California Mediation and Arbitration

Arbitration, FAA, Adequacy of Record, Collateral Estoppel, Fees: Five Unpublished Cases Involving Hodgepodge Of Issues Result In Four Affirmances And One Dismissal.

Arbitration Cases Fly Under The Radar.

    In recent years, I have concentrated more on published arbitration cases than on unpublished cases -- first, because the unpublished cases are not citable in California state courts, and second, because there are simply so many of them. However, today, I have gathered five unpublished cases appearing in just the last five days to make three points:

    First, all five cases involve affirmances, or in one case, a grant of defendants'/respondents motion to dismiss the appeal. And this is an example of what we know to be true: it is very difficult in the courts to undo results of an arbitration.

    Second, the five unpublished cases demonstrate just how widely arbitration is now used to resolve myriad disputes: Loeffler v. RSM 8, LLC, No. G055100 (4/3 10/25/18) (Thompson, Fybel, Ikola) (dispute between home buyer and seller); Kivorkian v. Star Insurance Company, No. B272162 (2/3 10/26/18) (Egerton, Lavin, Dhanidina) (dispute between injured driver and insurance company); Belnap v. Pierce, No. D071245 (4/1  10/26/18) (O'Rourke, Nares, Haller) (partnership dispute between two dentists); Axten v. Axten, No. D073089 (4/1  10/30/18) (Guerrero, O'Rourke, Dato) (dispute between ex-spouses concerning attorney fees and costs award); Kote v. Blonska et al., No. G055436 (4/3  10/30/18) (Thompson, Aronson, Ikola) (dispute concerning accounting by trustee).

    Third, the five unpublished cases provide an example of how arbitration-related issues tend to fly under the radar. First, the arbitration itself is usually a private affair, without precedential importance. Second, when arbitration issues do end up in the appellate courts, resulting in written opinions, then the written opinions, like most generated by the California Courts of Appeal, are unpublished and uncitable. That is the case with all five of these unpublished opinions, appearing over a span of five calendar days. During the same time period, as of the time of this post, I had not seen any published California state court appellate opinion involving arbitration.

    As to the issues addressed by these five opinions, here is a brief and incomplete rundown:

•  Loeffler -- whether the FAA governed, whether the arbitration award was untimely, and whether the arbitrator should have issued a statement of decision;
• Kivorkian  -- whether a bad faith action filed to attack an arbitration constituted an improper collateral attack on the arbitration award;
• Belnap -- whether plaintiff's claims were barred by res judicata and collateral estoppel;
• Axten -- whether an adequate record allowed review of a claim on the merits and whether the arbitrator determined appellant was a prevailing party;
• Kote -- whether a notice of appeal of an order confirming an award was proper in the absence of a judgment.

   

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, Employment, FAA: Employee Successfully SLAPPS Employer Who Sued Employee For Breach Of Contract For Failing To Arbitrate His Claims

Court Of Appeal Also Holds That The Federal Arbitration Act (FAA) Does Not Preempt California's Anti-SLAPP Statute.

    This dispute began in 2012 when Ruiz filed a putative class action against Moss Bros. Auto Group, Inc. (MBAG) for employment- related claims. By the time we get to the  instant appeal, Moss Bros. Toy, Inc. v. Ruiz, E067240 (4/2  9/20/18) (Fields, Codrington, Slough), plenty of water  had flowed under the  bridge. In a Ruiz I appeal, the Court of Appeal upheld the trial court's denial of MBAG's petition to compel arbitration. In a second case, MBAG contended that actually Moss Bros. Toy, Inc. (MBT) was Ruiz's employer, that MBAG was an intended beneficiary of arbitration agreements, and that MBAG should be entitled to compel arbitration; MBT  filed an application to intervene. In Ruiz II, the Court of Appeal affirmed the trial court's order denying MBT''s application to intervene in the second case.

     And this brings us to MBT's current lawsuit against Ruiz. This time MBT alleged that Ruiz had breached a contract by filing his lawsuit rather than arbitrating under the agreement with his employer. The trial court granted Ruiz's anti-SLAPP motion, because MBT's entire first amended complaint was based on Ruiz's protected right to  petition, and the Court of Appeal affirmed.

    The Court of Appeal also rejected MBT's creative argument that the  FAA preempted California's anti-SLAPP statute. However, the anti-SLAPP statute does not uniquely burden efforts to arbitrate; it applies to all claims that are based on acts in furtherance of protected rights of  petition and free speech.

     Finally, the Court of Appeal held that the  first amended complaint lacked minimal merit, because MBT failed to authenticate either  of two written 2010 arbitration agreements in opposing Ruiz's anti-SLAPP motion.

