ADR Case Updates
Client Cannot Sue Lawyer for Acts in Mediation, "No Rehire" Provision in Employment Settlement Agreement Invalidated, and More, 06/10/2015
Mediation Confidentiality Statutes Bar Malpractice Claim Where Former Attorney's Alleged Misconduct Occurred In Mediation And Client Cannot Circumvent Confidentiality By Advancing Inferences Of Acts Or Omissions During Mediation
In Amis v. Greenberg Traurig LLP (2015) 235 Cal. App. 4th 331, John Amis was a minority shareholder and officer in Pacific Marketing Works, Inc., a company that exported women's clothing to Japan. Pacific sued Path Productions, LLC for breach of contract. Path filed a cross-complaint against Pacific, Amis, and other shareholders for breach of contract and other claims. At the same time, a Japanese company, Sojitz Corporation, expressed interest in purchasing Pacific's assets. Greenberg Traurig, LLP (GT) represented Sojitz in the proposed transaction. Amis subsequently retained GT to represent the Pacific defendants in the Path litigation. The parties participated in two mediation sessions that resulted in a settlement whereby the Pacific parties agreed, jointly and severally, to pay $2.4 million to Path. Shortly thereafter, Sojitz declined to purchase Pacific's assets, leaving Amis and the other Pacific shareholders without sufficient funds to pay the settlement. Amis sued GT for malpractice claiming that GT failed to advise him of the risks involved in the underlying settlement. GT moved for summary judgment under the mediation confidentiality statutes since Amis admitted that the alleged malpractice was committed in mediation. Evidence of any advice given by GT to Amis was therefore inadmissible and GT could not produce evidence to defend itself. The trial court agreed on both counts and entered summary judgment for GT.
Affirmed. Mediation confidentiality statutes (codified in Evidence Code Section 1115 et seq.) bar a malpractice claim where the former attorney alleges that the misconduct occurred in mediation. Moreover, the client cannot circumvent mediation confidentiality by advancing inferences about his former attorney's alleged acts or omissions during the underlying mediation (i.e., the client would not have signed the settlement agreement but for the attorney's negligence). To allow the client to do so would turn mediation confidentiality into a sword by which the client could claim that he received negligent legal advice (or failed to received competent advice) during mediation, while precluding the lawyer from rebutting that inference by explaining the context and content of the advice actually given. Therefore, the trial court properly refused to entertain Amis's proffered inference of malpractice in granting GT's summary judgment motion.
Divided Ninth Circuit Invalidates A "No Rehire" Provision In Employment Settlement Agreement Whereby Plaintiff Waived His Right To Work For Defendant As Restraint On Plaintiff's Professional Practice As Physician Under Business & Professions Code § 16600
In Golden v. California Emergency Physicians Medical Group, 782 F.3d 1083 (9th Cir. 2015), a divided Ninth Circuit invalidated a "no rehire" provision in an employment settlement agreement whereby the Plaintiff, Donald Golden, M.D., waived his right to work for defendant in the future. The majority found this to be a restraint on Plaintiff's professional practice as a physician under Business & Professions Code § 16600. Golden was a doctor affiliated with Defendant, Emergency Physicians Medical Group, a large consortium of over 1,000 physicians that manages or staffs emergency rooms, inpatient clinics, and other facilities in California and other states. Golden sued Defendant in California Superior Court in Alameda County alleging racial discrimination along with other state and federal claims after his staff membership was terminated at one of Defendant's facilities. Defendant removed to federal court based on original subject-matter jurisdiction under 28 U.S.C. § 1331. The parties ultimately stipulated to a settlement in open court. Plaintiff agreed, inter alia, to a "no-employment provision" in which he waived his right to work for Defendant or any facility Defendant may acquire in the future. Golden later refused to sign a formal settlement agreement and tried to avoid the settlement. The district court enforced the settlement.
Reversed and remanded. Business & Professions Code § 16600 states that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." It is well established that this section invalidates covenants not to compete, but is not limited to only non-compete clauses. Here, section 16600 applied to the "no employment" (also known as a "no rehire") provision in Golden's settlement agreement because it constituted a "restraint of a substantial character" on Golden's ability to pursue his profession as a medical doctor. Thus, the matter was remanded to the district court to apply the correct legal principle.
Justice Kozinski issued a strong dissent, claiming that Defendant paid Dr. Golden a large sum of money to part ways, and that Dr. Golden has many opportunities to continue working in the medical profession. He just cannot work for Defendant or one of its affiliates. If this violates section 16600, few employment disputes could ever be settled.
