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 Arbitech, LLC v. Hackney, G053744 (4/3 9/28/17) (O'Leary, Ikola, Thompson) (unpublished).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COMMENT: Though unpublished, this case addresses an inconsistency in the law of novation, and applies its analysis of the correct theory of novation to the 2008 and 2013 agreements.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.
Arbitration/Public Policy/Section 1281.2/Correction: Award Is Corrected Because Arbitrator Incorrectly Ruled That Plaintiff Breached Arbitration Agreement By Choosing To File A Lawsuit
Arbitrator Acted Beyond Powers Because Award Violated Party's Statutory Rights And Clearly Defined Public Policy.
Instead of initiating arbitration, a party subject to an arbitration agreement chooses to file a lawsuit when a dispute arises. Has the party breached the arbitration agreement? And if the arbitrator issues an award by holding that the party has breached, is it reviewable on the merits? Those are the issues the Court of Appeal confronted in Sargon Enterprises, Inc. v. Browne George Ross LLP, B271718 (2/3 9/26/17) (Edmon, Lavin, Johnson) (published).
After "long-running litigation" involving a patented dental implant, Sargon sued its attorneys, Browne George Ross LLP (BGR), for legal malpractice, BGR successfully petitioned to compel arbitration, and BGR pressed a claim in arbitration against Sargon for breach of contract. The arbitrator found Sargon's malpractice claim to be barred by a release, concluded that Sargon breached the arbitration agreement by filing the malpractice action in superior court instead of initiating arbitration, and awarded BGR damages of $200,000. Sargon appealed the judgment and order granting the petition to confirm the arbitration award.
Ordinarily, judicial review of the merits of an arbitration award is limited. However, an exception allowing for review exists when the arbitrator exceeds his powers. Here, the exception to limited review applied, because an award must be vacated if it violates a party's statutory rights or clearly defined public policy.
Cutting to the chase, the Court of Appeal concluded that a party subject to an arbitration agreement has a statutory right in California to initiate litigation in court. Indeed, the California Arbitration Act (CAA) anticipates that a party to an arbitration agreement may file a lawsuit, because it provides that the defendant may respond by filing a petition to compel arbitration instead of filing an answer. There are public policy reasons for such a procedure, because a plaintiff may believe the arbitration clause is unenforceable, its claims are not within the scope of an arbitration agreement, arbitration has been waived, it prefers to have a jury trial, and the defendant may not assert a right to arbitrate.
Because the CAA provides parties with a statutory right to file a lawsuit testing the validity and enforceability of an arbitration agreement, the arbitrator exceeded his powers by awarding damages for breach of the contract to arbitrate after Sargon chose to file a complaint rather than to initiate arbitration.
The Court of Appeal corrected the award by striking the portion finding Sargon breached the contract and ordering Sargon to pay damages, while confirming as a judgment the part of the award finding in favor of the law firm on the issue of malpractice.
COMMENT: As a published opinion, Sargon Enterprises is important, because it makes it clear, under the CAA, that a party subject to an arbitration agreement does not breach the contract by filing a lawsuit instead. It is also important, because it applies California's violation of statutory rights/clearly defined public policy exceptions to expand what would otherwise be limited review of an arbitration award.
Arbitration, Class Action, Waiver, FAA: We Eagerly Wait The First Monday In October, And The SCOTUS Hearing On Three Consolidated Arbitration Cases
A Couple Of New Tidbits From SCOTUS Blog.
Amy Howe posted again in SCOTUSBlog on September 25, 2017, about the upcoming hearing on October 2 of Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, cases requiring SCOTUS to reconcile the Federal Arbitration Act and federal labor laws, in order to determine whether arbitration provisions containing employee class waivers are enforceable.
What to expect? A debate of epic proportions? Earnest advocacy? Morris Dancers in the Supreme Court? Murphy's Law? We shall see.
Two additional tidbits in Amy Howe's post are (1) SCOTUS granted motions for divided argument by the U.S. Solicitor and the NLRB, since the two are no longer on the same page; (2) instead of relying on the two Supreme Court advocates who have been representing the employers, the employers have chosen Paul Clement to argue for them.
Settlement Agreements: Order Granting Motion To Enforce Settlement Agreement Is Affirmed Where Appellant Dwells On Merits Of Underlying Action
In Pro Per Appellant Struggled With Appeals Process.
Plainitff Denardo, in propria persona, sued Defendant Givens for damages in a dispute arising from a real estate transaction. With the assistance of counsel, Givens and Denardo mediated their dispute and entered into a written settlement agreement. Denardo received an initial settlement payment, but did not dismiss the lawsuit. Having second thoughts about completing the settlement, she filed a "Notice of Motion and Motion to Set Aside the Conditional Settlement." Givens filed a motion to enforce the settlement under Code of Civ. Proc., section 664.6. The trial court granted Givens' motion and awarded him attorney fees. Denardo appeared pro se at a hearing on her motion, but neither party informed the court of an intent to appear or contest a tentative ruling. The court ordered the case dismissed, and entered judgment, from which Denardo appealed, again in pro se. Denardo v. Givens, A147537 (1/5 9/25/17) (Bruiniers, Simons, Needham) (unpublished).
Affirmed.
COMMENT: It is a real uphill battle to set aside a signed settlement agreement entered into by competent parties represented by counsel in a mediation. I infer from the fact that Denardo filed a supplemental complaint for Elder Abuse that she was old. Except for the mediation, she appears to have been in pro per during most of the trial court proceedings, and the appeal. The Court signals that Denardo may have a poor grasp of what she is doing: "We begin by reiterating settled rules of appellate review, often unfamiliar to pro se litigants," Justice Bruiniers explains. According to the Court, Denardo made mistakes typical of pro per parties: she made "minimal reference to the trial record," she incorporated "extended recitals of 'facts' without any apparent basis in the record," and she dwelled on the merits of her underlying action, though she should have focused on the flaws in the settlement. The Court of Appeal struggled to understand her contentions, which the Court enumerated, "as best we can discern."
Woe betide the in pro per appellant, especially one trying to set aside a signed settlement agreement.
I note in passing that, according to legal reporter Adam Liptak's "exit interview" with Judge Richard Posner, the immediate reason for the judge's abrupt announcement of his retirement from the 7th Circuit Court of Appeals was his frustration with the plight of in pro per litigants in the legal system.