      COMMENT: There is another issue concerning the merits that  the Court of Appeal does not discuss. Does a party to an arbitration agreement who decides to sue rather than to arbitrate breach the arbitration agreement? In Sargon Enterprises, Inc. v. Browne George Ross LLP, 15 Cal.App.5th 749 (2017), the Court of  Appeal held that the party to the arbitration agreement , who decides to sue instead of  arbitrate cannot be sued for breach of contract, because one has a right to file a  lawsuit, and because the defendant can respond by petitioning to arbitrate or by filing an answer. See our  post of September 29, 2017 on Sargon Enterprises. 

    

Pending Cases/Federal Arbitration Act: SCOTUS Will Hear Oral Argument In November In Two Cases Involving Interpretation Of The FAA

Henry Schein, Inc. v. Archer & White Sales, and Lamps Plus v. Varela.

    On August 20, 2018, Amy Howe reported in SCOTUSblog that the Supreme Court will hear oral argument (Nov. 7) on two cases involving interpretation of the FAA. She reports:  "Henry Schein, Inc. . . .  asks the justices to decide whether the act allows a court to decline to enforce an arbitration agreement that gives the arbitrator the power to decide questions about arbitrability if the court believes that the arbitrability claim is 'wholly groundless.' . . . .  [I]n Lamps Plus the court will consider whether the act bars a state-law interpretation of an arbitration agreement that would allow class arbitration, even when the agreement itself does not mention class arbitration."

     

Arbitration: Burden Of Proof, FAA: Ninth Circuit Determines That USC Employment Arbitration Clause Did Not Encompass Plaintiff Employees’ Claims On Behalf Of ERISA Plans

However, Ninth Circuit Panel Did Indicate In A Footnote That It Might Have Been Wrong To Say Certain ERISA Claims Inarbitrable As A Matter Of Law.

       In Munro v. University of Southern California (USC), No. 17-55550 (9^th Cir. July 24, 2018) (published) (Thomas, Chief Judge, author; Friedland, Circuit Judge; and Zilly, W.D. Wash. District Judge by designation) confronted a situation where USC required current and former employees to sign standard employment contracts with arbitration clauses. However, the language only covered them in individual capacities such that the controversy here was whether these arbitration clauses covered employees bringing collective claims for breach of fiduciary duty against USC for the administration of certain ERISA plans. The district judge denied USC’s motion to compel arbitration after concluding that it did not encompass the ERISA plan challenges brought by the employees.

       The Ninth Circuit agreed in a 3-0 panel opinion.

       The summit issue under the Federal Arbitration Act (FAA) was whether the employment contract’s arbitration clause encompassed the dispute at issue. Employees won on that issue.

       Earlier, in U.S. ex rel. Welsh v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9^th Cir. 2017), decided under a similar employment contract that an arbitration clause did not cover qui tam claims brought by an employee on behalf of the U.S. government under the False Claims Act (FCA). The Ninth Circuit, in Munro, found that Welch’s reasoning did apply, because qui tam suits under the FCA—where a plaintiff sues for injury to the government—was akin to ERISA fiduciary breach suits—where a plaintiff sues for injury to the ERISA Plan. Beyond that, neither a plaintiff in an FCA suit nor a plaintiff in a similar ERISA suit can alone settle the suit. So, the USC arbitration clause was not broad enough to encompass “representative” claims of the nature alleged under ERISA.

      However, not everything was lost from the defense perspective. In a footnote, the Ninth Circuit panel did hint quite strongly that its earlier holding in Amaro v. Continental Can Co., 724 F.2d 747 (9^th Cir. 1987) might have been wrongly decided. Amaro found that ERISA 409(a) claims are inarbitrable, but the Ninth Circuit panel suggested this conclusion might have been wrong as a matter of law based on intervening binding authority—but did not have to reach the issue based on its narrower holding.

        BLAWG OBSERVATION—I noticed that Eugene Scalia was on the losing side of the arbitration issue. Given his deceased father’s (former SCOTUS Justice Antonin Scalia's) views favoring arbitration and his pronouncements in Concepcion/other cases, his father might be rolling in his grave based on the result in this case, circumspect as it might be.

Arbitration: Discovery, FAA: Contributor Marc Has Published A Recent Article On Suggested Legislative Fixes To Ninth Circuit’s Holding In CVS Health Corp. That District Judges Have No Power To Compel Third Party Document Production Before The Schedule

His Article Appears in The July 2018 Edition Of The Orange County Lawyer.

             On December 25, 2017, contributor Marc posted on CVS Health Corp. v. Vividus, LLC, 878 F.3d 703 (9^th Cir. 2017), where the Ninth Circuit Court of Appeals held, based on a reading of the "plain meaning" of the Federal Arbitration Act, specifically, 9 U.S.C. section 7 that: "[T]he FAA does not grant arbitrators the power to order third parties to produce documents prior to an arbitration hearing.” This holding squarely conflicts with an Eighth Circuit decision to the contrary. (Life Ins. Co. of Am. V. Duncanson & Holt, 228 F.3d 865 (8^th Cir. 2000).)  Read Marc's December 25, 2017 post here.

