Waiver: Fourth District Div. 2 Holds Lengthy Delay And Failure To Timely Take Affirmative Steps To Arbitrate Results In Waiver Of Right To Arbitrate
Thirty-Nine Page Slip Opinion Hinges On Issue Of Waiver.
The Court of Appeal addresses a variety of issues in the context of a complicated procedural history in Desert Regional Medical Center v. Leah Miller and Desert Regional Medical Center v. Lynn Fontana, E076058 and E076069 (4/2 1/6/23) (Codrington, Ramirez, Raphael).
The procedural history was complicated by the overlapping pendency of a collective bargaining grievance procedure and the lawsuits brought by individual employees, who were employees at the Desert Regional Medical Center (DRMC). Did the individual actions need to be stayed while the union procedure was exhausted? Did the arbitrability of these cases need to be decided by the court or the arbitrator? Did the Federal Arbitration Act or the California Arbitration Act apply? Did the Labor Commissioner have jurisdiction to hear claims brought by the employees, or did the claims need to be arbitrated? Were the employees estopped from arguing that the employer waived the right to arbitrate? Was prejudice necessary to find a waiver of the right to arbitrate? Interesting questions, but in the end the outcome hinged on whether the employer waived the right to arbitrate.
In the end, the Court of Appeal affirmed the trial court's order denying a motion to arbitrate, agreeing that the employer waived its right to arbitrate. There was an issue as to how long the employer had delayed bringing a motion to arbitrate. That delay was at least a year, possibly up to four years. The court concluded that even during a one year delay, the employer acted inconsistently with asserting a right to arbitrate by engaging in further litigation procedure.
Scope Of Arbitration Agreement Did Not Encompass Pre-Employment Disputes
Court of Appeal Also Held That Trial Court Properly Declined To Require Arbitration Of FEHA Claim For "Public Injunction."
Defendant and Appellant Tesla, Inc. — you've probably heard of the company — appealed from denial of Tesla's motion to compel arbitration as to employees Chatman and Hall, plaintiffs. Marcus Vaughn et al v. Tesla, Inc., A164053 (1/5 1/4/23) (Simons, Burns, Wiseman). Plaintiffs alleged that they and other Black employees had been discriminated and harassed while working at Tesla.
The wrinkle to this case is that, while an arbitration agreement provided all "disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration . . . ", the agreement did not cover pre-employment claims. And Chatman and Hall claimed some claims arose pre-employment, at a time when a hiring agency had provided them as workers to Tesla. So the trial court concluded that Chatman and Hall were required to arbitrate claims after they became employees, but not before.
The Court of Appeal affirmed the order denying arbitration in part and allowing arbitration in part. The Court also agreed that the trial court properly declined to mandate arbitration of plaintiffs' claim for a public injunction for two reasons: "First, we hold that injunctions sought under the Fair Employment Housing Act (FEHA) (Gov. Code, §§ 12900 et seq.) may be considered 'public injunctions.' Second, we rule the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.), as interpreted in Viking River Cruises, Inc. v. Moriana (2022) ___ U.S. ___ [142 S.Ct. 1906, 213 L.Ed.2d 179] (Viking River), does not preempt the California rule prohibiting waiver of the right to seek such injunctions."
Ninth Circuit Holds Inmate Receiving Debit Card For Confiscated Cash Did Not Consent To Debit Card Agreement To Arbitrate
Once You Know The Facts, Your Going To Know How This Case Turns Out . . .
Plaintiffs in Reichert v. Rapid Investments, Inc., 21-35530 (9th Cir. 12/30/22) (Berzon, Christen, Block) (per curiam) were inmates discharged from Kitsap County Jail and given a debit card for cash confiscated by the jail earlier upon their entry. The cards, referred to as a Rapid debit card or "release card" were activated and ready to use. The cards also incurred a weekly maintenance fee of $2.50, as well as transaction costs when used to withdraw money. The cards also included an arbitration clause, and stated that use of the card would be evidence of agreement to contractual terms. The discharged inmates, in effect, were receiving their own money back in a card that they had not asked for, and that they needed to use to get back their confiscated cash.
The plaintffs brought a lawsuit alleging that the release card fees violated the Electronic Funds Transfer Act and Washington state law. And — drum roll — defendant Rapid brought a motion to compel arbitration. The district court held that retention and use of the release card did not demonstrate acceptance of the terms of the arbitration agreement. The Court of Appeals affirmed.
First, under Washington state law, inaction in response to an offer does not constitute acceptance.
Second, under the circumstances, use of the release card did not constitute acceptance. "We hold that because the money Moyer withdrew was his own, because the card he was issued came pre-activated and there was no other way to obtain immediate use of his own funds, and because Rapid structured its fees to begin deducting after three days regardless of use, Moyer’s decision to withdraw his own money cannot reasonably be understood to manifest assent to the contract."
