Arbitration/Gateway Issues/Waiver/Employment: Court Of Appeal Affirms Order Denying Employer’s Motion Seeking To Compel Kurt The CyberGuy To Arbitrate
Opinion Addresses Substantive Versus Procedural Arbitrability – And Who Gets To Decide
Kurt Knutsson, aka Kurt the CyberGuy, and his company, Woojivas, Incorporated, filed claims against KTLA, LLC, a television broadcaster, for breach of contract, misappropriating CyberGuy’s name and likeness, unfair business practices, and age discrimination. The company brought a motion to compel arbitration that the trial court denied, leading to an appeal. Knutsson v. KTLA, LLC, B251567 (2/5 Aug. 12, 2014) (Turner, Mosk, Kriegler).
Defendant argued that plaintiffs were bound by a personal services agreement to an arbitration clause in a collective bargaining agreement that contained a tiered grievance procedure. That procedure included three steps: (1) the union or employee were allowed to resolve a grievance by discussion with a supervisor; (2) if the union was dissatisfied with the supervisor’s resolution of the matter, it could formally present a grievance to a manger; (3) the union could (a) file an appeal followed by a discussion process; (b) if that did not resolve the dispute, arbitration could result.
The defendant’s problems were several: first, “defendant has forfeited the right to compel compliance with the collective bargaining agreement’s non-arbitration provisions” in the grievance process by moving to compel arbitration without mentioning steps one and two; second, the arbitration provisions simply did not say that the defendant could compel arbitration – only the union could compel arbitration; and third, the trial court, not the arbitrator, was entitled to resolve the substantive arbitrability issue – a so-called “gateway issue.”
The last issue – whether the court or the arbitrator gets to decide arbitrability – is the most interesting. By labeling the issue as a substantive arbitrability issue, the Court of Appeal telegraphed that this was a gateway issue for the trial judge to decide.
When the issue of “arbitrability” is whether procedural prerequisites to arbitration have been complied with, the issue may be decided by the arbitrator. See, e.g., our March 6, 2014 post on BG PLC v. Republic of Argentina, 573 U.S. __, 134 S. Ct. 1198 (2014).
At first blush, John Wiley v. & Sons, Inc. v. Livingston, 376 U.S. 543, 556-558 (1986) should have supported defendant’s argument that an arbitrator should have decided the arbitrability issue, because “John Wiley held an arbitrator should decide whether the first two steps of a grievance procedure, which were prerequisites to arbitration, had been completed.” However, John Wiley also “held the issue of whether the dispute must be arbitrated is decided by the court.” And here in Knutsson, “as we have explained, defendant cannot compel plaintiffs to arbitrate anything – there is no agreement between them.”
One curious point about the opinion is that the issue of “substantive arbitrability” decided by the Court of Appeal – the “gateway issue” – is seemingly resolved on the ground that there is no arbitration agreement between plaintiff and defendant, and therefore no duty to arbitrate. The trial court’s reasoning, at least as described by the Court of Appeal, is different: “Concluding the grievance procedure was a condition precedent for arbitration and it had not occurred, the trial court denied the motion.”
Employment/Construction of Arbitration Agreement: Fourth District, Div. 3 Certifies Rebolledo v. Tilly’s, Inc. For Publication
Court Agreed With Trial Court That Parties’ Arbitration Agreement Expressly Excluded Statutory Claims From The Arbitration Obligation.
On July 14, 2014, I blogged about Rebolledo v. Tilly’s, Inc., in which the Court of Appeal, 4th District, Division 3, affirmed the trial court’s order denying an employer’s motion to compel arbitration of an employee’s putative class action regarding statutory wage claims. The key to the case was that the operative language in the employment agreement provided for arbitration, except for “matters governed by the California Labor Commissioner.” The Court of Appeal held that the employee’s statutory wage claims were within the jurisdiction of the California Labor Commissioner if they would have fallen within its jurisdiction, even if the claims were not brought before the Commissioner – and that was the case. Therefore, the statutory wage claims were excluded from arbitration. On August 6, 2014, the Court certified the case for publication.
Arbitration/Celebrities/Vacatur: Narrow Grounds For Vacating Arbitrator’s Award Were Not Satisfied In Arbitration Involving Adam Sandler’s Children’s Nanny
In Which An In Pro Per Defendant/Appellant Takes On Adam Sandler’s Corporation . . .
HP, a company owned by Adam Sandler, employed McDonald as a nanny for his children. When her employment ended, she entered into a confidential settlement agreement, and as a result, $48K was paid to her, and $32K was paid to her attorneys. After McDonald “purported to terminate the settlement agreement and threatened to sue,” HP invoked an arbitration provision. Things did not go so well for McDonald in arbitration, because she was ordered to cough up the $48K, was permanently enjoined from filing suit against HP and from disclosing confidential information, and was directed to pay $33K in attorneys fees and costs. The award was confirmed, and McDonald appealed in pro per. HP Production, Inc. v. McDonald, B252175 (2/4 Aug. 5, 2014) (Epstein, Willhite, Edmon) (unpublished).
