Michael Wolgin

Court Compels FMLA Employment Dispute to Arbitration, Finding That Arbitration Agreement Delegated Arbitrability to Arbitrator and Agreement Appeared Not to Be Void or Unconscionable

May 12, 2020 by Michael Wolgin

A former executive and in-house lawyer for the Miami Heat basketball franchise sued the team for allegedly violating her rights under the Family and Medical Leave Act when she was terminated from her employment. The Heat filed a motion to compel arbitration, which the plaintiff opposed. First, the plaintiff contended that the arbitrability of the dispute was for the court, not the arbitrator. The court disagreed, holding that, while the agreement did not contain an express delegation clause, the agreement’s incorporation of the American Arbitration Association rules served to delegate the issues regarding the validity of the arbitration agreement to the arbitrator.

The plaintiff also argued that the agreement was void as against public policy, contending that the agreement’s provisions for the arbitrator to award reasonable fees to the prevailing party and for each party to be responsible for one-half of any administrative costs imposed by the AAA precluded her from vindicating her complete rights under the FMLA. Although the court did not need to decide this issue – having already found that arbitrability was delegated to the arbitrator – the court found that even if the fees and costs provision was unenforceable due to a failure to provide the plaintiff with remedies fully consistent with the FMLA, the provision was not the essence of the parties’ agreement and was therefore severable.

The plaintiff also contended that the agreement was unconscionable because the Heat allegedly did not permit her time to review the agreement, seek legal counsel, or negotiate the terms. The court rejected this argument finding that the plaintiff failed to provide any evidence to “explain any specific reason she felt rushed to sign the agreement, had no ability to negotiate it, or lacked employment alternatives.” The court further rejected the plaintiff’s argument that the agreement was substantively unconscionable because it required her to arbitrate all her claims, “while only requiring the Defendant to arbitrate counterclaims that it ‘is or should be aware [of] at the time a demand for arbitration is made.'” The court explained that the plaintiff overlooked the provision in the agreement that required “that any claims ‘arising in the workplace environment’ be subject to arbitration.” “Certainly,” the court concluded, the agreement was not “outrageously unfair” and did not “otherwise shock the judicial conscience.” The court compelled arbitration and dismissed the case.

Yakovee v. Miami Heat L.P., No. 1:20-cv-20540 (S.D. Fla. Apr. 30, 2020).

Alabama Supreme Court Reverses Order Compelling Arbitration Based on Failure to Authenticate Arbitration Agreement

April 21, 2020 by Michael Wolgin

A construction company, Parkerson Construction LLC, sued homeowner Jeanne Lacy Oaks claiming that Oaks owed it more than $50,000 for construction work on her home. Oaks filed a counterclaim alleging that Parkerson misrepresented itself and performed deficient work. Parkerson moved to compel arbitration on Oaks’ counterclaim based on an arbitration provision in a September unauthenticated work authorization agreement that was attached to the motion. The trial court granted Parkerson’s motion and compelled arbitration.

On appeal, the Alabama Supreme Court reversed the trial court’s order, concluding that Parkerson failed to meet its evidentiary burden, akin to the evidentiary burden on a motion for summary judgment, to demonstrate that an arbitration agreement existed between it and Oaks. The Alabama high court rejected Parkerson’s reliance on federal case law that, Parkerson argued, permitted trial courts to consider, “for summary-judgment purposes, evidence that is not submitted in admissible form.” The Alabama court noted that the federal case law, which was not binding on it, also held that a challenge to the admissibility of evidence created a burden “on the proponent to show that the material is admissible as presented or to explain the admissible form that is anticipated” at trial. In this case, the court held, Oaks attacked the authenticity of the September 2015 agreement, but Parkerson did not demonstrate that the agreement was or could be admissible. Parkerson had “more than four months between Oaks’s initial assertion that the September 2015 agreement was not authenticated and the hearing on its motion to compel arbitration, during which it could have placed into evidence an authenticated copy of the September 2015 agreement. Parkerson failed to do so. Therefore, the September 2015 agreement was never properly before the trial court, leaving the court without any basis for granting Parkerson’s motion to compel arbitration.”

Oaks v. Parkerson Construction, LLC, No. 1171193 (Ala. Feb. 28, 2020).

Third Circuit Addresses Interplay Between LMRA and FAA and Affirms Arbitration Award in Favor of Union Under Collective Bargaining Agreement

March 31, 2020 by Michael Wolgin

The case relates to the disposition of accrued vacation time of unionized nurses after a new employer (Prospect) assumed a collective bargaining agreement. Prospect construed the collective bargaining agreement differently than the prior employer and refused to allow more than 200% of the annual vacation time limit. An arbitrator ultimately decided in favor of the nurses’ ability to maintain the full amounts of their previously accrued vacation time, determining that the collective bargaining agreement did not curtail the nurses’ right to the full amount of their accumulated leave. The arbitrator further found that Prospect assumed the collective bargaining agreement and that Prospect, therefore, was obligated to honor the excess accumulated leave. After the district court upheld the arbitration award, Prospect appealed to the Third Circuit.

As an initial matter, the Third Circuit found that Prospect’s attempt to vacate the award was timely, rejecting the union’s argument that the state 30-day statute of limitations period authorized by the Labor Management Relations Act applied. Because Prospect was entitled to sue under the Federal Arbitration Act, which applies to collective bargaining agreements, it could rely on the lengthier three-month limitations period of the FAA.

