California Mediation and Arbitration

Section 998: Fourth District, Div. 3 Holds Later Offer To Enter Into Stipulated Judgment On Only One Cause Of Action Extinguished 998 Offer On All Causes Of Action

A Case Of First Impression.

        Section 998 offers belong to the armamentarium of litigators engaged in settling cases, because the potential of such offers to shift costs can be a source of negotiating leverage. Hence, our blog about ADR has a sidebar category "Section 998 (Settlements)".

        In Varney Entertainment Group, Inc. v. Avon Plastics, Inc., No. G058903 (4/3  2/23/21) (Goethals, Aronson, Fybel), the court had to decide whether defendant/appellant Avon's second offer to settle extinguished its pending section 998 offer. "Section 998 is silent about the revocability of statutory offers to compromise, but our Supreme Court has held that section 998 offers are fully revocable prior to acceptance." That would seem to make this an easy case to decide (and perhaps it was easy to decide). However, the case had unusual facts that made it a case of first impression.

        Plaintiff Varney alleged two causes of action, one for breach of contract, and one alleged in an amended complaint after a year of litigation, for unauthorized use of Varney's name and likeness in violation of Civil Code section 3344.  Defendant Avon offered to settle the entire lawsuit for $250,000 for a stipulated judgment pursuant to section 998. Defendant then offered to settle just the contract cause of action for $191,626.03. Plaintiff Varney accepted the offer as to the single contract cause of action, and on the eve of trial, dismissed the section 3344 cause without prejudice, later filing a  new complaint for unauthorized commercial use of name, voice, signature, photograph, and likeness in Tennessee. 

        So now you see the twist: Varney would claim the stipulated judgment on one cause of action completely superseded Avon's 998 offer to settle the entire lawsuit, and thus no cost shifting should be permitted to Avon under section 998. Avon would claim that the voluntary dismissal of Varney's second cause of action meant that Avon had bested its $250,000 998 offer, entitling Avon to attorney fees it incurred after serving its section 998 offer.

        Justice Goethals presented the issue: "does a later offer to enter into a stipulated judgment on only one cause of action extinguish an earlier pending section 998 offer covering all causes of  action?" The answer is yes, the stipulated judgment did extinguish the earlier 998 offer. A different result would inject uncertainty into the 998 process.

 

Arbitration, Disclosures, Vacatur: Second District, Div. 7 Holds That Party Cannot Waive Right To Timely Object To Appointment Of An Arbitrator

Years Earlier, The Parties Had Agreed To The Appointment Of A Particular Arbitrator.

        Brothers Harry and Ted Soussos fought over control of  family business interests. Harry moved to compel arbitration, and Ted timely objected. The arbitrator refused to recuse himself, and Harry obtained an award in  his favor. The rub here is that several years earlier, Ted and Harry had agreed that in case future disputes arose, they would not object to the appointment of Judge John P. Shook (ret.) as the  arbitrator. After the arbitrator issued the award, Ted unsuccessfully sought to vacate it in the trial court. Did the earlier agreement not to contest the appointment of Judge Shook mean that Ted had waived the  right to object? 

        The right to timely object to the appointment of an arbitrator cannot be waived, holds the court in  Soussos v Soussos, No. B293358 (2/7   2/15/21) (Feuer, Perluss, Segal).

Arbitration, Automobiles, FAA, Public Policy: A "Satellite Service Facility" Agreement With Subaru Was Not Subject To Statutory Exception To Arbitration That Would Apply To Manufacturer-Dealer Franchise Agreements

Automobile Dealerships Are Subject To A Narrow Exception To Arbitration -- But The Exception Did Not Apply Here.

1958 Subaru 360. Licensed under the Creative Commons Attribution-Share Alike 3.0 Unported, 2.5 Generic, 2.0 Generic and 1.0 Generic license. Author: Mytho88.

