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.
Mediation/Condition Precedent: Fourth District, Division Three, Limits Mediation As A Condition Precedent In A CAR Contract For Fee Recovery
The General Rule In A California Association Of Realtors Purchase And Sale Agreement Requires Participation In Mediation As A Condition For A Prevailing Party To Recover Fees.
The general rule under the standard CAR purchase and sale agreement requires participating in mediation as a condition precedent for fee recovery. The rule was explained by Justice Fybel in Frei v. Davey, back in 2004. Now Justice Fybel has explained a limitation to that rule in Toranji v. Kim, G054111 (4/3 12/15/17) (unpublished). Shared representation alone does not necessarily mean one who shares representation with others who have rejected mediation has also refused to mediate. See today's post in California Attorney's Fees.
Arbitration, PAGA: Court Of Appeal Rejects “Law Of The Case” Argument By Employer, And Follows Supreme Court’s Decision In Iskanian
Employer Ross Stores, Inc. Had Argued That Law Of The Case Required Trial Judge To Order PAGA Claim To Arbitration.
In Ross Stores, Inc. v. Superior Court (Rachel Goss, Real Party), A150039 (1/1 12/11/17) (Banke, Margulies, Dondero) (unpublished), the Court of Appeal addressed circumstances in which it had earlier required the arbitrability of representative PAGA claims, the Supreme Court later embraced the contrary view in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), and the employer Ross Stores, Inc. then tried to convince the trial judge that the earlier ruling of the Court of Appeal had become law of the case, requiring arbitration — notwithstanding Iskanian.
The trial judge did not buy that argument. Neither did the Court of Appeal.
As did the trial court, the Court of Appeal concluded that an exception to the law of the case doctrine applied: the intervening-change-in-the-law exception. And the hands of the trial judge could not be bound by the previous ruling, because the earlier ruling was an unqualified reversal that did not direct the trial court to take any specific action on remand.
Confused? The bottom line is that the Court of Appeal applied Iskanian, holding that the PAGA claim could not be arbitrated, and denying a writ of mandate to compel arbitration.
Arbitration, Delegation, Gateway Issues: SF Sup. Ct. Judge Holds Judge, Not Arbitrator, Decides Whether Contract With Arbitration Clause Is Legal
JAMS Clause Delegating Validity Issue To Arbitrator Was Not Clear and Unmistakable Delegation Of Legality Issue.
Who decides whether an arbitration agreement is part of an enforceable legal services agreement, the judge or the arbitrator? That was the issue addressed by the Hon. Harold E. Kahn in an "Order Denying Defendants' Petition for Order Compelling Arbitration," filed December 12, 2017 in Marble Bridge Funding Group, Inc. v. Buchalter, et al., CGC-17-560501 (SF Sup. Ct.).
The general rule is that the legality of a contract is decided by the court. Loving & Evans v. Blick, 33 Cal.2d 603 (1949). But in Marble Bridge Funding Group, Inc. v. Buchalter, the issue of validity was delegated by JAMs rules to the arbitrator. The court here decided that the delegation of the issue of validity was not a "clear and unmistakable" delegation of the issue of illegality to the arbitrator.
The court further ruled that Buchalter had a conflict of interest making the arbitration language in its service agreement unenforceable.
COMMENT: Obviously, conflict checks and waiver agreements are intended to prevent such a problem from ever arising in the first instance. Perhaps a delegation clause that delegated the issue of illegality to the arbitrator would have also solved the problem, at least, from the standpoint of the party seeking to compel arbitration with language that is "clear and unmistakable".
HAT TIP to Rebecca M. Coll of Quadra & Coll, LLP, who brought Judge Kahn's order to my attention. Ms. Coll represented Marble Bridge Funding Group, Inc.
Arbitration, Agents, Nonsignatories, Equitable Estoppel: U-Haul Can’t Enforce Arbitration Provision Against Nonsignatory Employee Of Employee Renting Truck
Court Of Appeal Rejects Third-Party Beneficiary, Agency, And Judicial Estoppel Arguments Made By U-Haul.
