California Mediation and Arbitration

Mediation, Confidentiality, Settlement Agreement: CCA 1/2 Agrees Plaintiff Suing Doctor Failed To Perform Settlement Agreement After Mediation

Including Confidentiality Provision In Settlement Of Malpractice Lawsuit Did Not Violate Public Policy, Because Provision Did Not Prevent Reporting To State Medical Board.

        In Pappas v. Chang and Chang v. Pappas, Nos. A159792 and A160293 (1/2   3/3/22) (Richman, Miller; Kline, conc.), the Court of Appeal affirms the trial court in separate consolidated appeals. In Pappas v. Chang, the court affirms the trial court's denial of Pappas's efforts to enforce a settlement agreement, agreeing that Pappas failed to perform her part of a bargain by executing a confidentiality agreement in return for payment to her of $100,000. And in Chang v. Pappas, the Court of Appeal affirms the trial court's denial of Chang's request to recover attorneys fees, based on Pappas's denial of two requests for  admission.

        Helena Pappas sued Dr. Carolyn Chang, a SF plastic surgeon, for malpractice, and settled in mediation for payment to her of $100,000. However, the settlement agreement provide for execution of further settlement documents to include a waiver of Civil Code  § 1542, and a confidentiality provision. Chang was to pay $70,000.01, and her carrier was to pay $29,999.99. Attorneys, judges, and mediators will know that $30,000 is a magic number in malpractice actions, because settlements greater than $30K trigger a requirement to report to the California Medical Board. Pappas believed Chang was trying to use confidentiality to prevent her  from reporting to the Medical Board, and that would have violated Business and Professions Code §§ 2220.7 and 801.01. Pappas refused to executed a confidentiality provision unless paid an additional $425,000.

        The Court of Appeal reasoned that the way the settlement agreement was written, a confidentiality provision would not have prevented reporting to the Medical Board; that the settlement amount was $100,000; and that as worded, the settlement agreement did not hinder legal reporting obligations. Therefore, the settlement agreement agreement was enforceable, and Pappas failed to perform her  part, so she could not enforce the settlement agreement. Nor was the confidentiality provision severable, since it was agreed to and material.

        Because the requests for admission went to ultimate questions and Pappas denied them in good faith, Chang was properly denied attorney's fees.

        Justice Kline concurred, because in the end, the law had not been stymied. But he wrote separately, "because I feel my colleagues have not adequately described Chang’s and her lawyer’s repeated attempts to violate the Business and Professions Code and the whitewashing of those efforts by the trial judge."

        BONUS: "Blepharoplasty (Greek: blepharon, "eyelid" + plassein "to form") is the plastic surgery operation for correcting defects, deformities, and disfigurations of the eyelids; and for aesthetically modifying the eye region of the face." (Wikipdedia).

        COMMENT: Pappas might have spared some trouble by signing the confidentiality agreement, and receiving the $100,000. Perhaps she felt that she achieved some measure of victory by making her unhappiness with Chang a matter of public record in a published opinion. The concurring opinion gives her some measure of vindication. At the same time, it is now a matter of  public record that Pappas may be unhappy about the outcome of her cosmetic surgery. 

 

Arbitration, Employment, Unconscionability: Second District Div. 8 Reverses Order Denying Arbitration, Because Unconscionable Provision Was Severable

Employer Had No Duty To Call Arbitration Agreement To Attention Of Employee.

        When Michael Conyer became employed by Hula Media, the employer's handbook did not have an arbitration clause. Several months later, Conyer signed the "receipt and acknowledgment" page, which was the final page of a revised employee handbook that did include an arbitration clause. Conyer sued the employer for sexual harassment, and claimed he would never have signed an arbitration agreement if he knew it existed. The trial court denied a motion by the employer to compel arbitration, and defendant Hula Media appealed. Michael Conyer v. Hula Media Services, LLC, et al., B296738 (2/8  8/26/20) (Grimes, Bigelow, Wiley). Reversed.

        The Court of Appeal held "the employee demonstrated his assent to the arbitration clause by signing the acknowledgment, and the employer had no duty to call the arbitration agreement to the employee's attention." 

        However, under an unconscionability analysis, the Court of Appeal found that the provisions in the arbitration clause concerning arbitrator's fees and costs and attorneys fees, were unenforceable. Why? A clause providing the arbitrator shall award attorney fees to the prevailing party conflicts with FEHA, since "the defendant in a  FEHA case may only recover attorney fees when the plaintiff's action was frivolous, unreasonable or groundless." But that was not enough to make the arbitration clause unenforceable, because the unenforceable provision could be severed.

