Deadlines, Mandatory Fee Arbitration Act: Mailing Did Not Extend 30-Day Deadline After Service Of Award To File New Action After Mandatory Fee Arbitration
What A Difference A Day Makes . . .
Attorney Soni and his client entered into mandatory fee arbitration, and thirty-three days after receiving an award of $2.50 (two dollars and fifty cents) in his favor, the attorney filed a new action in the superior court. Ruling the 30 day deadline to file a lawsuit had been extended by service of the award by mail, the trial judge held that the filing was timely, and ultimately granted a new more favorable award in Soni's favor. The client appealed. Soni v. Simplelayers, Inc., B284164 (2/5 12/14/19) (Moor, author).
The Court of Appeal reversed, holding that "service is complete at the time of deposit in the mail and not extended for service by mail." Furthermore, the attorney also failed to file a petition or response within 100 days of service of the award, and thus was unable to attack the award.
Comment: A Trap For The Unwary !
Conversion. Animal traps to armor-piercing bullet cores. Some of the traps made by an Eastern concern that specialized in these products during peace years. All the facilities of the plant are now devoted to the making of armor-piercing bullet cores, incendiary bomb noses, army cot parts and other war essentials. Library of Congress. 1942.
Justice Baker, concurring, states: "The court's opinion observes '[t]he structure of section 6206, read in isolation, is arguably confusing, and it may present a trap for the unwary.' That is an understatement. The statutory scheme is confusing, full stop, and it does present a trap for the unwary."
Here, the "trap for the unwary" led to a major reversal of fortune. The attorney, who received $2.50 in mandatory fee arbitration, received an award of $2,890 and $79,898 in attorney fees as prevailing party in the trial court. After the appeal, the trial court award goes up in smoke.
Arbitration, Employment, Unconscionability: Arbitral Scheme Resembling Civil Litigation Can’t Replace Berman Hearing Where Circumstances Are Highly Oppressive
California Supreme Court Opinion Seeks To Promote Accessible And Affordable Procedures To Resolve Wage Disputes.
I'm trying to catch up with some published opinions I failed to post on earlier this year. The most important, if only because it is a California Supreme Court opinion, is OTO, L.L.C. v. Kho, and the only benefit to my delay is that I can now provide an official reporter case citation: 8 Cal.5th 111 (2019). The majority opinion, authored by Justice Corrigan, appeared August 29, 2019. This is another case in which the court must "consider the enforceability of an agreement requiring arbitration of wage disputes."
The court granted review "to decide whether an arbitral scheme resembling civil litigation can constitute a sufficiently accessible and affordable process." But the opinion decided something less expansive, because it concluded that on the facts of this case, there was "an unusually high degree of procedural unconscionability," making it unnecessary to definitively resolve the issue for which review had been granted. Rather, here, the court concluded that the circumstances were oppressive, and the agreement to arbitrate was unconscionable.
The twist here is that the employer sought to bypass a Berman hearing by providing an arbitration procedure that included many of the aspects of a civil litigation. Whereas sometimes an arbitration procedure is viewed as unfair because it does not provide the procedural safeguards of civil litigation, here the unfairness hinged on the fact that the arbitration procedure did not provide the speed, accessibility, and affordability of a Berman proceeding, which is an administrative proceeding that is intended to provide an employee with an economic and efficient means of resolving a wage dispute.
In a lengthy and vigorous dissent, Justice Chin writes, "The majority violates these federal and state law principles by invalidating the arbitration rules to which the parties in this case agreed — even though those rules have been “carefully crafted to ensure fairness to both sides” (maj. opn., ante, 251 Cal.Rptr.3d at p. 732, 447 P.3d at p. 695) and do not make arbitration “per se unfair,” unaffordable, or inaccessible (ibid.) — because they are not, in the majority’s view, as advantageous for Kho as the Berman procedure. This conclusion is both inconsistent with California law and preempted by the FAA."
