CNN Legal Analyst Danny Cevallos reported on July 18, 2016 about the strategic maneuvers of Mr. Ailes’ attorneys to move Gretchen Carlson’s sexual harassment suit from the the court to arbitration – and presumably to enforce confidentiality, so that dirty linen need not be washed in public.
Ms. Carlson’s lawsuit was filed in New Jersey State Court on July 6, 2016. Under diversity jurisdiction, the case was removed by Mr. Ailes to federal court in New Jersey. Mr. Ailes’ attorneys are seeking to change venue to New York federal court, and to compel arbitration.
“Overall, the defendants have a good chance of sending this back to arbitration,” concludes Mr. Cevallos.
Third-Party Non-Signatory Owed Duties Under Labor Code To Plaintiff, Independent Of Plaintiff’s Contract.
Zepeda v. Paramount Citrus Packing Company LLC, F071593 (5th Dist. 7/14/16) (Pena, Levy, Smith) (unpublished) distinguishes two situations: (1) a plaintiff whose relationship with a third-party non-signatory merely presumes the existence of a contract; and (2) a plaintiff whose rights against a third-party non-signatory rely on the existence of a contract. In the first situation – which is the situation in Zepeda – the non-signatory might not be able to use the arbitration provision in the contract to compel arbitration. In the second situation, which is not the situation in Zepeda, the plaintiff relies on the contract to sue the third party, and the third party can take advantage of the arbitration provision to compel arbitration.
Ranstad, in the business of providing temporary workers to its client companies, provided workers, including Zepeda, to Paramount, a grower and processor of citrus crops. Ranstad had an arbitration clause with Zepeda, and Paramount unsuccessfully invoked the arbitration clause after Zepeda sued alleging class-wide labor violations resulting from uncompensated time for donning and doffing, and interrupted meal and rest break periods. Paramount argued that Zepeda was equitably estopped to deny the right to arbitrate, and alternatively, that Paramount was the third-party beneficiary of the arbitration agreement.
Paramount relied on a federal district court case, Lucas v. Hertz Corp., 875 F.Supp.2d 991 (N.D. Cal. 2012), for the proposition that, because the relationship with Paramount presumed the existence of the contract with Zepeda, Paramount could rely on the arbitration clause in the Rantstad/Zepeda contract. However, the Court of Appeal found the district court case to be non-persuasive and non-binding authority.
Instead, the Court of Appeal found Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013) to be better reasoned. Kramer held that equitable estoppel was inapplicable where the plaintiff’s claims against the third party non-signatory are not founded on any provision in the plaintiff’s contract, but instead arise from independent duties owed by the third party to the plaintiff. In Zepeda, the independent duties owed by the third party Paramount were owed under the Labor Code, not under the contract with Ranstad.
The Court of Appeal also concluded that a third-party beneficiary argument was not supported by the contractual language.
COMMENT: Too bad the case is unpublished. Cases involving non-signatory third parties seeking to compel arbitration arise with some frequency, and it would be helpful to have more guidance in this area.
The Subjects Are Appellate Mediation And Mediating Employment Disputes With Small Business Owners.
The July 2016 edition of Orange County Lawyer includes two worthwhile articles about mediation.
Rethinking the Impossible: Appellate Mediation.
By the time a case is on appeal, many attorneys and their clients view a case as far beyond the point of settlement. However, Kerry W. Franich, an attorney in Severson & Werson’s appellate practice group, emphasizes the benefits of appellate mediation. A judgment may provide an opportunity for revisiting settlement negotiations.
The opportunities presented by appellate mediation often flow from the passage of time: decision makers may have changed, parties may have changed, litigation objectives may have changed, and the law may have changed. In short, the door to settlement may not be shut.
COMMENT: Nevertheless, appellate mediation does not have as high a settlement rate as does mediation at the trial court level. Do any of my readers have statistics on settlement rates for appellate mediation?
We would add that a significant motivator for engaging in appellate mediation ought to be the rate of reversal on appeal in California. “With an overall statewide reversal rate of 36% in civil cases, an appeal does not necessarily end the litigation process – it may be only another step in a seemingly endless and costly road to resolution.” Hon. Jeff Kaplan (Ret.), “Practical Considerations for Post-Trial and Appellate Mediations,” Advocate (Fall 2013).
Reaching for Understanding: Mediating Employment Disputes With Small Business Owners.
