California Mediation and Arbitration

Arbitration, Delegation, Unconscionability: CCA 4/3 Affirms Order Denying Motion To Compel Arbitration Because Of Flawed Delegation And Unconscionability

Substantive Unconscionability To Trip Over.

        This is a tragic case involving the death of a recently graduated UCLA engineering student in the throes of an acute psychotic episode. He was briefly in a care facility where the precariousness of his condition was recognized. Allegedly he required constant supervision, which was not provided, and he killed himself. When the young man's parents sued,  the facility moved to compel arbitration. The trial court denied the request, and the Court of Appeal affirmed. Brandon Nelson, et al. v. Dual Diagnosis Treatment Center, No. G059565 (4/3  4/19/22) (Goethals, O'Leary, Moore).

        Defendants argued that a broad arbitration clause had delegated the issue of arbitrability to the arbitrator. The court disagreed, finding the language of delegation less than "clear and unmistakable." (Note: because the presumption is that this threshold issue will be decided by a judge, the "clear and unmistakable" standard must be overcome to undo the presumption.)  Furthermore, there was contradictory language in the contract leaving areas of review to a court, and this undermined the argument that delegation of issues to the arbitrator was effective.

        On the issue of procedural unconscionability, the Court of  Appeal concluded, "the adhesive nature of the alleged contract, failing to provide Brandon with the AAA arbitrability terms on which Sovereign now relies while providing contrary terms in the emollment [?] agreement it drafted, and Brandon's impaired mental state all combine to result in a high level of procedural unonscionability." The court noted that during intake, Brandon could not focus and concentrate for more than 10 to 20 seconds at a time. Indeed, the court wondered, "how a 26-year-old man in the throes of an acute psychotic episode could be legally competent but, due to our dispositional analysis, we need not resolve that issue here."

        As to substantive unconscionability, the court observed: "Here, the contract imposed on Brandon not just a damages cap, but required a unilateral release of almost any conceivable claim he could assert against Sovereign."

        Best Line: The best line in the opinion was borrowed from the late Justice David G. Sills, who often had the best line: sometimes "substantive unconscionability was 'so present that it [was] almost impossible to keep from tripping' over it."

 

Arbitration, Unconscionability: CCA 2/2 Agrees Adhesive Contract Allowing Unfair Fee Shifting And Drastically Limiting Discovery Is Unconscionable

Joseph Merced Nunez v. Cycad Management LLC, B306986 (2/2  3/18/22) (Lui, Ashmann-Gerst, Chavez).

        Nunez, a gardener, sued Cycad for employment-related claims. Cycad moved, unsuccessfully, to compel arbitration. The Court of Appeal now holds: "Substantial evidence supports factual findings that the Agreement is adhesive because it was presented to Nunez as a nonnegotiable condition of his employment. It is procedurally unconscionable because it was given to Nunez in English, which he cannot read, without adequate explanation or a fee schedule. It is substantively unconscionable because it allows the arbitrator to shift attorney fees and costs onto Nunez and drastically limits his ability to conduct discovery."

        COMMENT: We have posted a number of times on cases in which the court finds that the inability of an employee to read the language in which a contract is written is a factor to be considered in a procedural unconscionability analysis. "Procedural unconscionability arises when an arbitration agreement 'was neither provided in a Spanish-language copy nor explained to respondents who did not understand written English.'" Penilla v. Westmont Corp., 3 Cal.App.5th 205, 209 (2016). Here are some things an employer could have considered doing: (1) provide a translation of the contract; (2) provide an oral explanation of the contract and arbitration provision in the language spoken by the employee; (3) obtain a receipt in the language spoken by the employee acknowledging receipt of the translation; (4) provide several days for the employee to review the contract before signing it. Perhaps the employer did consider taking those steps and simply viewed those steps as impracticable. I note that Nunez was hired before AB 51 went into effect, legislation aimed at preventing employers from requiring employees to enter into mandatory pre-dispute arbitration provisions. There are questions as to how effective this legislation is likely to be, and I refer readers to the article authored by Paul Dubow and me on AB 51, aimed at preventing employers from requiring employees to enter into mandatory pre-dispute arbitration agreements.

        Why is the shifting of attorney fees and costs onto Nunez a problem? Armendariz holds that the employee cannot be forced to pay costs that would not be incurred if the case were litigated in court rather than arbitrated.

 

Miscellaneous: Podcast Interview Of Marc Alexander And Mike Hensley On Subject Of California Attorney's Fees

California Appellate Law Podcast.

         My colleague Mike Hensley and I have published the California Attorney's Fees Blog since 2008. Tim Kowal and Jeff Lewis, the creators of the California Appellate Law Podcast, recently interviewed us on their podcast. Here's a link to the interview on Tim and Jeff's podcast. Thanks, Tim and Jeff, for the opportunity to participate on your excellent podcast. Our interview is the 28th episode on the podcast.

