Arbitration, Unconscionability, Employment: Second District, Div. 7 Reverses Order Denying Motion To Compel Arbitration, Finding No Substantive Unconscionability
Arbitrator's Discretion To Limit Discovery Did Not Amount To Substantive Unconscionability.
Finding "some procedural unconscionability", but not substantive unconscionability, the Court of Appeal reversed Judge Michael L. Stern's order denying defendants' motion to compel arbitration. Spaulding v. PJCA-2, LP et al., B285996 (2/7 2/11/19) (Segal, Zelon, Feuer) (unpublished). The Court held that the arbitration agreement, which gave discretion to the arbitrator to limit discovery according to the needs of the case, did not create substantive unconscionability. And since both procedural and substantive unconscionability must be present to hold the arbitration agreement unenforceable, the agreement was enforceable.
COMMENT: The employee alleged that he was compelled to sign the arbitration agreement if he wanted to continue to work. He scribbled his name illegibly, and wrote "UD", intending to mean "under duress." "Some procedural unconscionability"? What does that mean? A tittle, a smidgeon, a whit, a lot? The Court finessed analytical precision by finding an absence of substantive unconscionability.
Miscellaneous: Folk Singer John Kirkpatrick Sings “The Farmers And The Cow”
In Praise Of Mediation? . . .
You may have seen the famous print of the farmers fighting over a cow. One pulls the head, the other the tail, while the lawyer sitting on a stool milks the cow. The folk singer John Kirkpatrick sang the song "The Farmers and the Cow", and his rendition is available on YouTube by clicking here.
The chorus goes:
One Farmer pulled its head and the other one pulled its tail,
And over it they had a jolly row, hello,
And both to law they went, and all their money spent,
Whilst the lawyer kept a-milking of the cow, cow, cow,
Whilst the lawyer kept a-milking of the cow.
A copy of the print that inspired the song is available from Wildy & Sons Ltd., law booksellers:
Arbitration, Employment, Nonsignatories, Pending Cases: Vasquez v. San Miguel Produce, Inc. Is Now Published
This Case Involves The Ability Of Co-Employers To Compel Arbitration With Workers Where Workers Have An Arbitration Agreement With The Co-Employer They Do Not Sue, And Do Not Have An Arbitration Agreement With The Co-Employer They Do Sue.
We blogged about Vasquez v. San Miguel Produce, Inc. on January 4, 2019, at which time it had not been certified for publication. We can report that on January 30, 2019, the case was certified for publication. The case holds that co-employers could compel arbitration with workers under circumstances where a staffing agency had an arbitration agreement with the workers, the workers sued the produce packing company to which they were assigned but not the staffing company, the produce packing company did not have an arbitration agreement, and the produce packing company cross-claimed against the staffing agency. Got that?
Arbitration, Nonsignatories, Agents, and Fees: Second District, Div. 7 Explains When Signatory To Arbitration Agreement Can Compel Nonsignatory Parent Of Signatory Subsidiary To Arbitrate
Court Of Appeals Also Distinguishes Between Arbitrator's Power To Deny Attorneys' Fees To Prevailing Party And Court's Error In Denying Attorneys' Fees Incurred In Postarbitration Proceedings.
The Court of Appeal has done something very useful in this 57-page slip opinion concerning arbitration proceedings, and we like that. The Court has summarized its holding up front: "(1) an attorney does not have standing to petition to compel arbitration of his clients’ claims; (2) a signatory to an arbitration agreement can compel a nonsignatory parent company of a signatory subsidiary on an agency theory where (a) the parent controlled the subsidiary to such an extent that the subsidiary was a mere agent or instrumentality of the parent and (b) the claims against the parent arose out of the agency relationship; (3) the arbitrator did not exceed his authority by substituting the attorney’s clients as the real parties in interest in the arbitration; and (4) the arbitrator did not exceed his authority by denying attorneys’ fees to a party that prevailed in the arbitration. The last holding requires us to part company with DiMarco v. Chaney (1995) 31 Cal.App.4th 1809 (DiMarco) and agree with Safari Associates v. Superior Court (2014) 231 Cal.App.4th 1400." Cohen v. TNP 2008 Participating Notes Program, LLC, and TNP 2008 Participating Notes Program, LLC v. Mark Cohen, B266702 (7/2 1/29/19) (Segal, Perluss, Feuer).
