California Mediation and Arbitration

Arbitration, Construction, Scope: Arbitration Agreement Governing “Any Controversy Arising Out Of” Operating Agreement Did Not Cover Malpractice, Breach Of Fiduciary Duty, And Rescission

Second District, Division One Provides In-Depth Discussion Of Whether Arbitration Clause Is Broad Or Narrow.

     An issue that comes up repeatedly is whether an arbitration clause is broad enough to encompass tort claims.  Our next case, certified for publication, is worth reading because it offers an in-depth analysis of how to determine the scope of an arbitration clause.

     Downs, an attorney, entered into an LLC operating agreement he drafted with Rice, a client, and others.  Client Rice and others sued attorney Downs for legal malpractice, breach of fiduciary duty, and breach of a written agreement.  The superior court ordered Rice to arbitrate his claims pursuant to an arbitration provision in the written agreement. After arbitration, Rice and Downs appealed, raising various contentions, including Rice’s contention that the arbitration provision did not encompass his tort claims. In an opinion authored by Justice Lui, the Court of Appeal agreed with Rice that the trial court erred by compelling arbitration of those claims, and partially reversed, while concluding other contentions on appeal were moot.  Rice v. Downs and Downs v. Rice, Nos. B261860 and B264964 (2/1 June 1, 2016).

     The arbitration agreement governed “any controversy arising out of” the LLC operating agreement.  The Court agreed that “any controversy” can included tort claims, but explained that “arising out of” language is narrower than “arising out of and in connection with” or “arising out of and relating to” language.  “Moreover, even under a very broad arbitration provision, such as ‘any controversy or claim arising out of or relating to this agreement,’ tort claims must ‘ “have their roots in the relationship between the parties which was created by the contract” ‘ before they can be deemed to fall within the scope of the arbitration provision.”  Citing Bos Material Handling, Inc. v. Crown Controls Corp.,137 Cal.App.3d 99, 105 (1982). 

      Parsing the language of the arbitration clause, which happened to be narrower than a preceding judicial jurisdiction clause in the LLC operating agreement, the Court concluded that the tort claims were not governed by the narrower arbitration clause.

Arbitration, Construction Of Agreement: Construing Agreement Between Two Communications Companies To Allow Arbitration, Ninth Circuit Avoids Gnarly Statutory Construction

Course Of Conduct By The Parties Weighed Heavily In Construing Their Conduct.

     North County Communications of Arizona v. Qwest Corporation, No. 14-35254 (9th Cir. May 31, 2016) (Scannlain, Silverman, Bea) involves two communications carriers, North County and Qwest, in a messy billing dispute, construction of their “interconnection agreement” (ICA), and the panel’s skillful avoidance of having to interpret the Telecommunications Act of 1996 (“Act”).  The issue making the case blog-worthy was whether Qwest could compel arbitration of the billing dispute between the two carriers. 

     At first blush, it appeared which party initiated the arbitration could be significant   On its face, the Act allowed competitive local exchange carriers (CLECs) to initiate negotiations and to compel arbitration.  However, the Act did not explicitly state that incumbent local exchange carriers (ILECs) that had a monopoly on local phone service in a particular geographic area prior to the Act could initiate the negotiation/arbitration process.  Qwest is an ILEC, and North County is a CLEC, and it was Qwest that sought to compel arbitration. 

     Allowing Qwest to initiate the arbitration would have required deft interpretation of the Act.  The panel would have had to conclude that the language of the Act was not determinative, that an obscure FCC footnote no. 2,087 in a 659 page document should be given great interpretive weight, and that any other interpretation would be contrary to the purpose of the Act – a process that the late Justice Scalia once colorfully characterized as “interpretive jiggery-pokery.”

      So the Court took a simpler route.  It looked to the language of the ICA – the agreement between the parties – finding there guidance that the parties intended either side could initiate arbitration (though the particular provision relied upon did not actually mention arbitration).  More persuasive was the parties’ course of conduct, for North County agreed to a series of extensions of the time to file an arbitration, specifically agreeing to extend “the period during which either party may file for arbitration” under the Act.  The repeated conduct of the parties was given great weight in interpreting their contractual intent as intent to allow either party to initiate arbitration.

