Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Party Opposing Confirmation of Non-Domestic Arbitration Award Subject to Convention May Also Assert FAA Defenses If Award Rendered in the U.S. or Under U.S. Arbitral Law

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In 2006, Goldgroup and DynaResource entered into a contract relating to a gold mining operation in Mexico, which contained a dispute resolution provision requiring that the disputes be submitted to binding arbitration in Denver, Colorado, under the rules of the American Arbitration Association (AAA). Goldgroup initiated arbitration in Denver, but DynaResource refused to participate, relying on a Mexico City court’s ruling in 2015 that the arbitration agreement was unenforceable because Goldgroup had waived its right to arbitration by submitting to the jurisdiction of Mexico courts in prior disputes.

In 2016, the arbitrator ruled in Goldgroup’s favor and awarded it monetary and equitable relief. The arbitrator also found that the arbitration clause was valid and enforceable, that Goldgroup had not waived its right to arbitrate by participating in any other lawsuits, and that DynaResource engaged in forum shopping by asking the Mexico City court to rule on the arbitrability of Goldgroup’s claims.

Goldgroup then sought confirmation of the non-domestic arbitration award in the Colorado district court. DynaResource opposed recognition of the award under the Inter-American Convention on International Commercial Arbitration (the Convention) and moved to vacate the award under the Federal Arbitration Act (FAA), arguing that the award should not be confirmed because the arbitrator exceeded the scope of his authority by ruling on the issue of whether Goldgroup had waived its right to arbitrate and whether the Mexico City court’s ruling effectively annulled the subsequent award issued in the arbitration. The district court confirmed the award and entered final judgment against DynaResource. After unsuccessfully moving to alter or amend the judgment, DynaResource appealed.

On appeal, DynaResource argued that the district court erred in holding that waiver was a question for the court without making a factual determination as to whether Goldgroup in fact waived its right to arbitration. Goldgroup contended that DynaResource did not raise the issue with the district court and thus failed to preserve it. The Tenth Circuit Court of Appeals agreed, finding that the district court was not required to decide whether Goldgroup waived its right to arbitrate because the issue was not properly before it, and DynaResource had not preserved the issue for the appellate court’s review.

In addition, Goldgroup argued that even if DynaResource had preserved the issue, waiver is not available as a defense to confirmation of the award because FAA defenses, such as waiver, do not provide grounds for vacating an award subject to the Convention.

On an issue of first impression, the Tenth Circuit addressed whether the FAA’s vacatur standards apply when a U.S. court is considering the confirmation of a non-domestic arbitration award subject to the Convention and rendered in the United States or under U.S. arbitral law.

The Tenth Circuit rejected Goldgroup’s argument, holding that the Convention’s defenses for opposing the confirmation of a non-domestic arbitration award are not exclusive and that a party may also assert FAA defenses to oppose confirmation if the non-domestic arbitration award was rendered in the United States or under U.S. arbitral law.

Despite its holding that DynaResource could seek vacatur under the FAA, the Tenth Circuit rejected DynaResource’s argument under the FAA that the arbitrator exceeded his authority by ruling on the issue of arbitrability, finding that the contracting parties manifested a clear intent to arbitrate the issue of arbitrability by incorporating the AAA rules into their arbitration agreement. Moreover, the circuit court found DynaResource failed to show that any alleged error by the arbitrator in ruling on the waiver issue warranted vacatur.

The circuit court also rejected DynaResource’s argument under the Convention that the Mexico City court’s ruling effectively annulled the subsequent arbitration award, holding that the defense does not apply preemptively to awards not yet rendered. The circuit court also found the defense was inapplicable because the Mexico City court improperly applied Mexican law rather than U.S. law, where the arbitration was pending. Therefore, the Tenth Circuit affirmed confirmation of the award.

Goldgroup Resources, Inc. v. DynaResource de Mexico, S.A. de C.V., No. 20-1143 (10th Cir. Apr. 16, 2021).

