Mediation/Confidentiality/Settlement Agreement: Second District, Division 2 Says Postsettlement Statement Subject To Confidentiality Agreement “May Prove To Be Costly Rather Than ‘Free’ Speech”
Litigation Privilege Does Not Bar Breach of Contract Claim Arising From Violations Of Confidentiality Provisions Contained in a Settlement Agreement
Carrie Prejean. Miss California 2009. Miss USA 2009. Donald Trump. Perez Hilton. Same-sex marriage. Compromising video. Does any of this ring a bell?
Back in 2009, Carrie Prejean, a former Miss California USA, expressed her sentiments about traditional marriage in response to a question posed by Perez Hilton during the Miss USA Pageant. Several pageant judges said afterward that she did not win because of her answer. The owner of the Miss Universe Organization, Donald Trump, admitted her views probably cost her the crown. After later being terminated as Miss California, Ms. Prejean filed a lawsuit for defamation, religious discrimination, and related claims.
Above: Venice Bathing Beauty Pageant, 1926. M.F. Wheeler. Library of Congress.
JAMS mediation and a settlement followed, after the law firm for one of the defendants showed Ms. Prejean, her attorney, and the mediator “a compromising video and photographs.” The settlement was confidential, providing the parties could only say they had dropped their claims against each other and “wish each other the best in their future endeavors.” Alas, that was not to be, as embarrassing details about the confidential settlement were revealed to the media. Questioned about the compromising video, Ms. Prejean described it as a “youthful indiscretion that she sent to a boyfriend when she was 17 and ‘the biggest mistake of my life.’”
The alleged breach of the confidentiality provision resulted in satellite litigation, SLAPP motions by defendants, and four appeals involving Ms.Prejean’s attorney LiMandri, attorneys for the defense, and executive directors of the Miss California USA pageant, but not Ms. Prejean. The trial court granted an anti-SLAPP motion only as to LiMandri’s cause of action for fraudulent inducement of the settlement, but denied the motion with respect to LiMandri’s contract claims. Appeals and a cross-appeal followed. LiMandri v. Wildman, Harrold, Allen & Dixon, LLP/Li Mandri v. Moakler, Case Nos. B234460 & B237158 (2nd Dist. Div. 2 June 6, 2013) (Boren, P.J. author: 3:0) (unpublished).
The Court of Appeal ruled the defense attorney Nguyen made statements about a matter of public interest, but that LiMandri demonstrated a probability of prevailing on his claims. As a party to the settlement agreement, the defense law firm waived its right to speak publicly. Therefore, post-settlement breaches of the confidentiality agreement were not protected speech. However, promises made during the settlement discussions are protected. Because LiMandri had not shown probability of prevailing on his fraud claim, there was no basis for piercing the settlement privilege and disclosing statements made during settlement, and thus not way to prove fraudulent inducement. All the judgments were affirmed on appeal.
The opinion includes some tart comments. The defense law firm mentioned the trial court had ruled that LiMandri lacked standing, but failed to mention that the standing ruling was vacated on reconsideration. “Misrepresenting the trial court’s rulings and record on appeal,” admonished the Court, “is a poor and discrediting practice.” As to any postsettlement statement about Ms. Prejean’s case beyond the good wishes, the Court added, “[t]hough it touched a matter of public interest, it may prove to be costly rather than ‘free’ speech, if it is found to be a breach of the two confidentiality agreements.”
I do wonder what damages LiMandri, the attorney, will prove for breach of the confidentiality agreement. Does the settlement agreement contain a liquidated damages clause? We’ll only find out if the case goes to trial.
Arbitration/FAA/Waiver/Public Policy: 6th District Holds Federal Arbitration Act Does Not Permit Arbitration Agreements to Override Statutory Right To Bring Representative Claims Under PAGA
Same Issue Is Pending Before California Supreme Court in Iskanian
Does the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011) permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (PAGA)? That’s the issue pending before the California Supreme Court in Iskanian v. CLS Transportation of Los Angeles (2nd Dist. Div. 2), review granted Sept. 19, 2012, and in our next case, Brown v. Superior Court of Santa Clara, H037271 (6th Dist. June 4, 2013) (Premo, J., author 3:0) (for publication). (See my June 5, 2012 post on Iskanian).
Weighing in on this cutting-edge issue, the Sixth District holds that the Federal Arbitration Act and Concepcion do not demand enforcement of the arbitration agreement:
“A plaintiff suing for PAGA civil penalties is suing as a proxy for the State. A PAGA claim is necessarily a representative action intended to advance a predominantly public purpose. When applied to the PAGA, a private agreement purporting to waive the right to take representative action is unenforceable because it wholly precludes the exercise of this unwaivable statutory right.”
This result requires distinguishing Supreme Court cases, including Concepcion, and Marmet Health Care Center Inc. v. Brown, 132 S.Ct. 1201 (2012).
