ADR Case Updates
Exclusion of Essential Party is Error, 12/12/2010
A more detailed summary and analysis is below.
In Hoso Foods, Inc., v. Columbus Club, Inc., (Dec. 7, 2010, Second District, Div. Two), __ Cal. Rptr. 3d __, 2010 WL 4945666, Defendant leased an assembly hall to Plaintiff. Because city ordinances did not allow Plaintiff to use the hall for its intended purpose, Plaintiff sued Defendant and its president, Daniel Rodela, for breach of contract and fraud. The parties stipulated to arbitration.
Over Defendant�s objection, Rodela remained a party throughout the arbitration proceedings. Rodela was the only representative permitted to participate, and was not dismissed until after he testified. Although Eugene Teft, Defendant�s secretary, had drafted the subject lease and participated in the negotiations, he was precluded from attending, except when he testified.
After the arbitrator awarded over $1.2 million in damages to Plaintiff, Defendant petitioned to vacate the award on the basis that the arbitrator exceeded his authority in conducting the arbitration by excluding Teft. The trial court denied the petition.
Reversed. A divided appellate court held that exclusion of an essential party to an arbitration proceeding is beyond an arbitrator�s authority and interferes with a party�s right to fair hearing. As such, the trial court erred in denying the petition to vacate the award.
In Burton v. Cruise, (Dec. 8, 2010, Fourth District, Div. Three), __ Cal. Rptr. 3d __, 2010 WL 4969419, Plaintiff consulted Defendant, a plastic surgeon, for a liposuction procedure. The parties signed Defendant�s preprinted form agreeing to arbitration, providing that either party could submit an arbitration demand in writing.
After the procedure, Plaintiff sued Defendant for medical malpractice alleging he perforated her viscus and small bowel. Plaintiff requested a trial date, the parties engaged in extensive discovery for six months, and exchanged expert lists. Then, within two months of trial, Plaintiff demanded arbitration. Defendant opposed the motion. Finding Plaintiff had waived her right to arbitration and prejudice to Defendant, the trial court denied the motion.
Affirmed. Plaintiff waived the contractual right to arbitrate her medical malpractice claim by waiting until the virtual eve of trial, long after discovery, including expert discovery, had been completed before demanding arbitration. In addition, the Defendant suffered prejudice by losing whatever time and cost benefits could have been realized through arbitration, and by focusing his strategy and efforts on a jury trial instead of an arbitration panel. Therefore, the factual record supports the trial court�s finding of waiver and prejudice.
In Abaya v. Spanish Ranch I, LP, (Nov. 12, 2010, First District, Div. Four), 189 Cal. App. 4th 1490, several residents of Defendant mobile home park filed suit alleging the owners failed to maintain the common areas and facilities. Defendant moved to compel arbitration or judicial reference on the basis that many, but not all, residents had signed leases containing an arbitration provision. The residents opposed the motion arguing that compelling arbitration risked conflicting rulings on common issues of law and fact between those residents who arbitrated their claims and those who would adjudicate their claims in court. The trial court denied the motion to compel arbitration.
Affirmed. Under Code of Civil Procedure Section 1281.2, the trial court has discretion to deny arbitration where there is a possibility of conflicting rulings on a common issue of law or fact. Here, 89 to 100 residents had lease agreements with an arbitration clause, while 20 to 31 residents did not. Yet, all residents alleged the same claims � that the Park failed to maintain the common areas and that such deficiencies violated the law � thereby creating the possibility of inconsistent rulings on those issues in different forums. Therefore, the trial court properly denied the motion to compel arbitration.
In Laswell v. AG Seal Beach LLC, (Nov. 9, 2010, Second District, Div. One), 117 Cal. Rptr. 3d 310, Plaintiff sued Defendant nursing home alleging elder abuse. Defendant filed a petition to compel arbitration asserting that a valid arbitration agreement had been signed by the parties providing for arbitration of any disputes arising out of the services provided by the facility. Plaintiff opposed the motion because of the presence of third-party defendants not subject to arbitration. The trial court denied the petition on that basis.
Reversed and remanded. While California has a strong public policy favoring arbitration, trial court�s have discretion to deny arbitration if there are third parties not subject to arbitration on claims arising out of the same or related transactions, and a possibility of conflicting rulings of common issues of law or fact exist. The term �third party� means a party that is not bound by the arbitration agreement. Here, although the arbitration agreement defined �facility� as Country Villa Seal Beach Healthcare Center, all of the defendants were related to Country Villa and thereby bound by the agreement. As such, none of the defendants were �third parties� under Code of Civil Procedure Section 1281.2 (c) and the exceptions thereunder did not apply. Thus, the trial court should have granted the petition to compel arbitration.
In Trivedi v. Curexo Technology Corp., (Oct. 20, 2010, First District, Div. Four), 116 Cal. Rptr. 3d 387, Plaintiff sued his employer for discrimination under the Fair Employment and Housing Act after his termination. Defendant moved to compel arbitration based upon the parties� employment agreement whereby the parties agreed to arbitrate under the American Arbitration Association (AAA) rules. The arbitration clause allowed for recovery of attorney fees and costs to the prevailing party. Plaintiff opposed the motion on the basis that enforcement of the clause would be unconscionable, and sought to stay enforcement to allow a jury trial. Finding the clause was both procedurally and substantively unconscionable, the trial court denied the motion.
Affirmed. Both procedural and substantive unconscionability must be present for an arbitration clause to be deemed unenforceable. Procedural unconscionability exists here because the Defendant failed to give Plaintiff a copy of the AAA rules referenced in the arbitration clause. Substantive unconscionability exists because the arbitration clause provides for an award of attorney fees and costs to the prevailing party. Under FEHA, an unsuccessful plaintiff may only be required to pay fees and cost if the action is found to be frivolous, in bad faith, or without foundation. Thus, forcing Plaintiff to arbitrate would place him at greater risk than if he brought his FEHA claim in court. The trial court correctly denied the motion to compel arbitration.
Finally, in Benjamin, Weill & Mazer v. Kors, (Oct. 12, 2010, First District, Div. Two), 116 Cal. Rptr. 3d 677, Plaintiff law firm sued a former client for unpaid fees and costs. The trial court granted Defendant�s motion to compel arbitration, and Sean SeLegue was designated chief arbitrator. The panel awarded Plaintiff $102,287.39 in unpaid fees, costs, and interest. Defendant sought to vacate the award claiming that SeLegue had not disclosed that he was representing a prominent law firm in a fee dispute against a former client, and that representation of law firms in attorney-client fee disputes was a main feature of his practice. The trial court confirmed the award notwithstanding Defendant�s objection.
Reversed and remanded. Code of Civil Procedure Section 1281.9 (a) requires prospective arbitrators to timely disclose �all matters that could cause a person aware of the facts to reasonably entertain doubt that the proposed neutral arbitrator would be able to be impartial.� Here, a person could entertain a reasonable doubt of SeLegue�s lack of impartiality based on his dependence of business from law firms in litigation with former clients. Also, SeLegue�s extreme involvement in the area of professional responsibility in his legal practice was a factor that could create an impression of possible bias. Thus, he had a duty to disclose the nature of his practice and his current involvement of representing a firm in fee dispute with a former client. Given that he did not do so, the matter was remanded to the trial court to grant Defendant�s motion to vacate.
The opinions are posted at: http://www.courts.ca.gov/opinions.htm.
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