Arbitration/Scope: Ninth Circuit Holds That Antitrust Claims Fell Outside Scope Of Agreement To Arbitrate Fishermen’s Opposition To Marketing Arrangement Of Seafood Companies

Fish Story Weighed On Scales Of Justice Results In 2-1 Opinion.

New Orleans writer and television personality Ronnie Virgets is served the house specialty, ice-cold oysters on the half shell, by Alma Griffin at Casamento's Seafood Restaurant in Uptown New Orleans, Louisiana.  Carol M. Highsmith, photographer.  Between 1980 and 2006.  Library of Congress.

     Motions to compel arbitration often turn on the scope of the arbitration clause – and “Scope” is one of this blawg’s sidebar categories.  Federal courts look to “general state-law principles of contract interpretation, while giving due regard to the federal policy in favor of arbitration by resolving ambiguities as to the scope of arbitration in favor of arbitration.”  Boardman v. Pacific Seafood Group, Nos. 15-35257/15-35504 (9th Cir. May 3, 2016) (Tashima, author; Bea, conc., Gilman, conc. and dissenting in part), quoting Wagner v. Stratton Oakmont, Inc., 83 F.3d 1046, 1049 (9th Cir. 1996)..

     In Boardman, Judge Tashima, writing for the majority, concluded that the claims of plaintiffs/fishermen were not within the scope of an earlier resolution agreement, providing that claims about any new agreement requiring Pacific Seafood Group to act as the exclusive marketer of any seafood product produced by Ocean Gold Seafoods would be submitted to a federal district court judge or magistrate for resolution.  The new claims were antitrust claims arising from Pacific Seafood’s plan to acquire Ocean Gold’s stock, and Judge Tashima saw a difference between purchase plans and marketing plans.

     Judge Gilman agreed with the majority opinion’s holding that the district court’s granting of a preliminary injunction was not an abuse of discretion, but believed that the majority’s conclusion that the fishermen’s claims “clearly and ambiguously fall outside the scope” of the agreement contravened the “emphatic federal policy in favor of arbitral dispute resolution,” citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614.

Scope: Agreement To Arbitrate Substantive Issues Did Not Include Agreement To Arbitrate Pending Discovery Issues

When Court Dispute Is Bifurcated By Arbitration Agreement, Pay Careful Attention To Scope Of Arbitration Agreement. . .

     Vlahopouliotis v. Vallarta Properties, LLC, Case No. G069832 (5^th Dist. Feb. 1, 2016) (unpublished), presents an interesting scenario:  Plaintiff and Defendant, owners of different parcels in a shopping center, ended up in a lawsuit concerning their respective obligations.  That led to a further discovery dispute.  A ray of light appeared when the parties agreed to arbitrate “any and all claims set forth in the pleadings”.

     However, darkness descended when the trial court proceeded to hear pending discovery disputes, and to impose sanctions on plaintiff and his attorney. On appeal, plaintiff challenged the denial of a motion to compel arbitration of the discovery dispute, and the amount of sanctions. 

     The Court of Appeal concluded that the parties had agreed to arbitrate only the claims set forth in the pleadings, and that the arbitration agreement did not include an agreement to arbitrate pending discovery disputes.  Of course, the arbitrator would get to decide new discovery disputes that may arise in arbitration.  Affirmed.

     COMMENT:  Whenever a case starts in court, and then moves to arbitration pursuant to agreement, it is important when drafting the agreement to scrutinize the scope of the arbitration.  Here, the scope of the arbitration did not include the pending discovery disputes, and that made a material difference.

Scope: Agreement To Arbitrate Substantive Issues Did Not Include Agreement To Arbitrate Pending Discovery Issues

When Court Dispute Is Bifurcated By Arbitration Agreement, Pay Careful Attention To Scope Of Arbitration Agreement. . .

