Mediation/Condition Precedent/Res Judicata: Fourth District Division 3 Allows Homeowner To Litigate After She Finally Gets Around To Mediating
Mediation Was A Condition Precedent To Litigating And Failure To Mediate Had Earlier Prevented The Homeowner From Suing To Enforce A Settlement Agreement
The homeowner (an in pro per attorney) and homeowner’s association (HOA) have been involved in a battle royal resulting in four appeals. Appeal No. 1: trial court dismisses homeowner’s lawsuit as settled; affirmed on appeal. Appeal No. 2: Homeowner challenges settlement, three of 15 defendants are dismissed after winning anti-SLAPP motion; affirmed on appeal. Appeal No. 3: Defendants who prevailed in first appeal are awarded attorney’s fees; affirmed on appeal. Trial court enters judgment on dismissal after an order sustaining demurrer without leave to amend, filed in case with the 15 defendants. And this leads to the fourth appeal. Adams v. Newport Crest Homeowners Association, G045590 (4th Dist. Div. 3 August 16, 2012) (Moore, J., author) (unpublished.)
The HOA asserted the homeowner’s claims concerning breach of the settlement agreement had been fully adjudicated and resolved by the first appeal, barring further claims under the doctrine of res judicata. In Appeal No. 1, the Court of Appeal held that the settlement agreement was binding and that disputes thereunder had first to be submitted to a mediator, rather than a court.
However, by the time of Appeal No.4, homeowner and HOA had mediated. Furthermore, homeowner purported to state new wrongs related to the implementation of the settlement agreement going forward from the time of settlement. Therefore, homeowner had complied with the requirement that she mediate first before litigating, and homeowner was not trapped by res judicata, because the wrongs she sought to allege were fresh ones.
“It would appear that Adams [the homeowner] has not always understood this court’s directions to her,” said the court. “However, this time,” the court added, “her understanding was ‘spot on’.”
The judgment of dismissal was reversed. The homeowner will be allowed to amend her complaint. Also, the HOA’s request for additional attorney’s fees was rejected, as the judgment was reversed. The homeowner is batting .250 on appeals with her HOA.
NOTE: On July 1, 2012, we posted on the earlier appeal, in which the Court of Appeal affirmed the fee award in favor of the HOA, resulting from the homeowner’s failure to mediate, which failure resulted in a violation of the settlement agreement.
News/Celebrities: Oscar Winner Loses Legal Battle; Rep. Dennis Kucinich Criticizes Arbitration of Credit Card Disputes
Actor Nicolas Cage Ordered to Pay Attorney’s Fees in Real Estate Lawsuit After Losing Attempt to Compel Arbitration
On March 20, 2012, we posted about Lindemann v. Hume, et al., Case Nos. Nos. B226106, B233273 (2nd Dist. Div. 7 filed February 21, 2012) (Perluss, P.J.), a case in which the Court of Appeal affirmed the trial court’s order denying a motion to compel arbitration. This was a real estate sale/water intrusion/nondisclosure case. A motion to compel the Buyer to arbitrate raised “a possibility of conflicting rulings on common issues of law and fact if the nondisclosure causes of action against [the Seller] were ordered to arbitration and the litigation against [the Developer] proceeded in superior court” – the basis for denying the motion to compel arbitration. Actor Nicolas Cage is the beneficiary of the trust acting for the Seller, so we placed the case in our ‘celebrities” sidebar category.
The City News Service reported on August 17, 2012, that Superior Court Judge Rolf M. Treu found in favor of the trust set up for the Buyer, and awarded $165,510 in attorney’s fees – a loss for the Oscar winner.
Rep. Dennis Kucinich Writes of His Accomplishment in Getting Banks to Abandon Mandatory Arbitration of Credit Card Disputes
On August 17, 2012, Rep. Dennis Kucinich authored a short article in the Huffington Post, entitled “Consumers fight Big Banks for a Day in Court.” He objects to banks’ imposition of mandatory arbitration upon consumers. Rep. Kucinich bemoans that banks “erect massive structures of red tape that most American families don’t have the timore or money to fight.”
“My staff followed up with all the major banks,” writes Kucinich, “and, over the course of several months, nine of those banks abandoned the practice of using arbitration to collect their credit card debts.”
Rep. Kucinich’s comments do not mention CompuCredit Corp. v. Greenwood (2011), the recent U.S. Supreme Court case holding consumers who sign credit card agreements with arbitration clauses are bound to arbitrate. Consumer advocates have criticized the case.
