Arbitration, Discovery: SCOTUS Rules Federal Courts Can’t Grant US Discovery For Arbitration Outside US
Foreign Arbitration Panels Are Not A "Foreign Or International Tribunal".
A district court can order the production of evidence “for use in a proceeding in a foreign or international tribunal.” 28 U.S.C. § 1782(a). The United States Supreme Court, in a unanimous decision authored by Justice Amy Coney Barrett, holds that a foreign arbitration panel outside the US is not a "proceeding in a foreign or international tribunal." Therefore, the district court cannot order the production of evidence. ZF Automotive US , Inc. v. Luxshare, Ltd, No. 21-401, together with No. 21–518, AlixPartners, LLP, et al. v. Fund for Protection of Investors’ Rights in Foreign States, (S. Ct. 6/13/22).
COMMENT: Limitations on discovery should be considered when agreeing to arbitrate (assuming one has a choice).
Arbitration, Nonsignatories: There Is No Agreement To Arbitrate Between San Diego And Instacart
PAGA Cases Are Not A Good Analogy For A Lawsuit Brought Directly By The City, Rather Than By Workers.
If the City of San Diego city attorney sues Instacart for violating the Unfair Competition Law, Business and Professions Act, §§ 17200 et seq., is the City bound by arbitration agreements between Instacart's Shoppers and Instacart? No, says the Court of Appeal, agreeing with the trial court, in The People v. Maplebear Inc., D079209M.PDF (4/1 6/6/22) (McConnell, Irion, Dato).
Maplebear Inc., doing business as Instacart, hires Shoppers to connect with buyers and help get products to the buyers. The Shoppers are characterized by Instacart as "independent contractors" and required to sign arbitration agreements with Instacart. However, the City is not a signatory, and the court explained that the City was suing under its enforcement powers on behalf of the people of California. The City claimed that misclassifying Shoppers as independent contractors denied them employee benefit protections, resulted in a loss of payroll tax, and created unfair advantage over competitors.
COMMENT: Much of the opinion is devoted to a detailed discussion of Iskanian, the California Supreme Court case holding that employees are not required to arbitrate PAGA claims, because PAGA claims are analogous to qui tam claims in which the state has an interest, and the state is not a signatory to arbitration agreements between employers and employees. However, the city attorney and Instacart must recognize that the California rule that PAGA claims are not subject to mandatory arbitration is now the subject of a case that has been argued before the US Supreme Court in a case awaiting a decision. Instacart argued that the City is really suing for the benefit of the employees, and should therefore be bound by their arbitration agreements — an argument that has been repeatedly made in PAGA cases by critics of Iskanian. If the rule in Iskanian falls in SCOTUS, then the City's argument could be weakened — but only if the rule in Iskanian applies to the City's argument.
The Court of Appeal explained that Instacart "inverted" the ruling of Iskanian, and therefore Iskanian did not apply. Iskanian allowed the worker to sue on behalf of the state. That was not the case with the Shoppers, who did not bring the suit. Rather, the City of San Diego sued directly on behalf of the People's enforcement powers, not primarily for the benefit of the workers, and the City was not party to an arbitration agreement.
Settlement: Marital Settlement Agreement Is Held To Be Waiver Of Surviving Spouse’s Spousal Rights
Read Probate Code §§ 144 – 144.
An enforceable marital settlement agreement can lead to a waiver of spousal rights. In Welch v. Welch, B311507 (2/5 5/31/22) (Moor, Rubin, Kim), a husband and wife, anticipating the dissolution of their marriage, entered into a marital settlement agreement (MSA) to distribute their property. The court entered judgment, the wife died, and the surviving husband sought to undo the settlement agreement. He succeeded in the trial court, but failed in the Court of Appeal.
The issue was whether the surviving spouse, the husband, waived spousal rights enumerated in the Probate Code, § 141(a) by entering into the MSA. The Court of Appeal held that the MSA was enforceable, because it was a complete property settlement, the parties were represented by counsel, and the husband had received a "fair and reasonable disclosure of the property or financial obligations" of his wife.
Arbitration, Enforceability: No Agreement Where Company Was Unable To Establish Automatic Sending Of Electronic Receipt
Existence Of Agreement Was Not An Issue To Delegate To Arbitrator.
Fiona Trinity sued Life Insurance Company of North America and individuals (LINA parties) for employment-related claims. The LINA Parties moved unsuccessfully to compel arbitration in the trial court, and the Court of Appeal affirmed. The LINA parties could not establish the existence of an agreement to arbitrate, and even if they could, the agreement would have been unconscionable. Trinity v. Life Insurance Company of America et al., B312302 (2/7 5/23/22) (Perluss, Segal, Feuer).
The defendant's PMK had testified as to the contract procedure, explaining that once the employee had clicked on a link indicating he or she had read an online employee handbook, which included an arbitration agreement, they would receive an email confirming their assent to the terms of the handbook. The problem was that the employer could not produce the automatically generated receipt and did not know how to retrieve it, and the employee did not remember reading or agreeing to the handbook.
