ArbitrationAdr.com enables the subscriber to identify the most recent cases decided by California and federal courts.  The "Updates Section" below summarizes the cases and identifies their location in the text.  Citations are omitted but subscribers can easily shift to the text for a complete discussion of the case, its relation to other cases, and cross references between state and federal courts.

Many cases are only applications of the general law, and unless establishing a new principle, or overruling a previous case, are not included.  Under state and federal law, unpublished cases are not cited as precedent.  Accordingly, unless an unpublished case more clearly lays out the law, or may be useful in some contexts, ArbitrationAdr.com does not include the decision.

A list of recent updates (to the electronic text, available to members) appears below in order by date. If you want to search for a particular word, press CTRL-F to find a word on this page.  Remember, the list below is an abbreviated summary of the updates. The full text of the updates is available in the members section.area.

Archived Updates
2010


Waiver: (12/18/2010)

Whether a party has waived the right to arbitrate is a fact specific issue. A California Court of Appeal case has held the trial/arbitration strategy can be a factor in determining waiver: "[Counsel] presented evidence...that he specifically designated experts based on an assumption they would testify at trial before a jury, rather before an arbitration panel. [Counsel explained: “There is a vast difference between a jury of 12 persons selected randomly, and a three-member arbitrator panel, all of whom are selected purposefully and two of whom are not expected to be neutral. Arbitration is an informal process in which evidence is often taken in the form of a conversation. Arbitrators can pose questions to witnesses and experts, and may undertake to cross-examine the witness on any issue they see fit. This facilitates a more sophisticated and quick-paced presentation than is typically possible in jury trials. It is not surprising to think that one's style, tone, and strategy for presenting facts and arguments would be different for each type of forum.”

Petition for rehearing denied;

See, Text, Ch. XVII-H: Waiver

Provisional Remedies: (11/20/2010)

An arbitration clause may authorize arbitrators to issue provisional remedies (as authorized by law]. The California Court of Appeal held an arbitration provision allowing either party the right to seek injunctive relief is unconscionable because the employer is more likely to seek provisional relief than an employee-despite statutory authority for provisional relief in arbitration; CCP 1281.8.

See, Text, Ch. XVII-E-3: Provisional Remedies

Incorporation of Arbitration Rules: (10/27/10)

As a general rule, incorporation of Arbitration Rules into a contract is sufficient to apply to an arbitration because the rules govern the conduct of the arbitration, not the enforcement of the clause. But the same court held reference to the rules was insufficient to alert the party to the scope of the arbitration agreement.

See, Text. Chs. XVI-F-16; XX-M: Incorporation of Arbitration Rules

Forum Selection Clauses: (10/3/2010)

In a 9th Circuit case the arbitration clause required all disputes to be held at the defendant’s site. The parties submitted to arbitration and the “defendant” [in the litigation] filed counter claims and demands for other affirmative relief. The plaintiff, according to the court, now became a “defendant” and the arbitration conducted at that party’s site. The result: two arbitrations involving the same conduct at two different locations.

See, Text, Ch. IV-H-1: Forum Selection Clauses

Medical Service & Non-Signatories: (9/1/2010)

The California Supreme Court discussed whether the wife and heirs were compelled to arbitrate the deceased husband’s wrongful death claims. Under CCP 1295 a physician can demand arbitration of a claim for medical malpractice with a patient pursuant to an arbitration agreement not statutorily adhesive, and the husband had signed that kind of agreement. The court held that the surviving heirs claim for a wrongful death of their father is not a derivative claim, and they can be bound to arbitrate despite a collateral statute that requires consolidation of all wrongful death claims; CCP 377.60 et seq. The wife had conceded she was bound by her husband’s agreement and must arbitrate.

See, Text, Ch. XVI-16-C-5

Disclosure by Arbitrator: (8-6-2010)

The California Supreme Court has summarized the considerations that base a request for disclosure of an arbitrator’s “interests” as required under California law. The Court concluded an arbitrator who had previously served as a sitting judge, and during his tenure had made disparaging remarks about women, need not have disclosed his censure. The Court held no relationship exited between a medical malpractice case heard by the judge in arbitration and censure.

See, Text, Ch. XIX-A-1: Disclosure by Arbitrator

CC&Rs and Arbitration Agreements: (8-6-2010)

A HOA is not bound by an arbitration clause in declaration of covenants, conditions and restrictions recorded by developer of condo project.

See, Text, Ch. XVII-C-5-i: Common Interest Development

Arbitrator Immunity: (8-4-2010)

Arbitrators are immune under common law, contract law and statute to the same extent as judges because they are analogous. Sponsoring arbitration organizations are equally immune. To remedy allegations of bias, conflict of interest or absence of subject matter jurisdiction, a party can appeal under relevant statutes; Cal.App.

See, Text, Ch. XX-L: Arbitrator Immunity (7/25/2010)

Arbitrability & Formation of Contract: (7/5/2010)

The Supreme Court again struggled with determining “when” the contract was formed, i.e. ratified by a labor union, and concluded the court-not the arbitrator- should decide this issue. In a footnote the court said the FAA applies equally in commercial arbitration and labor arbitration.

See, Text, Ch. IV-F-1: Existence of Contract/Clause

Arbitrability and Scope of Powers: (7/3/20/10)

The California Court of Appeal has held that the arbitration agreement can be supplemented by the submission to arbitration, incorporation of an arbitration service provider Rules, or the pleadings. This"arbitrability" determination relates to the issue of the arbitrator's powers in determining whether the court should vacate the award.

See, Text, Ch. XVI-F-6: Scope of Issues

Alter Ego: (7/3/2010)

The California Court of Appeal has held the Rules of an arbitration service provider may allow an arbitrator to find alter ego. Even in the absence of Rules this finding is within substantive law and subject to a finding by the arbitrator.

