Arbitration/Employment/Enforceability/Standard of Review/Public Policy: Ninth Circuit Refuses to Vacate Arbitration Award Prohibiting Retired Football Player from Pursuing Workers’ Comp Claims Under California Law
Football Player Bruce Matthews Did Not Allege Sufficient Contacts With California To Show Workers’ Comp Claim Came Within Scope of California’s Workers’ Comp Regime
Bruce Matthews, a former American college and professional football player, was an offensive lineman in the NFL for 19 seasons. He played college football for USC, was an All-American, and played professionally for the Oilers/Titan Franchise, retiring in 2002. In 2008, Matthews filed a workers’ compensation claim in California related to injuries incurred during his career as a professional football player. After Matthews filed his claim, the Titans and the NFL Management Council filed a grievance against Matthews, arguing he breached his employment agreement when he applied for benefits in California, because the agreement provided all workers’ compensation claims would be decided under Tennessee law. Because the NFL collective bargaining agreement contained a binding arbitration clause, the parties arbitrated their dispute.
The arbitrator found the choice of law clause in the agreement constituted a promise to resolve workers compensation claims under Tennessee law, and Matthews violated the agreement by pursuing workers’ compensation claims in California. Therefore, the arbitrator ordered Matthews to “cease and desist” from seeking California benefits. Matthews filed suit in federal district court to vacate the arbitration award. The district court denied Matthews’ motion, and confirmed the award. Matthews appealed. Matthews v. National Football League Management Council; Tennessee Titans, Case No. 11-55186 (9th Cir. August 6, 2012) (Fisher, J., author).
The standard of review is a narrow one here: “Arbitration awards are ordinarily upheld so long as they represent a plausible interpretation of the contract.” Furthermore, to vacate an award on public policy grounds, “we must ‘(1) find that an explicit, well defined and dominant policy exists . . . and (2) that the policy is one that specifically militates against the relief ordered by the arbitrator.’” (Matthews, citing United Food & Commercial Workers Int’l Union, Local 588 v. Foster Poultry Farms, 74 F.3d 169, 174 (9th Cir. 1995)). Because the facts did not appear to be in dispute, the Court of Appeals reviewed de novo the district court’s resolution of legal questions.
The Court of Appeals noted that one narrow exception to the rule that arbitration awards are ordinarily upheld “is when the arbitration award is contrary to public policy.” However, even if the California Labor Code can be interpreted to bar an employer from using a contractual choice of law clause to prevent an employee from receiving workers’ compensation benefits under California law, Matthews had failed to allege sufficient contacts with California to bring his claims under California law. Thus, “[h]e did not allege any specific injury in California or a need for medical services in California.”
Mathews also argued that the arbitration award violated federal labor policy providing that an employee may not, through a collective bargaining agreement, bargain away state minimum labor standards. Same problem: “it is not clear that Matthews’ workers’ compensation claim falls within the scope of California’s workers’ compensation regime.”
Finally, Matthews argued that the arbitrator’s award showed “manifest disregard of the Full Faith and Credit Clause of the United States Constitution.” Hardly manifest, concluded the Court of Appeals, because California’s interest “is highly attenuated in this case.”
One may ask why there is no express discussion of FAA preemption of a California rule that would bar contractual waiver of workers’ compensation benefits. This is our explanation:
First, it was unnecessary to consider preemption, because the Court of Appeals concluded that Matthews’ contacts with California were too attenuated to give him the protection of California law. Thus, anything that the Court of Appeals would have said about federal preemption of California law would have been dictum.
Second, there is no preemption of state law by federal law when federal law itself provides that there is an exception to preemption. Here, the Court of Appeals restated Matthews’ argument that federal labor policy “provides that an employee may not, through a collective bargaining agreement, bargain away state minimum labor standards. See Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 755-56 (1985).” In other words, if this is the law, then federal labor law provides an exception to preemption by carving out agreements that bargain away state minimum labor standards. In another case, where the employee establishes contacts to California, the Court of Appeals has left itself room to reach a different conclusion, i.e., that the employee is protected by the California Labor Code and by California public policy, from waiving a right to assert California workers’ compensation claims through an arbitration clause applying Tennessee law. However, by concluding that Matthews had failed to establish the contacts with California necessary to stake a claim under California law, the Court of Appeals did not need to delve into the effect of federal labor policy, as such a discussion was unnecessary to reach its conclusion.
