Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Seventh Circuit Affirms Order Compelling Arbitration, Holds Arbitration Agreement Applies to Title VII Claim

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In Retzios v. Epic Systems Corp., the Seventh Circuit Court of Appeals considered an appeal brought by the plaintiff, a former employee of Epic, who was fired after she refused to be vaccinated against COVID-19. The plaintiff’s employment agreement included an agreement to arbitrate “any statutory or common law legal claims … that relate to or arise out of my employment or the termination of my employment.” After she was terminated for refusing the COVID-19 vaccination, she brought an action under Title VII in the district court alleging that Epic was required to accommodate her religious objection to the vaccine. Epic filed a motion to dismiss the action and to compel arbitration based on the mandatory arbitration agreement, which was granted by the district court.

In affirming the order, the Seventh Circuit first noted that the district court should not have dismissed the action but rather should have stayed the matter pursuant to the Federal Arbitration Act, which “calls for a suit referred to arbitration to be stayed rather than dismissed, when a party requests a stay (as Epic did).” The court then rejected each of the arguments raised by the plaintiff on appeal. The court held that the plaintiff’s Title VII claims were subject to the language of the mandatory arbitration clause of the employment agreement, noting that the plaintiff’s “objection to vaccination as a condition of employment relates to that employment, and her objection to being fired arises out of that employment’s termination.”

The court also rejected the plaintiff’s contention that the employment agreement was illusory, noting that the plaintiff received “at least two kinds of compensation in exchange for the promise to arbitrate: the [award of] stock and her ongoing salary.” The court also rejected the plaintiff’s promissory estoppel claim, finding that the plaintiff had not shown any promise made by Epic on which the plaintiff detrimentally relied. The court likewise rejected the plaintiff’s contention that Epic waived its right to arbitrate when it did not request the Equal Employment Opportunity Commission or state unemployment office to dismiss their proceedings, noting that waiver addresses “conduct in litigation” and that there was no evidence of facts that would support a waiver in this action. Finally, the court granted Epic’s motion for sanctions on appeal, noting that requiring Epic to bear legal costs on the appeal would be inappropriate.

Retzios v. Epic Systems Corp., No. 24-1701 (7th Cir. Jan. 24, 2025).

New York Court of Appeals Upholds Web-Based “Clickwrap” Agreement to Affirm Order Compelling Arbitration, Including Threshold Questions of Arbitrability

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In January 2021, Uber emailed millions of its users informing them that they would be prompted to agree to updated terms of use (available by hyperlinks) in order to continue using the ride-sharing service. The plaintiff, a rideshare passenger who had filed a personal injury lawsuit against Uber in 2020, opened the email on January 15, 2021. When she then logged into the Uber app, she was presented with a pop-up screen including a hyperlink to the terms, a checkbox, bold text confirming that the user reviewed and agreed to the terms, and a “Confirm” button. The plaintiff checked the box and clicked “Confirm.”

Uber’s updated terms of use provided that, by accessing or using Uber’s services, the user confirmed the agreement, and that if the user did not agree, the user could not use the services. The terms also included a prominent warning that the agreement contained an arbitration agreement and that the user acknowledged that he or she read and understood the agreement. The arbitration agreement encompassed “any” personal injury “claim” that accrued prior to acceptance of the updated terms, without exception for claims already pending in court. The agreement also delegated the exclusive authority to the arbitrator to resolve threshold disputes concerning the interpretation or enforceability of the arbitration agreement.

After the plaintiff filed her lawsuit in 2020, Uber did not respond to the complaint. On March 3, 2021, the plaintiff moved for a default judgment. Uber then filed an answer, including an affirmative defense that the plaintiff had agreed to arbitration, and shortly thereafter, Uber sent a notice of intent to arbitrate. The plaintiff opposed arbitration, arguing that the January 2021 arbitration agreement was procedurally and substantively unconscionable, adhesive, and contrary to New York public policy. The plaintiff argued that she never validly agreed to the updated terms and that Uber’s communications with her during the lawsuit about the updated terms violated ethical rules. Uber cross-moved to compel arbitration and to stay the litigation, arguing that its email and pop-up screen put the plaintiff on inquiry notice of the arbitration agreement and that her challenges to the enforceability of the agreement were matters for the arbitrator. The trial and intermediate appellate courts, respectively, granted and affirmed Uber’s cross-motion to compel arbitration and stay the case.

