Christina Gallo

In this cattle-feeding dispute, cattle owner Bonsmara Natural Beef Co. and its principal George Chapman brought an action against feed yard owner Hart of Texas Cattle Feeders LLC, alleging claims including breach of contract, negligence, and fraud. Chapman also sought a declaratory judgment discharging him from liability as a guarantor for the cattle finishing contract. The trial court denied Hart’s motion to compel arbitration and, after a jury trial, entered judgment in favor of Bonsmara and Chapman. Hart appealed, and the court of appeals reversed and remanded.

On petition for review, the Supreme Court of Texas, in a 6-3 decision, affirmed the court of appeals’ judgment overturning the trial court’s denial of Hart’s post-judgment motion to compel arbitration, holding that a party does not forfeit its right to challenge a ruling on an appeal from a final judgment simply by opting not to pursue an interlocutory appeal of that ruling.

The Supreme Court addressed two issues:

1. Whether Hart’s failure to appeal the interlocutory order denying its motion to compel arbitration deprived the appellate court of jurisdiction to overturn that order on appeal from a final judgment; and
2. If the order was appealable, whether the court of appeals erred in ordering arbitration.

As to the first issue, the majority found that the court of appeals had jurisdiction to consider the trial court’s denial of Hart’s motion to compel arbitration because interlocutory appeal statutes do not alter the principle that orders merge into – and may be challenged on appeal from – a final judgment. The majority relied on the legislature’s use of the permissive term “may” in the interlocutory appeal statute and the fact that the statute did not provide a noncompliance penalty or indicate consequences of not appealing the arbitration decision immediately to support its opinion. The majority noted that the decision to appeal a court’s denial of arbitration is one that must be weighed and decided by the parties and their counsel based on the case’s facts.

As to the second issue, the majority held that the court of appeals did not err in ordering arbitration, finding that the arbitration agreement was enforceable because Bonsmara had not shown that the arbitrator determined that the arbitral forum was unavailable and that the arbitration clause’s language did not foreclose the application of direct-benefits estoppel to require arbitration with non-signatories.

Accordingly, the majority affirmed the judgment of the court of appeals.

The dissenters felt that the majority’s decision ran counter to common sense and basic notions of fairness – that by allowing litigants to see the outcome of a trial before appealing a denial of a motion to compel arbitration, the majority endorses a dispute resolution process that will result in “double the cost and double the time.”

Bonsmara Natural Beef Co. v. Hart of Texas Cattle Feeders, LLC, No. 19-0263 (Tex. June 26, 2020).

The Supreme Court of Washington recently affirmed the denial of Evergreen Hospital Medical Center’s motion to compel arbitration on the grounds that Evergreen waived its right to compel arbitration of claims arising under a collective bargaining agreement between Evergreen and the Washington State Nurses Association governing nurse employment.

A member employee brought this putative class action against her employer, Evergreen, alleging that Evergreen failed to give required rest and meal breaks. After nine months of litigation and the addition of a second named plaintiff, Evergreen moved to compel arbitration. The trial court denied the motion, and the court of appeals affirmed. Evergreen petitioned to the Supreme Court of Washington, which granted review.

The court analyzed three factors to determine whether Evergreen waived its right to arbitration: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that right; and (3) prejudice.

As to the first factor, the court found there was no dispute that Evergreen believed it had an existing right to arbitrate. As to the second factor, the court found that through its conduct, Evergreen chose to litigate for approximately nine months rather than arbitrate, and thus behaved inconsistently with a party seeking to arbitrate. The court noted that the parties engaged in discovery and litigation for approximately nine months without seeking mediation or awaiting a decision from the court in another case and that Evergreen did not move to compel until the third iteration of the complaint even though the complaint had almost identical claims throughout.

As to the third factor, the court found that granting the motion to compel arbitration this late in litigation would cause severe prejudice to the plaintiffs, who had already incurred more than $140,000 in legal fees (from discovery, sending the notice of the class action to all the nurses, and securing expert witnesses), and would improperly allow Evergreen to relitigate class certification on which it lost.