     Vlahopouliotis v. Vallarta Properties, LLC, Case No. G069832 (5^th Dist. Feb. 1, 2016) (unpublished), presents an interesting scenario:  Plaintiff and Defendant, owners of different parcels in a shopping center, ended up in a lawsuit concerning their respective obligations.  That led to a further discovery dispute.  A ray of light appeared when the parties agreed to arbitrate “any and all claims set forth in the pleadings”.

     However, darkness descended when the trial court proceeded to hear pending discovery disputes, and to impose sanctions on plaintiff and his attorney. On appeal, plaintiff challenged the denial of a motion to compel arbitration of the discovery dispute, and the amount of sanctions. 

     The Court of Appeal concluded that the parties had agreed to arbitrate only the claims set forth in the pleadings, and that the arbitration agreement did not include an agreement to arbitrate pending discovery disputes.  Of course, the arbitrator would get to decide new discovery disputes that may arise in arbitration.  Affirmed.

     COMMENT:  Whenever a case starts in court, and then moves to arbitration pursuant to agreement, it is important when drafting the agreement to scrutinize the scope of the arbitration.  Here, the scope of the arbitration did not include the pending discovery disputes, and that made a material difference.

Public Policy And Florida Choice Of Law Result In Affirmance Of Order Partially Denying Defendant’s Motion To Compel Arbitration

 

Arbitration of Unlawful Group Boycott Claim Under California Cartwright Act Was The Juicy Florida Choice Of Law Law Issue.

    HCF Insurance Agency v. Patriot Underwriters, Inc., Case No. B257715 (2/5 May 27, 2015) (unpublished) involved a dispute between plaintiff insurance broker, and defendant program administrator/underwriter, partially governed by an arbitration clause.  The Court of Appeal affirmed the trial judge’s order that causes of action for contract breach and breach of the covenant of good faith and coverage were within the scope of the arbitration agreement, but that causes of action for fraud and intentional interference with economic advantage were not within the scope.

    However, the cause of action for unlawful group boycott, in violation of California’s Cartwright Act, raised an interesting issue of public policy and choice of law.  The dispute, which was within the scope of the arbitration clause, was governed by a Florida choice-of-law provision.  Florida law did not provide a remedy for losses resulting from antitrust violations outside Florida, and plaintiff’s alleged damages were sustained in California.  Florida law also provides an arbitration agreement is unenforceable if it violates public policy, and such a violation occurs when an arbitration agreement diminishes available remedies.  Thus, the Court of Appeal reasoned that the arbitration clause must be invalid under Florida law, because arbitration under Florida law would diminish the remedies of plaintiff for injury in California under the Cartwright Act, violating Florida public policy.

     COMMENT:  Under the Federal Arbitration Act, claims that an arbitration provision violates state public policy don’t get much traction these days.  However, even under the FAA, the parties can agree to choice of law, and here, the parties agreed to apply Florida law to their dispute.

Arbitration, Construction of Agreement, Scope: Law Firm’s Efforts To Compel Arbitration Of Malpractice Claim Are Doomed By Arbitration Provision That Did Not Clearly Encompass Earlier Transactional Work

Arbitration Provision Clearly Applied To Litigation, But Not To Earlier Transactional Work.

     Nordman Cormany Hair & Compton, formerly in business for 75 years in Ventura County, appealed an order denying its petition to compel arbitration of a legal malpractice lawsuit. Aggeler v. Nordman Cormany Hair & Compton, B253566 (2/6 April 27, 2015) (Gilbert, Yegan, Perren) (unpublished).

     The Nordman firm had done transactional work for plaintiffs in 2005 in connection with their ownership of a mobilehome park.  After the owners became embroiled in a legal dispute with the residents in 2009, the Nordman firm represented the owners in litigation.  The retention agreement for the litigation matter contained an arbitration provision.

