Arbitration, Gateway Issues, Delegation, Severability, FAA: Court Had Authority To Adjudicate Enforceability Of Arbitration Agreement, Where Party Specifically Challenged The Arbitration Agreement
Opinion Explains How Contract And Arbitration Agreement Are Treated As Separate Agreements.
Jackpot Harvesting, Inc. v. Applied Underwriters, H044953 (6th Dist. 3/28/19) (Danner, Greenwood, Grover), provides a detailed discussion of whether the court or the arbitrator has authority to enforce an arbitration agreement, and how the concept of "severability" helps the analysis.
Applied Underwriters offered workers' compensation insurance to Jackpot Harvesting, Inc. and related companies through a number of agreements, one of which was entitled "Request to Bind" and which contained an arbitration agreement. Jackpot sued Applied, believing Applied mishandled claims and failed to disclose how premiums were calculated. Applied moved to compel arbitration, the trial court denied the motion, and Applied appealed. The important threshold question was whether the trial judge had the authority to decide the gateway issue of arbitrability, or whether that issue was one for the arbitrator to resolve.
The parties agreed that the Federal Arbitration Act supplied the governing law, and the FAA carries with it a strong policy in favor of enforcing arbitration provisions. Of course, the parties could have included a "delegation clause" specifying who had authority to decide gateway issues. But the arbitration provision did not include a delegation clause.
In such a situation, SCOTUS applies "the severability principle." The challenge to the validity of an arbitration agreement or delegation clause is treated separately from a challenge to the validity of the entire contract. In effect, the contract between the parties, and the arbitration provision, are analyzed as two separate contracts. "Unless a party specifically challenges the validity of the agreement to arbitrate, both sides may be required to take all their disputes — including disputes about the validity of their broader contract — to arbitration." New Prime Inc. v. Oliveira, 139 S.Ct. 532, 539 (2019).
Applied argued that the New Prime approach required an "analytically distinct" attack on the arbitration provision — in other words, an attack distinct from the attack on the contract as a whole. While conceding that there is "some support" for that position, the Court of Appeal says that it hasn't been shown a SCOTUS case requiring that the "substance of the challenge to the arbitration agreement must differ in all respects from the challenge to the underlying agreement." But this is dictum, because the Court of Appeal then found a distinct challenge to the arbitration provision in the Request to Bind: the Request to Bind was "a collateral agreement" triggering statutory filing and regulatory approval requirements under the Insurance Code and regulations, and "a contract made in violation of a regulatory statute is void."
So the arbitration provision is specifically challenged. Found to be made in violation of a regulatory statute, the arbitration provision crashes and burns, leaving the trial judge with the authority to adjudicate the enforceability of the arbitration agreement. The denial of the motion to compel arbitration is AFFIRMED.
Arbitration, Construction Of Agreement, Employment, Enforceability: Court of Appeal Remands Case To Determine If Plaintiff Was Represented By Counsel When She Signed Arbitration Agreement
Language Of Arbitration Agreement Was Sufficient To Require Arbitration, But . . . .
In Salgado v. Carrows Restaurants, Inc., B285756 (2/6 2/26/19) (Gilbert, Yegan, Tangeman), the trial court denied employer's motion to compel arbitration, on the grounds that "Defendants have failed to demonstrate that the arbitration agreement applies to a suit that was filed prior to its signature." However, the Court of Appeal reversed, concluding the language of the arbitration agreement, which covered claims "related in any way to my application for employment and/or employment" was broad enough to cover the prior dispute.
However, the Court also remanded, to determine if the employer knew when the employee signed the arbitration agreement, that she was represented by counsel. Plaintiff's attorney stated his client was "forced to sign" at a time the lawsuit had already been filed, the employer's restaurant manager had been served with the lawsuit, and the attorney was representing his client in the lawsuit.
COMMENT. We will be interested to learn if, on remand, the facts provide a basis for making the arbitration agreement unenforceable. Unconscionability? Duress? And if Defendant's counsel knew of the lawsuit, we could see a problem if an end-run was done around Plaintiff's counsel, though ordinarily the parties can deal directly.
In the first paragraph, the opinion states, "[W]e remand to determine a factual issue where time is not relative, but relevant." That, plus knowing the opinion issued from the Ventura County Court of Appeal, was all the information I needed to know that the opinion was penned by Justice Gilbert, who knows how to turn a phrase.
