Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SDNY Grants Motion to Compel Arbitration, Directs Arbitrability Issue to Arbitrators

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PB Life and Annuity Co. Ltd. sought a judgment that its dispute with Universal Life Insurance Co. was subject to litigation, not arbitration. In response, Universal Life moved to compel arbitration, and PB Life sought a permanent injunction. The motions required interpreting two related agreements – a coinsurance reinsurance agreement, and a trust agreement created pursuant to the reinsurance agreement. An arbitration clause in the reinsurance agreement applied to “all disputes … arising under or relating” to the reinsurance agreement. The trust agreement contained a forum-selection clause requiring the parties to litigate disputes in New York City. PB Life claimed that the underlying dispute was governed solely by the trust agreement and its forum-selection clause.

The court first addressed whether a valid arbitration agreement existed in the first instance and concluded there was. In doing so, it rejected PB Life’s contention that the trust agreement superseded the reinsurance agreement and its arbitration clause because, among other reasons, the very operation of the trust agreement depended on the continued existence of the reinsurance agreement. Any contrary interpretation, the court ruled, would produce a result that is “absurd, commercially unreasonable, or contrary to the reasonable expectation of the parties.” In addition, while the substance of the parties’ dispute was contemplated by both the reinsurance agreement and the trust agreement, the court found that the question of “arbitrability” – whether the dispute was governed by the arbitration clause or the forum-selection clause – was for the arbitrators to decide based on the relevant contract language. Accordingly, the court granted Universal Life’s motion to compel, denied PB Life’s motion for a permanent injunction, and stayed the action pursuant to section 3 of the Federal Arbitration Act.

PB Life & Annuity Co. Ltd. v. Universal Life Ins. Co., No. 1:20-cv-02284 (S.D.N.Y. May 12, 2020).

Eleventh Circuit Partially Reverses District Court Decision Denying Motion to Compel Arbitration Upon Application of Mailbox Rule

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In Mason v. Midland Funding, plaintiffs Mason and Burnett brought an action against a debt collector and its subsidiaries claiming that they violated the Fair Debt Collection Practices Act by allegedly filing lawsuits to collect on unpaid debts even though they knew the debts were “uncollectable.”

The defendants filed a motion to dismiss, which was denied by the U.S. District Court for the Northern District of Georgia. The defendants then filed a motion to compel arbitration, seeking to hold Mason and Burnett to arbitration agreements that the defendants claimed Mason and Burnett agreed to when they obtained credit accounts online, which was ultimately denied. The defendants then filed an interlocutory appeal with the Eleventh Circuit.

The crux of the interlocutory appeal turned on whether Mason and Burnett agreed to arbitrate. The defendants claimed that as part of opening the credit card account, Mason agreed to arbitrate by assenting to a clickwrap agreement that was part of his online application. The defendants also argued that Mason was mailed a welcome packet containing the agreement, along with the credit card, which he used upon receipt.

In support of these arguments, the defendants cited a declaration from the original creditor. The court found that the declaration neither showed the actual application form that Mason filled out and agreed to online nor demonstrated that the online application contained an arbitration provision. Thus, the Eleventh Circuit had no evidence that Mason saw and was required to agree to the arbitration provision when applying.

Although the defendants claimed that the agreement was also mailed to Mason, the Eleventh Circuit rejected the defendants’ application of the “mailbox rule,” finding that they failed to present any “competent evidence” proving they knew that the agreement had been mailed. The court, therefore, affirmed the lower court’s denial of the defendants’ motion to compel arbitration as to Mason.

Conversely, as to Burnett, the Eleventh Circuit found that the defendants provided a much more definitive declaration, which was sufficient to trigger the mailbox rule’s presumption that Burnett received the agreement, including the arbitration agreement contained within it. Thus, the Eleventh Circuit reversed the district court’s denial of the motion to compel arbitration as to Burnett.

Mason v. Midland Funding LLC, No. 18-14019 (11th Cir. May 13, 2020).

