Health Care, FAA: Second District Div. 8 Holds That Health Net And County Arbitration Provisions Failed To Comply With Statutory Requirements
Health And Safety Code Section 1363.1 Is The Relevant Provision.
Section 1361.1 provides that "[a]ny health care service plan that includes terms that require binding arbitration to settle disputes and that restrict, or provide for a waiver of, the right to a jury trial shall include, in clear and understandable language, a disclosure that meets" certain conditions. Among other things, there must be a clear statement as to whether the plan requires binding arbitration and the "contract or enrollment agreement for a health care service plan, the disclosure required by this section shall be displayed immediately before the signature line provided for the representative of the group contracting with a health care service plan and immediately before the signature line provided for the individual enrolling in the health care service plan."
The requirements of § 1363.1 were at issue in Baglione v. Health Net of California, Inc., B319659 (2/8 filed 11/27 pub. 12/6/23) (Stratton, Grimes, Viramontes). The court holds that the requirements must be satisfied in the employee's enrollment form as well as in the contract between Health Net and the County of Santa Clara; that the requirement is for the benefit of the employee in the contract with the contract with the County, so that the employee has standing to sue if Health Net's agreement with the County did not meet the requirements; and that § 1363.1 will be strictly interpreted. Here, the statutory requirements were not satisfied.
The court also rejected the argument that the FAA preempted the application of the California statute. The court explained: "'The McCarran-Ferguson Act deprives Congress of the power to invalidate state law “regulating the business of insurance.' (15 U.S.C. § 1012(b).) Section 1363.1 'does regulate the business of insurance within the meaning of McCarranFerguson'."
Thus, there is no preemption, and the trial court's order denying the request to arbitrate is affirmed.
Stay, Burden Of Proof: First District Div. 5 Holds Defendant Is Entitled To Stay Litigation With Plaintiff Pending Pending Plaintiff’s Arbitration With Another Party
Mattson Obtained The Stay Of Litigation Against Applied Material's Lawsuit Despite Not Having Arbitration Agreement With Applied Material.
Preliminarily, our next case, Mattson Technology, Inc. v. Applied Material, Inc., A165378 (1/5 11/1/23) (Burns, Jackson, Simons), is somewhat confusing to read. Mattson is designated as plaintiff and appellant in the case heading, though Applied, which is designated as defendant and respondent, sued Mattson and Mattson's former employee Lai. We'll refer to Applied as plaintiff. Applied sued its former employee Lai and his new employer Mattson for misappropriating trade secrets, and also sued Lai for breach of his employment contract with Applied.
Mattson and Applied Material are head-on competitors. Applied accused Lai of downloading confidential information, wiping his phone, and lying about whether he had Applied confidential information when he left Applied's employment.
Lai successfully moved to compel arbitration with Applied based on his arbitration agreement with Applied. The trial court denied Mattson's efforts to arbitrate against Applied, because Mattson was not a party to the arbitration agreement. (In this respect, the case is factually similar to Waymo LLC v. Uber Techs, Inc., 252 F.Supp.3d 954 (2017)). Also, the trial court denied Mattson's request to stay litigation against Applied pending the arbitration with Lai, on the ground that the litigation against Applied was severable from Applied's arbitration and contract with Lai.
The Court of Appeal reversed the denial of the request for a stay pending arbitration with Lai. "The party seeking severance under Code of Civil Procedure section 1281.4 has the burden of proving its claim is independent from the arbitrable matter." Applied did not meet its burden. Applied's claims against Mattson and Lai were not independent, because the claims depended on proof of misappropriation of trade secrets.
COMMENT: The case shows that under some circumstances, Cal. Code of Civ. Proc. 1281.4, which is the basis for a mandatory stay pending arbitration, makes it possible for a party to obtain a stay pending an arbitration, though it is not a party to that arbitration.
Miscellaneous: A Hike In Death Valley
A Break From Blogging . . .
