Today’s cases address mass arbitration, federal question jurisdiction over a motion to vacate, and litigation waiver.  A little bit of everything .

Mass Arbitration; Failure to Pay Institutional Filing Fees

In response to the enforcement of class waiver provisions in arbitration agreements, the claimants’ bar began to file hundreds or thousands of identical claims, often at one time.  In response, arbitral institutions adopted rules shifting much of the initial responsibility for paying those fees to respondents, subject to the arbitrator’s adjustment as part of the final award.  Sometimes, the countermove by respondents was a refusal to pay the fees, in which case the Plaintiff would claim that the court should move forward with the litigation.  5-Star General Store v. American Express Co., 2024 U.S. Dist. LEXIS 217246 (D. R.I. December 2, 2024), is one such case.

5,155 merchants, including 5-Star, filed individual arbitrations claiming that Amex’s credit card practices violated federal antitrust laws. The American Arbitration Association, pursuant to its then-applicable rules for fee-sharing, charged the claimants $350 and Amex $3,150 per claim.  This resulted in a bill to Amex of more than $17,000,000, which it refused to pay.   The AAA consequently closed the file.  However, Amex still sought to stay the litigation and compel arbitration. This opinion ensued, as Judge McElroy denies that motion.

The decision centers on Sections 3 and 4 of the Federal Arbitration Act, 9 U.S.C. §§ 3, 4.  Those provisions direct the court to enforce the parties’ agreement to arbitrate and stay litigation on the arbitrable issues if “the moving party is not in default in proceeding with such arbitration,” Ibid, § 3.  Judge McElroy, extrapolating from Marie v. Allied Homes Mortgage Corp., 402 F. 3d 1 (1^st Cir. 2005), and following the reasoning of decisions in four other Circuits, holds that Amex is in “default in proceeding” and denies the motion.  In doing so, the court relies upon the definition of “default” in Black’s Law Dictionary – “the omission or failure to perform a legal or contractual duty; esp., the failure to pay a debt when due.” (Emphasis added).  Judge McElroy opines “Amex had a contractual duty to abide by AAA rules, including rules about fees. . . In not paying the fees by the AAA’s stated deadline, Amex failed ‘to pay a debt when due.’”

The court rejects Amex’s argument that “’default’ must be treated like ‘waiver,” and that there is a ‘demanding’ standard to finding ‘waiver.’”  “Nothing in the FAA itself suggests that it [Amex] is correct, especially when ‘default’ by its ordinary meaning has occurred.”  However, opining that the First Circuit in Marie “has recognized that the term ‘default’ in § 3 has ‘generally been viewed’ to include ‘waiver’ in its reach,” Judge McElroy goes on and finds that Amex’s “choice not to pay arbitration fees after repeated warnings from the arbitrator about impending closure clearly suggests waiver.”  Likewise, she holds that the “no waiver” provision in the Amex arbitration clause is inapplicable, as the defendant’s conduct in not paying the AAA’s fees “nullif[ied]” that provision.

In the real world of arbitration, there are not many cases involving $17,000,000 of filing fees. But, for those operating in the realm of mass arbitrations, this is an important opinion to keep handy for two reasons.  First, it obviously is a citable authority for the proposition that the failure to pay those lofty fees bars the District Court from compelling arbitration.  It is also, though, a great source for authority throughout the Circuits on the relevant issues. Before you cite it, however, be sure to check for subsequent action on the file.  Remember, under the FAA the denial of a motion to compel arbitration is appealable.  Since there is no First Circuit authority directly on point and there is a whole lot of money involved, 5-Star General seems like a prime candidate to move up in the judicial chain.

Delay in Moving for Arbitration

In Acorin v. Wells Fargo, N.A., 2024 U.S. Dist. LEXIS 216836 (S.D. Cal. November 29, 2024), Defendant Experian moved to stay discovery during the pendency of its motion to compel arbitration.  Recognizing that the Ninth Circuit has not established a “clear standard for deciding whether to stay discovery while a potentially dispositive motion is pending,” Magistrate Judge Major applies a two-part test.  First, is the pending motion dispositive of the issue on which discovery is sought?  Second, can that dispositive issue be decided without the requested discovery?  Based on Experian’s delay in moving to compel arbitration, the Court denies the motion.  The Magistrate Judge opines that “Experian’s decision” to wait nearly 300 days to move to compel, attend early evaluation conferences, and participate in discovery “severely undermines Experian’s argument that it will suffer irreparable harm and prejudice if discovery is not stayed in this matter. . . . Had Experian truly been concerned about losing the benefits of the arbitration process, it would have and should have filed its Motion to Compel Arbitration much earlier.”  While the decision is in the context of a motion to stay discovery, it reads like a litigation waiver holding, which might be the next ruling in the file.  However, in summary,  Acorin is one more reminder to move early, often, and clearly when your client wants to assert any contractual right to arbitrate.  (And to in-house counsel – be sure to search the company’s files to make sure that you discover any arbitration provisions at the beginning of the litigation).

Federal Question Jurisdiction over an Application to Vacate; Federal Regulations; Nursing Home Malpractice Claims

Williams v. ProMedica Health Systems, Inc. 2024 U.S. App. Lexis 30340 (3^rd Cir. December 2, 2024)(Circuit Judge Ambro writing for himself and Circuit Judges Restrepo and Montgomery-Reeves), arises out alleged medical negligence in a long-term care facility. The arbitral panel found for the facility based upon claimant’s failure to file a certificate of merit as required by Pennsylvania malpractice law. The patient moved in federal court to vacate the award.  As there was no diversity of citizenship, federal subject matter jurisdiction hinged on the presence of a federal question.  The plaintiff argued that, because the facility allegedly failed to comply with a regulation promulgated by the Centers for Medicare and Medicaid Services (“CMS”) requiring informed consent to any arbitration provision in nursing home contract, the matter created a federal cause of action or addressed a substantial issue of federal law.  The District Court rejected that argument, and the Third Circuit affirms. The court holds that the CMS rule does not create a private right of action and, therefore, did not create the cause of action which Williams pursues.  Further, there is no “substantial” issue of federal law.  Here, the underlying dispute was an individual malpractice claim, and the CMS Rule does not “affect[] the validity of arbitration agreements.”

Enjoy the weekend. I will be traveling, so it may be Wednesday before I get to next “Highlights.”

David Reif, FCIArb
Reif ADR
Dreif@reifadr.com