Arbitration: Unavailability of Arbitrator Means Petitioner Couldn’t Be Compelled to Arbitrate
Missing You: Availability of Arbitrator Was a Material Factor or Consideration Relating to Petitioner’s Agreement to Submit to Arbitration
Here, the petitioner agreed to arbitrate with a particular arbitrator who turned out to be unavailable. Nevertheless, the Superior Court of San Bernardino County compelled arbitration. The petitioner sought a writ to vacate the order of the Superior Court. Curtis v. Superior Court of San Bernardino [Coachmen Recreational Vehicle Company, et al., Real Parties in Interest], Case No. E054779 (4th Dist. Div. 2 January 23, 2012) (not to be published in official reports) (Codrington, Acting P.J.).
The Court of Appeal issued a peremptory writ directing the Superior Court to vacate its order compelling arbitration, and to enter a new order denying the motion to compel. It reasoned: “[I]f the use of a particular arbitration forum and its rules is considered ‘material,’ a fortiori, the use of a specific arbitrator known to the parties.”
TIP: If you really do want to arbitrate, consider agreeing to a Plan B up front, in case the arbitrator, or particular forum, turns out to be unavailable.
Arbitration/Arbitrator’s Fees/Appealability: Second District, Division One, Affirms Order Denying Petition to Confirm Arbitration Award Following Upon Failure of a Party to Pay Fees in Arbitration
Failure of Party to Pay Fees Here Resulted in Termination of Arbitration, and Case Bouncing Back to the Trial Court
The next case grabbed Marc’s attention, because it involved a situation he has had to confront in arbitration: what to do when a party refuses to pay its share of arbitration fees. The resulting opinion, certified for publication, scrutinizes the problem — apparently not so rare, given the comment of long-time Superior Court Judge Malcolm Mackey: “This happens all the time. People don’t want to pay fees.” Cinel v. Christopher, Case No. B231679 (2nd Dist., Div. 1 Jan. 20, 2012; pub. order Feb. 16, 2012) (Johnson, J.).
Cinel purchased stock, commenced an action for securities fraud and related claims against defendants, and ended up in AAA arbitration. The AAA can pull the plug on an arbitration when parties don’t pay fees. That’s what happened here: the panel terminated the arbitration due to the nonpayment of fee deposits.
Defendant Christopher then filed a motion in the Superior Court to confirm the purported fee-related “award”. We say “award” advisedly, because that was Defendant Christopher’s way of characterizing the outcome. The trial court denied the motion to confirm.
The threshold question for the Court of Appeal was whether the order “denying” the petition to confirm the arbitrator’s ruling was appealable. The statutory scheme contemplates an arbitration award may be confirmed, vacated, or corrected in the trial court; in response, a party may request the court to dismiss the petition. The statutory scheme prescribes the options: an aggrieved party may appeal from an order dismissing a petition to confirm, correct, or vacate an award. Cinel argued that an order “denying” a petition to confirm is not appealable, because it is not a “dismissal.” However, under the circumstances, the Court of appeal construed the order “denying” the petition to confirm an award as a “dismissal”, making it immediately appealable by Christopher.
Christopher then argued that the arbitrator’s termination of the proceedings for lack of payment of fees constituted an award that had to be confirmed. The argument relies on an assumption that there was an “award”, and that the trial court’s “denial” of the motion to confirm the award was an unauthorized vacation of the award, because the trial court can only confirm, vacate, or correct the award, or else “dismiss” a petition to confirm; and, furthermore, because the trial court did not “dismiss” the petition, vacate the award, or correct it, it had to confirm the award.
The problem with this mind-bending technical argument is that the termination of the proceedings for failure to make a payment did not constitute an “award” within the mean of section 1283.4. The arbitrator’s order did not address any of the issues in controversy.
Along the way to its conclusions, the Court of Appeal makes some nice distinctions between whether denial of a petition to vacate an award is an appealable order (no, in Mid-Wilshire Associates v. O’Leary, 7 Cal.App.4th 1450 (1992), because the order was appealable after confirmation), and whether denial of a petition to confirm is an appealable order (yes, here, where denial was tantamount to dismissal). The court also distinguished between a termination of proceedings that resulted in an award (Young v. Ross-Loos Medical Group, Inc., 135 Cal.App.3d 669 (1982), where the termination occurred because of a failure to prosecute with due diligence), and a termination of proceedings that did not result in an award (here, where proceedings were terminated for failure to pay, and not issues were reached on the merits). And the court distinguished between a petition to compel arbitration (Lifescan Inc. v. Premier Diabetic Servs., 363 F.3d 1010 (9th Cir. 2004) (petition to compel/continue arbitration should have been denied where fees were not paid, and arbitration was terminated, but parties’ agreement provided apportionment of fees would be left to arbitrators), and a petition to confirm an award (here).
