Arbitration, Waiver, Standard of Review: Awareness Of Right To Arbitrate, Actions Inconsistent With Arbitration, And Prejudice Add Up To Waiver Of Right To Arbitrate
Court Distinguishes Recent Cases Finding No Waiver Of Right To Arbitrate.
In Bower v. Inter-Con Security Systems, Inc., Case No. A135940 (1/3 Dec. 31, 2014) (McGuiness, Pollack, Siggins), the Court of Appeal held that substantial evidence supported the trial court’s finding that defendant waived its right to arbitrate individual claims with plaintiff in a putative class action wage lawsuit. Therefore the Court affirmed the trial court’s order denying the petition to compel.
Preliminarily, the Court makes an interesting observation about the substantial evidence standard of review. Waiver is usually a question of fact, and therefore the substantial evidence standard is typically appropriate. Here, even though the parties did not appear to contest the facts, the substantial evidence standard was still appropriate. “Independent review is appropriate only when the facts permit just one reasonable inference,” explained the Court, adding: “Here, the facts do not ineluctably lead to one conclusion on the issue of waiver.” Therefore, the Court applied the substantial evidence standard.
The Court found substantial evidence that defendant was aware of its right to arbitrate, because defendant acknowledged as much by pleading the right to arbitrate as an affirmative defense. Additionally, defendant acted inconsistently with its right to arbitrate only individual claims, by participating in class action discovery, by propounding discovery, and by participating in class action settlement discussions. As for the element of prejudice necessary to establish waiver, the Court explained:
“The crux of the prejudice suffered by Bower is that he suffered delay and incurred costs in litigating and attempting to settle class claims that Inter-Con led him to believe would be encompassed within the litigation. As a result of Inter-Con reversing course and choosing to pursue arbitration limited to Bower’s individual claims, Bower suffered prejudice in that much of the expense incurred and effort expended would have no value in arbitration.”
Along the way to concluding that defendant waived its right to arbitrate, the Court distinguished two recent cases. In Gloster v. Sonic Automotive, Inc.,
226 Cal.App.4th 438 (2014) [blawg post May 21, 2014] the claim of prejudice was based solely on legal expenses largely incurred as a result of plaintiff’s own discovery efforts, whereas in Bower, defendant propounded discovery. The Court also distinguished Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) [blawg post June 23, 2014], in which a finding of waiver was reversed, because in that case, defendant timely filed a petition to compel arbitration.
Happy New Year To All Our Readers !
The Old And The New. Puck. Library of Congress.
Section 664.6: Court Of Appeal Refuses To Enforce Settlement Because Email Failed Electronic Signature Test
Dot I’s and Cross T’s When Relying On An Electronic Signature!
In J.B.B. Investment Partners, Ltd. v. Fair, Case Nos. A140232, A141228 (1/2 Dec. 30, 2014) (Kline, Richman, Stewart), the Court of Appeal reversed a trial court’s enforcement of a settlement agreement under CCP section 664.6, because email and voicemail messages failed to satisfy the electronic signature requirements. And because the settlement agreement could not be enforced by plaintiff, plaintiff could not recover attorney’s fees. This case is must reading for attorneys and their clients conducting business by electronic transactions under the California Uniform Electronic Transactions Act (UETA).
The parties briefed whether the email complied with the the UETA provision: “If the law requires a signature, an electronic signature satisfies the law.” Civ. Code, section 1633.7(d). That was too simplistic for the Court of Appeal, which pointed out that the plaintiffs failed to demonstrate that the parties agreed to conduct transactions by electronic means or that defendant intended with his printed name at the end of his email to sign electronically plaintiff’s offer. See Civ. Code, sections 1633.2 and 1633.5(b). Under a separate common law contractual analysis, the Court also failed to find that the parties intended to form a contract, given that further settlement documents were not signed.
As we have blogged before, relying on important electronic transactions without dotting all the I’s and crossing all the t’s is risky business. See April 30, 2014 blog post.
Arbitration, Attorney’s Fees: Voluntary Dismissal Of Court Action Comes Too Late To Avoid Attorney’s Fee Exposure Once Evidence Has Already Been Presented In Dual-Track Arbitration
When Does Trial Commence In “Dual Track” Arbitration/Litigation?
