News: California Assembly Rejects Expanding Role of Mediators Before Municipalities Can File For Bankruptcy–At Least For Now
AB 1692 Would Expand AB 506
CBS News reports that the state Assembly has rejected legislation (AB 1692) seeking to expand the mediation process for California cities about to declare bankruptcy.
At the end of last year, AB 506, drafted by Assemblyman Bob Wieckowski (D – Fremont), created a mediation requirement for municipalities before they could file for bankruptcy. Stockton and Mammoth Lakes have engaged in the process.
AB 1692 “would ‘authorize the neutral evaluator to request and control the process of an independent investigation’ and terminate the process ‘upon a specified circumstance,” according to Bloomberg Businessweek.
One possible effect of AB 1692 would be to extend the length of mediation before a municipality could file for bankruptcy. Public employee associations have favored passage of the new bill. The League of California Cities has opposed the new bill, saying that prolonging the mediation process would be prolonged till cities run out of cash.
Whether this is just a temporary setback for the proposed legislation remains to be seen.
We have blogged earlier on mediation in connection with Stockton and Mammoth Lakes financial problems.
California Mediation and Arbitration Has Been Added To The American Bar Association Journal’s Blawg Directory
“All About California Mediation And Arbitration”
We are pleased to inform our readers that as of May 23, 2012, California Mediation and Arbitration has been added to the ABA Journal’s blawg directory under the category “Alternative Dispute Resolution”.
We thank Sarah Randag, Web Editor of the ABA Journal, for informing us.
Arbitration/Fees: Plaintiff’s Request for Fees for Defeating a Petition to Compel Arbitration in Pending Lawsuit Is Unsuccessful, Because Defendant Prevailed In the Whole Lawsuit
Under Civil Code Section 1717, There May Be Only One Prevailing Party Entitled to Recover Attorney’s Fees on Given Contract In Given Lawsuit
The key to our next case, involving arbitration and attorney’s fees, turns on a nice point that may at first seem a technicality but is actually material and dispositive here. That point: a party may petition to enforce an arbitration agreement as an independent lawsuit if there is no pending lawsuit; otherwise, the party must file the petition in the pending lawsuit. Frog Creek Partners, LLC v. Vance Brown, Inc., Case No. A129651, p. 2, n. 4 (1st Dist. Div. 5 May 24, 2012) (Simons, Acting P.J., author) (certified for publication); Cal. Code Civ. Proc., section 1281.2.
In the first example, the petitioner who is defeated may be exposed to attorney’s fees under Civ. Code section 1717 (assuming of course the existence of an attorney’s fees provision), because the petitioner who loses a petition to compel arbitration has lost an action on a contract. One who wants to litigate must now file a lawsuit, and the prevailing party in that lawsuit will have a separate right to recover attorney’s fees. But in the second example, if someone files a petition to arbitrate in an existing lawsuit and loses, no determination of liability for attorney’s fees can be made until the lawsuit is over, because only one prevailing party is entitled to recover fees on a given contract in a given lawsuit. In the second example, the plaintiff successfully defeating the petition to arbitrate brought in the existing lawsuit, but ultimately losing the substantive contract dispute at trial is a loser, and will not be able to collect attorney’s fees. That is the rationale for the outcome in Frog Creek Partners.
The frog who tried to be as big as a bull. Library of Congress.
Mediation/Confidentiality/Family Law: Conduct of Parties During Settlement Negotiations Can Support Sanction in Family Law Context
Whether the Mediation Confidentiality Was Violated Is Not Crystal Clear From the Opinion
We are always pleased when a case has something to say about mediation – there are far fewer written opinions about mediation than about arbitration.
Aaronson petitioned to nullify her marriage with Oslica, on the ground of purported fraud relating to Oslica’s immigration status at the time of marriage. The case did not go well for Aaronson, who was ordered to pay $15,000 of Oslica’s attorney’s fees and costs. The trial court also sanctioned Oslica’s attorney. In re Marriage of Aaronson and Oslica, Case No. A128516 (1st Dist. Div. 2 May 22, 2012) (Haerle, Acting P.J., author) (unpublished). Aaronson appealed, contending the fee order needed to be reversed because she was unemployed and because the trial court considered other improper factors.
