News: Wells Fargo Makes Effective Use Of Arbitration
NYT Article Describes Bank’s Use Of Arbitration With Customers Complaining About Creation Of Sham Accounts.
Above: Wells, Fargo & Co.'s Express Office, C Street, Virginia City. 1866. Library of Congress.
The NYT, which ran a series of articles in 2015 critical about the spread of arbitration, has published an article dated December 6, 2016, by Michael Corkery and Stacy Cowley entitled, “Wells Fargo Killing Sham Account Suits by Using Arbitration.” The thrust of the article is that Wells Fargo has effectively used arbitration clauses to divert customer lawsuits from the courts to arbitral forums.
It may at first seem surprising that Wells Fargo has been so successful at enforcing arbitration clauses against customers whose complaint is that they didn’t open the accounts in question with Wells Fargo. As explained by the article’s authors, the bank’s counterargument is, “The arbitration clauses included in the legitimate contracts customers signed to open bank accounts also cover disputes related to the false ones set up in their names.”
Mediation/Condition Precedent: International Lawyers Also Worry About Consequence Of Skipping Mandatory Pre-Arbitral Step
It’s Not Exactly The Same As Skipping Mediation In A Home Sale Purchase In California . . . .
California courts have established that the consequence of not requesting mediation before suing for breach of a California Association of Realtor’s residential purchase agreement is that the plaintiff will not recover attorney’s fees even if the plaintiff prevails. That result is the logical consequence of the contractual language in the C.A.R. purchase agreement. See generally our sidebar category: Mediation: Condition Precedent. Interestingly, practitioners of international construction law must also grapple with the consequences of skipping an ADR step.
Matthias Scherer and Samuel Moss, attorneys with the international law firm Lalive, have authored a November 28, 2016 article entitled, “The consequence of skipping a mandatory pre-arbitral step.” The article focuses on a recent ruling by the Swiss Federal Supreme Court considering the consequences of failing to comply with a mandatory pre-arbitral condition – in this case, a conciliation step. The authors list potential consequences: (1) dismiss the case for lack of jurisdiction or inadmissibility; (2) suspend the proceedings; or, (3) award damages for breach and proceed with the arbitration.
Here, the court characterized the issue as one of lack of jurisdiction, resulting in suspension of the proceeding by the arbitral tribunal until the parties complied with the pre-arbitral condition.
Arbitration, Public Policy, Record: Slight Record And Failure To Show Violation Of Well-Settled Public Policy Dooms Challenge To Arbitrator’s Award
Absence Of A Record Was A Major Problem For Appellant.
Law Offices of Mark Waecker, APC v. Pius Kim, B268212 (2/5 12/1/16) (Turner, Kriegler, Kumar) (unpublished) illustrates the proposition that an arbitrator’s decision is generally not reviewable for factual or legal errors. Moncharsh v. Heily & Blase, 3 Cal.4th 1 (1992). Therefore, the Court of Appeal does not (and did not here) have to determine whether the arbitrator correctly decided the issues. However, an arbitrator’s decision may be reviewed if the arbitrator exceeds his or her powers or violates a well-settled public policy. Neither was the case here. Therefore the Court of Appeal affirmed the judgment confirming an award of $323,320.58, in favor of an attorney in a fee dispute with clients.
The individual client, Mr. Kim, made a creative argument that he had been individually included as a client along with his companies just so the attorney could recover fees from him individually, without disclosing any conflicts of interest to Mr. Kim. It was not necessary, argued Mr. Kim, to include him, as he was not a party to the cases in which the attorney represented the codefendants.
The Court of Appeal rejected the argument that there was a conflict, because a conflict, if any, was “outside the subject matter of the litigation.” The Court further explained that rule 3-300, prohibiting an attorney from entering into a business transaction with a client, did not apply to retainer letters.
We note that the appeal made no headway because, among other problems, no arbitration testimony was submitted to the trial court. Rather, the Court of Appeal had to work with “the arbitrator’s award which states that Mr. Kim was not credible.”
NOTE: Given the rule established by Moncharsh and other cases, one who challenges the arbitrator’s award faces a steep uphill battle. What’s more, with only a slight record, the outcome is usually foreordained.
Construction/Existence Of Agreement: CCA 4/1 Affirms Order Denying Motion To Compel Arbitration Because There Was No Agreement
Acknowledgment Of Employee Handbook Is Not Necessarily Agreement To All Its Contents.
Courts apply the rule requiring resolution of ambiguities against the drafting party “with peculiar force in the case of a contract of adhesion.” That’s what happened in Rollins v. Stack & Associates, CPAs, No. D069390 (4/1 11/30/16) (Nares, Benke, Huffman) (unpublished), in which the trial court denied an employer’s motion to compel arbitration of claims asserted by its former employee, and the Court of Appeal affirmed.