Fifth Circuit Affirms Order Denying Motion to Compel Against Non-Signatories to Arbitration Agreement

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The Fifth Circuit Court of Appeals affirmed a district court order denying the plaintiff’s motion to compel arbitration against two non-signatories to the relevant contract. The plaintiff was issued a credit card by defendant Regions Bank. The credit card agreement contained an arbitration clause that the plaintiff relied on in seeking to compel arbitration of his claims against two of the three major credit bureaus, neither of which was a signatory to the credit card agreement. The district court denied the plaintiff’s motion and the Fifth Circuit affirmed. The court found that neither of the credit bureau defendants had claims against either of the parties to the arbitration agreement – the plaintiff and Regions Bank – and that the agreement did not contemplate the consolidation of third-party claims under present circumstances. Thus, applying Alabama law, the court held that the credit bureau defendants could not be compelled to arbitrate the plaintiff’s claims against them as they were neither expressly nor implicitly parties to the credit card agreement and were not otherwise third-party beneficiaries to it.

Patel v. Regions Bank, No. 19-30582 (5th Cir. Apr. 21, 2020).

Illinois Federal Court Finds Shutterfly User Must Arbitrate Illinois Biometric Privacy Claim Even Though Shutterfly Unilaterally Amended Its Arbitration Clause

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Plaintiffs Vernita Miracle-Pond and Samantha Paraf, each Shutterfly users with a Shutterfly account, sued defendant Shutterfly Inc., on behalf of themselves and similarly situated Shutterfly users, under the Illinois Biometric Information Privacy Act (BIPA) claiming that Shutterfly violated BIPA by using facial-recognition technology to extract biometric identifiers for “tagging” individuals and by “selling, leasing, trading, or otherwise profiting from Plaintiffs’ and Class Members’ biometric identifiers and/or biometric information.” Shutterfly moved to compel arbitration for Miracle-Pond and to stay the litigation pending the outcome of the arbitration.

The court first analyzed whether Miracle-Pond agreed to the terms of use in 2014. Miracle-Pond argued that she did not assent to Shutterfly’s terms of use when she formed her Shutterfly account because the terms of use are a “browsewrap” agreement, and thus she merely agreed that her use of Shutterfly’s website and services would comply with the terms of use, not that she would be bound by them. The court rejected that argument, finding that Shutterfly’s agreement was a valid “clickwrap agreement” as Shutterfly’s page presented the terms of use for viewing, stated that clicking “accept” would be considered acceptance of the terms of use, and provided both an “accept” and “decline” button. “Because Shutterfly’s ‘app contained a clear and conspicuous statement that … a user agreed to the Terms of Service and Privacy Policy’ by clicking a link or pressing a button,” the court found that a reasonable user who completes that process would understand that he or she was manifesting assent to the terms. Miracle-Pond, therefore, agreed to be bound by Shutterfly’s terms of use.

Notably, the terms of use accepted by Miracle-Pond in 2014 did not contain an explicit arbitration provision. Rather, Shutterfly added an arbitration provision to its terms of use in May 2015. Thus, Miracle-Pond argued that even if a contract was formed between the parties, there was no valid agreement to arbitrate because: (1) arbitration clauses subject to unilateral modification are illusory; (2) Miracle-Pond could not have assented to the arbitration provision because Shutterfly failed to provide notice of the 2015 modification; and (3) arbitration clauses that apply retroactively are unenforceable.

The court found that in 2014, Miracle-Pond entered into a service contract that explicitly gave Shutterfly the right to modify the agreement unilaterally at any time and without notice, other than posting the modified terms on its website. Shutterfly posted the modified terms of use on its website in May 2015, and Miracle-Pond indicated her acceptance to the modified terms of use by continuing to use Shutterfly products. The court rejected Miracle-Pond’s arguments regarding lack of notice and held that Miracle-Pond was bound by the 2015 modifications to the terms of use.

