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Michael Wolgin

Court Finds Arbitration Panel Did Not Exceed Powers or Manifestly Disregard the Law in Confirming Award in Dispute Over Leasing of Oil Lands

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The case relates to an arbitration award entered in a dispute between affiliated oil exploration and marketing companies, on the one hand, and owners of land leased to the oil companies, on the other hand. The leases at issue authorized the exploration company to produce and sell any oil and natural gas found there. In exchange, the owners of the land would receive royalties calculated as a percentage of the proceeds attributable to the production from each well. The owners objected to the amount of the royalties paid by the exploration company, which were calculated based on the exploration company’s sales of the oil and gas to its affiliated marketing company, instead of based on the higher amounts for which the marketing company would sell the oil and gas downstream to third parties. The dispute went to an arbitration, which found that the owners failed to provide evidence that the oil sales between the affiliated companies were less than what would occur in an arms-length transaction. The panel found that the exploration company had legitimately transferred title to the oil and gas, and received sufficient consideration from the affiliated marketing company.

The owners petitioned the court to vacate the award, arguing that the arbitrators “exceeded their powers” and “effectively dispensed their own brand of industrial justice,” and that they “manifestly disregarded the law.” The court rejected both arguments, disagreeing that the arbitrators “ignored the central question” in dispute. According to the court, the panel found that (1) title was transferred to the marketing company; (2) the exploration company marketed the oil and gas as required; (3) the exploration company made “legally sufficient accounting entries on their books and records to evidence transfer of title and consideration paid for the oil and gas”; (4) the leases permitted the exploration company to sell to an affiliate; and (5) the owners failed to provide evidence of any defects with the sales transactions. The court found, without expressing any opinion about whether the panel was correct, that the panel “stayed well within its powers to adjudicate the dispute and executed those powers appropriately.” The court further found that the panel did not manifestly disregard the law. The court explained that the panel “was asked to interpret contracts that were arguably inconsistent both internally and with one another, and it made an informed, careful judgment about how to do so.” The court therefore granted summary judgment in favor of the oil companies and confirmed the award in its entirety.

Hale v. Chesapeake Expl., LLC, No. 4:18-cv-02217 (N.D. Ohio Apr. 25, 2019).

Ninth Circuit Affirms Order Compelling Class Arbitration in Employment Dispute Involving Two Employment Agreements With Varying Arbitration Provisions

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Oracle America Inc. appealed the trial court’s order compelling class arbitration in an employment dispute in which there were two agreements at issue, one with, and one without, a class action waiver. The Ninth Circuit rejected Oracle’s arguments that the trial court should have selected the former agreement (with the class waiver) over the latter (without the class waiver). First, the court rejected Oracle’s argument that the trial court, as opposed to the arbitrator, should have decided whether there was an enforceable agreement to arbitrate. Here, the Ninth Circuit held, both contracts clearly delegated the issue of arbitrability to the arbitrator. Next, the Ninth Circuit was not persuaded by Oracle’s argument that the trial court should have decided which of the two agreements the arbitrator should enforce, ruling that there was no dispute that the agreement on which the arbitrator relied (the one lacking a class action waiver) was properly entered into by the parties. Finally, the Ninth Circuit rejected Oracle’s argument that the trial court should have considered Oracle’s argument that the second agreement was a novation of the first agreement. The issue of novation was not a defense to the agreement’s validity that should have been decided by the trial court; it was an issue that was to be decided by the arbitrator.

Johnson v. Oracle America, Inc., No. 17-17489 (9th Cir. Mar. 21, 2019).

California Appellate Court Holds U.S. Supreme Court’s Epic Systems Ruling Does Not Authorize Waiver of Class Relief or Arbitration of PAGA Claims Absent Consent From California

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Former employees sued their former employer, alleging wage and hour violations and seeking civil penalties under the California Private Attorneys General Act of 2004 (PAGA). In response, the employer petitioned for arbitration under the parties’ arbitration agreement. The agreement provided that arbitration shall be the exclusive forum for any dispute and prohibited employees from bringing a “representative action.”

