Arbitration/Delegation/Enforceability: SCOTUS Rules Federal Appeals Court Should Not Have Thrown Out $185M Award That BG Group Won Against Argentina
Majority Opinion Distinguishes Between Who Decides Arbitrability Of Claims And Who Decides Claims-Processing Requirements
On February 26, 2014, I posted that it was time to watch for a decision in BG Group, PLC v. Republic of Argentina,__ S.Ct. __ , 2014 WL 838424. The case was decided on March 5, 2014.
Following an economic crisis in Argentina, and a freeze of gas prices, BG Group, PLC had taken a financial battering. Claiming that a 1993 treaty between Argentina and Britain had been violated by an expropriation of investments, BG Group sought arbitration and obtained a $185M arbitration award. Eventually the award was thrown out by the federal appeals court in Washington, D.C., because BG Group had failed to comply with a prelitigation condition providing that it first file suit in an Argentine court and wait 18 months before submitting the matter to international arbitration.
However, BG Group has been placed in a Catch-22 situation, because conduct by the Argentine government interfered with BG Group’s judicial remedy by suspending Argentine courts’ ability to enter final judgments.
The issue before the Supreme Court was whether a court or an arbitrator had the responsibility to interpet and apply the procedural condition precedent to arbitration. Where a contract is silent about the delegation of authority to decide threshold issues of arbitrability, then those issues are typically decided by the court, rather than by the arbitrator.
Here, however, the Supreme Court held that the issue was not the threshold issue of arbitrability, and whether there was a contractual duty to arbitrate at all, but rather when the contractual duty to arbitrate arose. The Supreme Court analogized the procedural condition precedent provision to a claims-processing requirement – and thus, one that could be addressed by the arbitrator. Therefore, deferring to the arbitrator, the Supreme Court reversed the federal appeals court.
Interestingly, there were three separate opinions in the case, and the break was not along predictable political fault lines.
Justices Roberts and Kennedy dissented. They were puzzled that the majority treated the treaty between two sovereign nations as simply an ordinary contract between two private parties. Additionally, as no investor was a party to the agreement, they questioned whether Argentina had consented to arbitrate with the private investor.
Justice Sotomayor filed an opinion concurring in part: “In light of . . . many indicators that Argentina and the Untied Kingdom did not intend the local litigation requirement to be a condition on their consent to arbitrate, and on the understanding that the Court does not pass on the weight courts should attach to a treaty’s use of the term ‘consent,’ I concur in the Court’s opinion.”
Mediation/Settlement Agreement: Privileged Statements Made During Prelitigation Settlement Negotiations Furnish Proper Basis For Anti-SLAPP Motion
Contract Claims For Breach Of Settlement Agreement Are Not Subject To Anti-SLAPP Motion, But Fraud Claims Based On Oral Representations Are Subject To Anti-SLAPP Motion
At issue in Praetorian Ins. Co. v. The Dunnon Law Firm, F066590 (5th Dist. March 3, 2014) (Hill, Gomes, Pena) (unpublished) was whether prelitigation settlement negotiations, resulting in a written settlement agreement, furnished a basis for an anti-SLAPP (Strategic Lawsuit Against Public Participation) motion, because the actions were privileged litigation activity. Because the focus was on privileged litigation activity, a common basis for filing an anti-SLAPP motion, the Court necessarily focused on Civil Code section 47 (privileged publications or broadcasts/exceptions).
A personal injury claimant and the party alleged to have caused the auto injury settled their dispute by mediation. Afterwards, the insurer, Praetorian, was sued for failing to satisfy the medical lien of the injured party’s health care provider, and cross-complained against the claimant’s attorneys. The insurer alleged the attorneys falsely represented to the insurer during mediation that the medical lien would be paid out of the settlement proceeds and was not.
The chief outcomes were: (1) contract claims based on the written settlement agreement were not privileged because the gravamen of the claim was that the plaintiff’s law firm and her attorneys did something wrong by failing to perform as agreed in the settlement agreement; and (2) fraud claims based on oral statements made during negotiation of a settlement agreement fell within the litigation privilege, and thus furnished a basis for a successful anti-SLAPP motion.
The mediation statutes are not discussed in the opinion. However, we note that the results are “in synch” with the mediation statutes, which allow the introduction into evidence of a written settlement agreement, assuming certain conditions for disclosure and admissibility are met, but create a confidentiality privilege for oral statements made during the course of the mediation (see Evid. Code sections 1119 to 1126). It would be hard to prove the contract claims here, unless the settlement agreement is admissible, and it would be impossible to prove the fraud claims if the oral statements are inadmissible under the Evidence Code.
