Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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

Contract Interpretation

Ninth Circuit Swipes Right on Arbitration of Former Tinder Employee’s Sexual Harassment and Retaliation Claims

by

The Ninth Circuit Court of Appeals recently held that a former Tinder employee who asserted claims of sexual harassment by her superiors must arbitrate her claims pursuant to an enforceable arbitration agreement she signed during her employment.

The plaintiff filed suit against Tinder in California state court, alleging that she was wrongfully terminated as a result of reporting instances of sexual harassment by her superiors.

Tinder, through its successor Match Group LLC, timely removed the matter to federal court based on diversity jurisdiction. The plaintiff moved to remand the case to California state court, claiming that both she and Tinder, a dissolved Delaware corporation with its principal place of business in California, were citizens of California, thus defeating diversity jurisdiction. Match Group moved to compel arbitration pursuant to the arbitration agreement the plaintiff signed during her employment.

The California district court denied the plaintiff’s motion to remand, finding that Tinder was not a “dissolved corporation” but rather it merged with Match Group, making Match Group the proper party to the suit, and whose Texas citizenship was to be considered for purposes of diversity jurisdiction. The district court also granted Match Group’s motion to compel arbitration based on the enforceable arbitration agreement.

The plaintiff appealed the district court’s decision, arguing that the district court failed to consider Tinder’s citizenship when it determined that diversity jurisdiction existed. The Ninth Circuit held that the district court was correct in considering only Match Group’s citizenship because, following the merger with Match Group, Tinder ceased to exist as a separate entity and continued solely as an unincorporated division of Match Group.

The plaintiff also challenged the district court’s ruling that her claims must be submitted to arbitration, arguing that the arbitration agreement was unconscionable, did not apply retroactively to encompass preexisting claims, and that California law bars retroactive application of the arbitration agreement.

Rejecting each of the plaintiff’s arguments, the Ninth Circuit affirmed the ruling that the arbitration agreement was enforceable. The court reasoned that the arbitration agreement only gave rise to a low degree of procedural unconscionability, not any substantive unconscionability that infected the arbitration agreement as a whole. The court also found that, although the plaintiff signed the arbitration agreement during her employment as a condition of her continued employment, the plaintiff’s preexisting claims fell within the scope of the broad language of the arbitration agreement that reflected an intent to cover claims that had accrued before the effective date of the arbitration agreement. The Ninth Circuit also rejected the plaintiff’s claim that California law bars retroactive application of the arbitration agreement where there was no suggestion that Match Group sought to modify the agreement unilaterally.

Sanfilippo v. Match Group LLC, No. 20-55819 (9th Cir. Sept. 28, 2021).

Fifth Circuit Affirms Order Confirming International Arbitration Award, Ending Decades-Old Maritime Injury Litigation

by

Vinod Kumar Dahiya was injured in late 1999 while on a ship en route to Louisiana. At the time, he was employed by Neptune Shipmanagement Services and assigned to a vessel with interests held by the remaining plaintiffs. An arbitration clause in Dahiya’s employment contract required arbitrating any dispute arising out of the contract in Singapore or India. Following a rollercoaster of litigation in Louisiana state and federal courts over the course of two decades, including a state court trial and judgment for Dahiya that was later reversed, the dispute was ultimately arbitrated in India. In 2020, Dahiya obtained an arbitration award against Neptune for roughly $130,000. Neptune and the other plaintiffs later filed this action in Louisiana district court to confirm the award and enjoin Dahiya from pursuing further litigation against the non-Neptune plaintiffs. The district court granted summary judgment to the plaintiffs.

On appeal, Dahiya challenged the Indian award on the following grounds: (1) the district court lacked subject matter jurisdiction; (2) the arbitration clause was unenforceable because Neptune never signed the employment contract; and (3) the district court erred in finding the award prevented him from pursuing litigation against non-Neptune plaintiffs that were not parties in the arbitration. The Fifth Circuit disagreed in all respects. On the jurisdictional point, the court rejected the notion that the district court lost jurisdiction when it remanded the pre-arbitration litigation to state court in 2002, finding that a remand order in an earlier case had no preclusive effect with respect to a new case, with new issues, and thus a new basis for conferring federal jurisdiction. Conversely, the court found that earlier state court rulings did have preclusive effects as to Dahiya’s second and third arguments. Unlike the jurisdictional issue, the court explained that Louisiana state courts had already addressed and rejected the exact arguments Dahiya was now raising. The court therefore affirmed the district court order in its entirety.

Neptune Shipmanagement Services PTE, Ltd. v. Dahiya, No. 20-30776 (5th Cir. Oct. 1, 2021).

Tenth Circuit Affirms Arbitration Award in Soaring Victory for Jet Engine Manufacturer

by

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).

Seventh Circuit Concludes That Arbitration Clause That Waives ERISA Remedies Is Invalid

by

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).

Ninth Circuit Affirms Order Confirming Arbitration Award

by

The Ninth Circuit Court of Appeals affirmed a California district court order granting the plaintiff-union’s motion to confirm an arbitration award against the defendant. On appeal, the defendant claimed the district court erred in determining that the collective bargaining agreement between the parties continued beyond the expiration date of June 30, 2017. But the Ninth Circuit disagreed, finding that certain events necessary for the agreement to expire on that date had not taken place. As such, the court rejected the argument that the plaintiff implicitly waived its grievance under the collective bargaining agreement by failing to raise it before June 30, 2017. Instead, the court found that the defendant waived its argument that certain pleadings submitted by the plaintiff contained judicial admissions that the collective bargaining agreement expired on June 30, 2017, as the argument was not raised in the district court.

Sheet Metal Workers Local Union 105 v. Titan Sheet Metal, Inc., No. 20-55849 (9th Cir. Sept. 10, 2021).