Arbitration/Nonsignatories: Big Surprise–Parties That Failed To Initial Arbitration Provision As Required By The Express Language Of The Provision Could Not Be Compelled To Arbitrate
Appellants’ Argument That There Was An “Implied Oral Understanding” Didn’t Cut It With The Court Of Appeal
The arbitration clause in our next case began: “NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION’ PROVISION DECIDED BY NEUTRAL ARBITRATION . . . “ No party initialed this provision. Now that’s a problem. Trial court denied defendants’ motion to compel arbitration, and scrappy defendants appealed. Lake Balboa Investments, LLC v. J&J Mayfair, LLC, Case No. B254449 (2/7 Sept. 17, 2014) (Zelon, Woods, Segal) (unpublished).
Appellants appeared to argue “that the parties to the agreement waived the initialing condition of the arbitration provision ‘by implied oral understanding.’” However, the trial court and the Court of Appeal didn’t buy this argument, because the declaration upon which it was based was conclusory, i.e., “devoid of any specific facts demonstrating how this conclusion was reached.” A beefed-up declaration filed as part of defendants’ reply in the trial court “suffer[ed] from the same infirmities” as the original declaration, “with the additional deficiency that it was submitted in conjunction with the reply brief, precluding the responding party from addressing it.”
Affirmed.
Marc sends his greetings to appellants’ attorney, Michael B. Montgomery. Michael, Marc, and Barbara Lichman were attorneys in a jury trial in Victorville some years ago, and it was a memorable experience.
Arbitration/Disclosure/Vacatur: Judgment Confirming Arbitration Award Is Affirmed, Notwithstanding Objections About Arbitrator’s Alleged Lack of Disclosure And Failure To Grant Postponement
Want A Postponement? Gotta Ask For It
An arbitrator’s failure to timely disclose a basis for disqualification and an arbitrator’s failure to grant a reasonable continuance in the proceedings may be grounds for vacating an arbitration award. Both issues were at play in Lawyers’ Mutual Insurance Company v. Law Offices of Diana Courteau, Case No. B250158 (2/5 Sept. 12, 2014) (Turner, Kriegler, Mink) (unpublished), a case involving a policy limits dispute between a law firm and its malpractice carrier.
As is sometimes the case with a three arbitrator panel, each side here picked a party arbitrator, but the two party arbitrators could not agree on the selection of the neutral arbitrator. The trial court designated Retired Justice Daniel A. Curry as the “neutral arbitrator.”
The law firm and its party arbitrator, Cynthia Bozzone, did not attend the arbitration. Ms. Bozzone’s aged mother was in an ICU at the time, and Ms. Bozzone notified the arbitral organization, Alternative Resolution Centers (ARC), of this fact.
ARC’s rules permitted the arbitration to go forward with two arbitrators, and go forward it did. Unsurprisingly, considering that the law firm and its party arbitrator did not attend the arbitration, the arbitration did not go well for the law firm, and the award favoring the carrier’s policy interpretation was confirmed as a judgment by the trial court. (But note: The Court of Appeal briefly comments that defendants failed to demonstrate prejudice – i.e., that “they had any chance of prevailing in the arbitration had there been a continuance.”).
Two additional facts, before we turn to the Court of Appeal decision: (1) Retired Justice Curry belonged to 13 specialty panels of ARC, along with attorney Jerold S. Sherman, the former senior vice-president and general counsel for 12 years, before retiring in 2005, of plaintiff Lawyers’ Mutual Insurance Company; (2) Mr. Sherman received an on-line endorsement from the insurance carrier’s coverage counsel, Mr. Littlefield.
