Arbitration: Deadlines, Waiver, Scope, Employment, Enforceability, FINRA, Arbitrability — An Assortment Of Recent (Unpublished) Arbitration Cases And Issues
Deadlines: Lombard Knight v. Rainstorm Pictures, Inc., B253246 (2/1 March 25, 2015).
In this case involving agreements to finance the production of motion pictures, Plaintiff sought to “confirm” a multi-million dollar arbitration award, while also asking to dismiss individuals, on the grounds that they had not been properly served, and jurisdiction over them was lacking. The superior court refused to dismiss the individual plaintiffs, who appealed. Unfortunately for the individuals, their petition to “confirm” was too late. The Court of Appeal treated the petition to the superior court judge as one to vacate or correct an award, which must be served and filed not later than 100 days after the date of the service of a signed copy of the award on the petitioner. Plaintiffs blew that deadline. The opinion was penned by Judge Bendix, assigned to the Court of Appeal case.
Perhaps the most interesting issue was one addressed by the trial court. That trial court ruled, as “an issue of first impression,” that the Hague Service Convention did not apply to private arbitration.
Waiver:: Achterkirchen v. Montiel, A140277 (1/1 March 24, 2015).
In a dispute among tenants in common, the trial court entered a judgment confirming an award against Montiel, who then appealed. Montiel contended that various procedural requirements had not been satisfied, as a result of which the other parties had waived their right to arbitrate – and that waiver should have been decided by a court, not an arbitrator.
Writing for the Court, Justice Margulies explains that ordinarily the court decides waiver issues because, “the doctrine of arbitration waiver is ordinarily one of general application governed by the common law.” But that was not the case here, where waiver depended on whether procedural requirements had been satisfied under the specific language of the arbitration agreement – subject matter within the jurisdiction of the arbitrator. Judgment affirmed.
Scope: Arbitration Disposed of Employer’s Equitable Claims. Vista International Insurance Brokers v. Bernstein, B247681 (2/3 March 24, 2015).
Bernstein, “a successful insurance broker”, obtained a monetary award in arbitration against her former employer. The trial judge entered judgment confirming the award, but excluded Vista’s claim for an injunction against its former employee from the judgment. Both sides appealed.
The Court of Appeal affirmed the judgment in favor of Bernstein, but reversed the judgment to the extent it it not dispose of the the equitable claims against Bernstein. The Court of Appeal rejected employer’s argument that equitable claims were excluding from the entry of judgment, reading the exclusion in the arbitration agreement narrowly. The employer had the right to equitable relief “to immediately obtain an injunction from a court” – for example, prior to the appointment of an arbitrator, where an employer would have no place to seek relief but in a court of law. However, the employer did not avail itself of that opportunity. Therefore, when the arbitrator entered the award in favor of Bernstein, the arbitrator effectively decided the entire dispute, as immediate equitable relief was no longer an issue. Justice Kitching is the author of this opinion.
Employment, Enforceability, FINRA:: Riley v. Morgan Stanley Wealth Management and Emma Bridges, B256177 (2/6 March 23, 2015).
Morgan Stanley and Bridges appealed from an order denying their motion to compel arbitration of eight statutory causes of action relating to Plaintiff Riley’s allegations that she was subjected to sexual harassment by her female supervisor. The trial court also required that causes of action nine through fifteen, which were non-statutory causes of action, be arbitrated, and that the Riley’s lawsuit be stayed pending arbitration.
Riley had entered into arbitration agreements with Morgan Stanley in a Financial Industry Regulatory Authority (FINRA) Submission Agreement, and in promissory notes for low-interest loans she received from her employer. However, the Court of Appeal agreed that the arbitration agreements, as worded, did not require employment discrimination claims in violation of statute be arbitrated. The non-statutory claims, however, properly belonged in arbitration.
