Arbitration/Construction of Agreement: Agreement Providing Alternative of Arbitration Did Not Require Binding Mediation
Sometimes “May” Means “Shall” and Sometimes “May” Means “May”
When does an ADR provision that provides for arbitration require arbitration?
Truplug, the inventor of a product used as an emergency plug for boat leaks, sued Forespar, which had exclusive rights to market the product, for misrepresentation and negligence in marketing the Truplug product. After the trial court denied Forespar’s motion to compel arbitration, Forespar appealed. Truplug v. Forespar Products Corp., Case No. G046983 (4th Dist. Div. 3 April 2, 2013) (O’Leary, P.J., author 3:0) (unpublished).
The problem presented by the ADR provisions was that they were a mish-mash. Thus, one sentence read, “the parties shall try in good faith to settle the dispute by mediation . . . before resorting to arbitration, litigation, or some other dispute resolution procedure.” Another sentence read: “In the event . . . mediation does not resolve the dispute, either party may deliver a copy thereof to the American Arbitration Association . . . “ Yet another sentence read, “Whenever a party desires to institute litigation proceedings against the other party concerning this Agreement, it shall provide written notice . . . “ And another sentence provided that actions shall be brought in the County of Orange.
Appellant Forespar argued that the use of the word “may” meant that a party had the option to arbitrate, and that arbitration was triggered by a party’s choice to arbitrate. In fact there are cases holding that mandatory arbitration will be triggered when a party “may” arbitrate and opts to arbitrate.
However, looking “at the arbitration language in the context of the entire Agreement,” the Court of Appeal concluded that there was no “clear agreement to arbitrate any and all controversies between the parties,” sinking Forestar’s argument.
The Merrimac sinks the Cumberland. 1862. Library of Congress.
The order of the trial court was affirmed.
TIP: If you are arguing in favor of arbitration, emphasize “contractual arbitration being a favored method of resolving disputes, every intendment will be indulged to give effect to such proceedings.” Titan Group, Inc. v. Sonoma Valley County Sanitation Dist., 164 cal.App.3d 1122, 1127 (1985). If you are opposing arbitration, argue that there is no clear and unequivocal agreement to waive the right to a court trial of controversies between the parties. Wolschlager v. Fidelity National Title Ins. Co., 111 Cal. App.4th 784, 789 (2003).
Arbitration/Scope/Costs: Arbitrator’s Failure To Declare Prevailing Party And Denial Of Statutory Costs To Winner No Ground For Reversal
Arbitration, Law, and Equity
Our next case reminds me of a hoary legal story. Clarence Darrow handles a legal matter for William Randolph Hearst, and telegrams him: “Justice has prevailed.” Hearst’s reply: “Appeal immediately!”
Appealing an arbitration result is often a long shot, because arbitration is more geared to equity and finality than to legal exactitude.
The point is brought home in Plummer v. Day/Eisenberg, Case No. G046567 (4th Dist., Div. 3 Mar. 22, 2013) (Ikola, J., author; 3-0) (unpublished). The arbitrator’s failure to declare a prevailing party and denial of statutory costs to the winner did not permit a different result. “An arbitrator does not exceed his or her powers by deciding an issue submitted for arbitration under the arbitration agreement. (Pierotti v. Torian (2000) 81 Cal.App.4th 17, 25 (Pierotti); see also Corona v. Amherst Partners (2003) 107 Cal.App.4th 701, 705 (Corona) [scope of arbitration and powers of arbitrator defined in accordance with agreement].)” Here, the submission to the arbitrator was broad enough to include the question of costs. And an error of fact or law is ordinarily not reason enough to reverse a judgment confirming an arbitrator’s award.
Judgment affirmed.
Arbitration/Employment/Unconscionability: Second District, Division 8 Tanks Employment Arbitration Provision On Basis of Unconscionability
Main Problem is One-Sidedness of Arbitration Provision
Compton v. Superior Court, Case No. BC448343 (2nd Dist. Div. 8 March 19, 2013) (published) starkly presents the conflicting views of judges confronted with deciding whether an employment arbitration provision is unconscionable.
Leasa Compton appealed the order granting her former employer, American Management Services’s (AMS’s) petition compelling her to arbitrate her class action complaint for violations of Labor Code provisions governing payment of wages. Appellant Compton raised two issues: (1) the employer had waived arbitration by litigating extensively; (2) the arbitration provision was unconscionable.
Justice Rubin, with Justice Flier concurring, authored the opinion reversing the trial court’s order. The first issue – waiver of the right to arbitrate through delay – was not addressed, perhaps because the employer sought arbitration, after extensive litigation, but immediately after Concepcion was decided by the United States Supreme Court, opening up the argument for employer that it would have been futile for it to seek arbitration before Concepcion was decided, holding class action waivers in arbitration are not per se unenforceable. In any case, the issue of delay and waiver did not need to be addressed, because Justice Rubin disposed of the enforceability of the arbitration provision issue on the grounds of procedural and substantive unconscionability.
The trial court’s decision was reviewed on a de novo standard, as there appeared to be no facts in dispute. The provision was procedurally unconscionable, presented on a “take it or leave it” basis, as a condition for unemployment, unaccompanied by the applicable arbitration rules. Substantive unconscionability resulted because the provision required employees to arbitrate claims they were most likely to bring, while allowing the employer to go the judicial route for certain claims it was more likely to bring; statutory rights to attorney’s fees might not be applied in arbitration; and the statute of limitations provisions seemed to favor the employer.
