Arbitration Process Issues

California Federal Court Finds Defendant Did Not Wave Right to Arbitrate Despite Delay in Initiating Arbitration

July 25, 2018 by John Pitblado

Plaintiff argued that Defendant’s basis for removal was not applicable because Defendants waived their right to arbitration or because the case is not related to the agreement containing an arbitration provision. Finding the subject matter of the action related to the agreement, the Court looked at whether Defendants waived their right to arbitrate. Looking at the various factors articulated by the Ninth Circuit, the Court found Defendants had not waived their arbitration rights, and was “mindful of the presumption that waiver of the right to arbitrate is disfavored.” The Court’s key inquiry was “whether Plaintiff was prejudiced by Defendants’ action” in delaying bringing arbitration because of ongoing settlement negotiations. “[C]ourts have declined to find waiver in analogous cases where arbitration was not sought immediately, even after years of delay.”

Assad v. Josefsson, 18-cv-02470 (USDC C.D. Cal. June 19, 2018)

This post written by Nora A. Valenza-Frost.

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First Circuit Holds Online Mandatory Arbitration Agreement is Unenforceable

July 24, 2018 by John Pitblado

The First Circuit recently held that an arbitration clause contained in the online contract of the ride sharing app, Uber Technologies, Inc., is unenforceable under Massachusetts law.

In this case, plaintiffs, Uber riders, filed a class action in Massachusetts state court, challenging certain fees and surcharges they were charged in addition to the ride-sharing costs to which they agreed as violations of state consumer protection laws. Uber removed the case to Massachusetts federal court and filed a motion to compel arbitration based on a mandatory arbitration clause included in Uber’s Terms of Service. In order to use the Uber app, the customers had been required to register for an Uber account and to agree to the company’s Terms of Service & Privacy Policy. The Terms of Service included an arbitration clause which required customers to resolve any disputes with Uber through binding arbitration and also contained a class action waiver. The Massachusetts district court granted Uber’s motion to compel arbitration and dismissed the lawsuit. The plaintiffs then filed an appeal to the First Circuit.

At the outset, the First Circuit acknowledged that federal policy favors arbitration under the Federal Arbitration Act (“FAA”). Despite this, the court stated a valid agreement to arbitrate must exist before the FAA applies. The Court then analyzed whether Uber’s mandatory arbitration clause was enforceable under Massachusetts law, and concluded that an online contract is enforceable only if it is reasonably communicated to the plaintiff, and accepted by the plaintiff. The First Circuit then found that Uber had not reasonably communicated its Terms of Service, including the mandatory arbitration clause, to its customers because the link to the Terms was not sufficiently conspicuous. The Court noted that Uber did not use a common method of conspicuously informing online app users of its terms by requiring users to click a box stating that they agree to the terms before continuing to the next screen. Instead, Uber displayed, on an enrollment screen, a rectangular box with the language “Terms of Service,” which customers were not required to click in order to review the contract. The Court noted that Uber’s terms were not conspicuously disclosed to its users because the link was not designed in a way that most users associate with hyperlinks and thus did not have the appearance of a hyperlink. Further, the hyperlink box was not sufficiently distinct from the rest of the screen, which had other links in bold with similarly sized font that were “more noticeable.” The First Circuit noted: “if everything on the screen is written with conspicuous features, then nothing is conspicuous.” Thus, the First Circuit found that the arbitration clause is unenforceable, and reversed the Massachusetts federal court decision and remanded the case.

Cullinane v. Uber Technologies, Inc., No. 16-2023 (1st Cir. June 25, 2018).

This post written by Jeanne Kohler.

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Texas High Court Declines to Enforce Compel Arbitration Against Non-Signatory

July 19, 2018 by Rob DiUbaldo

In a recent dispute involving a crop insurance policy, the Texas Supreme Court held that an independent insurance agency could not compel arbitration of certain claims brought against it in state court by an insured (JJ Farms) where the agency was not a signatory to the operative arbitration agreement in the subject policy.

The dispositive issue the Texas Supreme Court addressed was the question of arbitrability, on which the court decided the trial court was charged with determining whether a valid arbitration agreement existed because there was no clear and unmistakable evidence that JJ Farms agreed to arbitrate arbitrability with non-signatories such as the agency. Therefore, the Texas Supreme Court reviewed the decision on arbitrability de novo.

