California Mediation and Arbitration

Awards, Jurisdiction: Interim Award Dismissing Claims While Allowing Additional Submissions Was Not Final.

On The Difference Between A Final Award And An Interim Award Dismissing Claims But Leaving The Door Open For Additional Claims.

        In Ortiz v. Elmcrest Care Center, LLC, B330377 (2/3  pub. 11/7/24) (Egerton, Adams, Bershon), Ericka Ortiz, representing the Estate of Jose de Jesus Ortiz, sued Elmcrest Care Center and its staff, alleging elder abuse, neglect, negligence, and fraud. The trial court compelled arbitration. The arbitrator issued an initial "First Interim Award" dismissing the claims, but allowing for additional submissions if issues were identified. Following the Estate’s submission, the arbitrator issued a "Second Interim Award," finding Elmcrest liable for pre-death pain and suffering and awarding damages.

        Elmcrest contested this award, arguing the first was final, and the arbitrator’s amendment was outside her authority. The trial court sided with Elmcrest, confirming the First Interim Award and vacating the Final Award. On appeal, the Court of Appeal reversed the decision, holding that the arbitrator retained jurisdiction to amend the award to resolve omitted issues and directed the trial court to confirm the Final Award, which included the damages awarded for pre-death pain and suffering.

        COMMENT: An interim arbitration award expressly leaving open the door for additional submissions identifying additional issues is not a final award. 

FAA, Appealability, Discovery: 9th Circuit Holds That Non-Reviewable Order Does Not Become Reviewable When Combined With Reviewable Order Denying Arbitration

Two Orders Combined In One Document Did Not Metamorphose Into Single Appealable Order.

 

Metamorphosis of butterfly. Wikipedia article "Metamorphosis".

        The district court denied a motion to compel arbitration brought by the defendant and denied a motion to dismiss for lack of jurisdiction brought by the defendant based, in part on defendant's claim of Section 230 immunity, part of the Communications Decency Act. Both orders were included in a single document labeled as a single "Order". Defendant PeopleConnect, Inc. appealed. John Boshears v. People Connect, Inc. (9th Cir.  8/3/22) (Bea, Bennett, Thomas).

        On appeal, PeopleConnect argued that because the district court issued a single Order, and because an order denying a motion to compel arbitration is immediately reviewable under 9 U.S.C. § 16(a), the district court's order denying the motion to grant immunity and dismiss the case was also reviewable. As Judge Bea explains, this conflates order with document. Yes, there was one document labeled "Order", but it contained two orders. As Judge Bea says, "This all seems fairly commonsensical." If there are two orders here, the conclusion is obvious: the order denying immunity under § 230 is not reviewable at this stage, given the general principle that the federal court of appeal only reviews final judgments. However, the order denying the motion to compel arbitration is reviewable under 9 U.S.C. 16(a). 

        If the legal principles are obvious, why do we have a published opinion? Apparently the panel could not find a case on point, that spotted calf, deciding whether there was jurisdiction in the Court of Appeal to consider the denial of immunity when there was jurisdiction to review the order denying the motion to compel arbitration. The answer is that jurisdiction to consider the order to deny arbitration did not confer jurisdiction to consider the order denying immunity.

        For now, PeopleConnect does not get the immunity that would result in dismissal of the case. However, in a concurrent unpublished Memorandum, the panel holds that the district court abused discretion by denying the motion to compel arbitration without allowing some arbitration-related discovery first. Thus, PeopleConnect gets another bite of the apple. Depending on the results of discovery, the parties could still end up in arbitration. 

 

 

 

Arbitration, Vacatur: California Supreme Court Rules 100-Day Deadline Is Not Jurisdictional And Equitable Tolling/Estoppel Could Apply

Missing The 100-Day Deadline For Seeking Vacatur Of An Arbitration Award Was Not The End Of The Story Here.

