I do not know if judges wanted to clear the decks for the weekend or if it was just bad luck for losing parties, but Friday the 13th brought the publication of an unusually large number of noteworthy opinions. In order to get them all in front of you, this edition of “ADR Highlights” is a series of Quick Hits.
Burden of proof on summary judgment; acceptance through employment
While courts often employ a summary judgment standard in determining whether the record before them mandates arbitration, judges rarely detail the process for deciding whether there is a question of fact. Sinclair v. Wireless Advocates, LLC, 2020 U.S. Dist. LEXIS 211303 (S.D. Fla.) (Nov. 12, 2020) explains the respective burdens on proponents and opponents of arbitration in making that central decision under Fed. R. Civ. P. 56. The opinion is also interesting in its distinguishing among “continued employment” cases based on the formality of the on-boarding process. Compare Rocha v. Telemundo Network Group, LLC, 2020 U.S. Dist. LEXIS 211302 (S.D. Fla.) (Nov. 12, 2020) (continued employment and electronic execution of on-boarding forms constitute acceptance of arbitration agreement).
Preliminary injunction; contract formation
Empros Capital, LLC v. Rosenbach, 2020 U.S. Dist. LEXIS 212883 (N.D. Cal.) (Nov. 12, 2020) presents a strange procedural posture. Empros sought a preliminary injunction to enjoin an arbitration brought against it by Rosenbach. Between oral argument on the motion and the filing of the opinion, Rosenbach withdrew the arbitration. However, even though it finds that withdrawal of the demand effectively moots the injunction motion by removing any potential prejudice to Empros, the court reaches the merits of contract formation. The parties’ dispute arises out of the creation of a private investment fund. The issue was whether, absent a signed arbitration agreement, Rosenbach could compel arbitration under alternative theories. The court describes the Fund Documents as “dozens of pages long, highly detailed, and clearly intended to occur between sophisticated parties.” The requirement of formal execution of the documents imposed a “bright-line rule in the plain language of the contract” as to whether Empros had accepted Rosenbach into the fund. Since Empros never signed the documents, the court finds that there was no contractual relationship established and, therefore, no agreement to arbitrate. Although the court agrees with Rosenbach that parties can contract informally, here “the parties unambiguously demonstrated their intent that the contract be predicated on formal execution.”
As you may appreciate from earlier “Highlights,” I am a fan of reading footnotes. The court here uses one to explain why, despite Defendant’s withdrawal of the arbitration demand, it goes on to issue a thirty-three-page opinion. The court’s avowed reason is to give what is essentially an advisory opinion. “I expect that there will be future litigation over whether this or another court is an appropriate forum for the parties’ dispute, so it seems appropriate to articulate the basis for my ruling on the motion before me.” The real reason, however, might lie in the timing of the withdrawal of the arbitration – after an oral argument in which “I [the court] made clear that, based on the record before me, defendant had not shown that any contract existed, let alone an agreement to arbitrate. . . The withdrawal, however, came about as a result of Rosenbach’s voluntary cessation of the activity as a result of my tentative ruling. . ..” In short, Rosenbach was going to lose and, to avoid that loss, withdrew the arbitration. Judges are not happy when, after they have spent time studying a case, one of the parties tries to moot the court’s efforts and, potentially, judge shop.
Standard of review of arbitration outside the FAA
We can easily fall into the trap of deciding that federal court review of arbitrations is always governed by the narrow standards of the Federal Arbitration Act. Wisconsin v. U.S. Department of Education, 2020 U.S. App. LEXIS 35554 (7th Cir.) (Nov. 12, 2020) reminds us that there are administrative settings in which different standards apply. This review of a decision under the Randolph-Sheppard Act, which provides economic opportunities for people who are blind, holds that, while arbitration panels must apply a preponderance of the evidence standard in such cases, courts review those decisions under a substantial evidence test.
