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Arbitration / Court Decisions

Arkansas District Court Compels Arbitration of Post-Termination Wage Dispute

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Audra Patterson filed a putative class action against her former employer, American Income Life Insurance Company (AILIC), for alleged wage violations. AILIC moved to compel arbitration of her individual claims pursuant to an arbitration clause in her agency agreement. The agreement provided that all disputes shall be submitted to binding arbitration, specifically including those alleging violations of wage and hour laws. Patterson claimed the arbitration clause was nonetheless inapplicable, arguing the agency agreement was silent as to whether the arbitration clause survived termination of the agreement. The district court disagreed, finding the argument insufficient to overcome the strong presumption in favor of arbitration. Absent clear indication to the contrary, the court noted that federal arbitration law generally presumes an arbitration provision in a contract remains valid and enforceable even after the contract expires or is otherwise terminated. The court also rejected Patterson’s reliance on specific “survival” language in other contract provisions. Patterson claimed it was implicit from the language in those other provisions that the arbitration clause was not to survive upon termination of the contract. The court again disagreed, emphasizing that the U.S. Supreme Court and the Eighth Circuit have interpreted similar arbitration clauses as covering post-termination employment disputes. The court granted AILIC’s motion to compel accordingly.

Audra Patterson v. American Income Life Insurance Co. et al., Case No. 19-cv-00918 (E.D. Ark. Oct. 30, 2020).

Third Circuit Affirms District Court’s Vacatur of Arbitration Award Where There Was No Agreement To Arbitrate, Leaving the Arbitrator Without Power To Act

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In early 2017, Transco received authorization from the federal government to construct a natural gas pipeline that required rights-of-way over several tracts of private property, including property owned by Regec. After failed negotiations as to how much money Regec should be paid for Transco’s use of his property, Transco brought a condemnation action, under the Natural Gas Act 15 U.S.C. § 717, against Regec in the United States District Court for the Middle District of Pennsylvania.

Regec filed a copy of a “foreign final judgment via arbitration award,” which described an alleged breach by Transco of a “contract” it entered into with Regec via “tacit acquiescence.” Transco did not participate in the arbitration, yet the arbitrator awarded Regec approximately $55 million and mailed a copy of the arbitration award to Transco’s office in Texas.

Even though the filing containing the arbitration award was struck by the district court, Regec nevertheless requested confirmation of the award under the Federal Arbitration Act. Transco responded with a motion to vacate the award under § 10(a) of the FAA, claiming that the award is “null and void.” The district court granted Transco’s motion by order entered October 8, 2019. Regec appealed.

On appeal, the Third Circuit held that it had jurisdiction under the FAA to review the October 8 order because the FAA provides grounds for immediate appeal distinct from principles of “finality” under 28 U.S.C. § 1291, certain grounds which were present in this case.

Addressing the merits of the October 8 order, the panel affirmed the district court’s vacatur of the arbitration award.

The panel rejected Regec’s jurisdictional challenge, finding that the district court had supplemental jurisdiction under 28 U.S.C. § 1367(a) to rule on Transco’s motion to vacate because the subject of the arbitration award was “so related” to the claims in the condemnation action, such that the contract giving rise to the arbitration award was formed as a result of litigation events in the condemnation action.

The panel also rejected Regec’s service-related challenge, holding that the district court did not err in finding Transco used a proper method to serve the motion to vacate, since service of a motion to confirm the arbitration award by a U.S. Marshal is unnecessary where a party is already before the court. Because service was proper, the panel also concluded that the motion to vacate was timely under the FAA.

Most significantly, the panel held that the district court did not err in granting Transco’s motion to vacate the arbitration award, which was based primarily on its conclusions that “the parties never agreed to arbitrate and so the arbitrator here had no jurisdiction,” and that “Transco received no notice of the ex parte arbitration proceeding or opportunity to be heard, and … suffered prejudice as a result.”  The panel found that arbitrator acted outside the scope of his contractually delegated authority—issuing an award that simply reflects his own notions of economic justice rather than drawing its essence from the contract—because there is no discernable agreement between the parties to arbitrate the dispute described by Regec. The panel made clear that absent an arbitration agreement, the arbitrator was without power to act.

Transcon. Gas Pipe Line Co LLC v. Permanent Easement for 2.59 Acres, Temp. Easements for 5.45 Acres & Temp. Access Easement for 2.12 Acres in Pine Grove Twp., Schuylkill Cty., PA, Tax Parcel No. 21-04-0016.000 361, Chapel Drive, Pine Grove, Pine Grove Twp., Schuylkill Cty. PA, No. 19-2738 (3d Cir. Oct. 28, 2020).

