Contract Interpretation

The plaintiff’s property sustained fire damage, for which the plaintiff sought coverage under an insurance policy issued by the defendants. After a dispute arose, the plaintiff sued the defendants in Mississippi state court. The defendants, foreign insurance companies, removed the action to Mississippi federal court pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The defendants then moved to compel arbitration based on an arbitration clause in the insurance policy, which stated that the parties would arbitrate any dispute if they failed to agree on any aspect of the policy. The plaintiff opposed and moved to remand the case to state court, citing language in the policy’s cover note conferring U.S. courts with “exclusive jurisdiction” over any dispute under the policy. The sole issue was whether the plaintiff’s claim was arbitrable.

Applying a four-factor test used in the Fifth Circuit to analyze arbitrability under the Convention, the court found the first factor – whether there is a written agreement to arbitration – to be decisive here. The court rejected the plaintiff’s argument that the policy’s arbitration and exclusive jurisdiction clauses conflicted, finding that any such conflict was resolved by the policy’s “service-of-suit” provision. That provision addressed service of process in the event of litigation but also expressly provided that it “will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in any Arbitration clause within this Policy” and that it is solely “intended as an aid to compelling arbitration or enforcing such arbitral award, not as an alternative to such Arbitration clause for resolving disputes arising out of this contract of insurance.” Finding that this language clearly demonstrated the parties’ intent to arbitrate, and that the three other factors in the four-factor test were undisputed, the court granted the defendants’ motion to compel arbitration and denied the plaintiff’s motion to remand.

First United Methodist Church of Corinth, Inc. v. Certain Underwriters at Lloyds Subscribing to Policy No. PG197716, No. 1:19-cv-00120 (N.D. Miss. Sept. 4, 2019).

The action arises out of a foreclosure sale in which property was conveyed to First 100 LLC. Subsequent to the foreclosure sale, First 100 conveyed the property to Alan and Theresa Lahrs as trustees of the Lahrs Family Trust. In this action, the Lahrs filed crossclaims against First 100 alleging, among other things, intentional and negligent misrepresentation, fraudulent inducement, and breach of the covenant of good faith and fair dealing. An operating agreement between First 100 and the Lahrses contained a binding arbitration clause providing that “[a]ny dispute, controversy, or claim arising out of or relating to this [a]greement or the breach thereof shall solely be settled by arbitration under the Commercial Arbitration rules of the American Arbitration Association.” First 100 moved to compel arbitration.

The U.S. District Court for the District of Nevada granted the motion and stayed the action pending the arbitration. The court explained that in addressing a motion to compel arbitration, the court’s role is “limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Further, there is a strong federal policy that favors arbitration, and a court will not accept a controversy unless it may be said with positive assurance that the arbitration clause does not cover the dispute. The court held that the crossclaims and the issue of liquidated damages were subject to the arbitration agreement.

Bank of N.Y. Mellon v. Christopher Cmtys., No. 2:17-cv-01033 (D. Nev. Sept. 9, 2019).

The court granted Aetna’s motion to compel arbitration of a former employee’s age and disability wrongful termination claims that alleged violations of the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the New Jersey Law Against Discrimination. The plaintiff argued that the arbitration provision in a stock option web-based clickwrap agreement to which he agreed was invalid on the grounds of both procedural and substantive unconscionability. The court, however, found that clickwrap agreements are valid and enforceable under applicable New Jersey law and that Aetna provided sufficient evidence illustrating that acceptance of the terms of the stock agreement through the website was a necessary precondition to the plaintiff’s receipt of stock options in each year. The court held that the contract was not procedurally unconscionable because even assuming the stock agreement was presented on a “take-it-or-leave-it basis,” the plaintiff was free to decline it and would not have suffered negative consequences.

The court also rejected the plaintiff’s argument that the contract was substantively unconscionable. The court disagreed with the plaintiff’s contention that the arbitration provision mandated submission of the plaintiff’s claims to an “inherently unfair and biased arbitral forum,” noting that the U.S. Supreme Court has repeatedly rejected this idea. Additionally, the court rejected the plaintiff’s argument that a contract provision limiting discovery during arbitration was substantively unconscionable. The court determined that the discovery provision was “less severe” than the provisions found by other New Jersey courts to be unconscionable. The discovery provision was not overly restrictive because it authorized the arbitrator to permit further discovery, which was not tied to an “impossibly high burden.” The court further noted that the plaintiff did not demonstrate how the discovery provision impaired his ability to litigate his case fairly. The plaintiff merely stated that “discovery is particularly important in the employment discrimination context.” Such contentions, however, are insufficient.

Falk v. Aetna Life Ins. Co., No. 3:19-cv-00434 (D.N.J. Aug. 31, 2019).

