Arbitration, PAGA, Waiver, Severability: Non-Severability Provision And PAGA Waiver Make Arbitration Provision Unenforceable
The Briefing Focused On A "Blow-Up" Provision, But The Court Focused On An Unenforceable Waiver Of PAGA Claims And Lack Of Severability.
"Six-year-old Gregorio Drozco III does what a lot of people do in a Seattle, Washington, alley when he blows a bubble, preparatory to wadding up his gum and sticking it to a wall next to the Market Theatre that has become a kitschy tourist attraction." Carol M. Highsmith, photographer. Library of Congress.
The employer-employee contract in Kec v Superior Court of Orange County, G058119 (4/3 7/9/20) (Ikola, Thompson, Goethals), contained a waiver of class and other representative actions, broad enough to cover a PAGA claim. The arbitration agreement also provided that the waiver was not modifiable or severable, and that if the representative waiver was found to be invalid, "the Agreement becomes null and void as to the employee(s) who are parties to that particular dispute" — a so-called "'blow-up' provision." The employee plaintiff brought individual, class, and PAGA claims against defendants. Since Iskanian v. CLS Transportation Los Angeles, LLC, an employee's right to bring a PAGA action is unwaivable.
The trial court reasoned it had not been called upon to rule on the enforceability of the representative waiver, and thus the blow-up provision had not been triggered, and in any case, the blow-up provision would only apply to the attempted waiver of the PAGA claim, not to the arbitrability of the plaintiff's claims under the Labor Code. Hence, the trial judge enforced the arbitration provision as too plaintiff's Labor Code claims.
The Court of Appeal reached a different conclusion, without ruling on the validity of the blow-up provision. Instead, the Court held that the representative waiver, which would have included a PAGA action, was void, and the defendants could not selectively enforce the arbitration agreement, which expressly provided for a lack of severability in the event that the representative waiver was found to be invalid. In other words, the invalid PAGA waiver infected the entire arbitration provision.
To reach this conclusion, the Court had to address the defendant employer's argument that the representative waiver was for its benefit, and therefore, the defendant had the right to waive the provision that was for its benefit. Grasping Justice Ikola's reasoning requires wrapping one's head around a double or triple-negative, here, the employer's ineffective waiver of its right to enforce the employee's representative waiver .
A waiver must be knowing an intentional at the time that it is exercised. Here, because the employee brought its claim after Iskanian was decided, the employer's waiver of its right to enforce the employee's waiver of his right to bring a PAGA action was not valid. Post-Iskanian, the employer had no such right to enforce the employee's waiver of a PAGA claim. Maybe the employer would have had such a right to enforce the provision that was for its own benefit, when the law was still uncertain, at the time it entered into the employment contract, but not under the circumstances (which included the post-Iskanian state of the law) at the time the employee sued.
A bit tricky?
Arbitration Awards: Time To Change “Award” And Add Attorneys Fees Did Not Expire, Because Award Was Not Final Award
This Case Is Must Reading For Determining Whether An Arbitrator's Ruling Is An Award.
"As this case highlights, whether an arbitrator's ruling constitutes an 'award' is a significant event." Lonky v. Patel, B295314 consolidated with B297632 (2/2 7/2/20) (Hoffstadt, Lui, Chavez). Indeed. The arbitrator can continue to issue interim rulings before there is an award. But once there is a final award, the clock begins to run on the time the arbitrator has to continue to rule and correct or amend an award. In this case, the Court of Appeal ruled that a Second Interim Ruling did not constitute an Award, and thus the Arbitrator's time to increase compensatory damages and add attorney's fees had not expired.
Very helpfully, the Court explains upfront how a court determines whether a ruling constitutes an award: "We hold that a court does so (1) by asking whether the ruling (a) determines all issues necessary to resolve the entire controversy and (b) leaves unaddressed only those issues incapable of resolution at that time because those issues are potential, conditional or contingent, and (2) answers those questions by looking to the specific procedures adopted in the arbitration at issue."
