeter’s joint defense.  Mr. Coxeter separately hired Jackson, DeMarco, Tidus & Peckenpaugh to monitor the litigation because of potential conflicts.  (Disclosure:  I was a shareholder at Jackson DeMarco till February 2008.  The full extent of my knowledge about this case comes entirely from the Slip Opinion).  In December 2008, Glaser Weil withdrew as counsel, and Jackson DeMarco became Mr. Coxeter’s counsel of record.  In 2015, Mr. Reger, as trustee in Mr. Coxeter’s bankruptcy, sued Jackson DeMarco and Glaser Weil on behalf of Mr. Coxeter’s bankruptcy estate, alleging claims for legal malpractice and breach of fiduciary duty, based on conflicts of interest, and failure to properly advise and defend Mr. Coxeter.

     Mr. Coxeter had an arbitration agreement with Glaser Weil, but not with Jackson DeMarco.  So Glaser Weil petitioned to compel arbitration.  Jackson DeMarco, which did not have an arbitration agreement, joined in the petition.  The trial judged denied the petition and joinder, finding that the malpractice claims against Jackson DeMarco constituted third-party litigation under section 1281.2(c) that might result in inconsistent rulings, allowing the judge to exercise his discretion and deny the request for arbitration.

     Section 1281(c) may be used to deny a petition to compel arbitration where the following applies:  “A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.”  Here, Glaser Weil did not dispute (1) that the claims against it and Jackson DeMarco arose out of the same related transactions; (2) that there was a possibility of conflicting rulings if one set of claims was litigated and the other was arbitrated.  The nub of the dispute was Glaser Weil’s challenged to the trial court’s determination that Jackson DeMarco was “a third party within the meaning of section 1281.2(c)”.

     In fact, there was some connection between Glaser Weil and Jackson DeMarco.  A former Glaser Weil partner, Mr. Heyman, who later went to work for Jackson DeMarco, had done tax work for Glaser Weil’s first name founding partner, Patricia Glaser.  Plaintiff alleged the “undisclosed and preexisting relationship with Patricia Glaser” made it impossible for Jackson DeMarco to exercise independent judgment when monitoring Glaser Weil’s representation of Mr. Coxter.  But that was nowhere near enough to establish a commonality of interest between Glaser Weil and Jackson DeMarco such that Jackson DeMarco would not be a “third party”.  Jackson DeMarco was not an agent nor an alter ego of Glaser Weil.  Also, Jackson DeMarco and Glaser Weil represented Mr. Coxter for different purposes, and owed separate duties to him.    Bottom line:  “Heyman’s previous representation of Patricia Glaser, even when combined with Reger’s allegation regarding the purported conflict of interest that relationship created, is completely unrelated to the representations at issue in this case and has no connection to Glaser Weil’s retainer agreement and its arbitration provision.”

     Affirmed.

    COMMENT:  The case relies on section 1281.2(c) of the California Arbitration Act, and makes no reference to the Federal Arbitration Act.  If interstate commerce had been involved, and Glaser Weil has been able to invoke the Federal Arbitration Act, the result would have been somewhat different.  The Court would have been unable to deny Glaser Weil’s petition to arbitrate, because presumably it had a valid arbitration clause, and it would not matter that there was another lawsuit pending.  However, the Court would likely still have denied Jackson DeMarco’s joinder in the petition, because Jackson DeMarco did not have an arbitration agreement.  Good luck to my former colleagues at Jackson DeMarco on the ultimate outcome of the dispute.

Arbitration, Enforceability, Consumers: MarketWatch Reports Trump University Could Be Sued In Court Because It Didn’t Have Arbitration Clause With Students

Obama Administration Has Sought Change In Law To Prevent Educational Institutions Getting Federal Funds From Requiring Students To Sign Pre-Dispute Arbitration Clauses.

     Jillian Berman reports on July 22, 2016 in MarketWatch that students were able to sue Trump University in the courts because the students were not required to sign pre-dispute arbitration clauses. 

     In contrast to Trump University, Berman reports:  “ About 98% of students enrolled in for-profit colleges receiving federal financial aid were subject to an arbitration clause, according to a report published earlier this year by the Century Foundation, a progressive think tank.”

