California Mediation and Arbitration

Arbitration, Delegation, Agents: Two Cases In Medical Settings Show California Courts Scrutinize Arbitration Agreements Entered Into For The Sick And The Aged

        California courts continue to scrutinize cases in which hospitals and nursing homes seek to enforce arbitration provisions. The medical settings often involve patients who are old, quite sick (or both), hurried admission processes, and urgency. These cases remind me of a story my law school torts professor told, about taking his daughter, who had injured her arm, to emergency care. Presented with the  paperwork, the law professor asked, "where do I sign?"

Oh What A Difference A Little Thereof Makes.

        In Sandoval-Ryan v. Oleander Holdings LLC, et al., C089486 (3rd Dist.  12/7/20) (Hull, Murray. Duarte), the Court of Appeal affirms an order of the trial court, holding that defendants, a skilled nursing facility, claimed the issue of arbitrability had been delegated to the arbitrator rather than the court to decide, lacked merit.

        Defendants did not question the trial court's ruling against them on their motion to compel arbitration, only that the decision had been made by the trial court, instead of an arbitrator. Defendants argued that clear and unmistakable language delegated threshold arbitrability issues to the arbitrator. Their argument foundered on two shoals.

        First, the language  of the arbitration agreement provided that  claims "arising out of the provision of services by the Facility, the  admission agreement, the validity, interpretation, construction, performance and enforcement thereof . . . " were to be submitted to the arbitrator. The court concluded that "thereof" referred to the admission agreement only. OK, I had to read the clause twice myself.

        Second, even if, arguably, the clause could be interpreted to cover issues of arbitrability concerning the provision of  services, the "clear and unmistakable language" burden had not been carried by defendants.

Shaky Custom, Habit, And Practice Testimony That Is Contradicted Fails To Establish Agreement To Arbitrate.

        Maria Garcia v. KND Development 52, LLC, et al., B301929 (2/4  12/15/20) (Manella, Willhite, Collins) is another case in a medical setting where the trial and appeal courts refuse to enforce an arbitration provision. The underlying case involved a patient who was allegedly injured, becoming infected with bedsores, and later dying. 

        The hospital did not carry its burden of establishing a binding arbitration clause (a) because it relied on the custom and practice testimony of a supervisor who did not interact with the patient; (b) because it relied on the custom and practice testimony of a receptionist who lacked first-hand recollection; and (c) the custom and practice testimony was contradicted by relatives of the  patient who testified from first-hand personal knowledge. As a result of the thin evidence, the hospital was unable to establish that the relative who signed the hospital documentation had acted as an agent of the patient and had been authorized by the patient to agree to arbitration. 

 

 

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, PAGA, Delegation: Employees Who Entered Into Agreement To Arbitrate Before They Brought PAGA Representative Action Could Not Bind State To Arbitrate

How The Issue Presented Was Framed Made All The Difference.

                              View of a frame-maker's workshop circa 1900. Wikipedia article "Picture frame."

        As putative members of the so-called Guerra class action, Bautista and Garcia signed settlement agreements containing an arbitration clause and waiver of  representative actions in 2014. The Guerra action did not  include a PAGA claim. In 2018, Bautista and Garcia brought PAGA representative actions against their employer. The trial judge denied the employer's motion to compel arbitration, and it appealed. Bautista v. Fantasy Activewear, Inc., et al, B297070 (2/1  7/24/20) (Chaney, Rothschild, Bendix).

            Under Iskanian v. CLS Transportation Los Angeles, LLC ,59 Cal.4th 348 (2014), PAGA claims are representative actions brought by an employee on behalf of the state, akin to qui tam actions. Because the state (here, the Labor and Workforce Development Agency) is the real party in interest, but not a signatory to  the arbitration agreement, PAGA claims generally are not arbitrated.

        Here, the defendant/appellant employer argued the 2014 settlement agreements incorporated JAMS rules, and the JAMS rules delegated the issue of arbitrability to the arbitrator. In other words, the issue of arbitrability was not for the court to decide.

        Disagreeing with the employer's argument, the Court of Appeal affirmed the trial court's order denying the motion to arbitrate. The Court framed the issue: "The question here is not whether a PAGA representative action may ever be arbitrable or who is empowered in any particular circumstance to determine arbitrability, but rather whether an arbitration agreement binds a real party in interest that never agreed to arbitrate." And when Bautista and Garcia entered into settlement agreements with arbitration clauses in 2014, they were not acting as agents of the state, nor was the state a signatory. So Bautista and Garcia could not be bound to arbitrate as proxies of the state when they brought PAGA claims in 2018.