As an affirmative defense in arbitration, Riley had alleged that her FEHA claims in her civil action were a defense to Morgan Stanley’s claim in arbitration on the notes. However, she abandoned that defense, leaving the statutory claims to be litigated, and the non-statutory issues to be arbitrated. Judgment affirmed. Justice Yegan authored the opinion.
Query whether abandonment of the defense that sexual harassment resulted in constructive termination, and acceleration of her notes, will prove to be a problem for the employee down the road.
Employment, Class Action, Unconscionability: Valdez v. Santa Lucia Preserve Company, H040685 (District 6 March 23, 2015).
Plaintiffs filed a putative class action complaint alleging wage and other claims against their former employer. The trial court denied employer’s motion to compel arbitration on the grounds that the arbitration agreements were unconscionable. However, the Court of Appeal reversed, holding that the arbitration agreements were not substantively unconscionable, in an opinion written by Justice Bamattre-Manoukian.
The most interesting part of the opinion concerns limiting review in FEHA cases. Because the plaintiffs’ complaint involved unwaivable statutory rights, their arbitration was subject to minimal requirements set forth in Armendariz, including a written arbitration decision and judicial review sufficient to en
sure the arbitrators comply with the requirements of the statute. However, the Court of Appeal did not view the arbitration agreements as limiting judicial review. Thus, references in the agreement to “limited review” of an arbitration award and to the award not being “overturned even if it is incorrect legally or factually,” are described by the Court as “merely attempts to inform the employee about the legal effect of the arbitration agreement in general, without attempting to unlawfully limit judicial review available . . . “
Employment, Arbitrability: City of Colton v. Guerrero, E058346 (4/2 March 12, 2015).
A police officer appealed an order denying his motion to compel arbitration with the City of Colton over an employment dispute with the City. Judgment was entered denying his petition for arbitration and enjoining him from pursuing arbitration against the City. The Court of Appeal affirmed. Because Officer Guerrero was not a permanent employee, he was subject to a probationary period, during which period he was not entitled to arbitration of his grievance under a Memorandum of Understanding between the City and the police officers’ association. Justice McKinster authored the opinion.
Mediation, Confidentiality: Mediation Confidentiality Statutes Bar Not Just Evidence Of What Was Said In Mediation, But Also Bar Inferences About What Was Said
Amis v. Greenberg Traurig LLP Acknowledges Supreme Court’s “Near Categorical Prohibition Against Judicially Crafted Exceptions To The Mediation Confidentiality Statutes”
Amis v. Greenberg Traurig LLP, No. B248447 (2/3 March 18, 2015) (Kitching, Aldrich, Lavin) (published) holds “a malpractice plaintiff cannot circumvent mediation confidentiality by advancing inferences about his former attorney’s supposed acts or omissions during an underlying mediation.”
Given that there are now many cases holding that mediation confidentiality statutes are just about ironclad, even in cases where a client alleges his attorneys committed malpractice during mediation, one may first wonder why this opinion was published. The important point made in this case is that even inferences about what must have been said by the attorneys to the client to induce the client to agree to a horrible settlement are not admissible.
Here, the client, Amis, alleged he was not advised his personal liability was nil, yet in mediation, he agreed to a settlement that put both Pacific Marketing Works, Inc. (Pacific), in which he was a minority shareholder, and himself personally, on the hook for $2.4M in the event of a default in payment by Pacific. Furthermore, a deal was in the works whereby a Japanese corporation was to acquire Pacific, and Amis expected that the acquisition would make it feasible to pay the settlement amounts agreed to in mediation. However, the settlement agreement failed to make the settlement payments contingent upon the acquisition of Pacific by the Japanese company. Of course, everything that could go wrong did go wrong: the acquisition didn’t go through, Pacific defaulted on the settlement payments, and Amis ended up personally liable and declaring bankruptcy.
Amis’s legal malpractice expert opined that Greenberg Traurig’s conduct fell below the standard of care and there was “no advice [GT] could have given to John Amis during mediation that would justify making John Amis Personally liable for payment of $2,400,000.”
