Arbitration, Federal Arbitration Act: SCOTUS Rules in Kindred Nursing Centers Case That Kentucky’s “Clear-Statement Rule” Violates The FAA By Singling Out Arbitration For Disfavored Treatment
The Decision Was Not A Surprise.
Kindred Nursing Centers L.P v. Clark, No. 16-32 (US S.Ct. 5/15/17) (Kagan, J.) holds that Kentucky's "clear-statement rule" violates the Federal Arbitration Act by singling out arbitration agreements for disfavored treatment. Kentucky's "clear-statement rule" provides that, because the Kentucky constitution declares rights of access to the courts and trial by jury to be "sacred" and "inviolate", an agent can deprive her principal of such rights only if expressly provided in the power of attorney.
Relatives of Joe Wellner and Olive Clark had executed powers of attorney with arbitration clauses on behalf of Joe and Olive before Joe and Olive moved into a nursing home. After Joe and Olive died, their relatives filed suits against the nursing home, alleging substandard care. The issue presented was whether the powers of attorney were invalid because they failed to specifically entitle the representative to enter into the arbitration agreement.
SCOTUS distinguished between the two separate powers of attorney. One was struck down improperly because the Kentucky courts relied on the clear-statement rule to invalidate the arbitration provision, thus colliding with FAA preemption. However, on the facts, it was unclear why the other power of attorney had been invalidated. It is possible that the state courts relied on the clear-statement rule, but it is also possible that the state courts relied on an interpretation that did not implicate the clear-statement rule. Therefore, SCOTUS directed the court on remand dto determine whether it adhered to its prior reading of the second power of attorney in the absence of the clear-statement rule.
As is his wont, Justice Thomas dissented. He has consistently been of the opinion that the FAA does not apply to proceedings in state court.
COMMENT: On February 23, 2017, Professor Ronald Mann of Columbia Law School correctly predicted the outcome. See my February 23, 2017 post.
Arbitration, Equitable Estoppel, Agency, Pending Cases: Garcia v. Pexco, LLC Is Now A Published Opinion
As "Joint Employer", Company To Which An Employee Was Assigned Could Take Advantage Of Arbitration Clause In Employee's Contract With Temporary Staffing Agency That Assigned The Employee To The Company.
I am happy to report that Garcia v. Pexco, LLC, G052872 (4/3 5/16/17), an opinion I posted about on April 26, 2017, when it was still unpublished, has now been published.
Why happy? At the time, I wrote about an interesting aspect of the case:
[W]hile the Court relies on existing case law to apply established rules of equitable estoppel and agency in order to require arbitration, the Court does not rely on any cases involving temporary staffing agencies that assign employees to other companies — probably an increasingly common occurrence in our "gig economy" characterized by a lack of permanent employment. Alas, the case is unpublished as of this date.
Well, now the case is published.
Arbitration: Employment, Public Policy, Standard Of Review: Court Of Appeal Rejects Contentions That Arbitrator Exceeded Powers By Issuing Award In Violation Of California Public Policy
The King vs. Medieval Knights . . .
Plaintiff Scott Ehredt, a performer in medieval style games at Medieval Knights, sued claiming that Medieval Knights had misappropriated his likeness in advertising images, notwithstanding a release that he had provided. The matter was arbitrated, and after receiving an adverse award, Mr. Ehredt appealed. Ehredt v. Medieval Knights, LLC, et al., B275833 (2/8 5/15/17) (Grimes, Rubin, Flier) (unpublished).
The Court of Appeal rejected Mr. Ehredt's argument that the arbitrator exceeded his powers and acted in violation of public policy by validating the employer's actions requiring him, as a condition of employment, to sign a release. Nor did the Court of Appeal accept an argument that the parties had contracted to judicial review of the merits of the award by agreeing that the award could be vacated if "the arbitrator acted in manifest disregard of the law or otherwise exceeded the arbitrator's powers . . . " The "manifest disregard standard" is a federal standard that is narrowly construed. The general rule, of course, is that the court does not vacate an award for a mistake of law or fact.
COMMENT: The arbitrator awarded defendants attorney fees in the amount of $280,000 and costs in the amount of $8,650.26. Though one of the arguments in favor of arbitration is its economy and efficiency, even a three-day arbitration can prove to be very expensive, given the amount of work leading up to the hearing. This debacle brought to mind the Black Knight of Monty Python fame. Hence, the video link above.
