In The News: JPMorgan Chase Pays $384M Arbitration Award
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File the next story with the late Senator Everett Dirksen’s quip, "A million here, a billion there, pretty soon, you’re talking real money".
On March 22, 2012, Reuters reported, “JPMorgan Chase quietly paid $384 million [$373.3M plus interest] to American Century Investment Management after losing an arbitration over accusations of breaches related to the bank’s purchase of a retirement plan services business.” The dispute related to JPMorgan Chase’s purchase of American Century, and allegations that JPMorgan Chase promoted its own funds at the expense of American Century’s, in breach of contract.
Confidential until March 21, the arbitration award was made on August 10, 2011, and confirmed by a Missouri court on December 6, 2011.
Arbitration/Standard of Review/Fees: Second District, Division 7 Reverses Orders Awarding Attorney Fees, and Otherwise Confirms Arbitration Award
You know that this one must have been a real kerfuffle, because the Court of Appeal quotes the arbitrator: “Lots of fiercely fought and expensive litigation followed, including this arbitration.” Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor v. Rotondo, B221056 & B223528 (2nd Dist. Div. 7 March 22, 2012) (Woods, Acting P.J.) (not for publication).
In this one, the appeals are about the legal fees, with the Court of Appeal reversing orders awarding attorney’s fees, and otherwise affirming the trial court’s confirmation of the arbitrator’s award. See the post on California Attorney’s Fees regarding the fee issue.
Along the way, the Court of Appeal offers helpful reminders regarding the standards for reviewing an arbitral award:
· Any doubts as to the meaning or extent of an arbitration award are for the arbitrators and not the court to resolve. Morris v. Zuckerman, 69 Cal.2d 686, 690-691 (1968).
· Neither the merits of the controversy nor the sufficiency of the evidence to support the arbitrator’s award are matters for judicial review.
· Though the court may vacate an award if it determines that the arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted (Code Civ. Proc. section 1286.2(d)), it may not substitute its judgment for that of the arbitrators.
· Arbitrators can apply both legal and equitable principles in deciding the ultimate issue submitted to them. Morris v. Zuckerman, supra, 69 Cal.2d at 690-691.
Arbitration/Nonsignatories/CCP 1281.2/Standard of Review: Fourth District, Division 1, Reverses Trial Court’s Order Denying Motion to Compel Arbitration of Customer/Investment Advisor Dispute
Perennial Issue: Can Nonsignatories To Arbitration Agreement Compel Arbitration?
An investment advisor and related defendants petitioned to arbitrate claims brought by an investor’s successor in interest. The successor (John) alleged that the accounts of his deceased mother had been “churned” to improperly generate commissions. The trial court denied the petition brought by the investment advisor and related defendants to arbitrate: two of six defendants were not signatories to the arbitration agreement, and there was a possibility of conflicting rulings on common questions of law and fact if some of the claims were tried in court rather than heard by an arbitrator. The advisor and related defendants appealed the trial court’s denial of their petition to arbitrate. Thomas v. Westlake, D058531 (4th Dist. Div. 1 March 23, 2012) (certified for publication).
The trial court relied on Code of Civ. Proc. section 1281.2(c) to deny the petition. That section allows a court to refuse to compel arbitration if “[a] party to the arbitration agreement is also a party to a pending court action . . . with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.” Here, “third party” means a party to the action that is not bound by or entitled to enforce the arbitration agreement. John had argued successfully that certain of the defendants were not entitled to enforce the arbitration agreement because they were nonsignatories.
Here, whether the defendants have a right to compel arbitration will present a question of law, because the contents of the documents were not in dispute. Therefore,the proper standard of review will be de novo.
The first problem for John was that the so-called “third parties” were actually agents of the parties to the arbitration agreement, or at least John had alleged agency. When a plaintiff alleges a defendant acted as an agent of a party to an arbitration agreement, the defendant may enforce the agreement though the defendant is not a party to it. “Having alleged all defendants acted as agents of one another, John is bound by the legal consequences of his allegations.”
Second, John argued that FINRA (the Financial Industry Regulatory Authority) – the arbitral forum – was not available to hear the dispute for all the defendants. But the Court of Appeal, after reviewing FINRA’s own rules, concluded that FINRA was available as an arbitral forum, because all the defendants were “customers” or “associated persons” under FINRA’s rules.
Third, John argued that FINRA is not available to hear insurance disputes, and the product sold to his mother were insurance products – replacement annuities and insurance products. However, John had not alleged that the defendants engaged in unlawful insurance practices, and therefore the carve-out from FINRA jurisdiction for insurance disputes did not apply.
Fourth, the Court of Appeal concluded that even if FINRA had been unavailable as an arbitral forum, the parties could have arbitrated in a different forum.
Disposition: the order denying defendant’s petition to compel arbitration was reversed, and other proceedings were ordered stayed. The 3-0 opinion was authored by Justice Irion.
TIP: Agency allegations may seem like boilerplate. Yet they can have important consequences when it comes to enforcing an arbitration provision. Consider carefully whether you really need or want to plead that defendants are all agents of one another.
Boilerplate. 1879. Library of Congress.
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.
