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the law of waiver (see St. Agnes) is well established, we don't know what prompted the Court to certify the original unpublished opinion for publication.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.
Arbitration, Construction Of Agreement, Reference: Trial Court Properly Denied Motion To Compel Arbitration Or For A Reference
An Order Denying A Judicial Reference Is Not Appealable, Even When Coupled With An Order Denying Arbitration, Which Is Appealable.
A frequent source of confusion with motions to arbitrate is an arbitration provision that refers to both the Federal Arbitration Act (FAA) and California law. Indeed, that was the source of confusion (somewhat amplified, as the Court of Appeal ultimately determined there was no ambiguity) in J.H. Boyd Enterprises, Inc. v. Kenneth Robert Boyd, F078292 (5th Dist. 9/10/19) (DeSantos, Smith, Meehan).
Defendants/Appellants, the Boyd Trust, moved to compel arbitration after their tender of payment of a promissory note to J.H. Boyd Enterprises, Inc., was rejected. It was clear that an agreement between the Boyd Trust and J.H. Boyd Enterprises, Inc. included a broad arbitration clause that governed the dispute over the refusal to accept the tender. However, there was an exception: If California law governed a dispute that involved a promissory note secured by property, as happened to be the case here, then arbitration could not be compelled, unless J.H. Boyd Enterprises, Inc. elected to arbitrate, which it assuredly did not do. And as many arbitration agreements do, this one provided that any arbitration proceeding shall be governed by the FAA.
So was the dispute governed by California law or the FAA? Basically, the Court of Appeal concludes that even if the FAA applies to an arbitration proceeding, the parties agreed to arbitrate this particular dispute, alleged in the complaint to involve a defaulted promissory note, by applying ordinary state law principles. The term "Dispute" was defined to encompass "any dispute, claim or controversy", which encompassed a promissory note default, and forum was not included in the definition of Dispute.
Defendants/Appellants alternatively sought a reference, and that too had been denied by the trial judge. We see plenty of cases involving orders denying motions to compel arbitration, but orders denying a motion to deny a reference? Not so much. The short answer here is that orders denying a motion to compel a reference are not appealable.
However, Appellants made a rather ingenious argument. Orders denying a motion to arbitrate are appealable, and Code of Civ. Proc. section 1294.2 creates ancillary appellate jurisdiction over orders affecting appealable arbitration orders. For example, if the Court denies an order to compel arbitration and to deny a stay, ancillary jurisdiction exists to consider the denial of the stay. No go here. The ancillary jurisdiction that allows an appeal of the order denying a stay is necessary to effectuate an appellate ruling on an arbitration order. An appellate ruling allowing arbitration becomes pointless if the litigation is not stayed. But that's not the case here, where review of the order denying the reference is not necessary to effectuate the order denying arbitration. It's apples and oranges.
Settlement Agreements: Judgment Creditor’s Release Of Judgment Debtor Does Not Preclude Her Attorney From Pursuing Contingency Fee and Costs From Judgment Debtor
The Trial Judge Thought Something Didn't Seem Right.
An opinion from the Second District, Division 6, begins snappily: "Of course, on occasion, a client may not fully appreciate the excellent result achieved by her or his attorney." And of course, the author is Justice Gilbert. Mancini & Associates v. Jason Schwetz, B290498 (2/6 9/4/19).
The background is that Mancini & Associates obtained a substantial jury award for their contingency fee client Gina Rodriguez, who had sued her employer for wrongful termination, sexual harassment, sexual battery, and breach of contract, among other causes of action. The award proved to be uncollectable. Some years later, Rodriguez and her former employer, Jason Schwetz, buried the hatchet, and entered into a settlement agreement and release, without consideration.
Mancini & Associates sued Schwetz and the trial court decided Mancini "established that Schwetz intentionally interfered with the retainer agreement and . . . entered judgment for $409,351,351.81. "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 . . . '"
Justice Gilbert asks, "Does this release preclude the attorney from pursuing his costs and fees from the defendant?" And answers: "Of course not."
Reviews: Government Regulation And Citizen Safety – Three Book Reviews By Our Blogger
The Book Reviews Are In The Current Issue Of California Litigation.
