Mediation/Condition Precedent: Fifth District Holds Homeowners Must Comply With Contractual Prelitigation Procedures With Homebuilder, Which Procedures Included Nonbinding Mediation
Failure Of Contractual Dispute Resolution Procedures In Contract To Track Protections In The Right To Repair Act Did Not Make The Provisions Unconscionable
The Right To Repair Act, Civ. Code sections 895 et seq., (Act) require a homeowner to provide a builder with notice of defects and an opportunity to investigate and repair them. However, the builder has the option of contracting for its own alternative nonadversarial prelitigation procedures when the home is sold. The Act applies to new residential units where the seller signed the purchase agreement on or after January 1, 2003.
Are homeowners who have purchased before January 1, 2003, or who have purchased after January 1, 2003, or who have purchased from those purchasers, bound by contractual prelitigation procedures, if those procedures do not track the procedures in the Act? That’s the problem presented in The McCaffrey Group, Inc. v. Superior Court, F066080 (5th Dist. March 24, 2014) (Gomes, Cornell, Franson).
And the answer? Yes, they are bound here, because the Court of Appeal found that the contractual procedures were not unconscionable, merely because they did not track the procedures in the Act. Furthermore, since unconscionability is determined as of the time of entering into the contract, the Act could not even be used as a yardstick for measuring unconscionability of those contracts entered into by purchasers who signed before the effective date of the Act.
When the homebuilder elected a contractual procedure, the homebuilder opted out of the nonadversarial prelitigation procedures prescribed by Chapter 4 of the Act, and the parties were bound by the contractual procedure. Here, the contractual procedure, while not providing all the same time deadlines as the Act, did provide times for accomplishing steps in prelitigation procedure. Also, the covenant of good faith and fair dealing placed an obligation on the homebuilder to act reasonably.
Here, the Court found a lack of substantive unconscionability, notwithstanding that the homeowners were contractually bound to pay half the mediation fees, while under the Act, the homeowner only splits fees if the homeowner agrees to do so. The Court signaled that there was a failure of proof, because the 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 . . . “
On one issue, however the Court punted: “Since we are ordering compliance with the contractual procedures, we do not decide whether the judicial reference clause is enforceable . . as some or all of the parties may resolve their complaints . . . “
Petition of The McCaffrey Group, Inc. granted.
Congratulations to attorney for petitioner Eddie Galloway (a former colleague of mine) and to his team at Jackson, DeMarco, Tidus & Peckenpaugh.
Arbitration/Rules: Amendments To Ethics Standards For Neutral Arbitrators In Contractual Arbitration
Ethics Standards 2, 3, 7, 8, 12, 16 and 17 are amended, effective July 1, 2014
Matthew Bender’s Rules of Court Special Update (December 2013) explains that Ethics Standards for Neutral Arbitrators in Contractual Arbitration, Standards 2, 3, 7, 8, 12, 16, and 17 are:
“amended to: (1) codify the holdings in decisions on the inapplicability of the standards to arbitrators in securities arbitrations and on the time for disclosures when an arbitrator is appointed by the court; (2) require new disclosures about financial interests a party or attorney in the arbitration has in an administering arbitration provider provider or the provider has in a party or attorney and about any disciplinary action taken against an arbitrator by a professional licensing agency; (3) clarify required disclosures about associations in the private practice of law and other professional relationships between an arbitrator’s spouse or domestic partner and a lawyer in the arbitration; (4) require arbitrators in consumer arbitrations to inform the parties in a pending arbitration of any offer of employment from a party or attorney for a party in that arbitration; and (5) prohibit arbitrators from soliciting appointment as an arbitrator in a specific case or specific cases.”
I was particularly pleased to see the addition of the following language to Standard 16, requiring disclosures in writing of the terms and conditions of the arbitrator’s compensation: “any requirements regarding advance deposit of fees; and any practice concerning situations in which a party fails to timely pay the arbitrator’s fees, including whether the arbitrator will or may stop the arbitration proceedings.”
I have seen an arbitration shut down after a party received an adverse ruling, and refused to advance or pay any more money to the arbitrator. The new disclosure required by Standard 16 likely won’t affect the how arbitrators react to non-payment, but at least all the parties and their attorneys will be informed and participate with eyes wide open, knowing that non-payment will probably result in a halt to arbitration, unless one party is willing to foot the entire bill.
Arbitration/Appealability/Stay/FAA: Ninth Circuit Holds There Is No Appeal From District Court Order Staying Judicial Proceedings And Compelling Arbitration
Court Addresses Unanswered Question As To Whether Stay Order Might Be Deemed “Final” Under “Collateral Order” Doctrine . . . No, Is The Answer
A Ninth Circuit panel has held that 9 U.S.C. section 16, the section of the Federal Arbitration Act dealing with appeals, bars appeals from a district court’s orders staying judicial proceedings and compelling arbitration of the named plaintiffs’ individual claims. Johnson v. Consumerinfo.com, Inc., Nos. 11-56520, 11-57182, and 11-57183 (9th Cir. March 20, 2014) (Hurwitz, Kleinfeld, Silverman).
