Archives: March 2007
Wed Mar 28, 2007
Arbitration Clauses & Interstate Commerce
Note: Citation to this case, and discussion of recent cases, statutory amendments and CRC rule changes, are now located in www.arbitrationadr.com The new Court of Appeal case is included in the summary below, but not cited.
Iterstate Commerce and Arbitration
An action filed in state court and not removed to federal court is potentially governed by the preemptive scope of the FAA if the underlying transaction "affects commerce;" Hedges v. Carrigan, 117 Cal.App. 578 (2004). The trial court must address the issue of preemption first (Woolls v. Sup.Ct., 127 Cal.App.4th 197 [2005]) and the burdern of proof lies on the party alleging preemption; Basura v. U.S. Home Corp., 98 Cal.App.4th 1205 (2002). The phrase "commerce", initially defined by the Supreme Court in Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995) and confirmed in Citizen's Bank v. Alafabco, Inc., 539 U.S. 52 (2003) is interpreted to the fullest extent of Congressional power; Doctor's Assoc. v. Casarotto, 517 U.S.681 (1996); Perry v. Thomas, 482 U.S. 483 (1987); Warren-Guthrie v. Health Net of Ca., 84 Cal.App.4th 804 (2000) [disapproved on other grounds]; Cronus Investment, Inc. v. Concierge Services, Inc., 35 Cal.App.4th 376 (2005); Hedges v. Carrigan.
California courts have applied the definition of "commerce" paralleling federal law; Erickson v. Aetna Health Plans of California, Inc., 71 Cal. App. 4th 646 (1999); Warren-Guthrie v. Health Net of Ca., Mount Diablo Med. Ctr. v. Health Net of California, Inc.,101 Cal.App.4th 711 (2002) f.n.5; CCP 1281; Hedges v. Carrigan,117 Cal.App.4th 578 (2004).
Not all State law is preempted, but the FAA preempts substantive or procedural state law inhibiting or obstructing the principle objectives of the FAA, i.e., enforcing written agreements among parties who agree to arbitrate their disputes; Chevron v. Hammond, 726 F.3d 485 (9th Cir.1983).
No federal policy favors arbitration under a set of specific procedural rules and State procedural law facilitating arbitration, rather than obstructing the process, does not conflict with the objectives of the FAA; Volt Information Sciences, Inc. v. Bd. of Trustees of Leland Stanford Jr. University, 489 U.S.468 (1998); New England Energy, Inc. v. Keystone Shipping Co., Inc., 855 F.2d (1st Cir.1988); Aceros Prefabricados S.A. v. TradeArbed, Inc., 282 F.3d 92 (2d Cir. 2002); Cronus Investments, Inc. v. Concierge Services, 35 Cal.4th 376 (2005).
Whether a transaction involves interstate commerce is a question of law; Basura v. Home Corp., [modified], 99 Cal.App.4th 815G (2002).
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Mon Mar 26, 2007
Arbitration Clauses-the Broad, the Narrow and the Ambiguous
Note: all California and Federal court cases are now discussed in www.arbitrationadr.com The blog will continue to refer to newly decided cases in a general sense.
Parties drafting arbitration clauses use a variety of terms to describe their dispute resolution process in the event a disagreement arises during the performance of the contract. In some cases, the clause requires mediation initially and, if unsuccessful, arbitration. Other clauses require fulfillment of a condition precedent stated within the terms of the contract. A third category references collateral agreements, or prior agreements merged into the latest contract.
In adhesive contracts, California has mandated employers to pay fees and costs of the arbitration, provide limited discovery to employees, and select a neutral arbitrator who must issue a reasoned award. Consumer cases are also limited in cost sharing, and franchise contracts are unconscionable.
Parties also include choice of law clauses, forum selection clauses, the rules of the FAA or the CAA, service provider rules and venue selection.
What about torts: Are they included in a contractual arbitration clause? Or conduct occurring after the expiration of the contract or termination of the agreement?
