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Fourth Circuit Affirms Denial of Vacatur of Arbitration Award, Finding No Deprivation of a Fair Hearing or Manifest Disregard of the Law

March 9, 2021 by Michael Wolgin

A former vice president of a division within Oracle Corp. filed a demand for arbitration against Oracle, claiming that he was owed additional bonus compensation under the terms of his employment contract and the Maryland Wage Payment and Collection Law (MWPCL). After the parties conducted discovery and filed the equivalent of cross-motions for summary judgment briefing and oral argument in arbitration, the arbitrator ruled that the plaintiff was not due any additional compensation. The arbitrator determined that there were no material facts in dispute that would require a hearing on the merits, Oracle did not breach the parties’ compensation plan by its decision not to pay a larger bonus, and Oracle did not violate the MWPCL. The arbitrator ruled that the compensation plan gave Oracle the right to correct “administrative errors” and that, although the compensation plan omitted a cap on the plaintiff’s potential bonus compensation, it was an “administrative error” that Oracle had the right to rectify. The plaintiff then filed a petition to vacate the award in a Maryland state court, which Oracle then removed to the District of Maryland.

In the district court, the plaintiff argued that the arbitrator ignored the essence of the compensation plan, that the arbitrator deprived him of a fundamentally fair hearing, and that the arbitrator manifestly disregarded the MWPCL. The district court, however, denied the plaintiff’s petition to vacate the award, ruling that there was undisputed evidence that the failure to insert a cap into the plan was, indeed, an “administrative error,” which Oracle was entitled to correct. The court also ruled that the arbitrator had the discretion to decide the case like a summary judgment proceeding and that the arbitrator afforded a full and fair hearing that included discovery, the presentation of evidence, ample briefing, and oral argument. Regarding the MWPCL, the court ruled that the award was not made in manifest disregard of that statute, since the arbitrator had identified and used controlling legal principles to analyze the plaintiff’s claim.

On appeal, the Fourth Circuit affirmed, explaining that the review of an arbitration award is limited and that the district court properly disposed of the issues.

Balch v. Oracle Corp., No. 19-2433 (4th Cir. Feb. 17, 2021).

Filed Under: Arbitration / Court Decisions, Arbitration Process Issues

Ninth Circuit Affirms Removal to Federal Court and Order Compelling Arbitration, Construing Forum Selection Clause and Scope of Arbitration Agreement

March 8, 2021 by Benjamin Stearns

The representative of former stockholders who sold their shares in a leasing corporation pursuant to a stock purchase agreement had filed identical complaints in state court and before an arbitration tribunal alleging a breach of the stock purchase agreement by the bank and seeking an order for specific performance of the contract. The bank removed the case from state court to the U.S. District Court for the Central District of California and then successfully compelled arbitration and obtained dismissal of the case.

On appeal, the Ninth Circuit held that the forum selection clause in the parties’ stock purchase agreement did not waive the right to remove where the clause required litigation to “be brought and determined in Orange County, California,” which is the seat of both state and federal courts. “Because the clause uses the preposition ‘in,’ the contract contemplates federal as well as state courts as proper courts for adjudication.” This contrasts with a 2019 Ninth Circuit case, City of Albany v. CH2M Hill Inc., wherein the relevant forum selection clause waived the right to remove because “there is no federal courthouse located in the designated county.”

The Ninth Circuit also rejected the plaintiff’s argument that the district court erred by compelling arbitration despite a carve-out from the agreement that preserved the ability to seek in court “temporary or preliminary injunctive relief … in aid of arbitration.” The court determined that the plaintiff’s claims were not “in aid of arbitration” because they were not “aimed at preserving the status quo until the dispute may be resolved by an arbitrator.” Rather, the plaintiff’s complaint sought specific performance, a remedy for the defendant’s alleged breach of contract.  Per the parties’ arbitration agreement, only the arbitrator had the power to grant that relief.  The federal district court was correct to compel arbitration.

