Ninth Circuit Punts On Existence Of Federal Mediation Privilege
Maricopa County Waived Argument That Evidence Admitted To Show Settlement Should Be Privileged Under Federal Law
87 Yard Punt . . .
In Wilcox v. Arpaio, No. 12-16418 (9th Cir. Feb. 2, 2014) (Tashima, Farris, Reinhardt), the Ninth Circuit avoids having to “determine whether a mediation privilege should be recognized under federal common law and, if so, the scope of such a privilege.” The panel punted on the issue when it determined that Maripoca County, which did not want a settlement agreement enforced, had failed to argue that evidence of settlement should be privileged under federal law, by instead staking the erroneous position that state law governed.
Here are the points about the “privilege” that we can glean from the opinion:
- Federal common law generally governs a claim of privilege. Federal Rule of Evidence 501.
- In a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision. Id.
- The admissibility of evidence of settlement reached during mediation of federal and state law claims is governed by federal privilege law.
How did these rules play out here?
Plaintiffs brought claims against Maricopa County and certain officials alleging wrongful investigation, prosecution, harassment, and retaliation — federal claims pleaded under 42 U.S.C. section 1983, and supplemental state law claims. Therefore, the admissibility of evidence that plaintiffs reached a settlement with defendants will be decided under federal law. Under federal law, there is no statutory mediation privilege – leaving the murky status of the privilege to be decided under federal common law. But here, the Court of Appeal did not have to decide the interesting question.
Because Maricopa County staked the (incorrect) position that the privileged status of the evidence had to be decided under Arizona state law, it forfeited the argument that the evidence was privileged under federal law.
And so the district court did not err by admitting evidence of settlement and enforcing the settlement. Affirmed.
NOTE: On February 24, 2012, I blogged about Facebook, Inc. v. Pac. New. Software, Inc., 640 F.3d 1034 (9th Cir. 2011), a case now described in Wilcox v. Arpaio as:
“applying state contract law to determine in mediation the parties reached an enforceable settlement of plaintiffs’ federal and state law claims, but applying federal privilege law to determine what evidence from mediation was admissible in support of that determination.”
Miscellaneous Practice Tip: No Liens On Human Beings
Quotation of the day
I know, I know, this has nothing whatsoever to do with the subject of my blawg. And yet I couldn’t resist passing on this tidbit to you from one of yesterday’s unpublished cases decided by our local Court of Appeal:
“There is one matter that requires minor modification of the judgment. The judgment includes an order that, literally, imposes a lien on a human being. In this case, the trial judge put a constructive trust lien on Tran’s father, Tom Tran. We can find no authority for a lien on a human being so we hereby strike from the judgment the provision putting a constructive trust lien on Tom Tran personally.”
Vu v. Tran, Case No. G04587 (4th Dist. Div. 3 May 29, 2014) (Bedsworth, Rylaarsdam, Moore) (unpublished).
Reviews/Disclosures/Confidentiality: Articles Highlight Problems With Post-Award Investigation Unearthing Arbitrator’s Bias, and Problems With Holes In Mediation Confidentiality Privilege
Recommended Reading:
Post-Arbitral Award Investigation Of Bias.
Paul J. Dubow, an arbitrator and mediator in San Francisco, asks whether post-award investigation can vacate arbitration awards in “ADR Update”, California Litigation (Vol. 27, No. 1 2014), p. 37. It is easy for an unhappy client’s attorney to do a Google search about an arbitrator after the arbitration award has already been made – and sometimes, facts relevant to arbitrator bias will be discovered. On January 26, 2014, I posted about the leading case in which, to quote Mr, Dubrow, “[t]he aggrieved attorney for plaintiffs . . . conjured internet magic.” Mt. Holyoke Homes LP v. Jeffer Mangels Butler & Mitchell LLP, 219 Cal.App.4th 1299 (2013) (arbitrator’s reliance on reference from name partner at defendant’s law firm raised reasonable suspicion of bias, resulting in vacation of arbitration award).
Of course, it may be just as easy to do the same Google search for information publicly available on the internet before commencing arbitration. And therein lies a dilemma, according to Mr. Dubrow. On the one hand, the integrity of the system would be undermined by an arbitrator who withholds information, hoping that the parties will not discover it. On the other hand, there is the possibility of abuse, if the party obtains information of bias before the disclosures are due, decides to retain the arbitrator, and then exploits the information the arbitrator failed to disclose only after receiving an adverse award.
