Miscellaneous: Gone On A Trip . . . Back Again
We Took A Break From Blogging . . .
I have been absent for a couple of weeks, during which time I traveled to Italy for a family wedding. Fortunately, there has been a dearth of California opinions on mediation and arbitration during my absence. Here are two photos from my trip:
Monterosso al Mare in Cinque Terre.
Somewhere near Salsomaggiore Terme.
Arbitrator, Confidentiality, Disclosures, Discovery, Unconscionability: Former Employee Advanced No Meritorious Reasons For Why An Employment Agreement Was Unconscionable
Also, Arbitrator’s Religious Affiliation Is No Reason For Disqualification, With Jewish Affiliation Not Showing Any Inherent Bias Against Homosexuals.
Bogue v. Anesthesia Service Medical Group, Inc., Case No. D073518 (4th Dist., Div. 1 July 17, 2019) (unpublished) (McConnell, P.J.; Benke, J.; and Irion, J.) is a case where a former employee lost an arbitration against a former employer, with the arbitration award being confirmed by a superior court judge. Plaintiff’s claims primarily consisted of whistleblower retaliation and FEHA claims, mainly focused on the allegations that employer discriminated against employee because he was a homosexual. The arbitrator summarily adjudicated out the whistleblower retaliation claim and found against plaintiff on the merits in a detailed arbitration award. On appeal, plaintiff principally claimed that the parties’ arbitration agreement was unconscionable and that the arbitrator, who was Jewish, was prejudiced against homosexuals in general.
The Fourth District, Division 1, affirmed the confirmation of the arbitration award.
With respect to the claim that the arbitration agreement was unconscionable, the appellate court found no substantive unconscionability in these respects: (1) the arbitration agreement contained no limitations on discovery and the ADR provider rules had no similar restrictions; (2) the arbitration agreement did provide for a written award consisting of a concise statement of reasons supporting the award and explaining the basis for a decision on a statutory claim, which more than sufficed; and (3) the arbitration agreement had no confidentiality ban, but the ADR rules did not restrict the litigants from publicly discussing the arbitration, which actually was done through the appeal.
The appellate court was not impressed with the religious affiliation disqualification claim against the arbitrator. Religious affiliation is not a sufficient ground by itself to require disqualification of an arbitrator. (Code Civ. Proc., § 170.2.) One cannot reasonably presume, because an arbitrator is Jewish, that the arbitrator has any faith-based animosity toward homosexuality or homosexuals. “Moreover, many people of faith, including arbitrators and judges, engage in professions requiring them to make decisions based on standards separate from and not necessarily aligned with the tenets of their faith. As long as an arbitrator is able to base his or her decision on the evidence and the applicable law, regardless of the tenets of his or her faith, the arbitrator is not required to disclose his or her faith-based memberships.” (Slip Op., at p. 13.) Furthermore, the arbitrator did include a CV showing his Jewish affiliations such that the failure to seek the arbitrator’s disqualification before the arbitration took place forfeited the losing party’s right to disqualify the arbitrator on that basis.
We note that a similar opinion was published back in 2011, involving a disgruntled party in arbitration and a Jewish arbitrator. Rebmann v. Rohde, 196 Cal. App. 4th 1283 (2011). The defendant/appellant informed the trial court that if only he had "known about his [the arbitrator's] religious affiliation, his cultural affiliation, and the dedication to keeping the memory of the Holocaust alive, I never would have allowed him to be the arbitrator in my case." The defendant/appellant's father, and his wife's father served in the SS during WWII. Among other things, the Court of Appeal rejected the "tacit assumption" that "a judge who is a member of a minority cannot be fair when a case somehow related to that minority status – no matter how remote or tenuous that relationship might be – comes before that judge." We posted about this on Mike & Marc's California Attorney's Fees blog on July 5, 2011. Efforts to disqualify judges and arbitrators based on religion and race do not succeed.
Arbitration, FAA: Ninth Circuit Holds Federal Arbitration Act Does Not Preempt California’s McGill Rule
McGill v. Citibank Held Agreement To Waive Right To Seek Public Injunctive Relief Is Unenforceable.
