Source: https://www.calbizlit.com/cal_biz_lit/arbitration_and_mediation/page/2/
Timestamp: 2019-04-19 10:40:50+00:00

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The California courts’ post-Concepcion Kabuki theater involving binding arbitration requirements in consumer and employment contracts continues. CBL’s post on the course of events up to mid-July is here.
First, we had Brown v. Ralph’s Grocery Company (2011) ___ Cal.App.4th ___ (2nd Dist., B222689). In Brown, an employment case, the Court of Appeal held that Concepcion only applies to class action waivers in arbitration agreements, not to “representative action waivers,” which are void as against public policy. Last week, the Cal Supremes denied a hearing, so Brown is the law throughout California at least until the US Supremes get their talons into it.
Now we have Sanchez v. Valencia Holding Company, LLC (2011) ___Cal.App.4th___ (2nd Dist., B228027) a consumer case. The short version: an arbitration provision in an automobile dealership Retail Installment Sales Contract was held invalid as procedurally and substantively unconscionable. The long version is after the jump.
Cal Court of Appeal to US Supremes: "Oh yeah, says who?"
Let's review where we are on arbitration agreements and class action waivers.
First, there was Discover Bank v. Superior Court (2005) 36 Cal.4th 148, where the Cal Supremes held that "at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable, whether the consumer is being asked to waive the right to class action litigation or the right to classwide arbitration” and that “the FAA [does not preempt] California law in this respect."
Next, we had AT&T Mobility LLC v. Concepcion (2011) ___ US ___, overruling Discover Bank and holding that the rules it established were preempted by the FAA.
And now we have a mad scramble in California to try to find the cracks and crevices and exceptions that will keep consumer lawsuits and employment lawsuits out of the clutches of FAA preemption and alive in the good old fashioned California court system..
First out of the box in this regard: plaintiff in Brown v. Ralph's Grocery Stores (July 12, 2011) ___Cal.App.4th ___ (2nd Dist., B222689).
In this latest Ralph's case, the Plaintiff brought an action against his employer under Calfiornia's Private Attorney General Act, or "PAGA." PAGA says that an aggrieved employee who is entitled to Labor Code penalties against his or her employer can sue on his own behalf of "other current or former employees" to recover those penalties for everybody (although 75% of the penalties go the State).
Brown files a PAGA case against Ralph's. Ralph's says: "oh no you don't, you signed an arbitration agreement and class action waiver." Ralph's loses at the trial court, the case goes to the Court of Appeal, everybody briefs, argues, submits it. And then the US Supremes decide AT&T. At which point Ralph's and its lawyers are feeling pretty good. The Court of Appeal invites more briefing. And then it lowers the boom.
The purpose of the PAGA is not to recover damages or restitution, but to create a means of “deputizing” citizens as private attorneys general to enforce the Labor Code. . . . Here, the relief is in large part “for the benefit of the general public rather than the party bringing the action” . . . .
Dontcha' know, it's not a class action. It's a representative action. And AT&T doesn't say anything about representative actions.
So Ralph's comes in second in the case. So says the Court of Appeal, 2 - 1.
To which I've got two words in response.
Many of CBL's clients favor binding arbitration of disputes, and since CBL's clients are very wise and always right, he tries to see to it that the clients who want and have a right to arbitration get it. But as he has expressed before, CBL is not without his doubts. Most civil cases involve two key elements: liability and damages. In a case where the trier of fact finds liability and has to decide damages, here are some choices: Federal Court, where the plaintiff has to convince a unanimous jury of six of the amount; State court, where nine out of twelve jurors have to be convinced; Bench trial, where one person decides, but at least there are rights to appeal; and binding arbitration, where one person decides, and when it's over, it's over. Runaway arbitrator? Too bad -- there's very little opportunity to appeal.
Let's consider, for example, the case of Shahinian v. Cedars-Sinai Medical Center (Second Dist., April 27, 2011) ___Cal.App.4th ___ (B223366). Dr. Shahinian was a big deal brain surgeon. He had a contract with the hospital requiring binding arbitration of disputes. He started griping that the hospital wasn't adequately cleaning or sterilizing his surgical instruments, so they had bioburden on them. (His definition of bioburden was quite a bit grosser than the medical dictionary's -- don't read Footnote 1 of the opinion unless you want to know.) The hospital took various actions limiting his ability to perform surgeries.
They went to arbitration. The arbitrator found the hospital guilty of all kinds of tortious misconduct and contractual breaches and awarded about $2.1 million in compensatory damages and a tad less than $2.6 million in punitive damages. And the hospital went back to the trial court and said -- "hey wait a minute, under State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408, 416-419, the ratio between punitives and compensatories shouldn't generally be more than 1 - 1. And we want our extra half a million bucks back.
To which the Court of Appeal said: Nope. State Farm doesn't apply to contractual arbitration. State Farm sets a Constitutional limitation on state action. But contractual arbitration isn't state action.
If this is true, an arbitrator could award a dollar in compensatories and $100 million in punitives, and the defendant couldn't do a thing about it. So I think I'm going to stand by my position: Binding arbitration? No thanks.