On appeal to the New York Court of Appeals, the state’s highest court, the court concluded that, under the Federal Arbitration Act and state law, Uber’s “clickwrap” process resulted in the formation of an agreement to arbitrate and that the agreement delegated to the arbitrator the exclusive authority to resolve all disputes as to the applicability and enforceability of the agreement. The court observed that it had “not, until now, had the opportunity to offer substantial guidance on the question” but that “state and federal courts across the country have routinely applied ‘traditional contract formation law’ to web-based contracts, and have further observed that such law ‘does not vary meaningfully from state to state.’”

The court agreed with the lower courts’ rulings that, under the objective standard that governs contractual intent, Uber’s communications put the plaintiff on inquiry notice of the arbitration agreement and that the plaintiff assented to that agreement through conduct which a reasonable person would understand to constitute assent. The court rejected the plaintiff’s argument that Uber was on notice that she would not consent to arbitration because she had already filed her claims in court and that Uber’s communications were misleading. The court ruled that these arguments addressed only the enforceability of specific terms of the arbitration agreement, not the agreement’s formation as a whole, and did not address the delegation provision. Accordingly, the issues were for the arbitrator to resolve.

Finally, the court held that the trial court did not abuse its discretion in declining to invalidate the delegation provision or the entire arbitration agreement as a sanction for ethical violations, finding that the record supported the court’s finding that Uber lacked actual knowledge of the pending litigation at the time it solicited the plaintiff’s assent to the updated terms of use.

Wu v. Uber Technologies, Inc., No. 90 (N.Y. Ct. App. Nov. 25, 2024).

Fourth Circuit Upholds Confirmation of Hong Kong Arbitration Award

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The Fourth Circuit Court of Appeals recently rejected challenges to a district court’s decision to confirm a Hong Kong arbitration award, including arguments that confirming the award violated public policy and international comity because it was inconsistent with Chinese currency control laws.

Stephany Yu entered into a business partnership Xu Hongbiao and Ke Zhengguang to develop real property in China. Ke subsequently passed away. Disputes arose and a Hong Kong arbitration panel ordered Yu to pay Xu and Ke’s estate around $1.63 million.

Ke’s estate commenced an action pursuant to the New York Convention in the District of Maryland, where Yu lived, to enforce the award. Yu argued: (1) Maryland was a forum non conveniens; (2) Ke’s estate failed to join indispensable parties; and (3) enforcing the award would violate public policy because it would violate Chinese currency control laws.

The district court rejected Yu’s arguments and confirmed the award, ordering Yu to pay Ke’s estate $3.6 million based on the original award plus costs, fees, and interest.

Yu appealed but the Fourth Circuit affirmed. First, the Fourth Circuit noted that it is unclear whether forum non conveniens is a defense under the New York Convention but held that it did not need to decide the issue because the District of Maryland was not an inconvenient forum for Yu even if such a defense is valid. Yu is a U.S. citizen who lives in Maryland and holds assets there. Second, the Fourth Circuit found Yu’s arguments about purportedly indispensable parties unpersuasive. While Ke’s estate had indeed not joined all the parties to the underlying real estate partnership, those parties were not indispensable because Ke’s estate only sought to confirm the award and obtain money from Yu. Thus, Yu and Ke’s estate were “the only parties necessary for complete relief.” Third, the Fourth Circuit rejected Yu’s argument about Chinese currency laws. The court noted that “China controls the outflow of [currency] from China as part of its currency management” but explained that the arbitration award, never mind the order confirming it, simply did not constitute a transaction in China that required the export of currency. “[N]othing about an award by a Hong Kong arbitration panel made in [Chinese currency, which is “a widely traded international currency”] violates U.S. public policy.” Finally, the Fourth Circuit also disagreed with Yu’s argument that the district court erred by issuing an award in U.S. dollars. The court noted that a judgment in foreign currency may be appropriate in certain circumstances but that the district court acted reasonably by issuing its award in U.S. dollars, as is customary for U.S. courts.

Estate of Ke Zhengguang v. Yu, 105 F.4th 648 (4th Cir. 2024).

