Reinsurance Focus

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)

In opposing a motion to compel arbitration, Nueces County made two procedural arguments: first, that the carrier waived its right to arbitrate by virtue of the policy’s service-of-suit clause. The District Court for the Southern District of Texas rejected the County’s argument, as the policy contained no such express override of the arbitration agreement, and both the “service-of-suit and arbitration clauses can be construed harmoniously such that the service-of-suit clause allows the courts, including the federal courts, to enforce the policy’s arbitration rights.”

Second, the County argued that the McCarran-Ferguson Act eliminated the court’s jurisdiction under the Convention Act. The court rejected this argument, as the Fifth Circuit has held that McCarran-Ferguson did not reverse-preempt an insurance company’s invocation of arbitration under the Convention Act.

The court also rejected the County’s substantive arguments against arbitration. The County claimed there was no written agreement for arbitration because the County did not sign the arbitral clause – the insurance policy. The court rejected this argument, as the Fifth Circuit has already held that a signature is not required to enforce an arbitration agreement in an insurance policy. The County argued that an insurance policy does not represent a commercial relationship as required by 9 U.S.C. § 2, 202. The court rejected this argument as well, as the insurance policy containing the arbitration agreement arises out of a commercial relationship between the County and its carrier. The parties were directed to arbitration, and any questions as to arbitrability were referred to the arbitrator.

Nueces County, Texas v. Certain Underwriters at Lloyd’s of London, et al., 2:20-cv-00065 (U.S.D. Tex. August 31, 2020)

The Southern District of New York declared that plaintiff Monjasa A/S was not bound by an arbitration agreement to which neither it nor the defendant was a party. The case stems from a fuel delivery contract between two non-parties, Monjasa Lda and Angola de Navegacao Lda (ANNA). The contract called for Monjasa Lda to supply fuel to a ship known as the BBC Scotland. Monjasa Lda and the plaintiff are wholly separate subsidiaries of Monjasa Group. The defendant underwrote an insurance policy covering the BBC Scotland and its owner. The dispute arose after the BBC Scotland collided with and damaged the Golden Oak, a fuel tanker that Monjasa Lda arranged under the fuel contract, forcing Monjasa Lda to send a different tanker – the Duzgit Venture – to complete the delivery.

Subsequently, various parties – excluding the plaintiff – engaged in settlement discussions regarding the damage to the Golden Oak. The defendant, as insurer for the BBC Scotland parties, ultimately funded the settlement, after which it sent an arbitration demand to the plaintiff seeking reimbursement. According to the defendant, the plaintiff was liable for the settlement and subject to arbitration based on the general Monjasa Group terms and conditions incorporated by reference in the Monjasa Lda/ANNA contract. As support, the defendant cited a reference on the fuel delivery receipt issued by the Duzgit Venture stating that the sale was “governed by terms and conditions between Vessel and Monjasa A/S, acting as principal.” The plaintiff responded by filing this action.

Because there was no dispute that the plaintiff and the defendant were not parties to the contract between Monjasa Lda and ANNA, the district court found that the plaintiff could only be bound by its terms under agency principles. In that regard, the court ruled that the defendant failed to prove that Monjasa Lda was acting with actual or apparent authority to bind the plaintiff when it contracted with ANNA. The court also found that it was the defendant’s burden to prove that it was entitled to enforce a contract to which it was not a party. Although acting as subrogee of the BBC Scotland’s owner, the court found no connection between the owner of the BBC Scotland and the fuel delivery contract. Further, the court held that no reasonable fact-finder could conclude that the owner of the BBC Scotland was a third-party beneficiary of the contract. Accordingly, the court granted the plaintiff’s motion for summary judgment and denied the defendant’s cross-motion to compel arbitration, finding that the defendant had no basis to invoke the arbitration clause in the first instance.

Monjasa A/S v. Mund & Fester GmbH & Co. KG, No. 1:19-cv-06143 (S.D.N.Y. Aug. 6, 2020).