Thus, the Supreme Court affirmed the court of appeals on the ground that Evergreen waived the right to compel arbitration, and remanded to the superior court for further proceedings consistent with the Supreme Court’s opinion.

Lee v. Evergreen Hospital Medical Center, No. 97201-0 (Wash. June 4, 2020).

This action involves plaintiff Living Steward Properties’ insurance claim for property damage caused by Hurricane Harvey. The insurer defendants moved to compel arbitration of the plaintiff’s claims that the insurer defendants underpaid the company for Hurricane Harvey damage.

The insurer defendants argued that this case presented the same arbitration language and the same issues that the U.S. District Court for the Southern District of Texas adjudicated in Corpus Christi Island Apartment Villas Management Group, LLC v. Underwriters at Lloyd’s London, No. 2:19-cv-00188, 2019 WL 8273959 (S.D. Tex. Oct. 18, 2019), in which the court found there existed a written agreement to arbitrate and an unchallenged delegation clause, which required all additional questions be resolved by the arbitrators. Because the plaintiff made no effort to distinguish its case from Corpus Christi Island, the court ordered that the plaintiff’s claims against the insurer defendants be submitted to arbitration.

The plaintiff also sued CJW, the public adjusting firm assigned to its claim, for unfair settlement practices under the Texas Insurance Code and breach of the common law duty of good faith and fair dealing. CJW argued that these claims and their underlying facts were inextricably intertwined with the claims against the insurer defendants such that they all belonged, together, before the arbitrators. CJW sought to compel arbitration of the claims made against it by joining with the insurer defendants to enforce the policy’s arbitration agreement and to extend that agreement to include the extra-contractual claims made against CJW. The court found that equitable estoppel prevented the plaintiff from avoiding the contractual arbitration agreement for claims against CJW, a nonparty to the insurance policy, because the plaintiff relied on the policy in making its claims against CJW, and the claims against both the insurer defendants and CJW were inextricably intertwined.

Because the plaintiff failed to brief any argument against the application of equitable estoppel, the court granted CJW’s joinder and ordered that the plaintiff’s claims against both the insurer defendants and CJW be submitted to arbitration.

Living Steward Properties, Ltd. v. Certain Underwriters at Lloyd’s London, No. 2:20-cv-00001 (S.D. Tex. May 18, 2020).

In Mason v. Midland Funding, plaintiffs Mason and Burnett brought an action against a debt collector and its subsidiaries claiming that they violated the Fair Debt Collection Practices Act by allegedly filing lawsuits to collect on unpaid debts even though they knew the debts were “uncollectable.”

The defendants filed a motion to dismiss, which was denied by the U.S. District Court for the Northern District of Georgia. The defendants then filed a motion to compel arbitration, seeking to hold Mason and Burnett to arbitration agreements that the defendants claimed Mason and Burnett agreed to when they obtained credit accounts online, which was ultimately denied. The defendants then filed an interlocutory appeal with the Eleventh Circuit.

The crux of the interlocutory appeal turned on whether Mason and Burnett agreed to arbitrate. The defendants claimed that as part of opening the credit card account, Mason agreed to arbitrate by assenting to a clickwrap agreement that was part of his online application. The defendants also argued that Mason was mailed a welcome packet containing the agreement, along with the credit card, which he used upon receipt.

In support of these arguments, the defendants cited a declaration from the original creditor. The court found that the declaration neither showed the actual application form that Mason filled out and agreed to online nor demonstrated that the online application contained an arbitration provision. Thus, the Eleventh Circuit had no evidence that Mason saw and was required to agree to the arbitration provision when applying.

Although the defendants claimed that the agreement was also mailed to Mason, the Eleventh Circuit rejected the defendants’ application of the “mailbox rule,” finding that they failed to present any “competent evidence” proving they knew that the agreement had been mailed. The court, therefore, affirmed the lower court’s denial of the defendants’ motion to compel arbitration as to Mason.

Conversely, as to Burnett, the Eleventh Circuit found that the defendants provided a much more definitive declaration, which was sufficient to trigger the mailbox rule’s presumption that Burnett received the agreement, including the arbitration agreement contained within it. Thus, the Eleventh Circuit reversed the district court’s denial of the motion to compel arbitration as to Burnett.