        It is not possible to improve on the California Supreme Court's summary of the case and its holding:

        "Law Finance Group, LLC, prevailed in an arbitration against Sarah Plott Key and filed a petition to confirm the award. Key filed a response seeking vacatur of the award, but she did so outside the 100-day deadline prescribed by Code of Civil Procedure section 1288.2. The primary questions now before us are whether, as the Court of Appeal held, this 100-day deadline is jurisdictional and, if not, whether the deadline is subject to the equitable doctrines of tolling and estoppel. We hold that the section 1288.2 deadline neither is jurisdictional nor otherwise precludes equitable tolling or estoppel. We remand for the Court of Appeal to determine in the first instance whether Key is entitled to equitable relief from the deadline." Law Finance Group, LLC v. Key, S270798 (S.Ct.  6/26/23).

        Justice Leondra R. Kruger authored the opinion of the court.

Jurisdiction, International Arb, FAA, Standard Of Review: Ninth Circuit Reminds Us Of Its Limited Ability To Fix Things In Arbitration When They Go Wrong To

It Is With A Heavy Heart That A Ninth Circuit Panel Tells Us It Can't Fix A Mess.

        "This award shows in stark terms the real risks that parties assume when they trade away their right to adjudicate their claims in court for the potential efficiencies of arbitration. When, as here, things go wrong, our power to fix them is uncomfortably, but plainly, limited under the FAA." HayDay Farms, Inc. et al. v. FeeDx Holdings, Inc., 21-55650 anhd 21-55698 (9th Cir.  12/19/22) (Smith, Nelson, Drain).

        The underlying arbitration involved a contract dispute between HayDay Farms, Inc. and Nippon Kokusai Agricultural Holdings, Inc., on the one hand, and FeeDx Holdings, Inc., on the other. A panel of three arbitrators, after four years of arbitration, issued a final award in excess of $21 million in favor of HayDay Farms, Inc. and Nippon. The trial court judge then confirmed the award in part, but removed $7 million from the award. On appeal to the Ninth Circuit, FeeDx argued that the award put HayDay and Nippon in a better shape than if both sides had fully performed the contract, something that California Civil Code § 3358 does not allow: "Except as expressly provided by statute, no person can recover a greater amount in damages for the breach of an obligation, than he could have gained by the full performance thereof on both sides." That was the justification for the district court's decision to remove the $7 million component of the award.

        Before it could address the merits, the Court of Appeals had to address its jurisdiction. HayDay and Nippon had sought to confirm the award in state court, and FeeDx had removed the proceeding to federal court, purportedly under diversity jurisdiction. The federal district court did not address its jurisdiction. In fact, complete diversity was lacking, because a California, Samoa, and Cayman Island corporation were involved, and diversity jurisdiction does not apply to a foreign entity suing a foreign entity. But the Court of Appeals, analyzing its own jurisdiction, found the trial court's jurisdiction to lie in 9 USC § 203, which provides that an action or proceeding falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards shall be deemed to arise under the laws and treaties of the United States. And if the district court had jurisdiction, then the Court of Appeals had jurisdiction under 9 USC § 16 and 28 USC § 1291.

        Next, the Ninth Circuit had to address a question of first impression in its own circuit: whether the standards for vacatur in the Federal Arbitration Act applied for awards governed by the Convention, when the Convention did not specifically say so. Agreeing with other circuits, the Ninth Circuit held that the FAA standards did apply. And the standard, expressed in different ways, is exceedingly tough.

        A plausible interpretation of the contract cannot be overturned. An award that is manifestly irrational and completely disregards the law can be overturned under FAA standards. The "irrationality standard 'is extremely narrow and is satisfied only where the arbitration decision fails to draw its essence from the agreement.'" Does the decision fail to draw its essence from the agreement? Have we entered the realm of the metaphysical?

        In any case, the Court of Appeal held that the arbitral decision was not irrational, and thus it affirmed the award, while reversing the district court, which had removed $7 million from the award.

