Arbitration Process Issues

NLRB ORDERS DISH NETWORK TO RESCIND OR REVISE ITS ARBITRATION AGREEMENT WITH EMPLOYEES

June 7, 2017 by Michael Wolgin

Recently, the National Labor Relations Board (NLRB) ordered Dish Network, LLC to rescind or revise its arbitration agreement, finding that provisions in the agreement violated the National Labor Relations Act (NLRA).

Beginning in October 2013, Dish required all applicants for employment to sign an arbitration agreement, which required that any claim, controversy or dispute arising out of the employee’s application for employment, employment, or termination of employment shall be resolved by arbitration (the “Arbitration Agreement”). The Arbitration Agreement also required that the arbitration shall be kept confidential. There was no procedure in the Arbitration Agreement for the employee to opt out. In this particular case, the charging party, employee Brett Denney, signed the Arbitration Agreement. He was later suspended for an alleged violation of a workplace policy. Denney was directed to not discuss his suspension with his coworkers. Denney then filed a complaint with the NLRB, alleging a violation by Dish of Section 8(a)(1) of the NLRA by prohibiting him from discussing the suspension with coworkers and for maintaining and enforcing the Arbitration Agreement.

In addressing the Arbitration Agreement, the NLRB noted that an employer violates Section 8(a)(1) of the NLRA if it maintains an arbitration policy that employees would reasonably believe interferes with their ability to file a charge with the NLRB or access the NLRB’s processes. The NLRB found that Dish’s Arbitration Agreement violated Section 8(a)(1) because the employees would reasonably construe it from prohibiting them from filing NLRB charges or accessing the NLRB’s processes. The NLRB noted that the Arbitration Agreement was very broad in that it applied to “any claim, controversy, and/or dispute between them, arising out of and/or in any way related” to the employee’s application, employment or termination. Further, the NLRB found that the confidentiality requirement of the Arbitration Agreement independently violated Section 8(a)(1) because a workplace rule that prohibits discussion of terms and conditions of employment is unlawfully broad. As to Dish’s instruction to Denney to not discuss the suspension with his coworkers, the NLRB also found that the instruction violated Section 8(a)(1) of the NLRA.

Under the NLRB’s order, Dish must cease and desist from using the Arbitration Agreement and must take affirmative actions to effectuate the policies of the NLRA. It also required that Dish rescind the Arbitration Agreement or revise it, making clear that it does not restrict the employee’s right to file NLRB charges or access NLRB’s processes and that it does not require confidentiality of arbitration proceedings. The NLRB also ordered Dish to notify current and former employees of the action, and post and distribute electronically notices at certain Dish locations of the action and order. Dish Network LLC and Brett Denney, No. 27-CA-158916 (NLRB April 13, 2017).

This post written by Jeanne Kohler.

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FIFTH CIRCUIT VACATES TEXAS FEDERAL COURT’S ORDER WHICH WITHDREW ITS PRIOR ORDER COMPELLING ARBITRATION

June 5, 2017 by Michael Wolgin

Plaintiff Gaspar Salas, a former employee of defendant GE Oil & Gas, brought suit in 2014 in Texas federal court against GE for discrimination and retaliation. The court granted GE’s motion to compel arbitration, and the case was dismissed in December 2014. The parties did not move forward with arbitration, and in February 2016, plaintiff filed a motion to compel arbitration in the same court. After a teleconference on the motion, the court issued an order, reopening the suit and withdrawing its prior order compelling arbitration. GE moved for reconsideration, which was denied and GE then appealed.

On appeal, GE argued that the district court lacked subject matter jurisdiction to reopen the case, since it had previously dismissed the suit. Thus, according to GE, the court could exercise jurisdiction only to the extent of enforcing an arbitration award. That the district court fully dismissed the case, explained the Fifth Circuit, is not necessarily fatal to the court’s exercise of jurisdiction. Under the Federal Arbitration Act, however, district courts may not intervene in the arbitral process “beyond the determination as to whether an agreement to arbitrate exists and enforcement of that agreement.” Here, the Fifth Circuit noted that the district court did not determine whether the parties’ agreement to arbitrate was valid nor did it enforce that arbitration agreement. Instead, the district court had found “that the parties had ‘failed’ to arbitrate and withdrew its prior order compelling arbitration.” Thus, the Fifth Circuit remanded the case for further proceedings, but limited the district court’s jurisdiction to determining only whether an agreement to arbitrate still exists and enforcement of that agreement. Gaspar Salas v. GE Oil & Gas, No. 16-20379 (5th Cir. May 12, 2017).

This post written by Jeanne Kohler.

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FOURTH CIRCUIT AFFIRMS FINDING THAT ARBITRATION AGREEMENT IN PAYDAY LOAN OBTAINED OVER THE INTERNET IS UNENFORCEABLE

May 31, 2017 by John Pitblado

Plaintiff electronically signed a contract which contained: (1) terms governing the loan; (2) an agreement to submit disputes to arbitration; and (3) a choice of law provision which required the application of Otoe-Missouria tribal law and disclaimed the application of state or federal law. The arbitration clause itself provided that “any dispute … will be resolved by arbitration in accordance with the law of the Otoe-Missouria Tribe of Indians.” The same disclosure about the application of Otoe-Missouria tribal law was included on the signature page.