The district court’s judgment was affirmed.
News: Mediation, Kofi Annan and Syria; Arbitration and the Olympics
“Mission Impossible” Becomes Impossible for Mediator Kofi Annan
Rick Gladstone reported on August 2, 2012, in the New York Times, that former UN secretary general Kofi Annan, appointed to act as a special representative for the UN and the Arab League to negotiate a peace plan in Syria, has resigned, saying that President Bashar al-Assad of Syria “must leave office.” Mr. Gladstone quotes Middle East scholar Aaron David Miller: “D.O.A. from the get-go.”
Without commenting on the disastrous political and humanitarian situation in Syria, we instead make a small point about mediation: it is a scalable process, dealing with the world’s little problems, as well as the world’s largest ones – alas, sometimes without success.
Damascus. Tomb of Saladin. Felix Bonfils, 1831-1885, photographer. Library of Congress.
Arbitration and the Olympics
On August 2, we read in the Washington Post that French steeplechaser Nordine Gezzar failed in an attempt to run on Friday at the London Olympics because of the results of an anti-doping test. The decision was made by the “Court of Arbitration for Sport” (or “Tribunal Arbitral du Sport”). In fact, we have seen mention of this arbitral body several times during this Olympics year, making us curious about just what it does. Brendan Koerner provides the answer for us in Slate Magazine:
“The CAS has few limitations on what types of cases it can consider: As long as it involves sports, and both parties agree to the arbitration, pretty much any conflict is fair game. However, the bulk of the court’s rather light docket—it ruled on 39 cases last year—is taken up with cases involving either doping or soccer transfer fees (that is, how much one club team pays another to obtain a player). There is also the occasional gripe from an athlete who didn’t make his or her Olympic team, as well as a smattering of national quibbles.”
Water Jump in the Steeplechase. 1908 Olympics in London. Wikipedia.
Arbitration/Preemption/Standard of Review: Federal Arbitration Act Preempts Consumer Legal Remedies Act’s Prohibition Against Class-Action Waivers
Fourth District, Division 3 Reverses Denial of Petition to Compel Arbitration and Remands to Consider Unconscionability Challenge
Plaintiff Caron, who experienced difficulties with her certified preowned Mercedes Benz, sued Mercedes Financial and Mission Imports for relief under the Consumer Legal Remedies Act (CRLA), the Automobile Sales Finance Act, and unfair competition law. Defendants petitioned to arbitrate under an arbitration provision that included a class-action waiver. The trial court believed that it was bound by Fisher v. DCH Temecula Imports LLC, 187 Cal.App.4th 601 (2010), and ruled that the arbitration provision was unenforceable because it waived the right to bring a class action under the CRLA, and that the Federal Arbitration Act (FAA) did not preempt the CLRA’s prohibition against class-action waivers. Caron v. Mercedes-Benz Financial Services USA LLC, Case No. G044550 (4th Dist., Div. 3 July 30, 2012) (Aronson, J., author).
Whether the FAA preempts the CLRA’s anti-waiver rule is a legal question. Therefore, the Court of Appeal reviewed the trial court’s ruling de novo.
Based on AT&T Mobility LLC v. Concepcion, 563 U.S. __, 131 S.Ct. 1740 (2011),the Court of Appeal agreed that the FAA preempts the CLRA’s anti-waiver provision, and declined to follow Fisher. Therefore, the Court of Appeal reversed the trial court’s ruling that denied the petition to arbitrate, but remanded for the trial court to resolve factual issues raised by Caron’s unconscionability challenge.
The Court of Appeal acknowledged that the California Supreme Court created the “Discover Bank rule,” used to find certain arbitration provisions in consumer contracts unconscionable because they included a waiver of the consumer’s right to bring a class action. The reason for the Discover Bank rule was that “consumer contracts of adhesion allowed companies to effectively exonerate themselves from liability for cheating large numbers of consumers out of money individually too small for a consumer to bring an individual action.” But Concepcion took a different paths.
