Arbitration/Vacatur/Deadlines: Too Late To Correct Arbitrator’s Award In High-Low Arbitration, Appellant Could Still Enforce “High-Low” Limit To The Award With Motion Requiring A Satisfaction Of Judgment
Once Again, Fourth Appellate District Demonstrates That Often There’s More Than One Way To Skin A Cat Where Arbitration Deadlines Are Involved
Cats. 1927. Library of Congress.
On April 4, 2014, we posted about the way a plaintiff found to get around a deadline in arbitration: after the time ran out to modify an arbitration award, the plaintiff was able to amend a judgment to add another party as a “successor corporation.” Butler v. Lyons & Wolivar, Inc., Case No. G04766 (4th Dist. Div. 3 March 3, 2014) (Fybel, Rylaarsdam, Aronson) (unpublished). As our next case also demonstrates, when it is a matter of an arbitration deadline, often, “there’s more than one way to skin a cat.” Horath v. Hess, D063124; D063709 (4th Dist. Div. 1 April 10, 2014) (McDonald, Huffman, McIntyre).
In Case No. D063124, Horath and Hess submitted to “high-low arbitration.” In such arbitration, the parties privately agree, without informing the arbitrator, on a “high-low” range to the arbitration award. In this case, the parties agreed that Plaintiff Horath would accept the award of the arbitrator or $100,000, whichever was less, but in no event less than $44,000. The arbitrator awarded $329,644.61 in damages, and $36,882.61 in costs – far outside the “high-low” range.
Let’s pause for a moment to contemplate the resulting tensions. On the one hand, an award so far outside the “high-low” range might incline a judge to find a way around the stipulation. On the other hand, a deal is a deal. Despite the stipulation, the trial judge confirmed the arbitrator’s award – and the Court of Appeal reversed.
The problem for defendant Hess in the trial court was that he encountered the 100-day deadline to move to vacate or correct an award (Cal. Code of Civ. Proc., sections 1288 and 1288.2), after filing his motion to limit the judgment amount to $100,000: Hess filed his motion more than 100 days after the date of the award. Plaintiff Horath opposed Hess’s motion, arguing that it was a motion to “correct” the award, and as such, was untimely. Agreeing with plaintiff, the trial judge confirmed the award, and denied as untimely a motion to vacate it or correct it to conform with the “high-low stipulation”. Defendant Hess’s motion for reconsideration, brought under section 473, was also denied.
In Case No. D063709, Hess filed a motion for acknowledgment of satisfaction of the judgment, arguing he had paid Horath $100,000 plus costs, and was therefore entitled to a satisfaction pursuant to the terms of the “high-low” stipulation and section 724.050. The trial court also denied this motion.
In the consolidated appeal of the two cases, the Court of Appeal concluded that the trial court erroneously denied the section 724.050 motion for acknowledgment of satisfaction of judgment, because the terms of the stipulation and the intent of the parties to submit to “high-low” arbitration was clear. Furthermore, no term could be implied in the stipulation that the defendant was required to seek enforcement of the “high-low” provision by the arbitrator, who didn’t even know about the stipulation, or that defendant had to move to vacate or correct the award or respond to a petition to confirm the award.
The motion to obtain acknowledgment of the satisfaction provided a clear route for enforcement of the stipulation that did not require vacation or correction of the award. Therefore, the Court of Appeal affirmed the judgment, but reversed the post-judgment order denying Hess’s section 724.050 motion for acknowledgment of satisfaction of judgment.
Arbitration/Deadline/Delegation/Vacatur: Fourth District, Div. 1 Affirms Trial Court’s Order Denying Plaintiffs’ Motion To Vacate Award Because Parties Agreed Arbitrators Could Decide Whether The Arbitration Was Timely — Or Not
Arbitrators Acted Within Their Powers, So It Didn’t Change Results Even If They Erred
In the underlying dispute, Plaintiffs obtained a substantial award of $150,000 compensatory and $302,784 in punitive damages, blown out when the Court of Appeal ruled that the dispute, related to lease provisions, was subject to arbitration. Defendants then moved, successfully, to compel arbitration, and the trial court set a date of November 24, 2010 as a deadline to complete arbitration. After November 24, 2010, Plaintiffs made a demand to the AAA for arbitration, and Defendants successfully argued to the arbitrators that the demand was untimely. After the trial court denied Plaintiffs’ motion to correct or vacate the arbitration award, Plaintiffs appealed. P.O.P. v. Onie O. Lively, D063550 (4th Dist. Div. 1 March 8, 2014) (Benke, Haller, McIntyre) (unpublished).
