Thanks LACBA for the daily case reports!
Trial court lacked authority to review discretionary, prehearing order by arbitrator, who imposed stay on arbitration of dispute concerning uninsured motorist policy until plaintiff--who was driving on work-related business in company car provided by employer when rear ended--pursued workers’ compensation benefits in light of Insurance Code Sec. 11580.2.
(while we're walking down memory lane anyway, "Have It Your Way" from 1976)
When I ask litigators why they don't choose arbitration over litigation before unpredictable judges in a crowded court, their answer invariably is "because I can't appeal the ruling." We cling to appellate review even though we appeal fewer cases than we try -- which is a very small percentage of our case load as it is.
Not surprising, however, we litigators, as Max Kennerly recently noted, tend to be risk-averse, not risk-embracing (h/t Blawg Review # 174). To give up that one last chance for our client to be vindicated and for us to be triumphant is generally just too much for us.
Now we can have our arbitration cake and and follow it up with appellate ice cream. Yesterday, the California Supreme Court in Cable Connection, Inc. v. DirecTV held that arbitrating parties' agreement to seek appellate review of legal errors is enforceable in California State Courts despite its uneforceability in federal court. As the Supreme Court explained:
On the first question, the United States Supreme Court has held that the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.) does not permit the parties to expand the scope of review by agreement. (Hall Street Associates, L.L.C. v. Mattel, Inc. (2008) __ U.S. __ [128 S.Ct. 1396, 1404-1405] (Hall Street).)
However, the high court went on to say that federal law does not preclude “more searching review based on authority outside the [federal] statute,” including “state statutory or common law.” (Id. at p. __ [128 S.Ct. at p. 1406].) In Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1 (Moncharsh), this court reviewed the history of the California Arbitration Act (CAA; Code Civ. Proc., § 1280 et seq.).
We adhere to our holding in Moncharsh, recognizing that contractual limitations may alter the usual scope of review.The California rule is that the parties may obtain judicial review of the merits by express agreement. There is a statutory as well as a contractual basis for this rule; one of the grounds for review of an arbitration award is that “[t]he arbitrators exceeded their powers.” (§§ 1286.2, subd. (a)(4), 1286.6, subd. (b).)
Here, the parties agreed that “[t]he arbitrators shall not have the power to commit errors of law or legal reasoning, and the award may be vacated or corrected on appeal to a court of competent jurisdiction for any such error.” This contract provision is enforceable under state law, and we reverse the contrary ruling of the Court of Appeal.
Florida Insurance Commissioner Praises Mandatory Arbitration Ban
Thanks to the LexisNexis Insurance Center Staff
TALLAHASSEE, Fla. -- Florida Insurance Commissioner Kevin McCarty welcomed the First District Court of Appeal's decision affirming the Office of Insurance Regulation's denial of United Insurance Company of America's request to include a mandatory arbitration clause in its life insurance contracts.
Arbitration would have forced disgruntled policyholders to bypass the legal system to settle disagreements. United appealed OIR's action and the court affirmed the denial.
"Policyholders have fewer rights and constitutional protections under the more restrictive arbitration process than they would have in a civil court proceeding," said McCarty. "I'm pleased that the Court made it clear that Florida consumers should not be shut out of the traditional legal system to press their grievances against insurance companies."
Although United argued that federal arbitration law superseded the Florida law that allows policyholders to use the courts for contractual disputes, the Court stated that the matter "specifically relates to the business of insurance" and was, therefore, exempt from being superseded by federal law
Not an earth-shaking opinion from the Ninth Circuit but a good one to keep around the next time you want to claim -- or resist a claim of -- waiver. Thanks to the Met News for summarizing these opinions on a daily basis and to LACBA for putting them into my email box every night.
What on earth would we do without them?
Where employment-related dispute arose between employer and employee who had executed employment agreement containing a mandatory arbitration clause, and employee wrote letter requesting arbitration to which employer responded by telling employee that it did not consider his claim ripe for arbitration, district court's order—after employee's termination—denying employer's motion to compel arbitration on ground that employer previously breached its agreement and waived right to arbitrate disputes was error because employee did not properly initiate arbitration under agreement's terms; district court improperly concluded employer waived arbitration where it was debatable whether employer acted inconsistently with right to arbitrate, employer initiated arbitration immediately upon learning of suit, and employer's actions did not prejudice employee.
Thanks to ContractsProf Blog for the following:
In late June, the Missouri Court of Appeals addressed the legal enforceability of a program adopted by Hallmark requiring employees to arbitrate employment disputes. The court held that Hallmark's ADR program did not constitute a contract and that there was no consideration to bind the employees to the promise to arbitrate claims.
The employer's arguments in favor of enforcement in this case were very much like those argued by O'Melveny & Myers here in California with the same result in the Ninth Circuit -- the employee was not bound by an agreement by continuing to work after all employees were notified that their continued work for the company would constitute consent to being bound by the arbitration provision.
Check out the ContractsProf Blog analysis here. We particularly like this comment by the Court:
The idea that an employer can create any legal contract it dares to create (based on a condition of at-will employment) cannot be sustained upon reflection. Imagine, for instance, an employer publishing a memo to employees stating that:
Anyone who continues to work for us through next Monday will be conclusively deemed to have agreed, as a condition of remaining in our employ through that date, that you will contribute twenty dollars per month over the next ten years to the National Association of Manufacturers (NAM), whether or not you remain employed here during that time. If you do not agree, you will need to resign your employment immediately, because by continuing to work, you are agreeing.
Yes, I did see the Beatles play the Hollywood Bowl in 1964, with an emphasis on SEE -- couldn't hear a thing! Just a little nostalgia for my boomer readers.
O.K., the subject line was meant to shock you and to draw criticism for what I will admit is my greatest unresolved prejudicial default -- that white men over 65 who didn't participate in the American cultural revolution of the late nineteen sixties and early 1970's did not and will never "get it."
The Court opinion that triggered the headline and the recollections below is here. The "executive summary" is as follows: One of three arbitrators who cast the deciding vote on a plastic surgery malpractice case
Back to My Own History as Descriptive of -- But No Excuse for -- My Own Biases
We all have biases that we hide from others and some that we successfully hide from ourselves.
