Arbitration/Waiver: First District, Division 2 Concludes Tribal Council Waived IndianTribe’s Sovereign Immunity For Purposes Of Arbitrating Contract Disputes
Trial Court Is Reversed.
Above: Judge James Wickersham in council with Indian chiefs. Fairbanks, Alaska. c1900-1907. Library of Congress.
“As a matter of federal law, an Indian tribe is subject to suit only where Congress has authorized the suit or the tribe has waived its [sovereign] immunity.” Kiowa Tribe v. Manufacturing Tech., 523 U.S. 751, 760 (1998). The issue in Findleton v. Coyote Valley Band of Pomo Indians, No. A142560 (1/2 7/29/16) (Stewart, Kline, Richman) was whether, as a matter of law subject to de novo review, the resolutions of the Tribe’s General Council authorized its Tribal Council to waive the Tribe’s sovereign immunity for purposes of arbitrating contractual disputes with construction contractor Robert Findleton.
Reversing the trial court, the Court of Appeal concluded that the resolution of the General Council authorized the Tribal Council to waive the Tribe’s tribal immunity, and the Tribal Council did so with a broadly worded resolution. On a remand, the trial court will probably have to decide whether the court or the arbitrator needs to decide whether tribal administrative remedies were exhausted.
Arbitration, Appealability, And The FAA: Ninth Circuit Denies Petition For Writ Of Mandamus And An Appeal In Companion Cases In Which Defendants Sought To Compel Arbitration In Labor Law Case
In Re Swift Transportation, No. 15-70592 (9th Cir. 7/26/16): No To Mandamus.
In a prior appeal, the 9th Circuit held that the district court, rather than the arbitrator, must decide whether the dispute was exempt from arbitration under 9 U.S.C., section 1. That section of the Federal Arbitration Act provides that the FAA does not apply to contracts of workers engaged in foreign or interstate commerce. The plaintiffs, who had brought labor law claims, alleged among other things, that they had been wrongly classified as independent contractors, that they were really employees, and thus, that they were exempt from the FAA and the requirement to arbitrate. However, instead of deciding whether the dispute was exempt under the FAA, the district court issued a scheduling order for discovery and a trial on the section 1 issue. Swift sought a writ of mandamus in the 9th Circuit, an action that resulted in a per curiam opinion, a concurring opinion, and a dissent.
The panel denied the mandamus petition. The defendants could present their position before the district court in dispositive motions and directly appeal a final order. Normal litigation expense did not constitute enough prejudice to warrant relief. And the district court’s order was not clearly erroneous, because “whether the FAA compels district courts to decide section 1 exemptions on the basis of briefing alone is an issue of first impression . . . “
Judge Hurwitz, concurring, seemed to adopt a “mountain out of a molehill” approach, finding nothing extraordinary to justify mandamus. If the district court decided that the workers’ contract was not one of employment, it would order arbitration, mooting mandamus. And if the court found the contract was one of employment, Swift could appeal. Since discovery was complete, it made no practical difference even if the section 1 issue could be resolved without discovery.
Dissenting, Judge Ikuta argued that the section 1 issue could be resolved without discovery, that the district court failed to make the legal determination requested by the 9th circuit, and that the section 1 issue presented “a novel and important issue of law,” such that mandamus was justified.
Above: Statue of a punter outside Veterans’ Stadium, Philadelphia, Pennsylvania. Carol M. Highsmith, photographer. Library of Congress.
Van Dusen v. Swift Transportation, No. 15-15257 (9th Cir. 7/26/16): No To Appellate Jurisdiction.
In Van Dusen, the 9th Circuit panel held that the FAA did not grant it jurisdiction to hear an interlocutory appeal from the district court’s case management order. The district judge had neither granted nor denied Swift’s motion. The district court’s order was not final, was not subject to review under the collateral order doctrine, and was not reviewable on the basis that it had the practical effect of denying a motion to compel arbitration.
This time, Judge Ikuta concurred that the court lacked jurisdiction to hear an interlocutory appeal from the district court’s case management order. However, for the reasons stated in her dissent in In Re Swift Transportation, she would have held that the remedy of mandamus was warranted.
Arbitration Gateway And Delegation Issues: In A 4-3 Decision, California Supreme Court Rules That Deciding Whether Arbitration Agreement Permits Classwide Arbitration Is The Arbitrator’s Decision To Make
Dissent Argues That Classwide Arbitrability Is A Gateway Question The Court Should Get To Decide.
