Arbitration, Disclosures, Vacatur: Second District, Div. 7 Holds That Party Cannot Waive Right To Timely Object To Appointment Of An Arbitrator
Years Earlier, The Parties Had Agreed To The Appointment Of A Particular Arbitrator.
Brothers Harry and Ted Soussos fought over control of family business interests. Harry moved to compel arbitration, and Ted timely objected. The arbitrator refused to recuse himself, and Harry obtained an award in his favor. The rub here is that several years earlier, Ted and Harry had agreed that in case future disputes arose, they would not object to the appointment of Judge John P. Shook (ret.) as the arbitrator. After the arbitrator issued the award, Ted unsuccessfully sought to vacate it in the trial court. Did the earlier agreement not to contest the appointment of Judge Shook mean that Ted had waived the right to object?
The right to timely object to the appointment of an arbitrator cannot be waived, holds the court in Soussos v Soussos, No. B293358 (2/7 2/15/21) (Feuer, Perluss, Segal).
Arbitration, Automobiles, FAA, Public Policy: A “Satellite Service Facility” Agreement With Subaru Was Not Subject To Statutory Exception To Arbitration That Would Apply To Manufacturer-Dealer Franchise Agreements
Automobile Dealerships Are Subject To A Narrow Exception To Arbitration — But The Exception Did Not Apply Here.
1958 Subaru 360. Licensed under the Creative Commons Attribution-Share Alike 3.0 Unported, 2.5 Generic, 2.0 Generic and 1.0 Generic license. Author: Mytho88.
Who knew? Automobile dealer franchises are subject to a narrow statutory exception to arbitration under the Motor Vehicle Franchise Arbitration Fairness Act, 15 USC section 1226. The key issue in Subaru of America, Inc. v. Putnam Automotive, Inc., No. A159686 (1/2 2/10/21) (Kline, Stewart, Miller) was whether Putnam's "Satellite Service Facility" agreement to service Subarus was part of Putnam's franchise agreement as an automobile dealer with Subaru. Because the arbitrator construed the two agreements to be separate, rather than a single integrated agreement, Putnam did not fall under a statutory exception that would have allowed it to escape arbitration.
Putnam also argued that forcing it to arbitrate was contrary to the public policy protecting dealers from mandatory arbitration. However, since the arbitrator and the court concluded the service agreement was not a dealer franchise agreement, this argument did not prevail.
COMMENT: The statutory exemption that allows dealers to avoid having to arbitrate with distributors or manufacturers of motor vehicles is a narrow exception. Apparently it exists to level the playing field between the dealers and economically more powerful manufacturers and distributors. We surmise that, though they may have less economic clout than manufacturers and distributors, dealers nevertheless had enough influence in the legislative process to obtain the narrow carve-out from arbitration. While the same "level the playing field" logic might apply to consumers and borrowers seeking an escape hatch from mandatory arbitration, evidently they have been less successful obtaining legislative carve-outs from arbitration.
Arbitration, Public Injunctive Relief: 9th Circuit Holds Arbitration Provision Allowing For Public Injunctive Relief, While Prohibiting Private Attorneys General, Is Enforceable
Arbitration Provision Allowing For Public Injunctive Relief Does Not Violate McGill Rule.
The so-called McGill rule states California’s legal requirement that contracts allow public injunctive relief. So what happens if a contract requires arbitration of disputes, provides for all remedies in arbitration, and further provides that the claimant cannot act as a private attorney general? Put another way, can a claimant request public injunctive relief in California, without acting as a private attorney general? If the answer is yes, the arbitration clause is enforceable. If the answer is no, the arbitration clause is not enforceable. Yes, says the Ninth Circuit in DiCarlo v. MoneyLion, Inc., et al., No. 20-55058 (9th Cir. 2/19/21) (Thapar, Bea, Collins).
Plaintiff DiCarlo brought claims under unfair competition law, false advertising law, and the Consumers Legal Remedies Act law against a lender being accused of predatory practices. The lender MoneyLion successfully moved to compel arbitration, and the Ninth Circuit affirmed. The key to enforcing the arbitration provision is that it provided for all remedies, including public injunctive relief: "In California, litigants proceeding in individual lawsuits may request public injunctive relief without becoming private attorneys general. That means that public injunctive relief is available to DiCarlo in arbitration with MoneyLion. Since the arbitration provision does not violate the McGill rule, it is valid."
COMMENT: What happens to attorneys fees if the claimant, who is prohibited by the contract from suing as a private attorney general, is entitled to obtain relief under the UCL, FAL, or CLRA? Technically, this case may not answer the question, because Judge Thapar points out that the plaintiff did not ask for attorneys fees. Thus, any comments about attorneys fees would be dictum. "In any case, we have no reason to think that the availability of public injunctive relief could hinge on whether those fees are up for grabs," writes Judge Thapar, adding, "Nor do we read the Agreement to bar any claims that could support fee shifting in court." And so?
