Tag Archives: Arbitration

Second District Orders Published Serpa v. California Surety Investigations, Inc.

Old crest of the club.

Old crest of the club. (Photo credit: Wikipedia)

Today, the Second District ordered published Serpa v. California Surety Investigations, Inc., et al., No. B237363, __ Cal. App. 4th __ (filed Mar. 21, 2013, modified Apr. 19, 2013).  At the trial court level, the court denied defendants’  motion to compel arbitration, finding the agreement to arbitrate lacked mutuality.  Defendants argued that the requisite mutuality was provided by the bilateral arbitration provisions in the employee handbook, incorporated by reference into the arbitration agreement.  The trial court rejected this argument because defendant could change the handbook at its sole discretion and without notice.  The Second District reversed.

The motion to compel arbitration was based on three documents: (1) “Acknowledgment of Receipt of Arbitration and Agreement to Arbitrate”; (2) “Acknowledgment of Receipt of Employee Handbook”; and (3) a copy of the employee handbook.  Plaintiff contended the agreement to arbitrate is one-sided because it requires her to submit claims against her employer to arbitration but does not require her employer to arbitrate its claims against her: “I understand and agree that if my employment is terminated or my employment status is otherwise changed or any other dispute arises concerning my employment . . . , I will submit any such dispute exclusively to binding arbitration.”

The Court of Appeal agreed that if “that the full extent of the agreement, we would likely agree it lacked mutuality because it requires Serpa to submit to arbitration ‘any such disputes’ involving her employment without imposing a similar obligation on CSI.”

However, because the agreement incorporated the arbitration policy in the employee handbook, the Court concluded that this “salvages the agreement by establishing an unmistakable mutual obligation on the part of CSI and Serpa to arbitrate ‘any dispute’ arising out of her employment.”  Plaintiff argued that the while the arbitration policy in the handbook establishes a bilateral obligation to arbitrate, she insisted that the mutual obligation is illusory because, the employer is authorized to alter the terms of any policy contained in the handbook at its sole discretion and without notice.  The Court disagreed, reasoning that the right to alter the terms was limited by the covenant of good faith and fair dealing implied in every contract.

The implied covenant of good faith prevents one contracting party from “unfairly frustrating the other party‟s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349; accord, American Express Bank, FSB v. Kayatta (2010) 190 Cal.App.4th 563, 570.) Thus, it has long been the rule that a provision in an agreement permitting one party to modify contract terms does not, standing alone, render a contract illusory because the party with that authority may not change the agreement in such a manner as to frustrate the purpose of the contract. (See Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 923 [“„where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing‟”]; see generally Asmus v. Pacific Bell (2000) 23 Cal.4th 1, 16 [employer‟s right to unilaterally modify employment agreement does not make agreement illusory]; Badie v. Bank of America (1998) 67 Cal.App.4th 779, 787-788 [contracting party with unilateral right to modify contract does not have “carte blanche to make any kind of change whatsoever”; unilateral right to modify, when limited by the implied covenant of good faith and fair dealing, requires the party holding the power to affect the other party‟s rights to exercise it in a manner consistent with the reasonable contemplation of the parties at the time of the contract].) Application of the implied covenant of good faith and fair dealing is no different in the arbitration context. In 24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199 (24 Hour Fitness), a former employee brought an action against the company, doing business as 24 Hour Nautilus, for sexual harassment and related torts. The employer moved to compel arbitration based on an arbitration policy in its employee handbook, which also contained a provision allowing the company to amend the handbook at its sole discretion. The 24 Hour Fitness court rejected the plaintiff‟s contention the unilateral right-to-amend provision made the arbitration agreement illusory and thus unconscionable. Observing the parties to an arbitration agreement, like any contract, are bound by the contract‟s implied covenant of good faith, the court explained, “Nautilus‟s discretionary power to modify the terms of the personnel handbook on [written] notice indisputably carries with it the duty to exercise that right fairly and in good faith. [Citation.] So construed, the modification provision does not render the contract illusory.” (Id. at p. 1214.)

Judges & Attorneys

Presiding Justice Perluss delivered the opinion for the court, with Associate Justices Woods and Jackson concurring.

Appeal from an order of the Superior Court of Los Angeles County, Judge Ruth Ann Kwan.