        And yet it seems to have done so with some pain. Judge Milan wrote that the losing party, FeeDx, "probably offers the best interpretation of the parties’ agreements . . .", while he assures us that the award "was not some form of vigilante justice . . . " And, he wrote, "We share the district court's concern about a seemingly unfair damages award that likely violate § 3358." 

        Small consolation for the losing party. However, these were sophisticated parties that agreed to arbitrate

Jurisdiction, Delegation, Stay: NY Court Is Court Of Competent Jurisdiction To Rule On Motion To Compel Arbitration Involving California Lawyer

At Play: Applicability Of Labor Code § 925 And California Code Of Civ. Proc. § 1981.4.

        The scenario in Jinshu "John" Zhang, Petitioner v. Superior Court of Los Angeles, Respondent; Dentons US LLP et al, real parties in interest, B314386 (2/8  11/9/22) (Grimes, Stratton, Wiley), while not exactly common, is also to be expected. It involves a jurisdictional turf war arising from the circumstance that California employees generally prefer to litigate claims in court on their home turf, to wit, California, whereas employers prefer to arbitrate, and if the employee can be compelled to arbitrate out of state on the employer's home turf, so much the better. But was lawyer Zhang an "employee" of Dentons US, and who decides that question? -- there's the rub!

        The spat between Zhang and Dentons arose over a multi-million dollar contingency fee for a client Zhang brought to the law firm. The lawyer and the law firm had an agreement to arbitrate disputes in Chicago or New York. The arbitration agreement also included a delegation clause providing all issues of arbitrability are to be decided by the arbitrator. Dentons moved in NY to compel arbitration in NY, alleging claims for breach of fiduciary duty, and Zhang sued in LA Superior Court for wrongful termination and other causes of action. Petitioner Zhang moved to enjoin the NY proceedings, and Respondent Dentons moved to stay the LA proceedings pending arbitration in NY.

        Two statutory provisions are particularly relevant to the outcome. First, Labor Code § 925 provides that an employer cannot require, as a condition of employment, that an employee who primarily resides and work in California, agree to adjudicate a claim arising in California outside California. In other words, if Zhang is an employee, then he gets to adjudicate California claims on his home turf. 

        Here, Code of Civ. Proc. 1281.4 comes into play, for it allowed Dentons to argue in the LA court that it should stay its proceedings pending the arbitration in NY. Section 1281.4 provides in part: "If a court of competent jurisdiction, whether in this State or not [i.e., in NY],  has ordered arbitration of a controversy [in NY] which is an issue involved in an action or proceeding pending before a court of this State [California], the court in which such action or proceeding is pending [LA Superior Court] shall, upon motion of a party [Dentons] to such action or proceeding, stay the action or proceeding [in LA] until an arbitration is had [in NY] in accordance with the order to arbitrate or until such earlier time as the court specifies."

        Much of the argument centered on whether the NY court ordering arbitration was a "court of competent jurisdiction," with Zhang arguing that it could not possibly be competent to adjudicate the motion to compel arbitration if he was an employee, because Labor Code § 925 did not allow him as an employee to be forced to adjudicate a California employment claim outside of California. The obstacle that Zhang could not overcome was that the trial court in California, and our Court of Appeal, agreed that the arbitration clause "clearly and unmistakably" delegated issues of arbitrability, including a determination as to whether Zhang was an employee, to the arbitrator. And the court in NY was competent to decide that the issue was delegated to the NY arbitrator.

        COMMENT: If the NY arbitrator decides Zhang was an employee, then jurisdiction will belong in California. But if the arbitrator decides Zhang was not an employee, then the NY arbitrator will decide the merits of the dispute.

 

 

Ninth Circuit Holds Jurisdiction Exists To Enforce Arbitral Document Subpoena In California For International Arbitration Pending In DC

Fighting About Obtaining Discovery In International Arbitration Pending In US . . . 

