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SDNY Vacates Arbitration Award in International Maritime Shipping Dispute

March 25, 2021 by Carlton Fields

Petitioner Copragri and respondent Agribusiness United DMCC are foreign buyers and sellers of feed and grain, respectively, who entered into sales agreements for grain cargoes. Pursuant to its obligations under the sales agreements, Agribusiness chartered a vessel from Vitosha Maritime Ltd. to transport the grain cargoes from Louisiana to Morocco. The vessel’s master issued bills of lading for the cargoes to Agribusiness. Copragri was not a party to the bills of lading, the back of which included a provision calling for arbitration in New York.

After Vitosha Martina presented a claim against Agribusiness for delays of the vessel and other expenses at the discharge port in Morocco, Agribusiness presented an indemnity claim to Copragri. Six years later, Agribusiness commenced arbitration of this claim, and an arbitration panel was selected without Copragri’s participation. Copragri objected to the arbitration on several grounds, primarily because the governing contracts between the parties were the sales agreements for grain cargoes, and not the bill of lading under which Agribusiness had initiated the New York arbitration. These objections were provided both to Agribusiness and to the arbitration panel. However, Copragri’s objections were ignored, and the arbitration panel issued an award to Agribusiness for $208,300. The award did not address Copragri’s various objections or issues of arbitrability or jurisdiction, nor did it include any legal citations.

Copragri thereafter filed a petition in the Southern District of New York to vacate the award, which the court granted. The court held that because Copragri was not a party to the bill of lading and therefore did not consent to arbitration in New York, the arbitration panel acted outside its scope and authority when issuing its award. The court also held that the arbitration panel’s failure to analyze or even address Copragri’s various objections — a number of which could have been outcome-determinative — constituted a manifest disregard for the law, further justifying vacatur.

Filed Under: Arbitration / Court Decisions, Confirmation / Vacation of Arbitration Awards

Alabama District Court Grants Hospital’s Motion to Compel Arbitration in Dispute Against Third-Party Beneficiary to Medical Services Contract

March 24, 2021 by Carlton Fields

In 2015, the plaintiff was in a car accident that required emergency room medical treatment at Andalusia Regional Hospital. The plaintiff had health insurance at the time through United HealthCare, which maintained a contract for medical services with Andalusia. The plaintiff alleged that in connection with her treatment, Andalusia failed to submit her bills to United HealthCare or follow other required procedures, in violation of the medical services contract. As a third-party beneficiary, the plaintiff filed a class action lawsuit to enforce the terms of the contract and to recover damages incurred as a result of Andalusia’s alleged contractual violations. Andalusia was not named as a defendant in the class action, though the court later joined Andalusia as the sole defendant and dismissed the plaintiffs’ claims against all other parties.

After being added to the lawsuit, Andalusia moved to compel arbitration pursuant to the arbitration clause within the medical services contract between Andalusia and United HealthCare. The plaintiff opposed, arguing: (1) the arbitration clause does not bind her as a third-party beneficiary; (2) Andalusia’s motion to compel arbitration was untimely; and (3) the arbitration agreement was unconscionable. The court dismissed these arguments and granted Andalusia’s motion to compel arbitration.

Finding first that a valid and enforceable arbitration agreement existed between Andalusia and United HealthCare, the court ruled that the arbitration agreement was binding on the plaintiff as a third-party beneficiary. The court found that because a third-party beneficiary stands in the shoes of the signatories to a contract, the beneficiary is bound by the entirety of the contract that he or she wishes to enforce. Put simply, a “third-party beneficiary cannot accept the benefit of a contract, while avoiding the burdens or limitations of that contract.”

With respect to the timeliness argument, the court did not agree with the plaintiffs’ argument that Andalusia failed to initiate arbitration within one year of written notice of the dispute, as provided in the contract. The court noted that the plaintiff, as master of her own complaint, decided not to name Andalusia as a defendant to the lawsuit originally filed in May 2016, and thus there was no actual dispute between the plaintiff and Andalusia that could be arbitrated until the court joined Andalusia in March 2020. Holding otherwise — which would have required Andalusia to preempt the plaintiff and interject itself into the litigation to secure its arbitration rights — would have “absurd results” that conflict with arbitration law and “erode core values of the American legal system.”

Finally, the court found that the arbitration agreement was not unconscionable. The court recognized that whenever parties operate at different levels of sophistication, there is a risk of disparate bargaining power — a requirement to finding the terms of an agreement unconscionable. However, the court reminded the plaintiff that as a third-party beneficiary, she stands in the shoes of United HealthCare, and there were no concerns of equal bargaining power as between United HealthCare and Andalusia.

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Aflac Waives Problematic Clause to Ensure Arbitration

March 23, 2021 by Brendan Gooley

Aflac recently avoided an attempt by several former employees to invalidate an arbitration agreement on the ground that it constituted an impermissible prospective waiver of the employees’ statutory rights by waiving the purportedly problematic provision in the arbitration agreement.

Several former Aflac sales associates sought to sue Aflac under ERISA and other federal statutes. Aflac filed a petition to compel arbitration. The sales associates opposed the petition on the ground that the arbitration agreement at issue was unconscionable and unenforceable because it constituted a prospective waiver of their right to pursue statutory remedies.

The sales associates specifically cited two provisions in the arbitration agreements between the parties. The first provided that the agreements required “arbitration of ‘any dispute’ between a sales associate and” Aflac. The associates argued that prevented them from bringing their claims in a judicial forum. Another provision in the arbitration agreement, however, limited “the scope of any arbitration to claims for breach of contract, fraud, or willfully tortious conduct.” According to the sales associates, that provision precluded them from asserting their ERISA and statutory claims in an arbitral forum, and the combination of these two provisions was a prospective waiver that precluded them from raising their ERISA and statutory claims at all.

To prevent the agreement from being found to be unenforceable because it contained a prospective waiver, Aflac waived the provision limiting the scope of arbitral claims.

The district court granted Aflac’s petition as a result of Aflac’s agreement to waive the provision limiting the claims that could be arbitrated and the Second Circuit affirmed.

The Second Circuit agreed that Aflac’s waiver removed any prospective waiver problem and noted, in the alternative, that even if Aflac had not waived that provision, the proper remedy under New York law would be to sever the provision and enforce the rest of the agreement.

American Family Life Assurance Company of New York v. Baker, No. 20-1435 (2d Cir. Mar. 1, 2021).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Employer Enforces Arbitration Despite Absence of Signature

March 22, 2021 by Brendan Gooley

An employer was able to enforce an arbitration agreement without an employee’s signature and even though one of the parties in the lawsuit was also a non-signatory to the agreement.

Elizabeth Trujillo was an employee of Volt Management Corp., an employee leasing company. Through Volt, she worked as an on-site coordinator at Schneider Electric, where she performed human resources functions for employees Volt leased to Schneider.

Trujillo sued Volt and Schneider after her request for a disability accommodation was purportedly denied and she was terminated, allegedly for retaliatory reasons.

Volt filed a motion to compel arbitration. The district court granted Volt’s motion and ordered all three parties to arbitrate Trujillo’s claims because her claims against Schneider were intertwined with her claims against Volt. Trujillo appealed and the Fifth Circuit affirmed.

The Fifth Circuit rejected Trujillo’s argument that she was not required to arbitrate because she never signed an arbitration agreement. Trujillo had submitted a job application that contained an arbitration agreement, accepted her employment knowing that she was agreeing to submit her claims to arbitration, and continued working for Volt after she received Volt’s alternate dispute resolution policy in Volt’s employee handbook. Most importantly, the arbitration agreement did “not contain express language indicating that the parties intended to be bound to the arbitration agreement only if the parties signed the agreement.” There was “nothing more than a blank signature block that [spoke] to the party’s intent” and the district court therefore “did not err in holding that the arbitration agreements are valid and enforceable … without Trujillo’s signature.”

The court also rejected Trujillo’s claims that Volt failed to prevent competent evidence to establish a valid agreement to arbitrate and that the district court erred by requiring her to arbitrate her claims against Schneider, a non-signatory to the arbitration agreement. Intertwined claims estoppel, which the court had previously predicted the Texas Supreme Court would adopt if it was presented with the question, applied because Trujillo’s claims against Schneider were “‘intimately founded in and intertwined with’ Trujillo’s underlying contract with Volt.”

Trujillo v. Volt Management Corp., No. 20-50526 (5th Cir. Feb. 25, 2021).

Filed Under: Arbitration / Court Decisions, Contract Formation

North Carolina District Court Dismisses Action Where Plaintiff Had Full and Fair Opportunity to Pursue Claim Through Arbitration

March 17, 2021 by Carlton Fields

This case arose out of a dispute between the plaintiff and his former employer American National Red Cross for incorrect calculation of lost wages and health insurance premiums.

The plaintiff was hired by the Red Cross in February 2015 and terminated in September 2017. As a member of the Teamsters Local 71 union, the plaintiff brought a grievance against the Red Cross, which was submitted to arbitration pursuant to the collective bargaining agreement between the union and the Red Cross.

After two arbitration hearings in May 2018, the arbitrator awarded the plaintiff reinstatement to his job as well as lost wages and benefits. Months later, the arbitrator clarified her ruling stating that the award included actual overtime earnings before the plaintiff’s termination. The parties agreed on the amounts to be paid in accordance with the arbitration award.

In November 2019, the plaintiff filed a complaint in North Carolina state court alleging that the arbitration award was miscalculated, and the Red Cross owed him additional compensation for additional wages and out-of-pocket medical expenses. The state court dismissed the complaint on the grounds that the arbitrator retained jurisdiction over the subject matter. The plaintiff requested the arbitrator reopen the matter, and the arbitrator subsequently declined to award any additional compensation, since the parties agreed to the terms of the award and the Red Cross had paid accordingly. After another failed attempt at initiating suit in state court, the plaintiff filed a complaint against the Red Cross in the U.S. District Court for the Western District of North Carolina for the incorrect calculation of lost wages and health insurance premiums.

The Red Cross moved to dismiss the complaint. The magistrate judge recommended that the motion be granted, finding that a valid arbitration agreement existed between the union and the Red Cross and that the disputed issue regarding miscalculation of the award was within the scope of the agreement. The magistrate judge also found that the plaintiff was collaterally estopped from pursuing his claim in federal court because, through his union representative, the plaintiff had a full and fair opportunity to pursue his claim under the collective bargaining agreement through arbitration. The magistrate judge emphasized that the arbitrator’s decision was final — she decided in the plaintiff’s favor and refused to reopen the proceeding because the parties agreed on the calculation of the award and the plaintiff actually received the award.

The magistrate judge’s report and recommendation was adopted, and the Red Cross’ motion to dismiss was ultimately granted.

Fonseca v. American National Red Cross, No. 3:20-cv-00526 (W.D.N.C. Feb. 1, 2021), report and recommendation adopted, No. 3:20-cv-00526 (W.D.N.C. Feb. 17, 2021).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

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