ADR Case Updates
Employment Agreement Arbitration Clause Enforceable Despite Limited Number of Depositions Allowed, 02/10/10
Several recent decisions regarding Alternative Dispute Resolution have been rendered holding:
A more detailed summary and analysis is below.
In Dotson v. Amgen, Inc., (Feb. 2, 2010, Second District, Div. Six), __ Cal. Rptr. 3d __, 2010 WL 189653, Plaintiff signed an employment agreement with an arbitration clause that limited each party to take the deposition of one individual and any experts designated by the opposing party. After his dismissal, Plaintiff brought suit for wrongful termination.
Defendant moved to compel arbitration. The trial court found the arbitration clause unconscionable because it limited discovery against former employees like Plaintiff, who typically require greater access to depositions from officers, supervisors, and fellow employees, than does the employer. After declining to sever the deposition limit from the arbitration clause, the trial court denied the motion to compel. Defendant appealed.
Reversed and remanded. Arbitration is meant to streamline the litigation process to save the parties time and money. Adequate discovery does not equate to unfettered discovery. In addition, the arbitration clause in question gave the arbitrator broad discretion to order more discovery, if needed, to enable the parties to fully develop their respective claims and responses. That provision removed any taint of unconscionability from the underlying employment agreement. Therefore, the trial court erred in denying the motion to compel arbitration.
Reaching a similar conclusion at the trial level, but a different result on appeal, is Lhotka v. Geographic Expeditions, Inc., (Jan. 29, 2010, First District, Div. Three), __ Cal. Rptr. 3d __, 2010 WL 325491. After one of the Defendants clients died on a Mount Kilimanjaro hiking expedition, the decedents survivors brought a wrongful death action.
Defendant moved to compel arbitration under the limitation of liability and release form that included an arbitration provision. Denying the motion to compel, the trial court found the arbitration clause unconscionable because Defendant limited its exposure to trip costs, and informed its customers, including the decedent and his mother, that other companies imposed similar provisions.
Affirmed. Unconscionability includes the absence of a meaningful choice to one of the parties, and favorable terms to the other party. While the expedition was a recreational activity, and the decedent and his mother could have declined to participate, the Defendant presented the form as mandatory and unmodifiable. Moreover, Defendant told them that any other travel provider would impose similar terms. Thus, they lacked any meaningful choice. The terms were also unreasonable and one-sided against hikers, because they limited recovery on any claims to the cost of the expedition, thereby making the clause unconscionable and unenforceable.
In Mansouri v. Superior Court (Fleur du Lac Estates Association), (Jan. 28, 2010, Third District), __ Cal. Rptr. 3d __, 2010 WL 324403, a dispute arose between Petitioner, Zari Mansouri, and the Fleur du Lac Estates Association (HOA), after Petitioner remodeled the patio of her condominium. The HOA sent a demand letter requesting that she agree to binding arbitration before an arbitrator selected by the HOA. The letter did not refer to the three-arbitrator panel required under the governing CC&Rs, nor did it mention that the HOA would seek to compel arbitration if Petitioner refused.
The trial court granted the HOAs petition to compel arbitration, and awarded the HOA its attorney fees and costs. Plaintiff sought a petition for writ of mandate.
Petition granted. The appellate court granted an alternative writ directing the trial court to vacate is order compelling arbitration and awarding fees and enter a new order denying the HOAs petition. If a party seeks to compel arbitration under Code of Civil Procedure 1281.2, it must demonstrate that an agreement to arbitrate exists between the parties, that it demanded arbitration under that agreement, and that the other party refused to arbitrate. Here, the HOA failed to show that it asked Petitioner to arbitrate pursuant to the three-member panel required under the governing CC&Rs, and that she refused under that provision. Therefore, the trial court should have denied the HOAs petition to compel arbitration.
In Cellphone Termination Fee Cases, (Dec. 31, 2009, First District, Div. Five), __ Cal. Rptr. 3d __, 2009 WL 5174374, Plaintiffs filed a class action against Sprint Spectrum L.P. and Wirelessco L.P. alleging that Defendants cell phone handsets had been secretly locked by programming that made it impossible for consumers to switch cell phone service providers without buying a new handset. The parties settled, but were unable to agree on attorney fees and expenses for class representative counsel. Instead, they agreed to submit the award of fees to arbitration whereby the arbitrator would render an award within a range of $2,950,000 and $500,000. As a result of the objection of two class members, the trial court refused to approve the fee arbitration provision. Instead, the court conducted further hearings, found the settlement to be fair and reasonable to the class, and awarded $2.5 million in fees and costs to class counsel.
Affirmed. To protect class members, the trial court has broad discretion to determine if the proposed settlement is fair, adequate, and reasonable, not the product of fraud or collusion. Here, the trial court concluded that the settlement met that criteria, but failed to order arbitration of the fee issue because objecting class members could not participate in the arbitration, which was an abuse of discretion.
The key consideration for the trial court is the substantive fairness of the class settlement, rather than the transparency of the process by which the terms of the settlement were accomplished. Because the trial court found the settlement agreement to be fair and reasonable to the class, it should have ordered arbitration even though objectors could not participate in the arbitration proceeding. However, since Defendants failed to show that this abuse of discretion resulted in prejudice, the fee determination was valid.
In Mahnke v. Superior Court (California Fair Plan Association), (Dec. 21, 2009, Second District, Div. Seven), 180 Cal. App. 4th 565, Plaintiffs home was severely damaged in the 2008 Sylmar wildfires. Plaintiffs were unable to agree with their insurer, California Fair Plan Association, on the amount of the loss.
Under such circumstances, Insurance Code 2071 provides that each party selects a competent and disinterested appraiser who, in turn, select a competent and disinterested umpire to form a three-member panel to adjudicate the loss. California Courts have concluded that this process is governed by the California Arbitration Act, Code of Civil Procedure 1280 et seq., which requires arbitrators to submit written disclosures of potential conflicts, and requires objecting parties to serve a notice of disqualification within 15 days of receipt of the disclosure statement.
Plaintiffs selected Robert McConihay as their appraiser, who disclosed that he was serving as an expert witness for another client of Plaintiffs counsel. Two months later, Defendant objected. Plaintiffs filed suit to install McConihay as their appraiser, and Defendant responded with a petition to disqualify. In concluding that the 15-day requirement to seek disqualification did not apply, and that conflicts of interest existed, the trial court disqualified McConihay. Plaintiffs filed a petition for writ of mandate.
Petition granted. While the disclosure requirements of the Arbitration Act, and 15-day limit to seek disqualification, apply to jointly proposed umpires, they do not apply to appraisers unilaterally appointed by the parties. Thus, Defendant had no automatic and unlimited right to disqualify McConihay, Plaintiffs appraiser.
However, party-selected appraisers may be still challenged, but only for cause by a showing that a substantial business relationship exists between the appraiser and a party. No such showing was made here. The mere fact that McConihay was an expert witness for another client of Plaintiffs counsel is insufficient to establish the financial dependence needed to create the impression of bias. Accordingly, the trial court erred in excluding McConihay as Plaintiffs party-appraiser.
The opinions may be viewed at: http://www.courts.ca.gov/opinions.htm.
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