Source: https://www.calmediation.org/2018/05/index.html
Timestamp: 2019-04-19 03:33:14+00:00

Document:
Rather, Agents Of Statutory Defendant Are Entitled To Benefit Of An Arbitration Agreement.
In Hernandez v. AutoZone, Inc., Case No. B280206 (2d Dist., Div. 2) (May 30, 2018) (unpublished; Justice Victoria Chavez, concurred in by Justice Judith Ashmann-Gerst, A.P.J., and Justice Brian M. Hoffstadt), ex-employer AutoZone moved to compel arbitration against a former employee based upon an alleged sexual harassment/battery/negligence suit arising from her employment with AutoZone, which had employees acknowledge that they read, understood, and agreed to be bound by a “Dispute Resolution Agreement” which required employees to arbitrate “any dispute arising out of or related to [their] employment with AutoZone or one of its affiliates,” including “disputes regarding the employment relationship . . . termination, retaliation, or harassment . . . and all other state statutory and common law claims.” It was governed by the Federal Arbitration Act.
The trial judge denied AutoZone’s motion to compel arbitration on the theory that co-defendant Jose Vilchez, alleged to be an agent of AutoZone and plaintiff’s immediate supervisor, was actually a “third party” such that conflicting rulings were a possibility.
Arbitration Clause Was Infirm Because It Was A “Side Agreement” Neither Filed With Nor Approved By California’s Insurance Commissioner.
Nielsen Contracting, Inc. v. Applied Underwriters, Inc., Case No. D072393 (4th Dist., Div. 1 May 3, 2018, modified on May 23, 2018) (published) (Haller, J., author, concurred in by McConnell, P.J. and Huffman, J.) decided that the trial court is the gatekeeper on the question of whether a delegation clause in an arbitration provision is valid, extensively adopting the reasoning of SCOTUS in Rent-A-Center West, Inc. v. Jackson, 58 U.S. 63 (2010).
The circumstances of this case were that plaintiff sued defendant insurers alleging they fraudulently provided workers’ compensation policies to plaintiff that were illegal and unconscionable in nature. Defendants moved to compel arbitration, and plaintiff opposed on the ground that the arbitration’s delegation clause was unlawful and void. The trial court agreed with plaintiff, denying the motion to compel arbitration. Defendants appealed, with the 4/1 DCA panel affirming the denial order.
The arbitration provision in the applicable agreement said disputes and controversies had to be conducted in the British Virgin Islands under AAA rules by an arbitrator who was a disinterested official in the insurance/reinsurance industries and with the arbitrator delegated to determine the enforceability of the arbitration clause. Another related development was that the Insurance Commissioner in an earlier administrative proceeding brought by different insureds against the same defendants found that the arbitration clause was unlawful and void, including the key fact that the defendants failed to get approval for their arbitration clauses from the Insurance Commissioner such that they were illegal “side agreements”—an administrative ruling which admittedly had precedential value.
The appellate court agreed with the trial judge’s conclusion to find the delegation clause void because (1) Rent-A-Center does allow the lower court to adjudge the enforceability of the clause; (2) the challenge to the delegation clause could also be the same as the challenge to the underlying contract, with plaintiff’s challenge being specific enough; and (3) the defendants failed to file the arbitration provisions with the Commissioner in derogation of Insurance Code section 11658.
FAA Collective Actions And Related State Law Class Actions Governed By Individualized Arbitration Proceedings Under Employment Contract.
On May 21, 2018, the United State Supreme Court issued its decision in Epic Systems Corp. v. Lewis, 584 U.S. __, No. 16-285. SCOTUS decided that the FAA instructed federal courts to enforce individualized arbitration proceedings under an employer-employee arbitration agreement such that nothing in the FAA’s savings clause, FLSA, or NLRA dictated a different result. This was a 5-4 decision along political lines, authored by Justice Gorsuch. The minority justices believed that the result in this case will gut the effectiveness of FLSA collective actions and state court class actions in the wage/hour area.
See my previous posts regarding this case, and the article I wrote entitled, “The Politics of Arbitration” wherein I discussed the same issue raised in Ernst & Young v. Morris. My previous posts were on August 23, 2016, October 11, 2016, November 3, 2016, January 17, 2017, July 24, 2017, September 28, 2017, and October 9, 2017. See also, my post on June 19, 2017.
Appellate Court Found That Trial Judge Must Make Determination To Add Alter Ego Nonsignatory, With JAMS Rule Not Dictating A Different Result.
Benaroya v. Willis, Case No. B281761 (2d Dist., Div. 4 May 17, 2018) (published) (Willhite, J., concurred in by Epstein, P.J. and Collins, J.) (yes, the matter did involve action star Bruce Willis) was a situation where an arbitrator made the decision to add an alleged nonsignatory alter ego respondent to an arbitration between claimant Willis/a lending company and a signatory respondent to which the added party was alleged to be an alter ego. Eventually, the arbitrator found that the nonsignatory was an alter ego and entered an award in excess of $5 million against both arbitration respondents. The trial judge granted Willis/lenders’ petition to confirm the award and denied respondents’ petition to vacate the award with respect to the arbitrator exercising jurisdiction over the nonsignatory.
The appellate court agreed with the arbitration respondents’ position on appeal, vacating the award against the nonsignatory alter ego and only confirming the award against the signatory arbitration respondent.
