Arbitration: Existence Of Agreement/1281.2/Stay: Incorporation By Reference Works This Time, But It’s Not The End Of The Story
Settlement Agreement Incorporated Arbitration Clause In Licensing Agreement — But Only Claims Arising Out Of Or In Connection With Any Provision In The Licensing Agreement Could Be Arbitrated.
On February 9, 2018, we posted about Cirile v. Petersen-Dean, an unpublished case, in which incorporation by reference was too amorphous and vague to incorporate an arbitration provision in a separate agreement. In Advanced Charging Technologies, Inc. v. Flexible Manufacturing, LLC, G054671 (4/3 2/21/18) (Thompson, O'Leary, Ikola) (unpublished), incorporation by reference did work — sort of.
In Advanced Charging Technologies, a Settlement Agreement entered into one day after a Licensing Agreement, and including an integration clause, incorporated the terms and conditions of the Licensing Agreement. And the Licensing Agreement included an arbitration provision applying to a dispute or claim arising out of or in connection with any provision of the Licensing Agreement. The trial court denied a motion to compel arbitration, believing that the integration clause wiped out the Licensing Agreement, an argument rejected by the Court of Appeal, because the successful incorporation by reference preserved the terms of the Licensing Agreement. The trial court also believed that the arbitration clause, which only applied to the disputes arising out of the Licensing Agreement, was too narrow to cover disputes arising out of the Settlement Agreement, a position that did have some traction in the Court of Appeal.
The upshot is that Court of Appeal reversed and remanded, with directions to grant the motion to compel arbitration, and set up a three-step process. First, the trial court had to decide whether the claims arose out of or in connection with the License Agreement that was incorporated by reference. Second, the trial court had to determine whether the resolution of "any nonarbitrable issues may make the arbitration unnecessary, as set forth in Code of Civil Procedure section 1281.2." And finally, the trial court was directed to order any appropriate stay order.
Arbitration, Delegation, Waiver, Jurisdiction, Deadlines: Conduct Of Parties Evidenced Consent To Allow Arbitrator To Decide The Issue Of His Own Jurisdiction
To Ask The Question Is To Answer It . . .
My law professors seemed fond of that old chestnut, "to ask the question is to answer it." Once you know the question presented by the Court of Appeal in Douglass v. Serenivision, Inc., B277574 (2/2 2/18/18) (Hoffstadt, Lui, Chavez) (published), you will know the answer.
Question: Does a party clearly and unmistakably consent to have an arbitrator decide his own jurisdiction when that party does not object to the arbitrator's jurisdiction in its answer to the arbitration petition, informs the arbitrator that it is "voluntarily" "submit[ing]" to the arbitrator's jurisdiction, appears at multiple prehearing conferences, formally asks the arbitrator to impose a bond requirement on the opposing party, and only after the arbitrator denies that request tells the arbitrator that its submission to jurisdiction was conditional on obtaining that bond?
Answer: On these facts, we conclude that such conduct does constitute clear and unmistakable consent to allow the arbitrator to decide the issue of his own jurisdiction. We further conclude that the party's challenge to the arbitrator's jurisdiction is untimely and that his challenges to the arbitrator's assessment of his jurisdiction and to the ultimate arbitration award are without merit.
Twenty pages of explanation follow the foregone conclusion.
TRIVIA: Who said: "To ask the question is to answer it?" The phrase was used in Supreme Court cases in the 19th century, in opinions authored by Mr. Justice Brewer in In Re Debs, 158 U.S. 564 (1895), and by Mr. Justice Matthews in Heald v. Rice, 104 U.S.737 (1882). Since then, the phrase has appeared in numerous cases.
Existence Of Arbitration Agreement Flops For Failure To Successfully Incorporate By Reference
An Agreement Need Not Expressly Provide For Arbitration But May Do So In A Document Incorporated By Reference.
