US judge rebukes defense in latest dispute over mass arbitration

SANTA ANA -- A judge rejected ethical concerns about arbitrations in states in which attorneys are unlicensed, part of what plaintiff attorneys argued is a growing defense tactic to hinder arbitrations nationally by thwarting mass filings.

The issue before U.S. District Judge David O. Carter is similar to an issue that recently drew the ire of U.S. District Judge William H. Alsup in the Northern District of California.

Alsup last month rebuked defense counsel in a proposed class action against the delivery service DoorDash Inc. for evading the very arbitrations they demanded. He ordered expedited discovery for a petition to compel arbitration, which was filed after the American Arbitration Association terminated 2,236 arbitrations for lack of payment by DoorDash.

Similarly, the 110 arbitrations in the Central District case before Carter were closed by AAA for lack of payment, too, this time by defendant CoreLogic, Inc., an Irvine-based data analytics service facing a proposed rest-and-meal break class action.

The reasons, however, differ. While DoorDash's attorneys at Gibson, Dunn & Crutcher LLP say the company wants to use a new arbitration provider, CoreLogic's attorneys at Carothers DiSante & Freudenberger LLP questioned the propriety of plaintiff attorneys participating in arbitrations in states in which they're unlicensed, in violation of state rules.

The State Bar prohibits attorneys from assisting in the unauthorized practice of law, and Carothers partner Amy S. Williams told Carter in oral argument CoreLogic can't participate in the out-of-state arbitrations "without taking a unacceptable risk." She said CoreLogic offered to pay for a special master to decide the issue, but plaintiff attorneys refused. CoreLogic won't proceed with the 110 arbitrations, which were filed across 25 states, with the issue undecided, Williams said. The company is proceeding with 47 arbitrations in California and Minnesota because all plaintiff attorneys are licensed there, she said.

Like Alsup, Carter rebuked what he described as unreasonable conduct by the defense that obstructed the very arbitrations they persuaded him to order months ago.

"It may have been reasonable to 'raise the issue of Plaintiffs' counsel's authorization to practice law in each of the jurisdictions in which (Plaintiffs' counsel) commenced arbitration proceedings,'" according to Carter's order, citing a defense declaration from ethics attorney Suzanne Burke Spencer of Sall Spencer Callas & Krueger, ALC. "However, it was unreasonable, after initially raising the issue, to unilaterally decide to refuse to participate in arbitration until that issue is decided."

The case highlights an emerging avenue in labor and employment litigation in which plaintiff attorneys initiate huge numbers of arbitrations at once in what some defense attorneys contend is a new way to force previously unnecessary settlements.

In the DoorDash case before Alsup, defense attorney James P. Fogelman of Gibson Dunn said plaintiffs attorneys at Keller Lenkner LLC are engaged in a "shakedown" and "mass arbitration scheme" to extract millions from DoorDash, so DoorDash avoids the huge administrative costs of the arbitrations. He said Keller Lenker "had no intention, nor the practical ability, to proceed with 3,000 arbitration simultaneously." Abernathy et al. v. Doordash, Inc., CV19-07545 (N.D. Cal, filed Nov. 15, 2019).

In Carter's case, Williams and plaintiff's counsel, Matthew C. Helland of Nichols Kaster, LLP and Bryan J. Schwartz of Bryan Schwartz Law, stipulated to the judge deciding whether unlicensed attorneys can participate in arbitrations in the 25 states at issue. But Carter said during oral argument it was "truly a state's issue," then avoided it in Monday's eight-page order by focusing only on whether the defense runs afoul of ethics rules by participating, which he declared a non-issue. Mitchell v. CoreLogic, Inc., et al., CV17-2274 (C.D. Cal., filed Dec. 29, 2017).

"Simply participating in an arbitration with opposing counsel who may arguably be engaged in the unauthorized practice of law does not violate [California State Bar rules]," according to the order. "The kind of actions that violate these rules include, for example, physically introducing unlicensed persons to a client and allowing that person to consult with the client without supervision. That is far from the facts at hand in this case."

Carter questioned why the defense didn't report the plaintiff's counsel to the state bar and said their response that it would "take too long" casts suspicion on their true motives. He said he'll sanction the defense after plaintiffs submit all fees and costs "associated with their efforts to comply with this Court's orders to arbitrate."

Helland said Carter must retain jurisdiction now that AAA has terminated the arbitrations, but Carter declined to do so, instead ordering CoreLogic to proceed with the previous order compelling arbitration.

Helland said in oral argument that wasn't an option, but Carter assured him, "I certainly have that option. AAA will respond. Trust me."