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Kenneth Cesta

Ninth Circuit Affirms District Court’s Order Denying Online Cryptocurrency Exchange’s Motion to Compel Arbitration of Users’ Claims

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In David Suski v. Coinbase, Inc., et al., the Ninth Circuit affirmed a district court order denying defendant Coinbase, Inc.’s motion to compel arbitration, concluding that issues surrounding a forum selection clause were not delegated to the arbitrator and were for the court to decide. The court further found that the forum selection clause in Coinbase’s official rules superseded the user agreement’s arbitration clause.

The case involved claims brought by the plaintiff and other users of Coinbase’s online cryptocurrency exchange who opted into Coinbase’s “Dogecoin Sweepstakes” in June 2021. When opening their accounts, the plaintiffs agreed to a Coinbase user agreement which included an arbitration provision. The plaintiffs later opted into the sweepstakes’ official rules, which included a forum selection clause providing that “California courts have exclusive jurisdiction over any controversies regarding the sweepstakes.” The plaintiffs later brought claims under California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act against Coinbase and another defendant hired by Coinbase to market and run the sweepstakes. Coinbase filed a motion to compel arbitration of the plaintiffs’ claims. The district court denied the motion, concluding that the “delegation clause” in the user agreement “did not delegate to the arbitrator the issue of which contract [the User Agreement or Official Rules] governed the dispute.” Applying state law principles of contract interpretation, the district court then ruled that the official rules superseded the user agreement, and that the arbitration clause contained in the user agreement did not apply to the plaintiffs’ claims.

The Ninth Circuit affirmed the district court’s order and addressed Coinbase’s argument that the district court erred when it concluded that the user agreement did not delegate to the arbitrator the issue of whether the forum selection clause in the official rules superseded the arbitration clause in the user agreement. The court noted its decision in Oracle Am. Inc. v. Myriad Grp. A.G., (9th Cir. 2013) that “[w]hether the court or the arbitrator decides arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” The court then found that the district court correctly ruled that in this case, the issue of whether the forum selection clause in the official rules superseded the arbitration clause in the user agreement “was not delegated to the arbitrator, but rather was for the court to decide.”

The court then addressed Coinbase’s argument that the district court erred when it concluded that the forum selection clause in the official rules superseded the arbitration clause contained in the user agreement. The court noted that state law principles of contract formation and interpretation apply “when determining whether parties have agreed to submit to arbitration” and when there are two contracts dealing with the same subject matter without addressing whether the second contract is a substitute for the first, “the two contracts must be interpreted together and the latter contract prevails to the extent they are inconsistent.” The court agreed with the district court that given the conflict between the official rules and the user agreement, “the Official Rules’ forum selection clause supersedes the User Agreement’s arbitration clause” since the official rules came after the user agreement.

David Suski, et al. v. Coinbase, Inc., et al., No. 22-15209 (9th Cir. Dec. 16, 2022)

Seventh Circuit Affirms District Court Decision Refusing To Refer Putative Class Action Under the Illinois Biometric Information Privacy Act to Arbitration

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In Joshua Johnson v. Mitek Systems, Inc., the Seventh Circuit affirmed a district court order denying defendant Mitek Systems, Inc.’s motion to compel arbitration of the plaintiff’s claims brought under the Illinois Biometric Information Privacy Act. The case before the district court involved a putative class action brought on behalf of Joshua Johnson, and all others similarly situated, in Illinois state court. Mitek removed the matter to the U.S. District Court for the Northern District of Illinois pursuant to the Class Action Fairness Act. A company referred to in the decision as HyreCar “is an intermediary between people who own vehicles and other people who would like to drive for services such as Uber and GrubHub.” HyreCar verifies an applicant’s background and in so doing, sends certain personal information about the applicant to Mitek, which “provides identity-verification services.” Johnson alleges that Mitek used his information without the consent required by section 15 of BIPA.

Johnson’s contract with HyreCar included an arbitration clause which obligated Johnson to arbitrate any claims “with a long list of entities” including “all authorized or unauthorized users or beneficiaries of services or goods provided under the Agreement.” After removing the case to the district court, Mitek filed a motion to compel arbitration which was denied. Mitek then filed an immediate appeal to the Seventh Circuit pursuant to 9 U.S.C. §16(a)(1), contending that it is “a beneficiary of services or goods provided under the Agreement,” thereby requiring that the plaintiff arbitrate his claims against Mitek pursuant to the arbitration clause in the agreement he signed with HyreCar.

