Waiver: Court Erred In Finding Waiver, “Because Plaintiff Demonstrated No Prejudice From Defendants’ Delay In Moving To Compel Arbitration”
14-Month Period From Filing Of Original Complaint To Filing Of Motion To Compel Is Insufficient To Support Waiver, Absent Showing Of Prejudice
Khalatian v. Prime Time Shuttle, Inc., Case No. B255945 (2/8 June 9, 2015) (Grimes, author; Bigelow concurring, Flier concurring and dissenting) (published) nicely bookends our penultimate post on Oregel v. PacPizza, about waiver of the right to arbitrate. In Khalatian, a 14-month delay, absent a showing of prejudice, was insufficient to establish waiver of the right to arbitrate, leading to reversal of the trial court’s order denying defendants’ motion to compel arbitration. In contrast, a 17-month delay in Oregel, together with a high level of litigation activity unlikely to be found in arbitration, led to affirmance of an order denying a motion to compel arbitration based on waiver of the right to arbitrate.
Why did the Court in Khalatian believe that the Plaintiff/Respondent failed to establish prejudice, despite the 14 months that elapsed between the filing of the original complaint and the motion to compel arbitration?
First, discovery was limited. (Compare the 25 depositions taken by the party moving to compel arbitration in Oregel). Second, the defendant moved to compel arbitration more than a year before the trial date. Third, the fact that the party petitioning for arbitration has participated in litigation, short of a determination on the merits, does not by itself constitute a waiver. Fourth, the party seeking to establish waiver “bears a heavy burden of proof.” Fifth, there was “no evidence that defendants stretched out the litigation process, gained information about plaintiff’s case they could not have learned in an arbitration, or waited until the eave of trial to move to compel arbitration.”
Though plaintiff filed a first amended complaint, defendant filed a demurrer and a motion to strike, plaintiff filed a second amended complaint, and defendants answered the second amended complaint, there was no merits based determination, because the demurrer was taken off calendar when the parties agreed plaintiffs could file a second amended complaint. While the Court of Appeal notes that a demurrer “may lead to a determination on the merits,” we note that a demurrer also may not lead to a determination on the merits, e.g., when it is granted without prejudice, when it is denied, and when it is simply taken off calendar, as was the case in Khalatian.
Justice Flier concurred in the holding that no waiver occurred in Khalatian. She dissented on other grounds, believing that the scope of the arbitration provision did not completely encompass the whole dispute.
Waiver: First District Affirms Order Denying Petition To Compel Arbitration – Appellant, Who Took 25 Depositions, Waived Right To Arbitrate
“Less-Than-Candid ‘Chronology of Pertinent Events Underlying Appeal’” Chafes Court.
In Oregel v. PacPizza (1/2 June 1, 2015) (Richman, Kline, Stewart) (published), the Court of Appeal had no trouble affirming the superior court’s order denying Appellant PacPizza’s petition to compel arbitration. More than enough evidence of a high level of litigation activity inconsistent with arbitration supported the finding of waiver of the right to arbitrate: filing two answers without mentioning arbitration, paying jury fees and asking for a jury trial, attending two CMCs without mentioning arbitration, and considerable discovery – including taking 25 depositions.
Appellant’s omission of extensive discovery from its chronology of pertinent events particularly vexed the Court. Justice Richman remarked the omission “is nothing short of brazen given the trial court’s finding that Oregel was prejudiced by the discovery the parties conducted . . . . “ The lesson here is to strive for candor in describing the record to the Court of Appeal. We’re stuck with the facts.
Public Policy And Florida Choice Of Law Result In Affirmance Of Order Partially Denying Defendant’s Motion To Compel Arbitration
Arbitration of Unlawful Group Boycott Claim Under California Cartwright Act Was The Juicy Florida Choice Of Law Law Issue.
HCF Insurance Agency v. Patriot Underwriters, Inc., Case No. B257715 (2/5 May 27, 2015) (unpublished) involved a dispute between plaintiff insurance broker, and defendant program administrator/underwriter, partially governed by an arbitration clause. The Court of Appeal affirmed the trial judge’s order that causes of action for contract breach and breach of the covenant of good faith and coverage were within the scope of the arbitration agreement, but that causes of action for fraud and intentional interference with economic advantage were not within the scope.
However, the cause of action for unlawful group boycott, in violation of California’s Cartwright Act, raised an interesting issue of public policy and choice of law. The dispute, which was within the scope of the arbitration clause, was governed by a Florida choice-of-law provision. Florida law did not provide a remedy for losses resulting from antitrust violations outside Florida, and plaintiff’s alleged damages were sustained in California. Florida law also provides an arbitration agreement is unenforceable if it violates public policy, and such a violation occurs when an arbitration agreement diminishes available remedies. Thus, the Court of Appeal reasoned that the arbitration clause must be invalid under Florida law, because arbitration under Florida law would diminish the remedies of plaintiff for injury in California under the Cartwright Act, violating Florida public policy.
