Brendan Gooley

Court Compels Arbitration Based on Text Message Agreement

July 18, 2019 by Brendan Gooley

A district court has granted a motion to compel arbitration based on an arbitration clause in an agreement sent via text message and agreed to via a reply text.

Lexington Law Firm, a debt collection company, was sued in a putative class action under the Electronic Funds Transfer Act after purportedly deducting funds without consent.

Lexington moved to compel arbitration. It had sent the named plaintiff a text message agreement that contained an arbitration clause requiring him “to arbitrate all disputes and claims between [him] and Lexington on an individual basis only.” The plaintiff responded with a text that said: “Agree.” The plaintiff opposed Lexington’s motion. He claimed, inter alia, that there was no mutual assent and that the arbitration clause was unconscionable because it was a contract of adhesion and because it was so broadly worded. The district court disagreed.

The plaintiff had been given the agreement and had agreed to it. The court distinguished, among other things, cases involving “browsewrap” agreements in which a website user “agreed” to terms and conditions merely by using a website. Although the court found the agreement minimally procedurally unconscionable because it was a contract of adhesion, that did not render the agreement unconscionable as a whole. The agreement was not substantively unconscionable merely because it was broadly worded, at least where, as here, the plaintiff’s claims were related to the agreement he signed. The court therefore dismissed the putative class action.

Starace v. Lexington Law Firm, No. 1:18-cv-01596 (E.D. Cal. June 27, 2019).

Eighth Circuit Vacates Confirmation Over Lack of Personal Jurisdiction

July 16, 2019 by Brendan Gooley

The Eighth Circuit recently vacated a judgment confirming an arbitration award after concluding that the district court lacked personal jurisdiction over the defendant.

Federated Mutual Insurance Co., a Minnesota insurer, owns various trademarks containing the word “Federated.” A Florida insurer changed its name to Federated National Holding Co. After Federated Mutual expressed concern about possible confusion related to its marks, the insurers entered into an agreement requiring Federated National to adopt a new name, inform Federated Mutual of its new name, and provide Federated Mutual with an opportunity to object. Federated National adopted the name “FedNat,” continued to use the name Federated National as well, and failed to give Federated Mutual the required notice and opportunity to object. Federated Mutual initiated arbitration.

The arbitrator allowed FedNat to continue using FedNat, but ordered it to stop using “Federated.” Federated Mutual filed a petition to confirm the award in the U.S. District Court for the District of Minnesota. Federated Mutual’s petition was successful.

FedNat appealed, and the Eighth Circuit vacated the award and remanded with instructions to dismiss the petition based on a lack of personal jurisdiction over FedNat. It ruled that the agreement between the parties, despite being relevant, did not give rise to personal jurisdiction merely because the agreement contained a Minnesota choice-of-law provision. The court also explained that FedNat had no meaningful connection to Minnesota: It did not do business or have a physical presence there, and the fact that FedNat’s name disrupted Federated Mutual’s business in Minnesota did not create contacts on the part of FedNat with Minnesota. Finally, the panel disagreed with the district court’s conclusion that the agreement between the parties contemplated regular communications in Minnesota. The agreement only required notice of Federated National’s new name and was silent as to where the notice was to be given. Such sporadic communications were not enough to establish personal jurisdiction in Minnesota.

Federated Mut. Ins. Co. v. FedNat Holding Co., No. 18-2430 (8th Cir. June 27, 2019).

Ninth Circuit Denies Mandamus After District Court Compels Arbitration Based on Allegedly Inconspicuous Arbitration Provision

June 26, 2019 by Brendan Gooley

The Ninth Circuit recently denied a petition for a writ of mandamus seeking to overturn a district court’s decision compelling arbitration. The petition principally argued the arbitration clause was inconspicuous because it was only found in a document that users had to: (1) click a link to access; and (2) then find another document incorporated in the first document on UPS’ website.

Randall Holl filed a putative class action alleging that UPS overcharged him for a package he shipped. UPS responded by moving to compel arbitration. It claimed Holl had enrolled in the UPS My Choice program. In so doing, he clicked a box stating he agreed to, inter alia, the UPS My Choice Service Terms, which could be accessed by clicking a hyperlink next to the checkbox. That hyperlink brought users to a short document that incorporated several other documents but did not mention arbitration. The other documents were not hyperlinked to that page, but could be accessed on UPS’ website. One of the documents incorporated was the UPS Tariff/Terms and Conditions of Service, which was 32 pages in length and contained a mandatory arbitration clause. Holl claimed, inter alia, that these multiple levels of incorporation made the arbitration clause inconspicuous.

The district court disagreed, and Holl petitioned the Ninth Circuit for a writ of mandamus. The court noted that this case “test[ed] the outer limits of what constitutes a ‘reasonably conspicuous'” arbitration provision. The Ninth Circuit nevertheless denied Holl’s petition because the district court’s decision was not clearly erroneous as a matter of law, which was required for Holl to prevail under the strict requirements of a mandamus. Applying California contract law, the court noted that “California courts have deemed analogous incorporations by reference valid.”

