Enforceability/Mandatory Fee Arbitration/Fee Dispute/Standard of Review: Binding Fee Arbitration Under the Mandatory Fee Arbitration Act is an Oxymoron and Resulting Award is Unenforceable
Arbitration Agreement Containing Inconsistencies Between California Arbitration Act (CAA) and Mandatory Fee Arbitration Act (MFAA) is Interpreted Against the Law Firm That Drafted It
“The fundamental problem in this case . . . arises from an internal inconsistency in the arbitration clause, which states that “[a]ny dispute pertaining to the fees owed under this agreement . . . shall, to the extent permitted by law, be submitted to binding arbitration pursuant to the rules of the Bar Association of San Francisco [BASF], and shall take place in San Francisco.” Benjamin, Weill & Mazer v. Kors, 195 Cal.App.4th 40 (2011).
The law firm (BWM) sued its client, Nancy Kors, for fees, and she moved to compel arbitration under the CAA. Binding arbitration pursuant to the rules of the BASF took place. The arbitrator did not make disclosures required under the CAA, but not under the BASF, and did not disclose a purported institutional bias representing law firms in malpractice disputes. The outcome of the arbitration was not to Ms. Kors’ liking, and she moved to vacate the award, based on the arbitrator’s failure to disclose, and also moved for attorney’s fees incurred in enforcing the arbitration position. The trial court denied the motion to vacate the award, as well as the request for fees. She appealed.
Unconscionability: Delegation Clause in Arbitration Agreement Does Not Render Entire Arbitration Agreement Unconscionable
Arbitration Agreement Wasn’t Permeated With Unconscionability
Htay Htay Chin sued Advanced French Concepts Franchise Corp. (AFC) over a sushi franchise. AFC then moved to compel arbitration. Chin argued that the arbitration agreement, which included a “delegation provision”, was unconscionable – and the trial court agreed, denying the motion to compel arbitration. This resulted in an appealable order, and Chin duly appealed. Chin v. Advanced Fresh Concepts Franchise Corp., 194 Cal.App.4th 704, 123 Cal.Rptr.3d 547 (2011).
Above: Bowl of sushi by Hiroshige. Wikipedia.
Judicial Arbitration: Losing Party in Arbitration’s Dismissal of Complaint Repudiated Request for Trial De Novo
Result: 1st District, Div. 5 Holds That Trial Court Properly Vacated Dismissal and Entered Judgment on Unfavorable Reward
In Lee v. Kwong, 193 Cal.App.4th 1275, 123 Cal.Rptr.3d 633 (2011), plaintiff entered into an agreement to purchase a Chinese restaurant from seller, but seller ended up selling to a third party, leaving buyer with a sour taste. The purchase and sale agreement included an arbitration provision, and judicial arbitration ensued.
The outcome of the arbitration was unfavorable to the buyer, who moved for a trial de novo, and then voluntarily dismissed the complaint without prejudice. As a result, the trial court vacated the dismissal, and entered judgment on the award.
Appellants argued that, since they requested a trial de novo, and since they had only judicially arbitrated, they were entitled to a dismissal without prejudice. Unfortunately for them, precedent was to the contrary: “[A]n arbitration is viewed as a trial on the merits,” pursuant to section 581. [citations omitted] Accordingly, appellate courts have uniformly held that a party repudiates its request for a trial de novo after judicial arbitration when it subsequently voluntarily dismisses a complaint. Such action by a party who has received an unfavorable judicial arbitration award triggers finalization of the judicial arbitration award as judgment.”
For a blog post on the other part of the opinion concerning attorney’s fees, see the post on California Attorney’s Fees.
Arbitration/Stay: Inability to Pay Costs of Arbitration Not Good Enough Reason to Lift Stay of Lawsuit
Vestigial Powers of Court Following Stay Leave It Without Power to Lift Stay Under the Circumstances
MKJA sued 123 Fit Franchising alleging that it had been fraudulently induced to enter into franchise agreements. The defendant commenced arbitration in Colorado pursuant to an arbitration, and sought a stay in California of the lawsuit pursuant to Cal. Code Civ. Proc. section 1281.4. Apparently the arbitration in Colorado never really got underway, plaintiff concluding that it was too expensive to arbitrate in Colorado. Plaintiff asked the trial court in California to lift the stay because the arbitration was unconscionable. The trial court believed that Plaintiff should be able to pursue its claim in some forum, and had exhausted efforts to do so in Colorado. It lifted the stay. MKJA, Inc. v. 123 Fit Franchising, LLC, 191 Cal.App.4th 643 (2011).
