Arbitration, Disclosures: 9th Circuit Panel Holds That JAMS Arbitrator Must Disclose Ownership Interest In JAMS
Judge Friedland Dissents.
Billboard for Chero-Cola, a long-defunct soft-drink brand, in Louisville, a town in northeastern Georgia. Carol M. Highsmith, photographer. Library of Congress.
Monster Energy, FKA Hansen Beverage Company, designates JAMS as an arbitral forum in its agreements with distributors. So when a dispute arose between Monster Energy and its distributor City Beverages, LLC, dba Olymbic Eagle Distributing, Monster and City Beverages arbitrated with JAMS. In compliance with JAMS disclosure rules, the arbitrator duly disclosed that he had mediated with Monster before and ruled against it, that he had "an economic interest in the overall financial success of JAMS", and that the parties should assume that other JAMS neutrals participated in ADR with the parties. However, the arbitrator did not disclose that he had an ownership interest in JAMS, or that JAMS had administered 97 arbitrations with JAMS over the past 5 years. The arbitrator's disclosures were good enough for the district court, but not for a majority of the panel. Monster Energy Company v. City Beverages, LLC, Nos. 17-55813 and 17-56082 (9th Cir. 10/22/19) (Smith, Simon; Friedland, disst.).
The majority concluded, "[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, that vacatur of the Award is necessary on the ground of evident partiality." Therefore, the court reversed the district court, vacated the Award, and vacated the district court's award of post-arbitration fees to Monster.
COMMENT: Judge Friedland, dissenting, would have upheld the award in favor of Monster, because she believed that the arbitrator had disclosed enough, i.e., that he had mediated before with Monster, that he had ruled against it once, that he had a general financial interest in JAMS' success, and that the parties could assume Monster was a repeat player. She raises some good points: (1) that the parties had already agreed to arbitrate with JAMS; (2) that 1/3rd of JAMS arbitrators have ownership interests; (3) that it is questionable that an arbitrator without an ownership interest has less interest in making a client like Monster happy than does an arbitrator with an ownership interest.
The real elephant in the room is the perception that JAMS and other ADR organizations favor repeat players — a problem that will not be remedied by requiring disclosure of an arbitrator's ownership interest. Aside from the arbitrator ownership interest, there is the other issue — the 97 arbitrations that JAMS has administered for Monster. Will there be satellite litigation in the future as to how many arbitrations constitute "non-trivial business dealings"? If so, perhaps we have entered a gray area without a bright line.
On the other hand, Judge Friedland's concern that this will "require vacating awards in numerous cases decided by JAMS owners" may be overblown. As Judge Friedland notes in her footnote 6, the short statute of limitations for filing a motion to vacate places a limit on how much litigation there will be. In the future, JAMS can disclose whether an arbitrator has a financial ownership interest. And just because a party loses an arbitration doesn't mean the party will seek to undo it, unless by spending more time and money the party believes it can get a better result with another arbitrator who does not have an ownership interest in JAMS. Does JAMS have to disclose that it was involved in 97 arbitrations, if it discloses that a party is a repeat player, and that the arbitrator has an ownership interest? That question is not answered.
The pragmatic question is whether the additional disclosure, by heightening awareness of the financial connections between ADR organizations and repeat players, and the additional financial stake that owners have in ADR organizations, will lead to any different decisions and outcomes.
Settlement Agreements: On Second Thought, Trial Judge’s Speculation About Rekindled Romantic Relationship Is Removed From Modified Appellate Opinion
The Case Held That Judgment Creditor's Release Of Judgment Debtor Does Not Preclude Creditor's Attorney From Pursuing Contingency Fee And Costs From Judgment Debtor.
We posted about Mancini & Associates v. Jason Schwetz, B290498 (2nd Dist. Div. 6) (Gilbert, J.) on September 5, 2019. This is an unusual case in which the judgment creditor, Gina Rodriguez, and her former employer and judgment debtor, Jason Schwetz, buried the hatchet, and entered into a settlement agreement and release, without consideration. The trial judge thought something was amiss and said so. The Court of Appeal evidently thought the trial judge's observations were noteworthy, and quoted the judge: "In ruling, the trial judge commented, 'Something about this [factual situation] doesn’t seem right. It’s inconsistent. Sometimes I see this happen, this sort of resolution when there is evidence of a kind of romantic relationship that’s been rekindled . . . .'” We also thought this was worth quoting in our earlier post, because perhaps it explained why the judgment creditor released her debtor. On September 30, 2019, the Court of Appeal had second thoughts, modifying its opinion to remove the trial judge's comments.
We surmise that the Court of Appeal recognized that the comments were in the realm of the speculative, unnecessary to its holding, and better left unsaid.
Mediation/Attendance: Fifth District Holds That Agricultural Employees Do Not Have Right Of Access To On-The-Record Mandatory Mediation And Conciliation
California's Labor Code Provides For A Mandatory Mediation And Conciliation (MMC) Process To Promote The Collective Bargaining Process In Agricultural Labor Relations.
