Arbitration, Estoppel: Fifth District, Division Two Holds That Law Firm Is Judicially Estopped From Seeking Default Judgments, Because It Included Cause Of Action Seeking To Compel Arbitration
Presiding Justice Turner Respectfully Dissents.
The Fifth Circuit, Division Two, holds that because a law firm’s cause of action to compel arbitration with its client “admitted the existence of a binding agreement to arbitrate the fee dispute, the trial court’s jurisdiction over the merits of plaintiff’s claims was initially limited to a determination of the gateway issue of arbitrability.” Cox, Castle & Nicholson, LP v. Wan et al., B262017 (2/5 6/23/16) ((Kumar [judge of the superior court], author, Baker, concurring); Turner (dissenting)) (unpublished). Alternatively, plaintiff was judicially estopped from seeking default judgments because it “admitted in its complaint that the fee dispute was subject to binding arbitration and defendants relied to their detriment on that admission.” As a result, plaintiff was not allowed to pursue defaults, and an order denying defendants’ motion to vacate and the default judgments were reversed.
This case has a somewhat unusual procedural history. It was originally argued on October 8, 2015, when Justice Richard Mosk was a member of the panel. Because Justice Mosk was unable to further participate, the Court vacated the submission, and appointed Judge Kumar to the panel. Letter briefs were submitted on the issue of judicial estoppel on March 22 and 25, 2016. Justice Mosk died on April 17, 2016. On March 30, 2016, the case was re-argued, and on June 23, 2016, the unpublished opinion was filed.
The majority conclusion that the cause of action to compel arbitration constituted “a binding agreement to arbitrate,” and stripped the Court of jurisdiction, may not be intuitively obvious, given that the cause of action, unlike a free-standing petition to arbitrate, was not verified, did not include evidence, and was denied in an answer, which, however, was only lodged and not filed, because a default had occurred. Furthermore, in other cases, the existence of an arbitration agreement has not resulted in a loss of jurisdiction. At least, the majority conclusion was not obvious to Justice Turner, who penned a pithy dissent.
Presiding Justice Turner’s dissent made several points: first, that existence of an arbitration agreement does not preclude a party from pursuing claims (citing Brock v. Kaiser Foundation Hospitals, 10 Cal.App.4th 1790, 1795 (1992) and cases in accord); second, that the cause of action did not accrue, because plaintiff failed to allege that defendants refused to arbitrate – a necessary element; third, that the record was inadequate, because there was no transcript; fourth, that the defendants were not artless rubes, as one was a certified public accountant, and the other a licensed realtor; and finally, that there were questions of credibility, leading to Justice Turner’s belief that the trial court did not abuse its discretion in denying the motion to set aside the default.
Though the case is unpublished, today’s post in California Attorney’s Fees rightly observes: “This decision, if correct, counsels that plaintiffs carefully think about whether they should include an arbitration claim in a complaint; otherwise, the trial court may not be able to proceed on the merits.” So be aware of another trap for the unwary.
Given that there is a majority opinion and a dissent, we wonder whether the case will be appealed. As far as the parties themselves are concerned, this may be a tempest in a teacup, for if the lawsuit does not proceed further in the trial court, the parties could end up in arbitration. And there is always the option to settle . . .
Arbitration, Medical Malpractice, FAA: Federal Arbitration Act Preempts California’s Statutory 30-Day Rescission Provision Applying To Arbitration Of Medical Malpractice Disputes
For Preemption Purposes, “Involving Commerce” In The FAA Is Broader Than “In Commerce”, Making It Easy To Find Preemption.
Physicians don’t like to defend medical malpractice cases in front of juries, and Scott v. Yoho, B265641 (2/5 6/22/16) (Turner, Kriegler, Kumar) will make it easier for them to arbitrate malpractice cases and avoid juries in California under a broadly worded arbitration provision.
After Kenisha Parker died, following lipoplasty and suction lipectomy, her relatives sued Dr. Yoho and New Body Cosmetic Surgery Center for wrongful death, malpractice, and survivorship causes of action. Defendants moved to compel arbitration, based on three arbitration agreements. The trial court found that the third agreement, which was the most recent, governed, but that it was unenforceable, because Ms. Parker, who died within hours of signing it, did not have the opportunity to rescind, as required by Cal. Code of Civ. Proc., section 1295(c).