See, Text, Ch. XVI-F-5-k; Alter Ego

Injunctions: (6/25/2010)

The Ninth Circuit has held that a federal court does have the power under the FAA to issue an injunction prior to arbitration if the plaintiff conforms to basic rules applicable to injunctive relief, and the interim relief is necessary to preserve the status quo and the meaningfulness of the arbitration process.

See, Text, Ch. IV-I-1-b-(1)

Arbitrability: (6/24/2010)

The Supreme Court granted cert. and reversed the Ninth Circuit on the issue of arbitrability. The Court explained that arguments over the arbitration clause, its formation and enforcement, were judicial issues, but if the plaintiff argues the contract as a whole (which includes the arbitration clause) is unconscionable or unenforceable, the arbitrator decides the clause and the contract. If the contract explicitly assigns enforcement of the arbitration clause to the arbitrator, that term will be enforced.

See, Text, Ch. IV-E-1 Objections to Arbitrability

Classwide Arbitration & Unconscionability: (5/17/2010)

Discover Bank v. Sup.Ct., a consumer case, and Gentry v. Sup.Ct., an employee case, are analyzed differently despite their similarity. The former is an "unconscionability" case, the latter is an unwaivable statutory rights case. In some instances the two cases overlap but the genesis of employment arbitration is in the Armendariz factors whereas inability to vindicate statutory rights is a Discover Bank analysis.

See, Text, Ch. XVII-B-11: Classwide Arbitration

Arbitration Class Actions (5/3/2010)

The Supreme Court has decided that the FAA requires the parties to agree to participate in class wide arbitration. The Court distinguished bilateral arbitration as distinct from class action arbitration. This decision is likely to significantly affect the ability of one party to require another party to seek class action status in the absence of a clause in the arbitration agreement or a stipulation.

Citation in Text.

See Text, Ch.IV-H-8: Class Arbitration

Confidentiality Agreements (4/30/2010)

The Ninth Circuit has refused to enforce an arbitration clause containing an agreement for a “business owner” not to disclose the “substance of the claims, the content of the testimony or other evidence presented at the arbitration, or the terms of the award;” This decision is in conflict with other Circuits.

Citation in Text.

See, Text, Ch. IV-G-2-a-(2)

Vacating Awards (4/27 2010)

The Supreme Court and the California courts have repeatedly refused to hear appeals based on arbitrator error. But the California Supreme Court has allowed review of an award on grounds the employee was deprived of the opportunity to vindicate his statutory rights under FEHA when the arbitrator ruled he failed to timely file within the prescribed time. According to to the court, this is an exception to e general rule. Citation in Text.

See, Text, Ch. XXI-F-8-c.

Appeal of Arbitration Awards (3/24/2010)

A clause in the contract requiring the arbitrator to apply “California law” is insufficient to preserve the right to appeal the judgment confirming an award (Citation in Text). That direction is only a forum selection clause and Cable Connection v. DIRECTV permits judicial review of an award only if the parties specifically so provided in the arbitration agreement

lifornia Court of Appeal has held that a clause in the contract that “[t]he arbitrator shall have the authority of a Superior Court judge . . . "does not authorize the right to appeal. The right to appeal an award must be explicit.

Citation in Text.

See, Text,Ch. XXIX-F: Arbitrator Exceeds Powers

Appeal of Arbitration Awards (3/8/2010)

If the parties elect to provide for appellate review of the arbitration award, the terms of the arbitration clause must be "explicit and nambiguous" to avoid the general rule of non appeal; Cable Connection v. DIRECTV, 44 Cal.4th 1334 (2008). Moreover, an arbitration clause mandating the arbitrator to “apply” or rule “in accord” with substantive law is insufficient to serve as a right to appeal the award.

Citation in Text.

See, Text, Ch. XXIX-F: Arbitrator Exceeds Powers

Conditions in Filing Petition to Compel Arbitration: (2/3/2010)

A Complaint against a builder, contractor or developer must be preceded by a meet and confer provision and a dispute resolution facilitator; CC 1375. Under the terms of the general arbitration statute (CCP 1281.2) the moving party must file evidence of a demand for arbitration and refusal by the other party as a condition of obtaining a court ordered arbitration; Citation in Text.

See, Text, Ch. XVII: Statutorily Ordered Arbitration

Arbitrability: (1/18/2010)

The Supreme Court has granted Cert. in Jackson v. Rent-A-Center West, Inc. See, 2010 WL 144073 (U.S.).

In First Options of Chicago v. Kaplan the Supreme Court held that the court should resolve enforcement of the arbitration clause and the arbitrator should decide the merits of the dispute. The issue is characterized as one of "arbitrability." The Ninth Circuit held that the court must initially decide "who" should resolve "arbitrability;"Jackson v. Rent-A-Center West, Inc., 2009 WL 2871247. In making that decision, the court must determine whether the arbitration clause itself is unconscionable.

 

See, Text, Ch. IV-E-1: Arbitrability

2009


Appraisals (12/21/2009)

Standard fire insurance policy appraisal language is equivalent to an arbitration clause; Coopers & Lybrand; Ins. Code 2071; Rubin v. Western Mutual Ins. Co., 71 Cal.App.4th 1539 (1999). Appraisers are held to the same standards as umpires; Michael v. Aetna Life & Casualty Ins. Co., 88 Cal.App.4th 925 (2001); Appalachian Ins. Co. v . Rivcom Corp., 130 Cal.App.3d 818 (1982).

The California Court of Appeal (citation in Text)t held that legislative amendment to Ins. Code 2071 rejected the Michael case, and appraisers are not subject to an automatic and unlimited right to disqualification. Disclosure statutes CCP 1281.9 and 1289.91 do not apply to appraisers. The court also held that party selected appraisers are still subject to general disclosure requirements under the “general impression of bias” standard (citing cases).

