Unconscionability: “Moderate Level” Of Procedural And Substantive Unconscionability Tubes Motion To Compel Arbitration
Federal Arbitration Act Did Not Apply Here.
Applying a “sliding scale” analysis, the Court of Appeal found that a “moderate level” of procedural and substantive unconscionability required affirming the trial judge’s order denying defendant employer’s motion to compel arbitration. Carbajal v. CWPSC, Inc., G050438 (4/3 Feb. 26, 2016) (Aronson, Bedsworth, Ikola).
The procedural unconscionability factors included an adhesion contract, failure to identify which of the AAA’s many different rules would apply, failure to provide the employee with a copy of the rules, and requiring the employee to sign the agreement without telling her where she could find the rules.
The one-sidedness of the arbitration provision resulting in substantive unconscionability included allowing the employer, but not the employee, to seek injunctive relief in court, waiver of the need to post a bond to obtain injunctive relief, and waiving the employee’s statutory right to recover attorney fees if she prevailed on Labor Code claims.
Because the employer failed to carry the burden of establishing that the FAA applied to the contract, the Court did not need to consider whether the result would have changed if the FAA had applied. “Carbajal’s intrastate use of a telephone to speak with some customers is at most a trivial connection to interstate commerce, especially where there is no other relationship between the Agreement and interstate commerce.”
Practice Tip: “When a trial court denies a motion to compel arbitration, a party may request the court to provide a statement of decision explaining the factual and legal basis for its decision.” Because the employer did not request a statement of decision, a) it waived any objection to the trial court’s failure to make necessary findings; b) the appellate court applies the “doctrine of implied findings and presumes the trial court made all necessary findings supported by substantial evidence.”
Appealability: Second District, Div. 5 Holds Order Lifting Litigation Stay Is Unappealable
A Different Story If Order Lifting Stay Had Been Accompanied By Appealable Order Or Judgment
The scenario in our next case arises from a circumstance that is not so rare: one of the parties to arbitration refuses to pay the costs of arbitration. That can lead to the end of the arbitration, as it did here, when defendant broker Remax, after acknowledging that arbitration agreements, which were employer-promulgated, intended that Remax pay costs of arbitration, and then declined to do so. Because the arbitration fees remained unpaid, the American Arbitration Association administratively closed the arbitration proceeding.
So far, the scenario is uncluttered. However, there was an individual defendant, one Mr. Garcia-Yanez, as to whom litigation had been stayed pursuant to Cal. Code of Civ. Proc., section 1281.4, because Mr. Garcia-Yanez was not a party to an arbitration agreement with plaintiff. Plaintiff moved to lift the stay, arguing that Remax’s conduct by failing to pay arbitration filing fees, terminated the arbitration proceeding. Agreeing with plaintiff, the trial court lifted the stay, and an appeal followed.
Held: an order setting aside a litigation stay is unappealable under Code of Civ. Proc., section 904.1, and only appealable under section 1281.4 (one of the arbitration statutory provisions) when there is another appealable order or judgment. Gastelum v. Remax International, Inc., B263213 (2/5 Feb. 11, 2016) (Turner, Kriegler, Kumar). Here, there was no other appealable order or judgment; indeed, there was no pending arbitration.
COMMENT: If the arbitrator believes a party is obligated to pay for the arbitration, and the party does not do so, the arbitrator may pull the plug on the arbitration. With that in mind, the non-paying party needs to carefully weigh the advantages of the arbitral forum against the cost of paying for that forum. The conventional wisdom is that employers do better in front of an arbitrator than in front of a jury, a consideration that the employer needs to take into account when deciding whether to pay.
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.
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).