Arbitration: Second District, Division 2, Affirms Orders Denying Motions To Compel Arbitration
In One Case, Arbitration Presented Possibility Of Inconsistent Rulings, And In The Other Case, Arbitration Of Indemnification Claim Was Beyond The Scope Of The Agreement To Arbitrate
The following scenario reminds me of cases I have litigated – and arbitrated. Buyer discovers water intrusion in home she buys, and sues Developer and later Seller for allegedly concealing the facts. Seller and Developer cross-complain against one another for indemnity. After trial court denies Seller’s motion to compel arbitration against Buyer, Buyer adds business manager associated with Seller, general contractor, and real estate agent as targets. Seller now moves to compel arbitration of its indemnification claims against business manager and general contractor. Trial court denies that motion to compel too. The orders denying the two motions to compel are both appealed. Lindemann v. Hume, et al., B22616 & B233273 (2nd Dist. Div. 7 filed 2/21/12;pub. order 3/20/12) (Perluss, P.J.).
Arbitration/Class/FAA/Standard of Review: United States Supreme Court Denies Certiorari In Sterling Jewelers Inc. v. Jock
District Court May Not Decide Whether The Arbitrator "Got It Right"
On March 19, 2012, the United States Supreme Court denied a petition for a writ of certiorari in an interesting employment company-wide gender discrimination case. Sterling Jewelers Inc. v. Jock, 646 F.3d 113 (2nd Cir. 2011), cert. den., 2012 WL 3356. The denial of certiorari is not a ruling on the merits, but it does leave standing the 2nd Circuit opinion in the case decided before a panel of Judges Winter, Pooler, and Hall. Judge Winter dissented.
This case, brought by a group of retail sales employees, has followed a twisted path. The employees sued their employer over discriminatory promotion and compensation policies that allegedly denied promotional opportunities to female employees and paid them less than their male counterparts.
The matter was submitted to arbitration. The arbitrator found that the employees could seek to certify a class. USDC Judge Jed S. Rakoff denied the employer’s motion to vacate the arbitration award, and the employer appealed. The Court of Appeals then allowed the district court to reconsider its determination in light of Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010). After reconsideration, the district court granted the employer’s motion to vacate the arbitration award on the ground that the arbitrator had exceeded her authority. The employees appealed, the Court of Appeals reversed and remanded, and now the Supreme Court has denied the employer’s petition for writ of certiorari.
At issue in the Court of Appeals opinion was the arbitrator’s determination that the employees could seek to certify a class, despite the fact that the arbitration agreement said nothing explicit about class arbitration. The arbitrator found that under the then existing state of the law, a class action was a possibility.
After being forced to reconsider the matter, the district court concluded that Stolt-Nielsen was controlling. In that case, there was "silence" about class arbitration, and the Supreme Court concluded that silence was not enough to show an intent to allow arbitration by a class. Judge Rakoff found Stolt-Nielsen to be determinative.
The Court of Appeals, however, concluded that the district court did not apply "the appropriate level of deference when reviewing the arbitration award." "Under our precedent," the majority explained, "it is not for the district court to decide whether the arbitrator ‘got it right’ when the question has been properly submitted to the arbitrator and neither the law nor the agreement categorically bar her from deciding that issue."
Side-stepping the binding effect of Stolt-Nielsen required some footwork by the Court of Appeals. For one thing, Stolt-Nielsen was decided by the Supreme Court too late for the arbitrator to rely on – so the arbitrator didn’t have to rely on it. Also, according to the Court of Appeals, the “silence” in Stolt-Nielsen actually involved a "stipulation" that there was no agreement to arbitrate, rather than a different expression of "silence" from which an arbitrator could still find an "implied" agreement to arbitrate. (Apparently there is more than one way to be silent).
In the future, the impact of Sterling Jewelers may be circumscribed. First, some employment contracts will expressly address the class arbitration issue. Second, Stolt-Nielsen has been decided; going forward, it is precedent, unless it can be effectively distinguished from the particular facts of the case. Finally, in Sterling Jewelers, the arbitrator only found that it was possible under the arbitration agreement to certify a class, not that there was a certified class. After Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011), which will also need to be considered going forward, class certification has become more difficult in company-wide gender discrimination cases.
Ninth Circuit Examines Class Action Waiver In Arbitration Clause and Searches For A Lifeboat
Could Choice of Law and Procedural Unconscionability Provide A Lifeboat For Class Action Plaintiffs After AT&T Mobility v. Concepcion?
Our latest arbitration case out of the Ninth Circuit contains an interesting twist on the analysis of collective-arbitration waivers in consumer contracts. Coneff, et al. v. AT&T Corp., et al., No. No. 09-35563 (9th Cir. March 16, 2012) (Opinion by Judge Graber) (for publication). First, some background.
