Contract Interpretation

Williams International designs, manufactures, and services small jet engines. In May 2013, Dodson International Parts Inc., a company that sells new and used aircraft parts, purchased a damaged aircraft fitted with two engines manufactured by Williams. After purchasing the aircraft, Dodson contracted with Williams to inspect the engines and prepare an estimate of repair costs, intending to sell the repaired engines. The quotes for the work provided by Williams, and signed by Dodson, contained an arbitration clause requiring that “all disputes arising from or in connection with maintenance performed by Williams International shall be submitted to binding arbitration.” After inspecting the engines, Williams determined that the engines were so badly damaged that they could not be rendered fit for flying. However, because Dodson had not paid the requisite fees, Williams refused to return one of the engines.

Dodson sued Williams in federal court alleging federal antitrust and state law tort claims. Williams moved to compel arbitration under the Federal Arbitration Act, relying on the arbitration clause in the original signed quotes. The district court granted the motion, and the arbitrator resolved all of Dodson’s claims in favor of Williams. Dodson then moved to reconsider the order compelling arbitration and to vacate the arbitrator’s award. The court denied both motions and, construing Williams’s opposition to the motion for vacatur as a request to confirm the award, confirmed the award. Dodson appealed, challenging the district court’s order compelling arbitration and its order confirming the award and denying the motions for reconsideration and vacatur.

The Tenth Circuit Court of Appeals ruled in favor of Williams on all three issues. On the primary question of arbitrability, Dodson argued that its claims were not arbitrable because its antitrust and state law tort claims were not “arising from or in connection with maintenance performed” by Williams. The court determined that “maintenance” included more than just repair work — simply inspecting machinery is typically referred to as maintenance work as well. And, acknowledging that language such as “arising out of or in connection with” is interpreted quite expansively, the court held that all of Dodson’s claims were connected to Williams’s work and therefore encompassed by the arbitration clause. Dodson also argued that its claims were not arbitrable because they arose either before its contracts with Williams were executed or after they terminated, but the court rejected this argument as well, as the arbitration clause at issue had no temporal element. All that was required for a dispute to be arbitrable was that it be one “arising from or in connection with maintenance performed by Williams.”

With respect to its motion for reconsideration, Dodson moved under District of Kansas Local Rule 7.3(b), which requires that parties seeking reconsideration must file a motion within 14 days after an order is issued, and must be based on (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error or prevent manifest injustice. While the Tenth Circuit agreed with the district court that no new controlling law had been established, nor had there been any manifest injustice visited on Dodson, it needed to look no further than Dodson’s filing date — nearly three years after entry of the order compelling arbitration. The district court’s denial of Dodson’s motion for reconsideration was sufficient on this ground alone.

Finally, Dodson challenged the district court’s order confirming the arbitration on the grounds that the district court lacked subject matter jurisdiction to confirm the award and that the confirmation order was improper on the merits. The Tenth Circuit found none of these arguments remotely persuasive and affirmed the district court’s order.

Dodson International Parts Inc. v. Williams International Co., No. 20-3193 (10th Cir. Sept. 13, 2021).

The Seventh Circuit Court of Appeals recently concluded that an arbitration clause that prohibited claimants from seeking or receiving any remedy that provided additional retirement benefits or other relief was unenforceable because it prospectively waived ERISA remedies.

James Smith worked for Triad Manufacturing Inc. Triad offered Smith and other employees a defined contribution employee retirement plan. In 2018, after Smith had left Triad, Triad added an arbitration provision with a class action waiver to the plan, which stated:

Each arbitration shall be limited solely to one Claimant’s Covered Claims, and that Claimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary or other relief to any Eligible Employee, Participant or Beneficiary other than the Claimant.

In 2020, Smith filed a putative ERISA class action alleging that Triad’s board had breached fiduciary duties and engaged in prohibited transactions based on the board’s governance of the retirement plan. The board filed a motion to compel arbitration or, in the alternative, to dismiss.

