Arbitration Process Issues

Florida Court Finds that Arbitration Agreement Broadening Judicial Review Violates Florida Public Policy

December 10, 2018 by Rob DiUbaldo

In a lawsuit brought by a contractor against a subcontractor and its insurer, Florida’s Fourth District Court of Appeals found a provision in an arbitration agreement allowing for a broad ranging review of any arbitration award to be void as a matter of law and policy.

The subcontractor and insurer moved to compel arbitration under an agreement providing that on review of any award issued pursuant to that agreement, “the court shall be empowered to address on review any failure by the arbitrator(s) to properly apply Florida law to the dispute. To the extent the arbitrator(s) or the court fail to apply the law properly, the Award of the arbitrator(s) is subject to further review through the Florida appellate process.” This is, of course, a much broader judicial review than is normally permitted with respect to arbitration awards, and thus the contractor argued that the provision was void and that the entire arbitration agreement should be discarded.

The trial court granted the motion to compel arbitration, but the appellate court reversed, finding that the subject provision violated public policy as expressed in the Florida Arbitration Code. The Code limits a courts’ ability to vacate an arbitration award to a fairly narrow set of circumstances, such as when an arbitration award is “procured by corruption, fraud, or other undue means,” when there is “evident partiality,” corruption, or misconduct on the part of the arbitrator, or when the arbitrator exceeds the authority provided by the parties’ agreement. The Code also prohibits parties from waiving or agreeing to vary their right to seek judicial confirmation of awards or the grounds for vacating or modifying an arbitration award.
The court found that the Code clearly prohibited expansions of the scope of judicial review of arbitration awards and thus made the contested provision in the arbitration agreement unenforceable. Rather than finding that the arbitration agreement was unenforceable as a whole, however, the court remanded the matter to the trial court to determine whether this provision was severable, such that the arbitration agreement could be enforced with that provision removed.

National Millwork, Inc. v. ANF Group, Inc. and Liberty Mutual Insurance Company, No. 4D18-545 (4th DCA, Sep. 25, 2018)

This post written by Jason Brost.

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Shingled Out: Eleventh Circuit Binds Homeowners to Individual Arbitration Provisions Displayed on Roofing Shingle Packaging

December 6, 2018 by Michael Wolgin

This case involved a twist on the classic “shrinkwrap” agreement. Here, plaintiff homeowners brought a putative class action seeking damages and declaratory relief on behalf of a class of building owners who had used Tamko shingles. In response, Tamko filed a motion to compel arbitration, contending that by unwrapping and retaining its shingles, the homeowners had accepted the terms of its purchase agreement and warranty which were both printed—in full—on the outside wrapper of every shingle package. Specifically, each package wrapper displayed the all-capped word “IMPORTANT” and warned the purchaser in all caps to “READ CAREFULLY BEFORE OPENING [THE] BUNDLE.” The warranty also contained a mandatory arbitration clause, which was similarly printed in capital letters on the outside of every shingle wrapper and specified that any action against Tamko must be arbitrated individually rather than as part of a consolidated or class action. The district court granted Tamko’s motion and dismissed the homeowners’ complaint, reasoning that the homeowners were bound to arbitrate because through their roofers, they had accepted the terms of Tamko’s purchase agreement, including its mandatory-arbitration provision.

On appeal, the Eleventh Circuit affirmed, finding that (1) Tamko’s packaging sufficed to convey a valid offer of contract terms; (2) unwrapping and retaining the shingles was an objectively reasonable means of accepting that offer; and (3) the homeowners’ grant of express authority to their roofers to buy and install shingles necessarily included the act of accepting purchase terms on the homeowners’ behalf. In so finding, the appellate panel reasoned that “[a]s in the shrinkwrap cases, Tamko’s packaging provided conspicuous notice of its offer—something a reasonable, objective person would understand as an invitation to contract.” The panel further stated that, as master of its offer, Tamko was “free to invite acceptance by specified conduct” and rejected the plaintiffs’ arguments that they never saw the shingle packaging and thus never had a reasonable opportunity to consider Tamko’s purchase terms. Instead, the panel found that “acceptance of Tamko’s purchase terms—arbitration clause and all—was incidental to, and reasonably necessary to accomplish, the homeowners’ express grant of agency authority to their roofers to purchase and install shingles” and therefore, notice of the terms printed on the shingle wrappers was properly imputed to the homeowners. Dye v. Tamko Bldg. Prods., Inc., Case No. 17-14052 (11th Cir. Nov. 2, 2018).

This post written by Gail Jankowski.

