California Mediation and Arbitration

Arbitration, Unconscionability, Severability: Trial Court's Order Denying Petition To Compel Arbitration Is Reversed, Because The Only Unconscionable Provision Was Severable

The Unconscionable Provision Permitted Only The Defendant To Seek Equitable And Injunctive Relief In A Court Of Law.

    In Enyong v. Westlake Services, LLC et al., B275952 (2/5  4/24/17) (Kriegler, Baker, Dunning) (unpublished), the Court of Appeal concluded that an arbitration provision contained only one unconscionable term, which was severable.  Therefore, it reversed the trial court's order denying the petition to compel arbitration.

    The one unconscionable provision permitted only defendant/appellant Westlake to seek equitable and injunctive relief in a court of law.  However, this provision could have been severed, enabling the trial court "to enforce an otherwise valid arbitration agreement as favored by the FAA."

    Relying on Baltazar v. Forever 21, Inc., 62 Cal.4th 1237 (2016), the Court further concluded "that the agreement is a contract of adhesion, but it does not involve sharp practices, oppression, or an element of surprise" -- in other words, the procedural unconscionability prong also could not have been satisfied.

    Note:  The trial judge was the Hon. Teresa Sanchez-Gordon.  On April 17, 2017, the Metropolitan News-Enterprise announced that she will be retiring after 20 years on the bench.

Arbitration, Equitable Estoppel, Agents: Hourly Employee Hired Out By Temporary Staffing Company Is Compelled To Arbitrate With Company To Which He Is Assigned -- Though That Company Is A Non-Signatory To Arbitration Agreement

Equitable Estoppel And Agency Theories Required The Employee To Arbitrate With The Non-Signatory Company.

            I suspect that that the facts in our next case are far from unique.  In Garcia v. Pexco, LLC, G052872 (4/3  4/24/17) (Ikola, Aronson, Thompson) (unpublished), plaintiff Garcia was hired by Real Time, a temporary staffing company, and assigned to work for Pexco, LLC.  Garcia brought employment claims against Real Time and Pexco, alleging they were joint employees, agents of one another, and both responsible for the same wrongs.  While Garcia had a broad arbitration agreement covering the claims with Real Time, he had no arbitration agreement at all with Pexco.  

            Of course, defendants moved to compel, and there was no question but that Real Time could require arbitration.  The issue in the appeal was whether Pexco, the sole respondent, could compel arbitration.  Yes, the Court of Appeal concluded.  Garcia was equitably estopped from avoiding arbitration with Pexco, because he had alleged that Pexco and Real Time were joint employers, agents of one another, and had committed the same wrongs.

            COMMENT:  There are two interesting aspects to the case.  The first is that the Court must distinguish between pleadings that result in equitable estoppel, and pleadings that do not result in equitable estoppel.  The murky distinction that the Court appears to be making is that pleadings that are "mere boilerplate" will not necessarily result in equitable estoppel and admissions (especially if denied?), but that pleadings that are "not merely boilerplate language" and are actually integral to the claims will lead to equitable estoppel.

            The second interesting aspect is that, while the Court relies on existing case law to apply established rules of equitable estoppel and agency in order to require arbitration, the Court does not rely on any cases involving temporary staffing agencies that assign employees to other companies -- probably an increasingly common occurrence in our "gig economy" characterized by a lack of permanent employment.   Alas, the case is unpublished as of this date. 

        

Arbitration/Disclosure/Standard of Review: Court Of Appeal Agrees There Is No Basis To Disqualify Arbitrator For Failing To Disclose.

   

Bon Ton Burlesquers.  c1898.  Library of Congress.

            The Court of Appeal applies a de novo standard of review to arbitrator disclosure issues (unless the trial court’s decision is based upon disputed facts, in which case a substantial evidence standard or review applies).  In Mitchell Anthony Productions LLC v. Jennifer Hamilton, B269969 (2/5  4/12/17) (Turner, Kriegler, Baker) (unpublished), the Court of Appeal rejected plaintiff/appellant’s request to vacate an award based on a claim that the arbitrator had failed to make necessary disclosures.

            Plaintiff’s owner, who wanted to produce a burlesque show, claimed defendant, a choreographer, had defamed him.  He sought to force the arbitrator to recuse himself after learning that the arbitrator had represented “talent.”  However, the arbitrator had indicated that he did not have a relationship with any party or party’s counsel, something that was not challenged.  Bottom line:  “[R]epresentation of talent agencies is not evidence in this case of an arbitrator’s bias in favor of a dancer.”

