Today’s cases hinge on basic principles. No blockbusters, but an interesting case from my home, the District of Connecticut, and reminders of some foundations of arbitration jurisprudence.
Illusory Arbitration Clauses; Stays of Litigation
Some case discussions need to kick off with a quote which may not be relevant to the ultimate decision, but should not be lost. Senior District Judge Haight provides one in Byrne v. Charter Communications, Inc., 2022 US. Dist. LEXIS 7419 (D. Conn. January 14, 2022), a class action addressing allegedly improper cable television charges.
Not long ago, as eternity measures time, there was no television and consequently no cable television programming. People had devices called “radios” in their homes. In the New York City area, radio owners listened principally to the four leading commercial stations – WEAF, WOR, WJZ and WABC – and the occasional independent station like WQXR (classical music.) A consumer accessed those services by turning his or her radio on, turning the device’s dial to a station’s number, and listening to the program then being broadcast.
After riffing on by-gone days, the court addresses the merits of defendants’ motion to compel arbitration.
The case arises out of plaintiffs’ claim that Charter misrepresented the pricing of its service by adding surcharges to the published fee and eliminating certain channels from the covered package. Charter sought to compel arbitration pursuant to a provision contained in its terms and conditions. The court holds that five of the six plaintiffs agreed to arbitration either by their acceptance of “clickwrap” agreements or by continuing to use the cable service after Charter posted changes in terms to its website. The plaintiffs contended, however, that, even if they accepted the terms and conditions, the agreement to arbitrate was illusory because Charter had the ability to change those provisions at any time. Judge Haight rejects the argument, holding that, because customers could cancel their service after notice of any change to the contract, Charter had no “unfettered” or “unlimited” right to change the terms of service. For support, the court cites to Flood v. ClearOne Communications, Inc., 618 F. 3d 1110 (10th Cir. 2010); Iberia Credit Bureau, Inc v. Cingular Wireless, LLC, 379 F. 3d 159 (5th Cir. 2004); and Cova v. Charter Communications, Inc., 2017 WL 666097 (E.D. Mo. February 17, 2017). The reliance upon Cova raises an interesting issue as to how a service provider must provide notice of the change of terms. In Cova, the notice was included with the customers’ monthly bill. Here, however, notice was apparently given merely by posting the change to Charter’s website. When was the last time you looked at your cable provider’s website?
While it compels arbitration as to five plaintiffs, the court declines to do so as to a sixth, and plaintiffs sought to move forward with that case. However, Judge Haight, under the court’s inherent power to control its docket, stays the case pending completion of the co-plaintiffs’ arbitrations. While not specifically holding that the arbitral awards would bind the parties in the litigated case under the doctrine of claims preclusion, the court opines that they “could be precluded by a full and fair arbitration that rejects precisely the claims in what originally was brought as one putative class action. . . .” (Emphasis added). Interestingly, the court does not address the effect that an award against Charter might hold – a result which would seem to be an easier one from which to argue preclusion, since enforcement would be sought against a party involved in both the arbitration and the litigation. While he does not say so, Judge Haight, a very experienced jurist, may also be hoping that the arbitrations will act as a bellwether, leading to settlement of the litigated matter.
Bottom line – The opinion makes it clear that, if a party with form contracts wants to reserve the right to change its arbitration provision someday, needs to create an amendment process which provides notice of the change and an opportunity for the counterparty to reject it. However, Byrne also demonstrates that such notice need not be particularly easy to find.
Conspicuousness of terms and conditions; retroactivity of arbitration clause
In re: Juul Labs, Inc. Antitrust Litigation, 2022 U.S. Dist. LEXIS 7781 (N.D. Cal. January 14, 2022), raises a question related to Byrne. What is an adequate disclosure of a change in terms when it is made to an already existing customer via the supplier’s website? In this variation of the clickwrap analysis, the court walks through Juul’s various website modifications in response to the court’s earlier denial of motions to compel arbitration. The specific issue raised is whether the layout of Juul’s website’s landing page adequately discloses the company’s terms and conditions to returning customers, as opposed to those who might never have used the site before. The court’s analysis hinges on the location of the “SIGN IN” button in relation to location of the hyperlink which connects to the firm’s terms and conditions. After reviewing Juul’s failed attempts associate the two links, the court, Orrick, J., finds that the new location of the “grayed out box containing the disclosure that ‘by proceeding, you agree to our Terms and Conditions’ [a hyperlink to those terms] is placed immediately above the ‘LOG INTO MY ACCOUNT BUTTON.’” (Emphasis in the opinion). Such ordering of those hyperlinks, he holds, provides constructive notice to a returning user of the relevant terms and conditions. The court further holds that the retroactive application of the arbitration clause is an issue for the arbitrator.