Nor did the trial court err in lifting a stay to set the matter for trial. Once a stay is granted, the court’s “vestigial powers” include the power to rule on a petition to confirm, correct, or vacate an award. Here, where the court dismissed the petition to confirm the award, the stay terminated, and the trial court properly set the matter for trial.
Congratulations to Benjamin Shatz, an appeals specialist at Manatt, representing Plaintiff and Respondent Washington Umberto Cinel. Kudos too to Bob Platt, spearheading this litigation at Manatt, and to associate Emil Petrossian, who argued the case as his first appeal and obtained the favorable published decision.
Enforcement of Settlement Agreement: Second District, Division 8 Holds Settlement Enforceable Against Employer Under CCP section 664.6 in Wage and Hours Case.
Court Rejects Employer’s Arguments That Agreement Lacked Material Terms and Was Obtained Through Fraud.
Mejia v. Jhan, Inc., No. B230818 (2nd Dist. Div. 8 January 10, 2012) (unpublished), involved an overtime dispute between the employee, Mejia, and the employer, Jhan, Inc. The parties entered into a settlement agreement calling for the employer to make a lump sum payment of $25,000, without admission of liability, and for the parties to execute a further long form agreement, a common term in short form agreements.
You guessed it: the employer did not pay $25,000, claimed that the agreement was unenforceable for lack of material terms, argued that it had been obtained through fraud and argued that the employee had breached a confidentiality agreement.
From the employee’s point of view, it turned out that the settlement was adequately drafted:
“The Stipulation satisfies the statutory prerequisites of section 664.6. It is a written agreement duly executed by all parties. Moreover, paragraph 6 of the Stipulation expressly provides that “[t]his mediation settlement agreement is intended to be binding and enforceable and is effective this 13th day of Oct., 2010, and reflects the final agreement between the parties to this dispute, and each of them, pursuant to Evidence Code Section 1123. This stipulation for settlement is admissible and subject to disclosure, despite the otherwise enforceable requirements of confidentiality, solely for the purpose of establishing in court that an agreement has been reached by the parties for purposes of enforcing and interpreting that agreement.”
Evidence of fraudulent inducement was lacking, and even if the employee had breached a confidentiality term, that did not render the agreement unenforceable.
Result: Affirmed on appeal. Justice Grimes authored the opinion, in which Justices Rubin and Flier concurred.
Waiver: Substantial Evidence of Waiver of Right to Arbitrate Results in Affirmance of Trial Court’s Order Denying Petition to Compel Arbitration
Our next case involves a business and a relationship gone sour. Slagter v. Maiao, No. D057368 (4th Dist. Div. 1 January 5, 2012) (unpublished). However, as the Court notes that the parties are well aware of the facts, and the facts are not relevant to the present legal issue, neither we nor the Court needs to recite those facts.
The case involves defendant/cross-complainant Maiao’s attempt to invoke an arbitration provision in a property sharing agreement in order to compel arbitration, after a lawsuit had already been filed. The case is somewhat unusual in that the trial court found a waiver of the right to arbitrate, even though the pleadings had not progressed to the point where Maiao had answered, and Maiao waited only four months to invoke the right to arbitrate. In many cases, courts have found no waiver where the defendant had only demurred, or in circumstances where even more time passed before a party petitioned to compel arbitration.
But waiver is a question of fact that is evaluated under a multi-factor test. Saint Agnes Medical Center v. PacifiCare of California , 31 Cal.4th 1187, 1196 (2003). Significantly – to the Court of Appeal – Maiao filed a cross-complaint without seeking a stay, used a demurrer to address the merits, and attacked a lis pendens. Additionally, compelling arbitration would have resulted in continuance of a trial date.
The Court was not sympathetic to Maiao’s argument that he was dragged into the litigation by the “hyper-aggressive litigation tactics” of Slagter. That problem could have been addressed by seeking a stay concurrently with petitioning to arbitrate.
COMMENT: There may be good tactical reasons for delaying a request to arbitrate. For example, a demurrer that removes causes of action can sometimes result in a case becoming more suited for arbitration. Here, however, Maiao’s counsel told the trial judge that a demurrer might remove the need to arbitrate, and that was cited by the Court of Appeal as evidence that Maiao sought to use the judicial process to litigate the case on the merits. Would it have made a difference if counsel had said that the demurrer could narrow the case and make it more amenable for arbitration? Bottom line: the deeper one gets into judicial proceedings, the riskier it becomes that a waiver of the right to arbitrate will be found.
