1. California Appellate Court creates and adopts “interest of justice” grounds to override arbitration agreement

In Weiler v. Marcus & Millichap Real Estate Investment Services, Inc. (April 30, 2018), in a case involving claims for breach of fiduciary duty, negligence, and elder abuse, a California Court of Appeals held that a real estate investment services company that allegedly lost millions for an elderly investment client must either pay the plaintiff’s costs in arbitration or waive their contractual right to arbitrate and be tried in court because the interest in justice outweighed the deference normally extended to arbitration agreements.

2. New York Appellate Court substitutes its judgement and vacates labor arbitrator’s decision on public policy and irrationality grounds.

In a workplace sexual harassment case, In re New York City Transit Authority, et al., Petitioners-Appellants, v. Earl Phillips, 2018 NY Slip Op 02442, April 10, 2018, the Employer terminated a bus operator who was also a Union delegate for violating the company’s sexual harassment policy. The operator was attracted to his supervisor. After the supervisor rejected his romantic advances, the operator made various statements in front of the supervisor and other co-workers that the supervisor was “sexy,” and asking if she were looking for another husband, coupled with an offer to act as her “sugar daddy.” On one occasion, the operator remarked loudly, “Isn’t she fine? What would you do if you had a woman like her at home? I wouldn’t leave the house. I would stay in bed all day. I would oil her down.” The supervisor reported that she felt humiliated and degraded to the point that she worked out of her car in order to avoid having contact with the operator.

The Union grieved the operator’s termination. The arbitrator ruled that because the operator was on paid Union release status, the Employer, under the CBA could not discipline the operator while he was on Union release status. The arbitrator also ruled that the operator’s conduct did not rise to the level of sexual harassment sufficient to warrant termination and reduced the discipline to a10-day suspension.

On appeal, the New York appellate court found it:

unfathomable that the arbitrator could find that Aiken’s conduct did not violate the workplace policy against sexual harassment, which expressly defines sexual harassment to include behavior which “has the purpose or effect of unreasonably interfering with an individual’s work performance or creates an intimidating, hostile or offensive working environment.” This disjunction between the arbitrator’s findings and his summary conclusion that Aiken’s behavior nonetheless “did not rise to the level” of sexual harassment is fundamentally irrational.”

The Court also concluded that:

..the arbitrator’s conclusion that [the operator’s] conduct did not rise to the level of sexual harassment, as well as the penalty imposed, a meager 10-day suspension, was fundamentally at odds with the arbitrator’s own findings of fact, and contrary to the well-recognized policy of the State in protecting against workplace sexual harassment, and the award cannot stand.”

3. West Virginia trial court confirms arbitration award, finding the arbitrator did not exceed his powers and did not manifestly disregard the law

In Weirton Med. Ctr., Inc. v. Cmty. Health Sys., No. 5:15-cv-00132 (N.D.W. Va. Dec. 12, 2017) [click for opinion], a hospital entered into two related contracts with an administrative services vendor. The hospital terminated the contracts and refused to pay the vendor’s invoices.

The vendor commenced arbitration against the hospital on the first contract and received an award in its favor on all counts. The vendor commenced a second arbitration against the hospital and some individual defendants asserting similar claims. In the second arbitration, the arbitrator granted summary disposition in favor of the defendants on res judicata, collateral estoppel, gist of the action and statute of limitations grounds. The vendor appealed and sought to vacate the second award, arguing that the arbitrator exceeded his powers in granting summary disposition and that the arbitrator manifestly disregarded applicable law. The court ruled that an arbitrator is empowered to make decisions on procedural issues and courts will not question that determination so long as it has a “reasonable basis” in the parties’ agreement. The court upheld the second award, ruling that the arbitrator did not exceed his powers by granting summary judgment. The court also ruled that the manifest disregard standard requires a showing that: (1) the disputed legal principle is clearly defined and is not subject to reasonable debate; and (2) the arbitrator refused to apply that legal principle. The court concluded that the arbitrator did not manifestly disregard the law. (Reported by – Amanda Praestholm and Grant Hanessian of Baker McKenzie, April 24 2018)

Arbitration in the High Tech World

In the high tech, internet world we live in, contractual terms are specified in much fine print boilerplate that most people simply adopt by “clicking” the “accept’ button. Google in its contract with anyone who wishes to advertise on Google a provision which allows Google to unilaterally amend its terms and conditions at any time in the future. Google’s contract states:

Google may add to, delete from or modify these Terms at any time without liability. The modified Terms will be posted at www.google.com/ads/terms. Customer should look at these Terms regularly. The changes to the Terms will not apply retroactively and will become effective 7 days after posting.

In September 2017, Google changed its terms and conditions and added a new arbitration clause. Google notified its advertisers through a blog post and a” red-alert bar notice” at the top of their Google ad accounts which asked advertisers to review the revised Agreement and directed advertisers to “choose to accept, decline, or defer by clicking a radio button at the bottom of the notice.” Google provided a 30 day opt out period during which advertisers could opt out of the dispute resolution clause. In AdTrader, Inc. v. Google LLC, 2018 WL 1876950 (N.D. Cal. Apr. 19, 2018), an advertiser sought a TRO against enforcement of the new clause. Because Google provided its advertisers with prominent and clear notice of the changed provision via the blog post and “red-alert bar notice” and provided a clear and simple opt out mechanism and time period, the Court upheld the enforceability of the changed terms of agreement.

It may be that the B2B context of the Google Ad situation was an important fact that permitted the California Appellate Court to uphold the unilateral change of arbitration terms in an online contract. Other courts may insist on more notice and safeguards in situations involving consumers and employees. For example, in employment handbooks which contain an arbitration agreement and the Employer retains the ability to make unilateral changes to the arbitration clause, I would expect Courts to be more protective of individuals and consumers in applying principles of unconscionability to insist on more direct notice requiring more affirmative action on the part of employees to opt out of such unilaterally proposed changes to arbitration clauses.