California Mediation and Arbitration

Arbitration: Ninth Circuit Rules That Plaintiff's Voluntary Dismissal With Prejudice, After Defense Motion To Compel Arbitration Is Granted, Does Not Create Appellate Jurisdiction

A SCOTUS Case Effectively Overruled An Earlier Ninth Circuit Opinion.

        In Damian Langere v. Verizon Wireless Services, No. 19-55747 (9th Cir.  12/29/20) (Bumatay, Parker, Watford), the court holds, "the voluntary dismissal of claims following an order compelling arbitration does not create appellate jurisdiction." 

        The rule had been otherwise in the Ninth Circuit in  Omstead v. Dell, Inc., 594 F.3d 1081 (9th Cir. 2010). However, now the Ninth Circuit finds that its earlier opinion in Omstead, allowing a plaintiff compelled to arbitrate to create appellate jurisdiction by voluntarily dismissing its claims, is incompatible with Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017). 

        Microsoft involved a situation where there was a voluntary dismissal of claims after plaintiff had been denied class certification, and the Supreme Court held that did not create appellate jurisdiction. While Olmstead involved a dismissal following an order compelling arbitration, and Microsoft involved a dismissal following an order denying class certification, the court in Langere finds that the ultimate question in both cases is the same: "whether a plaintiff may bypass a regime for discretionary appellate review through a voluntary dismissal." And the answer in both cases is the same: no. A plaintiff cannot create appellate jurisdiction by voluntarily dismissing claims after a denial of class certification, and a plaintiff cannot create appellate jurisdiction by voluntarily dismissing claims after being ordered to arbitrate.

        COMMENT: If a plaintiff files in federal court, hoping to obtain class certification, and the defendant successfully moves to compel arbitration, what are the plaintiff's alternatives? The plaintiff can arbitrate and challenge the decision to compel arbitration by appeal after the merits of the case are decided by the arbitrator and confirmed as a judgment. Alternatively, the plaintiff can seek an interlocutory appeal if the district judge certifies that an appeal involves a “controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b). 

        Neither alternative is likely to be very tempting. The interlocutory appeal requiring district court certification is usually a longshot. As to arbitration, arbitrating for the class will be impossible unless the arbitration agreement allows class arbitration, or the rules of the arbitral forum permit the consolidation of claims by the claimants. Arbitrating one small claim is likely to be very uneconomical, and appealing the district court's decision to compel arbitration at the end would  be very expensive and perhaps ultimately pointless, as a judge or jury might reach the same result as an arbitrator is the dispute were to be litigated instead of arbitrated. Another possibility, filing serial small claim arbitrations, only makes sense if there are fee and cost shifting provisions in the agreement between plaintiff and defendant and the plaintiff has a strong case.

 

 

Arbitration, Qui Tam: Second District, Div. 6 Holds Qui Tam Action Is Not Subject To Arbitration

The Qui Tam Action Is Brought On Behalf Of The State Which Is Not A Party To The Arbitration Agreement.

        State of California ex rel. Aetna Health of California, Inc. et al., v. Pain Management Specialist Medical Group et al., B299025 (2/6  12/21/20) (Gilbert, Perren, Tangeman) involves a qui tam action brought under the Insurance Fraud Protection Act. An insurance company, Aetna, sued a surgical center, on behalf of the state, for insurance fraud. The provider, Pain Management, unsuccessfully petitioned to compel arbitration, and the Court of Appeal affirmed the denial of the petition. 

        "Here we decide," writes Justice Gilbert, "the qui tam action is not subject to arbitration because it is brought on behalf of the state which is not a party to the contract between the insurance company and the surgical center." The qui tam action belongs to the state, which is a nonsignatory, and which has not agreed to arbitrate.

        The court's explanation is the same as that  in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), which in the context of the California Private Attorney General Act, "concluded that a private attorney general claim is not a dispute between an employee and an employer, but is a dispute between the employer and the State."

        I have written an article entitled "Qui tam actions can avoid arbitration in California" that appears in today's (December 24, 2020) Daily Journal. Because the Daily Journal is behind a paywall, I have not provided a link.

Happy Holidays And Best Wishes For The New Year To All Our Readers

Puck's Christmas Tree. December 24, 1902.  Samuel D. Ehrhart, artist. Library of Congress.

Arbitration, Disclosures: Arbitrator's Nondisclosure Of Involvement With LGBTQ Organization Not A Basis For Tossing Arbitration Award

The Arbitrator's Relationship With  GLAAD Was Irrelevant To The Dispute.

