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Kenneth Cesta

Third Circuit Affirms Order Denying Motion to Compel Arbitration After AAA Declines to Administer Arbitration

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The Third Circuit Court of Appeals has affirmed a district court decision denying defendant MicroBilt Corp.’s motion to compel arbitration, finding the plaintiff had fully complied with all provisions of her arbitration agreement with MicroBilt.

In connection with a loan plaintiff Maria Del Rosario Hernandez applied for in 2020, the lender utilized a product offered by MicroBilt, referred to as an “instant bank verification report,” which allowed the lender to verify Hernandez’s identity and financial information. The verification report included information for other persons with the Hernandez name, including a person who was on a government watch list that caused the lender to deny Hernandez’s loan application.

After Hernandez filed a lawsuit alleging MicroBilt violated the Fair Credit Reporting Act, MicroBilt filed a motion to compel arbitration, relying on an arbitration provision that was part of the loan application process. The arbitration provision included an “exclusive resolution” clause, which required that any disputes or claims be resolved exclusively by binding arbitration. The arbitration provision also stated the arbitration would be conducted by a single arbitrator in accordance with AAA rules, punitive and consequential damages were not recoverable, and each party would be responsible for its own attorneys’ fees. Hernandez dismissed her lawsuit and submitted the claim to the AAA. Treating the matter as a “consumer agreement” under the AAA Consumer Arbitration Rules, the AAA administrator assigned to the matter notified MicroBilt that the damages limitation included in the arbitration provision conflicted with Principle 14 of the consumer due process protocol of the rules, which requires that an arbitrator “should be empowered to grant whatever relief would be available in court under law or equity.” MicroBilt refused to waive the damages limitation and the AAA declined to administer the arbitration under Rule 1(d). Hernandez then reinstated her claims in the district court and MicroBilt moved to compel arbitration. The district court denied the motion to compel, finding Hernandez had fully complied with the arbitration provision.

In affirming the district court’s denial of the motion to compel, the Third Circuit recognized the arbitration provision covered Hernandez’s claims but noted that under 9 U.S.C. § 4, it “may compel arbitration only where there is a ‘failure, neglect, or refusal … to arbitrate under a written agreement.’” The court found the district court’s denial of MicroBilt’s motion was correct because Hernandez was in full compliance with the relevant arbitration provisions. As a result, the court concluded it lacked authority under section 4 to compel arbitration. The court also rejected MicroBilt’s argument that the AAA administrator’s requirement that MicroBilt waive the damages limitation was an “arbitrability” issue that should have been resolved by the arbitrator. The court found that, under Consumer Rule 14(a), arbitrators have the exclusive power to rule on “the existence, scope, or validity” of an arbitration provision, and the administrator’s decision to dismiss the arbitration did not implicate any of those issues. The court also rejected MicroBilt’s argument that the “exclusive resolution” clause of the arbitration provision conflicts with Hernandez pursuing her claims in court. The court noted that Hernandez has fully complied with the AAA rules, and “[s]everal courts have allowed plaintiffs to return to court after administrative dismissals under Rule 1(d), despite general agreements to arbitrate.” The court affirmed the district court’s decision denying defendant MicroBilt’s motion to compel arbitration.

Hernandez v. MicroBilt Corp., No. 22-3135 (3d Cir. Dec. 5, 2023).

District of Illinois Directs Insurer to Supplement Record to Support Privilege Based on “Common Interest Doctrine”

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In Ansur America Insurance Co. v. Borland, the U.S. District Court for the Southern District of Illinois addressed a discovery dispute involving claims brought by Ansur America Insurance Co. against the law firm Ansur retained to defend an insured in an underlying product liability action. Ansur alleged that the defendants failed to defend the case in a reasonable manner, which resulted in Ansur having to settle the case at a substantially increased amount. The defendants sought the production of several categories of documents from Ansur regarding its handling of the underlying claim. Ansur withheld or redacted numerous documents asserting the attorney-client and work product privileges. The defendants filed a motion to compel production disputing Ansur’s privilege assertions.

The court first addressed whether certain claims department and corporate officers listed on Ansur’s privilege log were control group members, which would support the application of the privileges to their communications. The court found Ansur established that some of the individuals were in fact members of the control group and that their communications were privileged. With regard to the other individuals who were not within the control group, the court directed Ansur to produce their communications.

The court then addressed the defendants’ arguments that Ansur should be required to produce documents Ansur shared with its reinsurers regarding the underlying product liability claim. Ansur opposed production, contending the common interest doctrine provides a basis for withholding the production of the reinsurance-related documents at issue. The common interest doctrine “extends a preexisting privilege to communications made in the presence of third parties for the purpose of coordinating a defense strategy or pooling information for common legal purpose.” Ansur argued the doctrine applied because it “shared an identical interest with its reinsurers and therefore, the privilege was not lost by their sharing of documents.” The court concluded that, based on the motion papers, it was unable to determine whether the common interest doctrine was applicable. The court noted it must first examine the communications at issue to determine whether the underlying privileges exist. Recognizing Ansur and its reinsurers do share a common legal interest, and that the common interest doctrine could apply to certain communications and documents, the court directed Ansur to review the documents and determine if they were “made in connection with the provision of legal services and was not just discussing the availability of reinsurance,” after which the court would conduct an in camera review of the documents.

Ansur America Insurance Co. v. Borland, No. 3:21-cv-00059 (S.D. Ill. Oct. 23, 2023).

