Arbitration Process Issues

DISCOVERY RESTRICTION IN ARBITRATION CLAUSE HELD NOT UNCONSCIONABLE

March 25, 2010 by Carlton Fields

An arbitration provision in an employment contract provided that each party to the arbitration could take one fact deposition, depose experts, request documents, and take additional depositions if authorized by the arbitrator for good cause. A California trial court held the limit on depositions to be unconscionable, refused to sever the discovery limit provision and denied a motion to compel arbitration. The California Court of Appeals reversed, finding that such limits on discovery were permissible in arbitration, in that it provided the arbitrator with discretion to permit further depositions without setting an extraordinarily high standard for obtaining further depositions. The Court also held that a contractual provision that the arbitrator, rather than a court, should interpret and implement the arbitration provision was permissible, especially in light of court decisions at both the state and federal levels holding that arbitrators have the authority to resolve disputes over the meaning of specific terms of an arbitration agreement. Dotson v. Amgen, Inc., Civil No. B212965 (Cal Ct. App. Feb. 3, 2010).

This post written by Rollie Goss.

WAIVER OF ALLEGEDLY UNCONSCIONABLE TERMS RENDERS ARBITRATION AGREEMENT, AS MODIFIED, ENFORCEABLE

March 22, 2010 by Carlton Fields

The United States Court of Appeals for the Second Circuit has affirmed a district court’s grant of defendants’ motion to dismiss a complaint for employment discrimination and motion to compel arbitration. The district court rejected the plaintiff’s assertion that an arbitration agreement between herself and co-defendant Atlantic Video was procedurally and substantially unconscionable. The district court further held the plaintiff could be compelled to arbitrate with co-defendant ESPN, although it was not a signatory to the arbitration agreement.

The Second Circuit affirmed. The arbitration agreement was not procedurally unconscionable under New York law simply because it was offered on a “take it or leave it” basis and, in any event, the plaintiff admitted she did not even read the agreement before signing it. The agreement also was not substantively unconscionable because, as plaintiff urged, “in its totality” it contained “numerous unconscionable and oppressive terms.” The defendants agreed to waive several of the challenged terms relating to the statutes of limitations and fee-shifting provisions, and further represented that a provision forbidding any appeal of the arbitrator’s decision would not prevent the plaintiff from later moving to vacate an arbitration award. New York law allowed for the enforcement of the arbitration agreement as modified by the defendants’ waivers, although the court cautioned that had “the defendants attempted to enforce the arbitration agreement as originally written it is not clear that we would hold in their favor.” Finally, the court found plaintiff was equitably estopped from avoiding arbitration with ESPN, which was not mentioned in the agreement but which the plaintiff understood to be her co-employer. Ragone v. Atlantic Video, No. 08-4666 (2d Cir. Feb. 17, 2010).

This post written by Brian Perryman.

COURT COMPELS ARBITRATION OF FEE DISPUTE ARISING FROM EARLIER ARBITRATION

March 18, 2010 by Carlton Fields

A federal judge in Indiana referred the parties to arbitration of the latest piece of a long running employment dispute between Masco Corporation and Peter Prostyakov, its former Director of operations in Moscow, Russia. After an arbitration award on the principal claims, which was confirmed in federal court, and affirmed by the Seventh Circuit, a further dispute erupted pertaining to payment of fees and costs in connection with the arbitration and subsequent litigation. Masco filed a petition in court, seeking a ruling that the fee dispute had been subsumed in and decided in the prior arbitration, and that Prostyakov was unfairly seeking a “second bite” at the apple. The court disagreed, finding it improper to decide this and other issues raised by the parties, citing their original agreement to arbitrate, and the pending second arbitration initiated by Prostyakov relating to the fee dispute. Masco Corp. v. Prostyakov, No. 1:09-cv-0500 (USDC S.D. Ind. Feb. 5, 2010).

This post written by John Pitblado.

LITIGATION OR ARBITRATION? THE EIGHTH CIRCUIT DECIDES

March 10, 2010 by Carlton Fields

Plaintiffs Patricia Hooper and Josephine Vaughn filed a putative class action against their payday lender, Advance America Cash Advance Centers of Missouri Inc., in federal district court. Advance America, invoking a clause in Plaintiffs’ loans, moved to stay all litigation and compel Plaintiffs to binding arbitration. The District Court held that Advance America waived its right to arbitration when it filed an extensive motion to dismiss. Advance America appealed the ruling to the Eighth Circuit.

The Eighth Circuit affirmed, applying a tripartite test to find waiver because Advance America: (1) knew of its existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by its inconsistent actions. The Court noted, however, that not every motion to dismiss is inconsistent with the right to arbitration, and that district courts should consider the totality of the circumstances in determining if a party acted inconsistently with the right to arbitrate. The Court concluded its opinion by reminding the parties that “experienced trial lawyers know how important it is to settle on a forum at the earliest possible opportunity and Advance America’s failure to move promptly for arbitration is powerful evidence that it made its election – against arbitration.” Hooper v. Advance America, Cash Advance Centers of Missouri, Inc., Case No. 08-3252 (8th Cir. Dec. 16, 2009).

This post written by John Black.

COURT DENIES MOTION TO VACATE ARBITRATOR’S DECISION THAT CLASS ARBITRATION IS NOT PROHIBITED BY THE ARBITRATION AGREEMENT

February 18, 2010 by Carlton Fields

In this class action brought by current and former female employees of Sterling Jewelers, Inc. (“Sterling”), Sterling moved to vacate the arbitrator’s decision that class arbitration is not prohibited by the arbitration agreement or, in the alternative, to stay the arbitration proceedings. The federal district court stated, and Sterling conceded, that the arbitrator’s decision could be overturned only if the decision exceeded the arbitrator’s powers in violation of the Federal Arbitration Act or if the decision was made in manifest disregard of the law. In denying the motion to vacate, the court first ruled that the arbitrator had the power to decide such an issue, pointing to the broadness of the arbitration clause and citing the court’s prior decision determining that the arbitrator should resolve the question of whether class arbitration should proceed. The court held that the arbitrator did not act in manifest disregard of law based upon the Second Circuit’s holding in Stolt-Nielsen SA v. Animalfeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2008), which is currently pending for decision before the Supreme Court after argument last December. Lastly, the court refused to grant a stay of arbitration pending the Supreme Court’s decision in Stolt-Nielsen, finding that Sterling did not identify any substantial harm that would justify a delay and noting the uncertainty surrounding when Stolt-Neilsen will be decided and whether the decision will dispose of the issues raised in this case. Jock v. Sterling Jewelers, Inc., Case No. 08-2875 (USDC S.D.N.Y. Dec. 28, 2009).

This post written by Dan Crisp.