Tips For Successful Enforcement Of Arbitration Clauses In Fee Retainers
California Attorney’s Fees has a short post dated February 18, 2015, with tips for successful enforcement of arbitration clauses in fee retainers found in a recent article in the Daily Report, authored by Randy Evans and Shari Klevens of McKenna Long.
Class, Collective Bargaining, CCP 1281.2: Court Of Appeal Reverses Order Staying Individual Arbitrations Pending Trial Of “Non-Arbitrable Claims”–Because All Claims Are Arbitrable
“Judicial Economy Was Not . . A Proper Basis For Delaying Arbitration.”
What’s a judge to do when confronted with the possibility of compelling thousands of individual grievances to arbitration, versus staying the arbitration of arbitral issues, while one case is tried? Here, the trial judge expediently stayed the individual arbitrations, and got reversed by the Court of Appeal because the part of CCP section 1281.2 upon which the trial judge relied was inapplicable. Association for Los Angeles Deputy Sheriffs v. County of Los Angeles, B254982 (2/5 Feb. 17, 2015) (Mosk, Kriegler, Goodman) (published).
The scenario was that the County of Los Angeles Sheriff’s Department sought to compel individual arbitrations of numerous grievances for wage issues by union employees. The trial court refused to compel the arbitrations, ruling that section 1281.2(c) gave it discretion to stay the arbitration of arbitral issues while it resolved issues between the parties that were not subject to arbitration.
Section 1281.2(c) gives the trial court the discretion to delay its order to arbitrate arbitrable claims if it first determines that adjudication of the nonarbitrable claims in court might make arbitration unnecessary. That’s the section the trial court relied upon to stay arbitration of thousands of individual claims.
The problem here is that all the Unions’ grievances, which the County sought to arbitrate, were the same as the claims raised in a cross-complaint brought by the Unions. Collective bargaining agreements or memoranda of understanding required arbitration of individual claims, without provision for class-wide arbitration. Because no non-arbitrable claims had been raised that could be tried first, i.e., all the claims were the same and arbitrable – there was no basis for staying the individual arbitrations. As for judicial economy, “California courts have no inherent authority to deny arbitration simply because it would be more efficient to litigate the claims in court.” Acquire II, Ltd. v. Colton Real Estate Group, 213 Cal.App.4th 959, 980 (2013).
Arbitration, Record, Waiver, Class Actions: Court Of Appeal Affirms Order Denying FATCO’s Motion To Compel Individual Arbitration
State Of The Record And Substantial Evidence Of Waiver Result In Affirmance.
Defendants appealed the trial court’s order denying First American Title Insurance Company and First American Title Company’s motion to compel individual arbitration of plaintiffs’ claims. Kaufman v. First American Title Insurance Company, No. B248689 (2/5 Feb. 2, 2010) (Turner, Kriegler, Goodman) (unpublished).
The Court of Appeal reached three conclusions resulting in affirmance of the trial court’s orders denying arbitration: (1) defendants “failed to fairly summarize all of the material evidence”; (2) defendants “failed to provide a proper record”; and (3) substantial evidence supported trial court’s finding defendants waived the right to compel individual arbitration.
Regarding the issue of waiver, the intensity of the litigation, evidenced by millions of dollars in attorney’s fees, considerable costs, many documents, and discovery that included the appointment of discovery referees, provided the “substantial evidence” of waiver.
The most interesting argument made by defendants/appellants was that before AT&T Mobility LLC v. Concepcion was decided by SCOTUS in 2010, a motion to compel arbitration would have been futile, because the unconscionability analysis in Discover Bank v. Superior Court applied to class action claims in California, making the arbitration agreement unenforceable before Concepcion.
However, the Court of Appeal rejected the futility argument because there was substantial evidence that the Discover Bank rule, had it been applied, would not have prevented arbitration, because Plaintiffs could not have satisfied each of the elements Discover Bank required to torpedo a motion to compel arbitration. Besides, even if the Discover Bank rule had applied, defendants continued to litigate after the cert petition was granted by SCOTUS in Concepcion
NOTE: Mayer Brown, the law firm that represented appellants in this case, is the same law firm that represented AT&T Mobility in the landmark Concepcion case.
Arbitration, Nonsignatories, Employment: In A Case Of First Impression, Court Of Appeal Holds That Successor Company Can Enforce Arbitration Agreement
By Suing DirectTV For Unpaid Wages, Employee Acknowledged Existence Of An Employment Relationship With Entity That Survived Merger.
May a nonsignatory defendant enforce an arbitration agreement between a signatory plaintiff and a corporation that was acquired by the nonsignatory defendant, which assumed all rights and obligations of the acquired corporation? “We have found no California cases on this point,” says the Court of Appeal, which then answers the question presented with a YES. Marenco v. DirectTV LLC, No. B238421 (2/4 Feb. 5, 2015) (Epstein, Willhite, Manella).