The employee signed an acknowledgment that she received the employee handbook, and that it contained important information on policies, procedures, and practices. The handbook contained the arbitration provision.
The problem was ambiguous language. It was not clear here that acknowledging receipt of the handbook meant agreement to a contract. In fact, the acknowledgment explained “that the policies described in the handbook are intended as a guide only and do not constitute a contract of employment.” Whether the signatures on the acknowledgment expressed the mutual intent of the parties to be contractually bound by the policies in the handbook – including the arbitration policy – was at best ambiguous. And that was the employer’s problem, because ambiguity is interpreted against the drafter.
COMMENT: A stronger approach if binding arbitration is desired is to have a separate, conspicuous, signed arbitration provision. Of course, there could still be problems of substantive and procedural unconscionability, but it would be more difficult to say that an agreement to arbitrate did not exist.
Automobiles, Consumers: Buyer’s Arbitration Award Exceeded $100K, And Auto Dealer Gets A “Do-Over” If Not Exactly An Appeal
Dealer Wanted To Go To Three-Arbitrator Panel After Receiving Adverse Arbitration Award, And Everyone Agreed That ADR Arbitral Forum Lacked “Appellate” Rules. So?
Plenty of arbitration disputes arise from arbitration clauses in auto sales contracts and leases – hence our sidebar category, “Automobiles.”. Here’s an unusual one, based on fairly common arbitration provisions. Condon v. Daland Nissan, Inc., No. A145613 (1/1 filed 11/4/16, order to pub. 11/29/16) (Banke, Humes, Dondero).
Many auto sales agreements now contain an arbitration provision allowing a party to request a new arbitration under the rules of the arbitration organization if the arbitration award for a party is $0, or against a party in excess of $100K, or includes an award of injunctive relief against a party. Here, the buyer, Mr. Condon, received an award in excess of $100K (based on attorney’s fees and costs), and the defendants, which were the dealership, the insurer, and the entity acquiring the sales contract, sought a new arbitration with the arbitral forum, ADR, in accordance with the terms of the parties’ arbitration provision.
The prevailing party, Mr. Condon, objected, and ADR punted, concluding “it lacked authority to resolve the parties’ disagreement over whether a new arbitration was proper,” absent a court order. We surmise that ADR and the parties could not agree as to whether a “new arbitration” was an “appeal,” and whether deciding that issue by ADR was within the scope of the arbitration clause.
The trial court concluded that ADR lacked “a process by which a new arbitration may be had before a three-arbitrator panel,” and denied a request for an order to further arbitrate with a three-member panel. This was a bit of a head-scratcher, because in fact, ADR does have a process for appointing a three-arbitrator panel following an initial arbitration.
The way to make sense of this dispute is to note that the parties and the Court of Appeal addressed whether the arbitration clause provided for “an appeal” – because everyone agreed that ADR did not have rules providing for an appeal. The Court made sense of the dealership’s request by explaining that the dealership was really asking for a “do-over” or “repeat” of the arbitration with a three-member panel, and that the arbitration clause reference to the “appealing party” in the arbitration context simply meant a do-over of the arbitration with a three-person panel.
COMMENT: If the arbitration clause had referred to the “party requesting new arbitration in the arbitral forum” rather than to the “appealing party requesting new arbitration,” perhaps some confusion would have been avoided.
PAGA: Agreement To Arbitrate “Aggrieved Person Status” Under PAGA Does Not Enable Employer To Enforce Arbitration Of Any Portion Of Representative Claim
Employer Sought To Distinguish Its Case Based On Specific Language Of Arbitration Clause . . . No Go.
Williams v. Superior Court, 237 Cal.App.4th 642 (2015) recognizes that a representative action waiver of a PAGA claim is ineffective because the PAGA claim is not divisible into separate individual and representative claims. Because a representative PAGA claim cannot be split into an arbitrable individual claim and a nonarbitrable representative claim, an employee with a representative PAGA claim cannot be forced to arbitrate whether he or she is an “aggrieved person” with standing under PAGA.
Does the result change if the arbitration clause specifically provides for arbitration of aggrieved person status under PAGA?
No, holds Irving v. Solarcity Corporation, No. A143961 (1/3 11/29/16) (Siggins, Pollak, Jenkins) (unpublished). As the Court explains, “A PAGA claim is representative and does not belong to an employee individually, and an employer should not be able to force an individual employee to arbitrate any portion of the claim.” Slip Op. at *6.
COMMENT: The twist in the case – an arbitration clause that specifically calls for the arbitration of aggrieved person status under PAGA – may be new in the case law. It was to be anticipated that resourceful employers’ counsel would employ such contract language after Iskanian and Williams. However, despite facts that may be unique, the Irving case is unpublished and therefore cannot be cited as authority.