Mediation: Ninth Circuit Rules That Indian Tribe Does Not Waive Tribe’s Sovereign Immunity By Agreeing To Mediate Cigarette Tax Contract Dispute
Agreement Providing To Mediate Did Not Satisfy Burden of Showing Clear Intent of Tribe to Waive Immunity
Our next case, involving tribal sovereign immunity, does not fit into one of our convenient sidebar categories. Miller v. Wright, Case No. 11-35850 (9th Cir. Nov. 13, 2012) (Rawlinson, J.) (published). In Miller, a panel of the Ninth Circuit held that the Puyallup Tribe did not implicitly waive its sovereign immunity by agreeing to dispute resolution procedures or by ceding its authority to Washington State when entering into a cigarette tax contract (CTC). The opinion describes the case as “the latest iteration of cigarette vendors’ challenge to taxes imposed by virtue of the authority vested in the tribe.”
A waiver of tribal immunity must be clear. C&L Enters., Inc. v. Citizen Band Potawatomi Indian Tribe of Okla., 532 U.S. 411, 418-419 (2001). In C&L, waiver of tribal immunity was clear, where a clause stated that contractual disputes should be resolved according to AAA Rules, the arbitrator’s award was to be enforced in accordance with applicable law in any court having jurisdiction, and the contract provided for Oklahoma choice of law. In contrast to C&L, no waiver occurred in Demontiney v. U.S. ex rel. Dep’t of Interior, Bureau of Indian Affairs, 255 F.3d 801 (9th Cir. 2001). In Demontiney, the dispute resolution clause “did not ‘reference or incorporate procedures that provide for non-tribal jurisdiction for enforcement . . . ‘”.
The panel in Miller concluded that the facts were “more akin to those in Demontiney than to the facts in C&L.” Critically, the dispute resolution provision in Miller called for “mediation”, not “arbitration”, and mediation “generally is not binding and does not reflect an intent to submit to adjudication by a non-tribal entity.”
Affirmed.
BLAWG BONUS: Objections to a tobacco tax are nothing new. See the print below, dating from 1790, and the explanatory note.
“A British satire on efforts by William Pitt, George Rose, and some members of Parliament to impose new "Excise" duties on tobacco (cf. Tobacco Excise Bill). The additional tax burden on British citizens is implied by the image of a bull, muzzled and blindfolded, with legs chained to a stump, being harassed by dogs (depicted with heads of members of Parliament). Edward Thurlow, also shown as a dog, registers his opposition to these "New Excise Fetters for John Bull" by urinating on tobacco leaves. Among the members of Parliament depicted are: William Wyndam Grenville, Henry Dundas, Charles Lennox Richmond, Charles Jenkinson, Richard Pepper Arden, Sir Charles Pratt Camden, and possibly Francis Osborne Carmarthen.” James Gillray. 1790. Library of Congress.
News: Cost Effectiveness of Mediation and Arbitration Mulled Over In California Attorney’s Fees
A November 7, 2012 post in California Attorney’s Fees discusses: “Arbitration/Mediation: The Debate Goes On … Are They Cost Effective?” Summarizing a recent article authored by Victoria Paal, Randall Block, and Steven Roland in the most recent 2012 edition of the California Real Property Journal, the post suggests that mediation is widely perceived to be a more cost-effective approach than arbitration. Hat Tip to Mike Hensley, my co-contributor to our blawg, California Attorney’s Fees.
Arbitration/Standard of Review/CCP 1281.2/Nonsignatories: Nonsignatories Created Possibility of Conflicting Rulings And Also There Was Evidence That Aged Plaintiff Never Agreed To Arbitrate
Standard of Review Was Crucial To Affirmance of Trial Court’s Order Denying Motion to Compel Arbitration
What a difference the standard of review can make.
Plaintiff Thiel, an investor, sued MKA Real Estate Qualified Fund I, LLC for investment mismanagement. Several investment advisors, as well as real estate developers, were named as co-defendants. MKA moved to compel arbitration with it, and the trial court denied the motion on grounds that Thiel had not agreed to arbitrate, and that third party signatories, who could not be compelled to arbitrate, created the possibility of conflicting rulings. MKA appealed. Thiel v. MKA Real Estate Qualified Fund I, LLC, Case No.A131683 (1st Dist. Div. 4 November 9, 2012) (Ruvolo, P.J.) (unpublished).
Evidence cut both ways as to whether there was an agreement to arbitrate. However, the Plaintiff stated he was not shown a copy of an arbitration agreement, and he never agreed to arbitrate, and his wife backed him up. If the court’s order to deny a motion to compel arbitration is based on a decision of fact, then a substantial evidence standard governs. And here, though the evidence was disputed, Thiel’s denials amounted to substantial evidence.
Cal. Code of Civ. Proc. section 1281.2(c) authorizes the court to deny a request to arbitrate when arbitration may result in conflicting rulings on a common issue of law or fact. Applying a de novo standard of review, the Court of Appeal concluded that Plaintiffs’ allegations of agency and conspiracy “would necessarily require presenting evidence and determining the culpability of the codefendants as well as that of MKA,” as a result of which, “there exists a possibility of conflicting rulings on common issues of law and fact . . . warranting the denial of MKA’s motion to compel arbitration.”
The Court of Appeal’s path to affirmance was made easier by its subsidiary rulings that MKA had forfeited various arguments along the way.
Affirmed.
