Jurisdiction Issues

Eleventh Circuit Dismisses Appeal From Order Compelling Arbitration and Staying Case for Lack of Jurisdiction

February 14, 2024 by Kenneth Cesta

The Eleventh Circuit Court of Appeals dismissed, sua sponte, a district court order that granted defendant Trina Solar (U.S.) Inc.’s motion to compel arbitration and stay the underlying case. The court did not address the facts of the case in its per curiam opinion, other than to note the dismissal and closure of the case would not impact the merits of the litigants’ claims. Without discussion, the court based its dismissal on 9 U.S.C. § 16(b)(1)–(3), and the precedent cited in its opinion confirming “[a]n appeal may not be taken from an interlocutory order that compels arbitration and stays, rather than dismisses, the action.” The court noted the district court order that the plaintiff sought to appeal “stayed, rather than dismissed, the case and expressly contemplated further proceedings.” The court dismissed the appeal, concluding it lacked jurisdiction to consider the underlying order compelling arbitration and staying the case.

Allco Finance Limited Inc. v. Trina Solar (U.S.) Inc., No. 23-13968 (11th Cir. Jan. 11, 2024).

Southern District of New York Dismisses Petition to Confirm $145M Foreign Arbitration Award for Lack of Personal Jurisdiction

August 4, 2023 by Brendan Gooley

The Southern District of New York recently dismissed a petition to confirm a $145 million arbitration award rendered in Hong Kong based on lack of personal jurisdiction.

Zhongzhi Hi-Tech Overseas Investment Ltd. obtained a $145 million arbitration award in Hong Kong against Dr. Vincent Wenyong Shi related to Dr. Shi’s and another company’s alleged failure to make contractually required payments.

Hi-Tech moved to confirm that award in the Southern District of New York. Dr. Shi moved to dismiss, claiming a lack of personal jurisdiction. The court granted the motion, holding that New York’s long-arm statute was not met and that jurisdiction did not comport with due process.

Hi-Tech argued that New York’s long-arm statute was met based on Dr. Shi’s (1) execution of a contract providing that New York law would govern that contract, (2) Dr. Shi’s defense of a lawsuit pending in the Southern District, and (3) Dr. Shi’s role as an executive of a company listed on the New York Stock Exchange. The district court rejected these arguments.

First, it noted that the contract had been amended and that its choice-of-law provision had been replaced by a new clause providing that Hong Kong law would govern. The original choice-of-law provision therefore provided no basis for jurisdiction, and Hi-Tech conceded that a choice-of-law provision “does not equate to consent to jurisdiction” in any event.

Second, Dr. Shi was involved in defending a suit in the Southern District against a company he was involved in, but “a party’s consent to jurisdiction in one case extends to that case alone” and therefore did not provide a basis for jurisdiction against Dr. Shi in this case.

Third, although a company Dr. Shi was a leader in had been listed on the New York Stock Exchange, having a company listed on the NYSE is not sufficient to confer jurisdiction. Even if it was, the company had been delisted and there was thus no basis for jurisdiction.

With respect to due process, the court noted that New York and the United States had little interest in the dispute and that Dr. Shi had little or no reason to expect to be hailed into court there.

Zhongzhi Hi-Tech Overseas Investment Ltd. v. Wenyong Shi, No. 1:22-cv-06977 (S.D.N.Y. July 17, 2023).

South Carolina Supreme Court Finds Contract Didn’t Involve Interstate Commerce, Reverses Order Compelling Arbitration

July 7, 2023 by Kenneth Cesta

In Hicks Unlimited Inc. v. UniFirst Corp., the South Carolina Supreme Court agreed with a trial court ruling that the underlying contract between the parties, which included mandatory arbitration to be governed by the Federal Arbitration Act, did not implicate interstate commerce. The court found that the FAA did not preempt South Carolina’s Arbitration Act (SCAA) and reinstated the trial court’s order denying UniFirst’s motion to compel arbitration.

Hicks and UniFirst entered into a contract wherein Hicks agreed to rent uniforms for its employees. The agreement mandated all disputes would be decided by binding arbitration per the expedited procedures of the commercial arbitration rules of the American Arbitration Association and governed by the FAA. UniFirst moved to compel arbitration of a dispute that arose between the parties, and Hicks opposed the motion on the grounds that the arbitration provision did not comply with the notice requirements of the SCAA and was unenforceable. UniFirst further contended that the arbitration provision was governed by the FAA, which preempts the notice provision set forth in the SCAA. The lower court denied UniFirst’s motion, finding that the FAA did not apply because the agreement did not involve interstate commerce, and the arbitration provision was unenforceable because it did not meet the notice requirements of the SCAA. On appeal by UniFirst, the court reversed the trial court’s ruling, concluding that arbitration should have been compelled because the contract involved interstate commerce and, therefore, the FAA preempted the SCAA. Hicks appealed to the South Carolina Supreme Court.

In reversing the court of appeals’ decision, the court first noted that the determination of whether a contract involves interstate commerce, and whether it preempts applicable state law, is a question of law to be reviewed on a de novo basis. The court then rejected UniFirst’s argument that, because the parties agreed in the contract that the FAA would apply, it was unnecessary to address whether the contract involved interstate commerce. The court ruled that a provision in an arbitration agreement declaring that the FAA applies “is not a fait accompli.” The court refused to apply the FAA to the dispute without first determining whether interstate commerce was involved. The court noted that when deciding whether a contract involves interstate commerce, a court must examine the agreement, the complaint, and the surrounding facts, including any affidavits. The court then found the evidence UniFirst relied upon to support its contention that the agreement involved interstate commerce was untimely, and the court of appeals should not have used those facts in ruling for UniFirst. The court concluded that the contract did not involve interstate commerce, affirmed the trial court’s determination denying UniFirst’s motion to compel arbitration, and reversed the court of appeals’ ruling.