      In 2013 the owners sued the Nordman firm for malpractice.  However, the owners’ alleged malpractice claims involved the Nordman firm’s “drafting of a contract” in 2005.  Unfortunately for the law firm, it was not clear that the arbitration provision, prepared in connection with the 2009 litigation, applied retroactively to cover the 2005 transactional work that was the source of the malpractice claim. 

     Affirmed.

     COMMENT:  The Court explains, “We consider how a reasonable client would interpret the provision as well as the reasons why the client sought the professional services.”  The problem here was that the agreement did not explicitly mention legal services provided in 2005, and thus a reasonable client would not necessarily know that the agreement would apply retroactively.  Lawyers get saddled with the consequences of poorly drafted retention agreements “because of the fiduciary nature of the relationship.”

Arbitration, Scope, Nonsignatories, Agents: Broadly Worded Arbitration Clause Not Broad Enough To Include Labor Code Claims

But Court Of Appeal Does Reject Arguments That Nonsignatories Lacked Standing And That They Waived Right To Compel Arbitration – Before Addressing “Crucial Issue Of Scope

     In Williams v. Digius, et al., D064183 (4/1 April 24, 2015) (McDonald, McConnell, Haller) (unpublished), the Court of Appeal agreed with appellants, who had not signed an arbitration agreement, that they nevertheless had standing as agents of a signatory to demand arbitration, and also agreed that, despite appellants’ conduct inconsistent with arbitration, they had not caused so much prejudice to respondent as to have waived their right to arbitrate.  Then, however, the Court of Appeal addressed the “crucial issue”  – the scope of the arbitration clause – and sided largely with respondent, concluding that his Labor Code section 229 claims were outside the scope of the broad arbitration clause.

     This case involved an employment dispute between Williams, an on-site property manager, and parties whom he alleged were agents of his employer.  A plaintiff who wishes to avoid arbitration must be careful with his allegations:  “[A] plaintiff’s allegations of an agency relationship among defendants is sufficient to allow the alleged agents to invoke the benefit of an arbitration agreement executed by their principal even though the agents are not parties to the agreement.”  Thomas v. Westlake, 204 Cal.Ap.4th 605, 614-615 (2012).

      The arbitration provision included broad language that would include contract and tort claims -- “arising out of or related to this Agreement.”  However, the Court held that this language did not clearly cover statutory claims based on violations of the Labor Code that arise independently of the contract.  Spared from the net of the arbitration clause were six causes of action for failure to pay minimum wage, failure to provide accurate itemized wage statements, failure to comply with the request to inspect personnel file, failure to pay wages on discharge, fees, costs and penalties for violations of the Labor Code, and unfair competition.  Captured by the arbitration net were causes of action for breach of the implied covenant of good faith and fair dealing, and for conversion. 

     COMMENT:  The Court actually offers drafting advice for requiring arbitration of Labor Code or other statutory claims:  “[T]hey could have expressly provided for arbitration of any and all disputes or claims arising out of, or related to, Williams’s employment, including but not limited to claims for damages and violation of state or federal laws, including claims for violation of the Labor Code.”  Even so, the Court expressly refuses to “decide whether some or all of Williams’s statutory claims may not be subject to arbitration regardless of our interpretation of the Contract’s arbitration provision . . . “  As readers of this blog know, PAGA and other statutory claims may not be subject to arbitration.  This is an area of dispute “in flux.”

Arbitration, Scope, Unconscionability: First District, Div. 3 Holds Oakland Raiders’ Asst. Football Coach Was Properly Required To Arbitrate With Raiders And Its Head Coach

 

Scope Of Arbitration Provision Was Broad And Unconscionability Was Lacking.

     This case will be of interest to football fans, and maybe even to lawyers.  Hanson v. Cable, A138208 (1st Dist. Div. 3 April 15, 2015) (Jenkins, McGuiness, Pollak) (unpublished). 

     Plaintiff/appellant Randy Hanson sued The Oakland Raiders and its former head coach Tom Cable, alleging Cable attacked him at the Raiders’ training camp, causing him physical injuries.

