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 Div. 1 March 3, 2014) (Rothschild, Johnson, Miller) (unpublished).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 Div. 1, Feb. 28, 2014) (Banke, Margulies, Dondero) (unpublished).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.
Arbitration/Waiver/Standard of Review: In Wrongful Death Action, Second District, Division 7 Upholds Trial Court’s Finding That Right To Arbitration Had Been Waived
Defendants Simply Could Not Overcome Substantial Evidence Standard
After their 52-year-old sibling died following bariatric surgery, plaintiffs sued surgery center defendants for wrongful death. No, surgery center defendants did not immediately move to compel arbitration. Instead, they demurred, they moved to change venue, they propounded discovery that plaintiffs answered, and they took three depositions. On June 15, 2012, nine and a half months after the complaint was filed, the surgery center defendants filed their petition to compel arbitration. The superior court denied the petition finding the surgery center defendants had waived any contractual right to arbitrate, and an appeal followed. Brown v. Beverly Hills Surgery Center, LLC, Case No. B243494 (2nd Dist. Div. 7 Feb. 18, 2014) (Perluss, Woods, Zelon) (unpublished).
There were plenty of arguments for finding no waiver: other cases have found no waiver despite longer delay; no trial date had been set; demurrers do not reach the merits; and taking discovery is not necessarily prejudicial. However, it was relevant here that written discovery had been propounded, and had been answered, and that the efforts to demur and to obtain a different judicial venue were “wholly inconsistent with any intent to arbitrate”. In any case, the courts generally treat waiver as a question of fact, and the defendants simply could not overcome the conclusion that “substantial evidence” supported the trial court’s finding of waiver.
Affirmed.
Arbitration/Employment/Enforceability: Second District, Division 2 Reverses Trial Court’s Order Denying CarMax’s Motion To Compel Arbitration
Unilateral Right To Alter Or Terminate Agreement Does Not Necessarily Make It “Illusory”
Employee Casas sued his employer CarMax, alleging wrongful termination and related causes, prompting CarMax to move to compel arbitration. However, the trial court denied CarMax’s motion to compel, buying its argument that the arbitration agreement was “illusory” because the Dispute Resolution Rules and Procedures (DRRP) in play gave CarMax the right to alter or terminate the agreement and the DRRP. CarMax appealed. Casas v. CarMax Auto Superstores California LLC, Case No. B246392 (2nd Dist. Div. 2 Feb. 26, 2014) (Johnson, Chaney, Miller) (unpublished).
The Court of Appeal disagreed on this one, finding that the agreement was not illusory, because like all contracts, it contained an implied covenant of good faith and fair dealing. This conclusion required that the Court distinguish Sparks v. Vista Del Mar Child & Family Services, 207 Cal.App.4th 1511 (2012), a case in which an employee handbook contained a dispute resolution policy, and also provided that the handbook could be “amended, revised and/or modified by [the employer] at any time without notice.” In Casas, however, the arbitration agreement was not hidden in a handbook, and there was a procedure including notice, by which the agreement could be amended. Additionally, another provision made it explicit that any rules in conflict with “a mandatory provision of applicable law” would be automatically to comply with the mandatory provision.
Even though Casas is unpublished, some simple suggestions flow from the case: make sure the arbitration provision is not hidden, and that it is acknowledged; provide a procedure including notice for changes in the employment agreement; provide that the dispute resolution provisions must be in compliance with a mandatory provision of applicable law, or else applicable law takes precedence; and, include a severability provision. In general, drafting that enhances fairness of an arbitration provision enhances enforceability too.
Pending Cases to Watch: Arbitration Cases For SCOTUS
BG Group PLC v. Republic of Argentina
This case was argued before the Supreme Court on December 2, 2013. It presents a unique fact pattern concerning arbitration between an investor (BG Group PLC) and a sovereign state (Argentina). The issue to be resolved by this appeal to the Supreme Court is whether a court or the arbitrator will get to determine whether a precondition to arbitration has been satisfied.
BG had obtained a 2007 arbitral award of $185M, despite the fact that it had not followed a bilateral investment treaty (BIT) clause requiring that a precondition be met before bringing arbitration. After de novo review, the D.C. Circuit vacated, finding a failure to comply with an explicit intent to comply with an arbitration precondition.
Diane Marie Amann, the Emily and Ernest Woodruff Chair in International Law at the University of Georgia School of Law, has an argument analysis posted December 4, 2013 on ScotusBlog, as well as an argument preview, posted November 20, 2013.
Prof. Amann describes the oral argument before the Supreme Court as one nested with “matryoshka-doll complexities,” causing Justice Kennedy to complain about “intellectual whiplash.”
Wikimedia Commons. Author: Mhrmaw. Creative Commons Attribution-Share Alike 2.5 Generic license
Delaware Chancery Court Petitions SCOTUS To Allow Chancery Court To Oversee Private Arbitrations
As reported by the ABAJournal on January 22, 2014, Delaware seeks a writ of certiorari from SCOTUS to review the decision of the Third Circuit ruling that the Delaware Chancery Court’s corporate arbitration program violated the First Amendment because it involved secret trials.
Delaware’s Chancery Court is well-known for its expertise in corporate matters, and touts its arbitration program as a benefit for sophisticated corporate clients. Besides, it will argue, secret arbitrations aren’t really trials. The Chancery Court is represented by Andrew J. Pincus of Mayer Brown. Mr. Pincus represented AT&T in its significant SCOTUS victory over consumer plaintiffs in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011).
Stay tuned!