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Fifth Circuit Affirms Order Compelling Arbitration of Employment Discrimination Claims by Physician Against Medical Center

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Plaintiff, an emergency room physician, was employed by Defendants, a hospital and its affiliates, pursuant to an employment agreement and subsequent independent contractor agreement, both of which contained an arbitration clause providing for the arbitration of disputes arising out of those agreements. Following the termination of her employment, Plaintiff filed suit in the Northern District of Mississippi alleging claims under Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act, as well as several state law claims including wrongful termination, intentional interference with contract, intentional interference with business relations, and fraud. Defendants filed a motion to compel arbitration, which the district court granted, rejecting Plaintiff’s arguments that the arbitration requirements were unconscionable, that further discovery was required, and that her wrongful termination claims were not subject to arbitration.

On appeal, the Fifth Circuit agreed with the district court and consequently affirmed, compelling arbitration of Plaintiff’s claims. Concerning Plaintiff’s procedural unconscionability allegation, the panel rejected Plaintiff’s claim that the inconsistency between the term sheet (which did not mention the arbitration provision) and the employment agreements (which contained the arbitration provision) rendered the arbitration provision unconscionable, deeming it “an issue that would have been remedied by simply reading the contract.” The panel also rejected Plaintiff’s argument that the arbitration clause was rendered substantively unconscionable due to the fact that the parties conceded that another provision in the employment agreement, the punitive damages waiver, was unconscionable. Instead, the panel found that the punitive damages waiver provision was severable and therefore the arbitration provision was unaffected. In addition, the panel found that Plaintiff’s wrongful termination claim was predicated on her contractual relationship with Defendants and therefore arose “out of” or “under” those contracts and subject to arbitration. Last, the panel rejected Plaintiff’s equitable estoppel argument that her tort claims against her supervising physician were not subject to arbitration because he was a non-signatory to the agreements containing arbitration provisions. The Panel reasoned that those claims similarly centered around interference with her contractual, employment relationship with Defendants.

Begole v. North Mississippi Med. Ctr. Inc., Case No. 18-60369 (5th Cir. Feb. 7, 2019).

Ninth Circuit Affirms Order Vacating Arbitration Award, Faults Arbitrator’s Disregard of Contract’s Plain Language

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The Ninth Circuit recently affirmed a district court order vacating an arbitration award arising from the termination of subcontracts for the construction of army buildings and facilities in Afghanistan. Defendants ECC Centcom Constructors, LLC and ECC International, LLC (together, “ECC”) had two prime contracts with the U.S. Army Corps of Engineers (“USACE”) for the construction of army buildings and facilities in two provinces in Afghanistan. ECC in turn awarded two subcontracts to Aspic Engineering and Construction Company (“Aspic”) for the completion of those projects. Relevant to this dispute, the subcontracts incorporated many Federal Acquisition Regulation (“FAR”) clauses by reference, including those governing termination for convenience, and mandated that Aspic owe to ECC the same obligations that ECC owed to the United States government.

After USACE terminated ECC’s prime contracts for convenience, ECC and Aspic could not agree on a termination settlement amount for both contracts, particularly after USACE refused to pay for any of Aspic’s claimed termination costs. ECC and Aspic proceeded to arbitration to resolve the termination of both subcontracts, and the arbitrator awarded Aspic just over $1 million. Although the award was initially confirmed in California state court, a California federal court later vacated the award, reasoning that it conflicted with contract language. The federal court reasoned that the arbitrator “voided and reconstructed parts of the Subcontracts based on a belief that the Subcontracts did not reflect a ‘true meetings [sic] of the minds.’” Aspic appealed, and the Ninth Circuit framed the issue as “whether the Arbitrator exceeded his powers in finding that Aspic need not comply with the FAR provisions.”

The Ninth Circuit affirmed the district court’s order vacating the award. Specifically, it took issue with the arbitrator’s reasoning that “[t]here was not a true meeting of the minds when the subcontract agreements were entered. Hence, ASPIC was not held to the strict provisions of the subcontract agreements that ECC had to the USACE.” In so finding, the Panel reasoned, “[w]hen an arbitrator disregards the plain text of a contract without legal justification simply to reach a result that he believes is just, we must intervene.” Specifically, it found that the arbitrator’s award in this case was “irrational” because it “directly conflicted with the subcontracts’ FAR-related provisions, without evidence of the parties’ past practices deviating from them, in order to achieve a desired outcome.”

Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, Case No. No. 17-16510 (9th Cir. Jan. 28, 2019).

Non-signatory Third-Party Cannot Enforce Arbitration Clause in Contract

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SBS is a staffing company that provides personnel to various retail services, such as SPAR. SBS engaged Paradise Hogan (“Hogan”) and assigned Hogan to SPAR. Hogan and SBS entered into an Independent Contractor Master Agreement with SBS (the “Agreement”). The Agreement required the parties to resolve disputes through arbitration; SPAR was not a party to the Agreement. Hogan later sued SBS and SPAR for unpaid wages and benefits and both SBS and SPAR sought to compel arbitration. The district court compelled arbitration as to Hogan’s claims against SBS but denied the motion to compel arbitration as to SPAR. SPAR appealed.

