California Mediation and Arbitration

News: Is Mediation A Path To Settling The UC Strike?

To Mediate Or Not To Mediate.

        On November 14, 2022, the Los Angeles Times reported: "About 48,000 unionized academic workers across the University of California’s 10 campuses . . . walked off the job Monday morning, calling for better pay and benefits."

        Is mediation the path to resolution? “'At this time, we believe that the best path to an agreement is with the aid of a third-party mediator,”'Ryan King, a UC spokesperson, said in a statement Monday afternoon. 'We continue to encourage the union’s partnership in pursuing mediation.'”

        But Rafael Jaime, president of United Auto Workers Local 2865, representing 19,000 of the workers, had a different opinion. “'At this point, the priority should be round-the-clock bargaining in good faith as opposed to switching to a mediation process,' he said."

        COMMENT: Choosing, rejecting, or delaying mediation can be a strategic decision.

 

Jurisdiction, Delegation, Stay: NY Court Is Court Of Competent Jurisdiction To Rule On Motion To Compel Arbitration Involving California Lawyer

At Play: Applicability Of Labor Code § 925 And California Code Of Civ. Proc. § 1981.4.

        The scenario in Jinshu "John" Zhang, Petitioner v. Superior Court of Los Angeles, Respondent; Dentons US LLP et al, real parties in interest, B314386 (2/8  11/9/22) (Grimes, Stratton, Wiley), while not exactly common, is also to be expected. It involves a jurisdictional turf war arising from the circumstance that California employees generally prefer to litigate claims in court on their home turf, to wit, California, whereas employers prefer to arbitrate, and if the employee can be compelled to arbitrate out of state on the employer's home turf, so much the better. But was lawyer Zhang an "employee" of Dentons US, and who decides that question? -- there's the rub!

        The spat between Zhang and Dentons arose over a multi-million dollar contingency fee for a client Zhang brought to the law firm. The lawyer and the law firm had an agreement to arbitrate disputes in Chicago or New York. The arbitration agreement also included a delegation clause providing all issues of arbitrability are to be decided by the arbitrator. Dentons moved in NY to compel arbitration in NY, alleging claims for breach of fiduciary duty, and Zhang sued in LA Superior Court for wrongful termination and other causes of action. Petitioner Zhang moved to enjoin the NY proceedings, and Respondent Dentons moved to stay the LA proceedings pending arbitration in NY.

        Two statutory provisions are particularly relevant to the outcome. First, Labor Code § 925 provides that an employer cannot require, as a condition of employment, that an employee who primarily resides and work in California, agree to adjudicate a claim arising in California outside California. In other words, if Zhang is an employee, then he gets to adjudicate California claims on his home turf. 

        Here, Code of Civ. Proc. 1281.4 comes into play, for it allowed Dentons to argue in the LA court that it should stay its proceedings pending the arbitration in NY. Section 1281.4 provides in part: "If a court of competent jurisdiction, whether in this State or not [i.e., in NY],  has ordered arbitration of a controversy [in NY] which is an issue involved in an action or proceeding pending before a court of this State [California], the court in which such action or proceeding is pending [LA Superior Court] shall, upon motion of a party [Dentons] to such action or proceeding, stay the action or proceeding [in LA] until an arbitration is had [in NY] in accordance with the order to arbitrate or until such earlier time as the court specifies."

        Much of the argument centered on whether the NY court ordering arbitration was a "court of competent jurisdiction," with Zhang arguing that it could not possibly be competent to adjudicate the motion to compel arbitration if he was an employee, because Labor Code § 925 did not allow him as an employee to be forced to adjudicate a California employment claim outside of California. The obstacle that Zhang could not overcome was that the trial court in California, and our Court of Appeal, agreed that the arbitration clause "clearly and unmistakably" delegated issues of arbitrability, including a determination as to whether Zhang was an employee, to the arbitrator. And the court in NY was competent to decide that the issue was delegated to the NY arbitrator.

