RECENT DEVELOPMENTS ARBITRATION

Transcription

1 PROPERTY ACQUIRED UPON PARENT S DEATH IS NOT PART OF BANKRUPTCY ESTATE Williamson v. Hall, F.3d (10 th Cir. 2009). FACTS: D. Hall and L. Hall ( Debtors ) filed a voluntary Chapter 7 petition on September 6, As of that date Debtors owned 1.33 acres of land in the city limits of Centralia, Kansas. On that property were both a home and a mobile home, each bearing a different physical address. In early 2004 D. Hall moved out of the home and into the mobile home pursuant to a court order. At the time the petition was filed, D. Hall still resided in the mobile home, and L. Hall and the couple s children resided in the home. L. Hall s father passed away eighteen days after the petition was filed. As a result, L. Hall became entitled to receive (a) certificates of deposit in the amount of $38,947.86; (b) one-fifth interest in land located in Topeka, Kansas; (c) U.S. bonds in the amount of $3,731.33; (d) life insurance policy proceeds in the amounts of $6, and $4,005.75; (e) individual retirement account worth $2,858.54; (f) a pro rata share of personal property proceeds; and (g) a pro rata share of decedent s checking account. With the exception of the proceeds from the personal property and checking account, L. Hall received all of the property as a payable on death beneficiary or similar beneficiary designation. The chapter 7 Trustee sought to compel turnover of various assets that passed to the debtor-wife. The Bankruptcy Court ruled that the property acquired upon the death of L. Hall s father is not included in the debtor s estate because the property was not acquired by bequest, devise, or inheritance. HOLDING: Affirmed. REASONING: The court reasoned that the property in a debtor s bankruptcy estate includes all legal or equitable interests of the debtor in property as of the commencement of the case, wherever located and by whomever held. The court noted that it agreed with the Bankruptcy Court that whatever rights L. Hall had in the property she acquired upon the death of her father at the time of filing the petition were not legal or equitable interests, but rather a mere expectancy because any rights she had during the lifetime of her father would subject to divestiture at any time. Because this is a mere contingent interest, and not a present legal or equitable interest, the property is not included in the bankruptcy estate. ARBITRATION CLAIMS BASED ON ALLEGED RAPE NOT SUBJECT TO ARBITRATION CLAUSE Jones v. Halliburton Co., 583 F.3d 228 (5th Cir. 2009). FACTS: Jamie Leigh Jones ( Jones ) began working for Halliburton/KBR ( Halliburton ) in 2004 as an administrative assistant in Houston, Texas. In 2005, Jones was reassigned to Baghdad as a clerical worker. As part of this relocation, Jones signed a contract which provided that all claims arising in the workplace would be subject to arbitration. When Jones arrived in Baghdad, Halliburton provided housing. Although Jones had requested to be housed only with women, she was instead housed in a predominantly male-occupied barracks. Jones alleges that on July 28, 2005, she was drugged, beaten, and gang-raped by several Halliburton employees in her barrack s bedroom. When she awoke the next morning, naked, bruised and suffering from severe injuries requiring surgery, she discovered one of the alleged perpetrators lying in the lower bunk in her bedroom. Jones confronted the perpetrator who admitted to the rape. Jones reported the rape to another employee and was taken to see Halliburton s medical personnel. A rape kit was administered at a United States Army-run hospital. After her rape-kit procedure was performed, Jones was placed under armed guard in a cell and was not permitted to leave. She was denied access to food, water, and a telephone to contact her family, until she convinced one of her guards to allow her to use his cell phone to telephone her father. Jones father was eventually able to enlist Congressional assistance to secure Jones return to the United States. Jones filed a complaint with the Equal Employment Opportunity Commission ( EEOC ). The EEOC conducted an investigation and determined that Jones had been sexually assaulted by one or more employees, that physical trauma was apparent, and that Halliburton s investigation had been inadequate. Jones filed a demand for arbitration against Halliburton for negligence, negligent undertaking, and gross negligence in relation to the sexual assault. Jones also filed for and received workers compensation benefits. Upon retaining new counsel, Jones filed the instant action in district court based on the same above claims against Halliburton. Halliburton moved to compel arbitration of Jones claims and stay the proceedings. The