The courts have treated gateway arbitrability issues concerning the existence of an arbitration agreement and the scope of the agreement as “gateway” issues for the courts to decide, whereas so-called procedural issues are to be resolved by the arbitrator. So under which rubric should the availability of classwide arbitration be placed? Gateway or procedural issue?
The California Supreme Court ruled today in Sandquist v. Lebo Automotive, Inc., et al., No. S220812 (Cal. Sup. Ct. 7/28/16) (Werdegar, J., writing for majority), that the arbitrator gets to decide whether the arbitration agreement permits or prohibits classwide arbitration. The underlying lawsuit involves allegations by Mr. Sandquist and other non-Caucasian employees that they were subjected to racial discrimination, harassment, and retaliation by their employer.
Justice Werdegar acknowledges “[t]he question has divided the many state and federal courts to consider it.” In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), a plurality of the SCOTUS took the view that classwide arbitrability was a procedural issue, failing to definitively resolve the issue.
The majority concludes “no universal rule allocates this decision in all cases to either arbitrators or courts.” Instead, one must look to the specific agreement, subject to interpretation under state contract law, and here, the broad arbitration agreement allocated the decision to the arbitrator. Furthermore, “[u]nder federal arbitration law, no contrary presumption requires a different result, so the issue remains one for the arbitrator.” Here, the availability of classwide arbitration was not treated as a gateway issue, but rather as a procedural issue.
Authoring the dissent, Justice Kruger viewed the availability of class arbitration under the parties’ agreement as a “gateway question of arbitrability” presumptively for the court to decide.
The dissent noted that the switch from bilateral to class arbitration “is one that strikes at the heart of the bargain the parties make.” Viewed as an issue of consent, and expectations of the parties, the availability of classwide arbitration may be viewed as a gateway issue for the court to decide. Classwide arbitration also implicates the rights of third parties who did not sign an arbitration agreement – something that a court is perhaps best able to safeguard.
The immediate upshot of the Court’s decision is that the order of the Court of Appeal is affirmed, meaning that the matter is remanded by the Court of Appeal to the trial court “with directions to vacate its order dismissing class claims and to enter a new order submitting the issue of whether the parties agreed to arbitrate class claims to the arbitrator.” I previously posted on the Court of Appeal decision on July 22, 2014.
COMMENT: The positions of the parties may appear a bit unusual in this case. Usually the employee prefers to be in court, and the employer prefers to be in arbitration — especially because individual arbitration has become useful as a tool for employers to eliminate classwide arbitration. Here, the trial court dismissed the employee’s classwide claims with prejudice. But now the employee – and the class – will get a “second bite of the apple” in front of an arbitrator. That is no guarantee, of course, that the outcome will be any different.
Waiver, Gateway Issues: Waiver: Ninth Circuit Affirms District Court’s Ruling That Defendants Waived Right To Arbitration By Litigation Conduct
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Panel Holds That Lengthy Amount of Time Litigating In Federal Court “Will Almost Inevitably” Cause Parties To Expend More Time, Money, And Effort Than Had They Proceeded Directly To Arbitration.
In Martin v. Yasuda, No. 15-55696 (9th Cir. 7/21/16) (Reinhardt, Wardlaw, Bennet), defendants, a cosmetology school and its principal, petitioned the 9th Circuit to hear an appeal of the district court’s order denying their motion to compel arbitration with cosmetology students who claimed they should be paid as employees. The Ninth Circuit stayed the district court action and agreed to hear the appeal, but then affirmed the district court’s order that defendants had waived their right to arbitrate by their litigation conduct.
Defendants argued unsuccessfully that (a) the issue of waiver should have been decided by the arbitrator under the broad language of an AAA delegation rule; and (b) plaintiffs were not prejudiced by the delay.
The panel disagreed, holding that waiver, like other so-called “gateway issues” involving arbitrability, must be decided by the court. The panel acknowledged that the 8th Circuit has held that the arbitrator presumptively should decide if a party has waived the right to arbitration by litigation conduct, but sought to distinguish that holding on the grounds that the litigation conduct occurred in state court. Nat’l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462 (8th Cir. 2003).
Though no evidence was actually presented that proceeding in arbitration will be more expensive than proceeding in court going forward, it appears that the 9th Circuit will infer that a lengthy amount of time litigating in the federal court system “will almost inevitably cause the parties to expend more time, money, and effort than had they proceeded directly to arbitration.”
