Arbitration Fees: Fee And Costs Award In Arbitration Of Over $3.5M Against CEO Is Upheld On Appeal
Sour Wine To Drink?
![[History of San Francisco mural "Miners Panning Gold" by Anton Refregier at Rincon Annex Post Office located near the Embarcadero at 101 Spear Street, San Francisco, California]](http://cdn.loc.gov/service/pnp/highsm/20800/20856r.jpg)
Miners panning gold by Anton Refregier at Rincon Annex Post Office located near the Embarcadero at 101 Spear Street, San Francisco, California. Carol M. Highsmith, photographer. 2012. Library of Congress.
California Attorney’s Fees, the blawg that my colleague Mike Hensley and I have contributed to since 2008, has an August 28, 2016 post on Kent v. The Wine Group, A145104 (1/1 Aug. 19, 2016) (unpublished), in which the Court of Appeal upheld an arbitrator’s fee award of $3.25M and almost $357K in costs, against a CEO who sued The Wine Group, which had offered him $29M under a separation agreement over time. But he wanted $95M. He got an award of $29M alright, but he did not prevail, because he came up a bit short of accomplishing his objective. The moral is that arbitration, like litigation, can be very expensive. And perhaps there is another moral.
Arbitration, Unconscionability, Consumers: Ninth Circuit Holds Arbitration Clause in 23andMe Terms Of Service Is Not Unconscionable
Consumers With Neanderthal DNA And A Bone To Pick With 23andMe Will Need To Bring Their Clubs To Arbitration.
The Neanderthal man, member of the hunting race inhabiting central France in Mousterian times. Philip Brigandi, photographer. 1924. Library of Congress.
Tompkins v. 23andMe, Inc., No 14-16405 (9th Cir. Aug. 23, 2016) (Ikuta, Trott; Watford, conc.) provides a well-stocked arsenal for eviscerating claims that arbitration is unconscionable in a consumer contract. The Ninth Circuit panel, in an opinion authored by Judge Ikuta, affirmed the district court’s order granting 23andMe, Inc.,’s1 motion to compel arbitration, over arguments that the arbitration provision was unconscionable.
The bilateral attorneys’ fees shifting clause was not found to be unconscionable. The Court relied on Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (2015) [see our August 4, 2015 post], which requires a case-specific analysis of the consumer’s ability to pay, and found the plaintiffs had not carried the burden of showing that they couldn’t pay, or that their ability to arbitrate had been thwarted. The San Francisco forum was reasonable – that’s where 23andMe is headquartered, and plaintiffs were in California. The provision excluding intellectual property claims from mandatory arbitration was not unconscionable because the corporation had a reasonable justification for the arrangement. A one-year statute of limitations did not make the arbitration provision unconscionable, nor did a unilateral right to modify the agreement make the provision unconscionable – the covenant of good faith and fair dealing reins in the modification that can be made unilaterally.
COMMENT: Judge Ikuta also relied on language in the recent case, Baltazar v. Forever 21, Inc., 62 Cal. 4th 1237 (2016) [see our March 28, 2016 post]: “[A] contract can provide for a margin of safety that provides the party with superior bargaining strength a type of extra protection for which it has a legitimate commercial need without being unconscionable.” Id. at 1250. Look for more corporations with superior bargaining strength to rely on this language in consumer and employment disputes, when defending against claims that the arbitration clause they drafted is unconscionable.
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123andMe has been the subject of class action lawsuits claiming it has made misleading statements about the validity of its tests.
Arbitration, Existence of Agreement, Employment: Second District, Division Four Holds That Employee Handbook With Acknowledgment Of Arbitration Policy Did Not Create Mutual Agreement To Arbitrate.
Language In The Employee Handbook Undercut The Existence Of An Agreement To Arbitrate.
When January Esparza sued her employer for sexual harassment and related causes of action, the employer petitioned to compel arbitration, based on the fact that Esparza had acknowledged receipt of an employee handbook, and the handbook mentioned that the employer’s policies, practices and procedures included arbitration. The trial court denied the motion, finding no agreement to arbitrate. Esparza v. Sand & Sea, B268420 (2/4 8/22/16) (Collins, Epstein, Willhite).