The Danger Signal. Currier & Ives. 1884. Library of Congress.
Parties routinely avoid exposure to attorneys fees under Cal. Civ. Code section 1717 by voluntarily dismissing their action before “the actual commencement of trial”. The meaning of “the actual commencement of trial” presented a novel question where “dual track” arbitration/litigation occurred — the facts presented in Mesa Shopping Center-East, LLC v. O Hill, Case No. G049205 (4/3 Dec. 23, 2014) (Ikola, O’Leary, Aronson) (published).
Parties are permitted to follow a “two-forum approach to litigation (i.e., court for provisional remedies, arbitration for the merits) . . . but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without provisional relief.” And that’s exactly what occurred here, where two sets of real estate investors disputed spending and management issues. Plaintiffs filed a court action seeking – unsuccessfully – to obtain preliminary injunctive relief – and plaintiffs and defendants agreed to arbitrate the merits. After an unfavorable interim award analyzing the merits was issued by the Arbitrator, plaintiffs “voluntarily” dismissed their court action, hoping to avoid attorney’s fee exposure. The trial judge agreed the voluntary dismissal of the court action, prior to commencement of trial, meant attorney’s fees could not be awarded against plaintiffs in the court action (as contrasted to the arbitration, in which plaintiffs clearly lost).
Closely scrutinizing the meaning of “commencement of trial,” the Court of Appeal disagreed with the trial court, and reversed. Essentially, the Court of Appeal refused to view the court action and the arbitration as two entirely separate proceedings: “it is self-evident from the record that this action and the arbitration were interdependent, featuring the same parties fighting over the same causes of action.” The Court concluded, “The parties commenced arbitration on the merits . . . when they presented evidence and argument before the arbitrator. This qualified as the ‘commencement of trial’ referenced in section 581, subdivisions (b)(1) and (c), thereby cutting of the Mesa Investors’ unilateral right to dismiss this action without prejudice."
COMMENT: The dual forum scenario deserves a caution sign.
Proceed with caution, because if the litigation train is running out of steam, you cannot depend on a “voluntary” dismissal of the court action prior to a court trial to avoid exposure to attorney’s fees once a dual-track arbitration hearing has commenced. Trial may have actually commenced – in arbitration!
Mesa Shopping Center-East, LLC v. O Hill is also the subject of a December 28, 2014 post in Mike and Marc’s California Attorney’s Fees blog.
Mediation, Confidentiality: Court of Appeal Holds Mediation Privilege Does Not Protect Confidentiality Of Financial Disclosure Statements Mandated By Family Code
Court Refuses To Carve Out Judicial Exception To Mediation Privilege While Explaining Why Privilege Simply Didn’t Apply Here.
Few are the cases in which courts have pierced the mediation confidentiality privilege, because the courts have said the privilege is almost absolute, refusing to craft judicial exceptions to the statutory privilege, Evid. Code sections 1115 et seq. Thus, the law is relatively well-defined in this area. Gilda Lappe v. Superior Court (Murray Lappe Real Party In Interest), Case No. B255704 (2/3 Dec. 19, 2014) (Kitching, Klein, Edmon) offers a rare counter-example of a case in which the mediation privilege is not enforced.
In a divorce proceeding, Gilda Lappe relinquished for $10M her community property interest in shares owned by her husband Murray Lappe, a successful physician/businessman. Some five months after judgment was entered in the family law case, Dr. Lappe sold his interest for $75M pre-tax dollars. Ms. Lappe sought to reopen the judgment and obtain through discovery a financial disclosure statement her husband had produced during mediation. Dr. Lappe’s attorneys took the position that the disclosure statement was subject to the mediation privilege; indeed, a marital settlement provided the Declarations of Disclosure were subject to the privilege and were confidential.
The superior court judge assigned the discovery dispute to a referee who concluded the Declaration of Disclosure was not subject to mediation confidentiality because the document had “independent legal significance” and the “public policy” declared under the Family Code favoring disclosure to ensure fair and equal property divisions trumped mediation confidentiality. However, the superior court judge rejected the referee’s recommendation, instead concluding the public policy argument provided insufficient reason to carve out a judicial exception to mediation confidentiality.
