California Mediation and Arbitration

Arbitration, Standard Of Review: Trial Court's Order Denying Motion To Compel Arbitration Is Affirmed Where Trial Court Had To Rule On "Intensely Factual And Hotly Contested Issues"

"This Appeal Comes Down To Application Of The Standard Of Review."

        While I have blogged many times about cases in which the Court of Appeal has reversed an order denying a motion  to compel arbitration, this is not one of those cases.  T3 Motion, Inc. v Tsumpes, G053654 (4/3  11/14/17) (Fybel, Bedsworth, Thompson) (unpublished).  When the Court of Appeal tells us early on that the disputes before the trial court were "intensely factual and hotly contested" we have a good idea of where it is pointing to:  affirmance, based on the substantial evidence standard of review.

        Here, a company and its CEO disagreed about whether the CEO entered into a written Employment Agreement containing an arbitration clause that the CEO could invoke.  The trial court found that, while the Board of Directors may have discussed the concept of the Employment Agreement in September 2013, there was a lack of mutual assent, and there was forensic evidence that the Employment Agreement containing the arbitration provision and signed by Tsumpes had been created in 2015.

        Affirmed.

Arbitration, Fees, MFAA/Mediation, Condition Precedent: Defendant Who Did Not Agree To Binding Arbitration Was Nevertheless Bound By Mandatory Fee Arbitration Act Award

A Mistake By The Trial Court Did Not Affect The Outcome.

        Client Nussbaum and attorney Liberty had a fee dispute that they arbitrated pursuant to the Mandatory Fee Arbitration Act (MFAA).  The arbitration panel awarded Liberty $75K in fees and $30K in interest.  After the notice of the award was mailed and more than 30 days had passed, the attorney moved to confirm the fee award.  And after the fee award has been confirmed, the client appealed the order confirming the award.  Liberty v. Nussbaum, A149830 (1/1  11/9/17) (Dondero, Margulies, Banke) (unpublished).

        It appeared to the Court of Appeal that "the trial judge here mistakenly concluded that the parties had elected to have binding arbitration at the time of the arbitration hearing . . . "  No matter.  The MFAA creates a statutory scheme, and if the award is not challenged within 30 days after service by requesting a trial de novo or by moving to vacate, it becomes final.  Such was the case here.

        The arbitration provision also required that the  parties mediate as a condition to arbitrating.  Here, however, the client did not assert a right to mediate before the arbitration.  The Court of Appeal analogized this failure to a waiver by delay of the right to arbitrate.

        The order confirming the arbitration award was affirmed.  

        COMMENT:  The Court of Appeal described the respondent plaintiff - attorney's failure to file an appellate brief as "plaintiff's dereliction of duty" -- especially so, because the respondent was an attorney.  Lucky for respondent, the Court of Appeal sua sponte undertook the tasks of reviewing the record on the basis of defendants' brief, and the trial court's order and judgment for prejudicial error!

Reviews: The Case For Creating A Mediation Department

Mediator Dennis S. Klein Makes Case For Creating A Mediation Department In Your Law Firm.

        In a November 14, 2017 article available through Law360 and LexisNexis, Dennis S. Klein, owner of Miami-based ADR firm Critical Matter Mediation, advocates "The Case For Creating A Mediation Department At Your Law Firm."  

        Mr. Klein makes four arguments:  (1) the volume of mediation is high, as few cases proceed to trial, and many cases are resolved through ADR; (2) the mediation skill set is specialized; (3) there is a growing trend toward expertise in litigation; (4) client relations benefit when the client knows the lawyer seeks a cost-effective solution.  

        So why haven't law firms created mediation departments, just as they have created specialized appellate practice departments?  My hunch is that many transactional and litigation attorneys view mediation skills as generalized skills that they are endowed with.   The bar exam does not test for mediation skills.  And yet many of us know outstanding litigators who prefer their role as committed advocates to having to deal with unsatisfying negotiation and compromise.  Mr. Klein's proposal is worth consideration, especially by large law firms with a critical mass of cases that  will proceed to mediation.  

Arbitration, Appealability, Fees, Estoppel, Waiver, Sanctions: Fourth Dist. Div. 3: "This Is An Appeal Borne Of Sharp Practices"

Waiver, Invited Error, And Sharp Practices Doom The Appeal.

