Arbitration/Fees: Fourth District, Division 3 Rules That Trial Court Erred By Denying Plaintiffs’ Motion For Post Arbitration Attorney Fees
It’s Possible To Recover Post-Arbitration Fees, Without Being A Prevailing Party In the Arbitration
This dispute, concerning the sale of a house, has been knocking around in the courts and in arbitration for several years. Toal v. Tardif, G044823 (4th Dist. Div. 3 March 29, 2012) (Ikola, J.) (not to be published). The arbitrator awarded plaintiffs $65,284, but found they were not entitled to attorney fees because there was no prevailing party in the arbitration. However, in Toal I, the Court of Appeal reversed the judgment confirming the award and remanded to determine whether the arbitration was binding. Other post-arbitration proceedings followed, and eventually, judgment was entered and affirmed in Toal II.
Plaintiffs moved in the trial court for an award of about $32,000 in attorney fees they incurred to obtain confirmation of the judicial award. Relying on the arbitrator’s finding that there was no prevailing party for purposes of the arbitration, the trial court denied the motion for postarbitration fees.
The Court of Appeal reversed, because the trial court’s analysis “fails to account for the plaintiffs’ status as prevailing parties in the postarbitration judicial proceedings (which resulted in the granting of their petition for judicial confirmation of the arbitration award and which were greatly prolonged by defendants’ allegation they never consented to or ratified the arbitration agreement).”
Though the Court of Appeal does not belabor the point, we think the language of the contractual fee provision may be relevant: “In any action, proceeding, or arbitration between Buyer and Seller arising out of this Agreement, the prevailing Buyer or Seller shall be entitled to reasonable attorney fees and costs . . . .” No wonder that the Court of Appeal concluded that the plaintiffs were the prevailing parties “in those proceedings” as a matter of law.
Would the result have been less clear-cut if the word “proceeding” had been left out of the fee provision? ”The most effective way of shortening law language,” wrote the late Prof. David Mellinkoff, “is for judges and lawyers to stop writing.” However, sometimes the “contagious verbosity” that Prof. Mellinkoff so entertainingly railed against, seems to save us lawyers from ourselves.
Undoubtedly the tedious proceedings must have taken their toll, but eventually Toal succeeded in ringing the bell for attorney’s fees.
Arbitration/Section 1281.2/Equitable Estoppel: 4th District, Division 2 Applies Section 1281.2 and Equitable Estoppel To Reverse Trial Court’s Orders That Had Stayed Arbitration And Had Denied Petition To Arbitrate
Inland Empire Dustup Presented Unique Procedural Issue – But The Court Didn’t Resolve It
The Court of Appeals noted at the outside that “we have not found a case that involves the same procedural facts as those presented here, namely, a case in which a party to an ongoing contractual arbitration files a lawsuit that names as defendants the other party to the arbitration as well as purported third parties, and alleges claims in its complaint that could have been but were not asserted in the arbitration, and then moves to stay the arbitration based on the new lawsuit.” PrimeCare of Corona, Inc. v. Hemet Community Medical Group, Inc., E051306 & E052577 (4th Dist. Div. 2 March 26, 2012) (McKinster, J.) (not for publication).
The Court questioned “whether a party to an ongoing arbitration can invoke section 1281.2(c) [allowing for denial of petition to arbitrate to avoid conflicting rulings] in such circumstances.” We got the drift that the Court may have thought this was sharp practice. The Court,however, did not resolve its own question, deciding the case on somewhat different grounds – thereby allowing this case to remain “not to be published in official reports.”
The underlying dispute involved medical professionals allegedly contractually bound by restrictions on their practice, and competing independent physician associations. The trial court had stayed the arbitration of PrimeCare’s breach of contract claim against defendants and respondents Muller and Corona Family Care, Inc. [collectively “Muller”] and denied PrimeCare’s petition to arbitrate claims in Muller’s lawsuit filed against PrimeCare after arbitration began.
PrimeCare appealed the denial of its petition to arbitrate Muller’s further claims, and the stay of an existing arbitration. Result?
Arbitration/Waiver: Fourth District Division 3 Upholds Determination That Defendant Waived Right To Arbitrate After Five Month Delay.
No Single Test Delineates Conduct That Will Constitute A Waiver
Above: Mercedes-Benz U.S. International Plant, Tuscaloosa County, Alabama. Carol Highsmith, photographer. Library of Congress.
Remember the test for waiver that we learned in law school? “Voluntary relinquishment of a known right.” Well, that’s not the requirement for waiver of the right to arbitrate in California. Waiver was the chief issue in Lewis v. Fletcher Jones Motor Cars, Inc., No. G045603 (4th Dist. Div. 3 March 26, 2012) (Aronson, J.) (not for publication).