district court granted Halliburton s motion to arbitrate all claims with the exception of: (1) assault and battery; (2) intentional infliction of emotional distress arising out of the alleged assault; (3) negligent hiring, retention, and supervision of employees involved in the alleged assault; and (4) false imprisonment, finding that while the arbitration provision was valid, the four claims mentioned above fell outside the scope of the agreement. Halliburton appealed. HOLDING: Affirmed and remanded. REASONING: The court reviewed the case de novo and employed a two-step analysis to determine whether a party may be compelled to arbitrate, by first considering whether the party has agreed to arbitrate the dispute. To determine whether the party agreed to arbitrate a dispute, the court asked (1) whether there was a valid agreement to arbitrate the claims and (2) whether the dispute in question fell within the scope of that arbitration agreement. The court recognized that there is a strong federal policy in favor of arbitration. Halliburton argued that the dispute was covered by the arbitration agreement because it was related to Jones employment. While the court agreed that the arbitration agreement was broad, it did not agree that it was unbounded. The court noted that the alleged sexual assault occurred after hours, while Jones 96 Journal of Consumer & Commerical Law

2 was off-duty and in her bedroom. The court also agreed with the lower court that Jones claims of assault and battery, intentional infliction of emotional distress, negligent hiring, retention, and supervision of the employees involved, and false imprisonment fell beyond the outer limits of even a broad arbitration provision and were not related to Jones employment. Further, the court agreed that liberal construction could not be incorporated wholesale into the interpretation of an arbitration provision and, as such, the alleged rape could not be considered related to her employment for purposes of arbitration simply because it might be considered within the scope of employment for workers compensation purposes. The court also agreed that although the arbitration provision extended to personal-injury claims arising in the workplace, Jones bedroom should not be considered the workplace, even though her housing was provided by her employer. Additionally, Jones was not on-call at the time of the alleged incident, nor was the incident a risk distinctly associated with the conditions under which Jones lived. As such, the court found that Jones living in employer-provided barracks was unavailing to Halliburton s contention that the incident was related to her employment for arbitration purposes. The court also noted that pursuant to Halliburton s company policy, drinking was allowed during off-duty hours and in non-work spaces. Therefore, because drinking was allowed at the barracks, the court found that Halliburton did not consider the barracks to be a workplace. The court affirmed the lower court s denial of the motion to compel arbitration of the four claims, and remanded the matter to district court for further proceedings. CREDIT CARD ARBITRATION AGREEMENT IS EN- FORCEABLE Cicle v. Chase Bank USA, 583 F.3d 549 (8th Cir. 2009). FACTS: Virginia Cicle, a resident of Missouri, opened a credit card account with Chase Bank USA, a Delaware corporation. She initially received a Cardmember Agreement ( Agreement ) that included a binding arbitration agreement. In 2005, Chase sent Cicle a new arbitration agreement that replaced the one previously in effect. As with earlier amendments, Cicle was given the option of rejecting the change in writing, which would close the account to future charges, however, Cicle continued to use the card and by doing so, according to the terms of the agreement, Cicle accepted the amendments-whether or not she sent notice. Two years later Cicle filed a class-action lawsuit in Missouri state court alleging Chase imposed illegal penalties and committed an unfair merchandising practice. Chase removed the case to federal court under the Class Action Fairness Act of 2005 on the basis of diversity jurisdiction and federal question jurisdiction arising under the National Bank Act. Chase then filed a motion to stay the litigation and compel arbitration pursuant to the terms of the Agreement. The court applied Missouri law and found the cost-sharing terms of the arbitration agreement to be unconscionable, but conditionally granted Chase s motion to compel arbitration and stay litigation if Chase agreed to pay all costs and fees associated with the arbitration. Chase did not agree, so the District Court denied enforcement of the arbitration clause as unconscionable under Missouri law. Chase appealed. HOLDING: Reversed. REASONING: The court reasoned a contract must be found to be both procedurally and substantively unconscionable before it will be deemed unenforceable on the grounds of unconscionability. The court considered first the extent to which the arbitration agreement was procedurally unconscionable. It explained the notice of amendment specifically stated in the Summary of Changes section that the arbitration agreement was being amended and suggested the cardholder review the changes. The court found an agreement to arbitrate was always a part of Cicle s agreement with Chase. When she received the notice of amendment, she had thirty days to reject the changes in writing and opt out of the amendment before it took effect. Therefore, the Agreement was not procedurally unconscionable. Further, the court considered whether the Agreement was grossly unconscionable in substance, looking to the The court reasoned a contract must be found to be both procedurally and substantively unconscionable before it will be deemed unenforceable on the grounds of unconscionability. terms of the contract and the totality of the circumstances. While the lower court concluded the cost-sharing provisions within the arbitration agreement were unconscionable, making the overall agreement substantively unconscionable the Circuit Court disagreed, explaining the agreement specifically provided a small claims court exception to binding arbitration. The agreement to arbitrate is not substantively unconscionable because of the potential that Cicle could be obligated to pay excessive costs and fees and the cost-sharing and cost-shifting provisions in the arbitration agreement save it from being unconscionable on its face. Cicle bears the burden of showing the likelihood of incurring such costs, and the only cost information she produced cannot support a legal conclusion of unconscionability. Accordingly, the court found the Agreement was not unconscionable, and the arbitration agreement enforceable. DELL S MANDATORY ARBITRATION CLAUSE DEFEAT- ED Carideo v. Dell, Inc., F. Supp. 2d (W.D. Wash. 2009). FACTS: Plaintiffs Kristin Carideo and Catherine Candler purchased allegedly defective laptop computers from Dell. As putative class representatives, they alleged violations of Washington s Consumer Protection Act ( CPA ), breach of express and implied warranties, fraudulent concealment, and unjust enrichment. Dell moved to compel arbitration based on an arbitration clause in the Terms and Conditions of Sale ( Agreement ) that it presents to customers at the time of purchase, and again with the shipment of the computer. The arbitration clause provides that any claims related to the Agreement shall be resolved by binding arbitration administered by the National Arbitration Forum ( NAF ). The arbitration clause includes a class action waiver pursuant to which the customer waives her ability to pursue a class action against Journal of Consumer & Commerical Law 97

3 Dell and vice versa. The Agreement selects the substantive law of Texas to govern contract disputes. In June 2007, the enforceability of the Agreement was presented to the court through a choice-of-law question: whether the Agreement s class action waiver violated Washington s fundamental public policy such that the parties express choice of Texas law could not be honored. See Carideo v. Dell, Inc., 492 F. Supp. 2d 1283, 1288 (W.D. Wash. 2007). The court noted that [a] bsent a legislative enactment or declaration from the highest court that class action waivers of the sort presented here violate public policy of the State of Washington, the court declines to invalidate the Agreement s choice of law provision. Id. The court therefore applied Texas law, stayed this action, and compelled arbitration. After June 2007, developments in Washington law led the court to revisit its analysis on Plaintiffs motion for relief under Federal Rule of Civil Procedure 60(b). First, in Scott v. Cingular Wireless, the Washington Supreme Court held that the class action waiver contained in Cingular Wireless s ( Cingular ) consumer arbitration agreement violated the public policy embodied in Washington s CPA and improperly exculpated Cingular from wrongful conduct. Second, in Erwin v. Cotter Health Ctrs., the Washington Supreme Court clarified that it would apply section 187 of the Restatement (Second) Conflict of Laws (1971) to conflict of laws problems in which the parties have made an express contractual choice of law. Third, a number of other courts had weighed-in on the issue of class action waivers in arbitration agreements. In September 2007, the court heard oral argument on Plaintiffs original Rule 60(b) motion. Plaintiffs argued that Scott stands for the proposition that