Carlton Fields

The Supreme Court of Hawaii vacated the decisions of the intermediate appellate court and the circuit court, which found that the plaintiff’s claims against her former law firm and law partner were subject to the arbitration clause in the partnership agreement, remanding the case to the circuit court for further proceedings consistent with its opinion.

In Yamamoto v. Chee, the plaintiff, a former law firm partner, brought an action against the law firm and another partner after they refused to return personal funds that the plaintiff had tendered to repay a retirement account loan, which had already been repaid from the plaintiff’s partnership capital account. The circuit court granted the defendants’ motion to compel arbitration. The plaintiff appealed, and the intermediate appellate court affirmed. The Supreme Court granted certiorari review.

On certiorari, the Supreme Court of Hawaii found that the intermediate appellate court erred when it concluded that (1) the plaintiff’s claims were “in connection with” the partnership agreement; and (2) compliance with Hawaii Revised Statutes section 658A-9’s notice requirements was not required to initiate arbitration.

First, the Supreme Court held that the plaintiff’s conversion claims were not subject to the arbitration provision in the partnership agreement. The court noted that the partnership agreement by its own terms limited the scope of its provisions, including the arbitration clause, to “the conduct of the partnership business,” which was “solely for the purpose of rendering legal services and services ancillary thereto.” Because the “partnership business” was not to lend money or administer 401(k) plans, the arrangement fell outside the “partnership business.” As such, the Supreme Court found that any claims arising from the arrangement did not comprise a dispute “in connection” with the partnership agreement and were therefore not subject to the arbitration clause.

Second, the Supreme Court held that the defendants’ failure to comply strictly with the statutory arbitration notice requirements precluded granting the motion to compel. Relying on the guiding principles in Ueoka v. Szymanski, which mandate strict compliance with section 658A-9’s notice requirements, the Supreme Court found that the requirements of section 658A-9 must be met before a party files a motion to compel arbitration under section 658A-7. The Supreme Court noted that at the time the defendants filed their motion to compel, no letter had been issued by certified mail, no return receipt had been obtained, and therefore any allegations in the motion that the plaintiff had refused to arbitrate were baseless as a matter of law because a party “cannot be found to have refused to arbitrate” until the formal requirements for initiating an arbitration are met.

Accordingly, the Supreme Court vacated the intermediate appellate court’s judgment on appeal and the circuit court’s order compelling arbitration, and remanded to the circuit court for further proceedings consistent with its opinion.

Yamamoto v. Chee, No. SCWC-16-0000260 (Haw. Mar. 2, 2020).

Affirming the Central District of California’s order compelling arbitration, the Ninth Circuit Court of Appeals held that the Washington anti-arbitration statute, RCW § 48.18.200(1)(b), which has been held to prohibit binding arbitration agreements in insurance contracts in Washington, was preempted by the federal Liability Risk Retention Act of 1986 (LRRA) as it applied to risk retention groups chartered in another state. The LRRA broadly preempts the authority of nonchartering states to regulate the operation of risk retention groups within their borders.

Plaintiff Allied Professionals Insurance Co. is a risk retention group, a liability insurance company owned by its insured members, chartered in Arizona and doing business in Washington. Allied previously insured Dr. Michael Anglesey, a chiropractor in Washington. In December 2012, Dr. Anglesey provided chiropractic treatment to Eliseo Gutierrez, which allegedly resulted in Gutierrez suffering a stroke. A few months later, Dr. Anglesey renewed his coverage with Allied but, in doing so, did not inform the company of the potential malpractice claim against him by Gutierrez and his wife. When Dr. Anglesey later notified Allied of this potential claim, the company advised him that it was denying coverage and rescinding his 2012 and 2013 insurance policies.

A year later, Dr. Anglesey informed Allied that he was planning to execute a consent judgment in favor of the Gutierrezes and to assign his rights against Allied to them. They had agreed to seek satisfaction on the judgment from Allied and not from Dr. Anglesey. Allied responded by demanding that all claims against Allied be sent to arbitration, pursuant to the arbitration clause in the underlying policies. Dr. Anglesey refused, and Allied filed suit against both Dr. Anglesey and the Gutierrezes, moving to compel arbitration.

The district court initially held that Allied did not have standing to bring the underlying action to compel the defendants to arbitrate. Allied appealed that decision to the Ninth Circuit. The Ninth Circuit ruled that Allied had standing to bring the action against Dr. Anglesey to seek rescission of the policy and declaratory relief and had standing against all defendants to compel arbitration of those claims. On remand, the district court granted Allied’s motion to compel arbitration, granted the motion to stay proceedings pending arbitration, denied the defendants’ motion to transfer venue to the Eastern District of Washington, and certified a controlling interlocutory question of law to the Ninth Circuit. The Ninth Circuit granted permission to appeal.

The question certified by the district court was “whether the Liability Risk Retention Act preempts Wash. Rev. Code. § 48.18.200(1)(b) as applied to risk retention groups.” The Ninth Circuit held that the LRRA does preempt Washington’s anti-arbitration statute, RCW § 48.18.200(1)(b), as it applies to risk retention groups chartered in other states. In reaching that conclusion, the court found that the federal McCarran-Ferguson Act, which generally protects state regulation of insurance, did not reverse preempt the LRRA. The court also found that Washington’s anti-arbitration statute offended the LRRA’s preemption language and that no exception applied to save the law. The court therefore concluded that the Washington statute was preempted by the LRRA as it applied to a risk retention group charted in Arizona but doing business in Washington.

Allied Professionals Insurance Co. v. Anglesey, No. 18-56513 (9th Cir. Mar. 12, 2020).