 

        A problem occasionally encountered in arbitration is getting a court to enforce a document subpoena issued by the arbitrator. That was the problem in Jones Day v. Orrick, Herrington & Sutcliffe, LLP, Michael D. Torpey, Mitchell Zuklie, 21-16642 (9th Cir.  8/1/22) (Wardlaw, Ikuta, Bade).  

        The situation here was that Jones Day sought discovery from Orrick in an arbitration involving a partnership dispute and an attorney who was a German national, the arbitration was in Washington DC, and Orrick is headquartered in San Francisco. The problem that required a solution was finding subject matter jurisdiction in federal court and a means to enforce a subpoena in California.

        The eventual solution, after some misfires, was to get the arbitrator to agree to sit for a hearing in California, have the arbitrator issue a by now "revised" subpoena, and file an action in the USDC, Northern District of California, to enforce the subpoena. While this solution eventually worked, it did not work in the USDC, Northern District, because the judge construed the Federal Arbitration Act to only allow the arbitrator to issue a subpoena where the arbitrator was sitting, i.e., DC. Jones Day then petitioned the Ninth Circuit -- successfully -- in order to enforce the arbitral summonses.

        Judge Wardlaw explains, "[W]e must decide whether an action to enforce an arbitral summons issued by the arbitrator in an ongoing international arbitration under the [New York] Convention also “falls under the Convention.” We join our sister circuits in holding that (1) if the underlying arbitration agreement or award falls under the Convention, and (2) the action or proceeding relates to that agreement or award, then the federal district court has jurisdiction over the action or  proceeding." Here, there was subject matter jurisdiction, because the international arbitration fell under the Convention, and the proceeding to issue summonses for the subpoenas related to the agreement.

        One question remained: where could the subpoenas be enforced? An arbitral subpoena can be enforced by the district court sitting in the district where the arbitration is located pursuant to 9 U.S.C. § 204, but the court in Washington DC lacked personal jurisdiction over Orrick in San Francisco. Solution: "[W]here, as here, that federal district court lacks personal jurisdiction over the party against whom enforcement is sought, we hold that the action may be brought in any district court deemed appropriate under the general venue statute, 28 U.S.C. § 1391, because [9 U.S.C.] § 204 supplements, rather than supplants, other venue rules."

        COMMENT: While Orrick may be displeased with the outcome of this discovery skirmish, the ruling will be welcomed by litigators who seek documents in international arbitration and are sometimes stymied by jurisdictional rules.

 

Arbitration, Jurisdiction: SCOTUS Holds That Federal Courts Do Not Get To Look Through To Underlying Dispute To Determine Jurisdiction When A Motion To Vacate An Award Is Brought

The Rule SCOTUS Applies To Petitions To Confirm Or Vacate Is Different Than The Rule It Applies To Motions To Compel Arbitration.

        In an 8-1 decision, Justice Elena Kagan, writing for the court majority, explains that federal courts, when determining whether federal jurisdiction exists to decide a petition to vacate an arbitration award, should not look to the underlying dispute. Badgerow v. Walters et al,  No. 20-1143 (S.Ct. 3/31/22). This is different from the jurisdictional approach taken by SCOTUS when a motion to compel arbitration is brought in federal court under the Federal Arbitration Act, 9 USC § 4. Vaden v. Discover Bank, 556 U. S. 49 (2009).

        In Vaden, the court explained that a motion to compel arbitration was brought under a statutory provision that required the court to look at the underlying dispute, based on the statutory language of § 4. The first sentence of that section provides: "A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement." (italics added). The court interpreted the "save for" language to mean that the court analyzed jurisdiction as if an arbitration agreement did not exist, and therefore looked instead at whether there was a basis for  federal jurisdiction, e.g., diversity jurisdiction or a federal question. Merely because the FAA is invoked does not mean there is a basis for jurisdiction.