The threshold question, said the Court of Appeal, is: “[D]o the mediation confidentiality statutes apply in the first instance to statutorily mandated disclosures that must be made regardless of whether the parties participate in mediation? We conclude the answer to this question is ‘no.’” (Fam. Code, section 2103 mandates the exchange of of preliminary and final disclosure statements, except under limited circumstances prescribed by statute (Fam. Code, sections 2105 and 2110)).
The Court hurried to explain that it was not agreeing with the referee’s conclusion that a declaration of disclosure was not subject to mediation confidentiality because of “public policy” and the Family Code favoring disclosure. Rather, the Court explained that it was simply recognizing “that the confidentiality statutes do not apply in the first instance, because these statutorily mandated declarations do not fall into any category delimited by Evidence Code section 1119.” In other words, mandated financial disclosures must be made whether or not mediation occurs, and making the disclosures in mediation will not immunize them from discovery.
Having concluded that the disclosures were not immunized by mediation confidentiality, the Court still needed to explain why the settlement agreement, by which the parties agreed that the documents were confidential and subject to section 1119 confidentiality, failed to be an effective contractual waiver of the mandatory Family Code disclosure requirement. Here, the Court relied on Civil Code, section 3513: “Any one may waive the advantage of a law
intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” By way of explanation, the Court simply said, “So it is here,” adding that waiver was only permitted under section Family Code, section 2105.
COMMENT: Saying that the Family Code statutory requirement is for the public benefit, rather than for private benefit, begs the question. Why is it for a public benefit that cannot be waived, rather than for a private benefit that could be waived? The fact that the Family Law Code expressly limits waiver supports the “public benefit” argument. However, I suspect that the same reasons waiver is limited under the Family Code may be the same public policy reasons the referee gave for “overriding” mediation confidentiality – namely, that the Family Code favors disclosure to ensure fair and equal property divisions. So even though the Court of Appeal expressly abjured reliance on “public policy”, perhaps public policy slipped in under the radar via reliance on Fam. Code, section 2105.
Arbitration, Public Policy: Fourth District, Division 3 Holds AT&T Mobility v. Concepcion Preemption Sweeps Away Broughton-Cruz Rule That Prohibited Arbitration Of UCL, FAL, And CLRA Injunctive Relief Claims Brought For The Public’s Benefit
But Iskanian’s Analysis Of PAGA Representative Action Waivers Remains Intact Under This Court’s Analysis.
The California Supreme Court developed the “Broughton-Cruz” rule, under which 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. Our local Court of Appeal in Santa Ana has now ruled: “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.” McGill v. Citibank, N.A., Case No. G049838 (4/3 Dec. 18, 2014) (Aronson, Rylaarsdam, Thompson) (published).
Going at the problem with a fine scalpel, the Court explains that the rule in Iskanian, which rejects a predispute waiver of representative PAGA action claims, is consistent with its holding in McGill v. Citibank, N.A. – and thus Iskanian remains intact, at least in the Fourth District, Division 3 (We note that some federal district courts have disagreed with Iskanian).
The Court explains the PAGA action “is fundamentally different than the injunctive relief action under the other statutes [UCL, FAL, or CLRA].” In the PAGA action, the plaintiff truly represents the interests of the state. The PAGA action is more like a qui tam action, with 75% of the civil penalties going to the Labor and Workforce Development Agency, and the remainder paid to the aggrieved employees. Because the role of the state is primary, with notice to the state being a condition for filing a PAGA action, the PAGA plaintiff acts as a “proxy or agent of the state’s labor law enforcement agencies.” The state is not a party to the arbitration agreement. “Iskanian concludes a PAGA action poses no obstacle to FAA purposes because the FAA only applies to private agreements between parties to arbitrate their dispute.”
For previous posts on the Broughton-Cruz rule, is our posts of March 7, 2012, December 16, 2012, April 12, 2013. We posted on the California Supreme Court’s ruling in Iskanian on June 23, 2014.