California Mediation and Arbitration

Federal Arbitration Act/Pending Cases: SCOTUS Hears Argument In Kindred Nursing Centers Limited Partnership v. Clark

Argument Is Summarized In SCOTUSblog.

    On February 23, 2017, Professor Ronald Mann of Columbia Law School provided argument analysis in SCOTUSblog of yesterday's oral argument in Kindred Nursing Centers Limited Partnership v. Clark.   By the tenor of the argument, which appears to have been hostile to Kentucky's position that the right to try personal injury cases against nursing homes was not preempted by the FAA, Professor Mann pretty much predicts a reversal by the Supreme Court of the State of Kentucky Supreme Court ruling.  The State of Kentucky had argued that nursing home powers of attorney needed to be specifically drafted to confer the power to give up the right to a jury trial in arbitration, an argument that runs up against the objection that it discriminates against arbitration.    

    COMMENT:  On  February 19,  2014, I reviewed Professor Imre Szalai's Outsourcing Justice, a fascinating history of arbitration in the United States.  Professor Szalai argued that the creators of the Federal Arbitration Act conceived it primarily as a means to achieve a speedy and efficient resolution of business disputes.  Professor Szalai has filed an amicus brief in Kindred Nursing Centers, in which he concludes, based on his reading of, "[t]he text of the FAA, its legislative history, and the historical background of the FAA's enactment demonstrate that the FAA was never intended to govern personal-injury claims."  Thus, he reframes the argument as one of coverage by the FAA, rather than preemption, based on his reading that section 2 of the FAA limits coverage to disputes arising out of contracts and interstate commerce.  He argues that personal injury disputes are altogether different, as they arise out of tort law.  While there may be some real merit to the historical argument that the FAA was intended to serve merchants with commercial sophistication in business disputes among themselves, and that this is something quite different from a personal injury claim arising out of tort law, a lot of water (i.e., case law), has flowed under the bridge since the Federal Arbitration Act was enacted in 1925, so that one would be hard-pressed to declare Professor's Szalai's argument to be a dead bang winner in 2017. 

Arbitrability: Court, Rather Than Arbitrator, Gets To Decide Whether There Was Fraud In The Inducement To Enter Into Arbitration

The Important Distinction Is Whether Fraud In The Inducement Applies To The Contract Or To The Arbitration Clause.

    Though unpublished, Milder v. Holley, B267974 (2/5 1/31/17) (Kumar, Kriegler, Baker) has facts that neatly clarify an important gateway issue: does a judge or an arbitrator get to decide whether there was fraud in the inducement in entering to an arbitration agreement in California? Whether there was fraud in the inducement affects whether a dispute is arbitrable, making it a "gateway issue."

    The key facts are these: Milder sued his former attorney Holley and Holley's law firm in connection with legal representation. Defendants successfully demurred because Milder had previously initiated arbitration of the dispute pursuant to the parties' retainer agreement, and therefore there was another action pending (assuming arbitration is an "action" – an issue that the Court of Appeal did not even have to address, as we shall see). Furthermore, the trial court ruled that it was for the arbitrator, not the judge, to decide Milder's claim that defendants fraudulently induced him to agree to the arbitration provision. Milder appealed.

    Milder's complaint alleged he had been fraudulently induced into entering into the arbitration agreement, and he argued that the issue of fraudulent inducement was a gateway issue that the court, rather than the arbitrator must decide. The superior court had disagreed, because case law is clear that fraudulent inducement to enter into a contract, which happens to contain an arbitration clause, is decided by the arbitrator in California. Ericksen, Arbuthnot, McCarthy, Kearney & Walsh Inc. v. 100 Oak Street, 35 Cal.3d 312, 323 (1983). The important distinction, however, is that when the claim of fraud in the inducement is directed to the arbitration clause itself, rather than to the whole contract– and Milder had pleaded his claim as fraudulent inducement to enter into arbitration – then the claim must be decided by the judge. Id. The Court of Appeal reversed the judgment, and at the same time reversed an award of attorney's fees against Milder in another appeal, because defendants were no longer prevailing parties entitled to attorney fees. Milder v. Holley, B270385 (2/5 1/31/17) (unpublished).

    HAT TIP to my friend and colleague Mike Hensley for bringing the Milder v. Holley cases to my attention. Mike and I co-contribute to the California Attorney's Fees blawg, and Mike is an avid reader of slip opinions.

