In Chamber of Commerce of the United States v. Bonta, 13 F.4th 766 (9th Cir. 2021), the Ninth Circuit considered the enforceability of a relatively recent pair of California statutes in the face of a Federal Arbitration Act (FAA) premotion challenge. One of the statutes, Section 432.6 of California’s Labor Code, prohibits employers from requiring employees to waive their rights under California’s Fair Housing and Employment Act. The rights include “the right to file and pursue a civil action or a complaint” with a state agency or a court. The second statute, California Government Code Section 12953, creates civil and criminal penalties for employers who violate Section 432.6.
A divided panel found that the Labor Code provision is consistent with the FAA, reasoning that it targets behavior before any arbitration agreement exists. Although prior cases found state statutes to be preempted by the FAA, the court here found that the FAA is not offended by “state regulation of pre-agreement behavior in the absence of an executed arbitration agreement.” The Ninth Circuit, however, upheld the challenge to Section 12953. For its provisions to take effect, the majority reasoned, an agreement to arbitrate necessarily would need to exist. In that context, the FAA’s preemptive reach would extend far enough to invalidate the civil and criminal penalties.
The Fourth Circuit held a delegation clause of an arbitration agreement unenforceable as a violation of public policy in Hengle v. Treppa, 19 F.4th 324 (4th Cir. 2021). Plaintiffs from a federally recognized Native American tribe in Virginia brought a class action suit concerning predatory payday-style loans against their tribal officials and two nontribal members associated with a lending company. Upon receiving the short-term loans, plaintiffs signed agreements mandating claims be brought through arbitration. Under the terms of the contract, the arbitration would be “governed by the laws of the [tribe] and the arbitrator would be forbidden from giving effect to ‘any other law.’” The Fourth Circuit noted that the enforcement of these contractual provisions, in combination, would create “prospective waivers of borrowers’ rights to pursue federal statutory remedies.” Citing American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), the Fourth Circuit also refused to sever the clause, and instead found the entire arbitration provision unenforceable.
The Eighth Circuit determined that a lack of one type of notice is not sufficient on its own to determine lack of assent to arbitration in Foster v. Walmart, Inc., 15 F.4th 860 (8th Cir. 2021). Plaintiffs all purchased Walmart gift cards that had funds fraudulently taken off the card by a third party. The company tried to compel arbitration due to language on the back of the gift cards stating, “See Walmart.com for complete terms,” constituting a “clickwrap” style agreement. Because the moving party presented no evidence indicating if the purchasers accessed the site to see the arbitration clause, the trial court denied the motion to compel arbitration. On appeal, however, the Eighth Circuit noted the possibility of constructive notice, especially through a “browsewrap” agreement. Unlike clickwrap agreements that require users to accept terms, browsewrap agreements can be made based on the layout and information portrayed on the website when using it. Here, there was no evidence presented showing the layout, font, location, or placement of the information on the website to establish if readers would have notice of the arbitration agreement. Accordingly, the court held a material dispute of fact existed as to whether an enforceable agreement was made because the lower court had considered only one type of notice.
In Olson v. Doe, No. S258498, 2022 WL 121309 (Cal. Jan. 13, 2022), the Supreme Court of California held that a nondisparagement clause in a mediation agreement did not prevent a complainant from initiating subsequent civil litigation. Doe had sought a civil harassment restraining order against Olson. She and Olson reached a settlement in mediation, and as part of the settlement, they agreed “not to contact or communicate with each other” and “not to disparage one another.” Later, Doe filed a civil complaint for damages relating to the same conduct that had been the subject of the civil harassment restraining order proceedings. Olson cross-complained for breach of contract and specific performance, arguing that the nondisparagement clause should be read broadly, disallowing new litigation from Doe.