News/FINRA: Morgan Stanley and Facebook Investor Are Not Friends
Lead Underwriter in Facebook IPO Seeks to Avoid FINRA Arbitration With Facebook Investor
On November 6, 2012, Suzanne Barlyn reported for Reuters that Morgan Stanley, a lead underwriter for the Facebook IPO, has filed a complaint in federal court in Manhattan seeking an order to stop FINRA arbitration initiated by a Facebook investor who alleges she took a financial drubbing in the recent Facebook IPO. Morgan Stanley asserts that the investor, who ordered shares through Vanguard Financial Group Inc., was not Morgan Stanley’s customer.
The investor, a widow and retired schoolteacher (but of course!), alleges that Morgan Stanley “informed their own privileged clients” it was downgrading its outlook for the stock, while issuing more shares at the same time.
Arbitration/Employment/Unconscionability: Implied Restriction On Employer’s Express Right To Unilaterally Change Arbitration Agreement Saves Arbitration Agreement From Unconscionability Attack
Arbitration Requirement In Employment Contract of Casino Security Director Survives Unconscionability Attack
Plaintiff Gatewood sued his former employee Hustler Casino and its owner El Dorado Enterprises, Inc., for various employment-related claims. The employer moved successfully to compel arbitration. Apparently unsatisfied with the arbitration award, Mr. Gatewood appealed the award and the order compelling arbitration on grounds of substantive and procedural unconscionability. Gatewood v. El Dorado Enterprises, Inc., et al., B237435 (2nd Dist. Div. 4 November 6, 2012) (Manella, J.) (unpublished).
The Court of Appeal first analyzed enforceability of the arbitration agreement under the four “minimum requirements for the arbitration of nonwaivable statutory claims” set forth in Armendariz v. Foundation Health Psychare Services, Inc., 24 Cal.4th 83 (2000). Three of the four requirements were “indisputably” satisfied: no limit on statutorily imposed remedies such as punitive damages and attorney’s fees; a written arbitration decision allowing for review; the employer bears any type of expense the employee would not be required to bear in a court action. While there was a disagreement about a fourth factor, adequate discovery, the Court believed this issue had been forfeited, or else satisfied by a provision stating “[e]ach party shall have the right to conduct reasonable discovery, as determined by the arbitrator as provided in [the] California Code of Civil Procedure.”
The Court found “minimum elements of procedural unconscionability” to be present, because signing the agreement was required to obtain the job. But the agreement was not so one-sided as to create the substantive unconscionability also necessary to find an agreement unconscionable.
The most interesting one-sidedness issue arose because the language permitted Hustler Casino to “change in [its] sole discretion” all the policies, procedures and conditions of employment. But the employer’s discretionary power to modify the terms of the employment agreement “indisputably carries with it the duty to exercise that right fairly and in good faith.” 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4th 1199, 1214 (1998).
The Court distinguished another “unilateral modification” case that we have posted about on April 18, 2012: Peleg v. Neiman Marcus Group, Inc., 204 Cal.App.4th 1425 (2012). In Peleg, Texas law governed. The “unilateral modification arbitration agreement” was invalid, because Texas law requires an express carve-out of claims from the employer’s ability to unilaterally modify, whereas, “[u]nder California law, a court may imply such a restriction if an arbitration agreement is silent on the issue.” Peleg at p. 1466. This is an instance in which Texas law is “more demanding than California law.” Id. at pp. 1466-1467.
The judgment was affirmed.
Arbitration/Unconscionability/Severability/Standard of Review: Law Firm Partnership Agreement That Is Functionally An Employment Agreement Is Subject To Armendariz Unconscionability Analysis
Court of Appeal Rejects Employer’s Contention that AT&T Mobility v. Concepcion Overruled Armendariz Unconscionability Analysis
Plaintiff Erika Brenner, an attorney, sued her “employer” Glenn Johnson Law, LLP and its principal, attorney Glenn Johnson, for wrongful discharge and other employment-related claims. Defendants moved to compel arbitration under a contractual arbitration provision. Brenner opposed, arguing that the arbitration provision was unconscionable under the analysis set forth in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000). Defendants argued Armendariz had no application, because Brenner was a partner, not an employee. Agreeing with Brenner that the agreement was unconscionable, the trial court denied Defendants’ motion to compel arbitration. Defendants appealed. Brenner v. Glenn Johnson Law, LLP et al., Case No. G046532 (4th Dist. Div. 3 November 5, 2012) (Rylaarsdam, Acting P.J.) (unpublished).
The Court of Appeal agreed that the trial court’s finding that the partnership agreement was “the functional equivalent of an employment agreement” was supported by substantial evidence; thus, there was no reason to disturb the trial court’s finding. Brenner had a 5% interest, and Johnson had a 95% interest, Johnson dictated the terms, and the agreement set forth the terms of the employment relationship.
“Unconscionability” analysis requires an examination of two prongs: substantive and procedural unconscionability. The source of substantive unconscionability here was that the agreement, which purported to cover FEHA claims, did not require the employer to bear costs unique to arbitration, nor did it contain a limitation that the employee, if she her suit, could not be burdened with fees and costs unless the employee’s suit was brought frivolously or in bad faith. While Plaintiff and Defendants disagreed as to whether the agreement was “take it or leave it”, there was substantial evidence that Brenner did not have a meaningful opportunity to negotiate the terms – enough to support a finding of procedural unconscionability, the second prong.
Finally, there was an issue as to whether the provision for shifting of costs and fees to the prevailing party, if unconscionable, could be severed in order to save the arbitration provision. Because there were two problems with the unlawful fees provision, the Court concluded it was not required to reform an agreement that was “permeated” by unconscionability. Besides, Defendants failed to ask the superior court to exercise its discretion to sever.
Affirmed.