California Mediation and Arbitration

Arbitration, Automobiles: Insurance Code Makes Underinsured Motorist Claim Arbitrable

Insurance Code Section 11580.2 Was Dispositive.

        California Insurance Code section 11580.2, subdivision (f) provides that disputes between insureds and insurers over entitlement to recover damages caused by an uninsured or under insured motorist [UIM], or the amount of damages, must be resolved by agreement or arbitration. When Brett McIsaac sued Foremost Insurance over an UIM, he argued that the matter was exempt  from arbitration, because he was suing for breach of contract and for bad faith, and a bad faith action is not a dispute over coverage or the amount of the UIM claim. The trial court sided with McIsaac; the Court of Appeal did not. Brett McIsaac v. Foremost Insurance Company Grand Rapids, Michigan, A160389 (1/1 filed 4/30, cert. for pub. 5/19/21) (Margulies, Humes, Banke). Justice Margulies explained that, while McIsaac had sued for bad faith, the insurance company also made a showing that the parties disputed the amount of damages due to plaintiff on his UIM. Thus, the insurance company was entitled to arbitrate.

        COMMENT: The Court of Appeal agreed that the bad faith claim did not need to be arbitrated. But the action for bad faith could be stayed while other claims were arbitrated.

Statutorily Mandated Arbitration, Disclosures: Fourth Dist. Div. 3 Reverses Order Denying Petition To Confirm Arbitration, Because The Arbitration Was Contractual, Not Statutory

And The Attack On Arbitrator's Bias Came Too Late.

        The trial judge in Rivera v. Shivers et al., G057919 (4th Dist. Div. 3  8/31/20) (Bedsworth, Thompson, Goethals) sua sponte ordered the unlawful detainer action to mandatory statutory arbitration. What could go wrong? For one thing, unlawful detainer actions are exempt from mandatory statutory arbitration.

        The parties advised the trial judge they had stipulated to an arbitrator. However, after further proceedings, the attorneys stipulated to another arbitrator, but the parties did not sign the  stipulation.  The trial judge noted in a minute order: "Pursuant to stipulation of parties, arbitration is proceeding as a binding arbitration." The case was arbitrated, leading to  an adverse result for the plaintiff/landlord. The defendants petitioned to confirm the award, and the trial judge denied the motion, expressing "concern that the stipulation for arbitration was entered into by counsel rather than the parties and concluded the arbitration had been nonbinding."

        The Court of Appeal reversed, finding that the statutory proceeding had morphed into a binding contractual  proceeding. Why? First, the trial court had no authority to send an unlawful detainer action to mandatory statutory arbitration. Furthermore, the attorneys and the parties acted all along as if they intended to achieve a binding result. Though the parties had not signed a stipulation to binding arbitration, they did not object to the binding arbitration, nor did they object to binding arbitration during the course of the arbitration. While it is true that the right to  a jury trial is not easily relinquished, and it would certainly have been better practice to place the parties' agreement to binding arbitration on the record, everyone's conduct, consistent with binding arbitration (as explained in greater detail in the Court of Appeal's unanimous published opinion), ratified the binding nature of the arbitration. "[E]ven an unauthorized act by an attorney concerning substantial rights can be later ratified by the client and thus bind him or her."

        A secondary issue was that the disgruntled landlord attacked the arbitrator's credibility because at the time the  arbitrator took on the arbitration, he failed to disclose that as a young attorney, the opposing counsel' father had been the arbitrator's mentor. The arbitrator did not realize the connection until the commencement of the  arbitration hearing, at which time he disclosed the relationship, and nobody objected. Plaintiff also failed to object within 10 days of the filing the petition to confirm the award, and thus plaintiff's objection was untimely.

        COMMENT: The dramatis personae will be familiar to longtime Orange County practitioners who can read the opinion if they are interested. Oh what a difference it made that the ultimate determination was that the arbitration was contractual. Contractual arbitration is binding, whereas a statutorily mandated arbitration might lead to a trial de novo in Superior Court. 

        Interestingly, the Court of Appeal never tells us whether the disclosure that would have allegedly revealed the arbitrator's bias was material-- to wit, the arbitrator's mentorship decades ago by the father of one of the attorneys. However, we note that the information was not concealed, because it was disclosed when the arbitrator became aware of it. And whether or not the information was material, it certainly was proper and appropriate for the arbitrator to disclose the relationship, leaving it to the parties and counsel to determine  whether they considered it to be important.  And if someone considered the information important enough to object, they should have done so at the time. The dispositive issue was the failure to timely object -- at the time of the  arbitration, compounded by failure to object within ten days of the filing of the petition to confirm. Might not judges look with a jaundiced eye at untimely objections about arbitrator bias made only after a party finds itself on the receiving end of an unfavorable arbitration award?

