Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Fourth Circuit Holds That District Court Lacks Jurisdiction to Confirm Arbitration Award

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The Fourth Circuit Court of Appeals recently held that a district court lacked jurisdiction to confirm an arbitration award because the court did not have an independent basis for jurisdiction on the face of the application and could not “look through” to see if it had such jurisdiction.

An arbitration panel issued an award in favor of SmartSky Networks LLC. SmartSky moved to enforce that award. The district court confirmed the award and the parties who lost the arbitration appealed to the Fourth Circuit. They claimed that the district court lacked subject matter jurisdiction to confirm the award under the U.S. Supreme Court’s 2022 decision in Badgerow v. Walters, which held that to enforce or vacate an arbitration award under Sections 9 or 10 of the Federal Arbitration Act, a court “must have a basis for subject matter jurisdiction independent from the FAA and apparent on the face of the application” (i.e., the court cannot “look through” to see if it has jurisdiction in applications under Sections 9 or 10).

The Fourth Circuit agreed that the district court lacked jurisdiction:

At the time the parties filed their respective Section 9 and 10 applications, they were no longer litigating over their fraught business relationship — those issues and claims had been resolved by the Tribunal. Instead, the parties’ dispute focused on the enforceability of the arbitral award. To find it had jurisdiction over what was in essence a contract dispute among the parties, the district court had to “look through” to the civil lawsuit and determine that a federal claim existed.

The Fourth Circuit explained that the district court could not do that under Badgerow.

The Fourth Circuit also rejected SmartSky’s argument that the district court had jurisdiction because it had stayed the action pending arbitration and therefore retained jurisdiction. The court explained: “Section 8 [of the FAA] is the only section that expressly provides that a district court may ‘retain’ jurisdiction to enforce, vacate, or modify an award. Sections 9 and 10 do not contain such language and … do not provide any escape from Badgerow’s holding that there must be an independent basis for subject matter jurisdiction for applications.”

SmartSky Networks, LLC v. DAG Wireless, Ltd., No. 22-1253 (4th Cir. Feb. 13, 2024).

D.C. Circuit Affirms Decision Vacating and Remanding Arbitration Decision

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The D.C. Circuit Court of Appeals recently affirmed a district court’s decision to vacate and remand an arbitration decision in a case concerning companies’ withdrawal from a retirement fund.

For many years, various companies made contributions on behalf of their employees to the IAM National Pension Fund. Several of those companies decided to withdraw from the fund, however. Pursuant to the Multiemployer Pension Plan Amendments Act (MPPAA), the employers had to pay fees associated with their withdrawal. The fees were calculated by an actuary. Under the MPPAA, employers who seek to challenge the fees assessed must do so through arbitration. In this case, several employers initiated arbitration to dispute the fees.

The arbitrator concluded that the fund “erred in its calculations” by using certain assumptions and issued an array of other rulings. The fund sought to confirm in part and vacate in part the arbitrator’s award. The district court vacated the arbitration award and remanded the case to the arbitrator after ruling, in relevant part, that the actuaries had broader discretion to make assumptions that the arbitrator had concluded. The fund and several companies appealed.

The D.C. Circuit affirmed, holding that the district court “correctly found that the arbitrator erred in concluding that an actuary must use” certain assumptions and methods as of a particular date “when calculating withdrawal liability” under the MPPAA.

Trustees of the IAM National Pension Fund v. M&K Employee Solutions, LLC, No. 22-7157 (D.C. Cir. Feb. 9, 2024).

Ninth Circuit Compels Arbitration of Plaintiff’s Individual Labor Claims Under PAGA, Remands Non-Individual Claims

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In Johnson v. Lowe’s Home Centers LLC, the Ninth Circuit Court of Appeals affirmed a district court order granting defendant Lowe’s motion to compel arbitration of plaintiff Maria Johnson’s individual claims brought under California’s Private Attorneys General Act (PAGA) and remanded the district court’s dismissal of her non-individual claims for further consideration.

In connection with her employment with Lowe’s Home Centers, Johnson signed a contract that included a mandatory arbitration agreement in which she agreed that any controversy arising from her employment would be settled by arbitration. The contract also included a provision known as a “representative action waiver,” which barred the arbitration of disputes brought as a representative action or an action brought as a private attorney general action under PAGA. As the court explained, an “individual” PAGA claim asserts violations of California labor laws that impact the claimant personally, while a “representative” or “non-individual” PAGA claim is based on violations that impact other employees.

In November 2020, Johnson filed an action in California state court alleging individual and non-individual PAGA claims. Lowe’s removed the case to federal court and moved to compel arbitration of Johnson’s individual claim and to dismiss her non-individual PAGA claim. The district court granted Lowe’s motion in its entirety. The Ninth Circuit noted the district court’s dismissal of Johnson’s non-individual PAGA claims was consistent with California law as then interpreted by the U.S. Supreme Court in 2022 in Viking River Cruises Inc. v. Moriana, which interpreted a prior California Supreme Court decision as holding that pre-dispute waivers of both individual and non-individual PAGA claims were forbidden under California law and that “PAGA requires joinder of individual and non-individual claims, such that both claims must be tried in the same forum.” While Johnson’s appeal of the district court’s order granting Lowe’s motion was pending, the California Supreme Court issued its opinion in 2023 in Adolph v. Uber Technologies Inc. The Ninth Circuit noted that in Adolph, the California Supreme Court “corrected Viking River’s misunderstanding of PAGA,” holding that “[o]nly if there has been a final determination that the plaintiff’s arbitrated individual PAGA claim is without merit does the plaintiff lose statutory standing under PAGA to pursue his or her non-individual PAGA claims in court.”

