California Mediation and Arbitration

First District, Div. 1 Affirms Order Denying Petition To Compel Arbitration Because Defendant Failed To Establish Existence Of Arbitration Agreement

No Evidence Of Signed Agreement.

        Bruno Fleming sued Oliphant Financial for allegedly violating the California Rosenthal Fair Debt Collection Practices Act. Oliphant unsuccessfully petitioned the trial court to compel arbitration. The Court of Appeal affirmed the trial court's order denying Oliphant's petition to compel arbitration. Fleming v. Oliphant Financial, LLC, A165837 (1/1  1/31/23) (Devine, Humes, Margulies).

        Oliphant failed to meet its burden of establishing the existence of an arbitration agreement. Fleming had signed a credit card application, but apparently there was a lack of evidence that he had signed an arbitration agreement or that he had received one. 

        This is pretty basic stuff. Rejecting Oliphant's efforts to finesse the threshold issue, the court addresses a few points.

• • As the party moving to compel arbitration, Oliphant had the burden of proof of establishing that the parties agreed to arbitrate.
  • An argument that the arbitration agreement delegates the question of arbitrability to the arbitrator fails if the arbitration agreement doesn't exist.
  • Contract formation will be addressed under state law.
  • The court, not the arbitrator, gets to decide whether an agreement to arbitrate exists.
  • Oliphant's choice-of-law argument that the arbitration agreement requires the application of Delaware law fails if there is no arbitration agreement.

 

 

Waiver: Fourth District Div. 2 Holds Lengthy Delay And Failure To Timely Take Affirmative Steps To Arbitrate Results In Waiver Of Right To Arbitrate

Thirty-Nine Page Slip Opinion Hinges On Issue Of Waiver.

        The Court of Appeal addresses a variety of issues in the context of a complicated procedural history in Desert Regional Medical Center v. Leah Miller and Desert Regional Medical Center v. Lynn Fontana, E076058 and E076069 (4/2  1/6/23) (Codrington, Ramirez, Raphael). 

        The procedural history was complicated by the overlapping pendency of a collective bargaining grievance procedure and the lawsuits brought by individual employees, who were employees at the Desert Regional Medical Center (DRMC). Did the individual actions need to be stayed while the union procedure was exhausted? Did the arbitrability of these cases need to be decided by the court or the arbitrator? Did the Federal Arbitration Act or the California Arbitration Act apply? Did the Labor Commissioner have jurisdiction to hear claims brought by the employees, or did the claims need to be arbitrated? Were the employees estopped from arguing that the employer waived the right to arbitrate? Was prejudice necessary to find a waiver of the right to arbitrate? Interesting questions, but in the end the outcome hinged on whether the employer waived the right to arbitrate.

        In the end, the Court of Appeal affirmed the trial court's order denying a motion to arbitrate, agreeing that the employer waived its right to arbitrate. There was an issue as to how long the employer had delayed bringing a motion to arbitrate. That delay was at least a year, possibly up to four years. The court concluded that even during a one year delay, the employer acted inconsistently with asserting a right to arbitrate by engaging in further litigation procedure.

 

 

 

Arbitration, Enforceability: No Agreement Where Company Was Unable To Establish Automatic Sending Of Electronic Receipt

Existence Of Agreement Was Not An Issue To Delegate To Arbitrator.   

              Fiona Trinity sued Life Insurance Company of North America and individuals (LINA parties) for employment-related claims. The LINA Parties moved unsuccessfully to compel arbitration in the trial court, and the Court of Appeal affirmed. The LINA parties could not establish the existence of an agreement to arbitrate, and even if they could, the agreement would have been unconscionable. Trinity v. Life Insurance Company of America et al., B312302 (2/7  5/23/22) (Perluss, Segal, Feuer).

        The defendant's PMK had testified as to the contract procedure, explaining that  once the employee had  clicked on a link indicating he or she had read an online employee handbook, which included an arbitration agreement, they would receive an email confirming their assent to the terms of the handbook. The problem was that the employer could not produce the automatically generated receipt and did not know how to retrieve it, and the employee did not remember reading or agreeing to the handbook. 