Unable to find "any authority addressing precisely analogous circumstances," the Court of Appeal decides a case of first impression in Jensen v. U-Haul Co. of California, E065887 (4/2 12/11/17) (Codrington, McKinster, Slough). The case involves "an attempt to enforce an arbitration clause in an equipment rental agreement against the nonsignatory employee of the party that rented the equipment."
Virgil Jensen was injured when the truck his employer rented from U-Haul blew a tire. Mr. Jensen sued U-Haul for negligence, and Glenda Jensen sued for loss of consortium. Mr. Jensen had not signed the contract with the arbitration clause with U-Haul, and did not know about the arbitration clause, but his employer had signed the contract. The general rule is: "persons are not normally bound by an agreement entered into by a corporation in which they have an interest or are employees." Suh v. Sup. Ct., 181 Cal.App.4th 1504, 1513 (2010). Could U-Haul shoehorn the case into an exception that would allow U-Haul to compel arbitration against a nonsignatory?
Third-party beneficiary. This exception did not work, because the contract was for the benefit of Mr. Jensen's employer, not for his benefit.
Agency. While there is an agency exception, allowing some nonsignatories to be bound by an arbitration provision, the Court finds that in each case where the nonsignatory was bound to arbitrate, the finding "is based on facts that demonstrate, in one way or another, the signatory's implicit authority to act on behalf of the nonsigntory." The Court did not find the facts warranted a finding here that the employer had implicit authority to bind the employee to arbitrate.
Equitable estoppel. This exception comes into play when the nonsignatory asserts claims that are "dependent upon, or inextricably intertwined with" the underlying contractual obligations of the agreement containing the arbitration clause. However, that was not the case here, because the plaintiffs did not rely on the terms of the rental agreement between the employer and U-Haul to assert their claims.
So the Court of Appeal affirmed the trial court's denial of U-Haul's motion to compel arbitration.
COMMENT: Mr. Jensen was an agent of his employer for some purposes, but that did not mean that the employer had "implicit authority" to bind Mr. Jensen to arbitrate. This is a very fact-specific finding, because it means that the focus must be not on whether an agency relationship exists (e.g., employer/employee), but on whether one party had "implicit authority" based on all the facts and circumstances, to bind another party to arbitrate. There is no bright line here: one must look at the facts and circumstances. The absence of a bright line may promote fairness at the same time that it engenders litigation.
Federal Arbitration Act, Consumers, Arbitration: First Amendment Challenge To Arbitration Clause Fails In Ninth Circuit
Does The Federal Arbitration Act Implicate "State Action"?
"No" is the short answer. However, read on if you want to know about the novel argument made by consumer plaintiffs in Roberts v. AT&T Mobility, No. 16-16915 (9th Cir. 12/11/17) (Tallman, Hawkins, Fletcher).
In Roberts, AT&T moved to compel arbitration against putative class action consumer plaintiffs, based on the ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). At first blush, one might consider the issue of the validity of AT&T's arbitration clause to have been settled by Concepcion, which held that the Federal Arbitration Act (FAA) preempted state law deeming AT&T's arbitration to be unconscionable. However, the plaintiffs in Roberts tried a different tack, challenging AT&T's arbitration clause on the constitutional ground that it violated the First Amendment Petition Clause.
The Petition Clause guarantees that we can petition the government to redress grievances without fear of retribution. Essentially, the plaintiffs argued that judicial and legislative encouragement of arbitration is so strong, through the enactment of the FAA and Supreme Court enforcement of the FAA to compel arbitration, that the government deprived the plaintiffs of the right to petition by depriving them of their ability to have a court adjudicate their claims.
The threshold question in deciding the First Amendment Petition Clause claim is whether state action is even involved. The district court did not find state action, and the Ninth Circuit agreed. The Court of Appeals concluded that AT&T's conduct is not attributable to the state, and, quoting Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 937 (1982), "private parties [do not] face constitutional litigation whenever they seek to rely on some [statute] governing their interactions with the community surrounding them."