Ninth Circuit Affirms District Court Order Granting Motion to Compel Arbitration of Discrimination Claims

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In Jackson v. Applied Materials Corp., the Ninth Circuit Court of Appeals affirmed a district court order granting a motion to compel arbitration of the plaintiff’s discrimination and retaliation claims, finding the arbitration agreement entered into by the parties was valid and encompassed the disputes before the court.

The court did not address the underlying facts of the case in its memorandum opinion, other than to note the matter involved claims of discrimination and retaliation brought by Jackson against his former employer. In affirming the district court’s order granting the defendant’s motion to compel arbitration, the court noted it had jurisdiction to conduct a de novo review of the matter under 28 U.S.C. § 1291. Relying on Ninth Circuit authority confirming that the Federal Arbitration Act “requires that district courts refer cases to arbitration where a valid arbitration agreement covers the dispute at issue,” the court found that the district court properly granted the defendant’s motion to compel arbitration “because the parties entered into a valid arbitration agreement encompassing the dispute at issue.” Relying on additional Ninth Circuit precedent, the court also based its decision on a finding that Jackson did not establish any of the grounds for vacating, modifying, or correcting the underlying arbitration awards in favor of the defendant under 9 U.S.C. §§ 9–11. Finally, the court refused to consider arguments and allegations raised for the first time on appeal, and affirmed the district court’s order granting the defendant’s motion to compel arbitration.

Jackson v. Applied Materials Corp., No. 22-16673 (9th Cir. Oct. 18, 2023).

SDNY Confirms Arbitration Award Under New York Convention

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In Exclusive Trim Inc. v. Kastamonu Romania, S.A., the U.S. District Court for the Southern District of New York granted a petition to confirm and enforce a foreign arbitration award issued in an arbitration held before the International Centre for Dispute Resolution.

The parties entered into a supply agreement, which, among other terms, set forth the minimum amount of product to be purchased by the petitioner from the respondent in the first year. The agreement also included an arbitration provision requiring all controversies and claims be resolved through arbitration administered by the American Arbitration Association (AAA), and “judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.” A dispute arose between the parties and the petitioner filed an arbitration proceeding with the AAA alleging breach of contract and unjust enrichment. The matter was assigned to the AAA’s international division, the International Centre for Dispute Resolution. After an evidentiary hearing held in New York, the arbitrator issued an award for the petitioner on its claims and rejected the respondent’s counterclaim. The award required the respondent to make payment within 30 days.

After the respondent failed to satisfy the award, the petitioner filed a petition under the New York Convention and the Federal Arbitration Act to confirm and enforce the award. The respondent did not oppose the petition. In reviewing the petition, the district court concluded it had jurisdiction over the matter, noting that the four requirements for determining whether an arbitration agreement falls within the scope of the New York Convention had been met: “(1) there must be a written agreement; (2) it must provide for arbitration in the territory of a signatory of the convention; (3) the subject matter must be commercial; and (4) it cannot be entirely domestic in scope.” The court then analyzed the applicable standard of review for the matter, noting that it must enforce the arbitration award unless one of the seven defenses under the New York Convention was established. The court noted that the respondent had not appeared in the action or opposed the petition, and “if a petition to enforce an arbitration award is unopposed, a court need not inquire on its own into whether an exception to enforcement applies” and, in any event, there was no suggestion in the record that any of the defenses under the New York Convention were applicable. The court held that the petitioner established it was entitled to judgment in its favor in accordance with the award and granted the petition.

Exclusive Trim, Inc. v. Kastamonu Romania, S.A., No. 1:23-cv-03410 (S.D.N.Y. Oct. 12, 2023).

SDNY Grants Motion to Compel Arbitration of Employee’s Discrimination and Retaliation Claims

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In Marino v. CVS Health, the U.S. District Court for the Southern District of New York found defendant CVS Health’s “arbitration of workplace legal disputes policy” and related arbitration agreement compelled arbitration of the plaintiff’s discrimination and retaliation claims based on her pregnancy.

Sarah Marino was employed as a pharmacist at CVS beginning in 2012 and became a pharmacy manager after her first child was born in 2017. After her second child was born in April 2020, Marino took leave under the Family and Medical Leave Act (FMLA) but alleged that she was forced to work without pay during her leave, and was ultimately forced to terminate her employment in January 2023 in retaliation for her complaints about poor treatment and working conditions.

Marino brought claims in the Southern District of New York alleging violations of the FMLA, the New York State Human Rights Law, the Fair Labor Standards Act, and New York labor laws. CVS moved to compel arbitration and stay Marino’s action. In support of its motion, CVS relied on its arbitration of workplace legal disputes policy and arbitration agreement, which included a provision that all disputes covered by the policy would be decided by a single arbitrator and governed by the Federal Arbitration Act (FAA), including claims of harassment, discrimination, and retaliation. Marino participated in online training addressing the policy in 2014 and did not exercise the option to opt out of the arbitration agreement included in the policy within 30 days. She opposed the motion to compel, contending she had no choice but to sign the training acknowledgment, and the terms of the arbitration agreement were “buried” or “submerged” in the training presentation. Marino also argued she was a “worker engaged in interstate commerce” and thus exempt from the FAA.

The court rejected both arguments, concluding that the 30-day opt-out provision “negates any suggestion” that she was forced to enter into the arbitration agreement. The court also held that “only a worker in a transportation industry can be classified as a transportation worker” under the FAA and, since CVS does not operate in the transportation industry, Marino did not satisfy the statutory exclusion under the FAA for transportation workers. The court granted the motion to compel arbitration and to stay the case.

Marino v. CVS Health, No. 7:23-cv-00784 (S.D.N.Y. Oct. 16, 2023).