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Contract Interpretation

Alabama Federal Court Seals and Approves FLSA Settlement Agreement, Addresses Confidentiality Provision

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The plaintiff was employed by defendant Pilot Catastrophe Services Inc. as an insurance claims adjuster, where she was responsible for inspecting property damage claims and providing damage estimates to insurance companies. The plaintiff brought a collective action under the Fair Labor Standards Act (FLSA) alleging that she and other claims adjusters were misclassified as salaried employees exempt from overtime requirements, and Pilot violated the FLSA by failing to pay overtime wages. Pilot filed a motion to compel arbitration pursuant to the arbitration provisions set forth in the plaintiff’s employment agreements and moved to dismiss the class and consolidated action claims. While the motions were pending, the parties filed a joint status report confirming that the plaintiff did not oppose Pilot’s motion to dismiss the class action and collective action claims. The parties also reported that after agreeing to arbitrate, they reached a settlement of the plaintiff’s FLSA claims and requested 60 days to finalize the settlement. After further revising the settlement agreement, the parties filed an amended joint motion to approve the settlement. Pilot filed a motion to seal the amended joint motion and settlement agreement.

First, addressing the motion to seal, the court cited prior district court decisions confirming that “when, as here, a settlement must be approved by a court, the settlement becomes part of the judicial record.” However, the court further noted that “confidentiality provisions have been approved in FLSA settlement where the provision is bargained for and the plaintiff receives separate consideration.” The court then found that the plaintiff in this matter “separately bargained for and received separate consideration for the confidentiality provision” reflected in her employment agreements and had jointly moved to approve the amended settlement agreement with Pilot. With this finding, the court concluded that “the public interest in assuring that employee wages are fair” was adequately protected in this case since the monetary terms of the plaintiff’s FLSA settlement were disclosed in the court’s order and contained in the record, and granted Pilot’s motion to seal. Second, the court addressed the amended joint motion to approve the settlement, noting that the Eleventh Circuit recognizes two methods for settlement of FLSA claims, including, as the court utilized in this case, a court determination that the settlement “is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.” Applying this standard of review, the court approved the amended settlement agreement, noting that the plaintiff had a “significant risk of little to no recovery should this action proceed to trial or arbitration” and concluding that the settlement is a “fair and reasonable resolution of her FLSA claims.”

Pleasants v. Pilot Catastrophe Services, Inc., No. 1:23-cv-00132 (S.D. Ala. Apr. 30, 2024).

Federal Court Rejects Argument That Subsequent Opt-Out of Arbitration Clause Precluded Arbitration

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The U.S. District Court for the Northern District of Illinois has rejected an argument that opting out of arbitration clauses precluded arbitration under prior arbitration agreements in a dispute between Uber drivers and Uber.

A group of Illinois Uber drivers sued Uber under the Fair Labor Standards Act and Illinois law claiming that Uber misclassified them as independent contractors. Uber moved to compel arbitration, arguing that the drivers had signed multiple platform access agreements that included broad arbitration clauses. The platform access agreements allowed drivers to opt out of the arbitration clauses if they so chose, however. The drivers had not opted out of one or more of the agreements but, when subsequent platform access agreements were presented to them, had opted out of those. They argued that the subsequent opt-outs precluded Uber from enforcing the earlier agreements to arbitrate. The district court disagreed, citing the plain language of the opt-out provision, which provided: “If you opt out of this Arbitration Provision and at the time of your receipt of this Agreement you were bound by an existing agreement to arbitrate disputes arising out of or related to your use of our Platform and Driver App, that existing arbitration agreement will remain in full force and effect.” The court also concluded that the arbitration clauses were not unconscionable under Illinois law. One of the plaintiffs had previously filed suit and obtained a ruling that he was not required to arbitrate any claims, however. The district court gave effect to that decision under issue preclusion principles.

Agha v. Uber Technologies, Inc., No. 1:23-cv-17182 (N.D. Ill. Apr. 22, 2024).

Ninth Circuit Reverses Denial of Motion to Compel Arbitration

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The Ninth Circuit Court of Appeals recently reversed a district court’s decision to deny a motion to compel arbitration in a case involving a request to refund the cost of airline tickets after a cancellation.

Winifredo and Macaria Herrera purchased airline tickets on Cathay Pacific flights through a third-party booking website, ASAP Tickets. ASAP’s terms and conditions included an arbitration clause requiring binding arbitration through the American Arbitration Association. During their trip, Cathay Pacific canceled the Herreras’ return flight and told them to talk to ASAP about a refund. ASAP apparently denied the Herreras’ request for a refund. The Herreras filed suit against Cathay Pacific, which moved to compel arbitration pursuant to ASAP’s terms and conditions. The district court denied Cathay Pacific’s motion, reasoning that the Herreras’ gripe was with Cathay Pacific, not ASAP.

Cathay Pacific appealed, and the Ninth Circuit reversed and remanded. It first rejected the argument that federal regulations precluding arbitration provisions in “contracts of carriage” precluded arbitration in this case, explaining that the regulation in question did not prohibit “airline carriers from enforcing arbitration agreements between passengers and third parties if the applicable law permits them to do so.” The court then held that California contract law allowed Cathay Pacific to invoke ASAP’s arbitration clause because the Herreras’ breach of contract claim was “intimately founded in and intertwined with” ASAP’s terms and conditions. ASAP had effectively acted as a “middleman” for “refund-processing purposes.” The Ninth Circuit then rejected the Herreras’ arguments that it would be unfair to allow Cathay Pacific to invoke the arbitration clause because “the refund process was not clear.”