Arbitration, Waiver: Second District, Div. 8 Refuses To Collapse Test For Waiver Of Right To Arbitrate Into A Single "Prejudice" Test

Suggestion: Don't Wait Two Years To Bring A Motion To Compel Arbitration.

        The Court of  Appeal affirmed the trial court's order denying Appellants' motion to compel arbitration. Akira Kokubu, Plaintiff, Cross-defendant and Respondent, v. Takashi Sudo et al, Defendants, Cross-defendants and Respondents; Park Rolling Hills, LLC, et al., Defendants, Cross-complainants and Appellants, No. B310220 (2/8  3/30/22) (Harutunian, Grimes, Stratton).

        The leading case for determining whether a party has waived the right to arbitrate is St. Agnes Medical Center v. PacifiCare of California, 31 Cal. 4th 1187 (2003). St. Agnes (the case, that is), sets forth a six-factor test for determining whether a party has waived its right to arbitrate, and also explains that no single test delineates the conduct that will constitute a waiver of the right to arbitrate. 

        Appellants seemed to be urging that the Court of Appeal collapse the St. Agnes factors into a single "prejudice" test, but the Court of Appeal was having none of that. St. Agnes is a California Supreme Court case. And in any case, the court had no trouble finding prejudice as a result of appellants' conduct.

        Appellants took actions inconsistent with seeking the right to arbitrate. The lawsuit was filed in November 2018. The demand to arbitrate was first made in July 2019, at which time appellants also filed a cross-complaint without seeking a stay. Then they withdrew their demand to arbitrate. Not  until December 2020 did they file a motion to compel arbitration. And they participated in the litigation process, including a case management conference, motion procedure, seeking ex parte relief, and participating in discovery. While there is no single test for waiver, "you snooze, you lose," might be a good place to begin.

Arbitration, Internet Commerce: Fourth District, Div. 1 Enforces Arbitration Provision In Sign-In Wrap Contract

Sign-In Wrap Contracts Are Hybrids Of Browserwrap (Hard To Enforce) And Clickwrap (Easier To Enforce) Contracts.

        B.D., a minor, and his father sued the videogame company Blizzard, contending that the game Overwatch encouraged gambling. Specifically, they alleged Overwatch used “real money” to make in-game purchases of “Loot Boxes”—items that offer “randomized chances . . . to obtain desirable or helpful ‘loot’ in the game.” The trial court denied Blizzard's motion to compel arbitration. The Court of Appeal reversed, applying the test  in Sellers that the existence of a contract turns “on whether a reasonably prudent offeree would be on inquiry notice of the terms at issue.”  The Court of Appeal also held that whether the contract made public injunctive relief unavailable, such that  the arbitration provision could not be enforced under the McGill rule, was a gateway issue that had been clearly and unmistakably delegated to the arbitrator to decide. B.D. v. Blizzard Entertainment, Inc., D078506 (4/1  3/29/22) (Haller, Huffman, Irion).

        The decision is very fact specific. It seems to this reader that a little confusion was introduced by a screenshot of a pop-up that required clicking on a "CONTINUE" button to proceed. The visible part of the screenshot refers to a Dispute Resolution provision "below". However, because the screenshot in the opinion is static, one does not see the Dispute Resolution provision "below". And presumably B.D. and his father, looking at the pop-up, would not have seen the entire license agreement unless they scrolled through the pop-up. But the pop-up allows scrolling to the end, in which case one can read the entire Blizzard license, which contains a blue hyperlink to the terms of  the dispute resolution provision. The Court of Appeal believed there was a clear and unmistakable incorporation by reference of  the dispute resolution provisions. The Court also observed that Sellers and other decisions take context into account, and are more likely to enforce a sign-in wrap agreement when the commercial transaction involves a "continuing, forward-looking relationship," as was the case here with a minor who continued to play the game during several updates of  the agreement with Blizzard.

        COMMENTS: The plaintiff was a minor, and it is hard to believe that he was capable of giving consent. However, B.D. acknowledged that a parent or guardian had reviewed and agreed to the license agreement. Of course, it is a central principle that arbitration is  contractual, voluntary, and requires agreement. And that principle requires assuming responsibility for  reading a contract, understanding it, following an incorporation by reference, and reading and understanding the terms of the dispute resolution provision. Like the law of contract in general, the law governing enforceability of arbitration provisions relies on legal fictions. Justices of the Court of Appeal, after proper briefing, read the contract, understand it, follow the incorporation by reference, and read and understand the terms of the dispute resolution provision. Are you a gamer and do you do that? Are you a lawyer and a gamer, and do you do that? Are you a judge and a gamer, and do you do that at home, outside the courtroom?

