Kenneth Cesta

District Court Orders Limited Trial to Address Party’s Authority to Sign Arbitration Agreement

October 7, 2022 by Kenneth Cesta

Relying on the Federal Arbitration Act and recognizing that “this case presents one of the rare instances in which a defendant opposing arbitration survives the initial stage of an FAA proceeding,” the U.S. District Court for the Eastern District of Kentucky denied the defendant’s motion to dismiss the plaintiff’s action to compel arbitration and ordered the matter to proceed to trial on the limited issues concerning the validity and enforceability of the arbitration agreement.

In August 2010, Opal Wells executed an unlimited power of attorney providing her son Leonard Wells as her attorney-in-fact and agent. Opal was admitted to the Boyd Nursing and Rehabilitation Center in 2013. In 2019, when new owners took over Boyd, they took steps to obtain signatures on paperwork regarding Opal, which included an arbitration agreement. The arbitration agreement was part of a larger document but had its own signature block, which Leonard signed as his mother’s “responsible party.” Opal passed away in September 2020 and Leonard filed a state court action on behalf of her estate and wrongful death beneficiaries. Boyd then filed an action in the district court to compel arbitration of the state court claims, asserting that the power of attorney “provided Leonard with the authority to sign the Arbitration Agreement on Opal’s behalf.” Leonard filed a motion to dismiss Boyd’s action on several grounds, including lack of subject matter jurisdiction, failure to join an indispensable party, and the Colorado River abstention doctrine. The district court rejected each of those arguments. Leonard also raised arguments regarding the validity and enforceability of the arbitration agreement, asserting that the arbitration agreement was unconscionable because it was “part of a mass-produced, boiler-plate, pre-printed document” and that “an obviously gross disparity of bargaining power” supports a finding of unconscionability. The court rejected those arguments as well, noting that the court has “previously found that nursing home arbitration agreements with similar characteristics fall short of the high bar for procedural unconscionability despite their ‘boilerplate’ language” and that the claim of unequal bargaining power was unsupported.

Finally, Leonard argued that the authority he maintained as Opal’s power of attorney expired when she became incapacitated, rendering him incapable of signing the arbitration agreement on her behalf. With regard to this issue, the court concluded that “the making of the agreement is in issue” such that “this matter must proceed to trial” on limited issues regarding whether “Opal was incapacitated prior to the signing of the Arbitration Agreement” and, if necessary, “whether Leonard lacked actual knowledge of Opal’s incapacitation such that he could in good faith validly bind her and her successors in interest.” The court noted that the “Sixth Circuit has stated that ‘parties may seek targeted discovery on … disputed contract-formation questions’ under the FAA, provided that ‘any discovery must comport with § 4, which calls for a summary trial — not death by discovery.’” The court ordered the matter to proceed to trial on the limited issues addressed in the opinion and permitted limited discovery on the triable issues.

Boyd Nursing & Rehabilitation, LLC v. Wells, No. 0:22-cv-00011 (E.D. Ky. Aug. 30, 2022).

Fourth Circuit Dismisses Petition Brought by NLRB to Enforce Settlement and Order

October 5, 2022 by Kenneth Cesta

Concluding that the action before it “lacks adverseness” and did not present a case or controversy fit for judicial resolution, the Fourth Circuit Court of Appeals held that it did not have jurisdiction over the National Labor Relations Board’s petition to enforce a settlement and order to which the employer had consented, and dismissed the petition.

Respondent Constellium Rolled Products employs members of a local United Steelworkers union. After a labor dispute, the union filed four charges with the NLRB alleging that Constellium committed unfair labor practices. The union requested information from Constellium that it believed would be relevant to collective bargaining. The union alleged that Constellium refused to provide the requested information, and “[b]elieving the allegations had merit,” the NLRB issued an agency complaint against Constellium. Rather than proceed through agency adjudication, the union and Constellium entered into a formal settlement stipulation, which provided that the stipulation was not effective until the NLRB had approved it and that upon entry of an NLRB order, Constellium would immediately comply with the terms of the order. Constellium also agreed in the stipulation that when the NLRB sought a judgment in federal court to enforce the order, “Constellium would waive all defenses and consent to the entry of that judgment.”

