Arbitration Process Issues

THE ALLEGATION OF NON-ARBITRABLE PRIVATE ATTORNEY GENERAL CLAIMS DOES NOT PREVENT ARBITRATION OF INDIVIDUAL CLAIMS RAISED SIMULTANEOUSLY

December 14, 2017 by Michael Wolgin

A contractual arbitration clause may not be avoided by the allegation of “private attorney general” claims that are not arbitrable on public policy grounds in conjunction with claims raised on an individual basis that would otherwise clearly be subject to arbitration. A plaintiff claiming to have suffered harm as a result of misclassification as an independent contractor rather than as an employee raised a “smorgasbord of claims … in a mix of capacities,” including as an individual, a putative class representative, and a private attorney general under California’s Private Attorneys General Act (“PAGA”).

The contract between the plaintiff and his employer provided that arbitration will occur on only an individual basis and expressly waived claims as a representative. However, California law prohibits PAGA claims from being waived in such a manner. The plaintiff argued that because the PAGA claims could not be submitted to arbitration, his related individual and class representative claims should not be arbitrated either. The Ninth Circuit disagreed. The court simply restricted the contractual arbitration provision from applying to the PAGA claims and ruled that arbitration should be compelled on the other claims. Furthermore, the court held that the PAGA claims should be stayed until the arbitration of the plaintiff’s individual claims made a critical determination. Depending on the outcome of that determination, the plaintiff may be allowed to pursue his PAGA claims in district court. Aviles v. Quik Pick Express, LLC, Case No. 15-56951 (9th Cir. Nov. 24, 2017).

This post written by Benjamin E. Stearns.

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FIRST CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION OF NON-SIGNATORY EMPLOYEE’S WAGE AND HOUR CLAIMS

December 13, 2017 by Michael Wolgin

As a condition of plaintiff Ouadani’s employment with defendant TF Final Mile LLC (f/k/a/ Dynamex Operations East, LLC (Dynamex)) as a delivery driver, Ouadani was required to associate with Dynamex’s vendor, Birtha Shipping LLC (SBS), from which he received his compensation. Ouadani did not have a written contract with either the Dynamex or SBS. Ouadani ultimately complained to Dynamex that he lacked the independence of a contractor, and that he should be paid as an employee, and he was terminated shortly thereafter.

Later, Ouadani brought various wage and hour claims against Dynamex as a putative class action on his behalf and on behalf of others similarly situated. Dynamex responded by filing a motion to compel arbitration, citing an agreement between it and SBS, which contained a mandatory arbitration clause. The District Court for the District of Massachusetts denied Dynamex’s motion to compel, reasoning that Ouadani had never signed the agreement containing the arbitration clause and had no idea that the agreement even existed.

On appeal, Dynamex argued that Ouadani should nonetheless be compelled to arbitrate under federal common law principles of contract and agency. The First Circuit rejected this argument and refused to bind Ouadani, a non-signatory, to the agreement. The Court was not persuaded by Dynamex’s arguments that (1) Ouadani was bound to arbitrate inasmuch as he was an “agent” of SBS and (2) Ouadani knowingly sought and obtained benefits from the agreement because he performed the “Contracted Services” pursuant to the agreement for compensation. On the latter issue, the Court held that the benefits of the arbitration clause accrue to the contracting signatories – Dynamex and SBS – not to Ouadani, who could “hardly be said to have ‘embraced’ the Agreement when he was unaware of its existence.” Ouadani v. TF Final Mile LLC, Case No. 17-1583 (1st Cir. Nov. 21, 2017).

This post written by Gail Jankowski.

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COURT FINDS CONFIDENTIALITY PROVISION IN ARBITRATION AGREEMENT UNCONSCIONABLE, COMPELS CONSUMER ARBITRATION

December 4, 2017 by Carlton Fields

The Eleventh Circuit has determined that a confidentiality provision in an arbitration clause was substantively unconscionable. The case involved a putative class action by David Johnson alleging that KeyBank National Association (“KeyBank”) altered the order of debit card transactions to maximize their collection of overdraft fees. Johnson opened the account at issue in 2001 by signing an agreement stating that “all accounts opened under this Plan are subject to [KeyBank’s] Deposit Account Agreement” (the “2001 Agreement”). The Deposit Account Agreement was a 1997 agreement with the arbitration clause at issue (the “1997 Agreement”).

KeyBank moved to compel arbitration of Johnson’s claims, arguing that Johnson agreed to be bound by the arbitration provision in the 1997 Agreement. The district court denied the motion, however, finding the arbitration clause to be unconscionable.

On appeal, the Eleventh Circuit first concluded that Johnson agreed to arbitrate because the 2001 Agreement expressly stated that the 2001 account was “subject to” the terms of the 1997 Agreement, including the arbitration clause. The phrase “subject to” was deemed sufficient to incorporate the 1997 Agreement into the 2001 Agreement by reference. By executing the 2001 Agreement, the court found that Johnson agreed to be bound by the arbitration provision.

