Delegation, PAGA: Ninth Circuit Amends Uber Drivers Opinion So As Not To Foreclose Argument That Class Action Waivers In Arbitration Agreements Violate National Labor Relations Act
Material Amendment To A Footnote?
On September 11, 2016, we posted about the Uber Drivers cases, Mohamed v. Uber Technologies, Inc., et al., and Gillette v. Uber Technologies, Inc., Nos. 15-16178 and 15-16181 (9th Cir. 9/7/16). The 9th Circuit opinion penned by Judge Clifton held that the issue of arbitrability was effectively delegated to the arbitrator by "clear and unmistakable" language. Similarly, the issue of arbitrability of the PAGA claims was clearly and unmistakably delegated to the arbitrator in Mohamed's case, but Gillette's PAGA claim could proceed in court on a representative basis under the holding of Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129 (Cal. 2014).
On December 21, 2016, an Order and Amended Opinion was issued, deleting a single sentence from a single footnote in a 28 page opinion. With this amendment, the panel voted to deny the Petition for rehearing en banc. The Petition was circulated to the full court, without garnering any support.
Very interesting. So what was footnote 6, and what was deleted from it?
Footnote 6 noted that Plaintiffs had raised the argument that the class and collective action waivers in the arbitration agreements may violate the NLRA. However, since this was raised for the first time in a sur-reply, the untimely submission waived the argument. Okay so far. The argument that class and collective action waivers violate NLRA rules prohibiting "concerted activity" was adopted by two judges on the panel in the 9th Circuit case, Morris v. Ernst & Young, with Judge Ikuta strenuously dissenting. See our August 23, 2016 blog post on Morris.
This is what has been deleted from footnote 6:
"Even if the argument had been properly raised, however, the option to opt out meant that Uber drivers were not required 'to accept a class-action waiver as a condition of employment,' and thus there was 'no basis for concluding that [Uber] coerced [Plaintiffs] into waiving [their] right to file a class action' in violation of the NLRA. Johnmohammadi v. Bloomingdale's, Inc., 755 F.3d 1072, 1075 (9th Cir. 2014); see also Morris v. Ernst & Young, No. 13-16599, 2016 WL 4433080 at n.4 (Aug. 22, 2016)."
Perhaps some judges felt uncomfortable with dictum in footnote 4 of Morris, stating that there is no violation of the NLRA just because an employee could have opted out of the individual dispute resolution agreement and chose not to?
Usually changes to footnotes are not very important. This change strikes us as important, because of the ongoing issue regarding concerted activity, class action waivers, and the NLRA.
Arbitration/Appealability/Homeowners: Court Of Appeal Dismisses Appeal Of Order Denying Motion To Compel Arbitration Because Order Did Not Effectively Terminate Arbitration
Ordinarily, Denial Of A Motion To Compel Arbitration Is Appealable – But Not Here, And The Court Explains Why . . .
Hayward Renaissance Walk Corporation v. Olson Urban Housing, LLC, A148372 (2/1 12/20/16) (Margulies, Humes, Dondero) (unpublished) does something satisfying that we like cases to do: it makes sense and imposes order on somewhat confusing rules. In this instance, the rules are those governing the appeal of arbitration rulings under Code of Civ. Proc., section 1294.
Here is the context. Plaintiff, a homeowners association, sued various parties, alleging construction defects. Plaintiff then filed a petition for an order staying its action and compelling arbitration. However, plaintiff and defendants, while ultimately agreeing about a right to arbitrate, disagreed over which provision in the CC&Rs governed the arbitration. The trial court agreed that the provision preferred by defendants, a so-called limited warranty provision, governed. Because that provision required a demand for arbitration, the trial court gave plaintiff 14 days to submit a demand for arbitration. When the association failed to submit proof of a timely demand, the court denied the petition to arbitrate, and plaintiff appealed the denial of its petition.
As the Court of Appeal helpfully explains for those of us who could not otherwise remember all the rules governing the appeal of arbitration rulings, “what each of these appealable orders has in common is that they effectively terminate further proceedings with respect to the arbitration.” In other words, the orders are sufficiently final to be appealable. For that very reason, the denial of a petition to compel arbitration, which ordinarily terminates further arbitration proceedings, is appealable.
But not here. The trial court’s order denying the petition to arbitrate did not put an end to arbitration. If the trial court’s order were affirmed, the trial HOA would probably file a demand for arbitration under the limited warranty, whereas if the trial order were reverse, the HOA would probably seek an order compelling arbitration under its preferred section. So because the trial court’s order lacked sufficient finality to be appealed, the Court of Appeal dismissed the appeal.
What happens next? Query whether there is room for more do-si-do in the trial court, because plaintiff failed to seek arbitration within 14 days.
Arbitration/Construction Of Agreement: Order Denying Arbitration Is Affirmed Because Parol Evidence Rule Did Not Prevent Admission Of Oral Agreement Lacking Promise To Arbitrate
Two Separate Agreements, Rather Than One Fully Integrated Agreement, Governed The Relationship Between The Parties.
Pacific Interventionalists, Inc. v. Pedes Orange County, Inc., G052815 (4/3 12/116/16) (O’Leary, Fybel, Ikola) (unpublished) delves into the application of the parol evidence rule to an agreement containing a promise to arbitrate. In order to determine if parties intend that a written agreement serve as the exclusive embodiment of their agreement, the court may consider the instrument itself, surrounding circumstances, including prior negotiations, as well as “the collateral agreement itself to determine whether it was intended to be a part of the bargain.”
Here, the Court of Appeal concluded that the second agreement, which contained the arbitration provision, existed independently of an earlier oral agreement governing a physician’s compensation. The written agreement, while fully integrated with respect to the “subject matter contained in it,” did not preclude the earlier oral agreement involving different subject matter.
