Arbitration / Court Decisions

The Sixth Circuit recently reversed a decision from an Ohio federal court that denied an apartment owner’s motion to compel arbitration on the basis that the apartment owner waived its right to arbitration through its pre-trial “posturing” correspondence.

Oro Karric North LLC and its sister entities (collectively “Oro”) contracted with Borror Property Management LLC for Borror to manage Oro’s residential apartments. Each management contract included the following arbitration provision: “If either party shall notify the other that any matter is to be determined by arbitration,” the parties would proceed to arbitration unless they first resolved the dispute amongst themselves.

A dispute arose which resulted in Borror’s ceasing to manage Oro’s properties. Oro responded by letter asserting that Borror was in breach of the parties’ contracts, and advised that Oro planned “to proceed directly to litigation in either state or federal court,” as the contracts “do not limit litigation exclusively to arbitration.” Oro asked Borror to notify it within six days if Borror preferred arbitration; otherwise, Oro would assume that Borror wanted to proceed with litigation.

Instead, Borror filed a complaint in federal court asserting its own breach of contract claims. Oro moved to compel arbitration. The District Court for the Southern District of Ohio denied Oro’s motion to compel arbitration, holding that Oro had waived its contractual right to arbitration through its pre-litigation conduct. Oro timely appealed.

On appeal, the Sixth Circuit reversed, finding that Oro did not waive its right to arbitration because its pre-complaint, litigation-threatening letter did not amount to conduct “completely inconsistent” with Oro’s arbitration rights. The panel recognized that pre-litigation letters exchanged between parties serve a variety of purposes, and are more often a “rhetorical art than legal science.” The panel cautioned that a finding that one could waive its right to arbitration through pre-filing communications “would leave parties with little room to maneuver as they seek to work out their differences short of litigation” and inevitably “make pre-filing settlement elusive, an unfortunate development not only for parties, which often settle disputes to avoid litigation risk, but also for the courts, which historically have counted on the resolution of disputes to conserve limited judicial resources.”

The panel further noted that, even if Oro’s letter was inconsistent with a right to arbitration, Borror was not materially prejudiced by Oro’s actions, and thus no implied waiver occurred. The panel similarly found the letter was not an express waiver of right to arbitration, where nothing in the letter disavowed Oro’s right to arbitration.

The case was remanded for further proceedings.

Borror Prop. Mgmt., LLC v. Oro Karric N., LLC, No. 20-3146 (6th Cir. Oct. 29, 2020).

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).

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).

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).