Statutorily Mandated Arbitration: Statutorily Mandated Arbitration Scheme For Beer Brewers And Distributors Does Not Create SLAPP-Protected Activity
A Cold Draught . . .
John Margulies, photographer. 1984. Library of Congress.
Did you know that in 2007 California enacted special legislation requiring that when a beer brewer replaces a distributor, the successor brewer's designated replacement distributor must negotiate in good faith, and failing that, arbitrate, "to determine the fair market value of the affected distribution rights." Bus. & Prof. Code, section 25000.2. I did not know. As a result of my newfound knowledge, I have added another sidebar category to this blawg: "Arbitration: Statutorily Mandated." Our next case involves a famous brewing company, and its ousted distributor. Mission Beverage Company. Mission Beverage Company v. Pabst Brewing Company, LLC, B271781 (2/2 9.25/17) (Hoffstadt, Ashmann-Gerst, Goodman).
The ousted distributor, Mission, sued Pabst after the brewer decided to replace it with another distributor. Pabst's designated distributors, adhering to the statutory procedure, tried to negotiate with Mission, and when that failed, sent a letter initiating arbitration to Mission. Mission tried unsuccessfully to halt the arbitration. The arbitrator issued an award fixing the fair market value, and the new distributor paid Mission the amount fixed by the arbitrator.
Pabst then filed a motion to strike Mission's lawsuit under the anti-SLAPP statute, arguing that invoking the statutorily-mandated arbitration process under section 25000.2 amounted to "protected activity." While acknowledging that "protected activity" under the anti-SLAPP statute included official proceedings, such as statutorily mandated arbitration, the trial court concluded that the lawsuit against Pabst for breach of contract was separate and distinct from the arbitration. Mission had alleged that Pabst terminated without proper cause — a breach of contract — and that the claim was separate from determining the fair market value under the statutory proceeding. The Court of Appeal agreed and affirmed.
The Court of Appeal reasoned that the conduct by Pabst that Mission was challenging was the wrongful termination of the contract with the distributor, and that conduct was not protected. Pabst argued that it could not breach before it sent a letter communicating its decision to terminate, and that sending the letter was protected. The Court, however, explained that the decision to terminate, which occurred earlier, was not protected activity.
Pabst also argued that its actions were all part of a statutorily mandate arbitration proceeding, and that Kibler v. Northern Inyo County Local Hospital Dist., 39 Cal.4th 192 (2006) supported its position that every aspect of a statutorily mandated proceeding, including the decision itself, is protected activity. However, the Court read Kibler more narrowly, so that even if the communication of the decision was protected, the decision to terminate was not protected.
Perhaps the most interesting ADR issue addressed is this: while "private contractual arbitration" is not generally viewed as an "official proceeding authorized by law", statutorily mandated arbitration is an official proceeding within the meaning of the anti-SLAPP statute. Here, however, the wrongful conduct occurred before the statutorily mandated arbitration proceeding was invoked. Furthermore, it was not inevitable that the parties would proceed to arbitration, because the statutory scheme requires that the parties negotiate in good faith first.
QUERY: Why isn't a statutorily mandated requirement that, "[t]he successor beer manufacturer's designee and the existing beer wholesaler shall negotiate in good faith" an official proceeding within the meaning of the anti-SLAPP statute? (italics added). Could that pre-arbitration step be enforced by a court at the request of a party?
COMMENT: One issue that the opinion considers is whether the breach of contract lawsuit is duplicative of the remedies provided by the statutory proceeding that fixes fair market value. The Court of Appeal points out that the contract between Pabst and Mission contains an attorney's fees clause. The distributor may also be entitled to consequential damages arising from a wrongful breach as well as attorney’s fees if it sues Pabst and prevails. The payment of fair market value would provide an offset. If the contract action goes to trial, perhaps my colleague Mike Hensley and I will have another opportunity to post in our California Attorney's Fees blog, because an attorney's fees issue appears to be lurking in the background.
The Pabst Mansion. Milwaukee, Wisconsin. Carol M. Highsmith, photographer. Library of Congress.
Existence Of Arbitration Agreement/Non-Signatories: Motion To Compel Arbitration Was Properly Denied Because There Was No Single Signed Arbitration Agreement And The Respondent Did Not Have Notice Of Arbitration Requirement
Bridge Player Could Not Be Compelled To Arbitrate With American Contract Bridge League.
