For some reason, there were a lot of cases at the end of last week. In order to keep “Highlights” to a reasonable length, today is essentially a series of Quick Hits. Take a look at the section headings and bore down to get to some exceptionally well-written opinions, particularly Pierre and Garcia.
In Garcia v. Din Tai Fung Restaurant, Inc., 2020 U.S. Dist. LEXIS 218179 (N.D. Cal.) (Nov. 20, 2020), Judge Freeman provides a detailed road map for the evaluation of unconscionability claims. Plaintiff brought several state law claims arising from her employment at Din Tai Fung. Garcia did not dispute that her employment contract included an arbitration clause, but argued that it was unconscionable and unenforceable. Recognizing that California law requires that one raising unconscionability as a defense to arbitration must demonstrate both procedural and substantive unconscionability, the court analyzes the elements of each. On the procedural side, the court walks through the format of the contract and the circumstances of its execution, finding that, even though it is a contract of adhesion, there is no unconscionability, as the plaintiff was adequately informed of the arbitration clause and its consequences. Of particular interest to contract drafters is the court’s analysis of the conspicuousness of the arbitration provisions, which constituted a separate document and were highlighted by a black border. In considering substantive unconscionability, the court analyzes in detail each of the five “minimum requirements for mandatory employment arbitration agreements which California law requires, see Armendariz v. Found. Health Psychare Servs. Inc., 24 Cal. 4th 83 (2000). She ultimately upholds the clause, compels arbitration and dismisses the litigation.
Vasquez v. RSI Home Products, Inc., 2020 U.S. Dist. LEXIS 217490 (C.D. Cal.) (Nov. 12, 2020), deals with the same issues, although in a less detailed analysis.
Two cases filed on Friday relate to the waiver of arbitration.
In Pierre v. Rochdale Village, Inc. 2020 U.S. Dist. LEXIS 217228 (E.D.N.Y.) (Nov. 19, 2020), Judge Brodie deals in a very nuanced way with the often-unconsidered question of whether the court or the arbitrator decides the waiver issue. Recognizing the absence of direct Second Circuit authority, the court divides waiver claims into two types – those in which the claim is based upon litigation conduct and those where the waiver allegedly arises from conduct before suit, such as during a grievance procedure. Resolution of questions raised in the first group, which encompasses issues such as a delay in moving to arbitrate or participating in discovery before the court, is presumptively for the court; the latter are procedural questions which are left to the arbitrator. After a detailed review of the litigation to date and the absence of prejudice to Defendant, the court concludes that there is no waiver by virtue of Plaintiff’s “litigation conduct.” Since she holds that pre-litigation waiver is reserved to the arbitral process, Judge Brodie compels arbitration of that claim and, if the arbitrator finds no waiver, resolution of the dispute’s merits.
While not as deeply reasoned or citation laden, Bey v. Rochdale Village, Inc., 2020 U.S. Dist. LEXIS 217144 (E.D.N.Y.) (Nov. 19, 2020) reaches the same result. (Although these two cases are against the same defendant, they seem to be otherwise unrelated). Judge Hall analyzes the Plaintiff’s claim of waiver and holds that, since defendant asserted the arbitration clause as an affirmative defense in its answer and undertook no discovery or motion practice, it did not waive the right to arbitrate. She compels arbitration.
Contract formation through an agent
In re: Rotavirus Vaccines Antitrust Litigation, 2020 U.S. Dist. LEXIS 217565 (E.D. Pa.) (Nov. 20, 2020) arises after remand from the Third Circuit of the question of whether a purported class action related to an alleged anticompetitive vaccine bundling scheme must be resolved by arbitration. Plaintiffs are members of a physician’s buying group, a PBG. The PBGs had contracts with Merck which, according to the court, required the PBGs to enroll practice groups to purchase vaccine from Merck and, in turn, gave them pricing power, based on the volume of purchases. The plaintiffs, physicians who belonged to the PBGs, did not negotiate directly with Merck and had no relevant contact with the manufacturer. The agreements, to which only the PBGs and Merck were signatories, contained an arbitration clause. The issue before the court was whether that arbitration clause required the PBG members to arbitrate their claims against Merck. Although it made an estoppel argument, Merck primarily sought to impose that obligation based on a claim that the PBGs were acting as agents for the physicians. The court holds that none of the requirements of an agency relationship under Pennsylvania law was present as to arbitration. Merck did not sustain its burden of demonstrating either that the members had control over the PBGs’ negotiations of the Merck contract or that they authorized the PBGs to enter into an arbitration agreement on their behalf. “[T]he practices were only authorizing the PBGs to negotiate discounted pricing and other ancillary benefits with third party vendors. . . Thus, the PBGs did not have the necessary authority to bind their member practices to the arbitration provision and Plaintiffs shall not be held liable to arbitrate this matter under an agency theory.” Accordingly, the court denies Merck’s motion to compel arbitration. Two side bars. First, Judge Joyner’s opinion takes a deep dive into contract language and witness testimony, so anyone interested in the case needs to read it carefully. Second, for a contrary approach, see Velasquez-Reyes v. Samsung Electronics America, Inc., 2020 U.S. Dist. LEXIS 209802 (C.D. Cal.) (Oct. 20, 2020), discussed in “ADR Highlights” on November 13th, holding that the a phone salesperson in setting up a phone bound the customer to a hyperlinked arbitration clause with the phone’s manufacturer.
