Arbitration, Class Action, Delegation, Collateral Estoppel, Standard Of Review: Federal Order Vacating Arbitration Award Binds State Court
“Manifest Disregard Of The Law” Federal Standard For Vacating Award Worked To Employee’s Advantage Here.
Our next case involves arbitration issues addressed in three forums: a Labor Management Committee, state courts, and federal district court. Plaintiff/Petitioner Wawock petitioned for a writ of mandate, seeking an order directing the superior court to deny defendant CSI’s petition to confirm arbitration brought by CSI – and the Court of Appeal granted the petition. Wawock v. Superior Court (CSI Electrical Contractors, Inc., Real Party in Interest), No. B261315 (2/5 April 8, 2015) (Mosk, Kriegler, Goodman) (unpublished). Plaintiff Wawock was able to leverage a win on the issue of arbitrability in federal court to obtain the Court of Appeal’s order directing the superior court to deny CSI’s petition to confirm arbitration. The opinion is a scant 7 pages, but the case is procedurally gnarly and interesting.
Wawock filed a class action complaint against CSI alleging failure to pay wages to electricians for time spent attending mandatory training classes. CSI successfully petitioned to compel arbitration pursuant to a collective bargaining agreement. The superior court committed the threshold issue of arbitrability to the “Labor Management Committee.” Wawock petitioned for review, and the Court of Appeal, in an earlier 2013 case, agreed that the parties intended to commit the question of arbitrability to the Labor Management Committee. Critically, back then, the court did not decide the question of arbitrability –important later on, when CSI argued that the issue of arbitrability had been decided and collateral estoppel applied.
Wawock then invoked federal question jurisdiction, and sued in federal district court to vacate the adverse arbitration award on the ground that the Labor Management Committee “manifestly disregarded federal law” in finding his statutory claims arbitrable. The federal court agreed, and granted granted Wawock’s request to vacate the award.
CSI then petitioned in state court to confirm the award, but the superior court stayed the matter, and Wawock filed his petition for writ of mandate.
Because “full faith and credit must be given to a final order or judgment of a federal court”, the superior court was held to be bound by collateral estoppel and the order of the federal court vacating the arbitration award. Therefore, the superior court could not confirm the arbitration award. Nor could CSI rely on “law of the case”, because rather than deciding the issue of arbitrability, the trial court and court of appeal had simply directed the issue of arbitrability to the Labor Management Committee.
COMMENT: The key to the outcome here is that in federal district court, the judge was able to apply the “manifest disregard of the law” standard to vacate the arbitration award. That standard does not apply in state court, where an arbitrator’s mistakes of law or fact generally do not provide a basis for vacating the award. See Siegel v. Prudential Insurance Company of America, 67 Cal.App.4th 1270 (1999). Plaintiff’s attorney showed tenacity in seeking the federal forum.
Arbitration, Class, Existence of Agreement: Court Of Appeal Affirms Order Denying FATCO’s Motion To Compel Arbitration With Potential Class Of 272,037 Members
Failure To Establish Existence Of Actual Agreements To Arbitrate With Any Class Members Dooms Effort To Compel Arbitration.
How should one move to compel arbitration with members of a potential class who are parties to arbitration agreements giving them the opportunity to opt out of arbitration? Apparently, not the way First American Title Company and its parent First American Title Insurance Company (together, “First American”) did so here. Kirk v. First American Title Insurance Company and First American Title Company, B252238 (2/5 April 7, 2015) (Goodman, Turner, Mosk) (unpublished). Unpublished this case may be, but it is nevertheless a BIG case, because it involves a potential class of 272,037 members.
The action was filed in 2007. The complaint alleged First American charged illegal fees during the escrow process to purchasers of residential real estate. By April 2013, First American produced an electronic list of 272,037 potential class members. The motion to compel arbitration was filed on July 3, 2013 and heard on October 24, 2013, nine days after conclusion of the class action opt-out period. Apparently the date for the motion to compel arbitration was pushed back to October 24, 2013 by agreement of the parties.