Justice Bigelow, dissenting, believes that Concepcion has changed the landscape, and that the Majority failed to pay it proper homage. She concludes that the arbitration provision is not "so ‘tainted with illegality’ as to render it wholly unenforceable”, that an injunctive relief carve-out for litigating trade secret and unfair competition cases “could be easily severed”, and that she is not “offended by the procedural path to litigation here.”
Plenty to chew on here for advocates on both sides.
Mediation/Condition Precedent/Arbitration/Construction of Agreement: Fifth District Refuses To Compel Mediation And Agrees Arbitration Clause Is Unenforceable
Arbitration Clause Did Create Unilateral Right To Compel Arbitration, And There Was No Precedent To Compel Mediation
Members of an LLC ended up in a business dispute leading to a lawsuit followed by defendants’ motion to compel mediation and arbitration. The trial court construed an arbitration agreement as insufficient to allow one party to unilaterally compel arbitration, and further found that it was without jurisdiction to enforce a mediation provision. After defendants lost their motion to compel mediation and arbitration of their disputes, they appealed. Angelakis v. Hennigan, Case No. F064956 (5th Dist. March 12, 2013) (Levy, Acting P.J., author 3:0) (unpublished).
The Court of Appeal acknowledged that there is support, under some circumstances, for construing an arbitration clause as creating a unilateral right to compel arbitration. But not here. The problem for defendants/appellants was that here, the arbitration clause also provided the dispute could be resolved by arbitration “if all parties to the dispute agree to arbitration.” Here, however, all parties did not agree to arbitration, leaving defendants/appellants stuck with the Court’s construction of the plain language of the arbitration clause.
The parties’ operating agreement also provided, “if the members cannot resolve the dispute to their mutual satisfaction, the matter shall be submitted to mediation.” Also, there is a strong policy in favor of promoting mediation. So why wouldn’t the Court require mediation?
The Court agreed that encouraging mediation meant that courts will uphold a sanction, such as denying attorney’s fees, where mediation is a precondition to obtaining attorney’s fees. But the Court refused to force the parties to mediate because mediation is voluntary. Jen-Weld, Inc. v. Superior Court, 146 Cal.App.4th 536, 543 (2007) (an order compelling mediation is antithetical to the entire concept of mediation).
The order denying the defendants’ motion to compel mediation and arbitration was affirmed.
Arbitration/1281.2: Fourth District, Division 3 Affirms Denial Of Petition To Arbitrate Based On Risk of Inconsistent Rulings
The Inconsistent Rulings Could Have Resulted In Inconsistent Remedies – A Practical Consideration
“The court, in a thorny litigation matter over technology licensing and investment fraud, denied a motion to compel arbitration of the issues arising under a cross-complaint. It held that there was an apparent risk of conflicting rulings between an arbitration decision on the cross-complaint and a judgment on the complaint. Moving party and cross-defendant CleanTech Biofuels, Inc. appeals. We affirm. The risk of conflicting rulings is clear.” Clean Conversion Technologies, Inc. v. Cleantech Biofuels, Inc., Case No. G046589 (4th Dist. Div. 3 March 5, 2013) (Moore, J., author 3:0) (unpublished).
Thorny. J.J. Harrison, photographer. Wikimedia Commons GNU License.
The interesting twist to this case is that the inconsistent rulings would not necessarily have led to any difference in the amount of damages, but rather to different practical outcomes, one of which would have made a levy impossible. One scenario could have led to a finding of fraudulent conveyance by a sublicensor, and the voiding of the sublicense, vesting the license rights in the sublicensor/judgment debtor and making them subject to levy. Another scenario could have led to a finding that the transfer of license rights from sublicensor to sublicensee was not authorized by the licensor, allowing the licensor to terminate its license, and thus leaving the rights with the licensor who was not subject to attachment.
News: NY Times Reports Supreme Court Unsympathetic To Argument That Arbitration Agreement Can Be Invalidated Because It Does Not Permit Class Arbitration Of Federal-Law Claim
The Case Argued On February 27 Is American Express Company v. Italian Colors Restaurant
On November 20, 2012, I posted about American Express Company v. Italian Colors Restaurant, the case now before the Supreme Court in which merchants have challenged American Express’s practice requiring them to accept its credit cards as a condition to accepting its charge cards. (Charge cards amounts must be paid off each month, while credit cards can run a balance). The merchants’ problem is that their agreements with American Express are subject to arbitration and a class action waiver, and it is prohibitively expensive to challenge American Express’s business practices in arbitration, when the upside for a typical claimant might be only $5,000.
On February 27, 2013, Binyamin Appelbaum reports in the New York Times that the oral argument does not augur well for the merchants. A majority seems to be leaning toward requiring the merchants resolve their complaints through arbitration, though it may be prohibitively expensive to do so. Justice Breyer, who in the past has favored limiting arbitration, is quoted as saying, “It is an odd doctrine that just says, plaintiff by plaintiff, you can ignore an arbitration clause if you can get a case that’s expensive enough.”
Augur holding lituus. Wikimedia.
So is the flip side to such an “odd doctrine” that you can have a right to complain about an antitrust violation, without a practical remedy, if you are a party to an arbitration clause with a class action waiver?
Scotusblog also posted about the case on February 22, 2013.