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Ninth Circuit Swipes Right on Arbitration of Former Tinder Employee’s Sexual Harassment and Retaliation Claims

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The Ninth Circuit Court of Appeals recently held that a former Tinder employee who asserted claims of sexual harassment by her superiors must arbitrate her claims pursuant to an enforceable arbitration agreement she signed during her employment.

The plaintiff filed suit against Tinder in California state court, alleging that she was wrongfully terminated as a result of reporting instances of sexual harassment by her superiors.

Tinder, through its successor Match Group LLC, timely removed the matter to federal court based on diversity jurisdiction. The plaintiff moved to remand the case to California state court, claiming that both she and Tinder, a dissolved Delaware corporation with its principal place of business in California, were citizens of California, thus defeating diversity jurisdiction. Match Group moved to compel arbitration pursuant to the arbitration agreement the plaintiff signed during her employment.

The California district court denied the plaintiff’s motion to remand, finding that Tinder was not a “dissolved corporation” but rather it merged with Match Group, making Match Group the proper party to the suit, and whose Texas citizenship was to be considered for purposes of diversity jurisdiction. The district court also granted Match Group’s motion to compel arbitration based on the enforceable arbitration agreement.

The plaintiff appealed the district court’s decision, arguing that the district court failed to consider Tinder’s citizenship when it determined that diversity jurisdiction existed. The Ninth Circuit held that the district court was correct in considering only Match Group’s citizenship because, following the merger with Match Group, Tinder ceased to exist as a separate entity and continued solely as an unincorporated division of Match Group.

The plaintiff also challenged the district court’s ruling that her claims must be submitted to arbitration, arguing that the arbitration agreement was unconscionable, did not apply retroactively to encompass preexisting claims, and that California law bars retroactive application of the arbitration agreement.

Rejecting each of the plaintiff’s arguments, the Ninth Circuit affirmed the ruling that the arbitration agreement was enforceable. The court reasoned that the arbitration agreement only gave rise to a low degree of procedural unconscionability, not any substantive unconscionability that infected the arbitration agreement as a whole. The court also found that, although the plaintiff signed the arbitration agreement during her employment as a condition of her continued employment, the plaintiff’s preexisting claims fell within the scope of the broad language of the arbitration agreement that reflected an intent to cover claims that had accrued before the effective date of the arbitration agreement. The Ninth Circuit also rejected the plaintiff’s claim that California law bars retroactive application of the arbitration agreement where there was no suggestion that Match Group sought to modify the agreement unilaterally.

Sanfilippo v. Match Group LLC, No. 20-55819 (9th Cir. Sept. 28, 2021).

Illinois Federal Court Leaves Issues of Venue and Contractual Attorneys’ Fees to Be Decided by the Arbitrator

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This matter concerns a dispute between a securities clearing firm and commodities futures investors over the investors’ losses sustained while trading options on the clearing firm’s e-trading platform. Both parties agreed the dispute should be resolved through arbitration but disagreed as to whether the National Futures Association (NFA) should serve as their arbitrator. An Illinois district court judge resolved the issue by compelling the parties to arbitrate before the NFA and to cease all other arbitrations pending before other arbitral bodies. The investors appealed the nonfinal arbitration order.

During the pendency of the appeal, the clearing firm requested the district court issue a briefing schedule for a proposed motion that it intended to bring seeking certain contractually mandated attorneys’ fees. The investors objected that the arbitrator, not the court, should decide the issue concerning contractually mandated fees.

The Seventh Circuit dismissed the investors’ appeal of the district court’s arbitration order, and the clearing firm filed a motion to enforce the arbitration order, complaining that the investors had violated the order by demanding and obtaining from NFA final hearings and proceedings, including final evidentiary hearings, outside the Northern District of Illinois — the judicial district that ordered arbitration. In turn, the investors filed a motion to stay the case arguing that the venue decision should be made by the arbitrator in the first instance.

The district court denied the clearing firm’s motion to enforce the arbitration order, noting that the arbitration order did not address the issue of venue. The district court held that under section 4 of the Federal Arbitration Act, it only had the power to compel arbitration before the NFA in the Northern District of Illinois and that the interpretation of the arbitration agreement’s venue selection clause is a procedural question that should be decided by the arbitrator.

