SCOTUSBlog reports today that the Supreme Court has added an arbitration case to its next term:
"New Prime Inc. v. Oliveira
Docket No.
Op. Below
Argument
Opinion
Vote
Author
Term
17-340
1st Cir.
TBD
TBD
TBD
TBD
OT 2018
Issues: (1) Whether a dispute over applicability of the Federal Arbitration Act's Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and (2) whether the FAA's Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements."
Paul J. Dubow is an experienced mediator and arbitrator in San Francisco. Mr. Dubow writes often about mediation and arbitration topics, serves as an editor for California Litigation, and has authored the arbitration section of the annual update of California law for both the Litigation and Business Law sections of the State Bar of California (now, the California Lawyers Association) and the arbitration and mediation updates on the California Dispute Resolution Council website. Mr. Dubow has also been assiduously following the California Law Review Commission's study of mediation confidentiality. He has generously provided us with an update on the legislative status of efforts to create exceptions to mediation confidentiality:
For the past five years, the California Law Review Commission has been studying whether to create an exception from the strict confidentiality requirements of the Evidence Code that would permit admission of mediation communications in cases where clients are suing their attorneys for malpractice committed during the mediation. At the end of 2017, the Commission made a recommendation that permitted the admission of such evidence. It did so, notwithstanding the objections of the Judicial Council, the California Judges Association, the Consumer Attorneys of California, the California defense bar, the California Dispute Resolution Council, and about 30 other organizations. The only organization that supported it was the California Conference of Bar Associations, the organization that spurred the study in the first place. Normally, a proposal by the Commission is introduced as a bill in the Legislature at its next session and, in most cases, the bill eventually becomes law. The deadline for introducing legislation this year was February 16, but no bill was introduced. This may have been the result of the almost uniform opposition to the proposal. Instead, Senator Wieckowski introduced SB 954, which will require an attorney to inform a client about the confidentiality restrictions set forth in Evidence Code Section 1119 and obtain the client's written consent to the restrictions before agreeing to mediate. The bill is still a work in progress and we expect that there will be several amendments to it.
Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) held that class action waiver provisions in a contract are unenforceable, and a motion to compel arbitration may be denied, where the so-called "Gentry factors" are satisfied, and it is determined that a class action is a more effective practical means of vindicating rights of affected employees than individual litigation or arbitration. In AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), SCOTUS effectively invalidated Gentry in circumstances where the Federal Arbitration Act preempts state law -- typically, circumstances where interstate commerce is involved.
In Muro v. Cornerstone Staffing Solution, Inc., D070206 (4/1 2/23/18) (Dato, Benke, Aaron) (published), interstate commerce was clearly involved. The plaintiff, a trucker, sued his employer Cornerstone, a "full service employee staffing firm providing assistance to a variety of employers" in California and other states, for employment-related violations. Furthermore, the plaintiff had routes in California and across state lines. The trial court, however, determined that the FAA did not apply, that Gentry did apply, and that the class action waiver was unenforceable.
Why? Section 1 of the FAA expressly exempts from its coverage all "'contracts of employment . . . of workers engaged in foreign or interstate commerce.'" Rejecting the employer's argument that the employers' business must be devoted to the transportation industry, the Court of Appeal held that the plaintiff was a worker was engaged in interstate commerce. Because the FAA did not apply, the Court applied state law, i.e., Gentry, to affirm the trial court's order denying a motion to compel arbitration.
COMMENT: Regarding the application of the Gentry factors, an abuse of discretion standard of review applies. As a refresher, the four Gentry factors are: (1) the modest size of potential individual recovery; (2) potential for retaliation against members of the class; (3) the fact absent members of the class may be ill informed of their rights; and (4) other real world obstacles to the vindication of class members' rights through individual arbitration.
While the result in this particular case may seem dramatic, the circumstances are a bit unusual, because it will not be the usual case that, when interstate commerce is involved, the FAA does not apply.
Washington And California State Law Unconscionability Analysis Are Different.
DeGraff v. Perkins Coie California P.C. et al., A148405 (1/1 2/21/18) (Dondero, Humes, Banke ) (unpublished) applies Washington state law to analyze the enforceability of an arbitration provision in a dispute between an attorney and his former law firm. Reversing the order denying the defendants' motion to compel arbitration, the Court holds that, except for two provisions, the arbitration provision is not unconscionable, and the two unconscionable provisions can be severed.
An interesting aspect of the opinion is that it underscores how unconscionability analysis can differ from state to state. California requires procedural and substantive unconscionability to overturn an arbitration agreement, and those two factors may be considered on a sliding scale. "Under Washington law, an agreement may be invalidated if it is either substantively or procedurally unconscionable."
The Court of Appeal agreed with the trial court that the confidentiality provision providing that the arbitration "shall be strictly confidential" was substantively unconscionable under Washington state law, but also held that it could be severed. Relying on a Washington case, Zuver v. Airtouch Communications, Inc., 153 Wn.2d 293 (2004), the Court of Appeal agreed that under Washington state law, the confidentiality provision only benefited the employer, hampered an employee's ability to prove a pattern of discrimination or take advantage of past arbitrations, and undermined an employee's confidence in the fairness and honesty of the arbitration process. That's Washington state law, and the reasoning is worthy of consideration. However, I could also see a California state court brushing such considerations aside, and instead saying that the provision applied to both parties, that the contract had been signed by a seasoned attorney, that confidentiality could benefit either side (or maybe that compelling business reasons allow for confidentiality) and holding that the confidentiality provision is not unconscionable.
Settlement Agreement Incorporated Arbitration Clause In Licensing Agreement -- But Only Claims Arising Out Of Or In Connection With Any Provision In The Licensing Agreement Could Be Arbitrated.