The issue as to whether the deadline to arbitrate should have been extended arose because Cal. Code of Civ. Proc. section 1283.8 permits a trial court to set a deadline to arbitrate where the agreement to arbitrate does not set a deadline, whereas the AAA rule at the time the arbitration was pending set its own deadline for rendering a decision, typically thirty days from the date of closing the hearing. If arbitration could be compelled, as it was, then arguably the trial court lacked jurisdiction to set a deadline.
The Court of Appeal chose the path of least resistance: because the record showed the parties agreed the arbitrators could decide whether the arbitration was timely, the arbitrators acted within their powers when they decided the issue. Whether the arbitrators erred was not an issued that even had to be decided, because if the arbitrators acted within their powers, then a mere mistake of law or fact was not reviewable by the trial court.
The result must have come as a double blow to Plaintiffs/Appellants, who won the underlying dispute, saw the judgment in their favor reversed, and then failed to initiate a timely arbitration. It happens.
Arbitration/Class Action Waiver/FAA/Consumers: Court of Appeal Holds That Agreement Inviting Consideration Of Unenforceability Of Class Arbitration Procedures Allowed Trial Court To Invalidate Class Action Waiver
Sticking To Its Contract Interpretation Guns, Second District, Division One, Shoots Down Federal Decisions
The Court of Appeal has upheld a trial court order denying a motion to dismiss or stay class action litigation and to compel arbitration, basing its conclusion on principles of contract interpretation. Imburgia v. DIRECTV, Inc., B239361 (2nd Dist. Div. 1 April 7, 2014) (Rothschild, Chaney, Miller).
AT&T Mobility LLC v. Concepcion, 563 U.S. __, 131 S.Ct. 1740 (2011) (Concepcion) held that the Federal Arbitration Act (FAA) preempts the rule of Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), which case held that class action waivers in consumer contracts may be unconscionable and unenforceable. (Under California law, the Consumer Legal Remedies Act would also preclude waiver of the right to bring a class action under the CRLA).
But Concepcion does not necessarily invalidate all class action waivers. The objective of the FAA is to carry out the intent of the parties, and contract interpretation may lead to the conclusion that the parties intended to proceed under state law rules that allow for the invalidation of class action waivers. In Imburgia v. DIRECTV, Inc., the Court of Appeal concluded that here, the parties intended to proceed under California state law, allowing the trial judge to invalidate the class action waiver.
The Court of Appeal summarized: “the 2007 customer agreement provides that ‘if . . . the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration] section is unenforceable.’ The class action waiver is unenforceable under California law, so the entire arbitration agreement is unenforceable.”
To reach its conclusion, the Court of Appeal applied two principles of contract interpretation.
First, in case of inconsistency, the specific provision takes precedence over the general provision in a contract. Here, the contract generally adopted the FAA, but specifically adopted “the law of your state” with respect to the specific issue of enforceability of class action waivers. Therefore, California state law took precedence over the FAA with respect to the specific issue of enforceability of the class action waiver.
Second, if the contract was ambiguous, then it had to be interpreted against the drafter, namely, against DIRECTV, Inc.
The Court of Appeal disagreed with two federal decisions, In re DIRECTTV Early Cancellation Fee Marketing and Sales Practices Litigation, 810 F.Sup.2d 1060, 1071 (C.D.Cal. 2011), and Murphy v. DIRECTV, Inc., 724 F.3d 1218 (9th Cir. 2013), finding that the courts that rendered those decisions failed to properly apply important principles of contract interpretation. Because “the dispositive issue” was the intent of the contracting parties, contract interpretation was highly relevant and deserved more weight than the federal courts had given to it. (See my August 4, 2013 post on Murphy.)
While consumer advocates may have found a gap in the fortress wall in Imburgia, allowing the consumers, at least for now, to beat arbitration and a class action waiver, one can count on DIRECTV, Inc. and other corporations finding drafting solutions to plug the gap in the future. And one can also count on ever imaginative consumer advocates searching for new ways to scale the fortress wall.
Arbitration/Deadlines: After Time Ran Out To Modify Arbitration Award, Plaintiff Could Still Seek To Amend Judgment To Add Additional Party
Plaintiff Finds Way Around JAMS Deadline
The next case illustrates the fundamental point that an arbitration award is not the same as a judgment, and that even after the time has expired under the governing arbitration rules to amend the award, it may still be possible to amend the judgment confirming the award. Butler v. Lyons & Wolivar, Inc., Case No. G04766 (4th Dist. Div. 3 March 3, 2014) (Fybel, Rylaarsdam, Aronson) (unpublished).