The handbook included a welcome letter stating, “[T]his handbook is not intended to be a contract (express or implied), nor is it intended to otherwise create any legally enforceable obligations on the part of the Company or its employees.” The acknowledgment signed by the employee did not state she agreed to the arbitration provision, and recognized she had not read the handbook when she signed the form. Under those circumstances, the Court of Appeal found that there was no enforceable agreement to arbitrate, and affirmed.
COMMENT: The problem with the handbook here could have been avoided by giving the employee a conspicuous arbitration agreement to sign or acknowledge in writing at the time she entered into the employment relationship. Esparza relies heavily on Mitri v. Arnel Management Co., 157 Cal.App.4th 1164 (2007) – another good case to look at when considering whether the employee handbook creates a mutual agreement to arbitrate.
Arbitration, Employment: Ninth Circuit Rules That Employer Violates National Labor Relations Act By Requiring Employees To Agree Not To Bring “A Concerted Legal Claim” Involving Wages, Hours, And Terms Of Employment
Judge Ikuta Dissents: “This decision is breathtaking in its scope and in its error . . . “
The issue decided in Morris v. Ernst & Young, No. 13-16599 (9th Cir. 8/22/16) is clearly framed by the majority and dissenting opinions, and almost certainly headed for Supreme Court review. In a majority opinion authored by Chief Judge Thomas, the panel holds an employer violates sections 7 and 8 of the NLRA 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.
Judge Thomas identifies “a core right to concerted activity” established by the NLRA. “Irrespective of the forum in which disputes are resolved, employees must be able to act in the forum together. The structure of the Ernst & Young contract prevents that.”
The majority opinion relies on Chevron deference to the NLRB’s interpretation of the NLRA, on the statutory reference in section 7 of the NLRA to the right of employees “to engage in other concerted activities”, on the savings clause in the FAA that permits agreements to arbitrate to be invalidated by generally applicable contract defenses (but not by defenses that apply only to arbitration), and on a distinction between substantive rights and procedural rights. This last distinction is particularly important, because the majority describes the right to concerted action as a substantive right that cannot be eliminated in arbitration agreements or in other agreements.
The majority nimbly distinguishes the Italian Colors case. Readers of my blog will recall that Justice Kagan, dissenting in Italian Colors, lamented that the majority opinion, authored by Justice Scalia, gave the plaintiffs a right to sue without an effective remedy, because they could not sue as a class. “Too darn bad” was her nutshell of the case. [See June 25, 2013 post.] In Morris, Judge Thomas distinguishes Italian Colors as a case in which a procedural, not a substantive right, was waived, because the antitrust statutory scheme at issue in Italian Colors did not create a right to concerted activity, only a right to sue for antitrust violations. By way of contrast, Judge Thomas views the extinction of employees’ right to concerted activity as the loss of a substantive right created by federal statute.
Judge Thomas explains that the panel’s holding does not uniquely burden arbitration:
“The contract here would face the same NLRA troubles if Ernst & Young required its employees to use only courts, or only rolls of the dice or tarot cards, to resolve workplace disputes – so long as the exclusive forum provision is coupled with a restriction on concerted activity in that forum. At its heart, this is a labor case, not an arbitration case.”
Judge Ikuta vigorously dissents, arguing that the FAA preempts federal court here from not enforcing the arbitration agreement, and that the panel’s holding is counter to recent Supreme Court case law, as well as case law of the Second, Fifth, and Eighth Circuits, concluding that “the NLRA does not invalidate collective action waivers in arbitration agreements.”
Political Footnote. Judge Ikuta, who clerked for Judge Kozinski and Justice O’Connor, was nominated for the Ninth Circuit by President George W. Bush. Judge Thomas was nominated by President Bill Clinton for a seat on the Ninth Circuit. Judge Hurwitz was nominated by President Barack Obama.
