Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Ninth Circuit Swipes Right on Arbitration of Former Tinder Employee’s Sexual Harassment and Retaliation Claims

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The Ninth Circuit Court of Appeals recently held that a former Tinder employee who asserted claims of sexual harassment by her superiors must arbitrate her claims pursuant to an enforceable arbitration agreement she signed during her employment.

The plaintiff filed suit against Tinder in California state court, alleging that she was wrongfully terminated as a result of reporting instances of sexual harassment by her superiors.

Tinder, through its successor Match Group LLC, timely removed the matter to federal court based on diversity jurisdiction. The plaintiff moved to remand the case to California state court, claiming that both she and Tinder, a dissolved Delaware corporation with its principal place of business in California, were citizens of California, thus defeating diversity jurisdiction. Match Group moved to compel arbitration pursuant to the arbitration agreement the plaintiff signed during her employment.

The California district court denied the plaintiff’s motion to remand, finding that Tinder was not a “dissolved corporation” but rather it merged with Match Group, making Match Group the proper party to the suit, and whose Texas citizenship was to be considered for purposes of diversity jurisdiction. The district court also granted Match Group’s motion to compel arbitration based on the enforceable arbitration agreement.

The plaintiff appealed the district court’s decision, arguing that the district court failed to consider Tinder’s citizenship when it determined that diversity jurisdiction existed. The Ninth Circuit held that the district court was correct in considering only Match Group’s citizenship because, following the merger with Match Group, Tinder ceased to exist as a separate entity and continued solely as an unincorporated division of Match Group.

The plaintiff also challenged the district court’s ruling that her claims must be submitted to arbitration, arguing that the arbitration agreement was unconscionable, did not apply retroactively to encompass preexisting claims, and that California law bars retroactive application of the arbitration agreement.

Rejecting each of the plaintiff’s arguments, the Ninth Circuit affirmed the ruling that the arbitration agreement was enforceable. The court reasoned that the arbitration agreement only gave rise to a low degree of procedural unconscionability, not any substantive unconscionability that infected the arbitration agreement as a whole. The court also found that, although the plaintiff signed the arbitration agreement during her employment as a condition of her continued employment, the plaintiff’s preexisting claims fell within the scope of the broad language of the arbitration agreement that reflected an intent to cover claims that had accrued before the effective date of the arbitration agreement. The Ninth Circuit also rejected the plaintiff’s claim that California law bars retroactive application of the arbitration agreement where there was no suggestion that Match Group sought to modify the agreement unilaterally.

Sanfilippo v. Match Group LLC, No. 20-55819 (9th Cir. Sept. 28, 2021).

Fifth Circuit Affirms Order Confirming International Arbitration Award, Ending Decades-Old Maritime Injury Litigation

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Vinod Kumar Dahiya was injured in late 1999 while on a ship en route to Louisiana. At the time, he was employed by Neptune Shipmanagement Services and assigned to a vessel with interests held by the remaining plaintiffs. An arbitration clause in Dahiya’s employment contract required arbitrating any dispute arising out of the contract in Singapore or India. Following a rollercoaster of litigation in Louisiana state and federal courts over the course of two decades, including a state court trial and judgment for Dahiya that was later reversed, the dispute was ultimately arbitrated in India. In 2020, Dahiya obtained an arbitration award against Neptune for roughly $130,000. Neptune and the other plaintiffs later filed this action in Louisiana district court to confirm the award and enjoin Dahiya from pursuing further litigation against the non-Neptune plaintiffs. The district court granted summary judgment to the plaintiffs.

On appeal, Dahiya challenged the Indian award on the following grounds: (1) the district court lacked subject matter jurisdiction; (2) the arbitration clause was unenforceable because Neptune never signed the employment contract; and (3) the district court erred in finding the award prevented him from pursuing litigation against non-Neptune plaintiffs that were not parties in the arbitration. The Fifth Circuit disagreed in all respects. On the jurisdictional point, the court rejected the notion that the district court lost jurisdiction when it remanded the pre-arbitration litigation to state court in 2002, finding that a remand order in an earlier case had no preclusive effect with respect to a new case, with new issues, and thus a new basis for conferring federal jurisdiction. Conversely, the court found that earlier state court rulings did have preclusive effects as to Dahiya’s second and third arguments. Unlike the jurisdictional issue, the court explained that Louisiana state courts had already addressed and rejected the exact arguments Dahiya was now raising. The court therefore affirmed the district court order in its entirety.

Neptune Shipmanagement Services PTE, Ltd. v. Dahiya, No. 20-30776 (5th Cir. Oct. 1, 2021).

Illinois Federal Court Leaves Issues of Venue and Contractual Attorneys’ Fees to Be Decided by the Arbitrator

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This matter concerns a dispute between a securities clearing firm and commodities futures investors over the investors’ losses sustained while trading options on the clearing firm’s e-trading platform. Both parties agreed the dispute should be resolved through arbitration but disagreed as to whether the National Futures Association (NFA) should serve as their arbitrator. An Illinois district court judge resolved the issue by compelling the parties to arbitrate before the NFA and to cease all other arbitrations pending before other arbitral bodies. The investors appealed the nonfinal arbitration order.

During the pendency of the appeal, the clearing firm requested the district court issue a briefing schedule for a proposed motion that it intended to bring seeking certain contractually mandated attorneys’ fees. The investors objected that the arbitrator, not the court, should decide the issue concerning contractually mandated fees.