As in so many contractual disputes, it all depends on the language of contractual terms. Neither the FAA nor the CAA provide statutory guidance. Only court decisions are of some assistance. For two cases on whether torts are included within the scope of the contractual language, See, www.arbitrationadr.com., Ch. XVI-F-7-a,b,c.
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Mon Mar 19, 2007
Arbitration & Skilled Nursing Facilities
Due to the vulnerability of patients entering skilled nursing facilities (sometimes referred to as "nursing homes"), the Legislature has passed a comprehensive series of laws to protect against abuse in the facility. Legislation regulates admission to the facility (H & S 1599.65), authority to make medical decisions (H & S 1418.8), a patient bill of rights (H & S 1599.1) and other statutory and regulatory provisions. In some circumstances, third parties can make those decisions but not regarding arbitration clauses. "Next of kin", "responsible party", or a person with a power of attorney are designated as authorized to sign arbitration clauses, but not spouses; Flores v. Evergreen at San Diego, 2007 WL 738964.
For a summary of the law, see Judge Waddington's practice manual exerpted below. Log on to www.arbitrationadr.com:
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Wed Mar 14, 2007
Arbitration & Statutes of Limitations
Arbitration clauses in certain kinds of contracts require a party to file arbitration of a dispute within relatively short time periods. The conventional statute of limitations to file a civil action for the same kind of dispute is usually much longer. The California Legislature has added CCP 1281.2 providing for tolling under these circumstances: The commencement of a civil action by a party within that time [stated in the arbitration clause] tolls the time period in the arbitration agreement with respect to that controversy …"from the date the civil action is commenced until 30 days after a final determination by the court that the party is required to arbitrate…or 30 days after the final determination of the civil action that was commenced and initiated the tolling, whichever comes first.”
These clauses are usually found in consumer agreements, employment contracts, franchise contracts or other adhesive contracts.
Fri Mar 09, 2007
New: Electronic Text on Arbitration & ADR
Lawyers can now retrieve instant updates on arbitration and ADR on the Internet. Edited weekly, there are no pocket parts or supplements to read. All California cases, published and non-published, are included. Supreme Court and all Circuit Court of Appeals cases are also included. The author has cross referenced state and federal cases for use in drafting arbitration clauses, participating in arbitration and in challenging and supporting awards.
Log on to: arbitrationadr.com.
Appeal of Arbitration Awards
The FAA (9 U.S.C. 10; 16) and the CAA (CCP 1286.2;1294) both restrict appeals from arbitration awards on specific statutory grounds. California courts have repeatedly refused to allow counsel to draft arbitration agreements permitting a party to appeal an arbitration award on non-statutory grounds; Muao v. Grosvenor Props., LTD, 99 Cal.App.4th1085 (2002). In the lexicon of litigation, the parties cannot confer jurisdiction on the court and must confine themselves exclusively to statutory grounds.
Although the Ninth Circuit has specifically adopted this rule, (Kyocera Corp. v. Prudential-Bache Trade Services, Inc., 341 F.3d 987 (9th Cir. 1999) other circuits have applied a more liberal approach. These courts, taking their cue from the Supreme Court, have adopted a non-statutory ground to appeal arbitration awards on grounds the arbitrator “manifestly disregarded” the law; Gilmer v. Interstate/Johnson, 510 U.S. 1139 (1994). Other circuits have ruled that the award must not violate “public policy;” Twin Galleries LLC v. Media Arts Grp., 2007 WL 429551 (8th Cir.). The former term is incoherent, the latter term is subjective, vague and highly controversial.
