Unconscionability Due to Lack of Discovery

Beasenburg v. Ultragenyx Pharmaceutical, Inc., 203 U.S. Dist. LEXIS 165760 (D.S.C. September 15, 2023)(Hendricks, J), like most cases overruling objections to a Magistrate Judge’s recommendations, is fact-driven.  The generally relevant issue arises in connection with the court’s rejection of Plaintiff’s claim that limitations on discovery render the arbitration agreement unconscionable.  The court points out that the agreement provides each party with three depositions and twenty-five document requests, while giving the arbitrator the discretion to allow additional discovery.  While there is no magic to the scope of discovery in this agreement, it demonstrates the often-overlooked discretion that the drafters of an arbitration clause have to control proactively the discovery burden in the event of a dispute.

Litigation Stay as to Non-arbitrating Parties

Plaintiff in Smiles Services, LLC v. Frye, 2023 U.S. Dist. LEXIS 165539 (W.D. Wash. September 18, 2023)(Estudillo, J), alleges that a former CEO of the plaintiff dental service group unlawful competed with Smiles, solicited employees, and utilized trade secrets.  A state trial court held that Frye’s employment agreement contained a valid arbitration clause and compelled arbitration of the claims against him.  However, the remaining defendants in this federal action did not have such an agreement and were left free to litigate.  However, Judge Estudillo here stays the case as to those non-arbitrating parties until completion of the Frye arbitration. The court opines that the issues in the arbitration and the remaining litigation overlap and would result in duplication of effort if the two matters were to run simultaneously. “If the four corners of the complaint make it clear that the non-arbitrable claims ‘depend[] upon the same facts [as] and [are] inherently inseparable from’ the remainder of the arbitrable claims, a stay of all claims is appropriate.” (Brackets in original; internal citation omitted).  For example, “as to the individual Defendants. . . these claims depend on the arbitrator’s decision as to the privilege and confidentiality of the information [which they allegedly ‘stole’].” If the arbitrator found that the documents were not privileged, the court implies, then the claim against the co-defendants may fail.

Arbitrability of Racial Discrimination Claim

In Booth v. Citizens Bank, N.A., 2023 U.S. Dist. LEXIS 165512 (D.R.I. September 12, 2023)(Smith, J.), the parties’ arbitration agreement provided that it covered “any unresolved disagreement between you and us. . . includ[ing] any disagreement relating to . . . . your use of any of our banking facilities. . . . Claims are subject to arbitration, regardless of on what theory they are based. . . or whether they are statutory (federal or state claims).”  The court holds that the agreement applies to a dispute arising from allegedly discriminatory treatment of plaintiff in the withdrawal of funds.  The court rejects plaintiff’s contention that an agreement must “specifically reference covering discrimination-related claims in order to cover a claim [such as this one] pursuant to the [New Jersey Law Against Discrimination].”  In doing so, the court distinguishes Wright v. Universal Maritime Service Corp., 525 U.S. 70 (1998), holding that, while SCOTUS opined that it “will not infer from a general contractual provision that the parties intended to waive a statutorily protected right unless the undertaking is ‘explicitly stated,’” it did not state that a claim “must be actually listed.”  Whether that distinction is valid is a question for those relying on or distinguishing Booth.

We’ll wrap up the week with tomorrow’s edition.

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