        On April 5, 2022, we posted about the 9th Circuit decision holding a sign-in wrap agreement did not result in binding arbitration, Berman v. Freedom Financial Network. Because these cases concerning wrap contracts are fact-specific, we can expect to see more of them unless and until commerce uses standardized clauses that pass muster with the courts.

Arbitration, Award: Arbitrator Awards $175M To Monster Energy And Orange Bang

Los Angeles Arbitrator Awards $175M Plus Attorney's Fees Plus Royalty.

        Daily Journal Staff Writer Federico Lo Giudice reported the award on April 7, 2022 in an article entitled, "Arbitrator awards $175M to Monster in energy drink dispute." The arbitrator is Bruce A. Isaacs. The law firm representing the successful parties Monster Energy Co. and Orange Bang is Hueston Hennigan LLP.  The award also is reported to include an additional $10M in attorney's fees, and a 5% royalty on future drinks sold.

        Next step? Presumably Monster Energy and Orange Bang will move to confirm the monster award, and Vital Pharmaceuticals will oppose confirmation, arguing that the award is monstrous.

Arbitration Costs: Court Has Jurisdiction To Lift Stay On Litigation If Party In Arbitration Is Indigent

The Problem To Be Solved Is How To Achieve Equal Access To Justice.

        "Does a trial court that granted a defendant’s petition to compel arbitration have jurisdiction to lift the stay of trial court proceedings where a plaintiff demonstrates financial inability to pay the anticipated arbitration costs? If so, may the court require defendant either to pay plaintiff’s share of arbitration costs or to waive the right to arbitration? We answer both questions in the affirmative . . . " Gerald Aronow v. Superior Court of San Francisco (Respondent); Emergent LLP, et al (Real Parties in Interest), No. A162662 (1/4  3/28/22) (Ross, Streeter, Brown).

        The problem presented in Aronow occurs when a party to an arbitration cannot afford to pay for the arbitration. In this case, Aronow sued his former attorneys for legal malpractice. They responded by compelling arbitration and staying legal proceedings. Aronow sought to lift the stay, arguing he was in forma pauperis. The  trial court, noting that authority was divided over whether it had jurisdiction to remove the stay, did not do so, and certified the question to the Court of Appeal. The arbitration statutes do not address the scope of jurisdiction the trial judge has to terminate a stay on arbitration because of a party's failure to pay.

        The Court of Appeal in Aronow takes the  position that, in the case of an indigent party, the trial court should give the party seeking  arbitration the choice of paying plaintiff's share of costs or  waiving the right to arbitration. Otherwise, a person like Aronow who claims to be without financial resources would not have access to justice and would be unable to air his grievances.

        We note (as did the opinion), that there are numerous instances in which the courts waive fees for an indigent party. Examples include filing fees, court reporter fees, jury fees, fees for a court ordered reference, and bonds. What is different in the case of private arbitration is that there is no way to compel the private arbitrator to waive fees. So instead, the court in Aronow gives the party seeking arbitration the choice of paying fees or waiving arbitration.

        Is this inconsistent with requirements in the California and Federal Arbitration Acts that courts must allow arbitrations to be had according to the terms of the  arbitration agreement? Depends on how one interprets "had." If an arbitration is had when a claim to arbitrate is filed, and then it does not proceed in normal fashion because a party cannot pay, the court can conclude that an arbitration has been had.

        In Aronow, the court provides some help to the party seeking arbitration, Emergent, for it recognizes that limited discovery into the financial condition of  may be appropriate. If limited discovery into financial condition takes place, the court assures Emergent that it will not waive its right to arbitrate. Such discovery should occur early, before arbitration is compelled (well, not in this case). Also, the person claiming inability to pay may be able to establish financial condition with a declaration, exhibits, or a limited evidentiary hearing.

 

 

 

Arbitration, Discovery, Appealability: In An Uninsured Motorist Arbitration, The Only Way To Challenge A Discovery Order Before Judgment Is With A Writ

A Case Of First Impression.

        Unless you practice in this area, you may not  know that in an uninsured motorist arbitration between the motorist with uninsured motorist coverage and her insurance company, discovery disputes are addressed to the court, not to the arbitrator. State Farm Mutual Automobile Insurance Company v. Cora Robinson, A158467 (1/1  3/14/22) (Humes, Margulies, Banke). "The question of first impression here is whether trial court discovery orders in these proceedings are reviewable on appeal from a judgment confirming the arbitration award. We hold that they are not." 

        The bases for vacating a judgment are found in California Code of  Civ. Proc. § 1286.2 (vacatur). And unhappiness with the trial judge's discovery order is not among the bases. Here, the insured argued that 1286.2(a)(4) provided a reason for  vacatur. That section allows vacatur when the arbitrator exceeded the arbitrator's power, and the award cannot be corrected without affecting the merits of the decision. However, the insured's complaint here was not addressed to the arbitrator, but rather  to the judge's discovery order. So there was no statutory route for vacating the arbitrator's decision. 

