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.
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.