Same As Before – Only This Time A Third Judge Signs On To The Opinion
I blogged about this very same case in a post on August 27, 2014. So I was puzzled at first as to why another published opinion was issued following rehearing on January 20, 2015. Cruise v. Kroger Co., B248430 (2/3 Jan. 20, 2015) (Aldrich, Kitching, Klein) (published). The disposition before and after rehearing is identical: “The order denying the motion to compel arbitration and stay the action is reversed with directions to grant the motion.” The opinions are not identical, but are substantially the same.
This time around, Justice Kitching’s concurrence is added, making it a threesome. The first time around, a third judge was unavailable, and the Court relied on a provision allowing judgment upon the concurrence of two judges. Cal. Const., art. VI, § 3. Puzzle solved.
PAGA Issue Will Continue To Percolate Through Federal Courts.
The United States Supreme Court today denied the petition for a writ of certiorari brought by CLS Transportation Los Angeles, LLC, No. 14-341. Left intact, for now, is the California Supreme Court’s holding in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), that the Federal Arbitration Act does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.
The denial of the petition should not come as a great shock. There was no conflict among decisions of state supreme courts or federal courts of appeal.
However, the issue is percolating through the federal district courts in California, and the outcomes have been mixed. The issue is also pending in the Ninth Circuit in Hopkins v. BCI Coca Cola Bottling Co., No. 13-56126.
Is A Class Action Waiver Different From A Representative Action Waiver?
On January 7, 2015, I posted that on September 22, 2014, a cert petition was filed in the SCOTUS to consider the PAGA/FAA preemption issue in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014).
“Issue: Whether an employee’s waiver in an arbitration agreement of a collective or “representative action” under the California Private Attorneys General Act, Cal. Labor Code § 2698 et seq., is so distinguishable from a “class action” waiver that it is immune from the otherwise preemptive effect of the Federal Arbitration Act, 9 U.S.C. § 1 et seq., as held by this Court in AT&T Mobility v. Concepcion.”
Meanwhile, back here in California, the California Court of Appeal rules today that in light of Iskanian, the representative PAGA claims of a salesperson working for Fry’s Electronics are cognizable in the trial court, requiring reversal of the trial court’s order dismissing the plaintiff’s representative claims brought under PAGA. Hutchinson v. Fry’s Electyronics, Inc., D063219 (4/1 Jan. 15, 2015) (Benke, Nares, Irion) (unpublished). Because “representative PAGA claims are brought on behalf of the state”, the employee cannot be compelled to waive those claims by means of an arbitration clause requiring arbitration of individual claims only.
Fourth District Says When Agreement Is Silent, Judge Decides; Second District Says Arbitrator Decides – So The California Supreme Court Will Have To Decide.
GATEWAY. Carol M. Highsmith, photographer. 2013. Library of Congress.
When the arbitration agreement is silent, who gets to decide whether the arbitration agreement allows for class arbitration? Judge or arbitrator? Gateway issue or procedural issue?
SCOTUS decisions hold a party may not be compelled under the Federal Arbitration Act to submit to class arbitration unless there is a contractual basis for concluding the parties agreed to do so, Stolt-Nielsen S.A. v. Animalfeeds International Corp., 559 U.S. 662 (2010), with a plurality of the SCOTUS holding the arbitrator decides whether class-wide arbitration is available if the arbitration agreement is valid and the underlying dispute is within its terms, Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003).
I have blogged about two published Fourth District decisions that analyze the availability of class-wide arbitration as a threshold issue of arbitrability, and thus a gateway issue that the judge must decide. Network Capital Funding Corporation v. Papke, 230 Cal.App.4th 503 (2014) and Garden Fresh Restaurant Corp. v. Superior Court, 231 Cal.App.4th 678 (2014). See my posts of November 17, 2014 and October 13, 2014.
Now, in an unpublished decision, the Second District, Division 2, disagrees with the Fourth District, and holds that “the determination whether the parties to an arbitration agreement agreed to arbitrate class claims is a procedural question for the arbitrator, not the court.” Rivers v. Cedars-Sinai Medical Care Foundation, B249979 (2/7 Jan. 13, 2015) (Perluss, Woods, Feuer). The Court here views the issue not as a gateway issue of arbitrability, but rather as a subsidiary issue of how the arbitration proceeds – a procedural issue that the arbitrator can decide. The Court therefore reversed the order of the judge compelling the plaintiff to arbitrate her individual wage and hour claims, leaving it instead to the arbitrator to decide whether the class claims can be arbitrated.