See, Text, Ch. IX-N: Appraisers

Costs of Arbitration (9/6/2009)

The California Court of Appeal (citation in Text)refused to enforce an arbitration clause requiring a three person arbitration panel on grounds of substantive arbitrability. The court held the fees for a multiple arbitration panel, and the potential high cost to plaintiffs, prevented their vindication of statutory rights. The court criticized other aspects of the clause prohibiting consolidation of claims and the plaintiff’s financial costs despite any findings of costs or fees by the trial court.
The court also refused to enforce an arbitration clause specifically authorizing the arbitrator to decide arbitrability.

See, Text, Ch. VII, F-10: Arbitration Costs

Attorney Fees for Petition to Compel Arbitration (7/23/2009)

The California Court of Appeal (citation in Text) allowed attorney fees to a party who prevailed on a motion to compel arbitration based upon the language of the contract between the parties specifically providing for a fee award against any party who opposes arbitration.

In an earlier Court of Appeal case which included similar language in the contract, the appellate court majority held the trial court had jurisdiction to award fees as an interim award; Acosta v. Kerrigan, 150 Cal.App.4th 1124 (2007).

See, Text, Ch. XVI-F-14.

The court in Otay River Constructors v. San Diego Expressway, 158 Cal.App.4th 443 (2008) upheld the right of an attorney fee award to the prevailing party who had successfully moved to deny the petition to compel arbitration. The court also held the motion to award fees qualified as an appealable order; CCP 1294 (e) [special order after final judgment].
See, Ch. XXII-C-6: Special Order After Judgment

Third Party Issues (7/18/2009)

The California Court of Appeal (citation in Text) discussed whether the wife and heirs were compelled to arbitrate the deceased husband’s wrongful death claims against a physician. Under CCP 1295 a physician can demand arbitration of a claim for medical malpractice with a patient pursuant to an arbitration agreement not statutorily adhesive, and the husband had signed that kind of agreement. The court held that the surviving heirs' claim for a wrongful death of their father is not a derivative claim, and they cannot be compelled to arbitrate despite a collateral statute that requires consolidation of all wrongful death claims against the estate; CCP 377.60 et seq. The wife had conceded she was bound by her husband’s agreement and must arbitrate.

Result: the claims of the husband for wrongful death, and the claims of the wife, will be arbitrated; the heirs will try the same case in court.

See, Text, Ch. XVI-F-5: Arbitrable Parties & Issues

Incorporating Arbitration Rules in Contract (7/1/2009)

The parties may incorporate arbitration service provider Rules into an arbitration agreement. JAMS and AAA have prepared extensive rules applicable to their respective organizations. These Rules will apply unless overridden (trumped) by a specific statute; Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4th 547 (2005); Rodriguez v. American Techs., Inc. 136 Cal.App.4th 1110 (2006).

But in a recent California Court of Appeal case, (citation in Text) an arbitration clause provided the parties would abide by AAA Rules “existing at the date of [an arbitration]” in the event of a dispute. At the time the parties executed the contract, the AAA had no rule providing that arbitrators had jurisdiction to rule on their own jurisdiction. In later amended rules, AAA inserted a Rule that the arbitrators had jurisdiction to determine their jurisdiction.

At the time the dispute occurred in the case, subsequent to the amended Rule, the moving party demanded that the arbitrator-not the court-determine jurisdiction of the dispute pursuant to the amended AAA Rules. Ordinarily the court, not the arbitrator, jurisdictionally determines whether a dispute is arbitrable unless the parties specifically assign that task to the arbitrator. The Court of Appeal held that parties cannot incorporate arbitration Rules not in existence at the time they executed the contract and therefore the arbitrator lacked jurisdiction.

See, Text, Ch. XVI-F-!6: Hearing on Petition to Compel

Preemption of Administrative Regulations (6/30/2009)

The Federal Arbitration Act (FAA) preempts State anti-arbitration decisional law or administrative agency regulations which displace an arbitral forum for dispute resolution. Under California law, an employee cannot invoke the so-called "Berman" waiver providing for administrative resolution of labor claims in lieu of an arbitral forum (citation in Text).

See, Text, Ch. IX-F-3: Administrative Preemption

Scope of Arbitration Clause (5/29/2009

The courts have drawn a distinction between "broad" arbitration clauses and "narrow clauses." This categorization is fact specific and contingent on the language of the clause and its scope.

Although a "broad form" arbitration clause includes torts "arising out of the contract," not every dispute clearly outside the contemplation of the parties and their intention in contracting is covered. The California Court of Appeal illustrates this distinction in a case involving a securities transaction (Citation in Text). The parties disputed the scope of the clause based on the accurate definition of their contractual relationship.

See, Text, Ch. XVI-F-7: Broad Form Arbitration Clauses

Jurisdiction 4/1/2009

The Supreme Court has held the FAA authorizes a federal court to "look through" the pleadings to determine jurisdiction, i.e., whether a claim "arises under" federal law; FAA U.S.C.4 (Citation in Text). A cross claim, regardless of its federal or state nature, may not be considered in determining jurisdiction.

In Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987) the well-pleaded complaint doctrine is also discussed.

See, Text, Ch. II: Jurisdiction

Class Wide Arbitration (3/2/2009)

The Third Circuit has refused to enforce class wide arbitration waiver clauses in small amount consumer cases (citation in Text). Although the court decided the case on the pleadings (requiring an appellate court to accept allegation in the Complaint) the panel clearly evidences its displeasure with class wide waivers.

See, Text, Ch IV-H-8: Class Wide Arbitration

Sanctions (2/5/2009)_

The California Court of Appeal has held that the arbitration panel had the power to impose sanctions on counsel for conduct committed during the arbitration (copying privileged documents) and without any statutory authority on grounds he had submitted to the jurisdiction of the arbitrators by representing a party (citation in Text).