Only yesterday I blogged about another "existence of arbitration agreement" case, Noor v. Katz. Here comes another one, Blakely v. American Contract Bridge League, A150382 (1/1 9/20/17) (Dondero, Margulies, Banke) (unpublished). These cases are actually surprisingly common. Why? In real life, contractual documentation is often piecemeal, with one document containing an arbitration clause, other documents not containing arbitration clauses, contracts lacking integration, documents created over a span of time, use of hardcopies and of email, and questions about notice naturally arising.
Plaintiff Blakely was a member of the American Contract Bridge League (ACBL) since at least 1995 — a time when the ACBL did not have an arbitration provision with its members. After a legal dispute arose between Blakely and the ACBL, the parties entered into a contract, which, however, did not contain an arbitration clause. When a subsequent dispute arose, Blakely sued, and the ACBL moved to arbitrate. After the trial court denied the motion to compel arbitration, the ACBL appealed.
The ACBL was unable to overcome the standard that "substantial evidence" supported the trial court's denial of the motion. A material factual dispute existed as to whether Blakely had actual notice of the arbitration provision on the ACBL's website, on the reverse side of an invoice, and on agenda minutes of a board of directors' meeting. The trial judge resolved those issues in favor of Blakely, and the Court of Appeal agreed that substantial evidence supported the trial judge's conclusion.
COMMENT: Defendants conceded "there is no single, standalone document that constitutes Blakely's membership agreement with ACBL and/or that contains a signed agreement to arbitrate disputes with ACBL." That's why the ACBL had to argue that Blakely had received notice of the arbitration provision while continuing his membership. Disputes such as this one would be few and far between if the party desiring arbitration insisted on having a single integrated signed agreement containing a binding arbitration provision!
Arbitration/Class/Employment: When Worlds Collide — SCOTUS Will Hear Major Arbitration Cases Pitting NLRA Against FAA At Beginning Of New Term
Headline Of Article In The Economist Neatly Sums Up The Stakes: "Can Companies Block Employees' Class-Action Lawsuits?"
Steven Mazie has authored an article in the September 20, 2017 online edition of The Economist about the competing interests at stake in the three arbitration cases that SCOTUS will hear on October 2 at the beginning of its new term. S.M. begins by noting Justice Scalia's antipathy towards class-action lawsuits, and the Court's recent "whittling away" of class-action claims.
The key legal issue that SCOTUS must address is whether the promise of the Federal Arbitration Act to make arbitration readily available trumps the promise of the National Labor Relations Act of 1935 to allow employees to engage in "concerted activities" to protect themselves by way of class action lawsuits that are not mentioned in the NLRA. Does the concerted activity that labor laws protect include class action lawsuits?
Noting that the Department of Justice has, with the change in administrations, flipped sides to now support the employer's position, the author concludes, "On top of its promise to tip the balance of power one way or another between employees and employers, Murphy Oil offers a rare example of intrabranch governmental cognitive dissonance."
COMMENT: Mazie points out that a key argument of employers is that the FAA (1925) preceded the NLRA (1935) and the Norris-LaGuardia Act (1932), and because the subsequent labor laws do not explicitly say otherwise, the right to arbitrate should take precedence over the right to file class actions as protected activity. However, as Professor Imre Szalai's history of arbitration in the United States, Outsourcing Justice: The Rise of Modern Arbitration Laws in America (see my 2/19/14 review of the book) suggests, the early proponents of the FAA in the United States viewed arbitration as a tool for resolving disputes among merchants, not as a tool for resolving disputes between employers and individual non-unionized employees.
Consumers/Fees/Settlement Agreements: Defendants Contesting Fee Award Lose On Appeal Because In Settlement Agreement, They Agreed To Fee Entitlement
Reasonableness Of Award Did Not Need To Be Addressed, Because Entitlement, Which Parties Agreed To, Was The Real Issue.
Once a case is settled, some issues need not be litigated, even though the parties may want to do so. Such was the case in Medina v. South Coast Car Company, Inc., D069820 (4/1 9/19/17) (Benke, Nares, Aaron) (unpublished).
