Cal Biz Lit

Court of Appeal Reconsiders Arbitration Decision, Then Rules The Same Way

    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.  

    And while Justice Gilbert's slightly changed opinion ends up with the same result -- trial court is reversed, it should have refused to confirm the arbitration award because the arbitrator incorrectly excluded evidence -- he also adds a paragraph that shows arbitrators how to close the loophole:  just don't explicitly exclude any evidence.  Of course, Justice Gilbert is satisfied that this would not happen:

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.

Binding Arbitration Award Reversed For Excluding "Material Evidence" Causing Substantial Prejudice

    CalBizLit is not personally a huge fan of binding arbitration, although many of our clients are.  CBL realizes that arbitration often reduces the likelihood of a "high end," or runaway verdict.  This is why defendants tend to favor arbitration and plaintiffs don't.  But it isn't much cheaper than traditional dispute resolution.  And because a binding arbitration award is scarcely ever reversible (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1), either side can get hit with an off-the-wall,  arbitrary result and not be able to do much about it.  Or is that so?

    For your consideration, CBL offers Burlage  v. Superior Court Of Ventura County (Spencer) (August 31, 2009) ___ Cal.App.4th ___ (2d Civil No.B211431).  This is from the court that was reversed by the Supremes seventeen years ago in Moncharsh, and apparently, the court of appeal is still smarting.

    More after the jump.

Arbitration: Maybe The Common Wisdom Isn't Always So Wise

       Here are some elements of the "common wisdom" about arbitration:

• Arbitration is good for defendants, bad for plaintiffs;
• This is particularly so in employment cases, where arbitration removes a case's "high-end" (i.e., "runaway") risk;
• It's better for defendants to have retired judges as arbitrators, particularly judges retired from conservative venues;
• 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.

Hat tip to California Punitive Damages an Exemplary Blog
and Settle It Now.

Attorneys' Fees in Motions to Compel Arbitration

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.

More after the jump.

Mandatory Arbitration in Employment Contracts

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. 

                                                                                                                               --Michael Sachs

Arbitration and Class Action Waivers

Late last month, the California Supreme Court decided Gentry v. Superior Court of Los Angeles County addressing the question whether the courts will enforce the provisions of an arbitration agreement waiving the right to bring a class action arbitration when overtime is sought.  This has had lots of coverage in the blawgs, as you can see here, here and here, and very little in the general media (although the LA Times did cover it pretty well here).  The Court held that there is a balancing process, but in most instances, it looks as though the class action wavier will be invalid.  But what's interesting is the court's view of both overtime suits and class actions, both of which played key roles in the decision.

More after the jump.

Attorneys' Fees Awardable By The Court In Arbitration Case

Does your company -- or your client -- use binding arbitration provisions in commercial contracts?  If so, do the provisions  include the following language?

Should any party to this Agreement hereafter institute any legal action or administrative proceeding against the other by any method other than arbitration, the responding party shall be entitled to recover from the initiating party all damages, costs, expenses and attorneys' fees incurred as a result of such action.

If you and your client don't use language like this, you should. It's not just because this language provides a good, enforceable tool when one party to the transaction decides to ignore binding arbitration language and file suit.  In addition, the attorneys' fees can be awarded by the court (not the arbitrator) at the same time the court stays the improperly filed civil action and orders the case into binding arbitration.

That is the ruling in Acosta v. Kerrigan, B191810, a decision issued yesterday by California's Second Appellate District in a case of first impression.  As regular readers know, a decision in one California district is binding on every trial court in the state unless there is a conflicting district court of appeal decision.  So Acosta is the law in California unless and until another court of appeal, or the California Supreme Court, says otherwise.

Brief Guide to Arbitration and Mediation

Part of the target audience for this blog consists of two groups I spend a lot of time working with:  small to medium sized businesses, and  out-of-state businesses entering the rarified world of litigation in California for the first time.  Three questions I hear from these clients at least two or three times a year are (a) what is mediation?  (b) what is arbitration?  and (c)  what is the difference?

I'm hoping to have a white paper or longer post out on these subjects some time soon.  But in the meantime, yesterday's SF Chronicle, of all places, had a pretty good intro to the subject, which you can read here.

As I've posted in the past, forced, binding contractual arbitration is not always an unmixed blessing for companies.  But voluntary mediation is often a vital part of the litigation process. And voluntary binding arbitration is a dispute resolution tool companies in litigation should almost always consider.

Court Holds Mediation Must Be Voluntary

Without getting into too many details, our firm has several clients who get sued in multi-party construction cases for their insignificant involvement in large residential projects.  A client's entire contract may be only $10,000 or $50,000, but it gets into a case involving hundreds of hours (and many tens of thousands in fees) of mediations, special master hearings, etc.

While mediation -- the attempted resolution of a case involving the parties and a neutral facilitator, or "mediator" -- can be very valuable, it works best when it is voluntary.  Therefore, I was glad to see the Court of Appeal's decision today in Jeld-Wen v. Superior Court, holding that even in a complex case, a court cannot order the parties to mediation.