Compelling Arbitration in Employment Dispute Was Not Error When Unconscionable Attorney Fee Provision Severed From Arbitration Agreement
In Serafin v. Balco Properties LTD., LLC (2015) 235 Cal. App. 4th 165, the appellate court held that compelling arbitration in an employment dispute was not error when an unconscionable attorney fee provision was severed from the arbitration agreement. Madeline Serafin was hired by Balco Properties Ltd., LLC, and signed a separate two-page arbitration agreement entitled "MANDATORY ARBITRATION POLICY." After her termination, Serafin sued Balco for wrongful termination, harassment, and defamation. The trial court granted Balco's motion to stay the litigation and compel arbitration after severing from the arbitration agreement an attorney fee provision it found unconscionable. After a six-day arbitration hearing, the arbitrator rendered a 59-page "Arbitration Decision and Award" finding in favor of Balco on all employment-related claims. The trial court confirmed the award and entered judgment against Serafin, who appealed claiming the trial court erred in compelling arbitration because the arbitration agreement was procedurally and substantively unconscionable.
Affirmed. In a motion to compel arbitration, the proponent must prove the existence of an agreement to arbitrate. The opposing party must prove any defense, such as unconscionability. Here, the arbitration agreement was not hidden, but clearly labeled in capitalized letters and set out in a separate, easy-to-read two-page document that established the existence of an arbitration agreement. The trial court severed the unconscionable attorney fee provision since attorney fees are generally available to prevailing employees only - not employers - under California's Fair Employment and Housing Act, Govt. Code § 1296 et seq.). The degree of procedural unconscionability was minimal. Under the sliding scale approach, where procedural unconscionability is minimal, the agreement is unenforceable only if the degree of substantive unconscionability is high. Because the substantively unconscionable attorney fee provision was severed by the trial court before the arbitration commenced, no substantive unconscionability was shown. Therefore, the arbitration agreement was not unconscionable. The trial court did not err in compelling arbitration and confirming the award.
Order Compelling Arbitration Reversed Because Trial Court Failed to Rule on Threshold Question of FAA's Applicability to Arbitration Agreement
In Garcia v. Superior Court (Southern Counties Express, Inc.), (2015) 236 Cal. App. 4th 1138, Petitioners were truck drivers engaged by Southern Counties Express, Inc., to haul shipping containers from the ports of Los Angeles and Long Beach throughout Southern California. Each of the drivers signed either an "Independent Contract" or a "Vehicle Lease" agreement. Both contained an arbitration agreement. Eduardo Garcia and other drivers (collectively, "Garcia") filed administrative claims with the California Division of Labor Standards Enforcement alleging Labor Law violations. Southern Counties successfully moved to compel arbitration based upon the arbitration clauses in the agreements.
Petition granted in part and remanded. Public policy favors arbitration. Under both the Federal Arbitration Act (9 U.S.C. § 1, et seq.) and the California Arbitration Act (Code Civ. Proc., § 1280 et seq.), arbitration agreements are valid and enforceable absent grounds for revocation of contract. Where the FAA applies, the federal policy favoring arbitration preempts any contrary state law. Despite the presumption of arbitration under the FAA, Section 1 of that statute expressly exempts certain contracts including those "of employment of ... [a] class of workers engaged in foreign or interstate commerce." The trial court failed to rule on the threshold question of whether the FAA applied to Garcia's claims. If Garcia was engaged in interstate commerce, then the FAA would not apply to Garcia's claims. In that instance, the California Arbitration Act would apply. Under California law, arbitration agreements may not be compelled to defeat Labor Code enforcement. To the extent the trial court failed to determine if Section 1 of the FAA exempted Garcia's claim, the order compelling arbitration was reversed and the matter remanded to the trial court for further consideration.
Employee's Title VII Claim Must Be Arbitrated Because He Knowingly Waived His Right to Judicial Forum by Signing Acknowledgment
In Ashbey v. Archstone Property Management, Inc., 785 F. 3rd 1320 (9th Cir. 2015), Michael Ashbey was employed by Archstone Property Management in 1996. In 2009, he signed a document acknowledging receipt of Archstone's Policy Manual that contained a detailed Dispute Resolution Policy (DRP) explaining Archstone's arbitration policy. The DRP stated it was governed by the Federal Arbitration Act (9 U.S.C. § 1, et seq.) and covered all disputes, including Title VII claims under the Civil Rights Act of 1964 (42 U.S.C. § 2000e, et seq.). The Acknowledgment twice mentioned the Company Policy Manual and the DRP. After his termination, Ashbey sued Archstone in state court for retaliation in violation of Title VII. Archstone removed the case to federal court based on diversity and federal question (Title VII) jurisdiction, and moved to compel arbitration because Ashbey knowingly waived his right to a jury trial of his Title VII claim. The district court denied the motion.