On de novo review, the court assessed under a myriad of legal theories whether the underlying arbitration agreement between the insurer (R&H) and JJ Farms allowed for arbitration of disputes with non-signatories. First, the court concluded the insurance policy’s arbitration agreement did not require arbitration with non-signatories because the plain terms limited disagreements to be arbitrated to only those between the insured and insurer. Second, the court rejected an agency theory of arbitrability because R&H did not exercise control over the agency. Third, the court declined to confer third-party beneficiary status upon the agency because the insurance contract did not facially benefit it, nor did any language in the federal statute governing crop insurance grant third-party beneficiary status to insurance agents. Fourth, the court considered and ultimately discarded both direct-benefits estoppel, because the insurance policy did not impose duties or obligations on the agency, and alternative estoppel, because even though JJ Farms’s claims were intertwined with the insurance policy the relationship between R&H and the agency was insufficiently close to infer consent by JJ Farms to arbitrate the dispute.

Jody James Farms, JV v. The Altman Grp., Inc., No. 17-0062 (Tex. May 11, 2018).

This post written by Thaddeus Ewald .

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In Deepwater Horizon Arbitration, UK Appellate Court Declines to Remove Arbitrator with Multiple Related Appointments

July 10, 2018 by Michael Wolgin

The underlying case concerned the 2010 explosion and fire on the Deepwater Horizon oil rig in the Gulf of Mexico, when a well which was in the process of being plugged and temporarily abandoned, experienced a blow out. The appellant, Halliburton, provided cementing and well-monitoring services to BP in relation to the temporary abandonment of the well. Halliburton made a claim on its liability insurance against Chubb; however, Chubb refused to pay Halliburton’s claim, contending, among other things, that Halliburton’s settlement of the claims was not reasonable and that Chubb had not consented to the settlement.

At the coverage dispute arbitration between Halliburton and Chubb, two arbitrators were appointed on behalf of Halliburton and Chubb respectively. The third arbitrator, however, was Chubb’s preferred candidate. While the third arbitrator disclosed to Halliburton that he had acted, and was currently acting, as an arbitrator in multiple arbitrations involving Chubb, he did not disclose that he was serving as an arbitrator appointed by Chubb in two other disputes involving Transocean, the owner of the rig in this case. As such, in both instances, the third arbitrator heard similar or identical arguments by Chubb. Upon learning of this information, Halliburton issued a claim form seeking that the third arbitrator be removed. But the claim form was subsequently dismissed, and Chubb went on to win the arbitration against Halliburton.

Among several issues on appeal was “[w]hether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to an appearance of bias.” On this question, the Court reasoned that “the mere fact that an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party does not of itself give rise to an appearance of bias.” With regard to the requirement, if any, of disclosure, the Court reiterated the English law principle that the required disclosure was “facts or circumstances which would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased.”

Applying these principles, the court was persuaded that “(1) the non-disclosed circumstance does not in itself justify an inference of apparent bias; (2) disclosure ought to have been made, but the omission was accidental rather than deliberate; (3) the very limited degree of overlap means that this is not a case where overlapping issues should give rise to any significant concerns; (4) the fair-minded and informed observer would not consider that mere oversight in such circumstances would give rise to justifiable doubts as to impartiality; and (5) there is no substance in Halliburton’s criticisms of [the third arbitrator’s] conduct after the non-disclosure was challenged or in the other heads of complaint raised by them.” The court then affirmed the judgment, denied Halliburton’s challenge, and declined to find a real possibility that the third arbitrator was biased. Halliburton Co. v. Chubb Bermuda Ins. Co., Case No. [2018] EWCA Civ 817 (Royal Courts of Justice, Apr. 19, 2018).

This post written by Gail Jankowski.

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Fifth Circuit Reversed Judgment Compelling Arbitration Because Unsigned Arbitration Agreement Was Invalid

July 3, 2018 by John Pitblado

This matter involved a lawsuit brought in Texas federal court by a former employee (Huckaba) against Ref-Chem L.P., alleging sexual harassment, discrimination and retaliation in violation of Title VII. Ref-Chem moved to dismiss the lawsuit and compel arbitration, which was granted by the Texas district court, finding that Huckaba’s “continued employment” after she signed an arbitration agreement “constituted acceptance of that agreement” by both parties, even though Ref-Chem never executed the agreement. Huckaba appealed to the Fifth Circuit.

The Fifth Circuit reversed the Texas district court’s judgment, holding that the express language of the arbitration agreement at issue required for it to be signed by both parties and it was undisputed that Ref-Chem did not sign the agreement. Therefore, there was no valid agreement to arbitrate in this case, and thus, the court remanded to the district court for further proceedings.

Huckaba v. Ref-Chem, L.P., No. 17-50341 (5th Cir. June 11, 2018).

This post written by Jeanne Kohler.

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