Contract Interpretation

West Virginia Federal Court Refuses to Force Non-Signatory to Participate in Arbitration

September 9, 2021 by Carlton Fields

Mountain Valley Pipeline LLC (MVP) contracted with U.S. Trinity Energy Services LLC for the construction and installation of the Mountain Valley Pipeline across property in Greenbrier County, West Virginia. Trinity subcontracted with M.T. Bores LLC to furnish equipment to excavate a tunnel in connection with the installation of the pipeline. But before the installation was completed, MVP terminated the project.

M.T. Bores claimed that it was not paid in full for the excavation equipment and thereafter placed a mechanic’s lien against the property for the balance due. M.T. Bores then instituted an action in the Greenbrier County Circuit Court seeking enforcement of the mechanic’s lien against MVP’s real property. The case was removed to the U.S. District Court for the Southern District of West Virginia, and Trinity thereafter moved to compel arbitration under the arbitration clause in the subcontract between M.T. Bores and Trinity. M.T. Bores did not dispute that it was required to arbitrate its claims but rather sought to compel MVP to participate in the arbitration.

Although recognizing that MVP was not a party to the subcontract, M.T. Bores sought to compel MVP’s participation based on the doctrine of equitable estoppel and third-party beneficiary theory. M.T. Bores argued that MVP should be estopped from refusing to arbitrate because it directly benefitted from the subcontract since the equipment contributed to MVP’s pipeline. The district court declined to apply the doctrine of equitable estoppel where MVP had not asserted any claim against M.T. Bores arising from the subcontract but rather was only defending claims brought against it by M.T. Bores. The district court similarly rejected M.T. Bores’ argument that MVP was a third-party beneficiary of the subcontract insofar as it was the owner of the property that was the site of M.T. Bores’ performance under the subcontract, finding that there was no evidence that the subcontract was created for MVP’s sole benefit. The district court noted that “[a] project owner will doubtless receive incidental benefits from its contractor’s subcontracts; but those benefits alone will not render the owner a third-party beneficiary.”

M.T. Bores also argued that MVP should be compelled to arbitrate in the interest of judicial economy since the claims against MVP and Trinity were inextricably intertwined. Although the district court agreed that M.T. Bores’ claims against MVP and Trinity involved some overlapping legal and factual issues, the court found the claims were not so “inextricably intertwined” to justify requiring MVP to participate in an arbitration absent its consent.

The district court similarly found no merit to M.T. Bores’ argument that MVP was an essential party to the arbitration since Trinity’s payment obligations to M.T. Bores under the subcontract were linked to, and may have been contingent on, MVP’s payment to Trinity.

Even so, the district court noted that an express provision in the subcontract deprived M.T. Bores of the ability to compel MVP to arbitrate absent Trinity’s consent. The district court accordingly denied M.T. Bores’ motion to compel MVP to participate in the arbitration between Trinity and M.T. Bores.

M.T. Bores, LLC v. Mountain Valley Pipeline, LLC, No. 5:20-cv-00602 (S.D. W. Va. Aug. 2, 2021).

Eleventh Circuit Declines to Compel Arbitration in Suit Against Rental Car Company Under Arbitration Clause in Orbitz’s Terms of Service

August 4, 2021 by Brendan Gooley

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).

Fourth Circuit Holds Estate of Assisted Living Facility Resident Required to Arbitrate Wrongful Death and Survival Claims

July 7, 2021 by Carlton Fields

In 2017, the plaintiff’s father was admitted as a resident to an assisted living facility in Greenville, South Carolina. As part of the admissions process, the plaintiff, pursuant to a durable general power of attorney, signed the residence services agreement and the attached binding arbitration agreement. A few months later, an employee at the assisted living facility administered incorrect medication to the plaintiff’s father, which ultimately led to his death.

The plaintiff, on behalf of her father’s estate, filed wrongful death and survival actions against the assisted living facility and related entities in federal district court in South Carolina. The defendants moved to dismiss and compel arbitration under the arbitration agreement.

Finding the plaintiff’s claims concerning her father’s care at the assisted living facility fell within the scope of the arbitration agreement, the district court focused on the enforceability of such agreement. The plaintiff challenged the agreement’s enforceability, claiming that the residence services agreement and arbitration agreement should be merged, and since certain provisions of the residence services agreement were purportedly unconscionable, so too were the provisions of the arbitration agreement.