NOTE: Footnote 2 states the issue is currently pending before the California Supreme Court. Sandquist v. Lebo Automotive, Inc., 228 Cal.App.4th 65, review granted, Nov. 12, 2014, S220812. See my post of July 22, 2014, regarding Sandquist.
Arbitrators Can Make Mistakes And Here The Record Didn’t Even Show A Mistake Had Been Made.
A major attorney’s fees dispute between a law firm and its client hinged on when mediation ended, for the parties agreed that the law firm would receive a five percent contingency fee for a successful mediation, and a 20 percent fee if the mediation was unsuccessful. The increase would occur 10 days after “the mediation”, though “mediation” was not defined. You can probably guess what happened: the mediation was unsuccessful, the law firm ramped up for trial, and the lawsuit settled just before trial, with the involvement of the mediator in settlement negotiations. So when did the mediation end? The arbitrator concluded that “the mediation” meant the session that ended unsuccessfully, ten days elapsed, and thus the 20 percent contingency fee applied. This resulted in an award of roughly $2,440,000.
The inevitable appeal of the judgment confirming the award alleged that the arbitrator exceeded powers and acted unfairly by refusing to issue a subpoena for time records, and by limiting the arbitration to one day.
The Court of Appeal affirmed the judgment. Thorsnes Vatolotta McGuire, LLP v. Pointe San Diego Residential Community, LP, D064907 (4/1 Jan. 13, 2015) (Benke, Huffman, McDonald) (unpublished). The arbitrator had concluded that the time records were irrelevant, because the award was based on a contingency. And appellant had seemingly agreed to the one-day arbitration, or at least had failed to object.
Failure To Postpone Arbitration Hearing Upon Sufficient Cause May Be Grounds For Vacating Award – But Not When Request For Continuance Is Waived !
Plaintiff sought to postpone an arbitration hearing in a wrongful death/medical malpractice action, because she was studying abroad, and counsel’s medical condition adversely affected his cognitive status and performance. However, based on the record, it appeared that the arbitrator never actually ruled on plaintiff’s request for a continuance. Instead, the parties stipulated to proceed with a hearing by submitting declarations and medical records, in lieu of live testimony. The arbitrator ruled in favor of defendant Kaiser, the trial court confirmed the arbitration award, and the Court of Appeal affirmed the judgment. Anderson v. Kaiser Permanente Medical Group, B252061 (2/3 Jan. 12, 2015) (Kitching, Aldrich, Kussman) (unpublished).
Motions for a continuance – and the ruling -- need to be carefully documented. Here, there was substantial evidence to support the court’s factual finding that the arbitrator didn’t even rule on the motion.
Lanois v. Employers Fire Insurance Company, Case No. B251403 (2/1 Jan. 9, 2015) (Chaney, Rothschild, Johnson) (unpublished) involved an underinsured motorist insurance carrier’s challenge to an arbitration award, on the grounds that the award was rendered untimely, and that the arbitrator exceeded her powers by adding interest to a 950K award, after the parties had agreed that the insurer’s liability for damages under its policy could not exceed 950K. The trial court disagreed with the carrier, confirming the award and denying the carrier’s motion to vacate. The carrier appealed – unsuccessfully.
The carrier’s policy was for $1M. However, because the plaintiffs had already been paid $50K under another policy, the parties agreed the maximum liability the arbitrator could award under the underinsured motorist policy was $950K. The arbitrator awarded $1M in an award on November 8, 2012, and subsequently corrected the award to $950K, adding pre-judgment interest from November 8, 2012.
First, regarding the carrier’s contention the arbitrator could not add interest on top of the 950K award, the Court held: “Neither Insurance Code section 11580.2, subdivision (p)(4), nor any provision in the insurance policy precludes plaintiffs’ recovery of prejudgment interest because, when added to the liability damages award (which does not exceed the policy limit), plaintiffs’ total recovery exceeds Employers’ maximum liability under the policy.” So the interest award was not improper.