The district court similarly declined to decide the issue whether the clearing firm was entitled to contractually mandated fees under the arbitration agreement for bringing the action, holding again that the arbitrator, not a federal court, should determine whether the clearing firm is entitled under the arbitration agreement to reimbursement of attorneys’ fees incurred in compelling the investors to arbitrate in the proper forum.

Accordingly, the district court stayed the case.

INTL FCStone Financial, Inc. v. Jacobson, No. 1:19-cv-01438 (N.D. Ill. Sept. 30, 2021)

Tenth Circuit Affirms Arbitration Award in Soaring Victory for Jet Engine Manufacturer

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Williams International designs, manufactures, and services small jet engines. In May 2013, Dodson International Parts Inc., a company that sells new and used aircraft parts, purchased a damaged aircraft fitted with two engines manufactured by Williams. After purchasing the aircraft, Dodson contracted with Williams to inspect the engines and prepare an estimate of repair costs, intending to sell the repaired engines. The quotes for the work provided by Williams, and signed by Dodson, contained an arbitration clause requiring that “all disputes arising from or in connection with maintenance performed by Williams International shall be submitted to binding arbitration.” After inspecting the engines, Williams determined that the engines were so badly damaged that they could not be rendered fit for flying. However, because Dodson had not paid the requisite fees, Williams refused to return one of the engines.

Dodson sued Williams in federal court alleging federal antitrust and state law tort claims. Williams moved to compel arbitration under the Federal Arbitration Act, relying on the arbitration clause in the original signed quotes. The district court granted the motion, and the arbitrator resolved all of Dodson’s claims in favor of Williams. Dodson then moved to reconsider the order compelling arbitration and to vacate the arbitrator’s award. The court denied both motions and, construing Williams’s opposition to the motion for vacatur as a request to confirm the award, confirmed the award. Dodson appealed, challenging the district court’s order compelling arbitration and its order confirming the award and denying the motions for reconsideration and vacatur.

The Tenth Circuit Court of Appeals ruled in favor of Williams on all three issues. On the primary question of arbitrability, Dodson argued that its claims were not arbitrable because its antitrust and state law tort claims were not “arising from or in connection with maintenance performed” by Williams. The court determined that “maintenance” included more than just repair work — simply inspecting machinery is typically referred to as maintenance work as well. And, acknowledging that language such as “arising out of or in connection with” is interpreted quite expansively, the court held that all of Dodson’s claims were connected to Williams’s work and therefore encompassed by the arbitration clause. Dodson also argued that its claims were not arbitrable because they arose either before its contracts with Williams were executed or after they terminated, but the court rejected this argument as well, as the arbitration clause at issue had no temporal element. All that was required for a dispute to be arbitrable was that it be one “arising from or in connection with maintenance performed by Williams.”

With respect to its motion for reconsideration, Dodson moved under District of Kansas Local Rule 7.3(b), which requires that parties seeking reconsideration must file a motion within 14 days after an order is issued, and must be based on (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error or prevent manifest injustice. While the Tenth Circuit agreed with the district court that no new controlling law had been established, nor had there been any manifest injustice visited on Dodson, it needed to look no further than Dodson’s filing date — nearly three years after entry of the order compelling arbitration. The district court’s denial of Dodson’s motion for reconsideration was sufficient on this ground alone.

Finally, Dodson challenged the district court’s order confirming the arbitration on the grounds that the district court lacked subject matter jurisdiction to confirm the award and that the confirmation order was improper on the merits. The Tenth Circuit found none of these arguments remotely persuasive and affirmed the district court’s order.

Dodson International Parts Inc. v. Williams International Co., No. 20-3193 (10th Cir. Sept. 13, 2021).

Eighth Circuit Holds Company Waived Its Right to Arbitration Where It Litigated the Case for Nearly a Year

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The Eighth Circuit Court of Appeals recently held that a parent company of a lender could not compel homeowners to arbitrate a case that it had already litigated for almost a year in a Missouri federal court.

In Sitzer v. National Association of Realtors, several homeowners filed a putative class action against various real estate entities, including HomeServices of America Inc., the parent company of the lender, alleging that the real estate entities engaged in anticompetitive practices.

