Annual Update of Alternative Dispute Resolution Cases
| Publication year | 2015 |
| Author | Paul J. Dubow |
Paul J. Dubow
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.
The United States Supreme Court held that there is a presumption that parties intend that arbitrators, not courts, will decide disputes about the meaning and application of particular preconditions for the use of arbitration. BG Group PLC ("BG") commenced an arbitration proceeding against the Republic of Argentina (the "Republic") pursuant to a dispute resolution treaty between the United Kingdom and Argentina. The claim was based on certain financial measures that the Republic took that caused BG to suffer losses. The Republic objected to the arbitrators' jurisdiction because the treaty required that an arbitration could only commence if the dispute had not been resolved within 18 months after the dispute was first submitted to a court of competent jurisdiction, and BG had never filed an action in court. The arbitrators ruled that the Republic had waived the precondition because the President of Argentina had issued a decree staying for 180 days the execution of any of its courts' final judgments in suits claiming harm as a result of the new financial measures. The arbitrators issued a $185 million award in favor of BG.
The District Court confirmed the award, but the decision was reversed by the District of Columbia Circuit Court of Appeals. The Supreme Court reversed. It noted that when ordinary contracts are at issue, the courts presume that parties, absent a clear delegation clause, intend that courts, not arbitrators, will decide disputes about arbitrability. These include questions such as whether parties are bound by a given arbitration clause, or whether an arbitration clause applies to a particular type of controversy. On the other hand, courts presume that parties intend that arbitrators, not courts, will decide disputes about the meaning and application of particular preconditions for the use of arbitration. These procedural matters include claims of waiver, delay, or like defenses to arbitrability, and they also include prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate.
The provision here was of the procedural variety. It determined when the contractual duty to arbitrate arose, not whether there was a contractual duty to arbitrate at all. The fact that the arbitration clause was found in a treaty did not change this analysis. A treaty is a contract between nations, and, like any other contract, its interpretation is based on the parties' intent.
Comment: No doubt, in hindsight, the Republic would have preferred the court to decide whether the precondition had been met. In this case, the arbitrators decided the issue because the contract was silent on the subject. If the parties had wanted the court to decide the issue, they easily could have inserted a clause to that effect in the contract.
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The Second District Court of Appeal found that an arbitration agreement was "procedurally unconscionable" because, inter alia, the plaintiff employees were Spanish speakers, and a key portion of the agreement was in English only (although the balance of the agreement was in both languages).
The Court also found that the agreement was "substantively unconscionable" because there were several instances of lack of mutuality. First, the agreement required arbitration only for the claims of the employees, but contained a choice of forum provision for the employer. Second, although the agreement contained a clause that stated that "any dispute" regarding the plaintiffs' employment shall be resolved exclusively through arbitration, only the employees initialed next to the clause and signed the agreement. Thus, the employees were the only parties clearly agreeing to arbitration. Third, the agreement permitted the employer to recover reasonable attorneys' fees and costs whenever it instituted litigation or arbitration to enforce the confidentiality clause, and not only when it prevailed in such a proceeding. Fourth, the agreement contained a confidentiality clause that gave the employer the choice of either litigation in court or arbitration when seeking redress for breach of the clause, but it did not provide that the employees could pursue the employer for a similar breach. Fifth, the confidentiality clause defined "confidential information," and imposed a duty on the employees not to disclose such information, but it did not impose any duties or obligations on the employer. In addition, the employees' potential exposure to liability for breach was not insignificant. Confidential information included things as mundane as pay rates and performance evaluations, and a breach could include not only sharing information with outsiders, but sharing information with other employees of the company. Sixth, the confidentiality clause lacked mutuality because it set forth the presumed harm to the employer, but did not state a reciprocal presumption of harm for employees. Seventh, the agreement required the employees to discuss with the employer "any problems or concerns with anything related to" their employment before disclosing any information to outsiders, including attorneys, courts, or arbitration organizations. The employer had no corresponding obligation to discuss its disputes with the employees before taking action in court or through arbitration. Eighth, the agreement contained a prevailing party clause in favor of the employer only. The employer argued that the clause was not unconscionable because California Civil Code section 1717 provides that an otherwise unilateral right to attorneys' fees is considered to be reciprocal and therefore the employees had the power to collect attorneys' fees if they prevailed in litigation or arbitration against the employer. The Court rejected this argument, noting that the employer's argument was that the clause was not unconscionable because it was illegal, and hence unenforceable. To state that premise was to refute the employer's logic.
Comment: This is an example of an arbitration agreement that is so one-sided that the court will find certain clauses to be unconscionable that might otherwise be considered conscionable. For example, courts have found the "any dispute" language to be mutual, even if the agreement is signed by the employee only, or uses the word "I." See Roman v. Superior Court, 172 Cal.App.4th 1462 (2011). Courts also have found confidentiality agreements to be enforceable. See Sanchez v. CarMax Auto Superstores California LLC, infra. ...
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