Arbitration, Class, Waiver, FINRA: FINRA Rules Preventing Arbitration Of Class Actions Do Not Apply When There Is A Class Action Waiver
The Class Action Waiver Is Enforceable.
When a financial advisor brought a putative class action against Credit Suisse for deferred compensation, Credit Suisse moved successfully to dismiss based on an arbitration requirement in its Employee Dispute Resolution Program. The financial advisor appealed, arguing that Financial Industry Regulatory Authority (FINRA) rule Rule 13204(a)(4) barred arbitration of his claim. Cristopher M. Laver v. Credit Suisse Securities (USA) LLC, No. . 18-16328 (9th Cir. 9/18/20) (Feinerman, Gould, Murguia).
The FINRA rule provides in part, "A member or associated person may not enforce any arbitration agreement against a member of a certified or putative class action with respect to any claim that is the subject of the certified or putative class action" until certain conditions are met, for example, until there is a denial of class certification.
So why didn't the FINRA rule apply to bar arbitration of Mr. Laver's class action claim? Because there was also a class action waiver, and the FINRA rules do not make a class action waiver unenforceable. Because the class action waiver is effective, there can be no class action, thus making the FINRA rule barring arbitration of class action claims inapplicable.
Arbitrability: 9th Circuit Holds Court Decides Arbitrability Of Collective Bargaining Agreement Silent About Arbitrability
Commercial Arbitration And Labor Arbitration Agreements Are To Be Analyzed The Same Way.
American Nurses somewhere in England, November 2018. Library of Congress.
When the agreement is silent about who decides whether a dispute is arbitrable, does the court or the arbitrator decide? The court decides. However, 9th Circuit case law created an exception in the case of collective bargaining agreements: if the arbitration provision is broad, then the arbitrator gets to decide. United Bhd. Of Carpenters & Joiners of Am., Local No. 1780 v. Desert Palace, Inc., 94 F.3d 1308 (9th Cir. 1996). And so in a case where it was undisputed that the arbitration clause was broad, the district court, analyzing the motion to compel arbitration brought by a union representing nurses with grievances, held, consistent with 9th Circuit law, that the arbitrator would get to decide. Defendant, a medical center, appealed. SEIU Local 121RN v. Los Robles Regional Medical Center, No. 19-55185 (9th Cir. 9/18/20) (Van Dyke, Callahan; Dsst. Lee).
Though district court did not believe that it could overrule 9th Circuit case law, that was not a problem for the 9th Circuit, which concluded that the district court, rather than the arbitrator, was responsible for determining whether the grievance filed by the union was arbitrable. The panel majority held that Desert Palace was no longer good law, because Desert Palace, Inc. is “clearly irreconcilable with the reasoning or theory of intervening higher authority” set forth in Granite Rock Co. v. Int’l Bhd. Of Teamsters, 561 U.S. 287 (2010), requiring that labor arbitration and commercial arbitration disputes be analyzed the same way.
Judge Lee dissented, believing Granite Rock did not impliedly overrule Desert Palace, because the two cases addressed different issues.
Arbitration, Policy, Choice of Law, FAA, Severance: McGill v Citibank Lives: Arbitration Provision Eliminating Any Forum For Public Injunctive Relief Is Unenforceable
Case Offers Primer On McGill v. Citibank, N.A.
Defendant and appellant DACM, Inc. (Del Amo) sold a motorcycle to Joseph Mejia, who paid some cash and financed the remainder of the purchase with a credit card. And, the credit card included an arbitration provision covering Del Amo. So when Mejia sued Del Amo for violation of consumer protection statutes, Del Amo sought to compel arbitration. When Del Amo's motion was denied, it appealed. Joseph Mejia v. DACM, Inc., G058112 (4/3 9/15/20) (Aronson, Moore, Ikola).
Del Amo lost the appeal, because the arbitration provision would have prevented Mejia from obtaining public injunctive relief and such a prohibition is unenforceable under McGill v. Citibank, N.A., 2 Cal.5th 945 (2017). We posted about McGill on April 6, 2017.
