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You are here: Home / Archives for Arbitration / Court Decisions / Contract Formation

Contract Formation

SDNY Grants Motion to Compel Arbitration of Employee’s Discrimination and Retaliation Claims

November 8, 2023 by Kenneth Cesta

In Marino v. CVS Health, the U.S. District Court for the Southern District of New York found defendant CVS Health’s “arbitration of workplace legal disputes policy” and related arbitration agreement compelled arbitration of the plaintiff’s discrimination and retaliation claims based on her pregnancy.

Sarah Marino was employed as a pharmacist at CVS beginning in 2012 and became a pharmacy manager after her first child was born in 2017. After her second child was born in April 2020, Marino took leave under the Family and Medical Leave Act (FMLA) but alleged that she was forced to work without pay during her leave, and was ultimately forced to terminate her employment in January 2023 in retaliation for her complaints about poor treatment and working conditions.

Marino brought claims in the Southern District of New York alleging violations of the FMLA, the New York State Human Rights Law, the Fair Labor Standards Act, and New York labor laws. CVS moved to compel arbitration and stay Marino’s action. In support of its motion, CVS relied on its arbitration of workplace legal disputes policy and arbitration agreement, which included a provision that all disputes covered by the policy would be decided by a single arbitrator and governed by the Federal Arbitration Act (FAA), including claims of harassment, discrimination, and retaliation. Marino participated in online training addressing the policy in 2014 and did not exercise the option to opt out of the arbitration agreement included in the policy within 30 days. She opposed the motion to compel, contending she had no choice but to sign the training acknowledgment, and the terms of the arbitration agreement were “buried” or “submerged” in the training presentation. Marino also argued she was a “worker engaged in interstate commerce” and thus exempt from the FAA.

The court rejected both arguments, concluding that the 30-day opt-out provision “negates any suggestion” that she was forced to enter into the arbitration agreement. The court also held that “only a worker in a transportation industry can be classified as a transportation worker” under the FAA and, since CVS does not operate in the transportation industry, Marino did not satisfy the statutory exclusion under the FAA for transportation workers. The court granted the motion to compel arbitration and to stay the case.

Marino v. CVS Health, No. 7:23-cv-00784 (S.D.N.Y. Oct. 16, 2023).

Filed Under: Arbitration / Court Decisions, Contract Formation

Tennessee Supreme Court Permits Consideration of Extrinsic Evidence in Dispute About Capacity to Enter Power of Attorney Used to Sign Arbitration Agreement

October 26, 2023 by Brendan Gooley

The Supreme Court of Tennessee has approved a trial court’s consideration of extrinsic evidence regarding whether an individual with Down syndrome had the capacity to execute a durable power of attorney that his brother used to enter an arbitration agreement on his behalf.

James Welch’s brother David had Down syndrome. James had David execute a durable power of attorney for health care so that James could make health care decisions for David. David subsequently used the power of attorney to admit David to Oaktree Health and Rehabilitation Center LLC, doing business as Christian Care Center of Memphis. James executed an arbitration agreement as part of Christian Care’s admission process. David died several months later and James sought to sue Christian Care for negligence and wrongful death.

Christian Care moved to compel arbitration. In response, James argued that he did not have the authority to sign the arbitration agreement on David’s behalf because David did not have the mental capacity to appoint an agent through the power of attorney. The trial court looked beyond the four corners of the power of attorney over Christian Care’s objections and concluded based on that evidence that David lacked capacity. It therefore denied the motion to compel.

Christian Care appealed and the court of appeals reversed. The court of appeals “held that the trial court erred by considering evidence on whether David had the mental capacity to sign the [power of attorney].” James then appealed to the Supreme Court of Tennessee.

The Supreme Court of Tennessee held that the trial court had properly considered “evidence on the circumstances surrounding execution of the durable power of attorney for health care and whether [David] lacked the requisite mental capacity to sign it.” The court therefore remanded the case to the court of appeals for a determination on whether the evidence outside the four corners of the power of attorney created “clear and convincing evidence that David lacked the requisite mental capacity when he signed the power of attorney for health care.”

Welch v. Oaktree Health & Rehabilitation Center LLC, No. W2020-00917-SC-R11-CV (Tex. Aug. 31, 2023).

Filed Under: Arbitration / Court Decisions, Contract Formation

Court Follows Fifth Circuit Precedent in Enforcing Unsigned Insurance Arbitration Agreement Under New York Convention

September 1, 2023 by Benjamin Stearns

The insured argued that the arbitration agreement at issue was not enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards because the agreement was not signed by both parties and therefore was not “an agreement in writing” as required by Article II of the Convention. The district court disagreed, relying on Sphere Drake Insurance PLC v. Marine Towing Inc., a Fifth Circuit case decided in 1994, which held that an arbitration agreement need not be signed to qualify as an “agreement in writing.”

The insured argued that the court should “depart from this binding precedent because there have been several developments in both the Fifth Circuit and in other circuit courts of appeal that have undermined Sphere Drake’s reasoning.” The district court, however, declined the insured’s invitation, noting that the court was “duty bound” to apply binding Fifth Circuit precedent “absent an intervening change in the law… by a statutory amendment, or the Supreme Court, or [the Fifth Circuit’s] en banc court.” As there had been no qualifying “intervening change in the law,” the court was required to apply the holding of Sphere Drake and thus found that the insurance contract and arbitration agreement therein constituted a sufficient “agreement in writing” to be enforced under the Convention.