a class action waiver of the type found in the Agreement is unconscionable and, therefore, unenforceable as a violation of Washington s fundamental public policy. The court disagreed. Although it concluded that Scott directs courts to examine the enforceability of class action waivers based on the totality of the circumstances, the court ultimately found that the Agreement was enforceable because it was neither substantively nor procedurally unconscionable. Plaintiffs petitioned the Ninth Circuit for a writ of mandamus. While the petition was pending, the Washington Supreme Court issued its decision in McKee v. AT & T Corp. in which the court, applying Scott, held that the class action waiver contained in an agreement for AT & T telephone services was substantively unconscionable. The Ninth Circuit subsequently denied Plaintiffs petition for writ of mandamus without prejudice and ordered the district court to reconsider Plaintiffs Rule 60(b) motion in light of McKee v. AT & T Corp. After oral argument, this case took an unexpected turn when news broke that NAF had ceased arbitrating consumer disputes of the sort at issue here. The parties agreed that NAF is no longer available to arbitrate this dispute. Dell argued that the court should merely appoint a substitute arbitrator. Plaintiffs argued that the court should deny arbitration on this ground. The court first determined whether the unavailability of NAF as arbitrator dooms the arbitration clause in its entirety. Plaintiffs filed a supplemental Rule 60(b) motion, requesting relief from the order compelling arbitration. HOLDING: Granted (Plaintiff s supplemented Rule 60(b) motion). REASONING: The court first determined whether the unavailability of NAF as arbitrator dooms the arbitration clause in its entirety, including the class action waiver. The court reasoned that under the FAA, the answer to this question turns on whether the selection of NAF as arbitrator was integral to the Agreement. The court noted that in general, the FAA provides that where the chosen arbitrator is unavailable, the court may appoint a substitute arbitrator. To determine whether to appoint a substitute arbitrator, the court must ask whether the choice of the specific arbitrator is integral to the arbitration agreement. The court held that where the arbitration clause selects merely the rules of a specific arbitral forum, as opposed to the forum itself, and another arbitral forum could apply those rules, the unavailability of the implicitly intended arbitral forum will not require the court to condemn the arbitration clause. At a minimum, the court held that for the selection of an arbitrator to be deemed integral, the arbitration clause must include an express statement designating a specific arbitrator. The court concluded that the parties selection of NAF as arbitrator is integral to the arbitration clause. The arbitration clause provides that disputes SHALL BE RESOLVED EXCLU- SIVELY AND FINALLY BY BINDING ARBITRATION AD- MINISTERED BY THE NATIONAL ARBIRATION FORUM (NAF) under its Code of Procedure then in effect.... The court held that his language clearly and unequivocally selects NAF as the arbitrator, specifies that NAF will apply its own rules in the arbitration, and does not provide for an alternative arbitral forum. The court was not persuaded by Dell s arguments that the term exclusively modifies only binding arbitration or that the language is either ambiguous or nonsensical. Finally, the court noted that the arbitration clause not only selects NAF as arbitrator, but designates NAF s code of procedure as the applicable rules. Dell noted that while NAF stopped accepting new consumer arbitrations after July 24, 2009, it continues to arbitrate previously-filed matters under its rules. Dell argued that, as a consequence, NAF rules are in effect and may be applied by a substitute arbitrator. The court disagreed. The court found that while NAF may continue to apply certain rules to previously-filed consumer arbitrations, it does not follow that these rules remain in effect for arbitrations filed after July 24, The court stated that because NAF does not arbitrate consumer disputes filed after July 24, 2009, there are simply no NAF rules currently in effect for such arbitrations. The court held that even if it were to appoint a substitute arbitrator, the court was not persuaded that there would be applicable NAF rules in effect for the substitute arbitrator to apply. The court concluded that the selection of NAF was integral to the arbitration clause and declined to appoint a substitute arbitrator pursuant to 5 of the FAA. The court then determined whether the class action waiver survived the failure of the arbitration clause. The court held that by its plain language, the class action waiver applies only in the context of arbitration. The Agreement did not include a severability provision. The court concluded that the class action waiver cannot be severed from or lifted out of the arbitra- 98 Journal of Consumer & Commerical Law