The court then reversed the district court’s determination that the arbitration provision was unconscionable. First, the court held that it was not procedurally unconscionable because it was not made without “meaningful choice;” that it was a contract of adhesion did not make it unconscionable per se. Second, while it was not substantively unconscionable as a whole, the court held that a confidentiality clause in the provision was unconscionable in that it required the parties to “keep confidential any decision of an arbitrator.” The court agreed that by keeping the outcomes of prior arbitrations concealed, it put KeyBank, a repeat participant in the arbitration process, at an “obvious informational advantage” at the outset of a dispute. Moreover, prospective claimants would have little context in which to assess the value of their cases, which may discourage those individuals from pursuing valid claims. As such, the court severed the confidentiality clause and enforced the remainder of the arbitration provision with instructions on remand. Larsen v. Citibank FSB, No. 15-10779 (871 F.3d 1295) (11th Cir. Sept. 26, 2017).

This post written by Alex Silverman.
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COURT DENIES MF GLOBAL HOLDINGS’ BID TO APPEAL BANKRUPTCY COURT ORDER COMPELLING ARBITRATION

November 27, 2017 by Rob DiUbaldo

On October 30, 2017 the Southern District of New York rejected MF Global Holdings’ (“MF Global”) latest attempt to avoid a bankruptcy court order compelling it to submit to arbitration in Bermuda in its coverage dispute with Allied World Assurance Company (“Allied World”) regarding MF Global’s bankruptcy. The court denied MF Global’s motion seeking leave to appeal the bankruptcy court’s arbitration order and for a stay of the arbitration pending that appeal.

Allied World argued that 9 U.S.C. § 16(b) prohibits interlocutory appeals for orders compelling arbitration, and that the exception to the statute was not satisfied in this case. The listed exception, 28 U.S.C. § 1292(b), provides for district court certification of interlocutory orders for appeal to circuit courts but does not apply to appeals from bankruptcy courts to district courts under § 158(a). The court declined to accept that interpretation, instead concluding that § 16(b) was not intended to cover, and did not apply to, decisions of bankruptcy courts. Additionally, the court noted that accepting Allied World’s argument would lead to like cases being treated differently because cases in bankruptcy court could never obtain an interlocutory appeal while cases in which a district court declines to refer the matter to the bankruptcy court could obtain interlocutory appeal. Therefore, the court held, § 16(b) did not bar MF Global’s attempted appeal.

Nevertheless, the court found there were no “exceptional circumstances” justifying an interlocutory appeal of the bankruptcy court’s order. The proposed issue on appeal was whether a bankruptcy plan provision retaining jurisdiction over future and related disputes supersedes pre-bankruptcy arbitration rights, absent an express provision to that effect and when the adversary proceeding began after confirmation of the bankruptcy plan. The court found this issue to be a controlling question of law, even though a resolution on it would not terminate the case, because it would offer helpful guidance for future parties encountering the issue. It also found there was “substantial ground for difference of opinion” based on cases from other courts reaching conclusions contrary to that of the bankruptcy court. Interlocutory appeal was inappropriate, however, because reversal of the bankruptcy court on this issue would not, by itself, “materially advance the ultimate termination of the litigation” where the defendant made several independent arguments for why the jurisdiction provision should not be enforced that would each need to be addressed.

Because the court denied MF Global’s motion for leave to appeal, it also denied the motion to stay as moot.

In re: MF Global Holdings Ltd., Case No. 17-7332 (S.D.N.Y. Oct. 30, 2017).

This post written by Thaddeus Ewald .

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ENGLAND’S HIGH COURT OF JUSTICE UPHOLDS ARBITRATION AWARD FINDING NO “SERIOUS IRREGULARITY”

November 14, 2017 by John Pitblado

Claimant’s application under s. 68(2)(d) of the Arbitration Act 1996 alleged serious irregularity in the award of an arbitral tribunal alleging the tribunal failed to deal with all the issues that were put before it, and requested that the Court set aside or vary the award rather than remit it to the tribunal, as one of the arbitrators had acted inappropriately.

Claimant listed four aspects of its defense which were not addressed: (1) collateral estoppel; (2) conclusive evidence; (3) failure to meet the burden of proof; and (4) overstatement. The Court concluded none of the complaints were justified.

With respect to the alleged inappropriate behavior, claimant’s party-appointed arbitrator sent an email to its counsel, not copying the petitioner or any other member of the Tribunal, stating that “both party-appointed arbitrators were upset by the conduct of the chairman,” expressed highly negative views about him, and that the party-appointed arbitrator was going to ask the chairman to resign. The email was marked “highly confidential: not to be used in the arbitration” and explicitly stated that the email “could not be referred to in the arbitration or afterwards.” The chairman did not resign and the arbitration proceeded “with no suggestion that there were any other internal difficulties on the Tribunal.”

The Court was astonished that the email was sent, stating that “any communication by one arbitrator with one party which concerns the arbitration may give rise to concerns that that arbitrator is not acting fairly or impartially for the simple reason that it creates the impression of a close relationship between the arbitrator and the party and rises the specter of other such communications.” Despite this, the Court did not set aside the Award, noting that disclosure of the email “might have created a somewhat awkward working environment, it is not something that experienced, professional people could not deal with.”

With respect to the claimant’s request for confidentiality, the Court concluded that as the Award was not confidential by a U.S. lawsuit, it was “unrealistic to argue that [claimant] continues to have any expectation of confidentiality in the Award.”

Symbion Power LLC v. Venco Imtiaz Construction Company, Case No: HT-2016-000211 (Royal Courts of Justice, London March 10, 2017)

This post written by Nora A. Valenza-Frost.

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