Arbitration: Disclosures, Section 1286.2 (Vacatur): 2/7 DCA Orders Vacatur Of Adverse Award Against Plaintiff/Claimant Because Arbitrator Had Actual Awareness Of And Failed To Disclose Other Pending Arbitrations Involving Defendant/Respondent
Plaintiff Waived Vacatur Right As To Ethics Standard 12(b), But Did Not Waive Rights To Vacate Based On Arbitrator’s Failure To Make Required Disclosures Under Ethics Standard 7(d).
Here is the ending quotation before the “Disposition” paragraph in Honeycutt v. JPMorgan Chase Bank, N.A., Case No. B281982 (2d Dist., Div. 7 Aug. 2, 2018) (certified for publication; Segal, J., author; Perluss, P.J., concurring; and Feuer, J., concurring): “’That all may drink with confidence from their waters, the rivers of justice,’ whether they flow through our public or private systems of dispute resolution, ‘must not only be clean and pure, they must appear so as to all reasonable men and women.’ (U.S. v. State of Ala. (11th Cir. 1987) 828 F.2d 1532, 1552.)” (Slip Op., p. 29.)
Honeycutt concerned an employment arbitration by plaintiff/claimant against her former employer which was a defendant/respondent after employer successfully moved to compel arbitration in the filed lawsuit. In a California arbitration, an arbitrator must make certain statutorily-mandated and ethically-mandated disclosures to the parties, including Ethics Standard 7 [whether the arbitrator is serving as a neutral arbitrator in another prior or pending case involving a party to the current or a lawyer for a party] and Ethics Standard 12 [whether the arbitrator will entertain offers of employment or new professional relationships in any capacity other than as a lawyer, expert witness, or consultant from a party or a lawyer for a party, including offers to serve as a dispute resolution neutral in another case; and, if so, disclose the offer and acceptance in each case within 5 days of same].
The facts were that the arbitrator filled out the AAA disclosures, but there was a missing page where the arbitrator checked he would entertain other offers even though one of the other pages actually sent to the parties did have a handwritten explanation to the missing question that he would entertain offers to serve as a dispute resolution neutral in other cases and would evaluate any potential conflict at that time prior to accepting each offer. However, the arbitrator failed to timely disclose that during the pendency of the Honeycutt arbitration, he had been appointed to serve as an arbitrator in eight other employment cases involving counsel for Chase and two others (one being an employment case) involving Chase—with the parties only receiving four of the eight letters concerning employment cases involving counsel for Chase before the arbitration was completed. Importantly, an arbitrator has a continuing obligation to make required disclosures all along the way. After Honeycutt lost the arbitration, the AAA administrator sent the missing page and all 10 letters about the other cases involving the Honeycutt arbitrator. Honeycutt’s counsel sent AAA a disqualification demand based on the belated disclosures. AAA advised Honeycutt that the arbitrator was not disqualified, with a zero award to Honeycutt and each side ordered to bear administrative fees and arbitrator compensation/expenses “as incurred.” Honeycutt moved to vacate the award (given that arbitrator nondisclosure is a mandatory basis for vacatur under CCP § 1286.2(a)(6)(A)), but the trial judge confirmed it instead, finding sufficient disclosures and no prejudice.
The 2/7 DCA panel reversed and ordered that the award be vacated based on the arbitrator’s failure to make disclosures under Standard 7(d) [other cases involving Chase’s counsel or Chase].
With respect to the failure to make the Standard 12 disclosure, the appellate court found Honeycutt waived her right to vacate on this basis; after all, she failed to object although knowing about the missing page and knowing about the handwritten disclosure such that it was unfair for her to delay raising the issue until after she lost the arbitration.
Different matter, altogether, with respect to the Standard 7(b) nondisclosures. Even though a vacatur requires that the arbitrator has actual awareness of a ground for disqualification, the panel found he had to in light of the fact that he was a participant in the other cases. The appellate court questioned whether an arbitrator, unlike an attorney, can blame a case manager, assistant, or secretary for an arbitrator’s failure to comply with the Ethical Standards, given that the arbitrator has actual awareness of his own intent to entertain offers of employment and then to accept them—which triggered disclosure obligations. Honeycutt did not waive this right to vacate, because it was a right she did not know she had, with her counsel moving to disqualify the arbitrator well within the 15 days required to object after receiving the AAA case manager’s letter finally disclosing everything. So, the rivers of justice in this one swept the arbitration award down the river and out to sea so that an arbitration can take place before an arbitrator making all required disclosures. Honeycutt also was awarded her costs on appeal.
Arbitration: Sanctions: N.D. Cal. District Judge Has Decided To Issue Sanctions Against Fitbit And Its Attorneys For Failure To Pursue Arbitration After Compelling It In Consumer Action
Moral Here Is To Pursue Arbitration If You Elect To Do So.
Mike Hensley, my co-contributor on the calattorneysfees.com website, has done a recent post about N.D. Cal. U.S. District James Donato’s July 24, 2018 order in which he will be imposing yet-to-be-sought sanctions against Fitbit and its defense counsel in a consumer action. District Judge Donato decided that the defense conduct in compelling arbitration and then announcing a decision not to pursue it justified “inherent by the court” sanctions to control bad-faith litigation conduct. Mike’s full post tells it all, including the district court’s colorful passage indicating why many people, including judges, are skeptical about arbitration agreements.
