ADR Case Updates
Language in Arbitration Agreement Determines if Employee May Initiate Class Arbitration and Whether Trial Court or Arbitrator Decides Issue; And More, 12/10/2014
Employee's Agreement To Submit All Disputes To Arbitration Did Not Authorize Class Arbitration Because It Did Not Expressly So Provide
In Network Capital Funding Corp. v. Papke (2014) 230 Cal. App. 4th 503, Erik Papke went to work for Network Capital and signed an "Employment and Acknowledgment Agreement" that included an arbitration provision of all employment-related disputes. A few years later, Papke initiated class arbitration of wage and hour claims. Network Capital objected on the grounds that the arbitration agreement did not authorize class arbitration, and sought a judicial declaration as well as an order enjoining any class relief. The trial court granted an injunction and determined that the issue of class arbitrability was for the court to decide, not the arbitrator. Then the trial court found that the arbitration agreement did not address class arbitration, and concluded that the mere agreement to arbitrate all employment-related disputes did not constitute an agreement between the parties to allow class arbitration.
Affirmed. The trial court must determine which claims are covered by an arbitration agreement unless the parties clearly and unmistakably agreed to have the arbitrator decide the question. Because the arbitration clause did not designate the arbitrator to determine whether the agreement authorized class arbitration, the trial court correctly decided the issue.
The trial court also properly concluded that the agreement did not authorize class arbitration. A party may not be compelled to submit to class arbitration absent a contractual basis for concluding the party agreed to class arbitration. A mere agreement to submit all disputes to arbitration is insufficient. Here, the parties' arbitration agreement is silent on class arbitration, which falls far short of demonstrating a clear agreement to arbitrate class claims.
When Agreement Is Silent On The Issue, Trial Court (Not Arbitrator) Must Determine If Employee May Bring Wage & Hour Claims On A Classwide Basis
In Garden Fresh Restaurant Corp. v. Superior Court (Moreno), (2014) 231 Cal. App. 4th 678, Alicia Moreno worked for Garden Fresh Restaurant Corp. for seven years and signed two arbitration agreements during her employment. She filed a putative class action and sought representative relief under the Private Attorney General Act of 2004 against Garden Fresh for wage and hour claims. The arbitration agreements were silent as to whether they contemplated class or representative arbitration. Garden Fresh filed a petition to compel arbitration of Moreno's individual claims and dismiss the class and representative claims. Moreno argued that the arbitrator, not the trial court, should decide whether she could proceed on a class and representative basis. The trial court granted the petition to compel arbitration, but referred the entire matter to the arbitrator, including the issue of class and representative arbitration. Garden Fresh filed a petition for writ of mandate, seeking an order for the trial court to decide those issues.
Petition granted. An arbitrator has the power to decide only those issues that the parties authorize. Trial courts should decide a narrow range of gateway issues regarding questions or arbitrability, unless the parties clearly provide otherwise. Arbitrators should determine subsidiary questions, which "grow out of the dispute and bear on its final disposition." The availability of classwide arbitration is a gateway issue for the court, unless the parties clearly intended otherwise. The shift from individual to class arbitration would fundamentally change the nature of the proceedings and considerably expand its scope. Moreover, if such significant decisions were left to the arbitrator, they would be unreviewable. Given the fundamental difference between individual and class or representative arbitration, the appellate court granted the petition and ordered the trial court to decide whether the parties' arbitration agreement contemplated class or representative arbitration.
Practice Pointer. As these two cases demonstrate, the parties' intent controls. If you are drafting an arbitration provision for a client and want the arbitrator to make decisions regarding gateway issues, make it clear that the parties agree to delegate such authority to the arbitrator. So also, specify the intention of the parties regarding class and representative arbitration. Courts will defer to the express contractual provisions in the arbitration clause.
Arbitration Clause In Employee's Individual Employment Agreement Is Enforceable When Consistent With Collective Bargaining Agreement
In Willis v. Prime Healthcare Services, Inc., (2014) 231 Cal. App. 4th 615, Maucabrina Willis was hired by Centinela Freeman Health System to work at a hospital, and signed forms agreeing to arbitrate "any and all" employment related disputes with her employer. Willis also became a union member and was covered by the collective bargaining agreement with Centinela Freeman. Prime Healthcare Centinela LLC acquired Centinela Freeman and was assigned its interests in all agreements with the hospital. After Willis was terminated from employment, she sued Prime Healthcare Services, Inc., the parent company of Prime Healthcare Centinela LLC. Willis alleged that the electronic system used to calculate her payroll computed less time than the total hours actually worked. Prime Healthcare petitioned to compel arbitration. The trial court denied the petition, finding that the individual agreement containing the arbitration agreement was unenforceable because it was inconsistent with the collective bargaining agreement.
Reversed in part. Cases involving interstate commerce are governed by the Federal Arbitration Act, and federal policy favors enforcement of arbitration agreements. While an individual contract may not be used to limit or condition the terms of a collective bargaining agreement, an individual agreement may be enforced when it is not inconsistent with the collective bargaining agreement. Here, there was nothing in the collective bargaining agreement or the individual arbitration agreement regarding the electronic system of which Willis complained. Since the individual and collective bargaining agreements were not inconsistent, Willis' claims were covered under the "any and all" employment dispute language in the arbitration clause of her individual agreement. Therefore, the appellate court reversed the trial court's order denying the petition to compel arbitration.
