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New Year Resolutions — Till They Melt ! Punch. 1913. Library of Congress.
Arbitration, Federal Arbitration Act, Public Policy: 9th Circuit Holds That FAA Does Not Apply To Agreements Between Prosecutors And Citizens Resolving Alleged Criminal Violations
And Such An Agreement To Arbitrate Disputes Invoking The Criminal Law Would Be Contrary To Public Policy.
The context for our next case is California's Bad Check Diversion Program (Program), created to relieve California courts of the case overload caused by the criminalization of the writing of bad checks with intent to defraud. The statutory scheme allows district attorneys to contract with private parties to administer the Program, and participants who are diverted from the courts to the Program are given an opportunity to provide restitution, take a class, and pay fees. Victim Services, Inc. (VSI) is a private administrator under the Program. Defendants who elect to participate in the Program are subject to an arbitration provision purporting to be enforceable under the FAA, and entered into between the district attorneys and the private administrator.
When plaintiffs sued VSI for violations of state and federal consumer-protection laws, VSI filed an anti-SLAPP motion, and also sought to arbitrate with the only plaintiff who had elected to participate in the Program. The district court denied the anti-SLAPP motion on the grounds that the case was within the so-called "public interest exception" to an anti-SLAPP motion, and also held that the FAA did not apply to an agreement between a criminal suspect and local authorities about how to resolve a potential state-law criminal violation. VSI unsuccessfully appealed. Breazeale v. Victim Services, Nos. 15-16549 & 16-16495 (9th Cir. 12/27/17) (Schroeder, Tallman, Whaley).
We focus on the arbitration issue only.
The FAA applies to private commercial agreements. Judge Schroeder explains, "[a]gainst this historical backdrop, it is apparent that Congress never contemplated that the FAA would apply to agreements between prosecutors and citizens resolving alleged violations of a state's criminal law." Therefore, the FAA did not apply to the particular agreement here.
The Court was left to consider whether California state law required that arbitration be compelled. On this point, the Court agreed with the district court's ruling "that an agreement to arbitrate disputes invoking the criminal law would be contrary to public policy."
COMMENT: There are some situations in which the state's involvement in an arbitration agreement, and state interests, provide a reason to avoid FAA preemption and enforcement of arbitration. Breazeale is an example of a case in which the state's involvement in the criminal system, something altogether different from a normal commercial transaction, provides a reason to avoid compelling arbitration. The other outstanding example is provided by Iskanian, dealing with efforts by employers to compel arbitration of Private Attorney General Act of 2004 (PAGA) employee representative actions, brought on behalf of the state, against employers. The state has an interest in enforcing its labor laws by incentivizing private parties through the qui tam PAGA scheme to enforce the labor laws, and the California Supreme Court has viewed the state involvement and interest as a reason not to enforce an agreement between the employee and employer to arbitrate PAGA claims.
Reviews: Ari Berman’s “Give Us The Ballot”
Your Blogger Has Authored A Review Of Ari Berman's Book About The Voting Rights Act Of 1965.
I've written a review of Ari Berman's book, "Give Us The Ballot." The review, which appears in the latest issue of California Litigation, The Journal of the California State Bar, is republished here, with the permission of the State Bar.
HAT TIP to Professor Justin Levitt at Loyola Law School, Los Angeles, for providing us with a link to his excellent article, The Party Line: Gerrymandering at the Supreme Court, also appearing in California Litigation, Vol. 3, No. 3 (2017).
Arbitration, Discovery, FAA: Ninth Circuit Holds FAA Does Not Grant Arbitrators Power To Order Third Parties To Produce Documents Prior To An Arbitration Hearing
Ninth Circuit Joins Majority Of Circuits On Issue That Divides The Circuits.
Based on a reading of the "plain meaning" of the Federal Arbitration Act, specifically, 9 U.S.C. section 7, the Ninth Circuit holds: "[T]he FAA does not grant arbitrators the power to order third parties to produce documents prior to an arbitration hearing."CVS Health Corporation, et al. v. Vividus, LLC, et al., No. 16-16187 (9th Cir. 12/21/17) (Gritzner,1 Gould, Murguia). In so holding, the 9th Circuit joins the 2nd, 3rd, and 4th Circuits.
The 9th Circuit focused on the language in section 9, providing arbitrators the power to "summon in writing any person to attend before them . . . as a witness," and to compel such person "to bring with him or them" relevant documents. Because the power to summon a person to bring documents is tied to a person who is summoned "to attend" before the arbitrator, the Court read the plain meaning to be that document production only can happen at the arbitrator's hearing. There is no explicit provision in the FAA for pre-hearing discovery, and the policy rationale is that this places less of a burden on third parties who have not agreed to the jurisdiction of the arbitrator.
COMMENT: The Eighth Circuit takes the position that the arbitrator has an implicit power to subpoena relevant documents for production pre-hearing, and that such power is implicit in the power to summon relevant documents for production at a hearing.
The Ninth Circuit holding in CVS Health Corporation highlights a limitation in arbitration that will burden the party to the arbitration most in need of discovery from third parties. Of course, as between the parties to the arbitration, the parties could contractually agree to more expansive discovery, and that would not affect the right of third parties to resist pre-hearing discovery.
1The Hon. James. E. Gritzner, USDC Judge for S. District of Iowa, sitting by designation.
