California Mediation and Arbitration

Arbitration/Confidentiality: Is Arbitration Confidential?

My Article, "Confidentiality in Arbitration" Is In The Latest Issue of California Litigation And Available Through This Post.

        My article on "Confidentiality in Arbitration" and an accompanying MCLE test are published in California Litigation, The Journal of the Litigation Section, State Bar of California, Vol. 30, No. 2 (2017), p. 6.  With the permission of the State Bar, I have republished the article and the test, and they are available by clicking here.

Reviews: Alt ADR -- High Noon, The Hollywood Blacklist And The Making Of An American Classic

Frontier Justice:  An Alternative Form Of Dispute Resolution.

        I just finished reading Glenn Frankel's "HIGH NOON:  The Hollywood Blacklist and the Making of an American Classic" (Bloomsbury 2017), an enjoyable, very readable and scholarly book about the making of the iconic Western and the scoundrel times of the Hollywood Blacklist, with portraits of those involved in the movie, in the Hollywood Blacklist, or both:  the actors Gary Cooper, Grace Kelly, Lloyd Bridges, and Katy Jurado, the director Fred Zinneman, the writer, Carl Foreman, the editor Elmo Williams, the producer, Stanley Kramer, and the witness Martin Berkeley, who named names (more than 150).  The movie's themes of rugged individualism, a weak community, lawlessness, and rough justice resonate in later American films, such as John Ford's The Man Who Shot Liberty Valance (1962), and Don Siegel's Dirty Harry (1971).  Gary Cooper's daughter, Maria Cooper Janis, described Marshal Will Kane, the character played by her father, as "a template for principle and courage that has seeped deeply into the global consciousness over the decades."

        Glenn Frankel writes that the High Noon poster was transformed into a poster for Poland's Solidarity trade union movement in 1989, just before the first free election held in Poland in decades.  Marshal Kane holds a folded ballot and has a Solidarity badge.  The poster includes the message:  HIGH NOON: 4 JUNE 1989.

 

Source:  Wikipedia. 

Arbitration, Class Action, Waiver: Defendant Who Decides Not To Arbitrate Against Named Plaintiff Waives Right To Compel Arbitration Against Absent Class Members

Unreasonable Delay Supported Trial Court's Finding Of Prejudice, Resulting In Waiver Of Right To Arbitrate.

        Sprunk, et al. v. Prisma LLC, B268755 (2/1  8/23/17) (Lui, Chaney, Johnson) holds that, under the circumstances, defendant Prisma LLC aka "Plan B", an employer of exotic dancers, waived its right to seek arbitration "by filing and then withdrawing a motion to compel arbitration against the named plaintiff, Maria Elena Sprunk, and then waiting until after a class had been certified to seek arbitration against class members."  (See BONUS below).

        This is interesting from the class action standpoint, because Plan B could not have compelled the absent class members to arbitrate prior to certification.  Nevertheless, the Court allowed the trial court to consider the fact of unreasonable delay in seeking adjudication of the right to arbitrate with the named plaintiff, in ruling on the issue of waiver.  Here, after withdrawing a motion to compel arbitration, the defendant waited years to bring a motion to compel arbitration.

        During a four-year delay, plaintiffs conducted class-related discovery and prepared and argued a class certification motion.  The Court believed none of this would have been necessary if defendant had sought early adjudication of the right to arbitrate.  Weighing heavily in the Court's opinion was that Plan B delayed filing its motions to compel arbitration so it could obtain a strategic advantage, for Plan B believed that had it moved to compel arbitration earlier, it might have been directed to arbitrate with the class.  "An attempt to gain a strategic advantage through litigation in court before seeking to compel arbitration," explained Justice Lui, "is a paradigm of conduct that is inconsistent with the right to arbitrate."  

