Mediation/Condition Precedent: Plaintiffs Made Good Faith Effort To Mediate And Were Not Barred From Seeking Award of Attorney’s Fees
Good Faith Effort To Mediate Was Supported By Substantial Authority And Argument That Offer To Mediate Was Made To The Wrong Intermediary Had Been Forfeited On Appeal
The DeSantises bought a commercial building occupied by a hospital tenant, only to discover too late that a hospital tenant was on the way out. The DeSantises prevailed on their claims for breach of contract, misrepresentation, and concealment and were awarded compensatory and punitive damages. The trial court denied their claims under California’s unfair competition law. The DeSantises were also awarded attorney fees. Both sides appealed, and in a 49 page unpublished opinion, the Court of Appeal affirmed, rejected all the parties’ claims. DeSantis v. Oakmont LLC, Case No. A128220 (1st Dist. Div. 5 Dec. 7, 2012) (Simons, Acting P.J.) (unpublished).
We have a side bar category: “Mediation: Condition Precedent,” We have posted about “those pesky provisions requiring that one request mediation before filing suit, or else risk losing attorney’s fees even if one prevails.” The issue of failure to comply with mediation, a condition precedent to receiving attorney’s fees, was raised on appeal in DeSantis by the losing defendant. Defendant ingeniously argued plaintiff’s attorney McMillan “improperly attempted to communicate with [defendant] about mediation through an insurance adjuster employed by [defendant’s] general liability carrier, and because the adjuster was not the actual or ostensible agent for [defendant], ‘McMillan could not give legally sufficient notice to Gloria Ruppert about mediation issues through’ the adjuster.”
Well, the argument, however clever, failed because it had not been made earlier and preserved for appeal. Besides, the Court said, no one was arguing that there was a lack of substantial evidence showing that plaintiff attempted to mediate in good faith.
Tip: Check out the notice provisions in the contract when offering to mediate. If you make an offer to mediate through an intermediary, pin down the authority of the intermediary. That’s usually not going to present a problem if the “intermediary” is the adverse party’s attorney.
Arbitration/Enforceability/Unconscionability: Second District, Division 3 Reverses Order Denying Physician’s Motion To Compel Arbitration
Statutory Provisions Specifically Relating To Medical Care Weigh Into The Result
Statutory provisions are the key to the next decision, Raynond v. Kram, Case No. B236552 (2nd Dist. Div. 3 Dec. 7, 2012) (Kitching, J.) (unpublished). The case involved a malpractice lawsuit brought by the patient, Raymond, against his treating physician, Kram. Dr. Kram appealed an order denying the his motion to compel arbitration. The Court of Appeal held that “the arbitration agreement was not substantively unconscionable because of its provision requiring Raymond to pay the fees of his arbitrator and half the fees of the neutral arbitrator. The lack of substantive unconscionability requires reversal of the order denying defendant’s petition to compel arbitration.”
Why didn’t the arbitration provision requiring the patient to pay the fees of the arbitrator and half the fees of the neutral arbitrator result in substantive unconscionability? Essentially, we can identify four reasons. First, the arbitration provisions complied with the notice language required by Cal. Code of Civ. Proc. section 1295, pertaining to any contract for medical services which contains a provision for arbitration of any dispute as to professional negligence. This notice language explains the consequences of arbitration, includes certain capitalized words, and provides the patient with 30 days to rescind the agreement to arbitrate. Second, Dr. Kram did something tactically smart, and not required by statute – he offered to advance certain of the costs. Third, the Court of Appeal pointed out that Cal. Code of Civ. Proc. section 1284.2 requires each party to the arbitration to pay his pro rata share of the expenses and fees of the neutral arbitrator, unless there is a different agreement. Fourth, the Court of Appeal pointed out that this case, unlike consumer cases that have weighed in against requiring the plaintiff to pay costs, did not involve unwaivable consumer rights.
Additionally, the plaintiff argued that arbitration could lead to inconsistent results with a lawsuit involving a third party, a reason for which a court may decide to deny a request to arbitrate. Here, however, Cal. Code of Civ. Proc. section 1281.2, the provision allowing a court to deny arbitration to as to avoid inconsistent results, contains an exception that applies to an agreement to arbitrate disputes as to the professional negligence of a health care provider.
Evidently, the fact that the patient earned $24.72/per hour did not factor into the unconscionability analysis of fee shifting. As Anatole France acidly put it, “The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”
Arbitration/Enforceability/Homeowners: California Supreme Court’s Decision In Pinnacle Requires Reversal In Another Case Of Order Denying Developer’s Motion To Compel Arbitration
On August 16, 2012, we blogged about the California Supreme Court’s decision (actually, a majority, concurrences, and a dissent) in Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, 55 Cal.4th 223 (2012). That case held that covenants, conditions and restrictions of a recorded declaration created by a developer, which contain an arbitration clause, will be honored and enforced to compel arbitration as long as they are not proven to be unreasonable.
That Supreme Court holding compelled the Second District, Division 1, in Promenade at Playa Vista Homeowners Association v. Western Pacific Housing, Inc., Case No. BC225086 (2nd Dist. Div. 1 Dec. 6, 2012) (Mallano, J) (unpublished) to vacate its prior decision in the Promenade case affirming an order denying the developer’s motion to compel arbitration. On remand, the trial court is to enter a new order granting the developer’s motion to compel arbitration.
