Arbitration/Costs: Public Interest Organization Public Citizen Claims Arbitration In Vast Majority Of Cases Will Increase Litigation Transaction Costs
But The Post Does Not Tell The Whole Story
Public Citizen, a nonprofit public interest organization, in a somewhat dated (2010?) post contends:
“Not only is there no evidence that arbitration reduces the overall transaction costs of litigation (e.g. witness fees, attorney fees, discovery costs), but nobody has expounded a coherent theory to explain how arbitration could reduce such costs except in a few categories.”
Public Citizen makes some good points:
- there is a dearth of studies showing the full costs of arbitration, and comparing those costs to litigation costs;
- the forum costs of arbitration charged by the tribunal that will decide the dispute are higher than the cost of getting into court, and thus serve as an entrance barrier in smaller disputes;
- pre-dispute arbitration agreements tend to result in higher costs than post-dispute arbitration agreements;
- arbitration clauses can be one-sided, requiring one side to arbitrate, but leaving the option of litigating or arbitrating open to the other side;
- parties that arbitrate may still need to resort to the courts to enforce arbitration clauses, to obtain subpoenas, to confirm an award, and to enforce an award.
These points apply with greatest force in consumer arbitrations. Here, however, California has somewhat leveled the playing field:
- arbitrators cannot administer consumer arbitrations under agreements requiring the consumer to pay the prevailing party’s fees or expenses (Cal. Code Civ. Proc. section 1284.3(a)).
- fees and costs in a consumer arbitration (exclusive of the arbitrator’s fees) shall be waived for an indigent consumer – meaning a person having a gross monthly income less than 300 per cent of the federal poverty guidelines (Cal. Code Civ. Proc. section 1284.3(b)).
- if the arbitration provisions are truly one-sided – i.e., they require one party to arbitrate, but leave open the option to arbitrate or litigate to the party with greater bargaining power – that will be evidence of substantive unconscionability of the arbitration agreement in California.
Finally, there are plenty of reasons, other than measuring hard costs, for choosing arbitration, including: more control over scheduling, convenience of location, input into choosing the decision maker, privacy, speed (especially where court dockets are congested), and finality.
Arbitration/Nonsignatories: Substantial Evidence Supported Trial Court’s Order Declining To Compel Arbitration–Employer Couldn’t Prove Employee Acknowledged And Signed Arbitration Provisions
Electronic Signing Procedure Didn’t Work Out For The Employer
Did the employee or didn’t she agree to arbitrate?
Bevmo used an on-line procedure to make the employment handbook and arbitration agreement available to employees, and employees provided an electronic signature, showing that they had received and read the employment handbook. That procedure was employed in a wage and hours case brought by an employee against Bevmo. Coffey v. Beverages & More, Case No. B243361 (2nd Dist. Div. 1 April 30, 2014) (Rothschild, Johnson, Miller) (unpublished).
Here, however, though the employee had received and electronically signed for the employee handbook, which contained an arbitration provision, Bevmo was unable to show that she had ever signed and acknowledged the arbitration provision – even though there was an explicit acknowledgment provision and a place to sign.
The Court of Appeal affirmed the order denying a motion to compel arbitration, concluding that substantial evidence supported the trial court’s determination that the employee had not agreed to arbitrate.
TIP: If your intent is to enforce an arbitration agreement, don’t leave signature lines blank. Yes, the point is obvious, but a problem can easily occur with signatures when the signing procedure involves an on-line procedure, as it did here.
Arbitration/Jurisdiction: Plaintiff Appeals Judgment Confirming Adverse Award, Court Of Appeal Vacates Judgment, And Court Of Appeal Orders Dismissal For Lack Of Subject Matter Jurisdiction
A Refresher On When Subject Matter Jurisdiction Can Be Raised As An Issue: Anytime
We inaugurate a new sidebar category: Jurisdiction.
The next case, involving an employee’s appeal of a judgment confirming an adverse arbitration award, is a useful refresher on a fundamental point concerning lack of subject matter jurisdiction: it’s never too late to raise the issue. Saffer v. JP Morgan Chase Bank, Case No. B246412 (2nd Dist. Div. 8 April 29, 2014) (Bigelow, Flier, Grimes).
