Reinsurance Focus

In a dispute over the purchase of a car, the purchaser filed a class action in California against the car dealer, and the dealer moved to compel arbitration. The dealer invoked the arbitration agreement contained in the automobile sales contract. The agreement contained a class action waiver provision and further provided that if the class waiver is deemed unenforceable, the entire arbitration agreement is unenforceable. The trial court denied the dealer’s motion to compel arbitration, finding the class waiver, and, thus, the entire arbitration agreement to be unenforceable. As we previously reported, the Court of Appeal declined to address the class waiver issue, holding instead that the arbitration appeal provision and the agreement as a whole were unconscionably one-sided. Relying on the U.S. Supreme Court’s decision in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), the dealer appealed.

After the trial court decision but before the appellate court ruled, the Supreme Court in Concepcion held that the Federal Arbitration Act (“FAA”) requires enforcement of class waivers in consumer arbitration agreements. The appellate court’s decision focused on whether the arbitration agreement was unconscionable, concluding that several of its provisions “have the effect of placing an unduly oppressive burden on the buyer.” The California Supreme Court noted that after Concepcion, unconscionability remains a valid defense to a motion to compel arbitration, but that state unconscionability laws must not disfavor arbitration by imposing procedures that interfere with the fundamental attributes of arbitration. The court then analyzed the arbitration agreement at issue under California’s unconscionability framework and concluded that while elements of the agreement were burdensome, the provisions the plaintiff claimed were substantively unconscionable — limits on appeals, allocation of costs, retention of the remedy of self-help — did not render the agreement unconscionable. The court likewise rejected the plaintiff’s class waiver arguments. Sanchez v. Valencia Holding Co., No. S199119 (Cal. Aug. 3, 2015)

This post written by John A. Camp.

See our disclaimer.

A district court refused to vacate an arbitration award where Preis, a terminated employee, failed to produce sufficient evidence of bias or misconduct in the arbitration panel’s decision. Preis moved to vacate the award in favor of former employee Citigroup Global Markets Inc. on the grounds that (1) the panel was biased, and (2) the panel manifestly disregarded the law. Although Preis relied on New York’s civil practice laws and Citigroup relied on the Federal Arbitration Act, the court decided choice of law was irrelevant because no conflict existed between state and federal law on the grounds for vacating arbitration awards.

On the issue of bias, the court found that the examples cited by Preis were neutral, did not suggest prejudice, and “would not lead a reasonable person to conclude that the panel was biased.” The court was even more skeptical of Preis’s manifest disregard claim, finding that he failed to show the panel intentionally defied a well-defined, applicable law. His claims did not rise to the level of showing “some egregious impropriety on the part of the arbitrator,” and thus, did not warrant vacating the award. The court did, however, deny Citigroup’s request for attorneys’ fees and costs, finding it failed to show that Preis acted in bad faith in seeking to overturn the award. Preis v. Citigroup Global Markets Inc., Case No. 14-06327 (USDC S.D.N.Y. Apr. 8, 2015).

This post written by Brian Perryman.

See our disclaimer.

The purpose of the Act is to provide Delaware businesses with the ability to resolve disputes within 120 days in a “cost-effective, and efficient manner, through voluntary arbitration conducted by expert arbitrators.” The Act streamlines the process for seeking court assistance with appointing arbitrators, if necessary, which may occur only in the Delaware Court of Chancery. The Act gives the arbitrator exclusive jurisdiction to determine the scope of the arbitration and to determine the type of relief, “including any legal or equitable remedy appropriate in the sole judgment of the arbitrator.” Only one direct challenge to the Delaware Supreme Court is authorized, and only the standards of the FAA are utilized on appeal. Among other limiting measures, the Act may not be used in controversies between businesses and consumers, in controversies in which parties have not expressly consented in writing to arbitration, and in controversies in which choice of Delaware law has not been expressly selected. To ensure rapid resolution of arbitrations, the Act contains a schedule for the reduction of the arbitrator’s fees depending upon the lateness of the award: (1) between 0 to 30 days late, the reduction is 25%; (2) between 30 to 60 days late, the reduction is 75%; and (3) greater than 60 days late, the reduction is 100%. While the arbitrator is required to issue a written award, there is no requirement that it be a reasoned award. Thus, the award can be as simple as “plaintiff wins.” Delaware House Bill No. 49 (eff. May 4, 2015).