Meyer v. Fifth Third Bank, No. 19-56506 (9th Cir. Jan. 20, 2021).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Ninth Circuit Affirms Arizona District Court’s Dismissal of Frivolous Petition to Compel Arbitration

March 4, 2021 by Carlton Fields

On June 23, 2020, the U.S. District Court for the District of Arizona dismissed a pro se plaintiff’s petition to compel arbitration, finding the action “frivolous” and ordering its dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). On appeal, the Ninth Circuit Court of Appeals affirmed the district court’s ruling, finding that the district court properly dismissed the plaintiff’s action because the plaintiff failed to allege facts sufficient to state a plausible claim. The Ninth Circuit also rejected the plaintiff’s claim on appeal that the district court violated his constitutional rights, or otherwise acted with impropriety or gave the appearance of impropriety in its conduct.

Filed Under: Arbitration / Court Decisions

Massachusetts Supreme Court Holds That Uber’s Registration Process Did Not Provide Reasonable Notice of Terms and Conditions and That Arbitration Was Therefore Improper

March 3, 2021 by Brendan Gooley

The Massachusetts Supreme Judicial Court recently held that Uber’s notification of its “terms and conditions” during the registration process for its app did not provide “reasonable notice” to users of Uber’s terms, that there was therefore no valid contract between Uber and the users who were suing it, and that arbitration that had occurred had therefore been improper.

The Kauders sued Uber in Massachusetts Superior Court claiming, among other things, that it had unlawfully discriminated against Mr. Kauders on the basis of his disability because three Uber drivers refused to give him rides because he is blind and was accompanied by a guide dog.

Uber moved to compel arbitration under its terms and conditions. The court granted Uber’s motion and the parties arbitrated the case. The arbitrator ruled in favor of Uber.

Shortly thereafter, the First Circuit held, in a different case against Uber, that “Uber’s registration process did not create a contract because it did not provide reasonable notice to users of the terms and conditions” and there was “no enforceable contract requiring arbitration.”

In the Kauders litigation, Uber then moved to confirm the arbitration award. At the hearing on that motion, the Kauders raised the First Circuit’s decision and subsequently moved for reconsideration of the court’s decision compelling arbitration. The court granted that motion in light of the First Circuit’s decision and denied Uber’s motion to confirm. Uber appealed.

The Massachusetts Supreme Court agreed with the First Circuit and the Kauders that Uber’s registration process did not provide reasonable notice of its terms and conditions.

Uber argued that (1) the trial court lacked authority to deny its motion to confirm because the Kauders “failed to move to vacate the award within thirty days”; (2) the Kauders’ motion for reconsideration was untimely and improper “because there was no change in fact or law”; and (3) Uber’s registration process created a valid, enforceable contract requiring arbitration.

The Supreme Court rejected Uber’s argument about the Kauders’ failure to move to vacate the award, explaining that, unlike federal law, it “d[id] not consider participation in the arbitration process as requiring revisitation of the arbitrability issue within the thirty-day time period.”

Although the Supreme Court agreed with Uber’s argument that it was an abuse of discretion for the trial court to grant the Kauders’ motion for reconsideration, it declined to remand the case to require the trial court to confirm Uber’s arbitration award because “the issue of arbitrability would [still] be preserved for appeal” and the Kauders “would then undoubtedly appeal on that ground, and the case would be right back before” the Supreme Court.

Applying a “two-prong test” asking “whether there is reasonable notice of the terms and a reasonable manifestation of assent to those terms,” the court determined that Uber’s terms of service did not create a valid contract. When the Kauders created user accounts, a link to Uber’s “terms and conditions” was on the bottom of the third screen they saw during the registration process. The screen stated: “By creating an Uber account, you agree to the Terms & Conditions and Privacy Policy.” “Terms & Conditions and Privacy Policy” was “in a rectangular box and in boldface font,” while the rest of the sentence in question was in ordinary type. The court described Uber’s “terms and conditions” as “extensive” and conferring broad indemnity on Uber.