Federal Arbitration Act: Fifth District Holds That Truck Driver Engaged In Interstate Commerce Is Exempt From FAA Arbitration Requirement
Driver Did Not Need To Cross State Lines To Engage In Interstate Commerce.
The Federal Arbitration Act contains a statutory exemption for "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce." 9 U.S.C. section 1 (italics added). Thus, a truck driver engaged in interstate commerce is exempted from arbitration under the FAA.
The issue in Nieto v. Fresno Beverage Company, Inc., F074704 (5th Dist. 3/22/19) (Detjen, Franson, Desantos) was whether a truck driver who did not cross state lines "engaged in interstate commerce." Here, the facts were that the driver traveled in California, while delivering beverages that arrived from out-of-state. Under those facts, the flow of the goods was in interstate commerce, and plaintiff Nieto's deliveries "although intrastate, were essentially the last phase of a continuous journey of the interstate commerce . . ." Hence, the trial court concluded that Nieto was engaged in interstate commerce, was not required to arbitrate under the FAA, and could proceed in court with wage and hour claims brought under California law. The Court of Appeal affirmed.
Ethics, Miscellaneous: Fourth District, Div. 3 Opinion Affirms Judgment Denying Attorney’s Fees And Refers Attorney To State Bar For Misconduct
Marc Alexander (This Blogger) And Mike Hensley Represented Defendants In Their Successful Response To This Appeal.
Today* we stray from our usual beat, California mediation and arbitration, to mention an appeal resulting in a partially published opinion. Why? Because this blogger, Marc Alexander, was involved, and because his long-time colleague Mike Hensley, with whom Marc contributes to the California Attorney's Fees blog, also participated. The case is Martinez v. O’Hara, et al., G054840 (4th Dist. Div. 3 February 28, 2019) (published in part). Justice Fybel, Acting. P.J., authored the opinion, joined by Justices Ikola and Thompson. In an unpublished part of the opinion, the case affirmed a judgment denying attorney's fees to the plaintiff/appellant. In the published part of the opinion, the panel referred plaintiff/appellant's attorney to the State Bar.
The opinion was partially published to send a message: "The notice of appeal signed by Mr. Pavone on behalf of plaintiff referred to the ruling of the female judicial officer as ‘succubustic.’ A succubus is defined as a demon assuming female form which has sexual intercourse with men in their sleep. We publish this portion of the opinion to make the point that gender bias by an attorney appearing before us will not be tolerated, period." The Court was also unhappy that the attorney accused the judicial officer of intentionally not following the law, without evidence.
The case has garnered some attention:
1. Kevin Underhill, the author of the "Lowering the Bar" blog, has blogged about the case under the heading, "Succubustic": Is It a Word You Should Use to Describe a Judge?
2. Debra Cassens Weiss, ABA Journal, Lawyer's 'succubustic' claim should be reported as gender bias to state bar, court concludes.
3. Bloomberg Law, California Lawyer in Hot Water for Sexist Insult of Judge.
4. Law360, Calif. Judges Slam Atty For Gender Remarks: Not OK, Period.
5. Justia, Legal Ethics Opinions.
6. Metropolitan News-Enterprise, Lawyer Who Likened Court Commission To Sex-Crazed She-Demon Is Chastised.
7. David C. Carr, California Legal Ethics, Court of Appeal Cites Lawyer to State Bar for Referring to Female Judge as "Succubistic."
8. Dane S. Ciolino, Louisiana Legal Ethics, Lawyer Sanctioned for Calling Trial Judge "Succubustic."
9. Michael J. Simkin, Legal Secrets, Professionalism Trumps Freedom of speech in the courtroom (which is a good thing) Bus. Code section 6068(b).
10. Heather Stern, Women Lawyers Association of Los Angeles, March 2019-President's Message.
11. William Vogeler, Strategist, Protip: Don't Call a Judge a 'Succubus'.
12. Edward McIntyre, Take Note — Courts Have Dictionaries.
13. 111 North Hill Street, Don't Do This.
14. Brian I. Hamblet, Martinez v. Stratton O'Hara: What you say (to the Court of Appeal) can and will be used against you.
15. California Attorney's Fees.
*This post has been updated since it originally appeared.