See, Text, Ch. XX-J: Sanctions

Judicial Intervention in Arbitration (1/26/2009)

In California, after a court orders an action to arbitration its jurisdiction ends and it cannot intervene except to name an arbitrator if the parties cannot agree; entertain injunctive relief under certain conditions; and confirm, correct or vacate an award. As one court said, "arbitration takes on a life of its own (citation in Text).

See, Text, Ch. XII-C: Judicial Jurisdiction in Arbitration

 

Settlement Credit (1/26/2009)

When one or more tortfeasors settle with the plaintiff, that amount is offset against the judgment of a non settling defendant. This litigation tool is available in arbitration and asserted in conjunction with confirmation of the award (citation in Text).

See, Text, Ch. XI-C: Settlement

NASD Rules & Fiduciary Duty (1/26/2009)

NASD Arbitration Rules are not substantively unconscionable per se but under some circumstances the parties may be in a fiduciary relationship and a breach of that duty my occur in an action for fraud (citation in Text).

See, Text, Ch. IX-O: Self Regulating Organizations

Arbitrator Disclosure (1/26/2009)

The California Court of Appeals writes another opinion on the issue of arbitrator disclosure. CCP 1291 & CRC 7 do not require disclosure of an arbitrator's legal representation of a third party with interests adverse to a party in arbitration citation in Text).

See, Text, Ch. XIX-a-1: Disclosure by Arbitrator

Broad Arbitration Clauses (1/6/2009)

The Third Circuit explains the difficulty in distinguishing between the terms of a pre dispute agreement (in this case a licensing agreement) and ongoing business relationships as applicable to a particular dispute (collecting cases) [citation in Text].

See, Text, Ch. XVIII-F-7: Broad Arbitration Clauses0

Finality of Awards (1/6/2009)

In a non published opinion the Third Circuit held that the doctrine of “functus officio” of the arbitrator is subject to exceptions if the award is ambiguous: (1) an arbitrator can correct a mistake apparent on the face of the award; (2) the award does not adjudicate a submitted issue, and therefore the arbitrator has not exhausted his function; (3) the award leaves doubt whether the submission has been clearly executed.
The First Circuit agrees that the doctrine of “functus officio” is moribund, and the arbitrator can “clarify”an award as long as there is no fundamental change in the original award. (citations in Text),

See, Text, Ch. 5-A-2: Finality of Awards (1/4/2009)

Note: California permits the arbitrator to correct an award under certain conditions; CCP 1284.

oad Clauses:(1/6/2009)

Petitions to Compel & Scope of Arbitrator Authority (12/27/2008)

In a non published (and non cited) case the California Court of Appeal reminds counsel the scope of arbitrator authority is outlined in the pre litigation agreement, not the petition to compel arbitration. Arbitration is governed by contract.

The court also cites a recent California Supreme Court case that an appeal from a judgment confirming an award does not permit vacatur if the court disagrees with or believes the award is erroneous.

Note: these rules were included in the Text from previous cases.

2008


Arbitration Clauses & Judgment (12/7/2008)

The Eighth Circuit requires an arbitration agreement to specifically require an entry of judgment-an extremely narrow interpretation although statutorily required (9 U.S.C. 9); PVI, Inc. v. Ratiopharm GMBH, 135 F.3d.1252 (8th Cir. 1998); Carter v. Health Net of Cal., Inc., 374 F.3d 830 (9th Cir. 2004); Perpetual Securities, Inc. v. Tang, 290 F.3d 292 (2d Cir. 2002); Greenberg v. Bear, Stearns & Co., 200 F.3d 20 (2d Cir. 2000).

These are older cases and the The Second Circuit disagrees as long as the parties agree to arbitrate and subsequently conduct an arbitration; Orvis Communications L.L.C. v. Wilson, 2008 WL 5077823 (2d Cir. 2008).

See, Text, Ch. III-A-1: Finality of Award

Pre Hearing Discovery (Fed. Ct.) (12/7/2008)

The Second Circuit has held that 9 U.S.C. 7 permitting an arbitrator to issue subpoenas to witnesses does not extend to entities not parties to the arbitration. The court acknowledges a Circuit split but concludes the statute is unambiguous. The court also suggests alternatives to seek production from third parties (citation in Text).

See, Text, Ch. III-B-12-a: Discovery; & Ch. III-B-12-b; Collateral Discovery

Fraud & Arbitration Clauses (12/3/2008)

In filing a fraud complaint, plaintiff can allege two different theories. Fraud in the inducement alleges the defendant intentionally or negligently misrepresented certain facts relied on to the detriment of plaintiffs. Fraud in the execution alleges plaintiffs signed a document deceiving them as to its nature and unaware of its content. A contract fraudulently induced is voidable; a contract fraudulently executed is void.

When a contract includes an arbitration clause, its terms are jurisdictionally separate from the contractual terms. Federal and state courts judges examine only the arbitration clause for enforcement or revocation. If the plaintiff alleges fraud in the inducement of the contract, the court orders arbitration for a decision on the merits. If the complaint alleges fraud in the execution of the contract, the court decides that issue because the entire contract is void, including the arbitration clause, and cannot be enforced.

Fraud in the inducement of the arbitration clause alone is an issue resolved by the court.

These rules are well established and failure of a party to read the contract is not a defense unless the parties are in a fiduciary relationship.

See, Text, Ch. IX-O: Fraud

Appeal of Arbitration Awards (11/22/2008)

The California Supreme Court has authorized parties to include a right to appeal arbitrator legal error in arbitration clauses and the Supreme Court has denied

the right to appeal outside the parameters of the FAA. This jurisdictional conflict is likely to be the subject of considerable confusion and litigation.

See, Text, Ch. VI-Appeal; Ch. XXI-F-8-c

Classwide Arbitration & Choice of Law Clauses (10/19/2008)

An arbitration clause contains a choice of law clause forbidding classwide arbitration and identifying South Dakota as the applicable state law for resolution of disputes between a consumer and a bank. South Dakota enforces classwide waivers. California prohibits waiver of classwide arbitration and the plaintiff files in a California court. The defendant removes to federal court. Which state law applies? The Ninth Circuit remands to the district court to determine applicable law.