        Badgerow v. Walters was a wrongful employment case in which the employee Badgerow brought a lawsuit for unlawful termination against her employer in state court. She received an adverse award and moved in state court to vacate the award. The employer removed the case, which had included federal claims in the arbitration, to federal court, Badgerow sought to remand. Assessing its jurisdiction under the Vaden analysis, the district court held on to jurisdiction, and it was affirmed by the court of appeals. However, Justice Kagan saw the matter differently, because the provisions of the FAA governing motions to confirm and vacate an award (§§ 9 & 10) do not include "save for" language and do not necessitate looking at the underlying dispute to determine whether jurisdiction exists. On its face, the application to the district court did not establish federal jurisdiction. 

        COMMENT: This is an 8-1 decision, with only Justice Stephen Breyer dissenting. There  is a  boring slab of business-as-usual cases in which the Supreme Court does its work without brouhaha. This case is one example.

Arbitration, Appealability, Jurisdiction, Celebrities: Second District, Div. 7 Declines To Consider Interim Award Of Preliminary Injunctive Relief

Interim Rulings By An Arbitrator Are Not  Reviewable Until A Final Award Is Issued.

        Charlotte Kirk, an actress,  entered into a confidential settlement agreement in 2017 with four men who were entertainment industry executives. The agreement contained an arbitration clause. Claiming that Kirk violated the settlement agreement, the executives filed an arbitration demand naming Kirk, her fiance Neil Marshall, and  two other respondents, and obtained from an emergency arbitrator injunctive relief to enforce confidentiality provisions and to prevent the filing of a lawsuit that  would make confidential information public. Kirk and respondents filed a petition in superior court to vacate the preliminary injunction. The court denied the petition because the preliminary injunction was not an appealable final award, and the  Court of Appeal affirmed. Kirk v. Ratner, B309880 (2/7   2/10/22) (Perluss, Segal, Feuer).

        Cases teach that, "in the context of a series of rulings . . . a particular ruling is an ‘award’ only if that ruling (1) ‘determine[s] all issues that are necessary to the resolution’ of ‘“the controversy”’ being subject to arbitration, and (2) leaves unresolved only those ‘issues’ that are ‘potential,’ ‘conditional’ or that otherwise ‘could not have been determined’ at the time of the ruling.” In Kirk, the Court of Appeal concluded that there was  no "award."

        COMMENT: Apparently the confidential settlement agreement in Kirk settled, among other things, "Kirk’s claims of sexual harassment, infliction of emotional distress and defamation." Perhaps this explains why the entertainment executives did not want the allegations appearing in public pleadings. And there may have been other motives for  keeping other information confidential, e.g., whether money changed hands as part of the settlement, and if so, how much money. These are common reasons for moving claims of sexual harassment into arbitration, and cloaking the arbitration proceeding in confidentiality. In February 2022, Congress moved to end forced arbitration of sexual assault and sexual harassment claims by amending the Federal Arbitration Act. See the February 17, 2022 post by the Procopio law firm. 

 

Arbitrability, Delegation, Enforceability, Jurisdiction, Unconscionability: A Trifecta of Ninth Circuit Published Opinions

August 12, 2021 Was A Day Rich In 9th Circuit Arbitration Decisions.

Santiago Lim v. TForce Logistics, LLC, No. 20-55564 (9th Cir.  8/12/21) (Smith, Owens, Robreno).

        This case is about the gateway decision of arbitrability, delegation of that decision, and unconscionability. The panel holds that the delegation and arbitration clauses are procedurally and substantively unconscionable. Because the delegation clause is unconscionable, the court, not the arbitrator, gets to decide whether the arbitration clause  is enforceable, and agrees that that too is unconscionable. The provisions are "take it or  leave it", require costs splitting between the employer and the purported "independent contractors", call for  fee-splitting, and have a Texas venue provision.

CLMS Management Services LP v Amwins Brokerage of Georgia, 20-35428 (9th Cir. 8/12/21) (Christen, Hawkins, McKeown).