Comment: If Justice Chin's lengthy dissent demonstrates one thing, it is that California's many published opinions about mandatory pre-dispute employer/employee arbitration can make for confusing reading. I'm not going to provide a drafting solution, but only suggest that arbitration procedures that are accessible and affordable for employees, and not one-sided, should survive this decision.
Reviews: Trap for the Unwary: Malpractice and the Missed Attorney’s Fees Issue
Your Blogger Is Also A Co-Contributor To California Attorney's Fees Blog.
My colleague Mike Hensley and I are co-contributors to the blog California Attorney's Fees. We blog about attorney's fees issues in California state courts and the Ninth Circuit, and we have been doing so since 2008. I have an article about attorney's fees in the latest issue of Orange County Lawyer. Here's the link to Marc Alexander, Trap for the Unwary: Malpractice and the Missed Attorney's Fees Issue, Orange County Lawyer, December 2019, Vol. 61, No. 12, p. 30.
Settlement Agreements: How To Minimize Bankruptcy Risks In Settlement Agreements
Useful Advice In An Online Article.
A problem sometimes arising in mediation is that while the parties may agree on a settlement amount, the defendant signals it may declare bankruptcy, putting the value of any settlement in doubt. How can bankruptcy risks be minimized in settlement agreements? I found an online article addressing this question on the Holland & Hart website to be useful. Rather than remake the wheel, here is a link to the article.
I would, however, caution California practitioners to be careful with the discussion about preserving the full amount of the original claim in the event bankruptcy is declared, because there is a substantial amount of California law supporting the proposition that once a settlement amount is agreed upon, reverting to the full amount of the claim in the event that the settlement agreement is breached may constitute a penalty and forfeiture.
Arbitration, Unconscionability: 3rd Appellate Districts Reminds Us That Unconscionability Doctrine Applies To Commercial As Well As Consumer Contracts
College That Wanted To Participate In Intercollegiate Athletics Had No Choice Other Than To Contract With Athletic Association.
Bakersfield College et al. v. California Community College Athletic Association et al., C085099 (3d Dist. 10/31/19) (Robie, Duarte, Renner), was described both by the trial court and the appellate court as a "close case". However, concluding that an arbitration agreement was "unconscionable", the Court of Appeal reversed the judgment of the trial court.
The dispute between Bakersfield College, its football coach, and the California Community College Athletic Association arose when the Athletic Association sanctioned and penalized the college for providing football players with meal, work, and housing benefits not available to other students. Apparently if Bakersfield College wanted to participate in intercollegiate athletics, it had to contract with the Athletic Association, and of course the contract contained an arbitration provision. The College appealed the sanction/penalty decision, and proceeded through three steps of a multi-level appeal process that did not go well for the College. Rather than proceeding to levels four and five, the College filed a petition for writ of mandate and a complaint for breach of contract and a motion for judgment on the writ. The Athletic Association opposed on the grounds plaintiffs failed to exhaust administrative remedies by foregoing binding arbitration, and the College argued that arbitration was unconscionable.
This was not consumer arbitration. The College was a sophisticated institution and represented by counsel. Furthermore, once entering into an agreement, it had the ability to propose and seek amendment to the Athletic Association's constitution and bylaws, and thus to seek amendment to arbitration provisions. The trial court found "at least a minimal degree of procedural unconscionability", but did not find enough substantive unconscionability to make the arbitration agreement unenforceable.
The Court of Appeal rejected the Athletic Association's argument that there was no procedural unconscionability because the parties were sophisticated and because the College could, after entering into agreement with the Athletic Association, seek to change the rules. In fact, the Court of Appeal found the ability to seek to change the rules "after" entering into an agreement to be irrelevant for an unconscionability analysis, because unconscionability must be determined as of the time the parties enter into agreement, not as of a later date.
