Source: https://www.jamsadr.com/publications/2003/adr-legal-landscape-continued-rapid-evolution-in-2002
Timestamp: 2019-04-18 23:15:43+00:00

Document:
In early 2002, the state's second appellate district court wrestled with the question: "Can the parties to an arbitration agreement validly agree that an arbitration award is subject to judicial review to determine whether the award is supported by law and substantial evidence?" Crowell v. Downey, 95 Cal. App. 4th 730 (2002). In a 2-1 decision, the majority held that parties are not free to contract to expand the grounds for a court to review an arbitrator's decision for legal errors.
In a subsequent decision, the first appellate district court agreed with the Crowell court, refusing to review an arbitrator's decision for errors of law despite explicit language in the parties' contract providing for such review. Oakland-Alameda County Coliseum Authority v. CC Partners, 101 Cal. App. 4th 635 (2002).
Both state appellate courts interpreted the landmark California Supreme Court case, Moncharsch v. Heily & Blase, 3 Cal. 4th 1 (1992), as mandating their conclusions. In Moncharcsh, our state's highest court ruled that since the Legislature did not provide for vacatur of arbitral awards on the basis of legal errors, the courts were not free to judicially create such a ground (see CCP 1286.2 for grounds to set aside an award).
The courts in both appellate cases refused to apply the federal Ninth Circuit Court of Appeal's decision in Lapine Technology Corp. v. Kyocera Corp., 130 F.3d 884 (9th Cir. 1997), which upheld the parties' agreement for broader judicial review of awards.
The majority in Crowell noted that the federal circuits are split on this issue [see favoring permitting parties to contract for judicial review of legal errors: Gateway Technologies v. MCI Telecommunications, 64 F. 3d 993 (5th Cir. 1995); disfavoring review: UHC Management Co. v. Computer Sciences Corp., 148 F. 3d 992 (8th Cir. 1998) and Bowen v. Amoco Pipeline Co., 254 F. 3d 925 (10th Cir. 2001)]. They also quoted the Seventh Circuit in its review of the issue: "If the parties want, they can contract for an appellate arbitration panel to review the arbitrator's award. But they cannot contract for judicial review of that award; federal jurisdiction cannot be created by contract." Chicago Typographical Union v. Chicago Sun-Times, 935 F. 2d 1501 (7th Cir. 1991).
In a slightly different twist on the issue, the third appellate district confirmed that while courts may not review awards for legal errors, they may review them on the grounds that they violate an explicit expression of public policy. Jordan v. California Department of Motor Vehicles, 100 Cal. App. 4th 431 (2002).
The California Supreme Court has granted review of a second district appellate case that has profound implications for mediation confidentiality. Rojas v. Superior Court of Los Angeles, 102 Cal. App. 4th 1062 (2002) (ordered depublished, but can found at this site for tracking purposes pending review and disposition by the California Supreme Court). In Rojas, the court found that an implied exception existed in the mediation confidentiality protections set out in the Evidence Code (Sections 1115, et seq.). This exception would allow "non-derivative" evidence submitted in a previous mediation that resulted in full settlement to be used in a subsequent, separate lawsuit.
"Non-derivative" evidence was determined by the court to be underlying factual evidence such as raw test data, photographs, videotapes and witness statements submitted in the previous mediation; this evidence was no longer available to the parties because of remedial measures taken and other circumstances. The court reasoned that to prohibit the plaintiffs in the subsequent suit from introducing this evidence would leave them without "access to necessary factual materials with which to conduct their litigation." Such a result, the court held, was not intended by the Legislature when it enacted the mediation confidentiality protections.
Scrutiny of pre-arbitration clauses in employment agreements was again a major focus for appellate courts in 2002. As has been the case for several years, employer-promulgated arbitration programs represented the lion's share of challenges to arbitration provisions.
Three federal Ninth Circuit cases involving Circuit City Stores' employment arbitration programs were decided in 2002. The first came to the court on remand from the U.S. Supreme Court after it reversed the Ninth Circuit's ruling that the Federal Arbitration Act (FAA) excluded arbitration provisions found in employment contracts [the Supreme Court held in Circuit City Stores v. Adams, 532 U.S. 105 (2001) that the exception found in Section 2 of the FAA applied only to transportation workers, not employees generally].
