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.”
Arbitration: Class Action, Waiver, FAA, Employment: Employment Contract Providing For Individualized Arbitration Provisions Not Invalidated By The Federal Arbitration Act’s Savings Clause, The Fair Labor Standards Act, Or National Labor Relations Act
FAA Collective Actions And Related State Law Class Actions Governed By Individualized Arbitration Proceedings Under Employment Contract.
On May 21, 2018, the United State Supreme Court issued its decision in Epic Systems Corp. v. Lewis, 584 U.S. __, No. 16-285. SCOTUS decided that the FAA instructed federal courts to enforce individualized arbitration proceedings under an employer-employee arbitration agreement such that nothing in the FAA’s savings clause, FLSA, or NLRA dictated a different result. This was a 5-4 decision along political lines, authored by Justice Gorsuch. The minority justices believed that the result in this case will gut the effectiveness of FLSA collective actions and state court class actions in the wage/hour area.
See my previous posts regarding this case, and the article I wrote entitled, “The Politics of Arbitration” wherein I discussed the same issue raised in Ernst & Young v. Morris. My previous posts were on August 23, 2016, October 11, 2016, November 3, 2016, January 17, 2017, July 24, 2017, September 28, 2017, and October 9, 2017. See also, my post on June 19, 2017.
Arbitration: Nonsignatories: 2/4 DCA Reverses Arbitration Award Against Nonsignatory Alter Ego Where Arbitrator Included Nonsignatory In Arbitration
Appellate Court Found That Trial Judge Must Make Determination To Add Alter Ego Nonsignatory, With JAMS Rule Not Dictating A Different Result.
Benaroya v. Willis, Case No. B281761 (2d Dist., Div. 4 May 17, 2018) (published) (Willhite, J., concurred in by Epstein, P.J. and Collins, J.) (yes, the matter did involve action star Bruce Willis) was a situation where an arbitrator made the decision to add an alleged nonsignatory alter ego respondent to an arbitration between claimant Willis/a lending company and a signatory respondent to which the added party was alleged to be an alter ego. Eventually, the arbitrator found that the nonsignatory was an alter ego and entered an award in excess of $5 million against both arbitration respondents. The trial judge granted Willis/lenders’ petition to confirm the award and denied respondents’ petition to vacate the award with respect to the arbitrator exercising jurisdiction over the nonsignatory.
The appellate court agreed with the arbitration respondents’ position on appeal, vacating the award against the nonsignatory alter ego and only confirming the award against the signatory arbitration respondent.
The reason for this overturn was that only the trial court (not the arbitrator) can decide whether an alleged nonsignatory alter ego could be compelled to arbitrate, with nothing in the JAMS arbitration rules changing that conclusion.
Fees, Section 1286.2 Vacatur: Recent 2/1 DCA Unpublished Opinion Is A Stark Reminder To Raise Fees And Costs Issue To An Arbitrator Before A Final Award Is Issued
Otherwise, Fees/Costs Recovery Could Be Forfeited; Best Is To Ask For An Interim Award On Merits And Reserve Other Issues For Later Interim Award.
The next case really is a stark reminder to litigators to make sure an arbitrator reserves fees and costs issues for decision in a subsequent interim award after an interim award on the merits. If you do not do so, you may face the unhappy conclusion in the next case.
The unhappy conclusion in Buckley v. El Dorado Enterprises, Inc., Case No. B282204 (2d Dist., Div. 1 May 16, 2018) (unpublished) was that a claimant recovering on a pregnancy discrimination and failure to accommodate claims (but not awarded damages based on a subsequent reinstatement) did not gain a substantial award of attorney’s fees and costs as the prevailing party. We describe how this came about.
The arbitrator entered a final award on the merits in favor of claimant, but claimant never requested any attorney’s fees. After that award, claimant moved for fees and costs, with the arbitrator in a second award deciding she was the prevailing party and awarding about $120,000 in fees, costs, AAA administrative fees, and arbitrator compensation/expenses. However, the trial judge vacated the award of fees and costs, prompting an appeal by claimant.
The 2/1 DCA decided that claimant had no basis to supplement the first award with the second award recovery given that there was no mathematical error or failure of the arbitrator to rule on a submitted issue. This was so under the California Arbitration Act and the AAA Rules. So, the moral of the story (so to speak), is to make sure that a merits award is interim and that the arbitrator is asked to reserve a ruling on fees/costs through a later interim award. If not, and a final award is issued instead, a claimant may be deprived of a recoupment of substantial fees and costs even though the arbitrator would have awarded them but for labeling the award a “final” one.