Arbitration: Third District Rules That FAA Does Not Preempt California Arbitration Statute Allowing for Denial of Arbitration Where There Is Possibility of Conflicting Rulings
Elder Abuse of Parent and Emotional Distress of Daughter Set Up Possibility of Conflicting Rulings
The trial court denied motions of operators of skilled care nursing facilities to compel arbitration of parent’s Elder Abuse claim that was subject to arbitration. Why? Because the daughter’s claim of emotional distress caused by her mother’s alleged abuse created the possibility of conflicting rulings. Cal. Code Civ. Proc. section 1281.2. Defendants appealed. Bush v. Horizon West, C067277 (3rd Dist. April 9, 2012) (not to be published).
![[Nurse caring for elderly patient]](http://lcweb2.loc.gov/service/pnp/cph/3b10000/3b11000/3b11600/3b11612r.jpg)
Above: Nurse caring for elderly patient. c1906. Library of Congress.
Defendants’ chief argument was that the California statutory provision allowing for denial of the motions to compel arbitration was preempted by the Federal Arbitration Act. However, in an earlier case involving Stanford University, the Supreme Court held that “where the parties have agreed that their arbitration agreement will be governed by the law of California,” (which was also the case in Bush v. Horizon West), “application of [section 1281.2(c)] is not preempted by the [FAA].” Volt Info. Sciences v. Stanford Univ., 489 U.S. 468, 470 (1989).
Okay, so section 1281.2(c) is not preempted where the parties have agreed that the contract will incorporate California law. But section 1281.2(c) also provides that “[t]his subdivision shall not be applicable to an agreement to arbitrate disputes as to the professional negligence of a health care provider made pursuant to Section 1295.” Section 1295 requires particular language be included in an agreement to arbitrate as to the professional negligence of a health care provider, and that language was employed in the agreement here. That gave Defendants a fall-back argument: the exemption for arbitration of medical malpractice claims meant that section 1281.2(c), by its terms, did not apply. The Court of Appeals brushed off that argument of Defendants, pointing out that here, neither the mother nor her daughter had sued for medical malpractice. Instead, the mother had sued for Elder Abuse, and the daughter sued for infliction of emotional distress.
That was not the end of it, however. Defendants argued that the daughter was not a third party to the arbitration agreement, because of the closeness of the parties, and that therefore, the daughter could also be bound by the arbitration provision. In fact, the California Supreme Court recently held that, “when a person seeking medical care contracts with a health care provider to resolve all medical malpractice claims through arbitration,” the agreement applies “to the resolution of wrongful death claims, when the claimants are not themselves signatory to the arbitration agreement.” Ruiz v. Podolsky, 50 Cal.4th 838, 841 (2010). At first blush, Ruiz seems close to the situation here, but courts are in the business of drawing distinctions. Here, neither the mother’s nor the daughter’s claims were for wrongful death, and the daughter’s claim for emotional distress – to her – was distinct from the mother’s claim for Elder Abuse. Therefore, Ruiz was not controlling.
Separately, Defendants argued “equitable estoppel.” A nonsignatory who sues on a contract can sometimes be equitably estopped from disclaiming the binding effect of an arbitration provision in the contract sued upon. You take the benefits, you accept the burdens. The problem for Defendants here is that the daughter’s claim for negligent infliction emotional distress is not a contract claim.
Finally, Defendants made a policy argument, reminding one of a variant of that old adage: if the facts are against you, argue the law, if the law is against you, argue the facts, and if both are against you, argue policy [or: bang the table]. Concluding that section 1281.2(c) is not preempted, and that the trial court did not abuse its discretion in exercising its power under the statute, the Court of Appeal said, “we can do no more.”
Result: The orders denying the motions to compel arbitration were affirmed in a 3-0 decision authored by Justice Robie.
Mediation: Solution to Mammoth Problem Facing Mammoth Lakes?
First Stockton, Now Mammoth Lakes
On March 11, 2012, we blogged about Stockton’s fiscal plight and effort to take advantage of a new California law, AB 506, to mediate with its creditors. The law positions bankruptcy as a last resort, after the municipality has exhausted other means for working out it financial problems.
As reported online on April 6, 2012 by the Associated Press on SFGate, Mammoth Lakes may be next to mediate with its creditors. Unlike Stockton, battered by the housing crisis, general economic problems, and a growing budgetary shortfall, Mammoth Lakes got whacked by a $42M judgment (including interest and legal fees),resulting from an unsuccessful lawsuit with a developer. On top of that disaster, there has been a poor snow season. Though the causes of Mammoth Lakes’ economic plight are different than those of Stockton’s, both cities are on the verge of bankruptcy.