     The beginning of the cock fight.  Edwin Rosskam, photographer.  1937.  Library of Congress.

     Respondents/defendants successfully move to compel arbitration pursuant to Hanson’s employment agreement.  Arbitration awards denied most of Hanson’s claim.  He petitioned unsuccessfully to vacate the arbitration awards, and then appealed from a judgment dismissing his complaint after confirmation of the arbitration awards. 

     Hanson’s appeal mounted two challenges.  First, he argued the arbitration clause was not broad enough to encompass his tort claims.  However, the arbitration clause included “arising out of” type language – and claims arising out of a contractual relationship have been held to include tort claims.

     Second, he argued the arbitration agreement was unconscionable.  His most compelling, albeit unsuccessful argument, was that the arbitration clause contained built-in bias, because it required the dispute be referred to the NFL Commissioner, whose salary is paid for by the NFL teams, and who might therefore be expected to have a pro-team, anti-player bias.  Unfortunately for Hanson, however, the arbitration provision also offered him an opportunity to seek an arbitration conducted in a “manner  [as the NFL Commissioner] deems appropriate, and in a matter designed to reach a fair and prompt outcome, consistent with the circumstances of the particular dispute.”  The Court interpreted this provision to create “a contractual obligation to arbitrate or to propose alternative methods of arbitrating the dispute.”  And Hanson did not pursue an alternative method. 

     COMMENT:  We cannot know if Hanson’s alternative of seeking an unbiased arbitrator would have proved to be illusory.  However, if Hanson had requested an unbiased arbitrator, only to find that door slammed shut, perhaps his unconscionability argument would have then gained more traction.

     NOTE:  The on-line biography of Justice Jenkins, who penned the opinion, states he entered law school, “after a brief period of employment with the Seattle Seahawks Professional Football Team.”

Arbitration: Deadlines, Waiver, Scope, Employment, Enforceability, FINRA, Arbitrability -- An Assortment Of Recent (Unpublished) Arbitration Cases And Issues

 

Deadlines:  Lombard Knight v. Rainstorm Pictures, Inc., B253246 (2/1 March 25, 2015).

     In this case involving agreements to finance the production of motion pictures, Plaintiff sought to “confirm” a multi-million dollar arbitration award, while also asking to dismiss individuals, on the grounds that they had not been properly served, and jurisdiction over them was lacking.  The superior court refused to dismiss the individual plaintiffs, who appealed.  Unfortunately for the individuals, their petition to “confirm” was too late.  The Court of Appeal treated the petition to the superior court judge as one to vacate or correct an award, which must be served and filed not later than 100 days after the date of the service of a signed copy of the award on the petitioner.  Plaintiffs blew that deadline.  The opinion was penned by Judge Bendix, assigned to the Court of Appeal case.

     Perhaps the most interesting issue was one addressed by the trial court.  That trial court ruled, as “an issue of first impression,” that the Hague Service Convention did not apply to private arbitration. 

Waiver:: Achterkirchen v. Montiel, A140277 (1/1 March 24, 2015).

     In a dispute among tenants in common, the trial court entered a judgment confirming an award against Montiel, who then appealed.  Montiel contended that various procedural requirements had not been satisfied, as a result of which the other parties had waived their right to arbitrate – and that waiver should have been decided by a court, not an arbitrator.

    Writing for the Court, Justice Margulies explains that ordinarily the court decides waiver issues because, “the doctrine of arbitration waiver is ordinarily one of general application governed by the common law.”  But that was not the case here, where waiver depended on whether procedural requirements had been satisfied under the specific language of the arbitration agreement –  subject matter within the jurisdiction of the arbitrator.  Judgment affirmed.

Scope:  Arbitration Disposed of Employer’s Equitable Claims.  Vista International Insurance Brokers v. Bernstein, B247681 (2/3 March 24, 2015).

