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Kenneth Cesta

Second Circuit Affirms District Court Order Confirming Chinese Arbitration Award

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In Huzhou Chuangtai Rongyuan Investment Management Partnership v. Qin, the Second Circuit Court of Appeals affirmed a district court order granting summary judgment confirming a Chinese arbitration award totaling approximately $450 million, rejecting Respondent/Appellant’s contention that he was not provided with adequate notice of the underlying arbitration.

The underlying arbitration involved a contract dispute between the original shareholders and subsequent investors in a Chinese company that owned and operated movie theaters. The petitioners initiated the arbitration before the China International Economic and Trade Arbitration Commission (CIETAC), alleging that the respondent breached a capital increase agreement. The petitioners were awarded approximately $450 million in connection with the arbitration, which was confirmed by the district court. The respondent then appealed, contending that he was not provided with adequate notice of the arbitration and was unable to participate in the selection of the arbitrators.

In affirming the district court’s order, the Second Circuit first confirmed its standard of review, noting that “we review legal issues de novo and findings of fact for clear error.” Citing the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the court recognized that lack of proper notice of the arbitration is a defense to enforcement under Article V(1)(b) of the New York Convention. The court further noted, however, that the review of arbitral awards under the New York Convention is “very limited in order to avoid undermining the twin goals of arbitration … settling disputes efficiently and avoiding long and expensive litigation.” The court then rejected the respondent’s contention that he was not provided with adequate notice of the arbitration and was unable to participate in the selection of the arbitrators, finding that CIETAC’s efforts to provide notice to the respondent were “reasonably calculated to provide notice under the circumstances of this case,” thus satisfying due process. The court affirmed the district court’s orders granting the petitioners’ motion to confirmation the arbitration award and denying the respondent’s motion for reconsideration.

Huzhou Chuangtai Rongyuan Investment Management Partnership v. Qin, No. 23-0747 (2d Cir. Mar. 20, 2024).

Third Circuit Reverses Order Denying Motion to Compel Arbitration, Holds Arbitration Clause in Consumer Financing Agreement Is Enforceable

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In Mancuso v. MDG USA Inc., the Third Circuit Court of Appeals considered defendant MDG’s appeal of an order denying its motion to compel arbitration of the plaintiff’s lawsuit alleging violations of state and federal fair credit laws. The plaintiff purchased a laptop computer from MDG and signed a financing agreement requiring monthly payments on his account. A dispute arose regarding the remaining balance on the account, and after the plaintiff directed his bank to stop payment on the monthly charges to the account, MDG reported the plaintiff to credit agencies.

The plaintiff then filed a state court action in Pennsylvania alleging violations of state and federal fair credit laws. MDG removed the case to federal court and filed a motion to compel arbitration pursuant to the arbitration clause included in the financing agreement, which covered “any past, present, or future claim, dispute, or controversy … relating to or arising out of” the agreement. The plaintiff admitted he signed the financing agreement and his claims arose from the agreement, but argued that the agreement was “unenforceable because of fraud and unconscionability.” The district court denied MDG’s motion to compel without prejudice. The court concluded that it was not apparent from the face of the complaint whether the plaintiff’s claims were subject to arbitration and ordered limited discovery related to that issue.

In reversing the district court’s decision, the Third Circuit first noted that because the plaintiff did not dispute he had a valid contract with MDG, the court’s review was limited to “whether the arbitration clause itself — not the rest of the contract — is enforceable.” The court then rejected the arguments raised by the plaintiff in challenging the enforceability of the arbitration clause. The court concluded that the arbitration clause was not “hidden and minimized” and further noted that the plaintiff did not contend he was unaware of the clause when he signed the financing agreement. Further, the court rejected the plaintiff’s contention that the arbitration clause was confusing because of a numbering error, noting that the error was in the arbitration clause itself, which means that for the plaintiff to have even noticed the error, he would have to have read the arbitration clause. The court also rejected the plaintiff’s argument that the financing agreement was unconscionable because he could not alter its terms, noting that the arbitration provision was not procedurally unconscionable because it allowed the plaintiff to send MDG an “arbitration opt out notice.” The court then held that the plaintiff did not raise “a colorable legal issue of fraud, unconscionability, or unenforceability of the arbitration clause” and his claims were subject to the arbitration provision. The court reversed the district court’s denial of MDG’s motion to compel arbitration and directed the court to enter an order compelling arbitration of the plaintiff’s claims.

Mancuso v. MDG USA, Inc., No. 23-1963 (3d Cir. Feb. 7, 2024).

Ninth Circuit Compels Arbitration of Plaintiff’s Individual Labor Claims Under PAGA, Remands Non-Individual Claims

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In Johnson v. Lowe’s Home Centers LLC, the Ninth Circuit Court of Appeals affirmed a district court order granting defendant Lowe’s motion to compel arbitration of plaintiff Maria Johnson’s individual claims brought under California’s Private Attorneys General Act (PAGA) and remanded the district court’s dismissal of her non-individual claims for further consideration.

In connection with her employment with Lowe’s Home Centers, Johnson signed a contract that included a mandatory arbitration agreement in which she agreed that any controversy arising from her employment would be settled by arbitration. The contract also included a provision known as a “representative action waiver,” which barred the arbitration of disputes brought as a representative action or an action brought as a private attorney general action under PAGA. As the court explained, an “individual” PAGA claim asserts violations of California labor laws that impact the claimant personally, while a “representative” or “non-individual” PAGA claim is based on violations that impact other employees.

