Arbitration/Employment/Unconscionability/FAA Preemption: Second District, Division 4, Holds That Labor Code Section 229 Only Exempts Unpaid Wage Claim From Arbitration
And Employer Failed To Sustain Burden Of Proving That California Statutory Right Of Employee To Avoid Arbitration Of Unpaid Wages Claim Was Preempted By Federal Arbitration Act
Francis Capital Management LLC (FCM) appealed from an order denying its motion to compel Lane, a former employee, to arbitrate all his employment claims against FCM. Lane v. Francis Capital Management LLC, B245661 (2nd Dist. Div. 4 March 11, 2014) (Manella, Epstein, Willhite). The trial court had determined that Labor Code section 229 allowed Lane to maintain his claims in court, and further, that the agreement was unconscionable.
The Court of Appeal easily found that the broad arbitration provision, which encompassed all “wage, hour and benefit claims,” “contract claims,” and “claims for wrongful termination,” was intended to cover all eight claims brought by Lane: (1) wrongful termination; (2) breach of oral contract; (3) failure to pay wages; (4) unpaid overtime; (5) unpaid meal period wages; (7) waiting time penalties; (7) itemized wage statement violations; and (8) unfair competition. Furthermore, the Court of Appeal found that there was no unconscionability.
The hard issue was whether Labor Code section 229, which provides a statutory right to arbitrate labor claims in California, applied. Yes, it did apply, said the Court of Appeal, but on its face, it only applied to the third cause of action to collect unpaid wages. All the other claims had to be arbitrated.
The Court distinguished the “broad presumption against the arbitration of statutory claims” set forth in Hoover v. American Income Life Insurance Company, 206 Cal.App.4th 1193 (2012), as being “overly broad”: “[T]he plain language of section 229 is limited to actions for the collection of due and unpaid wages brought under sections 200 through 244; section 229 does not apply to all statutory wage and hour claims.” See my June 14, 2012 post on Hoover.
What about preemption by the Federal Arbitration Act of Labor Code section 229? It was FCM’s burden of proof to demonstrate FAA preemption of section 229 – meaning that FCM had to show that interstate commerce was involved. But Lane was a California resident, and FCM was a California entity, doing business in California. FCM’s “bare assertion” that “Mr. Lane was a security analyst at a firm which manages capital investments” was insufficient to support a finding that his employment involved interstate commerce.
Affirmed in part (as to the cause of action for unpaid wages) and reversed in part.
Comment: Depending on the particular California court, 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.
Arbitration/Nonsignatories: In Case Of First Impression, First District, Div. 5 Holds That An Arbitration Clause In Trust Document Does Not Bind Trust Beneficiary
Court Would Not Compel Arbitration Here Where The Beneficiary Had Not Sought The Benefits Of The Trust Instrument, But Rather Challenged Its Validity
Pamela McArthur v. Kristi McArthur, A137133 (1st Dist. Div. 5 March 11, 2014) (Bruiniers, Jones, Needham) is a case arising out of an inharmonious “sister act.”
The scenario is not uncommon. In 2001, mom McArthur creates trust for her three daughters, making them equal beneficiaries. In 2011, mom amends trust in a way that favors daughter Kristi over daughter Pamela. In 2012, mom dies.The trust, as amended in 2011, contains a “Christian Dispute Resolution” provision that did not exist in the 2001 trust. The provision, which requires mediation and if necessary arbitration, states in part:
“The Trustor and Co-Trustees [(Frances and Kristi)] are Christians and believe that the Bible commands them to make every effort to live at peace and to resolve disputes with each other in private or within the Christian church (see Matthew 18:15-20; 1 Corinthians 6:1-8). Therefore, the Trustor and Co-Trustees agree that any claim or dispute arising from or related to the Trust as amended shall be settled by biblically based mediation and, if necessary, legally binding arbitration before the Institute for Christian ConciliationTM, a division of Peacemaker® Ministries, in accordance with its Rules of Procedure for Christian Conciliation (the ‘Rules’ found at www.peacemaker.net).”
Alas, a more apt biblical citation for the case could be Gospel of John, chapter 11, verse 35, the shortest verse in the King James Version: Jesus wept. For after mom died, sister Pamela sued Kristi, alleging financial elder abuse and undue influence on mom, and challenging the validity of the 2011 trust amendment. Sister Kristi moved to compel arbitration of Pamela’s claims. After the trial court denied sister Kristi’s motion, because Pamela was not a signatory, Kristi appealed.
The Court of Appeal affirmed the order denying Kristi’s motion to compel arbitration, because Pamela was neither a signatory to the arbitration clause, nor did she seek benefits under the 2011 trust instrument. Instead, Pamela sought benefits of the 2001 trust, which trust did not contain an arbitration clause. If Pamela had sought benefits under the 2011 trust, this would be a different case.
The Court of Appeal recognized that in some situations, there will be a “statutory scheme that justified flexibility in binding nonsignatories to arbitration clauses”, leaving it up to the Legislature to devise such rules if it wants to.
Arbitration/Appealability: Second District, Division 5 Holds That Order Denying Renewed Petition To Compel Arbitration Brought Under CCP section 1008(b) Is Not Appealable
Case Has Nice Discussion Of Those Elusive Little Differences Between CCP 1008(a) and (b).
In ongoing litigation against Ralphs Grocer Co. and The Kroger Co. for Labor Code violations (defendants), the trial court denied defendants’ renewed petition to compel arbitration filed pursuant to Cal. Code of Civ. Proc. section 1008(b). Defendants appealed. Brown v. Ralphs Grocer Company, et al., B247297 (2nd Dist. Div. 5 March 6, 2014) (Mosk, Kriegler, Mink) (unpublished).
There is plenty of case law concerning the appealability of an order denying a motion for reconsideration under 1008(a). Not appealable. But what about 1008(b). And what’s the difference between (a) and (b) anyway?
Subsection (a) relates to reconsideration motions, whereas subsection (b) relates to renewal motions. A motion to renew differs from a motion for reconsideration in that the former seeks to renew a motion rather than reconsider an order, has no time limit, and may be heard by a new judge. The motion for reconsideration under (a) is brought by any party affected by the order, whereas the renewal motion under (b) is brought by a party who originally made an application for an order. But in either case, the moving party seeks a new result based upon “new or different facts, circumstances, or law.”
Here, the Court of Appeal followed the reasoning in Tate v. Wilburn, 184 Cal.App.4th 150, 160 (2010), that an order denying a renewal motion under section 1008(b). just like one brought under 1008(a) is nonappealable. As the court reasoned in Tate, another result would mean that “a party would have two appeals from the same decision.”
Appeal dismissed.
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.