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Brendan Gooley

Ninth Circuit Reverses Order Compelling Arbitration

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The Ninth Circuit Court of Appeals recently reversed a district court’s decision granting a motion to compel arbitration filed by a non-signatory to the agreement containing the arbitration clause. The non-signatory argued that it was a third-party beneficiary of the agreement and that equitable estoppel allowed it to compel arbitration, but the Ninth Circuit rejected those claims under California law.

Kim Ngo bought a BMW from a California dealership. Ngo financed the car through a purchase agreement with the dealership that contained an arbitration clause. The car was allegedly riddled with problems, and Ngo sued the car’s manufacturer, BMW of North America, under, inter alia, California and federal consumer protection statutes regarding car warranties.

BMW moved to compel arbitration under the arbitration clause in the purchase agreement Ngo had signed with the dealership. BMW conceded that it was not a party to the purchase agreement but claimed it was a third-party beneficiary of that agreement and could therefore compel arbitration under it. The district court agreed and granted BMW’s motion. Ngo appealed and the Ninth Circuit reversed.

Applying California law, the Ninth Circuit concluded that BMW could not invoke the purchase agreement’s arbitration clause. The Ninth Circuit repeatedly noted that, by its terms, the arbitration clause could only be invoked by Ngo, the dealership, or the dealership’s assignee, which was defined as BMW Bank of North America (the financing company that financed the purchase). The Ninth Circuit distinguished case law cited by BMW that used broader language to include disputes against “affiliates” as within the scope of arbitration.

More specifically, the Ninth Circuit explained that California law required the purchase agreement to be “made expressly for” BMW’s benefit but that the three-part test for determining whether that was the case was not met under the facts. First, BMW did not “benefit from” the purchase agreement more than “incidentally or remotely” because BMW was not even a party who could invoke the arbitration clause under the terms of the arbitration clause. Any benefit to BMW was “peripheral and indirect because it was predicated on the decisions of others to arbitrate.” Second, a “motivating purpose” behind entering the contract was not “providing a benefit to” BMW because “the vehicle purchase agreement … was drafted with the primary purpose of securing benefits for the contracting parties themselves.” The arbitration clause supported this conclusion because it only allowed the contracting parties and the financing company to invoke arbitration. Third, allowing BMW to compel arbitration was not “consistent with the ‘objectives of the contract’” because, as noted above, “[n]othing in the contract … evince[d] any intention that the arbitration clause should apply to BMW.”

The Ninth Circuit also rejected BMW’s claim that equitable estoppel allowed it to invoke the arbitration clause. The court rejected BMW’s argument that Ngo’s claims were “intimately founded in and intertwined with” the purchase agreement.

Ngo v. BMW of North America, LLC, No. 20-56027 (9th Cir. Jan. 12, 2022).

Second Circuit Rejects Arbitration-Ordered Procedure for Determining Religious Exemptions to Vaccines in Favor of Title VII Standards

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The Second Circuit Court of Appeals recently invalidated an arbitrator’s procedure for determining whether New York City Department of Education employees would receive religious accommodations to a vaccine mandate after finding that the arbitrator’s procedure failed to pass constitutional muster.

In August 2021, New York City’s commissioner of health and mental hygiene adopted a vaccine mandate for most New York City employees who work in New York City’s public schools.

The United Federation of Teachers objected to the mandate on the ground that it did not provide for medical or religious accommodations. That objection led to arbitration, where an arbitrator issued an award providing a process for employees to seek religious accommodations.

The arbitrator’s procedure required covered employees to submit a request that was “documented in writing by a religious official (e.g., clergy).” The procedure then provided that requests would be “denied where the leader of the religious organization has spoken publicly in favor of the vaccine, where the documentation [(apparently, documentation from the religious organization supporting the vaccine)] is readily available (e.g., from online sources), or where the objection is personal, political, or philosophical in nature.” The city’s department of education made an initial determination regarding an accommodation. That decision was subject to appeal to a panel of arbitrators. Employees who were granted an accommodation would remain on the payroll but would not be allowed to enter school buildings. The arbitration award also provided a series of deadlines and allowed the city to place unvaccinated employees who were denied an accommodation on unpaid leave by a certain date and allowed employees on unpaid leave to voluntarily resign from their positions, provided they waived their right to challenge their resignation. Employees who resigned would maintain health insurance but would not be paid.