Reversed. The Court of Appeal holds that the 30-day rescissionary period provided by section 1295(c) is preempted by the Federal Arbitration Act, because, “the rescission right only exists in the context of the provision of arbitration of medical care disputes.” Because this provision only applies in the context of arbitration, it is preempted by the FAA, which does not allow a state to place a greater burden on arbitration than on litigation. AT&T Mobility LLC v. Concepcion, 517 U.S. 333, 339 (2011). Thus, if the patient dies from medical malpractice shortly after signing the arbitration agreement, the statutory rescissionary right is of no effect, whenever the FAA applies.
While this part of the ruling invalidating a California statute protecting patient rights is important, so too is the Court’s conclusion that the FAA reached this transaction, given that the patient, the doctor, and the surgery occurred in California, and the contract provide for venue in LA Superior Court in Pasadena, and jurisdiction in California.
The uncontroverted evidence showed that 20 percent of the medical supplies were shipped from out of state, some of the materials used for liposuction came from out-of-state, defendants advertised on the internet and communicated out-of-state by telephone, mail and e-mail, 5% of the patients came from outside the state, and there were business contacts with various out-of-state businesses.
At first blush, this might still seem like an in-state commercial transaction, because the procedure was conducted in California by a California doctor on a California patient. But the Court holds that there is “a sufficient nexus with interstate commerce to require enforcement” of the agreements under the FAA. Relevant to the Court’s conclusion is that the FAA, specifically, 9 U.S.C. section 2, applies to transactions “involving commerce” – words that have been broadly interpreted to mean “affecting” commerce, which is broader even than “in commerce.” The fact that venue and jurisdiction provisions were local to California carried no weight, because the provisions did not govern choice of law.
That left the Court with the task of distinguishing Rodriguez v. Superior Court,176 Cal.App.4th 1461 (2009), a case that enforced the rescissionary right in section 1295. Easy: there was no issue concerning preemption by the FAA in Rodriguez. Here, the defendants made a factual showing as to why the transaction is governed by interstate commerce.
Mediation Confidentiality: How Ironclad?
The Daily Journal Has Provided A Link To Louie Castoria’s Article Entitled “Mediation confidentiality: a wall against malpractice claims or a sieve?”
Louie Castoria, a partner at Kaufman Dolowich & Voluck LLP, and a mediator, has authored an article suggesting we may take a bit too much for granted about mediation confidentiality, and advocating that California not erode mediation confidentiality in malpractice cases following mediation settlement. The article is well worth reading.
Thus, California attorneys and their clients typically hear the mediator’s injunction, at the beginning of a mediation, “everything in mediation is confidential.” However, the California Law Revision Commission (CLRC) is reviewing whether to create a malpractice exception for mediation confidentiality. Furthermore, the protections of mediation confidentiality depend on whether federal or state rules apply, and if the answer is that state rules apply, then one must consider which state’s rules apply.
Mr. Castoria is concerned that the CLRC’s ongoing review of mediation statutes is a search for a solution to a problem that appears too infrequently to justify erosion of mediation confidentiality. “Is the incidence of coerced settlements so great,” he asks, “that we should essentially scrap mediation confidentiality?”
Arbitration, Existence Of Agreement: Second District, Div. 5 Holds Employee Is Bound By Arbitration Agreement He Did Not Sign–He Acknowledged Receipt And Kept On Working
Nor Was The Agreement Illusory Just Because The Agreement Provided The Employer Could Change It At Any Time.
In Harris v. Tap Worldwide, LLC, B262504 (2/5 6/22/16) (Turner, Kriegler, Kumar) (certified for partial publication, except part III(C) covering unconscionability), the Court determined that, notwithstanding that the arbitration agreement was unsigned, there was a validate agreement to arbitrate, the agreement to arbitrate was not illusory notwithstanding the employer’s ability to unilaterally change the Employee Handbook, and in an unpublished part of the opinion, the agreement was not unconscionable. Therefore, the trial court’s order denying defendants’ motion to compel arbitration was reversed.