This post written by Barry Weissman.

See our disclaimer.

The Eighth Circuit affirmed a district court’s finding that LoRoad, LLC (“LoRoad”) failed to accept an agreement with Global Expedition Vehicles, L.L.C. (“Global”) that would allow LoRoad to enforce the arbitration contained within.

LoRoad negotiated with Global to build a custom expedition vehicle. The terms of the “Assembly Agreement” called for a nonrefundable $120,000 deposit. During the exchange of agreement drafts, LoRoad sent Global $120,000 along with a modified—allegedly signed—agreement shortly thereafter. As the relationship soured, Global stopped work on the expedition vehicle. LoRoad alleged that it did not have a final set of documents, as prior draft exchanges were simply contract negotiations. LoRoad sought to compel arbitration to handle the dispute per the agreement, asserting that the arbitration provision was enforceable because the parties exhibited the requisite intent to form a binding contract. In addition, LoRoad alleged that the arbitration provision was enforceable because that particular provision remained the same throughout multiple agreement draft iterations. The court focused on LoRoad’s intent. LoRoad’s only conduct to indicate an agreement was its payment of $120,000. However, it also argued that this sum was only a “good faith deposit” and not a payment per the agreement. Further, LoRoad sent emails to Global indicating that the agreement was “not yet executed.” Without an executed agreement or a free-standing agreement to arbitrate, arbitration could not be compelled. LoRoad, LLC v. Expedition Vehicles, LLC, Case No. 14-2636 (8th Cir. June 1, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

See our disclaimer.

The Court of Appeals for the Fourth Circuit recently remanded a case to the district court for full consideration of a request to compel arbitration, finding the lower court’s order “inconsistent with the emphatic federal policy in favor of” arbitration. The plaintiff, Dillon, sued several banks which were allegedly “complicit” in effectuating illegal payday loans by processing transfers on behalf of the lenders (tribal and out-of-state). The district court denied the banks’ initial motion to enforce arbitration clauses contained in the original loan agreements because the banks failed to provide authenticating evidence. When the banks renewed their motions to cure that deficiency by providing such evidence, the district court construed the motions as reconsideration motions, and denied them.

On appeal, the court analyzed the lower court’s perfunctory reasoning in construing the renewed motions as seeking reconsideration. The court rejected the idea that the banks only had one opportunity to invoke the Federal Arbitration Act’s enforcement mechanisms. Only when the party “is in default in proceeding with” arbitration does the Act foreclose the chance of obtaining a stay under its mechanisms. The court also distinguished the underlying issues presented by the initial and renewed motions to reject the notion that the law of the case doctrine justified denial. The district court’s ruling on the initial motions spoke to whether the pleadings established arbitrability did not, as law of the case, determine the renewed motions’ issue of whether Dillon consented to arbitration in the first place. The district court was instructed to, on remand, determine whether the claims are within the scope of the original loan agreement’s arbitration clause, and whether the banks forfeited those rights because they are “in default in proceeding” with arbitration. Dillon v. BMO Harris Bank, N.A., No. 14-1728 (4th Cir. May 29, 2015).

This post written by Brian Perryman.

See our disclaimer.

A New York district court granted Hudson Specialty Insurance Company’s (“Hudson”) petition to compel arbitration against New Jersey Transit Corporation (“N.J. Transit”) after determining that the parties had agreed to arbitrate pursuant to the Federal Arbitration Act. In late October 2012, Hurricane Sandy damaged N.J. Transit’s facilities and equipment triggering policies issued by Hudson and various other property casualty insurance companies. The original action was submitted to New Jersey state court to interpret “Flood Sublimit” and “Named Windstorm” provisions in the policies, the former of which limited Hudson’s flood damage liability to $100 million. Hudson sought to compel arbitration based on the arbitration provision within the policy. N.J. Transit argued that the arbitration agreement was unenforceable as it never assented to the provision, and furthermore, never saw the arbitration provision until the policy was issued. It alleged that they relied on a prior draft of the policy without such a provision.

