Arbitration/Enforceability/Homeowners: CC&R Arbitration Provision Does Not Constitute Agreement To Arbitrate Between HOA and Developer
But Arbitration Provision Between Developer and Direct, Original Purchasers, Suffices To Compel Arbitration of Those Purchasers’ Claims
Covenants, conditions and restrictions (CC&Rs) containing an arbitration provision often raise gnarly questions about enforceability. Is the provision enforceable, and if so, what group will be bound to arbitrate? Those issues were presented in the next case. Verano Condominium Homeowners Association v. La Cima Development, LLC, Case No. D058217 (4th Dist. Div. 1 May 8, 2012) (Benke, Acting P.J., author) (unpublished).
Defendant and Appellant, La Cima, converted apartments to condominiums. As part of the condominium conversion, La Cima drafted and recorded CC&Rs that included an arbitration provision. The arbitration provision required individual condo owners and the homeowner’s association (Verano) to resolve claims against La Cima through binding arbitration under the Federal Arbitration Act (FAA). La Cima transferred ownership of common areas to the homeowners’ association (Verano). Also, La Cima required individual condo purchasers to sign purchase agreements containing similar arbitration clauses.
Verano sued La Cima alleging defects to Verano’s common areas, and also sued as a class representative for association members. La Cima moved to compel arbitration. The trial court denied the motion. La Cima appealed.
The Court of Appeal analyzed three classes of claims.
First, there are claims Verano raised on its own behalf against La Cima. Those were not subject to a valid agreement to arbitrate. Why? Essentially, because there was no binding contract between Verano and La Cima – property was transferred to La Cima, but no consideration was provided by Verano. Under the Davis-Sterling Act, Verano had to take the common areas subject to the CC&Rs.
Second, Verano sued as a class representative for owners who did not directly purchase from La Cima. Here too, applying contract principles, there was no binding contract between La Cima and owners who did not purchase from La Cima. Also, there was no privity of estate, because La Cima no longer had any interest in the property. Again, the claims were not arbitrable.
Third, there were original purchasers bound by an arbitration provision in their contracts with La Cima. Their claims were arbitrable. Also, the Court of Appeal had no trouble concluding that, because ""La Cima’s development project was clearly intimately enmeshed with interstate commerce," the arbitration agreement would be covered by the FAA.
Accordingly, the trial court’s order was reversed and remanded with instructions to segregate the third class of claims – claims by the original purchasers – and grant La Cima’s motion to compel arbitration of those claims only.
Arbitration/Employment/Unconscionability: First District, Division 3 Affirms Superior Court’s Refusal To Compel Arbitration Of Claims By Carpet Installers
The Arbitration Provision is Unconscionable, and Concepcion Does Not Change the Analysis
“Unconscionability” may sound like an abstract legal principle, but it usually entails a very fact-specific analysis. Try out these facts: plaintiffs are carpet layers; they speak Spanish; contracts were presented to them only in English; they have difficulty reading simple written English; the contracts were offered on a non-negotiable, take it or leave it basis, with little or no time for review; the arbitration rules were not attached; the employer included a six-month statute of limitations; the agreement included an Illinois choice-of-law provision; the 11 page text was densely worded, single-spaced, in small typeface; all claims had to be arbitrated, except for certain claims employers typically bring in court (declaratory and injunctive relief); an attorney’s fees provision stated that only the employee could be tagged with fees; and the arbitration provision was the 36th of 37 sections. You know where the court is going to go with those facts. The only question is: how many bowling pins remain for the court to knock over. Samaniego v. Empire Today LLC, Case No. A132297 (1st Dist. Div. 3 filed April 5, 2012; pub. order May 6, 2012) (Siggins, J., author). Defendant Empire appealed the superior court’s refusal to compel contractual arbitration of claims by the carpet installers.
One. Substantial evidence supported a finding of procedural and substantive unconscionability. See above.
Two. California law applies. Because of the procedural and substantive unconscionability, the choice of law provision was obtained by “improper means”. Again, see above. If Illinois law requires enforcement of the arbitration clause, then the enforcing the choice of law provision will result in “substantial injustice.”