California Litigation, the journal of the California Lawyers Association, has published an article with three of my book reviews in its current issue, Vol. 32, No. 2, 2019. With the permission of California Litigation, I am making the article available if you click here. Any opinions expressed are those of the author alone, and for which the author alone, and not the California Lawyers Association, is responsible.
From the article:
"Our government has been described as an insurance conglomerate and a large army. A core function of government is identifying and managing risk to protect the public from harm. The thread tying together the three books under review is government’s ability to manage risk. Dark Tide, about a horrific industrial accident, has been reissued in time to mark the 100th anniversary of the great molasses flood of 1919 that killed 21 people and devastated the North End of Boston. The Poison Squad, about the efforts to protect the public from dangerous and adulterated food, focuses on a heroic public servant. And, The Fifth Risk is about contemporary neglect, incompetence, and short-sightedness in federal agencies."
Arbitration, Nonsignatories, Unconscionability, Standard Of Review: 4th District, Division 3 Affirms Order Denying Nursing Home’s Petition To Compel Arbitration
Daughter's Signature Did Not Bind Her Individually Or As Successor In Interest.
Nursing home arbitration agreements continue to generate plenty of cases. In fact, we have posted about arbitration and nursing homes a number of times. See, for example, our posts of 3/27/2012, 5/21/2012, 11/5/2013, 8/5/2016, 11/1/2016, 2/23/2017, and 7/25/2019. Why are nursing homes such a fertile ground for litigating the enforceability of arbitration agreements? Some thoughts: people die in nursing homes, sometimes from natural causes, sometimes as a result of negligence; sometimes the details of care are pretty gross; nursing homes do not want to try cases before a jury; patients and their relatives do not want to try cases to an arbitrator; the old and the sick may not be competent to authorize an agent to sign on their behalf; admission to a nursing home may occur under exigent and stressful circumstances, so i's may not be dotted and t's may not be crossed.
Our next case, Lopez v. Bartlett Care Center, LLC, et al, G056249 (4/3 8/28/19) (Aronson, O'Leary, Goethals) illustrates several of these aspects. The patient, Irene Lopez, suffered from "diabetes, dementia, end-stage renal disease, generalized muscle weakness, and other debilitating conditions." After complaining about pain in the nursing home, the mother was diagnosed with serious bedsores, wet gangrene, and sepsis, requiring a leg amputation. Three weeks later, the mother died.
Amputating the shattered leg of a wounded soldier, operating room the Military Reserve Hospital, Hiroshima, Japan. circa 1905. Library of Congress.
Her daughter, Jasmine, signed an arbitration agreement, and the nursing home argued that the daughter was bound to arbitrate in her individual capacity and as a successor in interest. However, Jasmine and the nursing home offered "a starkly different picture" of the circumstances under which the agreement was signed, with the nursing home claiming the mother was present and assented to the daughter signing, and the daughter denying that the mother was present, or that the the daughter was authorized to sign on behalf of the mother. Also, the agreement purported to bind the daughter in her individual capacity, but the agreement was supposedly a "RESIDENT-FACILITY ARBITRATION AGREEMENT." The daughter denied that the nursing home brought the arbitration agreement to her attention and explained it to her. The trial judge believed the daughter, and the Court of Appeal explained that it was guided in its assessment by the standard of review when the trial court's order is based on a decision of fact. An agent derives her authority from the principal, and substantial evidence supported the trial court's finding that Jasmine lacked authority to waive her mother's trial rights.
The Court of Appeal also held that the trial court properly found the arbitration agreement unenforceable due to unconscionability. Among other things, the agreement was substantively unconscionable, because it required the mother to arbitrate all her claims, while exempting the most likely of the nursing home's claims from arbitration, namely evictions and collections.
COMMENT: The nursing home argued the agreement was not one-sided because, "Both residents and [the Facility] might make claims pertaining to evictions and collections" . . . The Court of Appeal stated, "[t]he argument is absurd." The nursing home did succeed on one point: the Court of Appeal ordered that the word "absurd" be deleted and replaced with the word "frivolous".