The Options: The Other Side Can Pay Arbitration Fees, Or The Matter Can Move To Court.
"In its majestic equality," wrote Anatole France, "the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread." So does this principle of equality mean that the law forbids a party, who engages in good faith in arbitration, and loses the ability to pay the arbitrator, from turning to a judicial forum for relief? As one of my law professors would have put it, do the stringent TS rules of common law contracts apply to bind the party who is unable to pay to the deal it made?
In Weiler v. Marcus & Millichap Real Estate Investment Services, Inc., et al. G053953 (4/3 4/30/18) (Thompson, Bedsworth, Moore), the Court of Appeal holds in a published opinion, "as we did in Roldan [219 Cal.App.4th 87 (2013)], when a party who has engaged in arbitration in good faith is unable to afford to continue in such a forum, that party may seek relief from the superior court." In Roldan, the subject of my August 28, 2013 post, the Fourth District, Division Three, concluded that plaintiffs, "each of whom were subsequently granted permission to proceed in forma pauperis in the trial court, could likewise be excused from the obligation to pay fees associated with arbitration."
The Court of Appeal faulted the trial judge for applying an unconscionability analysis to the enforceability of the arbitration provision in Weiler. Unconscionability is analyzed at the time the agreement to arbitrate is entered into, and at that time, the Weilers were relatively well-to-do, before losing $2M in the ill-fated 1031 exchange in which they were represented by Marcus & Millichap. It would be hard, under those facts, to say that there was overreaching at the time of contract formation. Here, however, the issue was entirely different. The circumstances had changed over time such that the Weilers, an elderly couple ground down by the arbitration, lost the ability to pay, as a result of which they confronted the possibility of not being able to proceed in any forum, unless Marcus & Millichap paid the arbitration fees, or the parties proceeded to court. Perhaps too the Court's view was colored by the hardball tactics of the defendant, who, for example, insisted on the use of three arbitrators at an hourly rate of $1,450.
Arguably the Federal Arbitration Act applied, because the 1031 exchange involved properties in different states, Nevada and Texas. And so the Court also determined that the outcome would be the same under the Federal Arbitration Act and under the California Arbitration. In reaching this conclusion, the Court relied on the federal case, Tillman v. Tillman, 825 F.3d 1069 (9th Cir. 2016), the subject of my June 15, 2016 post. Tillman relied on the provision in the Federal Arbitration Act, 9 U.S.C. section 3, that a party can apply to stay trial of the action "until such arbitration has been had in term of the agreement . . . " In Tillman, the party followed the procedure required by the AAA, participated in good faith in the arbitration process, and simply ran out of money to pay the arbitrator. The Court held in Tillman that the arbitration "had been had" and the party could now seek a judicial forum. The California Court of Appeal found the analysis in Tillman to be persuasive.
COMMENT: Tillman is a Ninth Circuit case. Query whether the US Supreme Court, as currently constituted, would show solicitude to the impecunious plaintiff, or more inclined to apply the TS rules of common law contracts.
PRACTICE TIP: One in the position of the Weilers will need to make a compelling showing of inability to pay. This matter is being remanded, and the trial court will need to find if the "party's financial status is not a result of the party's intentional attempt to avoid arbitration." If there is no intentional attempt to finagle finances, then the trial court can order the arbitration to continue if the defendant agrees to pay (or order it to pay!), or deem the arbitration to be "had", allowing the case to proceed in court.
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