The NLRB approved the stipulation, issued an order reflecting the terms, and then petitioned the court under 29 U.S.C. §160(e) to enter a consent judgment against Constellium reflecting the terms of the order. The Fourth Circuit dismissed the petition holding that “[b]ecause this suit lacks adverseness, we lack jurisdiction.” In considering the jurisdictional issue, the Fourth Circuit noted the Supreme Court’s decision in United States v. Windsor, 570 U.S. 744 (2013), which reaffirmed that Article III requires “sufficient adverseness” to confer an adequate basis for jurisdiction. The court further noted that “[a]dverse interests — that minimum adverseness threshold required by Windsor — exist only when judicial action would have ‘real-world consequences’ and ‘real meaning’ for the parties.” The court noted that the NLRB “agrees that Constellium has complied with the order and continues to do so” and found that while there was adverseness between the NLRB and Constellium at some point when the matter was before the board, “that adverseness was extinguished before the case got to federal court” and dismissed the petition.

National Labor Relations Board v. Constellium Rolled Products Ravenswood, LLC, No. 20-2140 (4th Cir. Aug. 5, 2022).

Third Circuit Affirms Dismissal of Complaint With Prejudice After Plaintiff Failed to Initiate Arbitration Proceedings

September 15, 2022 by Kenneth Cesta

Plaintiff R&C Oilfield Services appealed from an order of the U.S. District Court for the Western District of Pennsylvania. The district court granted defendant American Wind Transport Group’s motion to compel R&C to arbitrate the parties’ commercial dispute, having determined that the arbitration clause was not a contract of employment between the parties as R&C contended and was thus enforceable. The district court stayed the case pending arbitration and denied R&C’s motion for reconsideration. More than a year later, the district court ordered the parties to submit a joint status report. The report included confirmation that “Plaintiff had not commenced an arbitration, and did not plan to do so.” American Wind then moved to dismiss R&C’s complaint with prejudice pursuant to Federal Rule of Civil Procedure 41(b) based on R&C’s refusal to initiate arbitration proceedings. The district court weighed the factors for dismissal with prejudice set forth in Poulis v. State Farm Fire & Casualty Co. and granted the motion to dismiss R&C’s complaint with prejudice.

The Third Circuit Court of Appeals affirmed the district court’s dismissal order, noting that “[c]ourts possess inherent power to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.” The court observed that R&C had “multiple avenues to seek appeal of the District Court’s order to stay the proceedings and compel arbitration” and did not seek interlocutory review under the Federal Arbitration Act. The court further noted that R&C failed to initiate arbitration proceedings and instead “sat on its rights for a year and a half and told the District Court that it did not intend to comply with the order, leaving the Court no choice but to involuntarily dismiss the complaint.” The Third Circuit concluded that the district court did not abuse its discretion in dismissing the case with prejudice pursuant to Rule 41(b) under these circumstances, and the district court “soundly exercised its discretion in dismissing this case.”

R&C Oilfield Services, LLC v. American Wind Transport Group, LLC, No. 21-2742 (3d Cir. Aug. 15, 2022).

SDNY Compels Arbitration Pursuant to ADR Provision in Contract Governing Disputed Commercial Transaction

September 13, 2022 by Kenneth Cesta

Applying the Federal Arbitration Act and recognizing that it “reflects a liberal federal policy favoring arbitration agreements,” the U.S. District Court for the Southern District of New York granted the defendant’s motion to compel arbitration, finding that the arbitration provision at issue was as expansive as similar clauses that the Second Circuit has previously described as the “paradigm of a broad clause establishing a presumption of arbitrability.”

