Arbitration, Public Policy, PAGA: First District, Div. 3 Affirms Order Denying Motion To Compel Arbitration Of PAGA Claim
Once Again, A California Court Of Appeal Affirms That Iskanian Is Still Good Law.
In Winns et al. v. Postmates Inc., A155717 (1/3 7/20/21) (Petrou, Fujisaki, Jackson), Postmates argued its couriers had waived the right to bring representative PAGA claims, and that the California Supreme Court's Iskanian opinion holding such waivers to be invalid had been impliedly overruled by SCOTUS cases.
Justice Petrou explains California courts must follow the rulings of the California Supreme Court, and SCOTUS has not ruled on the issue presented by Iskanian, namely, whether a waiver of a representative action is enforceable. SCOTUS has ruled that a waiver of a class action is enforceable, but that is a different issue, because PAGA claims are in the nature of qui tam claims brought on behalf of California. The state is not a party to the arbitration agreement, and has not waived the right to litigate PAGA claims.
Postmates made another argument, namely, that the plaintiffs had been given the right to opt out of arbitration and had not done so. Therefore, they shouldn't object to arbitrating. The court rejected that argument, explaining that it was against California public policy to waive the right to litigate PAGA claims.
COMMENT: Iskanian was decided in 2014. The case was not taken up by SCOTUS. Employers seem to be flogging a dead horse in state court. Though the internal logic of Iskanian may make sense, the decision also presents a political issue, because employers generally want to avoid arbitration, and employees generally want to preserve the ability to litigate. And since 2014, the composition of SCOTUS has changed. So perhaps it is not a foregone conclusion how SCOTUS would rule if squarely confronted with the issue of whether the Federal Arbitration Act preempts the right to litigate representative actions.
Update: A More Recent Case Reaches The Same Conclusion.
The case is Christine Herrera et al. v. Doctors Medical Center of Modesto, Inc., F080963 (5th Dist. 8/5/21) (Franson, Pena, DeSantos).
Arbitration, FAA, Construction: Second Dist. Div. 1 Holds FAA Preempts Applying Contra Proferentum Rule In Case Of Contractual Ambiguity
Trial Court Must Now Enter Order Compelling Binding Arbitration Between Western Bagel Company And Employee.
Moose figure outside the Bagels Plus store in North Conway, New Hampshire. Photographer: Carol M. Highsmith. 2017. Library of Congress.
When Jose Calderon, a Spanish speaking employee of Western Bagel Company, Inc. brought a putative class action lawsuit against his employer, the employer moved to compel binding arbitration — unsuccessfully in the trial court, but successfully in the Court of Appeal. Western Bagel Company, Inc. v. The Superior Court of Los Angeles, No. B305625 (2/1 7/16/21) (Bendix, Rothschild, Chaney).
The issue facing the trial court was whether Calderon had agreed to binding arbitration, which is what the employer wanted, or to non-binding arbitration. The employer had two versions of its employment agreement, one in English not given to Calderon, and one in Spanish given to Calderon. The English and Spanish versions had several references to binding arbitration, but the severability clause in the Spanish version created ambiguity, because it referred to non-binding arbitration. Applying the principle of contra proferentum, which requires that ambiguity must be construed against the drafter, the trial court ordered the dispute to non-binding arbitration.
Because Western Bagel engages in interstate commerce, the Federal Arbitration Act applied. The Court of Appeal held that the FAA preempts applying the contra proferentum rule, and the FAA requires the court to construe any ambiguity in favor of binding arbitration. And so the court directed the trial court to vacate its order compelling nonbinding arbitration and enter a new order compelling binding arbitration.
Arbitration, Nonsignatories, Equitable Estoppel, International, Choice Of Law: 9th Cir. Affirms District Court’s Order Denying Motion To Compel Arbitration Pursuant To NY Convention
And Judge Bea Dissents.
