The pickings on Wednesday where so sparse that I held off a day on drafting a Highlights. However, the wait was worth it, as we got a set of lessons in basic procedure over the last couple of days.
Proceeding in the absence of a party; service of notice under institution rules
In Brands United LTD. v. Universal Studios Licensing LLC, 2022 U.S. Dist. LEXIS 8091 (C.D. Cal. January 14, 2022), District Judge Blumenfeld denies Petitioner’s application to vacate an award. The underlying proceeding related to fees which Brands admitted it owed to Universal for the use of Respondent’s intellectual property on merchandise in China and Hong Kong. Brands refused to participate in the arbitration, which went forward in its absence. Universal obtained an award of approximately $3Million, which a Hong Kong court confirmed. Petitioner then brought this action in the U.S., seeking to vacate the award.
Brands based its claim on a provision of the Federal Arbitration Act which allows the setting aside of an award that was “procured by corruption, fraud, or undue means,” 9 U.S.C. § 10(a)(1). Brand first asserts that a proceeding in its absence constituted an improper ex parte communication between its opponent and the arbitrator. While there were factual disputes about whether notice was mailed to a proper address, Brand did not argue that it was unaware of the arbitration, and the arbitrator specifically found that Petitioner had received proper notice. Thus, the crux of the court’s opinion is a reiteration of the old saw about the patricide throwing himself on the mercy of the court as an orphan. “[T]here is nothing improper about proceeding in the absence of a party that declines to participate, and Brand cites no authority to suggest that vacatur is permitted, much less required, under these circumstances.” (Emphasis in the original). Judge Blumenfeld distinguishes those cases in which a party, despite participation of its adversary in the proceeding, submits a brief to or has other communication with the arbitrator and does not provide a copy to its opponent.
Petitioner also argued that notice of the proceeding was improper because service was not made in compliance with the Hague Convention. The court rejects this position, as well. First, it holds that the adequacy of service is a procedural issue and, therefore, it is resolved by the arbitrator, not the court. Further, the parties’ licensing agreement provided that “[a]ny notices or other communication required or permitted to be given” could be sent by mail or email. Finally, the parties chose JAMS as the institutional administrator of the proceeding, and notice was given in accordance with its rules. Since service under the Hague Convention is cumbersome, expensive, time-consuming, and fraught with traps for the unwary, Brands is a reminder of the benefit both of using a tribunal, with less formal rules for service, rather than proceeding ad hoc, and of incorporating a method of service into the arbitration agreement itself.
Retroactivity of arbitration provision
Boehm v. VW Credit, Inc., 2022 U.S. Dist. LEXIS 8744 (D. Neb. January 18, 2022), addresses when parties must arbitrate a dispute which predates their agreement. The plaintiff alleged that he leased his car based on false disclosures which “all took place in advertisements and during the sales process well before the signing of the arbitration agreement.” Accordingly, he claimed, the mandate to arbitrate did not reach those disputes. The court, Zwart, J., focuses on the language of the clause, which had typical language purporting to cover “any claim or dispute, . . . between you and us. . . . which arise out of or relates to your credit application, lease, or condition of this vehicle. . . . “ The court compels arbitration because “Plaintiff’s claims are inextricably linked to the formation, interpretation, and enforcement of the lease agreement that contains the arbitration clause at issue. His claims, if any, do not exist independent of that agreement.” The court distinguishes Morse v. ServiceMaster Global Holdings, Inc., 2012 U.S. Dist. LEXIS 144691 (N.D. Cal. October 4, 2012), which refused to compel arbitration of claims raised in preexisting lawsuits between the parties “since the arbitration clause was not retroactive on its face. . . .” Judge Zwart implies that those prior lawsuits did not have their genesis in the relationships covered by the subsequent agreements. However, there is not an in-depth comparison of the claims. Anyone seeking to invoke or avoid the holding in Boehm would be well-served to take a deep dive into Morse.
Delayed payment of arbitration fees
Bogicevic v. Seabourn Cruise Line, Ltd, 2022 U.S. Dist. LEXIS 8795 (W.D. Wash. January 18, 2022), arises from injuries which a waiter allegedly suffered while a crew member on the Seabourn Ovation. Bogicevic initially filed for arbitration with the AAA-ICDR pursuant to his Employment Agreement and the Collective Bargaining Agreement which was incorporated therein. Despite a warning from the institution’s Case Filing Specialist that AAA-ICDR would close the matter if Seabourn did not pay the filing fee by November 1, 2021, defendant did not pay on time; the Association administratively closed the proceeding. Seabourn finally paid the fee on November 15, 2021; a week later, Plaintiff commenced this action, making the same claims he asserted in his demand for arbitration. Defendant moved to compel arbitration. After determining that the New York Convention establishes subject matter jurisdiction, the court, Robart, J., rejects Bogicevic’s claim that failure to pay the fee in a timely fashion waived the cruise line’s right to arbitrate. The opinion distinguishes between the short delay and the administrative close of this case and those actions in which “a party can lose the right to compel arbitration through an order of default or the permanent termination of the arbitration proceedings based on nonpayment,” see Sink v. Aden Enterprises, Inc., 352 F. 3d 1197 (9th Cir. 2003)(distinguished in Bogicevic)(Emphasis added). The lesson for those opposing a non-paying arbitral party is to move as quickly as possible for a formal order defaulting the non-payor before it can rectify its delay.
Clickwrap; “Container” analysis
Barney v. Grand Caribbean Cruises, Inc, 2022 U.S. Dist. LEXIS 8263 (S.D. Fla. January 17, 2022)(Ruiz, J.), does not break any new ground or resolve an unusual issue. However, it is a refresher on two recurring questions. First, the court clearly lays out a description of a webpage layout makes a clickwrap agreement enforceable. It also provides both a good description of the distinction between contract formation, which is always one for the court, and the interpretation of an arbitration clause, which the parties may delegate to the arbitrator.
Since it is already Thursday, it will probably be Monday before there is enough to fill a letter. If so, have a good weekend.
David A. Reif, FCIArb