Arbitration: Choice of Law; Standard of Review: Arbitrator’s Award Of $183,000 In Allocated Fees To One Successful Defendant In Joint Defense Arrangement And Trial Court’s $21,000 In Post-Arbitration Fees To All Defendants Were Proper
Losing Plaintiff Claimed Arbitration Award Was “Manifest Disregard Of Law,” But This Was A Federal Standard Rather Than The More Limited State Standard Applicable To Review Of Arbitration Awards.
HUB International Ins. Services v. Morales, Case No. E067095 (4th Dist., Div. 2 June 14, 2018) (unpublished) was an imbroglio involving non-interference, non-solicitation, confidential disclosure, and non-recruit provisions in certain documents between employees and an insurance company, triggered once certain employees departed and went to work for a rival insurance company. The pertinent agreements had arbitration clauses under California law, with the signatories waiving appeal rights. The real dispute was between the insurance companies, but all parties stipulated to arbitration even though some parties had agreed to contractually arbitrate previously.
The arbitrator found against plaintiff and in favor of defendants. The thrust of the arbitrator’s decision was that a liquidated damages clause for breach of the pertinent agreements was unenforceable given that plaintiff would not introduce lost profits evidence so to allow the arbitrator to gauge whether the liquidated damages were reasonable in relation to actual damages. The arbitrator then ordered that defendant Morales recover prevailing party fees of $183,000, with the trial judge affirming the arbitration award and then further ordering that all defendants obtain post-arbitration fees of $21,000.
Plaintiff challenged the arbitration award on the merits and on the $183,000 fee award, but none of those challenges resonated with the 4/2 DCA.
Although the arbitrator actually did allocate out the fees attributable to arbitration efforts for the rival insurance company, plaintiff’s challenge that the arbitrator made a “manifest disregard of law” was incorrect. This was a federal criterion challenge under the FAA, not a state challenge which does not generally allow challenges to the merits of an award—especially given that the signatories to the arbitration agreement and arbitration stipulation agreed California law would apply. (Siegel v. Prudential Ins. Co., 67 Cal.App.4th 1270, 1280, 1290 (1998).) Also, the parties did waive the right to appeal, but the appellate court construed this as waiving appellate rights except on the limited grounds applicable under the California appellate restrictions relating to arbitration awards. (Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334, 1358 (2000).)
Book Reviews: Jeffrey Rosen’s American Prophet: Louis D. Brandeis
Marc's Review of Jeffrey Rosen's American Prophet: Louis D. Brandeis, Has Been Published in California Litigation.
With the permission of California Litigation, the journal of the litigation section of the California Lawyers Association, Marc's review of Jeffrey Rosen's book about Justice Louis D. Brandeis and his thought is made available here.
Arbitration: Construction Of Agreement; Delegation; Scope: Plaintiff Uber/Lyft Driver’s Suit Relating To Uber Use Of Fake Lyft Accounts Was Not Within Scope Of Arbitration Agreements With Uber
Appellate Court Accepted Delegation Of Arbitrability Gateway Determination To Arbitrator, But Found Uber’s Arbitrability Assertion Was “Wholly Groundless” Because Dispute Was Patently Beyond The Scope of Parties’ Arbitration Agreement.
Smythe v. Uber Technologies, Inc., Case No. A149891 (1st Dist., Div. 3 June 8, 2018) (published) (Siggins, J., concurred in by McGuiness, Acting P.J. (retired justice sitting by assignment) and Pollak, J.) was an interesting case involving whether a controversy raised by a driver for both Uber and Lyft fell within the scope of an arbitration clause between driver and Uber. Both the lower and appellate courts decided it did not.
Plaintiff driver, on both of himself and a putative class of Lyft drivers, sued Uber for a practice of directing its drivers and others to create/use fake Lyft accounts to request rides such that Lyft drivers were sent on wild good chases to pick up nonexistent passengers—all designed to discourage drivers from driving Lyft and causing Lyft customers to divert their patronage to Uber. In response, Uber moved to compel arbitration and stay the class actions based on two agreements plaintiff signed with Uber having arbitration clauses. Those provisions required arbitration with respect “to any dispute arising out of or related to this Agreement or termination of the Agreement,” expressly mentioning wage/hour, trade secrets, unfair competition, compensation, expense reimbursement, termination, harassment and claims arising under various trade secret/discrimination/wage hour statutes. The agreements also included a delegation clause specifying that disputes over arbitrability were to be decided by the arbitrator and not a court/judge.