With that backdrop, the Ninth Circuit then addressed whether the district court’s order compelling Johnson to arbitrate her individual PAGA claims was proper, and the impact of the Adolph decision on Johnson’s non-individual PAGA claims. The court concluded that the arbitration agreement between the parties, which included a severability clause, was valid and encompassed the claims at issue in the case. The court affirmed the district court’s order granting Lowe’s motion to compel Johnson to arbitrate her individual PAGA claims. In addressing the dismissal of the non-individual claims, the court vacated the order and remanded the non-individual claims to the district court to apply the California Supreme Court’s recent holding in Adolph, noting that Adolph held that “a plaintiff in a bifurcated representative PAGA claim still has statutory standing” … and that “[s]tanding under PAGA is not affected by enforcement of an agreement to adjudicate a plaintiff’s individual claim in another forum.”

Johnson v. Lowe’s Home Centers, LLC, No. 22-16486 (9th Cir. Feb. 12, 2024).

New Jersey Supreme Court Reinstates Arbitrator’s Decision Demoting School Official

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Under New Jersey’s Tenure Employees Hearing Law, when a school district files tenure charges against an employee, the state commissioner of education must refer the case to arbitration if he or she determines that the charges are “sufficient to warrant dismissal or reduction in salary of the person charged.” Amada Sanjuan, an assistant principal, was charged with “conduct unbecoming” after lying about the cause of a fall she had taken down a flight of stairs, which was caught on a security camera. The commissioner referred the case to arbitration, and, after a hearing, the arbitrator determined that Sanjuan should be demoted and reinstated without back pay.

Sanjuan filed a complaint seeking to vacate the arbitration award against her and to be reinstated as a tenured administrator with back pay. She argued that New Jersey law limited the possible penalties an arbitrator could impose to termination or a reduction of salary. Sanjuan argued that demotion was not an available penalty, and because the arbitrator had already heard and decided against termination, the arbitrator was collaterally estopped from firing her upon rehearing. The trial court ruled against Sanjuan, but the Appellate Division reversed.

On appeal, the New Jersey Supreme Court determined that the law limited the matters that could be referred to an arbitrator to those that could merit termination or a reduction in salary, but the law did not limit the arbitrator’s power to only those two possible remedies. Rather, the court found that arbitrators traditionally had wide-ranging discretion to fashion an appropriate remedy, and nothing in the law changed or limited that discretion. Nor did any contractual agreement relevant to the matter impose any additional limits on the penalties that the arbitrator could impose. As a result, the arbitrator had the authority to order Sanjuan’s demotion. The Supreme Court reversed and ordered that the arbitrator’s decision be reinstated.

Sanjuan v. School District of West New York, No. 087515 (N.J. Feb. 12, 2024).

Ninth Circuit Upholds Decision Compelling Arbitration Based on Terms of Use in Hyperlinks

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The Ninth Circuit Court of Appeals recently upheld a decision compelling arbitration based on an arbitration provision in website “terms of use,” even though those terms were in a hyperlink.

In Patrick v. Running Warehouse LLC, a group of consumers brought six putative class actions against online sporting goods retailers after their personal information was exposed in a data breach. When purchasing goods from the defendants’ websites, they had to click a button that said “place order” or “submit order.” Next to that button was a statement that read: “By submitting your order you … agree to our privacy policy and terms of use.” The phrase “terms of use” was a hyperlink that led to the defendants’ terms of use, which contained an arbitration provision.

The defendants move to compel arbitration based on the arbitration provision in the terms of use. The district court granted that motion and the plaintiffs appealed to the Ninth Circuit, which affirmed.

The plaintiffs primarily argued that the websites provided insufficient notice of the arbitration provisions. The Ninth Circuit rejected that argument. It noted that inquiry notice was sufficient as long as “the website provides reasonably conspicuous notice of the terms to which the consumer will be bound; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms.” The court noted that hyperlinks can satisfy that standard as long as they are “displayed in a font size and format such that the court can fairly assume that a reasonably prudent Internet user would have seen it.” The defendants’ hyperlinks satisfied that standard because, for example, the notice was prominently displayed on an uncluttered page, clear and legible, and the “terms of use” hyperlink, colored bright green, was easily distinguishable and clearly clickable, resembling other links on the page.

The Ninth Circuit distinguished those facts from a case in which it recently held that there was insufficient inquiry notice because the “terms and conditions” in that case were printed in a tiny gray font much smaller than surrounding website elements, it was “barely legible to the naked eye.”

The Ninth Circuit also rejected the plaintiffs’ arguments that the arbitration provisions were invalid under California law and that they were unconscionable. The court further held that the parties delegated the question of arbitrability by invoking JAMS’ rules, which provide that arbitrability disputes are for the arbitrator, not the court.