California Mediation and Arbitration

Arbitration, FAA: Ninth Circuit Holds Federal Arbitration Act Does Not Preempt California's McGill Rule

McGill v. Citibank Held Agreement To Waive Right To Seek Public Injunctive Relief Is Unenforceable.

        In McGill v. Citibank, N.A. (2017), the California Supreme Court held that a contract purporting to waive a party's right to seek public injunctive relief in any forum is unenforceable under California law. The key issue in Blair v. Rent-A-Car, No. 17-17221 (9th Cir.  6/28/19) (Fletcher, McKeown, Murguia), is whether the Federal Arbitration Act preempts California's McGill  rule. The Ninth Circuit holds that the FAA does not preempt the McGill rule.

        Blair brought a putative class action against the Rent-A-Center defendants, alleging they overcharged for rent-to-own plans for household items. Such plans provide for installment payments, and if all payments are timely made, the consumer owns the item. Blair's agreement contained an arbitration clause providing that it was "intended to be interpreted as broadly as the FAA allows." The agreement also provided that arbitration was to be on an individual basis and relief could not affect other account holders. There could be no class, collective, mass, private attorney general, or representative action. If the provision was held to be unenforceable, then the claims for relief had to be severed and brought in a judicial forum.

        The district court concluded that this agreement violated the McGill rule because it waived Blair's right to seek public injunctive relief in any forum (1) because all claims had to be heard in arbitration; and (2) because claims for public injunctive relief could not exist in arbitration consistent with the parties' agreement. The Court of Appeals agreed, and severed the claims providing for public injunctive relief, which will now be heard in court.

        The court analyzes federal preemption in two steps. First, it explains the McGill rule is a "generally applicable contract defense." In other words, it applies equally to arbitration and non-arbitration agreements. In contrast, a rule that uniquely burdens arbitration would be preempted by the FAA. Second, even a generally applicable contract defense may not prevent preemption, if the rule interferes with the accomplishment of the FAA's objectives. However, the McGill rule does not deprive the parties of the benefits of arbitration, because according to the Blair court, a public injunctive relief claim could be sought in arbitration or in court. And seeking a public injunction in arbitration does not require all the procedural formality that a class action would require.

        Here, however, the parties' agreement precluded the pursuit of a public injunction in arbitration, and triggered severance of public injunctive relief claims -- so such claims will go to the district court.

        COMMENT: In Blair, the claims for public injunctive relief are severed and go to court only because the agreement does not allow such claims to be heard in arbitration. But an agreement could be drafted that would allow for a hearing of such claims in arbitration. How much protection would that give to the public?

         It would seem that the interests of the public would be better served by hearing public injunctive relief claims in court, because mistakes of law and fact made by an arbitrator would be no basis for vacating the award. While that is exactly what private parties should expect, in the case of public injunctive relief, broader interests are at stake. If one could write on a blank slate, the public's interests would be better protected by a court hearing than by arbitration. But one does not write here on a blank slate.

 

    

 

Recommended Reading: Article On Participation Waivers In Daily Journal

A "Participation Waiver" Is Not Exactly The Same As A Waiver Of The Right To Sue Or A Bar Against Bringing A Class Action.

        Ari J. Stiller, an attorney with Kinglsey & Kingsley, has an article in the June 26, 2019 issue of the Daily Journal entitled, "Participation waivers test Federal Arbitration Act's limits." 

         As Stiller explains, "So-called 'participation' waivers don't just try to bar employees from bringing a class or collective action in arbitration; they bar participating in such an action that someone else brings, regardless of the forum." Stiller argues that this is a bridge too far, and that once a lawsuit is filed by a party who is not bound by an arbitration agreement, the procedural rules applicable to court should apply. "Courts should not enforce such [participation] waivers outside of arbitration," argues Stiller, "to deny discovery or class certification, and certainly not to prevent workers from participating in a classwide recovery of unpaid wages."

        I asked Stiller whether there are cases specifically addressing "participation waivers" and he replied that he did not know of any, adding: "We have litigated this issue several times recently, in the context of employers trying to block discovery as to individuals who signed participation waivers and an employer trying to strike class allegations from a complaint." So this issue is a live one, even if published opinions have not yet confronted the enforceability of "participation waivers."

Miscellaneous: We've Got Two Recent Articles In The Daily Journal

Justice Bedsworth On Civility; SCOTUS On The Takings Clause.

        I've published two recent articles that have nothing to do with California Mediation and Arbitration.

