News: Consumer Financial Protection Bureau Seeks Rule On Arbitration To Restore Right To Sue Banks
Rule Would Not Apply To Consumer Sectors Outside Bailiwick Of Consumer Financial Protection Bureau
Jessica Silver-Greenberg and Michael Corkery, who have reported recently in the NYT about how arbitration clauses are spreading throughout consumer contracts, now report in the May 5, 2016 online edition of the NYT, that the Consumer Financial Protection Bureau will seek new rules to prevent lenders from forcing people to agree to mandatory arbitration clauses that bar class actions – a move that could be accomplished without Congressional action.
Vigorous opposition can be expected from the U.S. Chamber of Commerce and lenders, as well as other businesses that want mandatory arbitration clauses.
The rule can only apply to consumer financial companies the agency regulates, Therefore, “[i]t would not apply to arbitration clauses tucked into contracts for cellphone service, car rentals, nursing homes or employment.”
Recall the key case that opened up the widespread use of arbitration clauses in consumer contracts is AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), and the rule would not affect cell phone companies.
Mandatory Fee Arbitration: Two New Committee On Mandatory Fee Arbitration Advisories
The Committee on Mandatory Fee Arbitration of the State Bar of California has two new Advisories on Mandatory Fee Arbitration (MFA) brought under the Business & Professions Code. Advisory 2016-01, replacing Advisory 2011-02, is about the application of the Statute of Limitations for MFAs. Advisory No. 2016-02, replacing Advisory 2003-01, is an analysis of bill padding and other billing issues. The Advisories are dated March 25, 2016.
1. Opinions Change: Statute of Limitations for Fee Arbitrations.
In a previous Advisory, the Committee “opined that the one-year statute of limitations in CCP Section 340.6 for wrongful acts or omissions by an attorney, other than for actual fraud, did not apply to fee arbitration under Bus. & Prof. Code Section 6200.” That conclusion was based on the special nature of MFA, which focuses on legal fees. The MFA arbitrators cannot award damages for legal malpractice or professional misconduct in MFA.
The new Advisory reaches a different conclusion: MFA cannot be commenced if a civil action requesting the same relief would be barred by an applicable statute of limitations set forth in the Code of Civil Procedure, and that includes Section 340.6, and recent case law, applying the one-year statute to disputes involving the propriety of the attorney’s legal services. Therefore, the Committee concludes that if the dispute over fees involves the propriety of the attorney’s legal services, the statute of limitations does apply. But there are many exceptions under Section 340.6, and Section 340.6 will not apply to claims where an attorney converted a client’s funds or defrauded the client. My advice about the Advisory: read it.
2. Over-Billing.
The new Advisory focuses on over-billing; other Advisories have more generally focuses on determining the reasonableness of attorney’s fees. I refer advisedly to “over-billing” rather than “bill padding”, because over-billing can result from billing procedures that involve no intentional effort to pad bills.
The Advisory, which does provide an analysis of potential bill padding and other issues, proposes that arbitrators do at least the following four things:
This Advisory provides many useful tips for investigating whether a bill is inflated, and is useful reading not just for persons involved in MFA, but for anyone who wants to probe deeper into the propriety of a legal bill.
Recommended: Paul Dubow’s California Litigation Review Of Alternative Dispute Resolution Cases
San Francisco-Based Mediator And Arbitrator Paul Dubow Has Reported On 18 California And Ninth Circuit Cases Related To ADR.
In the 2015 Edition of the California Litigation Review, published by the Litigation Section of the State Bar of California, Paul Dubow has reported on “interesting and significant opinions relating to ADR particularly in the area of arbitration.” Having blogged for several years now on California mediation and arbitration cases, I note that the courts write far more opinions about arbitration than about mediation, a fact reflected by Mr. Dubow’s excellent report. Here are the 18 cases that Paul Dubow has reported about, with links to my blog posts on 14 of the cases:
1. DirectTV, Inc. v. Imburgia, ___ U.S. ___, 136 S. Ct. 463 (2015) (“law of your state” meant valid law after considering FAA preemption, resulting in enforcement of arbitration provisions.) December 15, 2015 post.
2. Garrido v. Air Liquide International US LLP, 241 Cal.App.4th 833 (2015) (FAA does not apply to truck drivers who are transportation workers involved in interstate commerce; CAA governs).
3. Khalatian v. Prime Time Shuttle, Inc., 237 Cal.App.4th 651 (2015) (14-month delay in bringing motion to compel, absent showing of prejudice, did not result in waiver of right to arbitrate). June 9, 2015 post.
4. Brinkley v. Monterey Financial Services, Inc., 242 Cal.App.4th 314 (2015) (FAA applied to contract involving interstate commerce, even though the contract did not reference FAA). November 29, 2015 post.