        Who knew? Automobile dealer franchises are subject to a narrow statutory exception to arbitration under the Motor Vehicle Franchise Arbitration Fairness Act, 15 USC section 1226. The key issue in Subaru of America, Inc. v. Putnam Automotive, Inc., No. A159686 (1/2  2/10/21) (Kline, Stewart, Miller) was whether Putnam's "Satellite Service Facility" agreement to service Subarus was part of Putnam's franchise agreement as an automobile dealer with Subaru. Because the arbitrator construed the two agreements to be separate, rather than a single integrated agreement, Putnam did not fall under a statutory exception that would have allowed it to escape arbitration.

        Putnam also argued that forcing it to arbitrate was contrary to the public policy protecting dealers from mandatory arbitration. However, since the arbitrator and  the court concluded the service agreement was not a  dealer franchise  agreement, this argument did not prevail.

        COMMENT: The statutory exemption that allows dealers to avoid having to arbitrate with distributors or manufacturers of motor vehicles is a  narrow exception. Apparently it  exists to level the playing field between the dealers and  economically more powerful manufacturers and distributors. We surmise that, though they may have less economic clout than manufacturers and distributors, dealers nevertheless had enough influence in the legislative process to obtain the narrow carve-out from arbitration. While the same "level the playing field" logic might apply to consumers and borrowers seeking an escape hatch from mandatory arbitration, evidently they have been less successful obtaining legislative carve-outs from arbitration.

Arbitration, Public Injunctive Relief: 9th Circuit Holds Arbitration Provision Allowing For Public Injunctive Relief, While Prohibiting Private Attorneys General, Is Enforceable

Arbitration Provision Allowing For Public Injunctive Relief Does Not Violate McGill Rule.

        The so-called McGill rule states California’s legal requirement that contracts allow public injunctive relief. So what happens if a contract requires arbitration of disputes, provides for all remedies in arbitration, and further provides that the claimant cannot act as a private attorney general? Put another way, can a claimant request public injunctive relief in California, without acting as a private attorney general? If the answer is yes, the arbitration clause is enforceable. If the answer is no, the arbitration clause is not enforceable. Yes, says the Ninth Circuit in DiCarlo v. MoneyLion, Inc., et al., No. 20-55058 (9th Cir.  2/19/21) (Thapar, Bea, Collins).

        Plaintiff DiCarlo brought claims under unfair competition law, false advertising law, and the Consumers Legal Remedies Act law against a lender being accused of predatory practices. The lender MoneyLion successfully moved to compel arbitration, and the Ninth Circuit affirmed. The key to enforcing the arbitration provision is that it provided for all remedies, including public injunctive relief: "In California, litigants proceeding in individual lawsuits may request public injunctive relief without becoming private attorneys general. That means that public injunctive relief is available to DiCarlo in arbitration with MoneyLion. Since the arbitration provision does not violate the McGill rule, it is valid."

        COMMENT: What  happens to attorneys fees if the claimant, who is prohibited by the contract from suing as a private attorney general, is entitled to obtain relief under the UCL, FAL, or CLRA? Technically, this case may not answer the question, because Judge Thapar points out that the plaintiff did not ask for attorneys fees. Thus, any comments about attorneys fees would be dictum. "In any case, we have no reason to think that the availability of public injunctive relief could hinge on whether those fees are up for grabs," writes Judge Thapar, adding, "Nor do we read the Agreement to bar any claims that could support fee shifting in court."  And so?

 

Another Tip On Using Videoconferencing For Remote Mediations . . . Beware Of Errant Cat Filters

An Addition To My February 4, 2021 Post About Videoconferencing: Tips For Using Zoom For Remote Mediations.

        In what could have been an Abbott and Costello routine, had those comedians been born into the Age of the Internet and Zoom, a Texas judge and a hapless attorney had to grapple with the vagaries of a cat filter during a court call. So now we have one more tip for our profession's use of videoconferencing: beware the use of cat filters.

        Here's a link to the viral video demonstrating the infelicitous peril of feline interference: 

 

Above: Sketch of Edward Lear at age 73 1/2 and his cat Foss, age 16.