David Ezra,an attorney with a practice focusing on ADR, insurance and employment law,considers the attributes of small business owners that “can make the mediation process especially challenging.” Mr. Ezra points out that small business owners are accustomed to making decisions with “no opportunity for consensus building or a second opinion.” Additionally, relationships in a small business can be highly personal and emotionally charged. “The mediator,” Mr. Ezra counsels, “needs to resist passing judgment.”
Mr. Ezra offers useful suggestions for dealing with the small business owner in mediation – and perhaps he will follow up someday with suggestions for helping the employee through the mediation process.
Case Held That Arbitration Agreement Between Indiana Based Distance-Learning Partnership And California Licensed Vocational Nurses Was Unconscionable.
We can report that on July 8, 2016, Magno v. The College Network, Inc., D067687 (4/1 6/14/16) (McConnell, Nares, O’Rourke), a case we posted about on June 22, 2016, was ordered for publication. Perhaps the most notable part of the case is the weight that the Court gave to an Indiana forum selection clause for binding arbitration in determining that substantive unconscionability existed. Also, there was an absence of evidence that the plaintiffs, young nursing students, knew about the forum selection clause.
Interview In Orange County Lawyer Is Summarized Today In California Attorney’s Fees Blawg.
My colleague Mike Hensley and I publish a blawg about California Attorney’s Fees. A post today (July 10, 2016) in that blawg summarizes highlights of an interview appearing in the July 2016 edition of the Orange County Lawyer, in which the co-chairs of the Orange County Bar Association’s Mandatory Fee Arbitration Committee offer tips on what arbitrators look for in mandatory attorney fee arbitration.
On May 4, 2016, I posted about the Committee on Mandatory Fee Arbitration of the State Bar of California’s two new Advisories on Mandatory Fee Arbitration (MFA) brought under the Business & Professions Code. Advisory 2016-01, replacing Advisory 2011-02, is about the application of the Statute of Limitations for MFAs. Advisory No. 2016-02, replacing Advisory 2003-01, is an analysis of bill padding and other billing issues.
Notwithstanding the trend in SCOTUS to uphold arbitration agreements, including waiver of class arbitration, our next two unpublished cases show that the California courts look closely at arbitration agreements, sometimes enforcing and sometimes not enforcing arbitration agreements. On the same day, one California Court of Appeal reversed an order denying an employer’s effort to compel arbitration, while another California Court of Appeal affirmed an order denying a motion to compel.
Second District, Division 7, Reverses Judgment Denying Arbitration.
Finding the existence of an arbitration agreement and the lack of any substantive unconscionability, the Court of Appeal reversed the trial court’s denial of a petition to arbitrate. Urchasko v. Compass Airlines, LLC, B264672 (2/7 6/27/16) (Perluss, Segal, Blumenfeld) (unpublished).
The Court concluded the trial courted erred in ruling that the employee failed to agree to arbitrate. The trial court had based its ruling on lack of evidence that the employee checked a box on his electronic application; however, the Court of Appeal pointed out that there was no dispute the employee signed the printed application.
While there was some procedural unconscionability in a take-it-or-leave it contract, the Court concluded that the absence of any substantive unconscionability meant the arbitration agreement was enforceable.
First District, Division 4, Affirms Order Denying Employer’s Petition To Compel.
Collateral estoppel was the issue in Williams v. U.S. Bancorp Investments, Inc., A141199 (1/4 6/27/16) (Rivera, Reardon, Streeter) (unpublished): did a ruling in Burakoff et al. v. U.S. Bancrop, (L.A. Super. Ct., 2008), collaterally estop plaintiff/respondent Williams from bringing claims as a class action and bind him to an agreement to arbitrate individual disputes?
Williams, a financial consultant, filed a class action complaint against USBI in 2010 in the present case. The defendant argued that Williams belonged to a class that was certified, then decertified, in Burakoff, that because he was bound by collateral estoppel as a member of the decertified class, he could not file a class action, and that under a rule of the Financial Industry Regulatory Authority’s Code of Arbitration Procedure for Industry Disputes (FINRA rules), he would have to arbitrate.
No one disputed that Williams was a party to an arbitration provision, or that the FINRA rules provided that the arbitration provision could not be enforced against a class member. Therefore, under the FINRA rules, if Williams could not sue as a member of a class, because he was estopped by the class decertification in Burakoff, then Williams could not avoid having to arbitrate his individual claims.
