Arbitration, Employment, FAA, Burden Of Proof: Berman Hearings Are Short-Circuited By Enforceable Arbitration Provision
Keep On Truckin’ . . . In Arbitration.
We have posted before about the “Berman hearing”, named after Congressman Howard Berman, and providing workers with a procedure intended to provide “a speedy, informal, and affordable method of resolving wage claims” with the California Labor Commissioner. Under California law, it cannot be waived. However, if there is an arbitration clause governed by the Federal Arbitration Act, which preempts state law, then employers may use the arbitration clause to preempt the state Berman hearing. That is what ultimately happened in Performance Team Freight Systems, Inc. v. Garcia, B259146 (2/2 Nov. 2, 2015) (Boren, Ashmann-Gerst, Chavez) (published), where a trucking company, prior to commencement of Berman hearings, petitioned to compel arbitration with truck drivers filing wage claims.
The trial court had denied the petition, ruling that the agreements fell under an FAA exemption for transportation workers engaged in interstate commerce. Section 1 of the FAA exempts from FAA coverage “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” – and it has been held that transportation workers are included in this exemption. Without determining whether the truckers, who may have been involved mostly in intrastate short-hauls were truly involved in interstate commerce, the Court of Appeal concluded that they had not met their burden of establishing that the the subject agreements were “contracts of employment.”
And that leads us to the burden of proof. The party opposing arbitration bears the burden of demonstrating the exemption to FAA coverage applies. The agreements under which the truckers worked were labeled “Independent Contractor Agreements”. The Court of Appeal stuck with the label “independent contractor” because “only minimal evidence was presented to the trial court relevant to the issue of whether the subject agreements were contracts of employment.”
The Court also had little trouble finding that the clause was broad enough to cover the dispute. Reversed.
COMMENT: The law respects form less than substance. However, labels, light as they may be, are not weightless. When minimal evidence is presented on whether a worker is a contractor or an employee, the label may tip the balance, as it did here.
New York Times Continues Its Special Report Series Critical Of Arbitration
Yesterday I reported that the New York Times has kicked off its special report on arbitration with Part I, an article entitled “Arbitration Everywhere, Stacking the Deck of Justice.” The NYT has now moved on with Part II, “Privatizing Justice,” and Part III, “In Religious Arbitration, Scripture Is The Rule Of Law.”
The article on privatizing justice presents a litany of problems with arbitration. Though the article does not exactly describe what “privatizing justice” means, it circles around certain aspects of arbitration: the loss of judges and juries, the secretive nature of arbitration in a system where cases need not be reported and proceedings are confidential, the common perception that unlike judges, arbitrators are “beholden to companies” that are their real clients, and the inability to effectively appeal bad awards. The authors’ point of view appears to be that if sunlight is the best disinfectant, then arbitration is a black hole.
The article on religious arbitration presents some interesting examples involving Christian arbitration, as well as Scientology arbitration. The article points out that in addition to the usual inability to review arbitration awards for mistakes of law or fact, judges will not review religious arbitration awards for fear of church-state entanglement issues.
NY Times Features Special Report Entitled, “Arbitration Everywhere, Stacking the Deck of Justice”
The Article Is Critical of Enforcement Of Individual Arbitration In Situations Where Only A Class Action Can Be Economically Prosecuted.
Jessica Silver Greenberg and Robert Gebeloff have authored a special report appearing in the New York Times online edition on October 31 and November 1, 2015, under the title: “Arbitration Everywhere, Stacking the Deck of Justice.”
The article promises to be “the first part in a series examining how clauses buried in tens of millions of contracts have deprived Americans of one of their most fundamental constitutional rights: their day in court.”
The issues discussed in the article will be familiar with readers who have followed arbitration decisions of the Roberts Court. Still, without offering too many spoilers, here are a few interesting tidbits:
- “More than a decade in the making, the move to block class actions was engineered by a Wall Street-led coalition of credit card companies and retailers, according to interviews with coalition members and court records.”
- Attorney John G. Roberts Jr. – now Chief Justice Roberts – represented Discover Bank when it unsuccessfully petitioned the Supreme Court to hear a case involving class-action bans.
- The NYT studied 1,179 federal class actions filed between 2010 and 2014 that companies sought to push into arbitration, and found that judges ruled in their favor in four out of every five cases.
- Though there is no central database for arbitration, the NYT concluded that between 2010 and 2014, only 505 consumers went to arbitration over a dispute of $2,500 or less.
- Verizon and Times Warner have arbitration clauses in their consumer contracts, and from 2010 to 2014, “Verizon, which has more than 125 million subscribers, faced 65 consumer arbitrations . . . . Time Warner Cable, which has 15 million customers, faced seven.”
- “One federal judge remarked in an opinion that ‘only a lunatic or a fanatic sues for $30.’”
- Andrew J. Pincus of Mayer Brown, succinctly states one of corporate America’s economic arguments for arbitration: “Arbitration provides a way for people to hold companies accountable without spending a lot of money.”
- Last year, “attorneys general in 16 states warned that ‘unlawful business practices’ could flourish with the proliferation of class-action bans.”
- Examples of companies that now have arbitration clauses in their consumer contracts include Netflix, at&t, TimeWarner, T Mobile, ebay, Expedia, Budget, Discovery, Starbucks, and Electronic Arts.
Arbitration/Public Policy Exception: SingerLewak v. Gantman Is Ordered Published
A Circuitous Route To Publication.
