California Mediation and Arbitration

Stay: Despite Plain Language Of The FAA, Ninth Circuit Holds That Judge Has Discretion To Dismiss Case Rather Than Stay It, Once All Claims Are Subject To Arbitration

Holding Is Consistent With Ninth Circuit Precedent But Not The Language Of The Federal Arbitration Act.

        "The sole question before us is whether the Federal Arbitration Act (“FAA”) requires a district court to stay a lawsuit pending arbitration, or whether a district court has discretion to dismiss when all claims are subject to arbitration. Although the plain text of the FAA appears to mandate a stay pending arbitration upon application of a party, binding precedent establishes that district courts may dismiss suits when, as here, all claims are subject to arbitration. Thus, we affirm." William F. Forrest, et al v. Keith Spirrizzi et al, No. 22-16051 (9th Cir.  3/21/23) (Bennett, Graber, Desai).

        Judges Graber and Desai, fully concurring in the majority opinion, nevertheless urged that the Ninth Circuit consider the matter en banc to issue an opinion consistent with the language of the FAA, and that the Supreme Court take up the issue. As Judge Graber points out, "When a party requests a stay pending arbitration of “any issue referable to arbitration under an agreement in writing,” the court “shall . . . stay the trial of the action” until the arbitration concludes or unless the requesting party is “in default in proceeding with such arbitration.” 9 U.S.C. § 3 (emphases added)." Squaring the language of the FAA with not staying the trial of the action when any issue is referred to arbitration is a bit like squaring the circle.

COMMENT: “When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master – – that’s all.” -- Alice's Adventures in Wonderland.

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.

 

 

Stay: CCP Section 1281.4 Does Not Authorize Staying Litigation On Basis Of Pending Arbitration To Which Plaintiff Is Not A Party

Under Proper Circumstances, A Stay Of The Action, Or An Arbitrable, Severable Issue, Would Have Been Mandatory.

        Ann Leenay brought a PAGA action for various Labor Code violations against her former employer, Lowe's Home Centers, LLC. The trial court consolidated her action with five other actions. Lowe's moved to stay the six consolidated actions based on 50 pending arbitrations with overlapping issues. The trial court stayed the litigation, and Leenay sought a writ of mandate to undo that court's stay order.  Ann Leenay, petitioner, v. Superior Ct. of San Bernardino Cty., Lowe's Home Centers, respondent and real party in interest, E077292 (4/2  7/22/22) (Menetrez, Ramirez, Slough).

        The key fact, which led to the granting of the writ of mandate petition, was that neither Ann Leenay, nor the other five plaintiffs, were parties to the 50 pending arbitrations.  The statutory provision authorizing a stay of litigation based on pending arbitration is Cal. Code of Civ. Proc., § 1281.3. Justice Menetrez explained: "Section 1281.4 does not authorize the court to stay a plaintiff’s action on the basis of a pending arbitration to which the plaintiff is not a party. 

Arbitration, Scope, Stay: Fifth District Agrees Equitable Issues Were Outside Scope Of Arbitration Agreement, And Arbitrable Claims Could Be Stayed

The Arbitration Provision Was Not Ambiguous.

        The arbitration provision in Eminence Healthcare, Inc. v. Centuri Health Ventures, LLC, et  al., F079993 (5th Dist.  2/2/22) (Franson, Hill, Pena), carved out equitable causes of action from arbitration. Because the Court of Appeal agreed the clause was unambiguous, the Court affirmed the trial court's decision that six equitable claims should be heard by the trial court. In an unpublished part of the opinion, the Court of Appeal agreed that the arbitration of the remaining arbitrable claims was  properly stayed because the resolution of the litigated claims might dispose of the need to arbitrate.

Arbitration, Conflicts, Stay & Celebrities: Second District, Div. 7 Rules That Disqualification Motion Was Premature While Motion To Compel Arbitration And To Stay Were Pending

The Code Of Civil Procedure 1281.4 Stay Is Mandatory.