Arbitration, Automobiles, and Construction Of Agreement: Agreement Providing For Right Of Party To Request “A New Arbitration” Is Effective Even In Arbitration Forum That Does Not Provide Appeal Rules

The Arbitration Clause Analyzed By The Court Is Common In Automobile Sales Contracts.

    The Arbitration Clause analyzed in Raczynski v. Daland Nissan, Inc., et al., A146992 (1/5 2/15/17) (Bruiniers, Jones, Needham) (unpublished), provides that the arbitrator's award "shall be final and binding on all parties, except that in the event the arbitrator's award for a party is $0 or against a party is in excess of $100,000, or includes an award of injunctive relief against a party, that party may request a new arbitration under the rules of the arbitration organization by a three-arbitrator panel." The provision is standard in automobile sales contracts, and provides an escape valve for a buyer who gets skunked, or a seller who gets whacked in arbitration. But if the arbitration award to the buyer is greater than $100,000, does the seller get a "new arbitration under the rules of the arbitration organization by a three-arbitrator panel" if the arbitration organization does not have rules providing for appeal to a three-arbitrator panel? (Note: JAMS had such rules; ADR did not have such rules at the time, and the arbitration was in front of ADR).

    When the seller requested an appeal to a three-party panel of the adverse award, ADR punted, saying it would not provide a three-party panel, unless a court ordered it to do so. The superior court refused to order a second arbitration, citing the absence of appellate rules in ADR, and the seller appealed.

    Reversed. The arbitration clause provided a right to a "new arbitration", and this did not require formal appeal rules within the arbitration association. ADR indicated it would provide a new arbitration, if the court so ordered – and the Court of Appeal ordered the superior court to grant defendants' petition to compel a new arbitration.

Collective Bargaining: Second District, Division 4, Holds Trial Court Properly Denied Motion To Compel Arbitration Because Collective Bargaining Agreements Did Not Include “Unmistakable Waiver Of The Right To A Judicial Forum For Individual Statutory C

Where Statutory Violations Are Alleged, Presumption Of Arbitrability Applying To Contractual Disputes Arising Out Of A Collective Bargaining Agreement Does Not Apply.

    Collective bargaining agreements (CBAs) are a different animal requiring close scrutiny when the question of arbitrability arises in an employment dispute. In Vasserman v. Henry Mayo Newhall Memorial Hospital, No. B267975 (2/4 2/7/17) (Collins, Epstein, Manella), the Court holds that the "CBA did not include an expressly stated, clear and unmistakable waiver of the right to a judicial forum for individual statutory claims. The trial court properly denied [the employer's] motion to compel arbitration."

    Plaintiff Vasserman had filed a class action against her employer, asserting statutory claims. The employer Hospital removed to federal court, which remanded, holding that Vasserman's claims arose under state law that did not substantially depend on interpretation of the CBAs. In state court, the Hospital sought to compel arbitration, and appealed when the state court judge denied the motion.

    Most interesting is the Court's explanation of why the presumption of arbitrability does not apply to contractual disputes arising out of a CBA, thus requiring that a waiver of the right to a judicial forum be express, clear, and unmistakable in the case of statutory rights:

 

"As the United States Supreme Court explained in Wright [525 U.S. 70 (1998)], cases involving statutory claims "ultimately concern[ ] not the application or interpretation of any CBA, but the meaning of a . . . statute" and rights "distinct     from any right conferred by the collective-bargaining agreement." (Wright, 525 U.S. at pp. 78-79.) In other words, a plaintiff such as Vasserman asserts rights conferred to her and all workers under California law,     regardless of whether the employment occurred under the terms of a CBA. Therefore, when a plaintiff has alleged statutory violations, the "ultimate question" is "not what the parties have agreed to, but what     [applicable] law requires; and that is not a question which should be presumed to be included within the arbitration requirement." (Id. at p. 79.)"

COMMENT: The remand by the federal district court to state court on the ground that the plaintiff's claims did not substantially depend on interpretation of the CBAs may have been a clue that the Hospital would have a tough row to hoe when arguing that the CBA covered the statutory claims.

Unconscionability, PAGA, Severance: 9th Circuit Reverses District Court’s Order Denying Motion To Compel Arbitration

Panel Rejects Employee's Arguments That Six Provisions Are Unconscionable, Requires Severance Of "Judicial Carve-Out" Provision, And Punts On "Reaffirmation Clause" Provision.

