Mediation/Settlement Agreement/Confidentiality: Settlement Agreement Enforced Under CCP 664.6 Against George R. Hearst’s Widow
Famous Family, Simple Legal Principles.
Though the opinion opens with a fanfare announcing, “George R. Hearst, Jr. . . scion of the wealthy Hearst family,” the facts and legal points are actually pretty simple.
George and Susan Hearst married in 1998, and entered into a marital property agreement (MPA) in 2002, whereby Susan waived her community property interests in George’s assets in exchange for $10 million in cash and a life estate in certain real property. Susan accepted the $10M in cash without attempting to invalidate the MPA. After George died, however, Susan filed claims against his estate and trust seeking her share of community property. Following mediation, Susan entered into a written settlement agreement, providing an additional $550K, with $140K allocated to her life estate in a residential property and $410K allocated to her community property claims.
Susan signed the settlement agreement, but refused to accept respondents’ tendered performance, triggering the filing of a successful motion for entry of judgment under Code of Civ. Proc., section 664.6 in the probate actions. Susan appealed. Estate of Hearst, Case Nos. B251912 and B251964 (2/6 Dec. 16, 2014) (Perren, Gilbert, Yegan) (unpublished).
The settlement agreement, stating it was binding and could be enforced by motion under section 664.6, was admissible in evidence under Evid. Code, section 1123. Susan may not have read the entire agreement – but she signed it, and therefore was deemed to assent to its terms. Marin Storage & Trucking, Inc, v. Benco Contracting & Engineering, Inc., 89 Cal.App.4th 1042, 1049 (2001). And: “Susan was represented by three attorneys from two different law firms.” Apparently Susan decided to forego legal advice on her MPA claims – a fact that did not render the settlement agreement unenforceable because section 664.6 only requires a written agreement signed by the parties, not legal advice. Given her legal representation, her entitlement to $10,550,000, and lack of evidence about her late husband’s personal (as opposed to familial) wealth, Susan was unable to show procedural and substantive unconscionability.
Is anyone surprised the Court of Appeal affirmed the judgments?
Arbitration/Unconscionability/Employment: First District, Division 3, Holds Specific Arbitration Provision Between Law Firm And Former Attorney Is Unconscionable
Arbitration Provision Failed Armendariz Tests.
Nelson v. Tucker Ellis, LLP is somewhat atypical, because it was the former attorney, rather than his former law firm, who “seized the bull by the horns”, initiating suit, and contending that the law firm released attorney Nelson’s privileged work product to other counsel, thereby interfering with his employment and relationships with his clients. Defendant Tucker Ellis, LLP appealed from the superior court’s order denying the law firm’s motion to compel arbitration. Nelson v. Tucker Ellis, LLP, Case No. A141121 (1/3 Dec. 15, 2014) (Jenkins, McGuiness, Siggins) (unpublished).
The Court of Appeal had little difficulty finding that the first prong of unconscionability, procedural unconscionability, was satisfied by the take-it-or-leave-it nature of the attorney-employee contract.
Nor did the Court have difficulty finding the second prong of unconscionability, substantive unconscionability, based on the failure of the arbitration provision to satisfy two of five requirements established by Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000). First, the Conflict Prevention and Resolution rules impermissibly allowed for shifting costs and fees to Nelson, potentially putting him in a situation worse than he would have been under a litigation scenario, and creating uncertainty and risk. Second, the arbitrator was impermissibly precluded from granting certain monetary damages, thereby limiting the availability of relief available in court proceedings. Thus, the order below was affirmed.
One aspect of the case that caught our attention was that Nelson was a “non-capital partner”, but the trial court treated him as an employee. This was probably a pragmatic recognition that non-capital employees and employees may be factually indistinguishable. Treating him as an employee allowed for ready application of the Armendariz standards.
BLOG BONUS: Whatever the merits of the law firm’s argument, we note that the website of Tucker Ellis exhibits a sense of humor, describing its attorneys as “outstanding in our field,” and showing them standing in a corn field. Along the lines of a famous Twilight Zone episode, Mr. Nelson may have wished his former employers “into the cornfield.”
Arbitration/Scope: Coverage And Policy Interpretation Disputes Are Beyond Scope Of Agreement To Arbitrate Appraisal Dispute
Court Of Appeal Affirms Order Denying Policy Holder’s Petition To Compel Arbitration Of Appraisal Dispute.