California District Court Grants Motion to Compel, Referring Issue of Arbitrability to Hong Kong Arbitration Forum

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A district court in California granted a motion to compel arbitration pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. A shareholder’s agreement between the parties contained a provision requiring arbitration before the Hong Kong International Arbitration Centre (HKIAC), and also incorporated the HKIAC’s rules by reference. The plaintiff claimed the arbitration clause was inapplicable to the instant dispute. The defendants argued that arbitrability questions must be decided by the HKIAC. The district court agreed, finding the HKIAC rules clearly and unmistakably demonstrated the parties’ intent to delegate threshold arbitrability issues to the HKIAC. The district court also found the relevant shareholder’s agreement was enforceable against the plaintiff, even though he did not sign it, since his corporation signed the agreement as his alter-ego.

Michael Pak v. EoCell, Inc., et al., Case No. 20-cv-05791-VC (N.D. Cal. Oct. 28, 2020).

Determination of Valid Arbitration Agreement May Be Dependent on “Outward Manifestations and Circumstances Surrounding the Transaction”

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The Ninth Circuit vacated the denial of a motion to compel arbitration and remanded for determination of whether a valid arbitration agreement exists in a recent lawsuit governed by Washington state law. According to the Ninth Circuit, the district court’s “sparse analysis” left it unclear whether the court had “properly considered all the relevant facts and circumstances” necessary to determine whether there was sufficient “mutual assent required for the formation of a valid contract.” Such a determination requires an “inquiry into [the plaintiff’s] intent – based on the reasonable meaning of his words and acts to assent to the terms of the Agreement.”

The district court “bypassed” that analysis, and instead deemed the facts and circumstances to be “identical in all material facts and circumstances” to those of another plaintiff that the court had previously determined to have assented to the agreement. However, the Ninth Circuit noted that one of the plaintiffs received the agreement beforehand while the other did not, and that the plaintiff relevant to this appeal did not submit a declaration to the court, which would have enabled the court to better determine whether mutual assent existed based on the “outward manifestations and circumstances surrounding the transaction.” As such, the court vacated and remanded for determination as to whether the factual record supported the establishment of a valid and enforceable arbitration agreement.

Reichert v. Rapid Investments, Inc., No. 19-35989 (9th Cir. Oct. 21, 2020).

Ninth Circuit Holds That a Change-of-Terms Provision Cannot Bind Parties To a New Browse-Wrap Agreement

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The Ninth Circuit recently concluded that a consumer was not bound by updated terms merely because she accessed a website that contained new terms in a “browse-wrap” agreement on the website. The court also concluded that an arbitration clause in the original “click-wrap” terms that did apply did not preclude arbitration under a California rule invalidating arbitration clauses that preclude public injunctive relief actions under the California Unfair Competition Law.

In 2014, Rachel Stover purchased a credit monitoring product called Experian Credit Score. In so doing, she assented to certain terms and conditions, including an arbitration clause requiring arbitration of any claims arising out of the transaction “to the fullest extent permitted by law” and a change-of-terms provision stating that “[e]ach time” she “accessed . . . the . . . Product Website,” she manifested to “the then-current” terms of the agreement.

Stover cancelled her subscription in 2014, but accessed the website again in 2018. The following day, she filed a putative class action in California federal court alleging violations of, inter alia, the Fair Credit Reporting Act and California’s Unfair Competition Law.

Experian moved to compel arbitration. The District Court granted that motion. It concluded that (1) the dispute was governed by Experian’s 2018 terms because the change-of-terms clause in the 2014 terms made the 2018 operative as soon as Stover logged onto the website in 2018, (2) a carve out for Fair Credit Reporting Act claims in the 2018 terms did not apply, and (3) Stover’s claims were not exempt from arbitration under the California Supreme Court’s decision in McGill v. Citibank, N.A., 393 P.3d 85, 94 (Cal. 2017), which held that “a provision in any contract . . . that purports to waive, in all fora, the statutory right to seek public injunctive relief under the [California Unfair Competition Law (UCL)] is invalid . . . .”

The Ninth Circuit affirmed on appeal, albeit on different grounds.

The court held that “[i]n order to bind parties to new terms pursuant to a change-of-terms provision, consistent with basic principles of contract law, both parties must have notice that the terms have changed and an opportunity to review the changes.” In this case, “[b]ecause Stover ha[d] not alleged that she had such an opportunity, the 2018 terms did not form a valid contract.” The court also explained “that mere inquiry notice of changed terms is [not] enough to bind the parties to them” and that “Stover had no obligation to investigate whether Experian issued new terms without providing notice to her that it had done so.” The 2014 terms applied.

The court then concluded that arbitration was not precluded by McGill. The arbitration clause in the 2014 terms provided for arbitration “to the fullest extent allowed by law.” That phrase “presumably exclude[d] claims for public injunctive relief in California.” Stover’s claims, the court explained, did not meet the Article III standing requirement for seeking public injunctive relief. As a result, “the McGill rule d[id] not excuse Stover from binding arbitration.”

Rachel Stover v. Experian Holdings, Inc., No. 19-55204 (9th Cir. Oct. 21, 2020).