Annual Update of Alternative Dispute Resolution Cases

• Publication year: 2018
• Author: Paul J. Dubow

Annual Update of Alternative Dispute Resolution Cases

Paul J. Dubow

Paul Dubow is an arbitrator and mediator in San Francisco. He specializes in employment, insurance, franchise, financial, and other commercial law matters. He is a past president of the California Dispute Resolution Council, a fellow of the College of Commercial Arbitrators, and a founder and past president of The Mediation Society of San Francisco.

The cases discussed below are those issued by California courts and federal courts that have jurisdiction over California. The cases may be of interest to attorneys drafting contracts containing arbitration or mediation clauses.

Aandurud v. Superior Court, 13 Cal. App. 5th 880

Plaintiffs filed a class action alleging violation of the Unfair Competition Law against Vivint Solar because of alleged misrepresentations that it made in sales presentations to its customers. Vivint moved to compel arbitration of plaintiffs' individual claims, citing a class action waiver in the arbitration agreement. The contract also contained a clause that delegated to the arbitrator the decision to determine arbitrability. The trial court dismissed the class action allegations and ordered arbitration of the individual claims with the arbitrator given the power to determine arbitrability. Plaintiffs appealed, arguing, inter alia, that the delegation clause was not clear and unmistakable because it provided that if the arbitrator or "a court of competent jurisdiction" found a provision in the agreement to be unenforceable, it could be severed and that either party could proceed to court to obtain an injunction "in aid of arbitration."

The court of appeal determined that the delegation clause was not ambiguous, because the arbitration provision expressly stated that any disputes were to be resolved through binding arbitration except those within small claims court jurisdiction. Since arbitration was not at issue in a small claims court action, the small claims court could only find unenforceable provisions of the contract other than the arbitration provision. Thus, when the severability clause provided for severance of any provision of the contract found to be unenforceable by a court of competent jurisdiction, the court being referred to was the small claims court, which was not empowered to determine the scope or applicability of the arbitration provision. With respect to the injunction clause, the court would not be determining whether the arbitration provision was invalid or unenforceable. Instead, the clause allowed a court to issue a provisional remedy in connection with an arbitrable controversy only on the ground that the award to which the applicant may be entitled might be rendered ineffectual without provisional relief. Since provisional remedies could be issued without invading the province of any issues delegated to the arbitrator, the provisional remedy clause did not create an ambiguity as to whether arbitrability would be determined by the arbitrator. The court affirmed the order granting arbitration, but reversed the dismissal of the class claims because that was within the province of the arbitrator.

Comment. Courts determine questions of arbitrability,¹ but parties may delegate the arbitrability decision to the arbitrator provided that the delegation provision is "clear and unmistakable."² Thus, courts have held that there is no clear and unmistakable delegation where the contract contains a provision that severs a clause that has been found to be unenforceable by "a court of competent jurisdiction."³ The same result occurs if the contract provides that the parties can apply for injunctive relief from a court.⁴ Defendant Vivint may have dodged a bullet because the contract provided that claims within the jurisdiction of a small claims court were not arbitrable and the court of appeal assumed that the reference to a court in the severability clause was a reference to a small claims court. The reference to injunctive relief "in aid of arbitration" may have also helped Vivint. Nevertheless, the better practice would be to limit the severability clause to decisions by the arbitrator where there is a delegation clause, or to not even include a severability clause, because courts may sever an unenforceable clause that meets severability guidelines without a severability clause. Further, there is no need to include an injunctive relief clause in an arbitration agreement, because the parties already have such a right under Code of Civil Procedure section 1281.8.

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Baxter v. Genworth North America Corp., 16 Cal. App. 5th 713

Defendant Genworth's dispute resolution procedures were set forth in its Resolve program. The Resolve guidelines had a series of substantively unconscionable provisions, including an effective reduction of the statute of limitations and a provision that prohibited the aggrieved employee from discussing his or her dispute with other employees either before or after the arbitration. The trial court found that the unconscionable provisions pervaded the contract, declined to sever them, and denied Genworth's motion to compel arbitration.

The court of appeal affirmed. One of the provisions that was found to be unconscionable was a limitation on discovery. Each party was limited to ten interrogatories, five requests for production of documents, and two depositions not to exceed a total of eight hours. The court noted that employment disputes are factually complex, and their outcomes are often determined by the testimony of multiple percipient witnesses, as well as by written information about the disputed employment practice. Seemingly neutral limitations on discovery in employment disputes may be nonmutual in effect. This is because the employer already has in its possession many of the documents relevant to an employment discrimination case, as well as having in its employ many of the relevant witnesses. In this factually complex case, the plaintiff employee averred that she needed to depose six to ten witnesses, some of whom were named in the complaint, plus two persons most knowledgeable, depending upon the defenses that Genworth raised. The Resolve guidelines would prevent her from doing this. Genworth argued that the restrictions here were no different from restrictions that were approved in previous appellate decisions.⁵ But the court distinguished those cases on the ground that the plaintiffs therein had failed to establish that they needed the number of depositions that plaintiff requested in this case. Genworth also argued that the restriction was not hard and fast because the arbitrator could order additional discovery on a showing of "good and sufficient cause." The court found that this ground still presented a more stringent standard than a simple "showing of need," a standard the court concluded did not impose an unreasonable limitation on the arbitrator's authority to increase discovery.⁶ Moreover, the "good and sufficient cause" standard was vague. Presumably, it was not enough merely to show "good cause" for additional discovery. Otherwise, the term "sufficient" would be rendered meaningless. In applying the Resolve guidelines and assessing whether a "sufficient" showing was made to justify additional discovery, an arbitrator might expect a showing beyond simple "good cause," particularly if the employee sought discovery well beyond the default limitations.

Comment. Since an arbitration proceeding is expected to be more efficient than a trial, a restriction on discovery will be permitted, but it must be reasonable. In some prior appellate decisions,⁷ the minimum was three depositions, and so it was presumed that this number was the threshold. However, in this case, a showing that more than three depositions were reasonably needed put a three-deposition limit in jeopardy. It might be best to simply state that an arbitrator can permit discovery "upon good cause shown" without setting forth a number. That would probably limit discovery to some degree, but would still allow the parties to obtain what they need and would not jeopardize enforcement of the arbitration...