Next, the Third Circuit rejected Prospect’s three arguments attempting to show that the award should be vacated under the FAA. First, the court rejected Prospect’s argument that the award was in excess of the arbitrator’s powers because the arbitrator failed to arguably interpret the collective bargaining agreement. The court found that the arbitrator’s ruling could be supported by a canon of contract construction and that “[w]hether or not that is the best reading of the CBA, it is certainly sufficient to uphold the arbitrator’s award.” Second, the court rejected Prospect’s argument that the arbitrator manifestly disregarded federal labor law pertaining to successor employers. Because the arbitrator “did not foreclose the possibility that Prospect, as a successor employer, could have, as an initial condition of employment, capped the nurses’ carry-over of vacation time” but, instead, found only that there was “no evidence that Prospect did so in time” it was not a manifest disregard of the principles of successor employment. And third, the court rejected Prospect’s argument that the arbitrator was guilty of misconduct in “refusing to hear evidence pertinent and material to the controversy” about a similar National Labor Relations Board decision in a different case. The Third Circuit ruled that the evidentiary ruling was “not patently incorrect,” and it was “certainly not an error that deprived Prospect of a fair hearing.” The Third Circuit, therefore, affirmed the order confirming the award.

Prospect CCMC LLC v. Crozer-Chester Nurses Association, Nos. 19-1439 & 19-1440 (3d Cir. Feb. 26, 2020).

Court Upholds Arbitration Provision Despite Allegations of Fraud in Contract’s Execution

March 10, 2020 by Michael Wolgin

The dispute involved the potential trade-in of a car and the purchase of a pickup truck by two customers at a car dealership. During the course of the transaction, one of the customers signed a document that he later learned was a contract including an arbitration provision. Before the transaction was completed, the customers had second thoughts and requested the return of their trade-in and deposit. The dealership refused, insisting that the customers had a binding contract to buy the truck. The customers sued the dealership and certain employees, alleging common law fraud and violations of state consumer protection laws. The defendants moved to dismiss and compel arbitration.

The court granted the motion to compel arbitration and stayed the case. As to the customer who signed the contract containing the arbitration provision, the court found that, although the customer contended that he was deceived into signing the contract, the arbitration provision would be enforced. The provision included a delegation of issues involving arbitrability to the arbitrator. Upon review of New Jersey and federal case law, the court held that unless a plaintiff challenges the validity of the arbitration provision itself, the dispute over the validity of the contract as a whole must be arbitrated. The court found that “precedent compels only one conclusion,” namely, that the arbitrator must decide the validity of their sales contracts and the arbitrability of the dispute.

The court also rejected the argument that the court should permit discovery on the issue of whether the signing customer was fraudulently induced into signing the contract. The court observed, “Importantly, [the customer] is arguing he was fraudulently induced into entering the entire contract, and not just the arbitration provision. A challenge based on fraud in the inducement of the whole contract (including the arbitration clause) is for the arbitrator, while a challenge based on the lack of mutuality of the arbitration clause would be for the court.”

Last, the court stayed the second customer’s claims that were not subject to arbitration because if “the arbitrator finds that the contract, including the arbitration agreement, is invalid, then he will likely return to litigate in this Court, where his action is stayed. In the event that this occurs, it would be sensible for [the two customers] to litigate their claims together, as they initially attempted to do, to avoid inconsistent rulings.” The court therefore stayed the entire case.

Lomonico v. Foulke Management Corp., No. 1:18-cv-11511 (D.N.J. Feb. 20, 2020).

Court Compels Arbitration of Balance Billing Dispute Under a California Health Plan, Severs Certain Unconscionable Provisions, and Rejects Class Arbitration Proceedings

February 18, 2020 by Michael Wolgin

A patient sued her health plan and the plan’s debt collector under various California and federal laws in connection with alleged attempts by the plan to unlawfully collect the balances of the plaintiff’s medical statements that were in excess of the insurance allowed amounts. The defendants moved to compel arbitration based on arbitration agreements that the plaintiff executed when she enrolled in the health plan from year to year beginning in 2012. The plaintiff, however, opposed arbitration, arguing that (1) the arbitration agreements did not comply with section 1363.1 of the California Health and Safety Code, which requires that an arbitration provision be “prominently displayed” and meet certain other conditions, and (2) the agreements were unconscionable.

The court rejected the plaintiff’s arguments. With respect to section 1363.1, the court found that it was preempted by the Affordable Care Act for the time period in which that law was applicable and that the plan’s arbitration disclosures complied with the law. And as to unconscionability, the court found that the agreements’ attorney fees and cost-splitting provisions were unconscionable, but these provisions could be severed from the arbitration agreements and would not preclude arbitration.

The plaintiff also argued that, if the court were to compel arbitration, it should be on a class basis because the arbitration agreements included references to “parties” asserting a claim (in plural form). The court, however, was not convinced. Relying on the U.S. Supreme Court’s Stolt-Nielsen decision and Ninth Circuit authority, the court held that even an ambiguous arbitration agreement did “not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to” resolve their dispute in a class proceeding. The court therefore compelled individual arbitration.

Hunter v. Kaiser Foundation Health Plan, No. 3:19-cv-01053 (N.D. Cal. Jan. 17, 2020).