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California Appeals Court Says Clause Construction Award is not Final Award Subject to Confirmation or Vacatur

August 29th, 2018 Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Awards, California State Courts, Class Action Arbitration, Clause Construction Award, Confirmation of Awards Comments Off on California Appeals Court Says Clause Construction Award is not Final Award Subject to Confirmation or Vacatur By Philip J. Loree Jr.

Introduction

Clause Construction Award 1

Clause Construction Award 1

We have discussed (here) what constitutes a final award under the Federal Arbitration Act, an issue that is important for a host of reasons, but is particularly so to any business faced with an adverse clause construction award. A clause construction award is an interim or partial final arbitration ruling that determines the threshold issue of whether the parties consented to class arbitration.

 

But not all arbitrations – even class arbitrations – are governed by the Federal Arbitration Act (“FAA”), and even when they are, parties may agree to procedural rules that are different from those of the FAA. See Preston v. Ferrer, 128 S.Ct. 978, 987-89 (2008); Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ.,  489 U.S. 468, 478-79 (1989). In Maplebear, Inc. v. Busick, ___ Cal. App.5th ___, slip op. (Cal. App., 1st Dist. August 21, 2018) (certified for publication), the parties agreed that  “the arbitration would be conducted by JAMS under its rules and procedures; the arbitrator would apply California substantive law; the arbitrator had no ‘power or authority to commit errors of law or legal reasoning’; and ‘[a]ny action to review the arbitration award for legal error or to have it confirmed, corrected or vacated’ would be decided under California law by ‘a California state court of competent jurisdiction.’” Slip op. at 2.

At issue in Maplebear was whether the California courts had jurisdiction to vacate a partial final Clause Construction Award, which concluded that the parties had consented to class arbitration. The California Appeals Court said “no,” which means that—unless the California Supreme Court (or the U.S. Supreme Court) hears an appeal and says otherwise—the parties have to endure through an entire class arbitration procedure before there is any judicial review of the Clause Construction Award. (Whether or not review by the California Supreme Court or the U.S. Supreme Court is even possible given the procedural posture of this case is outside the scope of this post.)

 

An Unfair Burden on the Clause Construction Award Challenger?

Clause Construction Award 2

Clause Construction Award 2

Consider the burden the decision imposes on the class-arbitration opponent. According to the majority opinion in Concepcion, then fairly current American Arbitration Association statistics showed that: (a) “[a]s of September 2009, the AAA had opened 283 class arbitrations[;]” (b) “[o]f those, 121 remained active, and 162 had been settled, withdrawn, or dismissed[;]” (c) “[n]ot a single one, however, had resulted in a final award on the merits[;]” and (d) “[f]or those cases that were no longer active, the median time from filing to settlement, withdrawal, or dismissal—not judgment on the merits—was 583 days, and the mean was 630 days.” AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1751 (2011).

Clause Construction Award 4

Clause Construction Award 4

While we have not researched whether more recent statistics tell a different story, it seems quite likely that the Court’s decision on finality means that the class arbitration opponent will have to spend an awful lot of time and money before the issue of class arbitration consent is reviewed by a court, assuming it is ever reviewed.

 

A Solid Basis in California Arbitration Law?

Clause Construction Award 7

Clause Construction Award 7

Unfortunately for class-arbitration opponent, applicable California arbitration law appears to support the Court’s decision. The California Arbitration Act (the “CAA”) §§ 1280 et seq., authorizes California courts to confirm, vacate, or modify arbitration “awards,” but those “awards” must be in writing and “include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy.” CAA § 1283.4.

The parties agreed to JAMS arbitration rules, and “as required by Rule 2 of the JAMS Class Action Procedures…, the parties submitted to the arbitrator the threshold question whether the Agreement allowed [the class-arbitration proponent] to seek certification of a claimant class within the arbitration.” Slip op. at 2.

The Arbitrator made a “Partial Final Award on Clause Construction Regarding Putative Class Arbitration” (the “Clause Construction Award”), which, by its terms, “‘determin[ed] only that [the class-arbitration proponent] may move for class certification as part of the mandated arbitration.’” Slip op. at 3 (quoting Clause Construction Award). The Award did “‘not address the appropriateness of such certification, nor the underlying [merits] claim that [the class-arbitration opponent] misclassified claimant and others similarly situated [as independent contractors, rather than employees].’” Slip op. at 3 (quoting Clause Construction Award).

