It is a quiet Spring Friday with only a little weekend reading.  Most of the opinions reported in the last two days, while important to the parties, do not provide a lot of fodder for a broader audience. However, these few decisions address some topics that may be sitting on your desk as you head out to the weekend (or, at least, walk out of the home office).   

Manifest Disregard

Cases in the last “ADR Highlights” dealt with the different approaches which two Circuits take to the question of whether an arbitration award may be vacated under the FAA because of the arbitrator’s manifest disregard of the law.  In Luciano v. Teachers Insurance and Annuity Association, 2021 U.S. Dist. LEXIS 81533 (D.N.J. April 28, 2021), Judge Shipp joins the conversation from the Third Circuit.  Upon her husband’s death, plaintiff learned that she would not receive a full surviving spouse benefit from TIAA, but that his account balance would be split between her and the deceased’s sister/pre-marriage beneficiary.  She brought this action to recover what she alleged was her proper, full share.  In response to defendant’s motion, the court had previously compelled arbitration of the claim. The arbitrator found that the plan’s terms required payment to Ms. Luciano of her husband’s full account balance.  Here, TIAA moves to vacate the award on the ground that the arbitrator’s finding was in manifest disregard of the terms of the TIAA agreement. Applying the Third Circuit’s standard, the court holds that manifest disregard requires that the error be “obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator. . . .” (Emphasis added).  “The doctrine is used only [in] those exceedingly rare circumstances where some egregious impropriety on the part of the arbitrators is apparent, but where none of the [vacatur] provisions of the [FAA] apply.” (Citations omitted, brackets in original).  Finding that the arbitrator’s decision is supported by the terms of the TIAA agreement, the court confirms the award.

Post-litigation arbitration agreements

Heathcote v. Spinx Games, Ltd., 2021 U.S. Dist. LEXIS 81559 (W.D. Wash. April 28, 2021) involves the question of whether a defendant may impose a new arbitration clause on putative members of a class after litigation is filed. This class action, which asserts claims under Washington law related to the operation of an internet gambling site, was commenced on September 1, 2020.  On February 23, 2021, defendant published new Terms of Service on its website, adding an arbitration provision and class action waiver which were not previously included.  The new terms were presented in a pop-up on the Spinx gambling site, which provided for a 30-day opt out provision and had a special notice to players in Washington State (i.e., the members of the putative class) as to the existence of the lawsuit.  It specifically stated that “If you accept the Terms of Service and do not opt out of the Dispute Resolution and Arbitration Provision, you cannot participate in this lawsuit, even if a class is certified.”  Heathcote sought an injunction against continued use of the pop-up and the amendment of the terms of service. Chief Judge Martinez upholds the arbitration clause and the communication thereof.  In support thereof, he finds that the provision describes the pending litigation; it provides an opportunity for users of the site to avoid opt out of arbitration and, thereby, preserve any right they may have to recover damages as a member of the class; and it includes information for contacting counsel for the plaintiff class.  Based on those three elements, the court distinguishes Ninth Circuit authorities which either offered no opt-out procedure or failed to inform putative class members of the pending litigation and denies the defendants’ application for an injunction.  Whether one agrees with the decision or not, it is must reading for counsel seeking to limit class exposure by imposing an arbitration clause on the putative members thereof.

Lack of mutuality

“What’s good for the goose. . . .” may be the King of Cliches, but it is the underpinning of The We Project, Inc. v. Relatvistic, LLC, 2021 U.S. Dist. LEXIS 80961 (N.D. Ohio April 28, 2021).  The litigation relates to a $10 million investment in a technology startup which went awry.  Plaintiff sought damages for embezzlement and conversion.  The Support and Services agreement between plaintiff and defendant M-Partners contained an arbitration clause which provided that “[a]ny dispute arising out of or relating to the Agreement or the breach thereof shall, at the sole option of M-Partners, be submitted to binding arbitration.” (Emphasis added). Applying Maryland law, Judge Gwin holds that consideration for an arbitration provision must be separate from the consideration supporting the agreement as a whole.  Since the arbitration agreement “does not actually bind or obligate [M-Partners} to do anything,” there is no consideration, and the agreement is illusory.  Therefore, the court denies the motion to compel arbitration.  Anyone wanting to rely on this decision would be well-advised to look at applicable state substantive law to determine whether it requires separate consideration for the arbitration agreement or whether promises contained elsewhere in the agreement are sufficient.

Footnotes

Anyone who is a regular reader of “ADR Highlights” knows that I love footnotes.  I read footnotes; I quote footnotes.[1] Judge Stanley Blumenfeld is less enamored by those little superscripts. In Ellsworth v. Schneider National Carriers, Inc, 2021 U.S. Dist. LEXIS 80738 (C.D. Cal. April 26, 2021), he opines that “throughout the briefing of this litigation, the parties have made inappropriate and excessive use of footnotes. . . . In the motion to compel arbitration, Defendant used 18 footnotes in its moving papers and 30 footnotes [in] its reply papers.” (Double emphasis in original). Viewing the practice of placing smaller sized text at the bottom of the page as being “designed, if not intended, to skirt the applicable page limits as stated in the Court’s Standing Order,” the court precludes the parties from further use of footnotes in the case, under penalty of having “any offending brief summarily stricken. . . .”  What fun is that?

Have a good weekend.  Keep staying safe.

David A. Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com

[1] Sometimes I write footnotes.