California Mediation and Arbitration

Arbitration, Section 998: California Supreme Court Rules Request For Costs Timely Under Section 998 If Filed With The Arbitrator Within 15 Days Of Final Award

A Question Of Timing: Case Explains  How To Handle Costs Under Section 998 In An Arbitration.

    Heimlich v. Shivji, S243029 (Cal. S.Ct.  5/30/19) (Corrigan, J.) is good news for practitioners, because it settles a timing issue, but it is no help to the hapless appellant who helped make law. Code of Civil Procedure section 998 authorizes an award of costs to a party that makes a pretrial settlement offer when the opponent rejects the offer and obtains a lesser result at trial. Heimlich v. Shivji holds, "a request for costs under section 998 is timely if filed with the arbitrator within 15 days of a final award." The question had been somewhat in doubt, because for most purposes, an arbitrator's power to act terminates once the final award issues.

    However, the ruling makes sense, because section 998 applies to arbitration, as well as to litigation, and allowing a request for costs to be made under section 998 after the award is final puts arbitration and litigation on an equal footing. In a court case, a memorandum of costs is typically filed within 15 days of the final judgment, and the rule in Heimlich v. Shivji allows a parallel practice in arbitration. Furthermore, it is good policy not to require the party who will be asking for costs to make a settlement offer known prior to the final award, for fear it might influence the arbitrator in undesirable ways.

    The issue in Heimlich v. Shivji arose because Shivji  had a fee dispute with his attorney Heimlich, and Shivji made a settlement offer that Heimlich could not best in arbitration. Within 15 days after the final award issued, Shivji informed the arbitrator that he would request costs under section 998. Unfortunately for Shivji, the arbitrator concluded that after issuing the final award, he no longer had jurisdiction to take any further action in the matter. The trial court confirmed the arbitration award that did not include Shivji's requested costs. The Court of Appeal reversed, holding that Shivji's request was timely, and that the trial court could vacate the arbitrator's award because the arbitrator had "'refuse[ed] . . . to hear evidence material to the controversy'" when he rejected Shivji's attempt to raise the issue. (We blogged about the Court of Appeal opinion on June 15, 2017). And the Supreme Court agreed with the Court of Appeal that Shivji's request was timely.

    So that all sounds like it would be good for Shivji. But not so fast. The arbitrator made a mistake of law when he concluded that he lacked jurisdiction to rule on the post-award request for costs. His refusal to consider further evidence resulted from the mistake of law. And a mistake of law is not a basis for overturning an arbitration award. So hooray for Shivji and his attorney: they were right that Shivji's request was timely, and they made law in the California Supreme Court. Unfortunately, it won't help Shivji.

    PHRASE OF THE DAY. Apparently Heimlich relied on the ancient doctrine of "functus officio." "At common law," the Supreme Court explained, "the issuance of an arbitration award was treated as functus officio, an act that terminates the actor's authority." Here, however, the doctrine only applied after the arbitrator's assigned duties ended -- and apparently those post-final award duties can now include awarding costs to a party that prevails under section 998. "Further, common law rules are subject to legislative revision." And pursuant to the California Arbitration Act, arbitrators do have some vestigial powers after issuing an award, so the doctrine of functus officio is not absolute. And section 998 "is intended to place parties to arbitration and court proceedings on equal footing and should be read to grant arbitration parties the same shield against premature disclosure of settlement offers that parties in court enjoy."

    PRACTICE TIP. What should the practitioner do about making a request for costs under section 998 in an arbitration? The Court notes, "Shivji did not seek a stipulation that would allow the parties jointly to advise the arbitrator of a 998 offer." That could have been done before the final award was issued. If the arbitrator had then refused to accept evidence on an issue of costs that he had to decide pursuant to a joint stipulation, that might have been a solid ground for challenging the award, for squarely refusing to consider important evidence would have been more than a mistake of law. Of course, in the absence of a stipulation, the next person requesting costs within 15 days after issuance of the final award can present the arbitrator with a copy of Heimlich v. Shivji, and hope the arbitrator does not go off the rails.

    

Arbitration, Civil Rights: Ninth Circuit Rules That Racial Discrimination Section 1981 Claims May Be Subjected To Compulsory Arbitration

Chief Circuit Judge Thomas Concurs, But Writes That Earlier Case Law Was Wrongly Decided.

    The Ninth Circuit has affirmed the district court's order compelling arbitration of racial discrimination claims under section 1981. Lambert v. Tesla, Inc., DBA Tesla Motors, Inc., No. 18-15203 (9th Cir.  5/17/19) (Opn. by Smith,  Thomas conc.).