Timing of an application to vacate an award; manifest disregard
Berkowitz v. Gould Paper Corp., 2022 U.S. Dist. LEXIS 6533 (S.D.N.Y. January 12 , 2022), adopts the well-accepted rule that service of an application to vacate an award under the Federal Arbitration Act must be made within three months after the award “is filed or delivered,” 9 U.S.C. §12. The case discusses in lengthy dictum whether “filed” means the date on which the award is “entered, signed, or dated” or “when it is served on the party in a manner that definitely complies with the arbitral body’s rules.” Since Judge Caproni decides that, even if the request for vacatur was timely, it is without merit, she does not resolve the issue. However, the opinion is a valuable start for research on the question, as it assembles numerous cases from the Southern and Eastern Districts of New York on both sides.
The case also demonstrates the length to which a court will go to defer to an arbitrator’s award. The underlying case arose under the Age Discrimination in Employment Act. To quote Judge Caproni, “under the ADEA, an award of attorneys’ fees and costs to prevailing claimant is mandatory.” In rejecting plaintiff’s claim that the arbitrator’s failure to award attorney’s fees manifestly disregarded that law, the court parses the position that Berkowitz took before the arbitrator. “Berkowitz argued before the Arbitrator that he was ‘entitled to’ attorneys’ fees and costs under the ADEA. That was the only language Berkowitz used to describe to the Arbitrator the applicable ADEA law regarding attorneys’ fees. . . His assertion that he was ‘entitled to’ attorneys’ fees was not sufficiently specific to establish that the Arbitrator knew the governing principle and failed to apply it in manifest disregard of the law. Nowhere in Berkowitz’s submissions before the arbitrator did he ‘either explain that the ADEA requires an award of attorney’s fees or quote the language of the relevant ADEA section, which clearly communicates that principle,’” quoting DiRussa v. Dean Witter Reynolds, Inc., 121 F. 3d 818, 822 (2nd Cir. 1997)(Emphasis in opinion). In a footnote, the court also opines without citation that, because respondent prevailed on an unjust enrichment claim, the arbitrator could “assume that the fees for both sides would be roughly the same” and, therefore, decline to award attorneys’ fees on the successful ADEA claim.
Many decisions, in addition to their words, have a “feel.” This is one of those – and the “feel” is that the court worked hard to defer to the arbitral award. Another judge might well have found that the petitioner’s language that he was “entitled” to attorney’s fees identified the claim adequately. As a result, this case needs to go in everyone’s arbitration notebook as a reminder that parties need to be specific as to the relief which they seek from the arbitrator and to lay out in detail any statutory source for that relief.
Quick Hits –
Delegation of Threshold Questions
Two cases, Frye v. T-Mobile, USA, 2022 U.S. Dist. LEXIS 6891 (S.D. Fla. January 13, 2022(Moore, J.), and Kult v. IKO Manufacturing, Inc., 2022 U.S. Dist. LEXIS 6776 (E.D. Mo., January 13, 2022)(White, J.), reiterate the now-familiar mantra that the incorporation of tribunal rules which allow the arbitrator to decide the arbitrability of a claim and the enforceability of the arbitration agreement delegate those gateway issues from the court to the arbitral tribunal.
Equitable Estoppel in Share Offering Agreements
The membership agreements which parties sign in connection with private placements regularly provide that disputes among the entity’s members are subject to arbitration. Carter v. Spiegel, 2022 U.S. Dist. LEXIS 7116 (N.D. Cal. January 13, 2022)(Hixson, Mag. J.), holds that, under the doctrine of equitable estoppel, such a provision inures to the benefit of a “placement agent” of the deal.
Once in awhile it is good to recall basic principles. Gerges v. Wells Fargo Bank, N.A., 2022 U.S. Dist. LEXIS 6676 (D.N.M. January 13, 2022)(Strickland, J.), reminds us that, unless a challenge of unconscionability is directed specifically to the arbitration clause, rather than to the parties’ entire contract, the arbitrator, not the court, will decide the issue.
For those in academia, the Dispute Resolution Section of the ABA is accepting nominations for its annual award for outstanding scholarly work in dispute resolution. Applications are due on February 15, 2022. Information is available at the Section Website, americanbar.org/groups/dispute resolution.
As followers of Highlights may know, I am a Steelers fan. The Black and Gold looked awful last night, and there is another a long season ahead unless we make good trades. Do you suppose a quarterback would ever leave Seattle for the Steel City? See you Wednesday.
David A. Reif, FCIArb