Concepcion held that a court may not invalidate an arbitration agreement based upon generally applicable contract principles, if those principles are applied in a way that categorically disfavors arbitration. In Brown, the Court acknowledges that “any statute providing a private remedy that may be effectively adjudicated in the arbitral forum must be arbitrated if that is what the parties have agreed to do.” However, the Court of Appeal says it is unaware of any Supreme Court case that “has held the FAA requires enforcement of a private agreement that wholly prevents the exercise of a statutory right intended for a predominantly public purpose.”
In Marmet, the Supreme Court held that a state law prohibiting the arbitration of claims against nursing homes was invalid. The distinction: this was a categorical prohibition of the arbitration of a routine common law claim, whereas a PAGA claim “is a statutory claim that provides a public remedy.” The key to PAGA is that the individual plaintiff steps in as a private attorney general – a proxy for the state – and the purpose of PAGA penalties is a public purpose: deterrence. That purpose is thwarted if one cannot make a representative claim.
The impact of the ruling is limited, even in Brown, for the Court held that “the PAGA claim must be excluded from the order compelling arbitration and stayed pending resolution of the arbitration.” Finally, it remains to be seen what the California Supreme Court will do in Iskanian.
Arbitration/Employment/Unconscionability: Second District, Division 1 Reverses Order Denying Motion To Compel Arbitration, Concluding That Contract Is Not Illusory, And Not Unconscionable
Employer’s Right to Change Dispute Resolution Process Is Held In Check By Implied Covenant of Good Faith and Fair Dealing
Having just blogged on June 5, 2013, about an opinion authored by Justice Mallano, reversing an order granting a motion to compel arbitration, I now blog about an opinion authored by Justice Mallano, reversing an order denying a motion to compel arbitration. Leos v. Darden Restaurants, Inc., B241630 (2nd Dist. Div. 1 June 4, 2013) (Mallano, J. author 3:0) (unpublished).
Leos is a sexual harassment case filed by employees against their employer, Darden Restaurants, Inc. Employer moved to compel arbitration, and the trial court denied the motion on the grounds that the arbitration provision was unconscionable. Employer appealed.
Applying the standard two-prong unconscionability analysis, the Court of Appeal found the Dispute Resolution Process (DRP) procedurally unconscionable “[b]ecause plaintiffs were required to sign the DRP acknowledgment as a condition of employment, were unable to negotiate the terms of the DRP, and had no meaningful choice in the matter . . . “ But the second prong – substantive unconscionability – was missing.
The most interesting argument was the employee’s argument that the employer’s right to modify the DRP at will made the contract unconscionable and illusory. However, in California, the employer’s unilateral right to modify an arbitration provision is subject to the limitations imposed by the covenant of good faith and fair dealing. 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4th 1199 (1998). The exception is that the arbitration agreement is indeed illusory and unenforceable if the employer’s unilateral modifications apply where an employee’s claims have already accrued or are known to the employer. Peleg v. Neiman Marcus Group, Inc., 204 Cal.App.4th 1425 (2012).
Here, the employer was saved by drafting language that gave it the right to modify “as required by law.” “We fail to understand,” wrote Justice Mallano, “how a clause permitting modification as required by law can itself be unlawful.” That’s a drafting tip for employers!
The trial court’s order denying arbitration was reversed.
Arbitration/Automobiles/Unconscionability: Second District, Div. 1 Revisits Ruling In Sanchez v. Valencia Holding Company, And Again Concludes That Arbitration Provision In Automobile Sales Contract Is Unconscionable
Split In Appellate Opinion
I have a separate sidebar category on “automobiles” because the auto industry spawns many decisions about the enforceability of arbitration clauses in sales contracts. As I have previously posted on August 26, 2012, and January 7, 2013, Sanchez v. Valencia Holding Co. LLC, 201 Cal.App.4th 74 (2012) is pending before the California Supreme Court, and presents as an issue whether unconconscionability defenses to arbitrating auto sales disputes are preempted by AT&T Mobility v. Concepcion, 563 U.S. __ , 131 S.Ct. 1740 (2011).
In Vargas v. Sai Monrovia B, Inc., B237257 (June 4, 2013) (Mallano, J., author; Rothschild, J. writing separate concurrence) (for publication), the Second District, Division 1 has revisited its ruling in Sanchez. Unsurprisingly, it concludes that unconscionability defenses are not preempted. As in Sanchez, the Court again concludes “that the identical sale contract does not require the arbitration of disputes between a purchaser and a dealer because it is permeated by unconscionability.”
The split in appellate opinion is expressly noted in footnote 4: “In Goodridge and Natalni, the Courts of Appeal concluded the Sale Contract was unconscionable. In Flores and Vasquez, the Courts of Appeal reached the opposite conclusion.”
