California Mediation and Arbitration

Reviews: Two Articles In The Economist Are Critical Of Arbitration In The United States

Emptying The Courtrooms . . . 

    The January 27, 2018 edition of The Economist has two short articles critical of arbitration in the US:  "Shut out by the small print" (p. 10) and "Kept out of the courthouse" (p. 61).  The articles are somewhat duplicative -- here are a few of the highlights:

• In the early 1990s, 2% of non-unionized employees were bound by mandatory arbitration agreements - now it is more than half.
• Arbitration was originally designed for commercial disputes, and works best when power is balanced between the two sides.
• In employee/employer disputes, and business/consumer disputes, power tends to tip in favor of the employer and the corporation.,
• Employers tend to have better outcomes in arbitration than in court lawsuits.
• Given the political climate, legislative attempts to limit arbitration seem unlikely.
• "The popularity of arbitration is a sign of how very costly and technical the courts have become, says Andrew Pincus, a partner at Mayer Brown, a law firm, who advises companies on such procedures."
• Consent to arbitration is "a fantasy of consent, rather than the real thing," says Katherine Stone at UCLA.
• Arbitrators in employment disputes may be especially reluctant to award punitive damages, out of concern that they will never arbitrate another employment dispute.
• The confidential aspects of arbitration and lack of transparency may silence victims.
• "In the wake of the #MeToo movement, legislators are now taking aim at arbitration in harassment cases."

        HAT TIP to my colleague Mike Hensley who brought the two articles to my attention today.

CCP 664.6 AND FRCP 41(a): Retention Of Jurisdiction To Enforce Settlement Agreement In Federal And California State Courts

Because Federal Courts Are Courts Of Limited Jurisdiction, The Procedures Differ.

        We posted on December 4, 2017, about Sayta v. Chu, A148823 (1/5 11/29/17) (published), an opinion that "offers an object lesson on the requirements to invoke [Cal. Code of Civ. Proc.] section 664.6 and the consequences of failure to comply with those requirements."  Section 664.6 enables a California state court to enforce a settlement agreement in a case that it has dismissed, by retaining jurisdiction to do so.  The obvious advantage for the party seeking to enforce a settlement is that it need not file a new lawsuit to enforce the settlement.  

        In order to rely on 664.6, the parties to a stipulated settlement need to request the court to retain jurisdiction over the parties to enforce the settlement, if the parties have requested the court for this specific retention of jurisdiction prior to dismissal.   In Sayta, enforcement went sideways because the parties failed to request the court to retain jurisdiction to enforce the settlement before dismissal, and thus the court lost jurisdiction.

        Federal court is somewhat different.  The key case is Kokkonen v. Guardian Life Insurance Company of America, 511 U.S. 377 (1994) (Scalia, author).   Because a federal court is one of limited jurisdiction, meaning there must be a basis for federal jurisdiction, bare enforcement of most settlement agreements, which after all are merely contracts, will very likely not create a basis for federal jurisdiction.

        However, there are two or three ways to skin this cat.  Federal Rule of Civil Procedure 41(a) allows the parties to voluntarily dismiss by a stipulation of dismissal signed by all parties who have appeared, and it also allows for dismissal by court order by plaintiff on terms the court considers proper.  If the parties wish to provide for the court's jurisdiction to enforce a dismissal-producing settlement via the stipulation route, they can do so, if the district court embodies the settlement contract in its dismissal order as a condition to dismissal, or the court retains jurisdiction to enforce the settlement agreement, and the parties so agree.  And if the dismissal is, pursuant to plaintiff's instance, by court order, it must be done "upon order of the court and upon such terms and conditions as the court deems proper," which means the court can require the parties' compliance with the terms of the settlement contract or provide for the court's "retention of jurisdiction" over the settlement contract.

            PRACTICE TIP:  In federal court, the Stipulation and proposed Order language should indicate that the parties request that the district court retain jurisdiction to enforce the settlement -- and the Order will recite that the district court retains jurisdiction to enforce the settlement agreement.  But the settlement agreement itself need not be put before the Court.  This is our conclusion, based on the alternative language in Kokkonen, that "the court is authorized to embody the settlement contract in its dismissal order (or, what has the same effect, retain jurisdiction over the settlement contract) if the parties agree." (Italics added).