Three. The “multiple defects” (see above) mean that the arbitration agreement is “permeated” by unconscionability. Severance would not serve the interests of justice.
Four. AT&T Mobility LLC v. Concepcion, __ U.S. __, 131 S.Ct. 1740, 179 L.Ed..2d 742 (2011) does not change the analysis. The Federal Arbitration Act “permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress or unconscionability,’ [although] not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Id. at 1746.
Result: Affirmance.
Tip: If you want an enforceable arbitration provision in an employment agreement, read the case, and consider a different drafting approach.
Mandatory Fee Arbitration Act: MFAA Award Does Not Become Final If Timely Arbitration Demand Is Served
This Route Works If The Parties Agreed In Writing To Binding Arbitration
The MFAA can be a trap for the unwary. The parties need to be aware of the following requirement: “If no action is pending, the trial after arbitration shall be initiated by the commencement of an action in the court having jurisdiction over the amount of money in controversy within 30 days after service of notice of the award.” Bus. & Prof. Code section 6204(c). In the next case, that requirement was at issue. Rosenson v. Greenberg Glusker Fields Claman & Machtinger LLP, 203 Cal.App.4th 688 (2012). What happens if, after receiving an adverse MFAA award, a party serves a demand for binding arbitration instead of initiating a trial de novo?
Plaintiff and Respondent Rosenson obtained an award under the MFAA, requiring his attorney to return of some of the fees he had paid for legal services, Defendant and Appellant Greenberg Glusker. However, Mr. Rosenson and Greenberg Glusker had a retainer agreement providing for binding arbitration. Within 30 days of the service of the MFAA award, Greenberg Glusker filed its demand for arbitration. Rather than participate in binding arbitration, Mr. Rosenson petitioned the superior court – successfully — to confirm his favorable arbitration award. Greenberg Glusker appealed, arguing its timely arbitration demand prevented the MFAA award from becoming final.
The Court of Appeal, in an opinion authored by Justice Kriegler, agreed with Greenberg Glusker: “If the parties have agreed in writing to binding arbitration, a demand for arbitration within 30 days of service of the MFAA award is a proceeding that prevents finality of the MFAA award.” In reaching its conclusion, the Court of Appeal relied heavily on an earlier California Supreme Court decision, Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4th 557 (2009) (holding the MFAA does not stand as an obstacle to the enforcement of a valid agreement to arbitrate pursuant to the California Arbitration Act). Thus, “binding arbitration, pursuant to a preexisting agreement, may go forward once the MFAA arbitration process is over.” Schatz, supra, 45 Cal.4th at 57. Saved from The Bear Trap [below]!
The Court of Appeal pointed out that if Greenberg Glusker had filed a superior court action to compel arbitration instead, “it would have run afoul of settled California law prohibiting an action to compel arbitration until the opposing side has refused to arbitrate.” That, by the way, is another trap for the unwary – seeking to compel arbitration prematurely, before the other side refuses a demand to arbitrate.
Snow shoe travelling. The Bear Trap. 1866. Library of Congress.
Mediation/Mediators: Paws for a Moment – Pet Mediators
New Breed of Mediator Helps to Resolve Bones of Contention
Pet mediation is the subject of Veronica Dagher’s April 30, 2012 article in the venerable Wall Street Journal, entitled “A Dog’s Bark Is Better Than Litigation’s Bite.”
During my years as a litigator, I’ve actually encountered several acrimonious lawsuits involving dogs – one of which resulted in a court order to debark a neighbor’s dogs.
As a result, the concept of pet mediation does not seem altogether frivolous. In fact, as Ms. Dagher’s article points out, pet mediation may be useful in the case of a “custody dispute” accompanying a divorce, or a neighbor dispute over barking or rowdy dogs. If the problem can be solved in two hours by a mediator charging $250/hour, then the participants can leave without ill will, feeling their leashes have not been yanked too hard. And if the mediation fails, maybe the parties were just barking up the wrong tree.