Hicks Unlimited, Inc. v. UniFirst Corp., No. 28158 (S.C. June 14, 2023).

Third Circuit Joins Other Circuits, Holds Uber Drivers Are Not Exempt From FAA

May 26, 2023 by Kenneth Cesta

In Singh v. Uber Technologies Inc., the Third Circuit Court of Appeals, in a precedential opinion, affirmed district court orders granting defendant Uber Technologies Inc.’s motion to compel arbitration, concluding that the plaintiffs were not exempt from the Federal Arbitration Act (FAA). In reaching its decision, the court noted it is joining other circuit courts in concluding that Uber drivers do not belong to the class of workers exempt from arbitration under section 1 of the FAA as “workers engaged in foreign or interstate commerce.”

The FAA compels federal courts to enforce a wide range of arbitration agreements, but it does not apply to arbitration agreements in the contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. The case before the Third Circuit was a consolidated appeal involving two cases brought against Uber by its drivers. Uber filed motions to compel arbitration in both cases, relying on the terms of its agreements with the drivers, which included a broad arbitration clause.

In plaintiff Singh’s case, which was a putative class action, the district court granted a previous motion to compel arbitration filed earlier in the case by Uber, concluding that section 1 of the FAA applied only to transportation workers who move goods, not those who carry passengers. The Third Circuit reversed that earlier decision, concluding that the exemption also applies to transportation workers who transport passengers “so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it,” and remanded the case to the district court to determine whether the Singh class of workers were engaged in interstate commerce. After limited discovery related to that issue, the district court concluded that the plaintiffs were not engaged in foreign or interstate commerce, and compelled arbitration. In affirming the decision of the district court, the Third Circuit concluded that interstate commerce was not central to the work of Uber drivers, and the exemption in section 1 of the FAA does not apply. The district court orders compelling arbitration were affirmed.

Singh v. Uber Technologies Inc., No. 21-3234 (3d Cir. May 4, 2023).

Third Circuit Affirms Finding That Defendant Waived Its Arbitration Rights

March 24, 2023 by Kenneth Cesta

In White v. Samsung Electronics America Inc., the Third Circuit Court of Appeals, in a precedential opinion, affirmed a district court order denying defendant Samsung’s motion to compel arbitration, concluding that, “[t]hrough its actions expressing an intent to litigate, Samsung waived its right to arbitration.”

The plaintiffs in this putative class action filed in 2017 brought claims alleging that Samsung, and others, illegally monitored their use of certain internet-based services on their smart TVs and collected personally identifying information, which they transmitted to third-party advertisers and data brokers. The “terms and conditions” the plaintiffs had to accept when setting up their smart TVs included an arbitration provision. Samsung initially moved to dismiss the complaint; however, the parties agreed to a stay and administrative dismissal of the case. In early 2018, the case was reinstated when the plaintiffs filed an amended complaint, which Samsung again sought to dismiss. Samsung also submitted a proposed discovery plan, which did not raise the arbitration provision or a possible motion to compel arbitration. The district court granted the motion to dismiss, after which the plaintiffs filed a second amended complaint in November 2018, which Samsung again moved to dismiss. The district court granted the motion in part, dismissing all but the Wiretap Act claims.

In May 2020, Samsung filed a motion to compel arbitration, which was denied without prejudice. Samsung then refiled its motion to compel in May 2021, arguing that “it did not waive its right to arbitrate because ‘the prerequisites of waiver — extensive discovery and prejudice — are lacking, and the [relevant] factors do not support a finding of waiver.’” The district court denied the motion, concluding that Samsung had waived its right to arbitrate, and the plaintiffs would suffer “significant prejudice” if compelled to arbitrate. Samsung appealed the district court’s decision to the Third Circuit, and while the appeal was pending, the U.S. Supreme Court issued its decision in Morgan v. Sundance Inc. Through supplemental briefing, Samsung brought the decision in Morgan to the court’s attention, arguing that the decision rejected a “prejudice-based waiver analysis” in connection with motions to compel arbitration.

Relying on the Federal Arbitration Act and the recent decision in Morgan, the Third Circuit concluded that “Samsung’s litigation actions here evince a preference for litigation over arbitration.” The court noted that Samsung agreed to stays in discovery so it could instead pursue its motions to dismiss the plaintiffs’ claims on the merits, which, to Samsung’s advantage, resulted in the dismissal of all but one claim. The court also found that Samsung “engaged in multiple instances of non-merits motion practice and acquiesced to the District Court’s pre-trial orders” and noted that Samsung submitted pro hac vice applications in the case and participated in several court conferences. The court also noted that the discovery plan asked whether the case was subject to court-annexed arbitration and, while the case was not subject to that particular type of arbitration, “Samsung should have disclosed that another type of arbitration may be applicable.” Relying on Morgan, the court affirmed the district court’s decision refusing to refer the matter to arbitration, concluding that Samsung waived its right to arbitrate.

White v. Samsung Electronics America Inc., No. 22-1162 (3d Cir. Mar. 7, 2023).