The lower court found driver’s complaint allegations were beyond the scope of the arbitration agreement and that the delegation provision was unenforceable in the context of driver’s advanced claims.
The 1/3 DCA agreed.
It accepted Uber’s premise that the arbitrator decided the gateway arbitrability issue, but decided an important exception applied. Relying upon Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1371 (Fed. Cir. 2006) which was found consistent with California law on the particular issue, the trial court did not have to defer to the arbitrator where the assertion of arbitrability is “wholly groundless,” but could deny the motion to compel arbitration and the request to stay the action. That exception carried the day in Smythe.
Like the lower court, the appellate panel determined that driver Smythe brought his action in his capacity as a driver for Lyft, not Uber, and that the complaint allegations fell outside the ambit of the arbitration clause between Smythe and Uber. “Indeed, the same allegations could just as well be pursued by a Lyft driver who does not drive for Uber.” (Slip Op., at p.5.)
Arbitration: Waiver: Mechanics Lien Claimant’s Failure To Preserve Arbitration Rights When Filing Enforcement Foreclosure Action Waived Claimant’s Rights Both In The Lien Foreclosure Action And Separate Action Filed By Owner For Construction Defects
It Did Not Matter That Mechanic’s Lien Action Was Separate From Other Action Which Was Potentially Arbitrable.
Von Becelaere Ventures, LLC v. Zenovic, Case No. D072620 (4th Dist., Div. 1 June 6, 2018) (published) (McConnell, P.J., concurred in by Huffman, J. and O’Rourke, J.) is an interesting case interpreting the application of Code of Civil Procedure section 1281.5 where there are separate actions for foreclosure of a mechanics lien and for construction defect by different parties, all involving potentially arbitrable claims by signatory parties to a construction agreement arbitration clause.
What occurred here was that Zenovic was engaged to construct a single-family residence on a Laguna Beach property owned by Von Becelaere Ventures (VBV), although the parties both maintained addresses in San Diego. There was a broad arbitration clause in the construction contract covering disputes over contractual interpretation, improvements construction, warranties, defects, damages, or other obligations. After a dispute arose, Zenovic recorded a mechanic’s lien in Orange County, prompting VBV to file a construction defect complaint in San Diego County Superior Court (alleging, among other things that the mechanics lien was untimely, improper, and abusive in nature). Later, Zenovic filed an Orange County Superior Court action for recovery on contractual and mechanics lien foreclosure claims. One month later, Zenovic filed a motion to compel arbitration in the San Diego C.D. action. The parties then stipulated to transfer the Orange County to San Diego for consolidation, which was done and with the two actions being deemed “related” in nature. The San Diego judge denied the motion to compel arbitration based on the conclusion that Zenovic waived the right to compel arbitration by failing to comply with section 1281.5. That determination was affirmed on appeal.
Section 1281.5 provides that a mechanics lien foreclosure litigant does not waive a right to arbitration pursuant to a written arbitration agreement if, in filing a lien foreclosure action, the claimant does one of two things: (1) includes an allegation in the complaint that the claimant does not intend to waive any right of arbitration and intends to move the court within 30 days after service of the action for an order to stay further proceedings, or (2) simultaneously with the filing of the complaint, the claimant files an application that the action be stayed pending the arbitration of “any issues, question, or dispute that is claimed to be arbitrable under the agreement and that is relevant to the action to enforce the claim of lien.” Zenovic did neither of these things in the Orange County action after VBV filed the San Diego action.
Zenovic principally argued on appeal that section 1281.5 contemplates a mechanics lien action will be separate from an action to resolve otherwise arbitrable disputes (even though the separate action did encompass claims for fraudulent billings, construction defect offsets/affirmative damages, and improperly recorded lien amounts). The 4/1 DCA did not agree; after all, the purpose of the alternative stay procedures to allow arbitration to proceed relating to issues, questions, or disputes relating to the amount at issue in the mechanics lien foreclosure action. Zenovic’s failure to do so in the lien foreclosure action waived the right to arbitrate constructions disputes under the terms of the construction contract, which also encompassed the issues in the construction defect action.
