Arbitration/Homeowners: California Supreme Court’s Pinnacle Museum Tower Association Case Disposes Of Enforceability of Arbitration Provision In CC&Rs In Verano Condominium Homeowners Association Case
Based On Holding of Pinnacle, Fourth District, Division 1 Reverses Order Of The Superior Court That Had Denied Developer’s Request To Arbitrate
I posted on May 10, 2012 about Verano Condominium Homeowners Association v. La Cima Development, LLC, a 4th District Division 1 case, in which the Court of Appeal held, based on an analysis of contractual privity, that an arbitration provision in recorded covenants, conditions and restrictions (CC&Rs) was not enforceable between the homeowners association and the developer, or between the developer and a class of owners on whose behalf the HOA sued. On August 16, 2012, I posted about Pinnacle Museum Tower Assn. v. Pinnacle Market Development (UASA), LLC, 55 Cal.4th 223 (2012), in which the California Supreme Court held arbitration clauses in CC&Rs are enforceable against an HOA, notwithstanding the fact that the HOA did not come into existence until after the CC&ARs were recorded, and the HOA’s consent to arbitrate occurred by operation of law. I asked: “Will today’s Supreme Court opinion in Pinnacle Museum Tower Association dispose of issues in Verano Condominium Homeowners Association?”
The answer to my rhetorical questions is: Yes. On January 25, 2013,the Court of Appeal held in Verano that the arbitration provisions in Verano “constitute a valid agreement to arbitrate within the scope of the FAA [Federal Arbitration Act],” thereby reversing the trial court’s order. Verano Condominium Homeowners Association v. La Cima Development, LLC, Case No. D058217 (4th Dist. Div. 1 January 25, 2013) (unpublished) (Benke, Acting P.J., author).
Arbitration/Disclosures: California Arbitration Act And Ethics Standards Require Arbitrator To Disclose A Lawyer In the Arbitration Is A Member Of The Dispute Provider Resolution Organization
California Code of Civ. Proc. Section 1281.9 Enumerates Specific Instances Where Disclosure Is Always Compelled
Plaintiff appealed an adverse judgment affirming a medical malpractice decision in favor of defendant doctor, arguing arbitrator failed to make a necessary disclosure. The neutral arbitrator and defendant’s counsel failed to disclose that defendant’s counsel had, subsequent to the commencement of arbitration, become affiliated with the firm providing the arbitrator. Gray v. Chiu, Case No. B238404 (2nd Dist. Div. 6 January 22, 2012) (Perren, J., author) (for publication).
The Court of Appeal reversed the judgment confirming the award, and directed the trial court to vacate the arbitration award. The Court held that the California Arbitration Act, and the California Ethics Standards for Neutral Arbitrators in Contractual Arbitrations, require:
“(1) a neutral arbitrator to disclose that a lawyer in the arbitration is a member of the administering ‘dispute provider resolution organization’ (DRPO); and (2) section 1286.2, subdivision (a)(6) compels a trial court to vacate the arbitration award if the arbitrator fails to disclose that information.”
It will not do to argue, as did defendant/respondent, that the arbitrator had no duty to disclose the relationship, “because there was no evidence of any ‘significant . . . financial or professional relationship or affiliation’ between the neutral arbitrator and a lawyer in the arbitration.” The reason is that Code of Civ. Proc. section 1281.9 “enumerates specific instances where disclosure is always compelled.” (emphasis added). Thus, for the specific instances enumerated by section 1281.9, there is a bright-line test.
One of those specific instances enumerated, 1281.9(a)(2), requires disclosures of “[a]ny matters required to be disclosed by the ethics standards for neutral arbitrators adopted by the Judicial Council pursuant to this chapter” – a provision encompassing the lawyer’s membership in the DRPO, under Ethics Standard 8(b)(1)(A).
Disclosure: Daikoku, one of the Seven Gods of Fortune, descends from picture on a wall to peek. Suzuki Harunobo, 1767-1768. Library of Congress.
Arbitration/Homeowners: Fourth District, Division 1 Reverses Trial Court’s Order And Holds Arbitration Clause In Recorded Declaration Of Covenants, Conditions And Restrictions Is Valid
Pinnacle Museum Tower Association Dictates Result
In Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC, 55 Cal.4th 223 (2012), the California Supreme Court held that arbitration clauses in recorded CC&Rs, requiring that a homeowners association arbitrate construction claims against a developer, are enforceable. See my August 16, 2012 post about Pinnacle. (“Privity, Shmivity, Says The California Supreme Court – A Provision To Arbitrate Construction Disputes In Recorded CC&Rs Will Be Honored If Not Unreasonable”).