In Setty v. Shrinivas Sugandhalaya LLP, No. 18-35573 (9th Cir. 7/7/21) (Nelson, Rawlinson; Bea, dsst.), the court holds that the district court did not abuse its discretion by rejecting defendant SS Mumbai's argument that plaintiff SS Bangalore should be equitably estopped from avoiding arbitration. Defendant SS Mumbai was a non-signatory to an arbitration agreement contained in a partnership deed to which plaintiff SS Bangalore was a party. Because it was not a party to the arbitration agreement, which was contained in a document executed in India by Indian parties, SS Mumbai tried to rely on the doctrine of equitable estoppel to argue that if the plaintiff was claiming the benefits of the partnership deed, it could not equitably disclaim its obligation to arbitrate. (Quisensit commodum debet et sentire onus.) But the Ninth Circuit concluded plaintiff's intellectual property federal claims were not sufficiently intertwined with the partnership deed, and as a result, the court could not look to the partnership deed to determine whether Indian law should apply to decide the estoppel question. Instead, the court concluded federal common law governs, and decided under federal common law that the facts did not support equitable estoppel.
Dissenting, Judge Bea wrote: "I would hold, simply, that whether a particular contract is governed by the New York Convention or not, a nonsignatory's equitable estoppel claim to compel arbitration is brought pursuant to the FAA, which requires that state contract law (or in the case of a foreign contract, perhaps the foreign state's contract law, depending on the state's choice of law rules) govern the issue."
Comment: This case has a lively procedural history. In a prior opinion, the Ninth Circuit held that SS Mumbai, the defendant and non-signatory to a partnership deed that contained an arbitration provision, could not equitably estop plaintiff SS Bangalore from avoiding arbitration. (See my 1/23/21 post on this case). The Supreme Court granted cert, remanding for further consideration in light of GE Energy Power Conversion Power France SAS v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020). GE Energy held the New York Convention does not conflict with enforcing arbitration agreements by non-signatories under domestic-law equitable estoppel doctrines. The Ninth Circuit took up the case again, leading to the current majority opinion and dissent. Given the lengthy dissent, might the procedural history still have legs?
Arbitration, Disclosures: Ninth Circuit Reins In Monster
Ninth Circuit Panel Refuses To Extend Reach Of Monster Energy.
Boris Karloff in Bride of Frankenstein (1935). Wikipedia. Public domain.
Monster Energy Co. v. City Beverages, LLC, 940 F.3d 1130 (9th Cir. 2019) concluded that "[G]iven the Arbitrator's failure to disclose his ownership in JAMS, coupled with the fact that JAMS had administered 97 arbitrations for Monster over the past five years, . . . vacatur of the Award is necessary on the ground of evident partiality." The majority opinion in Monster Energy drew a dissent from Judge Friedland. (See my 12/23/19 post). And a California Court of Appeal opinion distinguished the facts of Monster Energy, and also pointed out that it did not need to apply Monster Energy in a state court proceeding. (See my 4/29/21 post).
The Ninth Circuit again confronts the application of disclosure requirements to JAMS, addressing the rule in Monster Energy. EHM Productions, Inc., DBA TMZ, v. Starline Tours of Hollywood, No. 20-55426 (9th Cir. 6/24/21) (VanDyke, Gould, Lee).
First, it applies the rule in Monster Energy again to JAMS disclosures. The court summarizes the holding in Monster Energy: "prior to performing arbitrations, 'arbitrators must disclose their ownership interests, if any, in the arbitration organizations with whom they are affiliated in connection with the proposed arbitration, and those organizations' nontrivial business dealings with the parties to the arbitration.'" (my emphasis). Thus, it is the arbitrator's ownership interest and the organization's nontrivial business dealings that require disclosure.
Second, the court refuses to extend the rule to require disclosure of JAMS' nontrivial business dealings with the attorney, as opposed to the client. The court also refuses to extend the rule to require disclosure of nontrivial business dealings with the client alone, absent the arbitrator's ownership interest in JAMS.
Third, the court applies the Monster Energy rule retroactively, as long as the time (90 days) to challenge an arbitration award has not expired. The Monster Energy decision was issued after a final award was made by the arbitrator in EHM Productions, but before the time limit allowing for challenge of the award. Thus, the time had not expired to apply the Monster Energy disclosure rule.
Fourth, the court did not like JAMS' response, after receiving a request for further disclosures, that it had nothing further to disclose. "But saying you have nothing further to disclose is markedly different than simply refusing to provide any further disclosures based on the shifty reasoning that the Arbitrators no longer have jurisdiction over the case, which is deliberately evasive on the key question of whether they have something to disclose or not." As a result, the court remanded the disclosure issue so the district court could consider "how the parties can obtain from JAMS the information required by Monster Energy."
Fifth, a concurring opinion, sharing reservations about the Monster Energy decision, encourages reconsideration of Monster Energy en banc.