Plaintiff asserted that under Sparks v. Vista Del Mar Child and Family Services, 207 Cal.App.4th 1511 (2012), merely acknowledging receipt of an Employee Handbook was insufficient to demonstrate a valid arbitration agreement existed. Addressing that argument, the Court distinguished Sparks: First, the acknowledgment form plaintiff signed “included acknowledging both the Employee Handbook and the attached arbitration agreement.” Second, the agreement to arbitrate could also be implied-in-fact, as it was here, where the employee continued to work and accept consideration.
The Court also made short shrift of the additional argument that the agreement was illusory, because the employer could change the terms at any time. Actually, that provision only applied to the Employment Handbook, not to the arbitration provision, which could only be modified by a writing, signed by both parties. And even as to the Employment Handbook, the employer’s ability to make unilateral changes to the terms is reigned in by the covenant of good faith and fair dealing.
Unconscionability: Arbitration Agreement Between Indiana Based Distance-Learning Partnership And California Licensed Vocational Nurses Determined To Be Unconscionable
Indiana Forum Clause Was Important Factor In Finding Of Substantive Unconscionability.
The Fourth District, Division One, concludes the trial court correctly determined the arbitration provision between an Indiana-based company soliciting business in California, and California residents, who were Licensed Vocational Nurses seeking to become Registered Nurses, was unconscionable. Magno v. The College Network, Inc., D067687 (4/1 6/14/16) (McConnell, Nares, O’Rourke) (unpublished).
The finding of procedural unconscionability was based on evidence that the Plaintiffs were young, rushed through the signing process, had no ability to negotiate, and did not see arbitration language buried on a back page in preprinted forms.
The finding of substantive unconscionability was chiefly based on the insertion of a forum selection clause providing for binding arbitration in Indiana, before an arbitrator selected by TCN.
The court found it necessary to distinguish Carnival Cruise Lines v. Shute, 499 U.S. 585 (1991), “which upheld a forum selection clause requiring Washington State residents to pursue litigation in Florida.” Whereas the plaintiffs in Carnival conceded notice of the forum selection clause, here there was substantial evidence that the plaintiffs were unaware of the arbitration provision altogether as well as the forum-selection clause. Moreover, unlike Carnival, “this dispute [is] an essentially local one inherently more suited to resolution in the State of [California] than in [Indiana].”
Affirmed.
Arbitration, Scope, Enforceability, Construction: Employees Get To Litigate Class Action Claims, Because Arbitration Agreement Excluded Class Action Claims From Its Scope
Court Looks At Evolution Of Class Action Waiver Law In California For Help Construing Meaning Of The Contractual Language.
In 2011, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) held the Discover Bank rule, invalidating a class arbitration waiver, had been preempted by the Federal Arbitration Act. After Concepcion, employers frequently insert class arbitration waivers in their employment agreements and dispute resolution policies.
But that’s not what happened in Licon v. Wish-I-Ah Skilled Nursing & Wellness Centre LLC, F070304 (Fifth Dist. 6/15/16) (Hill, Kane, Franson) (unpublished), where the Employment Dispute Resolution (EDR) Program was written before Concepcion was decided. Instead, the EDR Program provided that it “covers only claims by individuals and does not cover class or collective actions.” (italics in the Court’s opinion). Construing the plain meaning of the words, the Court of Appeal agreed with the trial judge that the arbitration agreement excluded class and collective actions from its scope, so plaintiffs were not required to arbitrate class or private attorney general claims.
Of course, the employer argued “other language in the EDR program booklet demonstrates an intent to arbitrate all claims on an individual, nonclass basis . . . “
The Court found it helpful to consider the extrinsic evidence of how the employer’s EDR policy had evolved from before to after Concepcion, for after Concepcion, the employer changed the wording of its EDR policy to take advantage of Concepcion’s evisceration of the Discover Bank rule. The Court concluded that the pre-Concepcion ERP, which governed the situation, meant what it said, because it had been drafted at a time when the employer “had to be concerned with the possibility a court would invalidate a class action or class arbitration waiver.”