The law firm argued that the award should be vacated pursuant to CCP sections 1281.9(a) and 1286.2(a) (6) for the arbitrator’s failure to disclose the relationship between ARC and Mr. Sherman. The Court of Appeal, however, rejected this argument, based on the facts of record. Mr. Sherman was not a party or an attorney in the arbitration. Furthermore, Retired Justice Curry did not know Mr. Sherman. Also, Retired Justice Curry’s compensation was not dependent on any matter handled by Mr. Sherman, and vice versa. Justice Curry also declared that he did not know Mr. Sherman was connected with ARC, or that Mr. Sherman had served as general counsel of plaintiff until Ms. Courteau mentioned his name. On the facts of this case, the Court of Appeal concluded that Retired Justice Curry did not need to disclose that Mr. Sherman is an arbitrator affiliated with ARC.
The Court distinguished Gray v. Chui, 212 Cal.App.4th 1355 (2013), holding that the neutral arbitrator violated Ethics Standard 8(b)(1)(a) by failing to disclose that one of the party’s attorneys worked for ADR, Services, Inc., the dispute resolution provider administering the arbitration. In the instant case, however, Mr. Sherman was neither a party nor an attorney in the arbitration.
That leaves the “failure” of the arbitrator here to postpone the arbitration hearing (CCP section 1286.2(a)(5)), upon receipt by ARC of the information that Ms. Bozzone’s mother was in an ICU. “No doubt, Ms. Bozzone had good cause for postponement of the hearing,” explained the Court of Appeal, adding: “But neither defendants nor Ms., Bozzone requested a continuance of the hearing from Retired Justice Curry.
PRACTICE TIP: Do your independent investigation of arbitrators’ backgrounds, exercise strikes, and state objections as early as possible. See my May 29, 2014 post on Post-Arbitral Award Investigation of Bias. Also, if you have a basis for seeking a postponement of an arbitral hearing, ask for it expressly, and in writing, so as to make a record.
Consumer Arbitration/Employees/Enforceability/ Fees: CCP 1284.3 Prohibits Fee Shifting In Employee Arbitrations But Not On The Facts Of This Case
Court of Appeal Was Unable To Find Precedent On Whether CCP 1284.3, Pertaining To Consumer Arbitrations, Applies To Employer-Employee Arbitrations, And Reaches Its Own Conclusion
On March 12, 2014, I posted about an earlier Court of Appeal decision involving the same parties and the same arbitration agreement as here, in which the Court held that, with the exception of a claim for unpaid wages, other claims in the case could be arbitrated. Unfortunately, the decision in that case apparently came down too late to offer guidance to the trial judge in this case, who denied plaintiff’s motion to compel the former employee to arbitrate, only to be reversed on appeal. Francis Capital Management LLC v. Martin Keith Lane, Jr., B253559 (2/1 Sept. 9, 2014) (Manella, Epstein, Willhite) (unpublished).
The most interesting issue presented by the case is the application of Cal. Code of Civ. Proc., section 1284.3. (I posted about 1284.3 earlier on May 1, 2014). Subpart (a) of this provision states:
“No neutral arbitrator or private arbitration company shall administer a consumer arbitration under any agreement or rule requiring that a consumer who is a party to the arbitration pay the fees and costs incurred by an opposing party, if the consumer does not prevail in the arbitration, including, but not limited to, the fees and costs of the arbitrator, provider, organization, attorney, or witnesses.”
The parties had designated the AAA as the arbitration organization. The issue presented by section 1284.3 was whether a prevailing party fee shifting provision in the arbitration agreement prohibited the AAA from arbitrating the dispute. The trial court concluded that the answer was “yes”, but the Court of Appeal concluded here, on the facts, that the answer was “no.”
A threshold question is whether employee-employer arbitrations even qualify as “consumer arbitrations.” Finding an absence of case law, and looking to guidance in California Rules of Court, Ethics Standard for Neutral Arbitrators, promulgated pursuant to section 1281.85, the Court of Appeal answered the threshold question in the affirmative.
Several factors here saved the fee shifting provision from the clutches of section 1284.3.
First, the fee shifting was not “mandatory,” but rather “discretionary.” The clause provided that the arbitrator “may” award reasonable fees.