Properly drafted class-action waivers may be enforceable, requiring consumers to arbitrate substantive claims brought under the CRLA.
Caron highlights two themes in recent cases: (1) the FAA preempts state law (including statutory rules) that erect obstacles to the FAA’s objective of enforcing arbitration agreements according to their terms, and result in special treatment of contracts with arbitration provisions; (2) arbitration provisions must still satisfy common law rules that govern contract formation and enforceability. As to the second point, we posted on March 29, 2012, about a case in which an automobile dealership’s effort to enforce an arbitration provision was defeated on state-law waiver grounds. Lewis v. Fletcher Jones Motor Cars, Inc., No. G045603 (4th Dist. Div. 3 March 26, 2012) (Aronson, J.) (not for publication).
Arbitration/Employment/Unconscionability: Second District, Division 5 Affirms Denial of Petition to Arbitrate Wrongful Termination Employment Dispute
Majority Opinion Identified Many State Law Contractual Problems With Arbitration Provision
Plaintiff Sparks sued for wrongful termination, and employer Vista Del Mar Child and Family Services petitioned to arbitrate the dispute. The trial court denied the petition, and the employer appealed. Sparks v. Vista Del Mar Child and Family Services, Case No. B234988 (2nd Dist. Div. 5, July 30, 2012) (partially certified for publication, except for issue concerning timeliness of filed response).
The Court of Appeal affirmed, with Justice Mosk writing the opinion for the majority, Justice Armstrong concurring, and Justice Turner dissenting and concurring.
The majority opinion identified the following problems with arbitration as grounds for affirmance: the arbitration clause was buried within a lengthy employee handbook; the arbitration clause was not called to plaintiff’s attention; plaintiff did not acknowledge or agree to arbitration; the handbook was not intended to create a contract; the handbook could be amended unilaterally by employer, rendering any agreement illusory; the arbitration rules were not provided to plaintiff; and, the arbitration was procedurally and substantively unconscionable (in this case, an adhesion contract that did not provide for discovery).
Justice Turner distinguished between pre- and post-2009 claims, because the employee had been provided a new employee handbook in 2009 that supplanted the earlier handbook. In contrast with the situation regarding the earlier handbook, there was no evidence the employee was advised of the contents of the newer handbook, or that the employee signed acknowledgment of the 2009 handbook. Justice Turner would reverse “the trial court’s findings as to all pre-2009 agreement claims and direct they be arbitrated; allow the trial court to sever the non-arbitrable claims; and order arbitration on the arbitrable claims even though such may be impractical.”
The Sparks case provides plenty of grist for attacking and for defending an arbitration provision in an employee handbook. Want an enforceable provision? Solve the problems identified by the majority, and borrow arguments from Justice Turner’s dissent in support of arbitration. Want to attack arbitration? Follow the majority, and Justice Turner, in the concurring part of his opinion that found no binding provision in the 2009 handbook.
Fellow blogger Kimberly A. Kralowec points out today in the UCL Practitioner that Sparks underscores that the United States Supreme Court in Concepcion did not eliminate state law unconscionability as a defense to the enforcement of arbitration agreements subject to the Federal Arbitration Act (as was the arbitration agreement in Sparks).
News: FINRA Reinstates Arbitrators; Tips for Making Mediation Work; Homeless Mediation; Sex Abuse Mediation
Arbitrators Axed By FINRA After Deciding Against Merrill Lynch Are Reinstated
Suzanne Barlyn reports July 25, 2012 (Reuters) that the Financial Industry Regulatory Authority (FINRA) reinstated three securities arbitrators axed after an arbitration panel awarded $520,000 against Merrill Lynch. Because FINRA routinely cycles arbitrators through its roster, crossing an arbitrator off its roster is not, in and of itself, especially notable. But the proximity in time to the negative award (negative, from the point of view of a large firm), and the reinstatement of three arbitrators is unusual. Does anyone believe that just because a major firm was dinged with an adverse arbitration award, FINRA would exercise anything less than absolute impartiality in the choice of arbitrators for its roster?