Arbitration/Employment/Interpretation/Enforceability: Despite Signed, Integrated Employment Contract Without Arbitration Provision, Employee Ends Up Bound to Arbitrate By Subsequent Unsigned Arbitration Provision
At-Will Nature of Employment Allowed Employer To Introduce New Policies Without A Signed Writing
At first, we were going to file this unpublished opinion under “go figure”, but we think we get it. In 2003, employee Krishna Papudesi, a systems analyst with Northrop, signed an integrated employment contract with her employer having no ADR provision whatsoever. The 2003 Agreement provided it “may not be superseded, amended, or modified except by written agreement signed by me and by an officer of the Company.” After the employee filed a class action wage and hour lawsuit against the employer, the employer petitioned to compel arbitration, based on a 2006 employment policy requiring arbitration of disputes. The trial court denied the petition, finding that the 2006 employment policy requiring arbitration was not a valid modification of the original employment contract. Employer appealed the denial of its petition to arbitrate. Papudesi v. Northrop Grumman Corp., Case No. B235730 (2nd Dist. Div. 1 Nov. 29, 2012; modified Dec. 4, 2012) (Chaney, J.) (unpublished).
The Court of Appeal reversed the order denying the employer’s petition to compel arbitration, concluding that “the arbitration policy did not modify the original employment contract but constituted a separate agreement.” Does this mean that all that an employer needs to do to get around an integrated contract lacking an arbitration clause is circulate an employment policy requiring arbitration of disputes? We don’t think it’s that easy.
The 2003 agreement covered (a) the at-will nature of Papudesi’s employment and (b) her obligation to comply with Northrop’s policies. The Court of Appeal, however, held that, “nothing prohibited Northrop from introducing new policies without a signed writing.” Thus, point one is that introducing a new policy pertaining to ADR was outside the scope of integration.
In addition, the Court of Appeal emphasized the “at-will” nature of the employment: “Northrop was therefore entitled to alter the terms of her employment by instituting new policies as it saw fit.” That’s point two. But query: if Papudesi had not been an at-will employee, would a separate agreement still have been outside the scope of the integration?. Does the decision turn entirely on the fact that Papudesi was an at-will employee?
Because Papudesi continued her employment with Northrop, she thereby accepted the 2006 arbitration provision.
Concluding that Northrop’s arbitration policy constituted an agreement that was “separate from and independent of Papudesi’s employment contract,” and that it was not unconscionable, the Court of Appeal remanded to determine if the “class action waiver provision may yet be unenforceable under Gentry [42 Cal.4th 83].”
Good News: Harbor Clerks and Management Reach Tentative Deal Just As Federal Mediators Are Called In
Deal Affecting Ports of Los Angeles and Long Beach Requires Approval of ILWU Rank and File
Above: Free Harbor Jubilee. Los Angeles and San Pedro. 1899. Library of Congress.
Only yesterday, we read that federal mediators were being called in to assist in settlement negotiations between the International Longshore and Warehouse Workers (ILWU) Local 63 and management. The costly strike has disrupted cargo traffic at the ports of Los Angeles and Long Beach. In fact, this morning we heard a person on NPR describing an aerial photograph of the scene as resembling the Normandy invasion!
Today the Los Angeles Times reports a tentative settlement has been reached, subject to ratification by union members. And that is good news.
Did the federal mediators make the difference? Dan Whitecomb and Steve Gorman report on December 5 in the LA Times: “Federal mediators called in to join negotiations at the mayor’s behest earlier in the day showed up just as the settlement was being reached.”
Arbitration/Employment/FAA/Class Action/Waiver: Second District, Division 1 Holds That Gentry Is Not Overruled By Concepcion or Stolt-Nielsen
Gentry Rides Again!
Franco v. Arakelian Enterprises, Inc., Case No. B232583 (2nd Dist. Div. 1 Nov. 11, 2012) (Mallano, J.) (published) is a long, scholarly opinion, containing a probing analysis of what may now be the hottest arbitration issue: how to resolve the collision between a class action waiver in arbitration and vindication of unwaivable statutory rights. Franco involves wage and hour, meal and rest period claims brought by an employee as a putative class action.
Gentry v. Superior Court, 42 Cal.4th 443 (2007) resolved the class action waiver issue with a multi-factor test, which when satisfied, results in the unenforceability under some circumstances of an arbitration agreement class action waiver, because the waiver would interfere with the employees’ ability to vindicate statutory rights. (We note, as does Justice Mallano, that vindication of unwaivable statutory rights and unconscionability have resulted in the application of two lines of cases in California that may lead to unenforceability of a class action waiver).
In Franco, the Court concludes, “that Gentry remains good law because, as required by Concepcion, it does not establish a categorical rule against class action waivers but, instead, sets forth several factors to be applied on a case-by-case basis to determine whether a class action waiver precludes employees from vindicating their statutory rights. And, as required by Stolt-Nielsen, when a class action waiver is unenforceable under Gentry, the plaintiff’s claims must be adjudicated in court, where the plaintiff may file a putative class action.”
Because Gentry applies here to invalidate the class action waiver, it is obvious that here, “the parties have not agreed in any fashion to allow class arbitration.” And because Stolt-Nielsen held that class arbitration is not permitted unless the parties expressly or implicitly agree to it, that is why Stolt-Nielsen requires hearing the case in court.
The key to Franco is an individualized application of the multi-factor Gentry test, leading to the conclusion that under the circumstances of this case, employees could not vindicate their statutory rights. This approach is to be distinguished from a categorical prohibition of class action waivers.
Two tips, one for the class action plaintiff, the other for defendants. The plaintiff needs to be prepared to present evidence through competent declarations that the multi-factor Gentry test for invalidating a class action waiver has been satisfied – something the plaintiff did present here. The tip for employers is that to survive the Gentry tests, the arbitration provisions would have to be fairly drafted in such a way that the employee could fully vindicate statutory rights in the arbitral forum – easier said than done.
For other recent posts that relate to unwaivable statutory rights, see our November 13, 2012 post on Richey v. Autonation, Inc. and our November 20, 2012 post on American Express Company v. Italian Colors Restaurant.