Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Alabama Supreme Court Reverses Orders Denying Motions to Compel Arbitration Under Employment Agreement

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In Women’s Care Specialists, P.C. v. Dr. Margot G. Potter and Dr. Karla Kennedy v. Dr. Margot G. Potter, the Alabama Supreme Court reversed opinions of the trial court that had denied motions to compel arbitration and held that the claims set forth in both of these consolidated matters were subject to arbitration.

Dr. Potter entered into an employment agreement with her former employer, Women’s Care Specialists. The agreement was amended three years later to add a termination of employment provision and an arbitration clause mandating binding arbitration for all disputes related to Dr. Potter’s employment with Women’s Care. Thereafter, Women’s Care terminated Dr. Potter’s employment. Potter alleged that after her termination, employees of Women’s Care and others made disparaging remarks to her former patients and tried to prevent her former patients from learning if they could continue their care with her. Potter began working at another clinic, at which point Women’s Care ceased making the compensation payments called for in the employment agreement. Dr. Potter filed an action against Women’s Care alleging tortious interference with a business relationship, defamation, and breach of contract. Dr. Potter also filed a separate action against certain Women’s Care employees alleging tortious interference and defamation. Women’s Care and the employees filed motions to compel arbitration in both actions, which motions were denied.

After consolidating the appeals, the Supreme Court noted that Women’s Care and the employees had met their burden of establishing the existence of an agreement to arbitrate and the existence of a contract or transaction affecting interstate commerce, and the burden then shifted to Dr. Potter to present evidence to show that the arbitration agreement did not apply to the dispute in question. The court rejected Dr. Potter’s argument that the arbitration clause only applied to disputes that arose while she was still an employee of Women’s Care, noting that the court has repeatedly held that the phrase “relating to” in an arbitration provision is to be given broad construction. The court found that since the employment agreement and arbitration clause specifically stated that the parties’ obligations did not terminate upon the expiration or termination of the agreement, Dr. Potter’s tort and contract-based claims were subject to arbitration even though her employment with Women’s Care had ended. The court reversed the lower court’s denial of the motions to compel arbitration and remanded the matters for proceedings consistent with the opinion.

Women’s Care Specialists, P.C. v. Dr. Margot G. Potter and Dr. Karla Kennedy v. Dr. Margot G. Potter, Nos. SC-2022-0706, SC-2022-0707 (Ala. May 19, 2023).

First Circuit Provides Additional Guidance on FAA’s Transportation Worker Exception

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The First Circuit Court of Appeals has followed up on its recent jurisprudence outlining the standards for the Federal Arbitration Act’s “transportation worker exception,” as we previously posted, by applying its recently delineated standards to hold that individuals who purportedly spent at least 50 hours a week driving goods within a single state were within the scope of the exception.

Margarito Canales and Benjamin Bardzik contracted with a subsidiary of Flowers Foods Inc. Under that contract, Canales and Bardzik owned the rights to three routes in Massachusetts along which they delivered baked goods to stores.

Canales and Bardzik claimed that they were improperly classified as independent contractors and thereby wrongly denied wages and overtime. Flowers Foods and its subsidiaries sought to compel arbitration under the FAA in response to Canales’ and Bardzik’s claims. The district court held that Canales and Bardzik were within the transportation worker exception and thus declined to compel arbitration. Flowers Foods appealed.

The First Circuit affirmed. It rejected the arguments that (1) Canales and Bardzik could not invoke the exception because they were not in the transportation industry and (2) the facts established that Canales and Bardzik were business owners. The court concluded that both arguments were precluded by its recent decision in Fraga v. Premium Retail Services Inc., which noted that the inquiry for determining whether the exception applies is focused on what the worker does, not in which industry the worker is engaged, and recognized that workers who frequently engage in transportation activities can fall within the scope of the exception even if they perform other responsibilities. In this case, the record established that Canales and Bardzik spent a minimum of 50 hours per week driving their delivery routes to deliver goods. They were therefore within the scope of the exception and arbitration could not be compelled under the FAA.

Canales v. CK Sales Co., No. 22-1268 (1st Cir. May 5, 2023).

Second Circuit Clarifies Standards for Applying Presumption in Favor of Arbitration

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The Second Circuit Court of Appeals recently clarified its process for determining whether a court can apply a presumption of arbitrability. The court noted that its traditional process for making that determination does not comport with the U.S. Supreme Court’s 2010 decision in Granite Rock Co. v. International Brotherhood of Teamsters and thus outlined a new process.

Niagara Mohawk Power Corp., doing business as National Grid, entered into a collective bargaining agreement with a local electrical workers union. The agreement required arbitration for any dispute regarding the meaning, application, or operation of the agreement.

The union’s business representative initiated the grievance and arbitration process on behalf of the union. He claimed that National Grid violated the agreement by requiring retired members to pay higher health insurance premiums than active employees. National Grid declined to process the grievance, claiming that it was not arbitrable under the agreement.

The union filed a complaint in district court and moved to compel arbitration. The district court granted the union’s motion and National Grid appealed.

The Second Circuit affirmed but held that the district court reached the correct conclusion through the wrong analysis because the district court applied the Second Circuit’s pre-Granite Rock precedent even though that precedent was inconsistent with Granite Rock.