The trial court granted the arbitration petition on all causes of action except for the PAGA claim, relying on the California Supreme Court decision in Iskanian v. CLS Transportation Los Angeles LLC, which held that agreements that waived the right to bring PAGA representative actions in any forum were unenforceable. The trial court stayed the PAGA claim pending the conclusion of the arbitration.

On appeal, the employer argued that the court erred because Iskanian is inconsistent with a recent Epic Systems decision by the U.S. Supreme Court. The appellate court rejected this argument, finding that Epic Systems did not address the scenario in Iskanian, which involved a claim under PAGA brought on behalf of the government, and the enforceability of an agreement barring a PAGA representative action in any forum. The court concluded that the trial court properly ruled that the waiver of representative claims in any forum is unenforceable. The appellate court agreed with other California court rulings that held that Iskanian’s view of a PAGA representative action — that a PAGA litigant is an agent of the state — means that this claim cannot be compelled to arbitration based on an employee’s arbitration agreement absent some evidence that the state consented to the waiver of the right to bring the PAGA claim in court. There was no such evidence in this case.

The employer also argued that the parties’ arbitration agreement should be interpreted to mean that if the representative-action waiver is unenforceable, the PAGA claim for statutory penalties remains subject to arbitration. The court rejected this argument on the basis that several California courts of appeal have held that a PAGA arbitration requirement is unenforceable based on Iskanian’s view that the state is the real party in interest in a PAGA claim for penalties.

The court also distinguished federal courts that have reached a different conclusion regarding the arbitrability of a PAGA representative claim, finding that these decisions were unpersuasive because the courts did not fully consider the implications of the qui tam nature of a PAGA claim on the enforceability of an employer-employee arbitration agreement.

Correia v. NB Baker Elec., Inc., No. D073798 (Cal. Ct. App. Feb. 25, 2019).

Trial Deadlines Continued in Collection Action Filed by Reinsurer Related to Fraudulent Transfer Scheme

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We have been tracking Odyssey Reinsurance’s action to collect a $3.2 million judgment against Richard and Diane Nagby, the owners of two companies involved in an alleged fraudulent transfer scheme. See https://www.reinsurancefocus.com/tax-counsel-ordered-to-produce-documents-related-to-odyssey-reinsurances-continuing-quest-to-collect-3-2-million-default-judgment-against-richard-and-diane-nagby/ and https://www.reinsurancefocus.com/post-judgment-collection-efforts-of-reinsurer-continue-in-california-federal-court/. On January 16, 2019, the court denied Diane Nagby’s motion for the court to reconsider its order continuing the pretrial hearing to May 30, 2019. Trial is currently set for July.

Odyssey Reinsurance Co. v. Nagby, No. 3:16-cv-03038 (S.D. Cal. Jan. 16, 2019).

Ninth Circuit Finds That Party was a Third-Party Beneficiary of Arbitration Agreement, and Affirms Order Compelling Arbitration of Putative Class Action

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Three delivery drivers sued a transportation broker for failure to pay overtime and minimum wages, failure to provide rest and meal breaks, failure to timely pay wages upon termination, and willful refusal to pay wages on behalf of a proposed class of current and former drivers. The transportation broker moved to dismiss or stay the proceedings and compel arbitration, asserting that the plaintiffs were required to submit their claims to arbitration because the broker was a third-party beneficiary to arbitration agreements between the delivery drivers and a third party administrator. The district court granted the motion, concluding that the broker was a third-party beneficiary, that the claims were arbitrable, and that arbitration was the proper forum. The individual plaintiffs appealed, but the Ninth Circuit affirmed, holding that, under the applicable state law, the agreements containing the arbitration provisions intended to create a third-party beneficiary contract for the benefit of the broker. The drivers’ “work under the agreement–delivering parcels–was an integral part of [the broker’s] business, and the agreements obligated [the drivers] to indemnify logistics company customers, grant customers the right to subrogate claims and notify customers within four hours of any accidents.” The Ninth Circuit rejected the drivers’ argument that the agreements contained substantively unconscionable provisions, since they were not raised below. Ege v. Express Messenger Systems Inc., Case No. 17-35123 (9th Cir. Dec. 7, 2018).

This post written by Michael Wolgin.

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