Above: 1965 Monte Carlo Rally winner: 1964 Morris Mini Cooper S. Source: Wikimedia Commons/License. Author: “DeFacto.” (Note: The subject of Vargas v. Sai Monrovia B, Inc. was a Mini Cooper S.)
Arbitration/Agents/Third Party Beneficiaries/FINRA: Financial Advisor May Be Allowed to Compel Arbitration As Agent and Third-Party Beneficiary of Defunct Member of FINRA
The Twist Here: A Defunct Member of FINRA Cannot Compel Arbitration – But Its Agent or Third Party Beneficiary Could Do So Here (Maybe)
The Ronay Family Limited Partnership (Ronay) sued its financial advisor Robert R. Tweed, his investment firm TFI, and others, claiming Ronay had lost $4M as a result of bum investment advice. Tweed, in his capacity as a registered representative of CapWest Securities, Inc., had signed an arbitration agreement between Ronay and CapWest covering the subject matter of Ronay’s claims. However, CapWest, a member of the Financial Industry Regulatory Authority (FINRA), was defunct, and under the rules of FINRA, it could not compel arbitration. The issue here is whether anyone can enforce the arbitration provision.
Tweed moved to compel arbitration, and the trial court denied his request, reasoning that because CapWest could not compel arbitration, neither could its agent Tweed. Tweed appealed. Ronay Family Limited Partnership v. Tweed, D062195 (4th Dist. Div. 1 May 23, 2013) (Irion, J., author 3:0) (certified for partial publication except for part III.C).
Held: Tweed and TFI may enforce the arbitration clause of the account agreement between Ronay and CapWest as agents and third-party beneficiaries. Though CapWest became defunct and under FINRA rules lost its right to enforce the arbitration clause, Tweed and TFI retained rights to do so. It probably helped that, though Tweed himself was not a member of FINRA, he was registered as an associated person with FINRA at all relevant times.
Note that we’ve said Tweed “may be allowed to compel arbitration.” It is hardly a foregone conclusion, however, because the Court, in the unpublished part of the opinion, remanded for further consideration of an issue that wasn’t briefed: whether the possibility of conflicting rulings among multiple parties should lead to denial of arbitration under Cal. Code Civ. Proc. section 1281.2(c).
Que sera, sera.
Arbitration/Burden of Proof: Second District Division 2 Affirms Trial Court’s Finding That Defendant Carried Prima Facie Burden of Proof to Make Finding of Existence of Arbitration Agreement
Second District, Division 4 and Division 7 Disagree About Need to Fully Authenticate Arbitration Agreement to Meet Initial Burden
On May 22, 2013, we blogged about The Fine Living Trust v. Merrill Lynch, Pierce, Fenner & Smith, B240869 (2nd Dist. Div. 7 May 20, 2013) (Jackson, J. author 3:0) (unpublished), holding that the party seeking to compel arbitration must carry the initial burden of properly authenticating the arbitration agreement. In that case, Merrill Lynch relied on Condee v. Longwood Management Corp., 88 Cal.App.4th 215 (2001), holding that once the party seeking arbitration alleged the existence of an arbitration agreement, the burden shifts to the opposing party to prove the falsity of the agreement. However, in that case, District 7 disapproved of Condee, to the extent it conflicts with Rosenthal v. Great Western Fin. Securities Corp., 14 Cal.4th 394 (1996), which places the burden of proving the existence of the arbitration agreement by a preponderance of the evidence upon the party seeking to compel arbitration. The panel concluded that Merrill Lynch, by failing to properly authenticate the arbitration agreement, "failed to meet its burden of proving by a preponderance of the evidence the existence of an arbitration agreement. . . . "
Brown v. UBS Financial Services, Inc., B242971 (2nd Dist. Div. 4 May 24, 2013) (Manella, J., author 3:0) (unpublished), views Condee differently, citing with apparent approval the statement in Condee that, in the context of a petition to compel arbitration, "it is not necessary to follow the normal procedures of document authentication.. . . as a preliminary matter the [trial] court is only required to make a finding of the agreement's existence, not an evidentiary determination of its validity." In the Brown case (like The Fine Living Trust case, another case involving a financial institution),UBS produced the arbitration agreement and a declaration purporting to authenticate it. Plaintiff ?Brown challenged the authentication of the arbitration agreement, but it appears that producing the agreement with a declaration was enough to get past the initial burden of making a prima facie showing of the "existence" of an arbitration agreement.
The 4th and the 7th District seem somewhat as if they are talking past one another. The 4th Division says that the prima facie burden is to prove the "existence" of an agreement, not the "validity" of the agreement. The 7th Division appears to be saying that one who hasn't properly authenticated the agreement has not met the prima facie burden of establishing its existence.
In Brown, the Court affirmed the trial's judgment, finding no error in granting UBS's motion to compel arbitration.