Petersen-Dean appealed from denial of its petition to compel arbitration. The central question on appeal was "whether the mention of the warranty in the contract incorporated the warranty, with its arbitration clause, into the contract." Cirile v. Petersen-Dean, Inc., B278075 (2/7 2/6/18) (Zelon, Segal, Bensinger) (unpublished). The Court of Appeal explained that the warranty was not listed among the documents incorporated by reference, the contract language was "amorphous" and the contract language "did not guide the reader to the warranty as a source of terms incorporated into the contract." Judgment affirmed.
COMMENT: A successful incorporation by reference should be conspicuous, specific, clear, and unambiguous.
Perhaps the Court of Appeal was also irked by a lack of candor, for Justice Zelon wrote: "In its petition to compel arbitration, Petersen-Dean did not disclose to the court that the arbitration provision was not set forth in the contract the parties signed in June 2014 but was contained in the owner's manual provided after the system had been installed."
Confidentiality: When Non-Confidentiality Can Sometimes Facilitate Resolution Of A Dispute
Confidentiality and Sexual Harassment.
Peter J. Marx, an experienced mediator and arbitrator affiliated with Alternative Resolution Centers (ARC) has written a short article entitled, "Confidentiality: Special Considerations In Sexual Harassment Cases." The article is available on the ARC website at this link.
Mr. Marx recounts a mediation involving alleged date-rape, alcohol, and consent issues. The key to settlement was a written apology of sorts, acknowledging inappropriate behavior, that the plaintiff was allowed to disseminate. Mr. Marx concludes: "[N]on-confidentiality may be explicitly utilized as a significant and in a given case essential aspect of the resolution of sexual harassment claims." A rare use of non-confidentiality in a sexual harassment case!
Vacatur: Effort To Set Aside Arbitration Award For Arbitrator’s Failure To Consider An Issue Fails
The Case Includes Good Discussion Of What Constitutes A Judicial Admission.
With narrow exceptions, an arbitrator's decision cannot be reviewed for errors of fact or law. One such exception, which was invoked by the Appellant in Shenoi Koes LLP v. Bank of America, et al., B281756 (2/4 1/31/18) (Willhite, Epstein Manella) (unpublished) is when the rights of the party "were substantially prejudiced by . . . the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title." Cal. Code Civ. Proc., section 1286(a)(5).
Appellants had made a motion in limine in arbitration to preclude Appellee from giving testimony "that contradicts judicial admissions in her pleadings." Appellants argued on appeal that when their motion was denied, the arbitrators somehow failed to consider an issue necessary to determine the controversy, because they failed to interpret a contract in light of binding judicial admissions. The Court of Appeal, however, didn't buy the argument, believing there never had been binding judicial admissions, and so the motion lacked merit. The judgment was affirmed.
See the case for a discussion of what constitutes a genuine judicial admission. It must be in the pleadings, not in testimony, and it cannot be taken from a prior proceeding.
Reviews: Two Articles In The Economist Are Critical Of Arbitration In The United States
Emptying The Courtrooms . . .
The January 27, 2018 edition of The Economist has two short articles critical of arbitration in the US: "Shut out by the small print" (p. 10) and "Kept out of the courthouse" (p. 61). The articles are somewhat duplicative — here are a few of the highlights:
- In the early 1990s, 2% of non-unionized employees were bound by mandatory arbitration agreements – now it is more than half.
- Arbitration was originally designed for commercial disputes, and works best when power is balanced between the two sides.
- In employee/employer disputes, and business/consumer disputes, power tends to tip in favor of the employer and the corporation.,
- Employers tend to have better outcomes in arbitration than in court lawsuits.
- Given the political climate, legislative attempts to limit arbitration seem unlikely.
- "The popularity of arbitration is a sign of how very costly and technical the courts have become, says Andrew Pincus, a partner at Mayer Brown, a law firm, who advises companies on such procedures."
- Consent to arbitration is "a fantasy of consent, rather than the real thing," says Katherine Stone at UCLA.
- Arbitrators in employment disputes may be especially reluctant to award punitive damages, out of concern that they will never arbitrate another employment dispute.
- The confidential aspects of arbitration and lack of transparency may silence victims.
- "In the wake of the #MeToo movement, legislators are now taking aim at arbitration in harassment cases."
HAT TIP to my colleague Mike Hensley who brought the two articles to my attention today.