According to Wikipedia, Foss is also mentioned in Lear's poem "How Pleasant to Know Mr Lear":

He has many friends, lay men and clerical,
    Old Foss is the name of his cat;
His body is perfectly spherical,
    He weareth a runcible hat.

Arbitration, Public Policy: An Arbitration Provision Purporting To Waive Consumer's Right To Seek Public Injunctive Relief Is Invalid And Unenforceable

McGill Is Still Good Law.

        The action in Joe Maldonado v. Fast Auto Loans, Inc., G058645 (4/3  2/8/21) (O'Leary, Aronson, Thompson) centered on whether McGill v. Citibank, N.A., 2 Cal.5th 945  (2017) is still good California law and whether it has been preempted by the Federal Arbitration Act. McGill, which we posted about on April 6, 2017, held that an arbitration provision was invalid and unenforceable because it required consumers to waive their right to pursue public injunctive relief. See also the September 29, 2020 post on Mejia v. DACM Inc., 54 Cal.App.5th 691 (2020).

        Maldonado and others brought a putative class action alleging Fast Auto Loans, Inc. charged unconscionable interest rates on loans in violation of the  Financial Code. Fast Auto Loans moved to compel arbitration, based on a broad arbitration provision that  would have resulted in a waiver of class actions and the plaintiffs' ability to bring an action for public injunctive relief. The trial court held that the McGill rule made the arbitration provisions unenforceable, and the Court of Appeal affirmed the order denying the motion to compel arbitration.

        The Court of Appeal concluded that  McGill is good law. Fast Auto Loans' argument that FAA preemption applied foundered, because SCOTUS recently denied review of Ninth Circuit cases applying McGill, leaving the Court of Appeal to apply McGill, a case decided by the California Supreme Court.

        COMMENT: What is the reasoning that explains why McGill is not preempted by the  FAA?  "The contract defense at issue here—'a law established for a public reason cannot be contravened by a private agreement' (Civ. Code, § 3513)—is a generally applicable contract defense, i.e., it is a ground under California law for revoking any contract. . . . It is not a defense that applies only to arbitration or that derives its meaning from the fact that an agreement to arbitrate is at issue." McGill v. Citibank, N.A., 2 Cal. 5th 945, 962 (2017). In short, the defense does not unduly burden an arbitration agreement, because it would also apply to another contract.

 

Arbitration, Unconscionability: An Appellate Arbitral Review Provision Is Held Substantively Unconscionable, But Severable

Motion To Compel Arbitration Should Have Been Granted, And One Substantively Unconscionable Provision Was Severable.

        In Erendira Cisneros Alvarez v. Altamed Health Services Corp., B305155 (2/8   2/4/21) (Stratton, Bigelow, Grimes), the Court of Appeal reversed a trial court's order denying a motion to compel arbitration. The arbitration provision, which is part of an employer-employee contract, is found to be enforceable, while a provision requiring a second level of arbitral review is found to be substantively unconscionable but severable.

        Most interesting is the Court of Appeal's conclusion about the unfairness in the employer-employee context of a provision allowing for arbitral review of the  arbitrator's award. Why unfair? Because it was likely that only the employer would take advantage of this additional review, in case of a large award in favor of the employee; because it would add a layer of expense for the employee; because it would delay the ability of the employee to confirm an award; and because it was ambiguous, since it was unclear what rules for appellate arbitral review would apply. But since this was the only example of substantive unconscionability, the offending provision could be severed, and the arbitration provision could be enforced.

        COMMENT: The trial court held that the employee had not knowingly waived her right to a jury trial, and that in fact the word "jury" had not been mentioned in the relevant document. The Court of Appeal explained this was clear error, because "[t]he arbitration agreement does contain the word 'jury' and it uses the word as part of an express waiver provision ...." Twisting the knife, the Court added, "We are surprised by the trial court’s inability to find the word 'jury' or the jury provision in the arbitration agreement." Did this slip up motivate the Court of Appeal to review the case in considerable detail?