California law provides that denial of class certification cannot establish collateral estoppel against unnamed putative class members on any issue because unnamed putative class members are not parties to the prior proceeding or represented in it. Bridgeford v. Pacific Health Corp., 202 Cal.App.4th 1034, 1044 (2012). Here, the situation was not so clear, because in the prior proceeding, the putative class members had first been certified, and thus arguably the interests of the absent class members were, at least for a time, represented.
The Court punted, and did not decide whether absent class members are bound by an earlier proceeding in which a class is first certified, then decertified. Instead, the Court simply ruled that the record was insufficient to compel a conclusion that the class to which Williams belonged was the same as the decertified class in Burakoff. Therefore, collateral estoppel did not apply.
This is probably not the end of the matter, because “the classes here and in Burakoff might ultimately be found to be indistinguishable.” Just not yet.
The order appealed from, denying a motion to compel arbitration and to dismiss the class complaint, was affirmed.
“When practicing appellate law, there are at least three immutable rules: first, take great care to prepare a complete record; second, if it is not in the record, it did not happen; and third, when in doubt, refer back to rules one and two.” Protect Our Water v. County of Merced, 110 Cal.App.4th 362, 364 (2003).
The Third District instructed on these rules of appellate practice in Spanos v. Dreyer, Babich, Buccola & Callaham, LLP, C077235 (3rd Dist. 6/27/16) (Duarte, Robie, Renner) (unpublished), in which the plaintiff/appellant alleged malpractice in connection with a mediation session settling an underlying tort case and a related workers’ compensation claim. The outcome of the case would have turned on the application of the mediation privilege (Evid. Code, section 1119) – if there had been an adequate record.
Alas, the appellant failed to provide the operative complaint, and failed to augment the record. On an appeal from an order sustaining a demurrer, the Court must review the operative complaint to determine whether a cause of action is stated. Also, counsel for appellant failed to appear at oral argument.
The Fifth Circuit, Division Two, holds that because a law firm’s cause of action to compel arbitration with its client “admitted the existence of a binding agreement to arbitrate the fee dispute, the trial court’s jurisdiction over the merits of plaintiff’s claims was initially limited to a determination of the gateway issue of arbitrability.” Cox, Castle & Nicholson, LP v. Wan et al., B262017 (2/5 6/23/16) ((Kumar[judge of the superior court], author, Baker, concurring); Turner (dissenting)) (unpublished). Alternatively, plaintiff was judicially estopped from seeking default judgments because it “admitted in its complaint that the fee dispute was subject to binding arbitration and defendants relied to their detriment on that admission.” As a result, plaintiff was not allowed to pursue defaults, and an order denying defendants’ motion to vacate and the default judgments were reversed.
This case has a somewhat unusual procedural history. It was originally argued on October 8, 2015, when Justice Richard Mosk was a member of the panel. Because Justice Mosk was unable to further participate, the Court vacated the submission, and appointed Judge Kumar to the panel. Letter briefs were submitted on the issue of judicial estoppel on March 22 and 25, 2016. Justice Mosk died on April 17, 2016. On March 30, 2016, the case was re-argued, and on June 23, 2016, the unpublished opinion was filed.
The majority conclusion that the cause of action to compel arbitration constituted “a binding agreement to arbitrate,” and stripped the Court of jurisdiction, may not be intuitively obvious, given that the cause of action, unlike a free-standing petition to arbitrate, was not verified, did not include evidence, and was denied in an answer, which, however, was only lodged and not filed, because a default had occurred. Furthermore, in other cases, the existence of an arbitration agreement has not resulted in a loss of jurisdiction. At least, the majority conclusion was not obvious to Justice Turner, who penned a pithy dissent.
Presiding Justice Turner’s dissent made several points: first, that existence of an arbitration agreement does not preclude a party from pursuing claims (citing Brock v. Kaiser Foundation Hospitals, 10 Cal.App.4th 1790, 1795 (1992) and cases in accord); second, that the cause of action did not accrue, because plaintiff failed to allege that defendants refused to arbitrate – a necessary element; third, that the record was inadequate, because there was no transcript; fourth, that the defendants were not artless rubes, as one was a certified public accountant, and the other a licensed realtor; and finally, that there were questions of credibility, leading to Justice Turner’s belief that the trial court did not abuse its discretion in denying the motion to set aside the default.
