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Eighth Circuit Rejects Claim That Arbitration Clause in Retainer Was Unconscionable

December 10, 2019 by Brendan Gooley

The Eight Circuit has rejected a plaintiff’s claim that an arbitration clause in a retainer agreement she signed with a law firm after receiving a call from a purported agent of the firm informing her of a purported life-threatening medical condition was unconscionable.

Allegedly, someone acting on behalf of McSweeney Langevin LLC, a law firm, called Jerri Plummer and told her that there was a life-threatening issue with the transvaginal mesh that had previously been implanted in her. The caller also told Plummer that the caller could arrange for Plummer to have the mesh surgically removed and could set Plummer up with an attorney to seek compensation for her surgery. As a result, Plummer signed a retainer agreement with McSweeney Langevin and underwent the surgery. According to Plummer, the surgery was less than successful. She sued an array of defendants, including McSweeney Langevin.

McSweeney Langevin sought to compel arbitration pursuant to the retainer agreement Plummer signed. The district court, applying the law of Washington, D.C., concluded that the arbitration agreement was unconscionable and refused to compel arbitration.

On appeal, the Eighth Circuit reversed and remanded.

The court noted that under D.C. law, an agreement must generally be both substantively and procedurally unconscionable to be unenforceable, but that in an egregious situation, it is sufficient for an agreement to be procedurally unconscionable alone.

With respect to substantive unconscionability, the Eighth Circuit allowed McSweeney Langevin to cure the district court’s finding that the agreement was unconscionable because Plummer could not afford to pay the costs of arbitration by volunteering to pay her costs. The court relied on several federal court decisions applying D.C. law that had similarly allowed litigants seeking to compel arbitration to cure substantive unconscionability by covering costs.

The court therefore turned to procedural unconscionability, noting that Plummer faced an uphill battle to establish that the retainer agreement was unconscionable in light of the fact that it was not substantively unconscionable. On the whole, the Eight Circuit concluded that the retainer was not procedurally unconscionable. The retainer agreement was sent to Plummer more than a month after the initial call she received regarding her mesh. The agreement informed Plummer that she had the “freedom to contract” by bargaining for certain terms in the agreement. The retainer was six pages long (including a nearly full-page signature page) and was easy to read. The fact that it was marked urgent and was sent shortly before Plummer’s surgery was not sufficient, considering all the facts, to render the agreement procedurally unconscionable.

Despite acknowledging that the circumstances that gave rise to this lawsuit were “troubling,” the Eighth Circuit determined that the retainer agreement was not procedurally unconscionable. It therefore reversed the district court’s decision.

Finally, the Eighth Circuit also rejected Plummer’s contention that the retainer agreement was unenforceable because McSweeney Langevin violated ethical obligations by failing to explain the ramifications of the arbitration provision to Plummer. The court assumed that the retainer agreement would be unenforceable if the attorneys have violated ethical obligations, but concluded that no such violations occurred. The agreement informed Plummer of the basic consequences of the arbitration clause. It conspicuously noted, among other things, that Plummer was waiving her right to a jury and a judicial appeal and that arbitration was her only recourse.

Plummer v. McSweeney, No. 18-3059 (8th Cir. Oct 23, 2019).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

Ninth Circuit Affirms Summary Judgment in Favor of Boeing and District Court’s Application of Swedish and U.K. Law

December 9, 2019 by Nora Valenza-Frost

The parties entered into a joint venture to launch commercial satellites into space from an ocean platform, which venture ultimately failed. As a result of certain guarantees, Boeing paid $449 million to cover loans made to the venture, which the defendants refused to reimburse as required by the parties’ contracts. Boeing successful moved for summary judgment, to which the district court applied both Swedish and U.K. law.

The circuit court affirmed the district court’s order granting summary judgment, and also affirmed the lower court’s decision denying the defendants’ motion for a stay in favor of Swedish arbitration. Only some of the claims at issue were referable to Swedish arbitration (and not those involving the guaranty). Moreover, the defendants had previously taken the position that the Swedish arbitrator lacked jurisdiction over Boeing’s claims, which was inconsistent with its right to arbitration and constituted a waiver of that right.

Boeing Co. v. KB Yuzhnoye, No. 18-55283 (9th Cir. Nov. 12, 2019).

Filed Under: Arbitration / Court Decisions, Contract Interpretation

U.S. District Court for the District of Maryland Confirms Arbitration Award

December 5, 2019 by Carlton Fields

Plaintiff David Balch entered into a contract with Oracle Corp. to close a large government contract known as the “Mega Deal.” After closing the Mega Deal, Balch received a bonus that was less than he believed he was owed. Pursuant to the contract, Balch initiated an arbitration proceeding against Oracle to resolve the dispute. The arbitrator issued an award in favor of Oracle.

