Arbitration/Stay/FAA: Ninth Circuit Adopts Rebuttable Presumption That An Order Compelling Arbitration But Not Explicitly Dismissing Underlying Claims Stays Those Claims
Finality Of Order Compelling Arbitration Depends On Context, “But Our Review Of That Context Is Weighted Against Finality”, Says Ninth Circuit Panel
The Federal Arbitration Act permits immediate appeal of “a final decision with respect to an arbitration,” 9 U.S.C. section 16(a)(3), which is a decision that “ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment.” Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 86 (2000). So what happens when the district court compels arbitration, without explicitly dismissing nor staying the action? Appealable or interlocutory?
“We hold that such an order implicitly stays the action and thus is not ‘a final decision with respect to an arbitration’ . . . We also adopt a rebuttable presumption that an order compelling arbitration but not explicitly dismissing the underlying claims stays the action as to those claims pending the completion of the arbitration.” Appeal dismissed for lack of jurisdiction. MediVas, LLC v. Marubeni Corp., No. 12-55375 (9th Cir. Jan. 27, 2014). (Fisher, Goodwin, Clifton).
PRACTICE TIP: The Court offers its own practice tip: If the appealing party had “requested a clarifying order from the district court before taking this appeal, the substantial time and effort expended on this procedural issue could have instead been spent advancing this litigation toward its ultimate resolution.”
Review: Significant ADR Cases In 2013
Sixteen Cases – And We Posted About Twelve Of Them . . . Plus One More Supreme Court Case . . .
On January 10, 2014, I attended a meeting of the Orange County Bar Association Litigation Section. The law firm of Connor, Fletcher & Hedenkamp LLP made a presentation on new statutes, new rules, and new cases, including a review of sixteen published ADR cases. As it turns out, I posted about twelve of the sixteen ADR cases in 2013. Here are the cases, links to my posts and to the cases, and the holdings.
- Acquire II Ltd. v. Colton Real Estate Group, 213 Cal.App.4th 959 (2013) (reversal of trial court’s denial of motion to compel arbitration under Cal. Code Civ. Proc. section 1281.2).
- Ahdout v. Hekmatjah, 213 Cal.App.4th 21 (2013) (licensing requirement for contractors constitutes explicit legislative expression of public policy that if not enforced by arbitrator constitutes grounds for judicial review). January 27, 2013 post.
- American Express Co. v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) (the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration just because the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery). June 25, 2013 post.
- Avery v. Integrated Healthcare Holdings, Inc., 218 Cal.App.4th 50 (2013) (“patchwork of documents” prevented enforceability of arbitration agreement). July 28, 2013 post.
- Barsegian v. Kesller & Kessler, 215 Cal.App.4th 446 (2013) (nursing home’s petition to arbitrate for lack of evidence that husband delegated authority to arbitrate to wife). April 18, 2013 post.
- Gray v. Chiu, 212 Cal.App.4th 1355 (2013) (California Arbitration Act And ethics standards require arbitrator to disclose a lawyer in the arbitration is a member of the dispute provider resolution organization). January 22, 2013 post.
- HM DG, Inc. v. Amini, 219 Cal.App.4th 1100 (2013) (holding arbitration agreement valid notwithstanding absence of agreed method for appointing arbitrator). November 2, 2013 post.
- Hong v. CJ CGV America Holdings Inc., 222 Cal.App.4th 240 (2013) (trial court, not arbitrator, should decide merits of waiver of arbitration by litigation conduct). December 18, 2013 post.
- Mave Enterprises Inc. v. The Travelers Indemnity Co. of Connecticut, 220 Cal.App.4th 780 (2013) (publication order with link to case) (state court first obtaining subject matter jurisdiction over dispute retains jurisdiction to confirm award, notwithstanding petition to vacate brought in federal court).
