California Mediation and Arbitration

Arbitration: Sanctions: N.D. Cal. District Judge Has Decided To Issue Sanctions Against Fitbit And Its Attorneys For Failure To Pursue Arbitration After Compelling It In Consumer Action

Moral Here Is To Pursue Arbitration If You Elect To Do So.

            Mike Hensley, my co-contributor on the calattorneysfees.com website, has done a recent post about N.D. Cal. U.S. District James Donato’s July 24, 2018 order in which he will be imposing yet-to-be-sought sanctions against Fitbit and its defense counsel in a consumer action. District Judge Donato decided that the defense conduct in compelling arbitration and then announcing a decision not to pursue it justified “inherent by the court” sanctions to control bad-faith litigation conduct. Mike’s full post tells it all, including the district court’s colorful passage indicating why many people, including judges, are skeptical about arbitration agreements.

Arbitration: Burden Of Proof, FAA: Ninth Circuit Determines That USC Employment Arbitration Clause Did Not Encompass Plaintiff Employees’ Claims On Behalf Of ERISA Plans

However, Ninth Circuit Panel Did Indicate In A Footnote That It Might Have Been Wrong To Say Certain ERISA Claims Inarbitrable As A Matter Of Law.

       In Munro v. University of Southern California (USC), No. 17-55550 (9^th Cir. July 24, 2018) (published) (Thomas, Chief Judge, author; Friedland, Circuit Judge; and Zilly, W.D. Wash. District Judge by designation) confronted a situation where USC required current and former employees to sign standard employment contracts with arbitration clauses. However, the language only covered them in individual capacities such that the controversy here was whether these arbitration clauses covered employees bringing collective claims for breach of fiduciary duty against USC for the administration of certain ERISA plans. The district judge denied USC’s motion to compel arbitration after concluding that it did not encompass the ERISA plan challenges brought by the employees.

       The Ninth Circuit agreed in a 3-0 panel opinion.

       The summit issue under the Federal Arbitration Act (FAA) was whether the employment contract’s arbitration clause encompassed the dispute at issue. Employees won on that issue.

       Earlier, in U.S. ex rel. Welsh v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9^th Cir. 2017), decided under a similar employment contract that an arbitration clause did not cover qui tam claims brought by an employee on behalf of the U.S. government under the False Claims Act (FCA). The Ninth Circuit, in Munro, found that Welch’s reasoning did apply, because qui tam suits under the FCA—where a plaintiff sues for injury to the government—was akin to ERISA fiduciary breach suits—where a plaintiff sues for injury to the ERISA Plan. Beyond that, neither a plaintiff in an FCA suit nor a plaintiff in a similar ERISA suit can alone settle the suit. So, the USC arbitration clause was not broad enough to encompass “representative” claims of the nature alleged under ERISA.

      However, not everything was lost from the defense perspective. In a footnote, the Ninth Circuit panel did hint quite strongly that its earlier holding in Amaro v. Continental Can Co., 724 F.2d 747 (9^th Cir. 1987) might have been wrongly decided. Amaro found that ERISA 409(a) claims are inarbitrable, but the Ninth Circuit panel suggested this conclusion might have been wrong as a matter of law based on intervening binding authority—but did not have to reach the issue based on its narrower holding.

        BLAWG OBSERVATION—I noticed that Eugene Scalia was on the losing side of the arbitration issue. Given his deceased father’s (former SCOTUS Justice Antonin Scalia's) views favoring arbitration and his pronouncements in Concepcion/other cases, his father might be rolling in his grave based on the result in this case, circumspect as it might be.

Review: Creative Mediation Solutions

Mediator Paul Fisher's Article Describing Varieties of Mediation Is Available On-Line.

        A classic summary of "Creative Mediation Options" (August 2000) authored by California mediator Paul Fisher is available on-line at this link.  Paul Fisher describes, and summarizes advantages and disadvantages of: baseball mediation, golf mediation, pocket golf mediation, binding mediation [perhaps an oxymoron], high-low mediation, mediation/arbitration, arbitration/mediation, and mini-trial.

Legislation: Gov. Brown Approves Senate Bill 766, Expanding Opportunities For International Arbitration

Members In Good Standing With Legal Profession In Foreign Country Will Be Able To Represent Client In California Arbitration.

        On July 18, 2018, Gov. Brown approved Senate Bill 766.  The new law will allow members in good standing in the legal profession in a foreign country to represent their client in California arbitrations and mediations.  This solves a problem created by California Business and Professions Code, Section 6125, which provides:  "No person shall practice law in California unless the person is an active member of the State Bar."  The text of SB 766 is available here.  The new law should open up opportunities for conducting more international arbitrations in California.