The reason for this overturn was that only the trial court (not the arbitrator) can decide whether an alleged nonsignatory alter ego could be compelled to arbitrate, with nothing in the JAMS arbitration rules changing that conclusion.
Failure To Highlight Provision In Multi-Page Employment Handbook And To Notify Employees That Signing The Handbook With The Provision Could Forfeit Their Ability To Participate In The Existing Class Action Cemented The Unconscionability Conclusion.
Unconscionability was the doctrine which invalidated an employment arbitration clause in relation to an employee wage/hour class action in the recent unpublished decision in Nguyen v. Inter-Coast Int’l Training, Inc., Case No. B270305 (2d Dist., Div. 4 Apr. 20, 2018) (unpublished) (Collins, J., concurred in by Epstein, P.J. and Manella, J.).
What happened here was that the employer modified its employee handbook, which had an arbitration provision and which many employees signed, over a year after a putative wage/hour class action had been filed. Sixty-two putative class members signed the arbitration provision in the modified employee handbook after the filing of the class action. Employer moved to compel arbitration, but the trial judge denied it on both procedural and substantive unconscionability grounds.
BLAWG UPDATE: The winning employees requested publication of that decision, but on May 15, 2018, the 2/4 DCA denied this request and sent a letter to the California Supreme Court (the ultimate decision-maker on the request) to see if it agreed or disagreed.
Issue Deals With Whether Generalized Language Was Akin To Silence Under Stolt-Nielsen.
In Stolt-Nielsen v. AnimalFeeds International Corp., 55 U.S. 662, 684, 687 (2010), the U.S. Supreme Court (SCOTUS) held that the differences between bilateral and class-action arbitration are too great to presume the parties’ mere silence on the issue of class-action arbitration constitutes a consent to class-action arbitration.
This case is set for argument in the October 2018 term. At least one commentator believes that the Ninth Circuit engaged in undue “hair-splitting” in light of Stolt-Nielsen’s reasoning.
BLOG OBSERVATION—Mike Hensley, co-contributor on the calattorneysfees.com blog, at Marc’s invitation, will be posting from time to time to Marc’s California mediation/arbitration blog.
The Options: The Other Side Can Pay Arbitration Fees, Or The Matter Can Move To Court.
"In its majestic equality," wrote Anatole France, "the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread." So does this principle of equality mean that the law forbids a party, who engages in good faith in arbitration, and loses the ability to pay the arbitrator, from turning to a judicial forum for relief? As one of my law professors would have put it, do the stringent TS rules of common law contracts apply to bind the party who is unable to pay to the deal it made?
In Weiler v. Marcus & Millichap Real Estate Investment Services, Inc., et al. G053953 (4/3 4/30/18) (Thompson, Bedsworth, Moore), the Court of Appeal holds in a published opinion, "as we did in Roldan [219 Cal.App.4th 87 (2013)], when a party who has engaged in arbitration in good faith is unable to afford to continue in such a forum, that party may seek relief from the superior court." In Roldan, the subject of my August 28, 2013 post, the Fourth District, Division Three, concluded that plaintiffs, "each of whom were subsequently granted permission to proceed in forma pauperis in the trial court, could likewise be excused from the obligation to pay fees associated with arbitration."
The Court of Appeal faulted the trial judge for applying an unconscionability analysis to the enforceability of the arbitration provision in Weiler. Unconscionability is analyzed at the time the agreement to arbitrate is entered into, and at that time, the Weilers were relatively well-to-do, before losing $2M in the ill-fated 1031 exchange in which they were represented by Marcus & Millichap. It would be hard, under those facts, to say that there was overreaching at the time of contract formation. Here, however, the issue was entirely different. The circumstances had changed over time such that the Weilers, an elderly couple ground down by the arbitration, lost the ability to pay, as a result of which they confronted the possibility of not being able to proceed in any forum, unless Marcus & Millichap paid the arbitration fees, or the parties proceeded to court. Perhaps too the Court's view was colored by the hardball tactics of the defendant, who, for example, insisted on the use of three arbitrators at an hourly rate of $1,450.
Arguably the Federal Arbitration Act applied, because the 1031 exchange involved properties in different states, Nevada and Texas. And so the Court also determined that the outcome would be the same under the Federal Arbitration Act and under the California Arbitration. In reaching this conclusion, the Court relied on the federal case, Tillman v. Tillman, 825 F.3d 1069 (9th Cir. 2016), the subject of my June 15, 2016 post. Tillman relied on the provision in the Federal Arbitration Act, 9 U.S.C. section 3, that a party can apply to stay trial of the action "until such arbitration has been had in term of the agreement . . . " In Tillman, the party followed the procedure required by the AAA, participated in good faith in the arbitration process, and simply ran out of money to pay the arbitrator. The Court held in Tillman that the arbitration "had been had" and the party could now seek a judicial forum. The California Court of Appeal found the analysis in Tillman to be persuasive.
COMMENT: Tillman is a Ninth Circuit case. Query whether the US Supreme Court, as currently constituted, would show solicitude to the impecunious plaintiff, or more inclined to apply the TS rules of common law contracts.
PRACTICE TIP: One in the position of the Weilers will need to make a compelling showing of inability to pay. This matter is being remanded, and the trial court will need to find if the "party's financial status is not a result of the party's intentional attempt to avoid arbitration." If there is no intentional attempt to finagle finances, then the trial court can order the arbitration to continue if the defendant agrees to pay (or order it to pay!), or deem the arbitration to be "had", allowing the case to proceed in court.

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