California Mediation and Arbitration

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Another Trip Around The Sun -- Happy New Year !

WELCOME! And Let Us Hope You Will Be A Real HAPPY New Year. Puck. 1895.

Delegation: Ninth Circuit Addresses How To State A Challenge To Delegation Of The Issue Of Arbitrability And How To Analyze Issue

Judge Eric D. Miller Agrees Majority's Analysis, But Disagrees That The Ninth Circuit Rule Is Any Different From The Rule In Other Circuits.

        Abraham Bielski has already made law in his case against Coinbase, Inc., a cryptocurrency exchange. Earlier this year, the Supreme Court held in Bielski's case that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. See our 7/03/23 post about the SCOTUS decision in Bielski v. Coinbase, Inc. In the newest iteration of Bielski v. Coinbase, Inc., 22-15566 (9th Cir. 12/5/23) (Mendoza (maj.), Sanchez, Miller (partially concurring)), the Ninth Circuit examined whether a delegation clause in Bielski's contract with Coinbase, Inc. effectively delegated the issue of arbitrability to the arbitrator. Bielski continues to make law, though not necessarily in his favor.

        In deciding the delegation issue, the Ninth Circuit decided three issues, two of which Judge Mendoza described as issues of first impression. 

        The first issue of first impression is how much must a party challenging a delegation clause do to successfully allege a challenge? The answer is that specifically mentioning the delegation clause and presenting arguments against its enforceability is sufficient. Judge Mendoza suggests, however, that some other circuits require more substance in the challenge than does the Ninth Circuit.

        The second issue of first impression is how should the court conduct its analysis? Should it just look at the delegation clause, or should it be able to interpret that provision in the context of the agreement as a whole? The answer here is that "the district court correctly considered the whole context surrounding the delegation provision in its analysis of the provision’s validity." 

        The third issue is whether the delegation clause was unconscionable -- not an issue of first impression. The court found that it was not unconscionable, and therefore reversed the  district court’s order denying Coinbase’s motion to compel arbitration.  

        COMMENT: Judge Miller partially concurred in the opinion. He agreed with the court’s holding that “'to sufficiently challenge a delegation provision, the party resisting arbitration must specifically reference the delegation provision and make arguments challenging it' and that 'a party may use the same arguments to challenge both the delegation provision and the arbitration agreement, so long as the party articulates why the argument invalidates each specific provision.' I do not join it, however, because I do not agree with the court’s characterization of the rule applied in other courts of appeals." In other words, he doesn't believe there is any real difference between the Ninth Circuit test and how other circuits address delegation.

        Based on the Ninth Circuit majority opinion, there would appear to be a split among the circuits, and thus a firm basis for Supreme Court review. Based on Judge Miller's dissent there would be no reason for the Supreme Court to consider the case again, and if it did do so, it might conclude, as did Judge Miller, that the Ninth Circuit rule is a difference without a difference.

Class: Ninth Circuit Finds Individual Bound To Arbitrate Is Not An Adequate Representative For Putative Class

The District Court Had Already Approved a Class Settlement Twice Over Objections.

        Lisa Kim, individually and on behalf of others, sued Tinder, alleging its pricing model was unfair. The district court approved the settlement -- twice. Objectors, however, contended on appeal that Kim, bound by an arbitration clause to individually present her claims in arbitration, was not a proper representative of the putative class. The Ninth Circuit panel agreed with the Objectors. "On remand, the only matter before the district court will be Kim’s individual action against Tinder, which has been compelled to arbitration." Kim v. Tinder, Inc., 22-55345 (9th Cir. 12/5/23) (Smith, Friedland, Miller).

        Judge Smith explained that as a party bound to arbitrate her claims, Kim did not have the incentive to litigate vigorously for the class. He also concluded that Kim failed to produce evidence she had litigated vigorously. And because her arbitration agreement could be subject to Texas law, she would not be able to represent litigants in California with Unruh Act claims.

        Close, but no cigar.

