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Redlich v. Reliance Management Group, Inc., Case No. A140313 (1/2 March 11, 2015) (Banke, Margulies, Dondero) (unpublished), the Court of Appeal agreed with the trial court that arbitration provisions between plaintiff homeowner, and defendants design firm and construction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.
Arbitration, Delegation, Unconscionability: AAA Rule Delegating To Arbitrator Power To Rule On Jurisdiction And Existence, Scope Or Validity Of Arbitration Agreement Is Held To Be Ambiguous
AAA Delegation Rule Did Not Preclude Trial Court From Ruling On Unconscionability, But Trial Court Is Reversed, Because The Arbitration Agreement Is Not Unconscionable.
After her criminal law professor allegedly said, “"Many women in the field look like dykes, just like you, Anna," Anna Eakins sued Corinthian Colleges, its college president, and her professor.
Corinthian Colleges moved to compel arbitration, and the trial court denied its motion, ruling that the arbitration provision was unconscionable.
Based on the wording of an AAA Rule, Corinthian Colleges argued on appeal that the trial court erred by reaching the issue of unconscionability. The AAA Rule in question, Commercial Rule R-7, provides: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration.” The Court of Appeal, however, concluded that the Rule is at best “ambiguous” 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) (Ramirez, Hollenhorst, Miller) (unpublished).
However, the Court of Appeal reversed the trial court’s order denying the petition to compel arbitration, finding that the arbitration clause was not substantively unconscionable, and to the extent that it did have defects, it was saved by a severability clause.
DRAFTING TIPS: (1) A delegation clause that provides that the power to rule on the arbitrator’s jurisdiction, and the existence, scope or validity of the arbitration, is the sole and exclusive power of the arbitrator would not contain the ambiguity identified by the Court of Appeal. (2) Severability clauses have saved many an arbitration agreement from being consigned to the scrap heap of unconscionability.
Arbitration: 1286.2 Vacatur, 1286.6 Correction By Court: Party Contending Trial Court Erred By Confirming Award Loses By Relying On Statutory Authority For Correcting An Award
Contention That There Was Error In Confirming The Award Was Not Before The Court.
To quote the late Steve “The Crocodile Hunter” Irwin, “Crikey!”.
On appeal, defendant Porter argued that the arbitrator exceeded his authority, as a result of which confirmation of the arbitration award was error, citing Cal. Code Civ. Proc., section 1286.2(a)(4). However, in the trial court, his sole theory was that the award should be corrected for miscalculation of figures, section 1286.6(a). Thus, Porter’s contention that the arbitrator had exceeded his powers was not properly before the Court. Keith v. Porter, B256524 (2/3 Feb. 20, 2015) (Edmon, Aldrich, Lavin) (unpublished).
COMMENT: The statutory scheme is as follows: section 1286.2 provides the bases for the trial court to vacate the arbitrator’s award, one of which is: “The arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted.” Section 1286.6 (a) provides that unless the court vacates the award pursuant to Section 1286.2, the court shall correct the award and confirm it as corrected if the court determines that there was an evident miscalculation of figures. Porter relied on correction rather than vacation of the award. As a result, vacation of the award was not properly teed up for the Court of Appeal. Covering its bases, the Court of Appeal added that it did not believe there was an evident miscalculation of figures.
Arbitration, Waiver, Scope: Court Of Appeal Affirms Orders Denying Motions To Compel Arbitration Of Right To Copy And Inspect
Arbitration Clause In Operating Agreement Did Not Cover Statutory Request To Copy And Inspect
In Sachs v. GP/T Holdings, LLC et al., B254289 (2/5 Feb. 20, 2015) (Turner, Krieger, Goodman) (unpublished) plaintiff, alleging rights to copy and inspect documents under the Corporations Code, petitioned to compel defendants to produce documents for inspection and copying. Nine months after litigation commenced, and after substantial law and motion proceedings had occurred, defendants moved to compel arbitration. Defendants’ excuse for the delay was that defense counsel had been unaware of the arbitration clause. Concluding that the delay was substantial and prejudicial, the Court of Appeal added that defense counsel’s (un)awareness of the arbitration clause is irrelevant. Thus, the orders denying motions to compel arbitration were affirmed.
Also, the demand to copy and inspect documents was statutory. The Court concluded that this demand to inspect and copy was not an operating agreement dispute covered by the arbitration clause, providing a second reason for affirmance.