The Seventh Circuit rejected Mitek’s claims that the plaintiff is required to arbitrate his claims, finding that “‘the services or goods provided under the Agreement’ are vehicles, plus some ancillary aid that HyreCar furnishes to drivers.” The court further found that Mitek “does not receive ‘services or goods … under the Agreement’ between Johnson and HyreCar” and that Mitek cannot be classified as a “user” of HyreCar’s services or goods. The court noted that while courts “cannot disfavor arbitration, compared with other agreements” they may not “jigger the rules to promote arbitration” … and that “it would stretch contractual language past the breaking point” to conclude that Johnson or any of the other drivers agreed to arbitrate with Mitek. The court also rejected Mitek’s claim that the plaintiff should be equitably estopped from litigating the lawsuit, finding that the plaintiff “has not done anything that would estop himself from litigating this suit.” The court affirmed the district court’s decision refusing to refer the matter to arbitration, and remanded the case for a determination of whether the action may proceed as a class action “except for the claim under §15(c) of BIPA” which the court held must be remanded to state court.

Joshua Johnson v. Mitek Systems, Inc., No. 22-1830 (7th Cir. Dec. 21, 2022)

Chancery Division of the High Court of England Sanctions Business Transfer Scheme Involving Applicant Insurance Companies Under the Financial Services Markets Act

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In Phoenix Life Ltd, Re, also known as: Reassure Life Ltd, Re Phoenix Life Assurance Europe Designated Activity Co, Re, the Chancery Division of the High Court of England sanctioned a plan by the applicant companies Reassure Life Ltd (RLL), Phoenix Life Ltd (PLL), and Phoenix Life Assurance Europe (PLAE) of an insurance business transfer scheme under the Financial Services and Markets Act.

United Kingdom insurers, PLL and RLL, were engaged in “closed-fund run off in the long-term sector” and PLAE was an Irish designated activity company established to facilitate the business transfer scheme. The business to be transferred had been written in Ireland, Iceland, Germany, Norway, and Sweden. The purpose of the scheme was to “ensure that policyholders in those countries obtained the full range of benefits following the UK’s departure from the European Union” by transferring “to PLAE the legal rights and obligations of PLL and RLL relating to the transferring policies together with their associated assets and liabilities.” Claims related to misselling and maladministration were not included in the scheme.

The conclusions of an independent expert who reviewed the scheme were submitted to and accepted by the Court, including the expert’s findings that “the scheme would not have a material adverse effect on the security of the benefits under the transferring policies … and the reasonable expectations of the transferring policyholders in respect of their benefits…” The Court also agreed with the independent expert’s conclusions that the nontransferring policyholders would not suffer any material adverse effects as a result of the scheme. The Court sanctioned the scheme concluding that “the technical requirements of the legislation had been complied with” and that the independent expert’s conclusion regarding PLAE’s financial strength was reasonable. In approving the scheme, the Court also agreed with several other conclusions reached by the independent expert, including that the reinsurance arrangements involved in the scheme would not create a “material adverse effect on the security of the benefits under the policies to be transferred under the scheme.”

Phoenix Life Ltd, Re, also known as: Reassure Life Ltd, Re Phoenix Life Assurance Europe Designated Activity Co, Re, (Chancery Division, High Court of England, Oct. 24, 2022)

Supreme Court of Idaho Finds That District Court Had Jurisdiction to Determine Enforceablity of Non-Compete Provision in Employment Agreement, Which Included a Mandatory Arbitration Provision

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In Blaskiewicz v. Spine Institute of Idaho, P.A., after being terminated with less than one year of employment, Donald Blaskiewicz, “a highly-trained neurosurgeon” filed a complaint for declaratory judgment in the state district court of Idaho to determine the enforceability of a Professional Services Agreement with his former employer, the Spine Institute of Idaho. The PSA contained a noncompete clause that “contractually proscribed Blaskiewicz from practicing medicine within fifty miles of the Spine Institute’s office (with an explicit exception for Caldwell) for a period of eighteen months, should his employment with the Spine Institute be terminated for any reason.” The PSA also included an arbitration clause, which required that “‘any dispute arising out of or related to [the PSA] be settled by arbitration in Ada County, Idaho.’”