        COMMENT: If the NY arbitrator decides Zhang was an employee, then jurisdiction will belong in California. But if the arbitrator decides Zhang was not an employee, then the NY arbitrator will decide the merits of the dispute.

 

 

Award, Fees: Award Of Arbitrator Was Final And Could Not Be Changed By Later Efforts To Award Fees

Once The Arbitrator Determines All Issues Necessary To Resolve The Essential Dispute, The Arbitrator's Ruling Constitute A Final Award Under § 1283.4.

        The arbitrator issued an award, labeled neither final nor interim, on April 3, 2020, denying employee a finding of liability in her favor, and denying employee and respondent employer attorney's fees, on the grounds that employee's claim was neither frivolous nor meritless. After post-hearing briefing, the arbitrator awarded $53,705.43 in fees to employer on June 11 in a revised award. Finally, on June 29, the arbitrator issued a corrected final award of $73, 756.43. The employer then asked the trial court to confirm the award denying employee a finding of liability and awarding $73,756.43 to employer. The trial court confirmed the award, except as to the fees, and so the employer appealed in order to recover its fees. Elizabeth Taska v. The RealReal, Inc., A164130 (1/5  11/4/22) (Jackson, Burns, Wiseman).

        First, whether the award was labeled final, interim, revised, or corrected could not be dispositive, because the law values substance over form. Second, what was dispositive was that the initial award, issued on April 3, was in substance a final award: the arbitrator addressed the liability issue, ruling against the employee, and she addressed the fee issue, denying fees to the employer. Once she determined all issues necessary to resolve the essential dispute, the arbitrator had, in substance, issued the final award. She had no power, except on narrow grounds that were not present, to change her award. And so the Court of Appeal confirmed the trial judge's judgment.

        COMMENT: My colleague Mike Hensley and I have another blog entitled California Attorney's Fees. Our mission statement in that blog cites the words of  the late Justice Edward Wallin: "All too often attorney fees become the tail that wags the dog in litigation." 

Unconscionability, Severance, PAGA, Claim Preclusion: Second District Div 7 Holds Arbitration Agreement, Permeated With Substantive Unconscionability, Is Unenforceable

Trial Judge No. 1 Found The Arbitration Agreement Enforceable, No. 2 Found It Enforceable, And Court Of Appeal Agreed With No. 2.

        Chris Mills sued his former employer for disability discrimination and related employment claims. Employer FSG successfully enforced an arbitration agreement, the trial judge holding unconscionable provisions in the agreement were severable. An appeal followed, but that appeal is not the subject of this post. Mills also filed a class action lawsuit for labor law violations, including PAGA claims, and FSG again moved to compel arbitration, but in front of a different trial judge. Despite the fact that the arbitration provision under consideration was the same in both lawsuits, the second judge found the arbitration provision to be permeated by unconscionability, and refused to enforce it. The second judge's order is the subject of FSG's appeal. Chris Mills v. Facility Solutions Group, Inc., B313943 (2/7  11/1/22) (Feuer, Perluss, Segal).

        Of course, FSG argued claim or issue preclusion required trial judge No. 2 to accept the ruling of trial judge No. 1, who found the arbitration agreement to be enforceable. But there had been no final adjudication on the merits, because an order granting a motion to compel arbitration is not appealable, and review of the order must await appeal of the judgment confirming an arbitration award. [Note: our sidebar category is collateral estoppel/res judicata, admittedly no longer the favored terms of art, having been replaced by claim and issue preclusion.]

        The agreement, being a condition of employment, was adhesive and had aspects of procedural unconscionability. The arbitration agreement was also substantively unconscionable because it unfairly allocated costs and attorney fees to the employee, limited discovery, improperly barred tolling of the statute of limitations, and included an invalid waiver of representative PAGA claims.