Arbitration, Enforceability, Existence Of Agreement, Employment: Orders Denying Motions To Compel Arbitration And Staying Arbitration Survive Appeals In Fourth, Sixth, And Fifth Districts
The next three cases show that, notwithstanding the trend to uphold agreements to arbitrate, there are still plenty of situations in which our California Courts of Appeal will agree that arbitration should be denied or stayed, and allow litigation to go forward.
Tran v. Integra LifeSciences Corporation, No. G051620 (4th Dist. Div. 3 8/18/16) (unpublished): Order Denying Motion To Compel Arbitration Affirmed.
In Tran, the trial court denied defendants’ motion to compel arbitration on the grounds that the arbitration provision was superseded by a different, later arbitration provision, and the later provision was unconscionable. The operative arbitration provision was “take it or leave it” and unconscionable because it required Tran, a California employee, to arbitrate her claims in New Jersey, and because the arbitration provision had various provisions reflecting the unilateral nature of the arbitration requirement. Justice Thompson authored the decision. Affirmed.
Scheiber v. Shoe Palace Corporation, No. H041495 (Sixth Dist. 8/16/16) (unpublished): Appeal Of Order Staying Arbitration Of Plaintiff’s Individual Claims And Allow PAGA Claim To Proceed In Court Declared Moot.
Defendant’s appeal was limited to challenging the trial court’s decision to stay the arbitration of plaintiff’s individual claims, and did not challenge order that representative claims could be litigated in court. However, because the plaintiff sought dismissal of his individual claims in the trial court, and represented in the Court of Appeal that he would dismiss those claims before they were ever arbitrated, the appeal was dismissed as moot. Justice Bamattre-Manoukian authored the decision.
Ashbury Heights Capital, LLC v. FactSet Research Systems Inc., No. A145806 (1st Dist. Div. 1 8/16/16) (unpublished): Order Denying Motion To Compel Arbitration Is Affirmed.
The trial court denied defendant’s motion to compel arbitration, because plaintiff’s claims pertained only to defendants’ conduct in the years after the contract was terminated. Affirmed.
One interesting question here is why the court, rather than the arbitrator, decided the issue. After all, the Commercial Arbitration rules of the AAA entitled the arbitrator to decide disputes over the scope of the arbitration agreement. The Court of Appeal, however, viewed the issue as turning “on the continued validity of the arbitration clause, not the clause’s scope.” So essentially the Court viewed the validity issue as a gateway issue that the Court should decide. Justice Margulies authored the decision.
Arbitration, Jurisdiction: State Trial Court Lacks Jurisdiction To Vacate Interim Award That Is Not An Arbitration Award
The Federal Arbitration Act and the California Arbitration Act Diverge On Whether Interim Arbitration Awards Can Be Vacated.
In the aptonymically-named case, Judge v. Superior Court, No. B267694 (2/7 8/15/16) (unpublished), the Court of Appeal considered whether the trial judge had property vacated an arbitrator’s ruling on clause construction requiring class arbitration of plaintiff’s Labor Code Claims.
Justice Segal, authoring the Court’s opinion, explains that while an arbitration award may be vacated, an award that does not “include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy,” as required by Code of Civ. Proc., section 1283.4, is not an award. Because the clause construction award at issue in Judge did not qualify as an award, the trial court lacked jurisdiction to vacate it.
Believing that the trial judge had made it clear that she had made up her mind that she would vacate any class-based arbitral award, “in the interests of justice,” the Court of Appeal directed that a different trial judge hear further proceedings in the matter.
The case was apparently governed by the FAA, and as we know, the FAA can preempt state law. Interestingly, the law concerning vacation of awards differs under the FAA and under the California Arbitration Act, and even more interestingly the FAA procedure did not apply here. Footnote 7 of the decision assembles federal cases allowing petitions to vacate interim arbitration awards under Section 10 of the FAA (9 U.S.C., section 10). However, the California Supreme Court has stated that “’the United States Supreme Court does not read the FAA’s provisions to apply to state court proceedings.’ . . . As we have noted, the provisions for judicial review of arbitration awards in sections 10 and 11 of the FAA are directed to ‘the United States court in and for the district where the award was made.’” Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334, 1351 (2008).