Arbitration, Fees: Cal Supreme Court Agrees That Law Firm’s Conflict Of Interest Prevents It From Recovering Fees, But
Majority Remands So That Quantum Meruit Recovery Can Be Considered; Dissent Believes Neither Contractual Nor Quantum Meruit Recovery Should Be Awarded.
Dear Readers, as we approach the three-day Labor Day Weekend, which I hope each of you will enjoy, I would like to spare your having to read a California Supreme Court majority slip opinion that is 43 pages long, followed by a dissent that is 30 pages long. However, if you want to read the majority opinion and the dissent too, just click here. Sheppard, Mullin, Richter & Hampton v. J-M Manufacturing Company, Inc., S232946 (Sup. Ct. 8/30/18) (maj: Kruger, Corrigan, Liu, Cuellar, Nares) (dsst: Chin, Cantil Sakauye, C.J.).
The law firm represented J-M Manufacturing Company, Inc. in the defense of a federal qui tam action. It also represented South Tahoe Public Utility District, one of the parties suing J-M. The law firm also obtained conflict waivers from the parties, without, however, disclosing to the parties that it represented their opponents in other matters. A fee dispute arose between J-M and the law firm. The fee dispute was sent to arbitration, and the arbitrator awarded fees on the contract to the law firm. The superior court confirmed the award. However, the Court of Appeal reversed, holding that the law firm was precluded from obtaining contractual fee recovery because of its failure to disclose the existing conflict. I blogged about the Court of Appeal opinion on January 31, 2016.
The Supreme Court majority, as well as the two dissenters, agreed that the Court of Appeal was correct to deny contractual fee recovery based on the undisclosed conflict. However, the majority remanded for consideration of the possibility of equitable recovery in quantum meruit, whereas the dissenters would have held that the disqualification from fee recovery should be total.
Arbitration, Powers, Public Policy, Vacatur: Arbitrator Who Found HOA Failed To Follow Pre-Litigation Requirements In CC&Rs Did Not Exceed His Powers
Arbitrator Did Not Exceed Powers By Abridging An Unwaivable Statutory Right Or Policy.
One of the grounds for a court to vacate an arbitrator's award is that the arbitrator exceeded his or her powers. See Code of Civ. Proc. section 1286.2(a)(4). And arbitrators may exceed their powers by issuing an award that violates a party's unwaivable statutory rights or that contravenes an explicit legislative expression of public policy. Richey v. AutoNation, Inc., 60 Cal.4th 909, 916 (2015).
In Branches Neighborhood Corporation v. CalAtlantic Group, Inc., G055201 (4/3 8/24/18) (Moore, O'Leary, Fybel), the defendant/respondent developer obtained summary judgment in arbitration, because the HOA filed its arbitration demand without first following a requirement in the HOA's CC&Rs requiring it to obtain the vote or written consent of 51% of its members prior to initiating a construction defect claim. The HOA tried to correct the problem by ratifying its decision to arbitrate after the fact, but the arbitrator wasn't having it.
You could say this is a case that depends upon the plain language of the CC&Rs. That, by the way, is what the Court of Appeal said. The Court could not find an unwaivable statutory right to ratify after the fact what the CC&Rs required the HOA to do prior to filing its arbitration claim, nor could the Court find any express public policy that prevented enforcement of the CC&Rs. "[A]ccordingly, the plain language of the CC&Rs controls." Affirmed.
Arbitration, Nonsignatories, Agents, 3d Party Benes, Equitable Estoppel: 4th District Div. 2 Rejects Harley Davidson Dealer’s Argument That It Can Compel Arbitration Based On Arbitration Clause In Security Agreement
The Security Agreement Included An Arbitration Clause, But The Purchase Agreement Did Not.
It is not unusual for a consumer to execute more than one agreement at the time of purchase, only one of which contains an arbitration clause. Such was the case in Fuentes v. TMCSF, Inc., E066242 (4/2 8/23/18) (Ramirez, Slough, Fields). Fuentes, who bought a Harley-Davidson motorcycle, and Riverside Harley-Davidson (Riverside) were parties to a purchase agreement without an arbitration clause. Fuentes and Eaglemark Savings Bank (Eaglemark) were parties to a simultaneously executed Security Agreement that did contain an arbitration clause. When Fuentes sued Riverside in a putative class action, Riverside petitioned to compel arbitration.
Cases like this present a standard set of questions: are the two agreements to be interpreted as a single agreement? Is the party seeking arbitration (Riverside here) an agent of the party (Eaglemark) to the contract with the arbitration provision? Does the party seeking arbitration have standing as a third-party beneficiary of the contract with the arbitration provision? Is the non-signatory plaintiff equitably estopped from refusing to arbitrate because he asserts claims "inextricably intertwined with" the underlying contractual obligations of the agreement containing the arbitration clause? To which the Court of Appeal answered, no, no, no, and no. AFFIRMED.
We suspect that in the future some drafting changes will be made by Riverside to its sales documents.