The court disagreed with Olson’s reasoning, pointing primarily to the fact that California Code of Civil Procedure Section 527.6, which allows a petitioner suffering from harassment to expeditiously seek a limited judicial remedy, contains a clear clause stating that use of this specialized civil procedure does not “preclude a plaintiff’s right to utilize other existing civil remedies.” Article I, Section 3 of the California Constitution also presented a hurdle to Olson’s argument in that such a broad reading of the nondisparagement clause could be considered as impairing Doe’s exercise of constitutional rights. Further, the court addressed the practical issue that a nondisparagement clause must be understood in connection to the mediation agreement as a whole. Doe and Olson required basic parameters to be set regarding any potential future verbal or physical interactions because they both owned condo units in the same building. The court reasoned that it was practical to specify that disparaging the other party was bad practice, but the clause should not preclude all available civil remedies.
The First Circuit held that time spent on settlement negotiations could not be categorically excluded from lodestar calculations in Perez-Sosa v. Garland, 22 F.4th 312 (1st Cir. 2022). Perez-Sosa, a former employee of the United States Attorney’s Office, brought an action against the attorney general alleging discrimination and retaliation. Upon resolving the employment dispute, another dispute arose pertaining to the amount of attorney’s fees owed to Perez-Sosa as the prevailing party. The district court eliminated, among other things, 13.75 hours spent on settlement negotiations in the calculation of fees. The district court relied on reasoning from Janney Montgomery Scott LLC v. Tobin, 692 F. Supp. 2d 192 (D. Mass. 2010) and Osorio v. Municipality of Loiza, No. 13-1352, 2016 WL 3264122 (D.P.R. June 14, 2016). The district court stated that these cases stand for “two closely aligned propositions: that ‘settlement negotiations are not normally considered in the lodestar calculation’ and that the ‘institutional policy favoring settlement’ requires deducting settlement time from the fee award so as not to ‘discourage parties from engaging in such negotiations.’”
Ultimately, the court of appeals stressed the importance of not engaging in “appellate micromanagement of fee awards,” while also stating a strong justification for compensating attorneys involved in settlement negotiations. The court expressed an overall disagreement with the lower court’s “unduly pessimistic” stance that allowing compensation in this case would frustrate settlements and scare off defendants. “Litigants settle cases because doing so is cheaper and less risky than fighting tooth and nail to the bitter end. The extra expense of compensating time spent in settlement negotiations scarcely alters this calculus. . . . In sum, time reasonably spent in pursuit of settlement is worthwhile, and, therefore, generally fit for inclusion in a fee award. Speculative concerns about misguided incentives do not sap the force of this conclusion.” Lastly, the court noted that coming to such a conclusion is not at all groundbreaking because many other courts have done the same. Specifically, the “seminal case that ‘pioneered,’ the lodestar approach,” Lindy Brothers Builders, Inc. of Philadelphia v. American Radiator and Standard Sanitary Corp., 540 F.2d 102 (3d Cir. 1976), included settlement negotiations among the classes of compensable work.
A recording with potentially incriminating statements made prior to a mediation session was determined to be protected communication by the Supreme Court of Michigan in Tyler v. Findling, No. 162016, 2021 WL 3413358 (Mich. Aug. 4, 2021), reh'g denied, 964 N.W.2d 41 (Mich. 2021). Defending against a defamation claim, Findling moved to strike the recording on which he was alleged to have made comments about illegal activities and other lawyers’ participation therein. Citing Michigan’s mediation confidentiality statute, the trial court granted the motion, striking the evidence and dismissing the case. The appellate court reasoned that an expectation of confidentiality belongs only to the parties, and that Findling, as a court-appointed receiver for the business, was not a party. Furthermore, the appellate court found that the conversation did not qualify as “mediation communications” as defined by Michigan Court Rules 2.412 because it did not relate to the mediation itself or the overall process of mediation.
The Supreme Court of Michigan disagreed, reversing the appellate court on the points above. Instead, the court reasoned that “mediation communications,” as defined in the Michigan Court Rules, is expansive, protecting communications occurring during the mediation process and made in preparing for a mediation. The recorded conversation took place at the mediator’s office, in a designated “plaintiff’s room,” while parties waited for the session to begin, and was therefore part of the “mediation process.” Regarding confidentiality for nonparties, the court pointed out the absence of any such restriction in the actual language of Michigan Court Rule 2.412. “Rather, the rule simply explains to whom confidential mediation communications can be disclosed. All mediation communications made by participants are afforded confidentiality protections."