Mediation Confidentiality Privilege.
Hanna B. Raanan, a litigation attorney and mediator, writes about exceptions to the confidentiality protection of mediation in “Things Your Mediator Didn’t Tell You About The Mediation Confidentiality Privilege,” Orange County Lawyer (April 2014), p. 36. She reminds us: 1) discoverable material doesn’t become confidential just because it is used in mediation; 2) execute confidentiality agreements before exchanging information – or else you may not be covered by mediation confidentiality; 3) mediation confidentiality will terminate if there are no communications with the mediator ten days following the mediation – unless you draft around this problem; 4) there are situations in which mediation confidentiality may be weighed against other policies, and found not to be absolute; and (5) if the ADR procedure is not within the definition of “mediation”, then mediation confidentiality may not exist. Her solutions: address the problem of confidentiality before engaging in mediation, and use a savvy mediator aware of the issues.
Ms. Raanan’s admonitions are a useful antidote for the mediator who announces: “Everything said here will be confidential.”
NOTE: My blawg has sidebar categories for Arbitration: Disclosures, and for Mediation: Confidentiality, where you can read more about those topics.
Arbitration/Standard of Review: Though Parties Expressly Agreed To Judicial Review Of Legal Error, Trial Court Declining To Consider Whether Arbitrator Committed Legal Error Did Not Err
Review Of Legal Error Here Was Job For Court Of Appeal
Though an error in law or fact is not a basis for overturning an arbitrator’s award, in California, the parties by agreement can make the arbitrator’s award reviewable for legal error. Here, the parties agreed that the award was to be reviewed for legal error, yet the trial court simply affirmed the award, declining to review for legal error. Naturally, the losing plaintiffs appealed from the judgment. Clarke v. Kilpatrick, Case No. C071313 (3rd Dist. May 28, 2014) (Blease, Nicholson, Mauro) (unpublished).
Affirmed.
Why? The answer is to be found in the language of the arbitration agreement. The parties here agreed that “judicial review of any … legal error by the arbitrator shall proceed . . . from a final judgment . . . entered in the Superior Court. . . “ And that is what happened – the Court of Appeal, rather than the Superior Court, reviewed the final judgment for legal error, and found none.
DRAFTING TIP. If you want to empower a court to review the arbitrator’s award for legal error, it’s not enough to simply require the arbitrators to follow the rule of law – because that may allow them to apply it “wrongly as well as rightly.” Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334, 1360 (2008). Be sure to add that “legal errors are an excess of arbitral authority that is reviewable by the courts.” Id. at p. 1361. The language used in the specific agreement in Cable Connection did work to create the power to review for legal error.
Arbitration/Appealability/Waiver/1281.2/Agents: Court Of Appeal Reverses Denial Of Petition To Compel Arbitration, Because Delay In Bringing Petition Did Not Result In Prejudice
Also, California Code of Civil Procedure, Section 1281.2, Did Not Prevent Arbitration, Because Federal Arbitration Act Applied And Preempted State Provision
Defendants/appellants in the next case lost a petition to compel arbitration in the trial court. At first blush, they had waived their right to arbitrate, because they delayed bringing their motion to compel, and they chose a litigation route, filing an (unsuccessful) motion for summary judgment. However, defendants, who appear to have given particular attention to the risk of waiver, fared better when they appealed, managing to convince the Court of Appeal that they had not lost their right to arbitrate. Gloster v. Sonic Automotive, Inc., A137081 (1st Dist. Div. 1 filed 4/23/14, certified for partial publication 5/21/14) (Margulies, Dondero, Banke).
First, defendants appealed the denial of their summary judgment motion – a motion they brought arguing that plaintiff, an employee who was a party to numerous agreements requiring arbitration, had forfeited his right to bring any claims, by not following the arbitration route. This appeal issue was easily shot down, because absent extraordinary circumstances, an order denying summary judgment is not appealable.
Second, defendants had obviously given thought to the risk of waiving their right to arbitrate, because they were careful to assert the right to arbitrate as an affirmative defense, and because along with filing their motion for summary judgment, they petitioned to arbitrate in case they lost. While they delayed petitioning to compel arbitration, they were careful to consistently assert their right to arbitrate, and to only respond to discovery rather than to propound discovery. Furthermore, the motion for summary judgment was not viewed by the Court of Appeal as deciding the merits of the employee’s substantive claims. In sum, there was no convincing showing that the defendants’ delay resulted in an advantage in litigation to the defendant – hence, no showing of waiver of the right to arbitrate.
