Category Archives: ADR

McGill v. Citibank- The California Supreme Court Will Review

McGill v. Citibank docket information.

On December 22, 2014, I posted an article on McGill v. Citibank.  Click here for prior post.

On April 1, 2015, the California Supreme Court granted a petition for review, putting the issue of arbitrability in flux once again.   The District Court of Appeal opinion in McGill distinguished Iskanian v. CLS Transportation Los Angeles (2014) 59 Cal. 4th 348, holding that a true Private Attorney General Action is properly a “state” action, while the injunctive claims of Ms. McGill were not, even though they intend to help people similarly situated.  The California Supreme Court will undoubtedly examine that distinction.

Stay tuned!

 

Montano v. The Wet Seal- The Private Attorney General Doctrine Trumps The FAA

Recently, I commented on the McGill case, which affirmed a broad measure of federal preemption of state restrictions on the enforceability of arbitration agreements.  The prior article is:

McGill v Citibank- More Federal Preemption For Arbitration Agreements.

The Second District of the California Court of Appeals recently issued Montano v. The Wet Seal.  The opinion affirmed the liberal preemption scope of the Federal Arbitration Act, but, since this case involved an attempt to waive the protections afforded by the the California Labor Code and the Private Attorney General Act, returned to Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348.  The court held that Iskanian still controlled its narrow field of where California rules can require a court to void an arbitration agreement.

This new case does not break new ground or invite the United States Supreme Court to wield its hammer of preemption.  It does, however, provide some strengthening of Iskanian should the federal courts question the ability of California to reserve matters for its courts that could be suitable for prosecution by its Attorney General.

McGill v Citibank- More Federal Preemption For Arbitration Agreements

Click for McGill v Citibank opinion.

The fallout from Concepcion continues.  AT&T Mobility LLC v Concepcion (2011) 131 S Ct 1740 ruled generally that the Federal Arbitration Act (“FAA”) preempted state law. The opinion recognized, however, that the FAA “permits agreements to arbitrate to be invalidated by `generally applicable contract defenses, such as fraud, duress, or unconscionability,’ but not by defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” Concepcion, 131 S. Ct. At 1746.

The California Supreme Court has tried to exclude a number of disputes from the FAA preemption. Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066 (Broughton) and Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303 (Cruz) combined to create the “Broughton-Cruz Rule” that deemed arbitration provisions unenforceable as contrary to public policy if they require arbitration of claims for injunctions under the California Unfair Competition Law, The California False Advertising Law, or the California Consumer Legal Remedies Act. Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 invalidated predispute waivers of an employee’s right to bring a representative action under the Labor Code Private Attorneys General Act of 2004.

In McGill v. Citibank, N.A., the Fourth District of the California Court of Appeals will likely give the California Supreme Court another opportunity to evaluate what disputes, if any, that California courts will except from federal preemption.

In McGill, an individual sued Citibank for unfair competition and false advertising in connection with a credit insurance plan. Citibank petitioned to compel arbitration under its account agreement with the plaintiff. The trial court granted the petition with respect to the monetary claims, but denied it with respect to the claims for injunctive relief, relying on the “Broughton-Cruz Rule.” The plaintiff relied on Iskanian, likening her claims to those of an individual making claims in lieu of the Attorney General.

The Fourth District Court of Appeals reversed, siding with federal court decisions that Concepcion preempted the “Broughton-Cruz Rule” and required all claims to be arbitrated. The opinion distinguished Iskanian, holding that a true Private Attorney General action is properly a “state” action, while the injunctive claims of Ms. McGill are not, even though they intend to help people similarly situated.

 

California has long tried to preserve the interests of individuals subject to the “small print” of arbitration agreements imposed upon them by people, businesses, and others with superior bargaining power. The federal courts, starting with Concepcion, seek to promote arbitration agreements. With McGill, at least one District Court of Appeal is thinking the same way. The extreme budget cuts facing many Superior Courts should encourage a policy favoring dispute resolution outside of the court system, but such a policy should not be so broad that it denies civil justice to the citizens of California. Iskanian could be the right balance, but the question remains as to whether McGill might tip the balance in the wrong direction.