        The insured alternatively argued that her appeal should be considered as a writ. But that was not  possible, once a judgment had already been rendered.

        COMMENT: Suppose the arbitrator, rather than the judge, had issued a discovery order, as arbitrators routinely do in other types of proceedings. How easy would it be to attack the arbitrator's order in an appeal of a judgment confirming the award? Not easy. The arbitrator's discovery order would be scrutinized under the same standard as the award, and awards are not set aside just because the  arbitrator makes a mistake of law or fact.

Arbitration, Agents: Residential Care Facility Failed To Establish That Father Was Bound By Son's Signature To Arbitrate

Based On Generally Applied Principles Of Agency, The Care Facility Failed To Establish Son Acted As Father's Agent.

        An elder care facility argued that aged father, who died of severe sunstroke while in care of facility, was bound to arbitrate by son's signature on Residency Agreement. The basic problem was that, though it was uncontested that the son signed the Residency Agreement with the arbitration provision, the elder care facility failed to establish that the son was acting as an agent for his father. Agency is ordinarily established by the words and acts of the principal, not the agent. And here, there was no power of attorney, and no evidence that the father, who had mild cognitive problems, had given authority to the son to enter into a binding arbitration agreement. The signature block did not show the capacity in which the son was signing. And the representative of the care facility did not discuss the Residency Agreement with the father. So the trial court's order denying a petition to compel arbitration was affirmed. Rogers v. Roseville SH, LLC, et al., No. C089561 (3d Dist.  3/4/22) (Mauro, Robie, Krause).

Mediation, Confidentiality, Settlement Agreement: CCA 1/2 Agrees Plaintiff Suing Doctor Failed To Perform Settlement Agreement After Mediation

Including Confidentiality Provision In Settlement Of Malpractice Lawsuit Did Not Violate Public Policy, Because Provision Did Not Prevent Reporting To State Medical Board.

        In Pappas v. Chang and Chang v. Pappas, Nos. A159792 and A160293 (1/2   3/3/22) (Richman, Miller; Kline, conc.), the Court of Appeal affirms the trial court in separate consolidated appeals. In Pappas v. Chang, the court affirms the trial court's denial of Pappas's efforts to enforce a settlement agreement, agreeing that Pappas failed to perform her part of a bargain by executing a confidentiality agreement in return for payment to her of $100,000. And in Chang v. Pappas, the Court of Appeal affirms the trial court's denial of Chang's request to recover attorneys fees, based on Pappas's denial of two requests for  admission.

        Helena Pappas sued Dr. Carolyn Chang, a SF plastic surgeon, for malpractice, and settled in mediation for payment to her of $100,000. However, the settlement agreement provide for execution of further settlement documents to include a waiver of Civil Code  § 1542, and a confidentiality provision. Chang was to pay $70,000.01, and her carrier was to pay $29,999.99. Attorneys, judges, and mediators will know that $30,000 is a magic number in malpractice actions, because settlements greater than $30K trigger a requirement to report to the California Medical Board. Pappas believed Chang was trying to use confidentiality to prevent her  from reporting to the Medical Board, and that would have violated Business and Professions Code §§ 2220.7 and 801.01. Pappas refused to executed a confidentiality provision unless paid an additional $425,000.

        The Court of Appeal reasoned that the way the settlement agreement was written, a confidentiality provision would not have prevented reporting to the Medical Board; that the settlement amount was $100,000; and that as worded, the settlement agreement did not hinder legal reporting obligations. Therefore, the settlement agreement agreement was enforceable, and Pappas failed to perform her  part, so she could not enforce the settlement agreement. Nor was the confidentiality provision severable, since it was agreed to and material.

        Because the requests for admission went to ultimate questions and Pappas denied them in good faith, Chang was properly denied attorney's fees.

        Justice Kline concurred, because in the end, the law had not been stymied. But he wrote separately, "because I feel my colleagues have not adequately described Chang’s and her lawyer’s repeated attempts to violate the Business and Professions Code and the whitewashing of those efforts by the trial judge."

        BONUS: "Blepharoplasty (Greek: blepharon, "eyelid" + plassein "to form") is the plastic surgery operation for correcting defects, deformities, and disfigurations of the eyelids; and for aesthetically modifying the eye region of the face." (Wikipdedia).

        COMMENT: Pappas might have spared some trouble by signing the confidentiality agreement, and receiving the $100,000. Perhaps she felt that she achieved some measure of victory by making her unhappiness with Chang a matter of public record in a published opinion. The concurring opinion gives her some measure of vindication. At the same time, it is now a matter of  public record that Pappas may be unhappy about the outcome of her cosmetic surgery.