Arbitration, Class Action, Waiver, FAA, Employment: Oral Argument For Epic Systems Corp v. Lewis And Consolidated Cases Is Now Available On-Line
Epic Systems Corp. And Consolidated Cases Pit FAA Against NLRA.
Does the right to arbitrate a case under the Federal Arbitration Act trump the right of employees to engage in concerted activity under the National Labor Relations Act by filing a class action lawsuit against an employer?
Oral argument in Epic Systems Corp v. Lewis and consolidated cases is now available on-line. Just click here and follow the media link to "Oral Argument – October 02, 2017."
Arbitration/PAGA: Notwithstanding Federal Arbitration Act, 2/4 CCA Holds PAGA Representative Actions Cannot Be Arbitrated
Under What Circumstances Could Predispute Arbitration Agreements Properly Subject PAGA Claims To Arbitration?
The arbitrability of PAGA claims continues to generate court opinions.
In Christman v. Apple American Group II, LLC, B271937 (2/4 10/4/17) (Manella, Epstein, Collins) (unpublished), the Court notes that Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) "did not expressly address the circumstances — if any — under which predispute arbitration agreements might properly subject PAGA claims to arbitration." For example, if there is an opportunity for class arbitration, is it proper to submit the PAGA claims to arbitration?
Following Iskanian, however, two appellate courts have concluded "that because a PAGA plaintiff asserts that claim as an agent of the state, a predispute arbitration agreement the plaintiff has executed as an individual does not subject the claim to arbitration because the right underlying the claim is then subject to the state's control." Christman follows that reasoning in holding that plaintiff employee's PAGA claims are not arbitrable, in circumstances where the arbitration agreement relies on the FAA to govern its interpretation and enforcement, and the employer has abandoned its argument that the employee "may assert only individual claims in arbitration."
COMMENT: The Court acknowledges that its opinion it is at odds with Valdez v. Terminix Intern. Co. Ltd. Partnership (9th Cir. 2017), in which the federal court reasoned that "the plaintiff, as the state's representative, was free to agree to arbitration." The Christman court finds Valdez unpersuasive: first, because the PAGA claim is not a dispute between the employer and an employee, given California's interest; and second, because the predispute waiver is entered into by the plaintiff individually, at a time when she is not the state's representative.
Settlements: Stipulation To Enter Judgment For $300K After Defendant Defaults On One-Time Payment of $75K Is An Unenforceable Penalty
Admission Of Liability For Underlying Claims Or For Damages Alleged Might Have Made A Difference.
Stipulations to enter judgment upon default for an amount that is larger than an agreed-upon settlement payment continue to confound judges, attorneys, and parties. In Vitatech International, Inc. v. Sporn, G053477 (4/3 9/29/17) (Aronson, Bedsworth, Ikola) (unpublished), the trial court entered judgment against defendants for more than $300,000, based upon a stipulation for entry of judgment, after defendants failed to pay the agreed-upon settlement amount of $75,000. Plaintiff Vitatech contended that the $75,000 settlement amount was merely a discount of the agreed-upon liability to encourage prompt and timely payment, and the trial court agreed.
Defendants did well to appeal. The Court of Appeal applied "well-established precedent", including Greentree Financial Group, Inc. v. Execute Sports, Inc., 163 Cal.App.4th 495 (2008), to explain that the stipulated judgment for more than four times the amount Vitatech agreed to accept as full settlement "is an unenforceable penalty because it bears no reasonable relationship to the range of damages the parties could have anticipated would result from Defendants' failure timely to pay the settlement amount."
COMMENTS: My colleague Mike Hensley represented the successful appellant in Greentree. Mike and I are co-contributors to another blawg, California Attorney's Fees.
An interesting aspect of the Vitatech International, Inc. case is whether appellants properly sought to vacate the judgment under section 473(d), which allows for the vacation of void judgments. A judgment can be void when the court lacks fundamental authority over the subject matter, question presented, or party, which does not seem to be the case here. But the Court of Appeal found another example of a void judgment here: viewed as an unreasonable liquidated damages provision, the judgment was "void as against public policy."
Finally, what might have saved the stipulated judgment? The Court of Appeal analyzes other cases in which a stipulated judgment has been found to be valid, and suggests that the stipulated judgment could have survived if the appellants had admitted their liability for the underlying claims or for the damages Vitatech alleged in the complaint. Apparently merely agreeing to stipulate to the amount of damages alleged in the complaint was not the same as expressly admitting liability for those damages.
Arbitration/Waiver: Employer’s Delay In Seeking Arbitration And Prejudice To Employee Resulted In Waiver Of Right To Arbitrate
After Trial Court Found 2013 Agreement To Arbitrate "Unconscionable", Employer Turned To A 2008 Agreement.
After employee Hackney left Arbitech and went to work for a competitor, PNH, Arbitech sued Hackney and PNH for misappropriation of trade secrets and other claims, and the defendants cross-complained. Hackney filed an individual and class action alleging employment-related claims against Arbitech. Relying on a 2013 agreement to arbitrate, Arbitech sought to compel arbitration of Hackney's claims, but the trial court found the 2013 arbitration agreement to be "unconscionable." In opposing the motion to compel arbitration, Hackney introduced a 2008 agreement.
