California Mediation and Arbitration

Arbitration, Nonsignatories: First Dist. Div. 5 Holds Plaintiff Using Third Party To Exchange Cryptocurrency Is Not Bound By Arbitration Agreement Between Third Party And Cryptocurrency Exchange Platform

Just One More Thing To Worry About With Cryptocurrency.

        There are a number of ways in which a nonsignatory to an arbitration agreement can nevertheless find itself bound to arbitrate. Affirming the trial court, the Court of Appeal shoots down each of those ways in Pillar Project AG v. Payward Ventures, Inc., A160731 (1/5  5/24/21) (Simons, Needham, Burns). In this case, the facts are interesting, because the facts take us into the  brave new world of cryptocurrency.

        Plaintiff Pillar Project AG hired a third party Epiphyte to exchange Plaintiff's cryptocurrency for Euros. Epiphyte relied on an exchange platform of Payward Ventures, Inc., the Defendant, to convert Plaintiff's cryptocurrency to  Euros. By the end of the transaction, 4 million Euros belonging to  Plaintiff were stolen from Epiphyte's account. 

        Defendant Payward allegedly represented that it was the most secure platform for converting cryptocurrency. Plaintiff sued Payward for negligence and misrepresentation, which the Court notes, are claims that are likely independent of the contract between Payward and Epiphyte. Payward unsuccessfully tried to compel Plaintiff to arbitrate, relying on the arbitration agreement between Payward and Epiphyte. But Plaintiff was a nonsignatory to the arbitration agreement.

        The Court sets up and shoots down the various theories used to compel a nonsignatory to arbitrate: agency, third party beneficiary, and equitable estoppel. The most interesting analysis applies to the equitable estoppel claim that, because Plaintiff benefited from the agreement with the arbitration clause between Payward and Epiphyte, Plaintiff should therefore be bound to arbitrate. As the maxim of provides, one who accepts the benefits of a transaction must accept the burdens that go with it. However, here, the Court explains, the benefits that Plaintiff obtains from its contract with Epiphyte, with whom it is not litigating, are direct, whereas the benefits it derives from the contract between Epiphyte and Payward are indirect. The Court is not willing to extend the theory of equitable estoppel to indirect benefits, for that seems a  slippery slope -- how far down the chain of commerce do indirect benefits extend? 

 

Miscellaneous: Mediating Canine Clashes And Doggy Duals

For Those Who Do Have A Dog In The Fight . . . 

        I recently saw the following rule posted at the entrance to a dog park. It seemed like a constructive way to address dog and dog owner transgressions:

 

 

Oil painting: a rabid dog; by J. T. Nettleship. Wellcome Collection.

Arbitration, Employment, FAA: 9th Circuit Holds Private Arb Agreement Does Not Bind Labor Sec In Enforcement Action Against Parties To Their Own Arbitration Agreement

Liberal Arbitration Policy Of The FAA Doesn't Mean Nonparties Can Be Compelled To Arbitrate.

        The question in Walsh v. Arizona Logistics, Inc. and Larry Browne, No. 20-15765 (9th Cir.  18/21/2021) (Hunsaker, Fletcher, Miller) is "whether a private arbitration agreement binds the Secretary of Labor when bringing a Fair Labor Standards Act (FLSA) enforcement action that  seeks relief on behalf of one  party to the arbitration agreement against the  other party to the agreement." The district court answered nope, and the Court of Appeals affirmed.

        Walsh is Martin J. Walsh, suing in his capacity as Secretary of Labor, to enforce labor laws against Larry Browne and his companies Arizona Logistics and Parts Authority Arizona, an underlying issue being whether  the employees were improperly classified as independent contractors. The workers (that is a neutral term) had arbitration agreements with Browne's companies. Defendants argued that, because the Labor Secretary's enforcement action was brought on behalf of the  workers to obtain a monetary benefit for the  workers, it was actually covered by the arbitration agreements between the employer and the  workers.

