Archives: April 2007
Fri Apr 27, 2007
Arbitration & Offers to Compromise
CCP 998 (b) attempts to provide a framework for pre-arbitration resolution of disputes by permitting all parties to present an offer to enter judgment in a specific amount. Although the statute is more familiar in litigation, CCP 998 also applies in arbitration and the parties (and the arbitrator) should consult the language of the statute. Failure of the opposing party to accept the offer, and a jury verdict (or award) in favor of the plaintiff less than offered, or a verdict in favor of the plaintiff in excess of the offer, triggers a cost shifting provision; Subsections (c) (1) & (d).
CCP 998 (b) provides that “not less than 10 days prior to commencement of…arbitration (CCP1281 & 1295)…a party may serve an offer in writing upon any other party …to allow …an award to be entered in accordance with the terms and conditions stated at that time .. . . If the offer is accepted, the offer with proof of acceptance shall be filed with the arbitrators…who shall promptly render an award accordingly;” CCP 998 (1). An offer not accepted prior to . . . arbitration or within 30 days after . . .made, whichever occurs first, shall be "deemed withdrawn” and is inadmissible in evidence at an arbitration or trial; CCP 998 (2).
Offers-in writing- are unilaterally revocable within the relevant time frame (T.M. Cobb Co. v. Sup.Ct., 36 Cal.3d 273 (1984). In Marcey v. Romero, 148 Cal.App.4th 1211 (2007) the plaintiff unilaterally revoked her offer prior to expiration of the 30 day period disabling the defendant from determining whether to accept within the statutory time frame. The Marcey court held the cost triggering provisions of CCP 998 also expired along with the offer. The court in Marcey does not consider the withdrawal of an unaccepted offer under those circumstances the equivalent of offer “deemed withdrawn."
The court notes, but does not decide, that plaintiff’s "recoverable" costs, when added to the jury verdict or arbitration award (which was less than her offer), exceeded the judgment thereby identifying her as the prevailing party and entitled to cost shifting.
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Fri Apr 20, 2007
Settlements Re-visited
California case law is clear: Lawyers and their clients must sign a settlement agreement in order to enforce its provisions in court; Levy v. Sup.Ct., 10 Cal.4th 578 (1995). The parties must include a statement that the settlement agreement is admissible in court and binding in order to enforce its terms in a judgment in the event a party disputes the settlement; Ev. Code 1123. That the settlement is unconditional and binding must be explicit; Fair v. Bakhtiari, 40 Cal.4th 189 (2006).
When the parties settle litigation, CRC 3.1385 mandates the plaintiff or party seeking affirmative relief to immediately notify the court; CRC 3.1385 (a) (1). If the settlement is unconditional, the party must request dismissal of the action within 45 days; CRC 1385 (b). Absent the 45 day notice, the court will unilaterally dismiss the case unless a party can show “good cause” to delay entry of dismissal or move to vacate a dismissal.
A conditional settlement requires a party to give notice and specify the date of filing dismissal. Absent compliance within that time frame, the court will dismiss litigation unless a party asserts “good cause;” CRC 1385(c).
In the event of a subsequent dispute after a settlement, CCP 664.6 provides an expedited procedural mechanism to enforce the agreement and enter judgment. Or the moving party can proceed by filing a motion for declaratory relief, summary judgment or amend the pleadings.
In Irvine v. Regents of Cal., 2007 WL 1113727 the plaintiff signed the settlement agreement but subsequently alleged the defendant wrongfully withheld discovery documents warranting a motion to vacate the settlement for “good cause” as permitted under CRC 1385. On appeal, the Irvine court held the motion procedurally inappropriate to challenge the settlement agreement, citing the language of CRC 3.1385. The Irvine court held that CRC 3.1385 is a trial management tool and does not provide for entry of judgment-only dismissal of the action-in the absence of compliance with its time lines. According to the court, the trial judge should merely restore the litigation to the civil active list or deny the motion to do so.