Four months after the trial court ruled the 2013 agreement was unenforceable, Arbitech filed a second motion to compel arbitration, this time relying on the 2008 agreement. The trial court ruled that the 2008 agreement, which required both parties to arbitrate their claims, was not enforceable. Because Arbitech continued to litigate its claims, while seeking to arbitrate Hackney's claims, Arbitech waived its right to arbitrate. Arbitech appealed. Arbitech, LLC v. Hackney, G053744 (4/3 9/28/17) (O'Leary, Ikola, Thompson) (unpublished).
The Court of Appeal agreed that waiver had occurred, as a result of delay, and prejudice to Hackney. Hackney had suffered prejudice by being "forced to reveal her litigation strategies in answering the complaint, engage in mediation, and fight Arbitech's efforts to have the case deemed complex." The parties battled at length over discovery issues. "Consequently, over the course of 14 months Hackney completely lost any benefit associated with a more streamlined arbitration process."
COMMENT: Though unpublished, this case addresses an inconsistency in the law of novation, and applies its analysis of the correct theory of novation to the 2008 and 2013 agreements.
Arbitration/Collective Bargaining/Appealability: Union Employee’s Writ Petition Was Not Proper Route To Challenge Arbitrator’s Award
San Francisco Trolley Operator's Writ Petition And Motion To Vacate Go Off The Rails.
San Francisco Trolley on Market St. 2012. Carol M. Highsmith, photographer. Library of Congress.
Appellant's procedural quagmire is underscored by the following statement of the Court of Appeal: "In a somewhat puzzling argument, appellant contests his own standing to challenge the arbitration award." Quiambao v. San Francisco Municipal Transportation Agency et al., A148511 (1/4 9/28/17) (Ruvolo, Reardon, Streeter) (unpublished).
Mr. Quiambao, a San Francisco trolley car operator engaged with his municipal employer in a union grievance and arbitration procedure resulting in his dismissal, based on safety violations and conduct issues. Rather than moving to vacate the award in court pursuant to CCP 1286.2, Mr. Quiambao filed a writ of mandamus. The thought process here is a bit obscure: an employee does not have standing to appeal an arbitration award where a union acts on his behalf, as was the case here, so apparently Mr. Quiambao decided to file a writ. The trial court concluded, and the Court of Appeal agreed, that the Court of Appeal properly dismissed the writ petition too, because a writ petition is not the way to challenge a private arbitration award.
A motion to vacate would be appropriate, if it had been filed by the Union, which would have had standing. But the trial court, the Muni, and the employee all allowed Mr. Quiambao's challenge to be treated as a motion to vacate, even though he, rather than the union, acted as a party. Respondent Muni argued appellant could not now "press rewind" and undo his standing, because if the trial court granted standing erroneously, it was "invited error." The Court of Appeal explained that "invited error" didn't apply, since the trial court was not mislead in any way. Instead, Mr. Quiambao could not press rewind, because he had expressly agreed to the action taken by the trial court when it treated his papers as a motion to vacate. Thus, the proper label was "waiver" rather than "invited error."
On the merits, the employee lost his appeal, with the Court of Appeal finding no evidence of fraud, and with the Court explaining that even mistake of law or fact is ordinarily no reason for setting aside an arbitrator's award.
Arbitration/CCP 1281.2/FAA/Existence Of Agreement: 4/3 CCA Hold That, Despite Interstate Commerce, Procedural Aspects Of California Arbitration Act Apply Where Contract Is Silent About Application Of FAA To Procedure
Oh, And An Attempt At Incorporation By Reference Failed To Create An Arbitration Agreement.
Lennar Corporation v. General Security Indemnity Company of Arizona, G053418 (4/3 9/28/17) (Fybel, Aronson, Ikola) (unpublished) involved a dispute between a developer, Lennar, and its excess insurer, General Security, arising after a "drywall product manufactured in China and used in Lennar houses began releasing gases, causing bodily injury to occupants, and property damage to wiring, pipes, and other materials in the houses." Yech. The excess insurer sought to compel arbitration, failed, and appealed.
The appeal was unsuccessful.
First, the Court of appeal held that General Security failed to prove the existence of a valid arbitration agreement between it and Lennar. General Security's insurance policy "followed form to" another insurer's policy that did contain an arbitration clause. A "following form" policy incorporates the terms and conditions of another carrier's policy. Unfortunately for General Security, however, the Court held that the incorporation by reference was not effective, because there was no specific reference to the fact that the other policy included an arbitration provision, and the arbitration provision in the other policy, which required arbitration in London pursuant to English arbitration rules, was not one to be reasonably expected.
The Court also held that the provisions of CCP 1281.2, allowing a Court to not enforce an arbitration agreement when pending litigation with a third party creates the possibility of conflicting rulings, applied here, so that the trial court could properly deny the motion to compel arbitration.
Interestingly, the Court agreed that the Federal Arbitration Act applied, because interstate commerce was involved. When the FAA governs arbitration procedures, then it preempts CCP 1281.2. However, here, the agreement did not provide that the FAA or the CAA governed procedure in state court, and thus the Court concluded that where the agreement is silent about procedure, then the CAA governs procedure in state court.
COMMENT: Where the FAA rather than the CAA governs procedure, it is more likely that courts will grant a motion to compel arbitration. If the parties want the procedural aspects of the FAA to apply in state court in California, they should so specify, because otherwise the procedural aspects of the FAA may not apply. Of course, specifying that the FAA governs procedural aspects would not have made a difference here if, in fact, the incorporation by reference failed to create an arbitration agreement.