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 Unpublished when we posted before, the case was certified for publication today, August 15, 2012.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 Div. 7 August 14, 2012) (Perluss, J., author) (unpublished).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.”
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).