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.
Arbitration, Standard Of Review: Trial Court’s Order Denying Motion To Compel Arbitration Is Affirmed Where Trial Court Had To Rule On “Intensely Factual And Hotly Contested Issues”
"This Appeal Comes Down To Application Of The Standard Of Review."
While I have blogged many times about cases in which the Court of Appeal has reversed an order denying a motion to compel arbitration, this is not one of those cases. T3 Motion, Inc. v Tsumpes, G053654 (4/3 11/14/17) (Fybel, Bedsworth, Thompson) (unpublished). When the Court of Appeal tells us early on that the disputes before the trial court were "intensely factual and hotly contested" we have a good idea of where it is pointing to: affirmance, based on the substantial evidence standard of review.
Here, a company and its CEO disagreed about whether the CEO entered into a written Employment Agreement containing an arbitration clause that the CEO could invoke. The trial court found that, while the Board of Directors may have discussed the concept of the Employment Agreement in September 2013, there was a lack of mutual assent, and there was forensic evidence that the Employment Agreement containing the arbitration provision and signed by Tsumpes had been created in 2015.
Affirmed.
Arbitration, Fees, MFAA/Mediation, Condition Precedent: Defendant Who Did Not Agree To Binding Arbitration Was Nevertheless Bound By Mandatory Fee Arbitration Act Award
A Mistake By The Trial Court Did Not Affect The Outcome.
Client Nussbaum and attorney Liberty had a fee dispute that they arbitrated pursuant to the Mandatory Fee Arbitration Act (MFAA). The arbitration panel awarded Liberty $75K in fees and $30K in interest. After the notice of the award was mailed and more than 30 days had passed, the attorney moved to confirm the fee award. And after the fee award has been confirmed, the client appealed the order confirming the award. Liberty v. Nussbaum, A149830 (1/1 11/9/17) (Dondero, Margulies, Banke) (unpublished).
It appeared to the Court of Appeal that "the trial judge here mistakenly concluded that the parties had elected to have binding arbitration at the time of the arbitration hearing . . . " No matter. The MFAA creates a statutory scheme, and if the award is not challenged within 30 days after service by requesting a trial de novo or by moving to vacate, it becomes final. Such was the case here.
The arbitration provision also required that the parties mediate as a condition to arbitrating. Here, however, the client did not assert a right to mediate before the arbitration. The Court of Appeal analogized this failure to a waiver by delay of the right to arbitrate.
The order confirming the arbitration award was affirmed.
COMMENT: The Court of Appeal described the respondent plaintiff – attorney's failure to file an appellate brief as "plaintiff's dereliction of duty" — especially so, because the respondent was an attorney. Lucky for respondent, the Court of Appeal sua sponte undertook the tasks of reviewing the record on the basis of defendants' brief, and the trial court's order and judgment for prejudicial error!
Reviews: The Case For Creating A Mediation Department
Mediator Dennis S. Klein Makes Case For Creating A Mediation Department In Your Law Firm.
In a November 14, 2017 article available through Law360 and LexisNexis, Dennis S. Klein, owner of Miami-based ADR firm Critical Matter Mediation, advocates "The Case For Creating A Mediation Department At Your Law Firm."
Mr. Klein makes four arguments: (1) the volume of mediation is high, as few cases proceed to trial, and many cases are resolved through ADR; (2) the mediation skill set is specialized; (3) there is a growing trend toward expertise in litigation; (4) client relations benefit when the client knows the lawyer seeks a cost-effective solution.
So why haven't law firms created mediation departments, just as they have created specialized appellate practice departments? My hunch is that many transactional and litigation attorneys view mediation skills as generalized skills that they are endowed with. The bar exam does not test for mediation skills. And yet many of us know outstanding litigators who prefer their role as committed advocates to having to deal with unsatisfying negotiation and compromise. Mr. Klein's proposal is worth consideration, especially by large law firms with a critical mass of cases that will proceed to mediation.
