Arbitration/Waiver/Burden of Proof: Substantial Evidence Supported Waiver of FINRA Arbitration
St. Agnes Factors Weighted In Favor of Finding of a Waiver
The leading California case for determining whether a waiver of the right to arbitrate has occurred is St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003). St. Agnes provides a multi-factor test that the court handily applied in Alspaugh v. Dunham, Case No. D09673 (4th Dist. Div. 1 June 14, 2012) (McDonald, J.) (author) (not for publication).
In Alspaugh, Plaintiffs sued Defendants claiming investment fraud. Defendants moved to compel arbitration, losing that motion in the trial court. Defendants appealed the denial, claiming the trial court erred by finding they were not required to arbitrate pursuant to the written agreements, and that they had waived any rights to enforce arbitration.
What were the critical facts resulting in a finding of waiver? Plaintiffs filed their case in February, 2009. Defendants did not file their motion to compel arbitration and stay litigation until March 23, 2011, and their actions were inconsistent with arbitration. Defendants filed multiple substitutions of attorney, bankruptcy filings, requests to continue trial, counter claims, multiple demurrers, took 40 depositions, and propounded thousands of discovery requests.
True, St. Agnes states that “the party seeking to establish a waiver bears a heavy burden of proof.” 31 Cal.4th at 1195. But a finding of waiver will usually be fact-based. Therefore, the standard of review will be whether there is substantial evidence to support the trial court’s finding of waiver.
Here, the Court of Appeal affirmed the order based on the trial court’s finding of waiver. Therefore, the court did not need to address the merits of alternative grounds for the order denying defendants’ motion to compel arbitration.
Arbitration/Waiver: Cinel v. Barna Is Now Certified For Publication
Failure to Pay Arbitrator’s Fees Led to Waiver of Right to Arbitrate in Cinel v. Barna
On May 20, 2012, we blogged about Cinel v. Barna, Case No. B232380 (2nd Dist. Div. 1 May 18, 2012) (Johnson, J.) an unpublished case at the time. As of today, the case is certified for publication.
Mediation/Condition Precedent/Fees: Listing Agreement Required Mediation Before Commencing Litigation – But Promissory Note Did Not Have That Requirement
. . . And So Party Suing and Prevailing On the Promissory Note Could Recover Fees Without Initiating Mediation
We have a sidebar category, "Mediation: Condition Precedent," reflecting the fact that many contracts, such as real estate purchase and sale agreements, and listing agreements, now require a party to mediate before filing a lawsuit, as a condition precedent to the recovery of attorney’s fees. File the next case under: "condition precedent: not." Keith v. Shuttleworth, Case No. D058881 (4th Dist. Div. 1 June 14, 2012) (McConnell, P.J., author) (not for publication).
Plaintiff sued defendant for breach of a promissory note, and defendant cross-complained for breach of a listing agreement. The trial court awarded plaintiff $71,721 for breach of the note, $219,171.18 for fees, and $19,205.34 for other costs. Defendant/cross-complainant lost its cross-claim to recover a commission, and appealed.
One of defendant’s arguments was that the listing agreement required mediation first in order for plaintiff to be able to recover attorney’s fees later. But you already know the answer to that: plaintiff sued on the promissory note, not the listing agreement, and the promissory note, though it did have an attorney’s fees provision (lucky for the plaintiff), did not require mediation (lucky again for the plaintiff).
But didn’t the promissory note "arise from" the listing agreement transaction? Issue forfeited because not timely raised. Besides, said the court, we are satisfied that the "complaint for breach of the promissory note is not an action under the Listing Agreement."
Judgment affirmed.
Arbitration: Parties Not “Aggrieved” May Not Appeal From An Order Denying Their Cross-Petition to Compel Arbitration
An Order Denying Defendants’ Cross-Petition To Compel An Arbitration They Already Initiated Does Not Adversely Affect Them – And Therefore They Can’t Appeal It
O’Malley v. Avenatti, Case No. G045806 (4th Dist. Div. 3 June 13, 2012) (Ikola, J., author) (not for publication) is the kind of lawsuit only lawyers can love – a lawsuit among former law partners fueled by high-octane gamesmanship. The opinion also provided Justice Ikola, trained in electrical engineering at the University of Michigan, with an opportunity to display his mathematical skill and astringent wit.
O’Malley sued defendants in Orange County, then moved to compel arbitration in Orange County. Defendants opposed – sort of – stating “there is no disagreement that this dispute should proceed to arbitration,” while disputing the scope of the arbitration, who was to make the determination of scope, and where the arbitration was to proceed. Alternatively, defendants cross-petitioned to compel arbitration in San Francisco.
The superior court granted O’Malley’s petition to arbitrate in Orange County. Defendants appealed, but an order granting a petition to arbitrate is not appealable. The Court of Appeal solved this problem by pointing out that defendants’ notice of appeal identified the order as the “order denying [their cross-] Petition to Compel Arbitration . . . “ – an appealable order. But defendants had a further and higher hurdle to surmount.
Because defendants had already initiated an arbitration in San Francisco, and O’Malley had apparently appeared in that arbitration, the denial of defendants’ motion to compel arbitration in San Francisco meant that they were not “aggrieved.” Only a party aggrieved may appeal. Code Civ. Proc., section 902.