The case is a model of clarity and genuinely useful for practitioners, because it addresses the nettlesome question of when a ruling complete enough to constitute an award. Here, the arbitration was divided into three phases: 1) liability, amount of compensatory damages, and eligibility for punitive damages; 2) amount of punitive damages and entitlement to attorney fees and costs; and 3) amount of attorney fees and costs. The Court of Appeal ruled that the arbitration ruling in phase two did not constitute an award, because it did not determine the amount of attorney fees, i.e., it did not determine all the issues submitted to arbitration, and the amount was not potential, conditional, or could not otherwise have been determined at the time.
Happy Independence Day 2020!
July 4th Fireworks In Washington, D.C.
July 4, 2008. Carol M. Highsmith, photographer. Library of Congress.
"A republic, if you can keep it." – Benjamin Franklin.
International Arbitration, Nonsignatories, Equitable Estoppel: SCOTUS Holds Enforcement Of Arbitration Agreement By Nonsignatory May Be Consistent With New York Convention
The US Supreme Court Was In Agreement About This One.
The Supreme Court has held unanimously, with Justice Sotomayor concurring, that the "New York Convention does not conflict with the enforcement of arbitration agreements by nonsignatories under domestic-law equitable estoppel doctrines." GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, et al (US S.Ct. 6/1/20) (Thomas, J.).
The case involved cold rolling mills in Alabama : ThyssenKrupp Stainless USA contracted with F. L. Industries, Inc., for the construction of cold rolling mills at ThyssenKrupp's steel manufacturing plant in Alabama.
Sheffield, Alabama. Reynolds Alloys Company. Cold rolling of aluminum sheets. Jack Delano, photographer. August 1942.
The contracts included arbitration clauses that, on the face of the contracts, applied to the seller, F.L. Industries, the buyer ThyssenKrupp, and F.L. Industries' subcontractors. One of the subcontractors, GE Energy, provided nine motors to power the mills. When the motors failed, Outokumpu Stainless USA, which had acquired the plant, sued GE Energy, which removed to federal court, seeking to compel arbitration, though as a subcontractor, it was not a signatory to the arbitration agreement.
The New York Convention is a multilateral treaty addressing international arbitration. While the New York Convention provides that parties to an arbitration may compel arbitration, the Court found that the treaty is silent about nonsignatories. Under many state law theories, such as agency, alter ego, and equitable estoppel, nonsignatories to an arbitration agreement can compel arbitration. SCOTUS found that the New York Convention allows domestic law as a filler where it does not contradict the New York Convention. And because Alabama law allows nonsignatories to rely on equitable estoppel in order to compel arbitration, GE Energy will now be allowed on remand to argue that Alabama law allows it to compel arbitration.
Justice Sotomayor concurred, while insisting on a clarifying point: "Any applicable domestic doctrines must be rooted in the principle of consent to arbitrate." So the applicable state doctrine allowing a nonsignatory to compel arbitration must also be based on the principle of consent to arbitrate.
BONUS: Wikipedia has an article on the rolling process in metal working. The article includes a gif that enables us to visualize how the process works, as metal is extruded between the rollers. Looks kind of like a pasta machine.
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Arbitration, MFAA: CCA 1st Dist. Div. 4 Holds That A Malicious Prosecution Cannot Rest On An MFAA Arbitration, Reversing Trial Court
And Because The Malicious Prosecution Plaintiff Cannot Win, An Anti-SLAPP Motion By Defendant Succeeds.
The holding of Dorit v. Noe, A157433 (1/3 5/26/20) (Brown, Pollak, Tucher) is that a malicious prosecution cause of action cannot be based on a mandatory fee arbitration act (MFAA) arbitration. Along the way to its conclusion, the case teaches about arbitration, MFAA arbitration, malicious prosecution, and anti-SLAPP motions.
Dorit, an attorney, represented Noe, who was unhappy with his representation and who brought an MFAA fee arbitration against Dorit. Noe did not recover any fees from his attorney, and the arbitrator required Noe to pay the filing fee. Neither party appealed within 30 days for a trial de novo in the Superior Court, and thus the arbitration award became final.
