Arbitration/Disclosures/FINRA: San Diego Superior Court Overturns $5M Award To Brokers Because Of Failure To Disclose Relationship By Arbitrator
FINRA Begin Again?
On June 21, 2012, we posted about a $5M award by FINRA to brokers John Paladino and Todd G. Vitale. FINRA is the Financial Industry Regulatory Authority, and its awards are generally difficult to overturn. However, San Diego Judge Lisa Schall has overturned the award, based on the failure of one of three arbitrators in the case to relationships. As reported by Corrie Driebusch on September 18 for the Dow Jones Newswires, the arbitral award was overturned because one arbitrator “failed to disclose this his daughter worked for a brokerage firm and maintains an account with Morgan Stanley.” Ouch.
Arbitration/Employment/Enforceability/Record: Unsigned Stand-Alone Arbitration Provision Is Insufficient Evidence To Require Arbitration
Patchy Record Also Didn’t Help Appellant
When footnote 1 of an opinion begins, “Appellants omitted several key documents . . . “, followed by, “We therefore have little information . . . “ it does not augur well for the appellant.
An augur holding a lituus, the curved wand often used as a symbol of augury on Roman coins. Wikipedia.
This case arose from an employment suit. Because the Employment Handbook provided for settling disputes “exclusively by final and binding arbitration,” the employer moved to compel arbitration. The trial court denied the motion to compel arbitration, and the employer appealed. Tisor v. Marketshare Partners, LLC, Case No. A134327 (1st Dist. Div. 4 September 13, 2012) (Sepulveda, J., author) (unpublished).
The employee had allegedly signed an acknowledgment that “none of the statements in the handbook (other than this Acknowledgment and the agreement to arbitrate) are intended to create any contractual or other legal obligations. I also understand that [MarketShare] may at any time modify or rescind any policy, benefit or practice described in the handbook, except for its policy of at-will employment, the arbitration agreement and policies required by law.” The Handbook was 41 pages long. (Seems like opinions that deny a motion to compel arbitration often mention the length of the document in which the arbitration provision is to be found).
Here’s the rub: the arbitration provision contained lines for dates and signatures of the employee and the employer, neither of which was signed or dated. Therefore, the one part of the Handbook intended to create legal obligations, and contemplating a signature, was unsigned. Concluding that the Handbook “contemplated that the arbitration of disputes provision would be effective only if both [employer and employee] assented to that provision” (Marcus & Millichap Real Estate Investment Brokerage Co. v. Hock Investment Co., 68 Cal.App. 4th 83, 91 (1998)), the Court of Appeal affirmed. Well, this one didn’t look good for the appellant from the get-go (footnote 1, supra).
Arbitration/Enforceability/Unconscionability: Goodridge v. KDF Automotive Group, Inc. Ordered Published
Arbitration Clause In Contract To Purchase Used Automobile Was Found To Be Procedurally and Substantively Unconscionable
On August 26, 2012, we posted about Goodridge v. KDF Automotive Group, Inc., Case No. D060269 (4th Dist. Div. 1 August 24, 2012) (McDonald, Acting P.J., author). On September 13, 2012, the Court ordered that the case be published. Footnote 1 of Goodridge notes, “the circumstances (e.g., preprinted contract and arbitration clause) and issues in this case are virtually identical to those in Sanchez v. Valencia Holding Co., LLC (2011) (A201 Cal.App.4th, review granted Mar. 21, 2012, S199119 (Sanchez). The California Supreme Court will likely make the ultimate determination of the issues discussed in this case.”
Mediation/Confidentiality: Do The Special Confidentiality Requirements For Mediation Apply To Mandatory Settlement Conferences?
Special Confidentiality Provisions In The Evidence Code For Mediations Expressly Do Not Apply To MSCs
California practitioners are aware that the court, on its own motion, or at the request of any party, may set a Mandatory Settlement Conference requiring the personal attendance of trial counsel, parties, and persons with full authority to settle. Rule 3.1380, California Rules of Court. MSCs are not voluntary settlement conferences. But does the formal “mediation privilege” under Evidence Code section 1119 apply? No.
Rule 3.1380 states that a court must not “[a]point a person to conduct a mediation under this rule.”
The Advisory Committee Note for California Rule of Court 3.1380 explains that the mediation privilege expressly does not apply:
[Rule 3.1380] Subdivision (d) This provision is not intended to discourage settlement conferences or mediations. However, problems have arisen in several cases, such as Jeld-Wen v. Superior Court of San Diego County (2007) 146 Cal.App.4th 536, when distinctions between different ADR processes have been blurred. To prevent confusion about the confidentiality of the proceedings, it is important to clearly distinguish between settlement conferences held under this rule and mediations. The special confidentiality requirements for mediations established by Evidence Code sections 1115-1128 expressly do not apply to settlement conferences under this rule. This provision is not intended to prohibit a court from appointing a person who has previously served as a mediator in a case to conduct a settlement conference in that case following the conclusion of the mediation.
