Arbitration, Construction of Agreement, International, FAA: Arbitration Agreement Not Signed By Parties Was Unenforceable, Based On Placement Of Comma
This Case Is For Grammar Afficionados; Or, What A Difference A Comma Makes.
Only and exclusive photo of the Vestris as it went down. Fred Hansen, photographer, active 1928. Library of Congress.
Mr. Yang, a seaman, died when the fishing vessel he worked on sank because of inadequate repairs and an incompetent crew. There were two defendants: Majestic Blue Fisheries, LLC, Mr. Yang's employer, and Dongwon Industries Co., Ltd., an affiliated company that provided the repairs and a crew for Majestic's vessel. The district court denied a motion to compel arbitration with Dongwon, and Dongwon appealed. Yang v. Dongwon Industries, 15-16881 (9th Cir. 11/30/17) (Nguyen, Fisher, Paez).
The agreement containing an arbitration clause was signed by Mr. Yang and by Dongwon "on behalf of MAJESTIC BLUE FISHERIES, LLC." Thus, the parties to the agreement were Mr. Yang and Majestic.
The key legal issue turned on the interpretation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention Act), which implements a Convention Treaty, and — drum roll — on the placement of a comma.
The Convention Act requires that a party seeking to compel arbitration must prove the existence and validity of "an agreement in writing withing the meaning of the Convention" Treaty. And the Convention Treaty defines an "agreement in writing" to "include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams." Dwell upon the placement of the comma. Ponder what "signed by the parties" modifies.
Under cannons of construction, when a comma is included, "the modifier is generally understood to apply to the entire series." Thus, here, "signed by the parties" modifies both "an arbitral clause in a contract" and "an arbitration agreement." Neither of which was "signed by the parties." Hence, the arbitration provision could not be enforced by Dongwon.
Nor could Dongwon rely on the Federal Arbitration Act to enforce the arbitration provision, "because the FAA expressly exempts from its scope any 'contracts of employment of seamen.'"
And finally, the Court rejected as a "doctrinal sleight of hand" Dongwon's argument that the Convention Act requirements could be circumvented "by importing into our Convention Act analysis precedent permitting a 'litigant who is not a party to an arbitration agreement to invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement.'"
Affirmed.
COMMENT: It is sobering to think that the legal rights of the family of a drowned seaman depended on the placement of a comma.
Arbitration, Enforceability/Construction Of Agreement: Parties Agreeing To Arbitrate Under Rules Set By Third Party Is Bound By Rule Change That Product Liability Claims Will Not Be Heard
Defendant Seeking To Compel Arbitration Had Argued That Claim To Be Submitted To Arbitration Accrued Before Rule Changed.
This case presents a somewhat unusual situation, in that the Court of Appeal had to construe an arbitration agreement that was not directly between the parties. Instead, the parties independently agreed to participate in an industry arbitration program offered by a nonprofit organization, Arbitration Forums, Inc. (AF), which, however, was not a party to the lawsuit. State Farm General Insurance Company v. Watts Regulator Co., B271236 (2/8 11/30/17) (Grimes, Rubin, Flier).
After damage was allegedly caused by a defect in a supply line manufactured by Watts, State Farm paid an insurance claim and filed a subrogation lawsuit against Watts. Because Watts and State Farm were part of the industry AF arbitration program, Watts sought to compel arbitration. The trial court denied the motion, because AF had changed its rules so as to exclude product liability claims from arbitration. Watts appealed, arguing it had a vested right to arbitrate, because AF had changed its rules after the claim accrued. Therefore Watts argued it should be able to arbitrate under the agreement and rules in effect with AF before January 1, 2015.
The Court of Appeal, however, rejected the retroactivity argument. The parties agreed to arbitrate under terms and rules set by a third party, AF, the third party informed the parties of the rule change, and the parties continued with the program.
NOTE: The Court distinguishes the situation in the case from that in which an employer and an employee enter directly into a dispute resolution agreement, and the employer unilaterally changes the rules after a claim accrues. In that employment context, where the parties have directly contracted with one another, retroactivity does apply. Changing the contract unilaterally could be a breach of the covenant of good faith and fair dealing between the parties.
Settlement Agreements: Party Seeking To Invoke CCP 664 To Enforce Settlement Did Not Preserve Court’s Jurisdiction Simply By Putting The Request In A Confidential Settlement Agreement
If You Want The Court To Retain Jurisdiction, Ask The Court.