Defendant appealed the lifting of the stay.
Held: “[A] party’s inability to afford to pay the costs of arbitration is not a ground on which a trial court may lift a stay of litigation that was imposed pursuant to section 1281.4. Accordingly, we reverse the trial court’s order lifting the stay.”
Query whether a helpful arbitration provision could be drafted that would address the circumstance in which a party is financially unable to pay the arbitrator’s fees.
Vestigial: Human appendix. Wikipedia.
Confidentiality: Supreme Court Holds That Confidentiality in Mediation Means That Client Cannot Use Its Attorney’s Statements As Evidence
Concurring Opinion By Justice Chin Expresses Discomfort With Result
In Cassel v. Superior Court, 51 Cal.4th 113, 119 Cal. Rptr. 3d 437 (2011), the California Supreme Court addressed whether the mediation confidentiality protection applies to attorney-client communications when the client sues the attorney for malpractice. (Ordinarily, the attorney-client privilege flies out the window when the client sues for malpractice).
The trial court sided with the attorney, based on the plain language of the statute. Evidence Code section 1119(a) provides, “[n]o evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation … is admissible or subject to discovery ….” The petitioner/client sought mandate.
Siding with the client, the Court of Appeal believed, “mediation confidentiality statutes are intended to prevent the damaging use against a mediation disputant of tactics employed, positions taken, or confidences exchanged in the mediation, not to protect attorneys from the malpractice claims of their own clients.” Cassel, supra, 51 Cal. 4th at 118. Falling back on the “plain language of the statute”, the Supreme Court agreed that confidentiality protected against the admissibility of evidence in the malpractice dispute. The Court’s opinion was authored by Justice Baxter.
Justice Chin concurred in the result, “but reluctantly,” inviting the Legislature to consider the effect of the statutory provision, as drafted, in shielding an attorney from malpractice.
Confidentiality: P.E. Hadlick, Secretary of the National Oil Marketers Association, whispers a bit of information into Senator’s Guy M. Gillette’s ear. March 31, 1938. Library of Congress.
Confidentiality: California Supreme Court Holds That Mediator Cannot File Report Disclosing Communications In Order To Show Sanctionable Conduct
Exceptions To Confidentiality of Communications Are Very Limited, and Showing Sancitonable Conduct Is Not One of the Exceptions
In Foxgate Homeowners’ Association, Inc. v. Bramalea California, Inc., 26 Cal.4th 1, 108 Cal.Rptr.2d 642 (2001), the Supreme Court faced,”the intersection between court-ordered mediation, the confidentiality of which is mandated by law (Evid.Code, §§ 703.5, 1115-1128), [footnote omitted] and the power of a court to control proceedings before it and other persons “in any manner connected with a judicial proceeding before it” (Code Civ. Proc, § 128, subd. (a)(5)), by imposing sanctions on a party or the party’s attorney for statements or conduct during mediation.” Cutting to the chase, the court concluded that mandated confidentiality in mediation trumped the ability of the court to impose sanctions.
The mediator, in a report to the Court, had slammed defense counsel for purportedly sandbagging the mediation. The problem was that the mediator’s report disclosed confidential information. The Court of Appeal had fashioned a narrow exception to absolute confidentiality, allowing the mediator to include statements that supported sanctions. But the mediator’s report had gone beyond that, enabling the Court of Appeal to reverse the trial court order imposing sanctions.
The Supreme Court concurred in the result, but disagreed with the Court of Appeal’s reasoning: “Neither a mediator nor a party may reveal communications made during mediation. The judicially created exception fashioned by the Court of Appeal is inconsistent with the language and the legislative intent underlying sections 1119 and 1121. We also conclude that, while a party may do so, a mediator may not report to the court about the conduct of participants in a mediation session.” 26 Cal.4th at 644-645.