Clause Construction Award 3

Clause Construction Award 3

The Court held that the Clause Construction Award was not an “award” within the meaning of CAA § 1283.4 “[b]ecause it leaves unanswered almost every question raised in [the class-arbitration proponent’s] arbitration demand….” Slip op. at 8. “The controversy that [the class-arbitration proponent] placed before the arbitrator[,]” said the Court, “raises a host of issues beyond whether the Agreement permits classwide arbitrations; none of them is addressed in the arbitrator’s partial final award.” Slip op. at 8. The Clause Construction Award “says nothing about the essential dispute, which is whether the people who work for [the class-arbitration opponent] are properly classified as independent contractors, and it does not even determine whether class certification is appropriate.” Slip op. at 8.

 

Too Much Concern about “Piecemeal Review” of Clause Construction Awards?

Clause Construction Award 8

Clause Construction Award 8

The Court rejected all of the class-arbitration opponent’s arguments for deeming the Clause Construction Award to be an “award” capable of confirmation or vacatur.  The class-arbitration opponent’s first argument was that the “the phrase ‘submitted to the arbitrators’ in section 1283.4” should be construed to “requir[e] only that an award determine the questions that have been briefed or argued and taken under submission by the arbitrators up to that point, and whose resolution is necessary to resolve the overall controversy.” Slip op. at 9.

Clause Construction Award 5

Clause Construction Award 5

The Court rejected this argument as contrary to “a strong public policy in favor of arbitration as a speedy and relatively inexpensive means of” resolving disputes. Slip op. at 9 (citations and quotations omitted). “If,” the Court explained, “parties can obtain judicial review of interim decisions by submitting discrete questions separately to an arbitrator, then parties could obtain an arbitration award one day, seek judicial approval or disapproval of the award the next day, only to return to arbitration the day after that to resume arbitrating what remains in their dispute.” Slip op. at 9 (citation and quotations omitted). That sort of “sporadic judicial intrusion into ongoing arbitrations would be highly inefficient because it would disrupt the streamlined process that is the hallmark of arbitration.” Slip op. at “-10 thess(citations and quotations omitted).

While there is certainly truth to what the Court said about piecemeal review, especially outside the class arbitration context, anyone familiar with the several cases the U.S. Supreme Court has decided concerning class arbitration will probably sense the irony of the Court’s reasoning concerning the alleged evils of “piecemeal review” in the class arbitration context. Recall the Concepcion majority opinion’s observation “that the switch from bilateral to class arbitration sacrifices the principal advantage of arbitration—its informality— and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.” 131 S. Ct. at 1751.

 

Too Little Concern about the Parties’ Agreement Concerning Judicial Review of Clause Construction Awards?

Clause Construction Award 9

Clause Construction Award 9

The Court also rejected the class arbitration opponent’s argument that the parties could structure their agreements to allow the arbitrators to make partial final awards that were subject to judicial review.  This argument was based on the parties’ incorporation of the JAMS arbitration rules, which contemplated such interim review. The Court held that this argument “was raised, considered, and persuasively rejected” by the California Court of Appeals, Second District in in Kaiser Foundation Health Plan, Inc. v. Superior Court, 13 Cal.App.5th 1125 (Cal. App. 2d Dist. 2017). “In the face of section 1283.4,” said the Court, “parties to an arbitration agreement cannot confer jurisdiction on courts to review arbitrator’s rulings by agreeing to proceed under a private organization’s rules that purport to allow immediate review of some interim awards.” Slip op. at 14.

Clause Construction Award 6

Clause Construction Award 6

Finally, the Court rejected the class-arbitration opponent’s argument that the Court “go beyond statutory language and case law and adopt a ‘rule’ that parties who have agreed that courts can  review an arbitrator’s award for legal error, as [the parties] allegedly have here, have also agreed that interim awards are reviewable ‘where reasonably necessary to ensure an effective remedy on an issue that they have agreed to submit to arbitration.’” Slip op. at 13. “Leaving aside[,]” said the Court, that the CAA does not support [the class-arbitration opponent’s] position, the [class-arbitration opponent] does not offer a workable distinction between interim awards where immediate review is reasonably necessary and interim awards where it is not.” Slip op. at 13. Under that proposed rule, “parties who disagree with an arbitrator’s interim ruling would have a basis to argue that immediate judicial review is necessary[,]” which “would thus open the door wide to piecemeal judicial review of arbitrator’s interim decisions, or at the very least open it a crack to time-consuming litigation about whether immediate judicial review is available in any given situation.” Slip op. at 13.

 

Photo Acknowledgements:

The photos featured in this post (captioned Clause Construction Award 1 – Clause Construction Award 9) are licensed from Yay Images and are subject to copyright protection under applicable law.

         

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