The goal of “ADR Highlights” is to flag new cases which might be useful to practitioners thinking about a particular issue. Today’s offering out of the Fourth Circuit on “infinite” arbitration clauses, Revitch, is a case that everyone in the field should read for the sheer beauty of two judges’ different analyses of the same arbitration agreement. While most of the highlighted cases each issue come from the arbitration side of ADR, today we hear from the mediation team as a Bankruptcy Court discusses when a case is ripe for mediation. Since there was no “Highlights” on Wednesday, there many more new cases to consider for today’s issue, so we are closing with some “Quick Hits” – short descriptions of cases dealing with narrow issues, but of interest to those with the question on their desk or mind.
Infinite Arbitration Agreements
In Revitch v. DIRECTV, 2020 U.S. App. LEXIS 31056 (9th Cir.) (Sept. 30, 2020), Plaintiff alleges, in a purported class action, that DIRECTTV violated the Telephone Consumer Protection Act by making unsolicited marketing calls for the purchase of satellite television services. The opinion resolves Mobility’s application to compel arbitration of that dispute. The issue considered by the court arises out of the intersection between Mobility’s 2015 acquisition of DIRECTV and the arbitration clause in Revitch’s 2011 contract for the upgrade of his Mobility phone service. That agreement mandated arbitration of “all disputes and claims” between Revitch and Mobility, including claims with Mobility’s “affiliates.” The question before the court was whether DIRECT TV, a company acquired by Mobility seven years after the Revitch arbitration agreement and in a different line of business from the product he purchased (wireless communications v. satellite tv), was covered by that agreement as an “affiliate” of Mobility.
Writing for the Court and joined by Judge McKeown, Judge O’Scannlain, views the question as one of contract formation and applies California law. To determine that substantive law, he relies upon Kashmiri v. Regents of Univ. of Cal., 67 Cal. Rptr 3d 635 (Ct. App. 2007), which holds that the court is to limit itself to the four corners of the contract if the “contract language is clear and explicit and does not lead to absurd results,” (Emphasis added in the Revitch opinion). Applying that “absurd results” language, the Court holds that the Revitch could not reasonably have expected that, by signing an agreement with Mobility, he would be forced to arbitrate a dispute unrelated to wireless service with an entity which did not become affiliated with his counterparty until years after he entered that arbitration agreement. Thus, the Court distinguishes this agreement from a hypothetical one which would have provided for arbitration with “any affiliates, both present and future,” and which it agrees “might” have led to a different result. The court recognizes that its holding here is in direct conflict with the Fourth Circuit’s holding in Mey v. DIRECTV, 971 F.3d 284 (4th Cir. 2020), which interprets the identical Mobility form language to require arbitration of claims with DIRECTTV. It also addresses a potential conflict between the Revitch holding and SCOTUS’s judgment in Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), which held that another California rubric of contract interpretation – the interpretation of a contract against the drafter – could not be used as a substitute for determining the intention of the parties. In distinguishing Lamps Plus, the Court opines that is using the “absurd results” canon to determine the intent of the parties, whereas the principle at issue before SCOTUS substituted a rule of law for such a determination.
Accordingly, the court holds that Revitch need not arbitrate his DIRECTTV claim and affirms the District Court’s denial of the defendant’s motion to compel arbitration.
In addition to writing for the court, Judge O’Scannlain writes a separate concurrence in which Judge McKeown does not join, opining that, in addition to the absence of the formation of a contract which is the basis for the court’s main opinion, Plaintiff’s dispute about phone calls in violation of the TPCA is non-arbitrable as it falls outside the scope of the agreement. Section 2 of the Federal Arbitration Act authorizes a court to order arbitration under a written agreement or contract to settle by arbitration a controversy thereafter “arising out of such contract or agreement.” (Emphasis added) Judge O’Scannlain treats this as a prohibition against a court ordering arbitration of claims not so arising. Viewing the satellite television services which DIRECTV sought to sell during the unsolicited phone call as “completely unrelated to the underlying contract or transaction” for the wireless telephone services originally purchased by Revitch, Judge O’Scannlain opines that the court does not have the authority to order arbitration thereof. A thought – while Judge O’Scannlain couches his opinion as one about court power, might it also be viewed as an argument about the scope of the clause which should be resolved by the arbitrator, not the court, due to the broad nature of the arbitration clause between Mobility and Revitch?
In dissent, Judge Bennett takes two tacks. First, he opines that “affiliates,” as used in the agreement, has no temporal limitation and, therefore, includes DIRECTV, regardless of when Mobility acquired it. Looking at other language within the agreement, such as its reference to “predecessors in interest” and “successors and assigns,” Judge Bennett would hold that there is no time limitation circumscribing the definitions contained in the agreement. In addition, he opines that the invocation of the “absurd-results” canon violates the requirements of Lamps Plus, as he finds no ambiguity in determining the parties’ intent to require arbitration with all affiliates; thus, calling upon the rubric substitutes a judicial incantation for the necessary effort to determine the intent of the parties.