The Spine Institute moved to dismiss, or in the alternative, to stay the proceedings, arguing that “the sole way … to challenge the noncompete provision was through arbitration and, as such, the district court was without jurisdiction to consider Blaskiewicz’s complaint.” Significantly, the Spine Institute “did not seek an order compelling arbitration, apparently because Blaskiewicz had not breached the PSA.” The district court denied the Spine Institute’s motion, concluding that it had jurisdiction over the matter. Thereafter, the district court granted Blaskiewicz’s motion for summary judgment, finding that the noncompete provision in the PSA was void as against public policy, and awarded attorney’s fees in favor of Blaskiewicz.

The Supreme Court of Idaho vacated the district court’s grant of summary judgment and remanded the case for further proceedings. First, the court addressed whether the appeal was moot, since the 18-month noncompete period had expired and Blaskiewicz did not accept employment during that time. The court concluded that the appeal was not moot since the district court had awarded attorney’s fees to Blaskiewicz, and “if we were to conclude the district court erred in granting summary judgment (as we do below) … this case presents a real and substantial controversy.”  Second, the court held that “the district court had jurisdiction to determine whether the noncompete provision was enforceable,” and that while the Spine Institute moved to dismiss the case or stay the proceedings, they did not file a demand for arbitration and “cannot now complain that this controversy should have been arbitrated.” Third, the court found that the district court erred in granting summary judgment in favor of Blaskiewicz, concluding that “there are genuine issues of material fact such that summary judgment was inappropriate as to whether the noncompete provision was void as a matter of public policy or otherwise enforceable.” Finally, the court vacated the district court’s award of attorney’s fees since Blaskiewicz was no longer the prevailing party, and remanded the case for further proceedings.

Blaskiewicz v. Spine Institute of Idaho, P.A., Docket No. 48785 (Supreme Court of Idaho, Oct. 31, 2022)

Georgia Court of Appeals Confirms Arbitration Award Holding That Arbitrator Did Not Manifestly Disregard Law or Overstep Authority

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Concluding that the arbitrator did not manifestly disregard contract law or overstep his authority, the Georgia Court of Appeals confirmed the arbitrator’s award and remanded the matter for consideration of an award of attorneys’ fees and post-award interest.

Claimants Southern Mountain Adventures LLC and Adventure Motorsports Reinsurance Ltd. entered into an arbitration agreement with Interstate National Dealer Services Inc. (INDS) to resolve their claims that INDS overcharged Southern Mountain Adventures. The limited facts included in the court’s decision confirm that the dispute between the claimants and INDS involved “payments collected by INDS pursuant to motorsport vehicle service contracts sold to customers by [Southern Mountain Adventures] and administered by INDS” and claims by the claimants that “INDS overcharged [Southern Mountain Adventures].” After the arbitrator found in favor of the claimants, INDS challenged the confirmation of the arbitration award. The Georgia Court of Appeals reversed the confirmation of the award, finding that the arbitrator manifestly disregarded the law. The Court of Appeals based its decision, in part, on the finding that “INDS charged an amount of money agreed to by the parties in a Rate Card” and that “the parties did not depart from the Rate Card structure.” Thereafter, the Supreme Court of Georgia reversed the holding of the Court of Appeals, holding that the arbitrator had not manifestly disregarded the law. The Supreme Court noted that “an arbitrator who incorrectly interprets the law has not manifestly disregarded it. The arbitrator has simply made a legal mistake,” and the legal standard for manifestly disregarding the law has not been met. The Supreme Court then remanded the case to the Court of Appeals.

On remand, the Court of Appeals confirmed the arbitrator’s award, concluding that the arbitrator did not manifestly disregard contract law. The court adopted the reasoning of the Supreme Court that the arbitrator had fashioned a remedy that he deemed “just and equitable within the scope of the agreements of the parties.” The Court of Appeals also considered INDS’ argument that the arbitrator overstepped his authority under Georgia’s arbitration statute, concluding that overstepping “like the other grounds for vacating arbitration awards is very limited in scope” and involves “addressing issues not properly before the arbitrator,” which the court concluded did not occur in this case. Finally, the court addressed the claimants’ argument that they were entitled to attorneys’ fees and post-award interest. The court held that “[b]ecause the court never addressed these issues, we remand for consideration of the appropriateness of awarding attorney fees arising out of the arbitration requested in the Claimant’s motion to confirm the award, attorney fees arising out of collection efforts as stated in the arbitration award, and post-award interest as stated in the arbitration award.”

Adventure Motor Sports Reinsurance, Ltd. v. Interstate National Dealer Services, Inc., No. A20A0036, A20A0037 (Ga. Ct. App. Oct. 18, 2022).