In McGill v. Citibank, N.A. (2017), the California Supreme Court held that a contract purporting to waive a party's right to seek public injunctive relief in any forum is unenforceable under California law. The key issue in Blair v. Rent-A-Car, No. 17-17221 (9th Cir. 6/28/19) (Fletcher, McKeown, Murguia), is whether the Federal Arbitration Act preempts California's McGill rule. The Ninth Circuit holds that the FAA does not preempt the McGill rule.
Blair brought a putative class action against the Rent-A-Center defendants, alleging they overcharged for rent-to-own plans for household items. Such plans provide for installment payments, and if all payments are timely made, the consumer owns the item. Blair's agreement contained an arbitration clause providing that it was "intended to be interpreted as broadly as the FAA allows." The agreement also provided that arbitration was to be on an individual basis and relief could not affect other account holders. There could be no class, collective, mass, private attorney general, or representative action. If the provision was held to be unenforceable, then the claims for relief had to be severed and brought in a judicial forum.
The district court concluded that this agreement violated the McGill rule because it waived Blair's right to seek public injunctive relief in any forum (1) because all claims had to be heard in arbitration; and (2) because claims for public injunctive relief could not exist in arbitration consistent with the parties' agreement. The Court of Appeals agreed, and severed the claims providing for public injunctive relief, which will now be heard in court.
The court analyzes federal preemption in two steps. First, it explains the McGill rule is a "generally applicable contract defense." In other words, it applies equally to arbitration and non-arbitration agreements. In contrast, a rule that uniquely burdens arbitration would be preempted by the FAA. Second, even a generally applicable contract defense may not prevent preemption, if the rule interferes with the accomplishment of the FAA's objectives. However, the McGill rule does not deprive the parties of the benefits of arbitration, because according to the Blair court, a public injunctive relief claim could be sought in arbitration or in court. And seeking a public injunction in arbitration does not require all the procedural formality that a class action would require.
Here, however, the parties' agreement precluded the pursuit of a public injunction in arbitration, and triggered severance of public injunctive relief claims — so such claims will go to the district court.
COMMENT: In Blair, the claims for public injunctive relief are severed and go to court only because the agreement does not allow such claims to be heard in arbitration. But an agreement could be drafted that would allow for a hearing of such claims in arbitration. How much protection would that give to the public?
It would seem that the interests of the public would be better served by hearing public injunctive relief claims in court, because mistakes of law and fact made by an arbitrator would be no basis for vacating the award. While that is exactly what private parties should expect, in the case of public injunctive relief, broader interests are at stake. If one could write on a blank slate, the public's interests would be better protected by a court hearing than by arbitration. But one does not write here on a blank slate.
Recommended Reading: Article On Participation Waivers In Daily Journal
A "Participation Waiver" Is Not Exactly The Same As A Waiver Of The Right To Sue Or A Bar Against Bringing A Class Action.
Ari J. Stiller, an attorney with Kinglsey & Kingsley, has an article in the June 26, 2019 issue of the Daily Journal entitled, "Participation waivers test Federal Arbitration Act's limits."
As Stiller explains, "So-called 'participation' waivers don't just try to bar employees from bringing a class or collective action in arbitration; they bar participating in such an action that someone else brings, regardless of the forum." Stiller argues that this is a bridge too far, and that once a lawsuit is filed by a party who is not bound by an arbitration agreement, the procedural rules applicable to court should apply. "Courts should not enforce such [participation] waivers outside of arbitration," argues Stiller, "to deny discovery or class certification, and certainly not to prevent workers from participating in a classwide recovery of unpaid wages."
I asked Stiller whether there are cases specifically addressing "participation waivers" and he replied that he did not know of any, adding: "We have litigated this issue several times recently, in the context of employers trying to block discovery as to individuals who signed participation waivers and an employer trying to strike class allegations from a complaint." So this issue is a live one, even if published opinions have not yet confronted the enforceability of "participation waivers."
Miscellaneous: We’ve Got Two Recent Articles In The Daily Journal
Justice Bedsworth On Civility; SCOTUS On The Takings Clause.