"This case offers an object lesson on the requirements to invoke section 664.6 and the consequences of failure to comply with those requirements." Sayta v. Chu, A148823 (1/5 11/29/17) (Bruiniers, Jones, Simons).
Plaintiff/Apppellant Sayta settled a tenant dispute with the landlord Chu, entering into an agreement with a confidentiality provision, and a liquidated damages clause. The settlement agreement specifically stated: "[T]he Court may nevertheless retain jurisdiction to enforce the terms of the settlement, until such time as all of its terms have been performed by the parties, as the parties requested this specific retention of jurisdiction." Following the execution of the settlement agreement, the case was dismissed.
Sayta sought to invoke section 664.6 to enforce the liquidated damages clause after he believed Chu had breached the agreement. He was unsuccessful, for lack of jurisdiction. As the Court of Appeal explained, the parties to a settlement agreement are unable to confer jurisdiction on trial courts by including language in a settlement agreement, "but not asking the court to retain jurisdiction."
Best line: "Sayta fails to explain how the court could have fathomed a 'request' for retained jurisdiction, much less granted it sub silentio from a secret handshake of the parties."
Arbitration/Agents: Hutcheson v. Eskaton Fountainwood Lodge Is Filed On Rehearing
Deficient Power Of Attorney Was Used For Making Decisions Relating To Health Care.
Hutcheson v. Eskaton Fountainwood Lodge, C074846 (3rd Dist. 11/28/17) has been ordered filed on rehearing. We posted earlier about this case on June 15, 2017. The case held that a residential facility for care of the elderly could not enforce an arbitration provision, because the power of attorney under which the agreement was executed did not provide for making health care decisions.
COMMENT: This is a fact-specific outcome, depending on whether in this instance this residential care facility for the elderly provided health care for its residents. Nevertheless, prudence dictates that residential care facilities for the elderly also follow the requirements of the Health Care Decision Law, Probate Code sections 4600 et seq., in order to have enforceable arbitration clauses.
Arbitration/Collective Bargaining/Administrative: Cal Supreme Court Holds That Compulsory Interest Arbitration In Private Sector Is Constitutional
Compulsory Interest Arbitration Withstands Challenges That It Is Unconstitutional And An Improper Delegation Of Legislative Authority.
In 2002, California enacted "Mandatory Mediation and Conciliation" (MMC) provisions to facilitate negotiating and completing collective bargaining agreements between agricultural employees and growers. As the label MMC suggests, it is an unusual scheme, since "mandatory" and "mediation" are not usually joined. But this is more than mandatory mediation. If employer/union negotiations fail to reach a first contract, either side can invoke MMC, and the mediator resolves disputed terms and submits a proposed contract to the Agricultural Labor Relations Board, which can then impose the contract on the parties. Thus, the statutory scheme is also quasi-legislative.
Mandatory Mediation and Conciliation is thus a form of compulsory interest arbitration, which is a very different animal than grievance arbitration. As the Supreme Court explains:
Unlike “grievance arbitration,” which focuses on “construing the terms of an existing agreement and applying them to a particular set of facts,” interest arbitration “focuses on what the terms of a new agreement should be.” . . . The MMC process results in “quasi-legislative action” by which “[t]he terms of the ‘agreement’ determined by the arbitrator [are] imposed upon [the employer] by force of law.”
In Gerawan v. Agricultural Labor Relations Board (United Farm Workers of America, Real Party In Interest), S227243 (Sup. Ct. 11/27/17) (Liu, author), one of our state's largest agricultural growers took on the legendary union founded by Cesar Chavez, challenging the MMC process as unconstitutional and as an improper delegation of legislative authority, succeeding in the Court of Appeal, but losing in the California Supreme Court.
Basically, Gerawan's position was that imposing a contract on the individual employer through the MMC process was coercive and at odds with freedom of choice for the employer as well as the employee. The Supreme Court held that there was no violation of equal protection because there was a rational basis for the MMC process, and the process did not involve an improper delegation of statutory authority.
In addition to addressing the constitutional issue, the Supreme Court addressed a statutory issue Gerawan argued that the union had abandoned its employees after a lengthy absence and therefore forfeited its status as employee representative. The Court held "that an employer may not defend against a union's MMC request by challenging the union's certification as bargaining representative on the basis of abandonment."
