Carlton Fields

In this matter, plaintiff Marisco Ltd. hired defendant GL Engineering & Construction (GL E&C) to construct and deliver a floating dry dock. Marisco alleged that GL E&C’s principals misrepresented their experience and ability with respect to constructing dry docks, causing GL E&C to deliver the dry dock late, unfinished, and not according to specifications. GL E&C filed a counterclaim alleging that Marisco failed to pay the full amount due under their agreement and failed to pay for change orders. Marisco challenged the counterclaim by way of two motions, one for judgment on the pleadings and one for summary judgment, the latter of which sought to compel GL E&C to arbitrate the matters raised in the counterclaim.

Count I of GL E&C’s counterclaim asserted breach of contract based on Marisco’s failure to pay the $148,400 due on the final progress payment and failure to pay amounts owed on certain change orders. Count II of GL E&C’s counterclaim (now part of Count I) asserted that Marisco breached the implied covenant of good faith and fair dealing by approving change orders but then failing to pay for the extra work covered by the change orders, and by pressuring GL E&C to complete the construction of the dry dock in spite of delayed payments. Count III of GL E&C’s counterclaim asserted that Marisco was unjustly enriched by getting the dry dock without having paid for all of it.

In its first motion, Marisco sought judgment on the pleadings as to Counts II and III of the counterclaim, but the court only granted judgment on the pleadings as to Count II.

In its second motion, Marisco sought summary judgment, arguing that the counts in the counterclaim must be arbitrated, or that Marisco was entitled to judgment as a matter of law with respect to the counterclaim. The court found that to the extent Count I concerned the $148,000 allegedly due on the final progress payment, Marisco failed to show that the parties agreed to arbitrate that claim. The court analyzed the terms of the dry dock construction agreement and noted that with respect to progress payments, the parties appeared to have contemplated arbitration of disputes as to whether the state of construction triggered Marisco’s progress payment obligations. However, because there was no dispute that GL E&C delivered the dry dock to Marisco, thereby triggering the obligation to pay the final progress payment, any claim arising out of nonpayment of the full amount of the last progress payment did not appear to involve the type of dispute of which the parties contemplated arbitration.

Conversely, the court found that both the Federal Arbitration Act and the terms of the dry dock agreement required the parties to arbitrate only GL E&C‘s breach of contract claim (Count I) arising out of Marisco’s failure to pay invoices for the change orders. The court declined to order the parties to arbitrate the unjust enrichment claim (Count III).

As to the matters not referred to arbitration, the court denied summary judgment given the questions of fact as to which party was responsible for the delays.

Marisco, Ltd. v. GL Eng’g & Constr. Pte., Ltd., No. 1:18-cv-00211 (D. Haw. June 26, 2020).

In this cattle-feeding dispute, cattle owner Bonsmara Natural Beef Co. and its principal George Chapman brought an action against feed yard owner Hart of Texas Cattle Feeders LLC, alleging claims including breach of contract, negligence, and fraud. Chapman also sought a declaratory judgment discharging him from liability as a guarantor for the cattle finishing contract. The trial court denied Hart’s motion to compel arbitration and, after a jury trial, entered judgment in favor of Bonsmara and Chapman. Hart appealed, and the court of appeals reversed and remanded.

On petition for review, the Supreme Court of Texas, in a 6-3 decision, affirmed the court of appeals’ judgment overturning the trial court’s denial of Hart’s post-judgment motion to compel arbitration, holding that a party does not forfeit its right to challenge a ruling on an appeal from a final judgment simply by opting not to pursue an interlocutory appeal of that ruling.

The Supreme Court addressed two issues:

1. Whether Hart’s failure to appeal the interlocutory order denying its motion to compel arbitration deprived the appellate court of jurisdiction to overturn that order on appeal from a final judgment; and
2. If the order was appealable, whether the court of appeals erred in ordering arbitration.

As to the first issue, the majority found that the court of appeals had jurisdiction to consider the trial court’s denial of Hart’s motion to compel arbitration because interlocutory appeal statutes do not alter the principle that orders merge into – and may be challenged on appeal from – a final judgment. The majority relied on the legislature’s use of the permissive term “may” in the interlocutory appeal statute and the fact that the statute did not provide a noncompliance penalty or indicate consequences of not appealing the arbitration decision immediately to support its opinion. The majority noted that the decision to appeal a court’s denial of arbitration is one that must be weighed and decided by the parties and their counsel based on the case’s facts.

As to the second issue, the majority held that the court of appeals did not err in ordering arbitration, finding that the arbitration agreement was enforceable because Bonsmara had not shown that the arbitrator determined that the arbitral forum was unavailable and that the arbitration clause’s language did not foreclose the application of direct-benefits estoppel to require arbitration with non-signatories.

Accordingly, the majority affirmed the judgment of the court of appeals.

The dissenters felt that the majority’s decision ran counter to common sense and basic notions of fairness – that by allowing litigants to see the outcome of a trial before appealing a denial of a motion to compel arbitration, the majority endorses a dispute resolution process that will result in “double the cost and double the time.”

Bonsmara Natural Beef Co. v. Hart of Texas Cattle Feeders, LLC, No. 19-0263 (Tex. June 26, 2020).

The Supreme Court of Washington recently affirmed the denial of Evergreen Hospital Medical Center’s motion to compel arbitration on the grounds that Evergreen waived its right to compel arbitration of claims arising under a collective bargaining agreement between Evergreen and the Washington State Nurses Association governing nurse employment.