This evidence – an inference about advice given in mediation – was inadmissible. Thus, Amis could not prove malpractice, and lost on summary judgment, which judgment was affirmed.
The upshot is that you cannot do indirectly, through inference, what you cannot do directly, i.e., admit evidence of what was said or not said in the mediation.
Recognizing the “seemingly unintended consequence” that mediation confidentiality protects lawyers from malpractice claims, the Court concludes that it “is for the Legislature, not the courts, to correct.”
Arbitration, Employment, Enforceability, Unconscionability: Court of Appeal Rejects Employee’s Contentions She Never Entered Into Binding Arbitration Agreement
Also Rejected: Contentions The Agreement Was Unconscionable.
The Court of Appeal affirmed the judgment against an employee, including rulings that her claims were subject to arbitration, in Serafin v. Balco Properties Ltd., LLC, Case No. A141358 (1/4 March 16, 2015) (Ruvolo, Reardon, Rivera).
COMMENT: The Court’s analysis of appellant’s arguments gives a pretty good roadmap for signposts leading to an enforceable agreement. We list some of these: (1) employee’s signature; (2) stand-alone arbitration agreement, short, and clearly written; (3) heading: MANDATORY ARBITRATION POLICY in capitalized letters; (4) employee’s acknowledgment she understands arbitration policy and will comply with it; (5) context – the agreement here was presented by a human resources employee who explained contents; (6) attachment of the arbitration rules – or at least explanation as to how rules can be readily obtained; (7) mutuality of substantive provisions, so agreement is not one-sided in favor of employer; (8) severability provision to deal with unenforceable provisions (here, trial court apparently did sever a provision that violated FEHA, even without a severance clause, because the violation didn’t permeate the entire agreement); (9) broad language that any and all claims arising out of or in any way connected with employment must be submitted to binding arbitration; (10) do not require parties to bear own attorney fees and costs, a provision running counter to FEHA, which allows successful plaintiff to recover attorney’s fees and costs; (11) allow for reasonable discovery.
Arbitration, Homeowners: Failure To Comply With B&P Section 7191 Requirements For Prominence and Formatting Makes Arbitration Provision For Work On Residence Unenforceable
Placement and Prominence Requirements Are Key To Implementing Statutory Disclosure And Knowing Waiver Objectives
In Anna-Becky Redlich v. Reliance Management Group, Inc., Case No. A140313 (1/2 March 11, 2015) (Banke, Margulies, Dondero) (unpublished), the Court of Appeal agreed with the trial court that arbitration provisions between plaintiff homeowner, and defendants design firm and construction management firm, did not sufficiently comply with Business and Professions Code section 7191, which regulates arbitration provisions in a a contract for work on residential property with four or fewer units. The Court identified various problems, such as failure to include a title “ARBITRATION OF DISPUTES”, a reference to the Code of Civil Procedure in the contract that should have been to the Business and Professions Code, lack of bold, colored, or capitalized text, and defective placement of certain provisions. Analyzing the lack of statutory compliance under a “substantial compliance” standard, the Court of Appeal concluded that, given the disclosure and knowing waiver objectives of the statute, substantial compliance was lacking.
COMMENT: Several statutory schemes have prominence and formatting requirements for arbitration clauses. Prominent examples relate to health care service plans, Health and Safety Code section 1363.1, certain real estate contracts, Code of Civil Procedure, section 1298, and contracts for work on small residential properties, Business and Professions Code section 7191. Aim for strict compliance with the statute. One person’s “technical defect” is another’s “failure of substantial compliance.”
Arbitration, Severability: Fourth District, Division 1 Two-Fer: Severability Of Unconscionable Provisions Results In Binding Arbitration; Lack of Severability In Another Case Means No Arbitration
Severability: General Swallow all-o feasting on a French Fricassee!! William Holland, publisher. May 1799. Library of Congress.
Success with Severability: Trabert v. Consumer Portfolio Services.
