There was no “ADR Highlights” last Wednesday because there were no cases worth discussing. The courts made up for that over the last two days, as they addressed federal court jurisdiction to resolve FAA disputes, the effectiveness of on-line employment contracts, Section 1782 discovery, and the effect of revision of an agreement upon prior obligations to arbitrate.
Electronically signed employment agreements
Three cases, when read together, give employment lawyers a guide to creating enforceable arbitration agreements within their electronic onboarding procedures for new hires.
AT & T Mobility v. Boyd, 2020 U.S. Dist. LEXIS 196141 (N.D. Ohio) (Oct. 22, 2020), is particularly illuminating since the court is explaining its reasoning after a full trial on whether the parties formed an agreement to arbitrate. The case presents the recurring situation in which an employee “signs” his or her employment contract and related documentation on a computer or tablet, generally by checking a box. Boyd sued his employer, claiming race discrimination, harassment and other statutory and common law violations. AT & T asserted a right to arbitrate the dispute under the provisions of its employment policy. Boyd countered that he had never signed the agreement and that someone else must executed the form in his stead. Finding that the issue of execution raised a question of fact, the court held an evidentiary hearing on the process AT & T followed in the execution of such agreements, including its sending of a series of emails designed to alert employees of their right to opt out of arbitration. Based on inferences drawn from those procedures, the court, Barker, J., finds that Boyd agreed to arbitrate, compels arbitration of his claims and “enjoins” the state court action. (Since the state court system was not a party, the judge presumably means that she is enjoining Boyd from proceeding with that litigation, rather than enjoining the litigation itself.). The court’s lengthy discussion of the on-boarding process is a good roadmap on how to establish an enforceable digital employment process.
Boyd also covers a wide range of other arbitration related issues and should be read on questions of determining diversity for purposes of federal court jurisdiction over actions arising under the Federal Arbitration Act and the timeliness of an FAA claim for jury trial.
Two other cases, while less fulsome, give good insights into the elements to consider in determining whether the electronic execution of employment agreements creates a meeting of the minds on arbitration. In Reynolds v. NRC Environmental Services, Inc., 2020 U.S. Dist. LEXIS 194856 (C.D. Cal) (Aug. 24, 2020), Judge Fitzgerald finds that, while there was no signature on Plaintiff’s employment agreement, Reynolds’ execution of an “Acknowledgement” thereof bound him to the terms of the agreement, including its arbitration provisions. The court’s decision seems to be heavily influenced by the existence within the electronic system of a password, known only to the employee, which was used to get access to the relevant documents. On the other hand, in Malone v. Hoogland Foods, LLC, 2020 U.S. Dist. LEXIS 195304 (W.D. Wisc.) (Oct. 21, 2020), the court, Conley, J., found that, on the conflicting facts presented, an evidentiary hearing would be required to determine whether the parties formed a contract to arbitrate. Although Malone electronically signed the relevant document, he claimed he did not know the contents thereof, including its inclusion of a requirement for arbitration. The opinion demonstrates that, while a digital system may be adequate to satisfy its goal of forming a contract, human failures can undercut the best efforts. Malone claimed that his supervisor rushed through the execution of the agreements; entered Malone’s password into the system, rather than having him do so; quickly scrolled down through the agreement directly to the signature block, rather than giving the employee an opportunity to read the contract’s text; and was obviously angry about having to engage in the process, at all. As a result, Malone alleged he “felt pressure to get through the paperwork quickly.” Also, since the signing process apparently took place on the phone store’s sales floor, he claimed to have been distracted by all the activity around him. While we do not know where the court will come out after a full hearing, the denial of summary judgment on behalf of the employer reenforces the need to pay attention to the circumstances under which the agreement is to be executed, as well as the digital aspects of the form.