The district court denied the board’s motion. The district court concluded that Smith had not consented to the arbitration clause because his employment with Triad ended in 2016 but the arbitration clause had been added in 2018 and there was no evidence that Smith had even received notice of the amendment. The court also concluded that the arbitration clause was “unenforceable because it prospectively waived Smith’s right to statutory remedies provided by ERISA.”

The Seventh Circuit affirmed the district court’s decision. It agreed that the arbitration clause was unenforceable because its language prohibiting claimants from seeking or receiving any remedy that provided additional benefits or other relief was inconsistent with ERISA’s allowance of “such other equitable or remedial relief as the court may deem appropriate, including removal of [a] fiduciary.” The Seventh Circuit did not address whether Smith had agreed to the arbitration clause, whether he had received notice of the provision, or whether a plan sponsor can unilaterally add an arbitration clause. The Seventh Circuit did, however, conclude that “ERISA claims are generally arbitrable” and noted that the arbitration clause’s class action waiver did not present any problem, as the Seventh Circuit “has blessed that arbitration maneuver many times.”

Smith v. Board of Directors of Triad Manufacturing, Inc., No. 20-2708 (7th Cir. Sept. 10, 2021).

The Eleventh Circuit recently declined a rental car company’s attempt to invoke an arbitration clause in Orbitz.com’s terms of use in a lawsuit brought by a disgruntled customer who booked his rental car through Orbitz despite the seemingly broad language of the clause.

Ancizar Marin used Orbitz.com to book a rental car from Sixt Rent A Car. When Marin booked his rental car, he agreed to Orbitz’s terms of use, which included an arbitration clause requiring Marin to arbitrate “[a]ny and all claims.” Orbitz’s terms defined “claims” as:

[A]ny disputes or claims relating in any way to [1] the Services, [2] any dealings with our customer service agents, [3] any services or products provided, [4] any representations made by us, or [5] our Privacy Policy.

Marin subsequently picked up his car from Sixt and returned it. A few weeks later, however, he received an email from Sixt claiming that he had damaged the car and seeking $700 related to that damage. Marin sued Sixt in a putative class action. He did not sue Orbitz.

Sixt moved to compel arbitration under the arbitration clause in Orbitz’s terms. The district court denied Sixt’s motion and Sixt appealed to the Eleventh Circuit Court of Appeals, which affirmed.

The Eleventh Circuit explained that whether Marin’s claims fell within the scope of the arbitration clause in Orbitz’s terms required the court to determine whether Marin’s suit was a “claim” within the meaning of Orbitz’s arbitration clause. That in turn required the court to determine whether Marin’s suit was a “dispute[] or claim[] relating in any way to … any services or products provided.” Although the court concluded that the answer to that question was not entirely clear, the court determined that Marin’s suit was not within the scope of Orbitz’s arbitration clause because the phrase in question related to Orbitz’s services or products, not the services or products of third parties that partnered with Orbitz. The court noted that the surrounding clauses all related “to services or products provided by Orbitz.” It also explained that Orbitz’s terms required customers asserting “claim[s]” to give written notice to Orbitz and that it would be strange to require customers to inform Orbitz about grievances they had with third parties. The Eleventh Circuit also noted that Orbitz’s terms recognized that customers would have agreements with the third-party vendors whose services they booked on Orbitz’s website. That further suggested that the phrase “services or products provided” in Orbitz’s terms referred to Orbitz’s services or products. The court also explained that “common sense” suggested that Orbitz was referring to its services and products, not third-party services or products.

The court next rejected Sixt’s argument that the Moses H. Cone canon that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration” applied. The court explained that the canon applied “only if Marin’s lawsuit against Sixt was an immediate, foreseeable result of the performance of [Marin] accepting Orbitz’s Terms” because the canon only applied if “the FAA governs the arbitration agreement at issue.” But Marin’s lawsuit was not an immediate, foreseeable result of accepting Orbitz’s terms; his dispute was with Sixt. The Eleventh Circuit also rejected Sixt’s argument that Florida law incorporated the canon.

The Eleventh Circuit therefore affirmed the district court’s denial of Sixt’s motion.

Calderon v. Sixt Rent A Car, LLC, No. 20-10989 (11th Cir. July 14, 2021).