Effect of an arbitration clause on defining a class
There are many cases which hold that a plaintiff who is party to an arbitration clause may not act as a class representative where some members of the purported class may not have such a obligation. Independent Living Resource Center v. Lyft, Inc., 2020 U.S. Dist. LEXIS 217165 (N.D. Cal.) (Nov. 19, 2020) looks at the issue from the other end – what happens when you eliminate such easily identifiable individuals from the class. Plaintiffs sought to bring a class action on behalf of people who “have been or will be denied access to Lyft’s on demand transportation service [in a specified area] due to the lack of available [wheelchair accessible vehicles (“WAVs”)] through Lyft’s service.” Because the Lyft user agreement, which is downloaded as part of its app, includes a class action waiver and arbitration clause, plaintiffs’ counsel defined a class composed of people who had not downloaded the Lyft app and, accordingly, might not be bound to arbitrate. Without being able to use the app as a marker of class membership, however, the court holds that it is impossible to determine “with reasonable assurance” which individuals within the defined class did not use Lyft because they could not get access to a WAV and which might have not have used Lyft for other reasons, such as cost. Accordingly, it denies class certification, referencing both the numerosity and common question requirements underlying a class action.
Arbitration and forum selection clauses
Bruckner Truck Sales, Inc. v. Hoist Liftruck Manufacturing, LLC. 2020 U.S. Dist. LEXIS 218125 (N.D. Tex.) (Oct. 30, 2020) deals with the issue of where litigation should be venued under the parties’ choice of forum provision. The subject agreement included an arbitration clause which provided “the place of arbitration shall be DuPage County, Illinois” and that the parties “irrevocably waive all other venues for dispute [sic].” There was a separate forum selection clause in which the parties agreed that “the jurisdiction of dispute resolution shall be DuPage County, Illinois.” Defendant sought to remove the case to the Northern District of Illinois, which includes DuPage County. Plaintiff argued that “dispute resolution” is a “term of art” which implies an alternative to litigation. Therefore, Bruckner claimed, all proceedings, except arbitration, should remain in Texas, based on normal choice of forum rules. Magistrate Judge Bryant finds that, if the forum selection clause were intended to encompass only arbitration, it would become superfluous, since the separate arbitration clause already deals with such disputes. Such a result would be inconsistent with the requirement that all portions of the contract be given meaning. Therefore, he recommends transfer of the case to Illinois under the choice of forum cluse, with any determination on arbitrability to be resolved there.
Review of arbitrator award
Georgia-Pacific Consumer Operations, LLC v. United Steel Workers, 2020 U.S. App. LEXIS 36598 (11th Cir.) (Nov 20, 2020) reaffirms that, so long as an arbitrator’s award “flowed from his interpretation of the contract,” the court must confirm that award. Here, the arbitrator overturned the employer’s decision to dismiss an employee for failing a drug test, reducing the penalty to a ninety-day suspension. The District Court vacated the award, holding that the company had instituted a “no tolerance” policy which gave the arbitrator no option but to uphold a firing, once he found that the employee failed the test. The Court of Appeals, with Circuit Judge Jordan writing for himself and Judges Newsom and Lagoa, reverses, holding that the contract at issue only established a framework for a drug testing policy, with the specifics, such as penalties, to be determined later. The arbitrator, the court holds, merely determined that the “commitment” set forth in the collective bargaining agreement did not require firing for every drug-related offense. The sole issue for the court, then, is to decide “whether the arbitrator (even arguably) interpreted the parties’ contract.” Citing Oxford Health Plans, LLC. V. Sutter, 569 U.S. 564 (2013) and United Steel Workers v. Enterprise Wheel & Car Corp., 363 U.S. 593 (1960), the court opines that “because ‘[i]t is the arbitrator’s construction which was bargained for’. . . the ‘arbitrator’s construction holds, however, good, bad, or ugly.’” Since he based that decision upon the interplay of various articles of the contract, the award should have been confirmed. For those who want to draft employment contracts which contain “no excuse” drug policies and who worry that an arbitrator might choose not to enforce a harsh firing penalty, the case provides a good guide to language geared to that end as it contrasts the collective bargaining agreement in Warrior & Gulf Navigation Co. v. United Steelworkers, 996 F. 2d 279 (11th Cir. 1993), where the Circuit held that an arbitrator lacked discretion to do anything other than uphold a firing, with that at issue here, which gave far more discretion.
Save the dates
The ABA Dispute Resolution Section has some upcoming programs. December 2, 2020 – Dispositive Motion Practice; December 12, 2020 – Best Practices for Tri-partite Arbitration Panels; April 14 – 17, 2021 – Spring Meeting. The CLE at these programs is consistently among the best. Registration is available on the Section’s website at americanbar.org.
Even with the craziness and constraints of today’s world, there are many things for which we can be grateful. May your Thanksgiving, however you may be spending it, be a chance to remember those blessings.
See you Friday.