I've published two recent articles that have nothing to do with California Mediation and Arbitration.
The June 18, 2019 Daily Journal published my article, "4th District Court of Appeal Justice William Bedsworth on civility." Justice Bedsworth wrote an opinion worth reading, Lasalle v. Vogel, No. G055381 (4/3 6/11/19) holding that attorneys have a duty to cooperate during litigation, based on Cal. Code of Civ. Proc. section 583.130. According to Justice Bedsworth, this is more than an ethical duty; it is a policy, and it is law.
The June 25, 2019 Daily Journal published my article, "Opening the Federal Courthouse door to takings claims." This is about the recent SCOTUS case, Knick v. Township of Scott, holding that a 5th Amendment Takings Clause claim may be brought in federal court under 42 U.S.C. section 1983 at the time of the taking, without having to wait for a denial of just compensation in state court. The case is unusual in two respects. First, it overturns a 35-year old SCOTUS case, Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City, 473 U. S. 172 (1985), which had held that a case was not ripe for the federal courts until there had been a denial of a state-law remedy. Second, the case is split along political lines — and what is interesting here, is that it is the conservative majority opening the courthouse to constitutional claims.
Regrettably, the Daily Journal has a paywall, but you can read the articles if you have an electronic or paper subscription — and if the subjects interest you.
Mediation, Condition Precedent: Mediation Is Not A Condition Precedent To A Fee Award Where Parties Merely “Pledge” To Resolve Disputes Amicably Without Litigation
The Court Distinguishes Mandatory Mediation Language Of Frei v. Davey.
We sometimes supplement our diet of published cases with unpublished cases — especially for mediation decisions, which are few in supply compared to arbitration decisions. Ocean Tomo, LLC v. PatentRatings, LLC v. Patent Ratings, LLC, G055429 (consol. with G056063, G056829) (4/3 6/13/19) (Fybel, Aronson, Thompson) (unpublished) addresses a discrete mediation issue involving attorney's fees. Hence, we post about it.
Ocean Tomo was a member and 25% owner of PatentRatings, LLC, and Jonathan Barney was the manager and 63.83 % owner of PatentRatings. A business dispute erupted when Ocean Tomo failed to meet a capital call and Barney deposited money in PatentRatings' bank account as a loan to cover Ocean Tomo's portion of the capital call. Ocean Tomo sued Barney and PatentRatings after the parties could not resolve their disputes through mediation, and Barney cross-complained against Ocean Tomo. Following a bench trial, the court found in favor of Barney and PatentRatings and against Ocean Tomo on all claims and cross-claims. The trial court also granted motions for contractual attorneys fees in favor of Barney and Ocean Tomo.
Ocean Tomo argued Barney was not entitled to attorney's fees because he did not mediate before he filed his cross-claims. However, Justice Fybel distinguished the Operating Agreement language in the case from the mandatory mediation language of Frei v. Davey, 124 Cal.App.4th 1506 (2004). In Ocean Tomo, the parties "pledge[d] to attempt to resolve any dispute amicably without the necessity of litigation." In Frei v. Davey, if a party commenced an action without first attempting to mediate, or after refusing to mediate, "then that party shall not be entitled to recover attorney's fees, even if they would otherwise be available to that party in any such action." That's not the same as in Frei v. Davey, and Justice Fybel, who penned that opinion, as well as Ocean Tomo, is the authority on the subject.
Furthermore, Barney did participate in mediation before Ocean Tomo filed its lawsuit, and the Court of Appeal held "[t]he trial court did not err in finding that Barney was not required to attempt additional alternative dispute resolution before filing his cross-claims."
BONUS: Wikipedia describes Ocean Tomo as, "an intellectual property merchant bank that provides financial products and services, including expert testimony, valuation, research, ratings, investments, risk management, and transactions." Ocean Tomo invested in PatentRatings, a company created to commercialize a product created by Barney: "Barney created a software product to statistically analyze, rate, and value patents. . . " Jonathan Barney's spouse, Colleen Barney, worked as an attorney with me at a previous law firm. Congratulations, Jonathan.