Arbitration, Waiver, Record: “Woefully Inadequate” Record Fails To Support Employer’s Appeal From Trial Court’s Order Concluding Employer Waived Right To Enforce Arbitration Agreement
Employer Claimed Appeal Was Based On Entire Record, But Failed To Provide Court With Entire Record.
Employer ICC Collision Centers, Inc. appealed the trial court’s order denying its motion to compel its employee Ogannesian to arbitrate his wage/hour claims. The trial court had concluded that the employer waived its right to arbitrate by delaying too long and taking actions inconsistent with asserting the right to arbitrate. Ogannesian v. ICC Collision Centers, Inc., G049836 (4/3 6/14/16) (Ikola, Moore, Thompson) (unpublished).
On appeal, the chief problem identified by Justice Ikola was a “woefully inadequate record.” While the employer did include its motion to compel arbitration, which purported to be based on “the documents on file in this action,” in fact the employer did not include the entire court file on appeal.
In particular, the employer failed to include a case management statement filed by ICC’s prior counsel, and stating ICC “may file a Motion to Compel Arbitration and Stay Proceeding. . . “ This contradicted the employer’s implication on appeal that its prior counsel “was unaware the arbitration agreement even existed.” In addition, the employer opposed efforts to augment the record with the case management statement.
The employer’s opposition to the motion to augment the record seems to have left a sour taste with Justice Ikola. Troubled by the argument, he wrote, “it suggests we should be more concerned about [the employee’s] delay in designating a record than about [the employer’s] own apparent misrepresentation of fact.” Ouch! Affirmed.
Best line: “Apparently, ICC believes that what we do not know cannot hurt it.” Not so, since the “onus is on appellants” to provide a complete record!
Arbitration, Fees, Stay, FAA: Ninth Circuit Holds That Arbitration Terminated For Party’s Inability To Pay Fees, Had Nevertheless Been Had, So District Court Should Lift Stay On Litigation
What Does It Mean For An Arbitration To “Have Been Had In Accordance With The Terms Of The Agreement” When A Party Is Unable To Pay Arbitration Fees?
We revisit a recurring problem that occurs in arbitration. In federal court, a party successfully moves to compel arbitration under the FAA, and the court stays litigation. Arbitration commences. Next, one of the parties to the arbitration is unable to pay the costs of arbitration, and therefore stops paying. Under the rules of the AAA, the AAA can suspend the arbitration if the other party does not pay for the arbitration. The other party refuses to pick up the tab, and the AAA suspends the proceeding. What happens next? Are the parties definitively done, because they agreed to arbitrate, and the arbitration has not been had, or can they proceed in court? Under such circumstances, just what does it mean for an arbitration to have been had? That is the scenario the Ninth Circuit confronted in Tillman v. Rheingold Firm, No. 13-56624 (9th Cir. 6/15/16) (Berzon, Gould, Steeh) after defendant/appellant ReneeTillman stopped paying arbitration fees.
Relying on Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010 (9th Cir. 2004), the district court had erroneously held that it “lack[ed] the power to allow further litigation.” Lifescan, Inc. was a case in which, “despite Premier’s non-payment of its share of arbitration fees, there was ‘no basis for an order requiring Premier to pay the fees, or compelling arbitration.’” Compelling arbitration would have been inappropriate, because the arbitration had been had according to the agreed-upon AAA rules, allowing the AAA to suspend the proceeding in Lifescan upon non-payment. However, in Tillman, the Ninth Circuit pointed out that “Lifescan’s only conclusion was that compelling arbitration would be inappropriate. . . Nothing in the FAA requires dismissal of the litigation under Lifescan’s circumstances or the present ones.”
In Tillman too, the arbitration had been had according to the rules of the AAA, allowing for dismissal upon a non-payment of arbitration fees. Because the FAA “provides that district courts must stay pending proceedings on issues subject to arbitration until such arbitration had been had, 9 U.S.C. section 3,” the stay could now be lifted. Nor was there a basis to compel arbitration, because ReneeTillman had not failed, neglected, or refused to arbitrate.
In dictum, the panel suggests that the outcome could be different if Tillman had willfully refused to pay the arbitrator’s fees, or if Tillman was the one seeking a stay in federal court, “as that would frustrate the Rheingold firm’s attempts to have the case heard in either the court or the arbitral forum.”
NOTE: On February 29, 2012, I posted on a similar scenario in Cinel v. Christopher, in which failure to pay fees resulted in termination of an arbitration that then bounced back to federal court.
Arbitration, Vacatur, Continuances, Disclosures: Fifth District Holds Trial Court Properly Confirmed Arbitration Award, Notwithstanding Arbitrator’s Denial Of Postponement And Refusal To Disqualify Himself
Arbitrator Made Disclosures “In Abundance of Caution.”
One basis for vacating an arbitration award is when the arbitrator’s denial of a postponement results in substantial prejudice. Another basis for vacating an award is when the arbitrator is obligated to disqualify himself and fails to do so. In McElvany, Inc. v. Hassan Ahmadi et al., No. F069809 (5th Dist. 6/9/16) (Hill, Franson, Pena) (unpublished), the defendants/appellants argued that both bases justified vacating the arbitrator’s award in favor of plaintiff/respondent. The Court of Appeal disagreed, affirming the judgment confirming the award.
Here, the arbitrator denied a request for a continuance by an attorney who argued he was newly substituted, and a co-defendant was unavailable after recent surgery. The attorney’s request for a continuance was denied, and neither the defendants nor their attorneys appeared for the arbitration. Though the co-defendant had a right to appear, she did not express a desire to be present, and there was no evidence presented to the arbitrator that her presence was necessary to fairly present the case. As to the failure of the attorneys to appear, there was no evidence that the outcome would have been different if they had presented the case on the merits.