The Second Circuit explained that the U.S. Supreme Court’s decision in Granite Rock establishes that courts may invoke a presumption of arbitrability only where the parties’ dispute concerns a valid and enforceable agreement to arbitrate that is ambiguous as to its scope.

In contrast, the Second Circuit’s pre-Granite Rock case law, which the district court applied, directed courts to first classify the particular arbitration clause as either broad or narrow and then apply a presumption of arbitrability to broad clauses. The Second Circuit explained that that process was inconsistent with Granite Rock to the extent it directs courts to prioritize deciding whether a presumption of arbitrability applies before determining whether, under ordinary principles of contract interpretation, a particular dispute is covered by the language to which the parties agreed. The district court’s utilization of that process was improper because, rather than finding that the agreement’s arbitration clause was ambiguous in scope before applying the presumption of arbitrability, as dictated by Granite Rock, the district court started by characterizing the arbitration clause itself and held that the presumption of arbitrability applied, without determining whether the agreement covered the parties’ dispute.

Nevertheless, the Second Circuit concluded that the district court’s decision that the dispute was subject to arbitration was correct under the proper standard. The Second Circuit held that the agreement unambiguously covered the grievance. Two conditions had to be met for the grievance to be covered by the arbitration clause: (1) the union had to claim that a dispute had arisen; and (2) the dispute had to concern a provision of the agreement. Both of those provisions were met, as the union raised the grievance, which concerned a clause in the agreement.

Local Union 97, International Brotherhood of Electrical Workers, AFL-CIO v. Niagara Mohawk Power Corp., No. 21-2443 (May 3, 2023).

Third Circuit Joins Other Circuits, Holds Uber Drivers Are Not Exempt From FAA

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In Singh v. Uber Technologies Inc., the Third Circuit Court of Appeals, in a precedential opinion, affirmed district court orders granting defendant Uber Technologies Inc.’s motion to compel arbitration, concluding that the plaintiffs were not exempt from the Federal Arbitration Act (FAA). In reaching its decision, the court noted it is joining other circuit courts in concluding that Uber drivers do not belong to the class of workers exempt from arbitration under section 1 of the FAA as “workers engaged in foreign or interstate commerce.”

The FAA compels federal courts to enforce a wide range of arbitration agreements, but it does not apply to arbitration agreements in the contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce. The case before the Third Circuit was a consolidated appeal involving two cases brought against Uber by its drivers. Uber filed motions to compel arbitration in both cases, relying on the terms of its agreements with the drivers, which included a broad arbitration clause.

In plaintiff Singh’s case, which was a putative class action, the district court granted a previous motion to compel arbitration filed earlier in the case by Uber, concluding that section 1 of the FAA applied only to transportation workers who move goods, not those who carry passengers. The Third Circuit reversed that earlier decision, concluding that the exemption also applies to transportation workers who transport passengers “so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it,” and remanded the case to the district court to determine whether the Singh class of workers were engaged in interstate commerce. After limited discovery related to that issue, the district court concluded that the plaintiffs were not engaged in foreign or interstate commerce, and compelled arbitration. In affirming the decision of the district court, the Third Circuit concluded that interstate commerce was not central to the work of Uber drivers, and the exemption in section 1 of the FAA does not apply. The district court orders compelling arbitration were affirmed.

Singh v. Uber Technologies Inc., No. 21-3234 (3d Cir. May 4, 2023).

Seventh Circuit Affirms District Court’s Order Denying Application to Vacate Arbitration Award

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Donald Kinsella was an employee of defendant Baker Hughes Oilfield Operations LLC. In June 2013, he suffered a work-related injury resulting in his disability and receipt of disability benefits for three years. Baker Hughes’ human resources department worked with Kinsella to look for jobs at the company that would meet his accommodation request and physical limitations. Months later, Kinsella received a termination letter from Baker Hughes citing a failure to apply for a position. He eventually filed an action in federal court alleging failure to accommodate his disability, discriminatory discharge, and retaliation under the Americans with Disabilities Act. Kinsella’s employment agreement included an arbitration clause, and the district court granted the parties’ joint motion to stay the federal action pending arbitration. The district court then dismissed the action without prejudice with leave to reinstate within seven days of the arbitration ruling.

The matter proceeded to arbitration, and the arbitrator issued an award granting summary judgment for Baker Hughes on all claims. Kinsella filed an application with the district court to reinstate his case and to vacate the arbitration award with regard to his failure-to-accommodate claim. He sought to vacate the award under section 10 of the Federal Arbitration Act contending that the arbitrator exceeded his powers by requiring illegitimate elements of proof on the failure-to-accommodate claim. The district court reinstated Kinsella’s action, but it denied the application to vacate the award and entered a judgment of dismissal. In affirming the district court’s denial of vacatur, the Seventh Circuit Court of Appeals first noted that under section 10(a)(4) of the FAA, an arbitration award may be vacated “where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” The court rejected Kinsella’s contentions that the arbitrator incorrectly interpreted the ADA and exceeded his authority by introducing “an extra element of proof into a claim.” The court found the arbitrator did not exceed his powers and affirmed the district court’s denial of Kinsella’s application to vacate the award.

Kinsella v. Baker Hughes Oilfield Operations, LLC, No. 22-2007 (7th Cir. May 8, 2023).