A group of teachers and administrators challenged the vaccine mandate and the arbitrator’s procedures. They claimed the mandate was unconstitutional on its face and as applied to them through the arbitrator’s procedures. The district court denied the plaintiffs’ request for a preliminary injunction and the plaintiffs appealed to the Second Circuit. A motions panel at the Second Circuit heard oral argument on a request by the plaintiffs for interim relief. At that oral argument, the city conceded that the arbitrator’s process was “constitutionally suspect.” The motions panel subsequently granted the plaintiffs partial interim relief, which among other things and in accordance with a proposal from the city, allowed the plaintiffs to receive renewed consideration of their accommodation requests by a citywide panel that applied Title VII’s standards for religious accommodations. The motions panel also stayed the deadlines for resignation and provided that plaintiffs whose requests were granted would receive back pay.

The Second Circuit then addressed the merits of the plaintiffs’ claims, albeit in the context of the plaintiffs’ request for a preliminary injunction. The court first found that the plaintiffs were not likely to succeed on their claim that the vaccine mandate was facially unconstitutional. On its face, the mandate was neutral and generally applicable and therefore subject to rational basis review. The mandate satisfied that standard and the plaintiffs’ facial claim failed.

The court then turned to the arbitrator’s procedure, however, which it noted the city’s defense of was “half-hearted at best.” The court found that, unlike the mandate on its face, that process was neither neutral nor generally applicable. The procedure impermissibly determined an employee’s entitlement to a religious accommodation by reference to another person’s (e.g., a clergy person’s) beliefs. The plaintiffs also submitted evidence that the arbitrators who reviewed decisions under the process had substantial discretion that seemed to result in varying standards and seemingly inconsistent results. The court therefore applied strict scrutiny, which the process failed because “whether an applicant can produce a letter from a religious official … is not narrowly tailored to serve the government’s interest in preventing the spread of COVID-19.”

As a result of its decision, the Second Circuit vacated the district court’s ruling and remanded for further proceedings while leaving the relief ordered by its motion panel in place and refusing to order additional injunctive relief requested by the plaintiffs.

Kane De Blasio, No. 21-2711 (2d Cir. Nov. 28, 2021).

Sixth Circuit Concludes That Kroger Retirement Benefits Dispute Is Governed by Arbitration Clause in Collective Bargaining Agreement

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The Sixth Circuit Court of Appeals recently concluded that a grievance by a Kroger union was included within the scope of an arbitration clause in a collective bargaining agreement.

Kroger and the International Brotherhood of Teamsters, Local Union No. 413, entered into a collective bargaining agreement that contained a broad arbitration clause that covered employee grievances. The agreement defined “grievance” as “a dispute between the Employer and employee as to the interpretation or application of any provisions of th[e] Agreement and is limited to the express terms and provisions of th[e] Agreement.”

The agreement also contained provisions regarding the Kroger Employees Retirement Benefit Plan. Beginning in 2001, Kroger provided retirement benefits through the Kroger Consolidated Retirement Benefit Plan. In 2017, however, Kroger terminated the consolidated benefit plan and replaced it with a spin-off plan for union employees. Kroger also provided other new retirement options – such as lump-sum payments and a 401(k) – to non-union employees.

A union steward filed a grievance regarding the retirement benefit changes, but Kroger refused to arbitrate the grievance. Kroger claimed the grievance did not fall within the scope of the collective bargaining agreement’s arbitration clause. The union then filed suit under the Labor Management Relations Act seeking to compel arbitration. The district court agreed that arbitration was warranted.

Kroger appealed the district court’s judgment to the Sixth Circuit, which affirmed.

The Sixth Circuit noted that there is a presumption of arbitration under the LMRA. It also explained that the arbitration clause at issue was broad and that the presumption in favor of arbitration was therefore particularly warranted in this case. Nevertheless, the court found that the collective bargaining agreement was ambiguous with respect to whether the grievance was covered. Applying the presumption in favor of arbitration, the Sixth Circuit therefore analyzed whether the grievance was expressly excluded from the arbitration clause. The court held that it was not because the “arbitration clause [at issue] contain[ed] no specific exclusions exempting specific disputes.” The court also rejected Kroger’s argument that the grievance was exempted by the consolidated benefit plan, which Kroger claimed was incorporated into the collective bargaining agreement. The court explained that Kroger could not “show that the [consolidated benefit plan] was clearly identified in [the collective bargaining agreement] and that the Union would not be surprised or face hardship with its incorporation.” The Sixth Circuit also rejected Kroger’s attempt to rely on extrinsic evidence, explaining that the evidence spoke “to the merits of the case,” not arbitrability.

