Kenneth Cesta

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).

Seventh Circuit Affirms District Court’s Order Denying Application to Vacate Arbitration Award

May 24, 2023 by Kenneth Cesta

Donald Kinsella was an employee of defendant Baker Hughes Oilfield Operations LLC. In June 2013, he suffered a work-related injury resulting in his disability and receipt of disability benefits for three years. Baker Hughes’ human resources department worked with Kinsella to look for jobs at the company that would meet his accommodation request and physical limitations. Months later, Kinsella received a termination letter from Baker Hughes citing a failure to apply for a position. He eventually filed an action in federal court alleging failure to accommodate his disability, discriminatory discharge, and retaliation under the Americans with Disabilities Act. Kinsella’s employment agreement included an arbitration clause, and the district court granted the parties’ joint motion to stay the federal action pending arbitration. The district court then dismissed the action without prejudice with leave to reinstate within seven days of the arbitration ruling.

The matter proceeded to arbitration, and the arbitrator issued an award granting summary judgment for Baker Hughes on all claims. Kinsella filed an application with the district court to reinstate his case and to vacate the arbitration award with regard to his failure-to-accommodate claim. He sought to vacate the award under section 10 of the Federal Arbitration Act contending that the arbitrator exceeded his powers by requiring illegitimate elements of proof on the failure-to-accommodate claim. The district court reinstated Kinsella’s action, but it denied the application to vacate the award and entered a judgment of dismissal. In affirming the district court’s denial of vacatur, the Seventh Circuit Court of Appeals first noted that under section 10(a)(4) of the FAA, an arbitration award may be vacated “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The court rejected Kinsella’s contentions that the arbitrator incorrectly interpreted the ADA and exceeded his authority by introducing “an extra element of proof into a claim.” The court found the arbitrator did not exceed his powers and affirmed the district court’s denial of Kinsella’s application to vacate the award.

Kinsella v. Baker Hughes Oilfield Operations, LLC, No. 22-2007 (7th Cir. May 8, 2023).

Second Circuit Affirms Order Denying Application to Adjourn Enforcement of Arbitration Award Pending Outcome of Parallel Foreign Proceeding

May 3, 2023 by Kenneth Cesta

In Iraq Telecom Ltd. v. IBL Bank S.A.L., defendant IBL appealed an order from the district court that denied its application to stay the enforcement of a $3 million arbitration award rendered in favor of plaintiff Iraq Telecom. Without going into the underlying facts or procedural history, the court focused on whether the district court erred in its application of the factors set forth in Europcar Italia v. Maiellano Tours, 156 F.3d 310 (2d Cir 1998), for considering a request to stay enforcement proceedings pending the outcome of a parallel foreign proceeding. The court held the district court did not err in determining that the factors set forth in Europcar, on balance, weighed against staying enforcement of the award despite a pending Lebanese annulment action.

The court first noted that under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, a district court may, if it considers it proper, adjourn the decision on the enforcement of the award if an application for the setting aside or suspension of the award has been made in the jurisdiction in which the award was made. Applying the factors set forth in Europcar, the court noted that it reviews a district court decision in these matters for abuse of discretion, including (1) basing its decision on an error of law or wrong legal standard; (2) basing its decision on a clearly erroneous factual finding; or (3) reaching a conclusion that, “though not necessarily the product of a legal error or a clearly erroneous factual finding, cannot be located with the range of permissible decisions.”

Applying this standard of review, the court found the district court properly applied the Europcar factors in denying the application to stay the enforcement proceedings pending the outcome of the parallel foreign proceeding. The court noted the district court’s determination that the two most important factors (the general objectives of arbitration and the status of the foreign proceeding) weighed against staying enforcement of the foreign award was reasonable. With regard to these factors, the court rejected IBL’s arguments that the district court erred by not considering future delay and the ramifications for international comity should the award be annulled in Lebanon, declining to disturb the district court’s findings on these factors. The court also concluded that the district court’s determination of the other Europcar factors was reasonable, including the conclusion that the balance of the possible hardships to each of the parties weighed against IBL’s request for a stay, and the district court did not abuse its discretion in determining that IBL was not likely to succeed in its Lebanese annulment action. The court affirmed the judgment of the district court, rejecting IBL’s application for a stay.

Iraq Telecom Ltd. v. IBL Bank S.A.L., No. 22-832 (2d Cir. Apr. 17, 2023)

New Jersey District Court Vacates Arbitrator’s Final Award Finding Bias and Deprivation of Fair Hearing

April 14, 2023 by Kenneth Cesta

Citing the Federal Arbitration Act (FAA), and recognizing the specific standards set forth in the FAA for vacating an arbitrator’s decision, the U.S. District Court for the District of New Jersey vacated an arbitrator’s final award, finding several reasons to vacate the award. The case involved a claim brought by defendant International Painters and Allied Trades Industry Pension Fund against plaintiff Allied Painting and Decorating Inc. for “withdrawal liability” of more than $400,000. As noted in the opinion, withdrawal liability is a “statutorily created liability wherein an employer is responsible for its allocable share of unfunded vested benefits after withdrawing from a plan.” Allied allegedly withdrew from the relevant plan in 2005 and resumed work in approximately 2007. It was alleged the fund was aware of Allied’s withdrawal obligation by October 2011 but did not notify Allied of its obligation until July 20, 2017, “which included a Withdrawal Liability Worksheet noting Allied defaulted on July 31, 2005.” The arbitrator concluded that Allied was not prejudiced by the fund’s delay in notifying Allied of the withdrawal liability, and entered an award in favor of the fund for $427,195. Thereafter, an action was filed in federal court by Allied. The fund filed a motion to confirm the award, and Allied filed a motion to vacate the award.

The court first noted that in “reviewing an arbitrator’s award of withdrawal liability, a district court must presume that the arbitrator’s factual findings are correct unless they are rebutted by a clear preponderance of the evidence” and that “an award is presumed valid unless it is affirmatively shown to be otherwise, and the validity of an award is subject to attack only on those grounds listed in Section 10 of the FAA”. After confirming this standard of review, the court went on to find the arbitrator’s award would be vacated for several reasons. The court rejected the arbitrator’s finding that Allied was not prejudiced by the fund’s delay in notifying Allied of its withdrawal obligation, finding the arbitrator’s rationale that the delay economically benefited Allied because Allied had interest-free use of the money “does not comport with the case law” and the arbitrator “does not cite to any witnesses’ testimony to support the purported economic benefit.” The court also found the arbitrator’s assumption of a fact to “undermine a determination of prejudice is not supported by case law” and the arbitrator’s determination regarding Allied’s search for relevant records was arbitrary and “definitively and clearly against the evidence as a whole.” Finally, the court found the standards the arbitrator used to show lack of prejudice were not consistent with the standards applicable in the Third Circuit, and the arbitrator’s failure to explain his decision that Allied was bound to a collective bargaining agreement was arbitrary. The district court concluded that the “cumulation of the above events amounts to a reasonable appearance of bias against Allied and results in deprivation of a fair hearing.”

Allied Painting & Decorating, Inc. v. International Painters & Allied Trades Industry Pension Fund, No. 3:21-cv-13310 (D.N.J. Mar. 1, 2023).