California Mediation and Arbitration

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.

Arbitration, Celebrities, Delegation: Second District Div. 2 Explains No Authority Permits Sending Matter To Arbitration Simply Because Parties Agreed To Arbitrate Different Matter

A Case To Read On The Limits Of The Delegation Doctrine.

        Neal Moritz, the film producer and industry executive associated with the Fast and Furious (FF) franchise, sued Universal City Studios LLC and others for breach of an oral contract and promissory estoppel after the distributor allegedly removed him as lead producer of the FF spinoff, Hobbs & Shaw. Defendants moved unsuccessfully to compel arbitration, and appealed the order denying the motion to arbitrate. Neal Moritz v Universal City Studios LLC, et al. B299083 (2/1  9/2/20) (Chaney, Rothschild, Bendix).

        Moritz had entered into several FF film contracts with arbitration clauses. Appellants argued first, that the court compel arbitration of the threshold question of arbitrability, based on delegation provisions in any arbitration clauses in the FF contracts. Alternatively, if the Court of Appeal decided it had jurisdiction to decide arbitrability, then it should compel arbitration, because the dispute "related to" one or more of the FF contracts.

        The interesting part of the case, which perhaps explains why it is published, is the discussion in footnote 2, and in the body of the opinion, about the so-called "wholly groundless" doctrine. If there is a valid delegation clause, i.e., clear and convincing evidence establishes that the parties intended to delegate a decision about arbitrability to the arbitrator, then the fact that the arbitrability argument itself is "wholly groundless" does not mean that the decision can't be delegated to the arbitrator. Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524 (2019). This, at least, is the rule under the Federal Arbitration Act, and it was undisputed that the FAA governed the case.  Avoiding whether the "wholly groundless" rule might still be good California law, the Court of Appeal explains that "Schein presupposes a dispute arising out of the contract or transaction, i.e. some minimal connection between the contract and the dispute. That is so because under the FAA, contractual arbitration clauses are 'valid, irrevocable, and enforceable' if they purport to require arbitration of any 'controversy thereafter arising out of such contract.'" Such was not the case here, because Hobbs & Shaw was not the subject of the earlier FF contracts. The FF contract relied upon by appellants applied to "remakes" or "sequels", and the court states that Hobbes & Shaw was neither.

        Does this mean that the Court of Appeal has smuggled the "wholly groundless" exception in through the back door by using different words to say that appellant's arbitrability argument was "wholly groundless"?  We don't think so. There still needs to be "some minimal connection between the contract and the dispute." Just because the parties entered into a contract providing for the delegation of arbitrability issues and covering prequels and sequels doesn't mean the delegation of arbitrability issues applies to a film, if it is undisputed that the film is neither a prequel nor a sequel. 

        Affirmed.

        COMMENT: Unless the matter now settles, the parties will get to litigate whether an oral contract isn't worth the paper it's written on.

       COMMENT ON COMMENT: Did Samuel Goldwyn really say that an oral contract isn't worth the paper it's written on? Quote Investigator tells us that he disavowed this, and many other malapropisms attributed to him. In fact, this witticism has been floating around since the 19th century.

Samuel Goldwyn by photographer Arnold Genthe. 1919 or 1920. Library of Congress. 

 

 

Arbitration, Unconscionability: Two Trial Courts Deny Motions To Compel Arbitration, Two Courts Of Appeal Affirm

Elders In Both Cases . . . 

Arbitration And An Elder Abuse Act Case.

        Dougherty v. Roseville Heritage Partners, et al., C087224 (3rd Dist. 3/30/20) (Krause, Murray, Hoch) is another of the many elder care facility cases in which the enforceability of an arbitration clause is at issue. Here, the trial court denied the defendants’ motion to compel arbitration of claims brought on behalf of a 89-year old man, and the Court of Appeal affirmed.

        The arbitration provision was held to be procedurally unconscionable, and a contract of adhesion, because the provision was part of 70 pages of documentation presented to the patient’s daughter at the time of admission, she was hurried, and she conveyed to the facility’s administrator that her father, who was suffering from dementia, had no alternative to the facility. 

        The Court of Appeal also held that the provision was substantively unconscionable because it limited discovery. While a limitation of discovery is not per se substantively unconscionable, the Court explained that it could be where statutory rights were at issue, as with the Elder Abuse Act, which provides for attorney’s fees and costs for a winning plaintiff, and which also requires proof by clear and convincing evidence. 

        The most  important teachings to be gleaned from this case are that a single factor that may not establish unconscionability in all contexts may do so when combined with other factors, and that the denial of discovery where statutory rights are involved may support substantive unconscionability.

Arbitration And A Consumer Case.

        In Dennison v Rosland Capital LLC, B295350 (2/8  4/1/20) (Grimes, Bigelow, Stratton), an 82-year old man, responded to a television ad, eventually purchased nearly $200,000 of gold and silver from Rosland Capital, but allegedly the purchases were worth considerably less than the price paid. The seller moved to compel arbitration, the trial court denied the motion, and the Court of Appeal affirmed.

        The most interesting issue concerned whether there was an effective delegation to an arbitrator of decisions about the scope or applicability of the arbitration agreement, such that the court should have been the decision maker. The Court of Appeal explained that the contract contained a severability clause providing that a court of competent jurisdiction might excise an unconscionable provision. Given that provision, there is no clear and unmistakable delegation of authority to the arbitrator to determine if the provision is unconscionable.

        The seller of precious metals argued that with a lifetime of experience and years in the military, Mr. Dennison could have negotiated the contract. To which the Court of Appeal replied:  “An 82-year-old consumer who calls a telephone number displayed in a television ad to make his first-ever investment in the highly volatile precious metals market, no matter how sophisticated he may be in other matters, cannot reasonably be expected to consider negotiating the terms of a form contract in such tiny print it cannot be read without a magnifying glass.” Besides, in the context of consumer contracts, our Supreme Court has never required a complainant to first show that it tried to negotiate the contract as a prerequisite to establishing unconscionability.

Arbitrability: Ninth Circuit Holds That ERISA Claims Can Be Subject To Mandatory Arbitration

Intervening Supreme Court Law Means Earlier Ninth Circuit Law Is No Longer Good Law.

        ERISA claims may be the subject of mandatory arbitration: that's the holding and threshold issue in Dorman v. Charles Schwab Corp., 18-15281 (9th Cir.  8/20/19) (Pearson, Gould, Ikuta). To reach this result, the panel needed to conclude that Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), holding that ERISA claims were not arbitrable, was no longer good law. And the panel did so conclude, based on intervening Supreme Court case law, specifically, American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013).

        The Amaro panel reasoned that "ERISA mandated 'minimum standards [for] assuring the equitable character of [ERISA] plans' that could not be satisfied by arbitral proceedings." But American Express, a recent Supreme Court case, held there is nothing unfair about arbitration, even on an individual basis, as long as individuals can vindicate their statutory rights in the arbitral forum.

        In an unpublished memorandum opinion, the Ninth Circuit held that the specific arbitration clause in Dorman was enforceable.

        COMMENT: In American Express, Justice Kagan, dissenting, wrote: "No rational actor would bring a claim worth tens of thousands of dollars if doing so meant incurring costs in the hundreds of thousands." Her "nutshell version" of the majority opinion in American Express Co.: "Too darn bad."