I had expected a raft of decisions during the week before Christmas as judges cleared their desks for the New Year. In fact, things were a little quiet. There are no distinctive decisions, but some old paths were trod in slightly different ways and reminders of best practices are reaffirmed.
AAA Consumer and Commercial Rules
Like most arbitral tribunals, the American Arbitration Association has multiple sets of rules. Lazzo v. Frontier Wealth Management, 2020 U.S. Dist. LEXIS 238223 (D. Kan. Dec. 18, 2020) addresses the problems that may arise when the parties cannot agree on which set applies. Lazzo entered into an agreement with Frontier regarding the investment of his personal accounts and the Pension Fund, 401(k), and Profit-sharing Plan covering his law firm’s employees. A dispute arose regarding a large investment which lost value. Under the parties’ Investment Management Agreement (“IMA”), they were to resolve any dispute by arbitration “before the American Arbitration Association or any other arbitration tribunal mutually agreed to by the parties, in accordance with the rules of such tribunal. . ..” Lazzaro filed under the AAA’s Consumer Rules, but the AAA declined to administer the arbitration under those procedures and administratively closed the file. Plaintiff claimed that, by reason of that declination, he was unable to arbitrate and, therefore, could resort to litigation. Frontier replied that other avenues were available and that the AAA’s Commercial Rules, which Lazzaro refused to invoke, might result in the tribunal handling the matter. As a threshold matter, the Court, Crabtree, J., makes it clear that the AAA has the authority, absent a specific designation by the parties, to determine which of its sets of rules it will apply. Then, reviewing the record, the court holds that Lazzaro failed to act diligently in seeking “any other arbitration tribunal,” as the IMA permits, or determining whether the AAA would accept the matter under its Commercial Rules. The court compels arbitration, although allowing the Plaintiff to come back if there is truly no way to arbitrate the case. Three lessons from the case – First, the AAA has the authority to decide which of its sets of procedures apply. Second, before you come to court seeking relief, make sure you have exhausted all your other options. Third, when drafting an arbitration clause, if you want to invoke a specific set of rules, say so.
Cervantes v. Bridgestone Retail Operations, LLC, 2020 U.S. Dist. LEXIS 238532 (N.D. Ill. Dec. 28, 2020) demonstrates how difficult it is to use the estoppel doctrine to bar an arbitration. Plaintiff executed a click through employment agreement which contained a broad arbitration clause. He alleged that his supervisor, who handled the employee on-boarding process, told him that he “’did not have to read’ the screens”, but could “scroll through and click the boxes.” Cervantes brought this FLSA claim, alleging a failure to pay overtime. Bridgestone sought to compel arbitration under that clause. After dealing with routine issues regarding mutual assent, consideration and the scope of the agreement, the court turns to estoppel. Cervantes claimed that, since the hiring manager told him that that it was unnecessary to read the employment agreement’s arbitration clause, Bridgestone was estopped from relying upon it. Under Illinois law, which supplied the relevant substantive principles, the doctrine requires that the party to estopped must have intended to mislead the party asserting the doctrine and that the latter’s reliance must have been reasonable. The court, Wood, J., holds that the record does not demonstrate that the hiring manager, by advising Cervantes to merely “scroll through” the agreement, intended to deprive Plaintiff of his right to litigate any claim; “at most, the hiring manager downplayed the significance of the [Employee Dispute Resolution] materials.” Furthermore, since the court found no evidence that the supervisor either pressured or rushed Cervantes in his review of the contract, Judge Wood holds that Plaintiff failed to show that he acted reasonably in not reading the full agreement. The court compels arbitration. Is this latter finding unrealistic? As law professors (and only law professors) say, query. With his new boss looking over his shoulder and urging him to skip through the employment agreement, was Cervantes really going to slowly peruse every clause?
Time limits on applications to vacate an award
Guest Services, Inc. v. Dogali, 2020 U. S. Dist. LEXIS 237781 (M.D. Fla. Dec. 16, 2020) is a reminder of the FAA’s strict time constraints on an application to vacate an arbitration award. Plaintiff and defendant arbitrated an employment dispute; the panel entered an award in favor of Guest Services on February 24, 2020. Dogali did not seek to vacate that award. Here, Guest Services seeks to confirm. As Dogali did not appear, the court routinely enters a default judgment in Plaintiff’s favor. The important part of the case is in its dictum, as the court reiterates that any application to vacate an award under Section 12 of the FAA must be made within three-months of the award and that, at least in the Eleventh Circuit, an award cannot be vacated through a special defense to an application to confirm it.
