Arbitration Process Issues

MOTION TO COMPEL ARBITRATION ROUNDUP

April 11, 2012 by Carlton Fields

Class-Waiver Arbitration Clauses:

Vernon v. Qwest Communications International, Inc., Case No. 1:09-cv-01840 (USDC D.D.C. Mar. 8, 2012) (compelling arbitration; class-waiver arbitration provision in electronic agreement that was not “user friendly” was enforceable under Concepcion, as it was not unconscionable under state law)

Smith v. Americredit Financial Services, Inc., Case No. 3:09-cv-01076 (USDC S.D. Cal. March 12, 2012) (denying motion to compel arbitration; class waiver arbitration provision in retail installment contract was procedurally and substantively unconscionable under state law and was thus unenforceable, notwithstanding Concepcion)

Division of Labor Between Courts and Arbitrators:

Grigsby & Associates, Inc. v. M Securities Investment, Case No. 09-11817 (11th Cir. Dec. 20, 2011) (vacating order denying motion to enjoin arbitration; district court incorrectly held that arbitrators should decide whether defendants waived right to arbitrate by pursuing several lawsuits)

Schatz v. Cellco Partnership, Case No. 1:10-cv-05414 (USDC S.D.N.Y. Feb. 3, 2012) (compelling arbitration; validity of arbitration clause limiting relief available to plaintiff was question for arbitration, where it was ambiguous whether a “clear conflict” existed between the arbitration clause and purported rights to relief under state law)

Unite Here Local 25 v. Madison Ownership, LLC, Case No. 1:11-cv-0062 (USDC D.D.C. March 23, 2012) (denying dismissal of injunction action to compel labor arbitration, but ordering discovery as to coverage of arbitration agreement; purported failure of legal basis for injunctive relief was not a jurisdictional issue for the court, but was a question of available remedy for arbitrators to decide)

Waller v. Foulke Management Corp., Case No. 1:10-cv-06342 (USDC D.N.J. Mar. 19, 2012) (denying reconsideration of order compelling arbitration; whether multiple arbitration agreements were consistent and thus valid was question for court)

Seventeenth Street Associates, LLC v. Cole, Case No. 3:11-cv-00478 (USDC S.D. W. Va. Feb. 29, 2012) (compelling arbitration; court determines res judicata precluded relitigation of prior order compelling arbitration)

Right to Enforce Arbitration Agreement:

Allianz Global Risk U.S. Insurance Co. v. General Electric Co., Case No. 10-55451 (9th Cir. Mar. 5, 2012) (affirming order compelling arbitration; Allianz had subrogation rights under state law and thus GE was estopped from refusing to arbitrate with Allianz under the arbitration agreement between GE and Allianz’s insured)

Butto v. Collecto Inc., Case No. 2:10-cv-02906 (USDC E.D.N.Y. Feb. 23, 2012) (denying reconsideration of order denying motion to compel arbitration; non-signatory was not “sufficiently close” to contracting party to enforce arbitration agreement)

Thomas v. Westlake, Case No. D058531 (Cal. Ct. App. Mar. 23, 2012) (reversing denial of petition to compel arbitration; alleged agency relationship amongst defendants permitted non-signatory defendants to enforce arbitration agreement)

This post written by Michael Wolgin.

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NINTH AND THIRD CIRCUITS HOLD THAT FAA PREEMPTS STATE UNCONSCIONABILITY LAW PER CONCEPCION

April 3, 2012 by Carlton Fields

Two US Courts of Appeals recently issued opinions bearing on the unconscionability of arbitration agreements. In Coneff v. AT&T, the Ninth Circuit reversed a district court’s refusal to enforce an arbitration agreement between AT&T and current and former customers. The district court had ruled that the agreement’s class action waiver provision was unconscionable based on Washington’s state law invalidating class action waivers. The Ninth Circuit reversed, holding specifically that the Supreme Court’s recent decision in Concepcion controlled. Thus, the FAA preempted the Washington state law. Further, the Court remanded the case to the district court to apply Washington choice of law rules on the putative class action plaintiffs’ procedural unconscionability arguments. Coneff v. AT&T Corp., No. 09-035563 (9th Cir. Mar. 16, 2012).

In Quilloin v. Tenet Healthsystem Philadelphia, Inc., the Third Circuit also reversed a district court’s determination that an arbitration provision was unconscionable and unenforceable. As a threshold issue, the Third Circuit held that the plaintiff did not agree to arbitrate the question of arbitrability itself so the district court did not err in addressing the validity of the arbitration agreement. The Court applied Concepcion and found no basis for substantive unconscionability under Pennsylvania law. Specifically, the Court determined that, among other things, Pennsylvania’s prohibition against class action waivers was preempted by the FAA. Additionally, the Court ruled that the plaintiff did not lack a meaningful choice in agreeing to arbitrate, and thus raised no genuine issue of material fact with regard to procedural unconscionability. The case was reversed and remanded with instruction to stay the proceedings and compel arbitration. Quilloin v. Tenet HealthSystem Philadelphia, Inc., No. 11-1393 (3d Cir. Mar. 13, 2012).