Second, the carrier contended the initial November 8, 2012 award, an Interim Binding Arbitration Award, resolved the liability incorrectly, and then the arbitrator exceeded her powers by waiting more than 30 days to correct the amount to $950K. The Court of Appeal disagreed, pointing out that the arbitrator’s time to correct did not run from the interim award, particularly so here, because there was evidence that other issues remained open at the time of the initial reward, as a result of which the final binding award could be issued later.
Unconscionability Challenge To Identical Arbitration Provision In Industry-Drafted Automobile Sales Contract Is Still Pending In Sanchez Before California Supreme Court.
Our next case is a fine example of ad hoc justice, for the Court of Appeal concludes that “on balance”, the arbitration provisions in a standard automobile industry sales contract are not unconscionable. A touch of procedural unconscionability here, but not so much substantive unconscionability as to overpower the recipe. Self-help and small claims court exclusions were noted, as were exceptions to finality that favored the dealer. “On balance,” concludes the Court, “the arbitration clause provides the parties with greater efficiency and speed, lower costs, and a more focused dispute resolution forum than would litigation.” Hernandez v. Thomas, Case No. D064036 (4/1 Jan. 8, 2015) (Haller, McConnell, McIntyre) (unpublished).
The Court notes that during “almost three years that Sanchez [v. Valencia Holding Co., LLC, 201 Cal.App.4th 74, review granted Mar. 21, 2012] has been pending, the high court has granted and held numerous petitions for review of Court of Appeal decisions addressing similar (if not identical) challenges to the identical arbitration provision.” Citing nine cases in addition to Sanchez, the Court observes, “intermediate courts have reached conflicting conclusions based on several different theories and rationales.”
Court of Appeal Recognizes It Is Bound By Iskanian, Until SCOTUS Resolves Validity Of PAGA Waivers.
Montano v. The Wet Seal Retail, Inc., B244107 (2/4 Jan. 7, 2015) (Epstein, Willhite, Manella) (published) is the latest case to follow the holding in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348 (2014), that waiver of the employee’s right to litigate Private Attorneys General Act (PAGA) (Lab. Code, section 2699) representative claims is unenforceable. In Montano, this had even greater consequence, because the paragraph containing the PAGA waiver provision stated if the waiver was found to be unenforceable for any reason by a court, then the entire arbitration agreement was void and unenforceable. Thus, because the PAGA waiver was not severable, the entire arbitration provision failed.
The Court of Appeal recognizes in footnote 5 “that several federal district courts in this state have found PAGA waivers to be enforceable under the FAA and Concepcion.” However, until SCOTUS rules on the issue, the Court of Appeal is “bound to follow the California Supreme Court’s decision in Iskanian that PAGA waivers are invalid under state law.” In Iskanian, the parties filed a petition for certiorari on September 22, 2014, No. 14-341. So stay tuned!
Second District, Division 2, Rejects Appellants’ “Tortured” Reading Of Arbitration Provision And Affirms Order Denying Motion To Compel Arbitration.
Plaintiffs, investors in an independent bookstore, refused the request of defendants, the bookstore and its prior owner, to arbitrate a business dispute. The key language in the arbitration provision read: “Notwithstanding the foregoing, no arbitrator shall have the power to render equitable relief of any kind, and requests for such relief shall be referred to a court of competent jurisdiction.” The trial court denied defendants’ motion to compel arbitration, finding that plaintiffs’ equitable claims – the sole remaining claims at issue – were excluded from arbitration by the language in the arbitration provision. Appellants advanced a rather creative reading of the arbitration provision, distinguishing between the arbitrator’s ability to try any action and the court’s ability to grant equitable relief. Bachrach v. Compagno, Case No. B252454 (2/1 Jan. 6, 2015) (Johnson, Chaney, Bendix) (unpublished).
Appellants argued that under the clear language of the arbitration provision, any action to enforce or interpret the agreement had to be arbitrated, and that once the substantive issues were resolved, a party could turn to the court to obtain equitable relief. The Court of Appeal, however, rejected “a tortured conclusion that the trial court has the power only to perform the ministerial act of rubber-stamping an arbitrator’s conclusive ruling.”