5. Franco v. Arakelian Enterprises, Inc., 234 Cal.App.4th 947 (2015) (rulings in Concepcion and Iskanian require reversal and remand to trial court of orders denying employer’s petition for arbitration, while preserving employee’s rights to prosecute PAGA claims in a non-arbitration forum.) February 26, 2015 post.
6. Sakkab v. Luxottica Retail North America, Inc., 803 F.3d 425 (9th Cir. 2015) (agreed with Iskanian that FAA does not preempt rule against employee PAGA waivers). October 8, 2015 post.
7. Williams v. Superior Court, 237 Cal.App.4th 642 (2015) (right to bring representative PAGA claim cannot be waived). June 23, 2015 post.
8. Securitas Securities Service, Inc., 234 Cal.App.4th 1109 (2015) (employee’s right to bring representative PAGA claim cannot be waived). March 5, 2015 post.
9. Sanchez v. Valencia Holding Co., LLC, 61 Cal.4th 899 (2015) (arbitration provision in automobile sales contract held not to be unconscionable). October 4, 2015 post.
10. Carlson v. Home Team Pest Defense, 239 Cal.App.4th 619 (2015) (affirming order denying employer’s motion to compel arbitration, on grounds that the arbitration provisions were procedurally and substantively unconscionable.) October 20, 2015 post.
11. Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015) (incorporation of AAA rules meant there was a clear delegation of authority to arbitrator to decide arbitrability questions).
12. Sussex v. United States District Court for the District of Nevada, 781 F.3d 1065 (9th Cir. 2015) (district court’s mid-arbitration intervention because arbitrator failed to disclose he bought and sold lawsuits to investors had too remote a connection to arbitrator bias to justi
fy disqualifying the arbitrator).13. Richey v. Autonation, Inc., 60 Cal.4th 909 (2015) (possibility that defendant violated plaintiff’s statutory rights did not require vacating arbitrator’s award, because defendant legitimately fired plaintiff for violating company policy). January 29, 2015 post.
14. SingerLewak LLP v. Gantman, 241 Cal.App.4th 610 (2015) (accounting firm’s award against departing partner for violating covenant not to compete did not violate public policy where arbitrator found implicit geographical limitation) (ordered published by Supreme Court). October 22, 2015 post.
15. Ramos v. Westlake Services, Inc., 242 Cal.App.4th 674 (2015) (fraud in execution of arbitration agreement where car dealer provided misleading translation of service agreement to Spanish speaker). November 29, 2015 post.
16. Miranda v. Anderson Enterprises, Inc., 241 Cal.App.4th 196 (2015) (“death knell” exception allowing for immediate appeal of order granting motion to compel arbitration, applied to PAGA representative claims).
17. Cobb v. Ironwood Country Club, 233 Cal.App.4th 960 (2015) (retroactive effort by country club to compel arbitration by including arbitration clause in bylaws after suit was filed against it fails). February 1, 2015 post.
18. Amis v. Greenberg Traurig LLP, 235 Cal.App.4th 331 (2015) (malpractice claim fails because attorney’s advice was given in context of mediation and is inadmissible; even inference that settlement agreement was signed based on attorney’s advice was inadmissible). March 19, 2015 post.
Miscellany: Judge Posner Proposes Bluebook Bonfire And Other Legal Reforms
In a March 29, 2016 post, Debra Cassens Weiss, writing for the ABA Journal, quotes the esteemed appellate judge Richard Posner: “The first thing to do is burn all copies of the Bluebook, in its latest edition 560 pages of rubbish, a terrible time waster for law clerks employed by judges who insist, as many do, that the citations in their opinions conform to the Bluebook.” We assume that Judge Posner does not generally favor book bonfires, which have a bad name, but this pinpoint attack is likely to resonate with many of us who labor at brief writing, and not-so-brief writing.
Ms. Cassens also notes that Judge Posner “has his own instructions on citation format, consisting of two pages in an office manual he gives to his law clerks.” Can I get a copy?
Among other legal reforms proposed by Judge Posner are creating a uniform system of lawyer pay (a “single payer” system) to even up disparities in the quality of representation, appointing neutral experts in cases involving difficult technical issues, providing jurors with transcripts that can be read along with testimony, and allowing judges to do Internet research (provided lawyers can contest the results).
Arbitration/Disclosure: Arbitrator Whose Practice Involved Representing Lawyers Against Lawyers Did Not Have To Disclose That Fact In Arbitration Involving Lawyer Versus Client Fee Dispute
Dissent By Justice Rubin Emphasizes That Disclosure Rules Must Be Broader Than Disqualification Rules
I have a sidebar category for “disclosures.” Perhaps I should add one for “disqualification”, because as the lengthy dissent of Justice Rubin explains in Safarian, Choi & Bolstad, LLP v. Minassian, No. B262526 (2/8 April 7, 2016) (Bigelow, P.J.) (unpublished), the requirements for disqualification of an arbitrator are not identical with those for disclosure. As the dissent also points out, the standards for disqualification and disclosure are often confused – so for now, I will stick to one sidebar category, faithfully reflecting the current state of confusion in case law.
