Reinsurance Focus

In Williams v. Medley Opportunity Fund II, LP, plaintiffs Christine Williams and Michael Stermel obtained payday loans from American Web Loan, Inc. (AWL), an online entity owned by the Otoe-Missouria Tribe of Indians. The loan agreement stated that the loan was governed by tribal law and that the borrowers consented to the application of tribal law. The plaintiffs filed a purported class action against AWL’s holding company, Red Stone, Inc., and three members of AWL’s board of directors, asserting that AWL charged unlawfully high interest rates, in violation of federal and Pennsylvania law, including the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961-1968.

The defendants moved to compel arbitration pursuant to the arbitration clause in the loan agreement. The United States District Court for the Eastern District of Pennsylvania denied the defendants’ motion, holding that the loan agreement, which provided that only tribal law would apply in arbitration, stripped the plaintiffs of their right to assert statutory claims and were therefore unenforceable. Defendants appealed.

On appeal, the Third Circuit affirmed the district court’s decision, finding that because AWL permits borrowers to raise disputes in arbitration only under tribal law, and such a limitation constitutes a prospective waiver of statutory rights, its arbitration agreement violates public policy and is therefore unenforceable.

The Third Circuit specifically rejected defendants’ argument that plaintiffs could bring similar RICO-like claims under tribal law and receive similar relief. The panel noted, “The question is whether a party can bring and effectively pursue the federal claim – not whether some other law is a sufficient substitute.”

Williams v. Medley Opportunity Fund II, LP, 965 F.3d 229 (3d Cir. July 14, 2020)

Thomas Sanduski petitioned to vacate a Financial Industry Regulatory Authority arbitration award of $418,518 to Charles Schwab, claiming that one of the arbitrators was partial to Charles Schwab and that the panel was guilty of misconduct and potentially exceeded its authority for refusing Sanduski’s request to postpone the hearing.

Sanduski alleged one of the arbitrators was biased because one of Charles Schwab’s experts said “see you next week” to the arbitrator as the parties filed out of the hearing room after the proceedings had concluded. The arbitrator did not respond to or acknowledge the statement, and the parties agreed that it was probably a reference to the fact that the same arbitrator was due to participate on another arbitration panel involving Charles Schwab the following week. In addition, after the hearing the same arbitrator shared a taxi to the airport with a different Charles Schwab expert. The arbitrator and expert talked exclusively about living in Phoenix, making sure to avoid discussion of the arbitration.

The court found these grounds to be the “type of ‘attenuated’ and ‘insubstantial connections between a party and an arbitrator’ that the Ninth Circuit rejects as ground for vacatur.” Although the communications were “perhaps inappropriate,” the court stated that the “Ninth Circuit consistently denies vacatur in alleged-partiality cases where arbitrators and parties have far more substantial contacts.”

Sanduski also argued the panel exceeded its powers when it agreed to permit one of the arbitrators to appear telephonically and refused his request to postpone the hearing. Sanduski had originally agreed to permit the arbitrator to attend the second day of the hearing telephonically, and only objected when that day arrived. The court found that the panel’s decision to continue with the hearing was based on a reasonable interpretation and application of the rules and was “far from arbitrary.” Noting that “courts will not intervene in an arbitrator’s decision not to postpone a hearing if any reasonable basis for it exists,” the court denied Sanduski’s petition to vacate the award.

Sanduski v. Charles Schwab & Co, Inc., Case No. 2:19-cv-01340-JAD-BNW (D. Nev. August 20, 2020).

The court considered a restaurant franchisee’s motion to compel arbitration, and motion to dismiss, or, in the alternative, stay an employee’s race discrimination and retaliation lawsuit pending the completion of arbitration. The plaintiff had applied for a managerial position through an online portal, which included a provision agreeing to sign an arbitration agreement and ADR plan as a condition of employment. The plaintiff ultimately signed an offer letter for the position, which contained an arbitration provision, and completed onboarding paperwork online, including checking boxes that confirmed that the plaintiff had read and agreed to the company’s ADR plan and agreement to arbitrate.

In connection with the franchisee’s motion to compel arbitration, the plaintiff conceded that she signed the arbitration agreement and did not oppose the request to stay the case. She opposed only the dismissal of the case. Nevertheless, the court explained that a motion to compel arbitration is “summary-judgment-like,” meaning that the court was required to provide a cursory analysis “to ensure disposition utilizing the alternative stay request is appropriate.” The court then found as a matter of law that the plaintiff and the franchisee entered into an arbitration agreement that covered the discrimination claims, and granted the motion to compel arbitration. The court further found that it was required to grant a stay as opposed to dismissal of the case under the FAA.

Heads v. Paradigm Investment Group, LLC, Case No. 1:20-cv-00284 (S.D. Ala. Aug. 7, 2020).

In a dispute over Uber’s alleged failure to provide a wheelchair-accessible ride-sharing option in New Orleans, the District Court held that, under California law, plaintiffs were not equitably estopped from avoiding arbitration because their ADA claims did not rely on Uber’s Terms and Conditions.

California law permits a party to compel a nonsignatory to arbitrate when a nonsignatory should be equitably estopped from arguing that he cannot be bound by an arbitration clause. Uber argued that Plaintiffs’ standing theory – that they may sue without downloading the Uber App and assenting to its Terms and Conditions because downloading the Uber App would be futile -is inextricably intertwined with the Terms and Conditions. However, equitable estoppel is inapplicable where a plaintiff’s allegations reveal no claim of any violation of any duty, obligation, term or condition imposed by the contract. Here, the plaintiffs do not rely on Uber’s Terms and Conditions – the case arises entirely under the ADA – and plaintiffs’ ADA claims are fully viable without any reference to Uber’s Terms and Conditions, so equitable estoppel does not apply. The decision denying Uber’s motion to compel arbitration was upheld by the Ninth Circuit.

Namisnak, et al. v. Uber Techs., Inc., et al., No. 18-15860 (9th Cir. August 24, 2020)