    Top Kick Productions, Inc., Chuck Norris's production company, sued CBS Broadcasting Inc. over allegations of what might be characterized as Hollywood Accounting. CBS moved to compel arbitration, and to stay the litigation pursuant to CCP 1281.4, while Top Kick had a pending motion to disqualify CBS's attorneys based on conflict of interest. In true kick-ass Walker, Texas Ranger style, Top Kick convinced the trial court to hear the disqualification motion first, and to deny the stay request. Next, CBS obtained a temporary stay in the Court of Appeal, and the Court issued an OSC to determine whether the trial court had abused its discretion by denying the stay. CBS Broadcasting Inc., et al., Petitioners,  v. Superior Court of Los Angeles County, Respondent; Top Kick Productions, Inc., et al., Real Parties in Interest, No. B292277 (2/7  2/21/19) (Zelon, Segal, Feuer) (not for publication).

    The Court held that the trial court erred, because the 1281.4 stay is mandatory, once a petition to compel arbitration is brought. So now the stay will go into effect, the motion to compel arbitration will be heard, and if the motion is granted, then the arbitrator would get to rule on the disqualification motion. 

    The Court acknowledged that there are  New York state law cases and federal law Second Circuit cases providing disqualification is not a matter for arbitrators to determine, but explains those cases are contrary to California law where disqualification motions have been decided by arbitrators. Furthermore, the Court acknowledges a situation might arise where the issue of disqualification is intertwined with the issue of arbitrability "so that the potentially disqualified lawyer should not be permitted to argue the motion to compel". However, because Top Kick conceded the disqualification motion had nothing to do with arbitrability, the Court did not need to address the issue.

    The opening theme to Walker, Texas Ranger, is available on YouTube:

 

 

Arbitration: Existence Of Agreement/1281.2/Stay: Incorporation By Reference Works This Time, But It's Not The End Of The Story

Settlement Agreement Incorporated Arbitration Clause In Licensing Agreement -- But Only Claims Arising Out Of Or In Connection With Any Provision In The Licensing Agreement Could Be Arbitrated.

        On February 9, 2018, we posted about Cirile v. Petersen-Dean, an unpublished case, in which incorporation by reference was too amorphous and vague to incorporate an arbitration provision in a separate agreement.  In Advanced Charging Technologies, Inc. v. Flexible Manufacturing, LLC, G054671 (4/3  2/21/18) (Thompson, O'Leary, Ikola) (unpublished), incorporation by reference did work -- sort of.

        In Advanced Charging Technologies, a Settlement Agreement entered into one day after a Licensing Agreement, and including an integration clause, incorporated the terms and conditions of the Licensing Agreement.  And the Licensing Agreement included an arbitration provision applying to a dispute or claim arising out of or in connection with any provision of the Licensing Agreement.  The trial court denied a motion to compel arbitration, believing that the integration clause wiped out the Licensing Agreement, an argument rejected by the Court of Appeal, because the successful incorporation by reference preserved the terms of the Licensing Agreement.  The trial court also believed that the arbitration clause, which only applied to the disputes arising out of the Licensing Agreement, was too narrow to cover disputes arising out of the Settlement Agreement, a position that did have some traction in the Court of Appeal.

        The upshot is that Court of Appeal reversed and remanded, with directions to grant the motion to compel arbitration, and set up a three-step process.  First, the trial court had to decide whether the claims arose out of or  in connection with the License Agreement that was incorporated by reference.  Second, the trial court had to determine whether the resolution of "any nonarbitrable issues may make the arbitration unnecessary, as set forth in Code of Civil Procedure section 1281.2."  And finally, the trial court was directed to order any appropriate stay order.

Arbitration, Appealability, Nonsignatories: 9th Circuit Grants Writ, Vacates Order Granting Motion To Stay And To Compel Arbitration Obtained By Alleged Zombie Cookie User

How Do You Like Them Zombie Cookies?

"I walked with a Zombie."  1943.

