Arbitration, Standard Of Review, Delegation, Vacatur: Second District, Div. 1 Rules Trial Court Erred By Failing To Apply Correct Legal Standard To Review Of Arbitrator’s Award
Agreement Between The Parties That Award Could Be Reviewed For Legal Error Made The Difference.
In Harshad & Nasir Corporation v. Global Sign Systems, Inc., and related appeals, B269427, B275942, B275947 (2/2 8/15/17) (Rothschild, Chaney, Lui), the Court of Appeal considered three related appeals of parties fighting over allegedly unpaid invoices amounting to $114,823.72, arising from plans to put up signs at Carl's Jr. restaurants. The Court of Appeal, in a published opinion penned by Justice Rothschild, concluded "that the trial court prejudicially erred when it failed to apply the correct standard in reviewing the arbitrator's award."
This is a case in which the parties' agreement that the award could be reviewed for legal error made all the difference. Unlike the typical situation in which errors of fact or law will not provide a basis for vacating an award, here, the parties took advantage of the California rule set forth in Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334 (2008), allowing the parties to agree to limit the arbitrators' authority by providing for review of the merits.
The results of review on the merits were severe. The Court of Appeal held substantial evidence did not support the award for damages, and an alleged contract to be performed over a three-year period violated the statute of frauds. Also, the arbitrator exceeded his authority by deciding a claim for lost profits the parties had not agreed to arbitrate. As a result of this reversal of fortune, the formerly prevailing party did not prevail, and a fee and cost award in the amount of $1,142,596.20 was reversed.
COMMENT: A successful arbitration can be efficient and cost effective. This arbitration is a stunning counter-example. It took five years to get an arbitration award. The arbitration and subsequent trial court rulings resulted in three related appeals. Significant damage and attorney fees/cost awards, each in excess of $1 million, were reversed. And this all started with an effort to recover $114,823.72!
An interesting aspect of the opinion is the interaction of delegation of authority to the arbitrator with the standard of review. Global argued that under JAMS rules, the decision about the scope of authority is delegated to the arbitrator, and the arbitrator had decided that the substantial lost profits claim was within his authority to decide. Because, however, the parties agreed that the standard of review allowed for review of legal error, the Court of Appeal did not need to rule whether the decision about scope had been delegated to the arbitrator. Whether or not JAMS rules allowed for a delegation of decision-making authority, the arbitrator had ruled incorrectly as a matter of law.
NOTE: California Attorney's Fees, the website Mike Hensley and I contribute to, has a post on the attorney's fees aspect of this case.
Miscellaneous: Mediation Quality
ABA Section of Dispute Resolution — Task Force on Improving Mediation Quality Final Report.
In 2008, the ABA Section of Dispute Resolution issued a Final Report on mediation quality. This report is available on-line.
The Task Force narrowly focused on mediation quality in private practice civil cases where the parties are usually represented by counsel. The methodology involved the use of ten focus groups, and participants included outside counsel, in-house counsel, and non-attorneys. The Task Force also collected more than 100 responses to questionnaires from mediation users and mediators.
The task force identified four issues as important to mediation quality:
- Preparation for mediation by the mediator, parties, and counsel
- Case-by-case customization of the mediation process
- "Analytical" assistance from the mediator
- "Persistence" by the mediator
There are many interesting tidbits in the report, making it worth reading, even if the points reinforce our own opinions. Here are a few:
- While many mediators find pre-mediation discussions helpful, some court programs do not permit such contacts
- More than 96% of the respondents to the written survey thought pre-mediation preparation was important
- Sophisticated repeat mediation users wanted input into the mediation process itself
- Parties frequently responded that lawyers should be as prepared for mediation as for trial
- Elements that can be customized to each dispute include: timing of the mediation, exchange of information, whether to have opening statements
- 81% of users and 77% of mediators believed the optimum time to mediate was after completing "critical" discovery but before completing all discovery
- 36% of users and 78% of mediators say mediation before filing suit would be appropriate in half or more cases
- 95% of users thought it important for mediators to make suggestions, 70% thought it important to give opinions, and 100% thought it important to suggest ways to resolve the dispute
- Respondents identified a variety of factors that would influence whether it was appropriate for a mediator to provide an assessment of strengths and weaknesses, including whether assessment was requested, mediator expertise, mediator confidence in assessment, mediator pressure, joint or caucus session, timing, impasse, and impartiality
- "Evaluative" mediation means different things to different people, with half or more of the parties (but not the lawyers) objecting to strongly worded mediator opinions about settlement terms (e.g., "I think this is the best you're going to get")
- 93% of users said that if a mediation session ends without agreement but some potential to reach one, the mediator should follow-up with each side
Arbitration, Employment, Class Actions, Waivers: Anita Hill’s Op-Ed In NYT Today Argues Class Actions Could Fight Discrimination In Tech, But Soft-Pedals Obstacle Of Arbitration/Class Action Waivers
My Mini-Comment Is Posted To NYT Website.
