Scope: Agreement To Arbitrate Substantive Issues Did Not Include Agreement To Arbitrate Pending Discovery Issues
When Court Dispute Is Bifurcated By Arbitration Agreement, Pay Careful Attention To Scope Of Arbitration Agreement. . .
Vlahopouliotis v. Vallarta Properties, LLC, Case No. G069832 (5th Dist. Feb. 1, 2016) (unpublished), presents an interesting scenario: Plaintiff and Defendant, owners of different parcels in a shopping center, ended up in a lawsuit concerning their respective obligations. That led to a further discovery dispute. A ray of light appeared when the parties agreed to arbitrate “any and all claims set forth in the pleadings”.
However, darkness descended when the trial court proceeded to hear pending discovery disputes, and to impose sanctions on plaintiff and his attorney. On appeal, plaintiff challenged the denial of a motion to compel arbitration of the discovery dispute, and the amount of sanctions.
The Court of Appeal concluded that the parties had agreed to arbitrate only the claims set forth in the pleadings, and that the arbitration agreement did not include an agreement to arbitrate pending discovery disputes. Of course, the arbitrator would get to decide new discovery disputes that may arise in arbitration. Affirmed.
COMMENT: Whenever a case starts in court, and then moves to arbitration pursuant to agreement, it is important when drafting the agreement to scrutinize the scope of the arbitration. Here, the scope of the arbitration did not include the pending discovery disputes, and that made a material difference.
Nonsignatories: Personal Representative Who Signed Arbitration Agreement With Power Of Attorney And Later Sued For Wrongful Death Cannot Be Forced To Arbitrate
Also, Elder Abuse Claim Does Not Need To Be Arbitrated, Because That Could Lead To Conflicting Rulings.
Nursing homes and assisted living facilities commonly enter into arbitration agreements with their residents. Suits by heirs or personal representatives for claims of wrongful death and elder abuse have spawned litigation concerning the enforceability of such arbitration agreements. Our latest case concerning an assisted living facility, Monschke v. Timber Ridge Assisted Living, LLC, A144289 (1/1 Jan. 29, 2016), affirms the trial court’s order denying Timber Ridge Assisted Living’s petition to compel arbitration.
Plaintiff Monschke acted as the personal representative for the estate of her mother, the decedent, and filed suit for wrongful death and elder abuse, alleging that her mother was allowed to exit the facility without supervision, fell, was left outside for 30 – 45 minutes, and died of her injuries two weeks later. Acting under power of attorney, plaintiff had signed an arbitration agreement on behalf of her mother.
There are two keys to this case. The first is that the plaintiff was not a party to the arbitration agreement, having signed the agreement with power of attorney, not in her personal capacity.
The second key is a distinction that the Court makes between causes of action for wrongful death and for elder abuse. In California, Code of Civil Procedure section 377.60 “creates a new cause of action in favor of the heirs as beneficiaries, based upon their own independent pecuniary injury suffered by loss of a relative, and distinct from any the deceased might have maintained had he survived.” (quoting Horwich v. Superior Court, 21 Cal.4th 272, 283 (1999). Thus, the wrongful death claim is in favor of the heirs, rather than in favor of the decedent, who would be bound by an arbitration agreement covering the separate claim of elder abuse. However, as the heirs were not signatories, nor did they derive their new claim derivatively from the elder abuse claim, they were not compelled to arbitrate the wrongful death claim.
However, here, the trial court concluded that, to the extent plaintiff’s wrongful death claim was not subject to arbitration, plaintiff’s elder abuse claim should be tried with it to avoid the risk of conflicting rulings – a finding that the defendant did not challenge.
COMMENT: First, note that the distinction between a wrongful death action that is derivative, and a wrongful death action that is a new cause of action is a recondite distinction, for in some jurisdictions, a wrongful death action is derivative.
Second, if the Federal Arbitration Act applied, plaintiff could be compelled to arbitrate the elder abuse claim, regardless of whether plaintiff could be compelled to arbitrate the wrongful death claim. Here, however, there was no mention of the FAA, and and in any case, the defendant did not press to separately arbitrate the elder abuse claim.