Balch filed a petition to vacate the award in a Maryland state court. Oracle removed to the U.S. District Court for the District of Maryland and filed a motion to confirm the award. The district court explained that an award can only be vacated on four narrow grounds set out in 9 U.S.C. § 10. Section 10 allows for vacating an award (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or misconduct on the part of the arbitrator; or (3) where the arbitrator exceeded his or her powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. In addition, a court may overturn a legal interpretation of an arbitrator if it is “in manifest disregard of the law.”

The court ruled in favor of Oracle and confirmed the award. The court reasoned that the arbitrator did not fail to follow the essence of the contract. The court further explained that the arbitrator “had full discretion to determine the case on summary judgment … and the arbitrator otherwise afforded Mr. Balch a full and fair hearing through extensive briefing and discovery.” Lastly, the court held that the arbitrator did not act in manifest disregard of the law because the arbitrator identified the controlling principles of the Maryland Wage Payment and Collection Law, reasonably determined that an ambiguity existed in the application of the law to apposite cases, and heeded the legal principles laid out in the cases he perceived to be correct and on point.

Balch v. Oracle Corp., No. 1:19-cv-01353 (D. Md. Nov. 15, 2019).

Filed Under: Arbitration / Court Decisions

District Court Confirms $220 Million Award, Finds No Manifest Disregard of Law

December 4, 2019 by Alex Silverman

The Seneca Nation of Indians moved under Section 10 of the Federal Arbitration Act (FAA) to vacate certain arbitration awards issued in favor of the state of New York, finding that Seneca must pay the state millions in revenue-sharing pursuant to an exclusive gaming compact. The issue before the Western District of New York was whether the awards “manifestly disregarded” the Indian Gaming Regulatory Act (IGRA). The state cross-moved to confirm.

At the outset, Seneca’s petition to vacate was deemed timely. The court ruled that a partial award issued by the panel regarding liability only was not “final” and thus did not trigger the three-month filing period for a petition to vacate an arbitral award, as the partial award did not “definitively resolve” all the issues submitted to arbitration. The state relied on a Second Circuit decision finding a partial award to be “final” under the FAA, but the court found the case to be factually distinguishable here. Nonetheless, both the partial and final awards were confirmed. First, the court found no statutory basis for vacatur pursuant to Section 10 of the FAA. It also found no basis for vacating the awards based on a manifest disregard of the law, noting that the extreme deference afforded to arbitration awards “essentially bars review of whether an arbitrator misconstrued a contract.” Citing a recent decision by the Second Circuit and applying a two-step analysis, the court agreed with the state that this is not one of the “exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent,” as is required for a finding of “manifest disregard.” As such, Seneca’s petition to vacate was denied, and the state’s cross-petition to confirm was granted.

Seneca Nation of Indians v. State of N.Y., No. 1:19-cv-00735 (W.D.N.Y. Nov. 8, 2019).

Filed Under: Arbitration / Court Decisions

Court Confirms Arbitration Award as Not in Manifest Disregard of the Law

December 3, 2019 by Carlton Fields

Metso Minerals Canada Inc. and Metso Minerals Industries Inc. entered into a contract with ArcelorMittal Exploitation Miniere Canada and ArcelorMittal Canada Inc. to supply a specialized mill to a mining mill that ArcelorMittal operated in Quebec, Canada. The contract contained an arbitration clause requiring the parties to submit all disputes arising from the contract to arbitration. ArcelorMittal initiated an arbitration proceeding asserting causes of action under Quebec law, including contract-based claims and a claim for breach of the duty to inform. The breach-of-duty-to-inform claim was based on the allegation that Metso knew of a potential defect in the mill but did not inform ArcelorMittal.

The panel granted an award in favor of Metso stating that the mill met the design criteria in the contract, and therefore a duty to inform about possible defects was meaningless. Metso moved to confirm the arbitration award against ArcelorMittal, and ArcelorMittal cross-moved to vacate the award. The court confirmed the award. The court explained that courts may vacate an arbitration award on four narrow grounds under 9 U.S.C. § 10. In addition, an award can be vacated for “manifest disregard of the law.” “Manifest disregard” is one of “last resort” and is limited to “exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent.” In evaluating a motion to vacate an award based on manifest disregard of the law, a court looks to three questions: (1) whether the law that was allegedly ignored was clear and explicitly applicable to the matter before the arbitrator; (2) whether the applicable law was in fact improperly applied resulting in an erroneous outcome; and (3) whether the arbitrator intentionally disregarded the law. The court explained that despite the fact that the law regarding the duty to inform was potentially unclear, it was plausible for the panel’s majority to find that the undisclosed risks ArcelorMittal identified were insufficiently important to warrant disclosure and that the only facts Metso had to disclose were those regarding whether the mill could meet contractual design criteria and fulfill ArcelorMittal’s expectations under the contract. As such, the court confirmed the award in favor of Mesto.

Metso Minerals Canada, Inc. v. ArcelorMittal Exploitation Miniere Canada, No. 1:19-cv-03379 (S.D.N.Y. Nov. 4, 2019).

Filed Under: Arbitration / Court Decisions

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