4 tion clause because it is inextricably tied to arbitration. Therefore, because the class action waiver was not severable, the court concluded that the class action waiver, like the arbitration clause, is not enforceable. ARBITRATORS DETERMINE IF FEES MUST BE PAID PRIOR TO ARBITRATION Dealer Computer Servs. Inc. v. Old Colony Motors Inc., F.3d (5th Cir. 2009). FACTS: In 2001, Old Colony contracted with Dealer Services for the purchase and maintenance of a computer system for Old Colony s dealership. The contract contained language requiring Old Colony to implement software upgrades released by Dealer Services. It also provided that Old Colony would pay the costs of any hardware upgrades required to run the new software. In August 2006, Dealer Services told Old Colony that the contracts required Old Colony to purchase upgrades for its hardware and software and that Dealer Services would no longer support Old Colony s existing computer system without the referenced upgrades. Old Colony refused to pay, citing costs. On April 11th, 2007, Dealer Services filed an arbitration demand against Old Colony for almost $ 500,000, plus attorneys fees and costs, arising out of Old Colony s failure to upgrade its software and hardware. The parties agreed in the contract that the American Arbitration Association (AAA) would conduct the arbitration and that its rules would apply to the parties dispute. The parties also agreed that the Commercial Arbitration Rules of the AAA would apply to their dispute. Between April and October 2007, Dealer Services and Old Colony attempted to empanel a tribunal. Dealer Services filed its statement of claims alleging Old Colony failed to pay Dealer Services, failed to purchase the mandatory upgrades, and sold its dealership after going out of business. Old Colony answered with affirmative defenses, and also sought affirmative relief from the arbitration panel. In August 2008, the AAA sent a notice to Old Colony to deposit $ 26,900 for the final arbitration hearing. Dealer Services represented, and Old Colony did not deny, that Dealer Services paid its share of AAA required deposits. Dealer Services also represents that it paid the fees necessary to proceed on its own claims and the additional fees are only necessary to proceed on both Dealer Services claims and Old Colony s counter claims in the arbitration. Old Colony notified the AAA and Dealer Services that it had no funds or assets to pay its proportional share of the deposits for arbitrator s fees and expenses. The arbitrators asked Dealer Services to pay the full deposit, but Dealer Services refused. Thereafter, in late November 2008 under Rules 52 and 54 of the AAA Commercial Arbitration Rules, the panel then ordered hearings indefinitely postponed and proceedings and deadlines indefinitely suspended. In response, Dealer Services brought a suit under 9 U.S.C. 4 against Old Colony to compel Old Colony to pay its share of the deposit. The district court entered an order compelling Old Colony to pay. Old Colony timely appealed. Holding: Reversed. Reasoning: The court analyzed whether the fee dispute falls within the agreement to arbitrate. The court noted that in determining whether a dispute falls within the agreement to arbitrate, the Supreme Court has decided that, absent an agreement to the contrary, the parties intend that the arbitrator, not the courts, should decide certain procedural questions that grow out of the dispute and bear on its final disposition. The court held that payment of fees is a procedural condition precedent that the trial court should not review. The court noted that the comments to Revised Uniform Arbitration Act provides that arbitrators should decide whether parties met the conditions precedent to the obligation to arbitrate. The court noted that the Sixth Circuit held that conditions precedent to arbitration are for the arbitrator to decide. The court noted that under AAA Rule 52, payment of fees seems to be a procedural condition precedent set by the AAA. The court held that arbitrators are within their discretion to ask one or the other party to pay the entire fee, and tax the fee as part of the award, or, alternatively, suspend the arbitration under AAA Rule 54. The court cited the Ninth Circuit case, Lifescan, Inc. v. Premier Diabetic Servs., Inc., in support of its conclusion. The court explained that in Lifescan, parties incorporated into their agreement the AAA Commercial Arbitration