In Lewis v. Fletcher Jones Motor Cars, Inc., Plaintiff Lewis sued the car dealer after she returned her car upon the Lease’s expiration, and got billed nearly $19,000 for exceeding the Lease’s mileage allowance, missed payments, and late charges. Lewis did not avail herself of an arbitration provision in the Lease. Neither did Fletcher Jones, at least not immediately. The trial court found the Lease’s arbitration provision to be unconscionable and Fletcher Jones waived its right to arbitrate by unreasonably delaying and by litigating Lewis’s claims on the merits. Fletcher Jones appealed from an order denying its motion to compel arbitration
Citing Burton v. Cruise, 190 Cal.App.4th 939, 944 (2010), the Court of Appeal explains that the term “waiver” is really used “’”as a shorthand statement for the conclusion that a contractual right to arbitration has been lost.’” . . . . a party may be said to have “waived” its right to arbitrate by an untimely demand, even without intending to give up the remedy. In this context, waiver is more like a forfeiture arising from the nonperformance of a required act. . . . ‘”
California applies a six-factor test found in St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003). In the instant case, the trial court found waiver based on (1) unreasonable delay in demanding arbitration; (2) engaging in litigation on the merits and taking other steps inconsistent with the right to arbitrate; and (3) prejudicing Lewis through the delays and litigation. The Court of Appeal affirmed the trial court, making it unnecessary to determine whether the arbitration provision was unconscionable.
Here the delay in bringing a motion to compel was only five months; yet there are other cases with comparable delay where waiver has been found. The case was litigated through two demurrers and a motion to strike. While a demurrer does not necessarily waive a right to arbitrate, demurrers may justify a waiver finding. Lewis also fully briefed three motions to compel discovery responses. She incurred approximately $45,000 in attorney fees and nearly $1,000 in costs. While costs and legal expenses alone do not necessarily show prejudice, here, given that $19,000 was at stake, the fees and costs definitely played into the mix.
St. Agnes emphasizes “that no single test delineates the nature of the conduct that will constitute a waiver of arbitration.” St. Agnes, supra, 31 Cal.4th at 1195-1196. We can even suggest that, based on the totality of circumstances, some cases actually may become more amenable to arbitration with the passage of time, as issues that could be a problem in arbitration drop out, or as some critical new piece of information emerges. But as a general rule, the best policy is not to delay making a demand to arbitrate and following through with the demand if you really want to arbitrate – for with delay, litigation on the merits, and rising costs being incurred, the risk of waiver becomes very real indeed.
Arbitration/FAA: Two Recent Supreme Court Cases Apply FAA And Uphold Arbitration Agreements
CompuCredit Corporation v. Greenwood Upholds Right To Arbitrate Credit Repair Organizations Act Claims.
Pursuant to the Opinion of the Supreme Court in CompuCredit Corp. v. Greenwood, 565 U.S. ___, 132 S.Ct. 665 (2012), the Ninth Circuit today vacated the district court’s decision denying defendants’ motion co compel arbitration. Greenwood v. CompuCredit Corp., No. 09-15906 (9th Cir. March 27, 2012). This gives us an opportunity to revisit the Supreme Court case, decided January 10, 2012.
In CompuCredit, plaintiffs/respondents filed a class-action complaint against CompuCredit and Columbus Bank & Trust, alleging violations of the Credit Repair Organizations Act (CROA). Plaintiffs alleged misleading representations that their credit card could be used to rebuild poor credit and also concerning assessment of multiple fees. The plaintiffs, however, had agreed in their applications to be bound by a broadly-drafted arbitration provision.
The CROA includes "right to sue" language, and nonwaiver language of any right of the consumer under the CROA. The issue presented was whether the "right to sue" language and the nonwaiver provision sufficiently evidenced legislative intent to override arbitration of CROA claims.
Justice Scalia, delivering the opinion of the Court, interpreted the "right to sue" language as "mere ‘contemplation’ of suit in any competent court" – not a guarantee of a right to sue that must override an agreement to arbitrate. The "right to sue" is "a colloquial method of communicating to consumers that they have the legal right enforceable in court . . . " It "may be imprecise, but it is not misleading – and certainly not so misleading as to demand, in order to avoid that result, reading the statute to contain a guaranteed right it does not in fact contain." Tough luck, plaintiffs.
Justices Sotomayor and Kagan concurred in the judgment – though they thought that it was a closer case, and that perhaps lay readers of limited economic means and inexperienced in credit matters might actually believe that a "right to sue" really meant a "right to sue."
However, because they believed the language of the CROA could be interpreted either way, the parties’ arguments were "in equipoise". Translation: plaintiffs lose, because they "bear the burden of showing that Congress disallowed arbitration of their claims" – and plaintiffs didn’t carry their burden.
Justices Sotomayor and Kagan seemed more concerned about mounting a strategic rearguard action, because they wanted to make it very clear that they "do not understand the majority opinion to hold that Congress must speak so explicitly in order to convey its intent to preclude arbitration of statutory claims." In other words, in a future case, legislative intent could be discovered in the history or purpose of the statute.
Justice Ginsburg dissented: "I would hold that Congress, in an Act meant to curb deceptive practices, did not authorize credit repair organizations to make a false or misleading disclosure – telling consumers of a right they do not in fact, possess."
Marmet Health Care Center, Inc. v. Brown.