Despite countervailing considerations that favor arbitration, California courts continue to deny petitions to compel arbitration for the simplest of reasons: the dispute is beyond the scope of the arbitration agreement. Such was the case in Moghtader v. Travelers Commercial Insurance Company, B254173 (2/8 Dec. 4, 2014) (Rubin, Flier, Grimes) (unpublished).
After Dr. Moghtader’s two-level exterior deck on his Hollywood Hills home was damaged by fire, he and his attorney entered into a to-and-fro with his insurance company, Travelers, to get the repair costs paid. Evidently, the insurance company refused to cover costs related to expensive steel support beams allegedly required by a change in city building codes.
Fire insurance policies in California include a provision requiring the parties to participate in an appraisal when they cannot agree on the amount of loss of covered items. Ins. Code, sections 2070, 2071. The appraisal provision is an agreement for contractual arbitration. At loggerheads, Dr. Moghtader petitioned to arbitrate. (Note on usage: The first known use of “loggerheads” in print is in Francis Kirkman’s, The English Rogue, 1680: "They frequently quarrell’d about their Sicilian wenches, and indeed… they seem… to be worth the going to Logger-heads for.")
The trial court denied his petition, and the Court of Appeal affirmed, explaining: “In essence Moghtader wants to convert an agreement to appraise valuation disputes into an agreement to also resolve policy interpretation disputes by having the trial court resolve the latter when ruling on a petition to compel arbitration.” Put another way, the coverage dispute was beyond the scope of the arbitration agreement.
The ultimate outcome remains to be seen, as Dr. Moghtader has sued his insurance company.
Sixth District Affirms Trial Court’s Order Denying Cisco’s Motion To Compel Arbitration, Based On Independent Review That Backflip’s Claims Are Not Covered By Arbitration Clause
Strong Policy In Favor Of Arbitration Yields To Court’s Independent Review Of What Parties Intended By Their Contractual Language.
In Backflip Software, Inc. v. Cisco Systems, Inc., No. H040382 (6th Dist. Dec. 3, 2014) (Bamattre-Manoukian, Elia, Mihara) (unpublished), the Court concludes, based on its independent review of contractual language, the trial court did not err in denying Cisco’s petition to compel arbitration and stay proceedings.
Backflip and Cisco entered into a software license and escrow agreement, whereby Backflip’s software was to be released to Cisco upon the occurrence of certain events, one of which was Backflip’s discontinuing its software maintenance/support. If the release event occurred, Cisco could send a notice to escrow, Backflip could send a counter-notice if it disagreed, and the parties could arbitrate the dispute.
After giving notice Backflip would stop responding to maintenance requests from Cisco, a former Backflip CEO “authorized” release of the software from escrow to Cisco. Escrow closed, and the software was released to Cisco. Backflip, however, contended Cisco should have known action by Backflip’s former CEO was not authorized, resulting in Cisco’s misappropriation of the software.
The Court of Appeal agreed with the trial court and with Backflip that the scope of the parties’ arbitration agreement, as set forth in the license and escrow agreements, only “encompassed a dispute regarding the release of Backflip’s escrow materials while those materials remained in the possession of the escrow agent.” The parties contemplated arbitration would occur before the software was released from escrow. Thus, the arbitration clause became irrelevant here, once the software was released.
The Court distinguishes cases in which the arbitration requirement continues, as cases where the arbitration clause was broader than here or explicitly survives termination of an agreement.
Arbitration/Fees/Vacatur: Arbitrator Who Applies Statutory Definition of “Prevailing Party” To Award Fees Rather Than Contractual Definition Does Not Exceed His Powers
Court Does Not Decide Whether Contractual Provision Limiting Arbitrator’s Power To Apply Definition Of “Prevailing Party” Other Than Found In Agreement Would Be Unenforceable As Violative Of Public Policy.
Does an arbitrator who applies the statutory definition of “prevailing party” found in Civil Code Section 1717(b)(1), rather than than the definition the parties contractually agreed to, violate his powers? No – at least not when the issue of attorney’s fees is submitted to the arbitrator, and there is no express limitation on the powers of the arbitrator. Safari Associates v. Superior Court (Alan Tarlov, real party interest), Case No. D065684 (4/1 Dec. 2, 2014) (Aaron, Huffman, Irion).