After the ruling of the United States Supreme Court in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), potential class-action plaintiffs in consumer disputes find themselves aboard the Titanic, in search of a lifeboat. In Concepcion, the Supreme Court considered California’s judge-made rule classifying “most collective-arbitration waivers in consumer contracts as unconscionable,” and held that the Federal Arbitration Act, requiring that arbitration agreements be treated no differently than other contracts, preempts the California rule. Id. at 1746,1753. Because Concepcion is broadly written, it has greatly impacted consumer class actions.
Somewhat lost in the wake of Concepcion (to continue our Titanic metaphor), is the sheer ingenuity of the anonymous attorney who drafted the arbitration clause at issue in that case. Yes, there is a class action waiver. As to the arbitration procedure itself, however, customers can initiate dispute proceedings with a one page Notice form available on AT&T’s Website. If AT&T doesn’t voluntarily settle, the customer may invoke arbitration by filing an arbitration demand, also available on the Web site. AT&T must pay all costs for nonfrivolous claims, and the arbitration takes place in the county where the customer is billed. The arbitration, at the customer’s election, may be in person, by telephone, or based only on submissions. Either party may bring a claim in small claims court in lieu of arbitration. The arbitrator may award any form of relief. AT& T can’t seek reimbursement of its attorney’s fees. And – get this – if the customer receives an award greater than AT&T’s last written settlement offer, AT&T must pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney’s fees.
Heck, with an arbitration clause like that, I’d like to arbitrate against AT&T. Only, they’re not my carrier. And like many consumers, I wouldn’t want to wait on hold, or go through the tsuris of filing an arbitration demand to recover $32. Obviously, AT&T was willing to go to great creative length in drafting its arbitration provision to scuttle consumer class actions.
Under California law set forth in Discover Bank v. Superior Court, 36 Cal.4th 148 (2005), such an arbitration clause was substantively unconscionable (meaning unduly harsh or one-sided), because bilateral arbitration does not provide the same deterrent effect in the consumer context as does a class action. But as we know, a majority of the United States Supreme Court in Concepcion rejected that view, holding that the Supremacy Clause and the Federal Arbitration Act preempted the collective-arbitration waiver.
The minority in Concepcion recognized that such a clause will often be exculpatory, because few people will pursue small consumer claims to a successful conclusion. In other words, the game’s not worth the candle. Other federal judges also recognize the crushing effect of Concepcion on consumer class actions, and the likelihood that small claims will not be pursued by individual consumers, but recognize too that Concepcion is now the law.
This is all by way of a set-up to the latest twist, Coneff v. AT&T Corp., et al.
Ninth Circuit Alphabet Soup Of Acronyms Yields Tidbits Regarding Arbitration In Regulatory Context
Watch Deadlines And Exhaustion Requirements And Hope That It Works Out . . .
The next case would be even more impenetrable without the helpful glossary of 15 acronyms at the end. Some of our favorites: CMRS (Commercial Mobile Radio Service), DTMF (Dual Tone Multi-Frequency signaling), LEC (Local Exchange Carrier), ILEC (Incumbent Local Exchange Carrier), PUC (Oregon Public Utility Commission),Wink-start MF (Wink-start Multi Frequency signaling). Yes, Dear Reader, we are in the land of telecommunications regulation. Western Radio Services Co. v. Qwest Corporation, et al., No. 10-35820 (9th Cir. March 15, 2012) (Opinion byJudge Ebel) (for publication).
Plaintiff-Appellant Western is a CMRS (hey, we just told you what that means). Defendant-Appellee Qwest is an LEC. The case arose between two telecommunications carriers over their ICA.
The Ninth Circuit affirmed the district court’s dismissal of Western’s claim for Qwest’s alleged failure to negotiate an ICA in good faith. Regarding a challenge to the district court’s decision affirming an order of the PUC, which order adopted results of arbitration leading to the ICA and the approval of the ICA, the Ninth Circuit affirmed in part and denied in part.
What are the tidbits concerning arbitration?
First, the regulatory scheme results in a complex process in which arbitration plays an important part. The carriers are required to negotiate in good faith, if they cannot agree (“Mommy, Jimmy won’t share”) they arbitrate, the arbitrator files a decision with the PUC, if the PUC adopts the arbitrator’s decision, the carrier submits an ICA to the PUC in compliance with the decision, objections can be made, and at some point, when all the steps of the administrative process are exhausted, there can be judicial review of the PUC’s decision. This is actually an incomplete summary of the complete process of review and remand that occurred here.
The factual findings of the PUC’s decision adopting the arbitrator’s decision will be reviewed under an “arbitrary and capricious standard.”
Administrative procedures present fiendish issues of exhaustion of remedies and narrow deadlines. The words bramble bush, maze, quicksand, and land mine spring to mind. Alas for Western, the Telecommunications Act provides “a strict window of time for the submission of a petition for arbitration: ‘the 135th to the 160th day (inclusive) after the date on which [a carrier] receives a request for negotiation under this section. . . .’” This deadline tripped up Western on one of its issues – Qwest’s alleged failure to negotiate in good faith.