            COMMENT:  One might imagine circumstances in which an arbitrator’s history of one-sided representation could be relevant.  Here, however, the record was thin.  There was no evidence of the nature of the arbitrator’s alleged representation of talent and talent agents, no evidence as to when it occurred, no evidence as to who was represented, and no evidence of any similar information.

Review: Writing For Hire: Unions, Hollywood and Madison Avenue

There Is A Connection To ADR . . .

    My review of Professor Catherine L. Fisk's excellent new book, Writing for Hire: Unions, Hollywood and Madison Avenue (Harvard University Press 2016) appears in the latest volume of California Litigation: The Journal of the Litigation Section, State Bar of California (vol. 30, no. 1 2017), p. 33. The subject of the book is the divergent labor employment models for writers in the Hollywood entertainment industry, and for writers in advertising. The most notable difference is that Hollywood writers are unionized, whereas Madison Avenue writers are not. And there actually is a connection between the book's subject and alternative dispute resolution, because the greatest benefits achieved by writers in the entertainment industry are mostly the result of labor negotiations with management, rather than lawsuits.

    The book review is reprinted and available by clicking here, with the permission of the California State Bar and the California Litigation journal. Of course, the views expressed are my own, and do not necessarily reflect those of the California State Bar, California Litigation, their staff, contributors, or advertisers.

Arbitration/Waiver/Public Policy/FAA: California Supreme Court Rules That Arbitration Provision Eliminating Any Forum For Obtaining “Public Injunctive Relief” Is Unenforceable

Nor Is There Federal Arbitration Act Preemption.

    In a long-awaited and important decision, the California Supreme Court addresses the validity of a provision in a predispute arbitration agreement that waives the right to seek "public injunctive relief" as a statutory remedy in any forum. McGill v. Citibank, N.A., No. S224086 (Sup. Ct. 4/6/17). Reversing the Court of Appeal, the Court unanimously holds, in an opinion authored by Justice Chin,"such a provision is contrary to California public policy and is thus unenforceable under California law." The Court further holds "that the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) does not preempt this rule of California law or require enforcement of the waiver provision."

    The plaintiff had brought claims against Citibank under California Unfair Competition Law, under the California Consumer Legal Remedies Act, under false advertising statutory provisions, and under the Insurance Code, in connection with Citibank's alleged violation of a "consumer protection" plan intended to protect credit card holders who missed payments because of certain qualifying events, such as long-term disability, or unemployment. One element of relief sought by the plaintiff was public injunctive relief, namely, injunctive relief that would benefit not only the plaintiff, but the public. A very broad arbitration provision, however, swept just about every conceivable claim under the arbitration rug.

    The parties in McGill agreed that the arbitration provisions, as drafted, prevented the plaintiff from seeking public injunctive relief in arbitration, because the plaintiff would only be able to seek relief as to her own claim, and not obtain any broader injunctive relief that would benefit other persons.

    The Court invokes California Code of Civil Procedure section 3513, providing: "Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement." As interpreted by the Supreme Court, the UCL, the CLRA and the false advertising statutory provisions (Bus. & Prof. Code § 17500) are established for a public purpose, and thus a waiver of the right to obtain public injunctive relief under those statutes is contrary to California public policy.

    So why isn't this result preempted and precluded by the Federal Arbitration Act, which generally requires the enforcement of arbitration clauses? The answer is that the FAA only requires that arbitration provisions be placed on an equal footing with other contracts, and the California Supreme Court explains that such a waiver of the right to obtain public injunctive relief would be equally unenforceable whether the waiver applied to an arbitration proceeding or to a judicial proceeding.

    The Court also relies on a distinction applied by SCOTUS in the Italian Colors Restaurant case (see my June 25, 2013 post) – the distinction between waiver of a statutory remedy that is substantive, and waiver of a procedural path to vindicate a statutory remedy. The Italian Colors majority ruled that waiver of a procedural path to vindicate a statutory right is acceptable, so long as there is no waiver of the substantive right. (Because the substantive right may be ineffective without a procedural path to vindicate it, some may believe that the distinction between waiver of a substantive right and waiver of the procedural path, e.g., class action, to vindicate that right, is a distinction without a practical difference.) In McGill, however, enforcement of the arbitration clause would have required waiver of the substantive right to obtain public injunctive relief: not acceptable.

