California Mediation and Arbitration

Arbitration/Unconscionability/Arbitrability: Sixth District Rules Tort Claims, Including Battery, Are Arbitrable

Decision Reversing Trial Court’s Findings of Unconscionability and Non-Arbitrability of Tort Claims is Very Fact Specific – But Ruling On Tort Claims Is Worth Noting

      Bigler v. The Harker School, Case No. H037450 (6th Dist. February 6, 2013) (Elia, J., author 3:0) (published) is a reminder judicial determinations of unconscionability and arbitrability are often nuanced and fact specific, and the burden of proof may tip the balance in reaching an outcome.  Here, the Court of Appeal signaled the outcome twice, by emphasizing that the party opposing arbitration “had the burden of proving the defense of unconsionability”, and the burden to “demonstrate than an arbitration clause cannot be interpreted to require arbitration of the dispute.”  The superior court thought the plaintiff, who sued her private school, met the burden for opposing arbitration, but the Court of Appeal held otherwise.

     Plaintiff Shivani, enrolled as a student in The Harker School, sued the school alleging she had been wrongfully accused of an honor code violation, and that a teacher who humiliated her, had pushed her to the ground.  The school petitioned to compel arbitration, under a broad-based arbitration clause.  The superior court denied the petition, finding the contract unconscionable, and finding that it was “highly unlikely” that the plaintiffs agreed to arbitrate, expecting tort claims would be included in the process.

     On the issue of unconscionability, here are examples of what I mean by “nuanced” and “fact specific”:  The Court of Appeal agreed that the failure to attach AAA rules is “of minor significance”; was “less convinced than the superior court that the other circumstances indicate procedural unconscionability” and was “not as troubled as was the superior court” by a carve-out of tuition disputes from arbitration.  Put this all on a scale and weigh it, and it is the burden of proof that tips the scale against plaintiff.

      What probably made this case worthy of publication is the Court of Appeal’s effort to distinguish other cases, holding that tort claims were not arbitrable, Victoria v. Superior Court, 40 Cal.3d 734 (1985) and RN Solution, Inc. v. Catholic Healthcare West, 165 Cal.App.4th 1511 (2008):  “In each of these cases, the lawsuit focused on conduct that was so removed from the professional relationship between the parties that it could not have been contemplated when they executed their agreement to arbitrate disputes.”  Here, however, alleged battery, negligent infliction of emotional distress, defamation, and negligent hiring, took place on the school campus, with students present, and/or related to the student’s relationship with the school.  Indeed, the plaintiffs were somewhat hoist by their own pleading, having alleged that torts were committed by persons “acting in the course and scope of their employment and agency . . . “

     And if that’s not enough, there is always the burden of proof.

     The Court of Appeal opinion ends:  “Harker may well be found liable under the parties’ contract, on a tort theory, or both, but it is the arbitrator who must resolve the questions presented in Shivani’s complaint.”  “Well”?  Is that an oblique caution, or what?

    

    

Arbitration/Construction/Burden of Proof: Fourth District, Division 3 Affirms Contractor’s Right To Arbitrate In Decision That Hinges On The Word “Involves”

Disneyland of Construction:  Involvement In Project Versus Involvement In Dispute Is The Issue Here

Carol M. Highsmith, photographer.  Between 1980 and 2006.  Library of Congress.

     Subcontractor Pacific Westline, Inc. sued contractor C.W. Driver, alleging Driver refused to pay for additional work on a hotel at Disneyland.  Driver successfully petitioned to compel arbitration, and Pacific appealed the order granting Driver’s petition.  Pacific Westline, Inc. v. C.W. Driver, Inc., Case No. G046357 (4th Dist. Div. 3 January 9, 2013) (Bedsworth, J.) (unpublished).

     The subcontract between Pacific and Driver, which incorporated ADR procedures adopted in the “prime contract” between Disney and Driver, mandated arbitration “for disputes not involving the acts, omissions or otherwise the responsibility of [Disney].”  Thus, the requirement to arbitrate hinged on whether the dispute “involved” Disney, because if Disney was involved, then Pacific did not have to arbitrate.

      Justice Bedsworth, a wordsmith himself, noted that “involve” has several meanings.  But that was no help to Pacific, because “the burden must fall upon the party opposing arbitration to demonstrate that an arbitration clause cannot be interpreted to require arbitration of the dispute.”  (citing Coast Plaza Doctors Hospital v. Blue Cross of California, 83 Cal.App.4th 677, 686-687).  Here, the clause could be interpreted to require arbitration of the dispute.

    Besides, involvement in the project was not the key to arbitration:  “the clause speaks instead of involvement in the claim or the dispute.”  And the evidence showed only Disney’s involvement in the project, not in the dispute with Driver.

     Affirmed.