COMMENT: The Court of Appeal said that whether or not the corporation that originally signed the agreement had ceased to exist did not matter to the outcome. The employee’s continued employment “provided implied consent to maintaining the existing terms of employment,” explained the Court, also invoking “the established principle that ‘[a] voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting.’”
If you are interested in reading a strong arbitration provision in an employment agreement, check out footnote 1 of the opinion.
Reading: Thirteen Days In September–Carter, Begin And Sadat At Camp David
The Pros And Cons Of Creative Ambiguity.
Lawrence Wright has written a fascinating book about the thirteen days of intense negotiations at Camp David in 1979 leading to a peace agreement between Egypt and Israel. Earlier, Wright earned a Pulitzer Prize for his book The Looming Tower about events leading up to 9/11.
Thirteen Days in September can be read as a background briefing about the political, historical, and religious obstacles to peace in the Mideast, as a collection of vignettes of the leaders and their entourages, as a meditation on war and peace, and as a detailed account of the procedural and psychological dynamics of immensely complicated negotiations.
The negotiations are an example of opposite sides dealing with seemingly intractable problems and “getting to yes”. In fact, President Carter and Secretary of State Cyrus Vance borrowed a concept from Harvard Law’s Roger Fisher, co-author of Getting to YES, by taking control of the negotiating document, and using it to narrow issues. The process did not start out that way, as Carter naively thought that bringing together Begin and Sadat would lead to an exchange of goodwill, and a mutual recognition of the shared interest in peace, but in fact, quite the opposite occurred, and it became necessary to separate Sadat and Begin.
Carter developed a rapport with Sadat, but not with Begin, whom Carter found to be legalistic and obstructionist. For Begin, the security of Israel was an existential problem, and he balked at exchanging the security buffer of the Sinai for the promise of peace.
On the brink of humiliating failure, Carter changed his role as facilitator and became more directive. The negotiation process evolved painfully, and at times dramatically, while the US draft progressed through 23 revisions. At several points, one side or the other threatened to walk out, and Carter played his trump card: you will destroy your relationship with the US, and you will be blamed for the failure of the peace talks.
Sadat and Begin each achieved important goals: a formal peace agreement between Egypt and Israel, and a continuing relationship for Egypt and Israel with the United States. Egypt regained control of the Sinai Desert. Since 1979, the peace Carter brokered between Israel and Egypt has lasted – between Israel and Egypt.
Carter hoped to successfully link the agreement between Israel and Egypt with an agreement to address UN Resolution 242 and the rights of the Palestinian people in Gaza and the West Bank. However, the Palestinians were not “present at the table”, and their issues were of secondary concern to Begin and Sadat. The agreement between Egypt and Israel was achieved by drafting “creative ambiguities” that imprecisely addressed the rights of Palestinians, without solving profound problems that were simply “papered over.” Thirty-five years later, the agreement between Israel and Egypt is still in place, and the issues presented by UN Resolution 242, Gaza, and the West Bank remain as open sores.
Arbitration, Enforceability: Arbitration Agreement Created Unilaterally And Applied Retroactively To Pending Claim Is Illusory
Sometimes Unilateral Changes To Agreement Are Protected By Covenant of Good Faith And Fair Dealing – But Not Here.
I have posted about employment cases in which the covenant of good faith and fair dealing allowed an employer to unilaterally change an arbitration provision without the contract being illusory, because the covenant reins in the ability of the employer to make unreasonable changes. However, the lesson in Cobb v. Ironwood Country Club, G050446 (4/3 Jan. 28, 2015) (Rylaarsdam, O’Leary, Bedsworth) (published) is that the covenant won’t save a unilateral change that creates an arbitration provision that applies retroactively to accrued or known claims.
Plaintiffs, two present members and two former members of defendant, a country club, sued the country club in August 2012, alleging the country club reneged on a plan to repay members who loaned money to the club and then sold their membership interest before the club repaid their loan. In December, 2012, the club adopted a bylaw mandating arbitration of claims against it, and in January, the club filed a motion to compel arbitration of plaintiffs’ claims.
The Court of Appeal concluded that there was no authority allowing for enforcement of a unilaterally imposed retroactive arbitration agreement on a party who has not expressly consented to that retroactive application, once the plaintiff has already filed a lawsuit. A further problem with the bylaw was that it also mandated waiver of “all claims, rights and demands for punitive and consequential damages.”
The order denying Ironwood’s motion to compel arbitration was affirmed.
COMMENT: The discretionary power to unilaterally change a contract may make a contract illusory. The constraints imposed by the covenant of good faith and fair dealing can save the contract from being illusory, but the discretionary power must be exercised in good faith.