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Arbitration / Court Decisions

Court Denies Motion To Compel Arbitration and To Appoint Arbitrators Where Parties Had Agreed To Arbitrate and There Was No Impasse

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In a case where both the plaintiffs and the defendant agreed the matter should be arbitrated, the Southern District of Ohio refused to compel arbitration and denied the plaintiffs’ motion for the appointment of arbitrators. The parties’ contract provided for arbitration before the American Arbitration Association, but the AAA declined to administer the arbitration because the defendant “failed to comply with the AAA’s policies regarding consumer claims.” Both parties were amenable to private arbitrations, but they could not agree whether the arbitration should be conducted individually or as one consolidated arbitration. As a result, the plaintiffs argued that the parties had reached an impasse and requested that the court either compel arbitration or appoint arbitrators.

The court first held that a party may not seek to compel arbitration under Section 4 of the FAA “where there has been no refusal to arbitrate.” “A party has ‘refused to arbitrate’ within the meaning of Section 4 if it commences litigation or is ordered to arbitrate the dispute by the relevant arbitral authority and it fails to do so.” The court denied the motion to compel arbitration under Section 4 because it found that the defendant had not unequivocally refused to arbitrate. Rather, the defendant expressly acknowledged the agreement to arbitrate, and the parties were working together to select arbitrators, but had so far failed to agree. Although the parties had not been able to agree on arbitrators for more than a year, the court found that some of this delay was attributable to the plaintiffs’ change in position regarding consolidated arbitration.

With regard to the plaintiffs’ motion for appointment of arbitrators, the court noted that the FAA “expressly favors the selection of arbitrators by parties rather than courts[, however,] Congress recognized that judicial intervention may be required in certain circumstances.” Section 5 of the FAA provides for the appointment of arbitrators “if for any [ ] reason there shall be a lapse in the naming of an arbitrator.” For purposes of Section 5, a “lapse” has been defined as “a lapse in time in the naming of the arbitrator … or some other mechanical breakdown in the arbitrator selection process.” Several courts have found such a “lapse” to have occurred where the parties have deadlocked with regard to the appointment of arbitrators or the process pursuant to which the appointments should be made. Here, despite the one-year delay, the court found that no deadlock had occurred, as the parties both agreed that they were amenable to private arbitration and the names of specific arbitrators had been exchanged. In addition, the AAA had informed the parties that it would consider accepting the arbitration if the defendant took certain steps.

As a result, the court found that it lacked jurisdiction under Section 4 to compel arbitration and under Section 5 to appoint arbitrators, and dismissed the action without prejudice.

Allen v. Horter Investment Management, LLC, Case No. 1:20-cv-11 (S.D. Ohio Sept. 30, 2020).

Fifth Circuit Affirms That District Court in Texas Lacks Jurisdiction to Vacate Arbitration Award in Florida

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Defendants-appellees picked up work orders from the plaintiff-appellant in its Florida offices, performed field work in Florida, and sent invoices to the plaintiff-appellant in Texas, who eventually stopped paying the invoices. The defendants-appellees commenced a AAA arbitration, and a Florida arbitrator eventually found in their favor. The plaintiff-appellant filed suit in Texas seeking to vacate the arbitration award under state law, which defendants-appellees opposed under FRCP 12(b)(2), (b)(3), (b)(5) and under the Colorado River abstention doctrine. The Western District of Texas dismissed the suit for lack of personal jurisdiction.

The circuit court focused on whether the defendants-appellees had “minimum contacts” in Texas, such that a Texas court could exercise specific personal jurisdiction over them. Looking at the parties’ contract, the place of performance was Florida. The circuit court dismissed the remainder of the plaintiff-appellant’s arguments in favor of jurisdiction, notably the argument that the parties’ agreement contained a Texas choice-of-law clause. “While such clauses can be probative of purposeful availment, they’re never dispositive.” Here, despite the Texas choice-of-law clause, the parties’ agreement does not suggest that they expected to resolve their disputes in Texas. In fact, the agreement required arbitration take place in accordance with the AAA’s venue-selection rules, i.e., as close as possible to the project in Florida. Finding no jurisdiction, the circuit court concluded that, “[i]n short, this is Florida’s problem. Not Texas’s.”

Sayers Const., LLC v. Timberline Const., Inc., et al., No. 19-51099 (5th Cir. Oct. 2, 2020)

Fourth Circuit Vacates and Remands Denial of Motion to Stay Case Pending Arbitration After District Court Refuses to Consider Evidence Beyond the Pleadings

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The Fourth Circuit recently vacated and remanded an order denying a motion to stay proceedings pending arbitration after concluding that the district court erroneously failed to consider evidence beyond the pleadings because the motion to stay was part of a motion to dismiss.