Readers of this blog may have noticed that I took a break from blogging. During the break I hiked in Valley of Fire (NV) and Death Valley (CA). The photo above was taken in Death Valley in an area called "Artist's Palette".
MFAA, Deadlines: Missing Deadline For Serving Petition To Vacate Was Not Jurisdictional Under Mandatory Fee Arbitration Act
And The Court Also Decides An Issue Of First Impression Concerning Adequacy Of Service.
The Appellate Division of the Superior Court, County of Los Angeles, addressed Mandatory Fee Arbitration Act (MFAA) issues in Folke v. Pulliam (10/6/23). In an employment dispute, Pulliam, the client, hired attorney Folke to assist Pulliam's attorney Akinyemi. Afterwards she arbitrated a fee dispute under California's MFAA with Folke, and received a favorable award. The MFAA offers clients an expeditious way to arbitrate attorney fee disputes, and if no one timely challenges the fee award, it becomes final.
The fee award here became final after 30 days, because no one requested a trial de novo. However, one has 100 days after service of the award to file and serve a petition to confirm, correct, or vacate the award. Folke filed a petition to vacate within the 100 day limit. However, the trial court determined he did not serve the petition within the 100 day deadline, and because that was "jurisdictional", Folke was stuck with the adverse award.
The appellate division decided two issues. First, it addressed an issue of first impression: whether the rules governing service of a petition to vacate in an ordinary arbitration applied to an arbitration under the MFAA. Specifically, the question here was whether service by mail upon Pulliam's attorney Akinyemi was sufficient, where there had been no appearance yet in the court proceeding. The answer is that mail service was not sufficient.
Folke's fallback argument relied on equitable tolling. The trial court had rejected an equitable tolling argument on the ground that the 100 day deadline was jurisdictional. The Appellate Division rejected the argument that the deadline was jurisdictional. So Folke will get another bite of the apple.
BONUS. The court states that the elements of equitable tolling are: "(1) timely notice to the opposing party, (2) lack of prejudice to the opposing party, and (3) reasonable and good faith conduct by the moving party." Folke argues that he made numerous good faith efforts at service.
Vacatur: Arbitrator Who Questioned Defendant’s Need For Interpreter Created Reasonable Impression Of Possible Bias
Arbitrator Bias Furnishes A Proper Basis To Vacate An Award.
A canceled real estate sale resulted in an arbitration award adverse to the seller. Seller Pham appealed, on the grounds that the arbitrator was biased. While the grounds for vacating an arbitration award are exceedingly narrow, bias can constitute misconduct, and thus serve as a basis for vacating the award. Here, the arbitrator, in explaining the basis for her award, questioned the credibility of defendant Pham, because Pham used an interpreter. The arbitrator believed that Pham, who had been in the country for many years, and who had participated in sophisticated business deals before, did not need an interpreter and was only using an interpreter to create the impression she was unsophisticated.
The Court of Appeal disagreed. Writing for the court, Justice Dato pointed out that Pham had used an interpreter during a negotiation with plaintiff; that one who has been in the country a long time may still have imperfect language skills; and that one who has language comprehension issues may nevertheless participate in sophisticated business transactions. The arbitration award was vacated. FCM Investments, LLC v. Grove Pham, LLC, et al., No. D080801 (4/1 10/17/23) (Dato, O'Rourke, Do). Questioning Pham's credibility because she used an interpreter created a reasonable impression of possible arbitrator bias.
COMMENTS. This case is unusual factually and procedurally.
First, we have blogged about a number of cases in which parties did not speak English as a first language, and this weighed in a court's assessment of whether an untranslated arbitration agreement written was unconscionable. In the instant case, language comprehension is a factor, but only because the use of an interpreter impacted the arbitrator's assessment of witness credibility. That's unusual. It may raise a question about how often the use of an interpreter has some impact on the arbitrator's evaluation of a witness. Because the arbitrator never mentions it, there is no way to know. Here, if the arbitrator had said nothing about the use of the interpreter, her award might well have stood intact.