The arbitrator also refused to disqualify himself, after disclosing (a) his firm had hired an associate who had formerly worked for plaintiff’s law firm, but would be isolated from the case; (b) plaintiff’s law firm hired the sister of the arbitrator’s paralegal as a receptionist. The Court of Appeal concluded that the information disclosed by the arbitrator did not require disqualification, because it would not cause a reasonable person to believe the arbitrator was biased, and because it did not create a conflict of interest.
The panel’s view of matters may have been colored by the fact that several postponements of the arbitration had been granted, and the defendant had also used the filing of a bankruptcy petition to stave off the outcome.
Miscellaneous: Slightly Unhinged
Brodeur v. Atlas Entertainment, Inc. Makes For Entertaining Reading.
Sometimes I stumble across a case having nothing to do with the subject of this blog, yet I feel compelled to share. “The principal issue in this case is whether a statement made by a ‘slightly unhinged’ character in a motion picture, American Hustle (Columbia Pictures 2013), was made ‘in connection with a public issue or an issue of public interest’ within the meaning of the anti-SLAPP (strategic lawsuit against public participation) statute. (Code Civ.Proc., § 425.16, subd. (e)(4).)1 We hold that it was . . . “ The case arises out of a statement made in the movie American Hustle by the character Rosalyn, who said she had read an article by Paul Brodeur claiming that microwave ovens take the nutrition out of food. Mr. Brodeur was not amused, and sued for defamation. Spoiler alert: “ditzy” may be the dispositive word in the opinion. Brodeur v. Atlas Entertainment, Inc., (2/8 June 6, 2016) (unpublished).1 Enjoy.
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1This case was ordered published June 27, 2016.
Arbitration, Construction, Scope: Arbitration Agreement Governing “Any Controversy Arising Out Of” Operating Agreement Did Not Cover Malpractice, Breach Of Fiduciary Duty, And Rescission
Second District, Division One Provides In-Depth Discussion Of Whether Arbitration Clause Is Broad Or Narrow.
An issue that comes up repeatedly is whether an arbitration clause is broad enough to encompass tort claims. Our next case, certified for publication, is worth reading because it offers an in-depth analysis of how to determine the scope of an arbitration clause.
Downs, an attorney, entered into an LLC operating agreement he drafted with Rice, a client, and others. Client Rice and others sued attorney Downs for legal malpractice, breach of fiduciary duty, and breach of a written agreement. The superior court ordered Rice to arbitrate his claims pursuant to an arbitration provision in the written agreement. After arbitration, Rice and Downs appealed, raising various contentions, including Rice’s contention that the arbitration provision did not encompass his tort claims. In an opinion authored by Justice Lui, the Court of Appeal agreed with Rice that the trial court erred by compelling arbitration of those claims, and partially reversed, while concluding other contentions on appeal were moot. Rice v. Downs and Downs v. Rice, Nos. B261860 and B264964 (2/1 June 1, 2016).
The arbitration agreement governed “any controversy arising out of” the LLC operating agreement. The Court agreed that “any controversy” can included tort claims, but explained that “arising out of” language is narrower than “arising out of and in connection with” or “arising out of and relating to” language. “Moreover, even under a very broad arbitration provision, such as ‘any controversy or claim arising out of or relating to this agreement,’ tort claims must ‘ “have their roots in the relationship between the parties which was created by the contract” ‘ before they can be deemed to fall within the scope of the arbitration provision.” Citing Bos Material Handling, Inc. v. Crown Controls Corp.,137 Cal.App.3d 99, 105 (1982).
Parsing the language of the arbitration clause, which happened to be narrower than a preceding judicial jurisdiction clause in the LLC operating agreement, the Court concluded that the tort claims were not governed by the narrower arbitration clause.
Arbitration, Construction Of Agreement: Construing Agreement Between Two Communications Companies To Allow Arbitration, Ninth Circuit Avoids Gnarly Statutory Construction
Course Of Conduct By The Parties Weighed Heavily In Construing Their Conduct.
North County Communications of Arizona v. Qwest Corporation, No. 14-35254 (9th Cir. May 31, 2016) (Scannlain, Silverman, Bea) involves two communications carriers, North County and Qwest, in a messy billing dispute, construction of their “interconnection agreement” (ICA), and the panel’s skillful avoidance of having to interpret the Telecommunications Act of 1996 (“Act”). The issue making the case blog-worthy was whether Qwest could compel arbitration of the billing dispute between the two carriers.
At first blush, it appeared which party initiated the arbitration could be significant On its face, the Act allowed competitive local exchange carriers (CLECs) to initiate negotiations and to compel arbitration. However, the Act did not explicitly state that incumbent local exchange carriers (ILECs) that had a monopoly on local phone service in a particular geographic area prior to the Act could initiate the negotiation/arbitration process. Qwest is an ILEC, and North County is a CLEC, and it was Qwest that sought to compel arbitration.
Allowing Qwest to initiate the arbitration would have required deft interpretation of the Act. The panel would have had to conclude that the language of the Act was not determinative, that an obscure FCC footnote no. 2,087 in a 659 page document should be given great interpretive weight, and that any other interpretation would be contrary to the purpose of the Act – a process that the late Justice Scalia once colorfully characterized as “interpretive jiggery-pokery.”
So the Court took a simpler route. It looked to the language of the ICA – the agreement between the parties – finding there guidance that the parties intended either side could initiate arbitration (though the particular provision relied upon did not actually mention arbitration). More persuasive was the parties’ course of conduct, for North County agreed to a series of extensions of the time to file an arbitration, specifically agreeing to extend “the period during which either party may file for arbitration” under the Act. The repeated conduct of the parties was given great weight in interpreting their contractual intent as intent to allow either party to initiate arbitration.