This post written by John Black.

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TWO RECENT DECISIONS HIGHLIGHT POTENTIAL IMPACT OF STATE LAW ON ENFORCEABILITY OF CLASS-WAIVER ARBITRATION AGREEMENTS UNDER CONCEPCION

March 22, 2012 by Carlton Fields

In Carey v. 24 Hour Fitness, USA, Inc., the Fifth Circuit affirmed the denial of a motion to compel arbitration and permitted a class action employee-overtime lawsuit to go forward despite the parties’ putative agreement to arbitrate such disputes on a non-class basis. While the court cited Concepcion for the “fundamental principle that arbitration is a matter of contract,” it did not enforce the underlying class arbitration waiver agreement, finding that under state law, the underlying arbitration agreement was “illusory” and unenforceable because the employer reserved the right to change the agreement at any time. A similar approach (albeit, with a different outcome) was taken in another class action suit, Gore v. Alltell Communications, LLC. There, the Seventh Circuit reversed an order denying a motion to compel individual arbitration based on its interpretation of an arbitration agreement under state law. The court found that the arbitration agreement, which was contained in only the second of two contracts between the parties, applied to the parties’ dispute because it unambiguously provided that “any dispute arising out of” the agreement would “be settled by arbitration” on a non-class basis. The court held that based on the plaintiff’s allegations, all of the plaintiff’s causes of action could be deemed to arise from the second agreement, thus falling within the scope of the arbitration clause. The court further held that even the question of whether the agreement was unconscionable should be decided in arbitration because plaintiff challenged the entire agreement, not just the arbitration clause. Carey v. 24 Hour Fitness, USA, Inc., Case No. 10-20845 (5th Cir. Jan. 25, 2012); Gore v. Alltel Communications, LLC, Case No. 11-2089 (7th Cir. January 19, 2012).

This post written by Michael Wolgin.

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NINTH CIRCUIT CONCLUDES AT&T v. CONCEPCION PREEMPTS CALIFORNIA STATE LAW

March 19, 2012 by Carlton Fields

Plaintiffs brought a putative class action alleging violations of California’s Unfair Competition Law in connection with student loans. Each of the loan contracts contained an arbitration clause, which the district court declined to enforce. The Ninth Circuit granted review to consider whether the US Supreme Court’s recent decision in AT&T Mobility, Inc. v. Concepcion that the FAA preempts California’s state law rule prohibiting the arbitration of claims for broad injunctive relief. The District Court had denied the motion to compel arbitration largely in discretion to California’s policy prohibiting the arbitration of claims for public injunctive relief, despite the parties’ agreement to arbitrate. It is notable that the District Court’s decision was made nearly two years before the Supreme Court issued its Concepcion decision. The Ninth Circuit held that Concepcion does indeed preempt the California state law rule and that the arbitration clause in the parties’ contracts must be enforced because it was not unconscionable. The Ninth Circuit thus overruled the District Court’s denial of KeyBank’s motion to compel arbitration, vacated the judgment entered, and remanded to the District Court with instructions to stay the case and compel arbitration. Kilgore v. KeyBank, N.A., No. 09-16703 (9th Cir. Mar. 7, 2012).

This post written by John Black.

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INSURER PRECLUDED FROM ENFORCING POLICY ARBITRATION CLAUSE IN GARNISHMENT ACTION BROUGHT BY INSURED’S ASSIGNEE

March 15, 2012 by Carlton Fields

Penford Products entered into a contract with C.J. Schneider Engineering (“CJS”) for the construction of an ethanol plant. Penford demanded arbitration under the contract, asserting that the plant was defectively designed and constructed. CJS tendered its defense to Lexington Insurance Company, CJS’s professional liability insurer. After Lexington claimed no coverage and refused to defend, CJS assigned all of its rights against Lexington to Penford. Shortly thereafter, a seven-million dollar arbitration award was issued in Penford’s favor and against CJS. After judgment on the award was entered, Penford initiated garnishment proceedings against Lexington in Iowa state court to collect on the judgment. Lexington moved to compel arbitration, arguing that Penford must abide by the arbitration clause in the Lexington insurance policy issued to CJS. The trial court rejected Penford’s request and the appellate court affirmed holding that, while Penford “stands in the shoes” of CJS for purposes of the garnishment action, Penford was not bound by the arbitration clause in the Lexington/CJS policy. Penford Prods. Co. v. C.J. Schneider Eng’g. Co., No. 1-575/10-1754 (Iowa Ct. App. Dec. 21, 2011).

This post written by Ben Seessel.

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