Arbitration/Enforceability/Homeowners: Privity, Shmivity, Says The California Supreme Court – A Provision To Arbitrate Construction Disputes In Recorded CC&Rs Will Be Honored If Not Unreasonable
Majority Opinion Draws Two Concurrences and One Dissent
Arbitration is a matter of consent, right? Because there can be no meaningful consent between a developer that drafts covenants, conditions, and restrictions containing a provision requiring arbitration of construction disputes, and a homeowner’s association (HOA) that doesn’t yet exist, how can the HOA in such circumstances be bound by the arbitration clause? That was the view of the Court of Appeal in San Diego, 4th District Division 1, which found, by a split vote, that the arbitration clause did not constitute an agreement sufficient to waive the HOA’s constitutional right to a jury. But the California Supreme Court, with a five person majority, two concurrences, and one dissent, does not agree. Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, Case No. S186149 (Sup. Ct. August 16, 2012) (Baxter, J., author for the majority).
Justice Baxter explains, "it is no surprise the courts have described recorded declarations as contracts." (emphasis added). The use of that little word "as" discloses a legal fiction, because while CC&Rs may act "as" contracts, they are not identical to contracts. In particular, they may be binding even where contractual privity is lacking, under the common law of equitable servitudes, and under the Davis-Stirling Act.
And so the majority opinion concludes:
"Even when strict privity of contract is lacking, the Davis-Stirling Act ensures that the covenants, conditions, and restrictions of a recorded declaration – which manifest the intent and expectations of the developer and those who take title to property in a community interest development – will be honored and enforced unless proven unreasonable. Here, the expectation of all concerned is that construction disputes involving the developer must be resolved by the expeditious and judicially favored method of binding arbitration."
Justice Werdegar, concurring, points out that "the majority never clearly states whether the grounds for enforcement lie in contract or real property law." She agrees that contract law does not result in enforceability, because there is no meaningful consent between the developer and an HOA that is automatically subject to "whatever the developer has seen fit to insert in the declaration, without any opportunity to reject those terms." But she believes that the arbitration provision may be enforced as an equitable servitude — even if not an equitable servitude at common law, then under the Davis-Sterling Act.
Justice Lui joins the opinion of the Court with the proviso "whether or not the arbitration provision is contractual in the strict sense, it is appropriate in this case to use the substantive unconscionability inquiry from contract law to determine whether the arbitration clause is reasonable and hence lawful."
Finally, Justice Kennard dissents, "because of the association’s lack of consent to the arbitration provision." She would affirm the judgment of the Court of Appeal.
COMMENT: We posted on May 10, 2012 about Verano Condominium Homeowners Association v. La Cima Development, LLC, another 4th District Division 1 case, in which the Court of Appeal held, based on an analysis of contractual privity, that an arbitration provision in CC&Rs was not enforceable between the HOA and the developer, or between the developer and a class of owners on whose behalf the HOA sued. The Supreme Court granted a petition for review on July 25, 2012. Will today’s Supreme Court opinion in Pinnacle Museum Tower Association dispose of issues in Verano Condominium Homeowners Association?
Arbitrators/Disclosures: Nemecek & Cole v. Horn Certified For Publication
Arbitrator’s Professional Relationships Were Too Attenuated to Require Disclosure
On July 26, 2012, we posted about Nemecek & Cole v. Horn, Case No. B233274 (2nd Dist. Div. 8 7/23/12). The case, involving a significant fee dispute between a client and the client’s law firm, addressed whether an arbitrator should have disclosed certain professional relationships. Unpublished when we posted before, the case was certified for publication today, August 15, 2012.
References and Privilege: Second District Division 7 Rules Special Reference Can’t Examine Documents Claimed To Be Privileged To Determine If They Are Privileged
Allegedly Confidential Documents Can Only Be “Generally Described” To Determine If They Are Truly Privileged
Plaintiff Parness sued attorney Weiss and his law firm (acting as film production counsel) for alleged fraud arising out of the financing of the film Gospel Hill. Plaintiff claimed production counsel made fraudulent representations the production company had good chain of title to the film screenplay, and that this proved to be false, along with the representation that Samuel L. Jackson would star in the movie. Over plaintiff’s objection, the trial judge appointed a referee to evaluate production counsel’s contention it could not defend without disclosing protected lawyer-client communications relevant to counsel’s scienter. Accepting the referee’s report that production counsel could not defend without violating the attorney-client privilege, and that attorney-client communications were relevant to the lawyer’s scienter, the trial judge dismissed claims against production counsel. Plaintiff appealed the dismissal of production counsel. Parness v. Abrams Garfinkel Margolis Bergson, LLP, Case No. B234762 (2nd Dist. Div. 7 August 14, 2012) (Perluss, J., author) (unpublished).