    Poublon v. C.H. Robinson Company, et al., No. 15-55143 (9^th Cir. 2/3/17) (Ikuta, Callahan, Bea) is an opinion that employers will likely cite when arguing against employee claims that an arbitration clause is substantively unconscionable. Plaintiffs' employment attorneys seeking to avoid arbitration should know about the decision, though they may not find it helpful.

    After Lorrie Poublon filed a class action complaint against her employer, her employer moved to compel arbitration. The district court denied C.H. Robinson's motion to compel, and the employer appealed.

    As with many arbitration provisions, the Court of Appeal found that the agreement was a contract of adhesion, but that there was a low degree of procedural unconscionability.

    The panel then addressed eight provisions that the employee had attacked as substantively unconscionable, with the final scorecard overwhelmingly in favor of the employer. Here is the rundown: (1) per the employer's concession, a judicial carve-out provision allowing the employer to go to court, but not the employee, was unconscionable, but could be severed; (2) the waiver of PAGA representative claims, while unenforceable under California law, was not substantively unconscionable; (3)the Minnesota venue provision requiring the employee to litigate a thousand miles away from her home in California, was valid, because the employee "had not met the burden" of showing the clause is unreasonable; (4) the confidentiality provision was not unconscionable; (5) the sanctions provision, allowing for an award of attorney's fees and costs against a party for unreasonable conduct, was not unconscionable, because as drafted it was consistent with sections 128.7 and 2023.030(a) of the California Code of Civil Procedure; (6) the provision allowing for unilateral change of the agreement was limited by the covenant of good faith and fair dealing; (7) discovery limitations were valid as an "important component of the 'simplicity, informality, and expedition of arbitration.'" (quoting Armendariz); and, (8) the court did not need to address the validity of a "reaffirmation clause" arguably requiring reaffirming an illegal noncompetition agreement, because that provision was not part of the arbitration clause.

    Reversed and remanded.

References: Any Error In Ordering a Section 638 General Reference Is Harmless When The Referee Gets Matters Right

Whether Referee Or Trial Court Decided The Case Would Have Made No Difference, Because The Case Was Decided Correctly.

     It was the last 1 ½ pages of this published 27 page slip opinion that caught our attention, because it referred to appointment of a referee, and reference is one of this blog's sidebar categories. Stella v. Asset Management Consultants, Inc., et al., B269207 (2/7 filed 1/17, pub. 2/6/17) (Perluss, Zelon, Segal).

     Plaintiff/Appellant Stella appealed from a judgment of dismissal entered after a judicial referee sustained without leave to amend all demurrers to Stella's amended complaint based on the statute of limitations. The Court of Appeal agreed that the statute of limitations barred all causes of action.

     Stella's last argument was that it was erroneous to order a general reference. As the Court of Appeal explained, any error was harmless, because whether a referee or a trial court sustained the demurrers "could not possibly have affected the outcome of the case."

Arbitration/Review: Fourth District, Division Two Affirms The Woody Allen Principle

Woody Allen Principle: "80% Of Life Is Showing Up."

Northeast elevation - Woody Allen Road Bridge, Spanning Oothalooga Creek at County Road 316, Adairsville, Bartow County, Georgia. Library of Congress.

 

     In Newman v. The Ramona Terrace Community, LLC, No. E066400 (4/2 2/3/17) (Codrington, Hollenhorst, Slough) (unpublished), the Court holds: "Because Newman agreed to arbitration of his claims but refused to participate in the arbitration as ordered, we affirm the judgment." (slip op. at 2).

     An arbitrator's decision is generally not subject to judicial review, because a mistake of law or fact is not a basis for overruling it. "The superior court denied Newman's petition to vacate the arbitration award, in which Newman accused the arbitrator of suffering from dementia." Alas, the Court of Appeal explained, "Newman has not provided any reasoned argument or evidence supporting reversal."

     BONUS: From the Seinfeld episode, "The Big Salad":

     Elaine: "Perhaps there's more to Newman than meets the eye."

     Jerry: "No, there's less."

PAGA, Severability: Second District, Division 4 Reposts Montano PAGA Opinion Upon Lifting Of Bankruptcy Stay

Two Years Later . . .

    On January 7, 2015, we posted about Montano v. The Wet Seal Retail, Inc., B244107 (2^nd Dist. Div. 4 1/13/15) (certified for pub.). This is a Private Attorneys General Act case following the holding in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), that waiver of the employee's right to litigate representative claims is unenforceable.  Two years later, we can now report that as of 1/13/17, the case was reposted upon the lifting of a bankruptcy stay, with a slight modification made on 1/13/15 deleting footnote 7.