        This case presents an international law question: does the doctrine of reverse-preemption apply to a clause in an insurance contract, such that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a multilateral treaty, is  preempted by a Washington State rule that arbitration clauses in insurance contracts are not enforceable? Ordinarily, state law applies to insurance contracts, and in fact the McCarran-Ferguson Act can operate to reverse-preempt laws that contradict state law. However, in the case of treaties, a rule applies that  treaties that are "self-enforcing" are not preempted by state law. What does that  mean?

        A treaty is "self-enforcing" if it can be directly enforced in court  without the need for implementing legislation. The panel holds that the Convention the the Recognition and Enforcement of Foreign is self-enforcing. And therefore, reverse preemption does not  apply. And because Washington State law cannot be applied to invalidate the arbitration provision, it is enforceable.

Al-Qarqani v. Chevron, No. 19-17074 (9th Cir. 8/12/21) (Thomas, Kelly, Miller). 

        No small potatoes here, as the panel affirms the district court's refusal to allow enforcement of an $18,000,000,000 Egyptian arbitration award against Chevron. The core ruling is about jurisdiction.

        The heirs of an official who entered into a land concession agreement with Chevron in 1949 claimed entitlement to rent, and evidently the Egyptian arbitrators agreed. But when it  came time to petition to enforce the arbitral award under an arbitration agreement entered into earlier in 1933, the district court held that the parties never agreed to arbitrate, and therefore it denied enforcement on the merits.

        The Court of Appeals held that the  heirs had failed to make a non-frivolous argument for jurisdiction as to Chevron USA, which was not named in the Egyptian award, and because no non-frivolous argument for jurisdiction had been made, the Court could affirm the dismissal for lack  of subject-matter jurisdiction. (If the heirs had made a non-frivolous argument in favor of jurisdiction, then the Court would have assumed subject-matter jurisdiction).

        As to Chevron Corporation, the facts were a little different. The 1949 agreement failed to incorporate the 1933 arbitration agreement. As for the 1933 agreement with the arbitration clause, it had been signed by Saudi Arabia, not the heirs, and Chevron Corporation's rights and obligations under that earlier agreement had expired. The absence of an agreement to arbitrate was a reason to dismiss the petition to enforce the award on the merits rather than for a lack of jurisdiction

 

 

 

Arbitration, Appealability, Jurisdiction, Existence of Agreement: District Court Should Have Summarily Ruled On Existence Of Agreement Before Denying Motion To Arbitrate

There Is A Method To This . . . 

        Before I get to the case, I should mention that I'm playing "catch up." I've fallen somewhat behind on posting, between a busy mediation calendar and some travel to visit a newly born child in the family. But it's the weekend, so let's see how much we can get done.

        Bill Hansen v. LMB Mortgage Services, Inc., et al., No. 20-15272 (9th Cir.  6/11/21) (Ikuta, Nguyen, Eaton) presented a jurisdictional question. Plaintiff Hansen opposed LMB Mortgage Services, Inc and CPL Assets, LLC's (collectively LMB) motion to compel arbitration. The district court issued a nonfinal order denying the motion and decided to schedule a  trial to determine whether there was a binding agreement to arbitrate. LMB appealed.

        LMB's appeal presented a threshold jurisdictional issue. Ordinarily interim orders are not appealable. However, as Judge Ikuta explains, under 9 USC §16, an order denying a petition to compel arbitration under §4 of the FAA is appealable, whether it is an interim or final order. So the  Ninth Circuit could consider the appeal of the interim order.

        What should the district court have done? It should have summarily tried the issue of whether an agreement to arbitrate existed, before deciding the motion to arbitrate. So the Ninth Circuit vacated the district court's denial of the motion to compel and  remanded for the district  court to  "proceed summarily to the trial" on the  question of  whether plaintiff is required to arbitrate.