     Bernstein, “a successful insurance broker”, obtained a monetary award in arbitration against her former employer.  The trial judge entered judgment confirming the award, but excluded Vista’s claim for an injunction against its former employee from the judgment.  Both sides appealed.

    The Court of Appeal affirmed the judgment in favor of Bernstein, but reversed the judgment to the extent it it not dispose of the the equitable claims against Bernstein.  The Court of Appeal rejected employer’s argument that equitable claims were excluding from the entry of judgment, reading the exclusion in the arbitration agreement narrowly.  The employer had the right to equitable relief “to immediately obtain an injunction from a court” – for example, prior to the appointment of an arbitrator, where an employer would have no place to seek relief but in a court of law.  However, the employer did not avail itself of that opportunity.  Therefore, when the arbitrator entered the award in favor of Bernstein, the arbitrator effectively decided the entire dispute, as immediate equitable relief was no longer an issue. Justice Kitching is the author of this opinion.

Employment, Enforceability, FINRA::  Riley v. Morgan Stanley Wealth Management and Emma Bridges, B256177 (2/6 March 23, 2015).

     Morgan Stanley and Bridges appealed from an order denying their motion to compel arbitration of eight statutory causes of action relating to Plaintiff Riley’s allegations that she was subjected to sexual harassment by her female supervisor.  The trial court also required that causes of action nine through fifteen, which were non-statutory causes of action, be arbitrated, and that the Riley’s lawsuit be stayed pending arbitration.

      Riley had entered into arbitration agreements with Morgan Stanley in a Financial Industry Regulatory Authority (FINRA) Submission Agreement, and in promissory notes for low-interest loans she received from her employer.  However, the Court of Appeal agreed that the arbitration agreements, as worded, did not require employment discrimination claims in violation of statute be arbitrated.  The non-statutory claims, however, properly belonged in arbitration. 

      As an affirmative defense in arbitration, Riley had alleged that her FEHA claims in her civil action were a defense to Morgan Stanley’s claim in arbitration on the notes.  However, she abandoned that defense, leaving the statutory claims to be litigated, and the non-statutory issues to be arbitrated.  Judgment affirmed.  Justice Yegan authored the opinion.

       Query whether abandonment of the defense that sexual harassment resulted in constructive termination, and acceleration of her notes, will prove to be a problem for the employee down the road.

Employment, Class Action, Unconscionability:  Valdez v. Santa Lucia Preserve Company, H040685 (District 6   March 23, 2015).

     Plaintiffs filed a putative class action complaint alleging wage and other claims against their former employer.  The trial court denied employer’s motion to compel arbitration on the grounds that the arbitration agreements were unconscionable.  However, the Court of Appeal reversed, holding that the arbitration agreements were not substantively unconscionable, in an opinion written by Justice Bamattre-Manoukian. 

     The most interesting part of the opinion concerns limiting review in FEHA cases.  Because the plaintiffs’ complaint involved unwaivable statutory rights, their arbitration was subject to minimal requirements set forth in Armendariz, including a written arbitration decision and judicial review sufficient to ensure the arbitrators comply with the requirements of the statute.  However, the Court of Appeal did not view the arbitration agreements as limiting judicial review.  Thus, references in the agreement to “limited review” of an arbitration award and to the award not being “overturned even if it is incorrect legally or factually,” are described by the Court as “merely attempts to inform the employee about the legal effect of the arbitration agreement in general, without attempting to unlawfully limit judicial review available . . . “

Employment, Arbitrability:  City of Colton v. Guerrero, E058346 (4/2 March 12, 2015).

     A police officer appealed an order denying his motion to compel arbitration with the City of Colton over an employment dispute with the City.  Judgment was entered denying his petition for arbitration and enjoining him from pursuing arbitration against the City.  The Court of Appeal affirmed.  Because Officer Guerrero was not a permanent employee, he was subject to a probationary period, during which period he was not entitled to arbitration of his grievance under a Memorandum of Understanding between the City and the police officers’ association.  Justice McKinster authored the opinion.