        BONUS.  Click here to read the Wikipedia article on "Balk".  Wikipedia cites an example of a famous balk:  "A famous balk came in the first All-Star Game of 1961, when strong winds at Candlestick Park caused pitcher Stu Miller to sway erratically and be called for a balk. This story is often exaggerated in re-tellings of baseball lore, some having Miller being blown off the pitching mound."

Arbitration, Unconscionability: First District Div. 1 Reverses Denial Of Petition To Compel Arbitration, Concluding There Was "Extraordinarily High Degree Of Procedural Unconscionability", But No Substantive Unconscionability

California Law Requires Both Substantive And Procedural Unconscionability To Avoid Enforcement Of Arbitration Provision.

        The Court of Appeal's conclusion that it was "disturbed by the manner" in which an arbitration agreement was drafted and presented to an employee for signature, and that an "extraordinarily high degree of procedural unconscionability" existed, was not enough to uphold the trial court's denial of One Toyota's petition to compel arbitration with an employee in Oto, L.L.C. v. Kho (defendant and respondent) and Su, Labor Commissioner (intervener and appellant), A147564 (1/1 8/21/17) (Margulies, Humes, Banke).  Despite its manifest displeasure, the Court reversed the trial court's denial of the petition to compel arbitraiton.  The Court's reasoning process is straightforward: under California law, unconscionability has both a procedural and a substantive prong, and the Court concluded that substantive unconscionability did not exist.

        Regarding substantive unconscionability, the Court focused on "dual requirements of affordability and accessibility."  As to affordability, One Toyota acknowledged it had to pay all costs of arbitration.  The Court explained that the Agreement "does not necessarily require an expense beyond that necessary under Labor Code procedures."  The chief issue with accessibility, raised by the Labor Commissioner, was that arbitration would replace "the relative simplicity of the Berman hearing [where the Labor Commissioner considers an employee wage claim] with a complex proceeding resembling civil litigation."  However, the Court brushed that objection aside, observing that Berman hearings are nonbinding, and that either side could appeal, nullifying the result, and compelling civil litigation.

        The degree of procedural oppression really was high.  The agreement was not negotiated.  It was printed in 7-point font.  The plaintiff's first language was Chinese, and the agreement was presented in English without translation.  The agreement was presented without explanation to someone who was already an employee, while he was at his work station, where he was expected to do his job.  A low level employee presented the agreement, "creating the impression that no request for an explanation was expected and any such request would be unavailing."  The Court obviously didn't like the "dense, single-spaced paragraph", because it attached it as an Appendix to the opinion.  "These circumstances," the Court concluded, "were highly coercive and appear intended to thwart, rather than promote, voluntary and informed consent."

        COMMENT:  I have occasionally noted a disconnect between the theory of arbitration and California unconscionability law.  In theory, an agreement to arbitrate is all about intent.  Over and over again, the courts state the need for agreement and an intent to arbitrate.  However, in California, where substantive unconscionability is required, procedural unconscionability, resulting in surprise and confusion, is not enough to nix an arbitration agreement.  Instead, the employee would need to argue that he did not intend or agree to arbitrate.  Where the procedural unconscionability is as high as it was in the Oto, L.L.C. v. Kho case, one wonders to what extent the employee intended and agreed to arbitrate.

        I am reminded of a story I once heard about a University of Chicago Law School professor teaching the famous Williams v. Walker-Thomas Furniture case to his class.  This is the opinion penned by Judge J. Skelly Wright addressing unconscionability as a defense to enforcement of contracts.  Williams had signed an installment purchase contract for furniture, and when she defaulted in 1962, Walker-Thomas Furniture tried to repossess all furniture purchased since 1957. As the law students became increasingly unhappy with the unfairness of it all, the law professor became increasingly frustrated with his students' rebellion against enforcing the contract.  Finally, the University of Chicago Law School professor exclaimed, "If she signed it, make her eat it!"  Apocryphal, perhaps.  Or can you name the professor?