Comment: Even though the formal mediation privilege does not apply, it may be better for all concerned to act as if it did apply (while remembering that it does not apply!).
News: Federal District Court Strikes Down Delaware Chancery Court Experiment In Private Arbitration
Lost Opportunity to Use Outstanding Sitting Judges in Private Arbitration?
"Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." – Louis D. Brandeis
Steven M. Davidoff reports on August 31, 2012 in the New York Times, about “The Life and Death of Delaware’s Arbitration Experiment.” Thanks to the Delaware legislature’s amendment of its laws, the Delaware Chancery Court, acknowledged by many to be an excellent forum for adjudicating corporate disputes, was empowered to engage in private arbitration.
The idea was that private companies, never eager to air their dirty linen in public, would seek out the expertise of the Chancery Court in private arbitration. Arbitrations would also generate arbitration fees ($6,000 a day) and a $12,000 filing fee. However, the secrecy of the proceedings was challenged in federal district court. As described by Mr. Davidoff, “the federal court found that the arbitration proceedings were effectively a civil trial” and thus “required to be open.”
An appeal to the Third Circuit is likely to follow.
Arbitration/Waiver: Employer That Quickly Asserted Right To Arbitrate After Concepcion Was Decided Did Not Waive Right To Arbitrate
Timing Is Everything
![[Clock for the House of Representatives chamber flanked by American Indian and backwoodsman figures]](http://lcweb2.loc.gov/service/pnp/cph/3b30000/3b32000/3b32800/3b32870r.jpg)
Plaintiff Reyes, a security officer, filed a class complaint alleging wage and hour violations against Liberman Broadcasting, Inc. (LBI). The trial judge denied a motion by LBI to compel arbitration, on the grounds that the employer failed to properly and timely assert its right to arbitrate. LBI appealed the trial court’s order denying its motion to compel arbitration. Reyes v. Liberman Broadcasting, Inc., Case No. B235211 (2nd Dist. Div. 1 August 31, 2012) (Johnson, J., author) (published).
Reyes filed his complaint on May 27, 2010. LBI answered on August 5, 2010, asserting 22 affirmative defenses, but leaving out the existence of the arbitration agreement as an affirmative defense. Reyes propounded discovery, LBI took a session of Reyes’ deposition, the parties engaged in lengthy meet and confer efforts, and the parties scheduled a class-wide mediation for July 1, 2011. LBI did not file its motion to compel arbitration until July 5, 2011, more than a year after Reyes filed his complaint. Aren’t the delay, the discovery, and the scheduling of class-wide mediation inconsistent with an intention to mediate?
Not so much here, said the Court of Appeal. Timing was critical. At the end of April 2011, the Supreme Court overruled California’s Discover Bank case in AT&T Mobility v. Concepcion, 563 U.S. __ , 131 S.Ct. 1740 (2011). The court held in Concepcion that “a court may not ‘rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable.’” Id. at 1747. “Before Concepcion,” explained the Court of Appeal in Reyes, “LBI reasonably concluded that it could not enforce the Arbitration Agreement.” But after Concepcion was decided in April 2011, LBI promptly informed Reyes that LBI would move to compel, and filed its motion promptly in July 2011.
What about the discovery? “Very limited,” said the Court of Appeal. Discovery had been propounded, but no discovery had actually been exchanged, as the parties bogged down in “extensive meet and confer efforts.” True, one session of a deposition had been taken of the named plaintiff – but depositions can also be taken in discovery under the rules of the American Arbitration Association. So no prejudice here.
The Court of Appeal distinguished Hoover v. American Income Life Ins. Co., 206 Cal. App.4th 1193 (2012), a case we posted about on June 14, 2012. In Hoover, the defendant “actively litigated.” How? “[B]y twice trying to remove the case to federal court, availing itself of ‘discovery mechanisms like depositions not available in arbitration,’ and soliciting putative class members ‘in an effort to reduce the size of the class.’”
Showing just how fact-oriented waiver inquiries become, the Court of Appeal found “more problematic” the fact that LBI agreed to a private mediation on a class-wide basis. Such a mediation could only have been fruitful if a settlement of class-claims had been blessed by a court. However, rather than emphasizing that defendant’s actions were inconsistent with the right to arbitrate, the Court of Appeal instead decided to emphasize the lack of resulting prejudice: “The agreement to mediate did not guarantee the parties would reach a class-wide agreement. Therefore, we do not find prejudice from LBI’s agreement to nonbinding class-wide private mediation.”
The trial court’s order denying the motion to compel arbitration was reversed.
Comment: St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003) sets forth the multi-factor test to apply for determining whether a waiver has occurred. We note that a certain amount of “play” exists in the multi-factor test – depending, for example, on whether the court chooses to emphasize actions “inconsistent with the right to arbitrate” or prejudice.