When collective bargaining between the United Farm Workers Union and Gerawan Farming, Inc. reached an impasse, the UFW requested, and the California's Agricultural Labor Relations Board ordered the parties to mandatory mediation and conciliation under the MMC statutory scheme. "On-the-record" mediation sessions, meaning sessions in which witness testimony was transcribed by a court reporter, were held, and a Gerawan employee, Garcia, sought access to the sessions. The mediator denied the request, and the Board upheld the denial, holding the public does not have a constitutional right to attend MMC hearings. The superior court granted summary judgment in favor of the Board. Garcia and Gerawan separately appealed from the resulting judgment in the Board's favor on their complaints. Gerawan Farming, Inc., Plaintiff and Appellant, v. Agricultural Labor Relations Board, Defendant and Respondent; Lupe Garcia, Intervener and Appellant, F076148, F076150 (5th Dist. 9/24/19) (DeSantos, Franson, Pena).
The issue presented on appeal is "whether there is a public right of access to on-the-record MMC proceedings under the federal and state Constitutions, and whether Gerawan has standing to challenge the Board's decision." The Court of Appeal held that Gerawan lacked standing, and went on to analyze Garcia's argument that Garcia had a "presumed right of access" to the mediation sessions. The Court emphasized that the sessions were not "ordinary civil trials", and that whether a right of access existed would be analyzed with a two-prong test that looks at: (1) experience; and (2) logic. Applying the two-prong test, the Court held:
"In sum, given that on-the-record MMC proceedings are part of the collective bargaining process, the benefits of open MMC proceedings are far less than the benefits of open criminal or ordinary civil proceedings. This finding, coupled with the absence of a showing of a historical tradition of public access, leads us to conclude there is no constitutional right of public access to on-the-record MMC proceedings."
The judgment is affirmed.
On May 15, 2016, we blogged about another aspect of the Gerawan/UFW labor dispute, in which the Fifth District held that California Labor Code section 1164.9, which limited judicial review of the California Agricultural Labor Board's action on a collective bargaining agreement, after MMC, was unconstitutional.
"He came from an Oklahoma farm in April, 1938. Became a migratory farm worker in California, joined the United Agricultural Packing and Allied Workers of America (Congress of Industrial Organization-CIO) at the beginning of the cotton strike of October, 1938 and became the leader of the "Flying Squadron" which attempted to picket the large fields of corporation farms by automobile caravans. He drove the first car. Kern County, California." Dorothea Lange, photographer. 1938. Library of Congress.
International Arbitration: 9th Circuit Holds Case Seeking To Collect International Arbitration Award Properly Belonged In State Court
Collection Efforts Case Was Not Related To International Arbitration Agreement Or Award, And So Belonged In State Court.
The District Court for the Western District of Washington denied plaintiff Cerner's motion to remand to state court an action that defendants had removed to federal court on the basis that it related to an international arbitration award. 9 U.S.C. section 205 authorizes removal from state to federal court of an action that "relates to an arbitration agreement or award falling under" the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958. And in fact plaintiff Cerner had obtained an international arbitration award against iCapital, LLC and Dhaheri. Problem was that those two defendants were not the defendants in the state court action brought to enforce the award and alleging alter ego status. So the issue presented in the 9th Circuit appeal of the district court's order denying remand was whether the case fell within section 205 — whether the case "relates to an arbitration agreement or award falling under the Convention." Cerner Middle East Limited v. Belbadi Enterprises LLC, et al., No. 17-35157 (9th Cir. 9/23/19) (Clifton, Callahan, Benitez).
Ultimately, the 9th Circuit panel held that the case did not relate to the arbitration agreement. For one thing, the defendants in the case were not the same as the respondents in the arbitration (though maybe they will be found to be related). The arbitration award did not have preclusive effect over issues in the arbitration that would have to be adjudicated, and the findings in the arbitration would be inadmissible hearsay in the lawsuit. That the court might find the legal analysis "persuasive" in the arbitration did not mean that the arbitration "relates to" and "conceivably affects" the arbitration. So the case will be remanded, because removal jurisdiction is lacking.
BEST LINE IN THE CASE: "It has famously been observed that "'[jurisdiction' is a word of many, too many, meanings.""
Quasi-In Rem Jurisdiction Existed Over Defendant Because Court of Appeal of Paris Confirmed International Arbitration Award And Defendant Owned Property In Oregon.
