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.
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.