The court rejected N.J. Transit’s arguments for a number of reasons. The arbitration provision was included in the policy quote accepted by Hudson’s insurance broker, which referenced arbitration. The court noted that N.J. Transit “cannot have it both ways.” Either N.J. Transit assented to the policy in 2012 or it did not. Instead, “N.J. Transit is clearly seeking to benefit from the Policy by demanding coverage for its losses after Hurricane Sandy and has thus manifested its assent.” The court also rejected N.J. Transit’s final effort to oppose arbitration alleging that the provision was unenforceable because it lacked certain key terms. Here, the arbitration provision was a complete form where the alleged missing terms had no bearing on the enforceability of the provision. Hudson Specialty Ins. Co. v. N.J. Transit Corp., No. 15-cv-89 (ER) (USDC S.D.N.Y. June 5, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

See our disclaimer.

An administrative law judge for the National Labor Relations Board (“Board”) found in favor of Talina Torres (“Torres”) against Employers Resource (“Employers”) after determining that an arbitration clause within an employment contract was unenforceable. From September 2009 until June 2011, Torres was employed by Beth’s Kitchen, Inc., which was staffed by Employers. Torres filed a wage and hour putative class action lawsuit in California state court after being laid-off. Employers was named as a co-defendant. Employers then successfully moved to compel individual arbitration arguing that, under Stolt-Nielsen, class arbitration may not be inferred when a contract is silent on the issue. Following this ruling, Torres filed a complaint with the Board contending that Employers restricted her rights to engage in “protected concerted activities” as an employee under the National Labor Relations Act, citing recent Board decisions Murphy Oil and D.R. Horton.

In response to the Board complaint, Employers made various arguments, including that the Board lacked standing to hear the case as Torres was not an employee of Employers. Employers further contended that, contrary to the facts in Murphy Oil and D.R. Horton, the employment agreement in this case was not mandatory as a condition of employment with Beth’s Kitchen. The Board, however, found that while Torres did not interact with Employers, Employers did prepare the employment agreement for Beth’s Kitchen, Employers made itself a party to the agreement, and Employers then relied on the agreement in the litigation. Therefore, Employers was sufficiently implicated as violating Torres’s rights under the NLRA. The Board also noted that based on various representations made by Employers and Beth’s Kitchen, Torres was led to believe that the employment agreement was mandatory as a condition of employment. The Board ordered that Employers rescind or revise the mandatory arbitration provision and also that they not oppose Torres’ class action wage and hour suit on the basis of the employment agreement. Employers Resource and Talina Torres, Case 31-CA-097189 (N.L.R.B. May 18, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

See our disclaimer.

The Sixth Circuit affirmed the district court’s denial of a motion for attorneys’ fees and enhancement of fees resulting from post-arbitration confirmation proceedings. The issue before the court was whether the agreement between Crossville Medical Oncology and Glenwood Systems permitted the court to award the additional attorneys’ fees.

Crossville Medical Oncology and its single shareholder Dr. Tabor sued Glenwood Systems for breach of contract. The agreement was determined to have an enforceable arbitration clause, and following arbitration, Dr. Tabor was found to have signed the agreement in his individual capacity and to have breached. After an interlocutory appeal regarding Dr. Tabor’s personal consent to arbitration, the district court entered a judgment confirming the arbitration award. Glenwood moved for attorneys’ fees resulting from the post-arbitration litigation proceedings, which the district court denied for lack of authority.

The appellate court affirmed, finding that neither the Federal Arbitration Act nor the parties’ agreement authorized the court to grant attorneys’ fees for post-arbitration confirmation proceedings. The court reasoned that it could only award attorneys’ fees if it was authorized by statute or by the specific language of the parties’ agreement. While the agreement subjected “[a]ny dispute arising out of or in connection with” the agreement to arbitration and provided for attorneys’ fees for the prevailing party, the only jurisdiction given to the courts in the agreement was to “enter [the award] as a judgment.” The court construed the agreement to authorize “an arbitrator to award attorneys’ fees and costs during arbitration,” but merely authorized “the district court to enter the award as a judgment.” The court distinguished the case from others in which parties’ broad agreements contemplated fees for the prevailing party in “any action at law or in equity,” emphasizing that this agreement included attorneys’ fees from arbitration in the “award” to be entered as a judgment by the court, thereby limiting the court’s authority to award any additional attorneys’ fees.