Third, I have previously posted about nursing homes and arbitration clauses on April 11, 2012 (Bush v. Horizon West); May 21, 2012 (Bickel v. Sunrise Assisted Living); March 27, 2012 (Marmet Healthcare Center, Inc. v. Brown); January 6, 2013 (Daniels v. Sunrise Senior Living, Inc.); and November 11, 2013 (Goldman v. Sunbridge Healthcare, LLC).
Public Policy: Trial Court’s Confirmation Of Arbitrator’s Attorney’s Fees Award Is Reversed Because Law Firm Simultaneously Represented Adverse Parties In Unrelated Matters.
Under California Law, Where Party Challenges An Entire Contract As Illegal Or In Violation Of Public Policy, The Question Of Enforceability Is For The Court To Decide.
A substantial fee dispute between Sheppard, Mullin, Richter & Hampton, LLP and its client J-M Manufacturing Co., Inc., resulted in an arbitrator’s award to Sheppard, Mullin that the trial court confirmed, that the client appealed, and that the Court of Appeal has now reversed in a published opinion. Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., No. B256314 (2/4 Jan. 29, 2016).
The problem with the arbitrator’s award in favor of Sheppard, Mullin was that Sheppard, Mullin simultaneously represented adverse parties, albeit in unrelated matters. This nevertheless violated Cal. Rules of Prof. Conduct, Rule 3-310, requiring that attorneys avoid the simultaneous representation of adverse interests.
The rule that an arbitrator’s mistakes of law and fact does not provide a basis for refusing to confirm an award is not ironclad, because under California law, the court gets to decide the enforceability of a contract where a party challenges an entire contract as illegal or in violation of public policy. Here, the Court of Appeal readily found a violation of Rule 3-310 to be a violation of an expression of public policy:
“As discussed in Flatt, SpeeDee Oil, American Airlines v. Sheppard Mullin, and Fiduciary Trust, the attorney’s duty of undivided loyalty that forms the basis of Rule 3- 310 constitutes the very foundation of an attorney-client relationship. The Agreement, which violated Rule 3-310(C), therefore violated an expression of public policy. The trial court erred in holding that the Agreement was valid and enforceable.” (slip op., p. 26).
Agreeing with cases holding that “[t]here is no requirement that a contract violate an express mandate of a statute before it may be declared void as contrary to public policy,” the Court of Appeal rejected Sheppard, Mullins’ argument that courts may consider only public policy as expressly declared by the Legislature.
A January 30, 2016 post in Mike Hensley’s and my blog, “California Attorney’s Fees,” describes the end result here as a “brutal reversal”, because “the reviewing court found that S, M was not entitled to fees during the conflict as a matter of law under Rule 3-310, but remanded for a determination of when the actual conflict arose.” So a fee award of $1.3M got reversed.
NOTE: This is the third published California opinion in recent months that addresses the “public policy” exception to the general rule that arbitration awards can’t be reviewed for a mistake of law or fact, the other two being SingerLewak v. Gantman, 241 Cal.App.4th 610 (2015) (See Oct. 22, 2015 post) and Epic Medical Management v. Paquette, B261541 (2/8 filed Dec. 29, 2015, ord pub. Jan. 28, 2015).
Nonsignatories: Successor By Merger Can Enforce Arbitration Agreement That It Did Not Sign
DLA Piper Rudnick Gray Cary US LLP Had Standing To Enforce Arbitration Agreement.
One of our more prolific sidebar categories is “Nonsignatories.” Quite a few disputes have been spawned when a nonsignatory to an arbitration agreement seeks to enforce it, under various theories that include incorporation by reference, assumption, agency, veil-piercing or alter ego, estoppel, and third-party beneficiary status. In our next case, the nonsignatory enforcement issue arose because the signatory law firm, Gray Cary, merged into DLA Piper Rudnick Gray Cary US LLP (DLA Piper), a nonsignatory to an arbitration agreement with one of its employee attorneys.
