Maybe the courts were gearing up early for the holiday, but mid-week was noticeably quiet; in fact, there was so little to report that “Highlights” skipped Wednesday’s edition. As you can see, though, things have picked up and today’s issue runs a little longer than usual.
The award winner in Section 1782(a) opinions
There is an aphorism that once you buy a silver Honda, the road seems to be filled with silver Hondas. Perhaps because SCOTUS’ acceptance of cert. in Servotronics has focused my attention on the statute or because of a jump in international arbitrations, Section 1782(a) jurisprudence seems to have suddenly become more prevalent. Magistrate Judge Patti’s forty-three-page opinion in Luxshare, Ltd. v. ZF Automotive US, Inc., 2021 U.S. Dist. LEXIS 100067 (E.D. Mich. May 27, 2021), may be the best writing to date on many of the issues presented by those cases. Whether or not one agrees with the Court’s conclusion, the opinion both analyzes the relevant discretionary factors and, through its discussion of the record, provides litigators a template for the types of affidavits and declarations which might be presented in support of or opposition to such a request for discovery.
The court does not need to address whether the proceeding before the DIS Arbitration tribunal – the German Arbitration Institute – involves a “foreign tribunal” under Section 1782(a); the Sixth Circuit is among those jurisdictions holding that the act applies to private arbitrations, Abdul Latif Jameel Transportation Company, Ltd. v. FedEx Corporation, 939 F. 3d 710 (6th Cir. 2019). Magistrate Judge Patti, therefore, moves directly to the discretionary factors set forth in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). The opinion is dense and the only way to get an understanding of it is through a full reading. In summary, though, he finds that all the factors, except one, favor allowing the requested depositions and document production. The opinion seems generally to lean toward favoring U.S. style discovery. On the issue of the arbitral tribunal’s receptivity to deposition testimony, for example, Magistrate Judge Patti opines that “without authoritative proof that the DIS would reject Section 1782 discovery. . . . the Undersigned assumes that the DIS would receive it if obtained and presented.” (Emphasis in original). Likewise, after concluding that U.S. discovery like that requested here is far more extensive than any allowed in Germany or other civil law nations, the court resolves the issue by simply minimizing this element of the Intel standards as only one, non-determinative factor to be considered. However, the overall analysis of the Intel factors is deep and rich. It is mandatory reading for anyone faced with a Section 1782(a) petition.
The opinion is, also, noteworthy for two other elements. First, since the German arbitration is to be expedited, the U.S. Supreme Court may not issue its decision until late June 2022, and the court characterizes the requested discovery as of “limited scope,” the Court denies a stay of its decision pending a holding in Servotronics. Second, after determining that he will grant Section 1782(a) discovery, Magistrate Judge Patti applies Federal Rule 26 to determine the appropriate scope thereof. Ultimately, he grants some of the requested information, while denying access to other material.
Anyone with any interest in Section 1782(a) needs to read this opinion. It will walk him or her through the deep checklist needed to evaluate the relevant issues. For all the bench and bar, it is a primer on writing a complete and interesting opinion.
Questions of contract formation v. arbitrability
In Smith v. The Aliera Companies, Inc., 2021 U.S. Dist. LEXIS 96349 (D. Col. April 16, 2021), Judge Jackson reiterates the difference between issues related to the formation of an arbitration agreement and those addressing the arbitrability of the parties’ dispute. During this analysis, he also discusses what gateway issues may be delegated and those which are reserved solely for the court.
The underlying dispute centers on whether defendants denied members of the plaintiff class medical treatments that they were advised would fall within their health care plans. In response, Defendants claim that they are Health Care Sharing Ministries (“HCSMs”), not insurance companies, and, accordingly, are not bound by state insurance laws and any mandatory coverages. There seems to be no dispute that plaintiffs received member guides in connection with the commencement of their coverage under the programs. Those guides contained clauses mandating arbitration under the rules of either the American Arbitration Association or the Institute for Christian Conciliation. Defendants sought to enforce those clauses and moved to compel arbitration. Plaintiffs claimed that they did not consent to arbitration.