The appellate court similarly rejected a bad-faith argument for additional attorneys’ fees, but remanded the case to the district court on the issue of prejudgment interest, finding the lower court’s short, handwritten opinion devoid of analysis relevant to the appropriateness of that interest. Crossville Med. Oncology, P.C. v. Glenwood Sys., LLC, No. 14-5444 (6th Cir. May 1, 2015).

This post written by Rollie Goss.

See our disclaimer.

In the recent unpublished opinion, the United States Court of Appeals for the Fifth Circuit confirmed that if an issue is voluntarily submitted to an arbitrator, then the arbitrator can decide the issue, even if it is one that should have been left to the court. After the arbitrator found for the defendant, Heritage Actions, on the basis that there was no meetings of the minds and therefore the contract was unenforceable and should be rescinded, the plaintiffs, OMG, L.P. and Greg Martin, attempted to have the award vacated in federal district court. The district court agreed with OMG and vacated the award on the basis that “a court was the proper decision-maker as to the contract formation issues in this case, not the arbitrator.” The Fifth Circuit reversed, pointing out that if the parties agree, they may arbitrate issues that are not part of the arbitration agreement. While OMG argued that the issue of the contract’s validity had not been submitted to the arbitrator either by the arbitration contract or by agreement, the Fifth Circuit found that both parties actively put forth arguments during the arbitration on whether there had been a meeting of the minds and whether the contracts should be rescinded. At no time during the arbitration did OMG argue that the arbitrator did not have the authority to decide this issue. The remedy OMG should have sought, said the Fifth Circuit, was to have “refused to arbitrate, leaving a court to decide whether the arbitrator could decide the contract formation issue,” i.e., whether there was a meeting of the minds. The district court’s judgment was reversed and the case remanded with instructions to confirm the arbitration award. OMG, L.P. v. Heritage Actions, Inc., No. 14-10403 (5th Cir. May 8, 2015).

This post written by Barry Weissman.

See our disclaimer.

The Eighth Circuit affirmed a decision by the U.S. District Court for the Eastern District of Missouri which rejected the contention that an arbitration agreement was unconscionable, and unenforceable under the Federal Arbitration Act, because (1) the prohibitively high costs associated with an individual arbitration proceeding prevented plaintiffs from pursuing their claims; and (2) it included a waiver of punitive damages and attorneys’ fees. In this case, a class of cleaning business franchisees sued a franchisor and related companies for RICO violations. Plaintiffs also contended that some defendants were non-signatories and therefore could not enforce the arbitration agreement. In response, defendants moved to compel individual arbitration citing the arbitration provision language in the respective franchise agreements.

Plaintiffs supported their claims with several figures including average loss per plaintiff, a range of individual filing fees, average daily fees for arbitrators in four cities, and a likely hearing length of three days. Altogether, plaintiffs asserted that their individual arbitration costs would exceed their respective damages. Ultimately, the court found that plaintiffs’ proof was insufficient because (1) the arbitrations would not take place in any of the four cities for which daily fees were provided and (2) plaintiffs did not submit individual affidavits demonstrating their inability to afford arbitration costs. The court emphasized that rather than a hypothetical inability to pay, plaintiffs must provide specific evidence of their individual inability to pay the actual arbitration fees likely to be incurred in order to overcome the federal policy favoring arbitration. The court also rejected plaintiffs’ claim that even if enforceable, the arbitration agreement prohibited non-signatories from compelling arbitration. The court also held that the arbitration agreement language was broad enough to include various non-signatory third parties, and deemed them capable of enforcing the arbitration provision. Torres v. Simpatico, Inc., No. 14-1567 (8th Cir. Mar. 25, 2015).

This post written by Rollie Goss.

See our disclaimer.