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John Pitblado

SEVENTH CIRCUIT AFFIRMS SERVICE OF SUIT CLAUSE IN REINSURANCE TREATIES AND GRANTS CEDENT ABSOLUTE RIGHT TO SELECT FORUM

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Based on the plain and ordinary meaning of the service of suit clause, the Seventh Circuit Court of Appeals found a reinsurer waived its right of removal. The service of suit clause provided:

It is agreed that in the event of the failure of the Reinsurer hereon to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the request of the Company, will submit to the jurisdiction of any Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court.

Cases interpreting this service of suit clause as far back as 1949 have found such a clause forecloses a defendant’s right of removal. Although the reinsurer urged the Court should adopt a heightened “clear and unequivocal” standard when determining whether it waived its right of removal, the Court declined to do so, as litigation-based waivers are distinguishable from contractual waivers, and such a high standard should not be applied to the right of parties to contract where they will litigate a dispute.

The reinsurance treaties required the reinsurer to submit to the jurisdiction of any court chosen by the cedent “whether it be to determine the arbitrable nature of the dispute, to confirm an arbitration award, to compel arbitration, or resolve on the merits, a claim not subject to arbitration,” which included the cedent’s breach of contract claim in this instance. Pine Top Receivables of Illinois, LLC v. Transfercom, Ltd., No. 16-1073 (7th Cir. Sept. 1, 2016)

This post written by Nora A. Valenza-Frost.

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NINTH CIRCUIT ALLOWS DISPUTE TO PROCEED IN COURT AFTER ARBITRATION DISMISSED FOR FAILURE TO PAY DEPOSIT

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In mid-June, the U.S. Court of Appeals for the Ninth Circuit issued an opinion which holds that where an arbitration proceeding is dismissed because one side is unable to pay their share of the arbitration, the case may proceed in court—even though there is an arbitration clause. The case involved a claim for legal malpractice, and the retainer agreement had a mandatory arbitration provision. The federal district court compelled the case to arbitration, where it proceeded, until the underlying plaintiff was unable to pay AAA’s required deposit of $ 18,562.50. AAA then inquired as to whether the law firm defendant was willing to cover the deposit, but the firm declined.

Accordingly, the AAA arbitrator terminated the arbitration due to the missing deposit. The law firm moved to lift the stay and have the case dismissed for the plaintiff’s failure to comply with a court order under Federal Rule of Civil Procedure 41(b). Although the district court explicitly found that the plaintiff was “unable to pay for her share of arbitration,” it ultimately dismissed the complaint because the AAA rules required the parties to bear the costs of arbitration equally and the FAA deprived the court of authority to hear “the claims that would have been subject to the arbitration agreement.”

The Ninth Circuit panel found ample guidance in its 2004 ruling in Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, in which it held that, where the arbitration rules agreed to by the parties allow an arbitrator to dismiss an arbitration for failure to pay costs, such dismissal of the arbitration is “pursuant to the parties’ agreement.” The Ninth Circuit thus reversed, finding that the FAA’s “silence is telling,” with no provision compelling dismissal under such circumstances. The Ninth Circuit went on to limit its holding, noting that it did not apply where parties refused to arbitrate by choosing not to pay the costs of arbitration, but noting that requiring dismissal would deprive the plaintiff of a forum in which to have her claims adjudicated.

Tillman v. Rheingold, Valet, Rheingold, Shkolnik & McCartney, Case No. 13-56624 (9th Cir. June 15, 2016).

This post written by Zach Ludens.

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DISTRICT OF ARIZONA AWARDS BROAD FEE AWARD WHERE THERE WERE COMPETING MOTIONS TO CONFIRM ARBITRAL AWARD

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On March 31, 2016, we wrote regarding an arbitration confirmation fight between the Scottsdale Insurance Company (“Scottsdale”) and the John Deere Insurance Company (“John Deere”) in a reinsurance dispute relating to whether there was a computation error in the award’s calculation. Both sides sought confirmation of the arbitral award, but Scottsdale sought to increase the award, alleging a miscalculation. John Deere prevailed in the confirmation fight, and John Deere filed an application for attorneys’ fees and costs. On July 22, 2016, the District Court of Arizona largely granted that application over Scottsdale’s objections.