        While issues of arbitrability were delegated to the arbitrator here, whether there is an agreement to arbitrate in the first place is an issue for the judge to decide. The issue of arbitrability cannot be delegated under the terms of a nonexistent agreement.

        COMMENT: In the 21st century, there is still at least one advantage to the use of a paper document with an inked signature. Electronic signing is permissible, but then one must carefully follow procedure and have a good storage and retrieval system for electronic data.

Arbitration: Fourth District Div. 2 Addresses Issues Of Unconscionability, Delegation, Severability, And Fraud In Employee Arbitration Agreement

Ineffective Delegation Clauses, Fraud In The Execution, And Unconsciconability Result In Reversals.

        In Najarro v. Sup. Ct. of the County of San Bernardino; Horizon Personnel Services Inc., et al, E076328   (4/2  10/22/21) (Raphael, Codrington, Slough), the court does plenty of slicing and dicing, because there  are two arbitration agreements, two sets of employees, employees who read Spanish, employees who don't read Spanish, a valid delegation clause, an ineffective delegation clause, evidence of unconscionability, and undecided issues of procedural unconscionability. It's a lengthy opinion, and here is the  court's own summary: "Because the first version [of the arbitration agreement] does not clearly and unmistakably delegate questions of arbitrability to the arbitrator, we grant the writ petition as to the employees who signed that version. As to two of these employees, the trial court must decide whether this first version is unconscionable, guided by our discussion below. As to the other two employees who signed this version, we find that the arbitration agreement is unenforceable for the separate reason of fraud in the execution. We also find that fraud in the execution voids the agreement for two of the employees who signed the other, second version of the arbitration agreement."

        COMMENT: One interesting takeaway is that a delegation clause that delegates issues to the arbitrator to decide may stumble and become ineffective if it is coupled with a severability clause allowing a court to decide some issues. So delegation clauses and severability clauses can interact and must therefore be drafted with care. A second takeaway is that when, as here, there was evidence as to some employees of fraud in the execution that was not rebutted, the court can decide there was no agreement to arbitrate, and need not move on to decide other defenses such as unconscionability. And a  third takeaway is that when the employees speak a foreign language (here, Spanish), or are illiterate, the courts have heightened awareness of the issue of procedural unconscionability.

Arbitrability, Delegation, Enforceability, Jurisdiction, Unconscionability: A Trifecta of Ninth Circuit Published Opinions

August 12, 2021 Was A Day Rich In 9th Circuit Arbitration Decisions.

Santiago Lim v. TForce Logistics, LLC, No. 20-55564 (9th Cir.  8/12/21) (Smith, Owens, Robreno).

        This case is about the gateway decision of arbitrability, delegation of that decision, and unconscionability. The panel holds that the delegation and arbitration clauses are procedurally and substantively unconscionable. Because the delegation clause is unconscionable, the court, not the arbitrator, gets to decide whether the arbitration clause  is enforceable, and agrees that that too is unconscionable. The provisions are "take it or  leave it", require costs splitting between the employer and the purported "independent contractors", call for  fee-splitting, and have a Texas venue provision.

CLMS Management Services LP v Amwins Brokerage of Georgia, 20-35428 (9th Cir. 8/12/21) (Christen, Hawkins, McKeown).

        This case presents an international law question: does the doctrine of reverse-preemption apply to a clause in an insurance contract, such that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a multilateral treaty, is  preempted by a Washington State rule that arbitration clauses in insurance contracts are not enforceable? Ordinarily, state law applies to insurance contracts, and in fact the McCarran-Ferguson Act can operate to reverse-preempt laws that contradict state law. However, in the case of treaties, a rule applies that  treaties that are "self-enforcing" are not preempted by state law. What does that  mean?

        A treaty is "self-enforcing" if it can be directly enforced in court  without the need for implementing legislation. The panel holds that the Convention the the Recognition and Enforcement of Foreign is self-enforcing. And therefore, reverse preemption does not  apply. And because Washington State law cannot be applied to invalidate the arbitration provision, it is enforceable.

Al-Qarqani v. Chevron, No. 19-17074 (9th Cir. 8/12/21) (Thomas, Kelly, Miller). 