Videoconferencing: Tips For Using Zoom For Remote Mediation

Tips For Using Zoom For Remote Mediation

        Since the beginning of the pandemic, I have been conducting remote mediations with Zoom. Based on my experience with Zoom, I have collected tips for mediators, attorneys, clients, and other persons who will be participating in remote mediations conducted via Zoom. While a number of other  platforms have been used, Zoom still appears  to be the one most commonly used by mediators in  Southern California. Many of the tips, though based on my experience with Zoom, are applicable to other platforms. I invite readers to add to my list  of  "Tips" either by emailing me at [email protected], or by adding a comment to this post.

 

Mediation, Attendance, And Settlement: Parties Failing To Attend Probate Court-Ordered Mediation Could Not Complain About Settlement Reached By Participating Parties

Potential Beneficiaries Of Trust Received Notice, But Failed To Participate.

        After Don Kirchner died in 2018, the successor trustee of Kirchner's living trust found a document listing 24 charities with handwritten notes appearing to be percentages for  distributing the estate. The probate court confirmed the successor trustee and ordered mediation among interested parties. Apparently the parties received notice, but several parties, designated as the "Pacific parties," did not attend the mediation. The participating parties reached a settlement, the non-participating Pacific parties objected to the petition to confirm the settlement, and the probate court confirmed the settlement. The Pacific parties appealed. Breslin v. Breslin, B301382 (2/6  1/26/21) (Gilbert, Yegan, Tangeman).

        Affirmed. "The probate court has the power to order the parties into mediation. (See Prob. Code, section 17206 . . . .)" The dispositive case is Smith v. Szeyller, 31 Cal.App.5th 450 (2019), holding that "a party who chooses not to participate in the trial of a probate matter cannot thereafter complaint about a settlement reached by the participating parties." True, the Breslin case involved a mediation,  not a trial, but the mediation was  court-ordered, and parties receiving notice could not blow it off without consequences.

        COMMENT: An online obituary for Don Kirchner states,  "Don was a generous man who loved God, loved his wife, loved his country, and his dogs (especially Lola, who was with him through his retirement years)."

 

Arbitration, Unconscionability: Third District Agrees That Solar Power Lease Agreement Contained Unconscionable Arbitration Provision

The Court Avoided Deciding Whether The McGill Rule Applied.

        The Cabatits entered into a solar power lease agreement, and sued Sunnova Energy Corporation, alleging roof damage. The Court of Appeal affirmed the trial court's order denying Sunnova's motion to compel arbitration, because the arbitration provision was unconscionable. Cabatit v. Sunnova Energy Corporation et al., C089576 (3rd Dist.  1/29/21) (Mauro, Blease, Duarte).

        Sunnova forfeited arguing that the issue of enforceability had been delegated  to the arbitrator by failing to raise it in the  trial court. Substantive unconscionability existed because the agreement was one-sided, allowing Sunnova to file lawsuits, while requiring customers to arbitrate, and the one-sidedness was not justified and supported by a  showing of commercial need based on evidence. Procedural unconscionability existed because it was a "take it or leave it" contract of adhesion.

        Sunnova argued that the arbitration provision was conspicuous. However, as the Court  of Appeal explains, "[a] finding of procedural unconscionability is highly dependent on context." Here, the agreement was  presented by a salesperson on an electronic device. The salesperson showed the Cabatits where to sign, but did not point out or explain the arbitration provision, and the Cabatits were not given a  hard copy of the agreement.

        COMMENT: The trial court had also concluded that the contract was unenforceable under the rule announced in McGill, which held an arbitration agreement waiving statutory remedies under the Consumer Legal Remedies Act, unfair competition law, and false advertising law is unenforceable. The Court of  Appeal avoided the issue, since it agreed the agreement was unconscionable. Perhaps it also avoided the issue so as not to confront whether interstate commerce was involved, and whether the McGill rule was preempted by the Federal Arbitration Act?