The Court, Jackson, J., first addresses the issue of whether he or an arbitrator should resolve the contract formation question, since the rules of both arbitral institutions provide that the arbitral tribunal may rule on its own jurisdiction. The court distinguishes between two concepts – on the one hand, whether the parties formed any agreement to arbitrate and, on the other, the scope of any such agreement and defenses which might make such agreement voidable. Here, plaintiffs claimed that defendant provided the member guides and attendant arbitration mandates only after the parties entered a contract. Accordingly, the issue before the court, as viewed by Judge Jackson, is whether there was ever any agreement to arbitrate. He holds that the question of whether the parties entered into an arbitration agreement at all does not fall within the delegation clause, since all provisions of the agreement, including any such competence-competence clause, are never even created unless there is first an overarching agreement to arbitrate.
Judge Jackson holds that the plaintiffs did not agree to arbitrate their disputes with the defendants. First, he holds that plaintiffs accepted the offer to purchase the health care coverage – either by electronically signing an application which contained no link to the arbitration agreement or by paying their initial fee and first month’s “contribution” – before they ever received the guide. Therefore, the material included in the guide is not a part of that preexisting contract. Second, the member guides specifically state that they create not contractual rights. Accordingly, the court denies the defendants’ motion to compel arbitration.
The case is a great resource for those litigating the arbitrability of claims involving any faith-based medical expense sharing plan, as the court cites relevant cases on both sides of the issue.
In Franklin v. Community Regional Medical Center, 2021 U.S. App. LEXIS 15183 (9th Cir. May 21, 2021), Judge Bennett, writing for himself and Judges Wallace and Bea, acknowledges that the Ninth Circuit has never allowed a non-signatory defendant to invoke equitable estoppel against a signatory plaintiff. However, he also opines that, conversely, the Circuit has never held that such estoppel is improper. In this case, the court applies the doctrine for the first time to hold that Ms. Franklin must arbitrate with Community Regional, even though the two parties never signed an arbitration agreement.
Plaintiff was employed by an employee leasing firm (“USSI”), which placed her as a traveling nurse with the defendant hospital. Although she worked at Community Regional and it assigned her hours and provided the timekeeping system which she was required to use, she had no contract with the facility. Her only contractual relationship was with USSI; that contract included an arbitration clause. In this Fair Labor Standards Act case, Franklin alleges that the hospital required her to work unpaid overtime, including through her lunch hour. She sued only that medical facility; for reasons not stated in the opinion, she did not sue USSI, her direct employer. Although Franklin and Community Regional had no contractual relationship, including any arbitration agreement, the hospital moved to compel her to arbitrate by virtue of her agreement with USSI.
Based on Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009), and Circuit authority applying that authority, the court holds that arbitration with a non-signatory is appropriate “if the relevant state contract law allows the litigant to enforce the agreement.” Holding that California contract law applies, the court considers itself bound by the California Court of Appeals decision in Garcia v. Pexco, LLC, 11 Cal. App. 5th 782 (Ct. App. 2017).  There, the California court held that “an employee’s California Labor Code claims against the staffing agency’s nonsignatory client were ‘intimately founded on and intertwined with’ his employment contract with the staffing agency.” Accordingly, it required the employee to arbitrate the claim. This case, Judge Bennett opines, is indistinguishable from Garcia. Franklin’s employment contract with USSI, he holds, is “central to her claims.” USSI was responsible for compensating Franklin for the missed meal breaks, as well as making her available for the orientation which she claims was improper “off-the-clock” work. USSI was responsible for reviewing her time records with the hospital and determining any discrepancies. It was USSI, not the hospital, which was responsible for paying her. In summary, the Court holds, “the substance of her claims is rooted in her employment relationship with USSI. . . . In matters of equity, such as the application of equitable estoppel, it is the substance of the plaintiff’s claim that counts, not the form of the pleading.” The court affirms the District Court’s granting of defendant’s motion to compel arbitration.