Arbitration, PAGA, Waiver, Severability: Non-Severability Provision And PAGA Waiver Make Arbitration Provision Unenforceable

The Briefing Focused On A "Blow-Up" Provision, But The Court Focused On An Unenforceable Waiver Of PAGA Claims And Lack Of Severability.

      "Six-year-old Gregorio Drozco III does what a lot of people do in a Seattle, Washington, alley when he blows a bubble, preparatory to wadding up his gum and sticking it to a wall next to the Market Theatre that has become a kitschy tourist attraction." Carol M. Highsmith, photographer. Library of Congress.

        The employer-employee contract in Kec v Superior Court of Orange County, G058119 (4/3  7/9/20) (Ikola, Thompson, Goethals), contained a waiver of class and other representative actions, broad enough to cover a PAGA claim. The arbitration agreement also provided that the waiver was not modifiable or severable, and that if the representative waiver was found to be invalid, "the Agreement becomes null and  void as to the employee(s) who are parties to that particular dispute" -- a so-called "'blow-up' provision." The employee plaintiff brought individual, class, and PAGA claims against defendants. Since Iskanian v. CLS Transportation Los Angeles, LLC, an employee's right to bring a PAGA action is unwaivable. 

        The trial court reasoned it had not been called upon to rule on the enforceability of the representative waiver, and thus the blow-up provision had not been triggered, and in any case, the blow-up provision would only apply to the attempted waiver of the PAGA claim, not to the arbitrability of the plaintiff's claims under the Labor Code. Hence, the trial judge enforced the arbitration provision as too plaintiff's Labor Code claims. 

        The Court of Appeal reached a different conclusion, without ruling on the validity of the blow-up provision. Instead, the Court held that the representative waiver, which would have included a PAGA action, was void, and the defendants could not selectively enforce the arbitration agreement, which expressly provided for a lack of severability in the event that the representative waiver was found to be invalid. In other words, the invalid PAGA waiver infected the entire arbitration provision.

        To reach this conclusion, the Court had to address the defendant employer's argument that the representative waiver was for its benefit, and therefore, the defendant had the right to waive the provision that was for its benefit. Grasping Justice Ikola's reasoning requires wrapping one's head around a double or triple-negative, here, the  employer's ineffective waiver of its right to enforce the employee's representative waiver .

        A waiver must be knowing an intentional at the time that it is exercised. Here, because the employee brought its claim after Iskanian was decided, the employer's waiver of its right to enforce the employee's waiver of his right to bring a PAGA action was not valid. Post-Iskanian, the employer had no such right to enforce the employee's waiver of a PAGA claim. Maybe the employer would have had such a right to enforce the provision that was for its own benefit, when the law was still uncertain, at the time it entered into the employment contract, but not under the circumstances (which included the post-Iskanian state of the law) at the time the employee sued.

        A bit tricky?

        

        

Arbitration/Enforceability/Unconscionability: Fourth District Division 1 Agrees With Trial Court That Automobile Dealership’s Arbitration Provision Is Unconscionable

 

However, California Supreme Court Will Likely Make Ultimate Determination of Issues in Pending Sanchez v. Valencia Holding Co. Case

     Arbitration clauses in contracts for automobile purchases and leases offer fertile ground for litigation.  See our April 12, 2012 post about Kolev v. Euromotors West/The Auto Gallery, 586 F.3d 1024 (9^th Cir. 2011) (opinion withdrawn on April 11, 2012), and August 1 post about Caron v. Mercedes-Benz Financial Services USA LLC, Case No. G044550 (4th Dist., Div. 3 July 30, 2012). Our next case, Goodridge v. KDF Automotive Group, Inc., Case No. D060269 (4th Dist. Div. 1 August 24, 2012) (McDonald, Acting P.J., author) (unpublished), involves an automobile dealership’s appeal of an order denying its petition to compel arbitration of the action filed against it by plaintiff Goodridge arising out of his purchase of a used automobile.  Both the trial judge and the Court of appeal concluded that the arbitration provision was procedurally and substantively unconscionable.

    Marion Post Wolcott, photographer.  1939.  Library of Congress.