Anita Hill, who famously testified during Justice Clarence Thomas's confirmation hearing, has written an Op-Ed for the NYT entitled, "Class Actions Could Fight Discrimination In Tech", appearing on-line today, August 8, 2017. She observes, uncontroversially: "Women in tech no doubt have hurdles to bringing class-action lawsuits, including the requisite preponderance of statistical evidence and the prevalence of confidentiality clauses and arbitration agreements, which are, in effect, designed to pre-empt class actions." However, she then asserts, without further discussion of the arbitration/class action waiver issue: "But this challenge doesn’t mean the suits cannot be brought, or won." This is more uncertain, given the widespread use of arbitration/class action waivers in employment contracts in tech industries, and the tendency of the SCOTUS to require enforcement of such provisions under the Federal Arbitration Act. Her Op-Ed piece prompted many comments, including my comment posted by the NYT, pointing out that the enforceability of mandatory arbitration/class action waivers will be addressed again by the SCOTUS at the beginning of the new term.
Arbitration, PAGA: Fifth District Holds That Claims To Recover Wages Under Labor Code Section 558 Are Not A Representative Action Under PAGA, And Therefore Can Be Arbitrated
Employers Strive To Close The PAGA Representative Action Escape Hatch From FAA Preemption And Arbitration.
Ever since the California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014) that Private Attorneys General Act of 2004 (PAGA) representative actions are not subject to arbitration, employers preferring arbitration have struggled to chip away at that holding. In Esparza v. KS Industries, LP, F072597 (5th Dist. 8/2/17) (Franson, Poochigian, Smith) (published), the employer, with the help of the Court, of course, does some chipping.
Woodchipper. Wikipedia.
Federal preemption requires arbitration agreements be strictly enforced whenever the Federal Arbitration Act applies. Because the FAA applies to controversies arising out of contracts evidencing a transaction involving interstate commerce, preemption is frequently the rule, requiring arbitration. But even where the FAA requires enforcing an arbitration agreement, PAGA representative actions are recognized to be an exception. The rationale is that PAGA representative actions are a type of qui tam action in which the employee acts on behalf of the government, the real party in interest, and the FAA did not intend to compel the state, which is not a party to the arbitration agreement, to arbitrate. Indeed, 75% of the civil penalty in a successful PAGA representative action goes to the state.
The Court of Appeal agreed with the employer in Esparza that section 558 actions to recover unpaid wages are not representative actions that result in civil penalties. Instead, the Court explains that section 558 actions are private actions brought to recover wages that benefit the plaintiff, rather than the state. Therefore, because the section 558 action is not at bottom a dispute between the employer and California, the dispute can be arbitrated. The dispute is a private dispute, the FAA applies, and the parties must arbitrate.
The Court of Appeal affirmed the order denying the employer's motion to compel arbitration insofar as it denied arbitration of PAGA representative claims seeking civil penalties paid to the Labor and Workforce Development Agency. However, the trial court was directed to determine whether the plaintiff intended to pursue other claims seeking individual damages other than PAGA representative actions seeking civil penalties, as the other claims could be arbitrated.
Arbitration, Vacatur: Mistake Of Law Or Fact Does Not Provide Basis For Vacating Arbitration Award Finding Existence Of Oral Agreement To List Real Property For Sale.
