Waiver/Agents/FINRA: 4th District, Division 3 Affirms Denial Of Petition To Compel Arbitration In One Case, And Reverses Denial Of Motion To Compel Arbitration In Another
Waiver Of Arbitration Results In Affirmance Of Denial Of Petition To Arbitrate.
The Court of Appeal affirmed denial of a petition to compel arbitration, finding substantial evidence to support appellant’s waiver of a right to arbitrate its dispute. LPT Properties, LLC v. Wystein Opportunity Fund, LLC et al., G048803 (4/3 Oct. 21, 2014) (Fybel, O’Leary, Rylaarsdam) (unpublished). Nearly a year had elapsed between the date the buyer sued the seller, alleging undisclosed defects in real property, and the date seller petitioned to compel arbitration. During that year, the seller had answered a cross-complaint without raising arbitration as a defense, demurred without mentioning arbitration, represented they needed the trial to be continued because of case complexity, and conducted discovery to gain information that could not be obtained during arbitration.
Denial Of Motion To Compel Arbitration Is Reversed, Because Agent Of Defunct Securities Brokerage Firm Is Entitled To Invoke Arbitration Clause, Even If Defunct Firm Could Not.
A securities brokerage firm member governed by the Financial Industry Regulatory Authority (FINRA) is not entitled to invoke a FINRA arbitration clause once the firm becomes defunct. FINRA Rule 12202. However, Ronay Family Limited Partnership v. Tweed, 216 Cal.App.4th 830 (2013) (Ronay), the subject of my May 28, 2013 blog post, does allow the agent or third party beneficiary of a defunct member to take advantage of the arbitration provision.
In Susoeff v. Michie, G048578 (4/3 Oct. 23, 2014) (O’Leary, Moore, Thompson) (unpublished), the trial court denied the motion to compel arbitration, brought by Michie, an agent of the defunct securities brokerage firm Welton Street Investments, LLC. Ronay required reversal. As an agent of Welton Street, Michie could successfully compel arbitration under the arbitration clause between the defunct firm and plaintiffs/respondents.
Mediation/Confidentiality: Potential Error Admitting Evidence Subject To Mediation Confidentiality Was Harmless
Also, Settlement Documents May Be Admitted For Purposes Other Than Proving Liability.
While documents subject to the mediation privilege may be inadmissible as evidence, an error in admitting the documents into evidence will not matter to the Court of Appeal, if admission of the evidence resulted in harmless error. That was the case in Lofton v. Wells Fargo Home Mortgage, Case No. A136626 (1/3 Oct. 22, 2014) (Siggins, McGuiness, Jenkins) (certified for publication).
Initiative Legal Group, APC (ILG) objected to a TRO freezing funds from a class action settlement while the trial court sorted out problems with the settlement. One of ILG’s contentions was that the trial court erred by relying on inadmissible evidence subject to mediation confidentiality. The Court of Appeal, however, brushed off this contention on the ground that “any potential error was harmless in light of the substantial admissible evidence before the court supporting its issuance of the TRO.” The admissible evidence included attorney letters to clients, an attorney declaration, and the record of settlement approval proceedings in the class action.
Furthermore, attorney letters related to settlement were not being introduced to establish the attorney’s liability for any loss, “but rather to establish the risk of imminent harm that would justify issuance of the TRO.” The Court reminds us that Evid. Code section 1152 is not an absolute bar to introducing settlement documents, because such documents may be admissible for purposes other than proving liability.
The case is a wild one involving a bungled class action settlement and the disbursement of settlement funds to clients and attorneys. It makes for interesting reading, and is the subject of a post today on California Attorney’s Fees.
Arbitration/Vacatur/Public Policy: Arbitrator Did Not Exceed Powers By Not Providing For Greater Inspection Of Documents
Arbitrator Did Not Exceed Jurisdiction Because Awards Ruling On Access To Records Did Not Violate Public Policy.
Sometimes the Court’s weariness with a dispute drips onto the page as in this description of an appeal from judgments entered after the trial court denied petitions “to vacate the most recent arbitration awards in a decade-long dispute pitting plaintiff against his brothers . . . “ One can hear the justices collectively sigh in a footnote reciting that the arbitrator “had issued awards concerning the parties in July 2005, September 2006, August 2008, May 2009, July 2010, and March 2011.”
Plaintiff had filed two petitions to vacate two 2012 awards. Plaintiff’s petitions failed, and so plaintiff appealed. The plaintiff’s chief argument on appeal was that the arbitrator had exceeded its powers by denying him a right to a complete review and inspection of records of various business entities.