Though the case is unpublished, today’s post in California Attorney’s Fees rightly observes: “This decision, if correct, counsels that plaintiffs carefully think about whether they should include an arbitration claim in a complaint; otherwise, the trial court may not be able to proceed on the merits.” So be aware of another trap for the unwary.
Given that there is a majority opinion and a dissent, we wonder whether the case will be appealed. As far as the parties themselves are concerned, this may be a tempest in a teacup, for if the lawsuit does not proceed further in the trial court, the parties could end up in arbitration. And there is always the option to settle . . .
For Preemption Purposes, “Involving Commerce” In The FAA Is Broader Than “In Commerce”, Making It Easy To Find Preemption.
Physicians don’t like to defend medical malpractice cases in front of juries, and Scott v. Yoho, B265641 (2/5 6/22/16) (Turner, Kriegler, Kumar) will make it easier for them to arbitrate malpractice cases and avoid juries in California under a broadly worded arbitration provision.
After Kenisha Parker died, following lipoplasty and suction lipectomy, her relatives sued Dr. Yoho and New Body Cosmetic Surgery Center for wrongful death, malpractice, and survivorship causes of action. Defendants moved to compel arbitration, based on three arbitration agreements. The trial court found that the third agreement, which was the most recent, governed, but that it was unenforceable, because Ms. Parker, who died within hours of signing it, did not have the opportunity to rescind, as required by Cal. Code of Civ. Proc., section 1295(c).
Reversed. The Court of Appeal holds that the 30-day rescissionary period provided by section 1295(c) is preempted by the Federal Arbitration Act, because, “the rescission right only exists in the context of the provision of arbitration of medical care disputes.” Because this provision only applies in the context of arbitration, it is preempted by the FAA, which does not allow a state to place a greater burden on arbitration than on litigation. AT&T Mobility LLC v. Concepcion, 517 U.S. 333, 339 (2011). Thus, if the patient dies from medical malpractice shortly after signing the arbitration agreement, the statutory rescissionary right is of no effect, whenever the FAA applies.
While this part of the ruling invalidating a California statute protecting patient rights is important, so too is the Court’s conclusion that the FAA reached this transaction, given that the patient, the doctor, and the surgery occurred in California, and the contract provide for venue in LA Superior Court in Pasadena, and jurisdiction in California.
The uncontroverted evidence showed that 20 percent of the medical supplies were shipped from out of state, some of the materials used for liposuction came from out-of-state, defendants advertised on the internet and communicated out-of-state by telephone, mail and e-mail, 5% of the patients came from outside the state, and there were business contacts with various out-of-state businesses.
At first blush, this might still seem like an in-state commercial transaction, because the procedure was conducted in California by a California doctor on a California patient. But the Court holds that there is “a sufficient nexus with interstate commerce to require enforcement” of the agreements under the FAA. Relevant to the Court’s conclusion is that the FAA, specifically, 9 U.S.C. section 2, applies to transactions “involving commerce” – words that have been broadly interpreted to mean “affecting” commerce, which is broader even than “in commerce.” The fact that venue and jurisdiction provisions were local to California carried no weight, because the provisions did not govern choice of law.
That left the Court with the task of distinguishing Rodriguez v. Superior Court,176 Cal.App.4th 1461 (2009), a case that enforced the rescissionary right in section 1295. Easy: there was no issue concerning preemption by the FAA in Rodriguez. Here, the defendants made a factual showing as to why the transaction is governed by interstate commerce.
The Daily Journal Has Provided A Link To Louie Castoria’s Article Entitled “Mediation confidentiality: a wall against malpractice claims or a sieve?”
Louie Castoria, a partner at Kaufman Dolowich & Voluck LLP, and a mediator, has authored an article suggesting we may take a bit too much for granted about mediation confidentiality, and advocating that California not erode mediation confidentiality in malpractice cases following mediation settlement. The article is well worth reading.
Thus, California attorneys and their clients typically hear the mediator’s injunction, at the beginning of a mediation, “everything in mediation is confidential.” However, the California Law Revision Commission (CLRC) is reviewing whether to create a malpractice exception for mediation confidentiality. Furthermore, the protections of mediation confidentiality depend on whether federal or state rules apply, and if the answer is that state rules apply, then one must consider which state’s rules apply.
Mr. Castoria is concerned that the CLRC’s ongoing review of mediation statutes is a search for a solution to a problem that appears too infrequently to justify erosion of mediation confidentiality. “Is the incidence of coerced settlements so great,” he asks, “that we should essentially scrap mediation confidentiality?”