Settlement Agreements: 2/4 Cal Court of Appeal Holds That Stipulated Judgment Constituted An Unenforceable Penalty
And The Court Explains How The Stipulated Judgment Could Have Been Structured So As To Be Enforceable.
"The principal issue in this appeal is whether the stipulated judgment constitutes an unenforceable penalty." Red & White Distribution, LLC, et al. v. Osteroid Enterprises, LLC and cross-complaint, B291188 (2/4 8/9/19) (Currey, Manella, Willhite). Here, "the parties entered into a settlement agreement providing that if R&W defaulted, the Osteroid Parties could file a stipulation for entry of judgment, with the amount of the judgment being $700,000 more than the settlement amount plus interest and attorneys' fees." The Court of Appeal concluded that the additional $700K was an unenforceable remedy under Civ. Code section 1671(b), pertaining to whether a liquidated damage clause is valid or unenforceable.
And all this is well-established law under Ridgley v. Topa Thrift & Loan Assn., 17 Cal.4th 970 (1998) and Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (2008). So why did the Court bother to publish?
We believe it is because the trial judge declined to follow Ridgley and Greentree, believing that it could instead follow Jade Fashion & Co., Inc. v. Harkham Industires, Inc., 229 Cal.App.4th 635 (2014). And so the Court of Appeal performed its educational role by explaining that the cases are not inconsistent, and that the stipulation, had it been structured à la Jade Fashion, could have been enforceable.
What would an enforceable stipulation require? An agreement to discount for timely payment of an admitted debt. Thus, the outcome of Red & White Distribution could have been an enforceable stipulation if the parties had agreed or the appellate record had demonstrated that R&W admitted it owed $2.8M, and the parties had stipulated to discount the debt to $2.1M upon timely payment, absent which the full amount would have been due.
But that is not how the parties structured the settlement.
COMMENT: My colleague Mike Hensley represented the successful party in the Greentree appeal. Mike and I are the co-creators of another blog, California Attorney's Fees.
Arbitration, Appealability, Delegation: 4/2 CCA Holds UCL Claim Not Arbitrable, And Denial Of Dismissal Of Class Claims Was Not Appealable
The Details Here Make The Difference . . .
Lacayo v. Catalina Restaurant Group Inc., et al., E069833 (4/2 8/1/19) (Miller, Fields, Menetrez) provides an in-depth discussion of the appealability of orders granting individual arbitration and delegating the issue of the availability of a class action suit to an arbitrator to decide. The plaintiff, an employee, brought seven causes of action raising violations of the Labor Code and an eighth cause raising an unfair competition law (UCL) claim based on the Labor Code violations. As is often the case, the employee/employer contract included a broad arbitration clause and a class action waiver.
The trial court granted the employer's motion to compel arbitration of the employee's individual claims, refused to dismiss the class claims, leaving it to the arbitrator to decide whether class claims were subject to arbitration, denied the motion to arbitrate as to the UCL claim, and stayed the matter till arbitration was completed. Predictably, the employer appealed, arguing that the refusal to grant the motion to dismiss the class claims was appealable, and the UCL claim should have been arbitrated. The Court of Appeal dismissed the appeal as to causes of action one through seven and affirmed the order on the eighth cause of action, the UCL claim.
Here's why. The order granting the motion to compel arbitration of causes one through seven but leaving the issue of classwide arbitration for the first seven causes to the arbitrator is non-appealable. An order granting a motion to compel arbitration does not decide the merits and is interlocutory (unlike a motion denying a motion to compel arbitration). As to the issue of classwide arbitration, the employer argued that an order compelling arbitration of a putative class action is a denial of a motion to compel arbitration and is appealable, citing Lamps Plus, Inc. v. Varela, — U.S. __ (2019). But Lamps Plus is distinguishable from Lacayo, because in Lacayo, the arbitration clause specifically delegated to the arbitrator the decision as to whether a class action would be allowed, and in Lacayo, the trial court never ordered class arbitration of a putative class action. So the trial court ruled the arbitrator will get to decide that issue, which is quite different from an order compelling a class action. And presumably, if the arbitrator whiffed it, little could be done, since mistakes of law or fact by an arbitrator are generally not appealable.
The trial court's decision that the UCL claim was not arbitrable is explained by the fact that under the heading "Claims Not Covered by the Agreement," employer and employee excluded claims requiring "immediate injunctive relief and/or other equitable relief for unfair competition . . . "
COMMENT: Interestingly, the trial judge thought thought the class action waiver was clear and enforceable but the decision about its enforceability had been delegated to the arbitrator by the parties. Sending the matter to the arbitrator is consistent with existing law. Avoiding that result would required drafting an employment agreement that does not delegate issues of arbitrability to the arbitrator, leaving it to the court to decide arbitrability, thereby creating the possibility of further appeals, lack of finality, and uncertainty. And since generally it is the employer who will draft the employment agreement (except in the case of top executives with bargaining power), it is going to be the employer who decides what issues to delegate to the arbitrator.