However, the parties had submitted their entire dispute to the arbitrator, agreeing to arbitrate the disclosure of the entities’ documents. The submission agreement also covered future disputes over access to documents. And “parties may submit for decision issues they were not contractually compelled to submit to arbitration,” in which event courts look to “both the contract and to the scope of the submissions to determine the arbitrator’s authority.” Porter v. Golden Eagle Ins. Co., 43 Cal. App.4th 1282, 1291 (1996). By submitting the access issue to the arbitrator in 2009, the plaintiff recognized the arbitrator’s ongoing jurisdiction over the entities’ document production obligation.
Plaintiff had one last argument: failure to allow further access to documentation ran contrary to public policy, and therefore provided a ground for vacating the arbitrator’s award. Not so, said the Court of Appeal – plaintiff had been receiving copies, and whether he received copies or originals was not a public policy issue.
The Court of Appeal also noted that “plaintiff cites us to no case or statute that makes an ‘explicit expression of public policy’ “ behind the Corporation Code’s requirements of access to books and records. Perhaps so, though you and I can probably think of a host of public policy reasons for requiring that shareholders and partners shoud have access to business records.
The affirmance was penned by Justice Aldrich. Soroudi v. Heritage Group Associates, B245590 (2/3 Oct. 21, 2014) (unpublished).
NOTE: This is the second time I have reported on a case in which the arbitral forum was a Beth Din, a Jewish rabbinical court.
News: Gang Member Hacked To Death At So-Called “Mediation”
A Failed Mediation: Report from The Times of India
In what is described as “a scene straight out of a curry western,” in the October 13, 2014 edition of The Times of India, rival gang members met at a gym in South-east Bangalore for a “mediation,” but “soon things started falling apart.” One group drew its weapons, and the other, seriously outnumbered, “suffered serious injuries, while Nakhra was hacked repeatedly till he died on the spot.” The gym owner absconded, “raising suspicion that he set up” the victim for his rivals. A senior police officer opined that “[t]he mediation was just a pretext” providing an opportunity to “strike with precision.”
Apparently the participants failed to follow JAMS or AAA rules for choosing a neutral mediator.
Court Of Appeal Affirms Order Denying Employee’s Petition To Compel Arbitration And Lays Out Framework For Determining Who Decides Class Arbitration Question And Whether Class Arbitration Is Appropriate
Fourth District, Division Three Disagrees With U.S. Supreme Court Decision That Found Class Arbitration Question Is A Procedural Issue For Arbitrators To Decide
Affirming a trial court’s order denying an employee’s petition to compel class arbitration of his wage and hour claims, the Court of Appeal in Network Capital Funding Corporation v. Papke, G049172 (4/3 Oct. 9, 2014) (Aronson, Bedsworth, Fybel) (published) lays out a neat framework for answering the “Who Should Decide Question” and the “Class Arbitration Question.”
The Who Should Decide Question.
The Court explains that the judge decides “arbitrability” gateway issues, whereas the presumption is that the arbitrator gets to decide “procedural” issues. The Court rejects the reasoning of a non-binding plurality decision in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) that the question of whether class arbitration is prohibited is procedural in nature. Absent a “clear and unmistakable agreement to the contrary,” explains the Court of Appeal, relying on other SCOTUS cases, “it is presumed the parties intended courts, not arbitrators, to decide whether the parties agreed to submit a particular dispute to arbitration.”
In Network Capital Funding Corporation, the very broad arbitration provision did not “clearly and unmistakably” delegate the gateway issue to the arbitrator, and thus it was for the judge to decide.
The Class Arbitration Question.
Under Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Unfortunately for Papke, the employment agreement with Network Capital Funding Corporation was silent about class action arbitration, and Papke was unable to point to another contractual basis requiring contractual arbitration.
So here the trial judge correctly decided the “who should decide question” and correctly decided the ultimate issue, whether the the parties’ arbitration agreement allowed Papke to pursue class and representative claims in arbitration (it did not).
Arbitration/Employment/PAGA: Second Dist Div 2 Reverses Itself In Light Of Iskanian v. CLS Transportation Of Los Angeles
Private Attorneys General Act of 2004 Claims Brought By Parties Suing In Representative Capacity Do Not Have To Be Arbitrated On An Individual Basis.
I posted on March 16, 2014 about Ybarra v. Apartment Investment and Management Company, B245901 (2nd Dist. Div. 2, March 13, 2014) (Ashmann-Gerst, Boren, Ferns) (Ybarra). At the time, I quoted the following language from the opinion:
“Unless and until the California Supreme Court rules otherwise, we determine that the representative waiver provision in the parties’ arbitration agreement is enforceable, and that Aimco’s motion to compel Ybarra’s PAGA claim on an individual basis should have been granted.”
That was then. This is now:
“Per order of the California Supreme Court, we have vacated and reconsidered our prior opinion in this case, filed March 13, 2014, in light of Iskanian v. CLS Transportation of Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian).”
In its unpublished opinion filed October 7, 2014, the Court of Appeal has affirmed the trial court’s order denying Aimco’s motion to compel arbitration.