        No small potatoes here, as the panel affirms the district court's refusal to allow enforcement of an $18,000,000,000 Egyptian arbitration award against Chevron. The core ruling is about jurisdiction.

        The heirs of an official who entered into a land concession agreement with Chevron in 1949 claimed entitlement to rent, and evidently the Egyptian arbitrators agreed. But when it  came time to petition to enforce the arbitral award under an arbitration agreement entered into earlier in 1933, the district court held that the parties never agreed to arbitrate, and therefore it denied enforcement on the merits.

        The Court of Appeals held that the  heirs had failed to make a non-frivolous argument for jurisdiction as to Chevron USA, which was not named in the Egyptian award, and because no non-frivolous argument for jurisdiction had been made, the Court could affirm the dismissal for lack  of subject-matter jurisdiction. (If the heirs had made a non-frivolous argument in favor of jurisdiction, then the Court would have assumed subject-matter jurisdiction).

        As to Chevron Corporation, the facts were a little different. The 1949 agreement failed to incorporate the 1933 arbitration agreement. As for the 1933 agreement with the arbitration clause, it had been signed by Saudi Arabia, not the heirs, and Chevron Corporation's rights and obligations under that earlier agreement had expired. The absence of an agreement to arbitrate was a reason to dismiss the petition to enforce the award on the merits rather than for a lack of jurisdiction

 

 

 

Arbitration, Enforceability, Delegation: Ninth Circuit Holds Collective Bargaining Agreement As Drafted Did Not Cover Statutory Claims

Ninth Circuit Agrees With District Court That  Labor Dispute Was Not Arbitrable And That Arbitrability Was Properly Decided By The Court.

        In Tramon Wilson-Davis v. SSP America, et al., B306781 (2/3  4/9/21) (Edmon, Lavin, Egerton), a dishwasher sued his employer, individually and behalf of a putative class, for wage and hour violations. A collective bargaining agreement with an arbitration provision existed between Wilson-Davis's union and his employer, so the employer moved to compel arbitration. The district court held that the dispute was not arbitrable, and the Ninth Circuit affirmed, in a  decision originally filed on 3/11/21 and later certified for publication.

        The motion to compel arbitration failed because: "The collective bargaining agreement ... provides for arbitration of claims arising under the agreement, but it does not waive the right to a judicial forum for claims based on statutes." Also, the parties did not  "clearly and unmistakably" delegate to an arbitrator a determination about whether the  matter was arbitrable.

 

 

 

 

Arbitration, Vacatur, Illegality, Fees: Second District, Div. 8 Holds That Arbitrator Could Decide Contract Was Illegal

Who Decides Illegality Of A Contract, The Arbitrator Or The Court?

        Michael Bacall, an actor, was represented by Jeffrey Shumway, an attorney, who provided "legal/management services and [Chief Content Officer] services." Bacall alleged Shumway failed to disclose he was "inactive" with the State Bar, and Bacall terminated the contract with Shumway and his company Timaeus. Timaeus filed a demand for arbitration with the AAA, and Bacall filed a complaint asserting various claims, including breach of contract and rescission. The trial court granted the motion to arbitrate (be careful what  you ask for), and the arbitrator issued an award requiring Shumway and Timaeus to return $201,025.82 to plaintiffs/respondents Bacall and his company RBC Entertainment, and also to pay them $237.607.25 in fees and costs.

        Shumway and Timaeus appealed. Michael Bacall et  al. v Jeffrey Shumway et al., B302787 (2/8  3/16/21) (Ohta, Grimes, Wiley).

        The chief argument by Shumway was that it was the duty of the court, not the  arbitrator, to review the legality of the contract. This was somewhat curious, given that it was Bacall who filed a lawsuit and Shumway who successfully moved to compel arbitration. Shumway relied on a  case, Loving & Evans v. Blick, 33 Cal.2d 603 (1949), in which a party sought to vacate an arbitration award on the basis the arbitrator enforced an illegal contract, and the California Supreme Court held the arbitrator who enforced an illegal contract exceeded his  powers. Why? An arbitrator who enforces an illegal contract presumably has no rights and powers conferred under the contract. But the Loving case did not convince the court here, because the situation was the opposite: instead of enforcing an illegal contract, "the arbitrator severed the unlawful legal services rendered on a contract that Respondents had terminated . . . and allocated damages accordingly."

