ADR Case Updates
Arbitration and Anti-SLAPP, 05/17/09
Seven decisions regarding arbitration have been rendered since my last update of April 16, 2009, including two addressing California�s anti-SLAPP statute:
A more detailed summary and analysis is below.
The court in Century 21Chamberlain & Associates v. Haberman, (Apr. 17, 2009, Fourth District, Div. Three), 173 Cal. App. 4th 1, 92 Cal. Rptr. 3d 249, held that the anti-SLAPP statute (Code Civ. Proc. �425.16) does not protect the act of initiating arbitration. Lisa Haberman claimed that Century 21 negligently marketed her property and sought to arbitrate her claims before the Pacific West Association of Realtors�. Asserting that it had no obligation to arbitrate such claims, Century 21 filed an action in superior court seeking a declaration to that effect. Haberman responded with an anti-SLAPP (strategic lawsuit against public participation) motion to strike the complaint. The trial court denied the motion, concluding that the complaint was not derived from activity the anti-SLAPP statute was designed to protect.
Affirmed. Here, Century 21�s basis for declaratory relief was Haberman�s request for arbitration. The anti-SLAPP statute protects statements made in, or concerning issues under review by, a �judicial proceeding, or any other official proceeding authorized by law.� Private, contractual arbitration is neither. To the contrary, arbitration is a private alternative to a judicial proceeding. Moreover, arbitration is not an �official proceeding� because it is a nongovernmental activity not reviewable by administrative mandate or required by statue. Therefore, since a request for arbitration fails to qualify as protected activity subject to an anti-SLAPP motion to strike, the trial court�s denial of Haberman�s motion was proper.
In Manhattan Loft LLC v. Mercury Liquors, Inc., (May 6, 2009, Second District, Div. Two), ___Cal. Rptr. 3d ___, 2009 WL 1219732, the court held that arbitration does not qualify as a �civil action� to afford protection of the anti-SLAPP statute where a lis pendens was recorded against real property improved with a building. A party must first file a complaint in Superior Court before recording a notice of pending action.
Plaintiff purchased a building subject to an existing lease in favor of Defendant. Pursuant to the purchase agreement, which contained an arbitration clause, Plaintiff was to provide Defendant easements for accessibility. After a dispute arose, Defendant commenced arbitration, and then filed a lis pendens against the building. Following Defendants favorable arbitration award, Plaintiff filed suit alleging slander of title because the lis pendens was improper under Civil Code � 405.20, since no civil action had been filed, only an arbitration proceeding. Defendant brought an anti-SLAPP motion claiming that the lis pendens was privileged under Civil Code � 425.16. The trial court granted the motion.
Reversed. A lis pendens may only be filed and recorded where �a party to an action asserts a real property claim.� An arbitration proceeding does not qualify as such an �action.� Thus, the notice of pending action was improperly recorded. Therefore, the anti-SLAPP motion should have been denied � Plaintiff established a probability of success on the merits of its slander of title claim.
As a practice pointer, Defendant should have filed an action, recorded the lis pendens, then moved the court to stay the action to allow the parties to arbitrate the real property claims under Code of Civil Procedure � 1298.5.
In Goldman v. KPMG, LLP, (Apr. 22, 2009, Second District, Div. Eight), ___Cal. Rptr. 3d ___, 2009 WL 1067773, Plaintiffs sued their accountants and lawyers for damages incurred in allegedly fraudulent tax shelter schemes. A step in the process included the formation of limited liability companies in which Plaintiffs and their investment advisors became members. The operating agreements in those companies included broad arbitration provisions. When Plaintiffs sued the accountants, lawyers, and investment advisors, the accountants and lawyers, who were not members of the limited liability companies, sought to compel arbitration. Asserting the doctrine of equitable estoppel as a basis to compel arbitration, the accountants and lawyers argued that Plaintiffs, as signatories to the agreements with the investment advisors, should be estopped from opposing arbitration with them. The trial court denied the motions to compel.
Affirmed. Equitable estoppel does not allow a nonsignatory party to compel arbitration unless the claims asserted by Plaintiff against the nonsignatory are dependent on or inextricably bound up with the contractual obligations of the agreement containing the arbitration clause. Because the contractual obligations of the operating agreements were unrelated to Plaintiffs� claims against the accountants and lawyers, there was no basis in law or equity from denying Plaintiffs their right to a jury trial against those defendants.
In U.S. v. Park Place Associates, Ltd., ___ F. 3d ___ (9th Cir., Apr. 22, 2009), 2009 WL 1067188, the Ninth Circuit held that the District Court lacked jurisdiction to confirm an arbitration award against the United States for more than $10,000 under the Tucker Act. Defendant, Park Place Associates, Ltd. entered into a joint venture agreement with LCP Associates to open a �legal card-playing club.� The agreement required the parties to arbitrate any disputes. Unbeknown to Park Place, LCP had used drug-trafficking proceeds to finance $12M of its investment in the joint venture. After several LCP partners were criminally convicted, the U.S. moved to seize all of LCP�s assets, and took over LCP�s share of the club, and managed the establishment for several years.