COMMENT: This case involved an attorney, his law firm, his clients, a parent company used for a real estate investment program, two subsidiaries, and a real estate investment plan that went south. The case is interesting for two reasons. First, some of the persons or entities had signed arbitration agreements, others had not. Therefore, the Court of Appeal delves in depth into when a signatory can bind a nonsignatory, when a principal can bind an agent, when an agent can bind a principal, and when a subsidiary can bind a parent corporation. Second, as Justice Segal explains, the Court parts company with DiMarco v. Chaney on the issue of attorney's fees. The Court holds that the arbitrator, acting in equity, need not award attorney's fees under a prevailing attorney's fees clause, unless the agreement is stated in mandatory terms that limit the arbitrator's discretion. However, post-arbitration fees are a different matter. Cal. Code of Civ. Proc., section 1293.2, provides, "The court shall award costs upon any judicial proceeding under this title as provided in Chapter 6 (commencing with Section 1021) of Title 14 of Part 2 of this code." Under the Code of Civil Procedure, costs must be awarded to the prevailing party, and attorney's fees may be costs. There is a nice blog post on the attorney's fees aspect of the case in the California Attorney's Fees blog today.
Mediation Costs: Our Article On Cost-Shifting In Mediation After Berkeley Cement Ruling Appears in Jan. 29, 2019 Daily Journal
We Expand On Our January 17, 2019 Post About The Berkeley Cement Case.
Our article entitled "Cost-shifting in mediation after Berkeley Cement ruling" appears today, in the January 29, 2019 Daily Journal. If you subscribe to the Daily Journal, then you can access the article on-line. Or you can read a short post about the case that we did on this blog on January 17, 2019.
Arbitration, FAA, Standard of Review: 9th Circuit Agrees With District Court That Arbitrator’s Award Was “Irrational”
"We have become an arbitration nation," says the Court.
The 9th Circuit affirmed the district court's order vacating an arbitration award under the Federal Arbitration Act, concluding that the arbitrator acted beyond his powers, rendering an award that was "irrational", failing to "draw the essence of the award" from subcontracts. Aspic Engineering and Construction Company v. ECC Centcom Constructors LLC, et al., No. 17-16510 (9th Cir. 1/28/19) (Smith, Nguyen, Restani).
Aspic, a local Afghan construction company, acted as a subcontractor for the prime contractor, ECC, in support of EEC's contracts with the U.S. Army Corps of Engineers. The subcontracts incorporated obligations that ECC owed to the U.S. government, and Federal Acquisition Regulations governing termination for convenience. (Termination for convenience refers to termination at any time without liability for damages that the other side might suffer). When the U.S. Army Corps of Engineers terminated for convenience its contracts with ECC, ECC did the same with Aspic.
Aspic sued for damages, and received an award from the arbitrator, who believed "ECC could not expect that ASPIC would be capable of modifying their local business practices to completely and strictly conform to the US governmental contracting practices that were normal to ECC. There was not a true meeting of minds . . . " Apparently, the arbitrator believed it would be unfair to inflict the Federal Acquisition Regulations upon Aspic, and based the award on the damages Aspic had suffered.
The arbitrator's award was confirmed and modified by a state court, ECC removed to the federal district court, the district court vacated the award, and the 9th Circuit affirmed the district court.
"We have become an arbitration nation," wrote Judge Smith. "An increasing number of private disputes are resolved not by courts, but by arbitrators. Although courts play a limited role in reviewing arbitral awards, our duty remains an important one. When an arbitrator disregards the plain text of a contract without legal justification simply to reach a result that he believes is just, we must intervene." The court concluded that the arbitrator's award exceeded his authority, failed to draw the essence of the award from the subcontracts, "disregarded specific provision of the plain text" in an effort to prevent an unfair result, and was "irrational."
COMMENT: Exceeding the powers of the arbitrator is a basis for vacatur in California and federal courts. However, "failing to draw the essence of the award" from the contract is language originating in federal cases in the context of collective bargaining. "[A]n arbitrator is confined to interpretation and application of the collective bargaining agreement; he does not sit to dispense his own brand of industrial justice. He may of course look for guidance from many sources, yet his award is legitimate only so long as it draws its essence from the collective bargaining agreement. When the arbitrator's words manifest an infidelity to this obligation, courts have no choice but to refuse enforcement of the award." United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593, 597 (1960). We would not expect to find this language in a California state case involving vacatur of an arbitration award.