Arbitration/Unconscionability/Employement: Carmona v. Lincoln Millenium Car Wash, Inc. Is Now Certified For Publication
Unconscionability Of Arbitration Clause Involved In Car Wash Employees’ Contracts Was At Issue In This Case
Today, Carmona v. Lincoln Millenium Car Wash, Inc., Case No. B248143 (2nd Dist. Div. 8 filed April 21, 2014) (certified for publication May 9, 2014), originally not certified for publication, has been ordered to be published in the Official Reports. On April 23, 2014, I posted about this case. The Court of Appeal affirmed the trial court’s order, finding the arbitration agreement to be permeated by unconscionability, and refusing severance. An interesting aspect of the case is the weight given by the Court, in concluding that there was a high degree of procedural unconscionability, to the employer’s failure to translate key provisions into Spanish for Spanish-speaking employees.
News: Consumer Arbitration–Fair and Efficient?
Comment on a Comment: The Consumer Financial Protection Bureau Arbitration Study Preliminary Results
Is consumer arbitration fair and efficient?
On May 6, 2014, Steven I. Zeisel of the Consumer Bankers Association, “The Voice of the Retail Banking Industry,” posted a comment about the Consumer Financial Protection Bureau Arbitration Study Preliminary Results, under the heading: “Arbitration Is Fair and Efficient for Consumers.”
Pointing to conclusions of the preliminary report that “larger institutions are more likely to use arbitration clauses, arbitration clauses in account agreements can often be complex, and the agreements often contain class-action waivers,” Mr. Zeisel comments that the CFPB’s preliminary report may leave a misleading impression that arbitration clauses disadvantage consumers.
He concludes, “we are pleased the CFPB now says it will compare the costs and benefits to consumers from arbitration with those derived from individual and class action litigation.” Indeed, such a result would be an excellent outcome, because it is devilishly difficult to compare litigation and arbitration costs and benefits, and such a comparison would be of great benefit to consumers, corporations, and legislators.
However, some of Mr. Zeisel’s comments deserve scrutiny:
- He says that for nearly 90 years, arbitration has been a valuable means for consumers to quickly and easily resolve disputes in an efficient and affordable manner. Ninety years – that’s almost the exact age of the Federal Arbitration Act of 1925. But as Prof. Imre Szalai convincingly shows in his historical study of arbitration in the United States, the Federal Arbitration Act was created with an intent to provide an efficient and affordable dispute mechanism for merchants of equal bargaining power. See my February 19, 2014 review of Outsourcing Justice. Whether consumer arbitration is cost efficient is precisely the subject that deserves further study by the CFPB.
- Mr. Zeisel comments, “Congress recognized the importance of arbitration as a means of resolving consumer disputes when it enacted the Federal Arbitration Act in 1925.” But “resolving consumer disputes” played a very minor part, if any, in the enactment of the Federal Arbitration Act. And that is precisely why the fairness and efficiency of consumer arbitration deserve further attention by Congress.
- In support of the argument that consumer arbitration is cost efficient, Mr. Zeisel states that studies show: “the upfront cost to the consumer was far less than the fee required to file a complaint in the federal courts.” But that’s not a simple comparison. The fee for filing a complaint in federal court is $350. Given the restrictive requirements of federal jurisdiction, the cases filed in federal court are not going to be small claims cases. If the matter is a consumer class action, a $350 filing fee is not an excessive entry cost. Consumer advocates argue that class actions provide economies of scale. On the other hand, most consumer disputes are much smaller than class action disputes, and the litigation alternative is not federal court, but small claims court, where filing fees will be less than $350. (And in fact, many consumer arbitration clauses have a “carve-out” provision allowing for the filing of small claims.).
Now if the CFPB is able to methodically compare costs and benefits to consumers of arbitration versus litigation, that may help to answer the question we started with: whether consumer arbitration is really fair and efficient.
Mediation/Confidentiality: First District, Division 2 Agrees That Trial Court Did Not Err By Excluding 46 Documents From Evidence Based On Mediation Confidentiality
Confidentiality Provisions Are “Clear And Absolute.”
Yet again, the Court of Appeal reminds us, “[w]e have repeatedly said that these [mediation] confidentiality provisions are clear and absolute.” Syers Properties III, Inc. v. Rankin, et al., Case No. A136018 (1st Dist. Div. 2 May 5, 2014) (Kline, Haerle, Brick) (unpublished). In fact, I am convinced that is one reason why we don’t have even more reported appellate decisions concerning the mediation privilege: because the Courts of Appeal have generally drawn a “bright line” by saying that mediation confidentiality in Evid. Code section 1119 is “clear and absolute.”
The Court of Appeal didn’t even have to address the issue here, because it concluded on other grounds that plaintiff/appellant landlord, in a malpractice suit against its attorney, had developed no viable theory of damages, thus justifying a nonsuit by the trial court. But that didn’t deter the Court of Appeal from saying one more time that mediation confidentiality is “clear and absolute.” Well, not entirely, because as the Court acknowledged, there are “rare circumstances” that will justify an exception.
Here, however, there was no exception. Plaintiff/appellant “conceded that ‘the entire case is part of the mediation. . . . ‘”
Furthermore, plaintiff did not “attempt to show that any particular document was not subject to mediation confidentiality or was erroneously excluded.”
TIP: Given how very difficult it is to find an exception to mediation confidentiality, if you are going to argue that documents should not have been excluded based on Evid. Code 1119, at least focus on specific evidence, and show that exclusion resulted in prejudice. “It is plaintiff’s burden on appeal to show not only error, but also prejudice from the exclusion of evidence.”
For a discussion of attorney’s fees in a companion case, Syers Properties III, Inc. v. Rankin, Case No. A137610, see the May 6, 2014 blawg post on California Attorney’s Fees.
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.