ADR Case Updates
Motions To Compel Arbitration, 06/17/09
Three decisions regarding motions to compel arbitration have been rendered since my last update of May 17, 2009, holding:
- Employer able to compel arbitration of employee�s vacation pay claim because employee waived in the employment arbitration agreement his right to a �Berman� wage claim proceeding before the Labor Commissioner;
- Arbitration between Financial Industry Regulatory Authority member representatives not required where dispute arose outside of work done in their representative capacities;
- Arbitrators may not decide jurisdiction where arbitration agreement executed prior to adoption of rule granting such authority.
A more detailed analysis is below.
In Sonic-Calabasas A, Inc., v. Moreno, (May 29, 2009, Second District, Div. Four), ___Cal. Rptr. 3d ___, 2009 WL 1492917, Plaintiff employer was able to compel arbitration of Defendant employee�s vacation pay claim. Defendant employee waived his right to a �Berman� proceeding before the Labor Commissioner in his employment arbitration agreement. The arbitration agreement was governed by the Federal Arbitration Agreement (9 U.S.C. � 1, et seq.).
Defendant filed an administrative wage claim with the Labor Commissioner pursuant to the Berman process in Labor Code � 98 et seq. Plaintiff petitioned the superior court to dismiss the Berman proceeding and compel arbitration in accordance with the parties� arbitration agreement. After the Labor Commissioner intervened, the superior court denied the petition as premature.
Reversed and remanded. The arbitration agreement contained a Berman waiver that was not precluded for public policy reasons since the statutory protections afforded in the Berman process were �only available if and when the employer appeals from an adverse administrative ruling.� Therefore, any outcome was impossible to predict, and it was equally impossible to determine whether the employee would �lose any statutory protections.� Absent a showing that enforcement of the Berman waiver would present �significant obstacles to the vindication of Moreno�s statutory wage rights,� invalidation of the arbitration agreement was not required. Thus the refusal to compel arbitration was reversed.
In Valentine Capital Asset Management, Inc., v. Agahi (May 29, 2009, First District, Div. Five), ___Cal. Rptr. 3d ___, 2009 WL 1496819, the court held that arbitration between Financial Industry Regulatory Authority (FINRA) member representatives was not required where the dispute arose outside of work done in their representative capacities. Both Plaintiff and Defendant were FINRA members. Defendant previously worked for Plaintiff, but left to form a competing company. After learning that Defendant had taken some of its clients, Plaintiff sued Defendant for misappropriation of trade secrets. Defendant sought to compel arbitration under FINRA Rule 13200, which requires arbitration of claims that arise out of the �business activities of a member or an associated person,� which are between �members, members and associated persons, or associated persons.� The trial court denied Defendant�s motion to compel.
Affirmed. Arbitration would be required only if the controversy arose out of business associated with the FINRA member. Here, the dispute arose by virtue of Defendant misappropriating trade secrets from Plaintiff and not by virtue of representing FINRA clients. Thus, arbitration was not required, and refusal to compel arbitration was proper.
In Gilbert Street Developers, LLC v. La Quinta Homes, LLC (June 11, 2009, Fourth District, Div. Three), ___Cal. Rptr. 3d ___, 2009 WL 1627688, the court held that Arbitrators may not decide jurisdiction where the underlying arbitration agreement was executed prior to adoption of the rule granting such authority. In 1998, Tony Yee Investments and La Quinta Homes established Gilbert Street Development to purchase and manage real property in Garden Grove. Prince Properties joined the company in 1999. The company�s operating agreement contained an arbitration clause requiring that all disputes were to be �conducted in accordance with the Rules of the American Arbitration Association (AAA) existing at the date thereof.� Later, in 2000, the AAA adopted R-8(a), a new rule that authorized arbitrators to decide their own jurisdiction.
After a dispute arose between Yee and La Quinta, the arbitrators determined that they had jurisdiction, and entered and award in favor of Yee. Finding that the arbitrators were not authorized to determine jurisdiction because R-8(a) was enacted after the execution of the operating agreement, the trial court refused to confirm the award.
Affirmed. The parties to an arbitration agreement must �clearly and unmistakably agree� to authorize the arbitrators to determine their own jurisdiction. Otherwise, jurisdiction is to be decided by the courts. Here, AAA rules did not authorize arbitrators to adjudicate jurisdiction until after the date of the operating agreement, which may not incorporate the �possibility of a future rule.� Because R-8(a) was adopted well after the operating agreement, the arbitrators did not have the authority to determine their own jurisdiction, and the trial court properly denied confirmation of the arbitration award.
The opinions may be viewed at: http://www.courts.ca.gov/opinions.htm.
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