        The June 18, 2019 Daily Journal published my article, "4th District Court of Appeal Justice William Bedsworth on civility." Justice Bedsworth wrote an opinion worth reading, Lasalle v. Vogel, No. G055381 (4/3  6/11/19)  holding that attorneys have a duty to cooperate during litigation, based on Cal. Code of Civ. Proc. section 583.130. According to Justice Bedsworth, this is more than an ethical duty; it is a policy, and it is law.

        The June 25, 2019 Daily Journal published my article, "Opening the Federal Courthouse door to takings claims." This is about the recent SCOTUS case, Knick v. Township of Scott, holding that a 5th Amendment Takings Clause claim may be brought in federal court under 42 U.S.C. section 1983 at the time of the taking, without having to wait for a denial of just compensation in state court. The case is unusual in two respects. First, it overturns a 35-year old SCOTUS case, Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City, 473 U. S. 172 (1985), which had held that a case was not ripe for the federal courts until there had been a denial of a state-law remedy. Second, the case is split along political lines -- and what is interesting here, is that it is the conservative majority opening the courthouse to constitutional claims.

        Regrettably, the Daily Journal has a paywall, but you can read the articles if you have an electronic or paper subscription -- and if the subjects interest you.

 

Mediation, Condition Precedent: Mediation Is Not A Condition Precedent To A Fee Award Where Parties Merely "Pledge" To Resolve Disputes Amicably Without Litigation

The Court Distinguishes Mandatory Mediation Language Of Frei v. Davey.

       We sometimes supplement our diet of published cases with unpublished cases -- especially for mediation decisions, which are few in supply compared to arbitration decisions. Ocean Tomo, LLC v. PatentRatings, LLC v. Patent Ratings, LLC, G055429 (consol. with G056063, G056829) (4/3  6/13/19) (Fybel, Aronson, Thompson) (unpublished) addresses a discrete mediation issue involving attorney's fees. Hence, we post about it.

        Ocean Tomo was a member and 25% owner of PatentRatings, LLC, and Jonathan Barney was the manager and 63.83 % owner of PatentRatings. A business dispute erupted when Ocean Tomo failed to meet a capital call and Barney deposited money in PatentRatings' bank account as a loan to cover Ocean Tomo's portion of the capital call. Ocean Tomo sued Barney and PatentRatings after the parties could not resolve their disputes through mediation, and Barney cross-complained against Ocean Tomo. Following a bench trial, the court found in favor of Barney and PatentRatings and against Ocean Tomo on all claims and cross-claims. The trial court also granted motions for contractual attorneys fees in favor of Barney and Ocean Tomo.

        Ocean Tomo argued Barney was not entitled to attorney's fees because he did not mediate before he filed his cross-claims. However, Justice Fybel distinguished the Operating Agreement language in the case from the mandatory mediation language of Frei v. Davey, 124 Cal.App.4th 1506 (2004). In Ocean Tomo, the parties "pledge[d] to attempt to resolve any dispute amicably without the necessity of litigation." In Frei v. Davey, if a party commenced an action without first attempting to mediate, or after refusing to mediate, "then that party shall not be entitled to recover attorney's fees, even if they would otherwise be available to that party in any such action." That's not the same as in Frei v. Davey, and Justice Fybel, who penned that opinion, as well as Ocean Tomo, is the authority on the subject.

        Furthermore, Barney did participate in mediation before Ocean Tomo filed its lawsuit, and the Court of Appeal held "[t]he trial court did not err in finding that Barney was not required to attempt additional alternative dispute resolution before filing his cross-claims."

        BONUS: Wikipedia describes Ocean Tomo as, "an intellectual property merchant bank that provides financial products and services, including expert testimony, valuation, research, ratings, investments, risk management, and transactions." Ocean Tomo invested in PatentRatings, a company created to commercialize a product created by Barney: "Barney created a software product to statistically analyze, rate, and value patents. . . " Jonathan Barney's spouse, Colleen Barney, worked as an attorney with me at a previous law firm. Congratulations, Jonathan.

Arbitration, Internet Commerce: 9th Circuit Tests Limits Of "Reasonably Conspicuous" Provision In Internet Commerce Adhesion Contract

Plaintiff Had To Jump Through Hoops To Get To Arbitration Clause.

        For our next case, we add a new sidebar category: "Arbitration: Internet Commerce." "This case tests the outer limits of what constitutes a 'reasonably conspicuous' provision as part of the terms of usage so prevalent in the adhesion contracts of modern internet commerce," writes Senior Circuit Judge Michael Daly Hawkins in In re Randall Holl, No. 18-70568 (9th Cir.  5/30/19) (Hawkins, Smith, Lynn).

        Plaintiff Holl sued UPS alleging it systematically overcharges retail customers shipping packages through third-party facilities by applying Delivery Surcharge Rates higher than the rates it advertises. UPS successfully moved to arbitrate, and Holl sought a writ of mandamus.