Iskanian- The Evolution Of Arbitration Agreements In California

Click here for Iskanian opinion.

For the past several years, I have served as an update author of the CEB publication, California Real Property Remedies and Damages.  In past years, incorporating recent cases into the text was an easy way to provide a few hours of pro bono service and to keep abreast of an area of law near and dear to my practice.  Earlier this year, however, I had the giant task of incorporating the initial California fallout from the U.S. Supreme Court’s 2011 ruling in AT&T Mobility v. Concepcion. The case created tremendous tension between the California Supreme Court and its protection of consumers subject to unconscionable arbitration agreements and the United States Supreme Court, which interprets the Federal Arbitration Act (FAA) to require arbitration much more broadly than does California.


For example, in
Sonic-Calabasas A, Inc. v. Moreno (2013) 57 C4th 1109, the California Supreme Court overruled itself in light of Concepcion.  The California court previously held that an employer could not require an employee to agree to arbitration and to waive an administrative hearing to recover owed wages as a condition of employment. In Moreno, the California Supreme Court concluded that it could still enforce its own rules concerning unsconscionability provided that those rules do not interfere with the “fundamental attributes of arbitration.”   The California Supreme Court started down a path of acknowledging the preemptive nature of the FAA and the strong tide pulling in favor of even oppressive arbitration agreements.


Iskanian v. CLS Transportation Los Angeles
expanded the preemption of the FAA, affirming an arbitration agreement that banned employees from asserting a wage/hour claim as a class action. Iskanian followed Concepcion and overruled Gentry v. Superior Court (2007) 42 Cal.4th 443, which had permitted courts to disregard arbitration agreements that banned a class action if arbitration could not approximate the advantages of that class proceeding.


Justice Liu, however, left open a small door for California courts to hear matters otherwise subject to an arbitration agreement.   The California Private Attorneys General Act of 2004 (PAGA) found at California Labor Code, § 2698 et seq. provides a right to employees to step into the shoes of the state to seek civil penalties against an employer.  
Iskanian held that PAGA was a public action between an employer and the state, as opposed to a private action between an employer and employees, and that the FAA cannot intrude on the right of a state to litigate its claims in its courts.  


The breadth of FAA preemption continues to increase.  
Iskanian acknowledges this, but still takes enough of a stand to indicate that further action by the United States Supreme Court is not unimaginable.  

 

McCaffrey Group- More Right To Repair- More Fees!

Click here for McCaffrey Group v. Superior Court.

The Right To Repair Act returns with another avalanche of writs and fees.

The homeowner had a leak and called Allstate, his insurance company.  Allstate promptly repaired the home and sued KB Home, the developer, for subrogation to recover just over $80,000.00.

KB Home demurred to the complaint because it did not allege compliance with the Right To Repair Act.  The trial court eventually concluded that the prelitigation procedures of the Act did not apply to a subrogation action.  On writ number one, the court of appeals ordered the trial court to reconsider, which it did, sustaining the demurrer with leave to amend.

After the first writ, KB Home demurred to the amended complaint.  The trial court again concluded the the Act did not apply to subrogation matters.  On writ number two, the court of appeals ordered the trial court to sustain the demurrer on negligence and strict liability and to overrule the demurrer for noncompliance with the Act.

KB Home and Allstate both moved for summary judgment.  The trial court granted Allstate’s motion and denied KB Home’s, holding that two letter constituted sufficient notice.  On writ number three, the court of appeals ordered the trial court to reverse itself on both motions.  The trial court declined, resulting in this motion.

Unsurprisingly, the court of appeals reversed the trial court, ordering the trial court to enter judgment in favor of KB Home.  The Act applies to require a meaningful opportunity to inspect and to repair a home, even when an insurance company believes it is fulfilling its obligations to its insured by acting promptly to address a covered loss.

The attorney’s fees for three writs and an appeal for two sides almost certainly eclipsed the amount in controversy, making the Right To Repair Act a tremendous billing opportunity for attorneys when its purpose was to reduce the time spent in court for contractors, developers, and home owners.