    The California Supreme Court avoided having to decide whether the so-called Broughton-Cruz rule applied in McGill. As stated by the Court, that rule provides: "Agreements to arbitrate claims for public injunctive relief under the CLRA, the UCL, or the false advertising law are not enforceable in California." The Court distinguished McGill on the grounds that it is a case where no public injunctive relief could be obtained in any forum, in contrast to a Broughton-Cruz scenario where the parties have agreed to arbitrate claims for public injunctive relief.

    COMMENT: The practical effect of the ruling in McGill may be diminished if the parties have to arbitrate the arbitrable claims, and the superior court stays judicial determination of the right to public injunctive relief. In the future, arbitration clauses could be drafted allowing for obtaining public injunctive relief through the arbitration process. While that approach would put the Broughton-Cruz rule at issue again, it would seemingly avoid the holding of McGill, in which the holding depends on the unavailability of public injunctive relief in any forum.

    I previously posted about McGill v. Citibank on April 5, 2015 and December 18, 2014.

Condition Precedent: Non-Signatory To Contract Must Mediate To Recovery Attorney’s Fees, If Mediation Is A Condition Precedent To Fee Recovery In The Contract

The

The Wrinkle Here Is That The Prevailing Party Claimed She Did Not Need To Satisfy The Condition Precedent Because She Never Signed The Contract.

    Standard real estate purchase and sale agreements in California, e.g., California Association of Realtors forms, include a provision requiring mediation as a condition precedent that must be satisfied before a prevailing party can recover attorney fees. That requirement has been litigated often enough in California to become one of our sidebar categories: "Mediation: Condition Precedent". Yet it still trips up parties, as it did in our next case, Hsiao v. Lin, B271296 c/w B272366 (2/8 4/4/17) (Rubin, Flier, Grimes) (unpublished).

    Hsiao (buyer) sued Lin (seller) for breach of contract when the seller refused to proceed with the sale of a house. The seller Lin prevailed, because she never signed the contract – instead, her adult son did. Because Lin prevailed, she sought attorney's fees, which the superior court granted in a postjudgment order

    The problem for Lin was that the contract required mediation first in order to recover attorney's fees. The buyer requested mediation, and Lin refused the request. The Court held that the case is governed by Leamon v. Krajkiewcz, 107 Cal.App.4^th 424 (2003), requiring a prevailing seller who sued to quiet title to request mediation first in order to recover attorney's fees.

    The seller valiantly tried to distinguish Leamon on the grounds she did not sign the contract in the first place. But the Court found this to be "a distinction without a difference," because she was relying on the contract to recover attorney's fees. She could hardly rely on the benefit – recovering attorney's fees – without accepting the burden of mediating.

    Judgment affirmed; postjudgment order awarding attorney's fees to Lin, reversed.

Review: Drafting Arbitration Clauses

Recommended Reading: Two Articles By Rebecca J. Callahan In The Orange County Lawyer Provide Helpful Tips For Drafting Arbitration Clauses.

    Mediator and arbitrator Rebecca J. Callahan is the author of two very clear and concise articles about drafting arbitration clauses. "Arbitration Clauses: Hot Questions and Cool Answers", which appeared in Orange County Lawyer, February 2017 (Vol. 59 No. 2), p. 42, explains basic considerations of drafting arbitration clauses. A second article, "Arbitration Clauses: A Contemporary Look at Advanced Drafting Considerations and Opportunities", appears in the current issue of Orange County Lawyer, April 2017 (Vo. 59 No. 4), p. 56. The second article is especially helpful because it addresses some drafting niceties and pitfalls, such as failing to consider that the Federal Arbitration Act only allows for judicial confirmation of an award if the parties have agreed that a judgment shall be entered upon the award, and have specified the court. Other topics covered include provisional relief, award of fees and costs, availability of statutes of limitation as a defense, inclusion of successors and assigns, and discovery.

    COMMENT: In addition to those articles, which provide an excellent overview and useful drafting tips, a helpful on-line resource for drafting arbitration provisions is the AAA's Drafting Dispute Resolution Clauses: A Practical Guide.