Condition Precedent: Non-Signatory To Contract Must Mediate To Recovery Attorney’s Fees, If Mediation Is A Condition Precedent To Fee Recovery In The Contract
The
The Wrinkle Here Is That The Prevailing Party Claimed She Did Not Need To Satisfy The Condition Precedent Because She Never Signed The Contract.
Standard real estate purchase and sale agreements in California, e.g., California Association of Realtors forms, include a provision requiring mediation as a condition precedent that must be satisfied before a prevailing party can recover attorney fees. That requirement has been litigated often enough in California to become one of our sidebar categories: "Mediation: Condition Precedent". Yet it still trips up parties, as it did in our next case, Hsiao v. Lin, B271296 c/w B272366 (2/8 4/4/17) (Rubin, Flier, Grimes) (unpublished).
Hsiao (buyer) sued Lin (seller) for breach of contract when the seller refused to proceed with the sale of a house. The seller Lin prevailed, because she never signed the contract – instead, her adult son did. Because Lin prevailed, she sought attorney's fees, which the superior court granted in a postjudgment order
The problem for Lin was that the contract required mediation first in order to recover attorney's fees. The buyer requested mediation, and Lin refused the request. The Court held that the case is governed by Leamon v. Krajkiewcz, 107 Cal.App.4th 424 (2003), requiring a prevailing seller who sued to quiet title to request mediation first in order to recover attorney's fees.
The seller valiantly tried to distinguish Leamon on the grounds she did not sign the contract in the first place. But the Court found this to be "a distinction without a difference," because she was relying on the contract to recover attorney's fees. She could hardly rely on the benefit – recovering attorney's fees – without accepting the burden of mediating.
Judgment affirmed; postjudgment order awarding attorney's fees to Lin, reversed.
Review: Drafting Arbitration Clauses
Recommended Reading: Two Articles By Rebecca J. Callahan In The Orange County Lawyer Provide Helpful Tips For Drafting Arbitration Clauses.
Mediator and arbitrator Rebecca J. Callahan is the author of two very clear and concise articles about drafting arbitration clauses. “Arbitration Clauses: Hot Questions and Cool Answers”, which appeared in Orange County Lawyer, February 2017 (Vol. 59 No. 2), p. 42, explains basic considerations of drafting arbitration clauses. A second article, “Arbitration Clauses: A Contemporary Look at Advanced Drafting Considerations and Opportunities”, appears in the current issue of Orange County Lawyer, April 2017 (Vo. 59 No. 4), p. 56. The second article is especially helpful because it addresses some drafting niceties and pitfalls, such as failing to consider that the Federal Arbitration Act only allows for judicial confirmation of an award if the parties have agreed that a judgment shall be entered upon the award, and have specified the court. Other topics covered include provisional relief, award of fees and costs, availability of statutes of limitation as a defense, inclusion of successors and assigns, and discovery.
COMMENT: In addition to those articles, which provide an excellent overview and useful drafting tips, a helpful on-line resource for drafting arbitration provisions is the AAA’s Drafting Dispute Resolution Clauses: A Practical Guide.
Enforceability Of Arbitration Clauses – A Spate Of Recent Cases
As Arbitration Clauses Proliferate, So Too Do Motions Concerning Enforcement Of Those Clauses.
I have not done a statistical study, but it is certainly my perception that in recent years there is more and more law and motion practice concerning the enforceability of arbitration clauses in California courts. First, the clauses have proliferated in contracts. Second, litigators and their clients seem attuned to the fact that it can matter greatly whether the case is tried to a judge, a jury, or an arbitrator.
Here are some recent examples in support of the proposition:
Farrar v. Direct Commerce, Inc., A146944 (1/1 3/23/17) (Banke, Humes, Margulies).
Trial court denied employer’s petition to compel arbitration. Reversed and remanded. “While the arbitration provision is one-sided, as it excludes any claims arising from the confidentiality agreement . . . we conclude that offending exception is readily severable and, on this record, should have been severed.”