![[Jimmy Murphy, winner of 500-mile auto race at Indianapolis, Ind., May 30, 1922, and Ernie Olson, mechanic, seated on Harley-Davidson motorcycle and in sidecar]](http://cdn.loc.gov/service/pnp/cph/3b20000/3b21000/3b21100/3b21115r.jpg)
Above: Jimmy Murphy, winner of 500-mile auto race at Indianapolis, Ind., May 30, 1922, and Ernie Olson, mechanic, seated on Harley-Davidson motorcycle and in sidecar. Library of Congress.
Pending Cases/Federal Arbitration Act: SCOTUS Will Hear Oral Argument In November In Two Cases Involving Interpretation Of The FAA
Henry Schein, Inc. v. Archer & White Sales, and Lamps Plus v. Varela.
On August 20, 2018, Amy Howe reported in SCOTUSblog that the Supreme Court will hear oral argument (Nov. 7) on two cases involving interpretation of the FAA. She reports: "Henry Schein, Inc. . . . asks the justices to decide whether the act allows a court to decline to enforce an arbitration agreement that gives the arbitrator the power to decide questions about arbitrability if the court believes that the arbitrability claim is 'wholly groundless.' . . . . [I]n Lamps Plus the court will consider whether the act bars a state-law interpretation of an arbitration agreement that would allow class arbitration, even when the agreement itself does not mention class arbitration."
Arbitration, Appealability, Jurisdiction: Order Denying Petition To Vacate Award Is Appealable As Order Dismissing Petition — But The Trial Court Properly Dismissed Petition To Vacate “Partial Interim Award” For Lack Of Jurisdiction
"Partial Final Award" Did Not Constitute An Award Immediately Reviewable By Superior Court.
Maplebear, Inc. v. Donna Busick, No. A151677 (1/2 8/21/18) affirms the trial court's order dismissing Maplebear's (Instacart's) petition to vacate an award, which award was dismissed for lack of jurisdiction. Instacart is a same-day grocery delivery service, and the dispute arose when an employee, Busick, filed a class action arbitration demand with JAMS, alleging Instacart violated California law by misclassifying employees as independent contractors.
The arbitrator issued a "partial final award" determining that the parties' arbitration agreement permitted Busick to move for class certification. Instacart petitioned to vacate the award. The trial court denied the petition to vacate, and Instacart appealed the denial of the petition to vacate.
The opinion, which is a great refresher of the procedural steps involved when appealing an arbitrator's order, is interesting for a number of reasons.
First, it treats the order denying the petition to vacate as an order dismissing the petition to vacate. This is important, because the relevant statute allows an aggrieved party to appeal from an order "dismissing a petition to confirm, correct or vacate an award." A denial is not the same as a dismissal — except that by case law, denials may sometimes be treated as dismissals, making them appealable.
Second, the Court concludes that the ruling in Mid-Wilshire Associates v. O'Leary, 7 Cal. App. 4th 1450 (1992), where the Court of Appeal "declined to construe a trial court order 'denying' a petition to vacate as a dismissal" does not survive Law Offices of David S. Karton v. Segreto, 176 Cal.App.4th 1 (2009) and and Cinel v. Christopher, 203 Cal.App.4th 759 (2012).
Third, the Court holds that the trial court properly dismissed Instacart's petition to vacate the "partial final award" because the trial court lacked jurisdiction over a partial award that did not determine "all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy." Cal. Code Civ. Proc., section 1283.4.
Fourth, the Court rejected Instacart's argument that because the parties agreed that the arbitrator had no "power or authority to commit errors of law or legal reasoning", the trial court could immediately review the partial final award allowing Busick to move for class certification.
Mediation Confidentiality: Senate Bill 954 Will Require Attorneys To Inform Clients Of Confidentiality Restrictions In Mediation
Senate Bill Requiring Disclosure Of Confidentiality Restrictions Is A Compromise That Does Not Require Loosening Of Confidentiality Restrictions.
As a consequence of California's Evidence Code provisions, and the California Supreme Court's decision in Cassel v. Superior Court, 51 Cal.4th 113 (2011), mediation confidentiality prevents a party to a mediation from using confidential information obtained in the mediation to sue his or her attorney for alleged professional negligence occurring at the mediation. Senate Bill 954, which is expected to soon become law, will require attorneys, except in the case of a class or representative action, to explain mediation confidentiality restrictions to their clients to a mediation or mediation consultation and to obtain written acknowledgment from the client that he or she has read and understands the confidentiality restrictions.
After seemingly endless debate about whether confidentiality restrictions should be loosened to allow clients to use information obtained in mediation to sue their attorneys for malpractice, Senate Bill 954 can be viewed as a compromise or perhaps a way to finesse the issue. It doesn't change the existing law concerning restrictions on confidential information obtained in mediation. Nor does it expand the client's rights. By requiring the client's written acknowledge that the client has read and understands the restrictions, Senate Bill 954 simply makes the client aware of the restrictions, resulting, hopefully, in informed consent. And if the client is really unhappy with the restrictions on the use of confidential information, the client can (theoretically, perhaps), choose not to mediate.
The Senate Bill includes safe harbor language that will constitute adequate disclosure. Attorneys and mediators might want to take a look at the safe harbor language now, and even begin using it. Evidence Code section 1129(d) would contain the safe harbor language, and that proposed language can be viewed by clicking the link to Senate Bill 954 above.