        COMMENT: Deciding the issue of arbitrability can be delegated to the arbitrator. The teaching of this case and other California cases is "that arbitration agreements entered into before a plaintiff has been deputized for purposes of a PAGA representative action is [sic] not enforceable for purposes of the PAGA representative action." In other words, the existence of an arbitration agreement precedes even a determination of who decides arbitrability.

 

        

        

 

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.

Arbitration, Appealability, Delegation: 4/2 CCA Holds UCL Claim Not Arbitrable, And Denial Of Dismissal Of Class Claims Was Not Appealable

The Details Here Make  The Difference . . . 

        Lacayo v. Catalina Restaurant Group Inc., et al., E069833 (4/2  8/1/19) (Miller, Fields, Menetrez) provides an in-depth discussion of the appealability of orders granting individual arbitration and delegating the issue of the availability of a class action suit to an arbitrator to decide. The plaintiff, an employee, brought seven causes of action raising violations of the Labor Code and an eighth cause raising an unfair competition law (UCL) claim based on the Labor Code violations. As is often the case, the employee/employer contract included a broad arbitration clause and a class action waiver.

        The trial court granted the employer's motion to compel arbitration of the employee's individual claims, refused to dismiss the class claims, leaving it to the arbitrator to decide whether class claims were subject to arbitration, denied the motion to arbitrate as to the UCL claim, and stayed the matter till arbitration was completed. Predictably, the employer appealed, arguing that the refusal to grant the motion to dismiss the class claims was appealable, and the UCL claim should have been arbitrated. The Court of Appeal dismissed the appeal as to causes of action one through seven and affirmed the order on the eighth cause of action, the UCL claim.

         Here's why. The order granting the motion to compel arbitration of causes one through seven but leaving the issue of classwide arbitration for the first seven causes to the arbitrator is non-appealable. An order granting a motion to compel arbitration does not decide the merits and is interlocutory (unlike a motion denying a motion to compel arbitration). As to the issue of classwide arbitration, the employer argued that an order compelling arbitration of a putative class action is a denial of a motion to compel arbitration and is appealable, citing Lamps Plus, Inc. v. Varela, -- U.S. __ (2019). But Lamps Plus is distinguishable from Lacayo, because in Lacayo, the arbitration clause specifically delegated to the arbitrator the decision as to whether a class action would be allowed, and in Lacayo, the trial court never ordered class arbitration of a putative class action. So the trial court ruled the arbitrator will get to decide that issue, which is quite different from an order compelling a class action. And presumably, if the arbitrator whiffed it, little could be done, since mistakes of law or fact by an arbitrator are generally not appealable.

        The trial court's decision that the UCL claim was not arbitrable is explained by the fact that under the heading "Claims Not Covered by the Agreement," employer and employee excluded claims requiring "immediate injunctive relief and/or other equitable relief for unfair competition . . . "

        COMMENT: Interestingly, the trial judge thought thought the class action waiver was clear and enforceable but the decision about its enforceability had been delegated to the arbitrator by the parties. Sending the matter to the arbitrator is consistent with existing law. Avoiding that result would required drafting an employment agreement that does not delegate issues of arbitrability to the arbitrator, leaving it to the court to decide arbitrability, thereby creating the possibility of further appeals, lack of finality, and uncertainty. And since generally it is the employer who will draft the employment agreement (except in the case of top executives with bargaining power), it is going to be the employer who decides what issues to delegate to the arbitrator.

Arbitration, Gateway Issues, Delegation, Severability, FAA: Court Had Authority To Adjudicate Enforceability Of Arbitration Agreement, Where Party Specifically Challenged The Arbitration Agreement

Opinion Explains How Contract And Arbitration Agreement Are Treated As Separate Agreements.

    Jackpot Harvesting, Inc. v. Applied Underwriters, H044953 (6th Dist.  3/28/19) (Danner, Greenwood, Grover), provides a detailed discussion of whether the court or the arbitrator has authority to enforce an arbitration agreement, and how the concept of "severability" helps the analysis.

