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 Div. 4 April 28, 2014) (Manella, Epstein, Willhite) (unpublished).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.
News: Since Thursday Last Week Typepad Has Been Besieged By A Distributed Denial-Of-Service Attack, Affecting Our Blog, And Countless Others
GRRRRRRRRR . . . .
If you are reading this post, we thank you for your loyalty!
Since last week, our internet platform, the usually very reliable Typepad, owned by SAY Media, has been subjected to a “distributed denial-of-service attack.”
A DDOS attack is intended to make a network resource unavailable to intended users. A coordinated effort is made to overwhelm the webservers – as if everyone sitting around the dinner table conspired to reach with their forks for the steak at the same moment.
As bloggers, we find the resulting chaos here and under these circumstances to be enormously frustrating and unfair. A DDOS attack allows a small number of persons to disrupt the free speech of thousands, perhaps millions, of writers and readers.
DDOS attacks have sometimes been compared to “virtual sit-ins” or “Internet Street Protests” – especially when they invade a politicized target, be it the New York Stock Exchange, or a despised bank.
But why attack Typepad, of all targets? Attacking Typepad, which is a vehicle for free speech that reaches millions, is impossible for us to see as any legitimate political protest. Do the attackers simply want to shakedown SAY Media for ransom?
Individual bloggers are powerless to do anything about such an attack, because a DDOS attack reveals a systemic problem with the use and abuse of internet resources – a problem that simply cannot be solved at the individual level.
We hope that SAY Media will invest significant resources to develop security measures that make such attacks less disruptive in the future. Such an investment is essential to preserve the extraordinary value that Typepad provides to its owners, to its customers, and to the readers of blogs hosted by Typepad.
BLOG BONUS: Wikipedia defines a DOS or DDOS attack as follows:
“In computing, a denial-of-service (DoS) or distributed denial-of-service (DDoS) attack is an attempt to make a machine or network resource unavailable to its intended users. Although the means to carry out, motives for, and targets of a DoS attack may vary, it generally consists of efforts to temporarily or indefinitely interrupt or suspend services of a host connected to the Internet. As clarification, DDoS (Distributed Denial of Service) attacks are sent by two or more persons, or bots. (See botnet) DoS (Denial of Service) attacks are sent by one person or system.”
Arbitration/Automobiles/Severability/Unconscionability/FAA: Case Is Remanded So Trial Court May Determine Whether Unconscionable Provisions In Automobile Installment Sale Contract Are Severable
Sixth District Does Agree That Federal Arbitration Act Preempts California Consumers Legal Remedies Act, So Class Action Waiver In Arbitration Clause Is Enforceable
Jalopy that has seen better days. Carol M. Highsmith, photographer. Library of Congress.
An arbitration clause that is “permeated with unconscionability” need not be enforced. Here, the scorecard in the trial court was as follows: (A) a class action waiver in an automobile installment contract was found enforceable; (B) four other provisions were unconscionable; (C) because the arbitration clause was permeated with unconscionability, the trial court refused to enforce it. Defendants appealed. Gillespie v. Svale Del Grande, Inc., H039428 (6th Dist. April 17, 2014) (Bamattre-Manoukian, Mihara, Grover) (unpublished).
In the Court of Appeal, the scorecard changed: (A) the class action waiver was found enforceable; (B) a self-help provision in the contract, allowing, for example, for repossession of a vehicle, was not found unconscionable; (C) three other provisions were found unconscionable: “(1) the exception to arbitral finality for an award in excess of $100,000, (2) the exception to arbitral finality for an award that includes injunctive relief, and (3) the requirement that the appealing party advance both parties’ costs for the second arbitration with a three-arbitrator panel”; (D) the case was remanded so that the trial court could exercise discretion and determine whether the unconscionable provisions could be severed pursuant to Cal. Civ. Code, section 1670.5(a).
COMMENTS:
First, Plaintiff’s attorney provided a convincing declaration showing that costs for a second arbitration could be onerous for the consumer. Compare my March 25, 2014 post on The McCaffrey Group, Inc. v. Superior Court, F066080 (5th Dist. March 24, 2014), in which the 5th District panel, signalling a failure of proof, stated homeowners “made no attempt to show that the mediation fees they are likely to pay would be exorbitant or place an unreasonable burden on them . . . “
Second, we are still waiting to hear from the California Supreme Court whether various clauses in automobile sales contracts are unconscionable, and whether the class action waiver in those contracts is proper. The California Supreme Court has granted review in a number of those cases.
Arbitration/Nonsignatories: Second District, Div. 2 Agrees That Appellant Failed To Establish Exception To General Rule That Nonsignatories Cannot Compel Arbitration
Simple Failure Of Proof Dictated The Outcome
Generally, a nonsignatory to an arbitration provision cannot compel arbitration. However, under certain circumstances a nonsignatory may invoke or be bound by an arbitration provision: “‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary’”. Suh v. Superior Court, 181 Cal.App.4th 1504, 1513 (2010).
In Hoyle v. Top Surgeons, LLC, B247375 (2nd Dist. Div. 2 April 10, 2014) (Ferns, Boren, Chavez) (unpublished), appellant Top Surgeons, LLC sought to compel arbitration of a complaint arising from lap band surgery alleged to have been negligently performed. Appellant alleged that, though it was a nonsignatory, it was a third-party beneficiary of an arbitration provision between the plaintiff and various defendants.
Conclusory allegations, however, did not cut the mustard with the Court of Appeal. “Without evidence of any relationship between
appellant and the signatories to the Agreements, the trial court properly denied the petition to compel arbitration.” A little evidence might have been helpful.