Lawyers Can Apply Trial Skills in Forum of Dispute Resolution

• Arbitration clauses. In commercial contracts, a "broad form" arbitration clause requiring parties to arbitrate all claims "arising out of or related to" the underlying agreement includes arbitration of tortious conduct as well as breach of contract. Coast Plaza Doctors Hosp. v. Blue Cross of Cal., 83 Cal.App.4th 677 (2000).

• Although parties can execute a "narrow" clause restricting arbitrable issues or limiting arbitral parties, federal and California law vary on the applicability of arbitration awards binding on third parties. Vandenberg v. Superior Court, 21 Cal.4th 815 (1999). For this reason, forum shopping is potentially an option if one party can establish a basis for diversity jurisdiction and remove litigation filed in state court to federal court. Thomson-CSF S.A. v. American Arbitration Ass'n, 64 F.3d 773 (2d Cir. 1995).

• Revocation of arbitration clauses. In law-and-motion proceedings, arbitration clauses in written agreements are subject to revocation based upon any ground applicable in contract law. Code of Civil Procedure Section 1281.2 (b). One ground for revocation is the doctrine of "unconscionability."

• Employment contracts: Written employment agreements not negotiated and unilaterally imposed on employees are adhesive inherently. The seminal case of Armendariz v. Foundation Health Psychcare Servs. Inc., 24 Cal.4th 83 (2000), and its progeny, Mercuro v. Superior Court, 96 Cal.App.4th 167 (2002), deny enforcement of arbitration clauses in these adhesive contracts based upon substantive law outlined in Civil Code 1670.5, unless the arbitration clause is severable or includes prophylactic procedural provisions (Beynon v. Garden Grove Medical Grp., 100 Cal.App.3d 698 (1980)).

• Real estate contracts: According to conventional wisdom, purchase of a home is the most significant financial decision that many people undertake. Unsophisticated purchasers sign numerous written documents in consummating a sale but rarely delete an arbitration clause waiving a jury and agreeing to arbitrate claims against a seller.
  
  Three California cases have concluded that sellers in mass market sales of condominiums and single family dwellings have buried arbitration clauses obscurely in transaction documents or collateral contracts. This practice is either unconscionable or violates public policy. Pardee Constr. Co. v. Superior Court, 100 Cal.App.4th 1081 (2002); Flores v. Transamerica HomeFirst Inc., 93 Cal.App.4th 846 (2001); Villa Milano HOA v. Il Davorge, 84 Cal.App.4th 819 (2000).

• Franchise contracts: Franchise contracts frequently are written in a standard format without affording the right of franchisees to negotiate. Inherently adhesive, these contractual terms are not necessarily unconscionable per se, but an arbitration clause is subject to challenge on grounds that the arbitral forum is in another state or a considerable distance from California.
  
  Clauses requiring the franchisee to arbitrate in remote locations may violate public policy and render the clause unconscionable under the doctrine of forum non conveniens. America Online Inc. v. Superior Court, 90 Cal.App.4th 1 (2001); Business & Professions Code Section 20040.5; Bolter v. Superior Court, 87 Cal.App.4th 900 (2001). Note: The 9th Circuit has held that the Federal Arbitration Act pre-empts Section 20040.5. Bradley v. Harris Research Inc., 275 F.3d 884 (9th Cir. 2001).

• Class actions: California courts are authorized statutorily to consolidate multiple arbitrations and, in some cases, arbitration and litigation. Code of Civil Procedure Section 1281.2(c); Mercury Ins. Grp. v. Superior Court, 19 Cal.4th 332 (1998). The court also may order multiple arbitrations consolidated in a class action if the class meets relevant certification standards. Blue Cross of Cal. v. Superior Court, 67 Cal.App.4th 42 (1998).
  
  An arbitration clause that prohibits a party from filing a class action is unconscionable (Szetela v. Discover Bank, 97 Cal.App.4th 1094 (2002)) but not if the agreement is silent on the issue (Sanders v. Kinko's Inc., 99 Cal.App.4th 1106 (2002)).
  
  Note: A recent California Court of Appeal decision disagrees with Szetela and concludes that the Federal Arbitration Act pre-empts California law and enforces arbitration clauses prohibiting a party from filing a class action (class action waivers). Discover Bank v. Superior Court, 105 Cal.App.4th 326 (2003).
  
  Federal Circuit Courts of Appeal are split on consolidation and arbitration of class actions but generally have held that the Federal Arbitration Act prohibits class actions. New England Energy Inc. v. Keystone Shipping Co., 855 F.2d 1 (1st. Cir. 1988); Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d 635 (9th Cir. 1984).
  
