Arbitration/Scope: Arbitration Provision In Operating Agreement Of LLC Investment Vehicle Does Not Govern Relationship Between Investors And Investment Advisor
Basis For The Wrongs Alleged By Plaintiffs Was A Separate Investment Services Agreement Containing No Arbitration Provision
Stephen Goldberg and Victoria Pynchon sued their investment advisors, Coggins Company, for breach of contract, professional negligence, and other claims relating to a real estate investment gone sour in Wildomar Investors, LLC. Among other things, Plaintiffs alleged that Defendants had an undisclosed interest in the LLC, resulting in a possible conflict of interest, and that Defendants mislead Plaintiffs into believing that they had purchased one investment unit, while concealing that Plaintiffs had purchased two units in the LLC. Defendants petitioned to compel arbitration, based on a broadly worded arbitration provision in the LLC operating agreement. The trial court denied the petition on the grounds that “defendants’ allegedly deceptive investment actions arose out of the investment services agreement, and not the Wildomar operating agreement.” Defendants appealed. Goldberg v. The Coggins Company, Case No. B245236 (2nd Dist. Div. 2 Sept. 14, 2013) (Chavez, J., author 3:0) (unpublished).
The Court of Appeal agreed with the trial court that the wrongs alleged by the investors were governed by the investment services agreement, which lacked an arbitration provision, rather than the the LLC operating agreement, which contained the arbitration provision. The investment services agreement and the LLC operating agreement “involved separate enterprises, separate risks, and separate contractual relationships.”
Affirmed.
“Cursed by those whose savings he has squandered and whose trust he has betrayed.” “Illustration shows a man, probably Charles Sanger Mellen, standing amid a crowd of angry investors who have lost their savings and investments due to mismanagement of the New Haven Railroad.” Puck, 1913. Library of Congress.
Arbitration/Unconscionability/Employment: First District, Division 1 Concludes Arbitration Agreement Is Not Unconscionable And Reverses Trial Court’s Order Denying Arbitration
Failure To Attach AAA Rules And Employer’s Unilateral Ability to Modify the Arbitration Agreement Were the Issues Here
Plaintiff Peng sued her employer for employment discrimination and related claims. After the trial court denied defendant’s motion to compel arbitration, the employer appealed. On appeal, the issues were whether the employer’s failure to attach AAA rules resulted in procedural unconscionability and whether the employer’s ability to unilaterally modify the arbitration agreement resulted in substantive unconscionability. Peng v. First Republic Bank, Case No. A135503 (1st Dist. Div. 1 October 2, 2013) (Dondero, J. author 3:0) (unpublished).
No, and no were the Court’s conclusions.
The failure to attach the AAA rules, “standing alone” was insufficient to support a finding of procedural unconscionability. Interestingly, the Court distinguished a case in which an arbitration agreement referenced the Better Business Bureau arbitration rules but failed to attach them. The distinction is that the Better Business Bureau rules are not just procedural, but also limit the scope of arbitral claims, thereby “substantively limiting the defendant’s exposure.” Harper v. Ultimo, 113 Cal.App.4th 1402, 1407 (2003).
As to the employer’s ability to unilaterally change the arbitration agreement, that does not necessarily lead to substantive unconscionability, because it is reined in by the implied covenant of good faith and fair dealing, which “saves that agreement from being illusory and thus unconscionable.” Serpa v. California Surety Investigations, Inc., 215 Cal.App.4th 695, 708 (2013).
Arbitration/Vacatur: Second District, Division 7 Refuses To Vacate $26.8 Million Arbitration Award
Quarrel With Arbitrator’s Reasoning And Conclusion Provides No Grounds For Reversing Trial Court’s Order Affirming Arbitration Award
Following a failed real estate investment, HCR Moorpark Investors, LLC obtained an order confirming a $26.8 million arbitration award in its favor. With so much at stake, it is not surprising that defendants appealed, but the case is a reminder of how impervious arbitration awards are to attack on appeal. The Court of Appeal handily rejected arguments that the arbitrator exceeded his powers by failing to decide certain issues submitted, had improperly decided an unsubmitted issue, had failed to provide a fair hearing, or had remade the parties’ agreements. Affirmed. HCR Moorpark Investors, LLC v. North Park Communities, LLC, et al., Case No. B240046 (2nd Dist. Div. 7 Aug. 21, 2013) (Perluss, J. author 3:0) (unpublished).
Arbitration/Class/Employment: Motion To Compel Arbitration Was Premature Before Class Was Certified Where Named Plaintiff Was Not Party To Arbitration Provision
Before Certification of Class, Court Lacked Personal Jurisdiction Over Putative Class Members Who Signed Arbitration Agreement
Prospective lead plaintiff Nguyen filed putative class action complaint for alleged wage and hour violations against his former employer Inter-Coast International Training, Inc. Of the 220 individuals in the putative class, only 59 had signed an arbitration agreement – but Nguyen was not one of those who had signed an arbitration agreement. The employer moved unsuccessfully to compel arbitration, and appealed the order denying its motion to compel arbitration and stay the proceedings. Nguyen v. Inter-Coast International Training, Inc., Case No. B241938 (2nd Dist. Div. 4, Aug. 21, 2013) (Suzukawa, J., author 3:0) (unpublished).
