Legal Blasts (and Unrelated Baseball Opening Day Memories)

I would like to thank my colleague Natalie Ikhlassi for this week's legal portion.

California courts have recently signaled an important change in California law concerning the enforceability of arbitration agreements between businesses and consumers. Arbitration is generally a faster, less expensive, and less complicated way to resolve disputes than a lawsuit filed in court. Despite all these benefits, for the last decade, California courts routinely have found that consumers could not be forced to arbitrate their grievances relating to a company's business practices even if they signed an agreement to do so. Specifically, arbitration of Consumers Legal Remedies Act claims for injunctive relief have been prohibited since 1999, and arbitration of claims for public injunctive relief under California's Unfair Competition Law have been prohibited since 2003. The basic reasoning has been that the California legislature did not intend for the arbitration of injunctive relief claims under these consumer statutes. Therefore, businesses could not seek to limit their exposure by requiring consumers to arbitrate their claims.

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Probably not surprising to many of you, sometimes (although not as often as the non-lawyer readers may think) it is impossible for opposing attorneys to agree on anything when litigating a dispute. All this does is make a tough job harder and increase expenses for the clients. It also irritates the judge or arbitrator and is just plain embarrassing--not unlike when you are exposed to two siblings fighting.

It is really embarrassing when the subject of the dispute is the exhibit list, something that simply should not be the subject of dispute when there are so many other issues that are. When listing the documents intended to be used at trial or arbitration, the preferred and often ordered approach is for the parties to jointly identify for the judge or arbitrator all of the exhibits to be used in the form of a list. Many cases require the use of thousands of documents. If the lawyers cannot actually agree on a joint set of documents, what is typically done is the plaintiff's documents are listed first by number; ex. 1-1000, and the defendant's exhibits are listed next; 1001-2000, etc.

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When a dispute is in arbitration, and the arbitrator is designated, he or she is required to disclose to both sides all previous interaction he or she has or had with the clients and attorneys involved in the dispute so that the arbitrator can be removed if any conflicts exist. Most arbitrators understand and do this. However, some don't, and if they don't, it can become a real problem for the litigants. Why is that?

First, because the losing party may then have grounds to set aside the arbitration award based on an undisclosed conflict. Moreover, under the recent case of La Serena Properties v. Weisbach et. al. 2010 DJDAR 1101 (2010), the prevailing party, who no longer is the beneficiary of the arbitration award, likely will have no remedy against the arbitrator who failed to disclose or the tribunal with whom the arbitrator is affiliated. That is because the holding of that case gives the arbitrator and the tribunal with whom he or she is affiliated absolute immunity for the failure to disclose.

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Unopposed Arbitrations

Having handled numerous arbitrations in my 26+ years of practice and never being involved in one that was unopposed, I was quite surprised to recently be involved in three unopposed arbitrations in a three month period. I don't know if the reason was the state of the economy, luck of the draw or something else, but I did learn a great deal about how to handle an unopposed arbitration, and that they are not as easy to win as one might think.

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I would like to thank my colleague Zach Mayer for this week's legal portion.

Unlike jury verdicts and trial court rulings, arbitration awards are non-appealable in most instances. Recognizing the finality of an arbitrator's decision is appropriate because the parties have agreed that the decision would be final. Arbitration by agreement is generally consensual and voluntarily, and once that consent is given the arbitrator's authority to decide the matter is basically sacrosanct. Consequently, judicial review of arbitration decisions is sharply limited - even where possible errors of fact or law are involved. But those same limitations on judicial review do not apply to non-parties to an arbitration who seek to challenge an arbitrator's discovery order.

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Your case often is won or lost by whom you select to be your arbitrator. One of the principal advantages of arbitration, if not the most significant one, is that you can have significant control over who decides your case.

Your best course of action is to obtain your arbitrator by agreement. The next best alternative is for you to be able to control the selection process as much as possible if you cannot reach agreement. You rarely can do this with a trial judge, and in my opinion, no matter how proficient your attorney is at jury selection, your control over that process is significantly more limited.