The problem with First American’s motion in the trial court was that it failed to identify any specific agreements to arbitrate with any specific class members. Instead, First American produced four exemplar arbitration agreement forms – but forms are different than agreements. And the forms provided individual customers the opportunity to opt-out of arbitration. Unfortunately, First American’s motion to compel arbitration did not identify specific customers who had opted to arbitrate and specific customers who had opted out of arbitration. Of course, it is the obligation of the party seeking to compel arbitration to establish an agreement to arbitrate. Forms providing an option to opt in or out of arbitration are not the same as agreements to arbitrate.
Unsympathetic to First American’s request for more time to identify which customers deleted the arbitration provision, the Court of Appeal noted, “they had the time from the class ruling in November 2012, or from their production of the FAST list by April 2013, or as of the date they obtained the July hearing date for the subject motion, to conduct the file review which, in October 2013, they sought additional time to commence.”
Affirmed.
COMMENT: Quite a few of the arbitration cases we have posted about involve the threshold issue: was there ever an agreement to arbitrate? Today, we initiate a new sidebar category: “Existence of Agreement.”
Arbitration, Waiver & Civil Rights – Recommended Reading: “ADR Update: Dealing with AB 2617”
Article By Mediator/Arbitrator Paul Dubow Anticipates Arbitration Issues Arising From California AB 2617 And Proposes Solutions.
Paul J. Dubow’s article, “ADR Update: Dealing with AB 2617”, appearing in California Litigation, volume 28, No. 1, 2015, anticipates FAA preemption issues arising from AB 2617, passed by the California Legislature in 2014, and amending Civil Code sections 51.7, 52, and 52.1.
By way of background, The Ralph Civil Rights Act of 1976, Civil Code section 51.7, prohibits violence or threats of violence based on an individual’s race, color, religion, ancestry, age, disability, sex, sexual orientation, political affiliation, or position in a labor dispute. Civil Code section 52.1, part of the Tom Bane Civil Rights Act of 1987, provides plaintiffs may sue those interfering by “threats, intimidation or coercion” with the plaintiff’s exercise or enjoyment of any state or federal constitutional or legal right.
AB 2617 declares its legislative intent: “It is the purpose of this act to ensure that a contract to waive any of the rights, penalties, remedies, forums, or procedures under the Ralph Civil Rights Act or the Tom Bane Civil Rights Act, including any provision that has the effect of limiting the full application or enforcement of any right, remedy, forum, or procedure available under the Ralph Civil Rights Act or the Tom Bane Civil Rights Act, is a matter of voluntary consent, not coercion.” (italics added for emphasis).
Dubow anticipates that AB 2617’s assurance that any contract to waive rights under sections 51.7 and 52.1 must be a matter of voluntary consent will spawn disputes over arbitrability. While at first blush, AB 2617 is silent about arbitration, Dubow points out that the legislative history “makes clear that the bill was directed at arbitration provisions” – raising the specter of Federal Arbitration Act preemption. Thus, to the extent that contracts for goods and services will now contain waivers of the right to sue in court under sections 51.7, and 52.1, and will contain provisions for binding arbitration, issues will invariably arise as to whether the waivers are involuntary and unenforceable under AB 2617, or enforceable under the FAA, which will preempt state law where interstate commerce is involved.
Without arguing for or against preemption, Dubow offers drafting solutions for those who want to draft an arbitration waiver that will stick. Those suggestions include: (1) provide that arbitration is to be conducted under the FAA; (2) state that the court may not refuse to enforce the arbitration agreement and may not stay arbitration under Cal. Code of Civ. Proc., section 1281.2; (3) make the arbitration provisions prominent; (4) explain the consequences – e.g., that a jury trial is waived; (5) get the provision initialed; (6) include a prominent opt-out provision; (7) draft a fair agreement.
Dubow’s tips for drafting enforceable arbitration provisions are generally useful advice for employer-employee and consumer contract situations.
Arbitration, Public Policy, Preemption: California Supreme Court Will Consider Whether Federal Arbitration Act Preempts California Rule That Statutory Claims For Public Injunctive Relief Are Not Subject To Compulsory Private Arbitration.