Eleventh Circuit Holds Arbitration Agreement Unenforceable Against Spouse of Former Employee

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In Lubin v. Starbucks Corp., the Eleventh Circuit Court of Appeals considered defendant Starbucks’ appeal of an order denying its motion to compel arbitration of the plaintiffs’ lawsuit alleging that Starbucks sent deficient health insurance notices under the Employee Retirement Income Security Act (ERISA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Plaintiffs Ariel Torres, a former Starbucks employee, and Raphyr Lubin, the husband of a former employee who had obtained spousal benefit plan coverage, filed a class action alleging that Starbucks sent them deficient enrollment notices under ERISA and COBRA. After Starbucks filed its motion to compel, Torres consented to arbitration and agreed that his claims were subject to the mandatory arbitration clause in his employment agreement. Lubin opposed the motion, arguing that his claims were not subject to arbitration since he did not sign an employment or arbitration agreement. The district court denied the motion to compel noting that, since Lubin did not sign an arbitration agreement and was seeking “to enforce his own, statutory right to an adequate COBRA notice,” his claims were not subject to mandatory arbitration.

Starbucks appealed on several grounds. First, Starbucks argued the district court should not have ignored the strong presumption in favor of arbitration. The court rejected this argument, relying on the fact that Lubin did not sign an arbitration agreement and cannot be compelled to arbitrate his own statutory claims when he is not subject to the mandatory arbitration clause his wife signed. Second, Starbucks argued the arbitration agreement included a delegation clause, which granted the arbitrator exclusive jurisdiction to determine whether Lubin’s claims were subject to arbitration. The court rejected this argument, noting that even though parties may agree to grant the arbitrator the authority to determine whether an arbitration agreement is enforceable, there must be “clear and unmistakable evidence that they did so,” which evidence the court concluded was not present here. The court found Lubin cannot be compelled to arbitrate his claims since the language of the arbitration agreement was ambiguous and Lubin is not a party to the agreement.

Starbucks raised three additional arguments that Florida contract law also requires that Lubin submit his claims to arbitration. The court rejected Starbucks’ contention that Lubin should be equitably estopped from avoiding arbitration. The court found equitable estoppel does not apply since Lubin’s claims sought to enforce his own statutory rights to adequate COBRA notice and were not brought under his wife’s employment agreement. The court also rejected Starbucks’ argument that the third-party beneficiary doctrine compels Lubin to arbitrate his claims, finding the doctrine does not apply when, like here, “a third-party beneficiary brings a claim other than to enforce the contract.” Finally, the court rejected the argument that Lubin’s claim is derivative of his wife’s claim, again relying on the fact that Lubin’s claim is based on an independent statutory right to notice. The court affirmed the district court’s order denying Starbucks’ motion to compel arbitration.

Lubin v. Starbucks Corp., No. 21-11215 (11th Cir. Dec. 16, 2024).

 

Fourth Circuit Holds It Lacks Jurisdiction to Consider Petition to Vacate

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The Fourth Circuit Court of Appeals recently held that it lacked jurisdiction over a petition to vacate an arbitration award.

Petitioners Stanley and Gail Friedler and several other individuals opened brokerage accounts with Stifel, Nicolaus & Co. The petitioners were unhappy with the management of their accounts and filed claims for arbitration alleging mismanagement with FINRA. The arbitration panel ruled for Stifel. The petitioners moved to vacate FINRA’s award. The district court denied the petitioners’ motion, and the petitioners appealed to the Fourth Circuit.

The Fourth Circuit questioned whether the federal courts had jurisdiction in light of the Supreme Court’s decision in Badgerow v. Walters, 596 U.S. 1 (2022), which held that “the face of [a] petition [to vacate arbitration awards] must contain an independent jurisdictional basis beyond the Federal Arbitration Act (‘FAA’) itself.” Both parties argued the courts had jurisdiction.

The Fourth Circuit disagreed. It rejected the parties’ argument “that because the ‘face of the petition’ asserts that the arbitration panel manifestly disregarded federal securities laws, the district court had federal-question jurisdiction over the dispute.” The Fourth Circuit explained that a “petition to vacate an arbitration award doesn’t raise the merits of the underlying claim, but rather the ‘enforceability of an arbitral award,’ which is ‘no more than a contractual resolution of the parties’ dispute.’” The court also disagreed with the argument “that a claim of manifest disregard is a creature of federal common law that itself gives rise to federal-question jurisdiction.”

The Fourth Circuit therefore vacated and remanded the district court’s decision with instructions to dismiss the petition to vacate the arbitration award.

Friedler v. Stifel, Nicolaus & Co., No. 22-1895 (4th Cir. July 18, 2024).