Paul, Plevin, Sullivan & Connaughton, Fred M. Plevin, Jeffrey P. Ames and Matthew R. Jedreski for Defendants and Appellants, California Surety Investigations, Inc., Two Jinn, Inc., Aladdin Bail Bonds and Peter Holdsworth.

Stevens, Carlberg & McMillan and Daniel P. Stevens for Plaintiff and Respondent Valerie Serpa.

By CHARLES H. JUNG

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Second District Denies Arbitration: Holds That Plaintiff’s Allegations That All Defendants are Co-Agents Is Not Judicial Admission Because Defendant Sought to Reserve Argument on Same Issue

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A Shack I Own In Eloy, Arizona // U Wouldn’t Wanna Live Here! (Photo credit: 666isMONEY ☮ ♥ & ☠)

On Monday, the Second District affirmed a trial court’s denial of a motion to compel arbitration.  Barsegian v. Kessler & Kessler, et al., No. B237044, __ Cal.App.4th __ (2d Dist. Apr. 15, 2013).  Some defendants moved to compel arbitration, but the remaining defendants did not.  Slip Op. at 2.  The trial court denied on the grounds of waiver and the possibility of inconsistent rulings.

Moving defendants sought a reversal, arguing that plaintiff’s complaint alleged that all defendants are agents of one another, and that allegation is a binding judicial admission that gives the non-moving defendants the right to enforce the arbitration agreement.  They argued that the non-moving defendants were therefore not “third parties” to the arbitration agreement, within the meaning of C.C.P. section 1281.2(c), which provides that:

A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.

Id. (emphasis supplied).  The court noted that:

[N]ot every factual allegation in a complaint automatically constitutes a judicial admission.  Otherwise, a plaintiff would conclusively establish the facts of the case by merely alleging them, and there would never be any disputed facts to be tried.  Rather, a judicial admission is ordinarily a factual allegation by one party that is admitted by the opposing party. The factual allegation is removed from the issues in the litigation because the parties agree as to its truth. Thus, facts to which adverse parties stipulate are judicially admitted. (See, e.g., In re Marriage of Hahn (1990) 224 Cal.App.3d 1236, 1238-1239.) Similarly, in discovery when a party propounds requests for admission, any facts admitted by the responding party constitute judicial admissions. (See, e.g., Wilcox v. Birtwhistle (1999) 21 Cal.4th 973, 978-979; Code Civ. Proc., § 2033.410.) And when an answer admits certain factual allegations contained in a complaint or cross-complaint, those facts are likewise judicially admitted.2 (See, e.g., Valerio, supra, 103 Cal.App.4th at p. 1271.) A judicial admission is therefore conclusive both as to the admitting party and as to that party’s opponent. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 454, p. 587.) Thus, if a factual allegation is treated as a judicial admission, then neither party may attempt to contradict it—the admitted fact is effectively conceded by both sides.

Here, the moving defendants sought to reserve the right to argue at arbitration that the allegation of mutual agency was false, and thus it was not conceded by both sides.

Although the Kessler defendants frame their argument using the term “judicial admission” and rely on case law concerning judicial admissions, their counsel confirmed at oral argument that they do not in fact wish to treat Barsegian‟s allegation of mutual agency as a judicial admission, because the Kessler defendants do wish to be able to contest the truth of that allegation, either in court or before an arbitrator. That is, the Kessler defendants wish to hold Barsegian to the mutual agency allegation only for purposes of the motion to compel arbitration, but, should they succeed in compelling arbitration on the basis of that allegation, they wish to retain the right to prove to the arbitrator that the allegation is false. That is not how judicial admissions operate.

By CHARLES H. JUNG

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California Court of Appeal Reverses Arbitration Order in Wage Case, Citing Viability of Armendariz Bilateriality Rule

English: own work

English: own work (Photo credit: Wikipedia)

Yesterday, the California Court of Appeal for the Second District reversed the lower court’s order granting a petition to compel arbitration in a putative wage & hour class action.  Compton v. Superior Court of Los Angeles County, No. B236669, — Cal.Rptr.3d —-, 2013 WL 1120619 (2d Dist. Mar 19, 2013).  Plaintiff was a property manager who was required to sign an arbitration agreement that also barred arbitration of class claims.  The trial court granted defendants’ petition to compel arbitration.