     Meanwhile, the Obama Administration has pushed to finalize rules to prevent colleges that receive federal financial aid from requiring students to sign pre-dispute arbitration clauses as a condition for enrollment.  The rules are scheduled to take effect in 2016.

     QUERY:  How easily can the executive branch undo this change in rules after January 20, 2017?

Mediation and Arbitration Confidentiality: Acquaint Yourself With The EU-U.S. Privacy Shield If You Are Involved With Data Transfers From The EU To The US

The European Commission Has Deemed The Privacy Shield Framework Adequate To Enable Data Transfers To US Under EU Law.

     On July 12, 2016, the European Commission adopted the EU-U.S. Privacy Shield.  I am blogging about this because it relates to transfer of data from the EU to the U.S., and this impacts legal matters affecting the privacy rights of EU citizens, including mediations, arbitrations, and litigation in which a data transfer from the EU to the U.S. is required.  Also, the Privacy Shield provides for binding arbitration as one of several dispute resolution mechanisms for resolving privacy issues.

     The International Trade Administration of the US Department of Commerce has  created a website with information about the EU-U.S. Privacy Shield Program, intended to protect data flows from the EU to the US, and thus to protect the privacy of EU persons.  The protections offered by the Privacy Shield Program are more stringent than protections offered by an earlier Safe Harbor program.  Click here for a link to FAQs about the Privacy Shield program.

     United States companies that join the Privacy Shield Framework can benefit from an “adequacy determination”, meaning a determination that they have joined and committed to a framework deemed adequate by the European Commission to comply with EU data protection requirements when transferring personal data (e.g., names, addresses, telephone numbers) from the EU to the US.

     No doubt the push to satisfy EU concerns about the privacy of EU citizens was motivated, at least in part, by Edward Snowden’s revelations concerning the NSA surveillance of intelligence available in Internet communications.  Snowden’s choice to disclose secret information about US surveillance triggered a debate on privacy and surveillance.

     The EU-U.S. Privacy Shield provides a number of dispute resolution routes, in case a citizen of the EU believes his or her privacy rights have been violated.  These routes include contacting the company directly, going to an independent dispute resolution provider, submitting to EU Data Protection Authorities (DPAs), and binding arbitration.  In the case of national security issues, an ombudsman independent from US intelligence services is to be available. 

     Arbitration “is available to an individual to determine . . . whether a Privacy Shield organization has violated its obligations under the Principles as to that individual, and whether any such violation remains fully or partially unremedied.”  In short, the purpose of arbitration is to provide an equitable, rather than a monetary remedy, for an individual whose privacy rights have been violated.  “Once invoked, the individual forgoes the option to seek relief for the same claimed violation in another forum, except that if non-monetary equitable relief does not fully remedy the claimed violation, the individual’s invocation of arbitration will not preclude a claim for damages that is otherwise available in the courts.”  See Arbitral Model, Annex II, pp. 12 to 16 of 128. 

     Because the binding arbitration dispute resolution mechanism exists to protect privacy, it would make little sense if the Privacy Shield did not protect the confidentiality of the arbitration proceeding itself.  In fact, “Materials submitted to arbitrators will be treated confidentially and will only be used in connection with the arbitration.”  Furthermore, individual-specific discovery “will be treated confidentially by the parties and will only be used in connection with the arbitration.”

Recommended Reading: The High Cost Of An Inexpensive Forum: An Empirical Analysis Of Employment Discrimination Claims Heard In Arbitration And Civil Litigation

Mark D. Gough’s Study Seeks To Correct For Systematic Differences In Case Characteristics Between Arbitral And Court Forums.

     Back on August 19, 2014, I posted about Mark D. Gough’s study of arbitration outcomes arising from his research comparing employment discrimination cases heard in arbitration and civil litigation.  At the time, I couldn’t find his study on-line.  Good news:  it is now available on-line.  And here’s a citation: Mark D. Gough, The High Costs of an Inexpensive Forum: An Empirical Analysis of Employment Discrimination Claims Heard in Arbitration and Civil Litigation, 35 Berkeley J. Emp. & Lab. L. (2015).

