Contract Interpretation

In Housing & Redevelopment Insurance Exchange v. Guy Carpenter & Co., a Pennsylvania federal court considered the enforceability of a forum selection clause in a services agreement between Pennsylvania-based insurer Housing and Redevelopment Insurance Exchange (HARIE) and its reinsurance broker Guy Carpenter. In that case, the parties entered into an agreement establishing Guy Carpenter as HARIE’s reinsurance broker of record for a three-year period. The agreement included choice-of-law and forum selection clauses applying New York law and a New York forum “for the resolution of any disputes raising issues regarding the construction, meaning or enforcement of the terms of this agreement.”

HARIE did not renew the contract after that period, notifying Guy Carpenter that it would not serve as its broker of record for new reinsurance agreements. Guy Carpenter deducted $101,646.20 from a fiduciary account it held on behalf of HARIE, arguing it was entitled to that money under the terms of the agreement in the event of nonrenewal. HARIE then sued in Pennsylvania federal court to recover those funds. In the litigation, Guy Carpenter moved to dismiss or, in the alternative, to transfer, arguing (among other things) that the forum selection clause mandated that New York, not Pennsylvania, was the proper forum for the dispute.

The court’s decision focused primarily on the applicability and enforceability of the New York forum selection clause in the services agreement. In this regard, the court conducted a two-part analysis. First, the court considered whether the forum selection clause was valid and enforceable. The court agreed with Guy Carpenter and found that, while the terms of other contracts between the parties were also in issue, resolution of HARIE’s claims would require the court to construe the meaning or enforceability of the terms of the services agreement itself, such that the agreement’s New York forum selection clause governed the dispute.

Second, the court considered whether, even though the forum selection clause applied, public interest factors nonetheless militated against its enforcement in this case. In support of applying the forum selection clause, Guy Carpenter pointed out that the events of this case primarily took place in New York and that Guy Carpenter was based there. Guy Carpenter further pointed out that New York law governed the services agreement at issue. Discounting HARIE’s arguments that HARIE exclusively insures Pennsylvania insureds and that New York federal courts were slightly more congested than those in Pennsylvania, the court concluded that public interest factors weighed in favor of enforcing the New York forum selection clause.

Having found the forum selection clause valid and enforceable, and that public interest factors weighed in favor of its enforcement in this case, the court granted Guy Carpenter’s motion to the extent it sought transfer of the case to federal court in the Southern District of New York.

Housing & Redevelopment Insurance Exchange v. Guy Carpenter & Co., No. 3:23-cv-00996 (M.D. Pa. Mar. 25, 2024).

In Nu Skin Enterprises Inc. v. Raab, the Tenth Circuit Court of Appeals considered the preclusive effect of a state trial court decision as it related to the arbitrability of the parties’ dispute under the Federal Arbitration Act.

As the trial court relayed, the underlying dispute involved beauty products marketer Nu Skin Enterprises and several of its distributors. The distributors filed an action against Nu Skin in Washington state court alleging, among other things, violations of Washington’s consumer protection act. Nu Skin then filed a separate action in federal court in the District of Utah, seeking to compel arbitration of the parties’ dispute in Utah pursuant to identical arbitration provisions in two of the parties’ agreements.

Before the Utah district court had a chance to rule on the question of arbitrability, the Washington state court denied Nu Skin’s motion to dismiss, holding that the dispute was not subject to arbitration under the parties’ agreements. Thereafter, the district court denied Nu Skin’s motion to compel arbitration, holding that the district court was bound by the Washington state court’s earlier conclusion under the doctrine of issue preclusion. Nu Skin appealed this ruling to the Tenth Circuit.

In a procedural twist, a Washington appellate court reversed the state trial court’s decision, holding that the claims in the litigation were disputes subject to the arbitration agreements and remanding to the trial court for further proceedings, including a determination of whether the arbitration clause was unconscionable. In the related appeal that was then pending in the Tenth Circuit, both parties acknowledged that as a result of the Washington appellate court’s decision, the state trial court’s decision on arbitrability no longer had preclusive effect.