Claiming the U.S. mismanaged the business, Park Place pursued arbitration and obtained an award for over $93M against the U.S. The district court confirmed the award. The U.S. moved to vacate on the ground that the court lacked jurisdiction because the U.S. had not expressly waived sovereign immunity.
Vacated in part. Under the Tucker Act, the U.S. waives immunity for actions sounding in contract, but the Court of Federal Claims possesses exclusive jurisdiction for claims that exceed $10,000. Therefore, since the award exceeded $10,000, the district court lacked jurisdiction to confirm it.
In Olvera v. El Pollo Loco, Inc., (Apr. 27, 2009, Second District, Div. Three), ___Cal. Rptr. 3d ___, 2009 WL 1110828, El Pollo Loco, Inc.�s arbitration clause was deemed unenforceable due to procedural and substantive unconscionability. Plaintiff was the general manager of an El Pollo Loco restaurant, and ultimately the lead plaintiff in a class action alleging employment law (wage and hour) violations. Defendant moved to compel arbitration, based upon an arbitration agreement signed by Plaintiff. Finding the arbitration clause unconscionable, the trial court denied the motion.
Affirmed. The record indicates procedural unconscionability in two respects. First, the inequality in bargaining power between low-wage employees and their employer makes it likely that the employees felt at least some pressure to sign the new �Dispute Resolution Policy,� whatever they understood it to be, when it was presented to them in 2003. Second, their agreement to be bound by the new policy was not based on informed consent. The explanatory materials provided by the employer advised employees to first contact management regarding any disputes, and that if the problem was not resolved, then mediation was required. This was stated in large type in English and Spanish. However, the dispute resolution policy itself stated that the parties �may agree to mediate,� not that mediation was required, and was in much smaller font, in English only, which only exacerbated the effect of the misrepresentation, and made it more likely the employees would be misled regarding the mediation and arbitration policy.
Moreover, the dispute resolution policy was substantively unconscionable because it only benefited El Pollo Loco, which most likely would not file a class action against its employees. Therefore, the trial court properly declined to compel arbitration.
In Flores v. Axxis Network & Telecommunications, Inc., (Apr. 30, 2009, Second District, Div. One), ___Cal. Rptr. 3d ___, 2009 WL 931706, Defendant�s petition to compel arbitration was properly denied where the agreement between the parties excluded wage and hour claims. The Los Angeles Unified School District launched a major program to construct new schools and rehabilitate existing ones. To help ensure timely construction, it entered into a �project stabilization agreement� (�Agreement�) with the Los Angeles / Orange Counties Building and Construction Trades Council and various craft unions to establish labor relations policies and procedures for the District and union employees who would be involved in the program.
Plaintiffs were union employees hired by Defendant, Axxis Network & Telecommunications, Inc., one of the licensed contractors working for the District. Plaintiffs filed suit alleging employment law (wage and hour) violations. Defendant sought to compel arbitration under the arbitration provisions of the Agreement. Concluding the Agreement excluded statutory prevailing wage claims, the trial court denied the petition.
Affirmed. An agreement requires arbitration of statutory claims where it is �clear and unmistakable� that the parties intended to waive a judicial forum regarding those claims. If such a clear intent is lacking, arbitration may still be compelled if the agreement contains a general arbitration clause and explicit incorporation of statutory requirements. However, it must be �unmistakably clear� that the statutes at issue are part of the agreement. Here, the Agreement contained no express provision clearly requiring arbitration of statutory claims. Although the Agreement referred to statutory requirements, the arbitration provision applied only to disputes over the contract, and carved out statutory wage claims as an exception from arbitration.
Reversing the Sixth Circuit, the U. S. Supreme Court held that Section 3 of the Federal Arbitration Act (FAA) allows for an immediate appeal of the denial of a stay in Arthur Anderson LLP v. Carlisle, 556 U.S. ___, 129 S. Ct. 1896 (May 4, 2009). Carlisle sought to minimize taxes for the sale of his company, and sought advice from Arthur Anderson LLP (AA). Suggesting a �leveraged option strategy� tax shelter, AA recommended Bricolage Capital LLC (BC) to manage the tax shelter. Carlisle entered into a written agreement with BC that contained an arbitration clause. The IRS declared the tax shelter illegal. Claiming diversity, Carlisle sued AA in district court.
Although a nonsignatory to the arbitration agreement, AA sought to compel arbitration under the BC agreement pursuant to the doctrine of equitable estoppel. The district court denied AA�s motion to stay the action under Section 3 of the FAA (9 U.S.C � 3). The Sixth Circuit Court of Appeal dismissed AA�s interlocutory appeal for lack of jurisdiction. AA argued that the FAA Section 16(a) (1) (A) allowed for an immediate appeal from the denial of a stay under Section 3.
Reversed and remanded. Section 16�s language clearly permits any litigant denied a stay, even if a nonsignatory to the arbitration agreement, the right to seek an immediate appeal, irrespective of the underlying merits of the section 3 denial. Therefore, the Sixth Circuit had jurisdiction to review AA�s appeal.
The California Court of Appeal opinions may be viewed at: http://www.courts.ca.gov/opinions.htm; the Ninth Circuit case at: http://www.ca9.uscourts.gov/opinions/; and the U.S. Supreme Court case at: http://www.supremecourtus.gov/opinions/08slipopinion.html.
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