Sirius XM Cannot Compel Car Buyer To Arbitrate Claims Because Use Of Trial Subscription Did Not Manifest His Assent To Be Bound By Arbitration Agreement
In Knutson v. Sirius XM Radio, Inc., 771 F. 3d 559 (9th Cir. 2014), Erik Knutson purchased a Toyota that included a 90-day trial subscription to Sirius XM satellite radio. After activating his subscription, Sirius sent him a "Welcome Kit" that contained a customer agreement with an arbitration clause. During his trial subscription, Sirius made three unauthorized calls to Knutson's cellphone. Knutson then filed a putative class action against Sirius alleging violations of the federal Telephone Consumer Protection Act. Sirius moved to compel arbitration under the Federal Arbitration Act. Knutson opposed arbitration arguing that he did not consent to enter a binding agreement with Sirius, and certainly not one with an arbitration provision. The district court found that the parties entered into the agreement, compelled arbitration, and dismissed Knutson's action.
Reversed and remanded. While federal policy favors arbitration, it must be based upon an enforceable contract to arbitrate. State contract law may invalidate an agreement to arbitrate. Under California law, mutual assent is an essential element of contract formation. Manifestation of that assent may be in writing, by spoken word, or through conduct. To determine if a contract exists, courts must find the outward manifestations of consent that would lead a reasonable person to conclude that the offeree has assented to the agreement. Here, when Knutson purchased a vehicle from Toyota, he was unaware that he was also entering into an agreement with Sirius that included an arbitration clause. His continued use of Sirius' satellite service during the 90-day trial period did not manifest his assent to be bound to the agreement. Therefore, the arbitration agreement was unenforceable since Sirius failed to show that Knutson expressly or impliedly assented to it. The dismissal was reversed and the case remanded back to the district court for further proceedings.
Arbitrator's Attorney Fee Award Is Confirmed, Even Though Arbitrator Applied "Prevailing Party" Definition Under Civil Code, Rather Than As Defined In Arbitration Agreement
In Safari Associates v. Superior Court (Tarlov), (2014) 231 Cal. App. 4th 1400, Safari Associates entered into a release agreement with its former managing general partner, Alan Tarlov. The release included an arbitration provision that empowered the arbitrator to award attorney fees to the prevailing party, defined as the party that "obtains substantially the relief sought in arbitration." A dispute arose that was submitted to arbitration. Safari sought $768,228 from Tarlov, but recovered only $152,611. The arbitrator awarded Safari $211,620 in attorney fees applying the definition of prevailing party under Civil Code Section 1717 ("the party who recovered a greater relief") instead of the definition under the arbitration agreement (obtaining "substantially the relief sought"). After Tarlov filed a motion to correct the award, the trial court found error in the arbitrator's application of Section 1717, corrected the award, and remanded it back to the arbitrator to re-determine the amount of attorney fees. Safari filed a petition for writ of mandate with the appellate court.
Petition granted. Under Code of Civil Procedure Section 1286.6, a trial court shall correct an arbitration award if it exceeds the arbitrator's power. Arbitrators do not exceed their power by reaching erroneous conclusions of fact or law. On the other hand, arbitrators do exceed their powers when the parties have "explicitly and unambiguously" limited those powers in the arbitration clause. When the recovery or non-recovery of fees is one of the contested issues, the arbitrator's decision is final and cannot be reviewed for error. Here, the arbitration provision expressly granted the arbitrator the power to award attorney fees to the prevailing party. While the arbitration clause included a definition of prevailing party, the arbitration clause did not limit the arbitrator's power to award attorney fees to the prevailing party. The trial court's order correcting the arbitration award was vacated, and the trial court was ordered to confirm the award and enter judgment thereon.
Practice pointer. If the parties to an arbitration agreement want to limit the arbitrator's power to award fees based upon certain criteria, they must explicitly and unambiguously limit that power in the arbitration clause.
Trial Court Must Compel Arbitration Of Dispute Under Broadly Worded Arbitration Clause In Ground Lease, Even If Dispute Is Not Yet "Ripe"
In Bunker Hill Park Ltd. v. U.S. Bank National Association, (2014) 231 Cal. App. 4th 1315, Bunker Hill Park Limited owned a parcel of improved real property in downtown Los Angeles that was subject to a 99-year lease with U.S. Bank National Association that expired in 2077. U.S. Bank owned office buildings on the land, and had entered into various subleases. An amendment to the ground lease contained an arbitration agreement requiring the parties to arbitrate "any and all disputes, controversies, or claims" concerning the ground lease. In a dispute between Bunker Hill and U.S. Bank over rent under the ground lease, U.S. Bank asserted that Bunker Hill would take title subject to the subleases if the ground lease was terminated before 2077. Bunker Hill claimed that subleases would automatically terminate upon termination of the ground lease, and filed a petition to compel arbitration of the sublease issue. U.S. Bank opposed the petition on the grounds that no "actual arbitrable controversy" existed because there was no indication the ground lease would terminate early. Finding that no actual controversy existed, the trial court denied the petition.
Reversed. Courts may decline to compel arbitration only in limited circumstances once it is determined that a valid "agreement to arbitrate a controversy" exists. While "ripeness" is a requirement in a judicial forum, no such requirement exists in an arbitral forum. Here, the broadly worded arbitration clause required arbitration of "any and all disputes, controversies, or claims" concerning the ground lease. This language encompassed both legally justiciable and non-justiciable disputes, and did not limit arbitration to only disputes that were "ripe." The trial court's order denying the petition to compel arbitration was reversed, and the case remanded with direction for the trial court to compel arbitration.
The California opinions are posted at: click here, and the Ninth Circuit opinions at: click here.
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