    Lambert, an  African-American, sued Tesla for racial discrimination. Tesla moved, successfully, to compel arbitration, and Lambert appealed. Following EEOC v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742 (9th Cir. 2003), holding that Title VII claims were arbitrable, the Ninth Circuit panel held that section 1981 claims also can be arbitrated.

    Chief Circuit Judge Thomas concurred, believing that the result was compelled by the earlier decision in EEOC v. Luce, Forward, Hamilton & Scripps. However, he believed that case was wrongly decided.

    His explanation is that the statutory text merely stating "that arbitration should be 'encouraged' to the extent it is 'appropriate' and 'authorized by law'" is ambiguous. And that if the statutory language is ambiguous, then the court should have looked further at legislative history and purpose. He sees a contradiction between enforcing arbitration and carrying out Congressional intent "to supplement, rather than supplant, the rights and remedies provided . . . "

    COMMENT: As this opinion, and others, acknowledge, "We have become an arbitration nation." Many opinions, including this one, reason that compelling arbitration merely means a change of forum, not a diminishment of rights. The opinion's author, Judge Smith, explains, "The question before us is whether claims under section 1981 should be added to the ever-expanding list of statutory causes of action already subject to arbitration." To which Smith responded yes, and to which Thomas responded with a qualified yes, only because the result is compelled by earlier Ninth Circuit case law.

    Dean Erwin Chemerinsky wrote a book published in 2017 and entitled: Closing the Courthouse Door: How Your Constitutional Rights Become Unenforceable." The Lambert case, according to Thomas, is a decision that "signifies a further departure from the increased choice of fora Congress intended to bring about in the 1991 [Civil Rights] Act."

Reviews: We the Corporations: How American Businesses Won Their Civil Rights

Marc Alexander (This Blogger) Has Reviewed The Book For California Litigation.

        In the latest issue of California Litigation, Vol. 32, No. 1 (2019), p. 25, I've reviewed Adam Winkler's We the Corporations: How American Businesses Won Their Civil Rights. You can read the review, which is republished with the permission of California Litigation, by clicking here.

Arbitration, FINRA, Rules: Ninth Circuit Reverses District Court's Denial Of Bank's Motion For Prelim Injunction Against Arbitration By FINRA

Bank Likely To Succeed On Merits As To Whether It, Or Its Corporate Trust Department, Was A "Municipal Securities Dealer" Subject To FINRA Arbitration. 

    If your eyes begin to glaze over when reading about the Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB) rules, conduit municipal bonds, indenture trustees, Institutional Investment Departments (IIDs), Corporate Trust Departments (CTDs), and the Securities Exchange Act of 1934, then this case is not your meat. But if you are interested in FINRA arbitration and a close reading of rules, perhaps this case is meant for you. The case is BOKF, NA v. Estes, et al., No. 18-15369 (9th Cir.  5/2/19) (Berzon, J., Friedlan, Dominguez).

    The panel held that the Bank of Oklahoma, National Association (BOKF) was likely to succeed on the merits by showing that it and its CTD were not a "municipal securities dealer" and thus not compelled to arbitrate with a group of unhappy municipal bond holders. The Bank's IID was registered as a municipal securities dealer, but the bank, and the CTD were not registered. The CTD did not buy or sell bonds for its own account or for any other division of the bank. Nor was the bank, as a whole, a municipal securities dealer on the basis that one of its component parts, the IID, was a dealer. Conclusion: reverse the district court's denial of the bank's motion for a preliminary injunctions against arbitration. This is all based on a close reading of some very technical rules.

 

 

Arbitration, Collective Bargaining: Cal Supremes Hold Labor Management Relations Act Does Not Require Arbitration Between Giants And Baseball Security Guards

Dispute Only Required Reference To Collective Bargaining Agreement (CBA), Not Interpretation Of It.

     I blogged about Melendez v. San Francisco Baseball Associates LLC, on December 18, 2017, when it was still in the Court of Appeal. Baseball security guards had sued the Giants, alleging that the guards were intermittent employees, entitled to be paid after they were discharged after every Giants homestand, after the end of the baseball season, and after other park events. The trial court had held that, despite the CBA between the Giants and the guards, their wage dispute was not preempted by the Labor Management Relations Act of 1947, and therefore, did not need to be arbitrated. The Court of Appeal disagreed, holding that even though the claims involved state labor law, the dispute required interpretation of the CBA, resulting in preemption, and therefore requiring arbitration.

