Arbitration/Fees: First District, Division 1 Overturns Fee Award Because Party Prevailing In Declaratory Judgment Action To Stay Arbitration Was Not Necessarily The Ultimate Prevailing Party
It Ain’t Over Till Its Over
Plaintiff Abbey filed two lawsuits against Fortune Drive Associates, LLC, the first lawsuit concerning his business dealings, the second lawsuit seeking declaratory relief to stay an arbitration commenced by Fortune. Abbey prevailed in the second lawsuit, successfully staying the arbitration, and before the conclusion of the first lawsuit, obtained an award of attorney’s fees in the second lawsuit. Fortune appealed. Abbey v. Fortune Drive Associates, LLC, Case No. A135062 (1st Dist. Div. 1 July 29, 2013) (Margulies, Acting P.J., author 3:0) (unpublished).
The Court agreed with Fortune: the award of attorney’s fees is available only to the prevailing party in the underlying contractual dispute. See my May 27, 2012 post on Frog Creek Partners, LLC v. Vance Brown, Inc., 206 Cal.App.4th 515 (2012) (“there may only be one prevailing party entitled to attorney fees on a given contract in a given lawsuit”). Reversed.
Arbitration/Employment/Unconscionability: Fifth District Reverses Trial Court And Orders Arbitration, Finding No Unconscionability
In Dictum, Court Suggests Armendariz Is No Longer Good Law
Mercado v. Doctors Medical Center of Modesto, Inc., Case No. F064478 (5th Dist. July 26, 2013) (Hill, P.J., author 3:0) (unpublished) offers a routine unconscionability analsysis of an employee agreement to arbitrate. Finding “some degree” of procedural unconscionability, based on an adhesive contract and the lack of a prominent heading or bold print, the Court moves on to analyze substantive unconscionability, concluding that the arbitration agreement meets the requirements of Armendariz v. Foundation Health Psychare Services Inc., 24 Cal.4th 83 (2000), and therefore is not substantively unconscionable.
Unremarkable though the case may be, the following dictum about Armendariz caught our attention:
“Refusing to enforce an arbitration agreement according to its terms because the claims involve unwaivable statutory rights and the agreement does not contain specific provisions the court believes are necessary to vindicate those statutory rights appears contrary to the decision in Concepcion [__ U.S. __, 131 S.Ct. 1740 (2011)]. Armendariz carved out a class of claims – those involving unwaivable statutory rights – and applied a special rule to agreements to arbitrate those claims – requiring them to meet its five minimum requirements – in order for them to be enforceable. That appears to be the type of state rule Concepcion condemned.”
Perhaps another way to read Concepcion is that state court defenses such as unconscionability still exist, and another way to read Armendariz is that it is a gloss on the meaning of unconscionability. In any case, the waiver of unwaivable statutory rights through an agreement to arbitrate is a battleground for future appellate decisions. That old maxim that “for every right there is a remedy” cannot happily coexist with the waiver of unwaivable statutory rights.
Arbitration/Employment/Waiver/Standard of Review: Fourth District, Division 1 Satisfied That Substantial Evidence Supports Finding Of Waiver Resulting From Delay And Considerable Discovery
Employer Didn’t Want To Arbitrate
Usually employees want their day in court, and employers try to arbitrate, but our next case presents “the unique situation where . . . the employer refuses to arbitrate, arguing the employee waived her contractual rights to arbitrate.” The Court of Appeal had no difficulty satisfying itself that “substantial evidence supports the court’s finding of waiver.” Nelson v. Service Corporation International, Case No. D061861 (4th Dist. Div. 1 July 29, 2013) (Huffman, Acting P.J., author 3:0)(unpublished).
Because the undisputed facts did not compel only one inference on the record, the Court applied a substantial evidence standard of review. The fact that plaintiff litigated over three years in various actions before demanding arbitration, and that discovery included some 60 depositions, 1,000 interrogatories and 740 answers to discovery, provided substantial evidence of waiver. Class claims were litigated in multiple courts, including one appeal. It also did not help plaintiff that her “arbitration demand coincided with Respondents’ effort to decertify the conditional class.”
Arbitration/Delegation: Ninth Circuit Holds Incorporation Of UNCITRAL Arbitration Rules Delegates Questions Of Arbitrability To The Arbitrator
Ninth Circuit, In A Case Of First Impression, Follows Second And D.C. Circuits
In a case of first impression for the Ninth Circuit, the Court of Appeals holds “that as long as an arbitration agreement is between sophisticated parties to commercial contracts, those parties shall be expected to understand that incorporation of the UNCITRAL rules delegates questions of arbitrability to the arbitrator.” Oracle America, Inc. v. Myriad Group A.G., Case No. 11-17186 (9th Cir. July 26, 2013) (Christen, J., author 3:0) (published).