        BONUS: For a short video on the origin of the phrase "close but no cigar," click here. Readers who are not high-minded and who don't require a trigger warning can search YouTube on their own time for videos of Weird Al  singing Close But No Cigar.

Health Care, Unconscionability: First District Div. 3 Agrees Residential Care Facility's Arbitration Agreement Was Unconscionable

Health Care Facilities Continue To Generate Disputes About Enforceability Of Arbitration Provisions.

        Sometimes you can predict the conclusion in a court opinion after reading the recitation of facts. Here, the evidence pointed to a 74 year old women, suffering from dementia, who entered a residential care facility between December 29, 2022, and January 1, 2023, and who alleged that she had been sexually assaulted in the care facility. She had signed an agreement that was 44 pages long, and included several appendices and other material. The agreement and arbitration clause were in 8 to 10 point font, and included multiple and confusing signature blocks. The trial judge credited the testimony in the declaration of Haydon's daughter that Haydon had been placed under considerable time pressure to sign, under pain of losing a discounted price. The agreement also contained a confidentiality clause providing not only that the proceedings would be confidential, but also that the existence, contents, and results of the arbitration would remain secret -- a troubling provision in an Elder Abuse situation, as it would be in the interest of subsequent residential care applicants to know if the facility was implicated in elder abuse. Additionally, there were restrictions on discovery, and plaintiff was required to bear her own fees and costs, despite the nature of the consumer arbitration and Elder Abuse case. Small surprise that the trial court found the arbitration agreement to be unconscionable, and the Court of Appeal affirmed. Haydon v. Elegance at Dublin, A168767 (1/3  12/19/23) (Petrou, Fujisaki, Rodriguez).

        COMMENT: The opinion mentions that Haydon suffered from dementia. It does not, however, say that she was mentally incompetent. In a case where the record is developed and establishes incompetence, it should be unnecessary to address substantive and procedural unconscionability, for the issue would simply be whether a contract had been formed.

 

Health Care, FAA: Second District Div. 8 Holds That Health Net And County Arbitration Provisions Failed To Comply With Statutory Requirements

Health And Safety Code Section 1363.1 Is The Relevant Provision.

        Section 1361.1 provides that "[a]ny health care service plan that includes terms that require binding arbitration to settle disputes and that restrict, or provide for a waiver of, the right to a jury trial shall include, in clear and understandable language, a disclosure that meets" certain conditions. Among other things, there must be a clear statement as to whether the plan requires binding arbitration and the "contract or enrollment agreement for a health care service plan, the disclosure required by this section shall be displayed immediately before the signature line provided for the representative of the group contracting with a health care service plan and immediately before the signature line provided for the individual enrolling in the health care service plan."

        The requirements of § 1363.1 were at issue in Baglione v. Health Net of California, Inc., B319659 (2/8 filed 11/27 pub. 12/6/23) (Stratton, Grimes, Viramontes). The court holds that the requirements must be satisfied in the employee's enrollment form as well as in the contract between Health Net and the County of Santa Clara; that the requirement is for the benefit of the employee in the contract with the contract with the County, so that the employee has standing to sue if Health Net's agreement with the County did not meet the requirements; and that § 1363.1 will be strictly interpreted. Here, the statutory requirements were not satisfied.

        The court also rejected the argument that the FAA preempted the application of the California statute. The court explained: "'The McCarran-Ferguson Act deprives Congress of the power to invalidate state law “regulating the business of insurance.' (15 U.S.C. § 1012(b).) Section 1363.1 'does regulate the business of insurance within the meaning of McCarranFerguson'."

        Thus, there is no preemption, and the trial court's order denying the request to arbitrate is affirmed.

 

Stay, Burden Of Proof: First District Div. 5 Holds Defendant Is Entitled To Stay Litigation With Plaintiff Pending Pending Plaintiff's Arbitration With Another Party

Mattson Obtained The Stay Of Litigation Against Applied Material's Lawsuit Despite Not Having Arbitration Agreement With Applied Material.

