Welcome to the new year.  As we await argument before SCOTUS on stays pending appeal from the denial of arbitration, “Highlights” will continue to focus on federal court decisions of the few days before publication.  However, to keep things fresh, I’ll also be adding more links to blogs, literature, and arbitration news. 

Failure to Pay Fees

While I haven’t tracked the cases, I have a sense that the “failure to pay” issue is becoming more prevalent in arbitrations.  Passion For Restaurants, Inc. v. Villa Pizza, LLC, 2022 U.S. Dist. LEXIS 233644 (D.N.J. December 30, 2022)(Hayden, J.), is one of those cases.

The litigation follows a failed arbitration. Passion alleged that Villa gave it the rights to use the “Villa Italian Kitchen” brand for a series of restaurants in Egypt, but that Villa did not actually own those rights.  As a result, Passion paid $250,000 to settle litigation brought by third party, who also claimed ownership of marks containing “Villa.”  In 2019, pursuant to an arbitration provision in the franchise agreement, Passion commenced an arbitration under the UNCITRAL Rules.  Although Passion paid its portion of the initial deposit, Villa refused to do so.  The arbitrator advised the parties that she would terminate the proceedings unless the deposit was made in full.  Passion asked the arbitrator to conduct a default hearing under Article 30 of the UNCITRAL rules or return the deposit; she declined to do so and dismissed the proceeding.  Passion brought this action under Section 4 of the Federal Arbitration Act to compel Villa to arbitrate the matter.

The court denies the motion and dismisses the action, holding that the UNCITRAL rules “expressly allow the arbitrator to do what was done here; notify the parties that a deposit required has not been paid so that one or more the parties can make up the difference at the penalty of suspension or termination of the proceedings if the deposit goes unpaid, UNCITRAL Arb. Rules Art. 43(4).”  Therefore, it was “squarely within” the arbitrator’s discretion to dismiss the proceeding, since neither party paid the full deposit.  However, the court specifically opines that Passion may litigate the issues; it “simply leaves closed the door the arbitrator closed when Passion declined to pay Villa’s share of the deposit.”

For those practicing international arbitration, the case provides a road map for handling non-payment under UNCITRAL.  For those practicing domestically, it is also worth reading, as it relies upon Lifescan, Inc. v. Premier Diabetic Services, Inc., 363 F. 3d 1010 (9^th Cir. 2004), which reaches the same conclusion under the AAA rules.

No Unilateral Obligation to Arbitrate

The December 27^th issue of “ADR Highlights” discusses Brown v. Stored Value Cards, Inc., 2022 U.S. App. LEXIS 35402 (9^th Cir. December 22, 2022)(Mem.), which held that there was no obligation to arbitrate disputes arising from debit cards which a prison system used to return funds it confiscated from a prisoner.  That case was a memorandum decision which the court held was non-precedential under the 9^th Circuit rules.  In Reichert v. Rapid Investments, Inc., 2022 U.S. App. LEXIS 35943 (9^th Cir. December 30, 2022)(per curiam), the Ninth Circuit issues a precedential opinion setting forth the same principle.

The case arises out of similar facts to those in Brown. Upon their release from prison in Washington state, the plaintiffs were given debit cards, known as “release cards,” that were loaded with the cash confiscated at the time they were arrested. They did not have any alternative way of receiving the funds, and there was a fee charged for their use or “maintenance.”  Thus, the plaintiffs allege, unless they went through the multiple steps needed to cancel the card and receive a check, they did not receive the full amount taken from them.  They brought this class action, seeking damages.

Rapid moved to compel arbitration, pursuant to an arbitration agreement which accompanied at least some of the cards. Circuit Judge Berzon, writing for herself; Circuit Judge Christen; and District Judge Block, sitting by designation, holds that there was no contract to arbitrate and affirms the District Court’s denial of the motion.  Under Washington law, the Court holds, a contract is only formed when there is “mutual assent to sufficiently definite terms, as well as consideration.”  Here, plaintiff Moyer[1] did not indicate his agreement to the terms presented along with the card. Mere use of the card did constitute such agreement, since he “lack[ed] any ‘reasonable opportunity’ to reject the card services. . . .”  “Moyer was presented with a release card as the only way for him to receive his own confiscated money.” (Emphasis in original).  Absent a “’reasonable opportunity’ to reject the card services,” the use of the card raises no “inference of assent.”  Accordingly, the court holds that, under applicable state law, there was never an agreement to arbitrate.