Rules, which recognize the arbitrators discretion to interpret the scope of their authority. The Ninth Circuit noted, however, that arbitrators simply have the discretion to require deposit of those fees. In Lifescan, the Ninth Circuit held that the arbitrators to a AAA commercial contract dispute had full discretion and flexibility to change allocation of fees, or suspend arbitration, as a solution to an otherwise bad situation. The court adopted this view, holding that such conditions precedent to arbitration are procedural issues left to the discretion of the arbitrators. The court reversed the judgment of the trial court and remanded the case to dismiss Dealer Services motion to compel. NURSING HOME CAN T FORCE ARBITRATION OF NEGLIGENCE CLAIM Koricic v. Beverly Enters.-Neb., Inc., 773 N.W.2d 145 (Neb. 2009). FACTS: Frank Koricic ( Frank ) lived with his mother and assisted her in her daily affairs. When her health declined, she was admitted to Beverly Hallmark, a nursing home now known as Beverly Enterprises. At his mother s admission, Frank signed an optional arbitration agreement ( Agreement ). Because his mother understood little English, Frank explained documents to her. If she wanted them signed, she would have Frank sign for her. Frank s mother was never declared incompetent and she never granted Frank power of attorney over her affairs. When his mother was taken to Beverly Hallmark, Frank signed the paperwork for his mother s admission. Frank claimed he did not read any of the paperwork, never discussed the paperwork with his mother, and that the employee did not explain any of the documents. One of the papers Frank signed was the Agreement and on top of it, it states that it is not a condition of admission. The Agreement provided that any and all claims, disputes, and controversies would be resolved by binding arbitration. Before Frank s mother died, she allegedly sustained injuries and pain and suffering because of Beverly Hallmark s negligence. Frank, as next of kin and trustee of her estate, filed suit. Beverly Hallmark moved to dismiss the case and compel arbitration under the Agreement. Frank argued that Beverly Hallmark could not Journal of Consumer & Commerical Law 99

5 Because arbitration is purely a matter of contract, the court first determined whether an agreement to arbitrate exists under basic contract principles. enforce the Agreement because he, not his mother, had actually signed it. The district court concluded that the Agreement was valid and enforceable because his mother had authorized him to sign it. Frank appealed stating he did not have authority to act as his mother s agent and to enter into the Agreement for her. HOLDING: Reversed and remanded. REASONING: Because arbitration is purely a matter of contract, the court first determined whether an agreement to arbitrate exists under basic contract principles. Because his mother did not sign the Agreement, the court focused on whether Frank acted as his mother s agent with the authority to enter into the Agreement. Under agency law, Beverly Hallmark bears the burden of proving Frank s authority and that his actions were within the scope of his authority. Because Frank s mother was never consulted about the documents Frank signed, the court found no evidence suggesting that (1) she knew frank would be asked to sign an arbitration agreement, (2) she represented to a Beverly Hallmark employee that she authorized Frank to sign the Agreement, or (3) she later ratified the Agreement. Although the court agreed with the trial court that an agency relationship existed between Frank and his mother, Frank s actual authority did not extend to signing the Agreement that would waive the right of access to the courts and trial by jury because the Agreement was optional and his mother was never consulted. Thus the court held the district court s finding that Frank had actual authority to sign the Agreement erroneous. Alternatively, the court held that Frank did not have the apparent authority to sign the Agreement because under these circumstances, the Beverly Hallmark employee could not reasonably believe that Frank had the authority to sign the Agreement. The court reasoned that Beverly Hallmark knew of Frank s mother s limited ability to understand English, otherwise she would not have been asking her son to sign for her. The court held that nothing in the record suggested that a reasonable person should have expected an arbitration agreement to be included in admission documents for a nursing home. MANIFEST DISREGARD IS NOT A BASIS TO VACATE AN ARBITRATION AWARD Ancor Holdings, LLC. v. Peterson, Goldman & Villani, Inc., 294 S.W.3d 818 (Tex.App. Dallas, 2009). FACTS: In March 2003, Peterson, Goldman & Villani, Inc. ( PGV ) purchased promissory notes and a Continuing and Unconditional Guaranty agreement from Bank of America, NA ( BOA ). Ancor Holdings, LLC (Ancor) and BOA entered into the agreements in early OpenPoint was a successor-bymerger to the three entities in which Ancor was the controlling shareholder. Within two months of executing the agreement, OpenPoint filed for bankruptcy and defaulted on the Guaranty agreement. During the bankruptcy, the court questioned BOA s first priority lien status on the Open Point collateral. Two years later, the bankruptcy trustee filed an adversary proceeding against BOA alleging the financing statements filed in the month preceding the bankruptcy filing should be avoided as a preference. The bankruptcy trustee settled with PGV for $120,000. A year later, PGV filed suit to enforce the guarantee agreement against Ancor. PGV asserted that because the bankruptcy trustee filed a preference claim, Ancor could not invoke the limitations formula provided in the Guaranty and was liable for the full amount owed under the promissory notes. The trial court referred the case to arbitration pursuant to the parties joint motion under the Guaranty s arbitration clause. The arbitrator awarded PGV $829,764 in principal under the Guaranty plus interest, costs and attorneys fees. The arbitrator did not specify an amount, but awarded PGV its share of the arbitration costs. The parties then cross motioned to affirm and vacate the arbitration award. The trial court confirmed the award in favor of PGV and excluded PGV s arbitration costs. Ancor appealed. HOLDING: Affirmed as modified. REASONING: Ancor appealed asserting the trial court erred by not vacating the arbitration award. Ancor contended that the arbitrator manifestly disregarded the law. Both parties agreed that the Federal Arbitration Act ( FAA ) applied to this case. The FAA permits a court to vacate an arbitration award where the award was 1) procured by corruption, fraud or undue means, 2) where there was evident partiality or corruption in the arbitrators, 3) where the arbitrators were guilty of misconduct by which the rights of any party have been prejudiced; or 4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. The court noted that the Supreme Court recently held the grounds listed in the FAA are the exclusive grounds for vacating an arbitration award. Thus, Ancor s arguement that the arbitrator manifestly disregarded the law and committed gross mistake by implying a failure to exercise honest judgment are common law grounds for vacating an arbitration award. The court reviewed the Supreme Court s decisions in two recent cases, Hall Street and Citigroup Global Markets. In Hall Street, 128 S.Ct. at 1400 the underlying agreement contained terms that deviated from Section 10 and 11 of the FAA. The Supreme Court granted review to determine whether the grounds for vacatur and modification provided by Section 10 and 11 of the FAA were exclusive. The Supreme Court held that sections 10 and 11 provided the FAA s exclusive grounds for vacatur modification. Further, in Citigroup Global Markets v. Bacon, the Supreme Court overruled its precedent holding that non-statutory grounds may support vacatur of an arbitration award under the FAA. Therefore, the court concluded that the Supreme Court made clear Sections 10 and 11 are the exclusive grounds for vacating and modifying an arbitration award. The court affirmed and modified the award to reinstate the arbitration costs that were excluded. 100 Journal of Consumer & Commerical Law

6 DOCTOR CAN T FORCE ARBITRATION OF MALPRAC- TICE CLAIMS Rodriguez v. Superior Court, 98 Cal.Rptr.3rd 728 (Cal. Ct. App. 2009). FACTS: Petitioner seeks writ relief from an order of the Superior Court granting the petition to arbitrate brought by defendant Sandy Witzling ( Defendant ). Defendant executed an arbitration agreement ( Agreement ) with Petitioner s mother in accordance with his custom and practice for all new patients. The Agreement states by signing this contract you are agreeing to have any issue of medical malpractice decided by neutral arbitration and you are giving up your right to a jury or court trial. Later, Petitioner s mother died during recovery from a nick in her liver made by Defendant during surgery. Petitioner is the sole heir to her mother s estate. Petitioner filed a medical malpractice suit against Defendant. Defendant then filed and was granted a petition requesting the controversy to be decided by arbitration. Petitioner opposed the petition based on the assertion that permitting a doctor whose malpractice contributed to a patient s death to compel arbitration would be against public policy. Petitioner asserted that unless her petition is granted, she