Despite actively litigating the case in federal court for 305 days, HomeServices moved to compel arbitration under a listing agreement between the homeowners and the real estate entities, which required “[a]ny controversy or claim between the parties to this Contract, its interpretation, enforcement or breach[,] … [to] be settled by binding arbitration.” The Missouri district court denied the motion because HomeServices was not itself a party to the listing agreement. HomeServices appealed to the Eighth Circuit.

On appeal, the circuit judge first addressed the threshold question of whether the court or the arbitrators get to decide default-based waiver questions (i.e., whether a party has waived its right to arbitration based on active participation in a lawsuit or other action inconsistent with the right to arbitration). Relying on 40 years’ worth of precedent in the Eighth Circuit as well as in other jurisdictions, the circuit judge found it was up to the court, not an arbitrator, to decide default-based waiver questions.

The circuit judge then addressed the issue of waiver and held that HomeServices waived its right to arbitrate by aggressively litigating the case in federal court for close to a year, having joined other defendants’ motions to dismiss and to transfer the case to another judicial district, negotiated a proposed scheduling order, participated in a scheduling hearing, filed an answer to the complaint, and replied to written discovery. “A party cannot keep a contractual right to arbitration in its back pocket and pull it out only when it is ready for a ‘do over,’” said the circuit judge. Having actively litigated the case in court for 305 days, the company was required to “live with the consequences.”

Sitzer v. Nat’l Ass’n of Realtors, No. 20-1779 (8th Cir. Sept. 10, 2021).

West Virginia Federal Court Refuses to Force Non-Signatory to Participate in Arbitration

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Mountain Valley Pipeline LLC (MVP) contracted with U.S. Trinity Energy Services LLC for the construction and installation of the Mountain Valley Pipeline across property in Greenbrier County, West Virginia. Trinity subcontracted with M.T. Bores LLC to furnish equipment to excavate a tunnel in connection with the installation of the pipeline. But before the installation was completed, MVP terminated the project.

M.T. Bores claimed that it was not paid in full for the excavation equipment and thereafter placed a mechanic’s lien against the property for the balance due. M.T. Bores then instituted an action in the Greenbrier County Circuit Court seeking enforcement of the mechanic’s lien against MVP’s real property. The case was removed to the U.S. District Court for the Southern District of West Virginia, and Trinity thereafter moved to compel arbitration under the arbitration clause in the subcontract between M.T. Bores and Trinity. M.T. Bores did not dispute that it was required to arbitrate its claims but rather sought to compel MVP to participate in the arbitration.

Although recognizing that MVP was not a party to the subcontract, M.T. Bores sought to compel MVP’s participation based on the doctrine of equitable estoppel and third-party beneficiary theory. M.T. Bores argued that MVP should be estopped from refusing to arbitrate because it directly benefitted from the subcontract since the equipment contributed to MVP’s pipeline. The district court declined to apply the doctrine of equitable estoppel where MVP had not asserted any claim against M.T. Bores arising from the subcontract but rather was only defending claims brought against it by M.T. Bores. The district court similarly rejected M.T. Bores’ argument that MVP was a third-party beneficiary of the subcontract insofar as it was the owner of the property that was the site of M.T. Bores’ performance under the subcontract, finding that there was no evidence that the subcontract was created for MVP’s sole benefit. The district court noted that “[a] project owner will doubtless receive incidental benefits from its contractor’s subcontracts; but those benefits alone will not render the owner a third-party beneficiary.”

M.T. Bores also argued that MVP should be compelled to arbitrate in the interest of judicial economy since the claims against MVP and Trinity were inextricably intertwined. Although the district court agreed that M.T. Bores’ claims against MVP and Trinity involved some overlapping legal and factual issues, the court found the claims were not so “inextricably intertwined” to justify requiring MVP to participate in an arbitration absent its consent.

The district court similarly found no merit to M.T. Bores’ argument that MVP was an essential party to the arbitration since Trinity’s payment obligations to M.T. Bores under the subcontract were linked to, and may have been contingent on, MVP’s payment to Trinity.

Even so, the district court noted that an express provision in the subcontract deprived M.T. Bores of the ability to compel MVP to arbitrate absent Trinity’s consent. The district court accordingly denied M.T. Bores’ motion to compel MVP to participate in the arbitration between Trinity and M.T. Bores.

M.T. Bores, LLC v. Mountain Valley Pipeline, LLC, No. 5:20-cv-00602 (S.D. W. Va. Aug. 2, 2021).