 

        

         

Arbitration, Res Judicata: Third District Holds That Licensee Not Participating In Arbitration Can Assert Res Judicata Effect Of Arbitration Award

Key Here To Finding Res Judicata (Claim Preclusion) Is Licensee's Derivative Liability.  

Gold Dredge.  Klondike River.  May 31, 1915.  Library of Congress.

         A confirmed arbitration award (which, however, was not reduced to judgment ¹) enabled George Reed, Inc. to assert res judicata against Cal Sierra Development, Inc.  Cal Sierra Development, Inc., Plaintiff and Appellant,  v. George Reed, Inc., et al., Defedants and Respondents; Western Aggregates LLC, Cross-defendant and Respondent, C08397 (3d Dist.  8/22/17) (Duarte, Robie, Butz).

        An underlying dispute between Cal Sierra and Western Aggregates involved placement of an asphalt plant and whether it infringed Cal Sierra's mining rights to operate its gold mining dredge.  Cal Sierra had a Mutual Operations Agreement with Western Aggregates, allowing the two mining companies to operate on the same property, and Western Aggregates licensed certain surface rights to its licensee George Reed, Inc. (Reed), which had an asphalt plant.  Cal Sierra arbitrated its claims against Western Aggregates, prevailing on a breach of contract, but failing to prove claims of trespass, conversion, and private nuisance.

        Reed did not participate in the arbitration.  After obtaining an award against Reed's licensor, Western Aggregates, Cal Western then sued Reed for trespass, intentional interference with contract, and negligent interference.  Basically, the trial court and the Court of Appeal agreed that Cal Western's claims against Reed derived from the same basic act -- locating the asphalt plant -- which had been addressed in the arbitration. 

        The elements of claim preclusion arise if the second suit involves:  "(1) the same cause of action (2) between the same parties (3) after a final judgment on the merits in the first suit."  The key issue was whether the dispute was between the "same parties" because Reed did not participate in the arbitration, and was a distinct entity from Western Aggegates.  The Court of Appeal concluded that Reed, as a licensee of Western Aggregates, and having the same interest in the subject matter of the litigation as Western Aggregates, and having liability, if any, derivative of Western Aggregates, was in a relationship of privity for purposes of claim preclusion.

        Affirmed.

1 _{It appears that the award was not reduced to judgment because it was promptly paid.}

Arbitration, Class Action, Waiver, FAA: Coming Soon To The Supreme Court: Can Employees Sign Away Their Rights In Arbitration Provisions To Sue Their Employer In A Class Action?

Subscript Law Has A Snappy Explainer.

        Today's SCOTUSBlog mentions that Subscript Law has a nice explainer boiling down three consolidated arbitration cases that the United States Supreme Court will be hearing at the beginning of its new term.  The key issue in these cases: can employees sign away their rights to file class actions against their employer by signing an employment contract requiring waiver of class actions and arbitration of disputes?

        The cases involve two federal acts in seeming collision.  On the one hand, the Federal Arbitration Act requires enforcement of agreements to arbitrate.  On the other hand, the National Labor Relations Act provides employees with a right to organize.  The FAA will not be enforced if federal law has clearly carved out an exception to enforcing an arbitration agreement.  So does the right to organize, protected by the FLRA, include the right to file a class action, something that an arbitration/waiver provision enforceable under the FAA seeks to take away?

 

Above:  Hear Woody Guthrie sing Union song, "Which Side Are You On," composed by Florence Reece during the Harlan County miners' strike.        

 

 

Arbitration, Standard Of Review, Delegation, Vacatur: Second District, Div. 1 Rules Trial Court Erred By Failing To Apply Correct Legal Standard To Review Of Arbitrator's Award

Agreement Between The Parties That Award Could Be Reviewed For Legal Error Made The Difference.

