Recommended Reading: Anatomy of a Mediation by James C. Freund
“A Dealmaker’s Distinctive Approach to Resolving Dollar Disputes and Other Commercial Conflicts”
James C. Freund, former Skadden, Arps M&A transactional attorney turned mediator, is the author of the engagingly written and interesting new book Anatomy of a Mediation (Practising Law Institute 2012). Mr. Freund’s “anatomy” is a clinical tour, by a very wise guide, through the mediation process.
The book’s subtitle, “A Dealmaker’s Distinctive Approach to Resolving Dollar Disputes and Other Commercial Conflicts,” reveals the author’s perspective. Experienced as a dealmaker, Mr. Freund sees mediation as a negotiation, but it is primarily a negotiation between the mediator and the parties. Unlike many mediators who play shuttle diplomacy, transmitting offers and counter-offers back and forth, Mr. Freund prefers to negotiate with the parties, until he can bring them within the range of magnetic attraction necessary to draw them together to settle their dispute.
Mr. Freund’s approach is “distinctive” because it is his approach, empirically based on his long career spent negotiating favorable outcomes where business interests clash. It is an approach that works for him. His approach is relentlessly evaluative, and assumes a relatively high level of legal and business sophistication among the participants. He is canny, shrewd, pragmatic, and cerebral, but clearly knows when to apply a dose of humor to ease a tense mediation.
Arbitration/Waiver/CCP 1281.2: Six-Year Delay In Seeking Arbitration Results In Waiver Of Right To Arbitrate
L.A. Law: Top-Notch Law Firm Claimed Delayed Discovery Of Arbitration Agreement, But Court of Appeal Wasn’t Buying It
Snippets of the trial court record selected by the Court of Appeal can be very telling. Here, the trial court, troubled by defendants’ claim of delayed discovery of an arbitration agreement, observed: “I guess one of my problems on this case is I have a problem figuring out how nobody knew there was an arbitration agreement for six years. And I think too highly of the law firms involved, frankly, to think that nobody ever asked that question. And of course, I have the business of plaintiff turning over a copy of it . . . They produced a copy of it. For you to argue that that wasn’t enough, I think that’s a hard fact for you guys to get around and I see why you’re trying.” Wolf v. Loring Ward Int’l, Ltd., Case No. B238428 (2nd Dist. Div. 3 Feb. 21, 2013) (Klein, P.J., author 3:0) (unpublished).
The plaintiff, Christine Wolf, sued her financial advisors following her divorce from Dick Wolf, creator of the Law and Order television franchise, claiming defendants “failed to disclose the most significant asset in the marital estate –the vested contractual right to a percentage of income in future licensing of Law and Order and its spinoffs.” Litigation commenced in 2005, and wended its way through federal and state courts.
Basic principles governing waiver of the right to arbitrate are that it is generally a question of fact, the burden of proof is upon the person asserting waiver, and the trial court’s finding, if supported by substantial evidence, is binding on the appellate court.
The bottom line here? “By any standard, the six-year delay in seeking arbitration was egregious.” The trial court’s finding of waiver was supported by substantial evidence, resulting in affirmance of the order denying the motion to compel arbitration.
Doink Doink
Arbitration/Landlord and Tenant/Public Policy: First District, Division 1 Holds That Arbitration Clause In Rental Agreement Is Void As Against Public Policy
As A Result, Tenant Who Wants To Arbitrate Can’t
California Code of Civ. Proc. section 1953(a) provides, “Any provision of a lease or rental agreement of a dwelling by which the lessee agrees to modify or waive any of the following rights shall be void as contrary to public policy: . . . (4) His procedural rights in litigation in any action involving his rights and obligations as a tenant.” The tenant’s “procedural rights” include rights to jury trial. So what happens when the landlord sues the tenant, and the tenant moves to compel arbitration of the dispute under an arbitration clause in the parties’ rental agreement? The tenant loses in Freile v. Lincecum, Case No. A135010 (1st Dist. Div. 3 Feb. 20, 2013) (Siggins, J., author 3:0) (unpublished).
