Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Ninth Circuit Denies Mandamus After District Court Compels Arbitration Based on Allegedly Inconspicuous Arbitration Provision

by

The Ninth Circuit recently denied a petition for a writ of mandamus seeking to overturn a district court’s decision compelling arbitration. The petition principally argued the arbitration clause was inconspicuous because it was only found in a document that users had to: (1) click a link to access; and (2) then find another document incorporated in the first document on UPS’ website.

Randall Holl filed a putative class action alleging that UPS overcharged him for a package he shipped. UPS responded by moving to compel arbitration. It claimed Holl had enrolled in the UPS My Choice program. In so doing, he clicked a box stating he agreed to, inter alia, the UPS My Choice Service Terms, which could be accessed by clicking a hyperlink next to the checkbox. That hyperlink brought users to a short document that incorporated several other documents but did not mention arbitration. The other documents were not hyperlinked to that page, but could be accessed on UPS’ website. One of the documents incorporated was the UPS Tariff/Terms and Conditions of Service, which was 32 pages in length and contained a mandatory arbitration clause. Holl claimed, inter alia, that these multiple levels of incorporation made the arbitration clause inconspicuous.

The district court disagreed, and Holl petitioned the Ninth Circuit for a writ of mandamus. The court noted that this case “test[ed] the outer limits of what constitutes a ‘reasonably conspicuous'” arbitration provision. The Ninth Circuit nevertheless denied Holl’s petition because the district court’s decision was not clearly erroneous as a matter of law, which was required for Holl to prevail under the strict requirements of a mandamus. Applying California contract law, the court noted that “California courts have deemed analogous incorporations by reference valid.”

The court also noted that UPS had since changed its arbitration disclosure to make it more conspicuous. That was probably wise. While UPS prevailed in this case, the Ninth Circuit noted that the facts stretched the limits of what is conspicuous, and the court’s holding was based on the extraordinary requirements of a writ of mandamus. It is not clear that UPS would have prevailed but for the strict standard of review, and other courts might well disagree with the district court. UPS seems to have recognized as much when it changed its disclosure.

In re Holl, No. 18-70568 (9th Cir. May 30, 2019).

Alabama District Court Enforces Arbitration Clause Related to Disability Policy Over Unconscionability Claim

by

The U.S. District Court for the Northern District of Alabama has compelled arbitration despite a former employee’s claim that the arbitration clause in the policy at issue was unconscionable under the circumstances related to her disability claim.

Laura A. Thompson claimed to be disabled and sought benefits under a policy issued by Generali Worldwide Insurance Co. Limited. The policy was issued to the retirement plan trustee of a nongovernmental association. Thompson indirectly worked for the association as an employee of one of the association’s subsidiaries. Generali sought to compel arbitration. Thompson claimed the policy’s arbitration clause was unconscionable and therefore unenforceable. The basis of her claim was that she had no meaningful choice whether to accept or reject the clause and it would be cost prohibitive for her to travel to London to arbitrate her claim in accordance with the clause.

The court disagreed. First, it noted that Thompson was not a party to the policy; the policy was between Generali and the retirement plan trustee. Nothing suggested that the trustee was forced to accept the arbitration clause or that the trustee had unequal bargaining power. The court also noted that nothing prohibited Thompson from purchasing her own long-term disability policy. Second, Thompson’s claim that it would be prohibitively expensive for her to arbitrate her claim was disproven by her own complaint, which alleged that she was entitled to more than $1.3 million. Moreover, the arbitration rules allowed examination through telecommunication and the issue on the merits (whether Thompson was covered despite the fact that she was no longer employed by the covered employer) would not require much evidence.

As is the case in most jurisdictions, the standard for unconscionability under Alabama law is very high. The facts of this case did not meet that high standard. The court therefore granted Generali’s motion to compel arbitration with respect to Thompson’s dispute.

Thompson v. Generali Worldwide Ins. Co., No. 3:18-cv-011260 (N.D. Ala. June 7, 2019).

