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Arbitration / Court Decisions

Eleventh Circuit Affirms Order Compelling Arbitration of Cruise Liner Class Action

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Plaintiffs filed a putative class action against Norwegian Cruise Lines claiming that Norwegian failed to disclose profits it earned when the plaintiffs elected to purchase travel insurance during the cruise booking process. Each plaintiff acknowledged accepting the terms of a “guest contract” with Norwegian, which contained a mandatory arbitration clause covering any dispute “relating to or in any way arising out of or connected with this Contract or Guest’s cruise.” The district court granted Norwegian’s motion to compel arbitration and the plaintiffs appealed, claiming the arbitration clause was inapplicable. According to the plaintiffs, Norwegian was not being sued as a cruise line carrier, but for its role in a purported “reinsurance scheme” whereby it received “kickbacks” on the sale of each travel insurance plan. Thus, the plaintiffs claimed, the class action was unrelated to the guest contract or their cruises. The district court disagreed, however, as did the Eleventh Circuit. Both courts concluded that the plaintiffs’ claims “arose out of,” were “related to,” and were “connected with” Norwegian’s obligations under the guest contract, as any alleged wrongdoing by Norwegian was inextricable from the transaction that culminated in the contract, as well as the plaintiffs’ cruises. The Eleventh Circuit also rejected the notion that Norwegian was being sued in its capacity as a “distribution participant” for the travel insurer. As such, the court affirmed the district court order enforcing the arbitration clause and dismissing the plaintiffs’ allegations.

Phillips v. NCL Corp., No. 19-12463 (11th Cir. Aug. 10, 2020).

Unopposed Motions to Confirm Arbitration Awards Are Treated As Motions for Summary Judgment

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A court granted an unopposed motion to confirm an arbitration award in favor of the Drywall Tapers and Pointers of Greater New York Local Union 1974. The award stemmed from CCC Custom Carpentry’s apparent failure to remit contributions required under a collective bargaining agreement to a collection of insurance and pension funds and to file weekly reports of those remittances. The collective bargaining agreement provided for fines for failure to file the weekly reports and permitted the union to complain to an arbitral board should an employer fail to make them. Custom Carpentry did not appear at the arbitration hearing, which resulted in the levy of $14,000 in fines. Nor did Custom Carpentry appear in the action to confirm the award in the district court.

The court noted that an “unanswered petition to confirm an arbitration award is to be treated as an unopposed motion for summary judgment.” Courts are required to review such motions to determine the moving party’s entitlement to judgment, even if the motion is unopposed. If the burden of proof at trial would fall on the movant, then that party’s submissions in support of the motion “must entitle it to judgment as a matter of law.”

Upon review of the award, the court found no indication that it was made arbitrarily, exceeded the arbitrator’s jurisdiction, or was contrary to law. The court noted that the fine that was levied per missing report exceeded the $500 per report scheduled in the collective bargaining agreement but that the schedule of fines in the agreement set those fines as minimums, rather than maximums.

As a result, the court confirmed the award. However, it denied the union attorney fees, finding neither a statutory nor a contractual basis for such an award.

Drywall Tapers & Pointers of Greater New York Local Union 1974 v. CCC Custom Carpentry Corp., No. 1:20-cv-00946 (S.D.N.Y. Aug. 5, 2020).

Denied: Pro Se Litigant’s Petition to Confirm Arbitration Award He Rendered Against Republican National Committee

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Peter Wirs has filed a series of actions against the Republican National Committee since at least 2009. Not finding success in the courts, he apparently decided to arbitrate his claims against the RNC, with “Wirs himself serv[ing] as the arbitrator.” When Wirs sought to confirm the award he had given himself, the RNC responded by invoking the Rooker-Feldman doctrine and res judicata. In applying the Rooker-Feldman doctrine, the court noted that the proper standard is not whether the plaintiff’s claim is “inextricably intertwined” with a prior state court adjudication, but rather “whether the plaintiff, having lost in state court, is seeking review of a state court’s judgment that injured him.” The court determined that Wirs’ claims were barred by both the Rooker-Feldman doctrine and res judicata and denied the petition to confirm. In addition, the court cautioned Wirs that it “will consider sanctions if he files repetitive, meritless, vexatious, or frivolous submissions.”