Second, the arbitrator was given authority to award costs and fees “authorized by law.” That meant that if 1284.3 didn’t allow for fee shifting, then the arbitrator lacked the authority to shift fees. DRAFTING TIP: the phrase “authorized by law” can be useful to save a questionable provision.
Third, there was a severability provision.
Fourth, plaintiff had agreed to waive fees.
In short, the Court of Appeal concluded “no legal bar prohibits the AAA from accepting the arbitration.” The Court remanded the matter to the trial court “to enter an order granting FCM’s motion to compel Lane to submit to arbitration of FCM’s claims.”
If published, this case would provide useful guidance about section 1284.3 to parties drafting fee clauses in consumer arbitration agreements, and to arbitrators having to confront the impact of such clauses on their ability to accept the arbitration.
Arbitration/Employment/Waiver/Class Action: Following Iskanian, 2nd District Div 2 Holds Employee Cannot Waive PAGA Representative Claims
Also,There Was No Basis Here For Sending The PAGA Representative Claims To Arbitration Rather Than Court
In Jones v. J.C. Penney Corporation, Inc., Case No. B246674 (2/4 Sept. 5, 2014) (Edmon, Willhite, Manella) (unpublished), plaintiff brought a representative claim under the Labor Code Private Attorneys General Act of 2004 (PAGA), alleging employer J.C. Penney did not permit her and others to sit at work, even when it would not interfere with performance of their duties, and did not provide employees with suitable seats. The Court of Appeal has affirmed the trial court’s order denying a petition to compel arbitration, on the grounds that Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) holds that employee waivers of the right to bring representative PAGA claims are unenforceable.
The unenforceability of a waiver of the representative PAGA claims left as a remaining issue whether plaintiff’s claims were to proceed in litigation or arbitration.
In connection with that issue, J.C. Penney conceded that the employee could not arbitrate PAGA claims unless the Labor & Workforce Development Agency (LWDA) also signed the arbitration agreement. This concession makes sense, because the California courts view PAGA claims as public disputes between an employer and the state, though initiated by the employee as a type of “qui tam” dispute in which a 75% of the civil penalties will go to the state, and 25% will go to the aggrieved employee. As the LWDA was not about to sign an arbitration agreement, there was no basis for arbitrating the PAGA claims, leaving them to be litigated.
J.C. Penney also urged that the Court of Appeal “stay this appeal until the high court can receive and rule on an anticipated petition for writ of certiorari in Iskanian.” The Court of Appeal did not follow that suggestion. However, if a writ is to be anticipated in Iskanian, then we have hardly heard the last word about the arbitrability of PAGA claims in the face of a waiver of the right to bring a representative action.
Construction Of Arbitration Agreement: Court Of Appeal Agrees Arbitration Clauses Were Unrelated To The Dispute For Which Respondents Seek Damages
Beware The Pleading Admission!
“
"Beware the Jabberwock, my son!
The jaws that bite, the claws that catch!”
Plaintiffs/Respondents alleged Defendants/Appellants misrepresented they could raise sponsorship financing necessary for Plaintiffs to produce reality television shows, produced the show entitled “The Players Club” at considerable expense, and learned the financing was not forthcoming. Plaintiffs alleged negligence, fraud, misrepresentation, breach of contract, and breach of the implied covenant of good faith and fair dealing, seeking $3 million in damages, minus a $750,000 commission. Defendants sought, unsuccessfully, to compel arbitration, and appealed the order denying their request. Baseball-Players Club, LLC v. Brand-In Entertainment, LLC, Case No. B251173 (2/4 Sept. 2, 2014) (Epstein, Manella, Edmon) (unpublished).
The interesting wrinkle in this case is that both sides treated allegations in Plaintiffs’ unverified complaint as binding judicial admissions. In that unverified complaint, Plaintiffs referenced three reality shows, while claiming subsequently they were only seeking damages for The Players Club. The arbitration provision, however, did not mention The Players Club.