            Contributor Marc, in an article entitled “Arbitration and Third-Party Document Discovery Before a Hearing: A Problem In Search of a Solution” and published in the July 2018 edition of the Orange County Lawyer magazine, explores the ramification of CVS Health Corp. and proposes these possible legislative “fixes” to the issue (singularly, in combination, or in the aggregate) with respect to arbitrators allowing pre-hearing third-party document discovery:

•  The FAA could prohibit third-party document production before hearing outright in cases of a specified smaller monetary threshold;
• The party seeking third-party documents prior to a hearing could be made to bear the costs;
• The party seeking third-party documents prior to a hearing could be required to make the documents it receives available to other parties in the arbitration;
• In considering whether to allow pre-hearing discovery of third-party documents, the arbitrator could consider the “proportionality” factors set forth in Federal Rule of Civil Procedure 26(b);
• Third-party document discovery could be limited only to document production which would be deemed material evidence in the case; and
• The district judges could remain available as a forum to address an unduly burdensome subpoena issued by arbitrators.

Arbitration: Class Action, Waiver, FAA, Employment: Employment Contract Providing For Individualized Arbitration Provisions Not Invalidated By The Federal Arbitration Act’s Savings Clause, The Fair Labor Standards Act, Or National Labor Relations Act

FAA Collective Actions And Related State Law Class Actions Governed By Individualized Arbitration Proceedings Under Employment Contract.

          On May 21, 2018, the United State Supreme Court issued its decision in Epic Systems Corp. v. Lewis, 584 U.S. __, No. 16-285. SCOTUS decided that the FAA instructed federal courts to enforce individualized arbitration proceedings under an employer-employee arbitration agreement such that nothing in the FAA’s savings clause, FLSA, or NLRA dictated a different result. This was a 5-4 decision along political lines, authored by Justice Gorsuch. The minority justices believed that the result in this case will gut the effectiveness of FLSA collective actions and state court class actions in the wage/hour area.

        See my previous posts regarding this case, and the article I wrote entitled, “The Politics of Arbitration” wherein I discussed the same issue raised in Ernst & Young v. Morris.  My previous posts were on August 23, 2016, October 11, 2016, November 3, 2016, January 17, 2017, July 24, 2017,   September 28, 2017, and October 9, 2017.  See also, my post on June 19, 2017.

Arbitration/Delegation: SCOTUS To Consider Who Decides Arbitrability Of Federal Arbitration Act Section 1 Exemption

Arbitrator Or Judge?

        SCOTUSBlog reports today that the Supreme Court has added an arbitration case to its next term:

            "New Prime Inc. v. Oliveira

 

Docket No.	Op. Below	Argument	Opinion	Vote	Author	Term
17-340	1st Cir.	TBD	TBD	TBD	TBD	OT 2018

 

Issues: (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."

Arbitration/FAA/Class Action/Standard Of Review: Court Of Appeal Rejects Enforcing Class Action Waiver Under Federal Arbitration Act, Because FAA Does Not Apply To Workers Engaged In Transporting Goods

Gentry v. Superior Court:  It's Alive, It's Alive!

 

        Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) held that class action waiver provisions in a contract are unenforceable, and a motion to compel arbitration may be denied, where the so-called "Gentry factors" are satisfied, and it is determined that a class action is a more effective practical means of vindicating rights of affected employees than individual litigation or arbitration.   In AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), SCOTUS effectively invalidated Gentry in circumstances where the Federal Arbitration Act preempts state law -- typically, circumstances where interstate commerce is involved.

        In Muro v. Cornerstone Staffing Solution, Inc., D070206 (4/1  2/23/18) (Dato, Benke, Aaron) (published), interstate commerce was clearly involved.  The plaintiff, a trucker, sued his employer Cornerstone, a "full service employee staffing firm providing assistance to a variety of employers" in California and other states, for employment-related violations.  Furthermore, the plaintiff had routes in California and across state lines.  The trial court, however, determined that the FAA did not apply, that Gentry did apply, and that the class action waiver was unenforceable.

        Why?  Section 1 of the FAA expressly exempts from its coverage all "'contracts of employment . . . of workers engaged in foreign or interstate commerce.'"  Rejecting the employer's argument that the employers' business must be devoted to the transportation industry, the Court of Appeal held that the plaintiff was a worker was engaged in interstate commerce.  Because the FAA did not apply, the Court applied state law, i.e., Gentry, to affirm the trial court's order denying a motion to compel arbitration.

        COMMENT:  Regarding the application of the Gentry factors, an abuse of discretion standard of review applies.  As a refresher, the four Gentry factors are:  (1) the modest size of potential individual recovery; (2) potential for retaliation against members of the class; (3) the fact absent members of the class may be ill informed of their rights; and (4) other real world obstacles to the vindication of class members' rights through individual arbitration.

         While the result in this particular case may seem dramatic, the circumstances are a bit unusual, because it will not be the usual case that, when interstate commerce is involved, the FAA does not apply.