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Michael Wolgin

Ninth Circuit Affirms Denial of DIRECTV’s Motion To Compel Arbitration, Creating Circuit Split on Procedure for Determining Scope of Arbitration Agreements

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The plaintiff had filed a class action alleging that DIRECTV made calls to his cell phone in violation of the Telephone Consumer Protection Act. DIRECTV attempted to compel arbitration by relying on an agreement that the plaintiff had signed with AT&T Mobility, which had become an affiliate of DIRECTV subsequent to the formation of the agreement. The agreement included an arbitration clause extending to “all disputes and claims between” the plaintiff and AT&T Mobility, “includ[ing], but … not limited to … claims arising out of or relating to any aspect of the relationship between” them. As defined in the contract, AT&T Mobility also included its “affiliates.”

The Ninth Circuit explained that the proper procedure for interpreting the arbitration agreement at issue was first to determine whether a valid agreement was formed between the plaintiff and the party attempting to compel arbitration, i.e., DIRECTV. Relying on California law, the Ninth Circuit approved the district court’s holding that, at the time of the arbitration agreement, the reasonable expectation of the parties would not have considered DIRECTV to be included as an affiliate of AT&T Mobility. The Fourth Circuit, in contrast, would have determined whether the arbitration agreement was formed between the plaintiff and the party named in the arbitration agreement (AT&T Mobility), and then would have determined whether the scope of that agreement would include the party seeking to compel arbitration (DIRECTV).

The Ninth Circuit supported its view by reasoning that its approach avoids an “absurd result,” which it must avoid under the California rules of contract interpretation. In so doing, the court distinguished the U.S. Supreme Court’s Lamps Plus decision, which held that the “contra proferentem” rule of contract interpretation was preempted by the FAA.

Revitch v. DIRECTV, LLC, Case No. 18-16823 (9th Cir. Sept. 30, 2020).

Fifth Circuit Affirms Significant Arbitration Award of Attorney’s Fees, Clarifying the Limited Scope of Review and Ruling That the Panel Did Not Exceed Its Authority

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Beyond International, Inc. and an individual (“Beyond”) appealed the district court’s order granting plaintiffs’ motion to confirm an arbitration award in favor of Diverse Enterprises, Ltd., Co., LLC and other parties (“plaintiffs”). The dispute arose out of an alleged failure to meet minimum sales requirements under a distribution agreement (“Agreement”), which contained an arbitration clause. The arbitration panel entered an award in favor of the plaintiffs, which included $432,135.60 in attorneys’ fees. Beyond moved to modify the fee award, contending, in pertinent part, that one of the plaintiffs’ law firms charged only $225 an hour instead of the $400 hourly rate to which the parties had stipulated. The panel denied Beyond’s motion.

In the district court, Beyond sought vacatur or modification of the award of attorney’s fees, contending that the panel exceeded its authority. The district court rejected Beyond’s argument and confirmed the arbitration award, concluding that there was no limiting language concerning the arbitrator’s authority in the Agreement, and that there was no “evident material miscalculation” or “mistake” in the award. The court also found that the panel “reasonably relied on the parties’ stipulation that attorneys’ fees ranging from $200 to $400 would be reasonable.”

On appeal, Beyond argued that the panel was limited to awarding “reasonable fees” and not “multiples” of fees, and that the panel violated Texas law by “awarding fees not actually incurred.” The Fifth Circuit rejected these arguments, explaining that the scope of its review would address only the question of whether the award was “rationally inferable” from the Agreement. Here, the court held, the Agreement broadly authorized the panel to settle “any claim or controversy arising out of or relating to” the Agreement, and granted the prevailing party “reasonable attorneys’ fees … and related costs and expenses.” The court held that this language did “not necessarily limit the parties to fees actually incurred.” The court then affirmed the district court’s denial of vacatur of the panel’s fee award, noting that it would not reach “the merits of Beyond’s excessive fee claim because that argument goes beyond our power to review the arbitration decision.”

Diverse Enterprises, Limited Company, L.L.C. v. Beyond International, Inc., Case No. 19-51121 (5th Cir. Sept. 17, 2020).

Court Applies “Summary-Judgment-Like” Approach To Uncontested Motions To Compel Arbitration And Stay Litigation

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The court considered a restaurant franchisee’s motion to compel arbitration, and motion to dismiss, or, in the alternative, stay an employee’s race discrimination and retaliation lawsuit pending the completion of arbitration. The plaintiff had applied for a managerial position through an online portal, which included a provision agreeing to sign an arbitration agreement and ADR plan as a condition of employment. The plaintiff ultimately signed an offer letter for the position, which contained an arbitration provision, and completed onboarding paperwork online, including checking boxes that confirmed that the plaintiff had read and agreed to the company’s ADR plan and agreement to arbitrate.