We live, I'm told, in a 200 year present. That means that my early life affects your life today. After all, I'm an old white woman, about whom you may well have biases. If I sit on your arbitration panel, you're going to want to understand those biases. That's why I'm giving you a bullet-pointed history of what the world was like when I was forming my essential character at 17 years of age in 1969.
I promise to work on my prejudices. And I advise anyone who is about to appear before any dispute resolver -- be that person male, female, white, black, young or old, GOOGLE THEM FIRST!
(find Rolling Stones American Flag sticker -- image right - here)
Thanks to the National Arbitration Forum for passing this nugget along from a Texas Appellate Court -- nullifying the American Rule on attorneys fees in arbitration proceedings permitting the arbitrator to award "just and equitable relief."
Providian Bancorp Services v. Thomas, No. 08-07-00246-CV, 2008 WL 2058524 (Tex. Ct. App. May 15, 2008)
Where the rules of arbitration authorize the arbitrator to grant any "just and equitable" relief, the arbitrator may award attorney fees without any other contractual or statutory basis for the award, according to the Texas Court of Appeals. In light of the Court's holding, if parties select arbitration rules that permit any "just and equitable" relief, they are effectively opting out of the American Rule, which provides that parties are responsible for their own attorney fees in the absence of any contractual or statutory basis for shifting such fees.
In Providian Bancorp Services v. Thomas, No. 08-07-00246-CV, 2008 WL 2058524 (Tex. Ct. App. May 15, 2008), Thomas sued Providian, her former employer, for discrimination and assault and battery. Providian moved to compel arbitration pursuant to an arbitration agreement between the parties . . . continue reading here . . . .
In Shanks v. Swift Transportation, the Federal District Court for the Southern District of Texas held that where plaintiff-heirs in a wrongful death action sought survival and death benefits under a benefits plan requiring the arbitration of decedent's claims, Texas law required that those claims be arbitrated under the employment agreement's requirements despite the fact that none of plaintiffs was a signatory to the arbitration agreement.
Among the principles and holdings in this case were:
I do not know whether Texas law, like California law, requires employers to foot the bill for the arbitration. If it does not, I wonder whether this decision is the death-knell to the Plaintiffs' wrongful death claims, claims that can usually be pursued only if the attorney advances the costs of the wrongful death action to the Plaintiffs. (Seethe ABA Journal post Are Lawyers Becoming Luxury Goods?) */
I also wonder whether the Fifth Circuit would conclude that requiring the arbitration of a wrongful death claim contravenes public policy. I'd certainly make that argument before a federal trial court sitting in California, though I doubt that this ruling would be possible under California law.
Hat tip to Lawyers USA for bringing us this breaking legal news.
_________________________
*/ As the ABA Journal item notes:
Lawyers increasingly are becoming like luxury goods to many would-be clients, an expensive article that they can't afford or don't want to make a priority.
And that is bad news for the profession as well as for the public, says a recent article in the National (PDF), a magazine published by the Canadian Bar Association
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Just a quick note on a recent appellate case here holding that where the parties have agreed to conduct their arbitration in accordance with California law, the Federal Arbitration Act does not preempt state law on arbitrability.
The case is Best Interiors, Inc. v. Millie and Severson, Inc., here. This is a construction case. As soon as I read it, I'll get back to you on whether there's anything of value to be said about drafting, enforcing or resisting the enforcement of arbitration clauses in construction contracts.
You just slip out the back, Jack
Make a new plan, Stan
You don’t need to be coy, Roy
Just get yourself free
Hop on the bus, Gus
You don’t need to discuss much
Just drop off the key, Lee
And get yourself free
Where matchmaking service moved to compel arbitration of clients’ action alleging that "consulting agreements" were fraudulently induced, and agreements were [within a] class of contracts regulated by state law expressly rendering nonconforming contracts void and unenforceable, agreements’ failure to expressly set forth language required under dating service statutes--Civil Code Sec. 1694, et seq.--rendered [them] and [the] arbitration provisions [contained in them] unenforceable. Duffens v. Valenti - filed March 27, 2008, Fourth District, Div. One Cite as 2008 SOS 1811
Check out California appellate attorney Greg May's post today -- 
A Dilemma for Some Defendants Who Seek to Arbitrate here. Excerpt below.
It’s a long-held rule in California that a defendant sued on a contract may recover attorney fees pursuant to a provision in the contract even if the defendant prevails on a theory that he was not a party to the contract or that the contract is nonexistent, inapplicable, invalid or unenforceable. The rule exists in order to further the purpose of Civil Code section 1717, which is to make unilateral fee provisions reciprocal. . . . .
Consider now whether a similar rule should apply to arbitration provisions. . . . . Should a defendant be able to compel arbitration pursuant to a contractual arbitration provision in a contract alleged by plaintiff even if the defendant denies the existence of that contract?
The court of appeal says “no” in Brodke v. Alphatec Spine Inc., case no G038591 (4th Dist. Mar. 20, 2008). .......................
For the full post, click here.
When we bought our house 6 years ago, Mr. Thrifty struck all ADR provisions from the sales contract. He's come to respect ADR much more in the last few years. Still, I believe he'd choose access to the justice system over its alternatives.
Though Mr. Thrifty -- a litigator -- was bold enough to alter a form contract, few other home buyers would be.
Now it appears that the California courts will protect home buyers from arbitration agreements buried in the voluminous documents all home buyers sign when they purchase a house. See Bruni v. Dideon, just decided by the Fourth Appellate District of California. Summary below courtesy of the Metropolitan News-Enterprise.
Where homebuyers alleged that arbitration clause was contained in preprinted and "voluminous" documents, there was no negotiation, they understood the documents were being presented to them on a "take it or leave it" basis, they [were] generally . . not familiar with real estate documents or with "legalese," were not told to read to read warranty--which contained arbitration provisions . . . . and were not given enough time to read the warranty or any of the other documents [prior to signing, the] issue as to whether homebuyers knowingly agreed to arbitrate was subject to judicial determination regardless of provision requiring that issues regarding enforceability of arbitration clause be submitted to arbitration.
