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 March 12, 2013) (Levy, Acting P.J., author 3:0) (unpublished).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.
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.