Carlton Fields

FIFTH CIRCUIT: DIVERSITY JURISDICTION DETERMINED BY AMOUNT SOUGHT IN ARBITRATION, NOT AMOUNT OF AWARD

May 3, 2016 by Carlton Fields

In a recent interlocutory appeal of a matter involving an arbitration of a claim for $80 million, but in which only $10,000 was awarded, the Fifth Circuit held that the amount in controversy for purposes of establishing diversity jurisdiction over petitions to confirm or vacate arbitration awards, is the amount sought in the arbitration, and not the amount ultimately awarded. In choosing the “demand approach” over the “award approach,” the court analyzed both positions, and noted that treatment by other circuits has varied. The Fifth Circuit found that the demand approach is the better of the two because it takes into account the true scope of the dispute between the parties. The court also reasoned that the demand approach avoids the application of two conflicting jurisdictional tests for the same controversy (jurisdiction for petitions to compel arbitration are based on the amount of the demand). Further, the court explained, the award approach might promote frivolous motions to compel, where demands for less than the jurisdictional requirement may be filed in federal court and then stayed pending the result of the arbitration. Last, the court explained, the demand approach permits jurisdiction consistent with that which would be present if the case were litigated rather than arbitrated. Pershing, LLC v. Kiebach, Case No. 15-30396 (5th Cir. Apr. 6, 2016).

This post written by Barry Weissman.

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SPECIAL FOCUS: WHAT IS THE FUTURE OF THE MULTI-STATE ALLOCATION OF NONADMITTED PREMIUM TAX REVENUE?

May 2, 2016 by Carlton Fields

In the portion of the Dodd-Frank Act known as the Nonadmitted and Reinsurance Reform Act, Congress established a public policy and stated its desire that “each State adopt nationwide uniform requirements, forms, and procedures, such as an interstate compact, which provide for the reporting, payment, collection, and allocation of premium taxes for nonadmitted insurance ….” 15 U.S.C. § 8201(b)(4) . In a Special Focus article we provide an update on the lack of progress made by the states towards this goal.

This post written by Rollie Goss.
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SEVENTH CIRCUIT HOLDS NO AGREEMENT ENTERED INTO WITH RESPECT TO ON-LINE CONTRACT

April 28, 2016 by Carlton Fields

This case arises from an appeal from an Illinois federal district court, which ruled that TransUnion, a credit reporting agency, did not give a putative class of its website users proper notice of an arbitration agreement, and thus no contract was formed.

By way of background, lead plaintiff Sgouros filed suit in Illinois federal court, alleging that he had paid nearly $40 for a credit report, including a numbered score, through TransUnion’s website, which was “materially misleading” and “essentially worthless” because TransUnion did not base the score on the same information on which lenders rely. TransUnion’s terms of use on its website were provided for in a Service Agreement, which contained an arbitration clause and class action waiver. Thus, TransUnion moved to compel arbitration, arguing that Sgouros’ claim is subject to arbitration and that he can only bring his claim as an individual, not as part of a class. The Illinois district court ruled that the parties did not form a binding contract, including the agreement to arbitrate.

In its decision, the Seventh Circuit analyzed TransUnion’s website and the user experience. It noted that the user was required to take steps through a scroll-through menu, with a button to click through to authorize TransUnion to request the user’s financial information. However, the court noted that the website did not call the user’s attention to the Service Agreement, which contained the arbitration clause “buried at page 8”, nor did the scroll-through buttons advise the user of the agreement or that he or she was agreeing to its terms. Thus, the court noted that there was no notice to the TransUnion customers that they were agreeing to the terms of the Service Agreement, and that it was not enough that the website provided a scroll-through menu and a hyperlinked copy of the agreement. Rather, according to the court, TransUnion was required to notify its customers that the purchase was subject to the terms of the agreement.

Thus, the Seventh Circuit agreed with the district court order, holding that no agreement that contained an arbitration clause was formed, and it thus affirmed the denial of TransUnion’s motion to compel arbitration. Sgouros v. TransUnion Corp., No. 15-1371 (7th Cir. Mar. 25, 2016).

This post written by Jeanne Kohler.
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COURT DENIES DISCOVERY OF RESERVE INFORMATION

April 27, 2016 by Carlton Fields

On Plaintiffs’ motion to compel discovery in a bad faith action against first-party property insurer Liberty Mutual Fire Insurance Company (“Liberty Mutual”), an Alabama federal court limited, but allowed, discovery related to: past bad faith lawsuits against the insurer; commercial property claims files of the adjuster handling the Plaintiffs’ claim; performance goals and evaluations of the claims department; and, quality assurance manuals. The Court fully denied Plaintiffs’ overbroad and irrelevant requests for information relating to claims files and claims where bad faith was alleged as well as reserves information and personnel records.

The court declined to compel discovery of Liberty Mutual’s reserves, frequently a target of discovery in reinsurance matters, as reserve information “is not relevant as to what an insurer thought of the merits of a claim.” Graham & Company, LLC v. Liberty Mut. Fire Ins. Co., Case No. 14-2148 (USDC N.D. Ala. April 5, 2016).

This post written by Nora A. Valenza-Frost.
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CALIFORNIA SUPREME COURT ENFORCES ARBITRATION AGREEMENT, FINDING IT IS NOT UNCONSCIONABLE

April 26, 2016 by Carlton Fields

In this case, a former employee of a retail store appealed to the California Supreme Court seeking reversal of an appellate court decision which found that an arbitration agreement in her employment application was not unconscionable.

An employee originally filed a suit against Forever 21 and individual defendants for harassment, race and sex discrimination and retaliation. The defendants moved to compel arbitration based on the arbitration agreement in the employment application which was executed by the employee. The California trial court denied the motion, finding that the agreement was unconscionable. A California Court of Appeal reversed, finding that there was no substantive unconscionability in the agreement. The California Supreme Court granted the employee’s petition to review, and affirmed the Court of Appeal’s judgment.

In its decision, the California Supreme Court found that an arbitration agreement, which authorized the parties to seek provisional relief in a judicial action while still compelling the remainder of the dispute to arbitration, was enforceable, noting that the clause “does no more than restate existing law . . . [and] does not render the agreement unconscionable.” The court also held that an arbitration agreement remains enforceable when the claims it specifically lists that are subject to arbitration are claims that would likely be brought by an employee because the employer’s claims, even though not listed, would also be subject to arbitration. It also found that a provision in the arbitration agreement that required both parties to agree that during arbitration “all necessary steps will be taken” to protect from disclosure the company’s trade secrets and proprietary and confidential information, was not unduly one-sided. Lastly, the court held that the fact that the arbitration agreement stated that the arbitration would be conducted under the model rules of the American Arbitration Association, and the employee was not provided with a copy of the AAA rules, did not make the agreement procedurally unconscionable.

Thus, the California Supreme Court concluded that the arbitration agreement was not unconscionable and was enforceable. Baltazar v. Forever 21, Inc. et al., No. S208345 (Cal. Mar. 28, 2016).

This post written by Jeanne Kohler.
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