Third, Cal. Code of Civ. Proc., section 1281.2(c) allows the court to deny a petition to compel arbitration under circumstances where, for example, pending litigation and an arbitration would present the possibility of conflicting rulings on a common issue of law or fact. However, here, the arbitration provisions were contractually governed by the Federal Arbitration Act, which preempts 1281.2(c). The FAA is not concerned with the possibility of conflicting rulings; if the parties agree to arbitrate, then section 1281.2(c) offers no escape hatch.
Fourth, several defendants argued that another defendant, Toyota, should be deemed a third party beneficiary of the arbitration agreement, because Toyota was labeled an “agent” of the other defendants in boilerplate complaint allegations. However, the defendants making the argument did not concede the truth of the boilerplate allegations. The issue is resolved conclusively by a case we have posted about on April 18, 2013, Barsegian v. Kessler & Kessler, 215 Cal.app.4th 556 (2013): a third party cannot be deemed an agent under an arbitration agreement based on boilerplate allegations, particularly when the party advocating agency status denies the allegations, as was the case here.
DRAFTING TIP. Many arbitration provisions contain confusing language to the effect that the arbitration agreement is governed by some combination of the FAA, California law, the rules of the AAA, or some other rules. Because of confusion about what law governs, there may be confusion about whether section 1281.2 applies, allowing the court to deny a request for arbitration because of the possibility of conflicting rulings. One can resolve that issue upfront by spelling out the result one desires in the arbitration clause. Here, for example, one of the contracts provided: “the court may not refuse to enforce this arbitration agreement and may not stay the arbitration proceeding despite the provisions of California Code of Civil Procedure section 1281.2 [subdivision] (c).” The Court of Appeal concluded that the parties could not have stated their intent “any more clearly.”
Arbitration/Delegation: Trial Court Lacked Authority To Rule On Enforceability Of Arbitration Agreement, Because Authority To Do So Was Delegated To Arbitrator (Even Though Delegation Clause Was Procedurally Unconscionable)
Split Of Opinion In District Two Over Enforceability Of Delegation Clauses
Poker game of construction workers at canteen, Shasta Dam. Russell Lee, photographer. 1939. Library of Congress.
When Lourdes Tiri, a cook fired by Lucky Chances, a card-club casino and restaurant, sued her employer, the employer petitioned to compel arbitration. However, the trial court denied the petition on the basis that the arbitration agreement was unconscionable and therefore unenforceable. Employer appealed. Tiri v. Lucky Chances, Inc., A136675 (1st Dist. Div. 4 May 15, 2014) (Humes, Ruvolo, Reardon) (published).
The Court of Appeal now holds: “the trial court lacked the authority to rule on enforceability of the agreement because the parties’ delegation of this authority to the arbitrator was clear and is not revocable under state law.”
The delegation clause is not the same as the arbitration agreement. Thus, the delegation provision may be enforceable – as it was here – though the arbitration agreement itself could be unconscionable.
The delegation clause here provided: “The Arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that all or any part of this Agreement is void or voidable.”
For a delegation clause to be enforceable, (1) the language of the clause must be “clear and unmistakable”; and (2) the delegation must not be revocable under state contract defenses such as unconscionability.
Here, the Court of Appeal agreed that the delegation clause was procedurally unconscionable, as it was presented on a “take it or leave it” basis. However, it was not lacking in mutuality so as to be substantively unconscionable. Moreover, the language of the delegation clause was “clear and unmistakable.” Therefore, the delegation clause satisfied the requirements for enforceability.
The Court of Appeal notes that it has now created a split of opinion with two other decisions from the district, Ontiveros v. DHL Express (USA), Inc. 164 Cal.App.4th 494 (2008) and Murphy v. Check ’N Go of California, Inc.,156 Cal.App.4th 138 (2007), both of which declined to enforce delegation clauses in employment arbitration contracts of adhesion on unconscionability grounds.
So has Lourdes Tiri been dealt a bad hand by Lucky Chances? Now it’s up to the arbitrator to decide the merits of the employee’s claim, and whether the arbitration agreement itself is unconscionable.