In connection with the franchisee’s motion to compel arbitration, the plaintiff conceded that she signed the arbitration agreement and did not oppose the request to stay the case. She opposed only the dismissal of the case. Nevertheless, the court explained that a motion to compel arbitration is “summary-judgment-like,” meaning that the court was required to provide a cursory analysis “to ensure disposition utilizing the alternative stay request is appropriate.” The court then found as a matter of law that the plaintiff and the franchisee entered into an arbitration agreement that covered the discrimination claims, and granted the motion to compel arbitration. The court further found that it was required to grant a stay as opposed to dismissal of the case under the FAA.

Heads v. Paradigm Investment Group, LLC, Case No. 1:20-cv-00284 (S.D. Ala. Aug. 7, 2020).

Second Circuit Affirms Denial of NFL Player’s Petition to Vacate Arbitration Award, Rejecting Arguments of Harm Caused by Failure to Disclose CBA-Related Documents

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The case was brought by Philadelphia Eagles offensive tackle David Lane Johnson against the NFL Players Association, the NFL, and the NFL Management Council related to a 10-game suspension for using performance-enhancing substances. The collective bargaining agreement at issue included a policy regarding testing, discipline, and an arbitration appeal process for players found to be in violation. When Johnson appealed his suspension under the policy, the arbitrator issued an award upholding Johnson’s discipline. Johnson then sued the Players Association, the Management Council, and the NFL, seeking vacatur of the arbitration award and asserting claims for breach of the duty of fair representation, breach of the collective bargaining agreement, and violation of his rights under various labor laws. The district court denied Johnson’s petition for vacatur, confirmed the arbitration award, dismissed certain of Johnson’s claims, and ultimately granted summary judgment against Johnson as to all remaining claims.

On appeal, the Second Circuit rejected Johnson’s argument that the Players Association’s “failure to provide him with documents including ‘the complete Policy, his discipline file, and his testing history file’ amounted to a ‘per se‘ breach of its duty of fair representation.” Even assuming the failure of a union to produce documents constituted a breach, which the court indicated was unprecedented, Johnson still could not identify how the failure of the Players Association to provide these documents affected the outcome of his arbitration.

The Second Circuit also ruled that the district court did not err in granting summary judgment to the Players Association on Johnson’s claim that the union failed to provide him with copies of “side agreements” to the Management Council’s policy. The court was not persuaded by Johnson’s arguments, including that Johnson was entitled to damages for the late production of documents by the Players Association. Johnson was unable to dispute (1) the evidence in the record that all relevant documents had been produced; and (2) that there was no showing of any impact on the arbitral outcome or of bad faith.

The Second Circuit also affirmed the denial of the motion to vacate the arbitration award based on Johnson’s argument that he lacked a full and fair hearing. The Second Circuit concluded, “Johnson was given clear notice of the contemplated disciplinary action that was to be taken against him, the appeal was heard by a qualified arbitrator, and he had a full and fair opportunity to present arguments. That was more than sufficient under our precedent to confirm the award.”

Johnson v. National Football League Players Association, No. 19-2734 (2d Cir. July 17, 2020).

Ninth Circuit Remands Order Denying Motion to Compel Arbitration That Failed to Address the Effect of Delegation Clause in Parties’ Arbitration Agreement

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The delegation clause in the parties’ arbitration agreement provided that any “questions regarding the validity or enforcement of these Dispute Policies shall be delegated and submitted to the arbitrator, including whether the scope of the claim or dispute is subject to arbitration, and whether these Dispute Policies are enforceable as a matter of law.” The district court, however, ignored the clause and considered the validity and enforceability of the arbitration agreement by analyzing the unconscionability of portions of the agreement other than the delegation clause. That, the Ninth Circuit explained, was error.

The Ninth Circuit explained that the plaintiffs in the proceedings before the district court did not challenge the enforceability or validity of the delegation clause. Instead, the plaintiffs had contended that the defendants abandoned any argument relying on the delegation clause because they did not adequately raise the issue. The Ninth Circuit, however, disagreed that the defendants abandoned it, noting that the defendants had relied on the delegation clause in their briefing in support of their motion to compel arbitration. The Ninth Circuit also rejected the plaintiffs’ argument that the district court had found that the defendants had waived the delegation clause, observing that the lower court had actually indicated that it was uncertain as to whether waiver had occurred.

The Ninth Circuit concluded that the plaintiffs failed to meet their burden of proving a defense to the enforceability of the delegation clause. However, the Ninth Circuit ruled, because the district court did not address the issue, it would vacate the order and remand the case to allow the district court to provide “a full analysis,” which the Ninth Circuit held might assist the court in its review.

Cipolla v. Team Enterprises, LLC, No. 19-15964 (9th Cir. June 24, 2020).