The Court of Appeal affirmed the order, finding that being unemployed was not a blanket protection from getting hit with attorney’s fees under Family Code section 271. However – and this is why we have a post – among the allegedly “improper factors” that Aaronson challenged was the admissibility of settlement discussions showing that she had rejected settlement offers. Family Code section 271 authorizes an award of attorney’s fees as a sanction for frustrating the policy of the law to promote settlement of litigation. Aaronson argued that if settlement discussions are protected in the context of mediation (Evid. Code section 1119), then in her case, settlement discussions between counsel must be protected.
The blanket protection of mediation communications (Evid. Code section 1119), however, is different from the protection of settlement discussions (Evid. Code section 1152). As the Court of Appeal pointed out, not all settlement discussions are inadmissible – only settlement discussions to prove “liability” for a claimed loss or damage. Here, the evidence was admitted after the judgment was entered, to consider whether there had been unreasonable conduct during settlement negotiations – the basis for the award of fees under section 271.
The somewhat murky part of the opinion is whether or not the settlement discussions occurred during mediation. True, just because the settlement discussions occurred between counsel does not mean that they occurred during mediation. Unfortunately, the court’s explanation that “[h]ere . . . after the judgment was entered, the trial court considered evidence pertaining to unreasonable conduct during settlement negotiations in accordance with section 271,” does not clarify whether the settlement conversations occurred during or in connection with mediation. Also, the court’s comment, “[w]e firmly reject the implication that Aaronson was sanctioned solely because her attorney rejected a settlement offer,” suggests even if Aaronson was sanctioned partly because her attorney rejected a settlement offer, and even if that rejection occurred during mediation, the evidence of rejection, even if wrongly considered, was harmless and irrelevant to the outcome. If there was error, it must have been harmless, because “the appellate record is chalk-full of samples of both improper and wasteful litigation tactics.”
While the court has discussed mediation here, we’re not exactly sure what part is dictum and what part is holding. The opinion makes perfect sense if the Court of Appeal is simply telling us that the settlement discussions between counsel were not part of a mediation, and therefore were admissible for a permissible purpose that did not involve establishing liability.
Arbitration/Fees/Waiver/Severability/Standard of Review : In Elder Abuse Case, Court of Appeal Affirms Severance From Arbitration Clause of Waiver of Plaintiff’s Statutory Right to Recover Attorney’s Fees
Fifth District Explains That By Submitting A Dispute to An Arbitral Forum, A Party Does Not Necessarily Forgo Substantive Statutory Rights
Plaintiff Ruth Chappell (replaced by her trustee Bickel after she died) sued an assisted living facility, Sunrise Assisted Living, for Elder Abuse. Chappell’s written agreement with Sunrise included an arbitration clause specifying each party would bear its own fees and costs in arbitration. Sunrise petitioned to compel arbitration. The trial court granted the petition, but severed the provision that provided each side was to bear its own fees and costs. That provision amounted to a waiver of plaintiff’s statutory right to recover attorney’s fees if she prevailed on her Elder Abuse claim – a waiver the trial court found to be against public policy. After plaintiff prevailed in the arbitration and was awarded very substantial attorney’s fees ($666,725.30) and costs ($94,694.70), Sunrise appealed the trial court’s decision severing the attorney’s fees and cost provision. Bickel v. Sunrise Assisted Living, Case No. F062443 (5th Dist. May 21, 2012) (Kane, J., author) (certified for publication).
“Any one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” Cal. Civ. Code section 3513. Because the court determines whether the statute in question is for a public or a private benefit, the issue is reviewed here de novo.
Here, the Court of Appeal concluded that the fee shifting provision of the Elder Abuse Act is for a “public benefit”: “the heightened remedies enacted in section 15657 were remedial measures designed to correct a significant problem affecting a highly vulnerable segment of our society.” Accordingly, the statutory rights were created for a public purpose and therefore not waivable by a private agreement. Because the arbitration agreement was not generally permeated by unconscionability, the trial court correctly ordered arbitration, while severing the objectionable waiver of statutory rights intended to be for a public benefit. Judgment affirmed.