Relying on the Circuit Court’s prior decision in Hayes v. Delbert Services Corp., 811 F.3d 666 (4th Cir. 2016), the district court concluded the contract denied the applicability of all federal and state law, holding the arbitration agreement unenforceable.

The Circuit Court reviewed, tasked with examining whether, as a matter of law, the “choice-of-forum and choice-of-law clause operate in tandem as a prospective waiver of a party’s right to pursue statutory remedies.” As the language took the “plainly forbidden” step of prospectively waiving federal substantive rights, the choice of law provision was unenforceable as a matter of law and not severable from the rest of the arbitration agreement, because the choice of law provision went to the “essence” of the contract.

Dillon v. BMO Harris Bank, N.A., et al., NO. 16-1362 (4th Cir. May 10, 2017)

This post written by Nora A. Valenza-Frost.

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SIXTH CIRCUIT FINDS DISTRICT COURT ERRED IN RULING ON ARBITRATION WAIVER ISSUE WHERE ISSUES AS TO ARBITRABILITY WERE RESERVED FOR DECISION BY THE ARBITRATOR

May 30, 2017 by John Pitblado

The Plaintiff, Hilton, a computer purchaser, entered into a repayment agreement with Dell Financial Services, LLC, which later sold the debt to Midland Funding, to purchase a Dell computer on credit. The underlying issue in the case concerned Hilton’s claim brought in federal court that Midland Funding attempted to collect on time-barred debt in violation of the Fair Debt Collection Practices Act (FDCPA) after Midland sued Hilton in state court to collect on the outstanding balance. Midland moved to compel arbitration and dismiss the district court case, citing the Dell credit agreement’s arbitration provision.

The District Court for the Eastern District of Michigan held that Hilton’s claim was arbitrable, and that Midland did not waive its right to arbitrate by bringing a debt collection action in state court. The district court ordered the parties to proceed with arbitration of plaintiff’s claims pursuant to the arbitration provision and further ordered that, in lieu of staying the proceedings, the case be dismissed without prejudice. Hilton appealed both the district court’s decision to dismiss the case rather than stay the proceedings and its holding that Midland had not waived arbitration.

The Sixth Circuit affirmed the district court’s dismissal of the case, finding that the FAA requires a court to stay proceedings pending arbitration only “on application of one of the parties.” The panel found that absent a direct request to stay by Hilton, and because “neither party did more than vaguely reference the possibility of staying the proceedings,” the district court did not err by dismissing the case without prejudice.

With regard to whether Midland waived its right to arbitrate, the Sixth Circuit held that the district court should not have ruled on this issue because the arbitration provision delegated this question to the arbitrator and Midland elected to arbitrate. The panel agreed with Hilton’s argument that Midland could not simultaneously argue first, that the arbitration provisions gave authority to the arbitrator to determine whether it waived the right to compel arbitration and second, that the courts should determine whether arbitration was waived. As such, the panel found that the district court erred by deciding the waiver issue.

Hilton v. Midland Funding, No. 16-1556 (6th Cir. Apr. 28, 2017).

This post written by Gail Jankowski.

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THIRD CIRCUIT PERMITS LIMITED DISCOVERY ON ISSUE OF VALIDITY OF ARBITRATION AGREEMENT

May 23, 2017 by Rob DiUbaldo

In an unpublished opinion, the Third Circuit affirmed a decision denying a defendant bank’s motion to dismiss a consumer complaint in favor of arbitration when the contract containing the arbitration clause was not referenced in or attached to the complaint, agreeing that the plaintiff should be allowed to engage in limited discovery on the issue of the validity of the arbitration agreement.

The plaintiff, a customer of the defendant bank, sued alleging that the defendant’s overdraft protection program violated federal law and breached a contract with the plaintiff. According to the defendant, it had three contracts with the plaintiff: an account agreement, an overdraft protection agreement, and a service agreement related to electronic money transfers. The plaintiff alleged the existence of the account and overdraft protection agreements, but her complaint did not mention the service agreement, and the plaintiff filed a declaration stating that she had no recollection of seeing or agreeing to the service agreement. The account agreement did not contain an arbitration agreement and the overdraft protection agreement was not part of the record, such that the disputed service agreement was the only source of any provision purportedly requiring plaintiff to arbitrate the dispute.

The defendant argued that the trial court had “usurped the role of the arbitrator,” because, under the terms of the arbitration agreement, questions over the validity of the contract were for the arbitrator to decide. The Third Circuit disagreed, however, finding that the trial judge had not decided that the contract was invalid, but instead simply allowed limited discovery on the issue of arbitrability. Citing its earlier decision in Guidotti v. Legal Helpers Debt Resolution, LLC, the Third Circuit found that where “the parties’ agreement to arbitrate the dispute is not clear on the face of the complaint (or incorporated documents),” a motion to dismiss in favor of arbitration should be decided using a summary judgment standard. Because the service agreement – the only operative contract containing an arbitration clause – was not referenced in or attached the complaint, the existence of such a duty was not clear on the face of that complaint, and the plaintiff was entitled to limited discovery on the validity of and applicability of that agreement.

Horton v. FedChoice Federal Credit Union, No. 16-3960 (3d Cir. Apr. 25, 2017)

This post written by Jason Brost.
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