Settlement: Ninth Circuit Confirms High Showing Needed To Set Aside Settlement Based On Fraud On The Court
Nor Did District Court's Purported Use Of Twitter Account To Tweet U.S. Attorney's Announcement About Case Establish Appearance Of Impropriety.
"A lone home looks stark amid the bare pine trees on a hillside above Pine Valley in Jefferson County, Colorado. The trees are lingering reminders, 14 years later (as of 2016) of the 'Hayman Fire,' a 2002 forest fire that became the largest of the Colorado wildfires in the state's recorded history. The arson fire burned 133 homes and 138,114 acres, and wasn't contained for more than a month. The fire was named after a mining ghost town in the area." Carol M. Highsmith, photographer. 2016. Library of Congress.
It can be even harder to show fraud on the court than to show fraud on a party. The standard required for relief based on fraud on the court is very high "in deference to the longstanding policy in favor of the repose of judgments." United States v. Sierra Pacific Industries, Inc., et al., No. 15-15799 (9th Cir. 7/13/17) (Thomas, Murguia, McCalla). In Sierra Pacific Industries, defendants sought to set aside a settlement arising from the "Moonlight Fire," in which 46,000 acres of national forests burned. The government sought $800 million in damages, and the settlement required Defendants to pay $55 million and transfer 22,500 acres of land to the government.
The Defendants could not surmount the high burden needed to establish fraud on the court and obtain relief under Fed. R. Civ. P. 60(d)(3). The Court of Appeals agreed with the district court that Sierra Pacific Industries failed to establish material, intentional misrepresentations that could not have been discovered before settlement, even through due diligence. It also helped that the settlement agreement specifically provided that facts and claims might differ from facts believed to be true or claims believed to be available, and that the parties assumed the risks of such possible differences.
Remarkably, a state case proceeding after settlement of the federal case was actually dismissed with prejudice as a result of terminating sanctions, because the California Superior Court concluded that the California Department of Forestry and Fire Protection's attorneys engaged in "pervasive misconduct" and "a systematic campaign of misdirection with the purpose of recovering money from the Defendants."
Defendants also creatively argued that the district court's use of a twitter account to follow the U.S. Attorney's office on Twitter created an appearance of bias, and that a retweet constituted impermissible comment on the substance of a pending case, violating Canons of judicial conduct. However, the Court of Appeals concluded that the "claim that an unknown account, not identified with a judge or the judiciary, followed a public Twitter account maintained by the U.S. Attorney does not provide a basis for recusal here." Furthermore, merely tweeting a link to the U.S. Attorney office announcement did not constitute "public comment" sufficient to require recusal. "[C]oncerns of improper communication arise in the context of 'the exchange of frequent messages, "wall posts," or "tweets" between a judge or judicial employee and a "friend" on a social network who is also counsel in a case pending before the court.'"
However, the exoneration comes with an admonition about the use of social media by judges:
"Nonetheless, this case is a cautionary tale about the possible pitfalls of judges engaging in social media activity relating to pending cases, and we reiterate the importance of maintaining the appearance of propriety both on and off the bench."
Arbitration, CCP 1281.2, FAA Preemption: Second District, Div. 8 Holds That Procedural Provisions In California Arbitration Act Are Not Preempted By The FAA, Allowing Court Proceedings To Go Forward, Without Having To Arbitrate
The Holding Fills A Gap In California Law.
Los Angeles Unified School District v. Safety National Casualty Corporation, B275597 (2/8 7/12/17) (Grimes, Bigelow, Sortino) addresses a problem that can bedevil litigators when a party seeks to use California Code of Civil Procedure section 1281.2 to thwart arbitration. Section 1281.2 allows a court to deny a motion to compel arbitration based on the possibility of conflicting rulings in pending litigation with third parties. The provision is procedural in nature. The Federal Arbitration Act, however, requires that arbitration must go forward when there is an enforceable arbitration agreement. No ands, ifs, or buts. When does the FAA, which must be applied when interstate commerce exists, preempt state law?
The contours of preemption are generally well-established. Substantive aspects of the FAA apply where there is preemption, but procedural aspects of the FAA do not generally preempt state procedure, with an important exception. State rules of procedure apply in state court procedures except where such rules would defeat the purposes of federal law. It does not defeat the purposes of federal law to apply state procedure if the arbitration provision provides that state procedure shall apply — after all, the FAA exists to carry out the intent of the parties who enter into an arbitration agreement.
