Arbitration/Vacatur: Second District, Division Four Affirms Vacation Of Arbitration Award, Observing: “Simply Put, The Hearing Was Not Fair”
Arbitrators Allowed One Party To Speak And Did Not Allow Other Side Even A Limited Chance To Do The Same Or To Cross-Examine.
One of the raps against arbitration is that arbitration proceedings lack due process. In Royal Alliance Associates, Inc. v. Liebhaber, No. B264619 (2/4 8/30/16) (Collins, Epstein, Manella), the Court of Appeal applies some basic due process concepts to affirm the vacation of an award because “the hearing was not fair.”
Royal Alliance Associates is an insurance broker, and Liebhaber was a client of Tarr, a financial advisor. Liebhaber arbitrated with Royal Alliance under Financial Industry Regulatory Authority, Inc. (FINRA) rules, alleging Tarr sold her “illiquid, high-risk investments” that were “inappropriate and unsuitable” for her circumstances. The case settled, Liebhaber’s allegations against Tarr were documented in FINRA’s Central Registration Depository (CRD), and Royal Alliance then sought to expunge the allegations from the CRD record. After the arbitration panel granted an award, Royal Alliance petitioned the trial court to confirm the award. FINRA and Liebhaber, however, opposed the petition, and sought to vacate the award.
The problem with the award was the flawed process: the arbitrators had allowed Tarr to “testify” unsworn, while denying an opportunity to Liebhaber’s counsel to cross-examine, and to Liebhaber to even speak. The trial court refused to confirm and vacated the award, and the Court of Appeal affirmed.
COMMENT: The California Arbitration Act does not mention a right to due process in arbitration. But a number of the Court’s comments bear on the concept of due process. For example, the opinion states: “The arbitrators denied Liebhaber a full and fair opportunity to introduce and challenge evidence material to the expungement proceedings to which she was a party.” The Court also quotes Moncharsh v. Heily & Blase: “Precisely because arbitrators wield such mighty and largely unchecked power, the Legislature has taken an increasingly more active role in protecting the fairness of the process.” 3 Cal. 4th at pp. 12-13. Finally, the Court describes California Code of Civil Procedure, section 1286.2, the vacatur provision, as a “safety valve . . . that permits the court to intercede when an arbitrator has prevented a party from fairly presenting its case”.
Choice Of Law/Confidentiality: Ninth Circuit Holds Federal Law Of Privilege Applies To Mediation When Federal Law Law Issues Are Involved At The Time Of The Mediation But Not Afterwards
Panel Majority Ties Mediation Privilege To Parties’ Expectations At The Time Of The Mediation, Not To Later Time When Federal Claims Were Dismissed.
Timing can be everything.
Where there are federal question claims and pendent state law claims present, the federal law of privilege applies. Agster v. Maricopa County, 422 F.3d 836, 839 (9th Cir. 2005). See also Fed. R. Evid. 501. So does the law of federal or state privilege apply when a mediation occurs while federal and state law issues are pending, the federal claims are then dismissed, and only after the federal claims are dismissed, does a party seeks to introduce evidence from the mediation to prove that a settlement occurred? That’s the issue presented by In Re: TFT-LCD (Flat Panel) Antitrust Litig., No. 14-15916 (9th Cir. 9/1/16).
Sony and HannStar agreed to a settlement proposed by the mediator in an email exchange. HannStar refused to comply. Under California law, evidence of the agreement would be inadmissible, unless the parties had memorialized that the agreement was binding and admissible in evidence, and apparently they did not. At the time of the settlement, mixed questions of federal and state law were pending and under Agster, that meant that the federal law of privileges, rather than California mediation confidentiality rules would apply. By the time that Sony wanted to introduce evidence of the settlement, however, the federal claims had been dismissed, leaving only California claims. Because only California claims remained, the district court denied Sony’s motion for summary judgment, holding California Evidence Code’s mediation privilege bars introduction of settlement demands.
Reversed and remanded. Why? Expectations may be the key. “At the time of mediation, both parties would have expected to litigate both federal and state law issues.” So federal law of privileges applied.
Chief District Judge Lynn dissented, on the grounds that “only state law claims remained at the time Sony sought to admit evidence of the email exchange.”
But doesn’t it make sense to protect the parties’ expectations regarding confidentiality at the time of the mediation?
Arbitration, Employment, Review: Are Class Action Waivers Requiring Individual Arbitration The Modern-Day Equivalent Of The “Yellow-Dog Contract”?
Jost On Justice Poses The Question.
In his August 28, 2016 post, Prof. Kenneth Jost suggests, as I did in my August 23, 2016 post about Morris v. Ernst & Young, that the split among the circuits concerning the enforceability of employment contract clauses requiring disputes to be resolved through individual arbitration is likely to be headed to the Supreme Court for resolution –especially after the Ninth Circuit panel neatly framed the split with majority and dissenting opinions in Morris.
But Jost goes one step further, drawing a parallel between the contemporary arbitration clause intended to stop concerted activity by employees and the notorious “yellow-dog contracts” of yesteryear, prohibiting employees from joining unions.
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.