- Mt. Holyoke Homes LP v. Jeffer Mangels Butler & Mitchell LLP, 219 Cal.App.4th 1299 (2013) (arbitrator’s reliance on attorney at party’s law firm as a reference raised reasonable suspicion of bias, resulting in vacation of arbitration award).
- O’Donoghue v. Superior Court of the County of San Francisco, 219 Cal.App.4th 245 (2013) (judicial reference agreement held enforceable despite failure to specifically mention waiver of jury trial).
- Optimal Markets Inc. v. Salant, 221 Cal.App.4th 912 (2013) ( Code of Civ. Proc. section 128.7 sanctions are unavailable in arbitration where attorney has not “presented” pleading to Court.) December 8, 2013 post.
- Peng v. First Republic Bank, 219 Cal.App.4th 1462 (2013) (failure to attach AAA rules, and ability of employer to unilaterally modify arbitration agreement did not result in substantive unconscionability). November 1, 2013 post.
- Roldan et al. v. Callahan & Blaine et al., 219 Cal.App.4th 87 (2013) (plaintiffs, each of whom were subsequently granted permission to proceed in forma pauperis in the trial court, could likewise be
excused from the obligation to pay fees associated with arbitration). August 28, 2013 post. - Serpa v. California Surety Investigations, Inc., 215 Cal.App.4th 695 (2013) (arbitration agreement, including unilateral amendment clause, held not unconscionable – covenant of good faith and fair dealing reins in ability to make unilateral changes). April 28, 2013 post.
- Sonic-Calabasas A Inc. v. Moreno, 57 Ca.4th 1109 (2013) (Federal Arbitration Act preempts a state law rule “categorically prohibiting waiver of a Berman hearing in a predispute arbitration agreement imposed on an employee as a condition of employment”; however, the agreement requiring that a Berman hearing to be bypassed in favor of arbitration “may be unconscionable if it is otherwise unreasonably one-sided in favor of the employer”). November 5, 2013 post.
To the above list of significant ADR cases, I would add Oxford Health Plans LLC v. Sutter, 569 U.S. __, 133 S.Ct. 2064 (2013), in which the U.S. Supreme Court held that an arbitrator does not “exceed his powers” under section 10(a)(4) of the Federal Arbitration Act where the parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and he determined that it did. Because the arbitrator construed the contract, he did not “exceed his powers”, and it does not matter whether the arbitrator construed the parties’ contract correctly. June 15, 2013 post.
It was a busy year!
Recommended Reading: Dr. Donna Shestowsky’s Article, “The Psychology of Procedural Preference: How Litigants Evaluate Legal Procedures Ex Ante”
At The Beginning Of Their Case, Litigants Prefer Mediation To Most Adjudicative Procedures
Dr. Donna Shestowsky, a Professor of Law at UC Davis, with a doctorate in psychology, has authored a very interesting study on litigants’ preferences, at the beginning of their case, for different dispute resolution procedures. Her article, “The Psychology of Procedural Preference: How Litigants Evaluate Legal Procedures Ex Ante,” appears in the Iowa Law Review, Vol. 99:637 (2014), and is available online. Dr. Shestowsky’s article “reports the first multi-jurisdictional study of how civil litigants whose cases are filed in court assess legal procedures ex ante.” Her most basic conclusion is that, “contrary to what some scholars have argued, litigants prefer mediation to most adjudicative procedures ex ante.” While some scholars may find this conclusion “surprising,” I suspect that many litigators and judges will not find it surprising.
Some of Dr. Shestowsky’s conclusions are:
- Litigants significantly preferred mediation to all forms of adjudication except for the judge trial.
- Litigants preferred to negotiate with the parties alongside their attorneys rather than having the attorneys negotiate without the parties.
- Litigants expected binding arbitration to be the procedure with the lowest use, and attorneys negotiating without clients to be the procedure with the highest use.
- Litigants tended to like each procedure more than they thought they would use it.
- The more litigants highly estimated a trial win, the more they liked the idea of a jury trial.
- Women liked binding arbitration and jury trial less than men did.