COMMENT: Under the Federal Arbitration Act, claims that an arbitration provision violates state public policy don’t get much traction these days. However, even under the FAA, the parties can agree to choice of law, and here, the parties agreed to apply Florida law to their dispute.
Arbitration, Civil Rights: Ninth Circuit Rules Employer Can Expressly Require Arbitration Of Title VII Claims
1991 Amendment To Title VII Facilitates Waiver Of Statutory Remedies In Favor Of Arbitration
“Before 1991, ‘Title VII had been interpreted to prohibit any waiver of its statutory remedies in favor of arbitration. Prudential Ins. Co. of Am. v. Lai, 42 F.3d 1299, 1304 (9th Cir. 1994). But Congress reversed course with amendments to Title VII [i.e., Section 118 of the Act] in the Civil Rights Act of 1991. . . ‘” Ashbey v. Archstone Prop. Mgmt., No. 12-55912 (9th Cir. May 12, 2015) (Bea, Bybee, Christen). Before Ashbey, Ninth Circuit opinions were loathe to find that an employee asserting Title VII claims had waived the right to a jury trial by agreeing to arbitrate. Kummetz v. Tech Mold, Inc., 152 F.3d 1153 (9th Cir. 1998); Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756 (9th Cir. 1997). Relying on the Section 118 amendment to the Civil Rights Act of 1991, however, Ashbey holds that an employee may be required to arbitrate a claim alleging unlawful retaliation in violation of Title VII, where the employee “knowingly” waives the right to a jury trial by agreeing to submit such disputes to arbitration.
The Ninth Circuit concluded that Ashbey’s waiver was “knowing” in circumstances where he was explicitly notified of a Dispute Resolution Policy, and that policy unambiguously stated: it “is governed by the the Federal Arbitration Act,” all disputes are to be resolved only by an arbitrator through final and binding arbitration and not by way of court or jury trial, and it “applies, without limitation, to disputes arising out of the employment relationship . . . including, without limitation, disputes over . . . harassment and claims arising under the . . . Civil Rights Act of 1964.”
COMMENT: The opinion states that the employer “presented Ashbey the ‘express’ choice lacking in both Kummetz and Nelson.” What exactly is that express choice? It’s not the choice of accepting employment and choosing to waive or not to waive the right to a judicial forum. Rather, the choice appears to be between accepting employment and agreeing to waive the right to a judicial forum or not accepting employment. Under those circumstances, we predict that employers will make use of the waiver language in Ashbey, and employees will choose to be employed rather than unemployed. Thus Title VII claims will be channeled into arbitration.
Miscellaneous: Natalie Portman To Play RBG
From Queen Padmé Amidala To Ruth Bader Ginsburg . . .
Every now and then we get the irresistible urge to blog about something that has nothing whatsoever to do with mediation and arbitration. Today, the “off topic” item comes from Amy Howe’s Monday round up on SCOTUSblog, reporting Natalie Portman is about to take on the role of another powerful woman:
“Perhaps the biggest Court-related news at the end of last week was that actress Natalie Portman will play Justice Ruth Bader Ginsburg in a movie about Ginsburg’s career as an advocate for women’s rights. Coverage comes from Lily Karlin and Sam Levine in The Huffington Post, from Andrea Towers for Entertainment Weekly, and from Deadline Hollywood.”
Arbitration, Construction of Agreement, Scope: Law Firm’s Efforts To Compel Arbitration Of Malpractice Claim Are Doomed By Arbitration Provision That Did Not Clearly Encompass Earlier Transactional Work
Arbitration Provision Clearly Applied To Litigation, But Not To Earlier Transactional Work.
Nordman Cormany Hair & Compton, formerly in business for 75 years in Ventura County, appealed an order denying its petition to compel arbitration of a legal malpractice lawsuit. Aggeler v. Nordman Cormany Hair & Compton, B253566 (2/6 April 27, 2015) (Gilbert, Yegan, Perren) (unpublished).
The Nordman firm had done transactional work for plaintiffs in 2005 in connection with their ownership of a mobilehome park. After the owners became embroiled in a legal dispute with the residents in 2009, the Nordman firm represented the owners in litigation. The retention agreement for the litigation matter contained an arbitration provision.
In 2013 the owners sued the Nordman firm for malpractice. However, the owners’ alleged malpractice claims involved the Nordman firm’s “drafting of a contract” in 2005. Unfortunately for the law firm, it was not clear that the arbitration provision, prepared in connection with the 2009 litigation, applied retroactively to cover the 2005 transactional work that was the source of the malpractice claim.
Affirmed.
COMMENT: The Court explains, “We consider how a reasonable client would interpret the provision as well as the reasons why the client sought the professional services.” The problem here was that the agreement did not explicitly mention legal services provided in 2005, and thus a reasonable client would not necessarily know that the agreement would apply retroactively. Lawyers get saddled with the consequences of poorly drafted retention agreements “because of the fiduciary nature of the relationship.”