California Mediation and Arbitration

Arbitration, FINRA, FAA: Ninth Circuit Holds Arbitration Award Must Be Vacated Because The Arbitration Hearing Was Chaired By An Impostor

Ninth Circuit Allows Equitable Tolling For Claim To Vacate Award Brought More Than Four Years After Entry Of Award.

Fraud against Truth.  Currier & Ives.  1872.  Library of Congress.

      Yikes! In 2009, Move, Inc. lost a multi-million dollar securities claim before a three-member FINRA (Financial Industry Regulatory Authority) arbitration panel.  In 2014, Move learned that the panel chairperson, one James H. Frank, had lied about being licensed to practice law in California, New York, and Florida.  “It is now undisputed that Mr. Frank, who is ‘James Hamilton Hardy Frank,’ was impersonating retired California attorney ‘James Hamilton Frank.’  FINRA later confirmed that Mr. Frank lied about his qualifications in his ADR and subsequently removed him from all cases and from its roster.”  Move v. Citigroup Global Markets, No. 14-56650, slip op. *4  (9th Cir. 11/4/16) (J. Nelson, author).

     Under the Federal Arbitration Act, a motion to vacate must be served within three months after the award is filed or delivered.  Here, the district court held that equitable tolling applied, but then concluded  that Mr. Frank’s misbehavior did not prejudice Move’s right to a fundamentally fair hearing.

     The Ninth Circuit held “that the FAA is subject to the established doctrine of equitable tolling.”  However, the panel rejected Citigroup’s argument that there was “no evidence that Mr. Frank influenced other members of the panel or that the outcome of the arbitration was affected by his participation.”  Explained Judge Nelson, “[T]here is simply no way to determine that this was the case.”  Arbitrators contribute by their qualifications, by their participation, and by their vote.  In other words, being judged by an impostor is not a harmless error.

     Move wanted a qualified arbitrator and had made that clear from the start.  Here, however, the arbitrator was an impostor “who should have been disqualified from arbitrating the dispute in the first place.” 

     Equitable tolling is about fairness.  So too is the provision in the FAA addressing arbitrator misconduct, section 10(a)(3), the basis for vacatur here.  “[U]nder the unique set of facts of this case, we hold that Move was deprived of a fundamentally fair hearing and therefore was prejudiced by the fraudulent conduct of the panel’s chairperson, Mr. Frank.” Slip op., *13-14.

     Of course, it is possible that a fair hearing would have resulted in an award against Move.  But in a fair hearing, one’s legal fate would not be decided by an impostor.

    

Arbitration, PAGA: Third District Says Whether Representative PAGA Claims Can Be Subject To Mandatory Arbitration Remains Unsettled, And Doesn’t Settle It

Unlike The Arbitration Agreement In Iskanian, The Agreement Here Did Not Include A Waiver Of The Right To Bring A PAGA Representative Claim.

     The Court in Eaton v. Big League Dreams Manteca, LLC, C079374 (Third District 11/2/16) (Renner, Nicholson, Murray) (unpublished) addresses an issue that some may have thought was settled after Iskanian:  whether PAGA representative claims can be the subject of mandatory arbitration.  Relying on Iskanian, the trial court in Eaton concluded that PAGA representative claims cannot be arbitrated.  However, the Court of Appeal concludes that the issue is not settled – without settling it.

     “On the one hand. . . on the other hand,” says the Court of Appeal.  On the one hand, it is plausible that PAGA representative claims cannot be arbitrated, because Iskanian treats PAGA claims as a dispute between the State of California and the employer – and the State never signed an arbitration agreement.  But on the other hand, in Iskanian, the arbitration clause included a waiver of representative PAGA claims – something the court would not countenance.  So perhaps arbitration claims can be arbitrated if they are not waived, because arbitration would provide a forum for deciding the substantive rights.

     Instead of deciding the issue, the Court of Appeal concludes that other issues must be addressed first:  the trial court “must determine whether the parties’ arbitration agreement encompasses representative PAGA claims and whether incorporation of the AAA Employment Rules constitutes clear and unmistakable evidence of their intent to delegate questions of arbitrability to the arbitrator.”  If the answer is yes, then the case gets stayed and the arbitrator must determine the scope of the arbitrator’s jurisdiction to decide the PAGA claims.

      If the arbitrator concludes that there is a lack of arbitral jurisdiction because PAGA claims are really between the State and the employer, does the can then get kicked back to the trial judge?

     BONUS TRIVIA from Wikipedia article (“Kick the Can”):  “Play scholar Rodney Carlisle notes that: ‘As outdoor and unstructured play of children continues to dwindle, the game of Kick the Can is becoming less and less known to each generation... At one point in time, teenagers played Kick the Can with younger children, and the game and its variations were passed on from child to child. Past generations remember this game fondly, and it was enough of a cultural phenomenon that it was a central player in a 1962 episode of The Twilight Zone and was incorporated later in the 1983 film of the same name.’"