The arbitration provision provided for the application of Utah law. So why did California's McGill case apply? California public policy outweighs the Utah choice-of-law provision, and it is California policy, as encapsulated in McGill, that courts may invalidate arbitration clauses that waive public injunctive relief in any forum — something Utah law does not permit.
So why couldn't the unenforceable waiver provision be severed? The arbitration provision had been drafted to contain a "poison pill" restricting the right of the court to sever, once the prohibition on public injunctive relief was found to be unenforceable.
So why didn't the Federal Arbitration Act preempt McGill? McGill itself answers that question: "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.
Settlement Of A Class Action: Ninth Circuit Affirms Denial Of Claimants’ Motions To Enforce Class Action Settlement Agreement In VW “Clean Diesel” Litigation
Express Modification Provisions In Volkswagen Class Settlement Agreement Allowed For A Modifying Amendment.
Look Sharp Barber Shop sign (painted 1969 Volkswagen), Yuma, Arizona. John Margolies, photographer. Library of Congress. [No, that's not the model involved in the "Clean Diesel" Litigation, but we liked the photo].
The settlement agreement between class action plaintiffs and Volkswagen Group of America, Inc. provided for compensation to owners and lessees of diesel cars with so-called "defeat devices" that altered automobile emission profiles, concealing that diesel engines emitted excessive pollution. A nation-wide class action settlement of the civil claims was approved by the district court in October 2016, with the court retaining the jurisdiction to "enforce, administer, and ensure compliance" with it terms, and the settlement was affirmed by the 9th Circuit in 2018.
The settlement, however, excluded certain "branded title" vehicles with titles such as "Junk," "Rebuilt, or "Salvaged." Then in February 2018, the Claims Supervisor, whose role was created to administer the settlement, announced that under a "Framework", "branded title" vehicles would also include vehicles purchased from "insurance auctions."
Claimants who had purchased at insurance auctions and were not excluded by the modification tried to enforce the settlement that did not exclude them. However, the district court accepted this modification, finding that the Claimants who had acquired vehicles at insurance auctions did so after Volkswagen's fraud became public, and thus did not "unknowingly suffer harm from the auto manufacturer's actions." Furthermore, most such vehicles were already taken off road, and thus were not polluting anymore, so the additional exclusion of vehicles from the settlement did not undermine the purpose of the settlement.
The Claimants appealed the denial of their motion to enforce the settlement. In re Volkswagen "Clean Diesel" Litigation, No. 19-16361 (9th Cir. 9/10/20) (Bumatay, Schroeder, Morris). The Court of Appeals affirmed, reasoning that the district court did not abuse its discretion denying the Claimants' motion, because the district court had retained jurisdiction, and the settlement agreement included express modification provisions allowing the modification to be made.
Judge Bumatay, who authored the opinion, wrote: "It doesn't take a mechanic to understand this case."
Arbitration: On Issue Of First Impression, 9th Circuit Holds Arbitration Obligations Survived Contract Termination
Shivkov v Artex Risk Solutions Arises From Tax Shelter Gone Sideways . . .
The numerous Plaintiffs in Shivkov, et al v. Artex Risk Solutions, Inc., et al, No. 19-16746 (9th Cir. 9/9/20) (Smith, Fisher, Hawkins), probably felt that the Artex Risk Solutions was a misnomer by the time they brought suit. Defendants allegedly set up and managed "captive" insurance companies owned by Plaintiffs, to which Plaintiffs paid insurance premiums, claiming the insurance premiums as tax-deductible business expenses without recognizing them as income. Evidently the IRS had other ideas, for as the Court of Appeals wryly observes, "Although this arrangement offered the prospect of tax benefits, that prospect proved fleeting." After having to deal with an audit, delinquency notices, and threatened penalties, Plaintiffs brought suit against Defendants, alleging that the captive insurance companies "were illegal and abusive tax shelters, about which Defendants failed to inform or advise Plaintiffs." Risk solutions too good to be true?
Defendants, including some non-signatories, moved to compel arbitration, the trial court granted Defendants' motion to compel, and Plaintiffs appealed.