        Preliminarily, our next case, Mattson Technology, Inc. v. Applied Material, Inc., A165378 (1/5  11/1/23) (Burns, Jackson, Simons), is somewhat confusing to read. Mattson is designated as plaintiff and appellant in the case heading, though Applied, which is designated as defendant and respondent, sued Mattson and Mattson's former employee Lai. We'll refer to Applied as plaintiff. Applied sued its former employee Lai and his new employer Mattson for misappropriating trade secrets, and also sued Lai for breach of his employment contract with Applied. 

     Mattson and Applied Material are head-on competitors. Applied accused Lai of downloading confidential information, wiping his phone, and lying about whether he had Applied confidential information when he left Applied's employment. 

       Lai successfully moved to compel arbitration with Applied based on his arbitration agreement with Applied. The trial court denied Mattson's efforts to arbitrate against Applied, because Mattson was not a party to the arbitration agreement. (In this respect, the case is factually similar to Waymo LLC v. Uber Techs, Inc., 252 F.Supp.3d 954 (2017)). Also, the trial court denied Mattson's request to stay litigation against Applied pending the arbitration with Lai, on the ground that the litigation against Applied was severable from Applied's arbitration and contract with Lai.

        The Court of Appeal reversed the denial of the request for a stay pending arbitration with Lai. "The party seeking severance under Code of Civil Procedure section 1281.4 has the burden of proving its claim is independent from the arbitrable matter." Applied did not meet its burden. Applied's claims against Mattson and Lai were not independent, because the claims depended on proof of misappropriation of trade secrets.

        COMMENT: The case shows that under some circumstances, Cal. Code of Civ. Proc. 1281.4, which is the basis for a mandatory stay pending arbitration, makes it possible for a party to obtain a stay pending an arbitration, though it is not a party to that arbitration. 

 

Miscellaneous: A Hike In Death Valley

A Break From Blogging . . . 

        Readers of this blog may have noticed that I took a break from blogging. During the break I hiked in Valley of Fire (NV) and Death Valley (CA). The photo above was taken in Death Valley in an area called "Artist's Palette".

MFAA, Deadlines: Missing Deadline For Serving Petition To Vacate Was Not Jurisdictional Under Mandatory Fee Arbitration Act

And The Court Also Decides An Issue Of First Impression Concerning Adequacy Of Service.

        The Appellate Division of the Superior Court, County of Los Angeles, addressed Mandatory Fee Arbitration Act (MFAA) issues in Folke v. Pulliam (10/6/23). In an employment dispute, Pulliam, the client, hired attorney Folke to assist Pulliam's attorney Akinyemi. Afterwards she arbitrated a fee dispute under California's MFAA with Folke, and received a favorable award. The MFAA offers clients an expeditious way to arbitrate attorney fee disputes, and if no one timely challenges the fee award, it becomes final.

        The fee award here became final after 30 days, because no one requested a trial de novo. However, one has 100 days after service of the award to file and serve a petition to confirm, correct, or vacate the award. Folke filed a petition to vacate within the 100 day limit. However, the trial court determined he did not serve the petition within the 100 day deadline, and because that was "jurisdictional", Folke was stuck with the adverse award.

        The appellate division decided two issues. First, it addressed an issue of first impression: whether the rules governing service of a petition to vacate in an ordinary arbitration applied to an arbitration under the MFAA. Specifically, the question here was whether service by mail upon Pulliam's attorney Akinyemi was sufficient, where there had been no appearance yet in the court proceeding. The answer is that mail service was not sufficient.

        Folke's fallback argument relied on equitable tolling. The trial court had rejected an equitable tolling argument on the ground that the 100 day deadline was jurisdictional. The Appellate Division rejected the argument that the deadline was jurisdictional. So Folke will get another bite of the apple.

    BONUS. The court states that the elements of equitable tolling are: "(1) timely notice to the opposing party, (2) lack of prejudice to the opposing party, and (3) reasonable and good faith conduct by the moving party." Folke argues that he made numerous good faith efforts at service.