Comment: Although this decision is analytically sound, the parties must now seek relief as described above. The trial court, having already heard the conflicting evidence on enforcement of the agreement and dismissed the case, must hold yet another hearing on the same issue. Time consuming and expensive.
Sat Apr 14, 2007
Jurisdiction After Court Denies Motion to Compel Arbitration
In federal court, denial of a motion to compel arbitration is an interlocutory order authorizing an appeal (9 U.S.C.16 (a) (1) (A)(B) but the trial court must decide whether to stay the pending action awaiting appellate resoution or allow the case to proceed. The Circuit Courts of Appeal are conflicted on appellate jurisdiction in this context. The 9th Circuit has held the trial court should neither stay the action nor the accompanying discovery on the ground frivolous appeals delay the litigation process; Britton v. Co-op Banking Group, 916 F.2d 1405 (9th Cir. 1990). The majority of other Circuits disagree, holding that jurisdiction of the trial court to proceed is divested and the judge should stay the action pending a determination whether the appeal is frivolous; Blinco v. Greentree Servicing, LLC, 366 F.3d. 1249 (11th Cir. 2004). The standard for reviewing a "frivolous" appeal is not clear.
The 3d Circuit said this: “There is a Circuit split on the question of whether the filing of an interlocutory appeal [denying a motion to compel arbitration] automatically deprives the trial court of jurisdiction to proceed until such time as the appeal is fully litigated or determined to be frivolous or forfeited." The Circuit court continues by collecting the cases in other circuits that hold an appeal after denial of a motion to compel arbitration automatically divests the trial court of jurisdiction. To do otherwise, said the appellate court, “creates a risk of inconsistent handling of the case by two tribunals.” [April, 2007].
In the 3d Circuit, the court rejects the 9th Circuit rule.
Mon Apr 09, 2007
Waiver of Arbitration
Federal law clearly states the process for District Courts to apply in ruling on a motion to compel arbitration and a collateral motion to stay litigation; FAA; 9 U.S.C. 3; 4. In a concededly binding contract, the trial court must determine whether the parties have contractually agreed to arbitration, and, if so, identify the disputed issues falling within the scope of the arbitration clause; Howsam v. Dean Witter Reynolds, 537 U.S. 79 (2002). Characterized as the doctrine of “arbitrability,” the trial court interpreting the arbitration clause applies state substantive contract law regulating the formation of contracts. The FAA requires the court to order arbitration unless it finds a ground in “law or equity” preventing enforcement of the arbitration clause; 9 U.S.C. 2.
The Supreme Court distinguishes the role of the trial court in resolving procedural questions, assigning that responsibility to the arbitrator (“procedural questions which grow out of the dispute and bear on its final disposition”); Howsam @ 84. In explanation, the Court denominated “time limits, notice, laches, estoppel, and conditions precedent.” Also included in the procedural category are “waiver, delay or a like defense to arbitrability;” John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964). Because “waiver” is essentially a defense to arbitration and does not involve formation of contract, its classification is procedural and arguably an issue for the arbitrator.
In a Third Circuit case (April, 2007) the defendant litigated a dispute in the courts four years before filing a motion to compel arbitration and stay litigation. The trial court denied the motion to stay litigation on the ground the defendant had “waived” its right to arbitration by engaging in excessive litigation conduct.
Despite a trial court finding that a dispute is subject to arbitration, a party cannot stay litigation if in “default in proceeding with arbitration;” 9 U.S.C. 3. Courts of Appeal have generally construed “default” to include a “waiver” of the right to compel arbitration and stay the action if a party previously abused discovery, delayed a request to arbitrate or engaged in litigation conduct causing the other party excessive delay and additional expense. Howsam apparently assigned “waiver” to the arbitrator as a procedural issue.
The Third Circuit distinguished Howsam and construed the words “waiver, delay or like defense to arbitration” applicable to non-compliance with contractual conditions precedent to arbitration and not to claims of waiver based on litigation conduct in court. The Third Circuit held that any issue of “waiver” occurred in trial court proceedings and that judicial process governed the conduct of the parties in the courtroom, not arbitrators unfamiliar with the case.
