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We sometimes supplement our diet of published cases with unpublished cases — especially for mediation decisions, which are few in supply compared to arbitration decisions.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 with G056063, G056829) (4/3 6/13/19) (Fybel, Aronson, Thompson) (unpublished) addresses a discrete mediation issue involving attorney's fees.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.
Arbitration, Internet Commerce: 9th Circuit Tests Limits Of “Reasonably Conspicuous” Provision In Internet Commerce Adhesion Contract
Plaintiff Had To Jump Through Hoops To Get To Arbitration Clause.
For our next case, we add a new sidebar category: "Arbitration: Internet Commerce." "This case tests the outer limits of what constitutes a 'reasonably conspicuous' provision as part of the terms of usage so prevalent in the adhesion contracts of modern internet commerce," writes Senior Circuit Judge Michael Daly Hawkins in In re Randall Holl, No. 18-70568 (9th Cir. 5/30/19) (Hawkins, Smith, Lynn).
Plaintiff Holl sued UPS alleging it systematically overcharges retail customers shipping packages through third-party facilities by applying Delivery Surcharge Rates higher than the rates it advertises. UPS successfully moved to arbitrate, and Holl sought a writ of mandamus.
The issue here is the convoluted path Holl had to take to get to the arbitration clause. It takes the panel six pages just to describe how Holl gets to the arbitration clause. He must be able to proceed through the UPS Technology Agreement, which is lengthy; incorporation of rules, regulations, and documents by reference; and inclusion of a jurisdictional provision. And without agreement, there is no agreement to arbitrate.
However, the Court concludes that mandamus is not justified because Holl assented to the service terms with a click, and the terms clearly incorporated the document containing the arbitration clause in question. Never mind that you, I, and even a learned judge sending a UPS package would likely never get to the arbitration clause, unless we were looking for it. After all, this is about mandamus relief. And the Court concludes: "Faced with the heavy burden of showing a 'clear and indisputable' right to the extraordinary remedy he seeks, Holl fails to establish the type of 'judicial usurpation of power' or 'clear abuse of discretion' that might justify issuance of the writ."
Arbitration, Waiver: Employer Waived Right To Compel Arbitration Under A Collective Bargaining Agreement
Trial Court's Ruling That Delay And Prejudice Resulted In Waiver Is Affirmed.
Nunez v. Nevell Group, Inc., G056585 (4/3 5/2/19) (Fybel, Bedsworth, Goethals), addresses an employer's waiver of right to compel arbitration of violations of a wage order under a Collective Bargaining Agreement. The Court affirms the trial court's order denying the employer's motion based on the employer's waiver of its right to compel arbitration.
Most strikingly, "Nevell explicitly waived any right to compel arbitration by advising the trial court in writing that it would not file a motion to compel." Also, the employer missed two-court ordered deadlines to file a motion, and engaged in significant discovery and other litigation activities "inconsistent with the right to arbitration." There was also a finding that the employee was prejudiced by the employer's tactics.
The employer made a legal argument that it would have been futile to seek arbitration before Cortez v. Doty Bros. Equipment Co., 15 Cal.App.5th 1 (2017) was decided. The employer's argument was that the CBA provided for arbitration for violation of wage orders, but the employee's complaint was brought under the Labor Code. The Court of Appeal held that Cortez only clarified and did not change the law: "[T]he Cortez court made clear that the only way to interpret the agreement's language requiring arbitration for wage order claims, when such claims must be brought under the Labor Code, is to conclude that the agreement to arbitrate applies to Labor Code claims."
NOTE: Cortez is the subject of our September 4, 2017 post.
MFAA, Appealibility, Jurisdiction: An Order Denying A Petition To Compel A Mandatory Fee Arbitration Act Arbitration Is Not Appealable
Appealability Under The Mandatory Fee Arbitration Act Is Different Than Appealability Under The California Arbitration Act.
The holding of Levinson Arshonsky & Kurtz LLP v Kim (2/1 5/29/19) (Weingart, J.), is that an order denying a petition to compel an MFAA arbitration is not appealable. Therefore, the Court of Appeal lacks jurisdiction to hear it.
The case arose from restaurateur David Kim's fee dispute with his attorneys, Levinson Arshonsky & Kurtz LLP. After LAK provided notice of disputed billing matters to Kim and his attorney, Kim's attorney filed a petition for fee arbitration with the LACBA on behalf of a Kim-related entity. However, the petition was not filed on behalf of Kim personally, and thus the right to seek county bar mandatory fee arbitration ended up being waived. Kim's attorney filed a petition to compel MFAA fee arbitration with the Superior Court, which was denied. Kim filed a timely notice of appeal from the order denying his petition to compel arbitration, and did not seek review of an order granting LAK's motion to vacate the stay.
