Kenneth Cesta

Fifth Circuit Affirms Order Dismissing Tesla Lawsuit in Favor of Arbitration

July 26, 2023 by Kenneth Cesta

In Lynch v. Tesla Inc., the Fifth Circuit Court of Appeals affirmed a district court order adopting a magistrate judge’s recommendation that the plaintiffs’ lawsuit should be dismissed in favor of arbitration. The plaintiffs were former Tesla employees who brought an action in district court alleging that Tesla violated the Worker Adjustment and Retraining Notification Act and a similar California statute by failing to provide employees with 60 days’ notice prior to termination and by requiring the employees to sign separation and release agreements. Tesla also had arbitration agreements with its employees. The employees moved for a protective order seeking, in part, an order requiring Tesla to notify all terminated employees that a lawsuit had been filed challenging the terminations. Tesla also moved to compel arbitration. The magistrate judge ordered Tesla to notify terminated employees about the lawsuit and then recommended that the district court grant Tesla’s motion dismissing the lawsuit in favor of arbitration. The district court adopted the magistrate judge’s recommendation and dismissed the action in favor of arbitration. After an unsuccessful motion for reconsideration, the plaintiffs appealed, arguing that the district court should have required Tesla to first notify terminated employees about the lawsuit before dismissing the action and compelling arbitration.

The Fifth Circuit rejected the plaintiffs’ argument that the district court should have considered that the magistrate judge intended to have Tesla issue notice of the lawsuit before dismissing the lawsuit. The court noted that the district court “was under no obligation to accept the magistrate judge’s proposed timeline for reviewing the motions” since the judge’s recommendation of dismissal was not an order but a recommendation related to a dispositive motion. The court also rejected the plaintiffs’ argument that the district court should not have compelled arbitration because there was a pending emergency motion by Tesla to stay the magistrate judge’s order when the case was dismissed in favor of arbitration. The court found that since the entire case was subject to arbitration, there was “no error in adopting the magistrate judge’s recommendation prior to ruling on Tesla’s objection and emergency motion.”

Lynch v. Tesla, Inc., No. 22-51018 (5th Cir. July 5, 2023).

South Carolina Supreme Court Finds Contract Didn’t Involve Interstate Commerce, Reverses Order Compelling Arbitration

July 7, 2023 by Kenneth Cesta

In Hicks Unlimited Inc. v. UniFirst Corp., the South Carolina Supreme Court agreed with a trial court ruling that the underlying contract between the parties, which included mandatory arbitration to be governed by the Federal Arbitration Act, did not implicate interstate commerce. The court found that the FAA did not preempt South Carolina’s Arbitration Act (SCAA) and reinstated the trial court’s order denying UniFirst’s motion to compel arbitration.

Hicks and UniFirst entered into a contract wherein Hicks agreed to rent uniforms for its employees. The agreement mandated all disputes would be decided by binding arbitration per the expedited procedures of the commercial arbitration rules of the American Arbitration Association and governed by the FAA. UniFirst moved to compel arbitration of a dispute that arose between the parties, and Hicks opposed the motion on the grounds that the arbitration provision did not comply with the notice requirements of the SCAA and was unenforceable. UniFirst further contended that the arbitration provision was governed by the FAA, which preempts the notice provision set forth in the SCAA. The lower court denied UniFirst’s motion, finding that the FAA did not apply because the agreement did not involve interstate commerce, and the arbitration provision was unenforceable because it did not meet the notice requirements of the SCAA. On appeal by UniFirst, the court reversed the trial court’s ruling, concluding that arbitration should have been compelled because the contract involved interstate commerce and, therefore, the FAA preempted the SCAA. Hicks appealed to the South Carolina Supreme Court.

In reversing the court of appeals’ decision, the court first noted that the determination of whether a contract involves interstate commerce, and whether it preempts applicable state law, is a question of law to be reviewed on a de novo basis. The court then rejected UniFirst’s argument that, because the parties agreed in the contract that the FAA would apply, it was unnecessary to address whether the contract involved interstate commerce. The court ruled that a provision in an arbitration agreement declaring that the FAA applies “is not a fait accompli.” The court refused to apply the FAA to the dispute without first determining whether interstate commerce was involved. The court noted that when deciding whether a contract involves interstate commerce, a court must examine the agreement, the complaint, and the surrounding facts, including any affidavits. The court then found the evidence UniFirst relied upon to support its contention that the agreement involved interstate commerce was untimely, and the court of appeals should not have used those facts in ruling for UniFirst. The court concluded that the contract did not involve interstate commerce, affirmed the trial court’s determination denying UniFirst’s motion to compel arbitration, and reversed the court of appeals’ ruling.

Hicks Unlimited, Inc. v. UniFirst Corp., No. 28158 (S.C. June 14, 2023).

California District Court Finds Defendants’ Conduct Was Not Arbitrary and Capricious Under Administrative Procedure Act

June 16, 2023 by Kenneth Cesta

Citing the Administrative Procedure Act (APA), and recognizing the role of the district court in reviewing a final agency determination under the act, the U.S. District Court for the Northern District of California granted summary judgment to defendants Federal Crop Insurance Corp. (FCIC) and the U.S. Department of Agriculture’s Risk Management Agency (RMA), finding that the defendants’ determination was not plainly erroneous, arbitrary, or capricious.