In Villa Vicenza Homeowners Association v. Nobel Court Development, LLC, Case No. D054550 (4th Dist. Div. 1 January 17, 2013) (Benke, Acting P.J., author) (unpublished), homeowners brought a derivative action on behalf of a homeowners association against a developer, alleging the developer failed to provide a reserve fund sufficient to repair defects. The developer filed a motion to compel arbitration that the trial court denied, believing that recording CC&Rs is not a valid means of obtaining an arbitration agreement. The Court of Appeal affirmed the denial. Then the developer filed a petition for review, which was granted, and after Pinnacle was decided, the Supreme Court transferred the case back to the Court of Appeal with directions to vacate and reconsider in light of Pinnacle.
Pinnacle was dispositive, unless the arbitration clause in Pinnacle was unconscionable. However, because the arbitrations provision under consideration in Vicenza Homeowners Association were “materially indistinguishable from the arbitration provisions considered in Pinnacle,” the arbitration provision was not unconscionable.
The Court of Appeal vacated its earlier decision affirming the trial court’s order denying arbitration. In other words, the parties will have to arbitrate.
Drafting Tip: The arbitration clause was covered by the Federal Arbitration Act because it involved interstate commerce. The CC&Rs stated: “Because many of the materials and products incorporated into the home are manufactured in other states, the development and conveyance of the Property evidences a transaction involving interstate commerce and the Federal Arbitration Act (9 U.S.C. section 1, et seq.) now in effect as it may be hereafter amended will govern the interpretation and enforcement of the arbitration provisions of this Declaration.” A developer who wants the arbitration clause to be enforceable under the FAA should consider including such language.
Arbitration/Employment/Waiver/FAA: First District, Div. 1, Affirms Judgment Compelling Employee To Arbitrate, Alone, With Macy’s Department Stores, Inc.
Court of Appeal Is Skeptical About Gentry, But Avoids Addressing Gentry Factors, Because Record Was Lacking
Macy’s Department Store’s Flagship location in Manhattan, New York. Carol M. Highsmith Collection. Library of Congress.
The issue of the enforceability of class action waivers and compulsory arbitration in employment disputes is before the California Supreme Court by virtue of its grant of review in Iskanian v. CLS Transportation Los Angeles, LLC, 206 Cal.App.4th 949 (2012) (review granted Sept. 6, 2012, S204032). See my June 5, 2012 post on Iskanian. Meanwhile, the Courts of Appeal must still deal with cases that present those issues, sometimes skirting the issues. Our next case, Outland v. Macy’s Department Stores, Inc., A133589 (1st Dist. Div. 1 January 16, 2013) (Margulies, J., author) (unpublished), concerns a class action brought on behalf of California residents employed as group sales managers for Macy’s, alleging they were not compensated for overtime and for missed meal and rest periods, because they were improperly classified as exempt.
The trial court granted Macy’s motion to enforce an arbitration agreement with a class action waiver. Plaintiff appealed, contending that AT&T Mobility, LLC v. Concepcion, 131 S.Ct. 1740 (2011) was distinguishable, and that dismissal of her class claims could be avoid by relying upon Gentry v. Superior Court, 42 Cal.4th 443 (2007), and D.R. Horton, Inc., a decision of the National Labor Relations Board (NLRB).
Courts that take the position that Gentry is still good law point out Gentry did not establish “a categorical rule that invalidates class action waivers – the type of rule that Concepcion condemned.” Franco v. Arakelian Enterprises, Inc., 211 Cal.App.4th 314, 368 (2012). See my November 27, 2012 post on Franco. Unfortunately for plaintiff here, however, “plaintiff did not submit any evidence to the trial court concerning the Gentry factors.” Thus, there was no basis on the record for finding the class action waiver unconscionable.