Connecticut Supreme Court Finds State Law Statutory Limitation Period to Vacate Arbitration Award Confers Jurisdiction on State Courts and Not Preempted by FAA

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Plaintiff A Better Way Wholesale Autos Inc. filed an application in Connecticut state court seeking to vacate an arbitration award issued in favor of the defendants, James Saint Paul and Julie J. Saint Paul. The defendants filed motions to confirm the award and for attorneys’ fees, and to dismiss the plaintiff’s application. The defendants argued that the application was untimely under Connecticut Statutes section 52-420 (b) and that the trial court therefore lacked subject matter jurisdiction. The trial court order granting the defendant’s motions and dismissing the plaintiff’s application was affirmed on appeal. The Supreme Court of Connecticut framed the issues as: (1) whether Connecticut’s 30-day statutory limitation for seeking to vacate an arbitration award is “jurisdictional” in that it implicates the subject matter jurisdiction of state courts; and (2) whether the Connecticut statute is preempted by the FAA, which has a three-month limitation period for seeking to vacate.

With regard to the jurisdictional issue, the plaintiff claimed that section 52-420 (b) did not confer jurisdiction because the arbitration clause between the parties explicitly provided that any arbitration “shall be governed by the [FAA] … and not by any state law concerning arbitration.” But the Supreme Court agreed with the courts below that parties cannot privately agree to have the FAA’s three-month limitation period apply to a vacatur action filed in Connecticut state court, so as to override the limitation period in section 52-420 (b). The Supreme Court also found it is “hornbook law” that parties cannot confer subject matter jurisdiction on a court by consent or agreement. The Supreme Court was similarly unpersuaded by the plaintiff’s preemption argument, finding the time limitation in section 52-420 (b) does not impede the federal policy of enforcing arbitration agreements.

A Better Way Wholesale Autos, Inc. v. Saint Paul, No. SC 20386 (Conn. Apr. 15, 2021).

Eleventh Circuit Revives Labor Union’s Complaint to Compel Arbitration That District Court Had Found to Be Time-Barred

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The Eleventh Circuit Court of Appeals reversed an order granting summary judgment to an employer in a case brought by a union to compel arbitration pursuant to a collective bargaining agreement. The district court had concluded that the complaint was untimely because it was filed beyond the six-month limitations period for complaints brought under Georgia law to compel arbitration under section 301 of the Labor Management Relations Act. According to the district court, the employer, BellSouth, “unequivocally refused to arbitrate” more than six months before the union’s lawsuit. The Eleventh Circuit disagreed, agreeing with the union that the record demonstrated that discussions had continued between the parties regarding arbitrability and that BellSouth never unequivocally refused to arbitrate. The court found: “Debating the arbitrability of the grievance and keeping the scheduled arbitration are not unequivocal refusals to arbitrate.” The court vacated the summary judgment and remanded to the district court to consider the arbitrability issues raised in the summary judgment briefing.

Communications Workers of America v. BellSouth Telecommunications, LLC, No. 20-14244 (11th Cir. Apr. 20, 2021).

Ninth Circuit Compels Investment Banker to Arbitrate Statutory Employment Discrimination and Civil Rights Claims Despite Assumption That “Knowing Waiver” Doctrine Applied to Claims

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Shannon Zoller sued her former employer, GCA Advisors LLC, for violations of the Equal Pay Act, California’s Fair Pay Act, and the Civil Rights Act of 1871, among other alleged violations. GCA moved to compel arbitration pursuant to the arbitration agreements contained in various documents that Zoller signed when she began her employment, but the district court denied the motion, finding that the “knowing waiver” doctrine applied to Zoller’s statutory claims and that she had not knowingly waived her right to bring her claims in a judicial forum.

The “knowing waiver” doctrine is a “judicially created requirement that narrows the [Federal Arbitration Act’s] scope when other federal statutes explicitly limit the enforcement of arbitration agreements. The standard requires a party to an arbitration agreement to waive knowingly and explicitly their right to judicial determination of their Title VII claims.” The Supreme Court has held that, while not all statutory claims may be appropriate for arbitration, if a party agreed to arbitration, the party will be held to that agreement unless the party could prove a congressional intent to preclude a waiver of judicial remedies for the statutory rights at issue. Such an intent would be found in the statutory text, legislative history, or an “inherent conflict” between arbitration and the statutes’ underlying purposes.