Green v. Mission Health Communities, LLC, 2020 U.S. Dist. LEXIS 212047 (M.D. Tenn.) (Nov. 13, 2020) involves a complex employment relationship, involving two joint-employers, Mission and ENGAGE, and a subsidiary company, Dickson, that appears to be an operating entity. Plaintiff, a CNA, sued Mission and Dickson for overtime and employment conditions, although her written contract was directly with ENGAGE. The court holds she must arbitrate with all three parties, applying estoppel doctrines. The discussion regarding Dickson is particularly worth reading by employment lawyers, as it distinguishes among cases in which various types of entities are so “intertwined” that they may become “joint employers.”
Principal Securities, Inc. v. Agarwal, 2020 U.S. Dist. LEXIS 21112 (S.D. Iowa) (Oct. 19, 2020) reiterates the holding of Tuchman v. UBS Financial Services, Inc., 2020 U.S. Dist. LEXIS 210735 (S.D.N.Y.) (Nov. 9, 2020), discussed in last Friday’s
“Highlights.” In order to arbitrate a matter under the FINRA umbrella, one must have a written agreement requiring arbitration or be a “customer” of the FINRA member or an associated person of such a firm. Here, although the defendant made an investment through one of Principal’s registered representatives, the court holds that the transaction was a business venture, not a securities transaction. The court enjoins defendant from invoking a FINRA arbitration proceeding.
Ball v. Skillz, Inc. 2020 U.S. Dist. LEXIS 211493 (D. Nev.) (Nov. 12, 2020) has an unusual factual underpinning. Skillz operates an on-line gambling platform, including a game which is similar to blackjack and allows users to compete head-on-head with others for cash. Two of the plaintiffs claim that they were wrongfully denied refunds after playing against users whom they claim were cheating; one plaintiff claims that, as a result of using the platform, a gambling addiction was triggered and she lost her life savings and became suicidal. Skillz sought to compel arbitration by reason of a hyperlink on its website, which connected to an arbitration clause. The court holds that the format of the webpage gave defendants constructive notice that, by proceeding through the site, they were agreeing to certain terms and conditions, including an arbitration clause. Judge Dorsey, like some others, takes the constructive step of including a screen shot of the relevant page of the site in the opinion. The most interesting aspect of the opinion is its consideration of substantive unconscionability. While holding that the requirement that the parties split arbitration fees makes the agreement substantively unconscionable under Ninth Circuit precedent, the court focuses on a portion of the agreement which provides that, if any provision of the agreement is held unenforceable, it may be severed without affecting the rest of the Terms of Service. Since splitting fees is “collateral to the clause compelling arbitration,” the court deems it ineffective, thus removing the unconscionable provisions. Note to drafters – include a severability clause.
Williams v Smith, 2020 U.S. Dist. LEXIS 212537 (M.D. Tenn.) (Nov. 13, 2020) warns that those using a lesser known arbitration forum are taking a risk. Plaintiff Williams appears pro se in this Motion to Confirm an “arbitration award.” In response to an order from the court that he produce an agreement with the defendant, an I.R.S. Agent, that provides for arbitration of their underlying dispute, Williams filed a ninety-page “Final Arbitration Award” from Sittcomm Arbitration Association ) (“SAA”). Holding that the court lacked federal question subject matter jurisdiction, despite Williams’ claim that Respondent violated the U.S. Constitution and various Criminal and Tax Code provisions, the court dismisses the action.
In strong dictum, the court “express[es] concerns about the role in this case played by the Sittcomm Arbitration Association,” stating that the documents filed with the court “raise serious questions about this entity, the products its [sic] may be marketing to pro se litigants, and potentially fraudulent activity that wastes precious judicial resources.” Citing to District Court opinions in Texas, which referred the matter to the U.S. Attorney and various state AG offices, and Mississippi, Judge Crenshaw directs the Clerk to send a copy of his opinion to the U.S. Attorney. More information on SAA is available at its website, https://saalimited.com/
Writing and speaking
For those looking for an opportunity to write and speak, the Chartered Institute of Arbitrators, together with Washington College of Law, American University, is looking for papers to be presented at a conference in Switzerland in October 2021. Abstracts are due March 27, 2021. For more information – https://ciarb.org/news/call-for-papers-arbitration-conference-in-switzerland-fall-2021/
Thanks for reading “ADR Highlights.” As always, I hope you find some of these cases useful in your practice or just plain interesting. Be safe. See you Wednesday.