        HAT TIP to Gail Killefer, the director of the ADR program for the USDC, Central District, for bringing to the attention of panel mediators the distinction between federal and state retention of jurisdiction to enforce a settlement agreement.

           NOTE:  This post has been revised, and the Practice Tip added, after comment from Gail Killefer.  Any mistakes are entirely my own.

Deadlines: Appellant Forfeited Ability To Challenge Judgment Confirming Arbitration Award Based On Lack Of Jurisdiction By Permitting The Arbitration To Proceed Without Objection

How Long You Can Wait To Challenge A Judgment Confirming Arbitration Award Depends On Whether Court Compelled Participation In The Arbitration, Or Whether You Simply Allowed The Arbitration To Proceed Without Objection.

         Appellant waited more than seven years to attack a superior court judgment confirming an arbitration award in FIA Card Services, N.A. v. Cross, D071954 (4/1  1/19/18) (Aaron, McConnell, Huffman) (unpublished).   While that may seem like an awfully long time (and so it proved to be here), there was a narrow opportunity to attack the judgment that the appellant tried to exploit.

        A party seeking to vacate an arbitration award has a 100-day deadline to do so, and the 100-day deadline is jurisdictional.  However, in the case of attacking a judgment to confirm the award, there is a loophole:  if the court erroneously compelled the parties to arbitrate, then there is a jurisdictional flaw, and of course, a lack of jurisdiction can be attacked at any time.  See United Firefighters of Los Angeles v. City of Los Angeles, 231 Cal.App.3d 1576, 1581 (1991).  As the Court of Appeal explained:

     "In the circumstance where a court orders the parties to arbitrate, if the arbitration process is later found to be invalid, the responsibility for the wasting of resources lies with the trial court, not the litigant, and there has not been any gaming of the system."

        Here, however, the Court of Appeal believed that the evidence showed Appellant had received notice of the arbitration, had not participated, and had not objected.  Under those circumstances, the Appellant had "forfeited her contention that the arbitration . . . against her was invalid.  She may not come to court for the first time a decade after the fact and attempt to undermine a judgment entered based on the arbitration award."

        Note that, rather than address a specific time deadline for attacking the judgment confirming the arbitration award, the Court phrased the outcome in terms of "forfeiture" through delay, probably because it recognized that a fundamental lack of jurisdiction that would make a judgment void ab initio can be attacked at any time.

Vacatur: First District, Div. 1, Refuses To Vacate Award For Alleged Lack Of Opportunity To Present Evidence, Ambiguity, Or Lack Of Jurisdiction

A Textbook Example Of How Difficult It Is To Challenge An Arbitration Award.

        Our next case involved a family dispute in the California wine industry, following the death of the family patriarch.  Nickel v. Far Niente Wine Estates, LLC, et al., A150513 (1/1  12/29/17) (unpublished). 

        Affirming the trial court's denial of plaintiffs/appellants' petition to correct or vacate the award, the Court of Appeal gave short shrift to three arguments.

        First, the Court rejected plaintiffs' argument that the arbitration award should be vacated or corrected because plaintiffs were denied an opportunity to respond to late evidence.   The Court explained that the arbitrator did not refuse to consider evidence, and that plaintiffs also failed to make a required a showing of prejudice.

        Second, the Court rejected an argument that the award needed to be vacated or corrected because an included award of injunctive relief was ambiguous.  Changing the award would not have amounted to a minor correction, but rather to a substantive change -- and the Court was not entitled to make such a change in connection with a request to correct the award.  Nor could the award be vacated simply because there was a mistake of law or fact.

        Third, the Court of Appeal deferred to the arbitrator's decision that the arbitrator had jurisdiction to decide certain water rights issues.  For one thing, the parties had agreed to proceed under JAMS rules, and rule 11 provides that the arbitrator will resolve jurisdictional and arbitrability disputes.  Even absent the incorporation of JAMS rules, California case law provides, "courts should generally defer to an arbitrator's finding that determination of a particular question is within the scope of his or her contractual authority."  Advanced Micro Devices, Inc. v. Intel, 9 Cal.4th 362, 372 (1994).

        Once again, we have an example of the considerable obstacles that a disappointed party must overcome to successfully challenge an arbitration award.