The result follows from the plain language of the statute: the arbitration clause, which changes the tenant’s procedural rights, is “void” and therefore unenforceable.
Two comments: First, to reach the result, the Court must conclude that any provision altering the tenant’s procedural rights is void, even when it is the tenant who seeks to invoke it, for his own good or convenience. Second, the Court did not address the viability of such a provision under the Federal Arbitration Act.
San Francisco Apartment Building. 820 O’Farrel Street. Library of Congress.
Mediation/Condition Precedent: Party Successfully Defending On Cross-Complaint Not Required To Mediate As Condition To Receiving Fees
Requirement to Mediate, Found in One Document, Applies to Integrated Transaction With Several Documents
The teaching of Darton v. Park Vasona Gas, Inc., Case No. H037499 (6th Dist. Feb. 14, 2013) (Premo, Acting. P.J., author 3:0) (unpublished) is straightforward: if mediating is a pre-condition to collect attorney fees, one should seek to mediate before filing suit; however, if mediation is not a pre-condition, then the prevailing party can collect fees, and that includes a party who successfully defends.
Plaintiff sold a gas station, sued defendants alleging non-payment, and prevailed. A defendant cross-complained against plaintiff, and lost. The integrated purchase agreement, which included a note, guaranty, covenant not to compete, and lease, also included an attorney’s fees provision.
Plaintiff received an award of $128K from the trial court, because plaintiff prevailed. Defendant appealed. “In plain language, on its face,” explained the Court of Appeal, “the purchase agreement authorizes an award of attorney fees to the prevailing party in a dispute between the buyer and seller, but bars an award to a party who commences an action without first attempting to resolve the dispute through mediation.” Defendant argued because the mediation requirement was part of an integrated agreement, plaintiff was required to seek mediation, regardless of which specific document contained the mediation provision. The Court of Appeal agreed with defendant, and reversed the fees award arising from plaintiff’s victory on its complaint.
However, plaintiff also prevailed on the cross-complaint – and plaintiff did not have to initiate mediation to defend itself. Johnson v. Siegel, 84 Cal.App.4th 1087, 1101 (2000) (affirming fee award to defendant under mediation clause where plaintiff filed complaint without first seeking to mediate). That victory did entitle plaintiff (in its capacity as a cross-defendant) to receive attorney’s fees.
Arbitration/Unconscionability/Arbitrability: Sixth District Rules Tort Claims, Including Battery, Are Arbitrable
Decision Reversing Trial Court’s Findings of Unconscionability and Non-Arbitrability of Tort Claims is Very Fact Specific – But Ruling On Tort Claims Is Worth Noting
Bigler v. The Harker School, Case No. H037450 (6th Dist. February 6, 2013) (Elia, J., author 3:0) (published) is a reminder judicial determinations of unconscionability and arbitrability are often nuanced and fact specific, and the burden of proof may tip the balance in reaching an outcome. Here, the Court of Appeal signaled the outcome twice, by emphasizing that the party opposing arbitration “had the burden of proving the defense of unconsionability”, and the burden to “demonstrate than an arbitration clause cannot be interpreted to require arbitration of the dispute.” The superior court thought the plaintiff, who sued her private school, met the burden for opposing arbitration, but the Court of Appeal held otherwise.
Plaintiff Shivani, enrolled as a student in The Harker School, sued the school alleging she had been wrongfully accused of an honor code violation, and that a teacher who humiliated her, had pushed her to the ground. The school petitioned to compel arbitration, under a broad-based arbitration clause. The superior court denied the petition, finding the contract unconscionable, and finding that it was “highly unlikely” that the plaintiffs agreed to arbitrate, expecting tort claims would be included in the process.