The Ninth Circuit affirmed the district court’s order denying Double Down Interactive, LLC, and International Game Technology’s (collectively, “Double Down”) motion to compel arbitration in a putative class action filed by Mary Simonson and Adrienne Benson, finding that Double Down failed to carry its burden to prove, under Washington law, that either plaintiff assented to the arbitration clause in Double Down’s terms of use.

Noting “in the absence of actual notice, a browsewrap agreement like the Terms of Use at issue here, is enforceable only if a reasonably prudent user would have constructive notice of those terms,” the Ninth Circuit found that neither Simonson nor Benson received actual notice or constructive notice of Double Down’s terms of use.

The court reasoned “a user would have to closely scrutinize Double Down’s page on the Apple App Store in order to find the Terms of Use during the downloading process. There is no reference to them on the opening screen of Double Down’s page, but rather they are buried at the bottom of the page and accessibly only after scrolling past multiple screens and images that a user need not view to download the platform.” Similarly, the court stated the terms of use during gameplay on Double Down’s mobile platform is just as much of a “hide-the-ball exercise” where a user must first locate a small settings menu in a corner of the screen that is obscured amongst the brightly colored casino games, and then fine the terms of use heading in the pop-up settings menu, which is not bolded, highlighted, or otherwise set apart from the four other headings in that menu.

The court also found that plaintiffs did not receive constructive notice of the terms of use when first connecting to the Facebook platform as “the terms of use are accessible through a gray ‘App Terms’ hyperlink on a pop-up screen that is below and smaller than all other text on the screen” and “does not inform users that they are bound by the terms of use.” Nor do the terms of use hyperlink and accompanying notification that are accessible during gameplay on the Facebook platform cure the notice problem, as the hyperlink and notification become visible only after the user scrolls to the bottom of the platform, and are obscured amongst the brightly colored icons on the Facebook platform, and are set out in typeface that is substantially smaller than all other text on the screen.

The court also rejected Double Down’s other arguments, as repeated use of a website or mobile application does not contribute to constructive notice, nor do the terms and conditions that govern all transactions on the Apple App Store place a reasonably prudent user of the mobile platform on constructive notice of Double Down’s terms of use.

Accordingly, the district court’s order denying Double Down’s motion to compel arbitration was affirmed.

Benson v. Double Down Interactive, LLC, No. 18-36015 (9th Cir. Jan. 29, 2020)

Plaintiffs, three families living in the Lake View area, filed three separate actions against defendants J. Michael White, Eco-Preservation Services LLC, Serma Holdings LLC, Aeta Management Group, Knobloch Inc., and others. The plaintiffs asserted numerous violations of federal and state law related to the provision of sewer services to the plaintiffs’ homes. The defendants filed motions to dismiss for failure to state a claim upon which relief could be granted and opposed the plaintiffs’ implied motions to amend the complaints as futile. The defendants further filed motions to strike the plaintiffs’ deposition notices and to stay discovery pending the resolution of their motions to dismiss. The district court granted the plaintiffs’ implied motions to amend and concluded that the complaints stated plausible claims to relief. The defendants appealed the district court’s order. This district court dismissed the appeals and the defendants moved for reconsideration. The plaintiffs moved for default judgment against the defendants for failure to answer the complaints.

Thereafter, the defendants filed motions to compel arbitration pursuant to arbitration provisions in the purchase agreements entered into by the plaintiffs. The district court denied the motions to compel arbitration, and the U.S. Court of Appeals for the Eleventh Circuit affirmed on the grounds that the defendants waived their right to arbitrate. The court explained that waiver occurs when, under the totality of the circumstances, “both: (1) the party seeking arbitration substantially participates in litigation to a point inconsistent with an intent to arbitrate; and (2) this participation results in prejudice to the opposing party.” The court expressed that the party arguing for waiver bears the heavy burden of proving waiver. Here, the court concluded that the defendants did not act consistently with their right to arbitration because the defendants engaged in the litigation activities previously discussed and only invoked arbitration when it became clear that the three lawsuits would not be dismissed. Moreover, the court concluded that the plaintiffs were prejudiced because the defendants’ conduct “slowed the process and magnified its costs.” As such, the court agreed with the district court that the defendants waived their right to arbitration.

Davis v. White, No. 19-11760 (11th Cir. Jan. 7, 2020).

This case arises out of a dispute over a provision of a collective bargaining agreement entered into between Monongahela Valley Hospital Inc. and its employee, who was represented in the action by United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC. The union filed arbitration, pursuant to the arbitration provision in the collective bargaining agreement. The arbitrator ruled in favor of the union, and the hospital filed a complaint with the U.S. District Court for the Western District of Pennsylvania seeking to vacate the award. The district court vacated the award, and the union appealed to the U.S. Court of Appeals for the Third Circuit. The court affirmed the district court’s decision, holding that the arbitrator’s interpretation of the disputed provision in the collective bargaining agreement (1) was a manifest disregard of the plain language of the collective bargaining agreement, (2) ignored the clear intentions of the parties, and (3) “failed to construe such provision to give effect to all parts of the provision. The court explained that the arbitrator ignored the plain language of the collective bargaining agreement when it ruled against the hospital, because its decision “flips the CBA on its head.” Additionally, the court reasoned that the arbitrator exceeded the scope of his authority when he injected a restriction into the collective bargaining agreement that was not bargained for, and was in fact rejected in a prior bargaining.

Monongahela Valley Hospital Inc. v. United Steel Paper and Forestry Rubber Manufacturing Allied Industrial and Service Workers International Union AFL-CIO CLC, No. 19-2182 (3d Cir. Dec. 30, 2019).