Where . . . plaintiffs had to accept arbitration provisions if they wanted to buy a house, [the]provisions were part of a preprinted form contract, any attempt to negotiate . . . . the terms of the warranty would have been fruitless, the provisions took up one page of a 30-page booklet that was buried in [a] "voluminous" stack of purchase and sale documents, and plaintiffs were never asked to read the arbitration provisions before signing, those provisions were adhesive and unconscionable, and trial court correctly exercised its discretion by refusing to enforce them.
Why do you think they call it recess?
When tempers flare to the boiling point, arbitrators who fail to prevent recess assaults are immune from suit according to the New Jersey appellate court, as detailed in this Law.com article, Arbitrator is Not Liable for Attorneys Alleged Assault here. Excerpt below:
When fists fly at an arbitration proceeding, the arbitrator isn't liable for not averting the altercation, a New Jersey appeals court says in an interpretation of the model Arbitration Act.
The judges, in Malik v. Ruttenberg, A-6615-06, reversed a trial court's refusal to dismiss a suit charging an arbitrator knew of a lawyer's dangerous propensities yet did not remove him from the case, and an assault allegedly ensued when a recess was called.
The appeals court found that decisions relating to control of the arbitral forum are within the immunity accorded by the N.J. Arbitration Act, adopted from the model act devised by the National Conference of Commissioners on Uniform State Laws.
Eric Tuchman, the general counsel for the American Arbitration Association -- a defendant in the case -- says the ruling is the first in the nation to interpret the act's immunity provision.
The act has been adopted in 13 states, including New Jersey, and is under consideration in four others.
"Opinions like this really permit arbitrators and sponsoring organizations to preside over and administer cases in a way that is free and impartial," Tuchman says.
For remainder of article, click here.
. . . the Honorable Sam Cianchetti, Los Angeles Superior Court Judge (ret.) for his decision awarding $8.4 million in punitive damages, for a total $9 million award, against Health Net In the Arbitration between Patsy Bates and Health Net, et al.
Los Angeles Times article here and the opinion itself here.
UPDATE: For coverage of this case within the industry see The National Underwriter post here.
This one is Lowden v. T-Mobile USA decided today by the Ninth Circuit.
We conclude that the Washington State Supreme Court’s decision in Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007), establishes that T-Mobile’s arbitration provision is substantively unconscionable and unenforceable under Washington state law, and that there is no federal preemption in light of our decision in Shroyer v. New Cingular Wireless Servs., Inc., 498 F.3d 976 (9th Cir. 2007).
(ph
oto: Inside H Block 4 by Still Burning)
Want an angry tax attorney serving as the arbitrator on your personal injury case? Then head on down to Arizona where the Ninth Circuit has just held that he can be forced by State law to serve as your neutral for $75 per day -- all without violating the U.S. Constitution.
The indentured tax attorney? Mark V. Scheehle, to whom you might throw a little tax planning work out of collegial fellow feeling.
The facts below. Link to Scheehle v. Justices of the Supreme Court here.
Arizona law requires that each superior court, by rule of court, provide for the arbitration of cases in which the amount in controversy does not exceed $65,000. Ariz. Rev. Stat. § 12- 133. At the time this action was filed, the Local Rules of Practice for the Superior Court of Maricopa County required that all attorneys who reside in the county and have been active members of the Arizona Bar for five years serve as arbitrators.
Attorneys who served as arbitrators under the Appointment System were paid a flat fee of $75 for each day in which they actually conducted an arbitration hearing.
Scheehle has been a member of the Arizona Bar since 1981, and a certified tax specialist since 1988. In September 1996, Scheehle was appointed as the arbitrator in a motor vehicle personal injury action. He served as an arbitrator and submitted a report to the Maricopa Superior Court in December 1997.In July 1997, Scheehle was appointed as the arbitrator in a second motor vehicle personal injury suit and accepted the appointment. In October 1997, while still serving as the arbitrator in the second action, Scheehle was appointed as the arbitrator in a third personal injury action.
Scheehle decided to challenge the authority of the Arizona courts to require that he serve as an arbitrator. He returned the file to the Presiding Arbitration Judge of the Maricopa County Superior Court with a letter declining to serve as an arbitrator. He also expressed his unwillingness to serve as an arbitrator in any subsequent case, and his belief that the Appointment System was unconstitutional and violated Arizona law.
The judge responded by holding a telephone conference at which Scheehle placed his objections on the record. The judge further encouraged Scheehle to apply for relief for good cause shown from the particular assignment, but Scheehle declined, choosing to challenge the Appointment System as a whole.
Scheehle was allowed to file a brief in support of his position. In January 1998, the Presiding Arbitration Judge entered an order rejecting Scheehle’s arguments and imposing a $900 sanction on Scheehle for refusing the arbitrator appointment.
In her recent post Supreme Court Orders Additional Briefing in Hall Street, Moritz Law School Professor Professor Sarah Cole at Indisputably Dot Org worries that the Supreme Court might punt the issue squarely placed before it in Hall & Associates -- whether parties to an arbitration agreement may expand judicial review of arbitration awards -- and decide the issue on a narrow common law ground, thus creating more, rather than less, uncertainty for parties wishing to design the best conflict resolution vehicle for their particular dispute.
(sorry for the run-on sentence grammarians)
The heart of Professor Cole's concerns is quoted below. The questions from the Supreme Court giving rise to those concerns may be found in the linked post above.
(our earlier posts on the case -- which we referred to as the "Mattel" -- are here and here)
It may be that the[ Court is] considering whether substantive judicial review provisions contained in an agreement among parties transforms what the parties think is arbitration into a procedure governed by common law (contract law) rather than the FAA.
If that is the case, then the question becomes whether parties can ask courts to review their contracts on grounds that courts normally don’t use to review contracts. Then, the district court judge would have to look at whether he or she had authority to grant the parties’ request — in past cases, courts have used their inherent authority to grant or deny such non-traditional requests.
But, because courts’ inherent authority is discretionary, courts might reject the parties’ requests. That level of uncertainty might doom these kinds of agreements.