The Court also says, somewhat cryptically, that notwithstanding another decision, Truly Nolen of America v. Superior Court, 208 Cal.App.4th 487 (2012), recognizing that Concepcion was inconsistent with Gentry, “we conclude we must follow Concepcion.” See my August 13, 2012 post on Truly Nolen. It is unclear how following Gentry is necessarily inconsistent with Concepcion, because Concepcion does not abolish unconscionability as a defense to arbitration. In Outland, the Court explains that there is no basis in the record “for finding the class action waiver unconscionable.” But if application of the Gentry factors, based on evidence, had led to a finding that the class action waiver was unconscionable, how would that be inconsistent with Concepcion?
Finally, like a number of other courts (including the Iskanian court) that have considered the issue, the Court of Appeal was not persuaded by the ruling in D.R. Horton., a case that held that the NLRA barred mandatory waivers of class arbitration over wages, hours, and working conditions. A ruling by the NLRB was not binding on the California courts. Nor did the Court of Appeal believe that the NLRB has any special expertise in the area of arbitration and class action waivers.
Judgment affirmed.
Arbitration/Employment: Second District, Division 5 Reverses Trial Court’s Refusal To Enforce Arbitration Agreement In Employment Handbook
Law Of The Case Allows Court To Duck More Interesting Issues Concerning Arbitrability Of PAGA And UCL Claims
Lewis v. 24 Hour Fitness USA, Inc., Case No. B239912 (2nd Dist. Div. 5 January 15, 2013) (Turner, P.J., author) (unpublished), involved the second appeal from the trial court’s refusal to enforce an arbitration agreement between employee plaintiffs and employer 24 Hour Fitness USA, Inc. The first time around, the Court of Appeal reversed the trial court’s order denying the employer’s motion to compel arbitration.
On remand from the first appeal, the trial court severed Private Attorneys General Act (PAGA) and Unfair Competition Law (UCL) claims from the arbitration, and once again, the employer appealed, leading to the present decision.
The second time around, plaintiffs/employees found themselves impaled by the law of the case doctrine: “’[t]he decision of an appellate court, stating a rule of law necessary to the decision of the case, conclusively establishes that rule and makes it determinative of the rights of the same parties in a subsequent retrial or appeal in the same case.’” Morohoshi v. Pacific Home, 34 Cal.4th 482, 491 (2004). And the first time around, the Court of Appeal’s opinion adjudicated the arbitrability of plaintiffs claims under the PAGA and UCL Law. Plaintiffs never raised the issue of the arbitrability of “any individual cause of action” and thus forfeited that issue on the first appeal. The ruling in the first appeal became the law of the case, leading to reversal of the trial court’s later order seeking to sever the PAGA and UCL claims from arbitration. Thus, the Court of Appeal avoided the substantive issues concerning arbitrability of PAGA and UCL claims.
Arbitration/Automobiles/Appealability: Order Compelling Arbitration Is Not Appealable, Nor Is It “Death Knell” Of Plaintiff’s Case
Second District, Division 2 Decision Motivates Us To Create New Sidebar Category – Arbitration: Automobiles
Our California car economy has spawned a plethora of decision concerning automobiles and arbitration. I have posted on these over the past year. Rather than link now to all the previous posts involving automobiles, I have simply created a new sidebar category – Arbitration: Automobiles. I am confident that we will see more such cases.
In the second appeal in DeSiqueira v. Toyota Motor Insurance Services, Inc., Case No. B237534 (2nd Dist. Div. 2 January 14, 2013) (Boren, P.J., author) (unpublished), the Court of Appeal addressed the argument of an automobile purchaser that the trial court erred by staying his lawsuit and ordering contractual arbitration. Toyota successfully challenged appellate jurisdiction, because an intermediate order compelling arbitration is not a final judgment, and thus is not appealable.
Plaintiff contended that the “death knell” doctrine applied, allowing him to appeal from a trial court’s order that effectively terminated his class claims. However, the “death knell doctrine only applies ‘when it is unlikely the case will proceed as an individual action.’” Szetela v. Discover Bank, 97 Cal.App.4th 1094, 1098 (2002). Here, plaintiff’s argument that he might recover $1,145, coupled with the right to recover fees and costs, undercut any argument that the individual action would not proceed. The death knell did not toll for Weber DeSiqueira.
That left plaintiff with one remaining argument: the Court should treat the purported appeal as a petition for writ of mandate because of exceptional or unusual circumstances. But the Court said that there was nothing exceptional here. Why? “Multiple cases are pending before the Supreme Court involving the issue presented in this appeal, i.e., the effect on state law of the federal decision in Concepcion.”
Appeal dismissed.