Arbitration: Agents: 2/2 DCA Reverses As A Matter Of Law Denial Of Motion To Compel Arbitration Given That Defendant Agent Was Not An Independent Third Party
Rather, Agents Of Statutory Defendant Are Entitled To Benefit Of An Arbitration Agreement.
In Hernandez v. AutoZone, Inc., Case No. B280206 (2d Dist., Div. 2) (May 30, 2018) (unpublished; Justice Victoria Chavez, concurred in by Justice Judith Ashmann-Gerst, A.P.J., and Justice Brian M. Hoffstadt), ex-employer AutoZone moved to compel arbitration against a former employee based upon an alleged sexual harassment/battery/negligence suit arising from her employment with AutoZone, which had employees acknowledge that they read, understood, and agreed to be bound by a “Dispute Resolution Agreement” which required employees to arbitrate “any dispute arising out of or related to [their] employment with AutoZone or one of its affiliates,” including “disputes regarding the employment relationship . . . termination, retaliation, or harassment . . . and all other state statutory and common law claims.” It was governed by the Federal Arbitration Act.
The trial judge denied AutoZone’s motion to compel arbitration on the theory that co-defendant Jose Vilchez, alleged to be an agent of AutoZone and plaintiff’s immediate supervisor, was actually a “third party” such that conflicting rulings were a possibility.
The Second District, Division 2 panel reversed as a matter of law, ordering the matter to arbitration. Mr. Vilchez was not a “third party,” but an AutoZone agent entitled to the benefits of the arbitration agreement. (Thomas v. Perry, 200 Cal.App.3d 510, 516 (1988); 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4th 119, 1210 (1998).)
Arbitration: Delegation/Unconscionability: Trial Court Is The One Deciding Any Contractually Applicable Defenses, Including Whether Delegation Clause Is Unlawful And Void
Arbitration Clause Was Infirm Because It Was A “Side Agreement” Neither Filed With Nor Approved By California’s Insurance Commissioner.
Nielsen Contracting, Inc. v. Applied Underwriters, Inc., Case No. D072393 (4th Dist., Div. 1 May 3, 2018, modified on May 23, 2018) (published) (Haller, J., author, concurred in by McConnell, P.J. and Huffman, J.) decided that the trial court is the gatekeeper on the question of whether a delegation clause in an arbitration provision is valid, extensively adopting the reasoning of SCOTUS in Rent-A-Center West, Inc. v. Jackson, 58 U.S. 63 (2010).
The circumstances of this case were that plaintiff sued defendant insurers alleging they fraudulently provided workers’ compensation policies to plaintiff that were illegal and unconscionable in nature. Defendants moved to compel arbitration, and plaintiff opposed on the ground that the arbitration’s delegation clause was unlawful and void. The trial court agreed with plaintiff, denying the motion to compel arbitration. Defendants appealed, with the 4/1 DCA panel affirming the denial order.
The arbitration provision in the applicable agreement said disputes and controversies had to be conducted in the British Virgin Islands under AAA rules by an arbitrator who was a disinterested official in the insurance/reinsurance industries and with the arbitrator delegated to determine the enforceability of the arbitration clause. Another related development was that the Insurance Commissioner in an earlier administrative proceeding brought by different insureds against the same defendants found that the arbitration clause was unlawful and void, including the key fact that the defendants failed to get approval for their arbitration clauses from the Insurance Commissioner such that they were illegal “side agreements”—an administrative ruling which admittedly had precedential value.
The appellate court agreed with the trial judge’s conclusion to find the delegation clause void because (1) Rent-A-Center does allow the lower court to adjudge the enforceability of the clause; (2) the challenge to the delegation clause could also be the same as the challenge to the underlying contract, with plaintiff’s challenge being specific enough; and (3) the defendants failed to file the arbitration provisions with the Commissioner in derogation of Insurance Code section 11658.
BLAWG OBSERVATION—For readers wanting more information on delegation cases, see my Home Page and click on the left hand category “Arbitration: Delegation.”