    Applied Underwriters offered workers' compensation insurance to Jackpot Harvesting, Inc. and related companies through a number of agreements, one of which was entitled "Request to Bind" and which contained an arbitration agreement. Jackpot sued Applied,  believing Applied mishandled claims and failed to disclose how premiums were calculated. Applied moved to compel arbitration, the trial court denied the motion, and Applied appealed. The important threshold question was whether the trial judge had the authority to decide the gateway issue of arbitrability, or whether that issue was one for the arbitrator to resolve.

    The parties agreed that the Federal Arbitration Act supplied the governing law, and the FAA carries with it a strong policy in favor of enforcing arbitration provisions. Of course, the parties could have included a "delegation clause" specifying who had authority to decide gateway issues. But the arbitration provision did not include a delegation clause.

    In such a situation, SCOTUS applies "the severability principle." The challenge to the validity of an arbitration agreement or delegation clause is treated separately from a challenge to the validity of the entire contract.  In effect, the contract between the parties, and the arbitration provision, are analyzed as two separate contracts. "Unless a party specifically challenges the validity of the agreement to arbitrate, both sides may be required to take all their disputes -- including disputes about the validity of their broader contract -- to arbitration." New Prime Inc. v. Oliveira, 139 S.Ct. 532, 539 (2019). 

    Applied argued that the New Prime approach required an "analytically distinct" attack on the arbitration provision -- in other words, an attack distinct from the attack on the contract as a whole. While conceding that there is "some support" for that position, the Court of Appeal says that it hasn't been shown a SCOTUS case requiring that the "substance of the challenge to the arbitration agreement must differ in all respects from the challenge to the underlying agreement." But this is dictum, because the Court of Appeal then found a distinct challenge to the arbitration provision in the Request to Bind: the Request to Bind was "a collateral agreement" triggering statutory filing and regulatory approval requirements under the Insurance Code and regulations, and "a contract made in violation of a regulatory statute is void."

    So the arbitration provision is specifically challenged. Found to be made in violation of a regulatory statute, the arbitration provision crashes and burns, leaving the trial judge with the authority to adjudicate the enforceability of the arbitration agreement. The denial of the motion to compel arbitration is AFFIRMED.

    

Arbitration, Gateway Issues: SCOTUS Holds That When Parties Agree Arbitrator Will Resolve Arbitrability Question, There Is No "Wholly Groundless" Exception Allowing Question To Be Decided By Court

First SCOTUS Opinion Authored By Justice Kavanaugh Is Unanimous.

    "Under the Federal Arbitration Act, parties to a contract may agree that an arbitrator rather than a court will resolve disputes arising out of the contract." The question presented in Henry Schein, Inc., et al. v. Archer and White Sales, Inc., No. 17-1272 (S. Ct. 1/8/19), is whether courts can decide arbitrability if the basis for arbitration is "wholly groundless", and whether such an exception to delegation of the decision to the arbitrator is consistent with the Federal Arbitration Act. In the first opinion authored by Justice Kavanaugh, the Court unanimously holds that a "wholly groundless" exception is inconsistent with the FAA. 

    COMMENT: The Justices "express no view about whether the contract at issue in this case in fact delegated the arbitrability issue to an arbitrator." So the judgment of the Court of Appeals is vacated and remanded, and the Court of Appeals may address the delegation issue. 

    In some instances, where the gateway decision of arbitrability is delegated to the arbitrator, the basis for delegation is "wholly groundless", and the arbitrator reaches the wrong conclusion, the arbitrator may exceed the arbitrator's powers, leading to "back-end" judicial review, and a waste of time. But SCOTUS is not going to rewrite the FAA.

    

    

Arbitration, Gateway Issues, Delegation, Pending Cases, FAA: We Are Watching Three Cases Pending Before SCOTUS

Federal Arbitration Act Cases Pending Before SCOTUS Present Issues of Interpretation Of FAA, And Who Decides Gateway Issues.

    Henry Schein, Inc. v. Archer & White Sales Inc., scheduled to be argued in November, presents as an issue whether judge or arbitrator decides the gateway issue of arbitrability. The general rule is that the judge decides, unless the arbitration provision clearly and unmistakably delegates the decision to the arbitrator. The twist in the Henry Schein case is that the 5th Circuit will not send a case to arbitration if the basis for doing so is "wholly groundless." Will SCOTUS endorse that position, or leave the decision up to the arbitrator, if there is a delegation clause with clear and unmistakable language?