You can see where this is heading: Plaintiffs alleged they were not bound to arbitrate, because they only sought damages related to The Players Club, a reality show not mentioned by the arbitration provisions. Defendants, however, tried to stick Plaintiffs with judicial admissions, based on the complaint, that all three reality shows were implicated in the dispute, and therefore somehow covered by the various arbitration clauses.
Agreeing with Plaintiffs (and the trial court) that The Players Club dispute was not covered by an arbitration clause, the Court of Appeal explained that the doctrine that judicial admissions place factual allegations beyond dispute does not “apply when the admissions have been superseded by amendment, particularly when the original pleading is unverified. . . . To the extent respondents represent their claims are limited to ‘The Players Club,’ they have abandoned any alleged dispute regarding ‘The Natural’ or ‘Bragging Rights.’” Thus, the Court of Appeal has saved Plaintiffs from being ensnared by their own pleadings, while at the same time clarifying Plaintiffs have abandoned any claims that might have been covered by an arbitration clause.
Note: In an April 18, 2013 post, I wrote about another case in which a party seeking to avoid arbitration managed to avoid a binding judicial admission. Barsegian v. Kessler & Kessler, 215 Cal.App.4th 446 (2013) (partially certified for publication). In Barsegian, at oral argument, the defendant seeking to compel arbitration based on plaintiff’s allegation of agency, also made it clear it was reserving its right to argue it was not bound by the allegation of agency. Absent the agreement of the opposing party seeking a binding judicial admission, the court was not willing to treat the pleading as an admission.
Arbitration/Record/1281.2: Second District, Division 2 Affirms Trial Court’s Order Denying Petition To Compel Arbitration, Based On Slim Record
A Statement of Decision Couldn’t Have Hurt Appellants Here
The facts are somewhat odd here. Defendants/Appellants were involved in a fee dispute with Plaintiff/Respondent, a law firm. Defendants moved to compel arbitration, while arguing that the parties’ agreement, governed by the Los Angeles County Bar Association rules, did not allow the arbitrators to decide an alter ego claim. Plaintiff pointed out some of the interested parties were not subject to arbitration, but expressed a willingness to arbitrate, “noting that the only issue in dispute was whether the arbitration would include the alter ego claim.” The trial court said that if the parties “’really want to arbitrate, I’ll let you stipulate to arbitrate’ but emphasized that any arbitration must be ‘all or nothing.’” You guessed it – no stipulation, so no arbitration. Defendants appealed. Tesser Ruttenberg & Grossman LLP v. Forever Entertainment LLC, B249042 (2/1 Aug. 27, 2014) (Chavez, Boren Ashmann-Gerst) (unpublished).
The appellants failed to establish reversible error, perhaps because they failed to request a statement of decision. An order denying a petition to compel arbitration “is presumed to be correct, and all intendments and presumptions are indulged to support the order on matters at to which the record is silent.” Here, the record appeared to be silent on matters as to which Appellants argued the trial court had gone sideways. “The presumption of correctness is particularly applicable when, as was the case here, defendants failed to request a statement of decision explaining the factual and legal basis for the trial court’s ruling denying their motion to compel arbitration.”
That meant that the Court of Appeal only had to find one ground that would support the trial judge’s order, and it did in Cal. Code of Civ. Proc., section 1281.2(c), giving the trial court discretion to deny arbitration so all issues between the parties are resolved in a judicial proceeding.
Defendants argued that the record contained no ruling under section 1281.2(c). No matter. “Their failure to request a statement of decision resulted in the forfeiture on appeal of any objection based on the absence of such findings or ruling.” Surely there is a moral here.
Comment:
If the Federal Arbitration Act alone had governed the arbitration, Cal. Code Civ. Proc. section 1281.2(c) would have been preempted, and would not have been a basis for denying arbitration.