Duenas v. Life Care Centers of America (CA1 10/21/14)

This is about how an arbitration agreement affected a wrongful-death claim and a claim under the Adult Protective Service Act. The court spends some time establishing that the agreement was lawful and proper but then decides that it didn’t apply here.

Plaintiff’s decedent was in and out of a nursing home, dying allegedly because of its acts. She sued under APSA and for wrongful death. But she had herself signed arbitration agreements on two occasions when decedent was in the home. The home therefore moved for summary judgment, which the trial court granted. She appealed.

The first question was whether the agreements were enforceable. The arbitration clause was apparently typical of those found in hospital admission papers. Plaintiff signed such papers twice, once during each of two admissions, though after her decedent had actually been admitted. On this issue she made several arguments and lost them:

She argued that the clause was procedurally unconscionable because she didn’t know about, wouldn’t have agreed to it, etc. But she had the opportunity to read it, it was not inconspicuous, and – the court says this is “highly relevant to a procedural unconscionability argument”  – did not have to be signed as a pre-condition to care.

She argued that it was misleading because it said that arbitration is quicker and cheaper than litigation but her lawyer had been involved in expensive arbitrations. But nothing in the clause was objectively false. (The court mentions that “It would be exceedingly difficult, if not impossible, to prove the general economic superiority of arbitration or traditional litigation . . .” It isn’t entirely clear why the court makes this incautiously truthful remark, “arbitration saves time and money” having become a mantra of both the bench and the bar because it works to the benefit of both the bench and the bar.)

She argued that arbitration was substantively unconscionable, apparently because it would allegedly cost too much and citing Clark. But she did not present evidence to carry her burden of proof.

She argued that the clause violated her reasonable expectations, citing a case of an ignorant young girl who signed such an agreement in order to get abortion counseling. But this plaintiff was not inexperienced, vulnerable, or under duress. “These agreements were not contracts of adhesion.” Again the court emphasizes that Plaintiff didn’t have to sign them to obtain care.

(In connection with this argument the court says that “an agreement to arbitrate . . . is not an affirmative defense.” A footnote explains that Rule 8(c) says “arbitration and award,” so arbitration is only an affirmative defense if you’ve been through it already and have an award. That’s the thinking of the Southern District of Texas case that this court cited once upon a time, but doesn’t mention here, for the same proposition. But what about Cortez v. Avalon Care Center (CA2 2010), “An assertion that arbitration is mandatory is an affirmative defense to a complaint”? Rule 8(c) also says “and any other matter constituting an avoidance or affirmative defense.” Isn’t arbitration an “avoidance”? You don’t have to avoid the whole claim, after all, or even the whole lawsuit – assumption of risk and comparative negligence are affirmative defenses. Arbitration is not a confession-and-avoidance defense in the strict common-law sense but, though that’s where affirmative defenses came from, that’s not what they are now —  the rule merely says “avoidance” and modern pleading allows a defendant, as the common law did not, to avoid without confessing.)

The next question was whether the arbitration agreements applied to the wrongful-death claims. The court answers that they did not because those claims are not derivative and belong to the statutory beneficiaries. The beneficiaries did not sign the agreements.

The last question was whether the arbitration agreements blocked the APSA claim, which, unlike wrongful-death, is derivative. The court says they do not, on factual grounds: Plaintiff signed them when decedent was in the home the first and second times but not when she was in the home the third and fourth times, when the allegedly culpable conduct presumably occurred.

First, though, the court had decided whether it was for it or the arbitrator to make that call. The agreement contained the usual sort of provision to the effect that the arbitrator resolve any dispute as to its scope. The court appears to conclude, though one hopes that its line of thought was clearer to the writer than it will be to the readers, that under the particular language of this contract “scope” was itself limited to the particular admissions during which Plaintiff signed arbitration agreements. To extend “scope” beyond that would allow an arbitrator to rule on the existence, not merely the scope, of the arbitration agreements.

The brief concurrence apparently agrees with the home that “scope” could include whether the agreements apply to the last two admissions. But it concludes that the court can make the decision because the parties waived having the arbitrator do so. “Neither party  . . . has questioned the authority of the superior court or this court to decide arbitrability.” We don’t really know what that means; maybe you had to be there.

So the court reverses except for claims arising out of the first two admissions. As to those, though, it says that their dismissal should have been without prejudice rather than with. “A dismissal of claims subject to arbitration should be entered without prejudice, to allow for further judicial determinations that may prove necessary.”

(link to opinion)

Lewis v. DeBord (CA2 10/6/14)

A case about judgment liens and, in passing, memorandum opinions.

The plaintiffs took a default judgment for money and recorded it. Their debtors then acquired real property that they later sold to the DeBords. Under the statutes (33-961ff) and cases the rule has been that filing creates a lien against the debtor’s present or after-acquired property and that purchasers from the debtor take subject to the lien. In this action the plaintiffs sought to foreclose their judgment lien against it.

