Shulman Hodges & Bastian LLP
949-340-3400|949-427-1654

PAGA CLAIMS, WHETHER INDIVIDUAL OR REPRESENTATIVE, ARE NONWAIVEABLE VIA A PREDISPUTE ARBITRATION AGREEMENT

On November 16, 2016, the First Circuit Court of Appeal certified for publication its opinion in the Tanguilig v. Bloomingdales, Inc. case (San Francisco City and County Super. Ct. No. CGC-14-541208), which addressed the enforceability of PAGA waivers pursuant to Iskania v. CLS Transportation Los Angeles, LLC. Specifically, Bloomingdales moved to compel arbitration of Tanguilig's "individual PAGA claim." The trial court denied the motion and the Appellate Court affirmed, holding that "Iskanian v. CLS Transportation Los Angeles, LLC...and consistent with the Federal Arbitration Act (FAA)(9 U.S.C. et seq.), a PAGA representative claim is nonwaivable by a plaintiff-employee via a predispute arbitration agreement with an employer, and a PAGA claim (whether individual or representative) cannot be ordered to arbitration without the state's consent." The Appellate Court reasoned that, whether a PAGA claim is brought in an individual or representative capacity, the real party in interest is the state. Since a claim cannot be ordered to arbitration without the consent of the real party in interest, the individual v. representative nature of the PAGA claim was not relevant to the analysis. Rather, the analysis turned on the absence of the state's consent to arbitration.

Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc.

In Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc., (Nov. 14, 2016, S218497) ___Cal. 5th [2016 Cal. LEXIS 9282] (hereinafter "Centinela") the California Supreme Court was asked to determine whether a HMO health plan ("HMO") which contractually delegated the responsibility for payment of emergency services for its plan beneficiaries to an individual practice association ("IPA") which ultimately went out of business could be sued by emergency department physicians who were left unpaid. The California Supreme Court held that the HMO's could be sued under two theories, (1) the negligent delegation of financial responsibility for emergency services by an HMO to an IPA which the HMO "knew or should have known was financially unsound" and (2) the negligent failure by the HMO to reassume the delegated responsibility to make payment when it knew there was "no reasonable expectation" that the IPA could make payments to the physicians.

Beware in Mediation as to Whether California or Federal Law Governs Potential Claims of Privilege.

The Ninth Circuit recently held that Federal Rule of Evidence (FRE) 501, rather than California's mediation confidentiality statute (Evidence Code § 1123(b)), governs the admissibility of mediation exchanges when a settlement relates to federal claims and is sought to be enforced in federal court. In re TFT-LCD (Flat-Panel) Antitrust Litigation, 835 F.3d 1155 (9th Cir. 2016).

In Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc.

In Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc., (Nov. 14, 2016, S218497) ___Cal. 5th [2016 Cal. LEXIS 9282] (hereinafter "Centinela") the California Supreme Court was asked to determine whether a HMO health plan ("HMO") which contractually delegated the responsibility for payment of emergency services for its plan beneficiaries to an individual practice association ("IPA") which ultimately went out of business could be sued by emergency department physicians who were left unpaid. The California Supreme Court held that the HMO's could be sued under two theories, (1) the negligent delegation of financial responsibility for emergency services by an HMO to an IPA which the HMO "knew or should have known was financially unsound" and (2) the negligent failure by the HMO to reassume the delegated responsibility to make payment when it knew there was "no reasonable expectation" that the IPA could make payments to the physicians.

Preference Defendant Can Offset Preference Exposure with Administrative Claim

In In re Quantum Foods, LLC, Case No. 14-10318, the Bankruptcy Court for the District of Delaware held that a preference defendant could offset its preference exposure by the amount of its allowed administrative claim for food products delivered to the debtor post-petition. The parties agreed that the administrative claim could not be used as a subsequent new value defense but the court held that the defendant could apply the doctrine of setoff in this context. The court based its reasoning on both the administrative claim and the preference causes of action arising post-petition; that setoff is not a disguised new value defense because the setoff claim does not affect defendant's preference exposure but rather, only affects the amount to be paid to the estate; and that Section 502(d) which normally disallows claims by a transferee of an avoidable transfer does not apply to administrative claims.

Chapter 11 Debtors Beware - Default Interest Allowed Even When Default is Cured

Pursuant to a decision dated November 4, 2016, the Ninth Circuit in In re New Investments, Inc. effectively overruled In re Entz-White Lumber & Supply, Inc., 850 F.2d 1338 (9th Cir. 1988) finding that when a Chapter 11 plan cures a default, the debtor/borrower must pay interest at the rate specified in the underlying loan documents, even if that rate is a higher default rate of interest. In New Investments, the underlying loan documents called for interest at 8% unless a default occurred in which case the interest rate increased to 13%. The debtor's Chapter 11 plan proposed to cure the default by selling the property and paying off the loan at the non-default interest rate of 8%. The bankruptcy court approved the plan over the creditor's objection but the Ninth Circuit overruled. The Ninth Circuit held that if a plan proposes to cure a default in order to treat the creditor as unimpaired, the amount necessary to cure the default must be determined in accordance with the underlying loan documents and applicable nonbankruptcy law. In New Investments, the loan documents called for default interest to be paid in order to cure a default and as such, the debtor was required to pay the same amount under its plan in bankruptcy. The Ninth Circuit relied on Section 1123(d), enacted after Entz-White, which states that the amount to be paid to cure a default in a plan "shall be determined in accordance with the underlying agreement and applicable nonbankrutpcy law." The decision means that debtors now must cure to the same extent they would be required outside of bankruptcy in order to return to pre-default conditions and thus treat the creditor as unimpaired.

Irvine
Shulman Hodges & Bastian LLP
• 100 Spectrum Center Drive, Suite 600 • Irvine, CA 92618
• Local: 949-340-3400 • Fax: 949-340-3000 • Map & Directions
or contact us at 949-427-1654

Riverside
Shulman Hodges & Bastian LLP
• 3550 Vine Street, Suite 210 • Riverside, CA 92507 
• Local: 951-275-9300 • Fax: 951-275-9303 • Map & Directions
or contact us at 949-427-1654

Map