Arbitration, Burden Of Proof, Nonsignatory: 6th Appellate District Holds Realtor’s Custom And Practice Was Not Enough Here To Show It Agreed To Arbitrate
Evidence Of A Policy Is Not Evidence Of Adherence To The Policy.
Plaintiff Juen engaged Alain Pinel Realtors, Inc. (Pinel) to sell his house. Later, Juen sued Pinel, Pinel unsuccessfully moved to compel arbitration, and Pinel appealed. Juen v. Alain Pinel Realtors, Inc., H043230 (6th Dist. 2/6/19) (Grover, Greenwood, Bamattre-Manoukian).
The listing agreement was signed by Pinel and its listing agent Smith. A required Code of Civil Procedure notice showed Juen's initials, but the space for Pinel's initials was blank. Now Code of Civ. Proc., section 1298, provides that it is by initialing the arbitration provision that one indicates assent or nonassent to the arbitration provision, and that one agrees to give up rights to a jury trial. Both parties agreed that the arbitration clause was "a bilateral agreement requiring the assent of both parties to be enforceable."
To get around the problem of its missing initials, Pinel argued that its custom and practice was (1) to destroy client files after five years, which it had done here (it obtained a copy from its listing agent to make its motion to compel arbitration); and (2) to review client listing agreements submitted by a listing agent, and if the client initialed the arbitration provision, then the managing broker, rather than the listing agent, would adopt the election of the client and initial the arbitration provision.
The evidence of custom and practice here was not enough to convince the Court of Appeal. There were missing links in the chain of reasoning. A declaration submitted by the realtor did not establish that it had ever received or reviewed plaintiff's listing agreement in particular. The declaration stated a policy existed, "but the existence of a policy is not evidence of adherence to the policy," and evidence was lacking that Pinel's listing had actually been submitted by the listing agent to the managing broker here.
AFFIRMED.
COMMENTS. Ordinarily, contracts can be enforced against the party who signed the contract. The twist here is that the Code of Civil Procedure provides that the assent or nonassent of a party to arbitration in the listing agreement is evidenced by initialing the arbitration provision, and that is why Pinel sought to establish through custom and practice that it had initialed the arbitration provision. There are other cases in which the absence of a signature has not prevented the nonsignatory from enforcing a bilateral arbitration agreement, but the Court factually distinguishes those cases as ones in which there was additional evidence of assent.
Regarding burden of proof, the Court of Appeal points out that where, as was the case here, the trier of fact concludes "the party with the burden of proof did not carry the burden and that party appeals, it is misleading to characterize the failure-of-proof issue as whether substantial evidence supports the judgment." Instead, "the question becomes whether the appellant's evidence was (1) 'uncontradicted and unimpeached' and (2) 'of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding.'"
International Arbitration, Jurisdiction: Settlement Agreement May Not Amount To Arbitral Award Under Peculiar Facts
Case Is Remanded So District Court Can Assess Jurisdictional Issue.
The plaintiff-appellant Mr. Castro took on a job as a deck hand on ship. His employment agreement contained a mandatory arbitration provision and it required arbitration to occur in and be subject to the procedural rules of American Samoa. After severely injuring himself, he had surgery for which the employer paid. He then met with a company representative, met with an arbitrator in a public lobby, and signed papers that included a settlement and release, and he received a check. Because the surgery was unsuccessful, Mr. Castro filed a lawsuit, and the employer successfully enforced a purported arbitral award in district court. Castro appealed. Castro v. Tri Marine Fish Company LLC, et al., No. 17-35703 (9th Cir. 2/27/19) (McKeown, Friedland, Bolton).
The award had been enforced pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). But there was a threshold problem: there had been a settlement, and thus no dispute to arbitrate, calling in to question the jurisdiction of the district court. Furthermore, the arbitral agreement provided for arbitration in American Samoa, according to Samoan procedure, and the lobby where Mr. Castro signed documents was in the Philippines.
The Court's conclusion says it all: "We review foreign arbitral awards deferentially, but we do not blind ourselves to reality when presented with an order purporting to be one. To cloak its free-floating settlement agreement in the New York Convention's favorable enforcement regime, Tri Marine asked an arbitrator to wave his wand and transform the settlement into an arbitral award. That is not sufficient to produce an award subject to the Convention.
Fashion waves her magic wand. Library of Congress. 1896.
The case is revered in part, vacated in part, and remanded.