The underlying fee dispute between the law firm (SCB) and its client Minassian was straightforward. The client believed that a handshake agreement superseded the written agreement, and that he had been overbilled. The law firm and the client engaged in fee arbitration under a program administered by the LACBA. The arbitration panel determined that the engagement letter was void, because SCB failed to issue monthly invoices and the invoice it did issue failed to clearly identify who worked on what. However, the panel awarded an amount for the value of services rendered. The trial court affirmed the award, and the client appealed.
The issue dividing the appellate majority and the dissent was whether the panel chair should have disclosed the fact that much of his practice consisted of the representation of lawyers against lawyers. The majority held that there was no reasonable basis to believe that the panel chair could not be fair to a client in a fee dispute simply as a result of the nature of his legal practice, in a case where the dispute to be arbitrated was between a law firm and a client, not between lawyers. The majority refused to extend the holding of a key case, Benjamin, Weill & Mazer v. Kors, 195 Cal.App.4th 40 (2011), in which the “arbitration award in favor of a law firm in a fee dispute with a client was reversed because the chief arbitrator failed to disclose his representation of large law firms in similar cases, including of a law firm in a fee dispute with a client and of another law firm in a malpractice action against it.”
While agreeing that the current case was “less egregious” than the Benjamin, Weill case, Justice Rubin wryly adding, “’not as egregious’ arguments rarely take us very far.” Justice Rubin explored the historical development of disqualification rules for arbitrators and for judges, explaining that they have “different blood lines” and that they are not identical. “But the standard for disclosing information that is reasonably relevant to potential disqualification should be identical,” he concludes, “even though the specific grounds for disqualification may differ from judge to arbitrator.”
Justice Rubin also had no doubt that the information that the panel chair’s “law practice was in large measure devoted to representing lawyers was ‘reasonably relevant’ to the issue of disqualification.”
Two themes run through the dissent. One theme is that rules of disclosure must be more broader in their application than rules of disqualification. Otherwise, judges and arbitrators could simply disqualify themselves, and there would be no need for disclosure.
The second theme is that case law and standards are muddled by confusing terms such as “might”, “could”, and "would", with would “used pretty uniformly throughout to describe the judge’s likely ability to be impartial, not the state of mind of the litigant that triggers disclosure.” For example, the majority wrote, “We fail to see how this [failure to disclose] would cause a person to reasonably entertain a doubt that Rolston would be able to be impartial to a client.” (italics added). Justice Rubin believes that proper application of the test would be whether the failure to disclose “might” or “could” cause a person to reasonably entertain doubt that the arbitrator would be impartial.
DISCLOSURE: The panel chair, Berne Rolston, was a founder of Fulop, Rolston, Burns & McKittrick, a Beverly Hills law firm. Rex McKittrick moved on to found McKittrick, Jackson, DeMarco & Peckenpaugh. I was a shareholder of the latter firm. I don’t know Berne Rolston. But as you can see, I do have a connection, which, however, has not affected my absolute impartiality.
Arbitration, Unconscionability, Employment: California Supreme Court Holds That Carve-Out For Preliminary Injunctive Relief Does Not Make Agreement Substantively Unconscionable
The Exception To Arbitration Simply Restates Existing Law.
The California Supreme Court has ruled that an employment agreement providing for arbitration of disputes, but authorizing the parties to seek preliminary injunctive relief in the superior court, does not make the agreement one-sided and substantively unconscionable, even if employers are more likely to seek injunctive relief than employees. Baltazar v. Forever 21, Inc., S208345 (Sup. Ct. March 28, 2016) (Kruger, J.). Here, the contract simply restates existing law, which has a carve-out for preliminary injunctive relief. Code Civ. Proc., section 1281.8(b).
We posted earlier about the judgment of the Court of Appeal on December 21, 2012. The Supreme Court affirms the judgment of the Court of Appeal.
COMMENT: Note that here, the clause excepted preliminary injunctive relief from arbitration, and this restates existing law. A provision that excepted injunctive relief from arbitration would not restate existing law. Compare Carbajal v. CWPSC, Inc., G050438 (4/3 Feb. 26, 2016) (Aronson, Bedsworth, Ikola) (arbitration provision resulting in substantive unconscionability included allowing the employer, but not the employee, to seek injunctive relief in court) about which we posted on February 28, 2016.