This post follows up yesterday's about questions asked by the Supreme Court Justices during oral argument in the Hall v. Mattel case. For a more thorough analysis than I was capable of providing, I put out a call to my arbitration law posse and was greatly rewarded by the following comments.
Eric van Ginkel writes from Amsterdam:
Courts and scholars have traditionally ignored the distinction between vacatur (as to which section 10 limits the grounds, and there should not be any additional, non-statutory grounds) and appeal, about which the FAA is silent (other than perhaps section 9 which conditions the confirmation of an award on whether the parties have agreed that judgment on the award can be entered, arguably leaving that until later if they have agreed on an appeal to a court or a panel of appeal Arbitrators).
Sadly, the petitioners have also ignored this distinction, so the chances are that the Supremes will come out against appeal. As I have pointed out in the past, the clearest example of appeal next to vacatur as two distinct remedies can be found in the English Arbitration Act of 1996.
AAA arbitrator Jay McCauley, who teaches Arbitration Law at Pepperdine School of Law writes:
This case tests the limits of the power of contracting parties to curtail the power of their arbitrator. Section 10 of the Federal Arbitration Act (i.e., the provision stating the grounds for vacatur) already provides that an award may be vacated if the arbitrator exceeds his or her powers. The question before the Supreme Court is whether parties may contractually define those powers by specifying that the arbitrator exceeds them if he or she fails to base his or her decision on the law.
There appear to be five lines of argument supporting the proposition that such contracts should not be enforced:1. Congress intended the grounds for vacatur to be limited to those expressly set forth in Section 10, and none of those permits vacatur based on the content of the award.
2. Part of the ethos of arbitration is that it shall be quick and efficient (not slow and accurate), regardless of what the contracting parties desire.
3. Contracting parties should not be able to dictate to courts what courts should do.
4. Allowing vacatur on the basis of the content of the award will put too big a burden on trial courts handling vacatur motions, who are not used to the reviewing function.
5. Judicial review is often not in the parties' interests. We need to prohibit review to save the parties from their own bad judgment.
I think each of these arguments is faulty.
As to Argument 1: Congress expressly said Courts may vacate when the arbitrator exceeds his power. It never prohibited the contracting parties from defining what those powers are. There is no reason to consider the four Section 10 grounds for vacatur as exclusive. As long ago as 1953, the Supreme Court itself added a content based non-statutory basis for vacatur ("manifest disregard of the law") without an excuse as great as we have here, i.e., that the parties asked for it.The agreement at issue in Mattel calls for a deeper level of review than manifest disregard of the law. Nevertheless, the Supreme Court would be hard pressed to say that such a review would contravene Congressional intent. The Court long ago broke that supposed barrier. In any event, what Congress said it intended was to put arbitration agreements "on the same footing" as all other agreements. That should mean "carry out what the parties contracted for" so long as their contract is neither illegal nor contrary to public policy.
As to Argument 2: There is no ethos to Arbitration other than the ethos of parties' freedom to customize their own adjudication process in any way they see fit. There are many in the ADR community who think about, and advocate for, arbitration as if it were an institution that must conform to a Platonic ideal. The largest arbitration provider in the world, the American Arbitration Association, filed an amicus brief in the Mattel case, arguing that the customized arbitration the parties contracted for in this case should not be permitted because, inter alia, it runs afoul of the ethos of arbitration (i.e., quick, efficient and un-litigation-like). I have no idea why AAA, a neutral provider, would put its oar in this water at all. Nor can I fathom why they did so to pull against the direction of contractual freedom.
As to Argument 3: It is the Courts that should not be able to dictate what they do or do not do. It is Congress that has that power. And Congress already used that power to dictate to Courts what they should do in this instance: that is, "enforce the parties' agreement as written."
As to Argument 4: The best of the arguments against permitting the parties to include judicial review in their private dispute resolution process is the long recognized common law limitation on contractual freedom: impossibility or impracticability. The kind of judicial review called for here, however, is not onerous or novel. District courts have been conducting content based reviews of administrative decisions as a significant part of their ordinary duties since the 1930s.
As to Argument 5: I am the first to admit that judicial review of an arbitration award is usually, maybe even almost always, a bad idea. But those who oppose enforcement of contracts calling for judicial review are saying something more: that it is always a bad idea, and that it is such a bad idea that parties themselves should not be able to decide for themselves just how bad an idea it is for them.It turns out that this case is the very worst scenario for judicial paternalism. Not only were the parties sophisticated players engaged in a commercial dispute, they entered into the agreement after the dispute arose (i.e., it was a true "submission agreement"), so they had reason to know precisely what they were getting into.
Something extra to watch: Just as the U.S. Supreme Court is now reviewing the Mattel case, the California Supreme Court is reviewing the Crowell case. The Crowell arbitration arose under the California Arbitration Act and raises the identical issue as that raised by Mattel.
But here is the real irony in California: One of the reasons trial courts are already experienced with vacating arbitration awards for legal error is that they have already been told to do so by the California Supreme Court in employment cases (Armendariz). They must do so even though the California vacatur statute (CCP section 1286.2) like the federal vacatur statute (FAA section 10), does not include legal error as a ground for vacatur.
Under Armendariz, California courts are not permitted to enforce an arbitration agreement if it does not provide a mechanism for judicial review. If California now prohibits private contracts requiring judicial review of commercial arbitration awards, it will be imposing two directly contrary limitations on contractual freedom: Parties may neither limit the power of commercial arbitrators (by requiring judicial review) nor expand the power of employment arbitrators (by failing to provide for judicial review).
Imposing both limitations would not be a contradiction -- they arise in different contexts. But such a decision would starkly elevate the policy of protecting employees over the policy in favor of the freedom to contract. That is, the California court would be saying that employee protection is a good enough reason to override all of the arguments against thejudicial review of arbitration awards, but freedom of contract is not.
Finally, AAA arbitrator Les J. Weinstein writes:
While some might argue that judicial review would add transparency to the arbitration process by opening up the private proceeding to public judicial review would fuel the notion of a tailored private system for the rich and powerful using public resources.
Suppose the parties contract for judicial review under seal; is that OK?
If we like contract so much, why not let the parties "rent" an appellate panel? Maybe the Supreme Court will review arbitrations as well?