        The arbitration award was confirmed and affirmed on appeal in Malek Media Group LLC v. AXQG Corp.,  B299743  (12/16/20 )) (Dhanidina, Lavin, Egerton), a case in which the disgruntled appealing party sought to disqualify the arbitrator for failure to disclose his connection with GLAAD, the Gay & Lesbian Alliance Against Defamation. The appellant made the tenuous argument that the arbitrator's involvement with LGBTQ rights had to be disclosed, because a witness had accused Malek of sexual harassment, LGBTQ rights activists were feminists who assumed the woman was telling the truth, and finally, Malek was Catholic, and the Catholic Church was at odds with same-sex marriage. 

        The Court of Appeal dispatched with the non-disclosure argument, finding an affinity with LGBTQ issues to be irrelevant to the subject matter of the case. "MMG mischaracterizes the arbitration as one that primarily involved issues of sexual harassment or social justice, " explained the Court.  "The arbitration involved the dissolution of Foxtail [the LLC formed by the parties] based on the irreconcilable conflict between Malek and Gou and the numerous breaches by Malek of the Foxtail agreement, primarily, Malek’s misuse of Foxtail funds." The person claiming sexual harassment was not even a party to the case, and her testimony was only relevant to the case to the extent that it tended to show that Malek's actions subjected the LLC formed by the parties to reputational harm. Finally, the sexual harassment/reputational issue only yielded a measly $500 as part of the  arbitrator's award.

        The Court also found the  appeal to be frivolous, resulting in sanctions. A post about the sanctions aspect of the case can be found on Mike Hensley's and my California Attorney's Fees Website.

        COMMENT.  We have previously posted about Rebmann v. Rohde, 196 Cal.App.4th 1283 (2011), which is dispositive in Malek Media Group LLC v. AXQG Corp. The earlier case involved a disgruntled party in arbitration and a Jewish arbitrator. In Rebmann: "The defendant/appellant informed the trial court that if only he had 'known about his [the arbitrator's] religious affiliation, his cultural affiliation, and the dedication to keeping the memory of the Holocaust alive, I never would have allowed him to be the arbitrator in my case.' The defendant/appellant's father, and his wife's father served in the SS during WWII. Among other things, the Court of Appeal rejected the 'tacit assumption' that 'a judge who is a member of a minority cannot be fair when a case somehow related to that minority status – no matter how remote or tenuous that relationship might be – comes before that judge.'"

        Unhappy litigants have long complained that judges and arbitrators could not be fair to them because of their race, ethnicity, religion, nationality, and more recently, sexual orientation and gender identity. This was true during the period of the  Civil Rights Movement, and even more recently, a federal judge was attacked as biased, based on the claim that he was "Mexican." These types of attacks are very unlikely to succeed in a court of law. However, we note a difference in emphasis between the Rebmann case and Malek Media Group LLC. Where Rebmann rejected the assumption that a judge or arbitrator who is a member of a minority cannot be fair when a case is somehow related to minority status, Malek Media Group LLC makes the point that the arbitrator's interest in LGBTQ issues was irrelevant to the subject matter of the case. Both points are valid, but the emphasis is different.

 

Arbitration, Delegation, Agents: Two Cases In Medical Settings Show California Courts Scrutinize Arbitration Agreements Entered Into For The Sick And The Aged

        California courts continue to scrutinize cases in which hospitals and nursing homes seek to enforce arbitration provisions. The medical settings often involve patients who are old, quite sick (or both), hurried admission processes, and urgency. These cases remind me of a story my law school torts professor told, about taking his daughter, who had injured her arm, to emergency care. Presented with the  paperwork, the law professor asked, "where do I sign?"

Oh What A Difference A Little Thereof Makes.

        In Sandoval-Ryan v. Oleander Holdings LLC, et al., C089486 (3rd Dist.  12/7/20) (Hull, Murray. Duarte), the Court of Appeal affirms an order of the trial court, holding that defendants, a skilled nursing facility, claimed the issue of arbitrability had been delegated to the arbitrator rather than the court to decide, lacked merit.

        Defendants did not question the trial court's ruling against them on their motion to compel arbitration, only that the decision had been made by the trial court, instead of an arbitrator. Defendants argued that clear and unmistakable language delegated threshold arbitrability issues to the arbitrator. Their argument foundered on two shoals.

        First, the language  of the arbitration agreement provided that  claims "arising out of the provision of services by the Facility, the  admission agreement, the validity, interpretation, construction, performance and enforcement thereof . . . " were to be submitted to the arbitrator. The court concluded that "thereof" referred to the admission agreement only. OK, I had to read the clause twice myself.

        Second, even if, arguably, the clause could be interpreted to cover issues of arbitrability concerning the provision of  services, the "clear and unmistakable language" burden had not been carried by defendants.