These opinions are literal encyclopedias of authorities from federal and California courts on the interpretation and scope of arbitration agreements. They are well-written and, despite their varying results, expertly reasoned. All three opinions should be read, studied, and saved as a resource.
Two interesting issues to consider. First, since there is now a direct split between the Fourth and Ninth Circuits on the scope of the same Mobility arbitration clause, will SCOTUS have an opportunity to consider this case as a vehicle to elucidate and determine the limits of the Lamps Plus doctrine? Second, there is often beauty in footnotes. Footnote 4 of the Court’s opinion declines to comment on whatever rights DIRECTV might have under California law, since the motion to compel was brought under the FAA, not the state civil code. I think all of us, in a case with interstate commerce implications and federal subject matter jurisdiction, default to the FAA. This case gives pause to that sometimes unthought through predisposition.
When is Mediation Ripe?
In re: Diocese of Buffalo, 2020 Bankr. LEXIS 2610 (Bank. W.D.N.Y.) (Sept. 11, 2020), a case which was just published, relates to an attempt to force mediation of coverage issues related to a series of sexual abuse cases against the Diocese. The Diocese proposed mediation of those disputes, seeking a “global resolution of the underlying coverage issue.” The Committee and several of the Diocese’s insurers opposed the application, arguing that mediation was premature. The Court denied the application and its rationale serves as a good roadmap for determining when a case is ripe to mediate. First, since the Court was still determining all available insurance coverage, the amount of funds that might be on the table was unknown. Second, as there was not yet a cutoff date for the filing of claims, the size of the cadre of claims on those proceeds could not be determined. Third, the parties had not yet exchanged all necessary information. In fact, only three of eight defendants had filed answers, none of the litigants had filed initial disclosures, and the parties had not commenced discovery. These considerations – knowledge as to the size of the pot, the size and nature of claims against those funds, and at least enough information to weigh the parties’ chances of winning and losing – are also applicable in determining whether it makes sense for parties to engage in private mediation.
Quick hits –
Procedure on a motion to compel
In Noe v. City Nat’l Bank, 2020 U.S. App. LEXIS 31088 (4th Cir.) (Sept. 30, 2020), the Fourth Circuit examines the appropriate procedure to resolve a contested motion to compel arbitration. In reversing the District Court, the court holds in a per curiam opinion that an opposed motion to compel should be treated as a motion for summary judgment and, if there is a contested issue of fact, a full evidentiary hearing is required.
Stay of an application to enforce an ICSID award
9ren Holding S.A.R.L. v. Kingdom of Spain, 2020 U.S. Dist. LEXIS 180117 (D.D.C.) (Sept. 30, 2020) arises from an action to enforce a €41 Million arbitration award against Spain issued by the International Centre for Settlement of Investment Disputes (“ICSID”). Spain moved to stay the proceedings, pending the ICSID’s resolution of the nation’s petition to annul the arbitral proceedings. Plaintiff argued that the ICSID’s rules did not provide for such stays. The court held that it had authority to resolve Spain’s motion based upon its “inherent” powers. Considering the balance of harms and the court’s reluctance to wade into “intricate questions regarding the validity of arbitration agreements with EU member states under EU law,” it held that the stay motion should be granted, but that the court would monitor the ICSID proceedings to make sure the matter was not unduly delayed.
While we are all probably getting tired of click wrap, browsewrap, and shrinkwrap arbitration agreements, Anderson v. Amazon, 2020 U.S. Dist. LEXIS 179276 (M.D. Tenn.) (Sept. 29, 2020) is worth reading by anyone seeking to defend an arbitration agreement disclosed in that format. The court, Richardson, J., upholds a click wrap agreement set forth on pages sixteen and seventeen of a seventeen-page boilerplate agreement, which was accessed by a hyperlink above the “Place Order” icon. Similar processes have been criticized in cases in earlier “Highlights.” This opinion contains a good compendium of “wrap” cases in several jurisdictions.
Abary v. BMW of N. Am, 2020 U.S. Dist. LEXIS 181372 (N. D. Cal.) (Sept. 29, 2020) raises issues regarding the waiver of a right to compel arbitration. Without finding it necessary to determine whether the auto manufacturer is a beneficiary of the arbitration clause between the dealer and the customer, the court holds that BMW waived any right it may have had to require arbitration by participating actively in litigation before raising the issue. According to Judge Donato’s opinion, BMW filed two motions to dismiss (along with 610 pages of exhibits), participated in case management conferences and filed a joint case management statement, in which it represented that the case “was not suitable for reference to binding arbitration.” Defendant first sought arbitration only after its motion to dismiss was denied. The lesson – raise arbitration early, even if, at the same time, you ask the court to resolve a motion to dismiss on the merits.
Have a good weekend. For those of us here in the Northeast, the weather is turning and the leaves are changing. So, New Englanders, get in those fall rounds of golf; spend your days in the park, on the water or along the hiking trail; and drop those fishing lines into a stream. See you Monday.