Burch — Weakening the Contractor’s Right to Repair

Click here for opinion

Burch v. Superior Court (Premier Homes, LLC) reversed summary judgment in favor of a contractor when the owner did not comply with the right to repair statutes (California Civil Code Section 895 et seq.).

The court held that the Right to Repair Act does not provide the exclusive remedy for a homeowner seeking damages for construction defects that have resulted in property damage even though it may be the only remedy for the defects themselves.

The California legislature recognized that there is a need for a procedure to encourage prelitigation discussions and resolutions while recognizing that defects without damage need addressing.  By alleging consequential property damage, no matter how minor, a homeowner could proceed directly to litigation.  This is not unusual, as property owners often allege such consequential damage to trigger a duty on the part of the contractor’s insurance carrier to defend and to provide coverage.

This case exposes a weakness in the statutory scheme.  The legislature should take this on as a challenge to encourage prelitigation efforts to repair defects and consequential damage before the parties proceed to a long and expensive journey through the California court system.

 

Unintended Consequences of ADR : Contra Costa Lawyer Online

Unintended Consequences of ADR : Contra Costa Lawyer Online.

This is an outstanding article from Justice James Marchiano (Ret.) on the history and consequences of the evolution of ADR in the civil justice system.

As an aside, I miss case management conferences with (then) Judge Marchiano.  If both sides arrived early, then you could have a cup of coffee with the clerk and bailiff and rise to first on the calendar.

New UC Davis study reveals how people want their lawsuits resolved :: UC Davis News & Information

New UC Davis study reveals how people want their lawsuits resolved :: UC Davis News & Information.

In an article in the University of Iowa Law Review, The Psychology Of Procedural Preference, UC Davis Law Professor Donna Shestowsky analyzes ADR options and preferences available to civil litigants.

This article is more an indictment of the budget crises facing courts across the nation than an analysis of the trends in ADR. Almost every dollar eliminated from a court’ s budget comes out of the civil side, since criminal proceedings enjoy constitutional protections that trump budget cuts.  In a civil judicial system where resources dwindle by the day, the idea of a jury trial, if not the broader idea of civil justice, becomes more of a far off ideal than a practical reality.  

One example from the article is that litigants prefer mediation over nonbinding arbitration.  This is not a surprise, as nonbinding arbitration too often produces a result that is unsatisfactory to one side, resulting in a request for a trial.  It still exists, at least in California, because a judge can order it for certain cases, such as those with an amount in controversy less than $50,000.00 while mediation remains purely voluntary.  I cannot remember the last time a judge ordered one of my cases to nonbinding arbitration because I know better than to reject mediation, especially in counties that have mediation panelists who will provide low- or no-cost mediation services for appropriate cases.

Mediation in the hands of a trained professional gives parties to a dispute the best chance at an economically positive outcome.  State courts should do more to encourage mediation, but we must recognize that mediation cannot replace true civil justice.  Our budget system must treat and fund the judicial branch as a coequal branch with the legislative and the executive and not as an ungrateful recipient of shrinking largesse.

 

Roldan v. Callahan & Blaine- Arbitration cannot be a financial blunderbuss

Roldan v. Callahan & Blaine.

Roldan involved a binding arbitration clause in an attorney fee contract where the attorney knew that the clients has extremely limited financial means.  The trial court ordered arbitration, resulting in a motion by the clients for an order requiring the attorney to pay for the entire arbitration.  The trial court denied the motion.

The court of appeals reversed, recognizing that forcing the clients to pay when they cannot would otherwise prevent them from pursuing their claim.

There is a belief that arbitration is fast and inexpensive.  While arbitration is almost always quicker than litigation, the costs often remain similar, as administrative and arbitrator fees far exceed court filing fees.

The opinion balanced the financial burdens.  If the trial court determines that a party cannot pay for an arbitrator, then the other side will have the option to pay the fees for that party or waive the arbitration agreement.  Since the goal should be justice, this approach may be the best option.