Finding that the reference was improper, the Court of Appeal reversed. There were two flaws in the reference procedure.
First, in camera review of documents allegedly protected by the lawyer-client privilege to determine if they are privileged is prohibited. Evid. Code section 915(b). “So long as Weiss established a prima facie claim of privilege, his motion to dismiss must be decided without examination of the contents of the assertedly privileged documents notwithstanding the ‘assumptions’ and ‘uncertainty’ about the nature of the privileged communication that troubled the trial court.” The trial court’s error here was in ordering a reference to inspect the documents.
Second, the referee made recommendations on the ultimate legal question presented by the motion that the trial judge did not independently review – and the findings of a special referee under Cal. Code of Civ. Proc. section 639 are not to be rubber-stamped, but rather require independent review by the trial judge. If the trial judge had treated the referee’s report as “advisory”, and independently reviewed it, the second problem could have been avoided.
On remand, the trial court “must decide the motion [to dismiss production counsel] by weighing the materiality of information, which can only be generally described, on the elements of scienter and intent – elements by their very nature that can be difficult to prove – and drawing conclusions about its significance from other evidence the court is permitted to review.”
Arbitration/Class Action/Waiver/Employment: 4th District Division 1 Endorses De-Gentrification But Concludes That Gentry v. Superior Court Is Stare Decisis In California – For Now
At Issue for Employers and Employees: Classwide Arbitration or Individual Arbitration?
In an April 25, 2012 post, we said the rule in Gentry v. Superior Court, 42 Cal.4th 443 (2007), allowing for invalidation of a class arbitration waiver where nonwaivable statutory rights are at issue, manages to maintain a “toehold”. We suggested Gentry, like Wile E. Coyote, was still “up in the air.” Our next case, Truly Nolen of America v. Superior Court of San Diego County (Alvaro Miranada et al., real parties in interest), Case No. D060519 (Haller, J., author) (for publication) suggests that Gentry is gathering rapid downward momentum.
Truly Nolen is a wage and hour case, brought by employees who filed a class again against Truly Nolen, a nationwide pest-control company. 
Pest control. 1870-90. Library of Congress.
Truly Nolen moved to compel arbitration under signed arbitration agreements. The arbitration agreements were silent about the availability of classwide arbitration. The trial court granted the motion to compel arbitration. but rejected the employer’s request for individual arbitration, believing Gentry was binding precedent requiring arbitration. The employer filed a writ of mandate petition challenging the court refusal to order individual arbitration.
The Court of Appeal left no doubt as to the direction in which it thought the law is evolving: “we agree with Truly Nolen that Concepcion [v. AT&T, __ U.S. __ [131 S.Ct. 1740] (2011)] implicitly disapproved the reasoning of the Gentry court . . . “ While questioning the viability of Gentry – a California Supreme Court case – the Court of Appeal recognized that the case is stare decisis because it arguably rests on a public policy argument about unwaivable statutory rights that the California Supreme Court has not revisited.
Gentry may be on life-support, but the 4th District Division 1 hasn’t yet pulled the plug.
However, the Court of Appeal also concluded the trial court’s application of the Gentry elements requiring arbitration of a class action was unsupported on the factual record. Therefore, the Court of Appeal vacated the portion of the order denying Truly Nolen’s motion to order individual arbitration. The Court also remanded to allow the parties to present additional evidence as to whether the parties had “impliedly agreed” to permit class arbitration.
Comment: Under Stolt-Nielsen v. AnimalFeeds Internat. Corp., __U.S. __ ,130 S.Ct. 1758 (2010), not expressly addressing class action arbitrability leads to the same outcome as a waiver of class action arbitrability. However, under contract law principles, there is still room for parties to “impliedly agree” to class action arbitrability without expressly agreeing to arbitrate class actions.
Truly Nolen contains an excellent summary of the key federal and California cases in this “rapidly evolving” area of law concerning “the right to classwide arbitration in wage and hour litigation under the FAA and under California law.”