See, Ch. IV-F-8: Classwide Arbitration

Updates from 2008

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Summary of Significant Cases in 2008

 

Employment Arbitration (6/15/2008)

The U.S. Supreme Court has held the FAA includes arbitration of employment disputes, yet State and Federal courts have refused to enforce arbitration agreements for a variety reasons as discussed in the text.  In the latest California case, the Court of Appeal refused enforcement of an arbitration clause on grounds the employer had not incorporated the employee handbook of corporate policy explaining arbitration into a written form given to the employee to initiate dispute resolution.

Employers cannot draft arbitration agreements with their employees (assuming the desire to arbitrate ) unless the employee handbooks are specifically incorporated into the employment contract-or duplicated-and include the standard provision absorbing costs and fees, mutuality of remedy, no damages limitations, and specific waiver of jury trial.  Signatures and acknowledgment of receipt by the employee are mandatory. 

The most effective method to enforce arbitration clauses is inclusion of its terms in the employment contract and a reference in the employment handbook to this specific provision.  An opt-out clause is helpful.  Drafting unfair terms assures a court test and an unsatisfactory ruling.

See, Text, Ch. XXI-C, D for necessary conditions to draft an enforceable employment contract.

Non Arbitrable Parties & Incorporation (5/7/2008

Although an enforceable agreement may bind two parties, when third parties who have not signed an arbitration clause are also involved, the court must decide whether to deny arbitration on grounds of conflicting results in arbitration and litigation; CCP 1281.2 (c).

A plaintiff can initiate litigation and sue non arbitrable parties in an attempt to avoid arbitration. More often, sub contracts, indemnity agreements or agency issues may emerge; or incorporation of parties; or the signatory may attempt to join the non signatory.  And the issue of choice of law and preemption by the FAA are involved.  The California Court of Appeal discusses these issues in a recent case.

See, Text, Ch. XVI-F-b Other Issues with Third Parties

 

Summary Judgments (4/25/2008)

In California courts, the defendant in a litigated case can file a petition to compel arbitration and stay litigation. Summary judgment is rarely used.  In federal courts the defendant files either a declaratory relief cause of action or summary judgment.  Both require the court to determine whether to order arbitration and stay litigation.

One federal court has held that if the defendant files summary judgment, the consequence is a waiver of the petition to compel arbitration. 

The court cited no precedent for this result.  The only source of authority are three cases all involving dilatory conduct or discovery abuse.

See, Text, Ch III-B-12-c-(3}: Summary Judgment

See, also, below.  Same subject.

Illegal Contracts

Contracts violating express state statutory requirements for a valid agreement are "illegal" and unenforceable absent waiver, severance and not in interstate commerce. The court decides illegality and, in effect, the invalidity of the arbitration clause and the underlying contract.  An "illegal" contract is not necessarily fraudulent either in the execution or inducement of the contract but unenforceable unless severable.  Cal. Ct. of Appeal.

See, Text, Ch. XVII-C-8: Illegal Contracts

Incorporation of Documents 3/28/2008)

Cal. App. Ct: Parties can incorporate documents in multiple contracts but if arbitration terms are included the terms must be clearly stated and readily visible.

See, Text, Ch. XVI-F-4-c.

Arbitrator Disclosure (3/28/2008)

Disclosure of Arbitrator's personal and professional obligations under California statutorily and ethical requirements are not trigger until notified of selection to serve as neutral arbitrator.

See, Text, Ch. XIX-A-1.

Expired Contracts & Arbitration Agreements (3/28/2008)

A California Court of Appeal has distinguished between enforcing expired contracts containing arbitration clauses enforceable after the contract has expired and contracse with no comparablae provision.  Non. Pub. but included in Text.

See, Text, Ch. XVI-F-11.

Motions to Vacate, Modify or Confirm Awards (3/27/2008)

FAA 9 U.S.C. 9-11 governing motions to vacate. modify or confirm awards are the exclusive grounds to appeal in cases governed by the FAA.  The Supreme Court held the parties cannot, in effect, confer jurisdiction on the court, but, that aside, even if the court has jurisdiction the rules on appeal are the same. Nothing about "manifest disrgard" other than ambiguity.

See, Text, Ch. V-A-B-C-D;  Awards in Federal Court

Pleading & Proving the Arbitration Clause (3/23/2008)

According to a California Court of Appeal, allegations in a complaint do not satisfy an defendant's burden to prove the existence of the arbitration agreement.  The moving party must plead and prove the existence of an agreement.

See, Text, Ch. XVI-F-3: Existence of Agreement to Arbitrate

"Existence" of Contract (3/18/2008)

Despite the rule that the arbitrator decides the merits of a contractual dispute and the count decides "arbitrability," the court must decide challenges to a contract on grounds of fraud in its execution; forgery; unauthorized signatory; mental capacity; Cal. Ct. of Appeal.  The federal rule is probably the same; Buckeye Check Cashing Co. v. Cardegna, -U.S._ (2007).

See, Text, Ch. XVI-F-3; Ch. IV-F-1-a. Existence of Contract

 

Arbitrability (2/28/2008)

The recurring issue of "who" decides arbitrability was addressed by the Supreme Court. The Court held that an administrative forum in a state court cannot trump the FAA. States cannot evade FAA preemption either legislatively, judicially or administratively.

Waiver (2/24/2008)

A party does not waive its right to arbitrate by moving to dismiss litigation or moving to transfer venue.

See, Text, Ch. IV-K: Waiver of Right to Arbitrate

Arbitrator Exceeds Powers (2/24/2008)

An arbitrator who fails to adhere to an arbitration clause containing a choice of law clause exceeds powers and the non prevailing party can move to vacate.