If we go down this road, we would need new rules as well as Congressional authority.
Who will pay for this potential new burden on the appellate system?
I doubt that mere contract alone will cut it under the current law but I predicted a Gore victory and a Supreme Court abstention so what do I know?
There you have it. Three lawyers. Three very good opinions. Don't you LOVE the law?
(photo: Reading the tea leaves by Joel Carranza)
In Judiciary's Role in Arbitration Weighed, AP reports on the tea leaves that lawyers and business people will be reading for the next several months as we await the Supreme Court's ruling on this issue -- may the parties to an arbitration agreement contract for judicial review of any resulting arbitration award.
While asking my arbitration expert posse Jay McCauley, Les Weinstein, Eric van Ginkel and Jack McCrory to please weigh in here, I'll provide you with my semi-tutored two cents.
Because the central policy issue supporting arbitration under the Federal Arbitration Act is to allow contracting parties to control their own destiny, I'd wager the Supremes will permit them to do what they want to do here, i.e., allow federal courts to review any arbitration award the parties want them to.
Here are the tea leaves:
For a thorough analysis of the issues raised, see Hall Street: Contract vs. Statute at Ross' Arbitration blog.
By the way, I get alerted to articles like this on a daily basis here -- Laywers U.S.A. It's been my best and easiest source for breaking legal news for quite some time now and it appears in my in-box on a daily basis. For curmedugeons like Mr. Thrifty who say they don't have time to read ANYTHING online, it takes about 60 seconds to scan the news items. Then one second to delete if there's nothing there of interest to you. I highly recommend it and give a long belated "thanks" here to the people at Lawyers U.S.A.
(photo by Steve Rhodes)
Geek heaven!! My two obscure specialties -- environmental insurance coverage and arbitration law -- have converged in a case to be decided by the U.S. Supreme Court this term. To confirm my total nerd credentials, I give you the news not from the New York or L.A. times, but from Yahoo! News, excerpted with link below:
High Court Weighs Role of Judiciary in Arbitration Case Involving Toymaker Mattel
WASHINGTON (AP) -- The outcome of an environmental cleanup dispute now before the Supreme Court could determine the future of arbitration as an alternative to lawsuits.
Tens of thousands of disagreements in the business world are resolved through arbitration each year, a process often regarded by the business community as a cost-saving, time-saving substitute for going to court.
The risk in arbitration is that the losing side cannot appeal to the judiciary except in limited circumstances. That's the subject of Supreme Court arguments on Wednesday.
The Supreme Court will consider whether the parties in arbitration can agree to take their cases to court for review of arbitration awards.
(for our Canadian readers, our featured treatise is Litigating Conspiracy: An Analysis of Co
mpetition Class Actions , Stephen G.A. Pitel, Ed.)
An excellent concise summary of Gentry v. Superior Court, where the California Supreme Court Questions Enforceability of Class Action Waiver on Public Policy Grounds is once again provided by the National Arbitration Forum, excerpt below.
By a 4-3 majority, the California Supreme Court reversed an order compelling arbitration and remanded the case to the trial court with instructions to use a multi-factor test in determining the enforceability of a class action waiver. The ultimate question for the trial court is whether class-wide proceedings would be “a significantly more effective practical means of vindicating the [statutory] rights” of the employees who belong to the putative class. Parties who prefer the simplicity of one-on-one arbitration should not be overly concerned by the majority holding because this decision has no application outside of the employment context.
For full text of NAF's summary, click here.
This pdf of the opinion comes to you courtesy of Jeffer Mangels Class Action Defense Blog with Jeffer's excellent case analysis from a defense perspective here.
Another good and thorough analysis appears here. Gentry v. Superior Court - California ruling on class action waiver in arbitration agreement.
The National Arbitration Forum's excellent and timely Law and Policy Update celebrates its first birthday today, and what a year it has been for changes in the arbitration landscape. If not for NAF, I would never have been able to keep up.
You know, we used to have to pay for stuff like this, back in the old days when publishing required paper and stamps and mail people with heavy bags on their shoulders stumping down the street on a hot summer's day.
Now organizations like NAF make your life easier gratis. How great is that????
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(pictured: an overdressed 1985 Motorola Cell Phone from Bulletz of Knowledge post Dress the Elderly Cell Phone)
For the business, rather than a strictly legal, analysis of the recent Ninth Circuit and other California rulings on the unconscionability of consumer arbitration clauses, see the excerpt and link to Business Week's article on the issue below.
Cell-Phone Contract Disputes Heat Up -- Court rulings in California could lead to changes in dispute clauses in wireless contracts and fuel class actions against carriers by Olga Kharif
Read almost any cell-phone contract and you'll discover that the longest passage deals with dispute resolution. While seemingly important matters like billing get only one paragraph, Verizon Wireless devotes six paragraphs to dispute resolution. At AT&T (T), the dispute section takes up 10 fat paragraphs and states: "You agree that, by entering into this Agreement, you and AT&T are each waiving the right to a trial by jury or to participate in a class action."
The small print keeps expanding in response to an influx of court cases—at least 10 of them in California over the past few years—questioning a wireless carrier's right to block consumers from suing or filing class-action claims. In late June a California appeals court reaffirmed a lower court's order that (T-Mobile USA) could not enforce a clause requiring arbitration of disputes with customers. And on Aug. 17, the U.S. Court of Appeals for the Ninth Circuit in California ruled that AT&T's prohibition against subscribers banding together in class actions, "is unconscionable, and, thus, unenforceable."
(photo: Cohdra at MorgueFile)
Friday the thirteenth was (temporary) bad luck for Canadian consumers. I say temporary because Ontario and Quebec have forbidden mandatory arbitration clauses and class action waivers. The Canadian Supreme Court in the two cases discussed below held that in the cases before it those statutes could not be applied retroactively.
Though no Canadian Law expert (I was hipped to the Dell opinion by my Canadian buddy Michael Webster of the Due Diligence and Misleading Advertising Blog) it appears that a Dell mandatory arbitration and class action waiver clause is not against Canadian public policy (referred to by the Court as not against "public order.") See the Canadian "The Court" Blog's article, "Is the Class Action a Public Order Institution," excerpted below.