Plaintiff Butler arbitrated with his franchisor, the investigation firm Lyons & Wolivar Investigatins (Lyons), obtaining a net award of $512,244.67 against Lyons. So far, pretty good for Plaintiff. But when Plaintiff petitioned to confirm the arbitration award against both Lyons and its successor corporation, LWI, Inc. (LWI), the trial court refused to confirm the award against LWI, because the award only named Lyons.
So Plaintiff went back to the arbitrator to seek “clarification” that the award included LWI. Now the deadline in JAMS Rule 24 kicked in: the arbitrator had lost any power to modify the Final Award, because that award was more than 30 days old.
California Rule of Civil Procedure, section 187 came to the rescue: “Under section 187, the court has the authority to amend a judgment to add additional judgment debtors.” NEC Electronics Inc. v. Hurt, 208 Cal.App.3d 772, 778 (1989).
The Court of Appeal complimented Defendants for correctly setting forth “the law regarding judicial review of arbitration awards.” But then the Court retracted its compliment by pointing out that judicial review of an arbitration award is not the same as judicial review of a judgment – and here, the only issue was the correctness of the trial court’s order amending the judgment.
Judgment affirmed – also affirming the adage that “there’s more than one way to skin a cat.”
Arbitration/FINRA: Ninth Circuit Rules That Federal District Court Forum Selection Clause Trumps Financial Industry Regulatory Authority Arbitration
Court, Rather Than FINRA, Gets To Determine Arbitrability Of Dispute
Reno, Nevada, issued $211M in complex securities, known as auction rate securities (ARS). After the market for ARS collapsed in 2008, Reno sought FINRA arbitration with Goldman, Reno’s underwriter and broker-dealer. Reno’s theory was that if it had known that ARS were routinely propped up by companies such as Goldman, which withdrew market support during the 2008 financial market meltdown, it would never have made the investment in the first place.
In turn, Goldman sought a preliminary injunction in the federal district court to enjoin the FINRA arbitration. After the district court denied Goldman’s request for injunctive relief, Goldman appealed. Goldman, Sachs & Co. v. City of Reno, No. 13-15445 (9th Cir. March 31, 2014) (Bybee, Schroeder, Battaglia).
First, the Court of Appeals determined that the Court, rather than FINRA, had jurisdiction to determine arbitrability. “[W]hether the court or the arbitrator decides arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” Oracle Am., Inc. v. Myriad Group A.G.,
724 F.3d 1069, 1072 (9th Cir. 2013).
Second, the Court easily concluded that Reno was a “customer” of Goldman, giving it a right to invoke FINRA arbitration – unless Reno and Goldman contracted around arbitration.
Third, the Court held that through the forum selection clauses, the parties had indeed agreed to litigate claims in the USDC for the District of Nevada, thus contracting around FINRA arbitration.
However, because a preliminary injunction is within the discretion of the trial judge, the matter was remanded for further determination by the district judge.
Dissenting, Judge Battaglia would have affirmed the district court’s denial of Goldman’s motion to preliminarily enjoin FINRA arbitration.
BLAWG BONUS: “I shot a man in Reno just to watch him die.”
Arbitration/Pending Cases: SCOTUS Declines Hearing of Delaware Chancery Court Petition Seeking That Chancery Court Judges Be Allowed To Oversee Private Arbitrations
Closed System Of Business Arbitration Overseen By Judges Collides With First Amendment Right Of Access
Möbius Strip. Wikimedia Commons. Author: David Benbennick. GNU Free Documentation License, v. 1.2.
On February 26, 2014, I posted the Delaware Chancery Court had petitioned SCOTUS to allow the Chancery Court to oversee private arbitrations. An arbitration forum provided by Chancery Court judges was thought to be attractive and a draw for large corporations, with heavy-weight commercial disputes, desiring the expertise of the Chancery Court and the privacy afforded by arbitration.
On March 24, 2014, Lyle Denniston reported in SCOTUSblog that on Monday, the Supreme Court declined review of the case, clearing “the way for the public and the press to sit in on arbitration of business disputes in Delaware, when a state judge acts as the arbitrator.” The case is Strine v. Delaware Coalition for Open Government, Inc.
Denniston explains the Delaware legislature had adopted the arbitration experiment because “it was concerned that other nations might be able to attract corporations to organize there by setting up user-friendly, closed systems of business arbitration.”
If the First Amendment provides a right of access to civil proceedings, including arbitrations administered by Chancery Court judges, that’s likely to be less of a draw for the multinationals.