Arbitration, Mediation, Confidentiality: Statements Of Director, Who Had Served As Mediator And Arbitrator, Are Admissible In Evidence
Trial Judge Parsed Declaration To Determine Whether Statements Were Made By Judge DickranTevrizian (Ret.) In Capacity As Mediator, Arbitrator, Or Director.
When an opinion begins, "Leo Tolstoy famously observed that every unhappy family is unhappy in its own way," you can be sure that you are in for a dismal tale. And the reader's expectations would not be disappointed in the case of Drake Kennedy v. Brian Kennedy & Regency Outdoor Advertising, Inc., B294398 (2/1 7/26/19) (Weingart, Johnson, Bendix) (unpublished). The case is part of the ongoing saga of the internecine legal strife between brothers Drake and Brian Kennedy, stemming from the family billboard business they co-own. The substance of this case concerns brother Drake's obtaining of an order appointing a receiver for sale of the family business, affirmed on appeal.
But it is not the substance of this case with which this post is concerned. Nope, we're focused on a narrow evidentiary issue concerning mediators, arbitrators, and confidentiality.
Judge Tevrizian had been appointed as a third director, presumably to avoid board statelemate of brothers Drake and Brian, and to help with the sale of the brothers' business. "Given Brian's repeated refusal to respect the board's oversight role, Judge Tevrizian resigned as a director as of September 25, 2018. The resignation was 'noisy,' that is, accompanied by an explanation of reasons set forth in the board minutes . . . " Those reasons included inability to obtain financial information, inability to get access to company books and records, refusal of management to comply with requests for information; and, "disrespect and lack of appreciation exhibited by senior management of the Company . . . " Once Judge Tevrizian resigned, the board was again deadlocked.
Judge Tevrizian's statements — some of them — were admitted into evidence. Brother Brian objected that Judge Tevrizian's declaration should have been excluded, because Evid. Code section 703.5 prohibits arbitrators and mediators from testifying "as to any statement, conduct, decision, or ruling, occurring at or in conjunction with" an arbitration or mediation "in any subsequent civil proceeding." And, "Section 1121 prohibits mediators or anyone else from submitting to a court, and a court from considering, 'any report, assessment, evaluation, recommendation, or finding of any kind by the mediator concerning a mediation conducted by the mediator,' . . . "
In fact, Judge Tevrizian had also acted as a mediator/arbitrator. But the trial court parsed the declaration, striking statements related to Tevrizian's role as an arbitrator or mediator, and "expressly noted it was receiving the remaining portions because they related to Judge Tevrizian's role as a company director."
The lesson we draw from this (albeit unpublished) opinion is that if the court can sort out the different roles a person may play, and determine which statements were not made in that person's capacity as a mediator or arbitrator, then the remaining statements may be admissible in evidence. The Court of Appeal rejected the argument that the statements made by Judge Tevrizian in his different roles were so inextricably intertwined that they could not be sorted, and thus rejected the argument that the statements were cloaked in privilege. If Judge Tevrizian's roles and statements could not have been separated and sorted, then the outcome on the evidentiary issue could have been different.
William Blake. The Body of Abel Found by Adam and Eve. 1826. Wikimedia Commons. Public Domain.
Arbitration, Agency, Enforceability, Section 1281.2: Nursing Facility Is Unable To Enforce Arbitration Provision Because Children’s Claims Were Not Subject To Arbitration
And Prospect Of Inconsistent Results Meant Father's Claims Could Not Be Arbitrated While Children's Claims Were Litigated.
Nursing homes continue to be a fertile source of cases concerning the enforcement of arbitration clauses. This is not surprising, because a patient, especially an elderly patient, who enters a nursing facility may be infirm or incompetent; when the patient enters the home, i's may not be dotted and t's may not be crossed; and, bad things can happen in nursing homes. The latest published California opinion involving a nursing home and the enforceability of an arbitration provision is Valentine v. Plum Healthcare Group, LLC, et al., C080940 (3rd Dist. 7/25/19) (Raye, Hull, Hoch). Valentine combines certain of the factual elements that seem to lead to enforceability of arbitration issues: an elderly patient who may be confused, arbitration provisions, and a terrible medical outcome.
In Valentine, a woman was admitted to a nursing home. Her husband handled the paperwork, signing documentation providing for arbitration of his claims as successor and as individual. As a result of alleged neglect, the woman's condition deteriorated, resulting in sepsis, and she died of cardiac arrest.
The trial court held that the husband did act as an agent to bind his wife, because evidence did not show she had created an agency. However, the husband was bound by arbitration agreements to arbitrate his claims as an individual and as a successor to his wife's claims. But the children, who were not parties to an arbitration agreement, were not bound to arbitrate their individual claims for wrongful death or for negligent infliction of emotional distress. Because arbitration of the husband's claims, which were subject to a valid arbitration clause, could have led to inconsistent results if the children's claims were separately litigated, the trial court acted within its discretion when it denied a petition to arbitrate pursuant to CCP section 1281.2. AFFIRMED.
![[Florence Nightingale]](https://cdn.loc.gov/service/pnp/ppmsca/57100/57163r.jpg)
Florence Nightingale. c1856. Library of Congress.
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.