See, Text, Ch. V-D-4: Arbitrator Exceeds Powers 

Unilateral Terms in Arbitration Clause (2/24/2008)

An illusory contract allowing one part to unilaterally change the terms is an illusory contract and unenforceable as to "distributors."

See, Text, Ch. IV-F-8: Illusory Contracts

Remand to Arbitrator (2/24/2008)

An arbitration Award not an "interpretive path" between the evidence and the award is subject to remand to arbitrator for clarification.

See, Text, Ch. V-E.

Arbitration Awards (Three Strikes & the Award Might Be Out (2/16/2008)

Strike 1: Two sophisticated business entities contract with each other and include an arbitration clause containing a choice of law provision mandating the arbitrator to "strictly apply [state] law." The arbitrator conducts the arbitration pursuant to FAA rules, identifies the prevailing party, and writes an award expressing his view of the case without any reference to state statutory or decisional law.
The non prevailing party appeals, citing none of the grounds for vacatur listed in 9 U.S.C.10. Not an adhesive contract; no argument on substantive or procedural arbitrability; no duress; no fraud; no nondisclosure; no manifest disregard; no corruption in the process or the arbitrators.

In writing its decision on appeal, the 7th Circuit panel muses about the absence of appealable grounds; wonders how a court would resolve a case if the arbitrator wrote nothing at all; agrees we all know a court cannot set aside the award of an arbitrator (potentially confirmed in a judgment) who mistakes the law or facts, but presumably "there must be some boundaries ...[limiting] the extent to which the arbitrator could indulge his fancy..."
The court continues: "The arbitrator seems not to have interpreted [the law] at all but merely ignored it which was inconsistent with the directive that he "strictly apply [state] law..." In conclusion the court writes "...the arbitrator must render an award with an 'interpretative path' between the claims alleged and the award."
The court sends the case back to the arbitrator (if available) with instructions to hold an evidentiary hearing on the facts as applicable to state law.

In California terms, the California Supreme Court has said the award must reflect a "nexus" between the facts and the award; a "rational relationship;" Advanced Micro Devices, Inc. v. Intel Corp., Cal.4th 362 (1994).

Comment: This decision is arguably an isolated case but the 7th Circuit is possibly sending a subtle message recommending that arbitrators specifically connect submitted claims to the award-despite the court's concession that arbitrators need not write an award and mistakes of law or fact are not grounds for reversal on appeal.

Strike 2 & 3: In addition. a different 7th Circuit panel writes that "[a]n arbitral order that does not adhere to the legal principles specified by the arbitration agreement [choice of law provision] is one of two scenarios that warrants vacatur ... pursuant to the FAA; [9 U.S.C. 10 (a) (4)]. Ignoring a choice of law provision in an arbitration agreement exceeds the arbitrator's power since the arbitrator's power is borne from that arbitration agreement."

The court denied the motion to vacate on other grounds. Is this case dicta or precedent?

Collateral Estoppel & Res Judicata (2/4/2008)

Two plaintiffs filed separate diversity actions against the same defendant alleging breach of their employment contract, fraud and failure to pay wages. The trial court, after denying a motion to consolidate the parties, denied defendant’s motion to compel arbitration as to one plaintiff but granted the motion as to the other plaintiff (a decision caused by a previous Ninth Circuit ruling subsequently reversed in the Supreme Court).

The plaintiff in the litigated case obtained a judgment in its favor against the defendant. In the arbitration subsequently conducted between the second plaintiff and the same defendant, the arbitrators rendered an award confirmed in a [partial] judgment for the defendant. On appeal from that judgment, the second plaintiff contended the prior judgment against the defendant entered in litigation was subject to collateral estoppel in the arbitration.

The court held . . . “where the prerequisites for collateral estoppel are satisfied, arbitrators must give preclusive effect to prior federal judgments”. . . Arbitrators are not free to ignore the preclusive effect of prior judgments under the doctrines of collateral estoppel and res judicata.” But the court explains there is a difference between offensive non mutual collateral estoppel and defensive non mutual collateral estoppel.

According to the court, offensive non mutual collateral estoppel occurs when the plaintiff seeks to estop a defendant from relitigating an issue the defendant had previously litigated and lost against another plaintiff. Defensive collateral estoppel is a motion by the defendant to estop a plaintiff who had litigated and lost against another defendant. Noting the unfairness of offensive non mutual collateral estoppel when multiple plaintiffs repeatedly file litigation against the same defendant alleging the same issue, the Ninth Circuit panel criticized its use except in unusual cases.

Not only must arbitrators consider application of collateral estoppel and res judicata, the Collins court also held that determination of whether these twin doctrines initially apply are an arbitrable issue-not judicial.

The court cites Sixth and Seventh Circuit court cases as precedent for their decision, in part, but notes caveats in its holding. And, as noted by other courts, the absence of pleadings and records of the arbitration hearing impose a serious obstacle to applying collateral estoppel and res judicata to a previous judgment confirming an award. The Collins court also indirectly expresses a concern about the difference between a judgment entered in litigation and an award confirmed in a judgment as mandated by 9 U.S.C. 13 (c).

See, Text, Ch.IV-J: Collateral Estoppel & Res Judicata

 

2007


The California Court of Appeal reviews the statutory grounds for confirming, correcting and confirming, and vacating awards.  CCP 1288 allows a party to confirm an award four years after service and filing of the signed award. A petition to vacate or correct an award must be served and filed within 100 days after the date of service of the award. In the absence of a petition to confirm, the filing of a petition to correct or vacate within the 100 day period is jurisdictional and invalid.

If a prevailing party waits the 100 day period without filing a petition to confirm, and respondent files a petition to vacate thereafter, the petition should be denied.

Note: grounds for correction are listed in CCP 1286.6; grounds for vacating an award are listed in CCP 1286.2 (a) (1)- (6).