            Justice Ikola grabs the reader by the lapels in the opening lines of Diaz v. Professional Community Management, Inc., G053909 (4/3 certified for pub. 11/8/17) (Ikola, O'Leary, Aronson):  "A 'sharp practice' is defined as a 'dealing in which advantage is taken or sought unscrupulously. . . . This is an appeal borne of sharp practices."  The unsettling feeling that one side is about to get slammed is thoroughly reenforced by the Justice's choice of words in the first four pages of a 32 page slip opinion:  efforts by a party to "spin that ruling", "invited error", "bad faith", "specious", "deliberately designed to obscure," "machinations," "patently unfair manner", "frivolous appeal", "we were most disturbed."  One need hardly read further, but I did, because the case involved arbitration.

            So what so exercised the ire of the appellate justice?  Defendant/appellant PCM "unilaterally orchestrated the issuance of an appealable order" 11 days before trial, by filing an ex parte application to shorten time to hear its motion to compel arbitration, knowing the trial judge would deny it -- the case had been pending for 1 1/2 years, defendant had pleaded it had a right to arbitrate as an affirmative defense, defendant had done nothing to perfect that right earlier, and there was no justification for a last moment application to shorten time.  Denial of an ex parte application to shorten time, however, would not have generated an appealable order.  So defendant immediately submitted an order to the trial judge, inconsistent with the ex parte application and the minute order, burying within the proposed order that the judge was also denying the motion to compel arbitration -- a motion that was never heard, and that was still on calendar.  The judge signed the order, probably without realizing that he was being played, and the order denying a motion to compel arbitration became the springboard for an appeal and a stay. 

            Defendant lost its appeal because "PCM invited the trial court's alleged error when it proposed the court issue the very ruling it now challenges on appeal.  By doing that, PCM won the battle -- it got the court to issue the appealable order it sought, prior to trial -- but it lost the war.  A party that invites the court to commit error is estopped from challenging that error on appeal."

            For good measure, the Court also concluded that the order denying PCM's motion to compel arbitration should have be affirmed on the merits, given that the litigation conduct and delay of defendant was inconsistent with a sincere desire to arbitrate.

            One final twist involved the fact that a motion to compel arbitration was involved.  Appellant argued that the Court of Appeal could not act as a factfinder in the first instance and decide the issue of waiver, when the issue of waiver had not been presented below.  And in fact, the Court of Appeal could have sent the case back to the trial court, though given the "sharp practices" sussed out by the Court, such an outcome would seem pretty unfair.  In order to make any factual ruling on its own, the Court of Appeal had to get around Cal. Code of Civ. Proc., section 909, which provides in part, "In all cases where trial by jury is not a matter of right or where trial by jury has been waived, the reviewing court may make factual determinations contrary to or in addition to those made by the trial court. "  But as the Court of Appeal explained, the purpose of section 909 "is to preserve the parties' right to have a jury act as finder of fact in matters where that right applies."  And a petition to compel arbitration "is in essence a suit in equity to compel specific performance of a contract."  So no right to a jury to decide that limited issue, and  problem solved.

            COMMENT:  One could conclude that if the goal of defendant was to delay, then defendant succeeded.  The trial was scheduled to begin April 11,  2016.  The unpublished appellate opinion was filed October 17, 2017.  And there will be 40 days for the remittitur.  And the trial judge will need to reset the trial.  But at what cost?  Appellant, its law firm and two of its attorneys are ordered, jointly and severally, to pay the court $8,5000, and to pay to Diaz an amount "equal to the reasonable value of services performed by his attorney in  preparing for the trial . . . and in responding to this appeal, but not to include pretrial services which need not be repeated."  And there is the additional reputational cost of being slammed for "sharp practices."

               

Settlement: Court Of Appeal Gives Plaintiff, Who Lost $250K Settlement With City Of San Francisco, A Second Chance

Trial Judge's Refusal To Continue Hearing On Motion For Summary Judgment Was An Abuse Of Discretion.

        You know that plaintiff/appellant Richard A. Denton had a very bad day in the trial court when the trial judge says:  "Now, what can I do for you?" and the Court of Appeal comments, "And it was downhill for Denton from there."  Denton v. City and County of San Francisco et al., A147384 (1/2  10/30/17) (Richman, Kline, Miller).

        Denton filed employment-related claims against the City, the City filed a motion for summary judgment, and with his opposition about to be due, the City and Denton mediated and settled.  Denton's attorney then filed a notice of conditional settlement with the court.  