HPROF, LLC v. Bank of America, N.A., A147748 (1/3 3/21/17) (Pollak, Siggins, Jenkins) (unpublished).
Trial court’s order denying Defendants Bank of America and The Bank of New York Mellon’s motion to compel arbitration is affirmed. The Banks waived the right to arbitrate by unreasonably and prejudicially delaying the arbitration. The waiver issue was not clearly delegated by the rules of the AAA to be decided by the arbitrator.
Karel v. Dicarlo, No. D068443 (4/1 3/17/17) (Benke, Huffman, Haller) (unpublished).
Trial court’s order denying plaintiff Karel’s motion to compel arbitration is affirmed. Substantial evidence supported trial court’s finding of waiver. Substantial evidence supported findings of express waiver, implied waiver, including delay and prejudice.
Williams v. Alorica, Inc., No. G052452 (4/3 3/17/17) (Bedsworth, O’Leary, Moore) (unpublished).
Trial court’s order denying employer’s petition to compel arbitration is reversed. Trial court ruled employer had not established existence of an agreement to arbitrate. Court of Appeal disagreed: “Williams accepted Alorica’s arbitration policy offer by continuing to work past a stated deadline.”
Mohsenin v. Adventure-16, Inc., B262528 (2/2 3/16/17) (Goodman, Ashmann-Gerst, Chavez) (unpublished).
Trial court’s order denying the motion by the employer and similarly aligned employees is reversed as to the employer, and affirmed as to the individual employees. The arbitration agreement between Mohsenin and his employer was not substantively unconscionable: the arbitration agreement was mutual, the fee provision was not substantively unconscionable, and the exclusion of equitable injunctive relief was permissible. Therefore, the employer could compel arbitration. However, the individual employee-appellants who had been sued by Mohsenin were another matter entirely, because they were not third-party beneficiaries of the arbitration agreement. So the employees aligned with the employer could not compel arbitration. .
Arbitration, Appealability: Two Recent Appeals In Arbitration Cases Dismissed For Lack Of Appealability
No Appeal From Order Denying Motion To Vacate Arbitration Award.
The Court of Appeal dismissed an appeal without prejudice in Porter v. AG Arcadia, LLC, No. B276183 (2/5 2/28/17) (Turner, Kriegler, Kin) (unpublished). Defendants appealed from an order denying a motion to vacate an arbitration award. The problem? “No appeal may be taken from an order denying a motion to vacate an arbitration award.” However, the appeal was not frivolous, because sometimes an appeal can be treated as a writ petition – though here the necessary criteria were lacking.
No Appeal From Judgment That Is Not Final.
Defendants appealed from a judgment confirming an arbitration award “on one of 27 causes of action.” Acquire II, Ltd. V. Colton Real Estate Group, No. G052353 (4/3 2/28/17) (Aronson, Fybel, Ikola) (unpublished). No go. An arbitrator’s award that does not determine all the questions presented does not qualify as an award under section 1283.4. Dismissed for lack of jurisdiction, because the trial court’s judgment was not final.
Review: Special Report Of New York Law Journal Is About ADR
A Variety Of Articles Discuss Mediation And Arbitration In March 20, 2017 Special Report.
A March 20, 2016 Special Report of The New York Law Journal covers diverse topics including collaborative divorce, a proposed New York rule that might make arbitration “truly confidential”, diversity in ADR, solving interpersonal problems in mediation, preparing for successful mediation, and enforcing foreign arbitral awards against foreign corporations registered to do business in New York.
The interesting article on the proposed New York rule to make arbitration “truly confidential” turns out to be a bit over-hyped. It is actually about a proposed rule allowing for the sealing of court records containing confidential business information. The proposed rule is not specifically tailored to arbitration, but it might be used to protect the arbitral record at the time one moves to confirm or vacate an arbitration award in court. Generally certain information needs to be disclosed to the trial court to confirm or vacate an arbitration award, and it can be a challenge to keep information confidential that had, up till the court appearance, been kept confidential in arbitration. A statutory rule allowing information to be sealed if it contains confidential business information might offer one solution. If such a rule were to be widely adopted in practice, it would further push arbitration into an alternative legal universe, where there is no published opinion to serve as precedent, and records are sealed in court.
