Ninth Circuit Holds Jurisdiction Exists To Enforce Arbitral Document Subpoena In California For International Arbitration Pending In DC
Fighting About Obtaining Discovery In International Arbitration Pending In US . . .
A problem occasionally encountered in arbitration is getting a court to enforce a document subpoena issued by the arbitrator. That was the problem in Jones Day v. Orrick, Herrington & Sutcliffe, LLP, Michael D. Torpey, Mitchell Zuklie, 21-16642 (9th Cir. 8/1/22) (Wardlaw, Ikuta, Bade).
The situation here was that Jones Day sought discovery from Orrick in an arbitration involving a partnership dispute and an attorney who was a German national, the arbitration was in Washington DC, and Orrick is headquartered in San Francisco. The problem that required a solution was finding subject matter jurisdiction in federal court and a means to enforce a subpoena in California.
The eventual solution, after some misfires, was to get the arbitrator to agree to sit for a hearing in California, have the arbitrator issue a by now "revised" subpoena, and file an action in the USDC, Northern District of California, to enforce the subpoena. While this solution eventually worked, it did not work in the USDC, Northern District, because the judge construed the Federal Arbitration Act to only allow the arbitrator to issue a subpoena where the arbitrator was sitting, i.e., DC. Jones Day then petitioned the Ninth Circuit — successfully — in order to enforce the arbitral summonses.
Judge Wardlaw explains, "[W]e must decide whether an action to enforce an arbitral summons issued by the arbitrator in an ongoing international arbitration under the [New York] Convention also “falls under the Convention.” We join our sister circuits in holding that (1) if the underlying arbitration agreement or award falls under the Convention, and (2) the action or proceeding relates to that agreement or award, then the federal district court has jurisdiction over the action or proceeding." Here, there was subject matter jurisdiction, because the international arbitration fell under the Convention, and the proceeding to issue summonses for the subpoenas related to the agreement.
One question remained: where could the subpoenas be enforced? An arbitral subpoena can be enforced by the district court sitting in the district where the arbitration is located pursuant to 9 U.S.C. § 204, but the court in Washington DC lacked personal jurisdiction over Orrick in San Francisco. Solution: "[W]here, as here, that federal district court lacks personal jurisdiction over the party against whom enforcement is sought, we hold that the action may be brought in any district court deemed appropriate under the general venue statute, 28 U.S.C. § 1391, because [9 U.S.C.] § 204 supplements, rather than supplants, other venue rules."
COMMENT: While Orrick may be displeased with the outcome of this discovery skirmish, the ruling will be welcomed by litigators who seek documents in international arbitration and are sometimes stymied by jurisdictional rules.
Stay: CCP Section 1281.4 Does Not Authorize Staying Litigation On Basis Of Pending Arbitration To Which Plaintiff Is Not A Party
Under Proper Circumstances, A Stay Of The Action, Or An Arbitrable, Severable Issue, Would Have Been Mandatory.
Ann Leenay brought a PAGA action for various Labor Code violations against her former employer, Lowe's Home Centers, LLC. The trial court consolidated her action with five other actions. Lowe's moved to stay the six consolidated actions based on 50 pending arbitrations with overlapping issues. The trial court stayed the litigation, and Leenay sought a writ of mandate to undo that court's stay order. Ann Leenay, petitioner, v. Superior Ct. of San Bernardino Cty., Lowe's Home Centers, respondent and real party in interest, E077292 (4/2 7/22/22) (Menetrez, Ramirez, Slough).
The key fact, which led to the granting of the writ of mandate petition, was that neither Ann Leenay, nor the other five plaintiffs, were parties to the 50 pending arbitrations. The statutory provision authorizing a stay of litigation based on pending arbitration is Cal. Code of Civ. Proc., § 1281.3. Justice Menetrez explained: "Section 1281.4 does not authorize the court to stay a plaintiff’s action on the basis of a pending arbitration to which the plaintiff is not a party.
Consumers, Employment, FAA: Second Dist. Div. 1 Holds CA Statutes Protecting Employee From “Procedural Limbo” In Arbitration Are Not Preempted By Federal Law
Business That Dilly-Dally About Paying Arbitration Fees Face Consequences.
In a case of first impression, the California Court of Appeal asks whether California Code of Civil Procedure, §§ 1281.97, 1281.98, and 1281.99 are preempted by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. Sunny Gallo v. Wood Ranch, USA, B311067 (2/1 7/25/22) (Hoffstadt, Ashmann-Gerst, Chavez). Those statutory provisions were enacted in California to protect employees and consumers from falling into a state of "procedural limbo" when a business that has drafted an arbitration agreement fails to pay arbitration fees within 30 days after the fees are due. This failure to pay fees can lead to delay and "procedural limbo" in an arbitration. The consequences are significant under the recent California statutes because the "drafter" can end up paying all the fees, or lose the right to arbitrate, or even face sanctions such as termination, evidence preclusion, monetary payment, and even contempt.