The Court of Appeal affirmed the order denying the motion to compel arbitration and stay the proceedings. Why? The motion to compel arbitration and stay litigation was premature prior to certification of the class. The court lacked jurisdiction over the putative class members who had signed the arbitration agreement. After all, parties who had signed the arbitration agreement might be excluded from the certified class, or class certification might even be denied.
Arbitration/Enforceability/Fees: Fourth District, Div. 3 Rules That Impoverished Plaintiffs Unable To Pay Arbitration Fees May Be Excused From Arbitration
Hobson’s Choice? – Defendant Can Choose To Pay Arbitration Fees If Trial Court Determines Plaintiffs Are Unable To Pay
“The only issue before us is whether 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. We conclude they could.” That’s the holding in Roldan v. Callahan & Blaine, G047306 (4th Dist. Div. 3 Aug. 26, 2013) (Rylaarsdam, J. author 3:0) (published).
All the plaintiffs – elderly, of limited means, and relying on section 8 housing – settled the underlying case involving toxic mold, but reluctantly, after their attorneys (now defendants) unsuccessfully attempted to have their clients declared legally incompetent so that a guardian ad litem could be appointed to cooperate with the attorneys’ efforts. Plaintiffs sued their attorneys, based on the allegedly inadequate settlement, and attorney conduct. Defendants/attorneys successfully moved to compel arbitration.
The Court of Appeal refused “to effectively deprive [plaintiffs] of access to any form for resolution of their claims against Callahan.” An interesting comparison is the recent United States Supreme Court majority opinion, holding that 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. American Express Co. et al. v. Italian Colors Restaurant et al., No. 12-133 (June 20, 2013). “Just too darn bad,” is how Justice Kagan, dissenting, described the Supreme Court majority opinion allowing arbitration and waiver of class action, even if the result was to effectively deprive plaintiffs of a viable forum – leaving them with a right but not an effective remedy.
Quotation of the day:
“In theory, a written contract is the embodiment of a fully and fairly negotiated agreement setting forth the terms and conditions governing a particular transaction or relationship. It reflects the mutual intentions and expectations of both parties, who have an equal understanding of the contract’s legal and practical effect. However, in cases where parties to the contract have widely divergent levels of sophistication, a written contract is often less the embodiment of true mutual agreement than it is the product of the drafting party’s desire and a series of legal fictions.”
Above: Rich and poor. Sol Eytinge. 1873. Library of Congress.
Arbitration/Employment/Unconscionability/Severability/Review: Second Dist., Div. 2 Affirms Denial Of Employer’s Motion To Compel Arbitration – Lack Of Mutuality Is Key Here
Also, Court Refuses To Sever Because Of Lack Of Mutuality
No sooner did I post about McElroy v. Tenet Healthcare Corporation, a case reversing an order denying arbitration to a healthcare organization sued by a nurse, than I came across our next case, decided on the same day, and affirming an order denying arbitration to a convalescent home sued by a dietician. Serdenia v. Granada Hills Convalescent Hospital Care, Inc., B243074 (2nd Dist. Div. 2 Aug. 21, 2013) (Chavez, J. author 3:0) (unpublished). Both cases involve wage-and-hour claims brought against healthcare organizations; both involve claims of unconscionability.
Matters were simplified in Serdenia, because there was no record of the trial court’s reasoning below. Therefore, the Court of Appeal only addressed “the theory of law which we find presents a basis for upholding the trial court’s decision”: unconscionability.
Most of these wage-and-hour cases involving lower-level employees will also involve contracts of adhesion. As was the case here, it is usually not hard to find some level of procedural unconscionability. (Though there is a considerable fudge factor. For example, in Serdenia, the Court stated: “[t]he contract is undeniably a contract of adhesion and is therefore highly procedurally unconscionable.” Another panel might have concluded that there was adhesion but that it was not “highly” procedurally unconscionable. Compare Nibler v. Monex Deposit Company, G046511 (4th Dist. Div. 3 May 13, 2013) (Moore, Acting P.J., author 2:1, with Justice Fybel concurring) (unpublished), in which the majority found that a contract of adhesion was not procedurally unconscionable, with Justice Aronson dissenting on this very point. See my May 19, 2013 post on Nibler.)
Serdenia turns on the issue of mutuality. The agreement was written so as to limit binding arbitration to employees. Furthermore, “claims covered” turned out to be those “which would logically be brought by an employee against an employer.” This lack of mutuality between employer and employee was the basis for the Court to conclude the provision was substantively unconscionable. And, because the agreement lacked mutuality, the Court further concluded that it was permeated with unconscionability, such that the severability would not suffice to cure the problem.
Affirmed.