Circuit Courts are not in agreement whether an arbitration award can be set aside on grounds the arbitrator "manifestly disregarded" the law; Westerbeke Corp. v. Daihatsu Motor Co., Ltd, 304 F.3d 200 (2d Cir. 2002); George Matteson, Inc. v. Tiffany & Co., 248 F.3d 577 (7th Cir. 2001). In Merrill Lynch, Pierce, Fenner & Smith v. Bobker, 808 F.2d 930 (2d Cir. 1986) the court attempts to define the contours of this doctrine by stating: "[any] arbitral error" must be obvious and capable of being instantly observed; "disregard" implies a knowledge of generally accepted legal principles and a wilful refusal to apply them; Stark v. Sandberg, et al., 381 F.3d 793 (8th Cir. 2004); Merrill Lynch, et al., @ 933-4; Prestige Ford v. Ford Dealer Computer Services, Inc., 324 F.3d 391 (5th Cir. 2003); See also, R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d 534 (5th Cir. 1992); Patten v. Signator Ins. Agency, 441 F.3d 230 (4th Cir. 2006) [arbitrator ignored plain and unambiguous contract language].
Manifest disregard is not arbitrator legal error; Luong v. Circuit City Stores, Inc., 368 F.3d 1109 (9th Cir. 2004) [opinion withdrawn]; Michigan Mut. Ins. Co. v. Unigard Sec. Ins. Co., 44 F.3d 826 (9th Cir. 1995). In the Eleventh Circuit, "manifest disregard" requires evidence that the arbitrator was "conscious of the law and deliberately ignored it;" B.L. Harbert Int., LLC v. Hercules Steel Co., 441 F.3d 905 (11th Cir. 2006). This court also considers an award in violation of public policy, rendered capriciously, and authorizes use of labor precedent. But the court reminds parties that deference to awards is nonetheless the standard.
The doctrine of manifest disregard is inapplicable in state court; Siegel v. Prudential Ins. Co. of America, 67 Cal.App.4th 1270 (1998).
Importing a violation of public policy as grounds to appeal an award is equally esoteric. In the first place, whose public policy are we referencing? The local state-in a diversity case-or federal statutory law? A federal court hearing a diversity case must apply state substantive law-not federal law- in determining whether to enforce an arbitration clause. Because states within a federal court jurisdictional region vary in enacting legislation, public policy among them may differ. A transaction by parties in interstate commerce may result in inconsistent opinions by a federal court reviewing awards in a diversity case.
Generally speaking, “public policy” is tethered to statutory law. Individual state laws within a Circuit may cause “public policy” to also result in clashes with the FAA mandate to decline enforcement of any state law foreclosing or inhibiting arbitration.
For a recent case on “public policy, ” see, www.arbitrationadr.com.; Twin Galleries LLC v. Media Arts Grp., 2007 WL 429551 (8th Cir.).
Tue Mar 06, 2007
Arbitration of Probate Cases
Several California statues apply to specific categories of disputes, i.e., medical malpractice (CCP 1295); health service providers (H & S 1363); skilled nursing facilities (H & S 1599.81). In Hogan v. Country Villa Health Services, 2007 WL 614072, the Court of Appeals reviewed relevant statutes for dispute resolution in the Probate Code.
Probate Code 9620 provides for appointment of a temporary judge (Cal. Const., Art.VI, Section 21 supplemented by CRC 2.810 & 2.830 [renumbered]) to resolve disputes between a personal representative of an estate and a third party. Section 2405 provides the same process in disputes between the estate and a conservator or guardian.
Probate Code 4688 defines the law of agency in the context of probate. A person holding a power of attorney is a fiduciary, i.e., an agent authorized to sign an arbitration agreement; Garrison v. Sup.Ct., 132 Cal.App.4th 253 (2005). In Hogan v. Country Villa Services, 2007 WL 624072 * the court construed Probate Code 4701, the health care power of attorney section. This statutory authority includes the power of an agent to execute arbitration agreements with a health care facility unless the principal restricted the power of the agent.[distinguishing Goliger v. AMS Properties, 123 Cal.App.4th 374 (2004) and Pagarigan v. Libby Care Center, Inc., 99 Cal.App.4th 298 ( 2002)].