Following the financial meltdown of 2008, an employee of Washington Mutual Bank (WaMu) sued defendant JPMC Bank, which Bank had purchased some of WaMu’s assets and liabilities. Bank successfully moved to compel arbitration. The arbitrator, however, eventually concluded that both court and arbitrator lacked subject matter jurisdiction to hear employee’s claims, and dismissed employee’s case. Employee had failed to jump through the hoops necessary to exhaust administrative remedies under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).
Employee moved in the superior court to vacate the arbitration ruling. However, “instead of asserting the trial court should dismiss the action, “Bank contended the award should be confirmed. And it was.
The Court of Appeal agreed that the judgment should be vacated because the failure to exhaust administrative remedies resulted in a lack of subject matter jurisdiction. “[A]n alleged lack of subject matter jurisdiction must be addressed whenever it comes to a court’s attention.” In re Gloria A., 213 Cal.App.4th 476, 481 (2013).
So is the vacation of the adverse judgment a Pyrrhic victory for appellant? Loss for appellant is the better description, as the Court of Appeal stated that respondent shall recover its costs on appeal. The Court of Appeal ordered that the case be remanded to the trial court with directions to enter an order of dismissal for lack of subject matter jurisdiction. Even if the employee had once been wronged by WaMu, he is now without a remedy.
Arbitration/Vacatur/Standard of Review: Court of Appeal Rejects Contentions That Arbitration Award Against Attorney Must Be Overturned, And Affirms
Standard of Review, As Well As JAMS Rules, Largely Determine The Outcome
As the Court of Appeal explains in the next case, “[w]e apply a highly deferential standard of review to the award itself, insofar as our inquiry encompasses the arbitrators’ resolution of questions of fact or law.” Put even more succinctly, “it is the general rule that, ‘The merits of the controversy between the parties are not subject to judicial review.’” That standard previews the outcome of the appeal in our next case, involving an employment dispute, a settlement agreement, contractual confidentiality obligations, liquidated damages provisions, and an attorney’s signature on the settlement agreement.
Appellants Kaufman and Godelman challenged the trial court’s confirmation of an arbitration award in favor of respondent Diskeeper. Earlier, Godelman and LeShay, employees of Diskeeper, initiated a lawsuit against Diskeeper involving Godelman’s wrongful termination claims. Attorney Kaufman represented the two employees who settled with Diskeeper, later representing other employees in separate suits. The Godelman/LeShay settlement included a confidentiality provision requiring the return of property to Diskeeper, as well as a liquidated damages provision in case of breach.
Diskeeper contended the settlement agreement was breached when Kaufman used confidential documents in other litigation. The dispute was arbitrated, and Kaufman was hit with liquidated damages, as well as attorney’s fees. After the arbitrator’s award was confirmed by the trial court, this appeal followed. Kaufman v. Diskeeper Corporation, B247315 (2nd Dist. Div. 4 April 28, 2014) (Manella, Epstein, Willhite) (unpublished).
First, appellants argued the award should be vacated because the arbitrator refused to hear material evidence. In particular, after Godelman failed to show up at the arbitration hearing, and the parties stipulated to the use of his deposition, the arbitrator refused to hear the Godelman’s testimony when he later agreed to testify. However, JAMS rules give an arbitrator discretion regarding evidentiary hearings. Also, there was no offer of proof regarding the missing testimony, and thus no way to show resulting prejudice.
Second, appellants argued that the arbitration award was unenforceable because it ordered the return of certain employee documents to the employer that the employee had a right of access to. However, the Court of Appeal held that the trial court’s conclusion that appellants forfeited the argument by not raising it timely before the arbitrator as not erroneous.
Third, appellants argued that the arbitrator fashioned an improper remedy by imposing liquidated damages of $70,000, and attorney’s fees of $297,000 upon Kaufman. It appears that Kaufman may not have been named as a party to the settlement. However, he had signed it, and the arbitrator found him bound by its confidentiality provisions. However, a challenge to the arbitrator’s interpretation of the settlement agreement would be rejected, because mistakes of law are not a basis for overturning an arbitrator’s award. And in the area of remedies, “arbitrators have broad authority to fashion remedies.”
Affirmed.
Arbitration/Agents/CCP 1281.2/Stay: Second District, Division 3 Reverses Trial Court’s Denial Of Motion To Compel Arbitration
Non-Parties To The Arbitration Agreement Were Not “Third Parties” Within The Meaning Of Section 1281.2(c).