- Repeat litigants liked binding arbitration more than newbies.
- Personal injury litigants liked jury trial more than property litigants.
- Ethnicity was not a factor in any of the significant models.
The most surprising result to me was that litigants who opposed a company liked binding arbitration more than litigants who opposed an individual – surprising in light of the assumption that consumer and employment plaintiffs shun arbitration. However, this doesn’t really address the hot area of developing law concerning the availability of arbitration in consumer class actions. Consumer class actions and the “psychology of procedural preference” could well be a separate study.
Dr. Shestowsky candidly acknowledges caveats regarding the study: 1) the correlations do not establish causality between the factors examined; 2) the response rate was 10% – not unusual for a mail survey, but still 10%; 3) future replication is desirable, as only three jurisdictions were studied (Third Judicial District Court, Salt Lake City, Utah, Superior Court of Solano County, California, Fourth Judicial District, Mulnomah County, Oregon); 4) important categories of cases had to be excluded – foreclosure and collection cases, as well as landlord-tenant, family law, tax, and bankruptcy cases.
This study will certainly provide fertile ground for many more such studies. For example, the “case pull” for the study involved litigants identified during a two-week period within the filing of their case. At that point in time, most first-time litigants know very little about ADR and what to expect from litigation. How do their attitudes about litigation procedures evolve as their case grinds on?
And what about the significant role of the judge in shaping the litigant’s evaluation of legal procedures? Often, judges give a pep talk to litigants, urging ADR, because it empowers the litigants, is relatively inexpensive, makes it easier to collect money, allows a negotiated outcome rather than a thumbs up or down result for the litigant, resolves most disputes, allows creative “win-win compromises”, is confidential – and, oh yes, clears court calendars. But frequently this talk comes very late in the process. How might the judge shape the litigant’s procedural preferences, if the litigant heard that talk early on from the court?
Who pays for the mediator, and how does that factor affect procedural preferences?
And why should we care about how the litigant evaluates legal procedures ex ante more than we care about how the litigant evaluates legal procedures post ante?
In a recent interview, former Secretary of State Robert Gates said, “the dirty little secret in Washington was that the biggest doves wore uniforms.” Similarly, one could say that the biggest proponents of mediation are often the suited lawyers and the robed judges. They have seen the psychic and economic costs of legal warfare. “I must say as a litigant,” Judge Learned Hand famously lectured, “I should dread a law suit beyond almost anything short of sickness and death.” And perhaps this is not such a bad thing, because if the conclusions of Dr. Shestowsky’s article are correct, then the procedural preferences of the litigants must often align with the opinions of judges and lawyers. If only the legislators and taxpayers would support a robust mediation program in the court system, everyone might be just a little bit happier – or at least less disappointed.
Mediation/Confidentiality/Settlement Agreement: Second District, Division 6 Affirms Judgment Enforcing Mediation Settlement Agreement – Statements Made During Mediation Are Inadmissible
Evidence Code Section 1119 Makes Anything Said During Mediation Inadmissible And Undiscoverable
We have posted from time to time on mediation and confidentiality, noting how difficult it is to set aside a settlement agreement based on statements made during the mediation process: statements made during mediation, even to one’s own attorneys, are inadmissible. Cassel v. Superior Court, 51, Cal. 4th 113, 123 (2011). And so in Cruz v. Bank of America, No. B247763 (2nd Dist. Div. 6 Jan. 6, 2014) ((Yegan, J., author) (unpublished), the trial court denied plaintiffs’ motion to set aside the settlement agreement, ruling that statements made during mediation are inadmissible. The Court of Appeal affirmed the order enforcing a mediation settlement agreement with this comment: “Appellants had their mediation, settled the matter, and had their day in court.”