Confidentiality of arbitration proceedings
Rothman v. Snyder, 2020 U.S. Dist. LEXIS 237524 (D. Md. Dec. 17, 2020) is interesting both because of the underlying litigation, which deals with ownership of the Washington Football Team, and because of its discussion of the confidentiality of arbitration proceedings. The case arises out of a discovery motion. Plaintiff, over the objection of intervenor Washington Post, sought to seal the entire case. The court, Messite, J., parses through almost 100 documents, ordering that some be unsealed, while others remain confidential. The court allows information related to an on-going arbitration before the NFL Commissioner to be “narrowly redacted.” It is unclear to those not engaged in the litigation what portions of the arbitration the court may be unsealing or their significance. However, on a broader scale, the court recognizes that sealing may be necessary “to respect the confidentiality of arbitration to protect parties’ business interests and the integrity of arbitration itself.” In support of this proposition, in addition to the citation of other District Court opinions, the court quotes from the storied AT&T Mobility LLC v. Conception, 563 U.S. 333, 344-45 (2011) to the effect that arbitration allows parties to specify that “proceedings be kept confidential to protect trade secrets.”
Illusory Arbitration Agreements
Northgate Lincoln-Mercury, Inc. v. Ford Motor Company, 2020 U. S. Dist. LEXIS 237863 (S.D. Ohio Dec. 17, 2020) is not an arbitration case. However, in discussing the nature of the agreement between Northgate and Ford regarding loaner cars, the court discusses unenforceable illusory contracts, using as examples arbitration clauses in which one party has the “unrestricted ability to create biased three-arbitrator panel”, Hooters of America Inc. v. Phillips, 173 F.3d 933 (4th Cir. 1999), or which “called for employer’s management personnel to act as arbitrators,” Cheng-Canindin v. Renaissance Hotel Associates, 50 Cal. App. 4th 676 (Ct. App. 1996).
Mailed Arbitration Agreements
A common issue in determining whether the parties have formed a contract to arbitrate is whether the party who opposes arbitration knew of the obligation. In the context of computer-based agreements, this arises in the context of browsewrap and clickwrap agreements. When the arbitration provision has been mailed, the question is generally whether the counterparty received the agreement. Since Panzer v. Verde Energy USA, Inc., 2020 U.S. Dist. LEXIS 237197 (E.D. Pa. Dec. 17, 2020) was decided after fairly extensive discovery, including depositions, it demonstrates strategic approaches that each side might take in litigating the question of receipt. Applying a Rule 56 summary judgment standard, the court, Savage, J., holds that a relevant question of fact remains and the court sets a trial date.
The effect of bankruptcy on enforcement of an arbitration provision under the FAA
While we watch to see whether SCOTUS will resolve the Circuit split on Section 1782’s application to private arbitrations, there is another arbitration issue which has a shorter time horizon. The parties have fully briefed a petition for cert. in Belton v. GE Capital Retail Bank, 961 F. 3d 612 (2nd Cir. 2020), which raises the effect of a bankruptcy on the obligation to arbitrate remaining disputes. This “Highlights” is being written Sunday night and SCOTUS may even have taken up the petition at its conference last Friday. We will know more when Orders are announced on Monday and I will report on Wednesday if the Court acts on the petition. As a side note, the Scotusblog, founded in 2002 by Supreme Court advocates and gurus Tom Goldstein and Amy Howe, provides a superior breakdown on the Court’s doings, including a list of pending, interesting cert. petitions. It is well organized and can be followed in a few minutes each day. You can find it at Scotusblog.com.
FINRA moratorium on arbitrations
“In response to the evolving coronavirus disease,” FINRA has administratively postponed all in-person hearings in arbitrations and mediations until February 28, 2021. Unless the parties stipulate to have the matter heard telephonically or by Zoom and the panel so orders, matters set before that date must be rescheduled.
Unless you are counting on Santa bailing you out, you need to get your holiday shopping done right now. Even Amazon cannot keep up with reindeer. See you Wednesday.
David A. Reif