Court of Appeals Finds District Court Did Not Err in Lifting Stay Ordered to Refer Case to Arbitration

by

Lawren Freeman entered into a contract with SmartPay Leasing LLC to lease a smartphone. The contract included an arbitration clause. Freeman filed suit in the federal district court against SmartPay. Shortly after, the parties filed a joint motion to stay to refer the case to arbitration, which was granted on July 12, 2017. After that referral, a dispute arose between SmartPay and the arbitrator regarding the parties’ respective obligations to pay the arbitration fee. On October 19, the arbitrator closed the arbitration file due to nonpayment of the fee. In November 2017, Freeman filed a motion in the district court to lift the stay in the civil action due to SmartPay’s nonpayment of the fee. In January 2018, the district court granted an order lifting the stay. SmartPay filed an appeal of the district court’s order. As an initial matter, the court of appeals held that it had jurisdiction over the appeal pursuant to the Federal Arbitration Act (FAA). Section 16 of the FAA governs appeals as of right from the district court’s arbitration decision, and it permits immediate appeal from an order “refusing a stay.” On the merits, the court of appeals held that SmartPay acted inconsistently with its contractual right to arbitrate when it refused to pay the initial fee as expressly required by the arbitration agreement and, therefore, it waived its right to arbitration. Further, the court of appeals held that any alleged conflict between the arbitration agreement and the JAMS’s Consumer Minimum Standards was reconcilable, and therefore when SmartPay would not comply with the JAMS’s Consumer Minimum Standards it waived its right to arbitration. Lastly, the court of appeals found that it was appropriate to lift the stay on the civil action because the arbitration underlying the stay had been in accordance with the terms of the agreement, and SmartPay was in default by failing to pay the fee.

Freeman v. SmartPay Leasing, LLC, No. 18-10380 (11th Cir. May 3, 2019)

SNDY Clears the Air, Finds Arbitrators Applied UAE Law in Determining Award in Aircraft Lease Agreement Dispute

by

Cessna Finance Corp. entered into contracts with Al Ghaith Holding Co. PJSC for purposes of guaranteeing aircraft lease agreements. Cessna filed a request for arbitration against Al Ghaith seeking payment under the guaranty agreements. Al Ghaith argued that the guaranty agreements were unenforceable because the vice president who signed the agreement did not have authority to do so. The arbitrators issued an award in favor of Cessna holding the guarantee agreements were valid under both Kansas and Dubai law. Cessna moved to confirm the award. The U.S. District Court for the Southern District of New York confirmed the award. The court explained that arbitration awards will only be vacated under limited circumstances, one being “manifest disregard” of the law. An award will be in “manifest disregard” of the law where: (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it; and (2) the law ignored by the arbitrators was well-defined, explicit, and clearly applicable to the case. Al Ghaith argued that the award was in violation of a UAE law. However, the court explained that the arbitrators explicitly applied UAE law in confirming the award, and Al Ghaith did not meet its heavy burden to demonstrate the arbitrators acted in “manifest disregard” of the law.

Cessna Finance Corp. v. Al Ghaith Holding Co. PJSC, No. 1:15-cv-09857 (S.D.N.Y. May 7, 2019)

Second Circuit Adopts Standard for Determining Subject-Matter Jurisdiction Over Motions to Confirm Arbitration Awards Under FAA Section 9

by

The Second Circuit Court of Appeals recently held as a matter of first impression that a district court properly looked to the substance of an underlying dispute in determining whether it had subject-matter jurisdiction over a motion to confirm an arbitration award pursuant to Section 9 of the Federal Arbitration Act (FAA). The parties are members of the Bobov Hasidic Jewish community in Brooklyn. The petitioners claimed to own trademark rights in the word “Bobov” and commenced arbitration to prevent the respondents from using the mark in connection with a new Hasidic community. The parties agreed to arbitrate before a rabbinical tribunal, which issued an award in the petitioners’ favor. The petitioners sought confirmation of the award in federal district court under Section 9 of the FAA. After concluding that it had subject-matter jurisdiction over the matter, the district court confirmed the award, and the Second Circuit affirmed.

Although the Second Circuit had not previously addressed whether federal courts have subject-matter jurisdiction over motions to confirm under Section 9, it had addressed the issue in the context of a petition to vacate under Section 10. In that case, the court adopted the “look-through” approach used by the U.S. Supreme Court to determine whether a district court had subject-matter jurisdiction over a petition to compel arbitration under Section 4 of the FAA. The Supreme Court instructed district courts to “look through” the petition to the substance of the underlying controversy to assess whether it implicated federal law. The Second Circuit in the current case found no reason not to apply the same standard to a motion to confirm under Section 9. Applying that standard here, it held that because the underlying controversy raised questions of federal trademark law, the district court “unquestionably” had subject-matter jurisdiction over the matter. The court then concluded that the district court properly confirmed the arbitration award, particularly given the extreme deference that courts must afford such awards.

Landau v. Eisenberg, 922 F.3d 495 (2d Cir. 2019)