The unanswered question has been: what happens if the FAA applies, because interstate commerce is involved, but the contract is silent about whether state or federal procedure applies? Is CCP section 1281.2 nevertheless preempted, because its application, which can hinder enforcing an arbitration agreement, would defeat the purposes of federal law? No, concludes the Court in Los Angeles Unified School District.
Los Angeles Unified School District holds that the procedural provisions of the FAA do not preempt the application of section 1281.2(c) where the arbitration agreement has no choice-of-law provision, and no provision stating the FAA's procedural provisions govern the arbitration. The explanation is that the California provision does not defeat the purposes of federal law. Read the case for further details.
The underlying case here was an offshoot of the Miramonte litigation that entangled the Los Angeles Unified School District in the defense of an appalling sexual abuse scandal, resulting in a $140M settlement. When the LAUSD sued one of its carriers, Safety National Casualty Corporation, the carrier unsuccessfully moved to compel arbitration in the superior court. The ruling of the Court of Appeal affirms the order denying the carrier's motion to compel arbitration with the LAUSD.
International Arbitration, Gateway Issue, Delegation, Scope: Ninth Circuit Holds That Incorporation Of ICC Rules Delegates Issue Of Scope Of Arbitration To The Arbitrator
Ninth Circuit Joins Second And First Circuits.
In Portland General Electric Company v. Liberty Mutual Insurance Company, et al., No 16-35628 (9th Cir. 7/10/17) an opinion authored by Senior District Judge Jed S. Rakoff, the 9th Circuit joins the 2nd and 1st Circuits to conclude that "incorporation of the rules of the ICC [International Chamber of Commerce] constitutes clear and unmistakable evidence of a delegation of gateway issues to the arbitrator . . . "
The case involves a dispute among Portland General Electric Company (PGE), its Contractor, its Contractor's parent and guarantor (Guarantor) and its Sureties. The construction agreement between PGE and its Contractor, which did not provide for arbitration, required that the Contractor obtain a Guaranty from its parent, and that the Sureties issue a Bond to PGE. The Bond was also silent about arbitration. However, the Guaranty did include a broad arbitration clause covering disputes arising out of the same transaction, and allowing PGE or the Guarantor to implead third parties, provided that the third parties consented to participate in the arbitration.
The Guarantor sought to interplead the Sureties in the ICC arbitration, and the Sureties consented to be impleaded, claiming no obligation to pay under the Bond. However, PGE objected in the district court that it had not initiated the impleader, that the Sureties' Bond did not provide for arbitration, and that the dispute was outside the scope of its arbitration agreement with the Guarantor. The district court agreed with PGE, and entered a preliminary injunction prohibiting the Sureties from pursuing claims against PGE in arbitration and denying a mandatory stay of the judicial proceedings under section 3 of the FAA.
The 9th Circuit vacated the judgment of the district court, and remanded for further proceedings consistent with the opinion. Now, the ICC will need to rule on the scope of the arbitration provision in the Guaranty.
COMMENT: In a footnote, the Court notes that a few circuits have held that delegation to the arbitrator only applies to claims that are at least "arguably" covered by the agreement to arbitrate. Here, however, the Court did not need to take a side in the circuit split, because the arbitration agreement arguably covered the Sureties' claims against PGE.
Conflicts: Court Of Appeal Affirms Order Denying Motion To Disqualify Counsel Who Allegedly Learned Confidential Information Through Settlement
A Hypothetical Question: What If Confidential Information That Could Be The Basis For Disqualifying An Attorney Is Obtained Through Mediation?
Gobar v. Gong, D070876 (4/1 6/26/17) (Huffman, Benke, Haller) (unpublished) involves unsuccessful efforts by defendant Gong to disqualify plaintiff Gobar's attorney who earlier represented a law firm seeking to collect a money judgment from Gong, as a result of which Gobar's attorney allegedly received confidential information giving him an unfair advantage. That's a mouthful, so let's unpack it.
Plaintiff Gobar sought to collect a money judgment obtained against defendant Gong, and to set aside allegedly fraudulent conveyances by Gong. In order to do so, Gobar hired Herzlich & Blum, LLP (Herzlich). However, the Herzlich law firm had previously represented Luce, Forward, Hamilton & Scripps, LLP (Luce) in its efforts to collect attorney's fees from Gong. So Gong moved to disqualify Herzlich, alleging a conflict of interest existed because Luce had previously represented Gong, and during the course of settling the Luce lawsuit against Gong, Herzlich had learned confidential information about Gong's assets that Herzlich could only have learned because it represented Gong's former attorney.