To reach that conclusion, the Court shot down plaintiff’s arguments that the order being appealed from was a “collateral order”, and therefore really final, and that mandamus was justified as an alternative route to a higher court. While mandamus relief is not precluded by 9 U.S.C. section 16(b), it is an extraordinary remedy, and wasn’t justified here.
Arbitration/Pending Cases: Casas v. Carmax Is Now Certified For Publication
Second District, Division 2 Opinion Reversing Trial Court’s Order Denying CarMax’s Motion To Compel Arbitration Is Now Certified For Publication
On February 27, 2014, I posted about Casas v. CarMax Auto Superstores California LLC, Case No. B246392 (2nd Dist. Div. 2 Feb. 26, 2014) (Johnson, Chaney, Miller). At that time, the opinion, filed February 26, 2014, was not certified for publication in the Official Reports. On March 20, 2014, the opinion was certified for publication.
News: Thereby Hangs A “Tail” As Mediation Successfully Resolves Taxidermy Heist
Alleged Juvenile Taxidermy Thieves Are Spared A Criminal Record, Thanks To Mediation
Occupational portrait of taxidermist Martha A. Maxwell with animal specimens, palette, and rifle. October 27, 1876. Library of Congress.
When I saw the following headline from the March 12, 2014 edition of the Spokesman-Review in Spokane, Washington, I knew I had to pass it on to our readers: “Teen taxidermy thieves finish mediation.”
Here is the dastardly actus reus: “The teenagers were accused of breaking into Drury’s taxidermy shop and making off with more than $27,000 worth of mounted animals to mimic a YouTube video.” As the result of a successful mediation between the teenagers and the owner of the taxidermy shop, the teenagers ended up having to make restitution and do community service – but they were spared a criminal record.
Better than being skinned, hung out to dry, and stuffed, wouldn’t you say?
The full article is here.
Arbitration/Waiver/Employment/Class Action/FAA Preemption: Second District, Division 2, Holds That Employee Can Be Compelled To Arbitrate A Private Attorney General Act Employment Claim Individually, Thereby Enforcing Class Action Waiver
Court Acknowledges That Private Attorney General Laws “May Be Severely Undercut By Application Of The FAA”
On March 12, at the end of my previous post, I commented “we are still in a somewhat fuzzy area regarding FAA preemption of California statutory rights to file a court action – especially in those instances where the beneficiary of the statutory right may include the public, and not just the individual who is a party to the arbitration agreement. Example: Private Attorney General Act (PAGA) employment claims.”
The next day, the Court of Appeal issued an unpublished decision that addresses this very issue: Ybarra v. Apartment Investment and Management Company, B245901 (2nd Dist. Div. 2, March 13, 2014) (Ashmann-Gerst, Boren, Ferns) (Ybarra).
Employee Ybarra had successfully opposed a motion to compel her to arbitrate her individual PAGA claims, arguing that individual claims were not viable. Employer appealed, relying on preemption by the Federal Arbitration Act (FAA) and recent SCOTUS cases, to argue the arbitration agreement needed to be enforced against the employee.
The argument for not enforcing arbitration of PAGA claims is that the employee is essentially stepping into the shoes of the attorney general to enforce the labor laws, and thus the public benefits from public enforcement. The state attorney general could not be compelled to arbitrate claims, because the attorney general is not a party to the arbitration agreement. However, even though the employee may be acting as a private attorney general, the employee here was a party to the arbitration agreement. Should the “private attorney general” be treated like the state attorney general who is not a party to the arbitration agreement?
Rejecting Ybarra’s argument, the Court of Appeal relied on SCOTUS’s recognition that the FAA “reflects an emphatic federal policy in favor of arbitral dispute resolution,” and in particular, two cases I have blogged about: American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) [June 25, 2013 post] and Marmet Health Care Ctr., Inc. v. Brown, 132 S.Ct. 1201 (2012) [March 27, 2012 post] .
Interestingly, the Court acknowledged that “the PAGA serves to benefit the public and that private attorney general laws may be severely undercut by the FAA” – but believed that SCOTUS “had spoken on the issue.” Thus, while insisting that it was bound by SCOTUS authority, the Court must understand the view expressed by Justice Kagan that enforcing an arbitration agreement may make it impossible for a party to effectively vindicate rights through individual acts. In her American Express dissent, Justice Kagan pithily wrote: “And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”
Reversing the trial court in Ybara, the Court of Appeal held:
“Unless and until the California Supreme Court rules otherwise, we determine that the representative waiver provision in the parties’ arbitration agreement is enforceable, and that Aimco’s motion to compel Ybarra’s PAGA claim on an individual basis should have been granted.”