Arbitration, Appealability, Jurisdiction: Two-Fer: Courts Of Appeal Find Orders Unappealable In Disputes Raising Arbitration Issues
Wells Fargo Bank, N.A. v. The Best Service Co., Inc., Case No. B253861 (2/5 Dec. 17, 2014) (Turner, Mosk, Kriegler) (published).
In Wells Fargo Bank, N.A. v. The Best Service Co., Inc., the Court of Appeal dismissed defendant’s appeal of an order denying its motion to stay the action pending arbitration, because the stay motion was not accompanied by any motion or petition to compel arbitration or a pending arbitration. The order denying the bare stay motion was not an appealable order.
Judge v. Nijjar Realty, Inc., Case No. B248533 (2/7 Dec. 17, 2014) (Segal, Perluss, Zelon) (published).
Judge sued her employer in one lawsuit for employment-related and Labor Code causes of action (“individual/PAGA action”), and in another related lawsuit for similar causes of action on behalf of herself an other employees (“class action”).
The trial court granted defendants’ petitions to compel arbitration of plaintiff’s individual claims only, and stayed the two cases. The arbitrator then issued a “clause construction award”, concluding that the arbitration agreement permitted arbitration of class and representative claims. She labeled the award as “a partial final award on the construction of the arbitration clause.” Next, the court ruled that the arbitrator exceeded her powers by deciding the issue of whether the parties agreed to arbitrate class or representative claims, because the issue had been submitted to the court earlier for determination. (Confusion had arisen because in ruling earlier, the trial court seemed to be saying that these issues could be brought to the attention of the arbitrator).
The trial court’s order vacating the “clause construction award” was not a final arbitration award appealable under section 1294(c). The appeal from the order vacating the clause construction award in the individual/PAGA action was therefore dismissed.
COMMENT: Why wasn’t the trial court’s order vacating the “clause construction award” appealable under the “death knell doctrine”? The “death knell doctrine only applies ‘when it is unlikely the case will proceed as an individual action.’” Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1098 (2002). In Judge, however, the Court of Appeal reasoned that the death knell doctrine did not apply, because “[u]nlike an order dismissing class claims . . . the clause construction award allows class claims to proceed.” We surmise that this is a case in which there was no class action waiver in the employee’s contract.
Arbitration, Employment, Unconscionability Severability: Substantively Unconscionable Arbitration Provision Is Saved By Severability Clause
Court of Appeal Only Found Fee-Shifting Provision To Be Substantively Unconscionable.
The trial judge, the Hon. Mary Ann Murphy, found the employer-employee arbitration Agreements to be unconscionable and unenforceable because JAMS rules were not referenced, a fee-shifting provision permitted an award of fees to the prevailing defendant on employee’s FEHA claims without factual findings required under FEHA, and the discovery provisions in the JAMS arbitration rules provided inadequate discovery. The court declined to reform the agreements, finding they were permeated by unconscionability. Employer appealed. Sandoval v. Medway Plastics Corporation, B252412 (2/4 Dec. 17, 2014) (Manella, Willhite, Collins) (unpublished).
Reversed. The only provision the Court of Appeal found to be substantively unconscionable was the fee-shifting provision. “After severing that provision,” wrote Justice Manella, “we conclude the Agreements are enforceable.”
COMMENTS: Regarding procedural unconscionability, which the Court of Appeal found to be “more than minimal” due to “the high disparity in bargaining power”, the employer did a smart thing: both respondents had signed a Spanish version of the Agreement, and both respondents were Spanish speaking. If the Spanish speaking employees had only been presented with English language arbitration clauses, the procedural unconscionability would have been higher, perhaps tipping the balance. Drip, drip, drip. Just how much unconscionability must there be to permeate an agreement?
The severability provision, which saved the Agreements from substantively unconscionable fee-shifting, provided: “If any court of competent jurisdiction finds any part of this Arbitration Agreement is illegal, invalid or unenforceable, such a finding will not affect the legality, validity or enforceability of the remaining parts of the Agreement, and the illegal, invalid or unenforceable part will be stricken from the agreement.” A very useful provision here!
Arbitration/CCP 1281.2/Enforceability: Opponent’s Filing Of Lawsuit Constitutes Refusal To Arbitrate
Fourth District, Division 3 Publishes To Distinguish Mansouri v. Superior Court.
California Code of Civil Procedure, section 1281.2 requires that a party seeking to compel arbitration allege, “the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy.” The question in Hyundai Amco America, Inc. v. S3H, Inc., Case No. G049204 (4/3 Dec. 17, 2014) (Fybel, O’Leary, Ikola) (published) was whether contractor S3H was required to formally demand arbitration from Hyundai Amco once Hyundai Amco filed a complaint. The answer: No. Filing the complaint “invoked the protections and procedures of the court system, and thus was an effective denial of arbitration.”
The Court published to distinguish Mansouri v. Superior Court, 181 Cal.App.4th 633 (2010). In Mansouri, the arbitration demand did not match the terms of the parties’ arbitration agreement, whereas Hyundai Amco’s lawsuit “clearly related to the parties’ performance under the agreement, thus suffic[ing] to show Hyundai Amco’s refusal to arbitrate the controversy.”
LITIGATION TIP: In run-of-the-mill cases, formally request an opponent to arbitrate before moving to compel arbitration.
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.