will be deprived of her constitutional right to a jury trial for the wrongful death of her mother. HOLDING: Petition granted. REASONING: The court found for Petitioner on four grounds. First the Agreement was insufficient to deny her a jury trial because it failed to include a procedure for rescission if the patient died within the rescission period. The court noted that if the Agreement indeed did have a procedure for rescission after the death of the patient then this Agreement may have been enforceable. Second, Petitioner has a constitutional right to a jury trial and that was not knowingly waived. Under Section 1295 of the Medical Injury Compensation Reform Act, in order to knowingly waive the right to a jury trial the patient has to be given a 30- day cooling off period after signing the agreement. During that time, the patient may rescind the agreement by giving written notice. Here Petitioner s mother was presented with the agreement four days prior to her surgery under circumstances in which she believed she must sign the agreement in order to have the surgery. Moreover there is no public policy favoring arbitration of disputes where the parties have not agreed to arbitrate. The court concluded that Petitioner s mother did not agree to arbitrate knowingly and voluntarily under the circumstances in which the Agreement was presented to her. Third, public policy cannot permit Defendant to benefit by limiting public access to his professional record as arbitration would disallow but a jury trial would allow. Fourth, it was impossible for Petitioner to act during the Agreement s 30 day rescission period to preserve her right to a jury trial because she was a minor without a guardian who was the subject of a custody dispute during that period. Under the aforementioned reasons the court held the Agreement as unenforceable and thus no order compelling arbitration can be issued. The petition for writ of mandate was granted and the trial court s order compelling arbitration was vacated. CLASS ACTION BAN IS UNENFORCEABLE Masters v. DirecTV, Inc., (9th Cir.(Cal.) Nov 19, 2009) (Not selected for publication in the Federal Reporter, NO , ). FACTS: John Murphy was a subscriber of DirecTV, Inc. s digital television service. The relationship was governed principally by a written contract called the Customer Agreement ( Agreement ). The Agreement contained a choice-of-law provision stating the laws of the state in which the customer receives service will govern and also prohibited the contracting parties from consolidating claims or seeking to represent a class. Although DirecTV provided programming services to Murphy at his residence in Georgia, Murphy filed his complaint in California, the home state of DirecTV. Despite the choice-of-law provision in the agreement, the district court found California had a materially greater interest than Georgia in determining the enforceability of the parties arbitration California law applies because it has both a fundamental policy against the enforceability of class-action waivers and a materially greater interest than Georgia. agreement. It acknowledged the parties had a reasonable basis for choosing Georgia law, but it nonetheless decided Georgia law conflicted with a supposed fundamental California policy against the enforcement of class waivers in consumer contracts of adhesion, and found the class action ban in the Agreement to be unenforceable. DirecTV appealed to the Court of Appeals. HOLDING: Affirmed. REASONING: In disregarding the Agreement s choice-of-law provision, the Court of Appeals reasoned under California s choice of law analysis that California law applies because it has both a fundamental policy against the enforceability of class-action waivers and a materially greater interest than Georgia, where Murphy resides. In turning to the provision in the Agreement prohibiting the parties from class-action, it found a class-action waiver in such an agreement to be unconscionable under California law. Cohen v. DirecTV, Inc., 48 Cal.Rptr.3d 813, 823 (Cal.Ct.App.2006). The court deferred to the foundational California case on class action waivers, where the California Supreme Court held that class-action waivers that cheat large numbers of consumers out of individually small sums of money are unconscionable, at least to the extent the obligation at issue is governed by California law. Discover Bank v. Superior Court (Discover Bank I), 113 P.3d 1100, 1110 (Cal.2005). Moreover, California has demonstrated by statute its determination that class action waivers are unenforceable. For those reasons, the court affirmed the lower court s ruling that a class-action ban in such an agreement is unenforceable. Journal of Consumer & Commerical Law 101