        Then things started going sideways.  Denton discharged his attorney for refusing to withdraw certain 998 offers (notably, however, not saying that all settlement offers were withdrawn), and Denton proceeded in pro per.  The City attorney then emailed ex parte notice entitled, "Application for an Order Vacating Notice of Settlement Filed by Plaintiff."   As the Court of Appeal explained, the ex parte notice was misleading, because the application also asked the court to maintain the previously scheduled date for the hearing on the City's motion for summary judgment.  The trial judge granted the ex parte motion, vacating the notice of conditional settlement, and maintaining the hearing the date for the MSJ, without taking the bench.

        You can see what's coming.  Denton did not file an opposition to the  MSJ.  He showed up at the MSJ hearing and asked for a continuance.  The trial judge told him there was no basis for a continuance, and entered judgment.   Denton moved in pro per for a new trial, and the City attorney argued that Denton failed to oppose the motion for summary judgment and the parties did not have a settlement agreement.  The trial judge was unmoved.  Denton lost his $250K settlement with the City (which still required approval by the Board of Supervisors).

        So it truly was all downhill for Denton, until he appealed, and clawed his way uphill.  The Court of Appeal agreed the trial court abused its discretion in refusing to continue the summary judgment hearing and denying the motion for a new trial:  "Denton should have been granted the continuance in the circumstances he found himself, circumstances that were not his fault."  The order denying the motion for new trial and the summary judgment were both reversed.

        COMMENT:  The opinion makes for interesting reading, because without actually accusing anyone of a breach of ethics, it suggests displeasure with sharp  practice.  Item:  Remarking on defendants' argument that "'Because No Settlement Was Ever Reached, Denton Had No Reasonable Expectation' that the hearing would be vacated", Justice Richman writes, "In light of the facts set forth above, we wonder how defendants can even assert such a position."  Item:  "[W]e are troubled by defendants' argument of technical noncompliance with the rules, particularly in light of their position that their own noncompliance with the ex parte notice rules -- noncompliance they implicitly acknowledged -- be overlooked."  Ouch.

Arbitration/Delegation/Gateway Issues: Contract Requiring Arbitration To Be "Generally Conducted" In Conformance with AAA Commercial Arbitration Rules Fails To Delegate Issue Of Arbitrability To The Court

What Does "Generally" Mean?

        Pristine Environments Inc. v. Signet Jewelers Limited et al., D071394 (4/1  10/13/17) (Nares, Benke, O'Rourke) (unpublished) involves an interesting wrinkle to the question:  who decides the issue of arbitrability?  Case law holds the issue of arbitrability is decided by the Court, absent clear and unmistakable evidence of the parties' intent to delegate that  "gateway issue" to the arbitrator.  And, the Commercial Rules of the American Arbitration Association delegate the decision about arbitrability to the arbitrator.  So, when those rules are incorporated by reference into the parties' agreement, the arbitrator gets to decide whether the dispute is arbitrable, right?  

        But not so fast.  Here, the agreement provided, "arbitration shall be generally conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association."  Generally?  What does that mean?  "The [trial] court determined that by using the word 'generally' to describe which AAA rules apply, the Agreement contained no clear and unmistakable evidence the parties intended to incorporate the AAA rule delegating arbitrability issues to arbitration."  And the Court of Appeal agreed with that determination.

        So Signet lost its argument that the arbitrator should have decided the gateway issue of arbitrability.  Nevertheless, Signet did well to appeal the trial court's decision that the matter was not arbitrable.  The trial court had determined that Pristine's fraudulent inducement claims were outside the scope of the agreement's arbitration provision covering claims "arising under" the agreement.  And now the other wrinkle:  Ohio law applied to the agreement.  And Under Ohio law, the Court of Appeal held, "arising under" encompasses fraud in the inducement.  As a result, the claim of fraudulent inducement could be arbitrated.

        Thus, the appellant Signet lost its argument that the arbitrator should have decided arbitrability, but won its argument that the dispute should be arbitrated, and so now it's on to the main event, arbitration of a multi-million dollar dispute in which Pristine alleges it was fraudulently induced by Signet to provide $15M worth of services for $10.5M.

Settlement Agreements/Pending Cases: CCA 4/3 Vitatech Opinion Is Now Certified For Publication

An Unenforceable Settlement: Vitatech Held Stipulation To Enter Judgment For $300K After Defendant Defaults On One-Time Payment of $75K Is An Unenforceable Penalty.   

        On October 3, 2017, I posted about Vitatech International, Inc. v. Sporn,  G053477, a Fourth District, Division Three opinion.  Unpublished at the time, the case was certified for publication on October 30, 2017.