     I was most curious to see how Dr. Gough compared cases in litigation with cases in arbitration, because there are a lot of variables to take into account:  “claim amount, award amount, winning party, employee salary, alleged discriminatory action, whether a motion for summary judgment was filed, defendant size, and the attorney’s fee arrangement, among other variables.”

     Given that employees win less often and obtain smaller awards in arbitration than in litigation, might this be explained by the fact that the arbitration cases are weaker, that summary judgment is used more often in litigation to winnow out weak cases, that arbitration claims are smaller, that the arbitration clauses are less likely to be individually negotiated, or some combination of factors?

     After making heroic efforts to compare apples to apples, Dr. Gough’s bottom line is that in contemporary employment discrimination cases, arbitration outcomes “are starkly inferior to outcomes reported in litigation.”   After taking into consideration whether cases survived summary judgment, how the plaintiff’s attorney evaluated the case, plaintiffs’ salaries, employer size, and the discriminatory claims, Gough concludes that inferior outcomes in arbitration cannot be explained by systematic differences in case characteristics between the two forums.  Thus, the difference is not in the cases, but in the forums.  While the arbitral forum may be relatively “inexpensive”, Dr. Gough’s study concludes that mandatory arbitration in employment discrimination cases costs employees dearly. 

     Judges, arbitrators, employers, and employees can draw their conclusions.   Employers who have embraced arbitration and employees who have challenged mandatory employment arbitration clauses in courts have already drawn their conclusions.

International Arbitration And Confidentiality: What Confidentiality Should One Expect In International Arbitration?

Confidentiality May Seem A Self-Evident Feature Of International Arbitration – In Which Case, You May Be Surprised.

     At the 41st Annual IP Conference held in Santa Barbara, I was asked an excellent question yesterday about dealing with confidentiality in international arbitrations.  Unfortunately, this is not a subject about which I had devoted enough thought.  However, Camilla Mickelson Lous, an attorney with the Norwegian law firm Steenstrup Stordrange, has obviously thought long and hard about this.  It is the subject of her excellent April 14, 2014 on-line article entitled:  “Hush!  Let’s Arbitrate – Discourse And Practice On The Question Of Confidentiality In International Commercial Arbitration.”  While I recommend reading the article in its entirety to anyone interested in the subject, I will give you a few of the highlights.

     Ms. Lous points out that there is “a notable presumption that confidentiality is a self-evident feature of international arbitration.”  However, as important as confidentiality may be to the parties, it shouldn’t be taken for granted. 

     Preliminarily, there is a difference between confidentiality and privacy.  While arbitral hearings may generally be “private”, i.e., they are not open to the public, it cannot be said that confidentiality, as a state of secrecy, necessarily permeates the arbitral process.  Participants could be free to communicate outside the arbitration about the existence of the arbitration, communications in the arbitration, and the arbitration award, absent well-defined confidentiality safeguards.

     Looking for examples of confidentiality protection in England, Australia, the US and Sweden, Ms. Lous identifies different approaches

• England:  Arbitral matters are presumed to be confidential.
• Australia:  Confidentiality is not an essential attribute of arbitration, especially where matters of public interest are concerned, though the parties may contract for confidentiality.
• US:  Neither the Federal Arbitration Act nor the Uniform Arbitration Act contain confidentiality provisions.  The parties may contract for confidentiality.
• Sweden:  No obligation of confidentiality exists, though a “duty of loyalty” may exist between the parties to an arbitration.  If the parties want confidentiality, they must contract.

     Though the rules of international arbitral institutions may regulate confidentiality, there is no uniform approach.   WIPO Arbitration Rules 75 to 77, address confidentiality of the existence of the arbitration, disclosures made during the arbitration, and maintenance of confidentiality by the arbitration center and the arbitrator.  It makes perfect sense that WIPO would have rules addressing confidentiality, because the “World Intellectual Property Organization” exists to protect the “IP” in “WIPO”, and intellectual property is often valuable because it is confidential.

      The UNCITRAL Model Law on International Commercial Arbitration leaves the question of confidentiality to the parties and the arbitration rules they choose.