In Trabert v. Consumer Portfolio Services, Inc., Case No. D065556 (4/1 March 3, 2015) (Haller, Aaron, Irion) (published), the Court of Appeal ordered the trial court (1) to vacate its order denying a motion to compel arbitration, and (2) to enter a new order severing unconscionable finality-exceptions from an arbitration agreement and granting defendant Consumer Portfolio Services, Inc.’s motion to compel arbitration. Yes, there were unconscionable provisions concerning the finality of the arbitration award, but those provisions could be deleted “without affecting the core purpose and intent of the arbitration agreement.” Score one for severability.
Setback with Severability: Securitas Security Services USA, Inc.
In Securitas Security Services USA, Inc. v. Superior Court of San Diego County (Denise Edwards real party in interest), D066873 (4/1 Feb. 27, 2015) (O’Rourke, Nares, McIntyre) (published), the Court of Appeal issued a writ of mandate directing the superior court to vacate its order that the parties proceed to arbitrate Edward’s claims, including her class action and representative claims brought under PAGA, and that the trial court enter a new order denying Securitas’s amended motion to compel arbitration.
Here, the trial court correctly ruled that CLS Transportation Los Angeles v. Iskanian rendered a PAGA waiver within the dispute resolution agreement unenforceable. However, the trial court then erred by invalidating and severing an otherwise enforceable class action waiver provision, and sending the entire complaint, including class action and PAGA claims, to arbitration.
An express nonseverability clause torpedoed Securitas’ argument for severability. “Immediately after the class action waiver, this clause provides: ‘Notwithstanding any other clause contained in this Agreement, the preceding sentence [referring to the class action waiver] shall not be severable from this Agreement in any case in which the dispute to be arbitrated is brought as a class, collective or representative action.’” Thus, the entire dispute resolution agreement was unenforceable, because the PAGA waiver was unenforceable, and because the class action waiver could not be severed from the unenforceable PAGA waiver.
Securitas must have hoped that the nonseverability clause would allow it to snuff a class, collective, or representative claim in arbitration. Here, however, the nonseverability clause seems to have back-fired, because the PAGA waiver infected the arbitration provision, and the nonseverability clause tied the fate of the waiver of class, collective or representative claims to the unenforceable PAGA waiver.
Arbitration, Delegation, Gateway Issues: Parties’ Reference To AAA Rules Constitutes Clear And Unmistakable Evidence The Arbitrator Decides Whether Agreement Permits Arbitration of Class Or Representative Claims
Agreement to AAA’s Employment Rules Necessarily Includes Agreement To AAA Class Action Rules.
On February 28, 2015, I posted about an unpublished case holding that a reference to AAA Commercial Rule R-7 ambiguously delegates power to the arbitrator, because it gives the power to rule to the arbitrator, without saying that a trial judge lacks the same power. Eakins v. Corinthian Colleges, Inc, E058330 (4/2 Feb. 23, 2015). Now, a published case comes along, holding that an agreement to the AAA’s Employment Rules includes an agreement to the AAA Supplementary Rules for Class Arbitrations (Class Arbitration Rules). Here, the parties “agreement to resolve their arbitration under the AAA rules constitutes clear and unmistakable evidence of their intent that the arbitrator, not the court, interpret the arbitration agreement and decide whether it permits arbitration of class and/or representative claims.” Universal Protection Service, L.P. v. The Superior Court of San Diego County, Case No. D066919 (4/1 Feb. 27, 2015) (O’Rourke, Nares, McIntyre).
COMMENT: The key to the Universal Protection Service, L.P. opinion is the reference to the AAA Class Arbitration Rules. The rule in question provides in part: “Upon appointment, the arbitrator shall determine as a threshold matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class (the ‘Clause Construction Award’).”
Typically gateway issues of arbitrability are within the provenance of the court, where a clear delegation of those issues to the arbitrator is absent. If you want the court to decide issues concerning the arbitrability of class-wide claims, then you must proceed with great caution before simply incorporating AAA Rules, or else you may be in for a big surprise.