John Pitblado

THIRD CIRCUIT HOLDS OVERTIME CLASS ACTION IS NOT SUBJECT TO ARBITRATION

May 11, 2017 by John Pitblado

The Third Circuit recently affirmed the decision of a Pennsylvania district court, holding that a class action involving overtime compensation filed against the operating companies of a senior care facility is not subject to arbitration.

The background of the case is as follows. Plaintiffs filed their putative class and collective action against the defendants under the Fair Labor Standards Act (FLSA) and Pennsylvania wage and hour statutes. Plaintiffs alleged that the defendants failed to pay proper overtime compensation. The defendants moved to compel arbitration, based on an arbitration clause in an Employment Dispute Resolution Program book that plaintiffs agreed to as a condition of employment. The clause provides that arbitration is “the only means of resolving employment related disputes.” However, the clause also states that it “covers only claims by individuals and does not cover class or collective actions.” The Pennsylvania district court read the clause as unambiguously carving out class and collective actions from mandatory arbitration and accordingly denied defendants’ motion to compel arbitration. The defendants appealed to the Third Circuit.

The Third Circuit noted the question presented: “Does an arbitration clause stating that it ‘covers only claims by individuals and does not cover class or collective actions’ nonetheless require that a putative class and collective action for overtime pay be sent to arbitration?” The Third Circuit affirmed the district court’s decision. Recognizing the strong federal policy favoring arbitration, the Court noted that policy has its limits, and the text of the arbitration clause controls. The Court then held the clause at issue “unmistakably provides that plaintiffs’ class and collective actions need not be subject to arbitration.”

Novosad v. Broomall Operating Company LP, No. 16-2089 (3d Cir. April 10, 2017).

This post written by Jeanne Kohler.

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THIRD CIRCUIT VACATES DISTRICT COURT’S DECISION AND REMANDS FOR FURTHER PROCEEDINGS REGARDING WHETHER THE PARTIES AGREED TO ARBITRATE

May 10, 2017 by John Pitblado

In this case, plaintiff Aliments Krispy Kernels, a Canadian “snack purveyor,” brought suit to confirm an arbitration award it received against Nichols Farms, a pistachio grower, in New Jersey federal district court. Nichols Farms moved to vacate the award. The New Jersey district court granted Nichol’s motion to vacate the arbitration award. Aliments appealed to the Third Circuit.

The background of this case is as follows. The underlying arbitration involved a breach of contract claim. Aliments and Nichols, through brokers, had exchanged some sales confirmations for Aliments to purchase pistachios from Nichols, none of which were signed and some, but not all, of the sale confirmations created by the brokers contained arbitration clauses. Nichols ended up refusing to deliver the pistachios without advance payment from Aliments, based on Aliments’ credit application. Aliments eventually bought the pistachios from another seller, and then sought to recoup the extra cost from Nichols in arbitration. Nichols refused to participate in the arbitration because it alleged that the sales confirmations it received did not contain arbitration clauses. Aliments was awarded $222,100 against Nichols in the arbitration, which Nichols refused to pay.

In the action to confirm or vacate the award, the district court allowed months of discovery and then vacated the award, finding no genuine issue of fact on the issue of whether the parties entered into a “an express unequivocal agreement” to arbitrate.

On appeal, the Third Circuit disagreed with the district court, vacated its decision and remanded for further proceedings. In its decision, the Third Circuit noted that its previous expressed standard to be applied in the context of whether to enforce an arbitration agreement under the Federal Arbitration Act — that there must be “an express and unequivocal agreement” to an arbitration contract — is outdated and no longer valid. Rather, the Third Circuit noted that “[t]he legal standard is simply that we apply the relevant state contract law to questions of arbitrability, which may be decided as a matter of law only if there is no genuine issue of material fact when viewing the facts in the light most favorable to the nonmoving party.”

In its analysis, the Third Circuit then found that per New Jersey’s “choice-of-law rules,” New Jersey law (rather than New York) on contract formation, applied to the determination of whether Aliments and Nichols agreed to arbitrate Aliment’s breach of contract claim. The Court then also found that multiple issues of material fact prevented it from concluding that Nichols and Aliments made an agreement to arbitrate. Thus, the Third Circuit vacated and remanded to the New Jersey district court for further proceedings.

Aliments Krispy Kernels, Inc. v. Nichols Farms a/k/a Nichols Family Farms a/k/a Nichols Pistachios, No. 16-1975 (3d Cir. Mar. 21, 2017).

This post written by Jeanne Kohler.