Shaky Custom, Habit, And Practice Testimony That Is Contradicted Fails To Establish Agreement To Arbitrate.

        Maria Garcia v. KND Development 52, LLC, et al., B301929 (2/4  12/15/20) (Manella, Willhite, Collins) is another case in a medical setting where the trial and appeal courts refuse to enforce an arbitration provision. The underlying case involved a patient who was allegedly injured, becoming infected with bedsores, and later dying. 

        The hospital did not carry its burden of establishing a binding arbitration clause (a) because it relied on the custom and practice testimony of a supervisor who did not interact with the patient; (b) because it relied on the custom and practice testimony of a receptionist who lacked first-hand recollection; and (c) the custom and practice testimony was contradicted by relatives of the  patient who testified from first-hand personal knowledge. As a result of the thin evidence, the hospital was unable to establish that the relative who signed the hospital documentation had acted as an agent of the patient and had been authorized by the patient to agree to arbitration. 

 

 

Reviews: Sweet Taste Of Liberty: A True Story Of Slavery And Restitution In America

Your Blogger Has Reviewed Sweet Taste of Liberty, And Includes A Link To The Review Below.

        Rice University historian W. Caleb McDaniel won the Pulitzer Prize in history for this remarkable story about Henrietta Wood, an enslaved person in Kentucky, who was freed in Ohio, kidnapped by a slave broker, re-enslaved, sold in Kentucky, and freed after the Civil War. After returning to Ohio, she sued for restitution in federal court. 

        Wood was illiterate and signed her name with an X, so it is a tremendous feat of scholarship that her story can be told at all.

        The most recent issue of California Litigation, the journal of the litigation section of the California Lawyers Association, is devoted to the theme of racial justice. I am one of the editors of the journal, and my review of the book, which appears in the recent issue, can be read by clicking here.

Arbitration, Enforceability, Fees: Froggy Arbitration Clause Buried Among the Lily Pads Is Too Inconspicuous To Require Arbitration

Inconspicuous As A Frog In A Thicket Of Water Lilies . . . 

 

"Too lazy to feed himself, Washington, D.C., Aug. 15. Just plumb too lazy to catch his food on the fly like regular frogs do, Popeye, giant frog from Louisiana in the U.S. Department of Commerce aquarium, has to be fed his meals from acting [sic] as nursemaid for the critter." Library of Congress. 1937.

        The inimitable Justice Arthur Gilbert writes: "An arbitration clause in a contract is invalid because the clause is as inconspicuous as a frog in a thicket of water lilies. The prevailing party is entitled to attorney fees per Civil Code section 1717. Speaking of frogs, Frog Creek Partners, LLC v. Vance Brown, Inc. (2012) 206 Cal.App.4th 515 (Frog Creek) does not prohibit the award of attorney fees." Domestic Linen Supply Co., Inc., v. L J T Flowers, Inc., B292863, B294788 (2/6  12/4/20).

        Justice Gilbert, agreeing with the trial judge, explains why the arbitration clause was inconspicuous. Among other  things, the arbitration clause was not above the purchaser's signature, but on the back of the agreement. The backside was filled with small type. The arbitration clause, lacking heading, boldface, italics or  capitalization, was "simply hidden in a thicket of fine print." The sales representative presenting the agreement was not trained to bring attention to the arbitration clause. And the sales rep was advised to have the purchaser read the personal guarantee while filling out the contract, thus diverting from  the backside of the contract.

        Comment: A reader might at first have thought that leading with a discussion of the inconspicuousness of the arbitration clause would take us to the  issue of unconscionability. No need to go there. Evidently the arbitration clause was so inconspicuous that Justice Gilbert concluded: "There was simply no agreement to arbitrate."

        Regarding the issue of fees, the opinion distinguishes between (1) Frog Creek, in which a case was pending, plaintiff's first petition to compel arbitration was defeated, a second petition succeeded, and defendant ultimately prevailed on the merits; and (2) the instant case, in which a petition to compel arbitration was filed, and the petition was defeated. In the first situation, the petition is defeated, and the lawsuit continues. However, in the instant case, the defeat of the petition terminated the action, leaving the defendant as the prevailing party. And where there is a contractual basis to recover attorney's fees and a prevailing party, the prevailing party can recover attorney's fees.

        Further Comment: If a Jim Murray prize for turning a phrase and color commetary in legal opinions could be awarded to California Appellate Justices, I would nominate Justice Gilbert and Justice William Bedsworth.

Lily pond. Jean E. Norwood, photographer. 1979. Library of Congress.