In September 2019, about three months after Miracle-Pond filed this lawsuit, Shutterfly sent an email to all of its users nationwide, which notified Shutterfly users that the terms of use had been updated. Miracle-Pond argued that the September 2019 email “was an improper ex parte communication with Plaintiff and putative class members because it failed to advise them of the pending litigation while seeking to deprive them of their rights as plaintiffs or class members” and that a new agreement to arbitrate could not apply retroactively to her claims. The court rejected her argument and found that she was bound by the 2015 modification and therefore agreed to arbitrate her claims in 2015 – well before she filed this lawsuit.

Lastly, Miracle-Pond argued that even if the arbitration clause was valid, plaintiffs cannot waive their right to class arbitration of their claim for an injunction under California’s McGill rule, which provides that plaintiffs cannot waive their right to public injunctive relief in any forum, including in arbitration. But the court found that the plaintiffs’ substantive claim arose under an Illinois statute – BIPA – not under the consumer protection laws of California, making the McGill rule inapplicable to the arbitration agreement in this case.

Accordingly, the court granted Shutterfly’s motion to compel arbitration for Miracle-Pond and stay the proceedings.

Miracle-Pond v. Shutterfly, Inc., No. 1:19-cv-04722 (N.D. Ill. May 15, 2020).

Third Circuit Affirms Denial of Motion to Compel Car Rental Class Action to Arbitration Based on Insufficiently Incorporated Arbitration Provisions

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Seven plaintiffs filed a putative class action against a car rental company and its subsidiary for allegedly unauthorized charges incurred when the plaintiffs rented cars from the company. The car rental companies moved to compel the plaintiffs to arbitrate their claims under the Federal Arbitration Act based on an arbitration clause that, for six out of the seven plaintiffs (the “U.S. plaintiffs”), was located on the paper jacket into which rental associates folded the car rental agreement, and for the seventh plaintiff (the “Costa Rica plaintiff”), was located on the back of the agreement.

Each U.S. plaintiff signed below the final paragraph on the agreement, which provided: “I agree the charges listed above are estimates and that I have reviewed & agreed to all notices & terms here and in the rental jacket.” The rental associates, however, were not trained to alert customers to the additional terms in the rental jacket, and the rental associates did not say anything about the rental jacket when the U.S. plaintiffs reviewed their agreements. Additionally, five U.S. plaintiffs used websites to reserve their car rentals, each of which had terms of use that included an arbitration provision. Regarding the agreement signed by the Costa Rica plaintiff, the front and back sides of the document both had signature lines, but the Costa Rica plaintiff signed only the front.

The district court denied the car rental companies’ motion to compel arbitration. The court found: (1) the U.S. plaintiffs did not assent to the arbitration provision in the rental jacket; (2) the record was not sufficiently developed with respect to the arbitration clause on the websites; and (3) a disputed factual issue existed as to whether the Costa Rica plaintiff was on reasonable notice of the arbitration provision.

On appeal, the Third Circuit found that it possessed jurisdiction over all three of the above issues under the FAA. The Third Circuit then determined that the rental car companies failed to demonstrate that the rental jacket containing the arbitration provision was incorporated into the U.S. agreements based on applicable state contract law. The agreement did not define or clearly describe the rental jacket, and there was no evidence that the plaintiffs were aware of the arbitration provision before they executed the agreement.

The court also rejected the defendants’ arguments that the plaintiffs who booked online agreed to each website’s terms of use and arbitration provision or that the district court erred in excluding unauthenticated evidence concerning the websites. Finally, the court affirmed the district court’s ruling that genuine issues of material fact existed as to whether the Costa Rica plaintiff had reasonable notice of the arbitration provision on the back of the car rental agreement. The court noted that the front side of the agreement did not direct the customer to the back of the agreement (containing the arbitration provision) or inform the customer of the terms. The Third Circuit therefore affirmed the district court’s refusal to compel arbitration.

Bacon v. Avis Budget Group, Inc., No. 18-3780 (3d Cir. May 18, 2020).