Arbitration/Employment/Waiver/Burden of Proof/Construction: Because Collective Bargaining Agreement Did Not “Clearly And Unmistakably” Waive Plaintiffs’ Right to Bring Statutory Claims In Judicial Forum, Employees Did Not Waive Their Rig

Denial of Motion to Compel Arbitration Hinges on Burden of Proof and Existence of Statutory Rights

     One of the “hot topics” we have posted about is whether the right to sue in court can be waived when the rights at issue are statutory rights.  See our June 5, 2012 post on Iskanian v. CLS Transportation Los Angeles, LLC, Case No. B235138 (2nd Dist. Div. 2 June 4, 2012) (certified for publication) (interpreting AT&T Mobility v. Concepcion broadly to hold that the Federal Arbitration Act “conclusively invalidates the Gentry test” for finding that a statutory right is unwaivable and cannot be arbitrated); and our June 14 post on Hoover v. American Income Life Insurance Company, Case No. E052864 (4^th Dist. Div. 2 May 16, 2012) (certified for publication) (underscoring a split in the law, concerning the arbitrability of state statutory labor claims). Ordinarily arbitrability turns on contractual interpretation and contract defenses. 

     Our next case, however, is important because of its particular focus on the burden of proof.  In Bartoni v. American Medical Response West, A130333 (1st Dist. Div. 2 August 24, 2012) (Kline, P.J.) (unpublished), the trial court refused “to compel arbitration of plaintiffs’ wage and hour claims, where it determined the collective bargaining agreements (CBAs) between the union and defendant did not contain a ‘clear and unmistakable’ waiver of plaintiffs’ right to a judicial forum for their statutory claims.”   The employer appealed.

     The opinion is notable for its extensive review of cases applying the “clear and unmistakable” standard to determine whether there has been a waiver of a judicial forum.   Wright v. Universal Maritime Service Corp., 525 U.S. 70 (1998) established the standard.  In Wright, though the CBA contained an arbitration provision, a longshoreman filed suit in district court under the Americans With Disabilities Act of 1990.  The district court dismissed the case because the employee failed to pursue grievance procedures in the CBA, the Fourth Circuit Affirmed, and the Supreme Court reversed, because the CBA did “not contain a clear and unmistakable waiver of the covered employees’ rights to a judicial forum for federal claims of employment discrimination.” Id. at 82.  The rationale for the “clear and unmistakable” standard is that where the employee’s rights are created by statute, the ultimate question for the arbitrator will not be contractual interpretation, but an interpretation of what federal law requires – an issue for judicial determination, unless there is a “clear and unmistakable” waiver of the right to have a judge decide.

     The court explains in Bartoni:  “In applying the Wright analysis to determine whether there has been a sufficient explicit waiver, courts look to the generality of the arbitration clause, explicit incorporation of statutory requirements, and the inclusion of specific statutory provisions.”

     Applying the Wright analysis in Bartoni, the Court of Appeal found that the arbitration provision was “too general”, ambiguous, and failed to incorporate specific statutory provisions regarding wage and hour disputes.  It treated the use of the word “dispute” as too general in context, and borrowed the scorn heaped upon the ambiguous phrase “and/or” by legal writer Bryan A. Garner:  “A legal and business expression dating from the mid-19th century, and/or has been vilified for most of its life – and rightly so.” (Bartoni, footnote 3).

     The court’s extensive review of federal and state cases analyzing a CBA waiver of a statutory right led it to observe few cases hold a CBA waiver of a statutory right was clear and unmistakable, whereas, “numerous California cases have concluded CBAs failed to clearly and unmistakably require arbitration of statutory claims.”

     The order denying the motion to compel arbitration was affirmed.

      

Labor strategists confer. 1937. From the left: Sidney Hillman, member of the CIO; Homer L. Martin, President of the U.A.W.; Leo Pressman, CIO General Counsel; John L. Lewis, President of the United Mine Workers; and John Brophy, Director of the CIO.

Arbitration/Waiver/Burden of Proof: Substantial Evidence Supported Waiver of FINRA Arbitration

 

St. Agnes Factors Weighted In Favor of Finding of a Waiver

     The leading California case for determining whether a waiver of the right to arbitrate has occurred is St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4^th 1187 (2003). St. Agnes provides a multi-factor test that the court handily applied in Alspaugh v. Dunham, Case No. D09673 (4^th Dist. Div. 1 June 14, 2012) (McDonald, J.) (author) (not for publication).

     In Alspaugh, Plaintiffs sued Defendants claiming investment fraud. Defendants moved to compel arbitration, losing that motion in the trial court. Defendants appealed the denial, claiming the trial court erred by finding they were not required to arbitrate pursuant to the written agreements, and that they had waived any rights to enforce arbitration.