Enforceability/Unconscionability: Third District Affirms Order That Employment Application Requiring Arbitration Is Unconscionable
Plenty of Hurdles to Enforcement in This Particular Case
In Wisdom v. AccentCare, Inc., No. C065744 (3rd Dist. January 3, 2012) (certified for publication), the Court of Appeal held:
“that a clause in an application for employment with AccentCare, Inc. (AccentCare), requiring only the applicant agree that, if hired, all disputes that cannot be resolved informally will be submitted to binding arbitration is both procedurally and substantively unenforceable as unconscionable.”
The leading case of Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000) proved to be legally dispositive for finding procedural and substantive unconscionability.
First, the Court of Appeal relied on Armendariz, supra, at 115, to affirm the finding of procedural unconscionability, i.e., that the provision was oppressive due to the unequal bargaining power of the parties: “[F]ew employees are in a position to refuse a job because of an arbitration requirement.”
Second, the Court relied on Armendariz, supra, at 118, to affirm the finding of substantive unconscionability, because the provision only required the employee to arbitrate: “[I]n the context of an arbitration agreement imposed by the employer on the employee, such a one-sided term is unconscionable.”
The Court took issue with another decision that did not find procedural or substantive unconscionability in “a nearly identical arbitration agreement.” Roman v. Superior Court, 172 Cal.App.4th 1462 (2009), pretty much guaranteeing that such arbitration agreements will remain ripe for controversy.
Query: Can a pre-employment arbitration agreement in a job application be drafted so as to avoid unconscionability? The following may help: A provision that is conspicuously placed, preferably in bold, larger type, initialed, and expressly pointed out to the prospective employee – much like a disclaimer in a consumer purchase. The prospective employee would acknowledge reading and understanding the provision – in Wisdom, the employees claimed not to know the meaning of “binding arbitration”. The provision would not be “take it or leave it.” And the mutuality would be express: e.g., both employer and employee would need to agree to arbitration, and both employer and both would have to agree and acknowledge that they are giving up their right to a trial by jury. If an arbitration forum (such as JAMS, AAA, ADR Services, JudicateWest) is referenced, the forum’s rules would also be attached. Some employers might even be willing to pay the arbitrator’s fees, removing another potential issue. Overkill?
Illegality/Enforceability: Arbitration Agreement with Unlicensed Contractor May Still Be Enforceable
Fifth District Finds That The Contract Containing the Arbitration Clause Is Not Automatically Unenforceable
With limited exceptions, an unlicensed contractor will find it impossible to collect payment, and may also have to disgorge payments already made. Can an award in favor of the client of an unlicensed contractor be set aside on the grounds of illegality? Our next case, Templo Calvario Spanish Assembly of God v. Gardner, 198 Cal.App.4th 509, 129 Cal.Rptr.3d 574 (2011), answers “no,” at least not when it is the unlicensed contractor trying to avoid the arbitration award.
In Templo Calvario, the dispute between the church and the unlicensed contractor who had agreed to construct the church was subject to an arbitration clause. The arbitrator’s award required the unlicensed contractor to disgorge its fees. The trial court sided with the view that the contract with the unlicensed contractor could not be enforced, because void and illegal, and granted the contractor’s petition to vacate the award.
The church appealed, and the Court of Appeal reversed the order that had vacated the award. Relying on MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc., 36 Cal.4th 412, 30 Cal.Rptr.3d 755 (2005) (MW Erectors), the court held that the contract containing the arbitration provision was not automatically illegal and void just because the contractor was unlicensed. MW Erectors had held that a contract entered into by an unlicensed contractor was not void under circumstances where the contractor became licensed during the course of its work.
The Court of Appeal was not persuaded by the California Supreme Court holding in an older case, Loving & Evans v. Blick, 33 Cal.2d 603 (1949) (Loving & Evans). In Loving & Evans, the Supreme Court held that an arbitration clause could not be relied upon by the unlicensed contractor to compel arbitration. Loving & Evans is distinguishable, because in that case, it was the unlicensed contractor seeking to take advantage of the illegality of the provision to compel arbitration, and the Supreme Court refused to allow that. But the Court of Appeal noted that the Supreme Court, in MW Erectors, described Loving & Evans as not a “modern case,” implicitly overruling the holding that a contract containing the arbitration provision was void ab initio, just because the contractor was unlicensed.