        The issue here is the convoluted path Holl had to take to get to the arbitration clause. It takes the panel six pages just to describe how Holl gets to the arbitration clause. He must be able to proceed through the UPS Technology Agreement, which is lengthy; incorporation of rules, regulations, and documents by reference; and inclusion of a jurisdictional provision. And without agreement, there is no agreement to arbitrate.

        However, the Court concludes that mandamus is not justified because Holl assented to the service terms with a click, and the terms clearly incorporated the document containing the arbitration clause in question. Never mind that you, I, and even a learned judge sending a UPS package would likely never get to the arbitration clause, unless we were looking for it. After all, this is about mandamus relief. And the Court concludes: "Faced with the heavy burden of showing a 'clear and indisputable' right to the extraordinary remedy he seeks, Holl fails to establish the type of 'judicial usurpation of power' or 'clear abuse of discretion' that might justify issuance of the writ."

Arbitration, Waiver: Employer Waived Right To Compel Arbitration Under A Collective Bargaining Agreement

Trial Court's Ruling That Delay And Prejudice Resulted In Waiver Is Affirmed.

            Nunez v. Nevell Group, Inc., G056585 (4/3  5/2/19) (Fybel, Bedsworth, Goethals), addresses an employer's waiver of right to compel arbitration of violations of a wage order under a Collective Bargaining Agreement. The Court affirms the trial court's order denying the employer's motion based on the employer's waiver of its right to compel arbitration.

            Most strikingly, "Nevell explicitly waived any right to compel arbitration by advising the trial court in writing that it would not file a motion to compel." Also, the employer missed two-court ordered deadlines to file a motion, and engaged in significant discovery and other litigation activities "inconsistent with the right to arbitration." There was also a finding that the employee was prejudiced by the employer's tactics.

            The employer made a legal argument that it would have been futile to seek arbitration before Cortez v. Doty Bros. Equipment Co., 15 Cal.App.5th 1 (2017) was decided. The employer's argument was that the CBA provided for arbitration for violation of wage orders, but the employee's complaint was brought under the Labor Code. The Court of Appeal held that Cortez only clarified and did not change the law: "[T]he Cortez court made clear that the only way to interpret the agreement's language requiring arbitration for wage order claims, when such claims must be brought under the Labor Code, is to conclude that the agreement to arbitrate applies to Labor Code claims."

        NOTE: Cortez is the subject of our September 4, 2017 post.

 

MFAA, Appealibility, Jurisdiction: An Order Denying A Petition To Compel A Mandatory Fee Arbitration Act Arbitration Is Not Appealable

Appealability Under The Mandatory Fee Arbitration Act Is Different Than Appealability Under The California Arbitration Act.

            The holding of Levinson Arshonsky & Kurtz LLP v Kim (2/1  5/29/19) (Weingart, J.), is that an order denying a petition to compel an MFAA arbitration is not appealable. Therefore, the Court of Appeal lacks jurisdiction to hear it.

          The case arose from restaurateur David Kim's fee dispute with his attorneys, Levinson Arshonsky & Kurtz LLP. After LAK provided notice of disputed billing matters to Kim and his attorney, Kim's attorney filed a petition for fee arbitration with the LACBA on behalf of a Kim-related entity. However, the petition was not filed on behalf of Kim personally, and thus the right to seek county bar mandatory fee arbitration ended up being waived.  Kim's attorney filed a petition to compel MFAA fee arbitration with the Superior Court, which was denied. Kim filed a timely notice of appeal from the order denying his petition to compel arbitration, and did not seek review of an order granting LAK's motion to vacate the stay.

        By analogy to the CAA, Kim argued that a denial of a petition to arbitrate should be appealable. The opinion is interesting because it points out that we have distinct statutory regimes in California, and each needs to be considered separately: (1) judicial arbitration of civil cases with limited amounts in controversy; (2) private contractual arbitration; and (3) mandatory fee arbitration. "[W]hereas a party in a CAA proceeding must move to stay the parallel non-arbitration proceeding, the MFAA adopts the reverse approach -- the parallel nonarbitration matter is automatically stayed, and the party seeking to proceed outside arbitration must move to lift the stay."

        COMMENT: Fee expert Gerald G. Knapton has an article in the June 17, 2019 issue of the Daily Journal entitled, "MFAA versus CFA: Jurisdictional traps for the unwary in arbitration". The article discusses Levinson Arshonsky & Kurtz LLP, as well as the previous case we posted about on May 30, Heimlich v. Shivji. Unfortunately, the Daily Journal is behind a paywall.