Above: Legal avalanche.
Mediation: Does Mediation Confidentiality in California Require a Legislative Fix?
California Assembly Bill 2025 Would Allow Introduction of Mediation Communications Between Attorneys and Their Clients in Actions For Malpractice or Breach of Fiduciary Duty
California Assembly Member Don Wagner introduced Assembly Bill 2025 to amend California Evidence Code section 1120 to allow:
“The admissibility in an action for legal malpractice, an action for breach of fiduciary duty, or both, or in a State Bar disciplinary action, of communications directly between the client and his or her attorney during mediation if professional negligence or misconduct forms the basis of the client's allegations against the attorney.”
The proposed amendment of the Evidence Code is a response to the California Supreme Court’s decision, Cassel v. Superior Court, 51 Cal.4th 113 (2011). In Cassel, the Supreme Court held (1) an attorney's mediation-related discussions with his client were confidential and neither discoverable nor admissible for purposes of proving a legal malpractice claim, and (2) applying the mediation confidentiality statutes to legal malpractice actions does not implicate fundamental due process concerns that might merit a constitutional exception.
In Cassel, the client sought to pierce through the confidentiality protections in mediation, claiming that he was coerced by the mediator and his own attorney into accepting a settlement, though he was tired, hungry, and ill. The client further claimed that his attorneys threatened to abandon him at an imminently pending trial, misrepresented settlement terms, falsely assured him they would negotiate a settlement agreement, and falsely promised to discount his attorney’s fees, even pursuing him to the bathroom to “hammer” him to settle.
Justice Baxter, author of the opinion, insisted that “we understand the policy concerns advanced”, but that based on the “plain language” of the statute, confidentiality needed to be protected. Ostensibly relying on the “plain language” of the Evidence Code, the opinion nevertheless discusses in some detail the policy advanced by confidentiality: promoting a candid and informal exchange that can be “achieved only if the participants know that what is said in the mediation will not be used to their detriment through later court proceedings and other adjudicatory processes.” Unlike the attorney-client privilege, the mediation confidentiality statutes do not create a privilege in favor of any one particular person. Instead, confidentiality cloaks the entire mediation for the benefit of all participants. The confidentiality statutes “serve the public policy of encouraging the resolution of disputes by means short of litigation.”
Nor does a violation of due process arise just because a client can’t introduce evidence of malpractice in a civil action. Interestingly, the one case creating a judicial exception to mediation confidentiality is Rinaker v. Superior Court, 62 Cal.App.4th 155 (1998) – a criminal case. In Rinaker, a minor needed access to information elicited in mediation to impeach a witness. The minor’s constitutional right to impeach a witness took precedence over mediation confidentiality. Thus, Rinaker involved weighty due process considerations.
“I concur in the result,” wrote Justice Chin in Cassel, “but reluctantly.” Justice Chin observed that the majority noted, “the Legislature remains free to reconsider this question.” Justice Chin invited the Legislature “may well wish to do so.”
More recently, mediation confidentiality has been upheld in Provost v. Regents of the University of California, 201 Cal.App.4th 1289 (2011). Plaintiff Provost claimed, among other things, that the mediator told him that Provost’s employer would have criminal charges filed against him if he did not sign a stipulated judgment immediately. The Court of Appeal, however, held that mediation confidentiality precluded Provost from presenting evidence of alleged coercion and duress in mediation to oppose a motion brought to enforce a settlement stipulation.
No solution here can be altogether edifying, because the problem involves important goals that can sometimes conflict – promoting frank exchanges in mediation among all participants, encouraging mediation as an alternative to a court trial, and holding attorneys responsible for malpractice or breach of fiduciary duty occurring in mediation. One thing is certain after Cassel: the State Supreme Court is not prepared to express a “view about whether the statutory language . . . ideally balances the competing concerns or represents the soundest public policy.” Any significant adjustments will need to be done by the Legislature or not at all.
Mediation: Ninth Circuit Orders Mediation Of Dispute Concerning Conditions For Holding Gun Shows At The Alameda County Fairgrounds
But Chief Judge Alex Kozinski “Wants No Part Of It”
An en banc panel of the Ninth Circuit Court of Appeals, believing that the parties should attempt to settle their long-running dispute concerning the conditions for holding gun shows at the Alameda County fairgrounds, has ordered the dispute to mediation. Nordyke v. King, No. 07-15763 (9th Cir. April 4, 2012) (for publication).
Judge Milan D. Smith, Jr., concurred, but “would have attached a copy of a proposed disposition in this case so that the parties would know what they would face in the event mediation fails.”