Most interesting is the Court of Appeal's analysis of procedural unconscionability, which parallels the same analysis that goes into determining whether consumer arbitration is unconscionable. Do the parties have equal bargaining power? Is there an alternative to agreeing to arbitrate? Is there an opt-out? Who drafted the terms? Is it a "take it or leave it agreement"? The Court of Appeal agrees here that there was procedural unconscionability, without weighing in on the quantum of procedural unconscionability, but reading between the lines, one suspects that the Court of Appeal believed that the procedural unconscionability was more than "minimal" — even though the parties were sophisticated and represented by counsel. As stated in the opinion, the College "had no meaningful choice but to accept the arbitration provision as drafted by the Athletic Association", and the Athletic Association had "superior bargaining strength."
The Court of Appeal found several examples of a lack of mutuality in the agreement, leading to the conclusion that the agreement was substantively unconscionable, and that problem could not be cured by simply severing one unconscionable provision among several.
HAT TIP: Hat tip to appellate attorney Ben Ginsburg, who brought this case to my attention. Ben, among other accomplishments, is Managing Editor of the California Lawyer Association's Litigation Update.
Arbitration, FAA, Vacatur: Sixth District Holds FAA Preempts Argument That Arbitration Is Incompatible With Following Commercial Code Sections Governing Wire Transfers
Plaintiff/Appellant Unsuccessfully Argued Following California Commercial Code Required Legal Proceeding, Not Arbitration.
Plaintiff/Appellant Prima Donna Development Corporation appealed from a judgment confirming an arbitration award in favor of Wells Fargo Bank, N.A., and challenged an order compelling arbitration and denying its motion to vacate the award. Prima Donna Development Corporation v. Wells Fargo Bank, N.A., H045379 (6th Dist. 11/13/19) (Danner, Greenwood, Grover). The underlying facts provide a painful example of how transacting business over the internet can go horribly wrong. A third party hacked the email account of Prima Donna's President, and used the information obtained to fraudulently induce a "Company Administrator" — an employee of Prima Donna — to initiate a wire transfer of Prima Donna's funds to an overseas account. Prima Donna lost $638,400 wired from its Wells Fargo accounts. Of course, Prima Donna wanted Wells Fargo to bear the loss, and the dispute was subject to arbitration.
The arbitrator found in favor of Wells Fargo, concluding that Wells Fargo had followed commercially reasonable security procedures, and that under the California Commercial Code, "security procedure" did "not include a procedure for establishing that the customer is not being defrauded by a third party into making the transfer."
The California Commercial Code governs the law of wire transfers, and the key California case, Zengen v. Comerica Bank, 41 Cal.4th 239 (2007), makes it clear that the UCC provisions displace common law provisions and provide the law under which claims are analyzed. Prima Donna argued that this meant that the matter could not be arbitrated, since arbitration is an equitable proceeding, and the arbitrator might not follow the statute. The trial court, when considering the initial motion to compel arbitration, concluded that there was no reason that the arbitrator could not adjudicate a UCC claim, and evidently, the Court of Appeal agreed. In fact, the Court of Appeal pointed out that the arbitration agreement provided that the governing law of the state whose laws governed Prima Donna's accounts was to be applied, thus California law applied, and the arbitrator's award applied California's Commercial Code to the dispute.
Prima Donna further argued that the arbitration agreement was substantively unconscionable because it denied Prima Donna's right to trial by jury, and because it limited judicial review, but those arguments were preempted by the Federal Arbitration Act, which governed the agreement.
Finally, Prima Donna argued that the arbitrator had failed to address whether Wells Fargo had acted in "good faith", because there was evidence that a high "risk score" had been triggered by the transaction at Wells Fargo. But the Court of Appeal explained that Prima Donna was allowed to bring its claims against Wells Fargo and was not prevented "from receiving a review on the merits," so the failure to address "good faith" amounted only to a contention that the arbitrator made a legal error. And that is not a question subject to judicial review.
COMMENT: Under Cal. Code of Civ. Proc., section 1286.2, vacatur may be based on arbitrators exceeding "their powers by issuing an award that violates a party's unwaivable statutory rights or that contravenes an explicit legislative expression of public policy." But legal error per se doesn't meet the "exceeding their powers" test. Rather, the error must be "so egregious as to constitute misconduct or so profound as to render the process unfair." This becomes a matter of degree subject to specific facts and circumstances.