Arbitration/Employment/Unconscionability: Qualifying Language Requiring Compliance With “Applicable Law” Saves Arbitration Agreement From Being Unconscionable
Washington D.C. Bicycle Rental Shop. 1942. Marjory Collins, photographer. Library of Congress.
Plaintiff Corbin sued her employer Specialized Bicycle Components, Inc. and its president for harassment, discrimination, and wrongful termination. The trial judge, who commented about the defendant’s failure to provide the JAMS rules, found the agreement unconscionable, and refused to compel arbitration. Defendants appealed, arguing that the employee could not show substantive unconscionability, because the agreement met all the requirements of Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) for a valid arbitration provision. Corbin v. Specialized Bicycle Components, Inc., No. H037212 (6th Dist. July 17, 2013) (Mihara, J. author 3:0) (unpublished).
A seeming “carve-out” for injunctive relief, which would favor the employer, was construed by the Court of Appeal to simply provide for the availability of injunctive relief within the arbitral forum, rather than to provide a carve-out for a judicial action for injunctive relief. Qualifying language that arbitration costs “shall be divided equally between [the parties], unless otherwise required by law” removed “the threat that Corbin might have to pay half the arbitration forum costs, since the law clearly requires ‘otherwise’ in cases brought by employees seeking to vindicate their public rights.” And a seemingly harsh attorney’s fees provision was saved by an express qualifying reference to “provisions of the applicable law.” How can a provision that must comply with applicable law ever be substantively unconscionable? [There’s a drafting tip].
Concluding there was no substantive unconscionability, the Court did not need to address the procedural unconscionability prong (and presumably that is why it did not discuss in depth the missing JAMS rules).
Though not a signatory to the arbitration agreement, the company president fell within the rule that a defendant alleged to be an agent of the party to the arbitration agreement could compel arbitration.
Agreeing with the employer, the Court of Appeal reversed the order denying the employer’s motion to compel arbitration.
Arbitration/Public Policy/Preemption/Choice of Law: Ninth Circuit Holds That Montana’s Interest In Protecting Consumers From Unfair Arbitration Agreements Is Preempted By The Federal Arbitration Act
And Because Montana Law Was Preempted, Choice of Law Principles Required Application Of New York Law To Consumer Transaction
Wild Goose Goose Island Overlook at National Glacier Park, Montana. Author: rmhermen. GNU Free Documentation License.
After plaintiffs, who resided in Montana, sued their former Internet services provider Bresnan Communications, for enabling an advertiser to get customer information used to target advertising to Bresnan’s customers, Bresnan sought to enforce an arbitration provision in its customer contracts. Relying upon Montana’s public policy invalidating adhesive agreements running contrary to the reasonable expectations of a party (such as adhesive consumer contract arbitration provisions), the Montana district court judge declined to enforce the arbitration clause and a New York choice-of-law provision. Bresnan appealed, arguing that Montana’s public policy was preempted by the FAA and AT&T Mobility v. Concepcion, __ U.S. __, 131 S.Ct. 1740 (2011), and that a New York choice-of-law provision applied to the contract. Mortensen v. Bresnan Communications, LLC, No. 11-35823 (9th Cir. July 15, 2013) (published) (Gould, author 3:0).
The Ninth Circuit panel held that the FAA preempted Montana’s public policy invalidating adhesive agreements running contrary to the reasonable expectations of a party. In so holding, the panel read the Supreme Court’s ruling in Concepcion broadly: “Any general state-law contract defense, based in unconscionability or otherwise, that has a disproportionate effect on arbitration is displaced by the FAA.”
The Ninth Circuit agreed with plaintiffs that Montana had a materially greater interest than New York in the dispute, based on Montana’s reasonable expectations/fundamental rights rule. But that since Montana law was preempted, the New York choice-of-law provision in the contract had to be applied.
Thus, if protecting consumers from unfair agreements has a disproportionate impact on arbitration agreements, too bad for the consumers, who will be compelled to arbitrate under the preemption principle.
I note that the Montana district court judge did not find the arbitration provision to be “unconscionable.” Under this Ninth Circuit panel’s analysis, such a finding would have made no difference, as the panel’s opinion hinges on whether the state-law contract defense “has a disproportionate effect on arbitration.” Still, the facts would have been different, possibly opening the door for a different analysis regarding the viability of traditional state law contractual defenses under the FAA’s “savings clause.” (The Concepcion court stated that the FAA “permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as . . . unconscionability.’” Concepcion, supra, ___ U.S. at p. __, 131 S.Ct. at 1746 (2011)).
Arbitration/Deadlines: Fourth District, Div. 3 Affirms Order Dismissing Petition To Vacate Arbitration Award, Holding 100 Day Deadline Is Jurisdictional
Petition Was Filed In Time, But Not Properly Served In Time
Condo owners with 70-year lease terms were subject to a readjustment of monthly rental after 30 1/2 years. The owners arbitrated the rental readjustment with their lessor, and the outcome was devastating (from the owners’ perspective): a 27-fold increase in average lease payments, and retroactive lease payments of between $70K and $90K. After the trial court dismissed the owners’ petition to vacate the arbitration award, because the owners had failed to petition to vacate within 100 days of service of the award, an appeal followed. Abers v. Rohrs, Case No. G047034 (4th Dist. Div. 3 filed 6/13/13, pub. 7/15/13) (Rylaarsdam, Acting P.J., author 3:0)
Here’s where the owners went sideways. For strategic reasons, they filed their petition under a case number different from the still-pending declaratory relief case number. Apparently, they timely filed their petition within the 100 day deadline, but served it by mail in the new proceeding. Because the respondents had not yet appeared in the new proceeding, service by mail was insufficient to confer jurisdiction on the court.