Making Mediation Work
Attorney Richard Shore has a July 25, 2012 article online in Forbes proposing “Four Tricks That Make Mediation Work”: “1. Let the other side pick the mediator . . . 2. Don’t argue about who is right . . . 3. Leave the litigators at home . . . 4. Deal with hard issues last.” Our comments: No. 4 – Generally a good idea to build a dialogue before cutting to the chase. No. 3 – Having one team of settlement counsel, and another team of litigation counsel is a luxury that many clients cannot afford. No. 2 – Generally a good idea, though “venting” may sometimes be a necessary part of the process. No. 1 – There is plenty of lore about picking a mediator. Mr. Shore’s suggestion has the merits of speeding up the process and putting a mediator in place who may have leverage to convince your opponent – though you may have reservations about a mediator your opponent has chosen. It would be interesting to see empirical studies relating satisfaction with outcomes to the process used to select a mediator.
San Luis Obispo Homeless Mediation
On July 26, 2012, Nick Wilson reported in The Tribune (SanLuisObispo.com): “Lawyers litigating over whether people can live and sleep in their cars in the city of San Luis Obispo formally agreed to mediation in San Luis Obispo Superior Court on Wednesday [July 25, 2012].”
Mediating Sex Abuse Cases
Tom Gallagher reports in the July 20, 2012 National Catholic Reporter about, “Mediation: A new model for settling sex abuse cases.” The Spokane, Washington, diocese announced a new settlement culminating nearly a decade of litigation concerning sex abuse cases and a bankruptcy filing earlier that cost the diocese $48 million.
Because we thought that Bishop Blase J. Cupich’s comments about the mediation process were insightful, we repeat his comments, as reported by Mr. Gallagher:
- “Understand that you are not going to control the outcome,” he said. “The solution is not going to be immediately evident. It’s key to have ongoing dialogue with the mediator. You have to see your opponents as your partners, to trust each other and for both sides to let go of trying to control the outcome.”
- “Understand that this is going to take a long time to accomplish.”
- “You cannot get mad. If you get mad, you will lose.”
- “Revisit your goals because you may have had a certain expectation or a certain aspect of a goal, but you should be willing to keep testing these expectations.”
Arbitration/Severability: First District, Division 1 Severs Part of Arbitration Provision Providing “Less-Than-Neutral Arbitration Forum”
In Which the Dream of A Bed and Breakfast Becomes A Dog’s Breakfast
“A partnership to run a bed and breakfast in Nicaragua soured.” Not an auspicious beginning. Plaintiff Lawler sued his partners, the Caseys, and their former corporation (collectively Casey) in California for fraud and related causes of action. Casey moved to compel arbitration. The trial court concluded it had “discretion to toss the whole arbitration agreement” because the arbitration provision appointed defendant Casey’s lawyer as the arbitrator. Lawler v. Casey, Case No. A132620 (Dist. 1, Div. 1 July 27, 2012) (Banke, J., author) (unpublished). Casey appealed.
Steamboat landing on beautiful Lake Nicaragua. 1902. Library of Congress.
The Court of Appeal reversed and remanded, “because the trial court should have severed the biased appointment from the remainder of the arbitration clause, instead of voiding the clause in its entirety.”
The unfair provision did not result in an agreement “permeated” by unconscionability. While the trial court had some discretion, it did not exercise its discretion, providing no findings or statement of reasons on the question of severance versus invalidation.
Of relevance is the fact that Cal. Code of Civ. Proc. section 1281.6 provides that, where an arbitration agreement does not provide a method for appointing an arbitrator, the parties may agree on a method, and if they can’t agree, or if the agreed method fails, the court, on petition, appoints the arbitrator. The situation here is analogous to one in which the parties agreed to a method, but the agreed upon method failed, allowing the court to appoint an arbitrator.
Also noteworthy is the fact that the contract between business parties, though flawed, was not a contract of adhesion, and therefore not unconscionable.
On remand, the trial court will still need to consider arguments concerning choice of law, illegality, and waiver. But at least the severance issue is resolved.