Arbitration Process Issues

Two purported class representatives appealed an order compelling arbitration in their putative class action lawsuit against Amazon Services, LLC. The court affirmed, holding that the named plaintiffs agreed to Amazon’s “Business Solutions Agreement,” which contained an arbitration clause agreeing to arbitrate “any dispute” relating to the BSA or use of Amazon’s services. The court was not persuaded by the plaintiffs’ argument that a second “Marketplace Participation Agreement” agreement that they signed, which contained a litigation forum selection clause, took precedence over the arbitration clause in the BSA. The court rejected the argument that the MPA was a separately defined “Program Policy” that was superior to the BSA, finding that the MPA was an inferior “Seller Agreement” within the meaning of the BSA. The court further found that the fact that one of the parties signed the MPA before signing the BSA was immaterial; the BSA and its arbitration provisions represented the parties “entire agreement,” which superseded all prior agreements. Peters v. Amazon Services, LLC, Case No. 14-35294 (9th Cir. Oct. 13, 2016).

This post written by Michael Wolgin.

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A borrower had previously entered into three payday loan agreements that contained arbitration provisions mandating that all claims be arbitrated in the National Arbitration Forum (NAF), and under the Code of Procedure of the NAF. As of 2009, however, NAF did not accept consumer arbitrations. When the borrower filed a class action lawsuit against certain banking institutions involved with her loans, the banks initially compelled arbitration. When the NAF was unable to serve as the forum for the arbitration, the borrower successfully returned the proceedings back to court. The banks appealed this result to the Second Circuit, contending that section 5 of the FAA, which authorizes the court to substitute an arbitrator if there is a “lapse in the naming of an arbitrator,” permitted the court to substitute arbitrators here. But the Second Circuit disagreed with the banks, ruling that the arbitration in this case contained “numerous indicators that the parties contemplated one thing: arbitration before NAF.” “Further,” the court explained, “the agreement makes no provision for the appointment of a substitute arbitrator should NAF become unavailable.” As to the FAA, the court followed Second Circuit precedent and held that an unavailable forum does not constitute a “lapse” within the meaning of section 5 of the FAA. The court noted that the position of its circuit is aligned with the Eleventh and Fifth Circuits, but at odds with the Seventh and Third Circuits. The court affirmed, ruling that the banks could not enforce the arbitration agreements, and that the borrower’s lawsuit should proceed in court. Moss v. First Premier Bank, et al., Case No. 15-2513-cv (2d Cir. Aug. 29, 2016).

This post written by Michael Wolgin.

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An engineering company was hired to perform work in connection with construction and renovation of the South African Embassy, and subcontracted for sheet metal work with a third party. The subcontract contained an arbitration provision covering “any controversy or claim of Contractor against Subcontractor or Subcontractor against Contractor.” The third party then negotiated with a surety company for a surety bond, which incorporated the subcontract by reference. After a dispute between the engineering company and its subcontractor arose, the engineering company terminated the subcontract, notified the surety company that it intended to make a claim under the surety bond, and filed a request to join the surety company as a party in arbitration proceedings with its subcontractor. The surety company refused to consent to joinder and both parties moved for summary judgment on the issue of whether they must arbitrate the dispute over the bond. The engineering company argued that because the surety bond incorporated the subcontract by reference, the engineering company had agreed to arbitrate not only claims on the bond but also any issues of arbitrability. Relying on the disjunctive “or” in the language of the arbitration clause, the engineering company argued the subcontract required that “any controversy” involving any parties must be arbitrated, as well as any “claim of Contractor against Subcontractor” or vice versa. The court disagreed, applying a heightened standard of “clear and unmistakable evidence” that the surety company agreed to arbitrate. The court reasoned that although the surety company was bound by the subcontract as a whole, the surety company was not bound by the arbitration clause because the language clearly limited it to claims between the engineering company and its subcontractor. Western Surety Co. v. U.S. Engineering Co., No. 15-cv-327 (USDC D.D.C. Sept. 30, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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