Herrera v. Cathay Pacific Airways Ltd., No. 21-16083 (9th Cir. Mar. 11, 2024).

Pennsylvania Federal Court Finds Forum Selection Clause in Services Agreement Between Insurer and Reinsurance Broker to Be Valid and Enforceable

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In Housing & Redevelopment Insurance Exchange v. Guy Carpenter & Co., a Pennsylvania federal court considered the enforceability of a forum selection clause in a services agreement between Pennsylvania-based insurer Housing and Redevelopment Insurance Exchange (HARIE) and its reinsurance broker Guy Carpenter. In that case, the parties entered into an agreement establishing Guy Carpenter as HARIE’s reinsurance broker of record for a three-year period. The agreement included choice-of-law and forum selection clauses applying New York law and a New York forum “for the resolution of any disputes raising issues regarding the construction, meaning or enforcement of the terms of this agreement.”

HARIE did not renew the contract after that period, notifying Guy Carpenter that it would not serve as its broker of record for new reinsurance agreements. Guy Carpenter deducted $101,646.20 from a fiduciary account it held on behalf of HARIE, arguing it was entitled to that money under the terms of the agreement in the event of nonrenewal. HARIE then sued in Pennsylvania federal court to recover those funds. In the litigation, Guy Carpenter moved to dismiss or, in the alternative, to transfer, arguing (among other things) that the forum selection clause mandated that New York, not Pennsylvania, was the proper forum for the dispute.

The court’s decision focused primarily on the applicability and enforceability of the New York forum selection clause in the services agreement. In this regard, the court conducted a two-part analysis. First, the court considered whether the forum selection clause was valid and enforceable. The court agreed with Guy Carpenter and found that, while the terms of other contracts between the parties were also in issue, resolution of HARIE’s claims would require the court to construe the meaning or enforceability of the terms of the services agreement itself, such that the agreement’s New York forum selection clause governed the dispute.

Second, the court considered whether, even though the forum selection clause applied, public interest factors nonetheless militated against its enforcement in this case. In support of applying the forum selection clause, Guy Carpenter pointed out that the events of this case primarily took place in New York and that Guy Carpenter was based there. Guy Carpenter further pointed out that New York law governed the services agreement at issue. Discounting HARIE’s arguments that HARIE exclusively insures Pennsylvania insureds and that New York federal courts were slightly more congested than those in Pennsylvania, the court concluded that public interest factors weighed in favor of enforcing the New York forum selection clause.

Having found the forum selection clause valid and enforceable, and that public interest factors weighed in favor of its enforcement in this case, the court granted Guy Carpenter’s motion to the extent it sought transfer of the case to federal court in the Southern District of New York.

Housing & Redevelopment Insurance Exchange v. Guy Carpenter & Co., No. 3:23-cv-00996 (M.D. Pa. Mar. 25, 2024).

Tenth Circuit Remands Case for Arbitrability Determination, Concludes That State Court Decision Relied on by District Court No Longer Had Preclusive Effect

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In Nu Skin Enterprises Inc. v. Raab, the Tenth Circuit Court of Appeals considered the preclusive effect of a state trial court decision as it related to the arbitrability of the parties’ dispute under the Federal Arbitration Act.

As the trial court relayed, the underlying dispute involved beauty products marketer Nu Skin Enterprises and several of its distributors. The distributors filed an action against Nu Skin in Washington state court alleging, among other things, violations of Washington’s consumer protection act. Nu Skin then filed a separate action in federal court in the District of Utah, seeking to compel arbitration of the parties’ dispute in Utah pursuant to identical arbitration provisions in two of the parties’ agreements.

Before the Utah district court had a chance to rule on the question of arbitrability, the Washington state court denied Nu Skin’s motion to dismiss, holding that the dispute was not subject to arbitration under the parties’ agreements. Thereafter, the district court denied Nu Skin’s motion to compel arbitration, holding that the district court was bound by the Washington state court’s earlier conclusion under the doctrine of issue preclusion. Nu Skin appealed this ruling to the Tenth Circuit.

In a procedural twist, a Washington appellate court reversed the state trial court’s decision, holding that the claims in the litigation were disputes subject to the arbitration agreements and remanding to the trial court for further proceedings, including a determination of whether the arbitration clause was unconscionable. In the related appeal that was then pending in the Tenth Circuit, both parties acknowledged that as a result of the Washington appellate court’s decision, the state trial court’s decision on arbitrability no longer had preclusive effect.

Effectively agreeing with both parties, the Tenth Circuit reversed the district court’s decision, holding that the state trial court decision on which the district court relied no longer had preclusive effect. The court then remanded the case to the district court to consider the issue of arbitrability anew, noting: “We express no view on any other issue in this case, including the possible preclusive effect of any other proceedings or decisions in the Washington courts.”

Nu Skin Enterprises Inc. v. Raab, No. 22-4068 (10th Cir. Mar. 19, 2024).