I posted about SingerLewak v. Gantman on July 31, August 31, and September 1, 2015. This is an interesting case discussing the so-called “public policy exception” that will sometimes justify review of an arbitral award by the superior court – though in the end, not in this case.
Previously, the Court of Appeal had ordered the case published in the morning, only to revoke the publication order in the afternoon, when it realized that the time to order publication had expired. The Justices then wrote a letter to the Supreme Court asking for publication. Yesterday, the Supreme Court ordered publication.
Ted Bacon, Mike Hensley, and Matt Hansen, my colleagues at AlvaradoSmith, represented SingerLewak, the appellant/plaintiff prevailing on the appeal. I was pleased to see publication was ordered, as I had written the letter to the Court of Appeal requesting publication.
More On Mediation Confidentiality
California Law Revision Commission Revisits Mediation Confidentiality At Its October 8, 2015 Meeting.
I have previously posted about efforts to permit the introduction of evidence currently protected by mediation confidentiality. See my posts of August 30, 2015, and September 11, 2015.
The California Law Revision Commission met on October 8, 2015, to address the issue again. As of the date of this post, I have not been able to find minutes or a video recording of the meeting. However, I am informed that the CLRC has decided to proceed with drafting legislation to remove current confidentiality protections when misconduct is alleged as to a lawyer acting in the role of advocate (as opposed to a lawyer acting as a mediator). An earlier decision to draft legislation allowing in mediation communications when attorney mediator misconduct is alleged has apparently been reversed. The ongoing proceedings of the CLRC on mediation confidentiality may be followed at: http://www.clrc.ca.gov/K402.html
Another Look at Mediation Confidentiality: Does It Serve Its Intended Purpose?
Eric van Ginkel, mediator, arbitrator, and adjunct professor for the Strauss Institute for Dispute Resolution, has published an article in Vol. 32, No. 8, September 2014, Alternatives to the High Cost of Litigation, a monthly publication of the International Institute for Conflict Prevention and Resolution. The article provides a framework for analyzing the purpose of mediation confidentiality by considering the varieties of mediation confidentiality, the interests of the mediator, the parties, and non-parties in preserving confidentiality, and the need for confidentiality before and after a settlement is reached. Prof. van Ginkel is a fan of the Uniform Mediation Act, which he describes as “approaching Nirvana” compared to the California mediation statute. A summary of his article is available on-line at pages 4 to 7 of a recent memo prepared by the CLRC.
COMMENT: Much of the debate concerning whether to legislate exceptions to mediation confidentiality circles around whether a bright-line confidentiality rule that may be harsh in an individual case by excluding evidence of malpractice or duress nevertheless offers widespread and beneficial effects by facilitating candor, trust, and low transaction costs.
When things good sideways in mediation, we are tempted to look only backwards at the confidentiality rules, and ask ourselves how a different confidentiality rule could right the wrong. When we ask ourselves about the beneficial effects of mediation confidentiality, we generally have a different perspective: we are looking at the benefits of candor, trust, and low transaction costs before the problem occurs in the individual case. “The practical challenge is to learn to see [ex ante] argument every time it’s available: to learn to think the ex ante way when a case is full of cues tempting everyone to only look backwards.” See Ward Farnsworth, The Legal Analyst: A Toolkit for Thinking About the Law (University of Chicago Press 2007), p. 6. Interestingly, Prof. van Ginkel notes: “To date, no study has been undertaken that would give us the empirical data that connects success in mediation proceedings with the availablity of a form of confidentiality protection.” We have insights into the value of mediation confidentiality, and a dearth of empirical evidence.
Arbitration, Class Actions, Waiver: DIRECTV v. Imburgia Arguments Heard By Supreme Court On October 6, 2015
ScotusBlog Analyzes Oral Argument Under Caption, “Justices have scorching criticism for California court’s refusal to enforce arbitration agreement, but debate their authority to correct it.”
Columbia Law Professor Ronald Mann has authored both an October 2, 2015 preview of arguments in DIRECTV v. Imburgia and an October 7, 2015 analysis of the oral arguments.
In his preview, Professor Mann leads: “If I start by telling you that DIRECTV includes an arbitration clause in agreements with its customers and that the California Court of Appeal in this case declined to order arbitration, it would be understandable if you immediately stopped reading and clicked back to look for another post: how far do you have to read to expect that my post is going to tell you that the Court is likely to reverse the California court and hold the agreement enforceable?”
In DIRECTV, the arbitration provisions contain a poison pill: “if the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration provision] is unenforceable.” What does “law of your state” mean?
The parties entered into the agreement when the Discover Bank rule applied in California, invalidating class action waivers, and before that rule had been overturned by AT&T v. Concepcion.
The question, as presented by DIRECTV’s petition for writ of certiorari to the Supreme Court is: “Whether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act requires the application of state law preempted by the Federal Arbitration Act.”
Thus, DIRECTV’s position is simply that the California courts flaunt federal law and preemption.
In contrast, Imburgia argues that this is a simple matter of contract interpretation: whether the reference to “the law of your state” refers to the rule in Discover Bank, or to the state of the law in California after Concepcion. Imburgia argues that contract interpretation should be left to state judges, and if the contract drafted by DIRECTV is ambiguous, then the well-known rule that ambiguous contracts are interpreted against the drafter must apply.
Prof. Mann concludes, “[I]t seems unlikely that five of the Justices will vote to affirm the California decision. But do we know exactly how they’ll explain their decision? For that I suppose we’ll have to wait a few months yet.”