California Mediation and Arbitration

Mass Arbitration: 9th Circuit Holds Mass Arbitration Approach Employed By Ticketmaster Is Unconscionable

Mass Arbitration Model For Batching Together Claims With Common Legal Or Factual Issues Held To Be Unconscionable.

        The Ninth Circuit affirmed the district court's denial of Live Nation and Ticketmaster’s motion to compel arbitration in a Sherman Act antitrust class action. Skot Heckman et al. v. Live Nation Entertainment, Inc.; Ticketmaster, LLC, No. 23-55770 (9th Cir. 10/28/24) (Fletcher, Christen; dissenting, VanDyke). Plaintiffs alleged anticompetitive practices in online ticket sales. The arbitration agreement, involving mass arbitration through a novel entity (New Era ADR), was deemed unconscionable under California law and unenforceable. The court also ruled that the Federal Arbitration Act (FAA) does not preempt California's unconscionability principles or its Discover Bank rule prohibiting class action waivers in consumer adhesion contracts.

        Judge VanDyke concurred in the judgment, arguing the FAA does not apply to New Era’s mass arbitration model because it fundamentally deviates from the bilateral arbitration Congress envisioned when enacting the FAA in 1925. Consequently, California’s Discover Bank rule applies, rendering the class action waiver in the agreement unconscionable and unenforceable.

        COMMENT: The ruling underscores the difficulty devising fair mass arbitration models. And the concurrence points to the incompatibility of bilateral arbitration with multiparty mass or class arbitration.

FAA, Interstate Transportation Workers: 9th Circuit Affirms Airline Fuel Technician Falls Within FAA Transportation Worker Exception

Interstate Transportation Workers Are Exempted From Arbitration Under The Federal Arbitration Act.

        We have been remiss reporting on 9th Circuit cases since mid-July 2024. Now, we're doing a little catch-up.

        An airline fuel technician qualifies as a transportation worker engaged in foreign or interstate commerce, and thus he is exempt from the FAA's arbitration requirements under Section 1. Danny Lopez v. Aircraft Service, Int'l, Inc., and Menzies Aviation (USA), Inc. , No. 23-55015 (9th Cir. 7/19/24) (Rawlinson, Melloy, Thomas). The case reinforces the FAA's exemption for transportation workers, emphasizing the functional role of such workers in facilitating interstate and international commerce.

        COMMENT. What is the rationale behind the FAA exemption for seamen and interstate transportation workers? In 1925, when the FAA was enacted, maritime and railroad workers already had developed specialized labor dispute resolution procedures, and perhaps Congress did not want to interfere. Such workers are essential to the flow of commerce, perhaps too explaining their special treatment.

The Second District, Div. 1 Agrees That Ending Forced Arbitration Of Sexual Assault And Sexual Harassment Act Applies To "Mixed Cases"

The Agreement Is With The Second District, Division 3.

        The Ending Forced Arbitration Of Sexual Assault and Sexual Harassment Act (EFAA) amended the Federal Arbitration Act by exempting claims of sexual assault and sexual harassment from forced arbitration. An issue that cases addressing the EFAA have faced is whether in a mixed case, involving claims of sexual assault and harassment as well as other claims, the EFAA exempts just the assault and harassment claims or the entire case from arbitration.

        The California Court of Appeal, Second District, Div. 1, agrees with the Second District, Div. 3, that in mixed cases, the entire case is exempt from arbitration. Yongtong Liu v. Minisco Depot CA, Inc., et al., B338090 (2/1  10/7/24) (Weingart, Rothschild, Kline).

Employment, Civil Rights, FAA: The Second District, Div. 3 Applies The Ending Force Arbitration of Sexual Assault And Sexual Harassment Act

The Case Clarifies How The EFAA Should Apply To Arbitrating Cases Stradling The Effective Date Of The EFAA, And To Mixed Cases Involving Sexual Harassment And Other Claims.