Plaintiff Kuehne + Nagel Inc., a logistics service provider that arranges the transportation of freight, and defendant Baker Hughes were parties to a global air freight transportation contract, which included an alternative dispute resolution provision that applied “[i]n the event of any dispute between the Parties hereto arising from or relating to this contract.” After a shipment of cargo was seized by customs authorities at its destination in Brazil, Baker sent a demand letter to Kuehne to commence the claim process so Baker could be compensated for its losses. Efforts to mediate the dispute were unsuccessful and Kuehne filed an action in federal court seeking, among other relief, a declaratory judgment that the agreement did not apply to the claims at issue with Baker. Baker then moved to compel arbitration, contending that the ADR provision requires the submission of all disputes concerning the agreement to arbitration. Kuehne raised several arguments in opposition to the motion, including: (i) the issue of arbitrability should be decided by the court; (ii) the language “either party may refer the dispute to arbitration” means that the ADR provision is not mandatory; and (iii) the agreement did not apply to the transportation services at issue in the case.

The court rejected Kuehne’s arguments, finding that the ADR provision was expansive and that because the claims at issue “touch matters covered by” the agreement, the underlying dispute fell within the scope of the agreement’s ADR provision. The court also found that the agreement incorporated procedural rules that expressly empowered the arbitrator to determine the issue of arbitrability and concluded that although the agreement did not expressly address the matter, the parties intended to delegate the question of arbitrability to the arbitrator. Finally, the court noted the “overwhelming balance of authority in this Circuit and elsewhere” confirms that, absent language that an arbitration provision is intended to trigger “permissive” arbitration, provisions that state either party “may” refer the dispute to arbitration trigger mandatory arbitration. The court then concluded that the arbitration clause of the ADR provision of the agreement was mandatory and that the merits of Kuehne’s claims must be decided by the arbitrator. The court granted Baker’s motion to compel arbitration but denied its motion to dismiss, deciding instead to stay the case.

Kuehne + Nagel Inc. v. Baker Hughes, No. 1:21-cv-08470 (S.D.N.Y. June 23, 2022).

Eleventh Circuit Enforces Employee Arbitration Agreement, Concluding That Agreement Was Not Unconscionable

August 24, 2022 by Kenneth Cesta

In Lambert v. Signature Healthcare LLC, the Eleventh Circuit Court of Appeals reversed the district court’s denial of the defendants-appellants’ motion to dismiss and to compel arbitration under the FAA, holding that the arbitration agreement signed by the plaintiff-appellee was not “procedurally unconscionable” and was enforceable.

After a six-month job search, Claire Lambert accepted a position at Signature Healthcare. As a condition of employment, Lambert was required to sign Signature’s arbitration agreement and handbook acknowledgment. The arbitration agreement provided that it covered claims relating to “recruitment, employment, or termination of employment,” claims under the Americans with Disabilities Act and the Fair Labor Standards Act, and “any and all claims under federal, state, and local laws and common law.” Lambert was ultimately fired and brought claims against Signature in Florida state court under the FMLA, the FLSA, and state law. Signature removed the case to federal court and moved to dismiss and compel arbitration under the FAA. The district court denied the motion, concluding that the arbitration agreement was unconscionable, both procedurally and substantively, and thus unenforceable. The district court found the arbitration agreement was procedurally unconscionable because it was a “contract of adhesion” and presented on a “take it or leave it” basis. The court also found the arbitration agreement was substantively unconscionable because the handbook reserved Signature’s right to modify the terms of the arbitration agreement unilaterally.

The Eleventh Circuit reversed the order denying Signature’s motion to dismiss and to compel arbitration, concluding that the arbitration agreement was not procedurally unconscionable. After addressing the FAA and Florida law, the court found that the district court “misapprehended procedural unconscionability under Florida law” when it determined that Lambert lacked a “meaningful choice” when she signed the arbitration agreement and noted that the fact that an arbitration agreement is presented on a take-it-or-leave-it basis “is not dispositive.” The court noted that even when an arbitration agreement is a condition of employment, the circumstances surrounding the execution of the agreement should be explored by the court before concluding it is procedurally unconscionable. The court engaged in an “independent review of the record” and found they could not identify “any additional factors that weigh in favor of procedural unconscionability.” The court concluded Lambert had not shown the arbitration agreement was procedurally unconscionable and, as a result, the court need not consider whether the agreement was substantively unconscionable.

Lambert v. Signature Healthcare, LLC, No. 19-11900 (11th Cir. July 8, 2022).