Arbitration Process Issues

THE TENTH CIRCUIT AFFIRMED DECISION THAT TWO PUTATIVE CLASS ACTIONS MUST BE ARBITRATED

October 13, 2016 by John Pitblado

This dispute involves two cable subscribers (Andrew Alwert and Stanley Freedman) who filed putative class actions against Cox Communications Inc. for allegedly tying monthly set-top box payments to its premium cable services.

The background of the dispute can be found here. In sum, in 2009, several of Cox’s premium cable subscribers filed suits against the company for allegedly tying the service to its set-top box rentals. The suits were consolidated and transferred to Oklahoma federal court. However, in 2011, the Oklahoma federal court denied the request to certify a national class. Many of the subscribers/plaintiffs then filed putative class actions in several geographic regions around the country (Alwert filed on behalf of Cox subscribers in its New Orleans market and Feldman filed on behalf of Cox subscribers in its Arizona market). The various regional actions were again consolidated and transferred to the Oklahoma federal court. The parties agreed to stay all actions except one case brought on behalf of Cox subscribers in its Oklahoma City market (the Healey litigation). After the court granted class certification in that case, Cox moved to compel arbitration, which was denied. Cox appealed, and the Tenth Circuit affirmed. While the Healey appeal was pending before the Tenth Circuit, the Oklahoma federal court lifted the stay on the Alwert and Feldman cases. Cox answered both complaints and plaintiffs then sought discovery. Cox then moved to compel arbitration in both the Alwert and Feldman cases. In December 2014, the Oklahoma federal court granted the motions, finding that the arbitration clauses covered the present litigation, that Cox had not waived arbitration and the arbitration clauses were supported by consideration and were not illusory. The plaintiffs appealed and the Tenth Circuit granted the petition to appeal.

The Tenth Circuit affirmed the Oklahoma federal court’s order compelling arbitration of both cases, finding that the arbitration clauses in Alwert and Feldman’s subscriber agreements cover the matters raised in their cases, and that Cox did not waive its right to arbitration. The Tenth Circuit distinguished these cases from Healy, because in Healey, Cox engaged in litigation and did not move to compel arbitration until a class of subscribers was certified. The Court noted that Cox’s decision to litigate in Healy does not legally impact its decision to compel arbitration in the Alwert and Feldman cases, as the matters involve different parties and claims.
Thus, the Court held that Cox had not waived its right to arbitrate.

In re: Cox Enterprises Inc. Set-Top Cable Television Box Antitrust Litigation, Nos. 15-6076 (Alwert) and 15-6077 (Feldman) (10th Cir. Aug. 26, 2016).

This post written by Jeanne Kohler.

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ELEVENTH CIRCUIT DETERMINES PARTY’S COUNTERCLAIM TO PETITION FOR CONFIRMATION COULD NOT BE CONSTRUED AS MOTION TO VACATE THE ARBITRATION AWARD

October 12, 2016 by John Pitblado

When the appellant failed to file a motion to vacate or modify an arbitration award, it waived its right to raise Section 10 or 11 of the Federal Arbitration Action (“FAA”) as a defense to a motion to confirm the award. Appellant argued that its counterclaim to the petition for confirmation should have been construed as a motion to vacate. Although a district court has “discretion to liberally construe a poorly conceived filing”, there is no obligation for the court to “independently inquire into the most advantageous construction of a represented civil litigant’s filing.” The Court found the counterclaim was “so vague that the district court could not possibly have discerned a factual predicate for Section 10 relief.”

The Court also upheld the District Court’s decision denying appellant’s motion for reconsideration, as appellant neglected to timely move for vacatur or respond to petitioner’s supplement to its petition for confirmation. Since a motion for reconsideration exists for the correction of “obvious errors or injustices” and not to put forth a new argument, the district court did not abuse its discretion by declining to accept appellant’s belated request to construe the counterclaim as a motion to vacate. Careminders Home Care, Inc. v. Concura, Inc., et al., No. 16-10112 (11th Cir. Aug. 25, 2016)

This post written by Nora A. Valenza-Frost.