Arbitration/Disclosures: Fifth District Rules That Plaintiff/Appellant Forfeited His Objections To The Arbitrator’s Initial Disclosure Statement
Once Plaintiff Knew of Arbitrator’s Relationship With Defendant, Plaintiff Was On Inquiry Notice To Ask About Details
An arbitrator must make certain disclosures within 10 days of receiving notice of his or her nomination to serve as a neutral arbitrator. See CCP section 1281.9. Once the arbitrator makes those disclosures, a party has 15 days to serve a “notice” for disqualification that is akin to a peremptory challenge, or may serve a “demand” for disqualification outside the 15-day deadline, akin to a challenge for cause.
Here, the arbitrator served disclosures describing his relationship with defendant State Farm, but left out additional details required by statute – the amounts of awards in matters he had handled. Plaintiff appealed the judgment confirming the arbitration award, seeking to set it aside because of inadequate disclosures by the arbitrator. Avedikian v. State Farm, Case No. F063595 (5th Dist. Dec. 18, 2013) (Gomes, J., author) (unpublished).
The dispositive authority on failure to timely object to an arbitrator’s disclosures is Dornbirer v. Kaiser Foundation Health Plan, Inc., 166 Cal.App.4th 831 (2008). Dornbirer holds that “the words ‘failed to disclose within the time required for disclosure a ground for disqualification of which the arbitrator was then aware’ in section 1286.2 refer to a failure to disclose the existence and nature of any relationship between the arbitrator and the parties or the parties’ attorneys, not the specifics of each such relationship.”
Justice Gomes explains that once the party is “informed of the arbitrator’s connection to other participants in the arbitration,” the party is on inquiry notice and can seek additional information or exercise rights to serve a notice of disqualification. What the party “cannot do is passively reserve the issue for consideration in subsequent court proceedings.” That’s what happened here, resulting in waiver of objections.
The judgment confirming the arbitration award was affirmed.
TIP: When you receive the arbitrator’s disclosures, check out the procedures for disqualifying an arbitrator set forth in section 1281.91.
Arbitration/Settlement/CCP 664.6: Fourth District, Division 2 Affirms Judgments, Finding Settlement Agreement Is Not Too Uncertain To Enforce
A Roadmap For Drafting An Enforceable Settlement Agreement
In our next case, the factors supporting enforceability of a settlement agreement provide a roadmap for drafting an enforceable agreement.
Defendants appealed two identical judgments entered in related lawsuits, arguing that the trial court should have not enforced a settlement agreement because, among other things, it was too uncertain. Hiatt v. Elite Leather Company and Huntington Industries, Inc. v. Elite Leather Company, Case No. G047980 consolidated with G047980 (4th Dist. Div. 3 Dec. 19, 2013) (Rylaarsdam, Acting P.J., author) (unpublished).
A settlement agreement is enforceable under CCP section 664.6 only if the parties agreed to all material settlement terms. Plaintiffs argued the settlement agreement was not uncertain as to material terms, whereas defendants argued that the agreement was uncertain and just an “agreement to agree” that was never sufficiently nailed down.
Here, the agreement contained a procedure for choosing a forensic accounting expert; a methodology; a provision for what would happen if either party disputed the finding on what was owed under an asset purchase agreement; binding arbitration if a party rejected the accountant’s conclusion; an agreement to confer with the mediator concerning selection of an accountant; and a provision that the agreement was enforceable even without further written provisions. That was sufficient to concluded the agreement was not void for uncertainty as to material settlement terms.
Additional points weighed in favor of enforceability: the parties had signed the agreement; counsel had approved the agreement as to form; an insurance company’s signature was not necessary, as the insurer was not a party; plaintiffs timely submitted the names of three experts, but defendants failed to do so; both parties participated equally in the drafting; the terms were read aloud by plaintiff’s counsel with plaintiff’s co-counsel and defense counsel and the mediator present; and, the agreement explicitly stated, “this document is intended to be fully enforceable . . . .”
The opinion is particularly helpful for a discussion of cases in which an agreement has failed or succeeded to be enforced under 664.6.
Both judgments were affirmed.