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Arbitration / Court Decisions

Ninth Circuit Affirms District Court Order Denying Motion to Compel Arbitration of Discrimination Claims

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In Perez v. Discover Bank, the Ninth Circuit Court of Appeals affirmed a district court order denying a motion to compel arbitration of the plaintiff’s discrimination claims, finding that the mandatory arbitration provisions included in student and consolidation loan agreements signed by the plaintiff did not require arbitration. The plaintiff is a recipient of the Deferred Action for Childhood Arrivals program who applied for a student loan in 2010 from Citibank to attend graduate school. The loan agreement with Citibank included an arbitration agreement providing that the parties “could elect binding arbitration for any claims ‘arising out of or in connection with [the] loan.’” In October 2011, Citibank acquired ownership of the plaintiff’s note. In 2018, the plaintiff submitted a loan application for a Discover Bank consolidation loan, which extinguished the original student loan. The application for the consolidation loan included an arbitration provision, and a provision permitting the plaintiff to opt out of the arbitration provision within 30 days after consummation of the loan. The plaintiff did not opt out because she believed her loan application was rejected.

The plaintiff then filed a discrimination action in district court alleging that she was told by a representative of the bank that she could not refinance her loan because she was not a U.S. citizen or lawful permanent resident. Discover filed a motion to compel arbitration, which was initially granted by the district court when the plaintiff did not confirm she wanted to opt out of the arbitration agreement. However, after the plaintiff informed the court that she wished to opt out of the agreement and filed a motion for reconsideration, the district court reversed its order requiring the plaintiff to arbitrate her discrimination-based claims, rejecting Discover’s argument that the opt-out provision did not apply to the discrimination claims because that claim had accrued before the plaintiff elected to opt out.

On appeal to the Ninth Circuit, Discover argued that both agreements required arbitration of the plaintiff’s discrimination claims. After recognizing the de novo standard of review of a district court’s order denying a motion to compel arbitration, the court found the positions taken by Discover during the hearing in the district court and on appeal were inconsistent, and Discover was judicially estopped from arguing that the plaintiff’s opt out of the arbitration agreement did not apply to her discrimination claims. The court then found the parties “never formed an agreement to arbitrate [the plaintiff’s] discrimination claims via the Citibank agreement,” and affirmed the district court’s order denying the motion to compel arbitration.

Perez v. Discover Bank, No. 22-15322 (9th Cir. July 24, 2023).

Court Confirms Arbitration Award Against Non-Signatory Intervening Party in Arbitration

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Paychex Inc. had entered into an agreement to provide a company, Dan-Gulf Shipping Inc., with payroll-related services. The agreement contained an arbitration clause governed by the rules of the American Arbitration Association. In 2020, Dan-Gulf commenced arbitration against Paychex under the AAA’s commercial arbitration rules. During the course of the arbitration, Paychex filed a motion to dismiss, but prior to the ruling of the arbitration panel on the motion, another company affiliated with Dan-Gulf, Caytrans BBC LLC, intervened in the arbitration. Paychex then refiled its motion to dismiss to address Caytrans’ claims, which the panel subsequently granted against Caytrans. The panel then entered a partial final award dismissing all of Caytrans’ claims against Paychex (with one of Dan-Gulf’s claims surviving against Paychex).

In September 2020, Paychex filed a petition to confirm the partial final award, to which Caytrans failed to respond. In February 2023, a default was entered against Caytrans. The court has now determined that it is proper for it to enter an order confirming the award. The court found that Paychex demonstrated that diversity subject matter jurisdiction existed over the case. The court also determined that, by electing to intervene in the AAA arbitration, Caytrans consented to the AAA rules, which authorize “that judgment upon the arbitration award may be entered in any federal or state court having jurisdiction thereof.” The court further found that the arbitration was venued, and the partial final award was made, in Rochester, New York, “which is within this judicial district.” Finally, the court determined that the partial final award was valid, there was no “apparent basis for the court not to confirm it,” and the fact that the partial final award “only disposed of the claims between Caytrans and Paychex and not the claims between Dan-Gulf and Paychex is not a barrier to confirmation.” The court therefore confirmed the partial final award.

Paychex, Inc. v. Caytrans BBC LLC, No. 6:22-cv-06411 (W.D.N.Y. July 31, 2023).

Court Follows Fifth Circuit Precedent in Enforcing Unsigned Insurance Arbitration Agreement Under New York Convention

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The insured argued that the arbitration agreement at issue was not enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards because the agreement was not signed by both parties and therefore was not “an agreement in writing” as required by Article II of the Convention. The district court disagreed, relying on Sphere Drake Insurance PLC v. Marine Towing Inc., a Fifth Circuit case decided in 1994, which held that an arbitration agreement need not be signed to qualify as an “agreement in writing.”

The insured argued that the court should “depart from this binding precedent because there have been several developments in both the Fifth Circuit and in other circuit courts of appeal that have undermined Sphere Drake’s reasoning.” The district court, however, declined the insured’s invitation, noting that the court was “duty bound” to apply binding Fifth Circuit precedent “absent an intervening change in the law… by a statutory amendment, or the Supreme Court, or [the Fifth Circuit’s] en banc court.” As there had been no qualifying “intervening change in the law,” the court was required to apply the holding of Sphere Drake and thus found that the insurance contract and arbitration agreement therein constituted a sufficient “agreement in writing” to be enforced under the Convention.