Normally an order compelling arbitration is not appealable.  But the Court of Appeal determined it had jurisdiction, citing the “death knell” doctrine:

An order compelling arbitration is not appealable. (Elijahjuan v. Superior Court (2012) 210 Cal.App.4th 15, 19.) The parties argue over whether this matter is appealable under the “death knell” doctrine, which applies when an order effectively terminates a class action. Rather than parse the case law on that issue, we conclude that we have jurisdiction to treat this nonappealable order as a petition for writ of mandate in this unusual case because: (1) the unconscionability issue is one of law based on undisputed facts and has been fully briefed; (2) the record is sufficient to consider the issue and it appears that the trial court would be only a nominal party; (3) if we were to dismiss the appeal, and the ultimate reversal of the order is inevitable, it would come in a post-arbitration award after the substantial time and expense of arbitrating the dispute; and (4) as a result, dismissing the appeal would require the parties to arbitrate nonarbitrable claims and would be costly and dilatory.

The Court concluded that the arbitration agreement was unconscionably one-sided because (1) it exempted from arbitration claims the employer would more likely bring, such as claims for injunctive or equitable relief from trade secret disclosures; (2) it limited the time to demand arbitration to a period shorter than the relevant statutes of limitation; (3) it retained the statute of limitations period for itself  and (4) it suggested that the arbitrator had the discretion not to award mandatory attorney’s fees under the Labor Code.

The Court determined that it was not violating Concepcion by enforcing Armendariz’s bilaterality rule: Continue reading

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California Court of Appeal for the First District Invalidates Arbitration Agreement Citing Lack of Mutuality

albanian car dealer

albanian car dealer (Photo credit: gabork)

In a ruling with implications for employment class action litigants, the California Court of Appeal struck down an arbitration agreement by a defendant in a putative class action, rejecting an argument that an unconscionability analysis that focuses on the lack of mutuality in an arbitration contract violates Concepcion. Natalini v. Import Motor, Inc., 213 Cal. App. 4th 587 (1st Dist., mod. February 5, 2013).

Relying on the U.S. Supreme Court’s holding in AT & T Mobility LLC v. Concepcion,  563 U.S. –––– , 131 S.Ct. 1740, 179 L.Ed.2d 742 (2011), appellant car dealer argued that an “unconscionability analysis that focuses on the lack of mutuality or bilaterality in an arbitration provision is ‘an example of applying a generally applicable contract defense in a manner which disfavors arbitration.'”  The First District declined to read Concepcion so broadly, and noted that:

Recent California and federal district court decisions addressing arbitration provisions very similar to that in the present case and in the identical car purchase context have not read  Concepcion so broadly.  (See  Trompeter v. Ally Financial, Inc. (N.D.Cal., June 1, 2012, No. C–12–00392 CW) 2012 WL 1980894 [p. *8] [nonpub. opn.]  ( Trompeter );   Smith v. Americredit Financial Services, Inc. (S.D.Cal., Mar. 12, 2012, No. 09cv1076 DMS (BLM)) 2012 WL 834784 [pp. *2–*4] ( Smith );   Lau v. Mercedes–Benz USA, LLC (N.D.Cal., Jan. 31, 2012, No. CV 11–1940 MEJ) 2012 WL 370557 [pp. *6–*7] ( Lau );  see also  Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 804, fn. 18, 137 Cal.Rptr.3d 773.)   Continue reading

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Engaging in Voluminous Discovery and Litigating Two Motions to Compel Sufficient to Waive Right to Arbitrate

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In an unpublished decision, the First District Court of Appeal affirmed the trial court’s denial of a motion to compel arbitration in a wage and hour class action, where defendants conducted voluminous discovery and filed and fully litigating two motions to compel further responses to discovery, a motion for sanctions and a motion for a protective order.    Partridge, et al. v. Hott Wings, Inc., et al., No. A130266, 2012 WL 470458 (Feb. 14, 2012).

Discussion

The Court found that Defendants’ delay in filing their petition to compel arbitration “connotes an intent not to arbitrate”.  Id. Defendants conducted substantial discovery:

Between March 2010 and the October 2010 hearing on defendants’ motion to compel arbitration, defendants engaged in voluminous written discovery to which plaintiffs responded.   In addition, defendants deposed numerous plaintiffs and third party witnesses.   Although plaintiffs had begun deposing witnesses, they had not yet obtained basic documents from defendants through discovery.   The discovery focused on the liability of individual defendants and the franchise defendants that employ plaintiffs.   As a result of defendants’ discovery requests, plaintiffs provided information regarding plaintiffs’ estimated damages, which defendants were responsible for which violations, and the liability of the individual as well as the franchise defendants.   A reasonable inference is that the information gained from defendants’ discovery goes to significant issues in plaintiffs’ case.