     While confidentiality cannot be taken for granted in international arbitration, there are some things a party can do:  (1) include a confidentiality clause in the original contract; (2) get individual confidentiality agreements from third parties; (3)  if confidentiality is a concern, pay attention to the choice of law and seat of arbitration; (4) request protective orders from the arbitrator; (6) go to national courts to enforce protective orders (sometimes a self-defeating option). 

      Bottom line:  do not take the obligation to maintain confidentiality for granted in international commercial arbitration.

      While I found Ms. Lous’ article to be genuinely illuminating, I can’t help but remember Laurel and Hardy’s immortal words:  “Well, here’s another nice mess you’ve gotten me into.”

     HAT TIP to the attorney in the audience who asked me about confidentiality in international arbitration yesterday!

Miscellany: Panel On IP And ADR At 41st Annual IP Institute In Santa Barbara

Fellow Mediators Erica Bristol, Phyllis G. Pollack, and I Participated On Panel.

Above:  President Roosevelt and party visiting Old Franciscan Mission in Santa Barbara.  1903.  Library of Congress.

     On November 10, 2016, I had the pleasure of participating in a panel with fellow mediators Erica Bristol and Phyllis G. Pollack in Santa Barbara. 

     Phyllis G. Pollack is the principal of PGP Mediation and past chair of the California State Bar ADR Committee.  Phyllis spoke about California Law Revision Commission activity aimed at revising mediation confidentiality in California.  She recited the recent history of mediation confidentiality, beginning with Cassel v. Superior Court, 51 Cal.4th 113 (2011), the California Supreme Court case strictly enforcing mediation confidentiality.  Phyllis discussed the Law Revision Commission’s in-depth  study about creating an exception to mediation confidentiality for evidence proving or disproving professional misconduct or malpractice by an attorney advocate where the misconduct occurs in the context of the mediation. 

     Phyllis suggested that if mediation confidentiality is loosened up in California, lawyers who represent clients in mediation will be more exposed to malpractice claims arising out of mediation.  If in fact this happens, we could see malpractice premiums for policies covering mediators become more expensive.  She also suggests that courts could become burdened with new cases, new discovery disputes, new protective order procedures, and requests for in camera proceedings.

     Erica Bristol is a mediator and intellectual property attorney.  She is the current Chair of the State Bar’s Litigation Section’s ADR Committee, and a principal of EB Resources Group.  Erica discussed differences between the federal and state mediation privileges.  The privilege exists in California and is enshrined in our Evidence Code, but the privilege varies in federal jurisdictions.  One solution to the uneven application of the mediation privilege courts would be to create a federal mediation privilege in the Federal Rules of Evidence.  However, unless that happens, attorneys practicing in federal courts need to consider jurisdictional privileges, give consideration about what information they can safely disclose in mediation, and inform their clients about the application of mediation confidentiality.

     I suggested that President Elect Trump will impact the use of arbitration through the likely nomination of conservative Supreme Court justices, because the conservative wing of SCOTUS has been very willing to enforce arbitration agreements, whereas the liberal wing of SCOTUS has been more critical of the use of arbitration to resolve disputes.

     I spoke about arbitration in the context of IP disputes.  I noted that IP patent, copyright, trademark, domain name/cybersquatting disputes, and license disputes may be susceptible to arbitration.  Numerous arbitral bodies exist for arbitrating IP disputes, including WIPO (the World Intellectual Property Organization and Mediaiton Center), the Hong Kong International Arbitration Centre, and the organizations familiar to us here, including the AAA, ADR Services, JAMS, and JudicateWest.

     I discussed the application of the Federal Arbitration Act, “gateway issues,” the application of delegation clauses that determine whether a judge or arbitrator decides arbitrability, class arbitration, stays, incorporation of arbitral rules in the arbitration agreement, and the use of click wraps to bind persons using the internet to arbitration agreements.  While case law cannot be overlooked, the best way to begin to analyze most arbitration issues in a dispute is with copies of the arbitration agreement, the rules of the arbitral organization, the Federal Arbitration Act, and The Rutter Group treatise on ADR.