The underlying case involved a royalty dispute between Myriad Group A.G., the licensee, and Oracle America, Inc., the licensor and developer of Java. Oracle sued in the Northern District of California for breach of contract, violation of the Lanham Act, copyright violation, and unfair competition. Myriad Group sued in the District of Delaware, and moved in the Northern District of California to compel arbitration. The district court granted the motion to compel arbitration of contract claims, but denied the motion with respect to all other claims, concluding that, because an arbitration clause stated the court’s jurisdiction was exclusive with respect to intellectual property claims, the parties intended for the court to decide questions of arbitrability.
Apparently the only issue on the appeal was whether the arbitrator or the court was to decide the issue of arbitrability. The general rule is, “unless the parties clearly and unmistakably provide otherwise,” it is the court rather than the arbitrator that decides arbitrability. Here, however, the Court of Appeal, following the Second and D.C. Circuits, held incorporation of the UNCITRAl Arbitration Rules clearly and unmistakably delegates the power to decide arbitrability to the arbitrator.
So now the arbitrator now gets to decide whether the non-contract claims need to be arbitrated.
Blog Bonus: Wikipedia notes a distinction between the UNCITRAL Model Law on International Commercial Arbitration, and the UNCITRAL Arbitration Rules. The distinction is explained on UNCITRAL’s website: “The UNCITRAL Model Law provides a pattern that law-makers in national governments can adopt as part of their domestic legislation on arbitration. The UNCITRAL Arbitration Rules, on the other hand, are selected by parties either as part of their contract, or after a dispute arises, to govern the conduct of an arbitration intended to resolve a dispute or disputes between themselves. Put simply, the Model Law is directed at States, while the Arbitration Rules are directed at potential (or actual) parties to a dispute.”
Arbitration/Enforceability: Fourth District, Div. 3 Holds That “Patchwork of Documents” Prevents Finding Of Enforceable Arbitration Agreement
Court of Appeal Agrees Defendants Failed To Show Plaintiffs Agreed To Specific Arbitration Agreement Submitted To The Court
The lesson from the next case – a published decision – is that employer/employee arbitration documents need to mesh together, and an employer cannot rely on sloppy incorporations by reference. The Court neatly sums up its conclusions:
“Substantial evidence in the record establishes one Plaintiff did not sign any document acknowledging or agreeing to the original arbitration policy. Moreover, she did not impliedly agree to that policy by continuing to work at the hospitals because she did not receive notice of its existence. As for the other seven Plaintiffs, Integrated submitted a confusing patchwork of acknowledgments and other forms these Plaintiffs signed, but none of these documents refer to the specific employee handbook Integrated filed as the source of the arbitration policy. To the contrary, the documents Plaintiffs signed either refer to an entirely different document as the source of the arbitration policy or fail to meet the legal standards for incorporating by reference an arbitration policy or other document. Without sufficient evidence of the actual arbitration policy to which Plaintiffs agreed when they signed the acknowledgments and other documents, we may not enforce the policy against Plaintiffs.”
Avery v. Integrated Healthcare Holdings, Inc., G046202 (4th Cir. Div. 3 July 23, 2013) (Aronson, J., author 3:0).
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Arbitration/Employment/Waiver/Public Policy: Second District, Div. 1, Holds That Employer’s Right To Arbitrate Some Claims Was Not Waived, Because The Employee Had Not Shown Prejudice, But That PAGA Claims Could Not Be Arbitrated
PAGA Claims Could Not Be Arbitrated Because PAGA Is For The Benefit Of The Public, Not Private Parties
In Harvey v. Yellowpages.com, Case No. B239733 (2nd Dist. Div. 1 July 22, 2013) (Mallano, J., author of majority opinion) (unpublished), the Court considered whether the trial court properly denied an employer’s petition to compel arbitration of a dispute involving wage/hour and related claims. The employee, Mr. Harvey, claimed his supervisor, Sly (yes, that was the supervisor’s name) had treated him unfairly, requiring him to clock in and out, even when Harvey was not allowed to take a lunch break, and that Harvey had been terminated ostensibly for lack of performance, but really because he was sick and disabled. After being served with pleadings, the employer launched discovery and waited approximately four months to petition to arbitrate. The trial court found the employer had waived its right to arbitrate, and claims under the Private Attorneys General Act of 2004 (PAGA) were not arbitrable. The employer appealed.
Justice Mallano concluded a four month delay in petitioning to arbitrate and launching limited discovery had not resulted in prejudice to the employee. Thus, there was no waiver of the right to arbitrate. However, Justice Mallano did agree PAGA claims, allowing penalties for violations of the Labor Code, could not be arbitrated, because PAGA “is in the nature of an enforcement action” intended to confer benefits on the public. Accordingly, the order denying the petition to compel arbitration was reversed as to all causes of action, except for the cause of action under PAGA, which cause was stayed until the other causes were arbitrated.
Justice Johnson concurred with Justice Mallano, whereas Justice Rothschild, agreeing with the trial judge, would have affirmed the order denying arbitration. We await further word from the California Supreme Court on the arbitrability of PAGA claims. Iskanian v. CLS Transportation Los Angeles, LLC, S204032. (B235158; 206 Cal.App.4th 949; Los Angeles County Superior Court; BC356521.) See my June 8, 2013 post on arbitrability of PAGA claims.