Payment: Arbitration Prompt Payment Requirements Are Strictly Enforced
California Code of Civil Procedure Sections 1281.97 and 1281.98 Will Be Strictly Enforced.
California Code of Civil Procedure, sections 1281.97 and 1281.98 provide that if a company or business that drafts an arbitration agreement does not pay arbitration fees within 30 days of when fees are due, the company or business is in material breach of the agreement. Ann Williams v. West Coast Hospitals, Inc. (6th Dist. 12/22/22) (Lie, Greenwood, Grover) continues to strictly apply the payment requirement. We have previously posted about the application of those code sections on 12/11/22 and 10/3/22.
COMMENT: The court declined to decide whether the issue of the application of sections 1281.97 and .98 had been effectively delegated to the arbitrator to decide, holding instead that the issue had not been preserved for appeal. In order to reach that conclusion, the court also had to conclude that the code provisions were not jurisdictional, because jurisdictional issues can be reached at any time.
Happy New Year To All My Readers !
Happy New Year To All My Readers !
May The New Year Do Better!
Puck. Jan. 4, 1899. J.S. Pughe, artist. Library of Congress.
Jurisdiction, International Arb, FAA, Standard Of Review: Ninth Circuit Reminds Us Of Its Limited Ability To Fix Things In Arbitration When They Go Wrong To
It Is With A Heavy Heart That A Ninth Circuit Panel Tells Us It Can't Fix A Mess.
"This award shows in stark terms the real risks that parties assume when they trade away their right to adjudicate their claims in court for the potential efficiencies of arbitration. When, as here, things go wrong, our power to fix them is uncomfortably, but plainly, limited under the FAA." HayDay Farms, Inc. et al. v. FeeDx Holdings, Inc., 21-55650 anhd 21-55698 (9th Cir. 12/19/22) (Smith, Nelson, Drain).
The underlying arbitration involved a contract dispute between HayDay Farms, Inc. and Nippon Kokusai Agricultural Holdings, Inc., on the one hand, and FeeDx Holdings, Inc., on the other. A panel of three arbitrators, after four years of arbitration, issued a final award in excess of $21 million in favor of HayDay Farms, Inc. and Nippon. The trial court judge then confirmed the award in part, but removed $7 million from the award. On appeal to the Ninth Circuit, FeeDx argued that the award put HayDay and Nippon in a better shape than if both sides had fully performed the contract, something that California Civil Code § 3358 does not allow: "Except as expressly provided by statute, no person can recover a greater amount in damages for the breach of an obligation, than he could have gained by the full performance thereof on both sides." That was the justification for the district court's decision to remove the $7 million component of the award.
Before it could address the merits, the Court of Appeals had to address its jurisdiction. HayDay and Nippon had sought to confirm the award in state court, and FeeDx had removed the proceeding to federal court, purportedly under diversity jurisdiction. The federal district court did not address its jurisdiction. In fact, complete diversity was lacking, because a California, Samoa, and Cayman Island corporation were involved, and diversity jurisdiction does not apply to a foreign entity suing a foreign entity. But the Court of Appeals, analyzing its own jurisdiction, found the trial court's jurisdiction to lie in 9 USC § 203, which provides that an action or proceeding falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards shall be deemed to arise under the laws and treaties of the United States. And if the district court had jurisdiction, then the Court of Appeals had jurisdiction under 9 USC § 16 and 28 USC § 1291.
Next, the Ninth Circuit had to address a question of first impression in its own circuit: whether the standards for vacatur in the Federal Arbitration Act applied for awards governed by the Convention, when the Convention did not specifically say so. Agreeing with other circuits, the Ninth Circuit held that the FAA standards did apply. And the standard, expressed in different ways, is exceedingly tough.
A plausible interpretation of the contract cannot be overturned. An award that is manifestly irrational and completely disregards the law can be overturned under FAA standards. The "irrationality standard 'is extremely narrow and is satisfied only where the arbitration decision fails to draw its essence from the agreement.'" Does the decision fail to draw its essence from the agreement? Have we entered the realm of the metaphysical?
In any case, the Court of Appeal held that the arbitral decision was not irrational, and thus it affirmed the award, while reversing the district court, which had removed $7 million from the award.
And yet it seems to have done so with some pain. Judge Milan wrote that the losing party, FeeDx, "probably offers the best interpretation of the parties’ agreements . . .", while he assures us that the award "was not some form of vigilante justice . . . " And, he wrote, "We share the district court's concern about a seemingly unfair damages award that likely violate § 3358."
Small consolation for the losing party. However, these were sophisticated parties that agreed to arbitrate