By analogy to the CAA, Kim argued that a denial of a petition to arbitrate should be appealable. The opinion is interesting because it points out that we have distinct statutory regimes in California, and each needs to be considered separately: (1) judicial arbitration of civil cases with limited amounts in controversy; (2) private contractual arbitration; and (3) mandatory fee arbitration. "[W]hereas a party in a CAA proceeding must move to stay the parallel non-arbitration proceeding, the MFAA adopts the reverse approach — the parallel nonarbitration matter is automatically stayed, and the party seeking to proceed outside arbitration must move to lift the stay."
COMMENT: Fee expert Gerald G. Knapton has an article in the June 17, 2019 issue of the Daily Journal entitled, "MFAA versus CFA: Jurisdictional traps for the unwary in arbitration". The article discusses Levinson Arshonsky & Kurtz LLP, as well as the previous case we posted about on May 30, Heimlich v. Shivji. Unfortunately, the Daily Journal is behind a paywall.
Arbitration, Section 998: California Supreme Court Rules Request For Costs Timely Under Section 998 If Filed With The Arbitrator Within 15 Days Of Final Award
A Question Of Timing: Case Explains How To Handle Costs Under Section 998 In An Arbitration.
Heimlich v. Shivji, S243029 (Cal. S.Ct. 5/30/19) (Corrigan, J.) is good news for practitioners, because it settles a timing issue, but it is no help to the hapless appellant who helped make law. Code of Civil Procedure section 998 authorizes an award of costs to a party that makes a pretrial settlement offer when the opponent rejects the offer and obtains a lesser result at trial. Heimlich v. Shivji holds, "a request for costs under section 998 is timely if filed with the arbitrator within 15 days of a final award." The question had been somewhat in doubt, because for most purposes, an arbitrator's power to act terminates once the final award issues.
However, the ruling makes sense, because section 998 applies to arbitration, as well as to litigation, and allowing a request for costs to be made under section 998 after the award is final puts arbitration and litigation on an equal footing. In a court case, a memorandum of costs is typically filed within 15 days of the final judgment, and the rule in Heimlich v. Shivji allows a parallel practice in arbitration. Furthermore, it is good policy not to require the party who will be asking for costs to make a settlement offer known prior to the final award, for fear it might influence the arbitrator in undesirable ways.
The issue in Heimlich v. Shivji arose because Shivji had a fee dispute with his attorney Heimlich, and Shivji made a settlement offer that Heimlich could not best in arbitration. Within 15 days after the final award issued, Shivji informed the arbitrator that he would request costs under section 998. Unfortunately for Shivji, the arbitrator concluded that after issuing the final award, he no longer had jurisdiction to take any further action in the matter. The trial court confirmed the arbitration award that did not include Shivji's requested costs. The Court of Appeal reversed, holding that Shivji's request was timely, and that the trial court could vacate the arbitrator's award because the arbitrator had "'refuse[ed] . . . to hear evidence material to the controversy'" when he rejected Shivji's attempt to raise the issue. (We blogged about the Court of Appeal opinion on June 15, 2017). And the Supreme Court agreed with the Court of Appeal that Shivji's request was timely.
So that all sounds like it would be good for Shivji. But not so fast. The arbitrator made a mistake of law when he concluded that he lacked jurisdiction to rule on the post-award request for costs. His refusal to consider further evidence resulted from the mistake of law. And a mistake of law is not a basis for overturning an arbitration award. So hooray for Shivji and his attorney: they were right that Shivji's request was timely, and they made law in the California Supreme Court. Unfortunately, it won't help Shivji.
PHRASE OF THE DAY. Apparently Heimlich relied on the ancient doctrine of "functus officio." "At common law," the Supreme Court explained, "the issuance of an arbitration award was treated as functus officio, an act that terminates the actor's authority." Here, however, the doctrine only applied after the arbitrator's assigned duties ended — and apparently those post-final award duties can now include awarding costs to a party that prevails under section 998. "Further, common law rules are subject to legislative revision." And pursuant to the California Arbitration Act, arbitrators do have some vestigial powers after issuing an award, so the doctrine of functus officio is not absolute. And section 998 "is intended to place parties to arbitration and court proceedings on equal footing and should be read to grant arbitration parties the same shield against premature disclosure of settlement offers that parties in court enjoy."
PRACTICE TIP. What should the practitioner do about making a request for costs under section 998 in an arbitration? The Court notes, "Shivji did not seek a stipulation that would allow the parties jointly to advise the arbitrator of a 998 offer." That could have been done before the final award was issued. If the arbitrator had then refused to accept evidence on an issue of costs that he had to decide pursuant to a joint stipulation, that might have been a solid ground for challenging the award, for squarely refusing to consider important evidence would have been more than a mistake of law. Of course, in the absence of a stipulation, the next person requesting costs within 15 days after issuance of the final award can present the arbitrator with a copy of Heimlich v. Shivji, and hope the arbitrator does not go off the rails.