See, www.arbitrationadr.com Chapter XVII-C-5. Judge Waddington reviews federal and state statutes regulating arbitration in other contexts.
Mon Mar 05, 2007
Arbitration in Health Sevice Provider Contracts
Health & Safety Code 1340 et seq. applies to health insurance coverage and H & S 1363.1 is a statutorily approved method of resolving disputes in arbitration. The right to a jury trial is not implicated as long as employers comply with statutorily mandated disclosure requirements; Viola v. Dept. of Managed Health Care, 133 Cal.App.4th 299 (2005).
Companies offering health care service include a clause in the insurance contract providing for binding arbitration of any dispute arising out of the terms of coverage. Employers, acting as agent of the employees, negotiate these plans with the insurance company. Any employee who signs on to the plan is bound by its terms; Madden v. Kaiser Found. Hospitals, 17 Cal.3d 699 (1976).
An action for declaratory and injunctive relief against state enforcement of these clauses was reviewed in Medeiros v. Sup.Ct., 146 Cal.App.4th 1008 (2007). The court attempted to distinguish Madden by holding that an employee who had enrolled in a group health plan offered by the employer did not agree to arbitrate in the absence of signing the arbitration clause in the enrollment form-despite the fact the employer had signed the arbitration clause in the contract-and there was no signature line in the enrollment form for the employee to sign.
Health & Services 1363.1(b) (d) requires health care service plans to clearly disclose, as a separate article, prominently displayed in the enrollment form and immediately before the signature line, that the enrollee submits to binding arbitration and both parties surrender the right to jury trial-including malpractice; H&S 1361(a). H & S 1373 (i) provides that if the health plan utilizes arbitration to settle disputes, the contract must set forth the types of disputes subject to arbitration, the process to be utilized and how it is to be initiated.
In Malek v. Blue Cross of Cal., 121 Cal.App.4th 44 (2004) the court held that these requirements were not adequately met and therefore the parties formed no contract; accord, Imbler v. Pacificare of Cal., 103 Cal.App.4th 567; Zembsch v. Sup.Ct., 146 Cal.App.4th 153 (2006); Ogle v. Pacificare Life & Health Ins. Co., 2007 H&S 615956 (Cal.App.) [Non.Cite.].
Robertson v. Health Net of Cal., Inc., 132 Cal.App.4th 1419 (2005) explains that "immediately before" means no intervening language between the text and signature line. Merely bolding the words "arbitration agreement" is insufficient to comply with the requirement of "prominently displayed." The whole agreement must be bolded.
Comment: Malek and Robertson are contrary to the federal rule prohibiting states from invoking special rules in contracts for arbitration and saved only because interstate commerce required under the FAA is not involved; Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681 (1996). Malek and Robertson are hyper technical statutory constructions but do have the advantage of creating "bright lines." By drafting health care contracts in compliance with these two cases, counsel can create an enforceable agreement.
Note: Contracts with skilled nursing facilities may also have reference to rendition of medical services, and professional negligence is governed by the arbitration terms of CCP 1295.
See also, Beynon v. Garden Grove Medical Grp., 100 Cal.App.3d 698 (1980); Davis v. Blue Cross of No. Cal., 25 Cal.3d 418 (1979).
H & S section 1373.21 requires the arbitrator to render an arbitration award between a health services plan and an enrollee to be written, identifying the prevailing party, the amount of the award, and terms and reasons for the award. Although desirable, the rule may conflict with the FAA if the underlying transaction is in interstate commerce. The FAA requires no comparable provision.
Note: Distinguish Health Care providers from medical service contracts; CCP 1295. Each category contains different requirements for arbitration; Hollister v. Benzl, 71 Cal.App.4th 582 (1999).
Practice: Evidence in health care service arbitrations is governed, in part, by the Confidentiality of Medical Information Act, CC 65.10, limiting disclosure of medical information in employment related health care service.