Arbitration, Consumers, Delegation, Gateway Issues, Unconscionability: Fifth District Vacates Parts Of Trial Court Order About Unconscionability And Arbitrability, And Upholds Delegation Clause Sending Consumer Dispute To JAMS Arbitrator
Enforceable Delegation Provision Means The Buck Does Not Stop With Court, But Gets Passed To Arbitrator.
Aanderud v. Superior Court (Vivint Solar Developer, LLC, Real Party In Interest), F073277 (5th Dist. 7/26/17) (Gomes, Hill, Meehan), is worth reading for its analysis of how a delegation provision is applied to a consumer arbitration, where the individual stakes are low, but the cost of entry to arbitration may be high for the consumer.
The Aanderuds brought individual and class action claims against Vivint Solar, in connection with their entry into a 20-year solar power purchase agreement with Vivint Solar. The trial court granted Vivint Solar's petition to compel arbitration, ordered the Aanderuds to submit their individual claims to arbitration, and dismissing class claims without prejudice.
The Court of Appeal disagreed in part with the trial court's order, because a delegation clause, if enforceable, required the arbitrator, not the trial court, to resolve substantive issues. Therefore, the Court of Appeal addressed the dispositive issue: whether the delegation of issues to the arbitrator was valid. The Aanderuds contended that the delegation clause was not enforceable, because it was not clear and unmistakable and because it was unconscionable. The Court of Appeal, however, disagreed, finding the delegation clause enforceable.
The most interesting part of the analysis addressed the Aanderud's contention that the delegation clause was unconscionable in the context of consumer arbitration, because it was prohibitively expensive for the Aanderuds to arbitrate their consumer claim. The Court of Appeal, however, believed that under JAMS rules for consumer arbitrations, "the Aanderuds' fees will most likely be limited to $250 . . . " (Query: Does "most likely" contain a negative pregnant?) The Aanderuds, however, argued that because the arbitration did not satisfy all 10 requirements under JAMS rules for JAMS to arbitrate a consumer dispute, JAMS might proceed under other than consumer rules, requiring the parties to pay pro rata costs, including a $1,200 filing fee, a $5,000 retainer, and arbitrator's fees ranging from $5,000 to $8,500 per day.
The Court of Appeal, however, concluded that the merits of the Aanderuds' contention regarding the sharing of expenses are for the arbitrator to decide, "as their contentions go to the 'scope and applicability' of the arbitration provision."
The upshot is a disposition that grants in part and denies in part the Aanderuds' petition to the Court of Appeal. Because the delegation clause is held to be effective, the Court of Appeal vacates parts of the trial court's order finding the arbitration agreement was not unconscionable, finding all claims are arbitrable, and finding the Aanderuds could only arbitrate in their individual capacity. However, the case will go to arbitration, and now the arbitrator will have to decide issues the trial court should not have decided.
COMMENT: The Court of Appeal agreed that the arbitration agreement was procedurally unconscionable, but did not believe that substantive unconscionability existed. The Court's reasoning regarding the Aanderuds' contention that the delegation clause was invalid, in part because the allocation of expenses was unfair, seems somewhat circular. By leaving it up to the arbitrator to decide the issue, the Court of Appeal seems to be punting, leaving it up to the arbitrator to address an aspect of unconscionability. And, the enforceability of the delegation clause turns on whether it is unconscionable, such that if it is unconscionable, then decisions could not be delegated to the arbitrator. Here, the Court of Appeal has finessed the issue by the the deft application of labels, explaining that "[t]he merits of the Aanderuds' contention [regarding arbitration expenses] are for the arbitrator, not us, to decide, as their contentions go to the 'scope and applicability' of the arbitration provision." Thus, the Court of Appeal views the argument about the potential for unfair application of the cost rules not as an issue of ambiguity or of unfairness, but as an issue concerning the "scope and applicability" of the arbitration provision. Problem solved?
Choice Of Law, Employment, Unconscionability: Concluding That Arbitration Agreement Was Not Unconscionable Under Alabama Law, Third District Reverses Trial Court’s Order Denying Employer’s Petition To Compel Former Employees To Arbitrate
Arbitration Agreement Included Alabama Choice Of Law Provision.
When former employees, who were hired as temporary claim adjusters, sued the insurance company that had hired them in a class action complaint alleging various employment violations, the California trial court agreed that the arbitration agreement was unconscionable. Analyzing the trial court's order under Alabama law, the Court of Appeal reversed and remanded, finding no unconscionability. Quiroz et al. v. E.A. Renfroe & Company, Inc., C082316 (3rd Dist. 7/26/17) (Renner, Mauro, Hoch) (unpublished).