On February 9, 2018, we posted about Cirile v. Petersen-Dean, an unpublished case, in which incorporation by reference was too amorphous and vague to incorporate an arbitration provision in a separate agreement. In Advanced Charging Technologies, Inc. v. Flexible Manufacturing, LLC, G054671 (4/3 2/21/18) (Thompson, O'Leary, Ikola) (unpublished), incorporation by reference did work -- sort of.
In Advanced Charging Technologies, a Settlement Agreement entered into one day after a Licensing Agreement, and including an integration clause, incorporated the terms and conditions of the Licensing Agreement. And the Licensing Agreement included an arbitration provision applying to a dispute or claim arising out of or in connection with any provision of the Licensing Agreement. The trial court denied a motion to compel arbitration, believing that the integration clause wiped out the Licensing Agreement, an argument rejected by the Court of Appeal, because the successful incorporation by reference preserved the terms of the Licensing Agreement. The trial court also believed that the arbitration clause, which only applied to the disputes arising out of the Licensing Agreement, was too narrow to cover disputes arising out of the Settlement Agreement, a position that did have some traction in the Court of Appeal.
The upshot is that Court of Appeal reversed and remanded, with directions to grant the motion to compel arbitration, and set up a three-step process. First, the trial court had to decide whether the claims arose out of or in connection with the License Agreement that was incorporated by reference. Second, the trial court had to determine whether the resolution of "any nonarbitrable issues may make the arbitration unnecessary, as set forth in Code of Civil Procedure section 1281.2." And finally, the trial court was directed to order any appropriate stay order.
My law professors seemed fond of that old chestnut, "to ask the question is to answer it." Once you know the question presented by the Court of Appeal in Douglass v. Serenivision, Inc., B277574 (2/2 2/18/18) (Hoffstadt, Lui, Chavez) (published), you will know the answer.
Question: Does a party clearly and unmistakably consent to have an arbitrator decide his own jurisdiction when that party does not object to the arbitrator's jurisdiction in its answer to the arbitration petition, informs the arbitrator that it is "voluntarily" "submit[ing]" to the arbitrator's jurisdiction, appears at multiple prehearing conferences, formally asks the arbitrator to impose a bond requirement on the opposing party, and only after the arbitrator denies that request tells the arbitrator that its submission to jurisdiction was conditional on obtaining that bond?
Answer: On these facts, we conclude that such conduct does constitute clear and unmistakable consent to allow the arbitrator to decide the issue of his own jurisdiction. We further conclude that the party's challenge to the arbitrator's jurisdiction is untimely and that his challenges to the arbitrator's assessment of his jurisdiction and to the ultimate arbitration award are without merit.
Twenty pages of explanation follow the foregone conclusion.
TRIVIA: Who said: "To ask the question is to answer it?" The phrase was used in Supreme Court cases in the 19th century, in opinions authored by Mr. Justice Brewer in In Re Debs, 158 U.S. 564 (1895), and by Mr. Justice Matthews in Heald v. Rice, 104 U.S.737 (1882). Since then, the phrase has appeared in numerous cases.
An Agreement Need Not Expressly Provide For Arbitration But May Do So In A Document Incorporated By Reference.
Petersen-Dean appealed from denial of its petition to compel arbitration. The central question on appeal was "whether the mention of the warranty in the contract incorporated the warranty, with its arbitration clause, into the contract." Cirile v. Petersen-Dean, Inc., B278075 (2/7 2/6/18) (Zelon, Segal, Bensinger) (unpublished). The Court of Appeal explained that the warranty was not listed among the documents incorporated by reference, the contract language was "amorphous" and the contract language "did not guide the reader to the warranty as a source of terms incorporated into the contract." Judgment affirmed.
COMMENT: A successful incorporation by reference should be conspicuous, specific, clear, and unambiguous.
Perhaps the Court of Appeal was also irked by a lack of candor, for Justice Zelon wrote: "In its petition to compel arbitration, Petersen-Dean did not disclose to the court that the arbitration provision was not set forth in the contract the parties signed in June 2014 but was contained in the owner's manual provided after the system had been installed."
Peter J. Marx, an experienced mediator and arbitrator affiliated with Alternative Resolution Centers (ARC) has written a short article entitled, "Confidentiality: Special Considerations In Sexual Harassment Cases." The article is available on the ARC website at this link.
Mr. Marx recounts a mediation involving alleged date-rape, alcohol, and consent issues. The key to settlement was a written apology of sorts, acknowledging inappropriate behavior, that the plaintiff was allowed to disseminate. Mr. Marx concludes: "[N]on-confidentiality may be explicitly utilized as a significant and in a given case essential aspect of the resolution of sexual harassment claims." A rare use of non-confidentiality in a sexual harassment case!
The Case Includes Good Discussion Of What Constitutes A Judicial Admission.
With narrow exceptions, an arbitrator's decision cannot be reviewed for errors of fact or law. One such exception, which was invoked by the Appellant in Shenoi Koes LLP v. Bank of America, et al., B281756 (2/4 1/31/18) (Willhite, Epstein Manella) (unpublished) is when the rights of the party "were substantially prejudiced by . . . the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title." Cal. Code Civ. Proc., section 1286(a)(5).
Appellants had made a motion in limine in arbitration to preclude Appellee from giving testimony "that contradicts judicial admissions in her pleadings." Appellants argued on appeal that when their motion was denied, the arbitrators somehow failed to consider an issue necessary to determine the controversy, because they failed to interpret a contract in light of binding judicial admissions. The Court of Appeal, however, didn't buy the argument, believing there never had been binding judicial admissions, and so the motion lacked merit. The judgment was affirmed.
See the case for a discussion of what constitutes a genuine judicial admission. It must be in the pleadings, not in testimony, and it cannot be taken from a prior proceeding.