Hyperlinks; Summary Judgment or Rule 12(b)(6) to Resolve a Motion to Compel

Lloyd v. The Retail Equation, Inc., 2022 U.S. Dist. LEXIS 233637 (D.N.J. December 29, 2022)(Rodriguez, J.), is a clickwrap/browsewrap case, granting a motion to compel arbitration pursuant to hyperlinked terms and conditions on the defendant’s website.  The case is a valuable read for anyone addressing the conspicuousness of terms presented on a website screen, as it is loaded with citations from numerous jurisdictions.

More generally, the case addresses the circumstances under which the court should consider a motion to compel as a motion to dismiss under Federal Rule 12(b)(6) and when it should treat the motion under the summary judgment standard of Rule 56.  Judge Rodriguez addresses the issue under the Third Circuit’s standard in Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F. 3d 764 (3d Cir. 2013).  Rule 12(b)(6) applies “when it is apparent, ‘based on the face of a complaint, and the documents relied upon in the complaint,’ that certain of a party’s claims ‘are subject to an enforceable arbitration. . . clause,’” quoting Guidotti.  On the other hand, “the Rule 56 standard will apply ‘when either the motion to compel arbitration does not have as its predicate a complaint with the requisite clarity to establish on its face that the parties agreed to arbitrate’ or when ‘the opposing party has come forth with reliable evidence that is more than a naked assertion. . . . that it did not intend to be bound by the arbitration agreement[.]’” quoting Guidotti (Brackets in original).  Here, although the arbitration agreement “is not attached to, affirmatively incorporated into or specifically mentioned in the Complaint,” the court applies the Rule 12(b)(6) standard.  Lloyd alleges that defendant “intended to mislead customers.”  Therefore, the Court holds, the theory of liability “necessarily implicates these provisions incorporated in the [Terms of Use] and the [Terms of Use] contains the subject arbitration agreement.”  Judge Rodriguez, then, turns to the question of whether there is “reliable evidence” that Lloyd did not intend to be bound by the agreement. After considering defendant’s declaration and exhibits as to the appearance of the website (including screen shots thereof), the Court holds that Lloyd’s “speculation” as to the what the screen may have looked like on the dates of her purchases is insufficient to meet the second prong of the Guidotti test.  Accordingly, the Court resolves the matter under Rule 12(b)(6).  The effect of that the decision as to which rule to apply is significant.  Under the Guidotti standard, if the matter is resolved pursuant to Rule 56, plaintiff is entitled to limited discovery as to contract formation.  Judge Rodriguez’s decision to apply Rule 12(b)(6) forecloses the discovery route.

Literature and News from the Arbitration World

Because there is sometimes a “sameness” to court decisions as arbitration issues become more mature, I’m going to try to highlight more of the arbitration literature, news, and upcoming events this year.  There were two blogs that I wanted to bring to your attention today.

Victor Leginsky, who is an arbitrator and mediator in the U.A.E., publishes The Arbitralis Daily, a very useful aggregator of news and decisions predominantly on the international arbitration scene.  I subscribed through Leginsky’s Twitter account and get it as a daily email.  I expect you can also get access through his website, Arbitralis.com.

Another great source of information is Rob Harris’s Positively Neutral postings on LinkedIn.  Harris both links to other case analyses and gives his own, thoughtful views on current issues.

Registration is open for the Spring Meeting of the ABA’s Dispute Resolution Section in Las Vegas from May 10 to 13, 2023.  The program, even last year when it was held remotely, is full of great content and panel discussions, as well as presenting an opportunity for networking.  You can register at  Welcome – 25th Annual Dispute Resolution Spring Conference (cvent.com).                       .

If you have mediation or arbitration sources that I might include in future “Highlights,” please drop me an email.  However, because I have an arbitration/mediation practice and want to avoid conflict issues, I unfortunately must decline to include the often-excellent pieces issued by law firms.

Let me start the year with the usual caveat. In selecting and discussing the courts’ reasoning in arbitration cases, “ADR Highlights” tries to present the variety of issues arising in the fields of arbitration and mediation. However, my citing to particular cases or describing their holdings does not reflect my personal views on whether they are right or wrong.  As a full-time arbitrator and mediator for a number of years, I recognize that the facts and law in each proceeding are different. So, treat “Highlights” as a news source, not an expression of Dave Reif’s views.

Have a great weekend. To those of you of the Orthodox Christian faiths, Merry Christmas.

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

[1] The named plaintiff, Reichert, was the subject of previous decision in Reichert v. Rapid Investment, Inc., 826 F. App’x 656 (9^th Cir. 2020), in which the Court of Appeals reversed the District Court’s denial of a motion to compel and remanded.  This case apparently arises from that remand. Moyer was added as an additional plaintiff.