Brendan Gooley

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

November 23, 2021 by Brendan Gooley

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

October 12, 2021 by Brendan Gooley

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).

Seventh Circuit Concludes That Arbitration Clause That Waives ERISA Remedies Is Invalid

October 11, 2021 by Brendan Gooley

The Seventh Circuit Court of Appeals recently concluded that an arbitration clause that prohibited claimants from seeking or receiving any remedy that provided additional retirement benefits or other relief was unenforceable because it prospectively waived ERISA remedies.

James Smith worked for Triad Manufacturing Inc. Triad offered Smith and other employees a defined contribution employee retirement plan. In 2018, after Smith had left Triad, Triad added an arbitration provision with a class action waiver to the plan, which stated:

Each arbitration shall be limited solely to one Claimant’s Covered Claims, and that Claimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary or other relief to any Eligible Employee, Participant or Beneficiary other than the Claimant.

In 2020, Smith filed a putative ERISA class action alleging that Triad’s board had breached fiduciary duties and engaged in prohibited transactions based on the board’s governance of the retirement plan. The board filed a motion to compel arbitration or, in the alternative, to dismiss.

The district court denied the board’s motion. The district court concluded that Smith had not consented to the arbitration clause because his employment with Triad ended in 2016 but the arbitration clause had been added in 2018 and there was no evidence that Smith had even received notice of the amendment. The court also concluded that the arbitration clause was “unenforceable because it prospectively waived Smith’s right to statutory remedies provided by ERISA.”

The Seventh Circuit affirmed the district court’s decision. It agreed that the arbitration clause was unenforceable because its language prohibiting claimants from seeking or receiving any remedy that provided additional benefits or other relief was inconsistent with ERISA’s allowance of “such other equitable or remedial relief as the court may deem appropriate, including removal of [a] fiduciary.” The Seventh Circuit did not address whether Smith had agreed to the arbitration clause, whether he had received notice of the provision, or whether a plan sponsor can unilaterally add an arbitration clause. The Seventh Circuit did, however, conclude that “ERISA claims are generally arbitrable” and noted that the arbitration clause’s class action waiver did not present any problem, as the Seventh Circuit “has blessed that arbitration maneuver many times.”

Smith v. Board of Directors of Triad Manufacturing, Inc., No. 20-2708 (7th Cir. Sept. 10, 2021).

Second Circuit Affirms Denial of Motions to Compel Arbitration in Suit Against Trump Corp. and Trump Family

September 13, 2021 by Brendan Gooley

The Second Circuit recently affirmed the denial of motions to compel arbitration filed by, inter alia, the Trump Corp. and a nonparty from whom the plaintiffs sought discovery.

Several anonymous plaintiffs filed a putative class action against the Trump Corp., former President Donald J. Trump, and members of his family asserting federal and state claims alleging that the defendants had fraudulently induced them to enter into business relationships with nonparty ACN Opportunity LLC. More specifically, the plaintiffs claimed that the defendants publicly represented that they were independent of ACN when they were actually allegedly accepting large payments from ACN. When the plaintiffs entered their business relationships with ACN, they signed arbitration agreements agreeing to arbitrate disputes.

When the plaintiffs filed suit, the defendants moved to dismiss the plaintiffs’ complaint and then the plaintiffs’ amended complaint. The defendants also filed a motion to compel arbitration pursuant to the arbitration clauses in the agreements between the plaintiffs and ACN.

The plaintiffs subsequently served ACN with a subpoena seeking various documents. In response, ACN objected and sought to compel arbitration of the discovery dispute.

The district court denied the motions to compel arbitration by the defendants and ACN, both of whom then appealed to the Second Circuit Court of Appeals.

The Second Circuit affirmed the denial of the motions to compel arbitration.

On appeal, the defendants primarily argued that arbitrability should have been decided by the arbitrator, not the district court, and that they were entitled to compel arbitration under equitable estoppel principles. ACN meanwhile principally argued that the district court had erred when the court concluded that it lacked jurisdiction to entertain ACN’s motion to compel.

With respect to the defendants, the Second Circuit first concluded that the defendants “did not adequately raise before the district court their argument that, under Contec [Corp. v. Remote Solution Co., 398 F.3d 205 (2d Cir. 2005)], the issue of arbitrability was for the arbitrator to determine or, more broadly, that the questions of equitable estoppel and waiver should have been determined by an arbitrator.” The Second Circuit noted that the defendants had asked the district court to resolve those questions and had only included a “casual citation,” “without further explanation or argument” on this issue.