In re Motion to Confirm Arbitration Award, No. 19-3998 (3d Cir. Aug. 5, 2020).

Eleventh Circuit Affirms Denial of Motion to Arbitrate Where Appellant Was Not a Party to Arbitration Agreement

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The Eleventh Circuit Court of Appeals recently affirmed the denial of a motion to arbitrate where the appellants were not parties to the agreements containing arbitration clauses. The court also concluded that equitable estoppel did not apply to stop the plaintiffs from opposing arbitration.

A group of plaintiffs sued Herbalife, a global nutrition company that operates through a direct sales network of thousands of distributors, and some of Herbalife’s top distributors in a putative class action. The plaintiffs, who were also Herbalife distributors, claimed they were tricked into spending thousands of dollars to attend “circle of success” events and invest in their Herbalife distribution business by false promises of financial success from the top distributors.

Herbalife and the top distributors moved to compel arbitration. They cited arbitration clauses in the distributor agreements signed by some of the named plaintiffs and argued that the incorporation of Herbalife’s rules of conduct, which Herbalife amended to include an arbitration agreement, in the remaining distributor agreements rendered all the plaintiffs’ claims subject to arbitration. The district court disagreed and also refused to transfer the case to a different venue.

The top distributors appealed. The Eleventh Circuit affirmed the district court’s denial of their motion to compel arbitration. None of the top distributors were parties to the distributor agreements, which were between the plaintiff distributors and Herbalife. The top distributors therefore could not invoke the arbitration clauses. The court also rejected the argument that the district court should have sent the question of arbitrability to an arbitrator. Threshold questions of arbitrability are only questions for the arbitrator if the parties agree to make them so, and in this case there was no agreement between the plaintiff distributors and the defendant top distributors.

The Eleventh Circuit also rejected the top distributors’ argument that the plaintiffs were equitably estopped from opposing arbitration. The plaintiffs’ complaint did not so much as mention a single term from the distributor agreements, which made it difficult to conclude that the plaintiffs relied on those agreements. The agreements were also not so intertwined with the plaintiffs’ claims, which relied on conduct at best one step removed from the agreements, that equitable estoppel applied. The court also concluded that it did not have jurisdiction to review the district court’s decision not to transfer the case to a different venue.

Lavigne v. Herbalife, Ltd., No. 18-14048 (11th Cir. July 29, 2020).

Uber Price Fixing Class Action Award Still Fares Despite Arbitrator’s Unfunny Joke

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The petitioner unsuccessfully sought to vacate an arbitration award permitting Uber’s use of a “surge” pricing algorithm to set fares, arguing that comments made by the arbitrator reflected his “evident partiality” toward Uber in violation of 9 U.S.C. § 10(a)(2). Specifically, on the third day of the arbitration hearing, the arbitrator offered concluding remarks on the record including the statement: “I must say I act out of fear. My fear is if I ruled Uber illegal, I would need security. I wouldn’t be able to walk the streets at night. People would be after me.” The petitioner also argued the arbitrator was “starstruck” by the presence of Kalanick, Uber’s co-founder and then CEO, taking his picture on the first day of the hearing.

Uber first argued that the petitioner waived his right to seek vacatur by waiting until after the arbitrator ruled against him. The court agreed, as attacks on the qualifications of arbitrators on grounds previously known but not raised until after an award has been rendered are precluded. The petitioner’s claim that vacatur of an “openly partial award” is not waivable was “belied by Second Circuit precedent.” The court also agreed with Uber’s second argument, that the arbitrator’s conduct did not justify vacatur, finding the arbitrators remarks “were simply an attempt at humor – one of many made by the arbitrator throughout the hearing.”

Meyer v. Kalanick & Uber Technologies, Inc., No. 1:15-cv-09796 (S.D.N.Y. Aug. 3, 2020).