While issues of arbitrability were delegated to the arbitrator here, whether there is an agreement to arbitrate in the first place is an issue for the judge to decide. The issue of arbitrability cannot be delegated under the terms of a nonexistent agreement.
COMMENT: In the 21st century, there is still at least one advantage to the use of a paper document with an inked signature. Electronic signing is permissible, but then one must carefully follow procedure and have a good storage and retrieval system for electronic data.
Arbitration, Waiver: Waiver Of The Right To Arbitrate Requires A Showing Of Prejudice Under California Law
The California Supreme Court And SCOTUS Disagree About Waiver Of The Right To Arbitrate.
In Quach v. Cal. Commerce Club, B310458 (2/1 5/10/22 ) (Bendix, Rothschild; Crandall sitting by designation, conc. and dsst.), Justice Bendix, writing the majority opinion, explained that California Commerce Club had not waived its right to arbitrate, despite the fact that it knew from the time it filed its answer of its right to arbitrate, despite substantial delay, and despite engaging in litigation conduct inconsistent with arbitrate. Because? Because Plaintiff failed to demonstrate prejudice, having admitted he expended no costs in litigation he would not have expended had the case gone to arbitration earlier. Under St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187, 1203 (2003) (St. Agnes Medical Center), prejudice is part of a multi-factor test used to establish waiver of the right to arbitrate, and spending money in litigation is not enough to establish prejudice.
Superior Court Judge Crandall concurred in part, agreeing that the arbitration agreement was not unconscionable, but he would have found prejudice based on the defendant's litigation conduct inconsistent with the right to arbitrate, knowledge of its right to arbitrate, and delay. He also pointed out that California courts have not applied a mechanical test to waiver, and have sometimes found great delay to result in prejudice. He did not believe that, under the circumstances, the plaintiff had to explain prejudice, and yet Crandall's dissent seems somewhat caught up in the straightjacket of having to rely on the finding of prejudice, based on California case law, in order to establish waiver. As my comment below explains, SCOTUS has now rejected a finding of prejudice as a necessary element in a waiver of the right to arbitrate.
"The unfairness of compelling non-unionized employees to forfeit their access to the civil justice system in favor of private arbitration is well recognized," write Crandall. He considers this "water under the bridge", but he would not extend mandatory arbitration for the benefit of the employer in a situation where he believes there has been a clear waiver of the right to arbitrate.
COMMENT: In St. Agnes Medical Center, the California Supreme Court wrote: "More than two decades ago, we observed that '[u]nder federal law, it is clear that the mere filing of a lawsuit does not waive contractual arbitration rights. The presence or absence of prejudice from the litigation of the dispute is the determinative issue under federal law.'" That was then; this is now. Under Morgan v. Sundance [see my 5/24/22 post], decided this year, SCOTUS does not require a showing of prejudice to establish waiver of the right to arbitrate. Instead, SCOTUS places arbitration contracts on the same footing as other contracts. And the traditional test for waiver of a contractual right is intentional relinquishment of a known right. Presumably this could be established by showing that a party knew it had a right to arbitrate and acted inconsistently with its right to arbitrate by engaging in litigation. Adding "prejudice" as an element of waiver places arbitration agreements on a different footing than other contracts. Why should the rule in California be different than the rule established by SCOTUS? Of course, where California law applies, our appellate courts follow the California Supreme Court. But why should California's rule be different than SCOTUS's rule?
One might argue that adding the element of prejudice makes it harder to establish waiver, and thus harder to lose the right to arbitrate, and California wishes to encourage arbitration. But SCOTUS addressed this type of argument, and in the context of the Federal Arbitration Act, determined in an 9-0 decision penned by Justice Kagan, that the desire to promote arbitration should not trump the fundamental rule that arbitration agreements should be put on the same footing as other contracts. Perhaps it is time for the California Supreme Court to reconsider the rules governing waiver of the right to arbitrate.
UPDATE: We have an article in the June 10, 2022 online edition of the Daily Journal entitled, "The United States and the California Supreme Courts are not on the same page." The article is about waiver of the right to arbitrate.
Settlements: Lawyer’s Alleged Duress Doesn’t Void Settlement Agreement With Defendant Who Didn’t Know About Duress
“'Duress by a third person' is the legal label for this contract case."
Plaintiff Laura Fettig entered into a settlement agreement, on the record, of her personal injury case. Later, she tried to set aside the settlement agreement, arguing she had only settled under duress caused by her attorney who threatened to abandon her case if she refused the settlement. Defendants did not know about the duress, and entered into the settlement in good faith. "But duress by a third person [i.e., by her lawyer] cannot void a contract when the other contracting party did not know about the duress and relied in good faith." Affirmed. "The court rightly refused to rescind the contract." Fettig v. Hilton Garden Inns Management LLC, No. 307348 (2/8 5/4/22) (Wiley, Grimes, Harutunian).