Western submitted two petitions for arbitration. The first submission failed to properly identify Qwest’s failure to negotiate in good faith as an “open issue.” After the ICA had already been approved by the PUC, Western submitted a second petition.
But Western could not rely on the second petition for arbitration. Why?
Mediation/Condition Precedent/Fees: Homeowner Hit With Fee Recovery For Failing To Satisfy Mediation Condition Precedent In Settlement Agreement With HOA
Steep Price for Noncompliance With Mediation Condition Precedent.
The object lesson of this next case is that attention really must be paid to those mediation clauses that serve as a condition precedent before a party can initiate litigation or arbitration.
In a 2004 case, the Fourth District, Division Three, put teeth into a mediation provision contained in a California Association of Realtor (CAR) sale/purchase form contract that required parties to mediate before resorting to arbitration or litigation. Frei v. Davey, 124 Cal.App.4th 1506 (2004). Frei barred the prevailing parties from recovering attorney’s fees because they refused to mediate. We have posted earlier on the Frei case.
Here, the “bite” of the mediation provision came up outside the context of a CAR Form, and in the context of enforcement of a settlement agreement. Adams v. Newport Crest Homeowners Assn., Case No. G044230 (4th Dist., Div. 3 Mar. 13, 2012) (unpublished). Homeowner Adams was involved in litigation with her HOA resulting in a settlement agreement that she wanted to enforce – sort of. The settlement agreement included a mediation agreement, but she did not wish to mediate. She filed further court proceedings without availing herself of mediation first, and the HOA successfully moved to enforce the mediation provision requiring her to mediate (apparently mediation did not take place). That was a costly exercise, resulting in a trial court ruling that she owed the HOA $58,212 in attorney’s fees.
In the appeal, Adams argued she had not violated the settlement agreement, such that the HOA would be a prevailing party; she had simply not mediated. The Court viewed the matter otherwise. A provision in the settlement agreement “dictates the result in this case. . . [I]t provides that the prevailing party ‘in any dispute’ concerning an obligation under the settlement agreement shall be entitled to attorney fees. The dispute resolved in Case No. 05CC05516 was whether the settlement agreement obligated Adams to mediate. It did. She lost that one dispute.”
Justice Moore wrote the decision for a 3-0 panel of our local Santa Ana appellate court resulting in the affirmance. For more about the fee aspect of the case, see the post on California Attorney’s Fees, along with a vintage photograph of the game of “leapfrog.”
In the News: Arbitration and Regulation
Mandatory Arbitration Provisions: Will They Undermine the Benefits of Securities Law Regulation?
In the March 12, 2012 National Law Journal, Gonzaga University professor and former law school dean Daniel Morrissey uses the example of The Carlyle Group L.P., involved in a showdown with the SEC, as a springboard to launch his argument that mandatory arbitration provisions, if they are allowed to proliferate, will be fatal to shareholder litigation.
The Carlyle Group’s prospectus for an offering provided that purchasers of securities would agree to forego class actions involving their claims. The SEC refused to accelerate the effective date of Carlyle’s registration statement, and Carlyle blinked, withdrawing its mandatory arbitration provision.
Prof. Morrissey argues that the history of securities legislation, from the Securities Act of 1933 and the Securities Exchange Act of 1934 to the Private Securities Litigation Act, evinces “the implicit congressional finding that shareholder suits are better brought as class actions in court, not individual arbitrations.”
Of course, an explicit congressional intent to exempt securities litigation from mandatory arbitration would allow plaintiffs in securities class actions to escape the grip of the Federal Arbitration Act and mandatory arbitration provisions. Congress can create an escape hatch from the preemptive effects of the FAA. Because Prof. Morrissey points to an “implicit” congressional finding, we wonder just how much litigants can count on an implicit escape hatch if they are parties to an arbitration provision.
“Arbitration will result in more investment fraud,” Prof. Morrissey concludes. “And it probably won’t be long before another company, emboldened by the unfriendly attitude of some judges there toward SEC regulation, tries a like maneuver [to Carlyle’s] and pushes it all the way to the Supreme Court.”
Goldman Sachs Fights $20.6 Million Arbitration Award
FINRA – the Financial Industry Regulatory Authority – is a private company that is the largest regulator of securities firms doing business in the United States.
On March 12, 2012, Fox Business News reports that Goldman is seeking to overturn a $20.6 million arbitration award resulting from FINRA arbitration, and confirmed by Federal Judge Jed S. Rakoff in November 2010. The matter has been appealed to the 2nd Circuit.
Goldman disputes the claims of creditors of Bayou Group LLC, a failed hedge fund, that Goldman ignored suspicious signs that Bayou Group LLC made improper transfers of funds to its account at Goldman.
On the one hand, the award is being attacked as “unreasoned and patently indefensible.” On the other hand, it is argued that upholding the award could help raise standards for banks that clear trades for hedge funds. Samuel Israel III, the former hedge fund manager for Bayou Group LLC, surrendered to federal authorities on June 9, 2008. Mr. Israel has been sentenced to a total of 22 years (including two years for faking his own suicide).