Effectively agreeing with both parties, the Tenth Circuit reversed the district court’s decision, holding that the state trial court decision on which the district court relied no longer had preclusive effect. The court then remanded the case to the district court to consider the issue of arbitrability anew, noting: “We express no view on any other issue in this case, including the possible preclusive effect of any other proceedings or decisions in the Washington courts.”

Nu Skin Enterprises Inc. v. Raab, No. 22-4068 (10th Cir. Mar. 19, 2024).

Dana Jennings and Joseph Furlong each bought a car from Carvana, a nationwide online used car dealer. On the day of their purchases, each signed three separate documents: a “retail purchasing agreement,” a “retail installment sales contract,” and an arbitration agreement.

The purchasers filed a class action lawsuit against Carvana alleging that Carvana breached a contractual promise to properly license, title, and register their vehicles with Pennsylvania. Carvana moved to compel arbitration, but the district court denied the motion, finding that the arbitration agreements were not enforceable under Pennsylvania’s Motor Vehicle Sales Finance Act because they were not expressly incorporated into the retail installment sales contracts signed by the purchasers.

On appeal, the Third Circuit affirmed. Under Pennsylvania’s Motor Vehicle Sales Finance Act, a contract governing an installment sale of a vehicle must: (1) be in writing; (2) contain all agreements between the buyer and the installment seller relating to the installment sale of the motor vehicle; and (3) be signed by the buyer and seller. The second requirement creates a so-called one-document rule, which provides that no other agreement is enforceable as part of the sale unless it is included within the installment sales contract, in this case, the retail installment sales contract.

But here, the arbitration agreements were separate from the retail installment sales contracts. In addition, the retail installment sales contract included an integration clause, which expressly stated that the contracts constituted the complete and exclusive agreements between the parties. Because of the integration clause, the parol evidence rule applied and precluded consideration of other written agreements entered into by the parties.

Carvana argued that because all the agreements were executed on the same day and as part of the same transaction, they should collectively be deemed one contract, which would render the arbitration agreements enforceable. The Third Circuit disagreed, pointing out that although the “same transaction concept” exists in Pennsylvania, the contracts relating to the same transaction are enforceable only if they reference or incorporate one another, which the agreements here did not do.

As a result, the Third Circuit affirmed the district court’s ruling that the arbitration agreements were unenforceable and remanded for further proceedings.

Jennings v. Carvana, LLC, No. 22-2948 (3d Cir. Mar. 21, 2024).

The Ninth Circuit Court of Appeals recently upheld a decision compelling arbitration based on an arbitration provision in website “terms of use,” even though those terms were in a hyperlink.

In Patrick v. Running Warehouse LLC, a group of consumers brought six putative class actions against online sporting goods retailers after their personal information was exposed in a data breach. When purchasing goods from the defendants’ websites, they had to click a button that said “place order” or “submit order.” Next to that button was a statement that read: “By submitting your order you … agree to our privacy policy and terms of use.” The phrase “terms of use” was a hyperlink that led to the defendants’ terms of use, which contained an arbitration provision.

The defendants move to compel arbitration based on the arbitration provision in the terms of use. The district court granted that motion and the plaintiffs appealed to the Ninth Circuit, which affirmed.

The plaintiffs primarily argued that the websites provided insufficient notice of the arbitration provisions. The Ninth Circuit rejected that argument. It noted that inquiry notice was sufficient as long as “the website provides reasonably conspicuous notice of the terms to which the consumer will be bound; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms.” The court noted that hyperlinks can satisfy that standard as long as they are “displayed in a font size and format such that the court can fairly assume that a reasonably prudent Internet user would have seen it.” The defendants’ hyperlinks satisfied that standard because, for example, the notice was prominently displayed on an uncluttered page, clear and legible, and the “terms of use” hyperlink, colored bright green, was easily distinguishable and clearly clickable, resembling other links on the page.

The Ninth Circuit distinguished those facts from a case in which it recently held that there was insufficient inquiry notice because the “terms and conditions” in that case were printed in a tiny gray font much smaller than surrounding website elements, it was “barely legible to the naked eye.”

The Ninth Circuit also rejected the plaintiffs’ arguments that the arbitration provisions were invalid under California law and that they were unconscionable. The court further held that the parties delegated the question of arbitrability by invoking JAMS’ rules, which provide that arbitrability disputes are for the arbitrator, not the court.