Second District, Division One, Does Remand For Proper Expense/Fee Determination and For Examination of Allocation Issues.
Armendariz v. Foundation Health Psychcare, 24 Cal.4th 83, 110-113 (2000) determined that arbitral expenses beyond what a plaintiff litigant would have borne in a court case cannot be imposed in cases involving statutory rights enacted for a public reason. (In Armendariz, the claims were brought under FEHA; other cases have extended Armendariz to wrongful employment termination claims (if based on violation of public policy), California consumer vehicle leasing statutes, franchise investment statutes, the trade secret statute, and California’s unfair competition statute.)
Recently, the Second District, Division One confronted the issue of whether the Armendariz prohibitions applies to civil claims brought under California’s hate crime statutes, namely, the Ralph Civil Rights Act (Civil Code sections 51.7 and 52.1) and the Tom Bane Civil Rights Act (Civil Code section 52.1). By a 2-1 panel vote, it decided that Armendariz did apply.
In brief, D.C. v. Harvard-Westlake School, Case No. B204634 (2d Dist., Div. 1 Aug. 14, 2009) (certified for publication) involved a hate crimes case (involving both statutory and common law tort violations) that was ordered to arbitration based on an enrollment agreement between student and school mandating arbitration. A student sued Harvard-Westlake School alleging it was liable under the state’s hate crimes laws for death threats he received from classmates who misperceived his sexual orientation. The enrollment agreement specified JAMS arbitration and provided that the prevailing party was entitled to recover all reasonable attorney’s fees incurred in any arbitration or litigation. The matter was ordered to arbitration, where school prevailed on all claims and was awarded all requested fees and costs in the hefty sum of $521,227.68 by the arbitrator ($12,492.15 of which was arbitration fees and costs). The trial court confirmed the claims were arbitrable but did not rule on the propriety of arbitral expense/attorney’s fees award.
Student appealed, and won a reversal in a 2-1 opinion authored by Presiding Justice Mallano.
The majority concluded that the hate crime statutory claims were akin to the “public interest,” unwaivable statutory claims found to be embraced by Armendariz and subsequent decisions. This meant that the arbitral expenses could not stand because they well exceeded the costs student would have had to bear had the matter been litigated in court. Otherwise, victims would be discouraged from filing claims based on the possibility of incurring hefty expenses should they lose. With respect to the fee award, the majority also concluded that the prospect of a substantial fee exposure would discourage suits in this important area, bolstered by the fact that the hate crime statutes provided that fees should be awarded only in favor of a prevailing plaintiff. “Thus, the one-way provisions are unwaivable statutory rights and render the award of attorney fees in this case invalid to the same extent as an award of inappropriate arbitral expenses.” (Slip Opn., maj. opn. at p. 32.)
Because the trial court did not pass on the propriety of the expense/fee award, the matter was remanded so that it could do two things: (1) make sure inappropriate expense and fee award components were not awarded; and (2) consider whether allocation of expenses and fees were in order given that common law claims not subject to Armendariz were adjudged against the student. At least for now, the school’s large expense/fee award went POOF!
In dissent, Justice Rothschild did not reach the merits and found that student had waived his illegality challenge by not raising it before the arbitrator. (The majority concluded that it could decide the issue even if not raised in earlier proceedings, although observing that it had been raised in the arbitration confirmation proceeding.)