Under section 1717, the prevailing party is the one “who recovered a greater relief in the action on the contract.” However, in the contractual dispute between Safari and Tarlov, the arbitration clause provided that “the term ‘prevailing party’ means the party . . . that obtains substantially the relief sought in the arbitration.” The different definitions of “prevailing party” proved to be important here, because Safari argued that Tarlov was required to pay, at a minimum, $768,228 to reimburse Safari for Tarlov’s personal expenses that Safari paid, but the arbitrator only awarded $152,611.48 in damages to Safari, plus $211,620 in attorney’s fees and $37,224.05 in costs.
Thus, the arbitration award set the stage for Safari to move to confirm the award in the trial court, and for Tarlov to argue that the award needed to be modified or corrected as to fees, because he had “substantially” received the relief he sought in the arbitration by beating back much of Safari’s claim. The trial judge sided with Tarlov, agreeing that the arbitrator had exceeded his powers by failing to apply the contractual definition of “prevailing party.”
The Court of Appeal, however, disagreed, and granted Safari’s petition for writ of mandate. The parties had submitted the issue of attorney’s fees and briefed the issue of “prevailing party” to the arbitrator. Quoting Moore v. First Bank of San Luis Obispo, 22 Cal.4th 782, 787 (2000), but changing the names of the parties, the Court of Appeal explained: “Having submitted the fees issue to arbitration, [Tarlov] cannot maintain the arbitrator [] exceeded [its] powers, within the meaning of [Code of Civil Procedure] section 1286.6, subdivision (b), by deciding it, even if [the arbitrator] decided it incorrectly.”
The Court further observed that it was aware of “no authority that would support the conclusion that an arbitrator acts in excess of his powers in refusing to apply a provision in the parties’ agreement that the arbitrator determines is avoid as violative of public policy.”
COMMENT: Could one draft an agreement that would limit the arbitrator’s power to apply a definition of prevailing party other than that found in the arbitration agreement? One could define “prevailing party”, as did the parties in Safari, and then add that the arbitrator shall apply that definition, and that modifying, changing, or excusing that provision is outside the powers of the arbitrator. In Safari, however, the parties merely defined “prevailing party”, but did not expressly state that application of a different definition would exceed the powers of the arbitrator. Similarly, the Safari panel distinguished Gueyffier v. Ann Summers, Ltd., 43 Cal.4th 1179 (2008) on the narrow ground that the agreement in Gueyffier “explicitly precluded the arbitrator from modifying or changing” a provision.
If the parties in Safari had intended to “attempt to limit the arbitrator’s power to apply a definition of prevailing party other than the definition contained in the Agreement”, would language evincing such an intent have been enforceable? The Safari Court declines to decide that question. (Safari, footnote 5).
NOTE: This post also appears on the California Attorney’s Fees blog today.
California Supreme Court Holds That Arbitrator May Rule On Pitchess Discovery Motion For Officer Personnel Records
Justice Werdegar Concurs and Dissents.
The California Supreme Court held today, “that when hearing an administrative appeal from discipline imposed on a correctional officer, an arbitrator may rule upon a discovery motion for officer personnel records, commonly referred to as a Pitchess motion.” Riverside County Sheriff’s Department v. Stiglitz, S206350 (Dec. 1, 2014) (Cordigan writing for the majority).
The context in which the issue arose was a disciplinary proceeding involving a Riverside Sheriff’s Deputy Kristy Drinkwater, fired for allegedly falsifying her payroll forms. Deputy Drinkwater urged a disparate treatment defense, seeking discovery of other personnel investigations. The arbitrator denied the Pitchess motion without prejudice, but after further briefing did order production of 11 officers’ personnel records for in camera review.
The Sheriff’s Department sought a writ of administrative mandamus, successfully arguing to the superior court that only judicial officers could grant Pitchess motions. However, Drinkwater and intervener Sheriffs’ Association sought review, and the Court of Appeal reversed. The Supreme Court has now affirmed the Court of Appeal, thereby allowing the arbitrator to do an in camera review and rule on the Pitchess motion.
Justice Werdegar agreed with the majority that Pitchess discovery can be sought in administrative proceedings. She disagreed, however, that every nonjudicial presiding officer may review privileged and confidential materials in the context of a Pitchess motion, arguing only judicial officers should be permitted in camera review of such materials.