COMMENT: In the landmark 1905 case Lochner v. New York, involving the state's regulation of bakery employee hours, a majority of the SCOTUS held that there was "unreasonable, unnecessary and arbitrary interference with the right and liberty of the individual to contract," provoking Justice Holmes' famous dissent, and memorable line, "The Fourteenth Amendment does not enact Mr. Herbert Spencer's Social Statics." Who knows? Federalist Society picks likely to be appointed to the SCOTUS, could breathe new life into the spirit of Lochner. If the SCOTUS revives the spirit of Lochner, arguments about coercion of employers by unions and legislatures may strike a chord that they do not strike in the California Supreme Court.
On May 15, 2016, I blogged about another aspect of the Gerawan case, the unconstitutionality of a statutory provision that limited review of the Agricultural Labor Relations Board to the Court of Appeal and the Supreme Court, improperly divesting the superior court of original jurisdiction.
PAGA: Second District, Div. 4 Holds Plaintiffs’ Arbitration Clause Is Unenforceable Predispute Clause Where Lawsuit With PAGA Claim Was Filed By Other Employees
When Is An Agreement To Arbitrate A PAGA Claim Predispute Or Postdispute?
Let me begin with what I believe is the punchline of our next case: "[T]he classification of an agreement as 'predispute' or 'post dispute' must be made by reference to the point at which an individual employee acquires the status of the state's agent." Julian v. Glenair, Inc., B277064 (2/4 11/27/17) (Manella, Epstein, Willhite). What does that mean here, and why is it important? First, it matters, because predispute arbitration clauses have been found unenforceable as to representative PAGA claims. Second, this case looks closely at the distinction between predispute and post dispute clauses, a distinction that was somewhat confusing to apply in Julian.
Julian involves unusual facts. Employees other than the Julians brought a lawsuit, the Rojas action, that asserted Labor Code violations and a PAGA claim for civil penalties. The employer, Glenair, then served its employees with a proposed arbitration agreement, giving them an opportunity to opt out, informing them of the PAGA claims, and stating that it was governed by the Federal Arbitration Act. Malissa and Machele Julian took no steps to opt out.
A third amended complaint in the Rojas action was filed, asserting no PAGA claim. A fourth amended complaint identifying the Julian parties as respondents contained a PAGA claim, but was never filed. Later, the Julians initiated their underlying action against Glenair, including a single claim under PAGA for civil penalties on behalf of themselves and other non-exempt employees.
So now we have teed up the issue: as to the Julians, was the arbitration clause as to which they failed to opt out predispute or post dispute? By the time they failed to opt out of arbitration, the company had already informed its employees (whether the Julians understood the information is a separate matter) of the PAGA claims in the Rojas action. And the Rojas action brought representative PAGA claims. From Glenair's point of view, the arbitration provision was therefore post-dispute as to a PAGA claim, and should be enforced against class members who did not opt out. Glenair argued that the agreement obliged respondents to submit their PAGA claim to arbitration.
The Court of Appeal holds that "the predispute/postdispute boundary is crossed when the pertinent employee is authorized to commence a PAGA action as an agent of the state." Here, that boundary was not crossed before the employees met the statutory requirements for commencing a PAGA action, i.e., filing a notice with the Labor and Workforce Development Agency, and waiting the statutory period for a response. Here, the arbitration agreement was submitted to the Julians before they, individually, satisfied those statutory requirements. Therefore, as to the Julians, the arbitration agreement was pre-dispute, and unenforceable. The Julians here were the "pertinent employee[s]" for determining whether the predispute/post dispute boundary had been crossed.
COMMENT: How is the situation in Julian any different from in Iskanian, the California Supreme Court PAGA case? In Iskanian, the Supreme Court confronted a situation where a pre-dispute arbitration clause purported to foreclose a PAGA claim in a judicial forum, as well as in arbitration. Glenair, however, did not try to use the predispute clause to foreclose arbitration of the PAGA claim. Nevertheless, Julian holds that the pre-dispute clause cannot be used to foreclose the Julians from choosing a judicial forum.
What is to prevent many individual employees from filing separate PAGA lawsuits with similar claims against the same employee? The Court explains that since a PAGA claim is a representative action in which the state has an interest, judicial estoppel will protect the employer.
It seems safe to predict that employer efforts to compel arbitration of PAGA claims will continue to generate case law.