Arbitration, Vacatur, Disclosures: No Violation Of Mandatory Disclosure Requirements By Arbitrator Awarding $7M To Manatt Against Client
Vacating The Award Would Have Required That The Arbitrator Be Actually Aware Of A Ground For Disqualification That The Arbitrator Did Not Disclose.
ECC Capital, a former client of Manatt, Phelps & Phillips, LLP (Manatt) appealed from a superior court judgment confirming a final arbitration award of almost $7M against ECC and its subsidiary, and in favor of Manatt, for fees, expert expenses, and costs. ECC Capital Corp. et al. v. Manatt, Phelps & Phillips, LLP, No. B265760 (2/7 2/15/17) (Segal, Zelon, Small).
ECC, which had a malpractice dispute with its former attorney Manatt, contended the trial court erred in confirming the arbitrator’s interim award denying ECC’s claims, because the arbitrator violated mandatory disclosure rules governing arbitrations. ECC raised conflicts issues, including that Manatt had represented Bear Stearns, which was adverse to ECC, and then done transactional work for ECC in a matter involving Bear Stearns, without disclosing the conflict and obtaining a waiver. ECC also complained that a Manatt attorney had participated in a Uniform Domain Name Dispute Resolution Policy (UDRP) proceeding in which the arbitrator had been a panelist, and the arbitrator failed to disclose his involvement in the UDRP matter.
ECC commenced arbitration against Manatt in 2010, and apparently did not raise the disqualification issue with the arbitrator until October 2013, after the arbitrator had already deemed Manatt the prevailing party in the arbitration, and before Manatt filed its application for fees and costs. The arbitrator issued the award, and the trial court confirmed it.
The meaty issue on appeal was whether the arbitrator violated mandatory disclosure rules. No, said the Court of Appeal, because Cal. Code Civ. Proc., section 1286.2(a)(6)(A), provides grounds for vacatur where the arbitrator fails to disclose a ground for disqualification “of which the arbitrator was then aware.” Constructive knowledge does not suffice. The parties did not dispute that at the time of his disclosures, the arbitrator was not aware a former Manatt lawyer had participated in the UDRP matter. For good measure, the Court pointed out that as a factual matter, it was not unreasonable for the arbitrator to fail to disclose the UDRP matter, because he had participated in many such matters, such matters may not even qualify as genuine arbitrations, and they typically involve no in-person or telephonic hearings, no witnesses, no discovery, and no contact with the panelist.
Various other arguments made by ECC were rejected by the Court as meritless or forfeited.
The Court did comment, however, “[t]hat it might have been a better arbitrator disclosure practice” for the arbitrator to disclose that he had participated in numerous UDRP proceedings that he did not bother to review, allowing the parties to undertake their own review. But “a better practice”, absent authority, was no basis for vacating an arbitration award.
COMMENT: Arbitrator disclosure issues tend to lose traction when raised late in the game. Courts like to emphasize that arbitration is final, binding, and cost-effective. The Legislature intended “to prevent the undoing of an arbitration award based upon an arbitrator’s unknowing failure to disclose information.” (quoting Casden Park La Brea Retail LLC v. Ross Dress for Less, Inc., 162 Cal.App.4th 468, 477 (2009)).
TRIVIA: Casden Park La Brea Retail LLC successfully convinced the trial court to vacate an arbitration award on the basis that the arbitrator had failed to disclose prior business dealings. The Court of Appeal agreed with Ross, however, "that a neutral arbitrator who has no pecuniary interest in profits generated by his employer's business relationship with a party or a party's representative has no substantial business relationship with the party or its representative and, therefore, no duty to disclose such transactions." Manatt represented Casden Park La Brea Retail LLC in that appeal.