The trial court denied defendants’ motion to compel arbitration, under the third party litigation exception found in Cal. Code Civ. Proc. 1281.2(c) to the general rule requiring enforcement of an arbitration agreement. Here, only one of several defendants was a party to arbitration agreements with plaintiffs. Therefore, the trial court was concerned that litigation filed against “third parties” who were not entitled to enforce the arbitration agreements would result in inconsistent results, if one defendant was allowed to arbitrate. Defendants were smart to appeal the denial of their motion to compel arbitration. Alpert v. HDA Mortgage Fund, LLC, No. B247142 (2nd Dist. Div. 3 April 23, 2014) (Croskey, Klein, Kitching) (unpublished).
Plaintiffs were investors who had invested in an investment fund holding loans secured by deeds of trust. Plaintiff Alpert was investors’ business manager. Defendants included the company providing investment counseling and portfolio management services, the company investing in the secured loans and offering shares in the investment fund, the fund manager, and two officers. Only defendant HDA Properties Inc. was actually a party to the arbitration agreement with plaintiffs.
The Court of Appeal, however, concluded that the so-called “third parties” were in fact entitled to enforce the arbitration agreement, and therefore, they were not “third parties” for purposes of section 1281.2(c). The parties fell within the rule that a nonparty acting as an agent of a party to the agreement to arbitrate may enforce that agreement. Indeed, plaintiffs had alleged that the the defendants were all related entities and individuals and that they acted as agents for one another.
Reversed, with directions to grant the motion to arbitrate, and stay the action in whole or in part.
This left one housekeeping matter for the Court of Appeal. The trial court had to stay the pending litigation in whole or in part, because a trial court granting a motion to compel arbitration must do so. Cal. Code Civ. Proc. section 1281.4. But who decides the scope of the required stay, i.e., to what extent are the claims subject to arbitration severable from the claims to be litigated? Here, the parties’ Operating Agreement stated that the arbitrator must decide any questions concerning arbitrability of the dispute – “so any questions concerning which claims are subject to arbitration must be decided by an arbitrator, rather than the trial court.”
Arbitration/Unconscionability/Employment: Second District, Division 8 Affirms Order Finding Arbitration Agreement Is Permeated By Unconscionability And Refusing Severance
Failure To Translate Relevant Contractual Provisions Into Spanish For Spanish-Speaking Employees Elevated This Case “To A High Degree Of Procedural Unconscionability”
Car wash employees brought a putative class action against their employer for wage and hour violations. The trial court held the arbitration agreement was unconscionable and refused to enforce it. Employer appealed. Carmona v. Lincoln Millenium Car Wash, Inc., B248143 (2nd Dist. Div. 8 April 21, 2014) (Flier, Bigelow, Rubin) (unpublished).
Reviewing the matter de novo, the Court of Appeal agreed with the trial court that the arbitration agreement was permeated with procedural and substantive unconscionability, and that the trial court did not err in refusing to enforce it.
I have noted in an earlier post that the failure to provide a Spanish translation of an arbitration provision to a Spanish speaking party to the contract can present an issue of procedural unconsionability. See my December 14, 2013 post on Castellanos v. Quality Nissan, Inc (unpublished).
In Carmona v. Lincoln Millenium Car Wash, Inc., it was the failure of the employer to translate an important portion of the agreement into Spanish, even though the employees could not read English, that “elevates this case to a high degree of procedural unconscionability.”
The Court of Appeal also agreed with the finding of substantive unconscionability, resulting “from multiple defects demonstrating a systemic lack of mutuality that favored the car wash companies, including the exemption from arbitration of the car was companies’ confidentiality claims, the attorney fees provision, the ‘free peek’ provision, and the presumption of harm in favor of the car wash companies.”
The so called “free peek” provision required employees to discuss problems or concerns with anything relating to employment confidentially, and with their employer, before informing outsiders – including attorneys, courts, or arbitration providers. The employees’ objection was that the provision gave employers a “free peek” at plaintiff’s case, and was not a mutual obligation placed upon the employer.
The recurrent lesson to be drawn from the many California cases that address substantive unconsionability is that if you want your arbitration clause to survive judicial scrutiny, draft one that is even-handed.