It will be interesting to see where this case leads. Is it sui generis to California because of the Garcia case or will we find more such cases in which statutory claims must be arbitrated with a non-signatory even where, as here, the plaintiff “could hypothetically sustain her claims even if there were no [third party contract]?”
Clickwrap arbitration agreements
Quick Hits –
“Frivolous” arbitration awards
Williams v. County of Cook, 2021 U.S. Dist. LEXIS 97778 (N.D. Ill. May 24, 2021), is a follow-up to the court’s earlier order that plaintiff show cause why sanctions should not be imposed upon dismissal of his suit to enforce an arbitration award from a “Non-Public Arbitrator” against Cook County for $5,000,000, Williams v. County of Cook, 2021 U.S. Dist. LEXIS 41201 (N.D. Ill. March 5, 2021). The underlying facts track the usual pattern in such “fake” (to use the court’s term) arbitration matters, in which a “tribunal” issues a huge “award,” even though one party has never, even conceivably, agreed to arbitrate. Here, Judge Kendall orders the plaintiff to pay the attorneys’ fees and costs which the county incurred in defending what she calls a “frivolous lawsuit.” The fact that plaintiff had already been sanctioned approximately $15,000 for what the court characterizes as a “similar scheme in California,” see Williams v. Laimana, 2020 U.S. Dist. LEXIS 248782 (C.D. Cal. Dec. 22, 2020), clearly was a factor in her decision. In any case, it appears that courts losing patience with the results of “award” mills may have found a tool which they are prepared to use in the battle.
Discovery of arbitral filings
There is an assumption that the briefs and pleadings which parties provide to an arbitrator will remain confidential. Holtec International v. ARC Machines, Inc., 2021 U.S. Dist. LEXIS 98484 (W.D. Pa. May 25, 2021), undercuts that assurance. Here, ARC sought an order requiring Holtec to produce pleadings it filed in a previous arbitration with Pandjiris, Inc. – filings which ARC claimed relate to the same issues present in this case and which would support its collateral estoppel defenses. Magistrate Judge Kelly grants the requested discovery. In-house counsel regularly counsel their business clients to think about how an email would be interpreted if it were laid in front of them in a deposition. After reading Holtec, counsel who are involved in multi-part litigation should ask themselves the same question about their arbitration filings.
Waiver of a mediation precondition
Nii-Moi v. McAllen Hospitalist Group, PLLC, 2021 U.S. Dist. LEXIS 99832 (E.D. Tex. May 26, 2021), addresses whether an arbitration may proceed where the parties have not satisfied a contractual condition that they first mediate the dispute. Judge Kernodle holds that the plaintiff waived that requirement when he “made clear that he ‘did not want to mediate’ and instead he filed this lawsuit.” Accordingly, the court compels arbitration. The case is full of citations on the waiver of preconditions and, accordingly, is worth putting into any arbitration notebook.
SCOTUS cert. petitions
The U.S. Supreme Court has accepted two certiorari petitions this term – one on Section 1782(a) and one on federal question jurisdiction over motions to compel or vacate. There have been other two petitions pending for a while and two more can be added to the list. Viking River Cruises v. Moriana, Dkt. No. 20-1573, and HRB Tax Group v. Snarr, Dkt. No. 20-1570, are both primarily of interest to California practitioners. They challenge California Supreme Court decisions which hold that the Public Attorney General Act, which restricts the ability of arbitration clauses to limit broad injunctive relief, trumps contractual class arbitration waivers. For non-California practitioners, the cases, if cert. is granted, will be worth following to see the extent to which the Supreme Court limits or expands the Court’s pro-arbitration holdings in AT & T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011), and Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018). The full petitions are available on the ever-useful SCOTUS blog, Scotusblog.com.
Courts are closed on Monday and so am I. So, have a great holiday. Remember to thank both those who served in the military for their devotion and their families whose own sacrifices are often forgotten.
David A. Reif
 Those interested in civil procedure and the Erie doctrine might enjoy the case for its discussion of what law a federal court should apply when the highest court of a state has not ruled on an issue.