Using the arbitration process to game the news media, investors and the public.
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This case begs the question; when is arbitration nothing more than window dressing?
My French-Canadian mother turned eighty-one on November 5th. Mom is what you call old school. When something bad happened to us after we kids had done something stupid, she’d say, “God is punishing you.”
Ninety-nine point nine percent of the time in a settlement involving a professional negligence claim the professional demands as part of the settlement a confidentially clause. It’s not unusual to have one as part of product liability and sexual harassment claims. Most claims where a person or product’s good reputation is at stake they want the lid put on any further bad publicity. In the case of American Apparel, Inc. and its’ CEO it is reported they didn’t just want the appearance of a quiet settlement, they wanted it to also appear as though they had won the case in court.
Nicholas Casey, of the Wall Street Journal reports that Dov Charmey and American Apparel agreed to pay a former employee $1.3 million to settle her sexual harassment claim. As part of the agreement for settlement she agreed to keep the money a secret (confidential) and to thereafter take part in an arbitration proceeding in which the outcome of Charmey and American Apparel winning, was a foregone conclusion. In other words she had to lie down and lose in the arbitration hearing.
You might wonder if this is legal and if it is not legal what remedy would the Court apply if either side didn’t do the lay-down thing. But, before you jump to any conclusions know that the alleged harasser’s attorney says it was her attorney who came up with the idea. I don’t care who came up with the idea, they all agreed to the terms.
Then the unthinkable happened. The woman who made the claim grew a conscience and refused to go through with the shamatration. She did a no-show at the shamatration and no Dov-money was paid. So that ends it right? Wrong. The alleged sexual harasser and his corporation that was to pay a cool $1.3 million wanted their day in Court; so to speak. Well, maybe not in court, but in shamatration. So he sues his accusser asking the Court to compel her to do a real arbitration to decide if she violated the terms of settlement by not attending the shamatration thing. Part of me wants to believe this opera will end with all parties getting from the Court a kiss goodbye. But it doesn’t end there because for some reason, even though they haven’t paid a dime, the defendants seem to want a ruling or perhaps to force the accuser to be there so they can have the benefit of their bargain. That benefit being good publicity to feed to the news-atainment industry and the gossip loving public that believes just about anything in print or on the tube. Just don’t ask us to think and we’ll believe whatever you say on TV. He and it probably need good publicity to prop up the stock price of AAI so they can get the Board of Directors off their backs. We are getting too many characters in this opera-atration. Let’s get back to the original script. Okay then, meet in court.
So the California Court of Appeals (Oh my God, I’m shocked! This took place in La-La Land?) (Go figure.) heard the appeal (I wonder if she showed up for that argument?) decides we need a real arbitration to determine if she breached the settlement agreement; the one that they believe is probably illegal. The CCA in its unpublished opinion warned the parties that the initial agreement might not be legal. Might not be legal? Are you kidding me? Part of me wants to believe this entire case; the entire suit-a-tainment including the original case is all contrived for the sake of publicity. You know sort of like a department store being sued over whether Santa Claus is real. The department store gets publicity, customer’s flock to the store to buy presents to prove Christmas is real and the stockholders go home happy as clams at high tide.
“First, defendants seek to arbitrate the issue of whether plaintiff, Nancy Nelson, and her attorneys breached the settlement agreement by failing to appear in San Francisco at an “arbitration” with foreordained facts and a predetermined award which would be followed by the issuance of a misleading press release. Second, defendants seek to compel arbitration of whether plaintiff or her attorneys breached the confidentiality provisions of the settlement agreement. We conclude the language in the arbitration clauses in the settlement agreement required the petition to compel arbitration of these two disputes be granted. We emphasize defendants are not seeking to compel arbitration of the questionable “arbitration” with foreordained facts and a predetermined award which would be followed by the issuance of a misleading press release.”
It seems to me the Court missed one small but somewhat significant legal principle: The Courts will not assist by enforcing agreements to do that which is illegal. How can the CCA decide the second issue without first determining the legality of what they agreed to do? Let’s look at the example of a drug deal gone badly. The pusher sends the mule with 50 kilos of cocaine to be delivered up north. The ride is set up with the drugs concealed. The delivery route takes the mule through Iowa where he is stopped for a minor traffic violation, where the drugs are discovered and seized. All of the narcotics are seized by the State of Iowa. Because of a technicality with the arrest all charges against the mule are dismissed. Instead of “taking out the mule” the dealer enters into a written agreement for restitution. After not holding up his end of the bargain the dealer sues the mule in state court. Can the Court rule on the restitution agreement without first examining the transaction that formed the basis of the agreement? No, because the Court isn’t going to assist the drug dealer in collecting illicit drug money. Other examples are gambling and debts to loan sharks. The Court will have no part of supporting illegal activity.
It appears the CCA decision missed the point. In the instant case the Court should have simply said, go away, no joy, what you agreed to do is determined by us to be illegal and we’ll have no part of it. Or, you’ve made an incomplete record of which we are unable to examine the underlying transaction and we refer it back to the lower court.
IV. DISPOSITION
The order denying the petition to compel arbitration is reversed. Each side is to bear its own costs on appeal. Upon remittitur issuance, the previously entered stay of trial shall expire.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
You don’t send litigants back to enforce what was essentially illegal to do in the first place. You can’t agree to settle an illicit drug-sale dispute and then go to court to enforce the settlement agreement. This isn’t a cable show on Television. We’re not on the Jerry Springer Show. This is real life, with real laws, real investors, real stockholders, real money, real products and we are all real investors with real life-savings that are supposed to be there when we decide to retire. Real life decisions are made based on what is published as the truth. In some parts of the country “truth” remains definable. When lawyers get into the practice of using the legal process for the purpose of deceiving the public they have crossed the line. When corporations and CEO’s do the same they need a reality check. When they all act out their fantasy settlement to deceive the investors and potential investors then it’s time to find a new job.
I’ve never liked arbitration because it has always seemed to me to issue one-sided decisions in favor of business. These are the same arbitration courts the United States Chamber of Commerce has in mind to bind consumers to the Chamber-members fine print consumer agreements. It should shock us all that arbitration decisions are so predictable. That predictability starts with the fine print contract. You know the fine print agreements you and I are asked to sign at the customer service counter. The one’s they require you to sign that describes on multi-page-colored forms in fine print on the reverse side of the agreement that is shoved across the counter while ten people wait in line for their cell phone service. These are the same predictable tribunals using the same predictable contract language that the Chamber calls fair.
The consumers are missing a point they would be wise to appreciate. Not all that is legal is fair. These arbitration courts are predictably unfair. In the Court’s mind they may be legal but fairness within them is a foreign concept.
What Dolly would have said to Mary Nelson, Dov, and American Apparel, Inc. was that God is punishing you, now go home.