The insured also argued that, if the court compelled the parties to arbitrate, it should issue a ruling that Louisiana law governed the dispute. The court noted that the insured sought to preempt an anticipated argument that the language of the arbitration clause precludes the award of penalties and attorneys’ fees for bad faith claims handling, which awards would be available under Louisiana law. The court again declined, noting that the insured cited no authority for the proposition that it could dictate the law to be applied to a future arbitration proceeding, nor did the insured address the fact that the court’s “limited jurisdiction” at this stage of proceedings was confined to determining the applicability of the Convention to the arbitration clause at issue.

Maxwell Heirsch, Inc. v. Velocity Risk Underwriters, LLC, No. 2:23-cv-00495 (E.D. La. July 26, 2023).

Filed Under: Arbitration / Court Decisions, Contract Formation

Sixth Circuit Holds Validity of Employee’s Electronic Signature Creates Issue of Fact, Reverses Order Compelling Arbitration

August 16, 2023 by Kenneth Cesta

In Bazemore v. Papa John’s U.S.A. Inc., the Sixth Circuit Court of Appeals considered the plaintiff’s appeal of an order granting the defendant’s motion to compel arbitration and to dismiss the plaintiff’s complaint brought under the Fair Labor Standards Act.

The case, a putative class action brought by Papa Johns delivery driver Andrew Bazemore, alleged that Papa Johns had under-reimbursed Bazemore’s vehicle expenses, which resulted in him being paid less than the minimum state and federal wage requirements. Papa Johns moved to compel arbitration based on an arbitration agreement allegedly signed by Bazemore through an electronic signature program called e-Forms. Papa Johns submitted an affidavit in support of the motion explaining the process employees must follow to electronically sign the arbitration agreement as a condition of employment, and indicating the company’s records showed that Bazemore had “followed this process to sign its arbitration agreement.” Bazemore opposed the motion, contending that he had never seen or heard about the arbitration agreement and that his alleged login credentials “were clearly made up.” Bazemore requested limited discovery related to the validity of his alleged electronic signature. The district court denied Bazemore’s request for discovery, finding his position that he had never seen the agreement was a “convenient lapse in memory,” and granted Papa Johns’ motion to compel arbitration and to dismiss the complaint.

The Sixth Circuit first recognized the Federal Arbitration Act requires that a party seeking to compel arbitration must prove a valid arbitration agreement exists, and “[i]f a genuine issue of material fact arises as to whether such an agreement exists, the court shall proceed summarily to the trial thereof.” The court then found that while an electronic signature can be legally valid and show a party’s assent to an agreement, the parties presented conflicting evidence as to whether Bazemore’s electronic signature was valid, including Bazemore’s sworn statement that he had never seen the arbitration agreement before. The court found this disagreement presented a genuine issue of material fact for the fact finder to determine, and even though Bazemore did not expressly state he had not signed the agreement, “a reasonable factfinder could plainly infer that, if Bazemore had not seen the agreement, he had not signed it either.” The court reversed the district court’s order compelling arbitration and remanded the case for further proceedings.

Bazemore v. Papa John’s U.S.A., Inc., No. 22-6133 (6th Cir. July 20, 2023).

Filed Under: Arbitration / Court Decisions, Contract Formation

Fifth Circuit Affirms Denial of Arbitration, Rejects Arbitration Provisions in “Battle of the Forms” Between Buyer and Seller in UCC Transaction

July 21, 2023 by Michael Wolgin

The case involved the sale of mist eliminators (demisters) from MECS Inc. to Axiall Canada Inc., an owner of a Canadian manufacturing facility. A key issue involved the terms of the parties’ contractual relationship as formed through the sale and delivery process of the demisters: MECS typically would issue a proposal to Axiall; Axiall then sent a purchase order; MECS then sent an order acknowledgment; and Axiall would last accept the demisters. MECS’ proposals and order acknowledgments contained an arbitration clause. Axiall’s purchase order forms, however, did not contain an arbitration clause and contained language that acceptance of its purchase orders indicated an “irrevocable agreement” to Axiall’s general terms and conditions, which contained a no-modification provision and a forum-selection clause permitting Axiall to select a forum within either Louisiana or Kentucky.

When Axiall experienced problems with the demisters, Axiall sued MECS in Louisiana state court. MECS removed the case to federal court and then moved to dismiss, or alternatively stay, and compel arbitration under MECS’ proposal and order acknowledgment forms. The district court, however, denied MECS’ motion, holding that under Louisiana law, the parties had not agreed to the arbitration clauses.

On appeal to the Fifth Circuit, the court held that the case presented a “battle of the forms,” which is governed by two provisions of Louisiana’s version of the UCC adopted in its Civil Code: Article 2601 concerning additional terms in an acceptance of an offer to sell movables (such as demisters); and Article 2602 concerning contracts formed by the conduct of the parties. Applying these provisions, the court found that neither Axiall’s purchase orders nor MECS’ order acknowledgments “were communications that, when read in succession, were sufficient to form contracts under Article 2601.” However, the conduct of MECS’ shipping of the demisters following its sending of the order acknowledgment and Axiall’s accepting delivery, created a contract for “an agreed-upon quantity of demisters delivered at the agreed upon price.” This conduct-based contract, as construed by the court, did not include the arbitration clause as a term. The court rejected MECS’ argument that its order acknowledgments were counteroffers whose terms Axiall accepted by performance. There was no arbitration agreement because the parties never mutually agreed to MECS’ proposed arbitration clauses. The court thus affirmed the district court’s denial of MECS’ motion to compel arbitration.

Axiall Canada, Inc. v. MECS, Inc., No. 21-30105 (5th Cir. June 14, 2023).

Filed Under: Arbitration / Court Decisions, Contract Formation, Contract Interpretation

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