The First Circuit affirmed holding that there was no legal basis to compel Hogan to arbitration where the clear terms of the agreement showed that Hogan did not consent to arbitrate his claims against SPAR. The Court explains that SPAR was not a third-party beneficiary of the Agreement. To determine if a party is a third-party beneficiary a court looks to the specific terms of the contract to ascertain the intent of the parties. Here, the court explained that the clear language of the arbitration clause limited its applicability to the signatories by only covering disputes between “the Parties,” so it is clear that it did not confer arbitration rights to SPAR or any other third party. Moreover, the court determined that Hogan was not equitably estopped from avoiding arbitration of his claims against SPAR. Federal courts have been willing to estop a signatory from avoiding arbitration with a non-signatory when the issues to resolve in arbitration are intertwined with the agreement that the estopped party has signed. The court explained that Hogan’s claims were based upon Massachusetts wage and hour law and not the Agreement and therefore, not sufficiently intertwined.

Hogan v. Spar Group, Inc., No. 18-1286 (1st Cir. Jan. 25, 2019)

Second Circuit Holds Arbitration Clause Found in Hyperlink in a Confirmation Email Unenforceable

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SquareTrade, Inc. (“SquareTrade”) sells protection plans for consumer products. Adam Starke (“Starke”) purchased a SquareTrade plan from Amazon to cover a CD player ordered from Staples. When Starke’s CD player broke he made a claim for coverage under the protection plan. SquareTrade informed Starke that the CD player was not covered under the protection plan because the plan only applied to products purchased at Amazon. Starke filed this putative class action, seeking to hold SquareTrade accountable for alleged violations of consumer protection laws. SquareTrade moved to compel arbitration, contending that its contract with Starke included an arbitration clause. The arbitration provision first appeared in a “terms and conditions” document provided via hyperlink in a confirmation email sent to Starke after the purchase of the SquareTrade protection plan on Amazon.

The United States Court of Appeals for the Second Circuit affirmed the decision of the district court, holding that the arbitration provision did not become part of the contract because Starke did not have reasonable notice of and manifest his assent to it. The court reached this decision by applying traditional concepts of contract law. The court explained that where an offeree does not have actual notice of certain contract terms, he is nevertheless bound by such terms if he is on inquiry notice of them and assents to them through conduct that a reasonable person would understand to constitute assent. New York courts look to whether the term was obvious and whether it was called to the offeree’s attention. Specifically in the context of web-based contracts, courts look to the design and content of the webpage to determine if the offeree would be put on inquiry notice of such terms.

The court determined that Starke did not have reasonable notice of the arbitration provision which was only in the Post Sale Terms & Conditions (“Post Sale T&C”) provided in the confirmation email. Starke received a chain of confirmation emails from Amazon and then SquareTrade, none of which put him on notice that his “Service Contract” would come in a hyperlink. The email from SquareTrade that contained the hyperlink containing the Post Sale T&C was cluttered and mostly devoted to other information about the details of the protection plan. The email contained diverse text, displayed in multiple colors, sizes and fonts, and features various buttons and promotional advertisement that divert the reader’s attention from the hyperlink. And the hyperlink itself was in small font. The SquareTrade email did not direct Starke to click on the link in any way and did not make him aware that the link contains contract terms to which he would be deemed to agree. The court notes that SquareTrade could have easily included the hyperlink on the Amazon purchase page. Starke had no way to review the Post Sale T&C until after he received the SquareTrade confirmation email.

The court notes that even though SquareTrade provided Starke with 30 days to return the protection plan for a refund, which is in compliance with New York law, there is no justification here for providing contract terms after a transaction. Additionally, the court notes that although Starke had transacted with SquareTrade before, the prior transaction similarly did not give Starke clear and conspicuous notice of the arbitration clause. Therefore, the court held that there was no enforceable agreement to arbitrate.

Starke v. SquareTrade, Inc., No. 17-2474-cv (2d. Cir. Jan. 10, 2017).

Third Circuit Compels Arbitration Finding that Failure to Carefully Read Arbitration Agreement Does Not Vitiate Assent

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Plaintiff entered into an agreement with Kaplan University (Kaplan) as part of registration for online courses through the university’s website portal. After entering the necessary information, Plaintiff electronically signed an “Enrollment Packet,” which included an arbitration agreement and a waiver of a jury trial. When Plaintiff later brought suit against Kaplan for various causes of action relating to false advertising and violation of copyright laws, Kaplan moved to dismiss and compel arbitration, asserting that Plaintiff’s claims fell within the arbitration agreement. In an attempt to avoid dismissal, Plaintiff argued that she was never made aware of the arbitration agreement and did not consent to the use of her electronic signature for that agreement. Despite this, the District Court for the District of Pennsylvania entered an order compelling arbitration, finding that because Plaintiff acknowledged her participation in the enrollment process, there was no genuine issue of material fact as to whether she assented to arbitration.

On appeal, Plaintiff argued that Kaplan employed a deceptive practice by attaching the arbitration agreement to the Enrollment Packet without making Plaintiff fully aware of its contents. However, the Third Circuit found this argument unavailing, noting that the arbitration agreement was “clearly labeled” within the Enrollment Packet, and that Plaintiff conceded that she electronically signed the packet. The Third Circuit ultimately affirmed the District Court’s judgment, finding that Plaintiff’s failure to carefully read the information could “not save her from her obligation to arbitrate.”

Dicent v. Kaplan University, No. 18-2982 (3d. Cir. Jan. 10, 2019).