The grounds for vacating a judgment under CCP 1286.2 are narrow. And McDonald’s arguments that the fee award was “exorbitant,” and “obscene”; that HP breached the settlement agreement; that it was unconscionable for her to have to pay more than she could afford; that the disparity in net worth of the parties made consideration for settlement unfair; and that she signed the settlement agreement under economic duress, just didn’t cut it. Nor did her argument that the trial court had no authority to issue an injunction, because the arbitration clause gave broad authority to the arbitrator to issue an injunction, and the trial court could confirm the award.
Sometimes it’s better not to stir the pot.
Stirring the pot. Thomas Fogarty. Sometime between 1890 and 1938. Library of Congress.
Arbitration/Agents/Nonsignatories/Scope: Executives Sued As Agents Of Company Entitled To Take Advantage Of Arbitration Provision In Contract Between Company And Shareholder
Plaintiff Alston, the founder of GB, brought a private equity firm into GB in exchange for the firm’s investment in GB to help build the company. Fast forward — Alston is terminated by GB as a director, and sues GB and two executives, alleging misrepresentation, declaratory relief, defamation, interference, and wrongful termination. Because Alston has an arbitration agreement with GB, defendants successfully move to compel arbitration. Arbitration does not go well for Alston, who unsuccessfully petitions to vacate an adverse award. Alston timely appeals from judgment, arguing the trial court erred by sending the entire case to arbitration. Alston v. Hoge, A139778 (1/1 July 29, 2014) (Margulies, Dondero, Banke) (unpublished).
Alston’s chief argument on appeal is that the executives, who are not signatories to his agreement with GB, cannot enforce the arbitration agreement. However, the Court of Appeal disagrees, relying on the principle, “that agents of a signatory party, sued in that capacity by another party to an agreement, are entitled to the benefit of the agreement’s arbitration provisions.”
The remaining issue was whether the scope of the arbitration agreement was sufficiently broad to cover all of Alston’s claims. Yes: “The arbitration agreement in this case covered all claims, disputes, and controversies of any nature arising out of or relating to (1) the Agreement; (2) the interpretation, enforcement, breach, performance, or execution of the Agreement; and (3) Alston’s ‘relationship’ with GB or the termination of that relationship.”
A simple affirmance of the judgment.
Arbitration/Employment/Unconscionability/Severance: Court Affirms Order Denying Employer’s Petition To Compel Arbitration
Permeated With Unconscionability, Agreement Did Not Require Severance.
Mr. Ryan, an employee in the construction industry, claimed that he was fired in a retaliatory move by his employer. The employer petitioned to compel arbitration. The trial court denied the request, finding the mandatory employment arbitration agreement contained unconscionable provisions, and refusing to sever those provisions. Employer appealed. Barnum v. Paul Ryan Associates, Inc., A138345 (1/2 July 30, 2014) (Kline, Richman, Brick) (unpublished).
Affirmed.
Here, the employment agreement incorporated, but did not attach applicable AAA rules. The Court of Appeal acknowledged that whether that renders the agreement unconscionable “turns heavily on the circumstances.” As is common, the employment contract was adhesive. But the real zinger here was that the agreement incorporated a pre-arbitration internal dispute resolution mechanism within the control of the employer, and not requiring use of a neutral mediator, resulting in a procedure that “even the most diligent employees could not learn of or anticipate at the time they agreed to arbitrate.” Thus, the circumstances added up to procedural unconscionability.
Lack of mutuality resulted in substantive unconscionability. Claims likely to be brought by the employee, concerning hiring, employment, or termination, had to be arbitrated, whereas equitable or injunctive relief claims likely to be brought by the employer could be brought in court. In addition, the pre-arbitration internal dispute resolution procedure added to the lack of mutuality by giving the employer a “free peek” at the employee’s case, without giving the employee the benefit of a neutral mediator.
The Court held that “the trial court did not abuse its discretion in determining that the agreement is permeated with unconscionability and cannot be enforced.”
Arbitration/Employment/Class/Waiver: Second District, Div. 1 Follows Supreme Court Iskanian Precedent Holding That Right To Bring A Representative Action Under The Private Attorneys General Act (PAGA) Can’t Be Waived
Waiver Is Contrary To Public Policy And PAGA Dispute Is Between Employer And The State.
“The sole issue presented on appeal is the enforceability of a waiver of the right to bring a representative action . . . under PAGA . . . That issue has recently been resolved against Pep Boys by the Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC (June 23, 2014, S204032) ___ Cal.4th ___ (Iskanian). We therefore affirm.” Venegas v. The Pep Boys Manny Moe & Jack of California, B249579 (2/1 July 30, 2014) (Rothschild, Chaney, Miller) (unpublished).
In my June 23, 2014 post on Iskanian, I quoted from the majority opinion:
“Simply put, a PAGA claim lies outside the FAA’s coverage because it is not a dispute between an employer and an employee arising out of their contractual relationship. It is a dispute between an employer and the state, which alleges directly or through its agents . . . that the employer has violated the Labor Code.”
That seems to succinctly explain why the class action waiver need not be enforced. In Venegas, because “the parties agreed that representative actions must be litigated if the representative action waiver is found unenforceable,” the Court of Appeal ordered Venegas’s PAGA claim to proceed in court, not in arbitration.