The reinsurance agreements between the parties provided that if a court confirmed an arbitration award, “the attorneys’ fees of the party so applying and court costs will be paid by the party against whom confirmation is sought.” John Deere sought all of its fees from the confirmation proceeding, including responding to Scottsdale’s motion to modify or correct the arbitration award. Scottsdale opposed the fee request, arguing that John Deere was limited to seeking reimbursement for attorneys’ fees incurred “solely in connection with its cross-motion to confirm the arbitration award.” The Arizona federal court disagreed, finding that the parties’ agreement was not so limited, although the Court reduced a portion of the award sought due to redaction of time entries and failure to comply with a local rule.

Scottsdale Ins. Co. v. John Deere Ins. Co., Case No. CV-15-00671-PHX-PGR (USDC D. Az. July 22, 2016).

This post written by Zach Ludens.

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NEW YORK FEDERAL COURT REFUSES TO ENFORCE ARBITRATION CLAUSE IN INTERNET CONTRACT

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This case involves a putative class action filed in federal court in New York in 2015 by Spencer Meyer against Travis Kalanick, the founder of Uber Technologies, Inc., alleging that Kalanick “orchestrated and participated in an antitrust conspiracy arising from the algorithm that [Uber] uses to set prices.” Kalanick did not move to compel arbitration at the outset based on Uber’s arbitration clause, but instead filed a motion to dismiss, which was denied, as well as a motion to reconsider the court’s determination that plaintiff could seek to proceed via class action, which was also denied. Uber then moved successfully to intervene, and moved to compel arbitration, to which Kalanick joined.

The New York federal court denied the motion to compel arbitration, finding that during Uber’s registration/contract formation process, the parties had not actually formed an enforceable agreement, and thus the plaintiff did not agree to arbitrate his claims.

Uber’s contracting process at the time required a potential Uber rider to input contact information and their payment details, and then “register” to form an account. There was text under the “register” button which said “[b]y creating an Uber account, you agree to the Terms of Service and Privacy Policy.” Although the “Terms of Service,” which contained the arbitration clause, and the “Privacy Policy” were hyperlinked, a user could register without clicking the links. Plaintiff said he did not recall the hyperlink or clicking it, which Uber did not contest. Thus, the court found that there was no basis for a claim that plaintiff had “actual knowledge of the agreement.”

In its analysis, the court looked at different types of electronic contract formation. First, it noted that there were “clickwrap” or “click-through” agreements, in which website users are required to click on an “I agree” box after presented with a list of terms and conditions of use. Next, it looked at “browsewrap” agreements, in which a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen, but a user can continue to use the website or services without visiting the page hosting the agreement or even knowing it exists. The court noted that Uber’s agreement was not a clickwrap agreement, which the court stated were “more readily enforceable,” but was more akin to a browsewrap agreement as an Uber user could access Uber’s services without clicking the hyperlink to the page hosting the agreement or even knowing that such an agreement exists. The court also noted that the Uber agreement could be a “sign-in wrap agreement” since a user was allegedly notified of the existence of the “terms of use” when signing in. Ultimately the court noted that these contract formation labels “can take courts only so far” and the issue of whether plaintiff agreed to arbitrate his claims “turns more on customary and established principles of contract law than on newly-minted terms of classification,” and is a fact-specific inquiry. The court, noting that the key question is the conspicuousness of the terms, found that Uber’s account creation process did not provide plaintiff with “reasonably conspicuous notice” of Uber’s User Agreement, including the arbitration clause, or evince “unambiguous manifestation of assent to those terms.” Thus, in light of the facts, the court found that plaintiff did not form an agreement to arbitrate, and denied the motion to compel arbitration.

Meyer v. Kalanick, No. 15 Civ. 9796 (USDC S.D.N.Y. July 29, 2016).

This post written by Jeanne Kohler.

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