Chief Judge Alex Kozinski, joined by Judge Ronald M. Gould, dissented. We can only describe the dissent as “classic Kozinski”, expressed in his inimitable voice. We reprint it, without further comment, in full:
“The parties have not asked for mediation; they have said nothing that suggests mediation would be fruitful; when asked about it in court, they displayed obvious distaste for the idea. We overstep our authority by forcing the parties to spend time and money engaging in a mediation charade. Our job is to decide the case, and do so promptly. This delay serves no useful purpose; it only make us look foolish. I want no part of it.”
Arbitration/Class Actions/Waiver/Unconscionability: Second District, Division 7, Agreeing That Class Action Waiver Is Unconscionable, Affirms Trial Court
No Need To Decide Whether Concepcion Overrules Gentry Here – Because "This Is Not A Close Case"
These proceedings began in 2004 when Ralphs Grocery Company employees sued Ralphs for alleged violations of the Labor Code and Unfair Competition law. The proceedings moved up and down the appellate ladder. Eventually, after a remand, the trial court refused to enforce Ralphs’ arbitration policies with class action waivers, based on an examination of the factors in Gentry v. Superior Court, 42 Cal.4th 443 (2007). Ralphs appealed, arguing that AT&T Mobility LLC v. Concepcion, 563 U.S. __ ,131 S.Ct. 1740 (2011), conclusively establishes that Gentry has been preempted by the Federal Arbitration Act (FAA). Massie v. Ralphs Grocery Company, B224196 (2nd Dist. Div. 7 April 2, 2012) (Woods, J.) (not for publication)
Applying a multi-factor Gentry analysis to the arbitration policies, the trial court found that anticipated recoveries in the plaintiffs’ cases are modest, a risk of retaliation would deter individual actions, plaintiffs were ill-informed of their rights under overtime laws, real world obstacles existed to individual vindication of rights through individual arbitration, and, crucially, federal preemption did not preclude invalidating Ralphs’ class arbitration waiver. Therefore, the trial court found Ralphs’ arbitration policies containing class action waivers to be unenforceable.
But the United States Supreme Court held in Concepcion that California’s rule in Discover Bank v. Superior Court, 36 Cal.4th 148 (2005) that class actions waivers in consumer arbitration agreements may be unenforceable or unconscionable is preempted by the FAA.
No need to determine whether Concepcion overrules Gentry here, said the Court of Appeal in Massie, because "this is not a close case." There were plenty of reasons for finding the employer’s arbitration policies procedurally and substantively unconscionable. The agreements here were "take it or leave it", satisfying a finding of procedural unconscionability. And the policies were overreaching in various respects, satisfying a finding of substantive unconscionability.
It is a basic rule of appellate review "that a ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for the wrong reason." Therefore, there was no need to decide whether Gentry survives Concepcion, because it wouldn’t make a difference in Massie, even if the rule in Gentry has been gutted. Massie was decided as it was on its own facts, and not simply because the arbitration policy included a class action waiver.
As we have said in other posts (see our February 28 post on Wisdom v. AccentCare, Inc., No. C065744 (3rd Dist. January 3, 2012) (certified for publication) and March 4, 2012 post on Ajamian v. CantorCO2e , L.P., Case No. A131025 (1st Dist. Div. 5 Feb. 16, 2012) (certified for publication)) employers who want to enforce arbitration provisions would do well to draft provisions that do not appear to overreach, because under the FAA, unconscionability remains a valid state law defense to enforcement of a contract.
Arbitration/Stays: Is There An Automatic Stay Pending Appeal When Arbitration is Denied in Federal Court?
Corporate Counsel Article Points Out That There Is A Split Among The Federal Circuits
In an April 2, 2012 article in Corporate Counsel online, entitled “In Arbitration, a Right to an Automatic Stay Pending Appeal?”, authors Elbert Lin and J. Andrew Law point out that there is a split among the federal circuits. The majority holds that appeal of the denial of a motion to compel arbitration automatically stays district court proceedings. But the 9th, 5th, and 2nd circuits reject the majority view, making it possible for litigants to battle on in district court while the issue concerning the right to arbitrate is being appealed.
The authors explain:
“The split turns on the application of Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982). In Griggs, the Supreme Court held that ‘[t]he filing of a notice of an appeal is an event of jurisdictional significance—it confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal.’ Id. at 58 (emphasis added). The courts of appeals have disagreed over what is ‘involved in’ an appeal of an order denying arbitration.”
The authors argue that the minority view is an anachronism evincing a resistance to arbitration that the Federal Arbitration Act was intended to overcome, and that review may be “on the horizon” by a Supreme Court majority that has underscored the benefits of private arbitration.