The most interesting part of the opinion is "an issue of first impression in our circuit concerning the survival of arbitration obligations following contract termination," as to which the Court of Appeals holds: "the Agreements do not expressly negate the presumption in favor of post-termination arbitration or clearly imply that the parties did not intend for their arbitration obligations to survive termination." So the arbitration obligations survived. If arbitration obligations did not regularly survive contract termination, a party could always avoid arbitration by terminating a contract.
The Court also held that Arizona state law recognized no fiduciary duty to point out and fully explain an arbitration clause. The arbitration clause encompassed all Plaintiffs' claims here. The availability of class arbitration was a gateway issue to be decided by the court, because there was no "clear and unmistakable" delegation of that issue to the arbitrator. And because the agreements were silent about class arbitration, they did not permit class arbitration. Finally, non-signatories, who were sued for alleged wrongs that arose from the contracts between the parties that Plaintiffs relied upon to bring suit, could invoke the arbitration clause.
Affirmed.
COMMENT: The slip opinion is 36 pages long. I appreciate the Court's concise enumeration of its resolution of the issues at the beginning of the opinion.
Arbitration, Celebrities, Delegation: Second District Div. 2 Explains No Authority Permits Sending Matter To Arbitration Simply Because Parties Agreed To Arbitrate Different Matter
A Case To Read On The Limits Of The Delegation Doctrine.
Neal Moritz, the film producer and industry executive associated with the Fast and Furious (FF) franchise, sued Universal City Studios LLC and others for breach of an oral contract and promissory estoppel after the distributor allegedly removed him as lead producer of the FF spinoff, Hobbs & Shaw. Defendants moved unsuccessfully to compel arbitration, and appealed the order denying the motion to arbitrate. Neal Moritz v Universal City Studios LLC, et al. B299083 (2/1 9/2/20) (Chaney, Rothschild, Bendix).
Moritz had entered into several FF film contracts with arbitration clauses. Appellants argued first, that the court compel arbitration of the threshold question of arbitrability, based on delegation provisions in any arbitration clauses in the FF contracts. Alternatively, if the Court of Appeal decided it had jurisdiction to decide arbitrability, then it should compel arbitration, because the dispute "related to" one or more of the FF contracts.
The interesting part of the case, which perhaps explains why it is published, is the discussion in footnote 2, and in the body of the opinion, about the so-called "wholly groundless" doctrine. If there is a valid delegation clause, i.e., clear and convincing evidence establishes that the parties intended to delegate a decision about arbitrability to the arbitrator, then the fact that the arbitrability argument itself is "wholly groundless" does not mean that the decision can't be delegated to the arbitrator. Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524 (2019). This, at least, is the rule under the Federal Arbitration Act, and it was undisputed that the FAA governed the case. Avoiding whether the "wholly groundless" rule might still be good California law, the Court of Appeal explains that "Schein presupposes a dispute arising out of the contract or transaction, i.e. some minimal connection between the contract and the dispute. That is so because under the FAA, contractual arbitration clauses are 'valid, irrevocable, and enforceable' if they purport to require arbitration of any 'controversy thereafter arising out of such contract.'" Such was not the case here, because Hobbs & Shaw was not the subject of the earlier FF contracts. The FF contract relied upon by appellants applied to "remakes" or "sequels", and the court states that Hobbes & Shaw was neither.
Does this mean that the Court of Appeal has smuggled the "wholly groundless" exception in through the back door by using different words to say that appellant's arbitrability argument was "wholly groundless"? We don't think so. There still needs to be "some minimal connection between the contract and the dispute." Just because the parties entered into a contract providing for the delegation of arbitrability issues and covering prequels and sequels doesn't mean the delegation of arbitrability issues applies to a film, if it is undisputed that the film is neither a prequel nor a sequel.
Affirmed.
COMMENT: Unless the matter now settles, the parties will get to litigate whether an oral contract isn't worth the paper it's written on.
COMMENT ON COMMENT: Did Samuel Goldwyn really say that an oral contract isn't worth the paper it's written on? Quote Investigator tells us that he disavowed this, and many other malapropisms attributed to him. In fact, this witticism has been floating around since the 19th century.
Samuel Goldwyn by photographer Arnold Genthe. 1919 or 1920. Library of Congress.