ADR Case Updates
Mediator May Subsequently Serve As Arbitrator To Interpret Settlement Agreement, 06/25/2013
In Kurtin v. Elieff ( 2013) 215 Cal.App.4th 55, two business partners, Todd Kurtin and Bruce Elieff formed a partnership that consisted of several real estate businesses known as the "Joint Entities." After their relationship soured, Kurtin brought suit in 2003 to "separate" himself from Elieff. They attended a mediation to determine how Kurtin would buy out Elieff, and reached a settlement agreement that included an arbitration clause giving the mediator the power to imply reasonable terms in the event issues arose regarding the terms of the settlement.
The arbitration clause stated that the agreement was to be binding and enforceable under Code of Civil Procedure section 664.6. In the event that any party claimed that material terms were omitted, or that they failed to reach agreement on one or more such terms, or that any other defects existed that would make the settlement agreement unenforceable, the parties agreed to binding arbitration before the mediator. The mediator was to imply reasonable terms consistent with the purpose and intent of the agreement. His "sole act" was to issue an amendment to the settlement agreement "implying such additional terms, curing any ambiguity or otherwise curing any defect" that would make the agreement unenforceable.
After about $26.3 million was paid, Kurtin defaulted. Elieff brought a motion to enforce the settlement agreement to recover the balance due under section 664.6 that the trial court denied because the Joint Entities were not parties to the litigation. Kurtin then sought "arbitration" with the mediator. The mediator-turned-arbitrator rendered an "award" setting forth the amount owing to Kurtin at $24.4 million, and determined that Kurtin only had the right to foreclose on Elieff's own interests in the Joint Entities (as opposed to foreclosing on the Joint Entities themselves).
Kurtin subsequently commenced the instant litigation against Elieff and the Joint Entitles under various theories, including suing Elieff for breach of an agent's warranty of authority to bind the Joint Entities under Civil Code section 2343. The jury ultimately found in favor of Kurtin and awarded damages. The appellate court affirmed, but modified the judgment as to an order granting a new trial on the cause of action under section 2343 because of an anomaly in the jury verdicts.
When drafting settlement agreement provisions that elevate the mediator to an arbitrator in post-mediation disputes, what can we learn from this case?
First, that such a clause is permissible. However, the arbitration clause should carefully set forth the arbitrator's powers. In rejecting Elieff's res judicata challenge - that the "arbitration" precluded Kurtin from pursuing further litigation to recover the unpaid balance against Elieff under various theories to reach the Joint Entities - the court noted that the arbitrator's "sole act" was limited to interpreting the settlement agreement and, if necessary, inserting an intended but inadvertently omitted material term. Because that is all that the arbitrator did, the only "primary right" adjudicated was not Kurten's right to be made whole, but his right under the settlement agreement to have the mediator, who negotiated the settlement agreement, interpret and, if necessary, amend it. Therefore, Kurtin was able to pursue additional claims against Elieff. They were not barred by issue preclusion because of the "arbitration."
Second, less is more. Keep the arbitration clause as simple as possible. Here, the arbitration clause included a "catch-all" provision giving the arbitrator the authority to correct "any other defect" that would make the settlement agreement "unenforceable." Elieff argued that this language restricted the arbitrator's ability to act only if the alleged defect made the settlement agreement unenforceable. Since that was not the case here, Elieff claimed the arbitration award had to be set aside.
After an extensive grammatical analysis - including review of "gerund based parallel construction," and the last antecedent rule - the court rejected the argument. The arbitrator could act even if the defect he was correcting was not one that made the settlement agreement unenforceable. The catch-all surplusage was unnecessary and only gave the opposing party a clever argument.
In Addition, the Following Recent Cases Regarding Arbitration Hold:
City of Los Angeles v. Superior Court (Engineers & Architects Association), 2013 WL 3064811 (Cal. Sup. Ct., June 20, 2013) (City employees who were forced to take furloughs due to fiscal emergency may arbitrate their dispute with city over grievances);
Oxford Health Plans LLC v. Sutter, ___ U.S. ___, 132 S. Ct. 1201 (2013) (Arbitrator's decision to allow physicians under fee-for-services contract with health plan to proceed with class arbitration of pay disputes with insurance company must stand because the agreement between the parties allowed the arbitrator to construe their contract);
Brown v. Superior Court (Morgan Tire & Auto LLC), 2013 WL 2449501 (Cal. App. 6th Dist., June 4, 2013) (Employer may not force employees to arbitrate class claims for civil penalties under Labor Code Private Attorneys General Act of 2004 because a PAGA claim is necessarily a representative action to advance a predominantly public purpose that is not amenable to class arbitration nor inconsistent with the Federal Arbitration Act);
Vargas v. SAI Monrovia B, Inc., 2013 WL 2419044 (Cal. App. 2nd Dist., Div. 1, June 4, 2013) (Arbitration provision in sales contract for new car may not be enforced because provision was placed on back side of lengthy one page document);
Compare with Vasquez v. Greene Motors, Inc., (2013) 214 Cal. App. 4th 1172 (Arbitration clause in sales contract for purchase of used car is enforceable because there was only a minimal degree of procedural unconscionability);
Ronay Family Limited Partnership v. Tweed (2013) 216 Cal. App. 4th 830 (Investment Firm may enforce FINRA arbitration clause against investor as agent of securities broker, even though broker became defunct, because a nonparty to an arbitration agreement may be compelled to arbitrate where the nonparty has a sufficient identity of interests with a party to the agreement as in this case);
Serpa v. California Surety Investigations, Inc., (2013) 215 Cal. App. 4th 695 (Company's ability to revise employee handbook at its sole discretion without notice does not render arbitration agreement illusory or unenforceable because an agreement permitting one party to modify the contract does not, standing alone, make it illusory, and such authority is limited by the covenant of good faith and fair dealing implied in every contract);
Harris v. Bingham McCutchen (2013) 214 Cal. App. 4th 1399 (Law firm may not compel former associate to arbitrate claims that she was wrongfully terminated after asking for accommodations for disabling sleep disorder because under Massachusetts law, which governed contract, any waiver or limitation of statutory antidiscrimination rights must be clear and unmistakable and any ambiguity is to be construed against the law firm since it drafted the agreement); and
Acquire II, LTD v. Colton Real Estate Group (2013) 213 Cal. App. 4th 959 (Real estate group may be able to compel arbitration of investors' claims, even if only some had arbitration provisions in their governing documents, because the record did not show that the claims of the investors who agreed to arbitrate and the claims of those who did not arose out of the same transaction , or that the claims of the two groups shared common issues that created the possibility of conflicting rulings under California Code of Civil Procedure Section 1281.2).
The California opinions are posted at: http://www.courts.ca.gov/opinions.htm.
The U.S. Supreme Court case at: http://www.supremecourtus.gov/opinions/07slipopinion.html.
Steve Kruis sends periodic case updates by e-mail that summarize recent developments in the Alternative Dispute Resolution area. If you would like to be included on our distribution list, please send us an e-mail or call 619.233.1323.