Subsequent actions and contract formation
In what it deemed “an issue of first impression in our circuit,” the Ninth Circuit considered the effect of a second website visit on the formation of an agreement to arbitrate, Stover v. Experian Holdings, Inc. 2020 U.S. App. LEXIS 33176 (9th Cir.) (Oct. 21, 2020). In 2014, Plaintiff purchased credit score services from Experian. The terms of that purchase provided for arbitration “to the fullest extent permitted by law” and waived any right to bring a class action. A change-of-terms provision provided that each time Stover “accessed. . . the . . . Product Website,” she would be consenting to the “then current” terms of the agreement. In July 2014, Plaintiff cancelled her service contract. In July 2018, she accessed the website the day before she filed the subject lawsuit for alleged violation of the Fair Credit Reporting Act and the California and Florida fair competition laws. By then, the website had been revised to carve out any claims related to credit reporting, including, specifically the FCRA, from arbitration; Stover claimed this removed her case from mandatory ADR and allowed her to bring class litigation. Experian sought to compel arbitration and the District Court granted the motion, holding that the 2018 amendment did not apply to Stover’s dispute; the Court of Appeals affirms, with Circuit Judge Smith writing for a panel consisting of himself, Owens, C.J. and Cardone, D.J., sitting by designation. As viewed by the court, the issue is whether a “mere inquiry notice of changed terms is enough to bind the parties to them.” The opinion focuses on the policy effect of allowing a web operator to bind a customer to any and all posted changes in contract provisions merely because they return to the site after the change is posted. In a slippery slope argument, the court opines that allowing changes in a contract by such unilateral amendment “would lead to absurd results: contract drafters who include a change-of-terms provision would be permitted to bind individuals daily, or even hourly, to subsequent changes in terms.” Therefore, the court holds that in order for changes in terms to be binding, “both parties” must have notice of the change. (This is an irony of the opinion. The court’s holding is based on a fear that website owners might make unannounced changes to the detriment of the consumer; however, here, it is, in fact, a consumer who sought to invoke the change, over opposition from the web operator.)
A couple of things are not clear from the opinion. First, how must the “notice” be given? Does the website owner need to say on the face of the site that, by entering, the viewer is agreeing to modify his or her original contract? Second, what is adequate notice? Since the court focuses on the need for mutual consent to the changes, must the website owner highlight or, at least, summarize the changes to the agreement or is the user required to read the full text of the terms and conditions and compare it to the previously existing version?
Section 1782 Discovery
In light of the existing Circuit split, most cases involving discovery under 28 U.S. Sec. 1782 revolve around the question of whether its provisions apply to private arbitrations. In re: Ex Parte Warren, 2020 U.S. Dist. LEXIS 195537 (S.D.N.Y.) (Oct. 21, 2020) does not involve that issue, as the proceeding is related to an arbitration under NAFTA and the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL”). Rather, it gives insight into the implementation of discovery under the Section.
In connection with the NAFTA proceeding, Warren sought certain discovery. After a discussion of a complex procedural history involving a Mexican bankruptcy and a previous ex parte discovery order, the court lays out four considerations for exercising the court’s discretion in granting discovery – whether the evidence sought is available through the foreign tribunal, whether the tribunal “will be receptive to judicial assistance,” whether the application is “an attempt to circumvent foreign proof-gathering restrictions,” and whether the discovery requests are unduly intrusive or burdensome. Since the audience for Section 1782 discussions is limited, I will leave it to those interested in the subject to get more detail from the opinion. However, even for those whose practice may only rarely – or never – touch on these issues, the case is a good read as an insight into international practice.
Quick Hits –
Jurisdiction for actions under the FAA
Leong v. Havens, 2020 U.S. Dist. LEXIS 195795 (N.D. Cal.) (Oct. 9, 2020) (federal question jurisdiction) and Morgan Stanley Smith Barney LLC v. Hale, 2020 U.S. Dist. LEXIS 194647 (S.D. Ohio) (Oct. 20, 2020) (diversity jurisdiction and removal by a citizen of the forum state) remind us that the FAA does not provide an independent basis for subject matter jurisdiction.
Although the case arises in the context of a temporary restraining order and, therefore, is sparse on facts, Lincoln Financial Securities Corp. v. Foster, 2020 U.S. Dist. LEXIS 193997 (D. Conn.) (Oct. 20, 2020) raises the issue of who is a “customer” and, therefore, within the scope of FINRA’s arbitration rules. The issue before the court is whether one becomes a “customer” because a registered representative affiliated with the member company refers him or her to a third-party – in this case, a third-party who later was barred from the securities industry because of fraud.
SCOTUS passed up an opportunity to wade back into questions of class arbitration on October 5th, when it denied cert. in Jock v. Sterling Jewelers, 942 F.3d 617 (2nd Cir. 2019). In Jock, an arbitrator had certified a class of 44,000 female employees who were seeking relief under Title VII. The District Court vacated the certification, holding that the arbitrator lacked the power to bind absent class members. The Second Circuit reversed, basing its decision on the fact that all of the class members had individually agreed to participate in the Defendant’s “RESOLVE program.” That program both provided for arbitration and invoked the AAA’s arbitration rules. Since those rules authorized the arbitrator to decide whether a matter should proceed on a class-wide basis, the court would not second guess that decision. Any tea leaf reading as to what this might mean for the upcoming Schein matter?
Have a great weekend. See you Monday.