In Cerner Middle East Limited v. iCapital, LLC, a U.A.E. Limited Liability Company; Ahmed Saeed Mahoud Al-Badi Al-Dahari, No. 17-35514 (9th Cir. 9/23/19) (Clifton, Callahan, Benitez), an appeal from the District Court for the District of Oregon, the panel reversed the district court's dismissal, for lack of personal jurisdiction, of an action to enforce a foreign arbitration award against property in Oregon owned by defendants. Note: in the two Cerner cases, the defendants are not the same, and in fact, the district court judges are different. This Cerner case involved efforts to enforce the arbitration award against the arbitration respondent's property in Oregon. The other Cerner case involved efforts to enforce collection against property owned by related entities in Washington.
In this case, the panel found that quasi in rem jurisdiction over defendants existed (a) because plaintiff possessed a valid judgment against the defendant; and (b) the defendant owned property in Oregon. A "court of competent jurisdiction" — to wit, the Court of Appeal of Paris — confirmed the international arbitration panel's conclusion that the defendant was subject to its jurisdiction, while the appeal from the District Court to the 9th Circuit was pending!
And so this Cerner case is also reversed and remanded for further proceedings.
Arbitration, Waiver, Standard Of Review: Delay, Substantial Invocation Of Litigation Machinery, And Prejudice Result In Waiver Of Right To Arbitrate
Was Delay In Requesting Arbitration Simply A "Strategic Convenience" For Defendants?
Spracher v. Paul M. Zagaris, Inc. [Zagaris], and Higashi v. Disclosure Source, A1952941, A152962 (1/3 9/17/19) (Petrou, Siggins, Fujisaki), is a consolidated appeal brought by defendants in a class action in which plaintiffs alleged that defendants schemed to defraud plaintiffs. Plaintiffs were home sellers or buyers alleging defendant Zagaris schemed with Disclosure Source to buy natural hazard disclosure reports as part of a real estate transaction, double the price, and charge clients the higher price without a disclosure regarding the markup.
Defendants moved to compel arbitration. Relying on the six-part test in St. Agnes Medical Center v. PacifiCare of California, 31 Cal.4th 1187 (2003), the appellate court affirmed the trial court's determination that defendants waived arbitration as supported by substantial evidence. Defendants waited nearly two years to bring their motion, "substantially invoked" the litigation machinery by engaging in extensive discovery, 12 case management conference hearings, two rounds of demurrers, and filed a summary judgment motion. Ample evidence supported a showing of prejudice, including that plaintiff Higashi incurred over $315,000 in attorney's fees.
COMMENT. Given that the law of waiver (see St. Agnes) is well established, we don't know what prompted the Court to certify the original unpublished opinion for publication. But we're going to hazard some guesses. First, the Court may have wanted to send a message that it was not pleased with substantial delay in moving to arbitrate, while defendants waited to see how matters turned out in litigation, which the trial court viewed as "strategically convenient for defendants".
Second, there was one factual wrinkle to the case: there were originally five representative plaintiffs, and defendants argued they could not have moved earlier to arbitrate, because the arbitration agreements differed. The Court explains: "Presumably, if numerous plaintiffs had proceeded to arbitration there would have been appropriate efforts to coordinate the matters and motions regarding the representative plaintiffs; we have been provided with zero evidence to the contrary." This statement elides the point that consolidation may not be possible unless the agreement, the rules of the arbitral forum, or a subsequent agreement provides for consolidation. The Court's statement seems to put the burden of proof on the defendant to provide evidence that appropriate efforts to coordinate matters and motions would have been agreed to. Without explanation, the Court states that "[b]ecause this is not a case where 'only one inference may reasonably be drawn' from the underlying facts, we review the trial court's decision under a substantial evidence standard." So presumably the standard of review helped plaintiffs carry the day.
Arbitration, PAGA, Employment: California Supreme Court Holds Labor Code Section 558’s Civil Penalty Does Not Include Unpaid Pages
The Practical Consequence Is That There Is No Private Right Of Action Under Section 558 To Collect Civil Penalties, And Hence Such A Claim Is Not Arbitrable.
The California Supreme Court granted an employer's petition for review in ZB, N.A. v. Superior Court, S246711 ((Cal. Sup. Ct. 9/12/19) (Cuéllar, J.), "to resolve the split of authority over whether an employer may compel arbitration of an employee's PAGA claim requesting unpaid wages under section [Labor Code section] 558." After 30 pages of statutory construction and "on the one hand, on the other hand" arguments, the Court concludes that an employer may not compel arbitration of an employee's PAGA claim requesting unpaid wages under section 558.
However, if you were to guess that the Court reached that conclusion because the unpaid wage claims were civil penalties within the meaning of PAGA, and PAGA claims are not arbitrable, you would be wrong — though that in fact was the reasoning of the Court of Appeal, which reached the right conclusion for the wrong reason. Instead, the Supreme Court concluded that there is no private cause of action for unpaid wages under section 558; only the Commissioner can bring a claim. And even though the Commissioner is the only one with standing, the claim for unpaid wages is in the nature of specific compensation, not really a penalty, and therefore not a PAGA claim at all. The court cannot compel arbitration of a claim for which no private right of action exists.