The problem was that in 1996 the statutes were amended to add a requirement that along with the judgment the creditor file an information sheet specifying some things about the debtor and the lawsuit. The plaintiffs didn’t file one until after they filed this action. The DeBords moved for summary judgment, arguing that this invalidated the lien. The plaintiffs argued that it merely affected the priority of their lien against other judgment creditors – of which there were none, so its lien was unharmed.

The trial court ruled for the DeBords. The Court of Appeals affirms, though its not clear whether for the same or different reasons.

After analyzing the history and structure of the statute the court agrees with the plaintiffs that failure to file the information sheet affects the priority, not the validity, of the lien.

But the court disagrees with the plaintiffs about its priority. The statute (33-967(D)) says that a judgment “has as its priority the date of [filing the information sheet].” “If the legislature wanted to limit the concept of priority . . . to the interests of competing lienholders . . . it could have said so.” “Priority” therefore includes not only competing lienholders but subsequent purchasers. Since the DeBords took the property before the information sheet was filed “[their] interest in the property has priority over the  . . . judgment lien.” So the DeBords win anyway.

We can’t quite get our head around this one. In what sense is a lien valid against property the owner of which has an interest that has “priority” over the lien? Since when does, or can, a lien statute use “priority” in the context of an ownership interest?

But what about memorandum decisions, you ask? The plaintiffs cited an opinion that mentioned that an earlier memorandum in that case had held that failure to file an information sheet didn’t invalidate a judgment lien. In one of several long footnotes the court points out that memoranda are not precedent and adds that courts “do not treat passing references to previous memorandum decisions in published opinions as precedent.” Since the court purports to agree that failure to file the sheet doesn’t invalidate the lien the purpose of this footnote is to discourage the memo-cited-in-a-later-opinion loophole. The courts want to limit the loopholes to the ones they are creating themselves by rule changes.

(link to opinion)

Quihuis v. State Farm (10/1/14)

On a certified question from the Ninth Circuit the court holds that a default judgment entered pursuant to a Damron agreement “does not preclude litigation of whether coverage exists under the policy.”

Cox, the holder of a State Farm auto policy, sold the car, though she hung on to the title pending full payment and hadn’t cancelled the policy. The new owner’s daughter caused an accident w/ Quihuis, who sued her and Cox (presumably meaning that mom had no insurance). Cox did a Damron admitting, inter alia, ownership of the car at the time of the accident. Pursuant to the agreement, judgment was entered and assigned to Quihuis, who sued State Farm. The case was removed; the District Court gave State Farm summary judgment, finding that Cox hadn’t owned the car. Quihuis appealed, resulting in the certified question.

The argument that a Damron agreement can affect coverage is one that various lawyers have been making for a long time. As applied in this case, the idea is that since ownership was a liability issue (on a negligent-entrustment allegation) it is conclusively established by the judgment and cannot be questioned even if it also determines coverage. For this proposition some, including Quihuis’ lawyers, have cited a Division Two opinion, AAU v. Wood (2004). AAU is of Biblical length and breadth so it is appropriate, and perhaps necessary, that Justice Pelander, who wrote it, is now called on to understand apply it.

He begins by deciding that Restatement (Second) of Judgments 58, which has to do with indemnitors and indemnitees, controls. “Section 58(1)(a) precludes State Farm from disputing the ‘existence and extent’ of the Coxes’ liability to the Quihuises.” He then looks to case law to decide what “existence and extent” means.

Morris said that under a Morris agreement the insurer could litigate coverage. Wood, Justice Pelander tells us, was “a straightforward application of 58(1)(a)”; it prohibited re-litigation of liability and also of “issues” that “relate” “strictly” to liability and damages. Add these together and they mean that 58(1)(a) “does not prevent relitigation of pure coverage issues.”

58(1)(b) precludes relitigation of any issues “determined in the [underlying] action” unless there was a conflict of interest between indemnitor and indemnitee. Justice Pelander looks to the illustrations to conclude that this applies only to issues actually litigated.

Quihuis argued that she had a judgment, not just an agreement. But “Our cases have not made a distinction [between them], nor does section 58.”

Quihuis also argued that Morris and Wood shouldn’t apply because State Farm refused to defend Cox, even under a reservation. But, citing Kepner, in Arizona there is no absolute duty to defend, especially when facts not in the Complaint take the claim outside the coverage. Even if State Farm had breached a duty to defend, which the opinion does not decide, it would still be entitled to litigate coverage. The opinion ends, however, with language warning insurers that the prudent thing is to defend under a reservation.

Quihuis’ was an interesting case on which to bring this issue since her Damron was a dodgy one, creating coverage by having someone admit to things that a court found weren’t true. There had been some speculation that the court would have to overrule AAU to prevent this fraud. Justice Pelander’s position, though, has always been that AAU was a perfectly simple (we would normally add “straightforward” but he has taken the word out of our mouth) holding consistent with everything else in the law. A more skeptical mind could conclude that he sees the case as an outlier – needed at the time for reasons that don’t entirely bear scrutiny – that can, at least on this point, now be reined in.

(link to opinion)