Accordingly, the Court of Appeal affirmed the trial court’s order denying arbitration, because the earlier oral contract lacking an arbitration provision continued to exist after the parties executed a written contract containing an arbitration provision.
DRAFTING TIP: California’s parol evidence rule is porous, since oral evidence of a collateral agreement can be admitted if a term is ambiguous or to show that the oral agreement is not part of the subject matter of the “integrated” agreement. Nevertheless, how the written agreement is drafted is still very important. Here, for example, the Court noted that the written agreement “was clearly limited in scope to its stated ‘subject matter,’” and that “there was no conclusive language stating, for example that, ‘there are no previous understandings or agreements not contained in the writing’ or an express intention to ‘nullify antecedent understandings or agreements.’” The Court’s point is that an effective integration clause can be drafted more strongly than it was here.
Arbitration/Homeowners/References/FAA: Fifth District Affirms Order Denying Motion To Compel Arbitration In Construction Defect Lawsuit
The Key: Close Reading Of Provision Providing For Arbitration If Reference Became “Legally Unavailable.”
The short but interesting opinion in Freeman v. Froehlich Signature Homes, Inc., F073374 (5th Dist. 12/15/16) (Levy, Gomes, Kane) (unpublished), merits close reading, because it reads like a finely-worded exam question.
In a construction defect lawsuit, the trial court considered plaintiffs/homeowners’ motion to compel a judicial reference with a developer against the backdrop of a CC&R requirement that disputes be resolved by judicial reference but, “if ‘for any reason the judicial reference procedures . . . are legally unavailable at the time a dispute would otherwise be referred to judicial reference, then such dispute shall be submitted to binding arbitration.’”
At first blush, a motion for judicial reference would seem appropriate. Not so fast, said the trial court: another case involving the same development project was pending, and a reference might negatively impact judicial economy. So the trial court, in the exercise of judicial discretion, denied the motion for judicial reference – but without prejudice.
Therefore, plaintiffs’ attorneys took the next logical step, and moved to compel arbitration. After all, the court had denied their request for a judicial reference. However, the motion to compel arbitration was also denied. Plaintiffs appealed.
The Court of Appeal upheld the order denying the motion to compel arbitration, because the denial of a reference without prejudice did not make a reference legally unavailable.
COMMENT: Sometimes timing is everything. This outcome does not foreclose plaintiffs from getting a reference or an arbitration. The trial court ordered the cases consolidated, noting that, “motions for judicial reference, and when appropriate, motions [to] compel arbitration may be renoticed.” So another round of law and motion can be anticipated. Nothing prevents plaintiffs from moving again for a reference, and in the alternative, arbitration,
This is a case in which the application of the Federal Arbitration Act makes a real difference, because if California law applies, the trial court could stay a reference or stay arbitration to avoid results inconsistent with a pending court case. Here, the Court of Appeal concluded that the FAA applies – not because interstate commerce was involved, but because the dispute resolution provision expressly provided for application of the FAA. In this case, the preemptive effect of the FAA sweeps away inconsistent California law that would otherwise give the trial judge more discretion to deny a reference or to deny arbitration. Let’s see what happens after the inevitable “next round.”
Unconscionability/Employment: Fourth District, Div. 3 Reverses Order Denying Petition To Compel Arbitration, Concluding Arbitration Provisions Were Not Unconscionable
Limitations On Discovery Did Not Make Arbitration Unconscionable, Because The Limitations Applied Equally.
A vintage downtown beauty parlor, part of the Ackley Heritage Center that also includes an old-time soda fountain as well as prairie houses and farm buildings on the outskirts of town in Ackley, Iowa. 2016. Carol M. Highsmith, photographer. Library of Congress.
In Daye v. International School of Cosmetology, Inc., G051562 (4/3 12/13/16) (Bedsworth, O’Leary, Moore) (unpublished), the trial court denied employer’s petition to compel arbitration on unconscionability grounds. The Court of Appeal reversed.
True, the arbitration provision had some degree of procedural unconscionability, because it was a contract of adhesion. However, the provision was not so “one-sided” or “overly harsh” as to be substantively unconscionable, and a couple of provisions that were problematic could be severed.
The chief problem the Court had to address was the limitation on discovery: relevant AAA Consumer Rules limited discovery to document productions and identification of witnesses, exchange of of exhibits, and such “further information exchange” as the Arbitrator deemed necessary “to provide a fundamentally fair process.”
“For substantive unconscionability purposes,” the Court explains, “the point is that the AAA rules regarding discovery apply equally” to both plaintiff and defendant. In short, they are not unduly one-sided. Furthermore, because limited discovery is a characteristic of arbitration – after all, that is what is supposed to make it more economical and efficient – a rule of unconscionability that particularly burdened arbitration does not survive AT&T Mobility v. Concepcion, if the Federal Arbitration Act, which has a preemptive sweep, applies. And here, the arbitration provision provided that the arbitration was to be conducted under the FAA.
COMMENT: In the recent 9th Circuit case, Martin v. Yasuda [see our post dated July 27, 2016], the cosmetology school sought to enforce an arbitration provision, but unlike School of Cosmetology, was unsuccessful. The difference is that the issue of waiver of the right to arbitrate was at play in Martin v. Yasuda.
Reviews: The Politics of Arbitration
How Liberal And Conservative Justices On The US Supreme Court Have Parted Ways Over Arbitration Cases.
My article entitled, "The Politics of Arbitration", appears in California Litigation, The Journal of the Litigation Section, State Bar of California, Vol. 29, No. 3, 2016. As my article explains, arbitration has become one more "hot button issue" for the U.S. Supreme Court Justices to disagree about. The article is republished here with the permission of the California State Bar.