Arbitration/Employment/Unconscionability: Once Again, Court of Appeal Holds Carmax’s Arbitration Agreement Is Enforceable
Trial Court’s Finding of Unconscionability Was Rejected
On February 27, 2014, I blogged about Casas v. CarMax Auto Superstores California LLC, Case No. B246392 (2nd Dist. Div. 2 Feb. 26, 2014) (Johnson, Chaney, Miller) (unpublished), a case in which the California Court of Appeal overturned the trial court’s denial of Carmax’s motion to compel arbitration of claims with an employee.
Apparently Carmax has been sued more than once by unhappy employees. The California Court of Appeal has just ordered for publication Sanchez v. Carmax Auto Superstores California, LLC, B244772 (2nd Dist. Div. 1; filed Feb 6, pub. order March 14, 2014) (Johnson, Rothschild, Chaney) (published). This case involved a different employee plaintiff than the one in Casas, but the same defendant, the same attorneys, and two of the three appellate judges involved in the Casas opinion.
Once again, the Court of Appeal reverses the trial court order denying Carmax’s motion to compel arbitration. The trial court had found the arbitration agreement unconscionable, but the Court of Appeal disagreed once again.
Arbitration/Standard of Review: Second District, Division 1 Concludes Arbitrator’s Decision, Even If Wrong, Was An Unreviewable Error Of Law
And So The Court Ducks Having To Decide A “Close” Question
Our next case involves a dispute between minority and majority shareholders, and how to value the minority shares for purposes of a buyout by the majority. Minority shareholders argued that the arbitrator should have valued the shares under Operation Agreement requiring appraisal “without regard to any discount for minority interest in the Company or nonmarketability.” Majority shareholders argued that because minority shareholders ended up suing under Corporations Code section 17351, providing that members of an LLC may avoid dissolution by purchasing the minority shares “at their fair market value”, the appraisal could take into account the nonmarketability of minority shares. Khnkoyan v. Missakian, B248125 (2nd Dist. Div. 1 March 3, 2014) (Rothschild, Johnson, Miller) (unpublished).
“[A] close one,” opined the Court of Appeal. But no need to decide that question, “because even if the arbitrator erred in applying discounts for minority interest and lack of marketability in assessing the fair market value of plaintiff’s shares that error was one of law and is not judicially reviewable.” Moncharsh v. Heily & Blase, 3 Cal.4th 1, 11 (1992).
Arbitration/Unconscionability: First District, Division 1, Finding Agreement To Arbitrate Was Not Unconscionable, Reverses Trial Court
“Yellow Flags” In Arbitration Clause Functioned As Friendly Warnings, And Did Not Make Clause Unconscionable
Plaintiff/Respondent Boese, pursuant to a subscription agreement, invested several hundred thousand dollars with Couch Oil & Gas, Inc., and sued for securities violations. After the trial court denied Couch Oil’s petition to compel arbitration on the ground that the arbitration agreement was unconscionable, Couch Oil appealed. Boese v. Couch Oil & Gas, Inc., A138323 (1st Dist. Div. 1, Feb. 28, 2014) (Banke, Margulies, Dondero) (unpublished).
The Court of Appeal reversed, and two points appear to have been pivotal.
First, the stock investment was not an ordinary “take-it-or-leave-it” consumer purchase: “[A]ll the evidence shows here is a short form agreement with a highlighted arbitration provision prepared by the seller of a nonessential product, which Boese had every opportunity to review.”
Second, even if there was a modicum of procedural unconscionability, requiring that the Court consider the amount of substantive unconscionability, the Court of Appeal concluded that there was no substantive unconscionability. Whereas the trial court had concluded that numerous warnings about arbitration in the agreement helped establish substantive unconscionability, the Court of Appeal concluded quite the opposite: “We do not see how inclusion of these general cautionary provisions, approved by an important regulatory watchdog, can create substantive unconscionability. On the contrary, they are akin to a banner of yellow warning flags and are consumer friendly.” 
News/Confidentiality: Don’t Crow About Confidential Settlement On Facebook
Okay, so we don’t really know if the following involves mediation, but it was too good a news tidbit to pass up.
As reported in the Miami Herald, and Slate, Dana Snay, a Miami teenager, torpedoed dad’s age-discrimination settlement with his employer, Gulliver Preparatory School, by crowing on Facebook:
“Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer. SUCK IT.”
That bit about the vacation was a joke.
Gulliver Preparatory School, however, was not amused, claiming that Papa Snay had violated a confidentiality clause in a settlement agreement, and refusing to pay the $80K settlement. Note: Dana, who must be a popular teenager, has 1200 Facebook friends. Papa Snay successfully moved to enforce the settlement agreement, but the trial court was reversed by the appeals court. An appeal to the Florida Supreme Court is still a possibility.
Moral: don’t spill the beans about a confidential settlement, lest your teenager spread the news on Facebook.
American Crow calling. Author: Walter Siegmund. GNU Free Documentation License.