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Thanks to my colleague Eric Jorgensen for this week's legal portion.

Returning to the question of whether and to what extent parties to an arbitration can protect materials generated and facts uncovered in the arbitration from subsequent disclosure to third parties, we see that surprisingly little case law exists on this issue (and none of it comes from California). The leading federal case seems to be United States v. Panhandle Eastern Corp., 118 F.R.D. 346 (D. Del. 1988), in which the court held that arbitration communications are discoverable and admissible and refused to grant an order protecting them under Rule 26(c). In Panhandle, a pipeline company sought to prevent the disclosure of documents relating to an arbitration held in Geneva, on the (somewhat vague) ground that such disclosure would damage its international business relationships. Specifically rejecting the argument that internal arbitration rules require confidentiality or that a "general understanding" of confidentiality by the parties (as opposed to an explicit confidentiality provision) could justify a protective order, and concluding that the company failed to meet is burden to establish "good cause" for a protective order under Rule 26(c), the court ordered that the material be produced. In Lawrence E. Jaffee Pension Plan v. Household International, Inc., 2004 WL 1821968 (D. Colo. Aug. 13, 2004) (unpublished decision), notwithstanding that the arbitration agreement did contain an explicit confidentiality provision, the court still compelled production of arbitration materials, holding that, even with a confidentiality agreement, the moving party would still have to establish "good cause" for a protective order under Rule 26(c), which the moving party had not done.

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Thanks to my colleague Eric Jorgensen for this week's legal portion.

Arbitration is frequently advertised to be a "private" process, and many lawyers make the mistake of assuming that "private" means "confidential" - in other words, that materials generated in the course of the arbitration can be protected from subsequent disclosure through discovery and elsewhere. Not so. In this context, "private" only refers to the ability of third parties to access and observe the proceedings, and to disclose those observations to others, without the consent of the parties, which is extremely limited. (Unlike trials, arbitrations are rarely conducted in public.) Whether the parties have discretion, or can be compelled, to subsequently disclose the details of the proceedings, including, again, evidence and pleadings submitted, transcripts of testimony and other hearings, etc., is a different question entirely.

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I want to thank my colleague Erich Luschei for the legal section of this week's blog, which actually does have a connection to the second part of the blog.

"Baseball arbitration" provides a unique means by which disputes between parties that involve issues of valuation may be resolved in an expeditious manner. It derives its name from the method used to negotiate salaries for major league baseball players eligible for salary negotiation. Baseball arbitration relies for its success on the reasonableness of parties to a dispute in valuing of their cases. In contrast to traditional litigation or arbitration in which all issues are presented for disposition to a trier of fact (whether judge, jury or arbitrator), baseball arbitration constrains the range of options presented for determination. In baseball arbitration, each side to a dispute proposes an outcome to the arbitrator and the arbitrator selects one or the other.

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Welcome to my weekly blog. The first portion will be the legal portion; the second will be the baseball portion. Hope you enjoy.

Recently, I attended a national Health Care seminar where I was surprised to hear multiple health plan in house counsel express their preference for the court system over arbitration for the resolution of their business contractual disputes. In California at least, I believe that such a view would be in the distinct minority, particularly if your organization is the one being sued.

The decision almost always is made at the time of contracting, although it also can be made after a court proceeding has been commenced. The primary factors that need to be considered in choosing arbitration or the court system are the nature of your business, subject matter of the dispute, control/surprise avoidance, cost and appellate rights.

If you are in the court system, you are looking at a jury trial unless you are excepted or all parties agree to waive. In California, certain types of businesses simply can't get a fair jury trial or have an uphill battle from the start. I include in those categories a health plan being sued by a hospital, a lender being sued by a borrower, attorneys being sued by their clients and employers being sued by their employees. That is why those disputes generally resolve via arbitration as opposed to the court system whenever possible.

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