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.
Arbitration/Fees/Construction of Agreement: Broadly Worded Fee Provision, Including More Than Arbitration, Results in Reversal of Trial Court Order That Had Denied Fees to Prevailing Party
“Dispute Resolution” Encompassed More Than Arbitration
Dispute resolution provisions in a contract often provide for attorney’s fees, and when they do, distinctions between such terms as "dispute resolution", "arbitration", "mediation", "lawsuit", and "legal proceeding" may become very significant. Such was the case in Toro Enterprises, Inc. v. Pavement Recycling Systems, Inc., Case No. B234627 (2nd Dist. Div. 6 filed April 9, modified May 1, 2012) (Gilbert, P.J., author) (unpublished).
Cross-Complainant and Respondent Toro Enterprises, Inc., a general contractor, sued Pavement Recycling Systems, Inc., for indemnity, in connection with a third-party tort claim brought by a person injured in an auto accident near a roadway construction project for the City of Oxnard. Toro Enterprises, Inc. lost its indemnity claim against its subcontractor, who then sought to recover attorney’s fees. The trial court denied attorney’s fees, based on its construction of the fee provision in the subcontract.
One section of the contract governed third-party claims, and another provision related to arbitrated payment claims. Toro argued that its indemnity claim related to a third party claim, and that it was not an arbitrated payment dispute – and therefore, that the trial court was correct to deny fees.
Wrong, said the Court of Appeal. Section 13 of the subcontract covered arbitrated payment disputes, but its fee provision was broader, authorizing fees to the prevailing party, "[i]n any dispute resolution between the parties." Based on its scrutiny of subcontract language, the Court of Appeal concluded that "dispute resolution" covered more than arbitration. Furthermore, the suit for contractual indemnity, though it was triggered by a third party claim, was a dispute "between the parties", i.e., between the contractor and the subcontractor.
The result was reversal of the trial court’s order denying fees.
Arbitration/Standard of Review: Trial Court Properly Vacated Arbitraiton Award, In Light of Unfair Procedure and Lack of Actual Notice
Fundamental Fairness Issue Involving Lack of Notice Resulted in De Novo Standard of Review
Plaintiff and Respondent Roland Hansalik signed a promissory note with Wells Fargo Advisors, LLC, with a provision calling for arbitration before the Financial Industry Regulatory Authority (FINRA). Then Mr. Hansalik moved to Switzerland. Wells Fargo initiated arbitration through FINRA, and obtained an award by default, because Mr. Hansalik never appeared. When enforcement procedures commenced in Switzerland against Mr. Hansalik, he immediately filed a petition in California to vacate the arbitration award, claiming he never received notice. Repeated notices had been sent to the wrong address. The trial court granted his petition, and a timely appeal followed. Hansalik v. Wells Fargo Advisors, LLC, Case No. B232151 (2nd Dist. Div. 2 April 25, 2012) (Ashmann-Gerst, J., author) (unpublished).
The interesting wrinkle here is that FINRA rules provide in part: "The panel has the authority to interpret and determine the applicability of all provisions under the [FINRA rules]. Such interpretations are final and binding upon the parties." Wells Fargo contended that the arbitrator had the power to interpret the notice rule to determine if service was proper, and that it did so. End of story. Not quite.
The Court of Appeal had a very different view of the matter, for it characterized Wells Fargo’s position thusly:
"What Wells Fargo is truly advocating is this: If the arbitrator has the contractual authority to determine the sufficiency of notice to a party, then the arbitrator’s finding of adequate notice cannot be overturned even if the arbitration was unfair and a party was denied notice and an opportunity to be heard." (italics in the original).
The Court of Appeal viewed this as a question of fairness and lack of notice, presenting a mixed question of fact and law. Such an issue is reviewed under a "de novo" standard. The Court of Appeal concluded: "Based on the unique facts of this case, FINRA’s procedure was unfair." The trial court’s order was affirmed.