        Jane Doe brought claims of sexual harassment and related violations by her employer, The Huntley Hotel. The employer sought to compel arbitration. The court ruled that the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act (EFAA) applies, which makes arbitration agreements unenforceable at the plaintiff's discretion in sexual harassment disputes. The Court of Appeal affirmed the trial court's order denying a motion to compel arbitration. Jane Doe v. Second Street Corp., B330281 (2/3  9/30/24) (Edmon, J.). Since Doe's harassment claims included conduct both before and after the EFAA’s effective date (March 3, 2022), the arbitration clause is invalid for her entire case, not just the sexual harassment claims. Additionally, the court determined that the arbitration provision in the employee handbook cannot be enforced for any of Doe's claims, as they are part of the same case. 

        COMMENT:  The case applies the EFAA in a significant and evolving area of employment law, regarding arbitration agreements in cases involving sexual harassment. The decision clarifies key legal points: 1. Application of the EFAA: The court interpreted how the EFAA applies to cases involving ongoing sexual harassment that straddles the act’s effective date (March 3, 2022), applying the EFAA to preclude arbitration of a case straddling the effective date.  Arbitration in Mixed Claims: The ruling emphasized that under the EFAA, arbitration agreements are unenforceable not just for the sexual harassment claims but for the entire case if any part relates to sexual harassment. This broad interpretation is significant because it would prevent employers from compelling arbitration in cases that contain a mix of claims (sexual harassment alongside other employment violations), expanding protections for plaintiffs in similar cases.

Deadlines, Preemption: First Dist. Div. 1 Agrees That 30-Day Deadline To Pay Arbitration Fees Is Not Preempted

The California Courts Are Divided.

        One more case lines up with those courts holding the 30-day deadline requirement in consumer and employment cases, set by Cal. Code of Civ. Proc. § 1281.98, for the drafting party to pay arbitration fees, is not preempted by the Federal Arbitration Act. Keeton v. Tesla, Inc., A166690 (1/1  6/26/24) (Wilson, Humes, Siggins).

        COMMENT: We agree that Keeton v. Tesla, Inc. is in accord with most California cases that have addressed the subject. See our sidebar category "Deadlines". However, the law is unsettled. On 7/3/24, we blogged about Hernandez v. Sohnen Enterprises, Inc., which holds that when the agreement is governed by the Federal Arbitration Act, § 1281.98 is preempted. Justice Wiley in a dissent has staked the same preemption position in Hohenshelt v. Superior Court. See my 4/11/24 blog post.

        Eventually this split of opinion will need to be decided by a higher court. That's my opinion.

Deadlines, Federal Preemption: California Judges Disagree About Whether 30-Day Deadline To Pay Fees Furthers Purpose Of Arbitration

Thirty-Day Deadline Applies.

        The Court of Appeal, Fifth District, following the weight of California precedent, applies California Code of Civ. Proc. § 1281.98, requiring that the party who has drafted an arbitration agreement must pay arbitration fees within 30 days of when they are due, or else the other party gets an option to reject arbitration and litigate instead. In Reynosa v. Superior Court (Real Party in Interest Advanced Transportation Services, Inc., F086342 (5th Dist.  5/6/24) (Detjen, Meehan, Snauffer), employee Reynosa did not expressly agree to the extension of a due date for his employer to pay arbitration fees, and the employer did not pay within 30 days, in violation of 1281.98. The Court of Appeal issued  a writ of mandate issue directing the Superior Court to vacate its  order denying plaintiff Reynosa’s motion to withdraw from arbitration. and to enter an order granting Reynosa's motion to withdraw from arbitration.

Thirty-Day Deadline Does Not Apply If There Is Federal Preemption.

        The arbitration agreement stated "this agreement is governed by the FAA" in Hernandez v. Sohnen Enterprises, Inc. B323303 (2/5  5/22/24). Justice Moor, writing for the majority, explains that this results in federal preemption of California procedural and substantive provisions. Furthermore, the majority takes the position that the California requirement of payment within 30 days unduly burdens arbitration. Usually, a payment deadline is only enforce in a contract if time is of the essence and the breach is material. Thus, the majority opinion aligns with Justice Wiley's dissent in Hohenshelt, and in fact cites to Wiley's dissent in footnote 8 of the Hernandez opinion.

