Arbitration/Employment/Unconscionability/Class: Fourth District, Division 3 Reverses Trial Court’s Denial Of Petition To Arbitrate, Finding Insufficient Evidence Of Unconscionability
But Trial Court Was Correct That Class Arbitration Cannot Be “Inferred” From Silence On The Issue
The trial court judge denied Tenet Health Care Corporation’s motion to compel arbitration of a wage-and-hour lawsuit brought by a hospital nurse. Tenet appealed and obtained a reversal. McElroy v. Tenet Health Care Corporation, G047300 (4th Dist. Div. 3 Aug. 21, 2013) (Bedsworth, J. author 3:0) (unpublished).
The trial court identified three reasons for finding the agreement to arbitrate non-existent, each of which the Court of Appeal shot down. First, the AAA’s procedural rules were not shown to have been provided – but they were sufficiently incorporated by reference. Second, despite the employer’s right to make changes in the contract, it was not truly illusory. The covenant of good faith and fair dealing limits the unbridled exercise of power. Besides, the contract provided that the agreement could not be changed except by agreement. Third, the Court of Appeal interpreted language that the Employee Handbook is not a contract of employment as simply a disclaimer that the employee was something other than an at-will employee.
The Court of Appeal held that the claim of unconscionability simply wasn’t supported by the record. Thus, the arbitration provision was in bold type and not buried (for better or worse, the employee handbooks was not in the record.) Nor was a fee-sharing provision unduly onerous. The employee’s maximum out-of-pocket expenses for the arbitrator and administrative cost would be equal to one day’s pay for exempt employees, or eight times hourly rate for non-exempt employees.
The Court of Appeal, however, did credit the trial judge for concluding that consent to arbitrating class claims cannot be inferred from an agreement that is silent on the subject – “[t]his ruling comports with both federal and state law.” Stolt-Nielsen S.A. v. Animalfeeds International Corp., 559 U.S. 662 (2010).
Arbitration/Waiver: Ninth Circuit Reverses District Court’s Denial Of Motion To Compel Arbitration, Finding Plaintiff Had Not Established Any Prejudice Resulting From Delay
Delay Does Not Equal Prejudice
The Ninth Circuit has reversed the judgment of the district court denying Ernst & Young’s motion to compel arbitration, because the 9th Circuit concluded the employer’s delay in asserting arbitral rights did not result in prejudice. Richards v. Ernest & Young LLP, No. 11-17530 (9th Cir. Aug. 21, 2013) (per curiam) (published).
Why this result, given the fact that the motion to compel was brought after years of litigation?
A dismissal of certain of plaintiff’s claims in court, without prejudice, was not “a decision on the merits.” Discovery conducted in the court proceedings could have also been gained through arbitration. Expenses in court proceedings were a “self-inflicted” wound, given that the plaintiff employee was a party to a mandatory arbitration agreement, and she made a “deliberate choice of an improper forum.”
Finally, the 9th Circuit refused to entertain an argument that relied on D.R. Horton, 357 N.L.R.B. No. 184 (Jan. 3, 2012), that the arbitration agreement was unenforceable under the NLRA. Unfortunately for plaintiff, she raised the argument too late, only after the district court had denied the motion to compel. However, the cases addressing D.R. Horton trend toward the position that the NLRA did not explicitly overrule any provision in the FAA.
Reversed.
In the News: Bank Burned By Boilerplate
Read the Fine Print
As readers of this website will know, arbitration provisions are often located in boilerplate, found in take-it-or-leave-it contracts, raising procedural unconscionability issues in California. Our next case does not involve arbitration – though it does involve arbitration’s beloved mate, boilerplate.
So what happens when a bank fails to read doctored boilerplate?
Cory Doctorow posts on BoingBoing about a “wily Russian fellow” who “crossed out the fine-print on an unsolicited credit-card application . . . and wrote in his own terms, giving himself unlimited, interest-free credit and exemption from all fees, with a 3MM ruble fee [$91,000] should the bank change the terms and a 1MM ruble fee should they cancel his card.” He even crossed out the URL giving the terms and conditions, and wrote in his own URL !
Tinkoff Credit Systems, which provided the wily Russian with an unsolicited credit-card application, sued the customer. “However, the court held that his amendments were binding since the bank accepted them, whether it looked at them or not.”
We can only guess that, if Tinkoff Credit Systems, Russia’s largest on-line bank, had sued in California, it would have had an uphill battle arguing it was the feckless victim of procedural unconscionability.
On August 14, 2013, RT [previously Russia Today] reported that both parties had agreed to call off legal action:
“The conflict is unconstructive, this is why we decided to resolve it in a gentlemanly way, by lifting the mutual claims,” Tinkoff Credit Systems cites its President Oliver Hughes as saying.
“In 2008 it was just a joke, when I tailored my own form and produced that to the bank instead of the official form. But the joke has gone too far,” RIA Novosti cites the small print scribe Dmitry Agarkov as saying.
HAT TIP to attorney Colin Alexander, an avid reader of BoingBoing, who brought this story to my attention.
Arbitration/Award: 9th Circuit Rules Decision Arbitrator Decision To Award Interest On Contract Damages Does Not Foreclose District Court From Awarding Interest On Remaining Portions Of Award
Ninth Circuit Instructs District Court To Award Plaintiff/Appellant Interest On Non-Contract Damages In Arbitration Award
Above: Frenchman’s Flat, Nevada. Atomic cannon test. 1953. Library of Congress.