Gong relied on Acacia Patent Acquisition, LLC v. Superior Court, 234 Cal.App.4th 1091 (2015) to make his disqualification argument, because Acacia holds that in the "limited realm of cases featuring attorneys as parties opposed to their former clients, lawyers representing the attorney party must avoid participation in substantially related matters, whether thereby their access to privileged information in the former action would potentially serve as an advantage in the latter."
Both the trial court and the Court of Appeal rejected Gong's argument. The Court of Appeal concluded that Gong had not shown that Herzlich had discovered confidential information about Gong's assets through settlement, that the asset information was independently available through the public record, and that the lawsuit by Gobar was not substantially similar to the lawsuit by Luce.
All of this is a set up for my hypothetical question. What if the allegedly confidential information had been learned by Herzlich through mediation? Would the nigh absolute mediation privilege have made it impossible for Gong to introduce information about conflicts into evidence? Would the same privilege that prevents introducing evidence of malpractice prevent introducing evidence of conflicts?
Arbitration/Employment/Class Actions/Pending Cases: Office Of The Solicitor General Changes Its Position On NLRB v. Murpy Oil, USA
The Issue: Do Employee Agreements To Waive Class Actions And Arbitrate Violate The Right Of Employees To Engage In Collective Action Under The National Labor Relations Act?
Amy Howe reports on June 19, 2017, in SCOTUSBlog, that the Office of the Solicitor General, after the change of administration, has done a volte-face in a pending Supreme Court Case, National Labor Relations Board v. Murphy Oil USA. On behalf of the NLRB, the Office of the Solicitor General had previously asked SCOTUS to review and overturn a decision that had allowed the arbitration provision and class-action waiver in employer-employee agreements. The Solicitor General had argued that such provisions violate the National Labor Relations Act, because it protects the rights of employees to act collectively. The Acting Solicitor General, Jeffrey Wall, has now announced, "since the change in administration, the Office reconsidered the issue and reached the opposite conclusion." The upshot is that the NLRB will likely file its own pro-employee brief, without the support of the Solicitor General.
While under normal circumstances it is unusual for the Office of the Solicitor General to change its position just because the administration has changed, can anyone be very surprised?
See my posts of November 3, 2016 and January 17, 2017, referencing the Murphy Oil case.
Arbitration/Agents: Third District Rules That Care Facility For Elderly Could Not Enforce Arbitration Provision, Because Sister’s Power Of Attorney Did Not Provide Authority To Make Health Care Decisions
Trial Court And Court Of Appeal Agreed That The Residential Care Facility For The Elderly Provided Health Care.
Hutcheson v. Eskalon Fountainwood Lodge, C074846 (3rd Dist. 6/14/17) (Nicholson, Mauro, Duarte), is one of many cases in which a care facility for the elderly seeks to enforce an arbitration provision after an elderly person in the facility has died, and a successor in interest sues for elder abuse and related claims. We note that in two cases the United States Supreme Court has invoked the Federal Arbitration Act to enforce arbitration clauses entered into by nursing homes. State courts seem to have struggled to find ways to give the alleged tort victim a judicial forum. Kindred Nursing Centers, L.P. v. Clark, No. 16-32 (US S.Ct. 5/15/17 (see my May 17, 2017 post); Marmet Health Care Center, Inc. v. Brown,132 S. Ct. 1201, 1202 (2012) (see my March 27, 2012 post).
Here the trial court and the Court of Appeal held the arbitration clause was unenforceable, because the sister who signed the admission agreement with an arbitration clause lacked the power to make health care decisions for the admittee. The case provides a disquisition on the differences between a health care power of attorney, executed under the Health Care Decisions Law, and a personal power of attorney. In this case, it was the decedent's niece who had the power under a health care power of attorney to make health care decisions, but she did not execute the admissions agreement with the arbitration provision. Instead, the decedent's sister executed the admissions agreement under a power of attorney that specifically excluded the power to make health-care decisions.
The facts necessarily required the court to consider the difference between personal care and health care. Under the facts of the case, the court determined that the care facility for the elderly provided health care in addition to personal care. Therefore, no one with the authority to do signed the admissions agreement, as it provided for health care. This result is likely to alarm elder care facilities that may not have been universally viewed as providing for health care (alas, the lack of health care is part of the problem).
The court also rejected that ostensible authority existed to enter into the arbitration agreement, because no facts showed that the decedent, who was the principal, had intentionally or negligently caused it to be believed that her sister was her agent for purposes of executing the admission agreement. In fact, the elder care facility had possession of the niece's health care power of authority, showing that she was the person with the power to make health care decisions — and she did not execute the admissions agreement.