ADR Case Updates
HOA Not Bound By Arbitration Provision in CC&R's, 08/04/2010
California and Federal Courts have rendered the following recent decisions regarding Alternative Dispute Resolution:
A more detailed summary and analysis is below.
In Pinnacle Museum Tower Association v. Pinnacle Market Development (US) LLC (July 30, 2010, Fourth District, Div. One), __ Cal. Rptr. 3d __, 2010 WL 2977508 Defendant developer constructed and sold condominiums in a common interest project. Defendant recorded a declaration of covenants, conditions, and restrictions (CC&R's) forming Plaintiff homeowner's association (HOA). The CC&R's included an arbitration provision requiring the HOA and developer to arbitrate any construction defect claims, and providing that the CC&R's could not be amended without the developer's written consent. The provision also stated that each owner agreed to waive the right to a jury trial as to construction defect claims.
After the HOA filed a construction defect action, the developer moved to compel arbitration. The trial court denied the motion.
Affirmed. A divided court of appeal panel held that when an arbitration provision in CC&R's is recorded by the developer, and may not be changed without the written consent of the developer, an agreement sufficient to waive the right to a jury trial does not exist.
In Rent-A-Center West, Inc., v. Jackson,___ U.S. ___, 130 S. Ct. 1758 (June 21, 2010), Antonio Jackson filed a discrimination suit against Rent-A-Center, his former employer. Pursuant to an arbitration agreement that Jackson had signed as a condition of his employment, Rent-A-Center filed a motion to compel arbitration. The arbitration agreement provided for arbitration of discrimination claims, and gave the arbitrator exclusive authority to resolve any issues relating to the agreement's enforceability, including claims that any part of the agreement was void or voidable.
Jackson opposed the motion on the basis that the agreement was unconscionable under Nevada law and, therefore, unenforceable. The district court granted the motion to compel. The Ninth Circuit reversed.
Reversed. Under the Federal Arbitration Act, where an agreement to arbitrate includes a provision that the arbitrator will determine the enforceability of the agreement, and a party challenges specifically the enforceability of that particular provision, the district court may consider the challenge. However, if a party challenged the enforceability of the agreement as a whole, the challenge is for the arbitrator to decide.
Here, Jackson did not challenge the specific delegation provision until his brief to the Supreme Court. Therefore, his challenge was too late, and the Ninth Circuit erred in reversing the district court's order granting the motion to compel.
In Valencia v. Smyth, (June 1, 2010, Second District, Div. One), 110 Cal. Rptr. 3d 180, Plaintiffs purchased a residence using the standard residential purchase contract published by the California Association of Realtors. After a dispute arose, Plaintiffs filed suit against sellers and the real estate brokers. Defendant Smyth, the seller's broker, filed a motion to compel arbitration under the arbitration provision in the contract. The trial court denied the motion under CCP § 1281.2(c) of the California Arbitration Act (CAA) because of the possibility of conflicting rulings on a common issue of law or fact. Smyth appealed claiming that the contract adopted the procedural provisions under the Federal Arbitration Act (FAA), which does not provide the trial court with discretion to deny a motion to compel because of the possibility of conflicting rulings on a common issue of law or fact.
Affirmed. A choice-of-law provision requiring application of California law is sufficient to avoid the FAA's procedural provisions even though the parties' contract may involve interstate commerce. The contract in question gave the parties the right to discovery under the CAA, specifically referencing its procedural provisions, while also requiring the contract to be interpreted in accordance with the FAA. However, the FAA obligates federal courts to apply state law when interpreting an arbitration clause, and the FAA's procedural provisions do not apply in state court unless the parties expressly adopt them. Here, the contract was to be interpreted under the FAA, while referencing the California Code of Civil Procedure. Therefore, the parties did not expressly adopt the FAA's procedural provisions, but incorporated the CAA's procedural provisions. Therefore, the trial court had the discretion to deny the motion to compel under CCP § 1281.2(c).
In Molecular Analytical Systems v. Ciphergen Biosystems, Inc., (July 9, 2010, Sixth District), __ Cal. Rptr. 3d __, 2010 WL 2698505, Plaintiff executed a license agreement and settlement agreement (containing arbitration clauses) with Defendant to resolve prior litigation. Later, Plaintiff sued Bio-Rad Laboratories, Inc., alleging Defendant assigned its rights under the license agreement to Bio-Rad without Plaintiff's consent, and that Defendant was receiving revenue from Bio-Rad without paying Plaintiff the required royalties. Defendant and Bio-Rad moved to compel arbitration. Plaintiff opposed the motion on the basis that it lacked an arbitration agreement with Bio-Rad. The trial court denied the motion
Reversed and remanded. In general, a nonsignatory to an arbitration agreement may not be compelled to arbitrate. However, a nonsignatory may invoke an arbitration clause against a signatory under the doctrine of equitable estoppel if the claims against the nonsignatory are “intimately founded in and intertwined with the underlying contractual obligations.” Here, Plaintiff's claims against nonsignatory Bio-Rad were each subject to arbitration because they derived from, relied on, or were intimately intertwined with the contract between Plaintiff and Defendant that included an arbitration agreement. Therefore, Plaintiff could not avoid arbitrating its claims against Bio-Rad.
IN ADDITION, THE FOLLOWING ADDITIONAL CASES HOLD:
Lagstein v. Certain Underwriters at Lloyd's, London, 607 F. 3d 634 (Ninth Cir., June 10, 2010), (court errs in vacating arbitration award based on conclusion that its size was excessive ($6.4M) and in manifest disregard of law);
Toyo Tire Holdings of America, Inc., v. Continental Tire North America, Inc., ___ F. 3d ___, WL 2496133 (Ninth Cir., June 17, 2010), (district court may grant preliminary injunction to preserve status quo while parties await arbitration proceeding);
Greenspan v. LADT, LLC, (June 25, 2010, Second District, Div. One), __ Cal. Rptr. 3d __, 2010 WL 2542225 (pursuant to agreed upon arbitration rules [JAMS], arbitrator's determination that joint and several liability is arbitrable issue cannot be reviewed on appeal);
Zamora v. Lehman, (June 29, 2010, Second District, Div. One), 111Cal. Rptr. 3d 335,(parties waive right to compel arbitration where they fail to file motions until after discovery is conducted, acting inconsistently with contractual rights); and
La Serena Properties v. Weisbach (July 15, 2010, First District, Div. Four), __ Cal. Rptr. 3d __, 2010 WL 2776108 (arbitrator who allegedly failed to make conflict of interest disclosure enjoys absolute immunity).
The California opinions are posted at: http://www.courtinfo.ca.gov/opinions/; the Ninth Circuit case at: http://www.ca9.uscourts.gov/opinions/; the U.S. Supreme Court case at http://www.supremecourtus.gov/opinions/07slipopinion.html.
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