  In a hearing on a petition to compel arbitration conducted in a federal forum pursuant to the Federal Arbitration Act, the court applies substantive state law in determining validity and enforceability of the arbitration clause. First Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995). If a state statute or judicial decision holds the clause "unconscionable," the District Court will apply the substantive rule. Ticknor v. Choice Hotels Inc., 265 F.3d 93 (9th Cir. 2001).
  
  In contrast, Federal Arbitration Act procedural rules differ from those applicable to the California Arbitration Act. 9 U.S.C. Sections 1-16.

• Consumer contracts for services: Badie v. Bank of America, 67 Cal.App.4th 779 (1998), set aside an arbitration clause in a document (a billing "stuffer") sent to current depositors and informing them that all future disputes with the bank are subject to arbitration. The Badie court revoked (rescinded) the arbitration clause on contract formation grounds; i.e., the depositors did not consent to changes in proposed terms of the original agreement and did not affirmatively waive a jury.
  
  But California contract law does allow parties to amend or add conditions unilaterally if the original agreement between the parties includes authorization for that provision (Mandel v. Household Bank (Nevada) N.A., 105 Cal.App.4th 85 (2003)), unless the consumer is not offered an opportunity to opt out (Shea v. Household Bank (SB), 105 Cal.App.4th 75 2003) or a statute mandates signed acknowledgment by a consumer (Mitchell v. American Fair Credit Assn., 99 Cal.App.4th 1345 (2002)).

• Consumer contracts for products: Mass-produced products marketed to the public often include documents explaining safe operation, assembly of parts and warranties. An arbitration clause contained within the documents may require purchasers to object to the condition or performance of a product within a limited period of time. Absent exercise of that option, an enforceable arbitration clause is binding in the event of a future dispute.
  
  These contracts are inherently adhesive, but Hill v. Gateway 2000 Inc., 105 F.3d 1147 (7th Cir. 1997), held that courts will enforce the arbitration clause. Accord, Bischoff v. Direct TV Inc., 180 F.Supp. 2d 1097 (C.D. Cal. 2002).

• Law and motion practice. The California statute is explicit in only allowing appeal of a court order denying or dismissing a petition to compel arbitration. Code of Civil Procedure Section 1294(a). "Standing" is a condition precedent to requesting a court to stay arbitration, and only a party, or one with a beneficial interest, can file this motion. One World Networks Integrated Techs. Inc. v. Duitch, 103 Cal.App.4th 1038 (2002).
  
  An order granting a petition to compel arbitration is not appealable, but mandate has been invoked to challenge the validity or enforceability of an arbitration clause. Neydlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459 (1992); Discover Bank; Angeli v. Superior Court, 73 Cal.App.4th 691 (1999).

• Summary judgment (petition to compel arbitration): A petition to compel arbitration is the equivalent of an equitable cause of action for specific performance. Brock v. Kaiser Found. Hosps., 10 Cal.App.4th 1790 (1992).
  
  Determination of the existence of an arbitration agreement, the scope of its application and the parties embraced within its coverage is a judicial decision absent language in the clause to the contrary. Banner Enter. Inc. v. Superior Court, 62 Cal.App.4th 348 (1998).
  
  In a sense, the hearing on the petition resembles a summary judgment. The court decides the issues based on relevant documents, affidavits and declarations, or, in some cases, oral testimony. Rosenthal v. Great Western Fin. Sec. Corp., 14 Cal.4th 394 (1996).

• Summary judgment (on the merits): Schlessenger v. Rosenfeld, Meyer & Sussman, 40 Cal.App.4th 1096 (1995), holds that an arbitrator can decide a conventional motion for summary judgment during the course of arbitration as long as the parties have had an opportunity for adequate discovery. Because discovery in arbitration of commercial cases is limited by statute, any opportunity to file this motion with the arbitrator is limited unless modified by stipulation of the parties.

• Federal rules: Parties negotiating a contract should consider whether to conduct arbitration under the rules of the California Arbitration Act or the Federal Arbitration Act. If the transaction is in interstate commerce and one party elects to remove litigation filed in state court to federal court or files a petition to compel arbitration directly in federal court seeking a stay of collateral state litigation and an order to arbitrate, the arbitration will be conducted under the Federal Arbitration Act. Cigna HealthCare of St. Louis Inc. v. Kaiser, 294 F.3d 849 (7th Cir. 2002).

The presence of collateral litigation in state courts on identical issues is ordinarily not a basis of federal abstention. Great Earth Cos. Inc. v. Simons, 288 F.3d 878 (6th Cir. 2002).