Arbitration/Class/Waiver/Consumers/Enforceability: Second District Division 6 Reverses Denial of Automobile Dealership’s Motion to Compel Arbitration
Ducks Addressing Viability of Gentry v. Superior Court By Distinguishing It As Case Dealing With Employment Issues, Not Consumer Issues
Plaintiff purchased a BMW, and filed a complaint alleging a violation of the Consumers Legal Remedies Act (CLRA) and other consumer protection statutes, because some BMWs do not come with a spare tire, but are equipped instead with tires that allow one to drive a short time after a tire is punctured. The trial court denied the dealership’s motion to compel arbitration, on the ground that the arbitration agreement included an unenforceable class action waiver. The dealership appealed. Sherf v. Rusnak/Westlake, Case No. B237275 (2nd Dist. Div. 6 Oct. 16, 2012) (Perren, J.) (unpublished).
The Court of Appeal reversed the trial court’s order denying arbitration. AT&T Mobility LLC v. Concepcion, ___ U.S. ___ , 131 S.Ct. 1740 (2011) preempts state law prohibiting a consumer from waiving class action rights. However, the Court of Appeal remanded to the trial court to determine whether the arbitration agreement was unconscionable under California law.
Along the way, the Court of Appeal pointed out that the California Supreme Court “has relied on statutory rights to invalidate a class action waiver in the context of employee rights.” Gentry v. Superior Court, 42 Cal.4th 443 (2007). Rather than address the continuing viability of Gentry, the Court of Appeal simply ducked that issue by pointing out that Gentry dealt with employment issues, not consumer issues. Besides, the California Supreme Court has granted review for Iskanian v. CLS Transp. Los Angeles, 208 Cal.App.4th 949 (2012), a case that concluded that Concepcion invalidated Gentry. So the issue of using unwaivable statutory rights to nix enforcement of arbitration agreements should come up again soon.
Spare wheels and tires. Between 1940 and 1946. Alfred T. Palmer, photographer. Library of Congress.
Arbitration/FAA Preemption: Justice Gilbert Answers Question of Federal Arbitration Act Preemption
It All Depends
Justice Gilbert addresses the issue of when federal preemption applies in consolidated appeals of Mastick v. TD Ameritrade, Inc. and Mastick v. Oakwood Capital Management, Inc., LLC, Nos. B237475 and B238070 (2nd Dist. Div. 6 October 9, 2012) (published). “We answer the question when it does with judges’ and lawyers’ habitual, exasperating response: it all depends.”
In the first appeal involving Mastick and Oakwood, the arbitration agreement provided for California choice of law. California Code of Civ. Proc. section 1281.2(c) provides that a court may deny a petition to arbitrate because of the risk of inconsistent rulings. Though the FAA governs arbitration provisions in contracts that involve interstate commerce (9 U.S.C. section 1), which happened to be the case here, nevertheless, the FAA is not inconsistent with section 1281.2 if the arbitration agreement is expressly governed by California law. Why? Because the FAA requires that the agreement be carried out according to the intent of the parties. Following those principles, the trial correct correctly applied section 1281.2 to deny the petition to compel arbitration.
The TD Ameritrade agreements, however, did not contain a California choice-of-law provision. Instead, the agreements provided that they would “be governed by the laws of the State of Nebraska,” and that disputes would be resolved by arbitration “in accordance with the rules of FINRA.” But Nebraska law, like the FAA, and unlike California law, does not expressly authorize a court to stay arbitration or refuse to enforce an arbitration provision to avoid duplicative proceedings or conflicting rulings. So here, the trial court erred by relying on California law and section 1281.2(c) to deny a petition to compel arbitration.
Thus, the denial of Oakwood’s petition to compel arbitration was affirmed, and the denial of TD Ameritrade’s petition to compel arbitration was reversed.
It just depends.