        The Ninth Circuit granted a petition for a writ of mandamus and vacated the district court's order that had granted Turn, Inc.'s motion to stay a putative class action and compel arbitration with Turn, Inc., the alleged user of "zombie" cookies.  In re Henson, No. 16-71818 (9th Cir. 9/5/17) (per curiam).

         Turn, Inc. is a middle-man for Internet-based advertisements, and has a contract with Verizon to deliver advertisements to Verizon subscribers based on usage data collected from the users' mobile devices.  The users' wireless transmissions contain a "Verizon Unique Identifier Header" that can be attached to a tracking cookie to send the user data to Turn, Inc.  As the Court explains, "A 'cookie' is software code that transmits a user's web-browsing history and other usage data back to the entity that attached the cookie."  

        "Subscribers were allegedly unable to detect, delete, or block these 'zombie' cookies attached to their UIDHs."   Even when the user tried to kill a zombie cookie, the cookie would be replicated, and attach to the user's previously collected data.  Turn, Inc. allegedly auctioned off users' collected data so advertisers could place targeted advertisements on the users' mobile phones.  The putative class action alleged deceptive business practices and trespass to chattels by Turn, Inc.  

        Verizon had an arbitration provision in its user contracts, but Turn, Inc. was not a party to those contracts.  Though a nonsignatory, Turn, Inc. sought to take advantage of the arbitration provision, and the district court, applying equitable estoppel, allowed Turn, Inc. to do so, staying the lawsuit and requiring arbitration.  

        A party cannot directly appeal from an order compelling arbitration, requiring the Court to analyze whether mandamus was available.  Applying the so-called Bauman factors, the Court found that the first three weighed in favor of granting mandamus, and granted mandamus.    In Bauman v. U.S. dist. Court, 557 F.2d 650 (9th Cir. 1977), the court considered whether a direct appeal is unavailable, whether prejudice is not correctable on appeal, whether clear error exists, whether the error is often repeated, and whether the issue is of first impression.

    Girl Scout serving cookies.  1936.  Library of Congress.

Arbitration, Enforceability, Existence Of Agreement, Employment: Orders Denying Motions To Compel Arbitration And Staying Arbitration Survive Appeals In Fourth, Sixth, And Fifth Districts

     The next three cases show that, notwithstanding the trend to uphold agreements to arbitrate, there are still plenty of situations in which our California Courts of Appeal will agree that arbitration should be denied or stayed, and allow litigation to go forward.

Tran v. Integra LifeSciences Corporation, No. G051620 (4th Dist. Div. 3 8/18/16) (unpublished):  Order Denying Motion To Compel Arbitration Affirmed.

     In Tran, the trial court denied defendants’ motion to compel arbitration on the grounds that the arbitration provision was superseded by a different, later arbitration provision, and the later provision was unconscionable.  The operative arbitration provision was “take it or leave it” and unconscionable because it required Tran, a California employee, to arbitrate her claims in New Jersey, and because the arbitration provision had various provisions reflecting the unilateral nature of the arbitration requirement.  Justice Thompson authored the decision.   Affirmed.

Scheiber v. Shoe Palace Corporation, No. H041495 (Sixth Dist. 8/16/16) (unpublished):  Appeal Of Order Staying Arbitration Of Plaintiff’s Individual Claims And Allow PAGA Claim To Proceed In Court Declared Moot.

     Defendant’s appeal was limited to challenging the trial court’s decision to stay the arbitration of plaintiff’s individual claims, and did not challenge order that representative claims could be litigated in court.  However, because the plaintiff sought dismissal of his individual claims in the trial court, and represented in the Court of Appeal that he would dismiss those claims before they were ever arbitrated, the appeal was dismissed as moot.  Justice Bamattre-Manoukian authored the decision.

Ashbury Heights Capital, LLC v. FactSet Research Systems Inc., No. A145806 (1st Dist. Div. 1 8/16/16) (unpublished):  Order Denying Motion To Compel Arbitration Is Affirmed.

     The trial court denied defendant’s motion to compel arbitration, because plaintiff’s claims pertained only to defendants’ conduct in the years after the contract was terminated.  Affirmed.