Plaintiff M. Todd Jenks, a former associate attorney at DLA Piper, sued the law firm, alleging it had wrongfully prevented him from receiving certain disability benefits. DLA Piper successfully moved to compel arbitration as the successor by merger to an arbitration agreement between Mr. Jenks and his former employer, Gray Cary, which had signed an arbitration agreement with Mr. Jenks. Mr. Jenks received an award of $93,545.67 that included contract damages, emotional distress damages, and costs, and that was later adjusted upwards to $120,112, plus $12,142 in postaward interest, plus costs. Evidently, DLA Piper was not too ruffled by the award, because it petitioned to confirm it as a judgment, which petition was granted. Mr. Jenks, however, appealed. Jenks v. DLA Piper Rudnick Gray Cary US LLP, A143990 (1/1 Dec. 16, 2015) (Dondero, Margulies, Banke) (published).
Judgment affirmed. Marenco v. DirecTV LLC, 233 Cal.App.4th 1409 (2015) is dispositive. Marenco involved an employment dispute between the plaintiff Marenco, and DirectTV, which acquired Marenco’s former employer 180 Connect, and retained its employees. By doing so, DirecTV assumed 180 Connect’s rights and obligations, including those arising from employment relationships. Furthermore, equitable estoppel kicked in: “By relying on contract terms in a claim against a nonsignatory defendant, even if not exclusively, a plaintiff may be equitably estopped from repudiating the arbitration clause contained in that agreement.” Marenco at 1420. The result is also supported by Cal. Corp. Code section 16914, sub. (a)(1), providing that after merger, a surviving partnership, succeeds “to all the rights and property . . . of the disappearing partnerships . . . and shall be subject to all the debts and liabilities of each . . . “
Arbitration, Class, FAA Preemption: Professor Ronald Mann Provides Analysis Of SCOTUS Ruling In DirectTV v. Imburgia
His Opinion Analysis Is Titled, “Justices rebuke California courts (again) for refusal to enforce arbitration agreement” — And That About Says It All.
On December 14, 2015, the United States Supreme Court decided DirecTV v. Imburgia, The SCOTUS syllabus states the holding: “Because the California Court of Appeal’s interpretation is pre-empted by the Federal Arbitration Act, that court must enforce the arbitration agreement.” Professor Ronald Mann of Columbia previewed the case earlier on SCOTUSBlog, and I recommend his post-opinion analysis for its brevity and clarity.
The arbitration agreement between DirecTV, a satellite television provider, and two of its customers, provided for binding arbitration and waiver of class arbitration, unless the “law of your state” made waiver of class arbitration unenforceable. In case the waiver of class arbitration was unenforceable, then the entire arbitration provision became unenforceable.
When the plaintiff entered into the arbitration agreement, existing California law (Discover Bank), made class action waivers unenforceable, in those situations where it would have been simply infeasible for a single aggrieved party to pursue rights in arbitration. Since then, however, SCOTUS has made it clear in Concepcion and other cases that state laws placing arbitration agreements on an unequal footing with other contracts will be preempted by the Federal Arbitration Act (assuming interstate commerce is involved). And the FAA requires that arbitration agreements be enforced according to their terms – even though pragmatically, this can be harsh, leaving would-be plaintiffs with rights, but without an effective remedy. Who will bother to arbitrate over a very small monetary dispute, unless it can be aggregated with similar disputes in a class arbitration or lawsuit?
The majority opinion makes it clear that the reference to state law means “valid state law” – not state law that has been preempted by SCOTUS.
Justice Breyer was assigned to write the opinion – an interesting choice, given that he was one of the dissenters in Concepcion, the case that spearheaded the current FAA preemption juggernaut.
Justices Ginsburg and Sotomayor dissented, on the ground that the reference to state law was at best ambiguous, and that an ambiguous agreement should be interpreted against the drafter, DirecTV. Ever feisty, Justice Ginsburg wrote: “Demeaning that [state] court’s judgment through harsh construction, this Court has again expanded the scope of the FAA, further degrading the rights of consumers and further insulating already powerful economic entities from liability for unlawful acts.”
In a three-sentence dissent, Justice Thomas propounded his view that the FAA does not apply to state court proceedings.