Kenneth Cesta

In Hejamadi v. Midland Funding LLC, the U.S. District Court for the District of New Jersey, on remand from the Third Circuit Court of Appeals, addressed whether the defendants waived their rights to compel arbitration of the plaintiffs’ putative class action claims alleging violations of the Fair Debt Collection Practices Act (FDCPA).

The court’s opinion notes that the case involved a lengthy procedural history set forth in two prior opinions and in the Third Circuit’s decision remanding the matter to the district court. In sum, in 2017, the defendants purchased various credit card accounts from Citibank and then filed a debt collection action against plaintiff Shanthi Hejamadi, who in turn filed a counterclaim against the defendants pursuant to the FDCPA. The defendants dismissed the collection claim, removed the remaining counterclaim to federal court, and moved to compel arbitration under the mandatory arbitration and class action waiver provisions in the plaintiff’s original credit card agreements with Citibank. After amendments to the class action complaint, the court denied the motion to compel arbitration without prejudice and ordered limited discovery on the arbitrability issue. The defendants renewed their motion to compel arbitration, which was granted by the court on March 31, 2022. The court found that the defendants “had the right to arbitrate plaintiff’s claims … and had not waived that right.” The court based its opinion on Third Circuit precedent at that time, which focused on analyzing prejudice to the party opposing arbitration in analyzing a motion to compel like the one before the court.

The plaintiffs appealed the court’s March 31 opinion and while the appeal was pending, the U.S Supreme Court issued its opinion in Morgan v. Sundance Inc., 596 U.S. 411 (2022), which, as noted by the district court, held that “whether a party waived a contractual right to arbitrate is decided by the same standard as waiver of any other contractual right” and that “there are no arbitration-specific variants of federal procedural rules, like those concerning waiver, based on the Federal Arbitration Act’s policy favoring arbitration.” The Third Circuit remanded the plaintiffs’ pending appeal of the order compelling arbitration to the district court to address the waiver issue now governed by the decision in Morgan.

On remand, the district court noted that Morgan “rejected the case law of various circuits, including the Third Circuit, that conditioned arbitration waiver on a showing of prejudice” and that the Third Circuit’s test in determining whether a party waived its right to arbitrate will now focus “on the actions of the party seeking to arbitrate, rather than the effects of those actions on the party opposing arbitration.” Applying this new standard to the defendants’ renewed motion to compel arbitration in the Hejamadi action, the court noted that the “waiver inquiry — whether a party has intentionally relinquished or abandoned its rights to arbitrate — is informed by the circumstances and context of each case.” After a thorough review of the record, the court found that the defendants’ conduct did not establish a waiver of their right to arbitrate and ordered that the parties proceed to arbitration.

Hejamadi v. Midland Funding LLC, No. 2:18-cv-13203 (D.N.J. June 25, 2024).

In Sacramento Drilling Inc. v National Casualty Co., the U.S. District Court for the District of Oregon addressed an amended motion to compel arbitration brought by defendant National Casualty Co. seeking to limit arbitration to only certain claims.

The underlying matter involved claims related to alleged losses incurred by plaintiff Sacramento Drilling (a subcontractor) for furnishing labor and materials for defendant White Construction (the general contractor) associated with the construction of two projects. The agreement between Sacramento and White included a mandatory arbitration clause that “mediation and binding arbitration shall be the sole methods of dispute resolution for any dispute arising out of this Subcontract or Subcontractor’s performance of the Subcontract Work.” Sacramento’s equipment accidentally severed an overhead electrical line, and a dispute arose regarding the amount that Sacramento was due for its work after deductions were taken by White for the damages caused by Sacramento. National Casualty had issued insurance policies for the projects naming Sacramento and White as additional insureds, and Sacramento tendered the claim for the loss to National Casualty, which denied a portion of the alleged loss. The insurance policies also contained a mandatory arbitration provision covering all differences arising out of the insurance policies. Sacramento’s state court lawsuit against White, National Casualty, and others was removed by National Casualty to federal court and the parties then filed a joint motion for a stay, which included an agreement that the case should be stayed pending the arbitration between Sacramento, White, and National Casualty. The district court granted the joint motion.

Prior to the arbitration, National Casualty filed an amended motion seeking to limit the arbitration to the contract claims under the insurance policy only. The district court denied the motion, finding that National Casualty’s effort to limit the claims did not present questions of arbitrability that are reserved for judicial determination. The court noted that none of the parties disputed the validity of the arbitration clauses at issue and that the arbitrability of the dispute had already been established in connection with the initial joint motion. Rather, the amended motion involved procedural questions including “how the parties have agreed to arbitrate, not whether the parties agreed to arbitrate.” The court ruled that these types of issues are for the arbitrator to decide and denied National Casualty’s motion.

Sacramento Drilling Inc. v National Casualty Co., No. 3:23-cv-00889 (D. Or. June 20, 2024)

In Michigan AFSCME Council 25 v. County of Wayne, the Supreme Court of Michigan declined an application filed by Michigan AFSCME Council 25 and Affiliated Local 101 for leave to appeal a judgment of the circuit court and court of appeals vacating an arbitrator’s decision regarding an employment-related dispute. The court’s order was limited to the denial of the defendant’s application and noted, “we are not persuaded that the questions presented should be reviewed by this Court.” However, a concurring opinion addressed the underlying arbitration and issues created by the court of appeals decision regarding the applicable standard of judicial review.

The underlying case involved a county employee who applied for retirement while a disciplinary action was pending against him. The employee signed a “separation waiver,” which confirmed that he was terminating his employment with no agreement concerning reemployment. The employee was then terminated by the county as a result of the disciplinary action, and he filed a grievance seeking reinstatement of his employment. While the grievance was pending, the employee’s retirement was approved. The grievance seeking reinstatement was arbitrated and the arbitrator ruled in favor of the employee, concluding that the county violated the collective bargaining agreement when it terminated the employee and that he was entitled to reinstatement. The Michigan AFSCME Council 25 labor organization filed a lawsuit in circuit court against the county to enforce the arbitrator’s award, and the county filed a counterclaim seeking to vacate the award. The circuit court ruled in favor of the county and vacated the arbitrator’s award concluding that the arbitrator had exceeded his authority “by failing to enforce the separation waiver in the retirement application and issuing an award that violated Internal Revenue Service regulations.” In an unpublished non-binding opinion, the court of appeals affirmed the circuit court opinion.

Significantly, the concurring opinion also addressed the standard of review that applies to collective bargaining arbitration decisions, noting that the court of appeals had failed to acknowledge the court’s prior decisions that expressed approval of “the policy favoring arbitration of disputes arising under collective bargaining agreements.” The court noted that the court of appeals instead applied the standard of review that the Michigan Supreme Court “adopted in the context of statutory arbitration disputes” and that “the standard of review that applies to collective bargaining arbitration decision is now called into question.” After recognizing this apparent conflict in the applicable standard of review, the concurring opinion concluded that if the court of appeals decision was published and binding precedent “this Court would be obligated to act in this case and resolve the parties’ disagreement about which standard of judicial review governs.” The concurring opinion concludes by encouraging the legislature to clarify state law addressing the standard of review that should be applied to labor arbitrations in Michigan.

Michigan AFSCME Council 25 v. County of Wayne, No. SC 164435 (Mich. May 3, 2024).