COMMENT: The panel opinion was authored by Judge VanDyke and joined by Judges Gould and Lee. The concurring opinion suggesting en banc reconsideration of Monster Energy, was authored by Judge VanDyke, joined by Judges Gould and Lee!
Arbitration, Discovery, Constitutional Issues: Claimant’s Avoiding Discovery In Arbitration Allowed Arbitrator To Draw Adverse Inferences
"… we compliment the arbitrator on providing a thorough and well-reasoned award and orders."
As you have surmised from our lede, it did not go well for the plaintiff and appellant JP-Richardson, LLC, because the trial court's judgment granting the petition to confirm the arbitration award against JP-Richardson was affirmed. JP-Richardson, LLC v. Pacific Oak SOR Richardson Portfolio JV, et al., G059479 (4/2 6/29/21) (O'Leary, Moore, Fybel).
The facts are unusual. JP-Richardson entered into a joint venture agreement with Pacific Oak to develop real estate in Texas. The JV agreement included an arbitration provision, as well as a provision authorizing the removal of JP-Richardson as a managing member for a "Just Cause Event." JP-Richardson's manager and principal executive was one Mark Jordan.
The "Just Cause Event" arose because Jordan developed "a personal and financial relationship" with Laura Maczka, the town mayor of Richardson, Texas, where Jordan was seeking permits, entitlements, and zoning changes. A federal indictment basically alleged corrupt conduct by Maczka and Jordan. Jordan apparently was less than transparent with the JV partner Pacific Oak that he was the target of a federal criminal investigation. When Pacific Oak learned about the investigation in 2017, JP-Richardson was removed as managing member.
JP-Richardson and Jordan initiated arbitration proceedings, seeking declaratory relief and claiming breach of contract, inviting counterclaims, of course, from Pacific Oak. The arbitrator ruled against JP-Richardson, after drawing adverse evidentiary inferences because Jordan invoked his Fifth Amendment right against self-incrimination, and did not satisfy discovery demands. The arbitrator noted, "Here, we have a unique case wherein it is the [c]laimant who has asserted his Fifth Amendment privilege against testifying whereas in most of the case law it is the defendant making the claim."
Jordan's right to remain silent and avoid discovery did not help him, because the arbitration was civil, not criminal, and furthermore, the arbitrator offered an opportunity to provide a privilege log and redact documents — an opportunity that was not taken. Jordan argued that the arbitrator should never have relied upon his felony conviction, which was vacated after a jury member conversed with a court employee. But the arbitrator also relied on adverse inferences, and testimony presented at the trial, not simply on the conviction that was overturned.
The arbitrator awarded over $1 million in fees, and $88,000 in costs.
COMMENT: In an article about Laura Maczka, Wikipedia states that developer Mark Jordan is Maczka's current husband. One can only hope that all the tsuris was worth it for the sake of love.
Arbitration, Incorporation By Reference: Incorporation By Reference Fails To Successfully Incorporate Arbitration Agreement
The Arbitration Provision Was Buried Somewhere.
Grave digger at work. Woodbine, Iowa. 1940. Photographer: John Vachon. Library of Congress.
When AECOM, Inc. was sued by a subcontractor, Remedial Construction Services, LP (RECON), it unsuccessfully tried to compel arbitration, relying on a Prime Agreement between AECOM and Shell Oil, which Prime Agreement did contain an arbitration agreement and which Prime Agreement had been incorporated by reference into the agreement between AECOM and RECON. The incorporated Prime Agreement was 151 pages long. The trial court denied AECOM's motion to compel arbitration and to stay litigation, and the Court of Appeal affirmed. Remedial Construction Services, LP v. AECOM, et al., B303797 (2/6 6/15/21) (Perren, Gilbert, Tangeman).
COMMENT: AECOM missed drafting solutions that might have solved the problem for it. First, as the apparent master of the agreement with its subcontractor, AECOM could have included an effective arbitration provision in the contract between it and RECON. Second, if it was going to rely on incorporation by reference of the Prime Agreement, it could have included language in a conspicuous font pointing directly to the arbitration provision in the 151-page Prime Agreement, and asked for written acknowledgment that that language was incorporated, read, understood, and agreed to by the subcontractor.
Despite the legislative predilection to unburden the courts and send cases to arbitration, quite a few motions to compel arbitration continue to fail for lack of an effective agreement to arbitrate.