Adr Update

• Jurisdiction: California,United States
• Author: Michelle R. Rosenblatt
• Citation: Vol. 37 No. 5
• Publication year: 2023

ADR UPDATE

AUTHOR^*

Michelle R. Rosenblatt

RELEASE SIGNED BEFORE LAST DAY OF WORK DID NOT VIOLATE CIVIL CODE § 1668

Castelo v. Xceed Financial Credit Union, 91 Cal. App. 5th 777 (2023)

Xceed Financial Credit Union informed employee Elizabeth Castelo of its decision to terminate her on November 19, 2018 and offered a severance package that contained a release of all claims. Castelo signed the release and accepted the severance.

After Castelo's date of discharge and last day of work, December 31, 2018, she did not revoke the release. But some months later, she filed an action alleging wrongful termination and age discrimination under the California Fair Employment and Housing Act (FEHA). The parties stipulated to arbitration. Xceed brought a summary judgment motion, asserting the release barred Castelo's claims in their entirety. Castelo argued the claims were released only up to and including the date she signed the release (November 19, 2018), not the date of separation (December 31, 2018).

The evidence presented in the summary judgment motion established that when Castelo signed the separation agreement and release, she knew of Xceed's decision to terminate her, knew the date of her last day of work, and believed the termination was wrongful as based on age discrimination. However, she made no attempt to revoke the separation agreement either before or after receiving payment. The arbitrator granted summary judgment and issued an award in Xceed's favor. Castelo moved to vacate the award, arguing that the arbitrator exceeded his authority by giving effect to a contract that was illegal under California Civil Code section 1668. The trial court denied the motion to vacate and confirmed the arbitration award. This appeal followed.

An arbitrator's ruling that deprives a claimant of a hearing on the merits of an FEHA claim is reviewable by the appellate court for clear legal error. California Civil Code section 1668 provides: "All contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law."

Courts have not applied the statute literally, but instead have interpreted section 1688 to give effect to its purpose and promote public policy. The provision's purpose is to prohibit parties from giving themselves license to commit future unknown wrongs. The code section applies only to concurrent or future torts. No case has interpreted it to invalidate a release of a claim that was known to the releasor when the release was executed and after the dispute arose.

In affirming the trial court's ruling, the court of appeal found that all of Castelo's claims arose out of or flowed from the decision to terminate. She did not claim any new, independent acts of discrimination after signing the agreement and accepting the consideration for which she had bargained. The court concluded: "Enforcement of the release does not undermine the policies underlying section 1688 and promotes the strong public policy in favor of settling disputes."

TARDY FEE PAYMENT ALLOWED WITHDRAWAL FROM ARBITRATION

Milan Cvejic v. Skyview Capital, LLC, 2023 WL 4230980 (June 28, 2023)

After Milan Cvejic was terminated from his employment with Skyview Capital, he sued Skyview and others in state court. Skyview moved to compel arbitration. The trial court granted the motion and stayed the court proceedings. The arbitration hearing was continued one time prior to the date arbitration fees were due, and was rescheduled to proceed before a three-neutral

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American Arbitration Association (AAA) panel on August 5, 2021.

AAA notified the parties to pay the arbitration fees in advance of the hearing, by June 4, 2021. On July 7, 2021, Cvejic's counsel asked AAA whether Skyview had paid; the next day, AAA confirmed that it had not. AAA scheduled a call to address the nonpayment. During the call with the arbitrators, Skyview did not provide an explanation for its failure to pay. The arbitration panel, finding that the hearing fees had been requested and the time for payment had passed, set a new deadline of July 14, 2021 for payment. Cvejic reserved the right to proceed under the California Code of Civil Procedure. Within an hour of the call, his counsel wrote the panel to say Cvejic was withdrawing from arbitration pursuant to section 1281.98. The panel chair responded that the request to withdraw was premature.

Skyview paid the fees by July 14, 2021. One week later, Cvejic filed an election to withdraw from arbitration in the trial court with a request for sanctions and a request to vacate the earlier court proceedings. The trial court granted the request. This appeal followed.

When the drafting party is required to pay arbitration fees and costs and they are not paid within 30 days after the due date, that is a material breach of the arbitration agreement pursuant to California Code of Civil Procedure section 1281.98(a)(1). The employee or consumer then may elect to withdraw from the arbitration and proceed in a court or may elect to continue with the arbitration, with the agreement of the provider.¹

The appellate court underscored that the statute's intent is for the trial court, not the arbitrator, to decide the right to withdraw from arbitration. The trial court can award fees, costs, and sanctions.²

In 2021, after the current dispute arose, the legislature added a new subdivision (a)(2), which compels arbitration providers to provide the fee and cost invoices to all parties, clarifying the due dates and stating that: "Any extension of time for the due date shall be agreed upon...