The court also noted that UPS had since changed its arbitration disclosure to make it more conspicuous. That was probably wise. While UPS prevailed in this case, the Ninth Circuit noted that the facts stretched the limits of what is conspicuous, and the court’s holding was based on the extraordinary requirements of a writ of mandamus. It is not clear that UPS would have prevailed but for the strict standard of review, and other courts might well disagree with the district court. UPS seems to have recognized as much when it changed its disclosure.

In re Holl, No. 18-70568 (9th Cir. May 30, 2019).

Alabama District Court Enforces Arbitration Clause Related to Disability Policy Over Unconscionability Claim

June 24, 2019 by Brendan Gooley

The U.S. District Court for the Northern District of Alabama has compelled arbitration despite a former employee’s claim that the arbitration clause in the policy at issue was unconscionable under the circumstances related to her disability claim.

Laura A. Thompson claimed to be disabled and sought benefits under a policy issued by Generali Worldwide Insurance Co. Limited. The policy was issued to the retirement plan trustee of a nongovernmental association. Thompson indirectly worked for the association as an employee of one of the association’s subsidiaries. Generali sought to compel arbitration. Thompson claimed the policy’s arbitration clause was unconscionable and therefore unenforceable. The basis of her claim was that she had no meaningful choice whether to accept or reject the clause and it would be cost prohibitive for her to travel to London to arbitrate her claim in accordance with the clause.

The court disagreed. First, it noted that Thompson was not a party to the policy; the policy was between Generali and the retirement plan trustee. Nothing suggested that the trustee was forced to accept the arbitration clause or that the trustee had unequal bargaining power. The court also noted that nothing prohibited Thompson from purchasing her own long-term disability policy. Second, Thompson’s claim that it would be prohibitively expensive for her to arbitrate her claim was disproven by her own complaint, which alleged that she was entitled to more than $1.3 million. Moreover, the arbitration rules allowed examination through telecommunication and the issue on the merits (whether Thompson was covered despite the fact that she was no longer employed by the covered employer) would not require much evidence.

As is the case in most jurisdictions, the standard for unconscionability under Alabama law is very high. The facts of this case did not meet that high standard. The court therefore granted Generali’s motion to compel arbitration with respect to Thompson’s dispute.

Thompson v. Generali Worldwide Ins. Co., No. 3:18-cv-011260 (N.D. Ala. June 7, 2019).

Southern District Confirms Arbitration Award Over Challenge Based on Failure of Arbitrators to Disclose Information

June 6, 2019 by Brendan Gooley

The Southern District of New York has rejected a petition to vacate an arbitration award on the basis that the arbitrators failed to disclose allegedly material information.

Michael Miller worked as a financial advisor in a UBS branch. UBS gave Miller six loans, and Miller agreed any disputes regarding the loans could be arbitrated. A dispute regarding the loans arose after Miller left his job. Miller and UBS selected arbitrators in accordance with FINRA’s rules. The arbitrators ruled in favor of UBS. Miller unsuccessfully sought to vacate their award in the Southern District.

In his effort to vacate the award, Miller claimed the arbitrators failed to disclose pertinent information during the selection process resulting in the award (1) exceeding the arbitrators’ powers; and (2) an award that was the result of partiality or corruption in violation of FINRA’s rules. Specifically, Miller claimed one arbitrator (Teveris) failed to disclose she had represented an investor before FINRA in an unrelated matter in her initial disclosure and failed to sufficiently disclose the representation in her oath. He also claimed that another arbitrator (Rolnick) failed to disclose he was a defendant in an unrelated federal lawsuit. But Miller failed to explain how such information prevented the arbitrators from being objective. The court also rejected Miller’s argument that the information was material and would have affected how he ranked the arbitrators. That was not the standard, and the usefulness of the information was irrelevant, the court explained.

Miller also argued Rolnick had a potential interest in UBS securities that he failed to fully explain after he answered “yes” to a question asking if he or an immediate family member invested in or held securities that were the subject of the arbitration. While interest in UBS was a potential problem, it was disclosed and Miller was therefore on notice of a fact potentially indicative of bias. The applicable rules did not clearly require additional disclosures, and Miller failed to object to the allegedly incomplete disclosure, thereby waiving any right to challenge it. Moreover, Miller had been expressly told that he could object to the arbitrators after he was informed about the potential conflict.

If you don’t act as soon as practical on your right to challenge arbitrators based on information you know (or should know) about them, don’t expect to be able to vacate the award later.

Miller v. UBS Fin. Servs. Inc., No. 1:18-cv-08415 (S.D.N.Y. May 6, 2019)