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interesting opinion in Freeman v. Froehlich Signature Homes, Inc., F073374 (5th Dist. 12/15/16) (Levy, Gomes, Kane) (unpublished), merits close reading, because it reads like a finely-worded exam question.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.
Arbitration, Employment: Ninth And Fifth Circuits Split On Whether Arbitration Agreements With Collective/Class Action Waivers Violate The NLRB.
In The Fifth Circuit, D.R. Horton Inc. v. NLRB, 737 F.3d 344, Is Dispositive.
In an unpublished opinion, Citigroup Technology, et al. v. NLRB, 15-60856 (5th Cir. 12/8/16) (per curiam), the Fifth Circuit grants Citigroup’s Petition for Review, and reverses the NLRB’s decision adverse to Citigroup, which seeks to enforce arbitration of an employee’s claims.
As pointed out recently in my August 23, 2016 post about Morris v. Ernst & Young (No. 13-16599 (9th Cir. 8/22/16), the Ninth Circuit and Fifth Circuit are not on the same page when it comes to enforcing arbitration agreements containing collective/class action waivers. The Ninth Circuit held an employer violates sections 7 and 8 of the National Labor Relations Act by requiring employees to sign an agreement precluding them from bringing, in any forum, a concerted legal claim regarding wages, hours, and terms of conditions of employment.
In Citigroup Technology, supra, Citigroup specifically argued that the NLRB erred in concluding the employee “was engaged in protected concerted activity when she joined the demand for arbitration . . . “ Citigroup prevailed in the Fifth Circuit.
Whether collective/class action waivers embedded in arbitration clauses violate the NLRB’s rule against prohibiting concerted activity by employees is the subject of petitions to SCOTUS.
PAGA: Employer’s Effort To Compel Employee To First Arbitrate Whether She Was An “Aggrieved Party” Under PAGA Fails
Hernandez v. Ross Stores Lines Up With Other California Cases Refusing To Split PAGA Claims Into Arbitrable And Non-Arbitrable Parts.
In Hernandez v. Ross Stores, Inc., No. E064026 (4/2 12/7/16) (Miller, Hollenhorst, Slough) (unpublished), the Court of Appeal upholds the trial court’s denial of an employer’s motion to compel arbitration of whether an employee is an “aggrieved person” who has standing to sue under the Private Attorney General Act of 2004 (PAGA) for Labor Code violations.
In batting back employers’ creative efforts to avoid litigating PAGA claims in court, California state courts have found Williams v. Superior Court, 237 Cal.App.4th 642 (2015) and Iskanian v. CLS Transportation Los Angeles LLC, 59 Cal. 4th 348 (2014) to be dispositive. Those cases view PAGA claims as representative actions that the employee brings on behalf of the state, which is not a party to the arbitration agreement. The Court explains that forcing the employee to litigate PAGA claims in multiple forums “would thwart the public policy of PAGA to ‘empower employees to enforce the Labor Code’ on bhealf of the state.” Ross Stores, Inc. sought to distinguish Williams, pointing out that the arbitration clause in Williams referred to claims rather than disputes. However, the Court of Appeal concluded that this “is really a distinction without a difference.”
NOTE: On November 30, 2016, I posted about another unpublished opinion, Irving v. Solarcity Corporation, that also concluded the employee couldn’t be forced to arbitrate the “aggrieved person” standing issue under PAGA.
Settlement Agreements: Written Agreement To Dismiss Case And Enforce Settlement Agreement Is Enforceable, Though Agreement Was Not Filed With The Court
Court Describes Appeal As “A Tempest In A Teapot.”
Teapot with cherry or plum blossoms. Between 1750 and 1850. Library of Congress.
California has a convenient procedure for enforcing settlement agreements: Code of Civil Procedure, section 664.6. This allows a court to retain jurisdiction of a dismissed case for the purpose of enforcing a settlement agreement. A request to dismiss must be made orally on the record, or in writing signed by the parties, while the case is pending. The advantage of the procedure is that the party seeking enforcement need not file a new lawsuit to do so.
In Fidelity National Title Insurance Company v. Zuckerman, B265557 (2/3 12/7/16) (Stratton, Edmon, Aldrich) (unpublished), the written Settlement Agreement signed by the parties, and providing for the court’s retention of jurisdiction, was not filed with the court. And — you guessed it — when plaintiff Fidelity moved in 2015 to enforce the settlement, the defendants objected that the court lacked jurisdiction. Defendants argued there was no evidence in the record that there was an oral request to retain jurisdiction, nor was a writing signed by all the parties presented to the court before dismissal occurred in 2008.
The Court of Appeal disagreed. True, a fully executed settlement requesting retention of jurisdiction had not been filed with the court because the agreement was to be kept confidential. However, a filed Stipulation for Judgment, referring to previous entry of dismissals, did state the court would retain jurisdiction. The Court of Appeal refused to construe the requirement that a “request” be made during the pendency of the case to mean that the request had to be filed as an actual pleading with the court before dismissal. Here, the request had indeed been fully executed prior to the dismissal. Also, a Stipulation for Dismissal of Action and Reservation of Jurisdiction by the Court, signed by counsel, referenced the Settlement Agreement, stating that its terms were confidential, and that it provided for the Court’s retention of jurisdiction, had been filed. That was enough. For good measure, the Court of Appeal added that because Defendants filed an ex parte application for dismissal and reservation of the court’s jurisdiction, they were estopped from arguing that the court lacked jurisdiction.
COMMENT: The case is unpublished and therefore not citable as authority. The safest approach would be to have a fully executed agreement to retain jurisdiction filed with the court prior to dismissal – and then such tempests in a teacup would be avoided.