The agreement had an Alabama choice of law provision. While Alabama law, like California law, provides that the party objecting to arbitration must show both procedural and substantive unconscionability, it appears that Alabama case law may make it a little harder for an employee to establish unconscionability. In any case, I wouldn't overthink this. Perhaps by design, the opinion quarantines its ruling by referring twenty-one (21) times to Alabama law, and by leaving the case unpublished.
COMMENT: Alabama law includes a colorful definition of unconscionability. "Under Alabama law, '[a]n unconscionable contract or contractual provision is defined as a contract or provision "such as no man in his sense and not under delusion would make on the one hand, and as no honest and fair man would accept on the other."'"
Arbitration, Class, Waiver: On October 2, SCOTUS Will Hear Three Arbitration Cases Consolidated For Oral Argument
You Don't Need A Weatherman . . .
On July 19, 2017, Amy Howe posted in SCOTUSBlog that the Supreme Court has consolidated three arbitration cases for oral hearing on October 2 at the beginning of the new term: National Labor Relations Board v. Murphy Oil USA, Epic Systems Corp. v. Lewis, and Ernst & Young v. Morris. As Howe explains, the issue is "whether agreements to forgo class actions or collective proceedings and instead resolve disputes between an employer and its employees through arbitration are enforceable under the Federal Arbitration Act." The Ninth Circuit said no in Ernst & Young v. Morris, the Fifth Circuit said yes in NLRB v. Murphy Oil, and the Seventh Circuit said no in Epic Systems Corp. v. Lewis.
The most unusual aspect of this review highlighted by Howe, though not so surprising in light of the change of administrations, is that the Office of the Solicitor General flipped its position, initially favoring the NLRB's pro-employee position, but later filing an amicus brief supporting the employers. As a result, the NLRB is likely to file its own brief.
I have blogged about these cases in several posts, and I also discussed the issue raised in Ernst & Young v. Morris in an article I wrote entitled, "The Politics of Arbitration." See my posts on August 23, 2016, October 11, 2016, November 3, 2016, January 17, 2017, and June 19 2017.
Arbitration, Delegation, Class Action: Fourth District, Div. 3 Holds Arbitrator Must Decide Class Action Question Based On Language Of The Arbitration Agreement
In California, There Is No Universal Rule That Arbitrator Or Court Decides Whether A Class Action Can Be Arbitrated — It Depends On The Agreement.
The United States Supreme Court has held that a party may not be compelled to submit to class arbitration unless there is an express contractual basis for concluding the parties agreed to class arbitration. Stolt Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 685 (2010). However, the California Supreme Court has held that who — arbitrator or judge — decides about the availability of class arbitration is a matter of contract interpretation. Sandquist v. Lebo Automotive, Inc., 15 Cal.5th 233, 243 (2016). We posted about Sandquist almost exactly one year ago, on July 28, 2016.
Following the Sandquist precedent, the Court of Appeal has reversed the trial court's denial of an employee's petition to compel class arbitration, concluding that the arbitration agreement in Network Capital Funding v. Papke, G049172 (4/3 7/21/17) (Aronson, Bedsworth, Fybel) (unpublished) could not be meaningfully distinguished from the agreement in Sandquist. The Arbitration Agreement in Network Capital was broadly drafted to include "any claim, dispute, and/or controversy", and it governed "all disputes that may arise out of or be related to [Papke's] employment in any way" (italics added by the Court). The Arbitration Agreement included exceptions, but the exceptions did not apply. Finally, the Agreement was a form contract drafted by Network Capital and imposed on the plaintiff as a term of his employment.
Mediation/Family Law:Pro Per Father Was Given Fair Opportunity To Oppose Mother’s Request For A Move-Away Order, Despite Feeling Ambushed By Mediator’s Decision To Discuss The Issue
Under The Circumstances, The Mediator's Decision To Discuss The Mother's Move-Away Request Was "Understandable".
In family law, disputes are often resolved through mediation. In Alkebulan v. Dunham, D069434 (4/1 7/20/17) (Benke, O'Rourke, Dato) (unpublished), father, who was unrepresented by counsel, felt blind-sided when mother raised the issue of a move-away order with their year-old child at the mediation, and the mediator pursued the issue, recommending that the family court approve the mother's relocation to Texas and provide visitation for the father. The trial court permitted the mother to relocate, and the father argued that the order had to be reversed because he was not given a fair opportunity to opposed the mother's request for a move-away order.
The Court of Appeal noted that the mediation was set in response to the father's earlier request for an order that was filed in response to the mother's earlier statement she was planning to move out of state. Under the circumstances, the mediator's willingness to discuss the issue was "understandable." But even if the mediator made a mistake going forward, the trial court cured the problem by offering to send the parties back to mediation — an offer the father declined, because he felt the mediator was biased.
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."