Medina sued South Coast Car Company, Inc. (SCCC) and Veros Credit, LLC (Veros) in connection with the sale to him of an Audi. The seller, SCCC, assigned the retail installment sales contract to Veros. As part of a settlement, defendants agreed they would not dispute the basis for fee entitlement, that Medina would be deemed the prevailing party, and that the defendants could dispute the reasonableness of the attorneys' fees, costs, and prejudgment interest claimed to have been incurred by Medina.
On appeal, SCCC argued that Medina was not entitled to attorney's fees, and Veros was not liable to pay any fees and costs, "as it was merely the 'holder' of the RISC . . . "
"Because defendants' myriad challenges on appeal to the award of attorney fees, costs and prejudgment interest are limited to the issue of entitlement, as opposed to their amount, explained Justice Benke, "we have no reason to review the reasonableness of such an award."
COMMENT: It is not unusual for a settlement agreement to resolve all issues, reserving the determination of fees to the Court. However, if fee entitlement and reasonableness of the fees are both contested, then the settlement agreement must be drafted with care, so as to reserve the genuinely contested issues to the Court, instead of stipulating away a genuinely contested issue. An additional consideration is that reserving the issue of fee entitlement for the court to decide could make it more difficult to settle the case.
Burden Of Proof/Existence Of Agreement: Defendants Failed To Satisfy Burden Of Proof That Agreement To Arbitrate Existed
Trial Court Order Denying Defendants' Petition To Arbitrate Is Affirmed.
This case was about a matter of timing. Plaintiffs sued defendants, alleging defendants failed to build and develop a Web site as agreed to. Defendants move to compel arbitration. The trial court found defendants failed to show that the arbitration clause related to the contract plaintiffs said was the basis for their claims. Defendants appealed. Noor v. Katz, B275176 (2/2 9/19/17) (Ashmann-Gerst, Chavez, Goodman) (unpublished).
Defendants claimed the the dispute arose from a September 10, 2015 agreement containing an arbitration provision. Plaintiffs argued the dispute arose in connection with an earlier July 13, 2015 invoice that did not have an arbitration provision. The Court of Appeal, in affirming the trial court's order denying arbitration, agreed defendants simply failed to meet their burden of showing the existence of an agreement to arbitrate the dispute.
Regarding the standard of review of an order denying a petition to compel arbitration, the Court notes:
There is no uniform standard of review for evaluating an order denying a motion to compel arbitration . . . . If the court's order is based on a decision of fact, then we adopt a substantial evidence standard. . . . Alternatively, if the court's dnial rests solely on a decision of law, then a de novo standard of review is employed . . . ." (quoting Robertson v. Health Net of California, Inc., 132 Cal.App.4th 1419, 1425 (2005)).
Arbitration, Fees: Challenges To Arbitrator’s $4M Attorney Fee Award Are Unsuccessful
Attorney Charged Discounted Rate, Delayed Collection, And Accepted Hybrid Free Structure Due To Client's Limited Cash.
Attorney James D. Daily helped the Stueve Brothers Farms, LLC (Stueve) recover some $20M in property. Stueve and others (Claimants) then sought to arbitrate their fee dispute with Daily. After the arbitrator awarded Daily $1.35 in hourly fees, and approximately $3.42M in contingency fees, which award was confirmed as a judgment, Stueve, Claimants, and nonclaimant entities appealed. Stueve Brothers Farms, LLC, et al. v. James D. Daily, G053220 (4/3 9/18/17) (Ikola, Moore, Aronson) ((unpublished).
The appeal was unsuccessful, with the Court rejecting all appellants' arguments:
(1) An argument that the court lacked jurisdiction to confirm because arbitration took place in Los Angeles County, rather than Orange County, failed, because CCP section 1292.2 relates to venue, not to jurisdiction, and the parties were not prejudiced by confirmation of the award in LA;
(2) An argument that the award was not final failed because the arbitrator's retention of jurisdiction was solely to resolve future disputes;
(3) An argument that the petition to confirm arbitration improperly contained attorney-client privileged information did not explain how the court was empowered to vacate the arbitration award;
(4) An argument by appellants that nonclaimant entities were not parties to the arbitration and thus could not be bound by the arbitrator's ruling was untimely.
COMMENT: Ordinarily objections to jurisdiction can be asserted at any time. The conclusion that appellants forfeited any basis for vacating or correcting the award by objecting in an untimely fashion makes sense as to appellants, but what the opinion does not clearly explain is when and how did the arbitrator or the court obtain jurisdiction over the "nonclaimants" in the first place.