On the issue of unconscionability, here are examples of what I mean by “nuanced” and “fact specific”: The Court of Appeal agreed that the failure to attach AAA rules is “of minor significance”; was “less convinced than the superior court that the other circumstances indicate procedural unconscionability” and was “not as troubled as was the superior court” by a carve-out of tuition disputes from arbitration. Put this all on a scale and weigh it, and it is the burden of proof that tips the scale against plaintiff.
What probably made this case worthy of publication is the Court of Appeal’s effort to distinguish other cases, holding that tort claims were not arbitrable, Victoria v. Superior Court, 40 Cal.3d 734 (1985) and RN Solution, Inc. v. Catholic Healthcare West, 165 Cal.App.4th 1511 (2008): “In each of these cases, the lawsuit focused on conduct that was so removed from the professional relationship between the parties that it could not have been contemplated when they executed their agreement to arbitrate disputes.” Here, however, alleged battery, negligent infliction of emotional distress, defamation, and negligent hiring, took place on the school campus, with students present, and/or related to the student’s relationship with the school. Indeed, the plaintiffs were somewhat hoist by their own pleading, having alleged that torts were committed by persons “acting in the course and scope of their employment and agency . . . “
And if that’s not enough, there is always the burden of proof.
The Court of Appeal opinion ends: “Harker may well be found liable under the parties’ contract, on a tort theory, or both, but it is the arbitrator who must resolve the questions presented in Shivani’s complaint.” “Well”? Is that an oblique caution, or what?
Arbitration/Nonsignatories/Equitable Estoppel: Ninth Circuit Puts Brakes On Toyota’s Attempt To Compel Prius Plaintiffs To Arbitrate Their Claims
District Court Could Decide Whether Nonsignatory Could Compel Arbitration
Toyota has been enmeshed in arbitration concerning the ABS braking system of its 2010 Prius. In Kramer v. Toyota Motor Corporation, et al., Case No. 12-55050 (9th Cir. January 1, 2013) (Quist, D. J., author 3-0) (published), owners of 2010 Priuses, parties to arbitration agreements with Toyota dealerships, were able to fend off a motion to compel arbitration by Toyota Motor Corporation and Toyota Motor Sales, U.S.A., Inc. (Toyota), nonsignatories to the arbitration agreement.
The first issue addressed in Kramer was whether the district court or the arbitrator had authority to decide if Toyota, a nonsignatory, could compel arbitration. This is typically a “threshold issue” determined by the courts, unless the arbitration clause explicitly and clearly delegates the authority to the arbitrator. Here, the arbitration clause provided that it “applies to any claim or dispute about whether a claim or dispute should be determined by arbitration.” Okay, that may work to delegate the authority to decide the issue of arbitrability as to signatories. But as to nonsignatories, “[g]iven the absence of clear and unmistakable evidence that Plaintiffs agreed to arbitrate arbitrability with nonsignatories, the district court had the authority to decide whether the instant dispute is arbitrable.”
Second, Kramer includes a detailed analysis of whether Plaintiffs were “equitably estopped from avoiding arbitration.” To determine whether Toyota, a nonsignatory, could invoke equitable estoppel and require arbitration under the Federal Arbitration Act, the Court looked to California state contract law. In particular, the Court drew on the test in Goldman v. KPMG LLP, 173 Cal.App.4th 209 (2009), whether the claims that the nonsignatory sought to arbitrate were “intimately founded in and intertwined with the underlying contract obligations.” Id. at 221. Without getting deep in the weeds, let’s just say that the Court did not find the Prius owners’ claims against Toyota sufficiently intertwined with the underlying contract obligations between the Prius owners and the dealerships to require arbitration of the claims against the nonsignatories.
The panel affirmed the district court’s order denying Toyota’s motion to compel arbitration.
Blawg Bonus: Theodore J. Boutrous Jr., one of Toyota’s attorneys, was the lead attorney for Wal-Mart in Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), the case resulting in the decertification of a huge class of Wal-Mart female employees.