Contract Interpretation

In reversing a New York federal court, the Second Circuit found the arbitration was within the arbitrator’s authority in binding absent class members to class proceedings because, by signing the operative arbitration agreement, the absent class members — employees of the defendant — bargained for the arbitrator’s construction of their agreement with respect to class arbitrability. The issue whether the arbitrator exceeded her authority in certifying an opt-out, as opposed to a mandatory, class was not before the Second Circuit, and thus the matter was remanded to the district court.

The court found that the arbitrator’s decision was supported, in part, by the American Arbitration Association’s Supplementary Rules for Class Arbitrations, which provide that “the arbitrator shall determine as a threshold matter … whether the applicable arbitration clause permits the arbitration to proceed on behalf of … a class.” Furthermore, the arbitration agreement provided that questions of arbitrability and procedural questions were to be decided by the arbitrator.

The Second Circuit noted that it was not for the court to “decide whether the arbitrator’s class certification decision was correct on the merits of issues such as commonality and typicality. We merely decide that the arbitrator had the authority to reach such issues even with respect to the absent class members.”

Jock v. Sterling Jewelers Inc., No. 18-153 (2d Cir. Nov. 18, 2019).

The Eight Circuit has rejected a plaintiff’s claim that an arbitration clause in a retainer agreement she signed with a law firm after receiving a call from a purported agent of the firm informing her of a purported life-threatening medical condition was unconscionable.

Allegedly, someone acting on behalf of McSweeney Langevin LLC, a law firm, called Jerri Plummer and told her that there was a life-threatening issue with the transvaginal mesh that had previously been implanted in her. The caller also told Plummer that the caller could arrange for Plummer to have the mesh surgically removed and could set Plummer up with an attorney to seek compensation for her surgery. As a result, Plummer signed a retainer agreement with McSweeney Langevin and underwent the surgery. According to Plummer, the surgery was less than successful. She sued an array of defendants, including McSweeney Langevin.

McSweeney Langevin sought to compel arbitration pursuant to the retainer agreement Plummer signed. The district court, applying the law of Washington, D.C., concluded that the arbitration agreement was unconscionable and refused to compel arbitration.

On appeal, the Eighth Circuit reversed and remanded.

The court noted that under D.C. law, an agreement must generally be both substantively and procedurally unconscionable to be unenforceable, but that in an egregious situation, it is sufficient for an agreement to be procedurally unconscionable alone.

With respect to substantive unconscionability, the Eighth Circuit allowed McSweeney Langevin to cure the district court’s finding that the agreement was unconscionable because Plummer could not afford to pay the costs of arbitration by volunteering to pay her costs. The court relied on several federal court decisions applying D.C. law that had similarly allowed litigants seeking to compel arbitration to cure substantive unconscionability by covering costs.

The court therefore turned to procedural unconscionability, noting that Plummer faced an uphill battle to establish that the retainer agreement was unconscionable in light of the fact that it was not substantively unconscionable. On the whole, the Eight Circuit concluded that the retainer was not procedurally unconscionable. The retainer agreement was sent to Plummer more than a month after the initial call she received regarding her mesh. The agreement informed Plummer that she had the “freedom to contract” by bargaining for certain terms in the agreement. The retainer was six pages long (including a nearly full-page signature page) and was easy to read. The fact that it was marked urgent and was sent shortly before Plummer’s surgery was not sufficient, considering all the facts, to render the agreement procedurally unconscionable.

Despite acknowledging that the circumstances that gave rise to this lawsuit were “troubling,” the Eighth Circuit determined that the retainer agreement was not procedurally unconscionable. It therefore reversed the district court’s decision.

Finally, the Eighth Circuit also rejected Plummer’s contention that the retainer agreement was unenforceable because McSweeney Langevin violated ethical obligations by failing to explain the ramifications of the arbitration provision to Plummer. The court assumed that the retainer agreement would be unenforceable if the attorneys have violated ethical obligations, but concluded that no such violations occurred. The agreement informed Plummer of the basic consequences of the arbitration clause. It conspicuously noted, among other things, that Plummer was waiving her right to a jury and a judicial appeal and that arbitration was her only recourse.

Plummer v. McSweeney, No. 18-3059 (8th Cir. Oct 23, 2019).

The parties entered into a joint venture to launch commercial satellites into space from an ocean platform, which venture ultimately failed. As a result of certain guarantees, Boeing paid $449 million to cover loans made to the venture, which the defendants refused to reimburse as required by the parties’ contracts. Boeing successful moved for summary judgment, to which the district court applied both Swedish and U.K. law.

The circuit court affirmed the district court’s order granting summary judgment, and also affirmed the lower court’s decision denying the defendants’ motion for a stay in favor of Swedish arbitration. Only some of the claims at issue were referable to Swedish arbitration (and not those involving the guaranty). Moreover, the defendants had previously taken the position that the Swedish arbitrator lacked jurisdiction over Boeing’s claims, which was inconsistent with its right to arbitration and constituted a waiver of that right.

Boeing Co. v. KB Yuzhnoye, No. 18-55283 (9th Cir. Nov. 12, 2019).

 A third-party contractor installed the defendant’s shingles on the plaintiffs’ roof. Subsequently, the plaintiffs filed suit for damages allegedly caused by the defendant’s faulty shingles and replacement of their roof. The defendant successfully moved to stay the proceeding and compel arbitration pursuant to an arbitration agreement found on the wrapping of each bundle of shingles.

The Oklahoma Supreme Court reversed the decision on appeal, finding that the plaintiffs were not bound to the arbitration agreement; the plaintiffs could not have had actual knowledge of the arbitration agreement and therefore could not consent to arbitration. Further, the contractors lacked the authority to enter into an arbitration agreement on the plaintiffs’ behalf without ratification, and there were no facts suggesting that the plaintiffs knew of the arbitration clause, so the plaintiffs “could not ratify the arbitration provision.”

The Supreme Court was not persuaded by the defendant’s argument that the plaintiffs sought to enforce their rights under the limited warranty provision, which contained the arbitration agreement, and could not now disclaim the arbitration agreement provision of that contract. The Supreme Court stated that the plaintiffs were “not seeking to enforce their rights under the limited warranty contract. Their claims arise in tort law not contract law.” Nor did the Supreme Court find that the plaintiffs could be estopped from challenging the arbitration agreement, lacking actual or constructive knowledge of the arbitration agreement until after they filed an initial warranty claim.

Williams v. TAMKO Bldg. Prods., Inc., No. 117190 (Okla. Oct. 1, 2019).