The California Supreme Court has assigned the role of resolving statute of limitations issues to the arbitrator.  In determining whether a claimant is dilatory in demanding or initiating arbitration, the correct date to toll the statute is the receipt of a refusal from the other party to arbitrate. The petition to compel must be brought within the statutory time for written contracts (four years) but measured by the date of refusal to arbitrate.

An arbitration clause requiring payment of attorney fees in the event any party initiates an action or administrative proceeding other than arbitration is subject to an interim award issued by the court.  The usual rule awarding attorney fees to a "prevailing party" applies to the merits of the case.

Arbitrator's Refusal to Postpone Hearing (2007)

One of the grounds to vacate an award is CCP 1286.2 (a) (5), a refusal by the arbitrator to postpone a hearing to the prejudice of the other party. The Court of Appeal reviews this statute and the ground for vacatur in the FAA; 9 U.SC. 10 (a) (3). Both are similar in language. These cases are fact specific but in any event a refusal to postpone a hearing must cause prejudice to the moving party.

See, Text, Ch. XXI-F-8-d: Grounds to Vacate Award

Offers-in writing-are unilaterally revocable within the relevant time frame (T.M. Cobb Co. v. Sup.Ct., 36 Cal.3d 273 (1984). In a case recently decided by the Court of Appeal, the plaintiff unilaterally revoked her offer prior to expiration of the 30 day period disabling the defendant from determining whether to accept within the statutory time frame. The court held the cost triggering provisions of CCP 998 also expired along with the offer. The court does not equate withdrawal of an offer the equivalent of an offer statutorily “deemed withdrawn."

The court notes, but does not decide, that plaintiff’s recoverable costs, when added to the jury award (which was less than the offer), exceeded the judgment thereby identifying her as the prevailing party.

 

Citing the FAA, in 1991 the Supreme Court enforced a clause in a contract compelling arbitration of disputes between employees and their employer; Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991). The employee alleged violation of ADEA, a federal statutory right, but the Supreme Court held the arbitration clause enforceable as long as the employee could vindicate statutory rights in a non-judicial forum. Ten years later, reversing the Ninth Circuit, the Supreme Court interpreted the FAA to include all employees-other than transportation workers-within the scope of the statute and subject to arbitration; Circuit City v. Adams, 532 U.S. 105 ( 2001). On remand, the Ninth Circuit refused to enforce the same arbitration clause on grounds the terms were unconscionable; Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir. 2002).

The Ninth Circuit subsequently decided a trio of cases refusing to enforce arbitration agreements in employment cases; Circuit City Stores, Inc. v. Mantor, 335 F.3d 1101 (9th Cir. 2003); Ingle v. Circuit City Stores, 328 F.3d 1165 (9th Cir. 2003); Ferguson v. Countrywide Credit Inds., Inc., 298 F.3d 778 (9th Cir. 2002). In a 2005 opinion, a majority of the court concluded it should consider allegations in the complaint in determining whether to enforce the arbitration clause, albeit in a franchise dispute; Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006).

The Ninth Circuit’s most recent foray into an employment contract containing an arbitration clause involves an employment dispute between a major law firm and one of its employees. The court struck down every element of the arbitration clause executed between an employee and her law firm employer. The court, classifying the employment clause as adhesive (“take or leave it”), and a corresponding failure to allow the employee to “opt out” of the arbitration clause, qualified as procedurally unconscionable conditions. Requiring the employee to file a claim against the employer within one year improperly accelerated the California statute of limitations for statutory claims and is substantively unconscionable. The clause requiring “confidentiality” of the proceedings is also substantively unconscionable; the employer’s exemption from arbitration to protect the attorney client privilege is unconscionable because the language of the arbitration clause is “too broad.” Severance was impossible, concluded the court.

The Ninth Circuit occasionally cited Armendariz v. Foundation Psychcare Services, Inc., 24 Cal.4th 83 (2000), the leading California case interpreting arbitration clauses in employment contracts. But the Ninth Circuit panel followed none of the California Supreme Court recommendations listed in Armendariz to enforce arbitration clauses in employment contracts and thereby avoid a finding of “unconscionability.”

Armendariz will enforce employment contracts if remedies for the parties are bilateral; the arbitrator is neutral; limited discovery is allowed; the employer pays the cost of arbitration; the arbitrator writes a reasoned opinion. By incorporating these prophylactic conditions in employment contracts, the California Supreme Court neutralizes the disproportionate bargaining strength of employers. The Ninth Circuit panel ignores these remedial measures, either omitting their presence in the arbitration clause or without acknowledging none exist.

According to well-established Supreme Court law, federal courts must interpret arbitration clauses under general state contract law; Buckeye Check Cashing, Inc.,v. Cardegna, 546 U.S. 440 (2006). The Ninth Circuit cites a handful of selected California Court of Appeal cases but essentially writes its own arbitration law.

Mediation & Confidentiality (2007)


Mediators conduct innumerable meditations successfully, without incident and to the mutual satisfaction of the participants. But sometimes a mediation goes wrong as illustrated by a recent California appellate case.

Plaintiff filed a civil action alleging his attorney mis-informed him of the settlement demand from the other party during the course of a prior mediation in a related case. The evidence, gleaned from mediation briefs and e mails contemporaneous with the mediation produced during discovery in the course of the legal malpractice action against his attorney, tended to corroborate that allegation. The trial court refused to exclude evidence of communications in the mediation briefs and e-mails reflecting allegedly inconsistent statements by plaintiff’s lawyer (now the defendant in the malpractice case).

Seeking mandate, the defendant sought reversal of the trial court order on the ground the plaintiff's evidence was derived from communications occurring during the mediation and subject to the confidentiality provisions of the Ev. Code. The Court of Appeal, citing two previous California Supreme Court cases, held that Ev. Code 1119 imparts confidentiality to written or oral communications prepared "for the purpose of, in the course of, or pursuant to a mediation or mediation consultation" in addition to those communications occurring during the course of a mediation.