Arbitration, Employment, FAA, Class, Waiver: Petition For Certiorari To SCOTUS Filed In NLRB v. Murphy Oil USA, Inc.

 

The Circuits Disagree About Class Action Waivers In Arbitration, The NLRA, And Prohibition Of “Concerted Activities” In Pursuit Of Employees’ “Mutual Aid Or Protection”.

     On October 11, 2016, I blogged that on September 8, a petition for a writ of certiorari had been filed by the accounting firm in Morris v. Ernst & Young, presenting the issue:  ““Whether the collective-bargaining provisions of the National Labor Relations Act prohibit the enforcement under the Federal Arbitration Act of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than collective basis.”

     The same source for my earlier post, Kate Howard’s Petition of the Day in SCOTUSBlog, reported on November 2 that on September 9, a petition for a writ of certiorari was filed in National Labor Relations Board v. Murphy Oil USA, Inc.,16-307, presenting the issue: ”Whether arbitration agreements with individual employees that bar them from pursuing work-related claims on a collective or class basis in any forum are prohibited as an unfair labor practice under 29 U.S.C. § 158(a)(1), because they limit the employees’ right under the National Labor Relations Act to engage in “concerted activities” in pursuit of their “mutual aid or protection,” 29 U.S.C. § 157, and are therefore unenforceable under the savings clause of the Federal Arbitration Act, 9 U.S.C. § 2.

    So now we have a collision between the Ninth Circuit in Morris v. Ernst & Young and the Fifth Circuit in NLRB v. Murphy Oil USA.  And the arbitration class action waiver/”concerted activities” issue has been squarely presented to the Supreme Court in dueling petitions for writ of certiorari.

Review, Arbitration, Disclosures, MFAA: The Message From Baxter v. Rock

“Vet Your Fee Arbitrator Early.”

     In May 2016, I posted on the then unpublished case Baxter v. Rock, and posted later that the case was partially published.  247 Cal.App.4th 775 (2016).  Relying on the case, I pointed out that an arbitrator’s mistake about an attorney’s fees award was no basis for overturning the award under California’s Mandatory Fee Arbitration Act, but that a judge’s error in assigning different hourly rates to two attorneys, without a reasonable basis for doing so, was subject to a different standard of review, and could be more easily reversed – as it was.

      The case, however, was also important for what it said about arbitrator disclosures.  The arbitrator who failed to disclose prior experience auditing attorney’s fees, could not be later disqualified in an attorney fee arbitration held under the MFAA.  Just because the arbitrator had experience auditing attorney’s fees did not necessarily mean that the arbitrator was biased for or against the attorney or the client.

    Mary A. Dannelley, Esq. has written an article about the disclosure requirements discussed in Baxter v. Rock, published in Orange County Lawyer (November 2016), and entitled, “The Message from Baxter v. Rock:  Vet Your Fee Arbitrator Early.”

    Here are three takeaways from this helpful article:

• “arbitrators are required to disclose: (a) connections to the parties, the facts, or the events at issue in the fee dispute; and (b) business activities of an attorney arbitrator (including the nature of his or her law practice) that would create an economic incentive to rule in favor of one party over the other.”
• the arbitrator should disclose the arbitrator’s practice as an attorney if it is focused on a particular area related to the subject matter of the litigation such that it would provide the arbitrator with an incentive to rule in favor of one side rather than the other.
• vet your arbitrator early, because post-arbitration challenges to the sufficiency of disclosures will be viewed by the courts with a gimlet eye.

Arbitration, FAA, Pending Cases: SCOTUS Grants Cert Petition In Kindred Nursing Centers Limited Partnership v. Clark

Petitioner And Respondent Frame Issue Quite Differently.

     I wrote about Kindred Nursing Centers Limited Partnership v. Clark in an August 5, 2016 post, stating that the nursing company petitioning from the Kentucky Supreme Court to SCOTUS presented the issue thusly:

”Whether the FAA preempts a state-law contract rule that singles out arbitration by requiring a power of attorney to expressly refer to arbitration agreements before the attorney-in-fact can bind her principal to an arbitration agreement.”

     I can now report that the Supreme Court granted Kindred Nursing Center’s petition for a writ of certiorari on October 28, 2016, and also add that Respondent Clark frames the issue rather differently:

“Whether the Kentucky Supreme Court’s routine application of interpretive principles to an instrument of Agency, e.g., a power-of-attorney, is preempted by the Federal Arbitration Act.”