Arbitration: Discovery, FAA: Contributor Marc Has Published A Recent Article On Suggested Legislative Fixes To Ninth Circuit’s Holding In CVS Health Corp. That District Judges Have No Power To Compel Third Party Document Production Before The Schedule

His Article Appears in The July 2018 Edition Of The Orange County Lawyer.

             On December 25, 2017, contributor Marc posted on CVS Health Corp. v. Vividus, LLC, 878 F.3d 703 (9^th Cir. 2017), where the Ninth Circuit Court of Appeals held, based on a reading of the "plain meaning" of the Federal Arbitration Act, specifically, 9 U.S.C. section 7 that: "[T]he FAA does not grant arbitrators the power to order third parties to produce documents prior to an arbitration hearing.” This holding squarely conflicts with an Eighth Circuit decision to the contrary. (Life Ins. Co. of Am. V. Duncanson & Holt, 228 F.3d 865 (8^th Cir. 2000).)  Read Marc's December 25, 2017 post here.

            Contributor Marc, in an article entitled “Arbitration and Third-Party Document Discovery Before a Hearing: A Problem In Search of a Solution” and published in the July 2018 edition of the Orange County Lawyer magazine, explores the ramification of CVS Health Corp. and proposes these possible legislative “fixes” to the issue (singularly, in combination, or in the aggregate) with respect to arbitrators allowing pre-hearing third-party document discovery:

•  The FAA could prohibit third-party document production before hearing outright in cases of a specified smaller monetary threshold;
• The party seeking third-party documents prior to a hearing could be made to bear the costs;
• The party seeking third-party documents prior to a hearing could be required to make the documents it receives available to other parties in the arbitration;
• In considering whether to allow pre-hearing discovery of third-party documents, the arbitrator could consider the “proportionality” factors set forth in Federal Rule of Civil Procedure 26(b);
• Third-party document discovery could be limited only to document production which would be deemed material evidence in the case; and
• The district judges could remain available as a forum to address an unduly burdensome subpoena issued by arbitrators.

Arbitration: Construction Of Agreement; Employment; PAGA; Severability: 2/6 DCA Decides PAGA Waiver Is Unenforceable And PAGA Waiver Was Not Severable From Remainder Of Agreement Due To Differences Between English And Spanish Versions Signed By Employee

Different Handbook Versions Seen As Negligent Or, At Worse, Deceptive.

            This case involved interesting PAGA waiver and severability issues under a very specific factual setting fraught with confusion.

            The situation went this way: Employer, during the employment of plaintiff hourly employee in Ventura, adopted a policy requiring arbitration of legal claims arising from the employment relationship. Plaintiff employee had signed both an English and a Spanish version of employer’s dispute resolution agreement, although there was a major difference between the two. Both handbooks required arbitration of employment disputes and denied an employee’s right to bring an action under the California Private Attorneys General Act. The English version stated that the denial of the right to bring a PAGA action was severable if such denial was found unenforceable, while the Spanish version provided that the PAGA denial was not severable.

            After the plaintiff filed wage/hour and PAGA claims, employer filed a motion to compel arbitration of plaintiff’s claims, relying on the handbook provisions. The trial judge denied the motion to compel, finding that (1) the differences in the two versions of the handbook were “propound” concerning a “very significant subject,” and (2) the arbitration agreement had to be construed against the drafter, namely, the employer.

            The 2/6 DCA affirmed in Juarez v. Wash Depot Holdings, Inc., Case No. B282667 (2d Dist., Div. 6 July 3, 2018) (published) (Gilbert, P.J., author, concurred in by Perren, J. and Tangeman, J.).

            Initially, the appellate court found that the trial judge properly concluded that the PAGA waiver found in the handbook was unenforceable as against public policy, based on Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4^th 348, 383-384 (2014). Beyond that, however, it was no abuse of discretion for the trial judge to decline to sever the PAGA waiver based on the differences between the English and Spanish versions. Finally, after finding that the difference in the severability clauses in the two versions was “negligent; at worse, it [was] deceptive,” the arbitration agreement ambiguity was construed against employer drafting party, with the appellate court concluding “[i]ndeed, Wash Depot may have left the meaning of severability ‘deliberately obscure, intending to decide at a later date what meaning to assert.’” (Slip Op., at p. 8.)