Russian-made antipersonnel mine in Cambodia. Creative Commons License.

        Another aspect of the case concerning legal fees is troubling as an example of the landmines litigators can step on in arbitration. Shumway alleged the arbitrator engaged in misconduct by denying an opportunity to address issues related to attorney fees and costs. After the arbitration hearing, Bacall requested attorneys fees and costs and submitted billing records. Shumway's counsel wrote to the arbitrator that arbitrators typically entertain such requests after an award has been rendered. The arbitrator wrote back: "Consideration of attorney fees will not take place until the case is decided and a prevailing party is determined. Anything submitted in that regard will not be read until then." Shumway did not submit a response, and the arbitrator's final award also included the fee award. 

        Evidently Shumway felt sandbagged by the arbitrator's response. But the Court of Appeal disagreed, though it  did acknowledge, "the arbitrator's response was vague," and that one might not know best how to argue the attorneys fees issue before one knew who would be the prevailing party However, the court pointed out that the  arbitrator had not never explicitly ordered that Shumway could not file an opposition before the arbitrator addressed fees and costs. 

        COMMENT: Regarding the briefing of the fees and cost issue, the Court explained, "the onus was on Appellants to seek clarification, which they failed to do." Good advice -- and a painful lesson.

 

Arbitration, PAGA, Delegation: Second District, Div. 5 Holds That Question Of Whether Plaintiff Is "Aggrieved Employee" Under PAGA Cannot Be Delegated To Arbitrator

Efforts By Employers To Have An Arbitrator Decide A Dispositive Part Of A PAGA Claim Continue To Founder.

The wreck of the Atlantic. c1873. Currier and Ives. Library of Congress.

        The Court of Appeal holds that the delegation of the question whether plaintiffs are "aggrieved employees" to an arbitrator frustrates the purpose of the Private Attorneys General Act of 2004, and is therefore prohibited under California Law. Robina Contreras et al. v. Superior Court of Los Angeles, Respondent; Zum Services, Inc., Real Party in Interest, B307025 (2/5  3/1/21) (Rubin, Baker, Moor).

        Contreras and Ets-Hokin alleged Zum misclassified them as independent contractors rather than employees, and committed PAGA violations. Zum, however, argued that an arbitration agreement required the parties to arbitrate, and that under applicable JAMS rules, the parties were required to arbitrate the issue of arbitrability. Zum further argued that the issue of arbitrability turned on whether the plaintiffs were "aggrieved employees." If the arbitrator determined plaintiffs were aggrieved employees, then the case could be litigated in court. But if the arbitrator decided the plaintiffs were not "aggrieved employees", because the plaintiffs were independent contractors instead, then there would be no need to litigate the PAGA claim. The trial court agreed with Zum that the issue of whether plaintiffs were "aggrieved parties" was an issue of arbitrability that had been delegated to the arbitrator to decide.. Plaintiffs sought a writ of mandate, and the Court of Appeal issued a peremptory writ directing the trial court to vacate its order granting the motion to compel arbitration, and issue a new order denying the motion.

        California courts have held that employees cannot be forced to arbitrate PAGA claims, unless the state consents, because PAGA claims are like qui tam claims, and the  ultimate holder of the claim is the state, which is not a party to the agreement to arbitrate. Like efforts to split a PAGA claim, Zum's effort to delegate to the arbitrator the narrow issue of whether the plaintiffs were "aggrieved employees" is an effort to delegate a dispositive issue of the entire PAGA claim to an arbitrator. Just as California Courts of  Appeal have not allowed the splitting of PAGA claims, the court in Contreras would not allow the delegation of a narrow issue that was in fact dispositive of the entire PAGA claim to the arbitrator. "We agree with the chorus that in California, a PAGA plaintiff may not be compelled to arbitrate whether he or she is an aggrieved employee."