The Seventh Circuit dismissed the investors’ appeal of the district court’s arbitration order, and the clearing firm filed a motion to enforce the arbitration order, complaining that the investors had violated the order by demanding and obtaining from NFA final hearings and proceedings, including final evidentiary hearings, outside the Northern District of Illinois — the judicial district that ordered arbitration. In turn, the investors filed a motion to stay the case arguing that the venue decision should be made by the arbitrator in the first instance.

The district court denied the clearing firm’s motion to enforce the arbitration order, noting that the arbitration order did not address the issue of venue. The district court held that under section 4 of the Federal Arbitration Act, it only had the power to compel arbitration before the NFA in the Northern District of Illinois and that the interpretation of the arbitration agreement’s venue selection clause is a procedural question that should be decided by the arbitrator.

The district court similarly declined to decide the issue whether the clearing firm was entitled to contractually mandated fees under the arbitration agreement for bringing the action, holding again that the arbitrator, not a federal court, should determine whether the clearing firm is entitled under the arbitration agreement to reimbursement of attorneys’ fees incurred in compelling the investors to arbitrate in the proper forum.

Accordingly, the district court stayed the case.

INTL FCStone Financial, Inc. v. Jacobson, No. 1:19-cv-01438 (N.D. Ill. Sept. 30, 2021)

Tenth Circuit Affirms Arbitration Award in Soaring Victory for Jet Engine Manufacturer

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Williams International designs, manufactures, and services small jet engines. In May 2013, Dodson International Parts Inc., a company that sells new and used aircraft parts, purchased a damaged aircraft fitted with two engines manufactured by Williams. After purchasing the aircraft, Dodson contracted with Williams to inspect the engines and prepare an estimate of repair costs, intending to sell the repaired engines. The quotes for the work provided by Williams, and signed by Dodson, contained an arbitration clause requiring that “all disputes arising from or in connection with maintenance performed by Williams International shall be submitted to binding arbitration.” After inspecting the engines, Williams determined that the engines were so badly damaged that they could not be rendered fit for flying. However, because Dodson had not paid the requisite fees, Williams refused to return one of the engines.

Dodson sued Williams in federal court alleging federal antitrust and state law tort claims. Williams moved to compel arbitration under the Federal Arbitration Act, relying on the arbitration clause in the original signed quotes. The district court granted the motion, and the arbitrator resolved all of Dodson’s claims in favor of Williams. Dodson then moved to reconsider the order compelling arbitration and to vacate the arbitrator’s award. The court denied both motions and, construing Williams’s opposition to the motion for vacatur as a request to confirm the award, confirmed the award. Dodson appealed, challenging the district court’s order compelling arbitration and its order confirming the award and denying the motions for reconsideration and vacatur.

The Tenth Circuit Court of Appeals ruled in favor of Williams on all three issues. On the primary question of arbitrability, Dodson argued that its claims were not arbitrable because its antitrust and state law tort claims were not “arising from or in connection with maintenance performed” by Williams. The court determined that “maintenance” included more than just repair work — simply inspecting machinery is typically referred to as maintenance work as well. And, acknowledging that language such as “arising out of or in connection with” is interpreted quite expansively, the court held that all of Dodson’s claims were connected to Williams’s work and therefore encompassed by the arbitration clause. Dodson also argued that its claims were not arbitrable because they arose either before its contracts with Williams were executed or after they terminated, but the court rejected this argument as well, as the arbitration clause at issue had no temporal element. All that was required for a dispute to be arbitrable was that it be one “arising from or in connection with maintenance performed by Williams.”

With respect to its motion for reconsideration, Dodson moved under District of Kansas Local Rule 7.3(b), which requires that parties seeking reconsideration must file a motion within 14 days after an order is issued, and must be based on (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error or prevent manifest injustice. While the Tenth Circuit agreed with the district court that no new controlling law had been established, nor had there been any manifest injustice visited on Dodson, it needed to look no further than Dodson’s filing date — nearly three years after entry of the order compelling arbitration. The district court’s denial of Dodson’s motion for reconsideration was sufficient on this ground alone.

Finally, Dodson challenged the district court’s order confirming the arbitration on the grounds that the district court lacked subject matter jurisdiction to confirm the award and that the confirmation order was improper on the merits. The Tenth Circuit found none of these arguments remotely persuasive and affirmed the district court’s order.

Dodson International Parts Inc. v. Williams International Co., No. 20-3193 (10th Cir. Sept. 13, 2021).

Federal Circuit Declines to Hear Challenge to Patent Board’s Decision Even Though Decision Allegedly Involved Adjudicating Issues Subject to Arbitration

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The Federal Circuit Court of Appeals recently declined to hear an appeal or grant a writ of mandamus seeking review of a decision by the Patent Trial and Appeal Board to institute inter partes review proceedings even though those proceedings were allegedly subject to arbitration.

MaxPower Semiconductor Inc. sought to appeal the Patent Trial and Appeal Board’s decision to institute inter partes review proceedings involving four of MaxPower’s patents. In the alternative, MaxPower sought a writ of mandamus to review the board’s decision. In relevant part, MaxPower argued that “the collateral order doctrine warrant[ed] immediate review because its challenge implicates questions of whether the Board can institute proceedings that are subject to arbitration.”

The Federal Circuit rejected MaxPower’s arguments for review, including its argument that it was entitled to immediate review because the question whether the board could institute proceedings subject to arbitration was implicated. The court explained that “[i]f MaxPower [was] truly not raising matters that are absolutely barred from appellate review … then MaxPower can meaningfully raise its arbitration-related challenges after the Board’s final written decisions. We therefore cannot say that MaxPower has established jurisdiction to review these decisions under the collateral order doctrine.”

In re MaxPower Semiconductor, Inc., No. 2021-146 (Fed. Cir. Sept. 8, 2021).