Rather than engage in such an analysis, the district court analogized the claims brought by Zoller to other types of “civil rights claims” to which the knowing waiver doctrine had been held to apply. The Ninth Circuit noted that this analysis was incorrect but nevertheless assumed, without deciding, that the doctrine applied to Zoller’s claims. The court held that the arbitration agreement’s “clear language encompassing employment disputes” and additional evidence of Zoller’s knowing waiver were sufficient to meet the doctrine’s requirements. The contractual agreements “included explicit language regarding employment disputes so that Zoller’s statutory claims [were] clearly encompassed by the [arbitration] agreement.” In addition, Zoller, who was an attorney before becoming an investment banker, was given “full access” to the documents providing for arbitration and an opportunity to consult with legal counsel of her choice before signing. As such, the Ninth Circuit reversed the district court, finding that Zoller had knowingly waived her right to a judicial forum and compelled the parties to arbitrate all of her claims.

Zoller v. GCA Advisors, LLC, No. 20-15595 (9th Cir. Apr. 14, 2021).

First Circuit Concludes App User Is Bound by Arbitration Clause in App’s Terms and Conditions

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The First Circuit Court of Appeals recently concluded that an app user had sufficient notice of and was bound by an arbitration clause in the app’s terms and conditions. The court rejected the user’s arguments that, among other things, she was not bound by the clause because she had to scroll down to see it. The court concluded that the user was bound by the arbitration clause.

Handy Technologies Inc. operates an application that enables users to retain house cleaners and other home services. Maisha Emmanuel, a nanny and housekeeper, signed up to offer her services through Handy’s app. As part of that process, Emmanuel submitted an application that required her to click a checkbox next to the statement: “I agree to Handy’s Terms of Use.” The phrase “terms of use” was a hyperlink that, if clicked, would have taken the user to Handy’s terms, which include a mandatory arbitration clause. Emmanuel, however, clicked the checkbox, submitting her application, without accessing or reviewing the terms of use. After an interview, background check, and orientation session, Emmanuel gained access to the Handy app, which contained a screen stating: “I understand that the Handy Service Professional Agreement has changed and that I need to carefully read the updated agreement on the following screen before agreeing to the new terms.” When Emmanuel clicked through to the next screen, she saw the initial portion of Handy’s independent contractor agreement. The visible portion noted that Emmanuel was agreeing to be bound by the agreement but did not display language regarding arbitration. Had Emmanuel scrolled down, she would have seen the mandatory arbitration clause. Emmanuel, however, did not scroll through the screens or terms when using the app.

Emmanuel subsequently filed a putative class action alleging that Handy had misclassified her and other similarly situated users as independent contractors when it should have classified them as employees and that Handy had therefore violated, inter alia, the FLSA by failing to pay her and similarly situated users minimum wage. Handy moved to compel arbitration.

The district court granted Handy’s motion, and Emmanuel appealed.

The First Circuit affirmed. The court applied Massachusetts law on notice to app users regarding arbitration agreements, concluding that Emmanuel had “reasonable notice of the term in the Agreement concerning arbitration” and that a valid contract to arbitrate therefore existed. Handy’s app was clear that Emmanuel was agreeing to a contract. Although the arbitration clause was not visible without scrolling, the app was clear that the entirety of the agreement could be viewed by scrolling down. Emmanuel’s onboarding process, which included an interview, orientation, and background check, also supported the conclusion that Emmanuel knew she was entering into a significant contractual relationship by signing up for Handy’s app.

The First Circuit also declined to consider Emmanuel’s contention that Handy’s agreement was unconscionable. Emmanuel’s argument regarding unconscionability, that Handy allegedly had a unilateral right to modify the agreement, was not directed to the agreement’s arbitration clause and was therefore for the arbitrator to address, not the court.

Emmanuel v. Handy Technologies, Inc., No. 20-1378 (1st Cir. Mar. 22, 2021).