     What were the critical facts resulting in a finding of waiver? Plaintiffs filed their case in February, 2009. Defendants did not file their motion to compel arbitration and stay litigation until March 23, 2011, and their actions were inconsistent with arbitration. Defendants filed multiple substitutions of attorney, bankruptcy filings, requests to continue trial, counter claims, multiple demurrers, took 40 depositions, and propounded thousands of discovery requests.

     True, St. Agnes states that “the party seeking to establish a waiver bears a heavy burden of proof.” 31 Cal.4^th at 1195. But a finding of waiver will usually be fact-based. Therefore, the standard of review will be whether there is substantial evidence to support the trial court’s finding of waiver.

     Here, the Court of Appeal affirmed the order based on the trial court’s finding of waiver. Therefore, the court did not need to address the merits of alternative grounds for the order denying defendants’ motion to compel arbitration.

Arbitration: 1st District, Div. 5, Finds No Error In Trial Court’s Decision Invalidating One-Sided Arbitration Clause in Employment Agreement

 

Delegation to the Arbitrator of the Power to Decide Whether the Arbitration Clause is Unconscionable Is “Horse of a Different Color” That Must Satisfy High Evidentiary Standard

     The employer, CantorCo2e, L.P., and an executive, appealed from an order denying their petition to compel arbitration of the claims under the Federal Arbitration Act (FAA) brought by an employee who was a broker. The FAA can give some advantage to the employer seeking to compel arbitration, because arbitration provisions will be subject to invalidation only for the same grounds applicable to contractual provisions – e.g., unconscionability. Furthermore, here, the employer, who of course drafted the arbitration provision, had the beginning advantage of a broadly worded arbitration provision indicating that arbitration might be conducted under the rules of an arbitration service (AAA) giving arbitrators the power to decide the validity of arbitration agreements.

     However, under all the circumstances here, that was not enough to satisfy the trial court or the Court of Appeal that the parties intended to delegate authority to the arbitrator to decide the threshold issue of whether the arbitration provision was conscionable. Ajamian v. CantorCO2e , L.P., Case No. A131025 (1^st Dist. Div. 5 Feb. 16, 2012) (certified for publication).

     Given the broadly worded arbitration provision, why couldn’t the arbitrator, rather than the trial court, decide whether the employment dispute had to be arbitrated? The chief reason is that ordinarily it is the expectation of the parties that a court, rather than an arbitrator, will decide whether the arbitration provision is unconscionable. Therefore, delegation of that decision – contrary to what is typically the expectation of the parties – requires “clear and convincing evidence.”

    The Court of Appeal drew a distinction between the power of an arbitrator to decide substantive claims, and the power of the arbitrator to decide whether the arbitration clause itself is unconscionable. “Language such as ‘any disputes, differences or controversies’ may well be adequate and necessary for the parties to express their intention to arbitrate all substantive claims, since the number and diversity of potential future substantive claims is so great as to defy a specific enumeration of each type. But the issue of who would decide the enforceability of the arbitration clause itself is a horse of a different color.”

Nonsignatories/Burden of Proof/Equitable Estoppel/Third-Party Beneficiaries: Third Party Non-Signatories Cannot Successfully Move to Compel Arbitration Agreement Where They Are Neither Sufficiently Tied to The Parties to the Agreement Nor Third Party Bene

 

Nonsignatory Has Burden of Proof to Establish It is Party to the Arbitration Agreement and Entitled to Enforce It.

     In Jones v. Jacobson, 195 Cal.App.4th 1 (2011), Societe Generale and a related entity (SG appellants) were sued along with Jacobson by the Joneses in connection with a failed investment, and sought to arbitrate. The trial court denied the motion to compel, prompting the appeal.

     The problem for the appellants was that the arbitration agreement was between the Joneses and an entity named SG Americas Securities LLC (SGAS) an entity different from the SG appellants.

     The appeal was unsuccessful. The nonsignatory SG appellants and Jacobson had the burden to prove that they “are a party to, and thus are entitled to enforce, the arbitration provision in the account agreement.” It was not enough for nonsignatories to establish the existence of a valid and broadly worded arbitration provision.

     Here, the third parties were unable to sustain their burden, for they could not establish either a close enough relationship to SGAS to justify being able to compel arbitration, nor a third-party beneficiary relationship. The SG appellants were unable to argue that they were agents or employees of SGAS.

     The doctrine of equitable estoppel can sometimes be used by a nonsignatory to argue that it would be inequitable for the party to base its claims on a contract containing an arbitration provision, but then avoid arbitration under an arbitration clause in the contract. Here, however, the account agreement containing the arbitration provision was not the basis of the claims against the SG appellants.

     Finally, the Jacobson appellants relied on the additional argument that he was a “broker-dealer” and entitled to arbitrate as a “third party beneficiary.” However, that argument was also rejected on the grounds that there was an insufficient nexus between the account agreement containing the arbitration provision and the claims against the Jacobson appellants.

     The opinion was authored by Justice Benke in San Diego.