Another Tip On Using Videoconferencing For Remote Mediations . . . Beware Of Errant Cat Filters
An Addition To My February 4, 2021 Post About Videoconferencing: Tips For Using Zoom For Remote Mediations.
In what could have been an Abbott and Costello routine, had those comedians been born into the Age of the Internet and Zoom, a Texas judge and a hapless attorney had to grapple with the vagaries of a cat filter during a court call. So now we have one more tip for our profession's use of videoconferencing: beware the use of cat filters.
Here's a link to the viral video demonstrating the infelicitous peril of feline interference:
Above: Sketch of Edward Lear at age 73 1/2 and his cat Foss, age 16.
According to Wikipedia, Foss is also mentioned in Lear's poem "How Pleasant to Know Mr Lear":
He has many friends, lay men and clerical,
Old Foss is the name of his cat;
His body is perfectly spherical,
He weareth a runcible hat.
Arbitration, Public Policy: An Arbitration Provision Purporting To Waive Consumer’s Right To Seek Public Injunctive Relief Is Invalid And Unenforceable
McGill Is Still Good Law.
The action in Joe Maldonado v. Fast Auto Loans, Inc., G058645 (4/3 2/8/21) (O'Leary, Aronson, Thompson) centered on whether McGill v. Citibank, N.A., 2 Cal.5th 945 (2017) is still good California law and whether it has been preempted by the Federal Arbitration Act. McGill, which we posted about on April 6, 2017, held that an arbitration provision was invalid and unenforceable because it required consumers to waive their right to pursue public injunctive relief. See also the September 29, 2020 post on Mejia v. DACM Inc., 54 Cal.App.5th 691 (2020).
Maldonado and others brought a putative class action alleging Fast Auto Loans, Inc. charged unconscionable interest rates on loans in violation of the Financial Code. Fast Auto Loans moved to compel arbitration, based on a broad arbitration provision that would have resulted in a waiver of class actions and the plaintiffs' ability to bring an action for public injunctive relief. The trial court held that the McGill rule made the arbitration provisions unenforceable, and the Court of Appeal affirmed the order denying the motion to compel arbitration.
The Court of Appeal concluded that McGill is good law. Fast Auto Loans' argument that FAA preemption applied foundered, because SCOTUS recently denied review of Ninth Circuit cases applying McGill, leaving the Court of Appeal to apply McGill, a case decided by the California Supreme Court.
COMMENT: What is the reasoning that explains why McGill is not preempted by the FAA? "The contract defense at issue here—'a law established for a public reason cannot be contravened by a private agreement' (Civ. Code, § 3513)—is a generally applicable contract defense, i.e., it is a ground under California law for revoking any contract. . . . It is not a defense that applies only to arbitration or that derives its meaning from the fact that an agreement to arbitrate is at issue." McGill v. Citibank, N.A., 2 Cal. 5th 945, 962 (2017). In short, the defense does not unduly burden an arbitration agreement, because it would also apply to another contract.
Arbitration, Unconscionability: An Appellate Arbitral Review Provision Is Held Substantively Unconscionable, But Severable
Motion To Compel Arbitration Should Have Been Granted, And One Substantively Unconscionable Provision Was Severable.
In Erendira Cisneros Alvarez v. Altamed Health Services Corp., B305155 (2/8 2/4/21) (Stratton, Bigelow, Grimes), the Court of Appeal reversed a trial court's order denying a motion to compel arbitration. The arbitration provision, which is part of an employer-employee contract, is found to be enforceable, while a provision requiring a second level of arbitral review is found to be substantively unconscionable but severable.
Most interesting is the Court of Appeal's conclusion about the unfairness in the employer-employee context of a provision allowing for arbitral review of the arbitrator's award. Why unfair? Because it was likely that only the employer would take advantage of this additional review, in case of a large award in favor of the employee; because it would add a layer of expense for the employee; because it would delay the ability of the employee to confirm an award; and because it was ambiguous, since it was unclear what rules for appellate arbitral review would apply. But since this was the only example of substantive unconscionability, the offending provision could be severed, and the arbitration provision could be enforced.
COMMENT: The trial court held that the employee had not knowingly waived her right to a jury trial, and that in fact the word "jury" had not been mentioned in the relevant document. The Court of Appeal explained this was clear error, because "[t]he arbitration agreement does contain the word 'jury' and it uses the word as part of an express waiver provision …." Twisting the knife, the Court added, "We are surprised by the trial court’s inability to find the word 'jury' or the jury provision in the arbitration agreement." Did this slip up motivate the Court of Appeal to review the case in considerable detail?