    On October 1, 2018, and February 26, 2018, I blogged about New Prime Inc. v. Oliveira, a case that presents an FAA interpretive issue. Does an exemption clause in Section 1 of the FAA for workers engaged in interstate commerce apply to independent contractors? And who decides?

    And on August 22, 2018, and May 12, 2018, I blogged about Lamps Plus Inc. v. Varela, which presents a question as to whether generalized language in an arbitration agreement forecloses a state law interpretation authorizing class arbitration under the FAA.

    Ronald Mann posted on October 22, 2018, about these cases. As Mann writes, "I don't think the Supreme Court has rejected an FAA claim yet this century." However, he adds, "the argument in New Prime . . . displayed a bench that was not only open to rejecting the claim for arbitration there, but indeed strongly predisposed to reject it." We'll know more when these three cases are decided. And we'll keep you posted.

    

Pending Cases, Federal Arbitration Act, Delegation: New Prime v. Oliveira Is Scheduled For SCOTUS Oral Argument On October 3, 2018

Does Exemption In Section 1 Of The FAA For Workers Engaged In Interstate Commerce Apply To Independent Contractors? And Who Decides?

    We posted earlier about this case on February 26, 2018. The issues presented are:

(1) Whether a dispute over applicability of the Federal Arbitration Act's Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and (2) whether the FAA's Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements."

    COMMENT: Oliveira worked for an interstate trucking company under a contract that purported to set up an independent contractor relationship. He sued the trucking company for labor violations. The district court determined that it, rather than the arbitrator, should decide the threshold arbitrability issue. Affirming the district court, the First Circuit Court of Appeals held that Section 1, which defines terms in the FAA, and provides that nothing in the FAA shall apply to workers engaged in interstate commerce, applies to contracts that purport to establish the independent contractor relationship.

Arbitration: Construction Of Agreement; Delegation; Scope: Plaintiff Uber/Lyft Driver’s Suit Relating To Uber Use Of Fake Lyft Accounts Was Not Within Scope Of Arbitration Agreements With Uber

Appellate Court Accepted Delegation Of Arbitrability Gateway Determination To Arbitrator, But Found Uber’s Arbitrability Assertion Was “Wholly Groundless” Because Dispute Was Patently Beyond The Scope of Parties’ Arbitration Agreement.

            Smythe v. Uber Technologies, Inc., Case No. A149891 (1^st Dist., Div. 3 June 8, 2018) (published) (Siggins, J., concurred in by McGuiness, Acting P.J. (retired justice sitting by assignment) and Pollak, J.) was an interesting case involving whether a controversy raised by a driver for both Uber and Lyft fell within the scope of an arbitration clause between driver and Uber. Both the lower and appellate courts decided it did not.

            Plaintiff driver, on both of himself and a putative class of Lyft drivers, sued Uber for a practice of directing its drivers and others to create/use fake Lyft accounts to request rides such that Lyft drivers were sent on wild good chases to pick up nonexistent passengers—all designed to discourage drivers from driving Lyft and causing Lyft customers to divert their patronage to Uber. In response, Uber moved to compel arbitration and stay the class actions based on two agreements plaintiff signed with Uber having arbitration clauses.   Those provisions required arbitration with respect “to any dispute arising out of or related to this Agreement or termination of the Agreement,” expressly mentioning wage/hour, trade secrets, unfair competition, compensation, expense reimbursement, termination, harassment and claims arising under various trade secret/discrimination/wage hour statutes. The agreements also included a delegation clause specifying that disputes over arbitrability were to be decided by the arbitrator and not a court/judge.

            The lower court found driver’s complaint allegations were beyond the scope of the arbitration agreement and that the delegation provision was unenforceable in the context of driver’s advanced claims.

            The 1/3 DCA agreed.

            It accepted Uber’s premise that the arbitrator decided the gateway arbitrability issue, but decided an important exception applied. Relying upon Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006) which was found consistent with California law on the particular issue, the trial court did not have to defer to the arbitrator where the assertion of arbitrability is “wholly groundless,” but could deny the motion to compel arbitration and the request to stay the action. That exception carried the day in Smythe.

            Like the lower court, the appellate panel determined that driver Smythe brought his action in his capacity as a driver for Lyft, not Uber, and that the complaint allegations fell outside the ambit of the arbitration clause between Smythe and Uber. “Indeed, the same allegations could just as well be pursued by a Lyft driver who does not drive for Uber.” (Slip Op., at p.5.)