Arbitration/Res Judicata/Waiver/Consumers/Class Action: 2006 Denial Of Mediation Is Reversed In 2011 And Reversal Is Affirmed In 2012–Concepcion Made The Difference
Court of Appeal Says It Would Have Been Futile To Seek Reversal Earlier
In Phillips v. Sprint, Case No. A134371 (First Dist. Div. 3 Sept. 26, 2012) (Pollak, J., author) (published), the Court of Appeal considered a situation in which the trial court denied a request to arbitrate in 2006 in a consumer class action, but granted the request in 2011, following the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, ___ U.S. ___ ,131 S.Ct. 1740 (2011)(Concepcion). In 2011, Concepcion abrogated the California rule, and upheld the validity of class action waivers in consumer contracts requiring arbitration.
Plaintiffs in Phillips v. Sprint argued the failure to appeal the earlier denial was “res judicata.” But a motion does not result in a judgment, and therefore the earlier decision was not res judicata.
Plaintiffs also argued that the failure to appeal the earlier denial constituted a waiver of arbitration. “However, as Sprint argues, pursuing an appeal would have been futile given the state of law at the time. ‘Waiver should not be found on the basis of a party’s failure to undertake a futile act.’ (In re Apple & AT&TM Antitrust Litigation (N.D. Cal. 2011) 826 F.Supp.2d 1168, 1174.)”
Phillips v. Sprint is in line with Reyes v. Liberman Broadcasting Inc., Case No. B235211 (2nd Dist. Div. 1 Aug. 31, 2012), a case we posted about on September 2, 2012. The court in Reyes also held that an employer that quickly asserted its right to arbitrate after Concepcion was decided did not waive its right to arbitrate.
News: Gerard I. Nierenberg, Founder of The Negotiation Institute, Dies at 89
The website of The Negotiation Institute describes the institute as “the longest running negotiation skills training organization in the world.” Its founder, Gerard J. Nierenberg, died on September 19, 2012, as reported in a September 24, 2012 NY Times obituary. Mr. Nierenberg authored several books, including one entitled “How to Read a Person Like a Book” — advice on reading body language. We liked his wife’s observation that he practiced what he preached at home: “’I could always rely on reminding him, or he would remind me, about the principles of negotiation,’ she said.”
News: Cowabunga: City of Half Moon Bay Wins $10 Million In Arbitration
Arbitrator Finds Insurance Coverage For Land Use Fiasco
Famous for its big wave surfing, the City of Half Moon Bay got hit with a big one a while back, when it committed to pay $18M as a legal settlement to a private developer. That’s a “big wave” for a city reported to have a population of 11,324 in the 2010 census. Finding coverage for at least part of the problem, retired Supreme Court Justice, Edward Panelli, acting as arbitrator, has now awarded $10M to the City against Insurance Company of the West. So reports Aaron Kinney on September 21, 2012, in the San Mateo County Times.
Arbitration/Consumers: Consumer Advocates Urge Consumers To Take Advantage Of Opt-Outs In Nursing Home Agreements
On March 27, 2012, we posted about Marmet Health Care Center, Inc. v. Brown, 565 U.S. ___ (2012). Marmet Health, a Supreme Court case, concluded the Federal Arbitration Act does pre-empt the state public policy of West Virginia against predispute arbitration agreements applying to personal injury or wrongful death claims against nursing homes. So if you check Mom or Dad into a nursing home, and an arbitration clause is signed, Mom or Dad can generally be compelled to arbitrate (unless the clause is found to be unconscionable for reasons other than that it offends a pre-empted state policy against such clauses).
A September 18, 2012 article by Michelle Andrews on the National Public Radio website points out many such arbitration clauses have “opt-out” agreements giving the party additional time to back out of the arbitration agreement. It’s good business, because if the arbitration agreement is not “take it or leave it”, it is more likely to be enforceable. Consumer advocates, however, advise against signing the arbitration agreement, arguing arbitration results in additional costs, and results in smaller awards for plaintiffs.