Second, the question of bias usually arises because the arbitrator fails to make a timely disclosure of qualifications. But that's not what happened here. In fact, the issue of bias was not raised before the trial court, and thus would usually be forfeited on appeal. However, Justice Dato explained that the issue of bias could be decided as a matter of law because it was apparent on the record, and the Court of Appeal could reach the issue because it involved the integrity of the legal process.
Legislation, Stays: Stays Of Appeals Of Orders Denying Motions To Compel Arbitration Are Now Discretionary
Governor Newsom Signed SB 365 On October 10, So Now There Are No Automatic Stays Pending Appeal When Trial Court Denies Motion To Compel Arbitration.
Ordinarily, "the perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby . . ." Therefore, California courts have stayed proceedings in trial courts when the order appealed from is an order denying a motion to compel arbitration. The stay protects the jurisdiction of the arbitrator if the court of appeal ultimately decides that the case should be arbitrated.
Prior to the United States Supreme Court Coinbase case, which we blogged about on 7/3/23, federal and California law were out of synch. Federal law provided that litigation continued in the district court pending an interlocutory appeal, but a party could try to convince the district court (and if necessary, the circuit court) to exercise discretion and stay proceedings pending appeal. Coinbase changed the law, making a stay automatic when a party sought review of the order denying its petition to compel arbitration. So for a fleeting moment, California law and federal law aligned. Now the stay pending appeal of an order denying arbitration was automatic in both state and federal court.
Along came the California Legislature, which enacted SB 365. The Legislative Counsel's Digest explains: "Existing law authorizes a party to appeal, among other things, an order dismissing or denying a petition to compel arbitration. Existing law generally stays proceedings in the trial court on the judgment or order appealed from when the appeal is perfected, subject to specified exceptions. This bill would provide that, notwithstanding the general rule described above, trial court proceedings would not be automatically stayed during the pendency of an appeal of an order dismissing or denying a petition to compel arbitration." (italics added). Once again, California law and federal law are out of joint. The stay pending appellate review of the order denying a petition to compel arbitration is automatic in federal court, but discretionary in state court, much as a stay in federal court pending appeal of an interlocutory order had once been discretionary.
Consider the political perspective. The conservative United States Supreme Court is very friendly to mandatory arbitration. In disputes brought by employees or consumers, it will usually be the defendant company that seeks to arbitrate. If defendant's motion to compel arbitration is denied, the employer will want to avoid unnecessarily litigating in district court and the court of appeals, and will want to preserve the jurisdiction of the arbitrator. It makes sense, therefore, that the SCOTUS majority would stray from the general rule that stays pending appeal are discretionary and instead make them automatic in the arbitration example. We note that Justice Katanji Brown Jackson filed a dissent in Coinbase, in which Justices Sotomayor and Kagan joined in full, supporting our Legal Realist view that there is a political slant to the issues. (Justice Thomas, sometimes an outlier in arbitration cases, partially joined the dissenters).
In our Blue state, the California courts, Democratic legislature, and labor unions are less supportive of mandatory arbitration than is SCOTUS, or at least, than is the conservative SCOTUS majority. It is therefore unsurprising that Governor Newsom signed SB 365.
Does the new California rule making the stay discretionary really help employees and consumers? That remains to be seen. Because the stay is now discretionary, it may not make much difference — superior courts can still grant a stay pending an appeal. However, if the courts take advantage of the new rule to deny a stay, it could add a layer of complexity, expense, and delay to a case. This could turn out to be an example of "be careful what you ask for." The optics, however, certainly favor employees and consumers. At least on paper, they are no longer subject to an automatic stay when a corporation pursues arbitration in a court of appeal.
For an objective and elegant discussion of the "do-si-do re stays" see appellate specialist Ben Shatz's post in the Southern California Appellate News. Ben even included a cute sketch of "the dance".
Finally, I asked arbitrator and mediator Paul Dubow, his opinion as to whether SB 365 will raise preemption issues. As always, Paul provided a thoughtful in-depth response. With his permission, I repeat it in full:
