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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

Court Finds Pre-Hearing Nonparty Deposition Subpoenas Permitted by FAA, and Rule 45 Territorial Limit Not a Bar for Virtual Deposition

March 16, 2021 by Alex Silverman

Nonparty Lawrence Satz received an arbitral subpoena in a proceeding between International Seaway Trading Corp. and Target Corp. Satz was a former owner of Seaway. The subpoena — the second issued to Satz during the proceeding — sought documents and virtual deposition testimony about certain issues he had refused to discuss at his first deposition. Before the second deposition, Satz moved to quash the subpoena on three grounds, each of which was rejected.

First, he claimed the arbitrator lacked the authority to issue a nonparty deposition subpoena before the arbitration hearing. In In re Security Life Insurance Company of America, 228 F.3d 865 (8th Cir. 2000), the Eighth Circuit held that section 7 of the Federal Arbitration Act implicitly authorizes arbitrators to issue pre-hearing document subpoenas, but did not reach the issue of pre-hearing deposition subpoenas. Despite decisions from various other circuit courts of appeal that section 7 does not authorize pre-hearing nonparty discovery, including cases expressly rejecting Security Life, the Minnesota district court declined to follow those other cases. Instead, it held that under Security Life, arbitrators are authorized to issue pre-hearing deposition subpoenas, finding no meaningful distinction between the reasoning for allowing such subpoenas for written discovery, but not depositions. Satz next argued the subpoena is unenforceable because it did not comply with the 100-mile territorial limit imposed by Federal Rule of Civil Procedure 45. But the court was unpersuaded, finding Rule 45 now allows service of subpoenas anywhere in the United States and, perhaps more importantly, that the distance limitation for holding the deposition does not bar enforcement of a subpoena for a virtual deposition that Satz could attend from home. Finally, the court rejected Satz’s relevance and burden arguments, noting both issues were already considered by the arbitrator and that the court would not second-guess the arbitrator’s conclusions. 

International Seaway Trading Corp. v. Target Corp., No. 0:20-mc-00086 (D. Minn. Feb. 22, 2021).

Filed Under: Arbitration / Court Decisions, Discovery

West Virginia District Court Rejects DirecTV’s Bid to Compel Arbitration Finding Breadth of Arbitration Agreement “Absurd” and “Unconscionable”

March 15, 2021 by Carlton Fields

In 2012, the plaintiff entered into a cellphone service contract with AT&T Mobility in which she agreed to arbitrate all disputes and claims with AT&T Mobility and its “subsidiaries, affiliates, agents, employees, predecessors in interest, successors, and assigns.” Three years later, AT&T Inc., the parent company of AT&T Mobility, acquired DirecTV, which, unlike AT&T Mobility, provided satellite television service, not cellphone service.

In 2017, the plaintiff sued DirecTV in the U.S. District Court for the Northern District of West Virginia claiming that DirecTV violated the Telephone Consumer Protection Act (TCPA) by calling her cellphone to advertise DirecTV products and services even though her phone number is listed on the National Do Not Call Registry. Recognizing that the plaintiff had never been a DirecTV customer, DirecTV nonetheless moved to compel arbitration, asserting that the dispute was covered by an arbitration agreement in the contract governing the plaintiff’s cellphone service from AT&T Mobility, a DirecTV “affiliate.”

The district court denied DirecTV’s motion to compel arbitration, finding that the plaintiff’s claims did not fall within the scope of the arbitration agreement. DirecTV appealed to the Fourth Circuit, arguing that the plaintiff had signed the arbitration agreement that included AT&T and its “affiliates.” The plaintiff argued that the agreement did not apply to DirecTV despite AT&T Mobility’s acquisition of the company in 2015.

The Fourth Circuit vacated the district court’s decision, finding that the plaintiff formed an agreement to arbitrate with DirecTV and that the dispute fits within the broad scope of that agreement. However, noting the district court’s observation that a construction that does “not so limit the scope of the arbitration clause would be unconscionably overbroad,” the Fourth Circuit remanded the matter to further address unconscionability under West Virginia law.

On remand, the district court once again denied DirecTV’s motion to compel arbitration, holding that the arbitration provision was “overbroad, absurd and unconscionable, and far exceeds anything contemplated by Congress in enacting the FAA.”

The district court determined that the provision was procedurally unconscionable, not only because of the “huge imbalance” between the AT&T conglomerate and the plaintiff who may be somewhat knowledgeable as to the TCPA but unlikely to have expertise in arbitration clauses but also because the provision was a “non-negotiable term” that the plaintiff was not permitted to opt out of or alter if she wanted to obtain AT&T Mobility’s services.

The district court also determined that the arbitration provision was substantively unconscionable because no reasonable AT&T Mobility customer would believe that by signing the arbitration agreement, she was consenting to arbitrate not only with AT&T Mobility but also with any entity that ever might share a corporate umbrella with AT&T Mobility. “[C]onstruing ‘affiliate’ to cover entities like DirecTV would lead to results so absurd that no reasonable person could have intended or anticipated that they would follow from her cell-phone service agreement.”

Mey v. DirecTV, LLC, No. 5:17-cv-00179 (N.D. W.Va. Feb. 12, 2021).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

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