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."
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.