The kludgy result is two overlapping arbitrations in two different JAMS offices. And this is the part that triggered Justice Ikola’s merciless display of mathematical reasoning:
“Having two overlapping arbitrations in two different JAMS offices is hardly ideal, but it is the entirely foreseeable consequence of defendants’ tactics. Defendants responded to O’Malley’s petition to compel arbitration by initiating their own arbitration the very next day. Faced with the prospect of one arbitration being compelled by a nonappealable order, defendants chose to initiate another one. One plus one equals two.” (our italics).
Song of Two
Arbitration/FAA/Waiver/Employment: Fourth District, Div. 2, Affirms Denial of Petition to Arbitrate in Area of the Law It Describes as “Fluid and Volatile”
Split of Opinion Continues About Arbitrability of State Statutory Labor Claims
“Once more unto the breach, dear friends, once more.” (Henry V, Act 3, Scene 1).
Hoover v. American Income Life Insurance Company, Case No. E052864 (4th Dist. Div. 2 May 16, 2012) (Codrington, J., author) (certified for publication) underscores a split in the law, concerning the arbitrability of state statutory labor claims, that we reported on just last week.
On June 5, 2012, we posted on Iskanian v. CLS Transportation Los Angeles, LLC, Case No. B235138 (2nd Dist. Div. 2 June 4, 2012) (Boren, P.J., author) (certified for publication), a labor code violations case, in which the Court of Appeal interpreted AT&T Mobility v. Concepcion broadly to hold that the Federal Arbitration Act “conclusively invalidates the Gentry test” for finding that a statutory right is unwaivable and cannot be arbitrated. Also, the court in Iskanian disagreed with the majority’s opinion in Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011), that the Concepcion holding does not apply to representative claims under the Private Attorney General Act of 2004 – instead, the Federal Arbitration Act (FAA) can trump employee statutory rights, according to Iskanian.
Hoover is the latest California wage and hour case involving arbitrability of employee state statutory labor claims. But in Hoover, at footnote 2, the 4th District, Division 2, explicitly and positively relies upon Brown, infra: “AT&T does not provide that a public right . . . can be waived if such a waiver is contrary to state law.” Hoover, 197 Cal.App.4th 489, 500, 502-503.
In addition, the court in Hoover concluded that the employer had the burden to establish FAA coverage/preemption, and the employer had failed to establish that the relationship between the plaintiff employee and the defendant employer “had a specific effect or ‘bear[ing] on interstate commerce in a substantial way.” Therefore, because the Commerce Clause in the US Constitution did not reach the relationship, FAA preemption didn’t even kick in.
The court in Hoover also rejected the employer’s argument to compel arbitration on the more mundane ground of waiver. Here, the employer waited almost 15 months after Hoover’s complaint was filed to move to compel arbitration. Before moving to compel, the employer filed an answer to the complaint with 22 affirmative defenses, none of which alleged the existence of an arbitration provision, propounded interrogatories and document requests, noticed Hoover’s deposition, and tried unsuccessfully to remove to federal court.
Despite all the evidence of the employer’s waiver of arbitration, the court still wanted to make its firm statement about the arbitrability of state statutory labor claims: “Even if . . . defendant had not waived its right to assert arbitration, we would decide [defendant] could not compel arbitration in the present case.”
Last week, we ended our post on Iskanian by observing:
“This is an active area of the law. Kinecta, Brown, and Iskanian create a sharp split in authority. As fellow-blogger Kimberly Kralowec says about Iskanian in her post . . . in the UCL Practitioner, ‘We should all watch this case to see if the California Supreme Court takes it up.’”
Ditto for Hoover. No wonder the court closes its opinion in Hoover by observing this is a “fluid and volatile area of the law.”
In the News: Stockton and Mediation – Near the End of the Rope?
Stockton Positions Itself to Be Able to End Mediation and File for Chapter 9 Protection From Its Creditors
We blogged on May 30, April 8, and March 11, 2012, about the efforts of California cities in financial distress to comply with AB 506 by mediating as a precondition to filing for bankruptcy.
Stockton is Exhibit 1. The city has been battered by an alignment of unfortunate events: the mortgage foreclosure crisis, the loss of tax revenues, and ambitious projects leaving it financially overextended. The city has the second-highest foreclosure rate in the nation. If Stockton does declare bankruptcy, it will become the most populous city in the country to have done so.
On June 6, 2012, the City Council authorized the City Manager to file for Ch. 9 protection from creditors. The vote immediately triggered a debt downgrade by Fitch Ratings.
A flurry of articles appeared on June 6, 2012, signaling the mediation process is approaching an end: (1) Diana Marcum’s article in the Los Angeles Times, “Stockton moves another step closer to bankruptcy”; (2) Reuters, “Fitch downgrades $252 mln of Stockton, Calif., Debt”, (3) Associated Press, “Stockton officials ready bankruptcy plan,” and (4) Scott Smith, Stockton Record, “Council gives Deis Chap. 9 authority.”
Mediation continues to June 25, 2012, with the city manager authorized to file for Ch. 9 protection the next day.
Blawg Bonus: photograph taken by Dorothea Lange in Stockton in December 1938 during the Depression:
Farm woman, Stockton, California. Tenant Purchase applicant.