The insured also argued that, if the court compelled the parties to arbitrate, it should issue a ruling that Louisiana law governed the dispute. The court noted that the insured sought to preempt an anticipated argument that the language of the arbitration clause precludes the award of penalties and attorneys’ fees for bad faith claims handling, which awards would be available under Louisiana law. The court again declined, noting that the insured cited no authority for the proposition that it could dictate the law to be applied to a future arbitration proceeding, nor did the insured address the fact that the court’s “limited jurisdiction” at this stage of proceedings was confined to determining the applicability of the Convention to the arbitration clause at issue.

Maxwell Heirsch, Inc. v. Velocity Risk Underwriters, LLC, No. 2:23-cv-00495 (E.D. La. July 26, 2023).

District of Maryland Holds Insurance Policy’s Appraisal Provision Constitutes Enforceable Arbitration Clause Under FAA

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In Travelers Casualty Insurance Company of America v. Papagiannopoulous, the U.S. District Court for the District of Maryland addressed the issue of whether a real estate “appraisal provision” included in an insurance policy can be considered an enforceable arbitration clause under the Federal Arbitration Act.

The case, a declaratory judgment and insurance coverage dispute, was brought by Travelers, which disputed the qualifications of appraisers selected by the defendants to conduct an appraisal of a commercial building. The building had been damaged by a fire and the defendants submitted a claim for losses incurred as a result of the incident. The insurance policy included an appraisal provision, which set forth the procedures for the selection of appraisers in the event of a loss. The policy provided that each party would select “a competent and impartial appraiser” and the two appraisers would then select an umpire. The defendants selected an appraiser to conduct a site inspection of the property. Travelers retained an estimator to inspect the property. The defendants then made a written demand under the policy for an appraisal, selecting the same appraiser who conducted the prior inspection, as well as another appraiser. Travelers objected to the defendants’ designated appraisers, contending they were not impartial. Travelers refused to designate an appraiser and filed a declaratory judgment action seeking a declaration that defendants’ appraisers were not qualified, and directing the defendants to designate competent appraisers. The defendants filed a motion to compel appraisal and to stay the case pending the appraisal award, and to dismiss for improper venue.

The district court first recognized that, when considering whether an appraisal provision constitutes an arbitration clause under the FAA, it is “irrelevant that the contract language in question does not employ the word ‘arbitration’ as such. Rather, what is important is whether the parties clearly intended to submit some disputes to binding review by a third party.” The court concluded that the insurance policy section that included the appraisal provision was sufficient to qualify as an agreement to submit disagreements to a third-party appraiser and, as such, the FAA governed the dispute. The court then concluded that it lacked subject matter jurisdiction over the dispute, granted the defendants’ motion, and dismissed the action. The court also concluded that Travelers’ request for a declaration that the defendants’ appraisers were not qualified was premature, since objections to an arbitrator’s qualification may not be entertained by the court until after the arbitration has been concluded and an award has been entered.

Travelers Casualty Insurance Company of America v. Papagiannopoulous, No. 8:22-cv-02314 (D. Md. July 27, 2023).

Sixth Circuit Holds Validity of Employee’s Electronic Signature Creates Issue of Fact, Reverses Order Compelling Arbitration

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In Bazemore v. Papa John’s U.S.A. Inc., the Sixth Circuit Court of Appeals considered the plaintiff’s appeal of an order granting the defendant’s motion to compel arbitration and to dismiss the plaintiff’s complaint brought under the Fair Labor Standards Act.

The case, a putative class action brought by Papa Johns delivery driver Andrew Bazemore, alleged that Papa Johns had under-reimbursed Bazemore’s vehicle expenses, which resulted in him being paid less than the minimum state and federal wage requirements. Papa Johns moved to compel arbitration based on an arbitration agreement allegedly signed by Bazemore through an electronic signature program called e-Forms. Papa Johns submitted an affidavit in support of the motion explaining the process employees must follow to electronically sign the arbitration agreement as a condition of employment, and indicating the company’s records showed that Bazemore had “followed this process to sign its arbitration agreement.” Bazemore opposed the motion, contending that he had never seen or heard about the arbitration agreement and that his alleged login credentials “were clearly made up.” Bazemore requested limited discovery related to the validity of his alleged electronic signature. The district court denied Bazemore’s request for discovery, finding his position that he had never seen the agreement was a “convenient lapse in memory,” and granted Papa Johns’ motion to compel arbitration and to dismiss the complaint.

The Sixth Circuit first recognized the Federal Arbitration Act requires that a party seeking to compel arbitration must prove a valid arbitration agreement exists, and “[i]f a genuine issue of material fact arises as to whether such an agreement exists, the court shall proceed summarily to the trial thereof.” The court then found that while an electronic signature can be legally valid and show a party’s assent to an agreement, the parties presented conflicting evidence as to whether Bazemore’s electronic signature was valid, including Bazemore’s sworn statement that he had never seen the arbitration agreement before. The court found this disagreement presented a genuine issue of material fact for the fact finder to determine, and even though Bazemore did not expressly state he had not signed the agreement, “a reasonable factfinder could plainly infer that, if Bazemore had not seen the agreement, he had not signed it either.” The court reversed the district court’s order compelling arbitration and remanded the case for further proceedings.

Bazemore v. Papa John’s U.S.A., Inc., No. 22-6133 (6th Cir. July 20, 2023).