     One interesting question here is why the court, rather than the arbitrator, decided the issue.  After all, the Commercial Arbitration rules of the AAA entitled the arbitrator to decide disputes over the scope of the arbitration agreement.  The Court of Appeal, however, viewed the issue as turning “on the continued validity of the arbitration clause, not the clause’s scope.”  So essentially the Court viewed the validity issue as a gateway issue that the Court should decide.  Justice Margulies authored the decision.

Arbitration, Fees, Stay, FAA: Ninth Circuit Holds That Arbitration Terminated For Party’s Inability To Pay Fees, Had Nevertheless Been Had, So District Court Should Lift Stay On Litigation

What Does It Mean For An Arbitration To “Have Been Had In Accordance With The Terms Of The Agreement” When A Party Is Unable To Pay Arbitration Fees?

     We revisit a recurring problem that occurs in arbitration.  In federal court, a party successfully moves to compel arbitration under the FAA, and the court stays litigation.  Arbitration commences.  Next, one of the parties to the arbitration is unable to pay the costs of arbitration, and therefore stops paying.  Under the rules of the AAA, the AAA can suspend the arbitration if the other party does not pay for the arbitration.  The other party refuses to pick up the tab, and the AAA suspends the proceeding.  What happens next?  Are the parties definitively done, because they agreed to arbitrate, and the arbitration has not been had, or can they proceed in court?  Under such circumstances, just what does it mean for an arbitration to have been had?  That is the scenario the Ninth Circuit confronted in Tillman v. Rheingold Firm, No. 13-56624 (9th Cir. 6/15/16) (Berzon, Gould, Steeh) after defendant/appellant ReneeTillman stopped paying arbitration fees. 

     Relying on Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010 (9th Cir. 2004), the district court had erroneously held that it “lack[ed] the power to allow further litigation.”  Lifescan, Inc. was a case in which, “despite Premier’s non-payment of its share of arbitration fees, there was ‘no basis for an order requiring Premier to pay the fees, or compelling arbitration.’”  Compelling arbitration would have been inappropriate, because the arbitration had been had according to the agreed-upon AAA rules, allowing the AAA to suspend the proceeding in Lifescan upon non-payment.  However, in Tillman, the Ninth Circuit pointed out that “Lifescan’s only conclusion was that compelling arbitration would be inappropriate. . . Nothing in the FAA requires dismissal of the litigation under Lifescan’s circumstances or the present ones.” 

     In Tillman too, the arbitration had been had according to the rules of the AAA, allowing for dismissal upon a non-payment of arbitration fees.  Because the FAA “provides that district courts must stay pending proceedings on issues subject to arbitration until such arbitration had been had, 9 U.S.C. section 3,” the stay could now be lifted.  Nor was there a basis to compel arbitration, because ReneeTillman had not failed, neglected, or refused to arbitrate.

     In dictum, the panel suggests that the outcome could be different if Tillman had willfully refused to pay the arbitrator’s fees, or if Tillman was the one seeking a stay in federal court, “as that would frustrate the Rheingold firm’s attempts to have the case heard in either the court or the arbitral forum.”

     NOTE:  On February 29, 2012, I posted on a similar scenario in Cinel v. Christopher, in which failure to pay fees resulted in termination of an arbitration that then bounced back to federal court.

Arbitration Stay: “Settled Principles Of Law” Justify Peremptory Writ Staying Action While Application To Compel Arbitration Remains “Undetermined”

And Application To Compel Arbitration Remains “Undetermined” As Long As Dissatisfied Party Is Pursuing Appellate Review.

     The Fourth District, Division 2 made short shrift of this case, issuing a peremptory writ of mandate directing the Superior Court of Riverside County to vacate its order denying petitioner Carmax’s motion to stay the action for Labor Code violations while its appeal of the denial of its application to compel arbitration remains “undetermined.”  Carmax Auto Superstores California, LLC v. Superior Court, E062879 (4/2 April 15, 2015) (King, Ramirez, Hollenhorst) (unpublished).