Ironically, when the Dell and Rogers cases are placed in a larger social context, the public’s interest in securing the class action as a vital aspect of the public justice system could hardly have been rendered clearer. The Rogers case received much less of the court’s attention, having been carried through on Dell’s slipstream; however it is the features of Rogers’ mandatory arbitration/class action waivers on its consumer contracts that highlight the hollowness of off-the-bench judicial laments about access to justice for ordinary Canadians.
Both cases turned on the sublimely procedural question of whether an arbitrator or a Quebec superior court judge should have first kick at the can in deciding whether a mandatory arbitration clause on a consumer contract was enforceable or not. Such clauses preclude consumers from pursuing corporations in any kind of court action, including class action.In both Ontario and Quebec the question has been rendered moot by amendments to consumer protection legislation which prohibit such clauses, underlining the public order aspect of the class action.
Read the rest of the article here (emphasis added).
(photo by Vilanova, MorgueFile)
In this federal case, the Ninth Circuit held that the addition of an arbitration clause to the cell phone service contract, imposed by way of the posting of a revised contract on its website with no pre-existing notice to its subscribers was unenforceable. The class action plaintiffs were therefore not required to arbitrate their claims and the class action waiver (also imposed upon subscribers in this same manner) was unenforceable. Douglas v. United States District Court for the Central District of California.
from Slash Dot we learn that the Washington Supreme Court has held that
[c]lass action waivers included in cell phone companies' contracts with customers are invalid in Washington State because they violate the state's Consumer Protection Act . . . .
Five plaintiffs accused Cingular of overcharging customers between $1 and $40 per month in roaming and hidden charges.
Cingular had an arbitration clause that required individual arbitration and prohibited class action litigation or class action arbitration.
We keep track of these class action waivers in consumer contracts because they are always coupled with an arbitration clause and must therefore overcome the strong federal preference for arbitration and the Federal Arbitration Act's preemption of most state laws that might restrict a party's "right" to compel private binding dispute resolution.
See our previous posts on Sprint's arbitration clause here and here.
Greg May at the California Blog of Appeal writes Great Lawyers Can Write Unenforceable Arbitration Agreements.
A little over a month ago, the Ninth Circuit ruled in Davis v. O’Melveny & Myers, case no. 04-56039 (9th Cir. May 14, 2007) that the arbitration provision in the employment contract of a prominent, powerful L.A.-based law firm was unenforceable. Not just unenforceable, but “shock the conscience” unenforceable. . .
Just as you’re asking yourself, “If a high-powered law firm can’t draft an enforceable arbitration provision for its own contracts, then who can?” comes Gatton v. T-Mobile USA, Inc., case no. A112082 (June 22, 2007), in which the arbitration provision in T-Mobile’s customer agreement gets similar treatment in California state court. The First District Court of Appeal holds that T-Mobile’s arbitration provision in its customer agreements is unenforceable because of the minimal degree of procedural unconscionability arising from its adhesive nature and the “high degree of unconscionability arising from the class action waiver.”
I’m going to go out on a limb and say that T-Mobile probably had pretty good lawyers draft its agreement, and that the lawyers who drafted the provision for O’Melveny were no slouches, either. Who will fall next?
When it comes to employment arbitration agreements, it seems like the more bases you try to cover, the less likely a Court is to enforce them.
Even the highly respected Los Angeles-based international law firm of O'Melveny & Myers has proved itself unable to draft an employment arbitration agreement that satisfies California's procedural and substantive conscionability requirements.
Just today, the Ninth Circuit Court of Appeal in Davis v. O'Melveny & Myers held that the law firm's attempt to impose an arbitration agreement upon existing employees with a three-month notice period was both procedurally and substantively unconscionable. (For a criticism of the opinion, click here).
In finding that O'Melveny's attempted imposition of the agreement on its employees was procedurally unconscionable, the Court stressed the firm's "overwhelming bargaining power" and the "take-it-or-leave-it" basis upon which the agreement was proffered. Although the Court distinguished provisions that might permit an employee to negotiate a different deal, given its characterization of O'Melveny's bargaining power, we don't imagine this Court would have read such a clause as anything other than illusory.
As the Ninth Circuit stressed, however, a procedurally unconscionable agreement must be "analyzed in proportion to evidence of substantive unconscionability." It thereupon went on to find four provisions substantively unconscionable: the “notice,” confidentiality and, “business justification” provisions, as well as the limitation on initiation of administrative actions.
The challenged notice provision required the aggrieved employee to "give . . . notice of a Claim [within the year it arose] along with a demand for mediation" or it would be "lost forever." Quoting Richards v. CH2M Hill, Inc., the Court held this provision substantively unconscionable because it would deprive the employee of the right to assert the "continuing violation doctrine available in FEHA suits" a benefit that flows only to the employer.
The challenged confidentiality provision -- prohibiting mention of the mediation or arbitration "to anyone not directly involved" - was also found to be unduly favorable O'Melveny. As the Court explained:
Such restrictions would prevent an employee from contacting other employees to assist in litigating (or arbitrating) an employee’s case. An inability to mention even the existence of a claim to current or former O’Melveny employees would handicap if not stifle an employee’s ability to investigate and engage in discovery. The restrictions would also place O’Melveny “in a far superior legal posture” by preventing plaintiffs from accessing precedent while allowing O’Melveny to learn how to negotiate and litigate its contracts in the future. Id. Strict confidentiality of all “pleadings, papers, orders, hearings, trials, or awards in the arbitration” could also prevent others from building cases. . . It might even chill enforcement of Cal. Labor Code § 232.5, which forbids employers from keeping employees from disclosing certain “working conditions” and from retaliating against employees who do so.
The challenged exemption for alleged breaches of confidentiality was also found to be unenforceable. "As written," held the Court, the provision permitting a "non-mutual exception allowing [O'Melveny] a judicial remedy to protect confidential information" was “one-sided and thus substantively unconscionable.”
Finally, the Court held that the agreement's preclusion of employee complaints to agencies charged with the well-being of California's citizens such as the Department of Labor, was contrary to public policy and therefore substantively unconscionable as a matter of law.
