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 Div. 1 May 18, 2012) (Johnson, J.) (unpublished) have undoubtedly expended lots of attorney’s fees by now, exploring the legal consequences of not paying the arbitrator’s fees.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.
Arbitration/Nonsignatories/Scope: Plaintiff’s Mere Allegation of Agency Relationships Is Not Necessarily Enough to Enable Nonsignatory to Take Advantage of Arbitration Provision
Court of Appeal Delves Further Into Whether Alleged Agency Relationship Relates to Activities Governed By The Arbitration Clause
The underlying dispute among different YMCA organizations, concerned the right to use camp grounds in the Sierra. Plaintiff Central Valley Young Man’s Christian Association, Inc. ran into financial difficulties, as a result of which the national YMCA dechartered plaintiff, and The Sequoia Lake Conference of Young Men’s Christian Associations removed plaintiff from its membership – then end result being that plaintiff’s members could not use the Sierra campgrounds. Plaintiff sued seeking reinstatement in Sequoia, and various other remedies. Sequoia moved to compel arbitration, but its petition was denied by the trial court. Central Valley Young Man’s Christian Association, Inc. v. The Sequoia Lake Conference of Young Men’s Christian’s Associations, Case No. F061635 (5th Dist. May 15, 2012) (Hill, P.J., author) (unpublished). Accordingly, Sequoia appealed.
Though a nonsignatory to any arbitration provision, Sequoia sought to take advantage of an arbitration provision in the Policies and Procedures Manual of the National Committee on Membership Standards (NCMS) of the national YMCA organization, which they asserted was binding on all chartered YMCAs. One of the ways in which a nonsignatory can gain a right to appeal is if the nonsignatory is an agent of a party to an arbitration agreement that governs the dispute. Sequoia sought to take advantage of the application of that rule to the dispute.
No go, said the Court of Appeal. Though the plaintiff’s complaint did in fact plead agency relationships, the allegations did not establish that the agency relationship related closely enough to the purported arbitration provision and the dispute:
“Sequoia is not alleged to be an agent of GSYMCA and Kings YMCA in any activities or relationship governed by the NCMS policies and procedures manual. Thus, Sequoia has not alleged or demonstrated that it was an agent of GSYMCA or Kings YMCA, or both, in connection with a dispute governed by the arbitration clause found in the NCMS policies and procedures manual.”
Result: affirmance. Sequoia failed to establish that it was a party entitled to invoke the arbitration provision, or that the dispute fell within the scope of the arbitration provision.
1917 – 1918. Library of Congress.
In the News: Curtain About to Open On Next Act in Challenge to Arbitrator’s Award of Fees in $70M TV Writers’ Age Discrimination Settlement
Public Spectacle? Dark Comedy? Courtroom Drama? White Noise? Stay Tuned.
![[Old man, seated on ground, full-length, smoking pipe, Tepelena, Albania]](http://lcweb2.loc.gov/service/pnp/cph/3b30000/3b38000/3b38400/3b38462r.jpg)
Above: Aged TV Writer Sits and Ponders the Meaning of It All. Creator: American Red Cross. Albania. 1923. Library of Congress.
In the May 14, 2012 online edition of The National Law Journal, Zoe Tillman writes about the fight over lawyer’s fees following arbitration about the allocation of fees in the class action brought by older TV writers suing studios, networks, and talent agencies for age discrimination. The litigation resulted in a $70M settlement which Ms. Tillman, in a pun-filled article, describes as a "happy ending" followed by "an opening act in a story line that might seem a cliché" to some – "a fight over money."
According to Ms. Tillman, class counsel agreed to mediation to avoid "a public spectacle." Mediation failed. Next, an arbitration took place. Now the arbitration award is being challenged by some of the attorneys who claim that the arbitrator exceeded his authority. In August 2011, Judge Michael Rankin of the District of Columbia Superior Court denied motions to vacate most of the award. A hearing before the District of Columbia Court of Appeals is scheduled for June 13, 2012.
Arbitration/Nonsignatories/Enforcement: Second District, Division 7 Affirms Decision That Plaintiff Was Not Bound By Arbitration Provision In “Close Case”
Outcome Depended On Capacity In Which Signatory Signed
The trial court determined that Plaintiff Allen Othman was not a party to a contract containing an arbitration provision in an agreement, and therefore was not bound to arbitrate his claims against Zions First National Bank. Mr. Othman had tried to purchase a property through a “short sale”, but Zions, the secured lender, ended up instead foreclosing on the property before Mr. Othman’s escrow closed. As a result, the property was sold to a third party. In fact, Mr. Othman had signed a confidentiality agreement with Zions providing for arbitration of all disputes, as “Buyer.” But the first paragraph of the agreement stated that it was between USS Cal Builders Inc. and Zions. Mr. Othman was a VP of USS Cal Builders Inc. No wonder the trial court said this “was a close case.” Othman v. Zions First National Bank, Case No. B229825 (2nd Dist. Div. 7 May 8, 2012) (Jackson, J., author) (unpublished). Zions appealed the denial of its motion to compel arbitration.
Perhaps the determining piece of evidence was Mr. Othman’s declaration he had signed the agreement solely on behalf of the corporation, despite his characterization of himself on the signature page as the potential buyer. That was “substantial evidence” enough in this murky situation to support the trial court’s finding on appeal.
We note that Mr. Othman did not sue on the agreement containing the arbitration provision. If he had done so, the result would have been different.
Moral: signature blocks, and the capacity in which a person signs, can make a difference, when it comes to enforcing an arbitration provision.
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.