        The district court and the Ninth Circuit both relied on EEOC v. Waffle House,  Inc., 534 U.S. 279 (2002) to conclude that the government entity that brought the enforcement action and controlled the action was not bound by the private parties' arbitration agreements. Though the enforcement action under the FLSA  results in financial benefits to individual plaintiffs, it is also for a public purpose, and does not only benefit the private parties.

        COMMENT: Note the similarity in reasoning between this case and California's PAGA cases, which hold that a Private Attorney General Act of 2004 action brought by employees to enforce California's labor laws is not  subject to arbitration. The reasoning in PAGA cases is that the claim really belongs to the  State of California, which is not a party to the arbitration agreement, just as the US Department of Labor is not a party to the arbitration agreement. Yet the US Department of Labor enforcement action is also different than the PAGA claim. The difference is that the FLSA enforcement action is brought by the Department of Labor, whereas the PAGA claim is brought by employees for the benefit of the people of California, as well as  the benefit of the employees. Evidently California legislators concluded that it would be more cost efficient, or at least politically prudent, to make use of private attorneys general, rather than appropriate more money to enforce the law.

Arbitration, Vacatur: Arbitrator's Inappropriate Ex Parte Communications Result In Vacation Of Arbitration Award

Plaintiff/Appellant Did Not Need To Prove That Arbitrator's Ex Parte Communications Led To Adverse Award.

        A rather unusual case, this. Joanna G. Grabowski, an in pro per plaintiff/appellant successfully vacated an adverse arbitration award in a malpractice arbitration she brought against Kaiser. Joanna G. Grabowski v. Kaiser Foundation Health Plan, Inc., et al, No. D076968 (4/1  5/10/21) (Guerrero, Benke, Do).

        The Court of Appeal agreed that the arbitrator's ex parte communications with Kaiser's attorney were not ethical, and that the nature of the communications was such that a reasonable person could have concluded that the arbitrator was incapable of being impartial. Speaking with Kaiser's attorney ex parte, the arbitrator commiserated that this was a difficult case, and that Grabowski, who represented herself in pro per, couldn't effectively represent herself. "The arbitrator volunteered these comments to Kaiser’s counsel, ex parte, and they shared a hearty laugh about Grabowski’s perceived shortcomings as an advocate." Additionally the arbitrator failed to disclose two Kaiser matters in which the arbitrator was selected to arbitrate. 

        The disclosure standard is not whether disclosure would have changed the outcome, but whether a person could have reasonably concluded that the arbitrator could not be impartial, based on the ex parte communication and the failure to disclose prior involvement with Kaiser.

        COMMENT: One might well ask how Grabowski knew about the ex parte communications, since she wasn't present when Kaiser's attorney spoke to the arbitrator. "Grabowski’s mother was recording the proceedings on her cell phone and had inadvertently left it going while she and Grabowski left the room." If the arbitrator had imagined that everything he said might be recorded, he might have been more careful.

 

Arbitration, Disclosures: Fourth District, Div. 3 Affirms Legal Principle, "You Snooze, You Lose."

Oh, The Pain.

        The appellant in Brian Alper et al. v. Pasquale Rotella, et al., G058088 (4/3  5/5/21) (Moore, Bedsworth, Aronson), sought to vacate an adverse arbitration award on the grounds that  the arbitrator, who was in great pain and took Percocet to ease the pain during the arbitration proceeding, was so impaired that the arbitrator could not properly perceive the evidence and was unable to properly conduct the proceeding. The reason this argument was rejected was that the appellant sat on his rights. Such objections should be made within ten days of when the arbitrator is assigned or expeditiously upon learning of the problem, not after an award is rendered.

        The trial court denied the petition to vacate on the  grounds of forfeiture. In the words of Justice Moore, who penned the Court of Appeal opinion, "Absent the legal jargon, the term 'forfeiture' essentially means: 'You snooze, you lose.' We agree with the trial court."