Arbitration, PAGA, Appealability: Fourth District, Div. 1 Holds That Trial Court Erred By Bifurcating Underpaid Wages Portion Of PAGA Claim And Ordering Arbitration Of That Part Of Claim
Civil Penalties Or Victim Specific Statutory Damages?
Lawson v. ZB, N.A. et al., and ZB, N.A., et al. v. Superior Court of San Diego, D071279 & D071376 (4/1 12/19/17) (Benke, Huffman, Haller), is the latest skirmish in the ongoing battle waged between employers and employees over whether Private Attorney General Act of 2004 (PAGA) claims can be arbitrated.
The trial court granted appellant ZB, N.A.'s motion to arbitrate, bifurcating an underpaid wages portion of the employee's PAGA claim and ordering arbitration as a representative action of that portion of the claim, brought under Labor Code section 558. ZB appealed the trial court's order. Evidently ZB didn't want to deal with a representative action in arbitration, and ZB argued that the employee had waived the right to bring a class or representative action. In any case, the Court of Appeal held that an order compelling arbitration is not appealable, instead ruling on the issue when raised by way of a petition for a writ of mandate.
Section 558 of the Labor Code requires payment of underpaid wages, and also provides for civil penalties of $50 for a first violation, and $100 for further violations. The seemingly dual nature of this Labor Code provision opened the door for ZB to argue that the underpaid wages issue needed to be arbitrated, because it was in the nature of a private claim belonging to the employee, unlike PAGA penalties which are obtained on behalf of the State. In fact, ZB didn't even ask the trial court to order abitration of the $50 and $100 amounts provided for as penalties in section 558.
The Court of Appeal now holds that section 558 provides for civil penalties, and "hence claims under section 558, including claims for underpaid wages, are cognizable under the PAGA." Therefore, the claim for underpaid wages is a claim that the employee cannot waive as a representative action, and cannot be forced to arbitrate. The Court also explains that section 558 claims do not create an "express right of private enforcement and instead a regulatory agency has been given the right to enforce the statute . . . "
So: (1) the appeal is dismissed; (2) the writ is granted; (3) the order bifurcating the 558 claims and ordering the underpaid wage part to be arbitrated is vacated; (4) the motion to arbitrate is denied. The result of the writ petition is that the representative PAGA claim, instead of being heard by an arbitrator, will be heard by a judge.
COMMENT: We now have a split among the districts, with the Fourth District, Division 1 "respectfully part[ing] company with the view recently expressed by our colleagues in the Fifth District in Esparza v. KS Industries [13 Cal.App. 5th 1228 (2017). Esparza, the subject of my August 2, 2017 post, held that section 558 wage claims were not a representative action, and therefore could be arbitrated.
Arbitration, Gateway Issues, Delegation: USCA 4th Circuit Holds That Incorporation Of JAMS Rules Delegates Questions Of Arbitrability To Arbitrator
But There Is A Dissent . . .
Simply Wireless Inc. v. Mobile US Inc ., Nos. 16-1123, 16-1166 (4th Cir. 12/13/17) resulted in an interesting majority opinion authored by Judge Wynn, with Judge Harris, joining, and a dissent by Judge Floyd. As a result, I have strayed beyond my usual beat of covering SCOUTS, 9th Circuit, and California arbitration cases, to include this 4th Circuit case.
The lawsuit arose from a trademark dispute. T-Mobile relied on a contract with an arbitration clause to seek arbitration. The relevant features of the arbitration clause were: (1) it was a broad clause, covering claims or controversies "arising out of or relating to this Agreement"; (2) the clause incorporated JAMS Rules and Procedures; (3) the parties agreed that the Federal Arbitration Act governed arbitrability of disputes.
The district court agreed that the scope of the arbitration clause was broad enough to include the disputed claims, and dismissed the complaint.
However, readers of my blawg will know that courts ask whether there is a "clear and unmistakable" delegation to the arbitrator of questions of arbitrability. Here, two judges on the 4th Circuit panel believed that language covering all claims or controversies "arising out of or relating to this Agreement" was too amorphous to constitute a "clear and unmistakable" delegation to the arbitrator of authority to decide the issue of arbitrability. Instead, the majority relies upon the incorporation of the JAMS Rules to find "clear and unmistakable intent to let an arbitrator determine the scope of arbitrability." So the district court erred by determining the arbitrability of the claim itself, when instead it should have allowed the arbitrator to resolve all arbitrability disputes.
Judge Floyd, dissenting, believed that the JAMS Rules did not offer clear and unmistakable delegation of the gateway arbitrability issue, because the arbitration clause also referred to the Federal Arbitration Act, which contemplates judicial resolution of the question. And furthermore, he did not believe that the dispute was one that arose from and was related to the Agreement.
COMMENT: This is the type of dispute beloved by law school students and professors. While Simply Wireless gets another bite of the apple, and can present Judge Floyd's arguments to the arbitrator (or to the Supreme Court), the arbitrator, like the district court judge, might conclude that the dispute falls within the scope of the arbitration clause, and after all the sound and fury, the parties will be back where the district court left them — in front of the arbitrator.
NOTE: On December 14, 2017, I posted about a California Superior Court ruling concerning whether JAMS Rules delegating the issue of validity to the arbitrator "clearly and unmistakably" delegated the issue of legality. The superior court judge concluded that the incorporation of the JAMS Rules did not constitute clear and unmistakable intent to delegate the particular issue of legality to the arbitrator.