        The last point, regarding invalid waiver of representative PAGA claims, is interesting in light of the SCOTUS ruling in Moriana v. Viking River Cruises, holding that California law invalidating contractual waivers of the right to assert representative claims under PAGA is preempted by the FAA, insofar as PAGA precludes division of actions into individual and representative claims. Because the court in Mills, however, did not require Mills to arbitrate, there was no need to divide his individual and representative claims: both could be litigated. Justice Feuer sides with Justice Sotomayor's concurring opinion in Moriana that even if the employee is required to arbitrate individual claims, under California law, the employee still has standing to bring a representative action. However, Justice Feuer does not need to decide the issue of standing, since Mills was not required to arbitrate.

        COMMENT: While acknowledging that there is no per se rule that severance can never be used if there is more than one item of substantive unconscionability, Justice Feuer explains why, as a matter of policy, the court should not sever and rewrite the contract here: "[U]pholding this type of agreement with multiple unconscionable terms would create an incentive for an employer to draft a one-sided arbitration agreement in the hope employees would not challenge the unlawful provisions, but if they do, the court would simply modify the agreement to include the bilateral terms the employer should have included in the first place."

Waiver: First District, Div. 2 Applies Federal Rule Governing Waiver Of The Right To Arbitrate

Because The Parties Agreed That The Federal Arbitration Act Applied, Applying The Federal Rule In Morgan v. Sundance, Inc. Was Necessary.

        When the first paragraph of an opinion tells us that the party seeking to compel arbitration waited 19 months to bring a motion to compel arbitration, the court has pretty much telegraphed that one way or another, it will find a waiver of the right to arbitrate. That was the case in Britani Davis v. Shiekh Shoes, LLC, No. A161961 (1/2  10/31/22) (Richman, Miller, Mayfield).

        Basically, the federal rule applied in Davis when determining whether a party has waived its right to arbitrate, because the parties agreed that the Federal Arbitration Act applied to the case. As set forth in Morgan v. Sundance, Inc.,  142 S.Ct. 1708 (2022), the federal rule asks whether the party seeking to compel arbitration has evinced an intent to forego arbitration by acting inconsistently with the right to arbitrate. In contrast, California courts have required a finding of prejudice to the party seeking to avoid arbitration before they will find a waiver of the right to arbitrate. Quach v. California Commerce Club, Inc., 78 Cal.App.5th 470 (2022).

        We now have a situation where, if the Federal Arbitration Act and Morgan apply, a California court will not require a finding of prejudice in order to find a waiver of the right to arbitrate. The FAA can apply if the parties contracted for it to apply, or if interstate commerce is involved. However, if the California Arbitration Act, Quach, and a long line of California cases apply, then prejudice may be determinative to a finding of waiver of the right to arbitrate. The California Supreme Court has accepted a petition for review of Quach, so perhaps we will find out if California will require prejudice in the future in cases where the FAA does not apply, or whether California will conform its case law to the federal rule.

        COMMENT: I have written two recent articles in the Daily Journal about the subject: Waiver of the right to arbitrate revisited (November 3, 2022) and The United States and the California Supreme Courts are not on the same page (June 10, 2022). The links to the article will work if you subscribe to the Daily Journal, which, alas, is behind a paywall.

 

Settlement: A 998 Settlement Offer Automatically Expires When Trial Court Orally Grants SJ

TL:DR -- The Headline Is What You Need To Know.

        "Does a 998 offer automatically expire when a trial court orally grants the offeror’s summary judgment motion? We hold that that answer is 'yes.' Because the trial court came to the same conclusion, we affirm." Ana Isabel Trujillo v. City of Los Angeles, B314042 (2/2 10/27/22) (Hoffstadt, Lui, Chavez).

        COMMENT: Busy practitioners like it when the Court of Appeal states the issue presented and its holding in the first paragraph. Don't bury the lede.

        

Miscellaneous: Note To Readers: We're Back !

Typepad Has Cured Its Problems.

        I have been using the Typepad platform since 2012 to post this blog. Typepad recently had problems with its system, and I stopped posting until I felt assured that the system was stable. Now the problems, whatever their origin, appear to be fixed. So I hope to catch up on my posting.