        In Harshad & Nasir Corporation v. Global Sign Systems, Inc., and related appeals, B269427, B275942, B275947 (2/2  8/15/17) (Rothschild, Chaney, Lui), the Court of Appeal considered three related appeals of parties fighting over allegedly unpaid invoices amounting to $114,823.72, arising from plans to put up signs at Carl's Jr. restaurants.  The Court of Appeal, in a published opinion penned by Justice Rothschild, concluded "that the trial court prejudicially erred when it failed to apply the correct standard in reviewing the arbitrator's award."

        This is a case in which the parties' agreement that the award could be reviewed for legal error made all the difference.  Unlike the typical situation in which errors of fact or law will not provide a basis for vacating an award, here, the parties took advantage of the California rule set forth in Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334 (2008), allowing the  parties to agree to limit the arbitrators' authority by providing for review of the merits.

        The results of review on the merits were severe.  The Court of Appeal held substantial evidence did not support the award for damages, and an alleged contract to be performed over a three-year period violated the statute of frauds.  Also, the arbitrator exceeded his authority by deciding a claim for lost profits the parties had not agreed to arbitrate.  As a result of this reversal of fortune, the formerly prevailing party did not prevail, and a fee and cost award in the amount of $1,142,596.20 was reversed.

        COMMENT:   A successful arbitration can be efficient and cost effective.  This arbitration is a stunning counter-example.  It took five years to get an arbitration award.  The arbitration and subsequent trial court rulings resulted in three related appeals.  Significant damage and attorney fees/cost awards, each in excess of $1 million, were reversed.   And this all started with an effort to recover $114,823.72!

        An interesting aspect of the opinion is the interaction of delegation of authority to the arbitrator with the standard of review.  Global argued that under JAMS rules, the decision about the scope of authority is delegated to the arbitrator, and the arbitrator had decided that the substantial lost profits claim was within his authority to decide.  Because, however, the parties agreed that the standard of review allowed for review of legal error, the Court of Appeal did not need to rule whether the decision about scope had been delegated to the arbitrator.  Whether or not JAMS rules allowed for a delegation of decision-making authority, the arbitrator had ruled incorrectly as a matter of law.

        NOTE:  California Attorney's Fees, the website Mike Hensley and I contribute to, has a post on the attorney's fees aspect of this case.

        

 

 

 

Miscellaneous: Mediation Quality

ABA Section of Dispute Resolution -- Task Force on Improving Mediation Quality Final Report.

        In 2008, the ABA Section of Dispute Resolution issued a Final Report on mediation quality.  This report is available on-line.

        The Task Force narrowly focused on mediation quality in private practice civil cases where the parties are usually represented by counsel.  The methodology involved the use of ten focus groups, and participants included outside counsel, in-house counsel, and non-attorneys.  The Task Force also collected more than 100 responses to questionnaires from mediation users and mediators.

        The task force identified four issues as important to mediation quality:

•         Preparation for mediation by the mediator, parties, and counsel
•         Case-by-case customization of the mediation process
•         "Analytical" assistance from the mediator
•         "Persistence" by the mediator

        There are many interesting tidbits in the report, making it worth reading, even if the points reinforce our own opinions.  Here are a few:

•         While many mediators find pre-mediation discussions helpful, some court programs do not permit such contacts
•         More than 96% of the respondents to the written survey thought pre-mediation preparation was important
•         Sophisticated repeat mediation users wanted input into the mediation  process itself
•         Parties frequently responded that lawyers should be as prepared for mediation as for trial
•         Elements that can be customized to each dispute include:  timing of the mediation, exchange of information, whether to have opening statements
•         81% of users and 77% of mediators believed the optimum time to mediate was after completing "critical" discovery but before completing all discovery
•         36% of users and 78% of mediators say mediation before filing suit would be appropriate in half or more cases
•         95% of users thought it important for mediators to make suggestions, 70% thought it important to give opinions, and 100% thought it important to suggest ways to resolve the dispute
•          Respondents identified a variety of factors that would influence whether it was appropriate for a mediator to  provide an assessment of strengths and weaknesses, including whether assessment was requested, mediator expertise, mediator confidence in assessment, mediator pressure, joint or caucus session, timing, impasse, and impartiality
•         "Evaluative" mediation means different things to different people, with half or more of the parties (but not the lawyers) objecting to strongly worded mediator opinions about settlement terms (e.g., "I think this is the best you're going to get")
•         93% of users said that if a mediation session ends without agreement but some  potential to reach one, the mediator should follow-up with each side