Arbitration/Administrative: Ruling of Workers’ Compensation Appeals Board Is Annulled Because Rescission Issue Remained “Factually Open And Unresolved”
Arbitrator And Appeals Board Did Not Address Whether Rescission Was A Meritorious Defense To Employee's Claim.
Southern Insurance Company rescinded an insurance policy based on violation of a representation that covered employer's employees did not travel out of state, after an employee injured out of state made a workers' comp claim. The matter was referred to arbitration. The arbitrator concluded that the insurer could not rescind, the Workers' Compensation Appeals Board affirmed, and the insurer appealed. Southern Insurance Company v. Workers' Compensation Appeals Board, et al., B278412 (2/2 5/10/17) (Chavez, Hoffstadt, Goodman) (unpublished).
Held: "The conclusion is unavoidable that the issue whether Southern's rescission was legally effective remains factually open and unresolved." Accordingly, the decision of the appeals board was annulled, and the matter remanded to the board for proceedings consistent with the opinion.
COMMENT: We would have liked to see a discussion of the standard of review and relevant authority in this opinion.
Mediation/Settlement Agreement: Court Enforces “Short Form” Settlement Agreement Over Objections Of Petitioner
The Neighbor Feud Had Gone On Since 2002.
Wandering Elk, Dakota Indian, smokes peacepipe. c1903. Frank Bennett Fiske, photographer. Library of Congress.
The Court of Appeals' reliance on the wisdom of a Croatian proverb offered a strong clue in the first sentence that the Court would enforce peace among feuding neighbors: "Better a bad harvest than a bad neighbor." Beuchel v. Sup. Ct., B268193 (2/2 5/1/17) (Hoffstadt, Ashmann-Gerst, Goodman) (unpublished). Another clue was the Court's eagerness to treat the matter, filed as an appeal, as a writ proceeding. In this unpleasant neighbor dispute, there were allegations of spraying plaintiff with a garden hose, trespass to install barbed wire, and installation of surveillance cameras. The 15 year history of ill-will included a citizen's arrest of plaintiff after defendants allegedly found her in their backyard damaging their fence.
But let's cut to the chase. Plaintiff tried to wriggle out of a short-form settlement agreement following a mediation, chiefly on the grounds that she only understood the release of claims to apply to defendants' cross-claims, not her own, as to which the trial court had already granted summary judgment against her. After neighbors brought a motion to enforce the settlement agreement, which the trial court granted, plaintiff appealed.
Unsurprisingly, the Court of Appeal denied the plaintiff/petitioner's request, affirming the trial court's grant of the enforcement motion.
COMMENT: Key reasons that the Court was willing to enforce the shorthand form were that it described the settlement "as full and final settlement of the claims raised" in the court case; plaintiff's promise to waive her right to appeal; and a "1542 waiver" that included each parties' waiver of all claims known and unknown.
The Court of Appeal added, "The trial court had ample grounds to find that plaintiff's refusal to sign the short-form agreement was an effort to create controversy where none existed and a thinly veiled attempt to 'cause unnecessary delay' by frivolous means." As a consequence, the Court upheld a trial court order awarding payment of attorney's fees defendants incurred in moving to enforce the short-form agreement.
There is a strong tendency to attribute fault to someone who appears to be acting unreasonably.
Arbitration, Unconscionability, Severability: Trial Court’s Order Denying Petition To Compel Arbitration Is Reversed, Because The Only Unconscionable Provision Was Severable
The Unconscionable Provision Permitted Only The Defendant To Seek Equitable And Injunctive Relief In A Court Of Law.
In Enyong v. Westlake Services, LLC et al., B275952 (2/5 4/24/17) (Kriegler, Baker, Dunning) (unpublished), the Court of Appeal concluded that an arbitration provision contained only one unconscionable term, which was severable. Therefore, it reversed the trial court's order denying the petition to compel arbitration.
The one unconscionable provision permitted only defendant/appellant Westlake to seek equitable and injunctive relief in a court of law. However, this provision could have been severed, enabling the trial court "to enforce an otherwise valid arbitration agreement as favored by the FAA."
Relying on Baltazar v. Forever 21, Inc., 62 Cal.4th 1237 (2016), the Court further concluded "that the agreement is a contract of adhesion, but it does not involve sharp practices, oppression, or an element of surprise" — in other words, the procedural unconscionability prong also could not have been satisfied.
Note: The trial judge was the Hon. Teresa Sanchez-Gordon. On April 17, 2017, the Metropolitan News-Enterprise announced that she will be retiring after 20 years on the bench.