Finally, the panel concluded that a motion to dismiss filed by defendants had resulted in prejudice to plaintiffs, because the dismissal of the motion without prejudice constituted an “adverse ruling”. As a consequence, any party that now brings a motion to dismiss and loses must be concerned that ipso facto they have waived their right to arbitrate.
DISCLOSURE: I participated in drafting the appellant’s petition to the 9th Circuit to stay the district court action while an appeal was pending, and my colleague Mike Hensley argued the appeal for appellants.
Arbitration: Roger Dodger – Ailes, Carlson, And Arbitration
Roger Ailes/Gretchen Carlson Dispute May End Up In Arbitration.
Empirical studies support the perceptions of employees that they do better in court than in arbitration. See, for example, the study by Alexander Colvin of Cornell: “An Empirical Study of Employment Arbitration: Case Outcomes and Processes.”
Roger Ailes’ defense team knows this too.
CNN Legal Analyst Danny Cevallos reported on July 18, 2016 about the strategic maneuvers of Mr. Ailes’ attorneys to move Gretchen Carlson’s sexual harassment suit from the the court to arbitration – and presumably to enforce confidentiality, so that dirty linen need not be washed in public.
Ms. Carlson’s lawsuit was filed in New Jersey State Court on July 6, 2016. Under diversity jurisdiction, the case was removed by Mr. Ailes to federal court in New Jersey. Mr. Ailes’ attorneys are seeking to change venue to New York federal court, and to compel arbitration.
“Overall, the defendants have a good chance of sending this back to arbitration,” concludes Mr. Cevallos.
TRIVIA: Wikipedia attributes the phrase “Roger Dodger” to an apocryphal World War II story. The punch line of the story is, “"Roger Dodger, you ol’ codger. I’m a Commander too!”
HAT TIP: Hat tip to my wife, Catherine Campbell, who brought the Ailes/Carlson arbitration story to my attention, and who also suggested the “Roger Dodger” title.
Arbitration, Nonsignatories, Equitable Estoppel and Third-Party Beneficiaries: Temporary Staffing Agency’s Arbitration Clause With Workers Did Not Allow Client With Whom Workers Were Placed To Compel Arbitration
Third-Party Non-Signatory Owed Duties Under Labor Code To Plaintiff, Independent Of Plaintiff’s Contract.
Zepeda v. Paramount Citrus Packing Company LLC, F071593 (5th Dist. 7/14/16) (Pena, Levy, Smith) (unpublished) distinguishes two situations: (1) a plaintiff whose relationship with a third-party non-signatory merely presumes the existence of a contract; and (2) a plaintiff whose rights against a third-party non-signatory rely on the existence of a contract. In the first situation – which is the situation in Zepeda – the non-signatory might not be able to use the arbitration provision in the contract to compel arbitration. In the second situation, which is not the situation in Zepeda, the plaintiff relies on the contract to sue the third party, and the third party can take advantage of the arbitration provision to compel arbitration.
Ranstad, in the business of providing temporary workers to its client companies, provided workers, including Zepeda, to Paramount, a grower and processor of citrus crops. Ranstad had an arbitration clause with Zepeda, and Paramount unsuccessfully invoked the arbitration clause after Zepeda sued alleging class-wide labor violations resulting from uncompensated time for donning and doffing, and interrupted meal and rest break periods. Paramount argued that Zepeda was equitably estopped to deny the right to arbitrate, and alternatively, that Paramount was the third-party beneficiary of the arbitration agreement.
Paramount relied on a federal district court case, Lucas v. Hertz Corp., 875 F.Supp.2d 991 (N.D. Cal. 2012), for the proposition that, because the relationship with Paramount presumed the existence of the contract with Zepeda, Paramount could rely on the arbitration clause in the Rantstad/Zepeda contract. However, the Court of Appeal found the district court case to be non-persuasive and non-binding authority.
Instead, the Court of Appeal found Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013) to be better reasoned. Kramer held that equitable estoppel was inapplicable where the plaintiff’s claims against the third party non-signatory are not founded on any provision in the plaintiff’s contract, but instead arise from independent duties owed by the third party to the plaintiff. In Zepeda, the independent duties owed by the third party Paramount were owed under the Labor Code, not under the contract with Ranstad.
The Court of Appeal also concluded that a third-party beneficiary argument was not supported by the contractual language.
Affirmed.
COMMENT: Too bad the case is unpublished. Cases involving non-signatory third parties seeking to compel arbitration arise with some frequency, and it would be helpful to have more guidance in this area.