On the merits, the Second Circuit held that the defendants were not entitled to compel arbitration under principles of equitable estoppel. To invoke equitable estoppel, the court explained that “there must be a close relationship among the signatories and non-signatories such that it can reasonably be inferred that the signatories had knowledge of, and consented to, the extension of their agreement to arbitrate to the non-signatories.” That standard was not met here. “There was no corporate relationship between the defendants and ACN of which the plaintiffs had knowledge, the defendants [did] not own or control ACN, and the defendants [were] not named in the [] agreements between ACN and the plaintiffs.” Indeed, the plaintiffs had alleged that the defendants had concealed their relationship with ACN and held themselves out as independent.

Turning to ACN’s motion, the court explained that there was “no actual case or controversy between the plaintiffs and ACN . . . and therefore no subject-matter jurisdiction.” The only “controversy” was a discovery dispute, which was insufficient to compel arbitration.

The Second Circuit also rejected ACN’s alternative argument that it was entitled to invoke arbitration under principles of equitable estoppel, explaining that ACN had not properly raised that argument before the district court and that ACN had therefore forfeited it.

Doe v. Trump Corp., Nos. 20-1228 & 20-1278 (2d Cir. July 28, 2021).

Court Refuses to Vacate Award Stemming From Workplace Personal Injury

August 5, 2021 by Brendan Gooley

The U.S. District Court for the Southern District of New York recently refused to vacate an arbitration award stemming from a workplace personal injury after the arbitrator concluded that the employee was primarily responsible for his own injuries.

Daniel Pacelli was working for Vane Line Bunkering Inc. (known as “Vane Brothers”), as a tankerman on one of Vane Brothers’ barges in New York Harbor when he slipped, fell, and was injured on ice while attempting to salt the deck of the barge. He initiated an arbitration action against Vane Brothers. A JAMS arbitrator heard the case and concluded that Pacelli had sustained $986,750 in damages and that both Pacelli and Vane Brothers were negligent. More specifically, the arbitrator concluded that Pacelli was 70% at fault while Vane Brothers was 30% at fault. The arbitrator therefore reduced Pacelli’s damages accordingly. Pacelli moved to vacate the award.

The district court declined to vacate the award. It rejected Pacelli’s arguments that the arbitrator had (1) manifestly disregarded the law; (2) been partial to Vane Brothers; (3) engaged in “misbehavior” by repeatedly delaying his decision; and (4) improperly failed to award interest.

With respect to manifest disregard, the court concluded that the arbitrator had applied the law regarding contributory negligence to the facts of the case and had supported his decision regarding comparative fault with evidence from the record, including evidence that Pacelli had acted carelessly by attempting to salt a narrow part of the deck at night and in freezing temperatures without seeking assistance. The court noted that the Second Circuit does not recognize manifest disregard of the evidence as a ground for vacating an award and refused to reweigh the evidence.

The court also rejected Pacelli’s argument that the arbitrator had been partial to Vane Brothers. After the arbitration hearing but months before the arbitrator issued his decision, the arbitrator disclosed that he had a small ownership interest in JAMS and JAMS disclosed that it had a small number of other arbitrations with Vane Brothers, its counsel, and/or its counsel’s law firm. The court noted that Pacelli had waived this argument by not raising it before the arbitrator. The court nevertheless also explained that the facts did not show improper partiality and rejected Pacelli’s argument that the arbitrator’s small ownership interest was material in any event.

Turning to Pacelli’s next argument — that the arbitrator’s delays warranted vacatur — the court noted that Pacelli had not pointed to any “authority to support his position that the arbitrator’s extension requests amounted to ‘misbehavior’ by the arbitrator such that Pacelli’s rights were prejudiced.” That was especially true because Pacelli had consented to the extensions.

Finally, the court rejected Pacelli’s contention that it should vacate the award because the arbitrator had not awarded prejudgment interest. Although the court acknowledged that it would have been proper for the arbitrator to award prejudgment interest, the court noted that Pacelli had failed “to point the Court to any case in which a district court vacated an arbitration award for failure to award prejudgment interest” and noted that courts had declined to do any such thing.

The court then went on to confirm the arbitration award.

Pacelli v. Vane Line Bunkering, Inc., No. 1:20-cv-09431 (S.D.N.Y. July 16, 2021).