True, the lease provisions provided for service of notice by mail. But unfortunately for the owners, notice is not the same as service of process, as required by statute.
Nor was relief available under under Cal. Code Civ. Proc., section 473(b), providing the court with discretionary power to relieve a party from the consequences of mistake, inadvertence, surprise, or excusable neglect. Section 473 was inapplicable, because the trial court’s jurisdiction had expired.
Affirmed.
Arbitration/FAA: Supremes Says FAA Doesn’t Allow Court to Invalidate Class Arbitration Just Because Arbitration Leaves Plaintiff Without Affordable Means To Vindicate Claim
Dissent’s Nutshell of Opinion: “Too Darn Bad”
The United States Supreme Court, in a 5-3 opinion, has now held 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).
Evidently class arbitration is a highly charged topic capable of dividing the Supreme Court along a neat political line. Big business favors arbitration, but not class arbitration. Justice Scalia delivered the opinion of the Court, in which Chief Justice Roberts, and Justices Kennedy, Thomas, and Alito joined, with Justice Thomas filing a concurring opinion. Justice Kagan filed a dissenting opinion, in which Justices Ginsburg and Breyer joined. Justice Sotomayor did not participate in the decision.
Italian Colors Restaurant claimed that Amex had violated the Sherman Act, Section 1, by using its monopoly power to force merchants to accept credit cards charging very high fees – an illegal tying agreement. Here’s the rub: an economist estimated the cost of an expert analysis to prove antitrust claims would be several hundred thousand dollars and might exceed $1 million, whereas individual payouts would be — when trebled – $38,549. Hence, if class arbitration was unavailable, plaintiffs would be left without a way to affordably vindicate rights under the Sherman Act.
Wrote Justice Kagan, dissenting: “And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”
The dissent paints a stark picture: “So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability-even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of legal recourse.”
Arbitration/Collective Bargaining/Construction of Agreement: In 4-3 Decision, California Supreme Court Rules That City of Los Angeles Must Arbitrate City’s Furlough Decisions
Dissenters Worries About Practical Consequences of Arbitrating Furlough Dispute In Budgetary Crisis
With this post, I inaugurate a new sidebar category: Collective Bargaining.
Facing a fiscal emergency, the City of Los Angeles adopted a mandatory furlough program for its civilian employees. Represented by a union, the employees filed grievances, arguing the furloughs violated memorandums of understanding (MOUs) governing the employees’ terms and conditions of employment. After the grievances were denied, the union petitioned to compel the City to arbitrate the furlough dispute. The superior court granted the union’s petition, but the Court of Appeal reversed, finding arbitration would constitute an unlawful delegation to the arbitrator of discretionary policymaking powers that the city charter vests in its city council.
Los Angeles City Hall. 1931. Wikimedia Commons.
Now the California Supreme Court has ruled, in a 4 to 3 decision, that the City is contractually obligated under the MOUs to arbitrate the employee furlough dispute. City of Los Angeles, Petitioner, v. Superior Court of Los Angeles County, Respondent, Engineers & Architects Association, Real Party in Interest (Sup. Ct. June 6, 2013). Justice Kennard wrote for the majority, with Chief Justice Cantil-Sakauye, Justice Werdegar, and Justice Liu, concurring.
The City argued that allowing arbitration would constitute an unlawful delegation to the arbitrator of discretionary policy making powers – salary setting and budget making – that the City’s charter vests in the city council. [Note: Los Angeles is a charter city, meaning its governing system is defined by its charter, rather than by state laws.] But the Supreme Court disagreed with the City, holding “the arbitrator’s role would be limited to interpreting the MOUs for the purpose of determining whether the furlough program violates the terms of those MOUs.” In short, the role of the arbitrator would be adjudicative, not legislative.
Justice Corrigan dissented, with Justices Baxter and Chin concurring. Whereas the majority believed that the contract was ambiguous, and did not want to get down into the weeds interpreting it, the dissenters believed that the arbitration provision could not reasonably be interpreted to exclude furlough disputes from arbitration. What really perturbs the dissenters is that “[a]n important question of public policy and a matter of considerable budgetary significance is committed to the discretion of an unelected arbitrator, whose decision is unreviewable.”
Arbitration/FAA/Class Actions: Supreme Court Holds Arbitrator Does Not Exceed Powers By Deciding That Class Action Was Available
Impact of the Case Likely to Be Limited Because of Parties’ Agreement
In Oxford Health Plans LLC v. Sutter (Sup. Ct. June 10, 2013) (Kagan, J., author, with Thomas, J., joining in concurrence by Alito, J.), the 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.
The impact of the case is likely to be limited, because the holding turns on the fact that the parties agreed the arbitrator could decide the issue. Justice Kagan observed: “We would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called ‘question of arbitrability.’” Certain such “gateway matters” are “presumptively for courts to decide.” Footnote 2. But here the question of arbitrability was not one for the court to decide, because the parties in the case had agreed that the arbitrator would decide it. “In sum, Oxford chose arbitration, and it must now live with that choice.”
In their concurrence, Justices Alito and Thomas were eager to limit the scope of the opinion to the narrow facts. They opined that absent class members, who had not explicitly agreed to arbitration, might not be bound by the arbitrator’s resolution of the dispute. “In the absence of concessions like Oxford’s,” they admonished, “this possibility should give courts pause before concluding that the availability of class arbitration is a question the arbitrator should decide.”
Because of Oxford’s concession, the impact of the case is also likely to be limited in the future by the drafting of the arbitration provision. The party with superior bargaining power, who is the master of the contract, can draft around the problem by not delegating arbitrability of class action decisions to the arbitrator.