Arbitration: Burden Of Proof, FAA: Ninth Circuit Determines That USC Employment Arbitration Clause Did Not Encompass Plaintiff Employees’ Claims On Behalf Of ERISA Plans
However, Ninth Circuit Panel Did Indicate In A Footnote That It Might Have Been Wrong To Say Certain ERISA Claims Inarbitrable As A Matter Of Law.
In Munro v. University of Southern California (USC), No. 17-55550 (9th Cir. July 24, 2018) (published) (Thomas, Chief Judge, author; Friedland, Circuit Judge; and Zilly, W.D. Wash. District Judge by designation) confronted a situation where USC required current and former employees to sign standard employment contracts with arbitration clauses. However, the language only covered them in individual capacities such that the controversy here was whether these arbitration clauses covered employees bringing collective claims for breach of fiduciary duty against USC for the administration of certain ERISA plans. The district judge denied USC’s motion to compel arbitration after concluding that it did not encompass the ERISA plan challenges brought by the employees.
The Ninth Circuit agreed in a 3-0 panel opinion.
The summit issue under the Federal Arbitration Act (FAA) was whether the employment contract’s arbitration clause encompassed the dispute at issue. Employees won on that issue.
Earlier, in U.S. ex rel. Welsh v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9th Cir. 2017), decided under a similar employment contract that an arbitration clause did not cover qui tam claims brought by an employee on behalf of the U.S. government under the False Claims Act (FCA). The Ninth Circuit, in Munro, found that Welch’s reasoning did apply, because qui tam suits under the FCA—where a plaintiff sues for injury to the government—was akin to ERISA fiduciary breach suits—where a plaintiff sues for injury to the ERISA Plan. Beyond that, neither a plaintiff in an FCA suit nor a plaintiff in a similar ERISA suit can alone settle the suit. So, the USC arbitration clause was not broad enough to encompass “representative” claims of the nature alleged under ERISA.
However, not everything was lost from the defense perspective. In a footnote, the Ninth Circuit panel did hint quite strongly that its earlier holding in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1987) might have been wrongly decided. Amaro found that ERISA 409(a) claims are inarbitrable, but the Ninth Circuit panel suggested this conclusion might have been wrong as a matter of law based on intervening binding authority—but did not have to reach the issue based on its narrower holding.
BLAWG OBSERVATION—I noticed that Eugene Scalia was on the losing side of the arbitration issue. Given his deceased father’s (former SCOTUS Justice Antonin Scalia's) views favoring arbitration and his pronouncements in Concepcion/other cases, his father might be rolling in his grave based on the result in this case, circumspect as it might be.
Review: Creative Mediation Solutions
Mediator Paul Fisher's Article Describing Varieties of Mediation Is Available On-Line.
A classic summary of "Creative Mediation Options" (August 2000) authored by California mediator Paul Fisher is available on-line at this link. Paul Fisher describes, and summarizes advantages and disadvantages of: baseball mediation, golf mediation, pocket golf mediation, binding mediation [perhaps an oxymoron], high-low mediation, mediation/arbitration, arbitration/mediation, and mini-trial.
Legislation: Gov. Brown Approves Senate Bill 766, Expanding Opportunities For International Arbitration
Members In Good Standing With Legal Profession In Foreign Country Will Be Able To Represent Client In California Arbitration.
On July 18, 2018, Gov. Brown approved Senate Bill 766. The new law will allow members in good standing in the legal profession in a foreign country to represent their client in California arbitrations and mediations. This solves a problem created by California Business and Professions Code, Section 6125, which provides: "No person shall practice law in California unless the person is an active member of the State Bar." The text of SB 766 is available here. The new law should open up opportunities for conducting more international arbitrations in California.
Arbitration: Discovery, FAA: Contributor Marc Has Published A Recent Article On Suggested Legislative Fixes To Ninth Circuit’s Holding In CVS Health Corp. That District Judges Have No Power To Compel Third Party Document Production Before The Schedule
His Article Appears in The July 2018 Edition Of The Orange County Lawyer.
On December 25, 2017, contributor Marc posted on CVS Health Corp. v. Vividus, LLC, 878 F.3d 703 (9th Cir. 2017), where the Ninth Circuit Court of Appeals held, based on a reading of the "plain meaning" of the Federal Arbitration Act, specifically, 9 U.S.C. section 7 that: "[T]he FAA does not grant arbitrators the power to order third parties to produce documents prior to an arbitration hearing.” This holding squarely conflicts with an Eighth Circuit decision to the contrary. (Life Ins. Co. of Am. V. Duncanson & Holt, 228 F.3d 865 (8th Cir. 2000).) Read Marc's December 25, 2017 post here.
Contributor Marc, in an article entitled “Arbitration and Third-Party Document Discovery Before a Hearing: A Problem In Search of a Solution” and published in the July 2018 edition of the Orange County Lawyer magazine, explores the ramification of CVS Health Corp. and proposes these possible legislative “fixes” to the issue (singularly, in combination, or in the aggregate) with respect to arbitrators allowing pre-hearing third-party document discovery:
- The FAA could prohibit third-party document production before hearing outright in cases of a specified smaller monetary threshold;
- The party seeking third-party documents prior to a hearing could be made to bear the costs;
- The party seeking third-party documents prior to a hearing could be required to make the documents it receives available to other parties in the arbitration;
- In considering whether to allow pre-hearing discovery of third-party documents, the arbitrator could consider the “proportionality” factors set forth in Federal Rule of Civil Procedure 26(b);
- Third-party document discovery could be limited only to document production which would be deemed material evidence in the case; and
- The district judges could remain available as a forum to address an unduly burdensome subpoena issued by arbitrators.