The Southern District of New York declined to decide arbitrability questions after the arbitration agreement at issue incorporated the rules of the American Arbitration Association, which include a rule that arbitrators determine their own jurisdiction. The court also rejected a claim that the defendant waived its right to seek arbitration. It therefore compelled arbitration.

Policy Administration Solutions Inc. (PAS) licensed underwriting software for use by insurers. The software was licensed to a subsidiary eventually acquired by QBE Holdings Inc. That subsidiary, Clarendon Insurance Group Inc., entered into a license agreement with PAS to use the software. The license agreement contained an arbitration clause. Clarendon and PAS subsequently entered into a confidentiality agreement. The confidentiality agreement did not contain an arbitration clause and provided that it superseded any prior agreements regarding confidential information received under the confidentiality agreement. PAS claimed that QBE’s subsidiaries made unauthorized changes to its software. PAS ultimately brought suit alleging, among other things, violations of the Copyright Act. PAS moved for a preliminary injunction and a temporary restraining order, and the defendants moved to dismiss PAS’ claims. The district court denied both parties’ motions (it denied the motion to dismiss without prejudice) and stayed proceedings pending the resolution of state court proceedings regarding an arbitration award related to other agreements between the parties. QBE sought to initiate arbitration after the stay was lifted.

PAS opposed arbitration. The court concluded, however, that the license agreement’s arbitration clause left the question of arbitrability to the arbitrator. The arbitration clause incorporated the rules of the American Arbitration Association, one of which provided that the arbitrator had “the power to rule on his or her own jurisdiction.” PAS argued, however, that the license agreement’s arbitration agreement was not operative because the confidentiality agreement superseded the license agreement. The court explained that this presented a question of arbitrability, which, as the court had already noted, was a question for the arbitrator. The court also rejected PAS’ contention that its claims did not relate at all to the license agreement and were instead solely related to the confidentiality agreement. PAS’ reading of the license agreement’s arbitration clause was too narrow and was yet another arbitrability question for the arbitrator to address in any event.

The court also rejected PAS’ argument that QBE had waived its right to seek arbitration by litigating the dispute in federal court. The parties had been in active litigation for 14 months, which the court found to be “well within the range of delays that have not resulted in waiver.” Merely filing a motion to dismiss did not waive the right to seek arbitration, and after the stay had been lifted QBE promptly announced its intention to seek to compel arbitration. Although PAS had asserted that it spent $70,000 litigating the federal action, it was not clear how much of that was due to PAS’ own decision to seek a preliminary injunction.

The court therefore granted QBE’s motion to compel arbitration.

Policy Admin. Sols., Inc. v. QBE Holdings, Inc., No. 7:15-cv-02473 (S.D.N.Y. Aug. 30, 2019).

The Eastern District of Pennsylvania recently granted a creditor’s request to compel arbitration over a plaintiff’s argument that the arbitration agreement he had signed was void as a result of a bankruptcy court discharging the loan that was governed by the agreement. The court held that the bankruptcy ruling discharged the plaintiff’s debt obligations, not his other obligations under the agreement such as his obligation to arbitrate claims related to the agreement.

Soldon Winton entered into a loan agreement with OneMain Financial Group LLC. That agreement contained an arbitration clause. Winton subsequently filed for bankruptcy, and the bankruptcy court discharged Winton’s debt to OneMain. Winton allegedly discovered that his credit report still included an outstanding debt to OneMain. He therefore brought suit against OneMain, Trans Union LLC, and other defendants for violations of the Fair Credit Reporting Act.

OneMain responded by moving to compel arbitration under the agreement. Winton opposed OneMain’s motion. Although there was no dispute that Winton’s claim was within the scope of the arbitration agreement, Winton claimed that the bankruptcy ruling discharged all of his obligations under the agreement. Winton also sought to avoid arbitration on several other grounds or, in the alternative, to require OneMain to cover all of the costs of the arbitration.

The district court rejected Winton’s arguments. It held that the bankruptcy court had discharged Winton’s debt obligations, not his other obligations, including his obligation to arbitrate disputes related to the loan agreement. The court also rejected Winton’s arguments that it would be unfair to require him to pursue his claims in two different forums (in arbitration against OneMain and in court against the other defendants). Finally, the court denied without prejudice Winton’s request that OneMain bear the costs of arbitration. Among other issues, the arbitration agreement allowed Winton to request that OneMain bear Winton’s costs. Winton had apparently not done so, and the court determined that he should do so before seeking judicial relief.

Winton v. Trans Union, LLC, No. 2:18-cv-05587 (E.D. Pa. Aug. 27, 2019).