The Court of Appeal cites several other California cases interpreting Ev. Code 1119 precluding evidence of misconduct occurring during a mediation as well as any documents confirming criminal conduct. “Confidentiality” of communications is not confined to the parties or counsel. A mediator cannot report misconduct if the evidence emerges from mediation proceedings (other than a crime); Ev. Code 703.5.

Excluding all evidence of communications in mediation does not occur automatically. Any facts obtained prior to-and independent of- the mediation and otherwise admissible are not insulated from disclosure merely because counsel inserted those facts in a brief.
The central issue of disclosure in any mediation becomes whether the communications, written or oral “occurred or were prepared for the purpose of, in the course of, or pursuant to the mediation.” In the instant case, the appellate court excluded the mediation briefs, obviously prepared for the purpose of mediation, and the e-mails discussing the forthcoming mediation.

As a consequence of its ruling, the appellate court notes the probable inability of the plaintiff to prove his legal malpractice case. “Confidentiality” of communications is the necessary price paid for mediation to encourage candor and privacy among the participants, but the alterative of disclosure is equally perilous. The court notes the potential injustice of strict rules on confidentiality and encourages the legislature to revisit the issue.

Class Actions in Federal Court (2007)

In Green Tree Fin. Corp v. Bazzle, 539 U.S. 1039 (2003) the Supreme Court ruled that arbitrators in state court litigation-not the judge-should determine whether an arbitration clause silent on class action permits classwide arbitration, and Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, (2002) assigned procedural issues to the arbitrator. Pedcor Mgmt. Co., Inc. Welfare Benefit Plan v. Nations Personnel of Texas, Inc., 343 F.3d 355 (5th Cir. 2003), decided after Green Tree Fin. Corp. and Howsam, held that under Bazzle a court ascribes resolution of the arbitration clause to the arbitrator if the agreement is silent on who makes the class action decision. In Employers Ins. Co. of Wausau v. Century Indemnity Co., 443 F.3d 57 (7th Cir. 2007) the court held class actions are a procedural mechanism and under Howsam the arbitrator decides procedural issues. Arbitrators are now applying these cases to class actions: Sutter v. Oxford Health Plans, LLC, 2007 WL 625625 (3d Cir.)[not precedential].  Although not precedential, the case discusses partial final awards, Federal Rule 23 guidelines, and vacatur of the award.

See, Text, Ch. XVII-C-5. reviewing federal and state statutes regulating arbitration in other contexts.


Arbitration of Skilled Nursing Facilities Disputes (2007)

The interplay between three statutes, CCP 1295 mandating arbitration of medical services claims, H & S 1430 (Elder Abuse and Dependent Adult Civil Protection Act), and H & S 1530 providing group medical insurance, have created a series of inconsistent decisions in the California Courts of Appeal.

The latest example was decided by the First Appellate District. In admitting his wife as a resident to a skilled nursing facility, the plaintiff signed a contract containing an arbitration clause identifying himself as “Legal Representative/Agent.” The arbitration clause also bound heirs. Plaintiff, acting in the same legal capacity, also signed a second agreement requiring arbitration of medical services.

Plaintiff's wife died during her tenure at the nursing facility. Plaintiff and two heirs filed allegations of fraud, wrongful death, elder abuse and H & S 1430, a statute referencing the Patient’s Bill of Rights (Title 22, section 72527 of Cal. Code of Regs). H & S 1430 prohibits arbitration of disputes between the facility and a patient or former patient. Only the nursing facility, and not the physician, who may have rendered medical services, is named in the complaint (& caption).

Ruling on the motion to deny arbitration, the appellate court held that the H & S 1430 cause of action and the wrongful death cause of action survive as to the husband and heirs (although no reference is made to survival in the statute or the Regs.). According to the statute, the parties do not waive their right to file a civil action. The trial court never addressed the survival issue.

Assuming wrongful death survives, the husband signed the arbitration agreement as an “agent” of his wife and the arbitration clause extends its coverage to the non-signatory heirs. According to the court, Plaintiff did not sign in his personal capacity-apparently not having gone to law school-although an agent can also bind non-signatories under agency law. Apparently the court did not want to confront another questionable decision written by the Fourth District Court of Appeal holding the husband is not the agent of his wife; Flores v. Evergreen at San Diego, LLC, 148 Cal.App.4th 581 (2007). Husbands and wives are fiduciaries and owe a higher legal duty to each other than an agent. Apparently not in some courts.

The court rejects the obvious future course of action mandated by this case as argued by the defendant as follows: the plaintiff will just add a 1430 claim to other claims, i.e., plaintiff files an H & S 1430 non-arbitrable claim with arbitrable claims. Accordingly, the court under this case will select litigation of otherwise arbitrable claims (fraud; negligence, wrongful death; breach of contract) on the ground of potential inconsistent results in arbitration; CCP 1281.2. To this argument, the Court of Appeal responds by writing a vigorous defense of 1430 and a delivers a paean to jury trials.

The court ultimately accepts the theory that dividing the case between two forums, i.e., litigation and arbitration, is a discretionary decision for the trial court; CCP 1281.2. What will happen when the plaintiffs seek to file their medical services claim? This claim, whether it survives or not, is subject to mandatory arbitration; CCP1295. Result: litigation of the wrongful death and H & S 1430 claim and arbitration of the medical services claim.

The court also ignored the argument of plaintiff in the trial court that defendant’s fraud induced the arbitration clause. California law is clear that when a party alleges fraudulent conduct induced the arbitration clause, resolution of that issue is a judicial function. The court should have addressed the issue of whether the arbitration clause was the subject of fraud.

Had interstate commerce been involved, the FAA would have preempted enforcement of the H & S 1430 anti-arbitration provision preventing jury waiver. “Commerce”, however, is not usually involved in the delivery of medical services or the operation and management of skilled nursing facilities.

 

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