The court holds that the California statutes are not preempted, "because the procedures they prescribe further—rather than frustrate—the objectives of the FAA to honor the parties’ intent to arbitrate and to preserve arbitration as a speedy and effective alternative forum for resolving disputes."
COMMENT: Businesses with arbitration provisions should not dilly-dally about paying their share of arbitration fees in employment and consumer disputes, given the severe consequences. Consumers and employees should also be alert to whether fees are timely paid, as the failure by the "drafter" to make timely payment creates options for the consumer or employee.
Arbitration, FAA: Federal Arbitration Act Applied To Intrastate Driver Who Worked For Paratransit Service For Persons With Disabilities
Federal Preemption Of California's Gentry Rule Means Class Action Waiver Can Be Enforced.
David Evenskaas, a driver, filed a wage and hour lawsuit against his employer, California Transit, Inc., which operates paratransit services for persons with disabilities in West and Central Los Angeles. Evenskaas's employment agreement included a broad arbitration agreement with a class action waiver that the employer tried, unsuccessfully, to enforce in the trial court. The employer appealed. Evenskaas v. California Transit, Inc., B308354 (2/7 7/15/22) (Segal, Perluss, Feuer).
The issue was whether the Federal Arbitration Act preempted California law and the rule in Gentry v. Superior Court, 42 Cal.4th 443 (2007), which holds that certain class action waivers in employment arbitration agreements are unenforceable. The trial court had determined that interstate commerce was not involved, because California Transit, Inc. operated in California, and absent involvement in interstate commerce, there could be no federal preemption by the FAA.
However, the Court of Appeal reached a different result, distinguishing those cases holding intrastate activities not affecting interstate commerce do not trigger federal preemption. "None of them involved an arbitration agreement between an employer and an employee hired to provide commercial services required by federal law enacted by Congress under its commerce power. Moreover, in Carbajal, Lane, and Woolls the party arguing the FAA applied did not present evidence of the party’s business that would show a connection to interstate commerce." The ADA is enacted with Congress exercising its commerce powers to the fullest, and transportation through a paratransit service affects the ability of persons with disabilities to participate in the national economy.
COMMENT: If the driver, like a trucker, fell within a class of workers who was actually engaged in interstate commerce, then he would specifically be excluded from coverage under the FAA. 9 USC § 1.
Arbitration, Agency, Choice Of Law, Discovery: 9th Circuit Holds District Court Should Allow Discovery To Determine If Client Authorized Attorney To Agree To Arbitrate
Factual Questions Existed As To Whether Lawyer's Client Authorized Agreement To Arbitrate.
Plaintiff Barbara Knapke sued PeopleConnect, the owner of Classmates.com, for allegedly making unauthorized use of her name and likeness. Before filing the lawsuit, Knapke's attorney Reilly logged in to the Classmates.com website, and in doing so, agreed to arbitrate. Did Knapke authorize her attorney to agree to arbitrate? The district court ruled that there was no evidence that she had authorized her attorney to arbitrate. PeopleConnect appealed. Barbara Knapke v. People Connect, Inc., No. 21-35690 (9th Cir. 6/29/22) (Bennett, Wardlaw, Gould).
Judge Mark J. Bennett first explained that the district court should have applied Washington State law rather than Ohio law. Knapke is a resident of Ohio, and PeopleConnect's principal place of business is in Seattle. But it made no difference, since Ohio and Washington law were not in conflict.
Second, a question of fact existed as to whether Knapke authorized her attorney to agree to arbitrate. That question required inquiring into "the contours of Knapke’s agreement with Reilly’s law firm and the limits, if any, on Reilly’s authority to act on Knapke’s behalf." In addition to authorization, there was a question as to whether later conduct could have ratified the attorney's actions. Because of such questions, PeopleConnect should have been allowed to conduct discovery.
When the matter returns to the district court, where PeopleConnect will get "another bite of the apple", there will be additional questions to resolve: does privilege prevent discovery into attorney communications relevant to the scope of authority? Plaintiff's claim that there was a lack of authority makes her communications with her attorney a relevant area of inquiry. Has there been a waiver of privilege? If the plaintiff rests on a claim of privilege, what effect will that have upon her claim that she did not convey authority to her attorney to agree to arbitrate?
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Library of Congress. "The flag that has waved one hundred years–A scene on the morning of the fourth day of July 1876."