    Now the California Supreme Court has reversed the Court of Appeal. Melendez v. San Francisco Baseball Associates LLC, S245607 (Sup. Ct.  4/25/19). Justice Chin authored the unanimous opinion. The  Supreme Court's analysis depends on the distinction between interpretation of the CBA, and reference to it. Balcorta v. Twentieth Century-Fox Film Corp., 208 F.3d 1102 (9th Cir. 2000) is the key case setting forth the analysis upon which Justice Chin relied.

        Merely because the CBA had to be read and referenced did not mean that it had to be interpreted; its terms were not in dispute. Thus, because the claims involved independent state labor law, and not a breach of contract, and because interpretation of the CBA was not required, there was no preemption, and arbitration was not required. So: A win, at this stage, for the baseball security guards, leaving the merits to be resolved when the matter is remanded to the trial court.

Arbitration, Choice Of Law, Claim Preclusion: 9th Circuit Rules That In Diversity Case, State Law Governs Claim Preclusion As Applied To Confirmed Arbitration Award

An Issue Of First Impression.

    In NTCH-WA, Inc. v. ZTE Corporation, Inc. v. ZTE Corporation, No. 17-35833 (9th Cir.   4/25/19) (Gould, Paez, Pregerson), the Court of Appeals held that an arbitration award and its confirmation by a district court in Florida, barred plaintiff NTCH-WA from pursuing claims against ZTE Corp. under the doctrine of claim preclusion. ZTE Corp.'s subsidiary, ZTE USA, had previously obtained an adverse arbitration award against NTCH-WA and the Florida district court had confirmed the award. Applying principles of claim preclusion taken from Florida state law, the district court concluded that NTCH-WA, Inc., was barred from pursuing the same claims, seeking the same remedies, based on the same evidence, against the parent corporation. The 9th Circuit affirmed.

     Curiously, the issue was one of first impression in the 9th Circuit. The application of state law preclusion principles in a diversity case, where the district court has confirmed the arbitration award, "properly mirrors the rule that applies when a federal court is asked to give preclusive effect to an arbitration award that has been confirmed by a state court." Also, the rule serves to avoid forum shopping between federal and state courts.

News: Two Employment Cases Involving Enforceability Of Arbitration Provisions Reach Different Results

Quinn Emanuel And Spin-off LawFirm Selendy and Gay.

    Jack Newsham authored an April 24, 2019 article, appearing in New York Law Journal, and entitled, "Judge Dismisses Suit Against Quinn Emanuel by Partners of Spinoff, Sends to Arbitration." Newsham begins by quoting the judge, who wrote, "It is for the arbitrator in the first instance to [determine] whether the provision at issue is an unenforceable forfeiture-for-competition clause. Any further inquiry on my part is precluded by the broad arbitration provision and the strong public policy compelling its enforcement." And Newsham ends by quoting John Quinn, "The dispute is only about money and will eventually be resolved one way or another for an immaterial amount." [emphasis added].

    Note: A 2017 article reported that JD Journal reported the previous year that of all law firms, "Quinn Emanuel topped the list with $1,077,586 per non-equity partner." [emphasis added]. Evidently "immaterial" is a relative term.

Cantor Fitzgerald.

    In 2018, Lee Stowell, a junk-bond saleswoman at Cantor Fitzgerald, sued her former employer, after being dismissed as "part of a round of layoffs." She alleged that she had been subjected to a pattern of sexual harassment at Cantor Fitzgerald. Katia Porzecanski and Max Abelson reported on April 25, 2019 in Bloomberg News about Lee Stowell's experience as an employee, her lawsuit, and Cantor Fitzgerald's thus far unsuccessful effort to enforce its arbitration agreement. The article is entitled, "Cantor Fitzgerald Doesn't Want This Woman Talking About Her Mug in Court." The title of the article is a reference to Stowell's mug at work, which she found filled with feces one day. Whether or not she gets her day in court -- Cantor Fitzgerald is appealing -- you and I now know about the mug.

Comment.

    Porzecanski and Abelson write about Stowell, "She says she wants to help harassment victims escape forced arbitration." Similarly, in 2018, the California Legislature sought to pass AB 3080, a bill that, had it become law, would have prohibited an applicant for employment or employee from being required to waive his or her right to a judicial forum as a condition of employment or continued employment. The theory behind the bill was that it did not invalidate arbitration agreements, but rather made it illegal to require entry into an arbitration agreement as a condition of employment. However, Gov. Brown, at the end of his term, vetoed the bill, explaining, "Since this bill plainly violates federal law, I cannot sign this measure." In 2019, AB 51, a do-over of efforts to end mandatory arbitration, is currently placed in a legislative suspense file.