Reversed and remanded. Under the Federal Arbitration Act, the party seeking to compel arbitration must (1) establish a valid, written agreement to arbitrate; and (2) the agreement to arbitrate must encompass the dispute in question. In matters arising under Title VII and other federal statutes, the holdings in Kummetz v. Tech Mold, Inc., 152 F.3d. 1153, 1155 (9th Cir. 1998) and Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 769 (9th Cir. 1997), limit the enforcement of arbitration agreements by requiring a showing that the plaintiff "knowingly" waived the right to a jury trial. Here, Archstone met both requirements to compel arbitration of Ashbey's Title VII claim. Archstone's Policy Manual contained a detailed DRP that included a written arbitration provision. The Acknowledgement twice mentioned the Company Policy Manual and the DRP. Anyone who reviewed the DRP would realize that it was an unambiguous agreement to waive the right to a jury trial of various claims, including those under Title VII and equivalent state-law claims. Therefore, the district court erred in denying Archstone's motion to compel arbitration.
In Proposition 65 Case, Trial Court May Not Unilaterally Modify Terms of Settlement Agreement by Reducing Stipulated Attorney Fee Award and Force Parties to Accept It
In Leeman v. Adams Extract & Spice, LLC, (2015) 236 Cal. App. 4th 1367, Dr. Whitney Leeman filed a private enforcement action against Adams Extract & Spice, LLC under Proposition 65 (Health and Safety Code Section 25249.5 et seq.). Dr. Leeman alleged that Adams failed to provide the requisite warnings that its food coloring products contained a chemical known to cause cancer or reproductive defects. The parties ultimately reached a settlement including a stipulated award of $72,500 for attorney fees and costs. The trial court unilaterally reduced the amount by approximately half. The parties moved to modify the award to reflect the original amount, but the court denied the motion without comment.
Reversed and remanded. Code of Civil Procedure Section 664.6 allows the court to enter judgment pursuant to the terms of a settlement agreement if the parties stipulate orally before the court or in writing to settle all or part of a case. While the court may reject a stipulation that is contrary to public policy or incorporates an erroneous rule of law, nothing in Section 664.6 authorizes the court to modify the material terms of a settlement without the mutual consent of the parties. Moreover, Proposition 65 allows the trial court to reject a settlement agreement if it finds an attorney fee award unfair or unreasonable. Here, the trial court could have rejected the entire agreement, but not part of it. Neither Section 664.6 nor Proposition 65 authorized the court to unilaterally modify the terms of the settlement agreement without the consent of the parties. Thus, the trial court erred by reducing the attorney fee award.
Employer Waives Right to Enforce Arbitration Agreement Based Upon Its Conduct and Lengthy Delay in Filing Petition to Compel Arbitration
In Oregel v. PacPizza, LLC, (2015) 237 Cal. App. 4th 342, Julio Oregel applied for employment with PacPizza, LLC, as a pizza delivery driver in 2008, and signed an employment application that contained in very small type an "Agreement to Arbitrate" any employment-related dispute. Four years later, in 2012, he filed a class action alleging various Labor Code violations. PacPizza filed an answer and asserted 15 affirmative defenses, but did not allege the existence of the arbitration agreement. The parties conducted extensive class discovery. At no time did PacPizza raise the issue of arbitration until 17 months later and after 1,300 attorney hours had been expended when it demanded arbitration and filed a petition to compel. Finding that PacPizza waived its right to compel arbitration, the trial court denied the petition and then granted class certification.
Affirmed. Code of Civil Procedure Section 1281.2 provides, in part, that "the court shall order the [parties] to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (a) the right to compel arbitration has been waived by the petitioner." The court looks at a number of factors to determine waiver, including whether a party's actions are inconsistent with the right to arbitrate, the timing of the requested arbitration enforcement, and prejudice to the opposing party. Here, assuming the validity of the arbitration agreement, the evidence easily supported the finding waiver. PacPizza engaged in substantial discovery inconsistent with the right to arbitrate. It failed to assert the right to arbitrate as an affirmative defense. The timing was also suspect because it filed the petition 17 months after the action was commenced and in the face of a looming class certification motion. The lengthy delay also prejudiced Oregel beyond just the legal fees and costs incurred. For those reasons, the trial court's denial of the petition to compel was correct and affirmed.
The California opinions are posted at: click here, the Ninth Circuit opinions at: click here.
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