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TEXAS COURT FINDS POLICY CONTAINED DELEGATION CLAUSE REQUIRING ARBITRATION UNDER ENGLISH LAW

May 9, 2017 by John Pitblado

A Texas federal court addressed a dispute as to whether the insurance policy at issue contained an arbitration agreement and whether it required arbitration of the particular claim. Looking at the “Law and Practice” provision of the policy, the Court found it contained an implicit delegation clause because it required arbitration under English law. “Incorporation of English law includes English arbitration law, which unambiguously provides that arbitrators have the power to decide threshold questions as a default unless the parties agree to the contrary. The parties did not do so here. By agreeing to arbitrate under English law, the parties clearly and unmistakably consented to delegate to the arbitrator the power to make threshold determinations about what claims are arbitrable.”

Furthermore, the policy’s choice of law and jurisdiction are governed by the “Law and Practice” clause, which stated arbitration in England is required “notwithstanding anything else to the contrary.” As a final point, the policy stated “in the event of a conflict between this clause and any other provision of this insurance, this clause shall prevail and the right of either party to commence proceedings before any other Court or Tribunal in any other jurisdiction shall be limited to the process of enforcement of any award hereunder.”

The temporary restraining order was dissolved, and the parties were ordered to arbitrate in England.

Gemini Ins. Co. v. Certain Underwriters at Lloyd’s London Subscribing to Policy No. B0973MA1305152 Issued Through the Office of Osprey Underwriting Agency Limited, No. 4:17-cv-01044 (USDC S.D. Tex., April 13, 2017)

This post written by Nora A. Valenza-Frost.

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MCCARRAN-FERGUSON ACT PROHIBITS PURSUIT OF RICO CLAIMS AGAINST INSURER

May 8, 2017 by John Pitblado

A Plaintiff annuity holder was prohibited from pursuing her federal racketeering claims against an insurance company and its affiliates, as doing so would impair state regulation of insurance business, contrary to the McCarran-Ferguson Act.

The question addressed by the Eighth Circuit Court on appeal of the dismissal of Plaintiff’s RICO claim, was whether the RICO charge would impair state insurance regulation. Applying the standard set forth in Humana Inc. v. Forsyth, 525 U.S. 299 (1999), the Court focused on the precise federal claims asserted. Here, it was Plaintiff’s claim the insurer “misrepresented the true financial conditions of the company in its public reports and marketing materials, artificially inflating its purported assets and surplus.” Ruling on those claims would require the Court to decide whether the purported sham transactions left the insurer in the “healthy financial position it reported” or whether Plaintiff was correct that “a proper accounting would have shown liabilities substantially exceeding” the insurer’s assets.

As questions about an insurer’s solvency are “squarely within the regulatory oversight by state insurance departments” a federal court could not rule in Plaintiff’s favor without holding “that state insurance regulators were wrong” – essentially “double-checking” the regulator’s work. Such a result runs contrary to the McCarran-Ferguson Act.

Ludwick v. Harbinger Group, Inc., No. 16-1561 (8th Cir. April 13, 2017)

This post written by Nora A. Valenza-Frost.

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NINTH CIRCUIT AFFIRMS DISTRICT COURT’S DISMISSAL OF PLAINTIFF’S PROCEDURAL DUE PROCESS CLAIM

April 20, 2017 by John Pitblado

In this action, plaintiff Sherri Roberts appealed a Montana federal district court’s order which granted her former employer/defendant Lame Deer Public Schools’ summary judgment motion because plaintiff’s procedural due process claim was foreclosed by claim preclusion, and that even if preclusion did not bar her claim, her claim failed on the merits because she was accorded adequate procedural due process.

On appeal, plaintiff argued that her post-termination arbitration hearing and the statutory limits on judicial review of the arbitration’s result violated her procedural due process rights. The Ninth Circuit, however, noted that plaintiff could have brought her procedural due process claim in Montana state court where she challenged the arbitrator’s decision, but instead she chose only to attempt to vacate the arbitration decision in that previous lawsuit. Therefore, the Ninth Circuit held that claim preclusion bars her from litigating a claim that she could have raised in the earlier proceeding. Further, the Ninth Circuit held that even if plaintiff’s claim was not barred by claim preclusion, the Montana district court correctly concluded that plaintiff was accorded adequate procedural due process. She received a hearing before she was terminated by Lame Deer Public School. She was able to challenge her termination in an arbitration, as mandated by the collective bargaining agreement to which she was a party. After losing the arbitration, she was then permitted to challenge the arbitrator’s decision in court, which she did in Montana state court and lost. Thus, according to the Ninth Circuit, she received more than adequate procedural due process. The Court noted that Montana law does not give her a right to a court hearing on the merits post-arbitration, and that Montana’s statute, limiting judicial review of arbitration decisions, does not violate the Constitution. In fact, the Ninth Circuit noted that the Montana statute is “in many ways identical to its (constitutional) federal version, 9 U.S.C. § 10,” which affords “an extremely limited [judicial] review authority, a limitation that is designed to preserve due process but not to permit unnecessary public intrusion into private arbitration procedures.” (citations omitted).

Roberts v. Lame Deer Public Schools, No. 12-cv-0083 (9th Cir. Mar. 13, 2017).

This post written by Jeanne Kohler.

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