Statutorily Mandated Arbitration: Statutorily Mandated Arbitration Scheme For Beer Brewers And Distributors Does Not Create SLAPP-Protected Activity

A Cold Draught . . . 

John Margulies, photographer.  1984.  Library of Congress.

        Did you know that in 2007 California enacted special legislation requiring that when a beer brewer replaces a distributor, the successor brewer's designated replacement distributor must negotiate in good faith, and failing that, arbitrate, "to determine the fair market value of the affected distribution rights."  Bus. & Prof. Code, section 25000.2.  I did not know.  As a result of my newfound knowledge, I have added another sidebar category to this blawg:  "Arbitration: Statutorily Mandated."   Our next case involves a famous brewing company, and its ousted distributor. Mission Beverage Company.  Mission Beverage Company v. Pabst Brewing Company, LLC, B271781 (2/2  9.25/17) (Hoffstadt, Ashmann-Gerst, Goodman).  

        The ousted distributor, Mission, sued Pabst after the brewer decided to replace it with another distributor.  Pabst's designated distributors, adhering to the statutory procedure, tried to negotiate with Mission, and when that failed, sent a letter initiating arbitration to Mission.  Mission tried unsuccessfully to halt the arbitration.  The arbitrator issued an award fixing the fair market value, and the new distributor paid Mission the amount fixed by the arbitrator.  

       Pabst then filed a motion to strike Mission's lawsuit under the anti-SLAPP statute, arguing that invoking the statutorily-mandated arbitration process under section 25000.2 amounted to "protected activity."  While acknowledging that "protected activity" under the anti-SLAPP statute included official proceedings, such as statutorily mandated arbitration, the trial court concluded that the lawsuit against Pabst for breach of contract was separate and distinct from the arbitration.  Mission had alleged that Pabst terminated without proper cause -- a breach of contract -- and that the claim was separate from determining the fair market value under the statutory proceeding.  The Court of Appeal agreed and affirmed.

        The Court of Appeal reasoned that the conduct by Pabst that Mission was challenging was the wrongful termination of the contract with the distributor, and that conduct was not protected.  Pabst argued that it could not breach before it sent a letter communicating its decision to terminate, and that sending the letter was protected.  The Court, however, explained that the decision to terminate, which occurred earlier, was not protected activity.  

        Pabst also argued that its actions were all part of a statutorily mandate arbitration proceeding, and that Kibler v. Northern Inyo County Local Hospital Dist., 39 Cal.4th 192 (2006) supported its position that every aspect of a statutorily mandated proceeding, including the decision itself, is protected activity.  However, the Court read Kibler more narrowly, so that even if the communication of the decision was protected, the decision to terminate was not protected.  

         Perhaps the most interesting ADR issue addressed is this:  while "private contractual arbitration" is not generally viewed as an "official proceeding authorized by law", statutorily mandated arbitration is an official proceeding within the meaning of the anti-SLAPP statute.  Here, however, the wrongful conduct occurred before the statutorily mandated arbitration proceeding was invoked.  Furthermore, it was not inevitable that the parties would proceed to arbitration, because the statutory scheme requires that the parties negotiate in good faith first.  

            QUERY:  Why isn't a statutorily mandated requirement that, "[t]he successor beer manufacturer's designee and the existing beer wholesaler shall negotiate in good faith" an official proceeding within the meaning of the anti-SLAPP statute?  (italics added).  Could that pre-arbitration step be enforced by a court at the request of a party?

            COMMENT:  One issue that the opinion considers is whether the breach of contract lawsuit is duplicative of the remedies provided by the statutory proceeding that fixes fair market value.  The Court of Appeal points out that the contract between Pabst and Mission contains an attorney's fees clause.  The distributor may also be entitled to consequential damages arising from a wrongful breach as well as attorney’s fees if it sues Pabst and prevails.  The payment of fair market value would provide an offset.  If the contract action goes to trial, perhaps my colleague Mike Hensley and I will have another opportunity to post in our California Attorney's Fees blog, because an attorney's fees issue appears to be lurking in the background.

          The Pabst Mansion.  Milwaukee, Wisconsin.  Carol M. Highsmith, photographer.  Library of Congress.