        Justice Baker, dissenting, believes there is no preemption. He takes the position, consistent with other California cases, that the statutory 30-day limit to pay fees furthers the goal of arbitration by preventing employers from compelling arbitration and then delaying arbitration by not paying fees. "The majority’s opinion rather obviously invites a grant of review from our Supreme Court," writes Justice Baker.

        COMMENT: I have written about conflicting California and Federal views of whether California is a friend or foe of arbitration, as well as about Justice Wiley's dissent in Hohenshelt. For my April 10, 2024 article in the Daily Journal, use this link to the ARC website. I also have an April 11, 2024 blog post on the subject.

 

Arbitration, Deadlines, FAA Preemption: California: Friend Or Foe Of Arbitration?

Our Article In The Daily Journal Examines Hohenshelt v. The Superior Court.

        Our article in the April 10, 2024 Daily Journal begins: "The majority and minority opinions in a recent California appellate decision highlight the conflict between California and federal attitudes about arbitration. The case is Dana Hohenshelt v. The The Superior Court of Los Angeles County; Golden State Foods Corp. (real party in interest) (2024) 99 Cal.App.5th 1319.  The majority opinion, authored by Justice Maria Stratton, claims to further the objectives of arbitration. Sharply dissenting, Justice John Shepard Wiley Jr. writes, “Judged by actions, California law over the last few decades . . . has not been a friend of arbitration.”

        The narrow issue raised by the case concerns the application of Cal. Code of Civ. Proc. § 1281.98. This is the provision requiring payment within 30 days of arbitration fees and costs by drafters of arbitration agreements, or else the right to arbitrate is waived, and consumers and employers can then choose to arbitrate or litigate. The majority opinion joins the many California cases that have strictly interpreted the statute, leading to waiver of the right to arbitrate by employers and corporations that miss the due date for payment. The majority opinion claims that the prompt payment requirement furthers the purpose of arbitration, and prevents the abuse of initiating arbitration and leaving it in limbo.

        Justice Wiley, dissenting, lays out the argument that this statute unfairly burdens arbitration agreements more than other contracts. As a result, he concludes that it is preempted by the Federal Arbitration Act. Because preemption relies on the Supremacy Clause, it presents an issue of constitutional significance. Justice Wiley suggests that once again the US Supreme Court will eventually send a message that California law concerning arbitration is preempted by the FAA.

 

 

Arbitration, Deadlines: Once Again, Requirement In Employment And Consumer Arbitration To Pay Fees In 30 Days Is Strictly Interpreted

California Courts Have Posted Plenty Of Warnings About The 30-Day Deadline To Pay The Arbitration Fees Or Lose The Right To Arbitrate.

        And we have posted plenty of times about those warnings about this particular deadline. The latest warning that the 30-day deadline found in Cal. Code of Civ. Proc. § 1281.97 will be strictly interpreted is to be found in an employment law case, Suarez v. Superior Court of San Diego; Real Party in Interest, Rudolph & Sletten, Inc., D082429 (4/2  1/24/24) (Dato, O'Rourke, Do).

        JAMS issued an e-mail invoice on December 2, 2022 marked "due upon receipt." It was undisputed that the employer did not pay its share before January 4, 2023, more than 30 days after the amount was due. The employer argued that its time to pay was extended for two reasons. First, January 1 was a Sunday and January 2 was a holiday. Second, the employer argued it should get two more days on top of the holiday, based on § 1010.6, pertaining to electronic filing of court documents. However, neither argument had traction, because the 30-day deadline provision for paying arbitration fees does not relate to motions or to documents filed with the court.

        COMMENT: It is surprising that parties miss the strict deadline by only a few days in reported cases. The lesson here, for employers and providers of consumer products who want to arbitrate, is do not wait till the last moment to pay fees.

        At the end of the opinion, the court lets drop, "[W]aiver and material breach do not automatically remove a matter from arbitration. Instead, the employee is given the option of resolving the stagnant dispute in an action before the court." Evidently the Court of Appeal is concerned that the strict deadline, if interpreted to impose an extra burden on arbitration, could result in an FAA preemption argument.