Judge Duffy’s wry comment upfront signaled where the Ninth Circuit panel was going on this one: “Lloyd’s pussyfooted for years only to eventually deny the claim . . . “ Pussyfooted. After its policyholder Dr. Lagstein, a Nevada nuclear cardiologist, filed suit, Lloyd’s had moved to arbitrate a major disability claim with him, only to get whacked with a total damages award of over $6M, including $4M in punitive damages. “Illustrating the maxim ‘be careful what you ask for’,” wrote Judge Duffy. Lagstein v. Certain Underwriters at Lloyd’s of London, Nos. 11-17369; 11-17460 (9th Cir. August 5, 2013) (Duffy, D.J., sitting by designation) (published).
The arbitrators had awarded interest on $900,000 in contract damages. Did this preclude the district court from awarding interest on the non-contract damages? No. “Courts do not lack authority to award interest where an arbitration award is silent.” [citations omitted].
The district court’s calculation of interest is reviewed de novo, where as here, it turned on issues of statutory interpretation. In diversity cases, such as this one, “the court looks to state law to determine the rate of pre-judgment interest, while federal law determines the rate of post-judgment interest.”
A bit of judicial jujitsu was still necessary to determine the right to prejudgment interest here, because the leading Nevada case had stated, “absent statutory or contractual authority, a district court in a confirmation proceeding may not add prejudgment interest to the arbitration award . . . “ Mausbach v. Lemke, 866 P.2d 1146 (Nev. 1994). Not to worry, says the Ninth Circuit – Mausbach really meant to say pre-award interest is not allowed in Nevada; it just used the wrong words. So Dr. Lagstein gets post-award pre-judgment interest.
Additionally, post-judgment interest on a district court judgment is mandatory. 28 U.S.C. section 1861. But since it wasn’t until the date of the 9th Cir. opinion that Dr. Lagstein’s “unconditional legal entitlement to pre[-]judgment interest was initially established,” Dr. Lagstein gets to collect post-judgment interest on the post-award, prejudgment interest as of the date of the 9th Cir. opinion.
Arbitration/Employment: Labor Arbitration Award Pursuant To Collective Bargaining Agreement Precludes Bringing Common Law Claim For Wrongful Termination
Court Refuses To Extend Camargo v. California Portland Cement Co. To Avoid Preclusive Effect Of Arbitration Award
Camargo v. California Portland Cement Co., 86 Cal.App.4th 995 (2001) holds a labor arbitration pursuant to a collective bargaining agreement (CBA) has no preclusive effect on a claim pursuant to the Fair Employment and Housing Act (FEHA), unless the parties expressly agreed to arbitrate the FEHA claims. Does this holding also extend to common law claims related to FEHA, such as a claim for wrongful termination in violation of public policy? No,says the Court of Appeal in Wade v. Ports America Management Corp., Case No. B238224 (2nd Dist. Div. 4 August 2, 2013) (Manella, J., author 3:0) (published). The Court in Wade holds a labor arbitration award pursuant to a CBA may preclude nonstatutory employment discrimination claims, reasoning that without preclusion, a plaintiff could benefit from the FEHA statutory scheme without complying with its prerequisites.
The only remaining issue was whether the cause of action was the same in both the arbitration and superior court proceedings, such that the arbitration award had res judicata effect. On the record, “appellant asserted a single primary right: his right not to be discharged for wrongful reasons.” The sole injury for which he sought relief was termination. One right, one remedy — res judicata did apply here. Thus, plaintiff’s common law claims were precluded by the res judicata effect of the arbitration award, because the Court refused to extend Camargo to preclude such common law claims.
Arbitration/Nonsignatories/Equitable Estoppel/Agency/Third Party Beneficiaries: Ninth Circuit Holds Parties Remain Bound By Agreements They Made And Not By Agreements They Didn’t Make
Many “Imaginative Arguments” Rejected To Get To Simple Conclusion
I’ve had the unpleasant experience of purchasing electronic equipment, only to discover later that the seller had booked the sale as a lease. Therefore, our next case, Murphy v. DirectTV, Inc., No. 11-57163 (9th Cir. July 30, 2013) (Wardlaw, J. author 3:0) (published) struck a familiar chord (except that I solved my problem without a lawsuit).
Plaintiffs bought DirectTV service equipment through Best Buy, and sued because transactions plaintiffs understood to be sales were treated by defendants as lease transactions, rather than as outright sales. Plaintiffs sued for state law violations, claiming a scheme to deceive customers, and defendants sought to arbitrate. DirectTV’s Customer Agreement required arbitration, but Best Buy was not a party to that agreement. The district court ordered plaintiffs to arbitrate with DirectTV and with Best Buy. Plaintiffs appealed.
The case includes discussion of the retroactivity of AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011) (holding the Federal Arbitration Act preempts California’s rule rendering unenforceable, as unconscionable, arbitration provisions in consumer contracts that waive class action proceedings) as well as equitable estoppel, agency, and third-party beneficiary arguments typically raised by nonsignatories to arbitration agreements, such as Best Buy, who want to arbitrate.
The bottom line? “Notwithstanding the parties’ many imaginative legal arguments, in this case they remain bound by the agreements they made and not by any they did not make.” The district court’s order compelling arbitration with DirectTV was affirmed, and the order compelling arbitration with Best Buy – the nonsignatory – was reversed.