Arbitration, Appealability, Fees, Estoppel, Waiver, Sanctions: Fourth Dist. Div. 3: “This Is An Appeal Borne Of Sharp Practices”
Waiver, Invited Error, And Sharp Practices Doom The Appeal.
Justice Ikola grabs the reader by the lapels in the opening lines of Diaz v. Professional Community Management, Inc., G053909 (4/3 certified for pub. 11/8/17) (Ikola, O'Leary, Aronson): "A 'sharp practice' is defined as a 'dealing in which advantage is taken or sought unscrupulously. . . . This is an appeal borne of sharp practices." The unsettling feeling that one side is about to get slammed is thoroughly reenforced by the Justice's choice of words in the first four pages of a 32 page slip opinion: efforts by a party to "spin that ruling", "invited error", "bad faith", "specious", "deliberately designed to obscure," "machinations," "patently unfair manner", "frivolous appeal", "we were most disturbed." One need hardly read further, but I did, because the case involved arbitration.
So what so exercised the ire of the appellate justice? Defendant/appellant PCM "unilaterally orchestrated the issuance of an appealable order" 11 days before trial, by filing an ex parte application to shorten time to hear its motion to compel arbitration, knowing the trial judge would deny it — the case had been pending for 1 1/2 years, defendant had pleaded it had a right to arbitrate as an affirmative defense, defendant had done nothing to perfect that right earlier, and there was no justification for a last moment application to shorten time. Denial of an ex parte application to shorten time, however, would not have generated an appealable order. So defendant immediately submitted an order to the trial judge, inconsistent with the ex parte application and the minute order, burying within the proposed order that the judge was also denying the motion to compel arbitration — a motion that was never heard, and that was still on calendar. The judge signed the order, probably without realizing that he was being played, and the order denying a motion to compel arbitration became the springboard for an appeal and a stay.
Defendant lost its appeal because "PCM invited the trial court's alleged error when it proposed the court issue the very ruling it now challenges on appeal. By doing that, PCM won the battle — it got the court to issue the appealable order it sought, prior to trial — but it lost the war. A party that invites the court to commit error is estopped from challenging that error on appeal."
For good measure, the Court also concluded that the order denying PCM's motion to compel arbitration should have be affirmed on the merits, given that the litigation conduct and delay of defendant was inconsistent with a sincere desire to arbitrate.
One final twist involved the fact that a motion to compel arbitration was involved. Appellant argued that the Court of Appeal could not act as a factfinder in the first instance and decide the issue of waiver, when the issue of waiver had not been presented below. And in fact, the Court of Appeal could have sent the case back to the trial court, though given the "sharp practices" sussed out by the Court, such an outcome would seem pretty unfair. In order to make any factual ruling on its own, the Court of Appeal had to get around Cal. Code of Civ. Proc., section 909, which provides in part, "In all cases where trial by jury is not a matter of right or where trial by jury has been waived, the reviewing court may make factual determinations contrary to or in addition to those made by the trial court. " But as the Court of Appeal explained, the purpose of section 909 "is to preserve the parties' right to have a jury act as finder of fact in matters where that right applies." And a petition to compel arbitration "is in essence a suit in equity to compel specific performance of a contract." So no right to a jury to decide that limited issue, and problem solved.
COMMENT: One could conclude that if the goal of defendant was to delay, then defendant succeeded. The trial was scheduled to begin April 11, 2016. The unpublished appellate opinion was filed October 17, 2017. And there will be 40 days for the remittitur. And the trial judge will need to reset the trial. But at what cost? Appellant, its law firm and two of its attorneys are ordered, jointly and severally, to pay the court $8,5000, and to pay to Diaz an amount "equal to the reasonable value of services performed by his attorney in preparing for the trial . . . and in responding to this appeal, but not to include pretrial services which need not be repeated." And there is the additional reputational cost of being slammed for "sharp practices."