A member employee brought this putative class action against her employer, Evergreen, alleging that Evergreen failed to give required rest and meal breaks. After nine months of litigation and the addition of a second named plaintiff, Evergreen moved to compel arbitration. The trial court denied the motion, and the court of appeals affirmed. Evergreen petitioned to the Supreme Court of Washington, which granted review.

The court analyzed three factors to determine whether Evergreen waived its right to arbitration: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that right; and (3) prejudice.

As to the first factor, the court found there was no dispute that Evergreen believed it had an existing right to arbitrate. As to the second factor, the court found that through its conduct, Evergreen chose to litigate for approximately nine months rather than arbitrate, and thus behaved inconsistently with a party seeking to arbitrate. The court noted that the parties engaged in discovery and litigation for approximately nine months without seeking mediation or awaiting a decision from the court in another case and that Evergreen did not move to compel until the third iteration of the complaint even though the complaint had almost identical claims throughout.

As to the third factor, the court found that granting the motion to compel arbitration this late in litigation would cause severe prejudice to the plaintiffs, who had already incurred more than $140,000 in legal fees (from discovery, sending the notice of the class action to all the nurses, and securing expert witnesses), and would improperly allow Evergreen to relitigate class certification on which it lost.

Thus, the Supreme Court affirmed the court of appeals on the ground that Evergreen waived the right to compel arbitration, and remanded to the superior court for further proceedings consistent with the Supreme Court’s opinion.

Lee v. Evergreen Hospital Medical Center, No. 97201-0 (Wash. June 4, 2020).

This action involves plaintiff Living Steward Properties’ insurance claim for property damage caused by Hurricane Harvey. The insurer defendants moved to compel arbitration of the plaintiff’s claims that the insurer defendants underpaid the company for Hurricane Harvey damage.

The insurer defendants argued that this case presented the same arbitration language and the same issues that the U.S. District Court for the Southern District of Texas adjudicated in Corpus Christi Island Apartment Villas Management Group, LLC v. Underwriters at Lloyd’s London, No. 2:19-cv-00188, 2019 WL 8273959 (S.D. Tex. Oct. 18, 2019), in which the court found there existed a written agreement to arbitrate and an unchallenged delegation clause, which required all additional questions be resolved by the arbitrators. Because the plaintiff made no effort to distinguish its case from Corpus Christi Island, the court ordered that the plaintiff’s claims against the insurer defendants be submitted to arbitration.

The plaintiff also sued CJW, the public adjusting firm assigned to its claim, for unfair settlement practices under the Texas Insurance Code and breach of the common law duty of good faith and fair dealing. CJW argued that these claims and their underlying facts were inextricably intertwined with the claims against the insurer defendants such that they all belonged, together, before the arbitrators. CJW sought to compel arbitration of the claims made against it by joining with the insurer defendants to enforce the policy’s arbitration agreement and to extend that agreement to include the extra-contractual claims made against CJW. The court found that equitable estoppel prevented the plaintiff from avoiding the contractual arbitration agreement for claims against CJW, a nonparty to the insurance policy, because the plaintiff relied on the policy in making its claims against CJW, and the claims against both the insurer defendants and CJW were inextricably intertwined.

Because the plaintiff failed to brief any argument against the application of equitable estoppel, the court granted CJW’s joinder and ordered that the plaintiff’s claims against both the insurer defendants and CJW be submitted to arbitration.

Living Steward Properties, Ltd. v. Certain Underwriters at Lloyd’s London, No. 2:20-cv-00001 (S.D. Tex. May 18, 2020).

In Mason v. Midland Funding, plaintiffs Mason and Burnett brought an action against a debt collector and its subsidiaries claiming that they violated the Fair Debt Collection Practices Act by allegedly filing lawsuits to collect on unpaid debts even though they knew the debts were “uncollectable.”

The defendants filed a motion to dismiss, which was denied by the U.S. District Court for the Northern District of Georgia. The defendants then filed a motion to compel arbitration, seeking to hold Mason and Burnett to arbitration agreements that the defendants claimed Mason and Burnett agreed to when they obtained credit accounts online, which was ultimately denied. The defendants then filed an interlocutory appeal with the Eleventh Circuit.

The crux of the interlocutory appeal turned on whether Mason and Burnett agreed to arbitrate. The defendants claimed that as part of opening the credit card account, Mason agreed to arbitrate by assenting to a clickwrap agreement that was part of his online application. The defendants also argued that Mason was mailed a welcome packet containing the agreement, along with the credit card, which he used upon receipt.

In support of these arguments, the defendants cited a declaration from the original creditor. The court found that the declaration neither showed the actual application form that Mason filled out and agreed to online nor demonstrated that the online application contained an arbitration provision. Thus, the Eleventh Circuit had no evidence that Mason saw and was required to agree to the arbitration provision when applying.

Although the defendants claimed that the agreement was also mailed to Mason, the Eleventh Circuit rejected the defendants’ application of the “mailbox rule,” finding that they failed to present any “competent evidence” proving they knew that the agreement had been mailed. The court, therefore, affirmed the lower court’s denial of the defendants’ motion to compel arbitration as to Mason.

Conversely, as to Burnett, the Eleventh Circuit found that the defendants provided a much more definitive declaration, which was sufficient to trigger the mailbox rule’s presumption that Burnett received the agreement, including the arbitration agreement contained within it. Thus, the Eleventh Circuit reversed the district court’s denial of the motion to compel arbitration as to Burnett.

Mason v. Midland Funding LLC, No. 18-14019 (11th Cir. May 13, 2020).