Despite the reversal, the Ninth Circuit still refused to enforce the arbitration agreement, holding that the terms of the provision were substantively unconscionable pursuant to the California Supreme Court decision in Armendariz v. Foundation Health Psychcare Services, 24 Cal. 4th 83 (2000) [see also Ferguson v. Countrywide Credit Industries, 298 F. 3d 778 (2002) and Mecuro v. Superior Court, 96 Cal. App. 4th 167 (2002) where the Ninth Circuit and the state's second appellate district court likewise refused to enforce employment arbitration agreements they found to be unconscionable].
In two other decisions, however, the Ninth Circuit upheld Circuit City's revised employment arbitration agreements that allowed employees to "opt out" of the agreement within 30 days without repercussions to their employment status. Because the employees in each case were given a meaningful opportunity to opt out of the program, the court held the employees failed to meet the "procedural unconscionability" test -- therefore, the court ruled that it did not need to rule whether the arbitration provisions passed the "substantive unconscionability" standards set out in Armendariz. Circuit City Stores v. Ahmed, 283 F. 3d 1198 (9th Cir. 2002) and Circuit City Stores v. Najd, 2002 DAR 7091 (9th Cir. 2002).
In a case with local ties, the employment arbitration program created by San Diego-based firm Luce, Forward, Hamilton and Scripps -- which had previously been upheld by the state courts -- was again challenged by a potential employee that the firm refused to hire because he would not sign an agreement to arbitrate any future employment dispute he may have with them. [see Lagatree v. Luce, Forward, Hamilton & Scripps, 74 Cal. App. 4th 1105 (1999)]. This time the EEOC took up the cause on behalf of Lagatree, filing a successful lawsuit in federal district court to enjoin Luce, Forward from requiring applicants to arbitrate Title VII claims.
On appeal, the Ninth Circuit, in a 2-1 decision, reversed the district court stating that its decision in Duffield v. Robertson Stephens & Co., 144 F.3de 1182 (9th Cir. 1998) had been "implicitly overruled" by the Supreme Court in the Circuit City case -- the result being that employers could require that employees' Title VII claims be arbitrated. (Circuit City, supra). However, this long battle is not over yet, as an amicus request to reconsider its ruling filed by 14 Congressional Democrats was recently granted by the court.
In two separate state appellate court decisions, arbitration clauses in adhesion consumer credit card agreements that attempted to exclude consumers from pursuing a class action proceeding were held to be unenforceable. Sveltela v. Discover Bank, 97 Cal. App. 4th 1094 (2002) and Mitchell v. American Fair Credit Assn., 99 Cal. App. 4th 1345 (2002).
The FAA's pre-emptive effect over state laws to the contrary again arose in Basura v. U.S. Home, 98 Cal. App. 4th 1205 (2002). In that case, the court ruled that the FAA pre-empted CCP Section 1298.7 that allows homeowners to sue for construction defects despite the existence of an arbitration clause in each of their contracts with the builder. The court compelled 20 of 48 homeowners who brought suit to arbitrate their dispute with the builder and remanded the remaining 28 to the trial court to determine if they had also agreed to arbitrate future disputes.
While space in this article does not permit fuller review, several other cases of note also influenced the ADR legal landscape in 2002, including: Jacobs v. CBS Broadcasting, 291 F.3d 1173 (2002), Grinham v. Fielder, 99 Cal. App. 4th 1049 (2002), and Benasra v. Mitchell Silverberg & Knupp, 96 Cal. App. 4th 96 (2002) regarding the collateral estoppel and res judicata effects of arbitration awards; Howsam v. Dean Witter Reynolds, 123 S.Ct. 588 (2002) holding that the arbitrator, not the court, decides the arbitrability issue regarding the NASD six-year statute of limitation rule; Kahn v. Chetcuti, 101 Cal. App. 4th 61 (2002) where the court deferred to the arbitrator's decision to award attorney's fees and costs to the prevailing party despite allegations that a condition precedent to mediate the dispute first had not been met; City of Hope v. Bryan Cave, 102 Cal. App. 4th 1356 (2002) where the court refused to extend third party beneficiary status to the law firm to allow it to compel arbitration of a lawsuit brought by the city against the firm; and, CPI Builders v. Impco Technologies, 94 Cal. App. 4th 1167 (2001), a December, 2001 case in which a party whose attempt to revoke a stipulation to arbitration entered into on its behalf by its attorney was considered too late (after the other side had already accepted the offer to remove the case from litigation and arbitrate).
John M. Seitman, Esq., is a full-time resolution expert for JAMS based in Southern California. He has extensive experience mediating and arbitrating a wide variety of cases.
Copyright 2003 by San Diego Daily Transcript.
Reproduced with permission of San Diego Daily Transcript via Copyright Clearance Center.

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