The district court noted that merger has no relevance on the unconscionability of the arbitration agreement because arbitration provisions are severable from the remainder of the contract. The district court therefore looked only to whether the specific provisions of the arbitration agreement were unconscionable and found that, contrary to the plaintiff’s arguments, they were not so oppressive that a fair and honest person would not accept them. The district court therefore granted the motion to dismiss and compel arbitration.

On appeal, the plaintiff argued that the mandatory arbitration agreement and the underlying residence services agreement should be considered as one merged contract, the terms of which were unconscionable under state law and therefore unenforceable.

The Fourth Circuit Court of Appeals affirmed the district court’s decision, finding the lower court properly limited its consideration to the terms of the arbitration agreement and that nothing in the record established that the terms of the arbitration agreement were unconscionable under South Carolina law.

Kelly v. Capital Senior Living Corp., No. 19-2263 (4th Cir. June 17, 2021).

Texas Federal Court Compels Arbitration of Civil Rights Claims but Stays Proceedings to Avoid Future Statute of Limitations Issues

July 6, 2021 by Alex Silverman

The plaintiff filed suit for alleged civil rights violations arising from his former employment with the defendant. The defendant moved to dismiss and compel arbitration, citing an arbitration clause in the plaintiff’s employment agreement. A provision in the arbitration agreement placed a limit on the number of allowable depositions and special interrogatory requests but authorized the arbitrator to allow additional discovery he or she deemed appropriate. The plaintiff conceded that he signed the arbitration agreement but claimed the discovery limitations rendered it unconscionable and thus unenforceable, including because they were more restrictive than the Federal Rules of Civil Procedure. The court disagreed, noting that the U.S. Supreme Court considered and rejected an almost identical argument in Gilmer v. Interstate/Johnson Lane Corp. The plaintiff also cited no authority in which an arbitration clause was deemed unconscionable on the ground that its discovery restrictions were more onerous than the Federal Rules of Civil Procedure. The court therefore granted the defendant’s motion to compel arbitration but did not dismiss the action, choosing instead to stay the proceedings to preserve the plaintiff’s claims in the event they are not resolved by arbitration.

Pirzada v. AAA Texas, LLC, No. 4:21-cv-00664 (S.D. Tex. June 15, 2021).

Sixth Circuit Holds Former Employee Required to Arbitrate “Gateway” Questions Concerning Arbitration Agreement’s Coverage, Enforceability, and Formation

July 5, 2021 by Carlton Fields

The plaintiff sued his former employer, Charter Communications, asserting Kentucky state law claims arising out of his termination. After the case was removed to federal court in the Western District of Kentucky, Charter moved to compel arbitration and dismiss, or in the alternative, stay, the lawsuit.

Before the plaintiff’s termination, Charter had announced a dispute resolution program that would require all employees to arbitrate any employment dispute with Charter unless the employee opted out within 30 days. The plaintiff did not opt out, and as a result, the district court dismissed the plaintiff’s suit against Charter and compelled him to arbitrate his employment claims.

The plaintiff appealed to the Sixth Circuit Court of Appeals, arguing that the arbitration agreement did not cover his employment claims, that it was unconscionable, and that Charter failed to give adequate consideration in return for his agreement to arbitrate.

The Sixth Circuit affirmed the district court’s decision to compel arbitration, holding that the arbitration agreement expressly reserved these “gateway” questions concerning coverage and enforceability of the arbitration agreement for the arbitrator to resolve.

The court noted that the arbitration agreement unambiguously stated that “the arbitrator shall have the sole authority to determine whether a particular claim or controversy is arbitrable.” The court also reasoned that the plaintiff never challenged the district court’s holding delegating the enforceability question to the arbitrator and that the plaintiff’s unconscionability argument attacked the arbitration agreement as a whole, and not just the specific provisions delegating unconscionability claims to an arbitrator.

Having determined that both parties gave adequate consideration by agreeing to arbitrate with each other, the court declined to decide whether the arbitrator could decide the gateway question regarding “formation.”

While the Sixth Circuit found that the district court properly compelled the plaintiff to arbitrate his claims, the court determined that the case should have been stayed, rather than dismissed, and therefore remanded the case with instructions to enter a stay pending arbitration.

Anderson v. Charter Communications, Inc., No. 20-5894 (6th Cir. June 11, 2021).