International Brotherhood of Teamsters, Local Union No. 413 v. Kroger Co., No. 21-3228 (6th Cir. Nov. 24, 2021).

Second Circuit Affirms Judgment Confirming Dismissal of Claims on Statute of Limitations Grounds and Order Enjoining Plaintiff From Refiling His Claims

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The Second Circuit recently affirmed the confirmation of an arbitrator’s decision dismissing claims on statute of limitations grounds against a claim that the arbitrator had no authority to consider such a defense and affirmed an order by the district court enjoining the plaintiff from attempting to once again refile his state court complaint regarding the dispute.

In accordance with prior decisions, Matthew Swain’s claims against Hermès of Paris Inc. were referred to arbitration. The arbitrator then granted Hermès’ motion to dismiss on the ground that Swain’s claims were time-barred. Swain responded by asking the district court to vacate the arbitrator’s dismissal on the ground that the arbitrator lacked the authority to consider Hermès’ statute of limitations defense. The district court declined to do that and instead (1) confirmed the arbitrator’s award and (2) enjoined Swain from attempting to once again refile a state court complaint asserting his claims despite the court’s prior rulings regarding arbitration.

The Second Circuit affirmed. The Second Circuit noted that, when arbitration is proper, there is a presumption that procedural questions related to the substantive issues to be arbitrated are for the arbitrator to decide. Although the parties can rebut that presumption by adopting “express language” to the contrary, the parties had done no such thing in this case. To the contrary, the arbitration agreement allowed the arbitrator to consider “claims and defenses otherwise available in court,” which included Hermès’ statute of limitations defense. Swain’s argument to the contrary that the parties had listed “disputes covered” by the arbitration agreement and that that list did not include timeliness issues was not persuasive. The list of “disputes covered” identified substantive issues for the arbitrator. The fact that it did not include any procedural issues or defenses did not overcome the presumption that such issues were for the arbitrator.

The Second Circuit also held that the district court did not abuse its discretion when it enjoined Swain from attempting to once again refile his state court complaint. The Second Circuit agreed with the district court that Swain had a “history of vexatious and duplicative lawsuits against Hermès,” including filing two motions to reinstate his state court complaint despite decisions from multiple courts, including the Second Circuit and district court, that his claims were subject to arbitration and that “Swain lacked an objective good faith expectation of prevailing in the instant dispute” and that his actions had “undoubtedly caused needless expense to Hermès and imposed an unnecessary burden on federal and state courts through his repeated filings.”

Hermès of Paris, Inc. v. Swain, No. 20-3451 (2d Cir. Nov. 8, 2021).

Federal Circuit Declines to Hear Challenge to Patent Board’s Decision Even Though Decision Allegedly Involved Adjudicating Issues Subject to Arbitration

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The Federal Circuit Court of Appeals recently declined to hear an appeal or grant a writ of mandamus seeking review of a decision by the Patent Trial and Appeal Board to institute inter partes review proceedings even though those proceedings were allegedly subject to arbitration.

MaxPower Semiconductor Inc. sought to appeal the Patent Trial and Appeal Board’s decision to institute inter partes review proceedings involving four of MaxPower’s patents. In the alternative, MaxPower sought a writ of mandamus to review the board’s decision. In relevant part, MaxPower argued that “the collateral order doctrine warrant[ed] immediate review because its challenge implicates questions of whether the Board can institute proceedings that are subject to arbitration.”

The Federal Circuit rejected MaxPower’s arguments for review, including its argument that it was entitled to immediate review because the question whether the board could institute proceedings subject to arbitration was implicated. The court explained that “[i]f MaxPower [was] truly not raising matters that are absolutely barred from appellate review … then MaxPower can meaningfully raise its arbitration-related challenges after the Board’s final written decisions. We therefore cannot say that MaxPower has established jurisdiction to review these decisions under the collateral order doctrine.”

In re MaxPower Semiconductor, Inc., No. 2021-146 (Fed. Cir. Sept. 8, 2021).