Brenda C. Noe sued City National Bank of West Virginia on behalf of a putative class of similarly situated plaintiffs claiming that the bank’s fee practices violated contractual provisions and the West Virginia Consumer Credit and Protection Act, among other things.

The bank filed a motion to dismiss and, in the alternative, moved to stay the action pending referral to arbitration. The district court found it possible that a subsequent agreement altered Noe’s original agreement with the bank such that an agreement to arbitrate was eliminated. The district court then “refused to consider the bank’s evidence calling that elimination into question because the court believed the question was unfit for resolution on a motion to dismiss.”

The bank appealed and the Fourth Circuit vacated and remanded. After determining that it had jurisdiction over the appeal (the circuit court concluded that the bank’s alternative request to stay the case pending arbitration “equated to a motion seeking enforcement of a purported arbitration agreement,” the denial of which conferred appellate jurisdiction), the court concluded “that the district court should have treated the bank’s motion as a motion to stay the litigation and compel arbitration” and that, had the district court done so, it could have considered the bank’s evidence and held a hearing to consider any unresolved questions of fact regarding arbitration.

The Fourth Circuit therefore vacated the district court’s decision denying the bank’s alternative motion to stay and remanded for a determination as to whether the case should be referred to arbitration and, if necessary, a hearing to resolve any related questions of material fact.

Brenda C. Noe v. City National Bank of West Virginia, No. 20-1230 (4h Cir. Sept. 17, 2020)

Western District of Washington Reverses Course and Compels Arbitration

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Following unsuccessful motions to dismiss, the defendants moved to compel arbitration, arguing that they had not moved to compel the matter to arbitration earlier because the plaintiffs had not yet completed all stages of the dispute resolution procedures required before the parties could arbitrate. The court found that Aliera Companies, Inc. and Aliera Healthcare, Inc. (collectively, “Aliera”) demonstrated it had not waived its right to compel arbitration, as Aliera’s initial motion to dismiss did not seek to dismiss the matter on the merits, and thus, Aliera did not act inconsistently with their right to compel arbitration.

As to Trinity HealthShare, Inc. (“Trinity”), the court found that Trinity’s motion to dismiss the complaint as a matter of law with prejudice did seek a resolution on the merits, and thus Trinity acted inconsistently with its right to compel arbitration. Notwithstanding, the court found that the plaintiffs were not prejudiced by Trinity’s action, and thus could not establish that Trinity waived its rights to arbitration. The court’s prior decision denying the defendants’ motion to compel arbitration was vacated, and the parties required to arbitrate.

Jackson, et al. v. The Aliera Companies, Inc., 2:19-cv-01281 (W.D. Wash. Oct. 6, 2020)

Ninth Circuit Affirms That Uber Driver Not Engaged in “Foreign or Interstate Commerce” for Purposes of Exemption to FAA

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The Ninth Circuit denied a petition seeking to vacate an order compelling arbitration of an Uber driver’s putative class action. The district court held that rideshare drivers who pick up and drop off passengers at airports did not fall within an exemption in the Federal Arbitration Act (FAA) for workers engaged in foreign or interstate commerce, and therefore the petitioner may be judicially compelled to arbitrate in accordance with the terms of his employment contract. The Ninth Circuit affirmed, finding the decision was not clearly erroneous as a matter of law.

Section 1 of the FAA provides that arbitration clauses in “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” are “exempt” from the FAA’s coverage. In response to Uber’s motion to compel arbitration, the petitioner argued that he drives passengers engaged in interstate travel to and from airports, and thus qualifies for the exemption. The Ninth Circuit has interpreted section 1 as applying only to employees who “actually transport people or goods in interstate commerce,” although the court acknowledged that several recent federal court decisions have interpreted the clause more broadly. Notwithstanding the tension between those decisions and the district court’s ruling here, the court declined to find the district court’s decision was “clearly erroneous as a matter of law.” Analogizing the petitioner’s employment to that of local taxicab services, the court found that the petitioner never crossed state lines during his work, and cited no precedent holding that rideshare drivers, as a class, are “engaged in foreign or interstate commerce.” As such, the petition for a writ of mandamus was denied.

In re William Grice, No. 20-70780 (9th Cir. Sept. 4, 2020)