Kenneth Cesta

Sixth Circuit Holds Validity of Employee’s Electronic Signature Creates Issue of Fact, Reverses Order Compelling Arbitration

August 16, 2023 by Kenneth Cesta

In Bazemore v. Papa John’s U.S.A. Inc., the Sixth Circuit Court of Appeals considered the plaintiff’s appeal of an order granting the defendant’s motion to compel arbitration and to dismiss the plaintiff’s complaint brought under the Fair Labor Standards Act.

The case, a putative class action brought by Papa Johns delivery driver Andrew Bazemore, alleged that Papa Johns had under-reimbursed Bazemore’s vehicle expenses, which resulted in him being paid less than the minimum state and federal wage requirements. Papa Johns moved to compel arbitration based on an arbitration agreement allegedly signed by Bazemore through an electronic signature program called e-Forms. Papa Johns submitted an affidavit in support of the motion explaining the process employees must follow to electronically sign the arbitration agreement as a condition of employment, and indicating the company’s records showed that Bazemore had “followed this process to sign its arbitration agreement.” Bazemore opposed the motion, contending that he had never seen or heard about the arbitration agreement and that his alleged login credentials “were clearly made up.” Bazemore requested limited discovery related to the validity of his alleged electronic signature. The district court denied Bazemore’s request for discovery, finding his position that he had never seen the agreement was a “convenient lapse in memory,” and granted Papa Johns’ motion to compel arbitration and to dismiss the complaint.

The Sixth Circuit first recognized the Federal Arbitration Act requires that a party seeking to compel arbitration must prove a valid arbitration agreement exists, and “[i]f a genuine issue of material fact arises as to whether such an agreement exists, the court shall proceed summarily to the trial thereof.” The court then found that while an electronic signature can be legally valid and show a party’s assent to an agreement, the parties presented conflicting evidence as to whether Bazemore’s electronic signature was valid, including Bazemore’s sworn statement that he had never seen the arbitration agreement before. The court found this disagreement presented a genuine issue of material fact for the fact finder to determine, and even though Bazemore did not expressly state he had not signed the agreement, “a reasonable factfinder could plainly infer that, if Bazemore had not seen the agreement, he had not signed it either.” The court reversed the district court’s order compelling arbitration and remanded the case for further proceedings.

Bazemore v. Papa John’s U.S.A., Inc., No. 22-6133 (6th Cir. July 20, 2023).

Federal Circuit Vacates Arbitrator’s Decision Removing Federal Employee From Position, Remands for Further Review

July 28, 2023 by Kenneth Cesta

The Federal Circuit Court of Appeals vacated an arbitrator’s final decision upholding the petitioner’s removal from a position with the Federal Bureau of Prisons, finding that the arbitrator failed to conduct an independent analysis to determine if alternative sanctions, other than removal, were appropriate.

The petitioner, Jacquana Williams, was employed by the BOP as a correctional officer at a Texas federal correctional complex. She had a relationship with a former prisoner who she was aware had been incarcerated but did not know had been in federal custody. The two became engaged and had a child. The BOP placed Williams on administrative leave and conducted an internal investigation, after which it determined that she had engaged in improper contact with a former inmate and did not timely report the contact. After she was removed from her position, Williams challenged the removal with an arbitrator per the established grievance procedure. The arbitrator sustained the improper contact charge, rejected the failure-to-timely-report charge, and upheld the penalty of removal.

The court of appeals vacated the arbitrator’s ruling, concluding that because the arbitrator did not sustain all of the BOP’s charges, he was required to independently determine the maximum reasonable penalty to be imposed on Williams. The court then found the arbitrator failed to conduct the required independent analysis, vacated the decision of removal, and remanded the matter with direction to the arbitrator to “pay close attention to the adequacy of lesser sanctions.”

Williams v. Federal Bureau of Prisons, No. 22-1575 (Fed. Cir. July 6, 2023).

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).