Reinsurance Focus

In Jackson v. Applied Materials Corp., the Ninth Circuit Court of Appeals affirmed a district court order granting a motion to compel arbitration of the plaintiff’s discrimination and retaliation claims, finding the arbitration agreement entered into by the parties was valid and encompassed the disputes before the court.

The court did not address the underlying facts of the case in its memorandum opinion, other than to note the matter involved claims of discrimination and retaliation brought by Jackson against his former employer. In affirming the district court’s order granting the defendant’s motion to compel arbitration, the court noted it had jurisdiction to conduct a de novo review of the matter under 28 U.S.C. § 1291. Relying on Ninth Circuit authority confirming that the Federal Arbitration Act “requires that district courts refer cases to arbitration where a valid arbitration agreement covers the dispute at issue,” the court found that the district court properly granted the defendant’s motion to compel arbitration “because the parties entered into a valid arbitration agreement encompassing the dispute at issue.” Relying on additional Ninth Circuit precedent, the court also based its decision on a finding that Jackson did not establish any of the grounds for vacating, modifying, or correcting the underlying arbitration awards in favor of the defendant under 9 U.S.C. §§ 9–11. Finally, the court refused to consider arguments and allegations raised for the first time on appeal, and affirmed the district court’s order granting the defendant’s motion to compel arbitration.

Jackson v. Applied Materials Corp., No. 22-16673 (9th Cir. Oct. 18, 2023).

Interactive Brokers LLC filed an action in the Southern District of New York seeking preliminary and permanent injunctions against an arbitration proceeding initiated by a group of non-signatories to an agreement between Interactive Brokers and an investment adviser. The non-signatories had “entrusted investment assets” to the adviser. According to the statement of claim the non-signatories filed in the FINRA arbitration, the investment adviser “misled investors, misappropriated … investment assets, and made ‘Ponzi-like payments to investors.’” The non-signatories contended that Interactive Brokers, an online broker that provides for “self-directed” trading, failed to detect and prevent the adviser’s misconduct and sought to hold it liable for their losses.

Shortly after FINRA notified Interactive Brokers of its status as a named party in the arbitration, Interactive Brokers filed suit in the Southern District seeking a declaration that it had no obligation to participate in the arbitration and an injunction against the non-signatories arbitrating their claims against it.

The court granted the injunction. Although the court recognized that, under certain circumstances, non-signatories may compel arbitration, those circumstances did not exist here. For instance, third-party beneficiaries may compel a signatory to arbitrate a dispute if the agreement provides for such an outcome “in express language.” However, no such express language existed in the arbitration agreement at issue.

In addition, a non-signatory may rely on the doctrine of equitable estoppel to compel arbitration against a signatory where (1) the relationship among the parties, the contracts they signed, and the issues that had arisen reveals that the dispute the non-signatory seeks to compel is “intertwined” with the agreement to arbitrate and (2) there is a relationship among the parties that justifies permitting the non-signatory to stand in for a signatory and compel arbitration.

The parties’ relationship must either (1) illustrate that the signatory resisting arbitration effectively consented to extend its agreement to arbitrate to the non-signatory or (2) make it inequitable for the signatory to refuse to arbitrate.

The Second Circuit has noted that “estoppel cases tend to share a common feature in that the non-signatory party asserting estoppel has had some sort of corporate relationship to a signatory party; that is, the Circuit has applied estoppel in cases involving subsidiaries, affiliates, agents, and other related business entities.” The defendants did not argue that they had a corporate relationship to a signatory party and failed to otherwise argue that they had a sufficient relationship to the signatories to state a claim for estoppel.

Lastly, the non-signatories sought to compel arbitration pursuant to FINRA Rule 12200. The FINRA Code requires parties to submit to FINRA arbitration of a dispute if, among other requirements, the dispute is between a “customer” and a member or associated person of a member. Although the FINRA Code does not define the term “customer,” the Second Circuit has established a “bright-line rule” in determining its meaning to be “one who, while not a broker or dealer, either (1) purchases a good or service from a FINRA member, or (2) has an account with a FINRA member.” The non-signatories did not satisfy either of the criteria for being deemed a “customer” that may compel FINRA arbitration under FINRA Rule 12200.

As such, the court granted the preliminary injunction against the arbitration.

Interactive Brokers LLC v. Delaporte, No. 1:23-cv-05555 (S.D.N.Y. Oct. 13, 2023).

The Eighth Circuit Court of Appeals recently affirmed the denial of a motion to compel arbitration filed by the plaintiff in the matter. The court noted that arbitration “can be waived in a variety of circumstances, including by substantially invoking the litigation machinery rather than promptly seeking arbitration.” Here, the plaintiff filed suit seeking a preliminary injunction and a permanent injunction and participated in court-ordered mediation as well as discovery proceedings before filing a demand for arbitration. The court recognized that section 3 of the Federal Arbitration Act “typically applies to give defendants, not plaintiffs, a right to stay litigation.”

Focusing on the actions of the party demanding arbitration, as required after the U.S. Supreme Court’s decision in Morgan v. Sundance Inc. (which removed consideration of prejudice to the opposing party from the analysis), the court found that the right to arbitration had been waived by acts inconsistent with that right, i.e., litigating the claim in court prior to seeking arbitration of the same claim. In so doing, the court also noted that the opinion of the U.S. Supreme Court in Henry Schein Inc. v. Archer & White Sales Inc. “did not disturb the general principle that arbitration is a waivable contractual right” and, furthermore, that “[c]ourts determine whether a party waives arbitration, not arbitrators.”

Breadeaux’s Pisa v. Beckman Bros. Ltd., No. 22-2835 (8th Cir. Oct. 16, 2023).