None of the mediations involved in Ms. Dagher’s article involved cats.
Arbitration: Unconscionability/Enforceability: AT&T Mobility v. Concepcion Requires Reversal of Order That Found Arbitration Agreement Unenforceable – With Court of Appeal Expressing No Opinion On Enforceability
Another Example of the Search for Wiggle Room Within the Concepcion Straightjacket
California courts necessarily follow the ruling of AT&T Mobility LLC v. Concepcion, __ U.S. __ , 131 S.Ct. 1740 (2011), overruling the holding of Discover Bank v. Superior Court, 36 Cal.4th 148 (2005) that in turn had held that class action waivers in consumer contracts of adhesion are per se unenforceable. At the same time, the courts are uncomfortable about overextending Concepcion, recognizing that there are still plenty of other reasons for finding class action waivers to be unenforceable. The tension between following the holding of Concepcion, and not following it blindly, is evident in our next case, Mohammadian v. Fry’s Electronic’s, Inc., Case No. D059200 (4th Dist. Div. 1 May 1, 2012) (McDonald, J., author) (unpublished).
In Mohammadian, Plaintiffs sued their employer on behalf of themselves and others for various alleged violations: unlawful deductions from wages, illegal record keeping, failure to pay overtime compensation, unfair business practices, and civil penalties under the Private Attorneys General Act (PAGA).
The trial court denied Defendant Fry’s Electronics petition to arbitrate. It reasoned that because the employment agreement contained no specific agreement for class arbitration, class action could not be enforced by the arbitrator under Stolt-Nielsen S.A. v. AnimalFeeds International, __ U.S. __, 130 S.Ct. 1758 (2010). Further, under Discover Bank, if there could be no class arbitration, then under California law, the agreement was substantively unconscionable. Fry’s appealed denial of its petition to arbitrate.
The Court of Appeal recognized that Concepcion, which overruled Discover Bank, required a remand. The Court allowed that the holding of Concepcion applied to the employer-employee contract, even though the facts differed from the consumer adhesion contract situation in Concepcion.
On remand, the trial court gets to consider alternative grounds for affirming its order. Those grounds could include whether the arbitration provision is still unconscionable, disregarding Discover Bank; whether the provision is unenforceable because it waived Plaintiffs’ statutory right to bring a representative action under PAGA; and whether Defendant waived its right to arbitrate by acting inconsistently and litigating.
Thus, the tension between following the holding of Concepcion and not following it blindly played itself out: Concepcion required a remand, but Plaintiffs get another chomp or two at the apple.
Miscellaneous: Is Bracketing Dead?
Maybe Not, But Mediator Proposes Other Strategies
Mediator Robert Mann has an interesting article in the April 27, 2012 edition of the Los Angeles Daily Journal, under the heading, “Is bracketing dead? New strategies for mediation.” (Verdicts and Settlements section, p. 2).
“Bracketing” is the “dance of negotiation.” Each side comes back repeatedly with incremental changes in their bargaining position, insisting that “this time they really mean it.” Eventually the parties wear each other down (or not), and a grumbling settlement is achieved (or not). As the parties narrow the distance between the brackets, they come within a range of “magnetic attraction”, and (hopefully) come together to achieve a settlement.
Mr. Mann suggests that this process, so familiar to litigators and parties in a mediation, is wasteful and unpleasant, and that there are better alternatives. One alternative is for the mediator to confidentially elicit the goal each side desires, and if the parties are close, ask each side, separately, “If I could get you ‘x’ amount of money, would that be enough to settle this case?” This can lead to a “pre-sold mediator’s proposal.” Another approach is to spend time independently with each side, evaluating what it will take to settle the case for one side, then discuss with the other side in depth whether such a settlement makes sense. Mr. Mann believes such approaches are more efficient and less stressful and adversarial than the traditional dance of negotiation.
Such approaches depend a great deal upon the trust that the parties place in the mediator, and upon the confidence that the parties have that confidential information will truly remain confidential.
We suspect, however, that bracketing is far from dead.