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Ninth Circuit Enforces Arbitral Immunity Following FINRA Arbitration

November 29, 2018 by John Pitblado

Plaintiff Syed Nazim Ali appealed a Northern District of California judgment dismissing Plaintiffs’ diversity action against FINRA alleging state law claims arising from an arbitration proceeding. The Ninth Circuit affirmed the District Court’s decision to dismiss Plaintiffs’ claims on the basis of arbitral immunity “because the claims alleged effectively seek to challenge the decisional acts of an arbitrator or an arbitration panel” contrary to California precedent.

The District Court had previously confirmed the FINRA arbitration award, as previously reported here.

Global Ebusiness Services, Inc. et al. v. FINRA, No. 18-15716 (USCA 9th Cir. Oct. 29, 2018)

This post written by Nora A. Valenza-Frost.

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Tenth Circuit Strikes Offending Arbitration Provision Clause in Au Pair Agreements

November 27, 2018 by John Pitblado

Plaintiffs had entered into various au pair agreements which contained arbitration provisions, which defendants sought to enforce when a class action was filed. The District Court of Colorado denied the defendants’ motion to compel arbitration, finding the au pair agreements “were contracts of adhesion and procedurally unconscionable because the au pairs were relatively young at the time they signed the contracts, were foreigners, spoke English as a second language, and had no experience with contracts or contract law.”

The Circuit Court agreed that the arbitration provision was unconscionable, but reached “that conclusion for reasons more limited than those found by the district court.” The Court found the agreements were procedurally unconscionable “to a moderate degree,” as contracts of adhesion. As to substantive unconscionability, the Court analyzed three clauses: (1) allowing AuPairCar, Inc. to select unilaterally the arbitration provider has a high degree of substantive unconscionability; (2) a California forum selection clause was not unconscionable; and (3) bilateral fee shifting was not unconscionable. “Because the au pair agreements have moderate procedural unconscionability and significant substantive unconscionability due to the arbitration provider selection clause, the au pair agree is unconscionable and unenforceable as written.”

The Circuit Court ordered the District Court to sever the provision allowing AuPairCar, Inc. to unilaterally select the arbitration provider, as both California and federal law provide a default method for appointing an arbitrator, and, consistent with its opinion, to further compel the parties to arbitrate.

Beltran v. Interexchange, Inc., No. 17-1359 (USCA 10th Cir. Oct. 30, 2018)

This post written by Nora A. Valenza-Frost.

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Eleventh Circuit Finds that Arbitration Clause in One Agreement Applies to Disputes Regarding a Related Agreement

November 21, 2018 by Rob DiUbaldo

Does an arbitration clause in a one but not the other of two contracts executed by the same parties at the same time apply to a dispute regarding the contract that does not contain the arbitration clause? The Eleventh Circuit has determined that it can and, under Georgia law and the particular circumstances of this case, it does.

The dispute arose out of Theodore Wood’s resignation from his employment with Parks IP Law, LLC and creation of his own firm—Wood IP, LLC. As part of this separation, the parties entered into two agreements: a Separation Agreement, which included an agreement to arbitrate any disputes in Atlanta, Georgia, and a Promissory Note, which did not include an arbitration provision but did include a venue provision stating that “[a]ny action or proceeding” between the parties “must be brought in the State of Georgia, Fulton County . . . .” When Parks IP brought suit alleging a breach of the Promissory Note, Wood moved to compel arbitration, but the trial court denied his motion.

On appeal, Parks IP argued that the arbitration provision in the Separation Agreement did not apply to the Promissory Note, because the Promissory Note did not reference the Separation Agreement. The Eleventh Circuit disagreed. Noting that documents executed at the same time in the course of the same transaction are construed together under Georgia law, the court found that this applied to the Separation Agreement and the Promissory Note. While the Promissory Note did not reference the Separation Agreement, the Separation Agreement did reference the Promissory Note, as the Promissory Noted spelled out the terms by which debts discussed in the Separation Agreement were to be paid.

Parks IP further argued that the Promissory Note’s venue provision was in direct conflict with the arbitration provision, but the court found that the phrase “any action or proceeding” in the venue provision was not limited to actions in court, and was broad enough to include an arbitration proceeding. Further, the court found no conflict between the Promissory Note’s specification of venue in Fulton County and the Separation Agreement’s specification of arbitration in Atlanta, as the two could reasonably be construed together to mean that arbitration should occur in the part of Atlanta that is within Fulton County.

Parks IP Law, LLC v. Wood et al., No. 18-11178 (11th Cir. Nov. 8, 2018)

This post written by Jason Brost.

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