COMMENT: On March 27, 2012, we blogged that, in a nursing home case, the United States Supreme Court slammed the Supreme Court of Appeals of West Virginia, for “misreading and disregarding the precedents of this Court” interpreting the Federal Arbitration Act, and for failing to follow controlling federal law. Marmet Health Care Center, Inc. v. Brown, 565 U.S. ____ (2012). The West Virginia court had "concluded that the FAA does not pre-empt the state public policy against predispute arbitration agreements that apply to claims of personal injury or wrongful death against nursing homes." While the United States Supreme Court’s application of the FAA may have shut the door to the courthouse, the approach taken in Bickel shows that it may still be possible to implement an agreement to arbitrate, while preserving unwaivable statutory rights with a little help from the doctrine of severability.
Arbitration/Fees/Waiver: Cinel Redux – Not Paying Arbitrator’s Fees Leads to Waiver of Right to Arbitrate
Once Again, Second District, Division 1 Gets to Explore Legal Consequences of Not Paying All the Arbitrator’s Fees
The parties in Cinel v. Barna, Case No. B232380 (2nd Dist. Div. 1 May 18, 2012) (Johnson, J.) (unpublished) have undoubtedly expended lots of attorney’s fees by now, exploring the legal consequences of not paying the arbitrator’s fees. On February 29, 2012, we blogged about Cinel v. Christopher, 203 Cal.App.4th 759 (2012) (Johnson, J.). Back then, the question was: what happens when a party doesn’t pay the arbitrator’s fees, and the arbitrator terminates the arbitration? When one of the parties, Christopher, petitioned to confirm an award as a result of the termination, the arbitrator denied the petition. The Court of Appeal concluded that the “denial” was tantamount to a “dismissal” of the petition to confirm the award –an appealable order – but that the trial court correctly dismissed the petition and ordered the matter to trial, because the arbitrator never reached the merits.
Another party, Barna, has now argued that he, Barna, never waived his right to arbitrate, that he paid his portion of the arbitrator’s fees, and that the trial court should therefore compel arbitration. Perhaps he was disappointed that Cinel didn’t pay everyone’s unpaid arbitrator’s fees, because apparently Cinel is a billionaire. But Cinel was not legally obligated to pay every one else’s arbitration’s fees, as altruistic as such a gesture might be. In fact, Cinel, who originally filed suit in state court for fraud, was not the party who sought arbitration in the first place.
Waiver is the interesting issue here: “[D]efendants have waived their right to arbitrate by refusing to reach a resolution with Cinel on the fee dispute.” Remember, waiver in the context of arbitration doesn’t require intentional relinquishment of a known right – simply acting inconsistently with pursuing one’s right to arbitrate may lead to waiver. That’s what happened here where the parties were offered an opportunity to “work it out” among themselves and failed to do so. The result: waiver of the right to arbitrate.
If the parties have no agreement how to pay an arbitrator, then pursuant to statute, everyone has an obligation to pay their pro rata share. Cal. Code Civ. Proc. section 1284.2. In the case of AAA arbitration, the AAA rules take over. Here, the AAA panel, ”under the authority of the AAA Rules, ordered the parties to split the fees of the nonpaying parties; when the paying parties refused to do so, the arbitration was terminated. . . . . Barna cannot use the nonpaying parties as a proxy to extort payment of the entire amount of the nonpaying parties fees’ from Cinel, who did not demand arbitration in the first place.”
The Court of Appeal also expressed concern that if Barna could revive the arbitration, the parties risked falling into an “infinite loop.” Once again, someone wouldn’t pay their fair share of the arbitration, and again, the arbitrator would terminate the arbitration. And once again, someone would insist that he had paid his fair share, and the arbitration should proceed. And so on . . . .
Above: Allen Hastings’ “Infinite Loop.”
Result: Affirmance of the trial court’s order denying the motion to compel arbitration.