The court concluded that Uber’s registration process did not provide “reasonable notice” of Uber’s “terms and conditions” under the circumstances, finding it significant that (1) “the interface did not require the user to scroll through the conditions or even select them,” even though Uber required its drivers to review its terms and conditions for drivers before registering to drive; (2) the notification about the “terms and conditions” was “oddly displayed,” with the important language notifying users that they were agreeing to something “being displayed less prominently than” the phrases “terms and conditions” and “privacy policy”; (3) the placement of the “terms and conditions” notification was on the “third screen” without any prior reference to the terms; and (4) the “title of the screen” and “the information on” it focused on payment, not conditions.

In sum, “the design of the interface for the app … enable[d], if not encourage[d], users to ignore the terms and conditions” and “[n]othing about [the] third screen … conveyed to a user that he or she should open a link that would reveal an extensive set of terms and conditions at the bottom of the screen.” “Instead of requiring its users to review [its] terms and conditions as it appear[ed] to do with its drivers, Uber ha[d] designed an interface that allow[ed] the registration to be completed without reviewing or even acknowledging the terms and conditions.” Thus, Uber “failed to show that it provided the [Kauders] with reasonable notice.”

There was therefore “no enforceable agreement between Uber and the [Kauders], and therefore the dispute [in this case] was not arbitrable.” Accordingly, the court remanded the case.

Kauders v. Uber Technologies, Inc., No. SCJ-12883 (Jan. 4, 2021).

Filed Under: Arbitration / Court Decisions, Contract Formation, Contract Interpretation

West Virginia District Court Grants Summary Judgment in Favor of Insurer Following Denial of Policyholder’s Mine Subsidence Claim

March 2, 2021 by Carlton Fields

In January 2019, a policyholder sued Westfield Insurance Co. after the insurer denied coverage for property damage that the policyholder believed to have occurred as a result of mine subsidence, and therefore covered under a mine subsidence endorsement to his homeowners insurance policy. The policyholder alleged that the insurer’s denial constituted a breach of contract and also alleged that the insurer violated the West Virginia Fair Trade Practices Act, as well as the implied covenant of good faith and fair dealing.

After denying Westfield’s initial motion for summary judgment on the pleadings, the insurer renewed its motion after additional evidence on the evaluation of the policyholder’s mine subsidence claim had been introduced. The court thereafter granted summary judgment in favor of Westfield. It reasoned that because mine subsidence claims – including the investigation and subsequent decision whether to pay such claims – are entirely within the purview of the West Virginia Board of Risk and Insurance Management (BRIM) as a matter of statute, Westfield was merely acting as an agent of the state and was bound by BRIM’s decision. As such, while Westfield was required by statute to include the mine subsidence endorsement in its insurance policies, it had no authority to decide whether the policyholder’s claim was paid.

In this matter, the record demonstrated that (1) the policyholder submitted a claim for mine subsidence damage to Westfield; (2) Westfield referred the matter to BRIM as it was statutorily required to do so; and (3) BRIM conducted its independent investigation of the matter and determined that the claim would not be paid. Under these circumstances, the court determined that Westfield could not be found to have breached its contract with the policyholder for an adverse decision rendered exclusively by BRIM as required by applicable statute, and granted summary judgment as a result.

Once summary judgment was granted on the breach of contract claim, the policyholder’s remaining claims were similarly dealt with. For example, West Virginia law does not recognize an independent cause of action for the breach of an implied covenant of good faith and fair dealing separate and apart from a breach of contract claim. Having found no breach of contract, Westfield was entitled to summary judgment on the policyholder’s common law bad faith claim. Further, because the exclusive authority to investigate and determine mine subsidence claims rests with BRIM, it could not be established as a matter of law that Westfield’s failure to investigate the policyholder’s claim was misconduct, let alone misconduct with sufficient frequency as to indicate a general business practice (as required for an unfair trade practices claim).

Filed Under: Arbitration / Court Decisions

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