Dorit then sued Noe in Superior Court for malicious prosecution, and Noe brought an anti-SLAPP motion against Dorit, arguing that the MFAA would not support a malicious prosecution claim. The trial court denied the motion, ruling that, while Noe's MFAA arbitration arose from protected activity, Dorit's claim had more than minimal merit — the two-pronged analysis that must be made when evaluating anti-SLAPP motions.
The Court of Appeal agreed that the MFAA arbitration arose from protected activity, because it was an official proceeding established by statute, and once the client chooses the proceeding as an alternative to filing a lawsuit against the attorney, the attorney is required to participate.
The attorney reasoned that if the matter is in the nature of an official proceeding, then it should support a cause of action for malicious prosecution. The problem with this argument is that MFAA arbitrations are neither fish nor fowl: they have aspects of litigation, as well a of voluntary arbitration. And so the question whether an MFAA arbitration will support a claim for malicious prosecution, which is a question of first impression, turns out to hinge on policy.
The interests promoted by a cause of action for malicious prosecution are to prevent baseless lawsuits from being filed, and to prevent injury to the victims of malicious prosecution. In the case of MFAA arbitrations, however, the arbitration is an alternative to litigation encouraged by the legislature, because it is thought to even the playing field between attorney and client, and to be speedy, cost effective, and efficient. A party unhappy with the outcome of the fee arbitration can proceed de novo to the Superior Court, something that did not happen here. And while the attorney may suffer injury from a meritless fee arbitration, the Court of Appeal explained that the injury is likely to be slight, because the attorneys typically does not go out and hire another attorney. Here, in fact, Dorit represented himself, and the proceeding was confidential.
Comment: The Court of Appeal also found a technical and more obscure reason for holding that the MFAA arbitration would not support a claim for malicious prosecution. In order to prove malicious prosecution, the plaintiff must be able to show that the plaintiff prevailed. At first blush, it would appear that Dorit prevailed in the MFAA arbitration, because Noe was denied relief and had to pay filing fees. However, the outcome of the MFAA arbitration cannot be used in court, except for the very limited purpose of establishing whether the party seeking a de novo trial in Superior Court did better or worse than that party did in the fee arbitration, an issue relevant to whether fee shifting can occur. Given that there was no appeal to the Superior Court here, the evidence of Dorit's success was technically inadmissible, and thus the attorney could not have established that he prevailed — even though we know he did.
Arbitration, Waiver: Failure To Affirmatively Seek Stay And Move To Compel Arbitration Results In Waiver Of Right To Arbitrate
A party that wishes to pursue arbitration must take “ ‘active and decided steps to secure that right’ . . ."
Why? Because an arbitration agreement is not self-executing.
In Fleming Distribution Company v. Alfons Younan, A157038 (3/1 5/15/20) (Petrou, Fujisaki, Jackson), Defendant/Appellant Fleming appealed from a trial court order denying its petition to compel arbitration, stay proceedings, and vacate a Labor Commissioner award. Fleming's employee Younan had successfully pursued a labor claim before the Labor Commissioner, and all the while, Fleming had asserted that it wanted to arbitrate. However, Fleming did not affirmatively move to stay and to compel arbitration until after it lost the Labor Commissioner proceeding. Only after seeking a trial de novo in the Superior Court did Fleming move to compel arbitration, vacate proceedings, and vacate a Labor Commissioner Award.
The Court of Appeal affirmed the trial court's order denying Fleming's request, on the basis that Fleming had waived its right to arbitrate, based on substantial delay and pursuing litigation before the Labor Commissioner, without taking affirmative steps to compel arbitration and stay proceedings.
Delaying the motion to compel arbitration denied Younan the benefits of early arbitration, while burdening Younan with Labor Commission proceedings that were wiped clean by a trial de novo.
California courts readily find prejudice when there is delay moving to stay and compel arbitration while the defendant engages in substantial litigation practice. Perhaps this demonstrates the wisdom behind such cliches as "you don't get two bites of the apple", "you don't get to have your cake and eat it too", and "you snooze, you lose."