Arbitrability: 9th Circuit Holds Court Decides Arbitrability Of Collective Bargaining Agreement Silent About Arbitrability

Commercial Arbitration And Labor Arbitration Agreements Are To Be Analyzed The Same Way.

American Nurses somewhere in England, November 2018. Library of Congress.

        When the agreement is silent about who decides whether a dispute is arbitrable, does the court or the arbitrator decide? The court decides. However, 9th Circuit case law created an exception in the case of collective bargaining agreements: if the arbitration provision is broad, then the arbitrator gets to decide. United Bhd. Of Carpenters & Joiners of Am., Local No. 1780 v. Desert Palace, Inc., 94 F.3d 1308 (9th Cir. 1996). And so in a  case where it was undisputed that the arbitration clause was broad, the district court, analyzing the motion to compel arbitration brought by a union representing nurses with grievances, held, consistent with 9th Circuit law, that the arbitrator would get to decide. Defendant, a medical center, appealed. SEIU Local 121RN v. Los Robles Regional Medical Center, No. 19-55185 (9th Cir.  9/18/20) (Van Dyke, Callahan; Dsst. Lee).

        Though district court did not believe that it could overrule 9th Circuit case law, that was not a problem for  the 9th Circuit, which concluded that the district court, rather than the arbitrator, was responsible for determining whether the grievance filed by the union was arbitrable. The panel majority held that Desert Palace was no longer good law, because Desert Palace, Inc. is “clearly irreconcilable with the reasoning or theory of intervening higher authority” set forth in Granite Rock Co. v. Int’l Bhd. Of Teamsters, 561 U.S. 287 (2010), requiring that labor arbitration and commercial arbitration disputes be analyzed the same way.

        Judge Lee dissented, believing Granite Rock did not impliedly overrule Desert Palace, because the two cases addressed different issues.

Arbitration: On Issue Of First Impression, 9th Circuit Holds Arbitration Obligations Survived Contract Termination

Shivkov v Artex Risk Solutions Arises From Tax Shelter Gone Sideways . . .

        The numerous Plaintiffs in Shivkov, et al v. Artex Risk Solutions, Inc., et al, No. 19-16746 (9th Cir.  9/9/20) (Smith, Fisher, Hawkins), probably felt that the Artex Risk Solutions was a misnomer by the time they brought suit. Defendants allegedly set up and managed "captive" insurance companies owned by Plaintiffs, to which Plaintiffs paid insurance premiums, claiming the insurance premiums as tax-deductible business expenses without recognizing them as income. Evidently the IRS had other ideas, for as the Court of Appeals wryly observes, "Although this arrangement offered the prospect of tax benefits, that prospect proved fleeting." After having to deal with an audit, delinquency notices, and threatened penalties, Plaintiffs brought suit against Defendants, alleging that the captive insurance companies "were illegal and abusive tax shelters, about which Defendants failed to inform or  advise Plaintiffs." Risk solutions too good to be true?

        Defendants, including some non-signatories, moved to compel arbitration, the trial court granted Defendants' motion to compel, and Plaintiffs appealed.

        The most interesting part of the opinion is "an issue of first impression in our circuit concerning the survival of arbitration obligations following contract termination," as to which the Court of Appeals holds: "the Agreements do not expressly negate the presumption in favor of post-termination arbitration or clearly imply that the parties did not intend for their arbitration obligations to survive termination." So the arbitration obligations survived. If arbitration obligations did not regularly survive contract termination, a party could always avoid arbitration by terminating a contract.

        The Court also held that Arizona state law recognized no fiduciary duty to point out and fully explain an arbitration clause. The arbitration clause encompassed all Plaintiffs' claims here. The availability of class arbitration was a gateway issue to be decided by the court, because there was no "clear and unmistakable" delegation of that issue to the arbitrator. And because the agreements were silent about class arbitration, they did not permit class arbitration. Finally, non-signatories, who were sued for alleged wrongs that arose from the contracts between the parties that Plaintiffs relied upon to bring suit, could invoke the arbitration clause.

        Affirmed.

        COMMENT: The slip opinion is 36 pages long. I appreciate the Court's concise enumeration of  its resolution of the issues at the beginning of the opinion.