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Court Holds Arbitration Provision Does Not Violate California’s McGill Rule

September 11, 2019 by Carlton Fields

The plaintiffs brought a class action suit against Extra Space Storage Inc. for false advertising, unfair competition, and violation of the California Consumers Legal Remedies Act. After the case was removed to the U.S. District Court for the Northern District of California, Extra Space moved to compel arbitration based on the rental agreements signed by the class members. The plaintiffs argued that the arbitration provision, which stated that a signatory “will only pursue arbitration on an individual basis and will not pursue arbitration or any other claim on a class-wide, representative, or consolidated basis,” violated California’s McGill rule. The McGill rule provides that a contractual agreement purporting to waive a party’s right to seek public injunctive relief in any forum is unenforceable. The court granted Extra Space’s motion and explained that arbitration provision did not violate the McGill rule because it does not prevent an arbitrator from awarding injunctive relief at large. The court further explained that an action seeking public injunctive relief is not a “representative action.”

Ionescu v. Extra Space Storage Inc., No. 4:19-cv-02226 (N.D. Cal. Aug. 23, 2019).

Filed Under: Arbitration / Court Decisions

Court Directs Arbitration Where Plaintiff Acknowledges the Parties Agreed to Do So

September 9, 2019 by Carlton Fields

The plaintiff entered into a retail installment contract with New Century Auto Sales for the purchase of a used car. The contract included an arbitration provision that stated that either the plaintiff or the defendants may elect to resolve any claim by neutral, binding arbitration and not by a court action. The court explained that the Federal Arbitration Act requires courts to “rigorously enforce” arbitration agreements, but arbitration clauses are still subject to the same defenses and bars as other contract provisions. The court further explained that a party cannot be required to arbitrate if the party has not agreed to it, and the burden is on the party resisting arbitration to prove this. Here, the plaintiff acknowledged that the defendant invoked the arbitration provision and therefore the case could properly be submitted to arbitration. In view of the plaintiff’s acknowledgement, the court directed the parties to proceed to arbitration.

Chisholm v. New Century Auto Sales, Inc., No. 1:19-cv-01395 (N.D. Ohio Aug. 23, 2019).

Filed Under: Arbitration / Court Decisions

Court Remands Arbitration Award to Arbitrator for Clarification

August 23, 2019 by Carlton Fields

Three Brothers Trading LLC d/b/a Alternative Execution Group (AEXG) and Generex Biotechnology Corp. entered into a contract whereby AEXG would secure investors for Generex’s business and, in exchange, Generex would pay AEXG a percentage of the funds received by any investor AEXG had referred. The contract included a “sixty-day ‘No Shop’ exclusivity provision,” which barred Generex from entering “into any financing transaction other than with existing shareholders” or with investors referred by AEXG. The contract required any disputes to be resolved through arbitration. Generex allegedly breached the contract by entering into a financial transaction with a party who was not referred by AEXG. AEXG commenced an arbitration.

The arbitrator determined that Generex violated the no-shop provision and awarded four separate awards to AEXG. AEXG brought a petition to confirm the award, and Generex in turn brought a motion to modify, vacate, and remand the award.

The court explained that it “uses an extremely deferential standard of review for arbitral awards.” However, an award may be remanded to the arbitrator if the “award is incomplete or ambiguous” and the court “is unable to discern how to enforce it.” Pursuant to 9 U.S.C. § 11, remand should not be granted when the court can resolve any alleged ambiguities in the award by modification. The court held that the terms of the second award were ambiguous as there were several interpretations of the award that yielded very different outcomes for the parties. As such, the court was unable to modify the award and remanded the case to the arbitrator for clarification.

Three Bros. Trading, LLC v. Generex Biotechnology Corp., No. 1:18-cv-11585 (S.D.N.Y. July 31, 2019).

Filed Under: Arbitration / Court Decisions

Third Circuit Holds That Statute of Limitations Was Not Extended for Class Action Lawsuit

August 20, 2019 by Carlton Fields

In 2005 and 2006, Christopher Blake and James Orkis took out mortgages from JP Morgan to buy homes. Then in 2013, they filed a class action against JP Morgan under the Real Estate Settlement and Procedures Act (RESPA), alleging a scheme to refer homeowners to mortgage insurers/reinsurers in exchange for streams of kickbacks. RESPA has a one-year statute of limitations that runs from the date of the violation. 12 U.S.C. § 2614.

Blake and Orkis argued that each kickback separately violates the Act and has its own limitations period. The court disagreed and held that the kickbacks ended more than a year before they sued, so the Act’s one-year limitations period would still bar their claims.

Blake and Orkis further argued that the statute of limitations had also been extended by a 2011 lawsuit filed over the same conduct in a California federal court, Samp v. JP Morgan Chase Bank, N.A. The Third Circuit again disagreed and held that a pending class action tolls the time only for putative class members’ individual claims, not their class claims. The court explained that tolling class actions would cause problems in three ways. First, it would encourage duplicative lawsuits instead of reducing them. Second, tolling new class actions would be inequitable. Third, it would encourage repetitive claims and allow class claimants to stack their claims forever.

Blake v. JP Morgan Chase Bank NA, 927 F.3d 701 (3d Cir. June 19, 2019).

Filed Under: Arbitration / Court Decisions, Reinsurance Claims

Ninth Circuit Affirmed That Non-Signatories Could Invoke Arbitration Clause Under Arizona Law

July 31, 2019 by Carlton Fields

The U.S. Court of Appeals for the Ninth Circuit held that the district court did not err by allowing non-signatories Jess Smith & Sons Cotton LLC (JSS) and J.G. Boswell Co. to invoke the arbitration clause in a license agreement between Tradeline Enterprises Pvt. Ltd. and the Supima Association of America. The court explained that state law controls whether federal courts may enforce arbitration agreements against signatories at the request of non-signatories. Arizona law controlled in this case. Pursuant to Arizona law, “a non-signatory may compel arbitration with a signatory to an arbitration agreement if the claims at issue are ‘intimately founded in and intertwined with the underlying contract obligations.'” The complaint filed by Tradeline alleged that JSS and Boswell caused Supima to breach and wrongfully terminate the license agreement. Therefore, the claims raised in the complaint were “intertwined” with Tradeline’s license agreement with Supima.

Tradeline Enters. Pvt. Ltd. v. Jess Smith & Sons Cotton, LLC, No. 18-56101 (9th Cir. July 2, 2019).

Filed Under: Arbitration / Court Decisions

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