Plaintiff M&T Farms purchased a crop protection insurance policy from Producers Agriculture Insurance Co. (ProAg) to insure its products from loss of revenue. The insurance policy issued by ProAg was reinsured by defendant FCIC. M&T submitted a claim under the policy, after which ProAg canceled the policy on the grounds that M&T was not a “qualifying person” under the policy and was not entitled to coverage. M&T then filed for arbitration challenging ProAg’s cancellation of the policy. As part of the arbitration, the arbitrator authorized M&T and ProAg to seek an interpretation of the policy from RMA in accordance with federal regulations. After seeking interpretations from the parties on the relevant issues, RMA accepted ProAg’s interpretation, which resulted in a determination of no coverage under the policy.

After an unsuccessful appeal to the National Appeals Division of the Department of Agriculture, M&T filed an action against FCIC and RMA seeking a declaratory judgment regarding the administrative determinations issued by RMA rejecting the claim for coverage under the policy. In granting the motion for summary judgment filed on behalf of defendants RMA and FCIC, the district court first noted that the arbitrator’s factual findings during the arbitration were not the subject of the present lawsuit, and the court’s review was limited to determining whether the defendants’ interpretations of the policy and handbook were arbitrary and capricious. The court first noted that FCIC’s interpretations should be given “substantial deference” given the broad grant of authority to the FCIC. The court then found the defendants’ interpretation of the policy and handbook was reasonable and was not arbitrary or capricious. In confirming the applicable standard of review, the court found that the determinations were not plainly erroneous and should not be vacated.

M&T Farms v. Federal Crop Insurance Corp., No. 5:21-cv-09590 (N.D. Cal. Mar. 9, 2023).

Alabama Supreme Court Reverses Orders Denying Motions to Compel Arbitration Under Employment Agreement

June 14, 2023 by Kenneth Cesta

In Women’s Care Specialists, P.C. v. Dr. Margot G. Potter and Dr. Karla Kennedy v. Dr. Margot G. Potter, the Alabama Supreme Court reversed opinions of the trial court that had denied motions to compel arbitration and held that the claims set forth in both of these consolidated matters were subject to arbitration.

Dr. Potter entered into an employment agreement with her former employer, Women’s Care Specialists. The agreement was amended three years later to add a termination of employment provision and an arbitration clause mandating binding arbitration for all disputes related to Dr. Potter’s employment with Women’s Care. Thereafter, Women’s Care terminated Dr. Potter’s employment. Potter alleged that after her termination, employees of Women’s Care and others made disparaging remarks to her former patients and tried to prevent her former patients from learning if they could continue their care with her. Potter began working at another clinic, at which point Women’s Care ceased making the compensation payments called for in the employment agreement. Dr. Potter filed an action against Women’s Care alleging tortious interference with a business relationship, defamation, and breach of contract. Dr. Potter also filed a separate action against certain Women’s Care employees alleging tortious interference and defamation. Women’s Care and the employees filed motions to compel arbitration in both actions, which motions were denied.

After consolidating the appeals, the Supreme Court noted that Women’s Care and the employees had met their burden of establishing the existence of an agreement to arbitrate and the existence of a contract or transaction affecting interstate commerce, and the burden then shifted to Dr. Potter to present evidence to show that the arbitration agreement did not apply to the dispute in question. The court rejected Dr. Potter’s argument that the arbitration clause only applied to disputes that arose while she was still an employee of Women’s Care, noting that the court has repeatedly held that the phrase “relating to” in an arbitration provision is to be given broad construction. The court found that since the employment agreement and arbitration clause specifically stated that the parties’ obligations did not terminate upon the expiration or termination of the agreement, Dr. Potter’s tort and contract-based claims were subject to arbitration even though her employment with Women’s Care had ended. The court reversed the lower court’s denial of the motions to compel arbitration and remanded the matters for proceedings consistent with the opinion.

Women’s Care Specialists, P.C. v. Dr. Margot G. Potter and Dr. Karla Kennedy v. Dr. Margot G. Potter, Nos. SC-2022-0706, SC-2022-0707 (Ala. May 19, 2023).

Third Circuit Joins Other Circuits, Holds Uber Drivers Are Not Exempt From FAA

May 26, 2023 by Kenneth Cesta

In Singh v. Uber Technologies Inc., the Third Circuit Court of Appeals, in a precedential opinion, affirmed district court orders granting defendant Uber Technologies Inc.’s motion to compel arbitration, concluding that the plaintiffs were not exempt from the Federal Arbitration Act (FAA). In reaching its decision, the court noted it is joining other circuit courts in concluding that Uber drivers do not belong to the class of workers exempt from arbitration under section 1 of the FAA as “workers engaged in foreign or interstate commerce.”

The FAA compels federal courts to enforce a wide range of arbitration agreements, but it does not apply to arbitration agreements in the contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. The case before the Third Circuit was a consolidated appeal involving two cases brought against Uber by its drivers. Uber filed motions to compel arbitration in both cases, relying on the terms of its agreements with the drivers, which included a broad arbitration clause.

In plaintiff Singh’s case, which was a putative class action, the district court granted a previous motion to compel arbitration filed earlier in the case by Uber, concluding that section 1 of the FAA applied only to transportation workers who move goods, not those who carry passengers. The Third Circuit reversed that earlier decision, concluding that the exemption also applies to transportation workers who transport passengers “so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it,” and remanded the case to the district court to determine whether the Singh class of workers were engaged in interstate commerce. After limited discovery related to that issue, the district court concluded that the plaintiffs were not engaged in foreign or interstate commerce, and compelled arbitration. In affirming the decision of the district court, the Third Circuit concluded that interstate commerce was not central to the work of Uber drivers, and the exemption in section 1 of the FAA does not apply. The district court orders compelling arbitration were affirmed.

Singh v. Uber Technologies Inc., No. 21-3234 (3d Cir. May 4, 2023).