The First Circuit is in accord; Marie v. Allied Home Mortgage, 402 F.3d 1 (1st Cir. 2005).
The California Arbitration Act avoids the issue raised in this case. CCP 1281.2 (a) specifically assigns the responsibility of resolving allegations of “waiver” to the court, and the trial judge may refuse to enforce an arbitration clause if a party engages in litigation conduct detrimental to the opposing party; St. Agnes Medical Ctr. v. Pacificare of Cal., 31 Cal.4th 1187 (2003).
To read a summary of this case and other cases discussing the role of waiver by litigation conduct and procedural arbitrability in federal court, log on to www.arbitrationadr.com Ch. IV-K-1.
Sat Apr 07, 2007
Arbitration of Home Improvement Disputes
Home Improvements
Bus. & Prof. Code 7160 provides: “Any person who is induced to contract for a work of improvement, but not limited to home improvement, in reliance on false or fraudulent representations or false statements knowingly made, may sue and recover from such contractor or solicitor a penalty of $500.00, plus reasonable attorney fees in addition to any damages sustained [from such statements or representations].” A person who waives the right to file an action by agreeing to arbitrate any controversy arising out of the contract also waives this Section.
CC 3513 precludes waiver of “public rights", i.e. a law enacted for a "public reason,” but the benefits of Bus. & Prof. 7160 are damages, attorney fees and a penalty. Bus. & Prof. Code 7160 is not enacted for a public benefit and can be waived. A plaintiff retains the right to arbitration, not litigation; Cal. Court of Appeal, April, 2007 [Non.Cite].
For a discussion of this case and other real estate issues, log on to www.arbitrationadr.com
Wed Apr 04, 2007
Arbitration Costs
California courts are clear on whether employees must pay the costs of arbitrating a non-union dispute with employers. Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 93 (2000) and its progeny mandates the employer to pay costs of arbitration unrelated to litigation. Federal Circuit Courts of Appeal are in disagreement on the subject.
The Supreme Court has held that inordinate costs of arbitration may disable a party from vindicating statutory rights; Green Tree Financial Corp. Ala. v. Randolph, 531 U.S. 79 (2000). Questions arise: how does the court determine financial status of a party? at the time the contract was signed or at the time of arbitration; should the court stay costs until the arbitratiton is completed; should the arbitrator exercise discretion in awarding costs; can the court sever the cost clause; can the employer waive the employee's costs; attorney fees are not unique to arbitration, should they be allocated?
The Eighth Circuit elected to sever the arbitration clause requiring one party to pay fee-splitting costs (March, 2007). this case and the subject of arbitration costs is explored
More...
Mon Apr 02, 2007
Arbitration & Bankruptcy
Bankruptcy courts distinguish between "core" proceedings and "non core" proceedings. A right created created by federal bankruptcy law is a "core" proceeding; if the right is not created by federal law and could exist outside of bankruptcy, it is a "non-core" proceeding. All Circuit Courts enforce arbitration clauses in "non-core" cases but are split on "core" cases.
At least as to "non core" disputes, bankruptcy proceedings in the Fifth Circuit and Second Circuit are arbitrable; In re Gandy, 299 F.3d 489 (5th Cir. 2002); In re Crysen/Montenay Energy Co., 226 F.3d 160 (2d Cir. 2000). The Third Circuit denied any distinction between these two categories and applied the FAA to either core or non-core proceedings: In re Mintze, 434 F.3d 222 (3d Cir. 2006). MBNA America Bank, N.A. v. Hill, 436 F.3d 104 (2d Cir. 2006).
Note: The distinction between core and non-core proceedings in discussed in In re Electric Machinery Enterprises, Inc., 2007 WL 548781 (11th Cir.).
In Acands, Inc. v. Travelers Casualty & Ins. Co., 435 F.3d 252 (3d Cir. 2006) [cert. denied] the court vacated an arbitration award rendered prior to filing of a bankruptcy petition on grounds that the automatic stay (11 U.S.C. 362 (a) prohibited any proceeding diminishing the bankrupt's estate.