In Discover Bank v. Superior Court (2005) 36 Cal. 4th 148,the Cal Supremes held that in a contract of adhesion (which virtually all consumer contracts are), arbitration provisions that waived class actions were void as against public policy.
Today, in a decision that shouldn't have been too surprising, the US Supremes said "oh no they aren't." 5-4 vote, opinion by Justice Scalia, Discover Bank held preempted by the Federal Arbitration Act, 9 USC §2. Period. No exceptions. Thank you for playing. No room for argument. End of story. A T & T Mobility LLC v. Concepcion ___ U.S. ___.
As Cal Biz Lit noted here on August 31, arbitration awards in California are almost never reversible. But as that post pointed out, in Burlage v. Superior Court Of Ventura County (Spencer) (August 31, 2009) ___ Cal.App.4th ___ (2d Civil No.B211431), the Second District Court of Appeal created a loop-hole in arbitration finality jurisprudence that seemed big enough to drive an appellate truck through. The loop-hole: arbitration awards can be challenged at the trial court, and on appeal, if the arbitrator erroneously excludes evidence.
Well, the Court reconsidered its opinion. And yesterday it posted a slightly changed opinion here. I should mention that this opinion (like the earlier one) is by Justice Arthur Gilbert, the Presiding Justice of Division 6 of the Second Appellate District. CBL doesn't usually concern itself with personalities on the bench. But CBL makes an exception here because Justice Gilbert is one of CBL's favorites. This is not because of his opinions, but rather because he is a very good (and often very funny) writer of essays dealing with the legal world, and a blogger.
It may be argued that to avoid the imposition of section 1286.2, arbitrators will simply admit evidence to insulate their decisions from review. We do not subscribe to this cynical view. It is through judicial review that the law is shaped and developed. Arbitrators do not subvert this process because a court might vacate an award. Arbitrators base their decisions on a careful analysis of the law and facts. They, like the arbitrator here, are professionals who conduct themselves according to the canons of ethics and the high degree of integrity their profession demands.
Sigh. Sorry Justice Gilbert, but in the real world, that ain't necessarily the way it works. The fallibility -- and let's face it, bias in both directions -- of arbitrators makes the process a real crap shoot. And arbitrators, like judges, don't like to get reversed. And that, as we've stated before, is why CBL is no big fan of binding arbitration.
Defendants in disputes with arbitration agreements should move to stay the civil case and compel arbitration.
Now, here's the thing about the common wisdom: sometimes it isn't so much. Take, for example, the case of Paul Thomas Chester v. Freedom Communications Incorporated, et al., Los Angeles Superior Court Action No. BC353567. Case looks to be a fairly high-powered employment dispute. According to the Los Angeles Superior Court web site, one or more of the defendants moved to stay the case and compel arbitration. Off to arbitration it went, before Judge William McDonald (Ret.) from Orange County Superior Court. Judge McDonald, a former business lawyer, sat in one of the most conservative counties in the State of California.
Then the wheels started to fall off. The one individual defendant began representing himself and the remaining corporate defendants. The matter proceeded to arbitration by default. And Judge McDonald awarded $3.9 billion -- yes, that's $3.9 billion dollars in damages, attorneys' fees, costs, penalties and interest, including $2,926,276,674.27 in punitive damages.
And the trial court judge in Los Angeles Superior Court confirmed the award and entered judgment on May 28, 2009.
California's appellate courts have issued many decisions in the past several years on binding arbitration provisions in consumer and employment contexts, which are typically non-negotiated contracts of adhesion. But here's a commercial arbitration case (involving negotiated contracts and equal and sophisticated parties) with implications for all disputes over contractual arbitration provisions.
Today's guest blawger is Michael Sachs, who practices employment law with our firm.
Today's Wall Street Journal discusses the increasing use of arbitration provisions in employment agreements. The WSJ estimates as many as 20% of all businesses require employees to agree to submit employment disputes to binding arbitration and agree in advance to waive jury trial rights as a condition of employment.
The article also discusses a Missouri case where the court applied an arbitration provision even where the employee failed to sign the agreement. The court reasoned that by continuing to work, the employee had agreed to be governed by the arbitration provision.
Interestingly, a recent California Court of Appeals indicates the law here is exactly the opposite. In Mitri v. Arnel Management Co. (2007) ___ C.A. 4th ___ , the employer brought a motion to compel arbitration based on an arbitration provision contained in its employee handbook. The handbook stated that any dispute would be settled by arbitration and that as a condition of employment the employees were required to sign an arbitration provision. The employer argued that such language, in conjunction with an acknowledgment of receipt and review of the handbook, created an arbitration provision. The employees argued that there was no signed arbitration provision because this passage only alerted them that an arbitration agreement would be forthcoming and they would be required to sign that agreement, but that no such agreement was ever provided to or signed by them. The California Court of Appeals held that the employees never agreed to arbitrate their claims and thus, the motion to compel arbitration was denied.
More discussion of the WSJ artice and a number of perspectives on arbitration appear here at Legal Blog Watch.

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