Id.

In addition, the Court found that Defendants “substantially invoked the litigation machinery” by: Continue reading

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Eastern District Finds Class-Wide Arbitration Agreement Unenforceable

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United States District Court for the Eastern District of California rejected defendant’s argument that Stolt-Nielson preempted Gentry, and the court held that a class-wide arbitration agreement was unenforceable as against an unpaid wage and overtime plaintiff.  Mathias v. Rent-A-Center, Inc., Civ. No. S-10-1476 LKK/KJM, 2010 WL 3715059 (E.D. Cal. Sept. 15, 2010) (slip op.).

Background

Ryan Mathias (“Mathias” or “plaintiff”) was employed by Rent-A-Center, Inc. (“RAC” or “defendant”) as an Assistant Manager, a position that was classified as a non-exempt or hourly position. Id. *1. As a condition of employment, plaintiff executed an arbitration agreement (“Agreement”), which Agreement contained a class action waiver and excluded arbitration private attorney general actions.  Id. Plaintiff filed a class action alleging eight claims arising from his employment with defendant, including claims for unpaid wages and overtime, unpaid rest and meal period premiums, and penalties arising from non-compliant wage statements under the California Labor Code and California Business and Professions Code. Id. Continue reading

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Second District Holds that Federal Choice of Law Provision in Arbitration Agreement Requires Application of Vacatur Provisions of FAA

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In a 3-0 opinion, the Second District held that while California state courts do not apply the FAA vactur provisions, because of the choice of law provision in the arbitration agreement, the trial judge was required to utilize the vacatur provisions of the FAA in passing on the amended petition to vacate the partial arbitration awards.

In Countrywide Financial Corp. v. Bundy, — Cal.Rptr.3d —-, 2010 WL 3064481 (Cal. Ct. App. 2d Dist. August 06, 2010), Defendants, Thomas Bundy, Misty Sanchez, Kevin Prevost and David Godina, appealed from an order vacating partial arbitration awards against plaintiffs, Countrywide Financial Corporation and Full Spectrum Lending, Inc.

The underlying case involved two arbitrations that were ultimately consolidated. The Bundy-Sanchez-Prevost arbitration demand sought classwide arbitration of claims for unpaid wages including incentive compensation, waiting penalties, costs and attorney fees pursuant to Labor Code section 200 et seq., Business and Professions Code section 17200 et seq., and common law principles.  The Godina arbitration demand alleged many of the same matters in terms of plaintiffs’ operations.

The arbitrator issued partial arbitration awards in favor of defendant.  Judge Elizabeth A. White vacated the partial arbitration awards on the ground the arbitrator committed a number of legal errors.  The Second District concluded that because of the unambiguous choice of law language in the agreements to arbitrate, “we must apply the vacatur provisions applicable before a United States District Court in a case subject to the Federal Arbitration Act. (9 U.S.C. § 1 et seq.)”  Applying the vacatur provisions of the Federal Arbitration Act, the Court of Appeal reversed, finding “no grounds permitted the partial awards to be vacated.”

The Court expressed doubt regarding whether the “manifest disregard of the law standard” survives Hall Street Associates L.L.C., but it chose to evaluate the interim awards under both title 9 United States Code section 10(a)(4) and the manifest disregard of the law test.  ; the course chosen by the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., supra, 559 U.S. at page —- [130 S.Ct. at page 1768].”  The Court described the manifest disregard standard as follows:

The first element is the arbitrator must know the governing rule of law and refuse to apply it or ignore it. The second element is that the law ignored by the arbitrator is well-defined, explicit, and clearly applicable to the case.

Presiding Justice Paul A. Turner wrote the opinion.  Hon. Sandy R. Kriegler and Hon. Richard M. Mosk concurred.

Defendants and appellants were represented by Caryl L. Boies, Sigrid S. McCawley and Lauren E. Fleischer of Boies, Schiller & Flexner.

Plaintiffs and Respondents were represented by Andrew M. Paley, Gregg A. Fisch and Jennifer Sloane Abramowitz of Seyfarth Shaw.

By CHARLES H. JUNG

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