 

 

Arbitration, Employment, Class Actions, Waivers: Anita Hill's Op-Ed In NYT Today Argues Class Actions Could Fight Discrimination In Tech, But Soft-Pedals Obstacle Of Arbitration/Class Action Waivers

My Mini-Comment Is Posted To NYT Website.

        Anita Hill, who famously testified during Justice Clarence Thomas's confirmation hearing, has written an Op-Ed for the NYT entitled, "Class Actions Could Fight Discrimination In Tech", appearing on-line today, August 8, 2017.  She observes, uncontroversially:  "Women in tech no doubt have hurdles to bringing class-action lawsuits, including the requisite preponderance of statistical evidence and the prevalence of confidentiality clauses and arbitration agreements, which are, in effect, designed to pre-empt class actions."  However, she then asserts, without further discussion of the arbitration/class action waiver issue:  "But this challenge doesn’t mean the suits cannot be brought, or won."  This is more uncertain, given the widespread use of arbitration/class action waivers in employment contracts in tech industries, and the tendency of the SCOTUS to require enforcement of such provisions under the Federal Arbitration Act.  Her Op-Ed piece prompted many comments, including my comment posted by the NYT, pointing out that the enforceability of mandatory arbitration/class action waivers will be addressed again by the SCOTUS at the beginning of the new term.

 

Arbitration, PAGA: Fifth District Holds That Claims To Recover Wages Under Labor Code Section 558 Are Not A Representative Action Under PAGA, And Therefore Can Be Arbitrated

Employers Strive To Close The PAGA Representative Action Escape Hatch From FAA Preemption And Arbitration.

        Ever since the California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) that Private Attorneys General Act of 2004 (PAGA) representative actions are not subject to arbitration, employers preferring arbitration have struggled to chip away at that holding.  In Esparza v. KS Industries, LP, F072597 (5th Dist.  8/2/17) (Franson, Poochigian, Smith) (published), the employer, with the help of the Court, of course, does some chipping.

Woodchipper.  Wikipedia.

        Federal preemption requires arbitration agreements be strictly enforced whenever the Federal Arbitration Act applies.  Because the FAA applies to controversies arising out of contracts evidencing a transaction involving interstate commerce, preemption is frequently the rule, requiring arbitration.   But even where the FAA requires enforcing an arbitration agreement, PAGA representative actions are recognized to be an exception.  The rationale is that PAGA representative actions are a type of qui tam action in which the employee acts on behalf of the government, the real party in interest, and the FAA did not intend to compel the state, which is not a party to the arbitration agreement, to arbitrate.  Indeed, 75% of the civil penalty in a successful PAGA representative action goes to the state.

        The Court of Appeal agreed with the employer in Esparza that section 558 actions to recover unpaid wages are not representative actions that result in civil penalties.  Instead, the Court explains that section 558 actions are private actions brought to recover wages that benefit the plaintiff, rather than the state.  Therefore, because the section 558 action is not at bottom a dispute between the employer and California, the dispute can be arbitrated.  The dispute is a private dispute, the FAA applies, and the parties must arbitrate.

        The Court of Appeal affirmed the order denying the employer's motion to compel arbitration insofar as it denied arbitration of PAGA representative claims seeking civil penalties paid to the Labor and Workforce Development Agency.  However, the trial court was directed to determine whether the plaintiff intended to pursue other claims seeking individual damages other than PAGA representative actions seeking civil penalties, as the other claims could be arbitrated.