In the next case, the United States Supreme Court delivered a smack. Marmet Health Care Center, Inc. v. Brown, 565 U.S. ___ (2012). In the first paragraph, the Court stated: "Here, the Supreme Court of Appeals of West Virginia, by misreading and disregarding the precedents of this Court interpreting the FAA, did not follow controlling federal law implementing that basic principle." "That basic principle" is that state courts must enforce the FAA with respect to arbitration agreements covered by the FAA.
To add to the effrontery, "the state court found unpersuasive this Court’s interpretation of the FAA, calling it ‘tendentious,’ . . . and ‘created from whole cloth’. . . . " Apparently the judges in West Virginia did not want the United States Supreme Court to have the final word on the interpretation of the FAA. But as Justice Jackson observed: "We are not final because we are infallible, we are infallible because we are final."
The West Virginia Supreme 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." However, under the FAA, state law is not allowed to prohibit arbitration of a particular type of claim, making the analysis here straightforward.
This is not necessarily the end of the case, because the United States Supreme Court remanded so that the West Virginia court will consider, "whether, absent that general public policy, the arbitration clauses . . . are unenforceable under state common law principles that are not specific to arbitration and pre-empted by the FAA."
Unconscionability could be a sound basis for holding an arbitration clause unenforceable under state law. However, the West Virginia Supreme Court better not hold that the clause is "unconscionable" because it violates the state’s public policy against arbitrating personal injury or wrongful death claims against nursing homes if it wants its decision to withstand renewed scrutiny of the United States Supreme Court.
References: Ninth Circuit Addresses Issue of First Impression Concerning Appealability of Order Granting Reference
Order Compelling A Reference And Staying Proceedings Does Not Put Plaintiffs "Out Of Court", And Therefore Is Not Final And Appealable
The Ninth Circuit tells us the issue considered in this case is one "of first impression." That issue is "whether an order compelling enforcement of a contractual agreement to submit a dispute to a referee, and staying proceedings in the interim, is immediately appealable." Bagdasarian Productions, LLC v. Twentieth Century Fox Film Corporation, No. 10-56430 (9th Cir. March 26, 2012) (for publication) (Hawkins, Senior Circuit Judge).
The underlying dispute involved plaintiffs, who created or controlled properties connected with Alvin and the Chipmunks, and defendant Fox, owner of rights in the properties entitling it to develop, produce, distribute, exhibit, exploit, advertise, promote and publicize "throughout the universe." The agreement between the parties provided that "any dispute arising out of the Agreement would be submitted to a general non-jury reference pursuant to California Code of Civil Procedure section 638."
Plaintiffs sued Fox. Fox moved to refer the disputes to a referee, and to stay the action. The trial court granted Fox’s motion. Was the order granting the reference a final and appealable order?
It helps to know two things: first, that an order granting a motion to compel arbitration is not appealable; second, that both arbitration and a reference are a form of ADR – and therefore, the court is likely to view them similarly:
“Although there are some differences between arbitration and Section 638 reference, both are forms of alternative dispute resolution designed to move disputes out of court and lower the cost of trial proceedings. Plaintiffs offer no convincing reason why stays pending Section 638 reference proceedings should be treated differently from stays pending arbitration, since errors with either may be corrected later on appeal.”
In other words,
“the district court’s order is not final, the Plaintiffs have not been put ‘out of court’ by the order . . . the decision to refer can be reviewed and, if incorrect, later remedied by this court. As such, the appeal is premature and we lack jurisdiction over it under Section 1291.”
Mediation/Confidentiality: Preserving Confidentiality of Follow-Up After The Mediation Session
Extend 10-Day Period In Evidence Code section 1125(a)(5)
It is common for a mediator to “follow-up” after a mediation session has been completed, to see if more remains to be done, or if a settlement is being implemented successfully. Are the communications confidential? Yes, not a problem – if the parties agreed to extend the 10-day period set out in Evidence Code section 1125(a)(5).
Evidence Code section 1125 provides that, for purposes of mediation confidentiality, mediation ends when any one of five conditions is satisfied. Those five conditions include (i) execution of a written settlement agreement that completely settles the dispute, (ii) an oral agreement that completely resolves the dispute, and which is read into the court’s record consistent with Evidence Code section 1118; (iii) the mediator provides a writing to the parties stating that the mediation is terminated; or words to that effect, consistent with Evidence Code Section 1121; (iv) a party provides the mediator and the other mediation participants with a writing stating that the mediation is terminated, or words to that effect, consistent with Section Evidence Code 1121; (v) or for 10 calendar days, there is no communication between the mediator and any of the parties to the mediation relating to the dispute. The mediator and the parties may extend or shorten this time by agreement.
One of our Southern California arbitral forums includes the following language in confidentiality agreements:
“In order to allow the mediator to confidentially follow-uip after the mediation session, the parties and the mediator agree to extend the 10-day period set out in Evidence Code section 1125(a)(5) until the date any party terminates the mediation effort, a verdict is returned or a decision is rendered.”
Problem solved: the mediator and the parties have extended the time by agreement.