Paul Dubow
Email: pdubow2398@aol.com
Dubow is an arbitrator and mediator, focusing on employment, ERISA withdrawal liability, commercial law, legal malpractice and securities matters.
This is the
second of a two-part series examining significant alternative dispute
resolution cases from the first quarter of 2025. Last week's article covered PAGA claims, sexual harassment
arbitration exclusions, and the severance of unconscionable provisions. Today,
we continue our analysis with federal procedural developments and other notable
decisions.
Appellate courts
with jurisdiction over California regularly issue cases involving alternative
dispute resolution. In the first quarter of this year, there were 16 decisions,
slightly below the average, including 11 by the Court of Appeal, four by the 9th
Circuit, and one by the United States Supreme Court. We continue our discussion
of significant cases decided during this period.
Rule 60(b)
The sole ADR
decision issued this quarter by the United States Supreme Court was Waetzig
v. Halliburton Energy Services (2025). Waetzig sued Halliburton claiming
termination in violation of the Americans with Disabilities Act. Halliburton
demanded arbitration pursuant to his employment contract, and Waetzig agreed.
Instead of seeking a stay, he moved to dismiss his lawsuit, which was granted and
termed as a voluntary dismissal without prejudice.
The arbitrator ruled
for Halliburton, but Waetzig believed procedural requirements in the
arbitration agreement weren't followed. Rather than file a new suit to vacate
the award, Waetzig filed a motion to reopen the dismissed case under FRCP
60(b), which allows relief from a final order, judgment, or proceeding on
grounds of mistake, inadvertence, surprise, or excusable neglect. The district
court reopened the case on a finding that Waetzig made a "careless mistake"
when he sought a dismissal instead of a stay and also granted Waetzig's motion
to vacate. On appeal, the Tenth Circuit ruled that the district court lacked
jurisdiction because a voluntary dismissal is not a final order, judgment, or
proceeding.
The Supreme Court
reversed, holding that a voluntary dismissal without prejudice falls within the
definition of "final" and counts as a "proceeding" under
Rule 60(b). The Court explained that when Rule 60(b) authorizes relief from a "judgment,
order, or proceeding," it speaks in ascending order of generality. Just as
"order" encompasses and exceeds "judgment,"
"proceeding" should encompass and exceed "order."
Although Waetzig may
have dodged a bullet despite his "careless mistake," the district
court on remand must still decide whether the arbitrator's award should be
vacated.
Motion to
confirm-federal jurisdiction
Section 4 of the FAA
permits a party to file a motion to compel arbitration in federal court if the
underlying lawsuit could have been filed there. Sections 9 and 10, which apply
to motions to confirm or vacate arbitration awards, do not contain this "look-through"
language. In Badgerow v. Walters (2022), the Supreme Court ruled that a
party filing a motion to vacate in federal court must establish that the amount
in controversy exceeds $75,000 before a district court can assert diversity
jurisdiction.
In Tesla Motors,
Inc. v. Balan (2025), the Ninth Circuit applied the Badgerow rule to
Section 9, reversing the grant of Tesla's motion to confirm a zero-dollar award
because, on its face, a zero-dollar award cannot support the amount in
controversy requirement.
Tesla argued that
while there might not be jurisdiction under Section 9, there was jurisdiction
under Section 3, which governs stays during arbitration. Tesla cited Smith
v. Spizzirri (2024), which held that when a party requests a stay pending
arbitration, the court must stay the case rather than dismiss it. Tesla's
argument failed because, even though the district court should have stayed the
case under Spizzirri, it didn't--the court dismissed it. Tesla never
contested the dismissal and never appealed, making that binding judgment a
dismissal, not a stay.
Refusal to
arbitrate
In Jones v. Starz
Entertainment LLC (2025), Jones was one of 7,300 Starz customers
represented by the same law firm who filed individual arbitration demands
alleging Starz violated the Video Privacy Protection Act. Jones had signed an
arbitration agreement barring class actions and permitting only individual
arbitration before JAMS. After an attempt to mediate failed, JAMS consolidated
the 7,300 claims before a single arbitrator pursuant to JAMS Rule 6(e). The
arbitrations didn't occur because each appointed arbitrator was challenged by a
claimant. Jones filed a petition to compel arbitration of her individual claim
under Section 4 of the FAA, which permits a party aggrieved by another party's
refusal to arbitrate to seek a court's intervention. The district court denied
the petition, finding she was not "an aggrieved party."
The Ninth Circuit
affirmed, noting it was JAMS, not Starz, that decided to consolidate, so Starz
couldn't be characterized as refusing to arbitrate. The court also observed
that the agreement didn't preclude consolidation but rather incorporated JAMS
Rules, including the rule authorizing consolidation of filings sharing common
issues. In consolidated arbitration, a claimant brings claims in an individual
capacity and so it differs from class or representative arbitration.
The court rejected
Jones's argument that a delegation clause required the arbitrator to determine
whether she was an aggrieved party, stating it wasn't the court's business to
second-guess an arbitration provider's application of its own consolidation rule.
Gateway questions of arbitrability usually concern the validity and scope of
the agreement to arbitrate, arising from disagreement about whether to
arbitrate at all--not the case here.
Finally, the court
dismissed Jones's argument that if Rule 6(e) permitted consolidation, the rule
was unconscionable, observing that unconscionability is always invoked by the
party seeking to avoid enforcement, not the one petitioning to compel arbitration.
Unconscionability
In Sanchez v
Superior Court (2025), the court found substantive unconscionability where
parties agreed to arbitrate pursuant to rules of "JAMS, Judicate West, or
equivalent." Plaintiff Sanchez had a sixth-grade education in Mexico, no
education in the United States, and very limited English skills. The court
found this language made it virtually impossible for Sanchez to knowingly agree
to the rules, as he would have had to research multiple providers' rules and
guess which additional unnamed providers were deemed "equivalent."
Additionally, the
agreement was only in English. The failure to provide a Spanish translation
established a violation of Civil Code section 1632, which requires that when a
contract for legal services is negotiated primarily in Spanish, a Spanish
translation must be provided.
Appeal-lifting of
stay
In Arzate v. ACE
American Insurance Co. (2025), plaintiffs filed a class action against ACE
alleging wage and hour violations. ACE's motion to compel arbitration was
granted, but no arbitration demand was filed. Plaintiffs argued that ACE had
waived its right to arbitration by failing to initiate it and moved to lift the
stay. The trial court agreed and lifted the stay. ACE appealed, and plaintiffs
moved to dismiss the appeal, arguing the California Arbitration Act barred
appeals from orders lifting stays.
The Court of Appeal
denied the motion, determining that the trial court's order was the
"functional equivalent" of denying a petition to compel arbitration,
which is appealable under Code of Civil Procedure section 1294(a). By lifting
the stay after granting ACE's motion to compel, the trial court left ACE in the
same position as if it had denied the motion in the first place.
The court rejected
plaintiffs' argument that the functional equivalent doctrine violated the rule
that arbitration contracts should be treated like all other contracts,
countering that the doctrine doesn't create a special exception for arbitration
cases but rather applies the general rule that an appeal may be taken from
orders tantamount to those listed in statutes as appealable.
The court also found
the order appealable under federal law. FAA Section 3 entitles litigants to a
stay of any action referable to arbitration, and Section 16(a)(1)(A) allows an
appeal from an order refusing such a stay--which the trial court's order effectively
was.