Brendan Gooley

Tenth Circuit Concludes Enforceability of Arbitration Clause Was Issue for Arbitrator

April 12, 2022 by Brendan Gooley

The Tenth Circuit Court of Appeals recently concluded that whether an arbitration agreement could be enforced against a non-signatory who was allegedly a third-party beneficiary of the arbitration agreement was for the arbitrator, not the court, to determine where the arbitration provisions contained delegation language that the alleged beneficiary did not specifically challenge.

Ladonna Kay Rainwater was a patient at Casa Arena Blanca Nursing Center. Rainwater’s daughter Melanie Burris signed an admission agreement and a dispute resolution agreement that contained an arbitration clause as part of Rainwater’s admission to Casa Arena. The agreement provided that it was “between Kay Rainwater (‘Resident’) and/or Melanie Burris (‘Representative’), and Casa Arena Blanca (‘Facility’)” and further provided that Rainwater was a “third-party beneficiary of the agreement.” The agreement also included a “delegation clause” and incorporated JAMS rules, including JAMS rules regarding delegation.

After Rainwater passed away, her estate filed a wrongful death lawsuit alleging that Casa Arena failed to care for Rainwater properly. Casa Arena moved to compel arbitration. The district court denied Casa Arena’s motion and Casa Arena appealed.

The Tenth Circuit reversed and remanded. The court explained that there was no dispute that a contract had been formed, that the contract contained an arbitration clause, or that the arbitration clause included a delegation clause. The dispute was whether the arbitration clause should be enforced against Rainwater’s estate as a third-party beneficiary of the agreement.

That issue, the Tenth Circuit explained, was for the arbitrator in light of the delegation clause and the fact that Rainwater’s estate had not specifically challenged the delegation clause (and instead had generally asserted its arguments regarding enforceability as to the estate).

Casa Arena Blanca LLC v. Rainwater, No. 21-2037 (10th Cir. Mar. 22, 2022).

D.C. Circuit Concludes That IMF Did Not Waive Immunity by Agreeing to Arbitration

March 21, 2022 by Brendan Gooley

The D.C. Circuit recently affirmed the dismissal of a suit against the International Monetary Fund (IMF) that sought to modify or vacate an arbitration award after concluding that the IMF did not waive its immunity from judicial process in the agreement that authorized the arbitration.

The IMF enjoys broad “immunity from every form of judicial process except to the extent that it expressly waives its immunity for the purpose of any proceedings or by the terms of any contract.” The IMF hired Leonard A. Sacks & Associates, P.C. to negotiate disputes it had with several contractors related to renovations of the IMF’s headquarters. The agreement between the IMF and Sacks incorporated the IMF’s immunity “from every form of judicial process” and explained that, in accordance with the IMF’s broad immunity, disputes concerning the agreement were “to be resolved not by litigation, but by arbitration.” The agreement’s arbitration clause concluded by stating: “It is understood and agreed that the submission of a claim or dispute to arbitration … shall not be considered to be a waiver of the immunities of the IMF.”

A dispute arose between Sacks and the IMF regarding Sacks’ fee. The parties submitted that dispute to arbitration and an arbitration panel awarded Sacks a small increase in its fee. Sacks was displeased with the result of the arbitration, however, and sued the IMF in D.C. Superior Court seeking a modification or vacatur of the arbitration award, as generally allowed by D.C. law.

The IMF moved to dismiss Sacks’ action based on its immunity. The district court granted the IMF’s motion and Sacks appealed to the D.C. Circuit, which affirmed.

The D.C. Circuit compared the agreement between Sacks and the IMF to the contract in C & L Enterprises Inc. v. Citizen Band Potawatomi Indian Tribe of Oklahoma, in which the U.S. Supreme Court held that a Native American tribe had waived its immunity to suit in state court under the terms of an agreement with a construction contractor that included an arbitration clause that the Supreme Court held established that the tribe had consented to the enforcement of arbitration awards under the arbitration clause in Oklahoma state court.

Unlike the contract in C & L Enterprises, the “IMF contract contain[ed] express preservations of immunity.” The IMF-Sacks agreement viewed “resolution of disputes by arbitration as part and parcel of preserving [the IMF’s] immunity from judicial process.” The IMF-Sacks agreement’s arbitration clause also concluded by noting “that the submission of a claim or dispute to arbitration … shall not be considered to be a waiver of the immunities of the IMF.”

Based on this language, which distinguished the IMF-Sacks agreement from the agreement at issue in C & L Enterprises, the D.C. Circuit concluded that it could not say that the IMF explicitly waived immunity. The D.C. Circuit therefore affirmed the dismissal of Sacks’ suit.

Leonard A. Sacks & Associates, P.C. v. International Monetary Fund, No. 21-7034 (D.C. Cir. Feb. 25, 2022)

Ninth Circuit Concludes Domino’s Drivers Are Exempt From FAA

February 22, 2022 by Brendan Gooley

The Ninth Circuit Court of Appeals recently concluded that the Federal Arbitration Act’s exemption for “workers engaged in foreign or interstate commerce” applied to drivers and precluded their employer from compelling arbitration because, even though the drivers only drove within a single state, they were “the last leg” of a chain of interstate commerce.

Third parties ship supplies for pizzas, including supplies from outside California, to Domino’s Southern California supply chain center. At the supply center, Domino’s employees prepare the supplies for distribution to Domino’s franchisees in Southern California, and “D&S drivers,” who are Domino’s employees, then deliver the supplies.

Three D&S drivers sued Domino’s alleging violations of California labor laws on behalf of a putative class. Domino’s moved to compel arbitration pursuant to an arbitration clause that provided that “any claim, dispute, and/or controversy” between Domino’s and the D&S drivers would “be submitted to and determined exclusively by binding arbitration under the” FAA.

The district court declined to compel arbitration, concluding that the D&S drivers fell within the FAA’s exemption for “workers engaged in foreign or interstate commerce.”

The Ninth Circuit affirmed. It rejected Domino’s arguments that the D&S drivers were not engaged in interstate commerce and instead held that the D&S drivers were part of “the last leg” of a chain of interstate commerce that moved supplies from out of state to franchisees. The fact that the D&S drivers only delivered products within California did not matter.

Carmona v. Domino’s Pizza, LLC, No. 21-55009 (9th Cir. Dec. 23, 2021).

Ninth Circuit Reverses Order Compelling Arbitration

February 2, 2022 by Brendan Gooley

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

December 22, 2021 by Brendan Gooley

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).