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ELEVENTH CIRCUIT DOUBLES DOWN ON THE IMPORTANCE OF SELECTING AN AVAILABLE ARBITRATION FORUM

October 4, 2016 by Carlton Fields

The Eleventh Circuit affirmed a district court’s denial of a motion to compel arbitration on the grounds that the designated forum in the arbitration agreement was both unavailable and integral to the agreement. Appellee Jessica Parm acquired a loan from Western Sky Financial, owned by a Cheyenne River Sioux Tribe (“the Tribe”) member. The loan agreement included a binding arbitration clause, specifying the Tribe would conduct the arbitration according to tribal governing rules, but allowed Parm a right to choose amongst certain arbitral organizations to administer the arbitration. At the time of both the agreement and the lawsuit, no tribal arbitral forum nor governing rules existed.

Parm sued the National Bank of California (“Bank”) for illegally permitting Western Sky to initiate electronic fund transfers from her account under the loan agreement. Bank moved to compel arbitration under the provision referenced above. In denying the motion, the court first applied traditional rules of contract construction to reject the Bank’s arguments, interpreting the choice of arbitrator provision as subject to the tribal arbitration provision to give meaning to both. It read an exception clause as applying to its nearest-reasonable referent, the “Dispute[s]” excepted from arbitration, rather than as an exception to the tribal exclusivity provision. It then stated that even if the Bank’s arguments were persuasive, the contract would be ambiguous, and thus construed against the Bank as the draftor. Finally, the court held the arbitration clause unenforceable, rather than substituting an available forum, based on how integral the tribal forum provisions were to the agreement. The mandatory language of and pervasive references to the Tribe and its rules indicated the use of that forum was not merely an ancillary concern. Because the agreement required arbitration in an unavailable forum that was integral to the agreement itself, the arbitration clause was deemed unenforceable. Parm v. Nat’l Bank of Cal., N.A., No. 15-12509 (11th Cir. Aug. 29, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

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DIVIDED THIRD CIRCUIT PANEL HOLDS THAT WAIVER OF ARBITRATION CLAUSE DOES NOT APPLY TO FUTILE ARGUMENTS

October 3, 2016 by Carlton Fields

On July 13, 2016, a U.S. Court of Appeals for the Third Circuit panel held that an arbitration clause is not waived simply because a party failed to raise a futile argument. The case arose out of a putative class action alleging over $50 million in untrebled damages relating to purported overcharges of fees stemming from the recording of deeds and mortgage instruments. The case was pending in the District of New Jersey, where strong precedent suggested that a motion to compel bipolar arbitration—that is individual, rather than class-wide—would have been futile. Following the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), where the Court found that the Federal Arbitration Act preempted state laws that had previously prohibited a party from compelling bipolar arbitrations, the defendants notified the plaintiffs that they would be seeking to compel arbitration of this kind. The U.S. District Court for the District of New Jersey granted the motion.

On appeal, the Third Circuit found that “futility can excuse the delayed invocation of the defense of arbitration.” Examining what other federal courts had held previously, the Third Circuit panel, over a strong dissent, held that “[w]hy would we require a party to make a futile gesture to prevent waiver when we do not require such gestures in other scenarios?” The panel went on to state that the correct test is whether it was almost certain that a motion to compel arbitration would have been denied. Finding that test satisfied in these circumstances, the panel found that because defendants demanded bipolar arbitration less than a month after Concepcion, the plaintiffs were not prejudiced and affirmed the district court’s order compelling the case to individual arbitration.

Chassen v. Fidelity National Financial, Inc., Case No. 15-3789 (3d Cir. July 13, 2016).

This post written by Zach Ludens.

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ORDER COMPELLING ARBITRATION REVERSED DUE TO FAILURE TO DETERMINE THE EXISTENCE AND SCOPE OF ARBITRATION AGREEMENT

September 27, 2016 by Carlton Fields

The Ninth Circuit recently reversed a trial court for compelling arbitration without issuing an order that (1) made “the necessary factual findings as to the parties’ communications,” (2) determined “the law applicable to contract formation,” and (3) ruled “as a matter of law what constituted the offer, acceptance, or terms of the contract.” The appellate court remanded for the trial court to “resolve factual issues and make legal conclusions regarding the scope of the parties’ agreement.” Due to the basic threshold error, the court determined that it did not need to consider the parties’ arguments regarding unconscionability, waiver, and due process. Cunico Corp. v. Custom Alloy Corp., Case No. 14-56544 (9th Cir. Sept. 6, 2016).

This post written by Michael Wolgin.

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