Mason v. Midland Funding LLC, No. 18-14019 (11th Cir. May 13, 2020).

Plaintiffs Vernita Miracle-Pond and Samantha Paraf, each Shutterfly users with a Shutterfly account, sued defendant Shutterfly Inc., on behalf of themselves and similarly situated Shutterfly users, under the Illinois Biometric Information Privacy Act (BIPA) claiming that Shutterfly violated BIPA by using facial-recognition technology to extract biometric identifiers for “tagging” individuals and by “selling, leasing, trading, or otherwise profiting from Plaintiffs’ and Class Members’ biometric identifiers and/or biometric information.” Shutterfly moved to compel arbitration for Miracle-Pond and to stay the litigation pending the outcome of the arbitration.

The court first analyzed whether Miracle-Pond agreed to the terms of use in 2014. Miracle-Pond argued that she did not assent to Shutterfly’s terms of use when she formed her Shutterfly account because the terms of use are a “browsewrap” agreement, and thus she merely agreed that her use of Shutterfly’s website and services would comply with the terms of use, not that she would be bound by them. The court rejected that argument, finding that Shutterfly’s agreement was a valid “clickwrap agreement” as Shutterfly’s page presented the terms of use for viewing, stated that clicking “accept” would be considered acceptance of the terms of use, and provided both an “accept” and “decline” button. “Because Shutterfly’s ‘app contained a clear and conspicuous statement that … a user agreed to the Terms of Service and Privacy Policy’ by clicking a link or pressing a button,” the court found that a reasonable user who completes that process would understand that he or she was manifesting assent to the terms. Miracle-Pond, therefore, agreed to be bound by Shutterfly’s terms of use.

Notably, the terms of use accepted by Miracle-Pond in 2014 did not contain an explicit arbitration provision. Rather, Shutterfly added an arbitration provision to its terms of use in May 2015. Thus, Miracle-Pond argued that even if a contract was formed between the parties, there was no valid agreement to arbitrate because: (1) arbitration clauses subject to unilateral modification are illusory; (2) Miracle-Pond could not have assented to the arbitration provision because Shutterfly failed to provide notice of the 2015 modification; and (3) arbitration clauses that apply retroactively are unenforceable.

The court found that in 2014, Miracle-Pond entered into a service contract that explicitly gave Shutterfly the right to modify the agreement unilaterally at any time and without notice, other than posting the modified terms on its website. Shutterfly posted the modified terms of use on its website in May 2015, and Miracle-Pond indicated her acceptance to the modified terms of use by continuing to use Shutterfly products. The court rejected Miracle-Pond’s arguments regarding lack of notice and held that Miracle-Pond was bound by the 2015 modifications to the terms of use.

In September 2019, about three months after Miracle-Pond filed this lawsuit, Shutterfly sent an email to all of its users nationwide, which notified Shutterfly users that the terms of use had been updated. Miracle-Pond argued that the September 2019 email “was an improper ex parte communication with Plaintiff and putative class members because it failed to advise them of the pending litigation while seeking to deprive them of their rights as plaintiffs or class members” and that a new agreement to arbitrate could not apply retroactively to her claims. The court rejected her argument and found that she was bound by the 2015 modification and therefore agreed to arbitrate her claims in 2015 – well before she filed this lawsuit.

Lastly, Miracle-Pond argued that even if the arbitration clause was valid, plaintiffs cannot waive their right to class arbitration of their claim for an injunction under California’s McGill rule, which provides that plaintiffs cannot waive their right to public injunctive relief in any forum, including in arbitration. But the court found that the plaintiffs’ substantive claim arose under an Illinois statute – BIPA – not under the consumer protection laws of California, making the McGill rule inapplicable to the arbitration agreement in this case.

Accordingly, the court granted Shutterfly’s motion to compel arbitration for Miracle-Pond and stay the proceedings.

Miracle-Pond v. Shutterfly, Inc., No. 1:19-cv-04722 (N.D. Ill. May 15, 2020).