Fourth District, Division Three Ruled Earlier In Citibank v. McGill That “Broughton-Cruz” Rule Fell Prey To Federal Arbitration Act Preemption.
Fallen Prey. Circa 1934-39. Library of Congress.
Under California’s “Broughton-Cruz” rule, arbitration provisions are unenforceable as against public policy if they require arbitration of Unfair Competition Law, False Advertising Law, or Consumer Legal Remedies Act injunctive relief claims brought for the public’s benefit. Broughton v. Cigna Healthplans , 21 Cal.4th 1066 (1999). The reasoning behind the Broughton-Cruz rule is somewhat similar to that behind Iskanian v. CLS Transportation Los Angeles, LLC, which held that claims brought under California’s Private Attorney General Act of 2004 are really brought on behalf of the public, and therefore not subject to Federal Arbitration Act preemption governing claims between private parties.
On December 18, 2014, I posted about McGill v. Citibank, N.A., the Fourth District, Division 3 case holding: “The Broughton-Cruz rule falls prey to AT&T Mobility’s sweeping directive because it is a state-law rule that prohibits arbitration of UCL, FAL, and CLRA injunctive relief claims brought for the public’s benefit.” The Court of Appeal walked a fine line, distinguishing the rationale for preserving the right to sue in court under PAGA (consistent with Iskanian), from the rationale for the Broughton-Cruz rule, by explaining that the PAGA action “is fundamentally different than the injunctive relief action under the other statutes [UCL, FAL, or CLRA].” In other words, PAGA is practically sui generis. So PAGA survived pre-dispute arbitration waivers, whereas the Broughton-Cruz rule was swept away by FAA preemption.
On April 1, 2015, the California Supreme Court granted a petition to review this case, No. S224086. Cantil-Sakauye, C.J., Werdegar, Chin, Liu, Cuéllar and Kruger, JJ. voted in favor, and Corrigan, J., was recused and did not participate. The case presents the issue whether the Federal Arbitration Act preempts the Broughton-Cruz rule that statutory claims for public injunctive relief are not subject to compulsory private arbitration.
Have A Wonderful Weekend !
Easter Puck. Louis M. Glackens, artist. 1901. Library of Congress.
Mediator: Court of Appeal Reverses $313,206 Jury Award In Favor Of Whistleblowing Mediator
Mediator Gallup Walloped For Failure To Exhaust Administrative Remedies.
Family services mediator Emily Gallup complained to her supervisor and other court management about “insufficient time for mediation appointments, inadequate review of records and gathering of facts, failure to consider criminal histories, failure to advocate for the best interests of the children, failure to offer separate mediation to domestic violence victims, and use of undue influence to pressure parents into mediated agreements.” Following her complaints, she alleged “escalating criticism and punitive actions culminating in termination.”
She successfully sued the Superior Court of Nevada County (SCNC) under the whistleblower statute, Labor Code section 1102.5(b) and received an award for $313,206. The Court of Appeal, however, reversed the judgment, because she failed to exhaust administrative remedies, a requirement of Labor Code section 98.7. Gallup v. Superior Court of Nevada County, C073452 (3rd Dist. March 30, 2015) (Blease, Nicholson, Duarte) (published).
The published case will be of interest chiefly to employment and labor law attorneys, because the case has a detailed discussion of the retroactivity of the application of the administrative exhaustion requirement to the whistleblower protections, following changes in the law. The Court concludes the exhaustion requirement still applies retroactively despite changes made to the law in 2013. In so ruling, the Court of Appeal followed Campbell v. Regents of University of California, 35 Cal.4th 311 (2005), as controlling authority, and rejected Lloyd v. County of Los Angeles, 172 Cal.App.4th 320 (2009) as non-controlling.
The case is likely to be limited in its impact, as legislation passed in 2013, adding Labor Code section 244, states in part that “An individual is not required to exhaust administrative remedies or procedures in order to bring a civil action under any provision of this code, unless that section under which the action is brought expressly requires exhaustion of an administrative remedy . . . “ Mediator Gallup filed her action in April 2011.