 

 

Arbitration, Service: 9th Circuit Accepts Service On Foreign Party By Mail -- Under The Circumstances

District Court Was Right, But For The Wrong Reasons.

        The Court of Appeals decided three issues in Voltage Pictures, LLC v. Gussi, S.A., No. 23-55123 (9th Cir. 2/5/24) (M. Smith, Lee, Vandyke): subject matter jurisdiction, service, and comity. The underlying dispute, concerning rights under a Distribution and License Agreement, resulted in an arbitration award in favor of Voltage Pictures, which the district court had confirmed.

        The district court held that it had jurisdiction to confirm the arbitration award because there was diversity between US-based Voltage Pictures and Gussi. While the Federal Arbitration Act enables federal courts to confirm arbitration awards, there must still be an independent basis for jurisdiction, and the Court of Appeals, doubtful that complete diversity had been established, rejected diversity as the district court's basis for accepting jurisdiction. However, 9 U.S.C. 203 "vests federal district courts with subject matter jurisdiction over motions seeking to confirm non-domestic arbitral awards." Gussi was a non-domestic party, and that provide the independent basis for jurisdiction.

        Second, the district court erred in finding that California law provided the basis for service for mail on the foreign entity. However, Judge Smith found another way find that service by mail on Gussi's attorney was sufficient under the circumstances. Gussi did not reside in the Central District of California, and was not available for service in any other federal district in the US. Therefore, the FAA provisions, 9 USC § 9, governing service of residents of the district or elsewhere in the US, simply did not apply to the serving someone unavailable in the US. Relying on 9 USC § 6¹, Judge Smith explained that a summons was not required to confirm an arbitration award, only an application, and that notice of an application could be accomplished by the same means as providing notice of a motion: service on the party's attorney.

        Third, the district court did not abuse authority by refusing to extend comity to an order from a Mexican court to enjoin the confirmation of the arbitration award. Gussi failed to properly authenticate the foreign order.

        COMMENT. As Judge Smith observed, "We may affirm a district court’s decision 'on any ground supported by the record even if not explicitly relied upon by the district court.' Johnson v. Barr, 79 F.4th 996, 1003 (9th Cir. 2023)." And that's what happened here.

¹"Any application to the court hereunder shall be made and heard in the manner provided by law for the making and hearing of motions, except as otherwise herein expressly provided."

 

 

 

Health Care, FAA: Second District Div. 8 Holds That Health Net And County Arbitration Provisions Failed To Comply With Statutory Requirements

Health And Safety Code Section 1363.1 Is The Relevant Provision.

        Section 1361.1 provides that "[a]ny health care service plan that includes terms that require binding arbitration to settle disputes and that restrict, or provide for a waiver of, the right to a jury trial shall include, in clear and understandable language, a disclosure that meets" certain conditions. Among other things, there must be a clear statement as to whether the plan requires binding arbitration and the "contract or enrollment agreement for a health care service plan, the disclosure required by this section shall be displayed immediately before the signature line provided for the representative of the group contracting with a health care service plan and immediately before the signature line provided for the individual enrolling in the health care service plan."

        The requirements of § 1363.1 were at issue in Baglione v. Health Net of California, Inc., B319659 (2/8 filed 11/27 pub. 12/6/23) (Stratton, Grimes, Viramontes). The court holds that the requirements must be satisfied in the employee's enrollment form as well as in the contract between Health Net and the County of Santa Clara; that the requirement is for the benefit of the employee in the contract with the contract with the County, so that the employee has standing to sue if Health Net's agreement with the County did not meet the requirements; and that § 1363.1 will be strictly interpreted. Here, the statutory requirements were not satisfied.

        The court also rejected the argument that the FAA preempted the application of the California statute. The court explained: "'The McCarran-Ferguson Act deprives Congress of the power to invalidate state law “regulating the business of insurance.' (15 U.S.C. § 1012(b).) Section 1363.1 'does regulate the business of insurance within the meaning of McCarranFerguson'."

        Thus, there is no preemption, and the trial court's order denying the request to arbitrate is affirmed.