Even If Oral Listing Agreements Are Generally Forbidden, The Court Adds That The Receipt Of Confidential Information And A Fiduciary Relationship Support The Result.
Plaintiff Kalo sued defendant Alam for breach of an oral listing agreement to sell real property, fraud, and breach of fiduciary duty. Kalo alleged that Alam, who was originally retained as his agent under a written listing agreement, allowed the written agreement to be cancelled, only to later agree to purchase property from Kalo. Alam then flipped the property to a buyer, taking a large profit for himself. The parties apparently agreed that Alam disclosed he would resell the property after buying it. However, Kalo alleged that Alam did not disclose he would make a "huge profit." Alam moved to compel arbitration, and the arbitrator determined that Kalo was entitled to the undisclosed profits based on the agency relationship and the fiduciary duties that arose from that relationship. The superior court confirmed the award as a judgment, and the Court of Appeal affirmed the judgment. Kalo v. Alam, G053377 (4/3 8/2/17) (Moore, Aronson, Ikola) (unpublished).
Alam argued that the statute of frauds required a written listing agreement, particularly because Alam was only an agent, not a broker. Alam also argued that the arbitrator exceeded his powers in finding an oral listing agreement, because the parties agreed no such agreement existed. The Court of Appeal, however, brushed aside those arguments, because a mistake of law or fact is not a basis for vacating an arbitration award.
When courts refuse to review on the merits, they often still put forward an argument that the losing party was fairly treated. Such was the case here, for the Court explained that the oral listing agreement could be supported by Kalo's imparting of confidential information as would create a fiduciary duty to treat Kalo fairly, and not take an undisclosed profit. As for Alam's argument that an oral listing agreement could not be used to force arbitration, because there was no evidence it contained an agreement to arbitrate, ahem, Alam was the one who moved to compel arbitration under the terms of the listing agreement.
COMMENT: In California, parties to an arbitration may agree that legal errors an excess of arbitral authority that is reviewable by the courts. Cable Connection, Inc. v. DIRECTV, Inc., 44 Cal.4th 1334, 1361 (2008). Here, the cancelled listing agreement provided that the arbitrator "shall render an award in accordance with substantive California Law." But such language is not enough to require appellate review on the merits. Such language only identifies the forum law. If you want to create review of an arbitration award on the merits, you need to draft clear and precise language. And, this only works to expand the scope of review in California state court, not in federal court.
Arbitration, Enforceability, Consumers, Existence Of Agreement, Nonsignatories: Assignee Of Credit Card Account Agreement Could Enforce Arbitraiton Provision Against Credit Card Holder
Existence Of Agreement Was Established With Affidavit Of A Person With First-Hand Knowledge Of Procedures.
Plaintiff Yenko filed a putative class action lawsuit against Crown Asset Management, LLC, a debt buyer that purchased plaintiff's alleged charged-off credit card debt. The trial court held that Crown, as the assignee of a Credit Card Account Agreement (CCAA), was entitled to enforce an arbitration provision contained therein. The First Appellate District, Div. One, agreed. Yenko v. Crown Asset Management, LLC, A148536 (1/1 8/1/17) (Margulies, Dondero, Banke) (unpublished).
A tricky part in such cases where an assignee such as Crown, purchases debt and obtains paper, is finding a declarant who can authenticate the key documents. Here, Crown did so with the affidavit of the manager of litigation support for the company that issued plaintiff her J.C. Penney credit card. Obviously the affiant did not have first-hand knowledge of the individual transaction, but she did have knowledge of the company's business practices. And she was able to testify, based on her personal knowledge of operations and records kept in the ordinary course of business with which she was familiar, that the company sent the CCAA to plaintiff; that it was the company's practice to send the CCAA with the credit card; and, that the effective agreement as of the date of the transaction was attached to her credit card. Plaintiff admitted she had received the credit card and made purchases with it. The evidence satisfied the trial court, and the Court of Appeal.
Plaintiff also argued that the arbitration agreement could not be enforced, because the assignee was only assigned a "receivable" and not an "account", and argument that had no traction with the Court of Appeal. The Court stated, "We observe courts in many other jurisdictions have determined the assignment of accounts receivable transfers underlying contractual rights, including the right to arbitrate."