There you have it. One of the best law firms in the country was unable to draft an employment arbitration agreement that could pass public policy muster.
Would anyone else like to give it a try?
Thank you to our friend Alicia Freundlich, a Straus LL.M candidate, for passing along this case summary copied verbatim from the Newsletter of the Business Law Section of the State Bar of California.
(right) More serious balloon popping by the ever popular Charles Fincher of LawComix.com, who every so graciously lets me use these fabulous lawyer cartoons for free. Do support him by paying cold hard cash for a signed copy, or better yet, a custom-made print for your favorite partner, judge, client, administrator, legal assistant, or associate.
COURT UPHOLDS ARBITRATOR’S ABILITY TO USE “MULTIPLE INCREMENTAL OR SUCCESSIVE AWARD PROCESS” AS A MEANS OF FINALLY DECIDING ALL ISSUES
Roehl v. Ritchie
2007 DJDAR 1480, 2007 Cal App LEXIS 125 (Ct. App. 4TH Dist. 1/31/2007)
This case arose from a dispute between the sons of a decedent and his second wife over distribution of the estate. The dispute was arbitrated and the arbitrator issued an award on March 1, 2004 concerning most of the issues in controversy. Among other things, he ruled that the wife had a 75% interest in the decedent’s home and that the sons had a 25% interest, which should be distributed to them because the wife was still living in the home.. The arbitrator indicated that the home was valued at $575,000 based on a November 2003 appraisal which covered the home and some other assets. He ruled that the appraisal would be the basis for distribution “unless the trustee determines that changes will be needed…if…in light of new developments since [November 2003], a somewhat different distribution of assets would benefit the estate” and he offered to work with the trustee to ”review any questions he may have concerning the orders and findings made by the arbitrator”.
The wife died one week after the award was issued. The wife’s niece, her successor in interest, successfully moved to confirm the award and that decision was affirmed on appeal in an unpublished decision. While the appeal was pending, the trustee petitioned the arbitrator for instructions on several issues, including whether to value the home as of the time of the award or as of the time of the distribution of the estate assets. In October 2005, the arbitrator issued a second award in which he, inter alia, valued the home at $1,050,000. Because this would lead to a larger distribution to the sons, the wife’s niece opposed confirmation of the award on the ground that this was a correction or amendment of the original award and thus beyond the arbitrator’s power because it occurred long after the time allowed to correct or amend.
The trial court confirmed the award, the niece appealed, and the Court of Appeal affirmed. It ruled that the arbitrator, by allowing for an opportunity by the trustee to amend the valuation, plainly left the matter of the value of the home up for future consideration if the trustee determined that changes were needed.
Note: It can sometimes be difficult for a party to discern whether an arbitrator is correcting an award, amending it, or issuing an incremental or successive award and that is what happened in this case. Code of Civil Procedure 1284 provides that a party must apply to the arbitrator for correction of an award no later than ten days after service of a signed copy of the award on the applicant, other parties must object within ten days after the application is delivered or mailed to them, and the arbitrator must issue any corrected award not later than thirty days after service of a signed copy of the award on the applicant.But, in Delaney v. Dahl, 99 Cal App 4th 647, 659 (2002), the Court of Appeal held that an arbitrator may amend the award at any time prior to confirmation of the award so long as the amendment is consistent with other findings on the merits of the controversy and does not cause demonstrable prejudice to the interests of a party. And in Hightower v Superior Court, 86 Cal App 4th 1415, 1431 (2001), the Court of Appeal affirmed an arbitrator’s ability to use “a multiple incremental or successive award process as a means, in an appropriate case, of finally deciding all submitted issues”.
(emphasis my own)
We here at Settle It Now Negotiation Blog appreciate and rely upon the National Arbitration Forum's free ADR Law and Policy Update. We republish NAF summaries of ADR cases important to our clients' and readers' practices.
I've now hipped NAF to California's unusually high number of depublication orders resulting in the depublication of many of the recent ADR cases I've seen reported in NAF'S ADR LAPU.
I find NAF's case summaries among the best in the field and continue to recommend that you subscribe to the free newsletter. In doing so, however, I caution my California readers to check for depublication orders on the California cases reported.
This is taken straight from the Met News. I will read this case and provide my analysis at the beginning of the coming week.
Where it was discovered after arbitration that the judge who granted order compelling arbitration had, prior to granting such order, engaged in discussions concerning possible employment as a dispute resolution neutral, it was proper to disqualify judge who granted the order compelling arbitration and vacate that order, but it was premature to vacate arbitration award. Where order compelling arbitration is void because judge was disqualified from granting it but is not set aside until after arbitration is concluded, award may stand if newly assigned judge makes a de novo determination that the parties were contractually bound to arbitrate, that acts of disqualified judge did not taint the arbitration, and that no other grounds exist to vacate the award.
Rossco Holdings v. Bank of America
In the recent case of Equal Employment Opportunity Commission v. Woodmen of the World Life Insurance Society, 2007 WL 702758 (C.A.8 (Neb.)) ("Woodmen"), the U.S. Court of Appeals for the Eighth Circuit held that an employee bound by an arbitration agreement may not seek damages against her employer as an intervenor in an EEOC enforcement action.
On appeal from the district court's refusal to grant the employer's motion to compel arbitration, the Eighth Circuit reasoned that requiring Ms. Rollins to arbitrate her claims would interfere with the EEOC's ability to pursue its enforcement action. The appellate court also rejected claimant's argument that the arbitration agreement was preempted by the enforcement action under Waffle House.
The Court explained:
Had the Supreme Court intended to preclude an employee from asserting claims in arbitration against the employer concurrently with the EEOC enforcement action . . . , it would not have had occasion or need to discuss the possible ramifications of an arbitration award [in its Waffle House decision].
The Woodmen court concluded that neither Title VII nor Waffle House precluded Ms. Rollins from arbitrating all of the cross-claims she asserted as an intervenor in the EEOC's enforcement action. In fact, the FAA compelled her to do so.
(pictured: garden diety of children)
Arbitration award is unenforceable against party who was a minor entitled to disaffirm the underlying agreement. His minority status coupled with the absence of the appointment of a guardian ad litem entitled him to disaffirm the award and judgment even after statutory deadline for moving to vacate the award had passed.