In November 2020, Johnson filed an action in California state court alleging individual and non-individual PAGA claims. Lowe’s removed the case to federal court and moved to compel arbitration of Johnson’s individual claim and to dismiss her non-individual PAGA claim. The district court granted Lowe’s motion in its entirety. The Ninth Circuit noted the district court’s dismissal of Johnson’s non-individual PAGA claims was consistent with California law as then interpreted by the U.S. Supreme Court in 2022 in Viking River Cruises Inc. v. Moriana, which interpreted a prior California Supreme Court decision as holding that pre-dispute waivers of both individual and non-individual PAGA claims were forbidden under California law and that “PAGA requires joinder of individual and non-individual claims, such that both claims must be tried in the same forum.” While Johnson’s appeal of the district court’s order granting Lowe’s motion was pending, the California Supreme Court issued its opinion in 2023 in Adolph v. Uber Technologies Inc. The Ninth Circuit noted that in Adolph, the California Supreme Court “corrected Viking River’s misunderstanding of PAGA,” holding that “[o]nly if there has been a final determination that the plaintiff’s arbitrated individual PAGA claim is without merit does the plaintiff lose statutory standing under PAGA to pursue his or her non-individual PAGA claims in court.”

With that backdrop, the Ninth Circuit then addressed whether the district court’s order compelling Johnson to arbitrate her individual PAGA claims was proper, and the impact of the Adolph decision on Johnson’s non-individual PAGA claims. The court concluded that the arbitration agreement between the parties, which included a severability clause, was valid and encompassed the claims at issue in the case. The court affirmed the district court’s order granting Lowe’s motion to compel Johnson to arbitrate her individual PAGA claims. In addressing the dismissal of the non-individual claims, the court vacated the order and remanded the non-individual claims to the district court to apply the California Supreme Court’s recent holding in Adolph, noting that Adolph held that “a plaintiff in a bifurcated representative PAGA claim still has statutory standing” … and that “[s]tanding under PAGA is not affected by enforcement of an agreement to adjudicate a plaintiff’s individual claim in another forum.”

Johnson v. Lowe’s Home Centers, LLC, No. 22-16486 (9th Cir. Feb. 12, 2024).

Eleventh Circuit Dismisses Appeal From Order Compelling Arbitration and Staying Case for Lack of Jurisdiction

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The Eleventh Circuit Court of Appeals dismissed, sua sponte, a district court order that granted defendant Trina Solar (U.S.) Inc.’s motion to compel arbitration and stay the underlying case. The court did not address the facts of the case in its per curiam opinion, other than to note the dismissal and closure of the case would not impact the merits of the litigants’ claims. Without discussion, the court based its dismissal on 9 U.S.C. § 16(b)(1)–(3), and the precedent cited in its opinion confirming “[a]n appeal may not be taken from an interlocutory order that compels arbitration and stays, rather than dismisses, the action.” The court noted the district court order that the plaintiff sought to appeal “stayed, rather than dismissed, the case and expressly contemplated further proceedings.” The court dismissed the appeal, concluding it lacked jurisdiction to consider the underlying order compelling arbitration and staying the case.

Allco Finance Limited Inc. v. Trina Solar (U.S.) Inc., No. 23-13968 (11th Cir. Jan. 11, 2024).

Ninth Circuit Reverses Order Denying Motion to Compel Arbitration, Concluding “Delegation Provision” Is Enforceable

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Noting the court was deciding, as a matter of first impression, “what a party must do to specifically challenge a delegation provision and what a court may consider when evaluating this challenge,” the Ninth Circuit Court of Appeals, in Bielski v. Coinbase Inc., reversed a district court order that denied defendant Coinbase’s motion to compel arbitration.

Coinbase is an online cryptocurrency exchange. Plaintiff Abraham Bielski maintained an account, or “digital wallet,” with Coinbase that allowed him to store and transfer cryptocurrency in and out of his account. Before opening his account, Bielski was required to accept Coinbase’s user agreement, which included a three-step process to resolve any disputes: (i) an “informal complaint process,” which involved contacting Coinbase and attempting to resolve the dispute amicably; (ii) a “formal complaint process” involving a written complaint; and (iii) arbitration of the dispute pursuant to an arbitration agreement. The arbitration agreement included a “delegation provision” providing that disputes arising out of the agreement including the “enforceability, revocability, scope, or validity” of the agreement were delegated to the arbitrator.

Shortly after opening his account, a dispute arose involving an unauthorized transfer from Bielski’s digital wallet. Bielski “live chatted” with company representatives, called the company hotline, and wrote two letters requesting help to recover his funds. He then filed a lawsuit under the Electronic Fund Transfer Act and Regulation E alleging Coinbase failed to investigate the unauthorized transfer of funds from his account. Coinbase moved to compel arbitration of the claims under the user agreement. The district court denied the motion to compel concluding the arbitration agreement and the delegation provision were “inseverable” and unconscionable.

On appeal, Bielski argued that the delegation provision and the arbitration agreement were unconscionable and unenforceable. The court first addressed what a party must do to challenge a delegation provision, and what a court may consider in evaluating the challenge. Coinbase argued on appeal that Bielski did not do enough to challenge the delegation provision. The court rejected this argument, concluding that by specifically objecting to the delegation provision in his opposition to the motion to compel, Bielski sufficiently challenged the provision. The court noted its approach was consistent with decisions in the Second, Third, and Fourth Circuits, but contrary to the approach in the Sixth and Eleventh Circuits, which require a party to provide “more substance in their delegation provision challenge.” The court then addressed what a court may consider in evaluating the challenge, concluding that “a court must be able to interpret that provision in the context of the agreement as a whole, which may require examining the underlying arbitration agreement as well.” Finally, the court rejected Bielski’s argument that the delegation provision was unconscionable, held that the district court erred in refusing to enforce the delegation provision, and reversed the order denying Coinbase’s motion to compel arbitration.

Bielski v. Coinbase, Inc., No. 22-15566 (9th Cir. Dec. 5, 2023).