ADR Case Updates
Mediation Does Not Stay 5-Year Statute To Bring Case To Trial, 01/14/2014
In Gaines v. Fidelity National Title Insurance (2013) 222 Cal. App. 4th 25, an elderly couple owned a home with significant equity that was encumbered by a trust deed. After they fell a few months behind on their payments, one of the defendants agreed to buy the property and lease it back to them with an option to repurchase. However, the transactional documentation did not include the lease-back and repurchase option. Plaintiffs then sued for rescission. While the case was pending, the parties agreed to mediate the dispute and put the case on hold for 120 days. The case did not resolve at mediation and the case continued for several more years until the defendants brought a motion to dismiss on the grounds that the case had not been brought to trial within 5 years. In granting the motion, the trial court did not exclude the 120-day stay to mediate (which would have kept the case within the 5-year period) and dismissed the case.
A divided appellate court affirmed the judgment of dismissal. Under California Civil Code of Procedure Section 583.310, an action must be brought to trial within five years. Certain time periods may be excluded, including when the action was stayed, or when bringing the matter to trial was impracticable or futile. Here, the stay to mediate was only a partial stay in that the parties were still required to respond to outstanding written discovery. Only a complete stay as to the "prosecution" of the action — including a stay of all discovery — is sufficient to exclude the time from calculation of the 5-year period. A partial stay does not qualify to exclude the time.
Highly critical of the majority opinion, the dissent concluded that it was impracticable to bring the case to trial within 5 years. Dismissal of the case was a "miscarriage of justice" resulting from an abuse of discretion by the trial court that "rewards parties, who it would appear, have played a major and substantial role in the theft of someone's home."
This is a cautionary tale for plaintiff's counsel. When agreeing to stay an action to mediate the dispute and toll the running of the 5-year period, the stay must be complete as to any "prosecution" of the entire action, including a hold on propounding new discovery and responding to outstanding discovery. Otherwise, this case stands for the proposition that the time will not be excluded on a motion to dismiss.
Arbitration Agreement Trumps "Berman Hearing," But Not Enforceable if Unconscionable Under State Law
In Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal. 4th 1109, Frank Moreno was a former employee of Sonic-Calabasas A, Inc., (Sonic) and signed an employment agreement containing an arbitration clause. After he left Sonic's employment, Moreno filed an administrative wage claim with the Labor Commissioner for unpaid vacation pay. Under California Labor Code Section 98, an employee with a claim for unpaid wages has a right to seek an informal hearing in front of the Labor Commissioner, a "Berman" hearing. Sonic filed a motion to compel arbitration, arguing that Moreno had waived his right to a Berman hearing. The trial court determined that the Berman hearing and post-Berman protection did not significantly impair Moreno's ability to vindicate his right to vacation pay through arbitration.
The California Supreme Court held as a categorical rule that arbitration agreements requiring an employee to waive his right to a Berman hearing before the California Labor Commissioner for wages was unconscionable, contrary to public policy, and therefore unenforceable (Sonic I).
The U.S. Supreme Court granted certiorari, vacated the judgment, and remanded the case back to the California Supreme Court for reconsideration in light of AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S. Ct. 1740].
The California Supreme Court held, contrary to Sonic I, that the Federal Arbitration Act preempts California law that would prohibit waiver of a Berman hearing in a pre-dispute arbitration hearing imposed on an employee as a condition of employment. However, state courts may continue to enforce unconscionability rules that do not interfere with fundamental attributes of arbitration. Here, the employee contended that the underlying arbitration agreement was unconscionable. The employer contended the agreement afforded adequate protection and advantages to address the employee's claims, and was not one-sided. Because the evidence to address these factual issues was not previously addressed, the case was remanded to the trial court to determine if the arbitration agreement was unconscionable under the principles set forth in the opinion.
Additional Cases: The Court Compelled Arbitration In This Case:
Ferguson v. Corinthian Colleges, Inc., 733 F. 3d. 928 (9th Cir. 2013) (Students in class action must arbitrate claims alleging academic institutions misrepresented their career prospects after graduation because Federal Arbitration Act preempts California Broughton-Cruz rule that exempts from arbitration claims for "public injunctive relief").
But Courts Refused to Compel Arbitration In These Cases:
Goldman v. Sunbridge Healthcare, LLC (2013) 220 Cal. App. 4th 1160 (Skilled nursing facility cannot require wife to arbitrate her wrongful death claim based on husband's death because she never had authority to sign arbitration agreement since "advance directive" signed by husband appointing wife became operable only when husband became incapable of making his own decisions);
Young v. Horizon West, Inc., (2013) 220 Cal. App. 4th 1122 (Elderly women, who contracted herpes due to alleged sexual assault at nursing facility, does not have to arbitrate her suit based upon agreement signed by daughter because the power of attorney signed by plaintiff did not authorize her daughter to act until doctor determined plaintiff was "unable to make her own health care decisions");
Chavarria v. Ralphs Grocery Company, 733 F. 3d. 916 (9th Cir. 2013) (Ralphs Grocery may not force a former deli clerk to arbitrate employment claims under California labor law because arbitration policy in employment application was unconscionable and therefore unenforceable under Federal Arbitration Act);
Hong v. CJ CGV America Holdings, Inc., (2014) 222 Cal. App. 4th 240 (Company waives its right to compel arbitration after actively engaging in litigation for months before moving to compel arbitration);
Lee v. Intelius, Inc., 737 F. 3d.1254 (9th Cir. 2013) (Internet company that allegedly scammed user into signing up for subscription service may not compel him to arbitrate suit because he never entered into contract);
Volpei v. County of Ventura (2013) 221 Cal. App. 4th 391 (County loses motion to compel arbitration of employee's statutory discrimination claims because collective bargaining agreement with union did not clearly waive right to sue in court); and
Smith v. JEM Group, Inc., 737 F. 3d. 636 (9th Cir. 2013) (Debt-relief company may not compel arbitration against former client because arbitration clause was unconscionable; even though plaintiff did not raise unconscionability in her complaint, she can raise it for the first time in opposing the motion to compel).
Miscellaneous Cases Involving Other Arbitration Issues:
Optimal Markets, Inc., v. Salant (2013) 221 Cal. App. 4th 912 (Trial court may not impose sanctions under California Code of Civil Procedure Section 128.7 against attorneys for filing allegedly frivolous claim in arbitration as only the arbitrator may impose such sanctions);
Roberts v. Packard, Packard & Johnson (2013) 217 Cal. App. 4th 822 (Trial court may not award attorney fees to successful party on motion to compel arbitration until arbitration is concluded and prevailing party determined); and
Burton v. Class Counsel and Party to Arbitration, 737 F. 3d. 1262 (9th Cir. 2013) (In Wal-Mart multidistrict litigation involving wage-and-hour claims, attorneys may not contractually agree to prohibit federal court from reviewing arbitration award that allocated $28 million in attorney fees).
The California opinions are posted at: http://www.courts.ca.gov/opinions.htm;
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