Disaffirmance by the minor did not, however, affect the enforceability of the underlying agreement or of arbitration award against the parent who agreed to be personally liable for the minor’s obligations under the contract.
Berg v. Traylor - filed March 19, 2007, Second District, Div. Two, 2007 SOS 1269
I am not certain I would read the recent EC&J v. Kessel case as broadly as did the The Institute for Conflict Management's ADR Blogger, but I haven't had time to carefully read the opinion myself (which I will do, and report to you within the week).
So that you're alert to the opinion, I refer you to the ICM's ADR post, Court Rules Pre-Dispute Arbitration Clauses Valid in Fee Disputes.
The ICM blogger explains:
A California appeals court has opened the door to the enforcement of pre-dispute arbitration agreements between attorneys and their clients, ruling that once a client waives the right to non-binding arbitration under the state’s Mandatory Fee Arbitration Act, a court may compel binding arbitration based on the agreement of the parties.
California’s Second Appellate District rejected the notion that language in the MFAA requiring a post-dispute binding agreement to arbitrate bars enforcement of a pre-dispute binding arbitration agreement, ruling that the statutory language only prohibits enforcement of pre-dispute arbitration agreements governed by the MFAA ( Ervin, Cohen & Jessup, LLP v. Steven H. Kassel et al., No. 191761, 2/14/2007).
For the remainder of the article, click here and for the opinion itself, click here.
Thanks to Blawgletter for reporting arbitration case law updates in Oregon with an eye for the literary as follows:
Striking down as unconscionable a ban on class actions in an "arbitration rider" to a loan agreement, the court in Vasquez-Lopez v. Beneficial Oregon, Inc., No. A125270 (Ore. Ct. App. Jan. 31, 2007), rejected the lender's argument that the ban favored neither side:
We are reminded of the observation by a character in an Anatole France novel that "the majestic equality of the laws * * * forbid[s] rich and poor alike to sleep under the bridges, to beg in the streets, and to steal their bread." Anatole France, The Red Lily, 95 (Winifred Stephens trans., Frederic Chapman Ed. 1894). Although the arbitration rider with majestic equality forbids lenders as well as borrowers from bringing class actions, the likelihood of the lender seeking to do so against its own customers is as likely as the rich seeking to sleep under bridges.
The National Arbitration Forum in its 2006 Law and Policy Year in Review Reminds Us of last year's United States Supreme Court Ruling that a challenge to the validity of a contract containing an arbitration clause must be decided by the arbitrator.
The NAF's usual excellent case summary of the Buckeye Check Cashing, Inc. v. Cardegna (2006) 126 S. Ct. 1204 case can be found here.
NAF's conclusion -- "this 7-1 Buckeye decision is clear, convincing, and conclusive support for arbitration by this country's highest court. The Supreme Court Justices trust the judgment of arbitrators to decide disputes, and more and more parties and their lawyers will similarly entrust arbitrators to do justice."
(left: Bansky! as shot by Goatgirl: it says: . . . for silence is a fragile thing . . . )
Silence (confidentiality) in mediation is what makes mediation possible; what permits the parties to take time out from the battlefield where everything we say and every move we make can and will be used against us.
Private, confidential mediation time is a time when the parties can come together as people rather than as combatants. And this is true no matter how many zeros follow the first number by which they identify the "value" of their dispute (it could be land or women or rubies; furs or hunting grounds; fishing rights or that most evanescent of properties -- the product of the creative human spirit -- music, poetry, film, video, web cam.)
Mediation time is a time when the law allows people to recognize that they share a mutual problem, one that yokes them together. It is a time when they can give up carrying the conflict's burden alone and recognize that by drilling a hole in the other guy's side of the boat, they will sink their own.
On the other hand, silence and secrets are death to the spirit. The terrible tragedy of the evangelical minister who was finally unable to keep his sexual preference silent is a good example for World AIDS Day. The magnitude of the tragedy following his public "outing" makes the word "preference" seem weak and far too, well, preferential, as if one were ordering a meal in a restaurant or choosing a new suit of clothes. We are, I hear, only as sick as our secrets.
But the digression seems to have become the entire post. I nevertheless stick with my original plan to pass along, from the ADR Forum, the holding of the below-referenced appellate opinion on the mediation privilege in the context of an arbitration For the World AIDS Day page, click here. 
For the (red) campaign and a video message from Bono, click here
from the National Arbitration Forum
Confidentiality Protections Apply to Hybrid Procedure Consisting of Arbitration and Mediation
Society of Lloyd's v. Moore, No. 1:06-CV-286, 2006 WL 3167735 (S.D. Ohio Nov. 1, 2006)
11/1/2006
A federal district court in Ohio ruled that the confidentiality protections of the Uniform Mediation Act applied to an email sent during the mediation phase of a hybrid dispute resolution procedure that first started with arbitration.
In Society of Lloyd's v. Moore, No. 1:06-CV-286, 2006 WL 3167735 (S.D. Ohio Nov. 1, 2006), Lloyd's sued Moore for alleged fraud. After the Court granted partial summary judgment, the parties agreed to submit the remaining matters to arbitration and mediation...Full Story
I'm providing this legal update without myself reading the opinion, for which I've provided a link. I must admit that the summary sent to me is perplexing. I will read this case when I have the time and will update this post at that time. If anyone wants to beat me to it and explain the holding in a comment, please do feel free to do so. That said, here's the summary:
California Code of Civil Procedure Sec. 410.42 renders null and void any provision in a construction contract "which purports to require any dispute between the parties to be litigated, arbitrated, or otherwise determined outside this state" where the construction project is located in California.
In the recent case of Templeton Development Corporation v. Superior Court (Dick Emard Electric, Inc.) (2006 SOS 5560) the Third District Court of Appeal held that section 410.42 nullifies a contractual provision requiring that parties to a construction dispute mediate outside California as a prerequisite to arbitration or litigation over their dispute.
Where defendant contractor refused to mediate in California, plaintiff subcontractor was not precluded from suing subject to stay so that action could be mediated or arbitrated in this state.
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