     Procedural unconscionability is rarely a difficult issue in such cases, since an adhesion contract is involved.  Here, as described by the Court of Appeal, there was a “stack of preprinted form documents”, lack of an opportunity to read all the documents or to negotiate the terms, and lack of evidence that purchaser was clearly informed about the arbitration provision.  The contract documents were long and printed on both the front and back sides of the pages.  Though language in bold print on the front side of the preprinted contract did state that the contract contained an arbitration clause on the reverse side, “there is no provision for Goodridge’s signature or initials under or adjacent to that language.”  The Court of Appeal readily concluded that there was both “oppression and surprise”, adding up to procedural unconscionability.

     The contract was also found to be substantively unconscionable, because it was too one-sided (though printed on both sides).  First, the arbitration clause provided either party could appeal an arbitrator’s award if it exceeded $100,000. Second, each party could appeal an arbitrator’s award of injunctive relief against it.  Third, the arbitration clause provided an appealing party must pay the filing fees and other arbitration costs for appeal, subject to a final determination.  Fourth, the arbitration clause did not apply to self-help remedies, including repossession.  The court found that those provisions benefited the seller far more than the buyer.  Because the contract had four problems permeating it with unconscionability, a court exercising its discretion could properly refuse a request to save the contract by severing unconscionable terms. 

     COMMENT:  Footnote 1 of Goodridge notes, “the circumstances (e.g., preprinted contract and arbitration clause) and issues in this case are virtually identical to those in Sanchez v. Valencia Holding Co., LLC (2011) (A201 Cal.App.4th, review granted Mar. 21, 2012, S199119 (Sanchez).  The California Supreme Court will likely make the ultimate determination of the issues discussed in this case.”  The California Courts of Appeal website describes Sanchez for the public and the press: "Petition for review after the Court of Appeal affirmed an order denying a petition to compel arbitration. This case includes the following issue: Does the Federal Arbitration Act (9 U.S.C. ? 2), as interpreted in AT&T Mobility LLC v. Concepcion (2011) 563 U. S. __, 131 S.Ct. 1740, preempt state law rules invalidating mandatory arbitration provisions in a consumer contract as procedurally and substantively unconscionable?”

Construction of Mediation-Arbitration Clause/Venue/Severability: Third District Rules that California Subcontractor Refusing to Mediate in Nevada Did Not Violate Terms of Agreement Purporting to Require Mediation or Arbitration in Nevada

 

Case Involves Application of CCP Section 410.42 to Mediation/Arbitration Provision in Construction Contract

     Before becoming Chief Justice of the California Supreme Court, Justice Cantil-Sakauye authored the opinion in Templeton Development Corporation v. Superior Court [Dick Emard Electric, Inc. Real Party in Interest], 144 Cal.App.4th 1073, 51 Cal.Rptr.3d 19 (2006). Emard, an electrical contractor, sued petitioner Templeton, a general building contractor, for breach of contract and other claims. Templeton, relying on a contractual provision calling for mediation and arbitration in Nevada, unsuccessfully moved to dismiss Emard’s complaint on the ground of inconvenient forum. The trial court ruled that CCP section 410.42 rendered the out-of-state mediation provision unenforceable. Templeton sought a writ of mandate setting aside the trial court’s order denying their motion to dismiss for inconvenient forum, or alternatively remanding to determine whether the Federal Arbitration Act (FAA) preempted the California statute.

     Section 410.42 provides in pertinent part that, a “contract between the contractor and a subcontractor with principal offices in this state, for the construction of a public or private work of improvement in this state, shall be void and unenforceable: (a) A provision which purports to require any dispute between the parties to be litigated, arbitrated, or otherwise determined outside this state.”

     First, the Court of Appeal concluded that section 410.42 applied to the dispute, because the mediation provision requiring Nevada mediation purports to require a dispute between the parties to be “otherwise determined outside this state.” Therefore, the subcontract was void under section 410.42 to the extent that any mediation was to be held in Nevada.

     Second, however, section 410.42 did not entirely void the mediation provision, because the doctrine of severance could be applied to allow for mediation, but in California -- and apparently Emard offered to mediate in California, but Templeton failed to respond to that request.

     Third, Emard was not compelled to arbitrate in Nevada, because mediation was a condition precedent to arbitration, not to litigation. Under the contract, the only consequence of refusing to mediate was that it could ultimately affect an award of attorney’s fees (and it was not clear that Emard refused to mediate, only that it refused to mediate in Nevada).

     The Court of Appeal did not reach the issue of FAA preemption.