Welcome to a new week.  We got a little snow on the Connecticut shore, although some inland areas were hit harder. Winter may have finally arrived. Most importantly, my Steelers made the Wild Card game.  Thank you, Jacksonville.

A Compendium of Issues in One Case

Hetrick Co., LLC v. IINK Corp., 2024 U.S. Dist. LEXIS 1498 (E.D. Va. January 3, 2024), arises out of a dispute related to the digital endorsement and transfer of insurance checks. IINK offered those services, which Hetrick Co. (“HetCo”) contracted to use on behalf of its clients; Philippe Hetrick (“Hetrick”), a Hetco principal, signed the contract on its behalf.  HetCo and Hetrick allege that Defendant, in connection with the investigation of a suspicious account, disclosed confidential information and defamed HetCo and Hetrick.  Only HetCo signed the contract, which contained an arbitration clause, siting the arbitration in Tampa, Florida. IINK moved to compel arbitration as to both plaintiffs.  Plaintiffs opposed the motion.

The case raises a variety of issues, including the formation of an agreement, equitable estoppel as to a non-signatory, the scope of a federal court’s jurisdiction to compel arbitration outside its District, severance of plaintiffs, and transfer under 28 U.S.C. § 1404(a).  Judge Ellis addresses all these issues in depth, along with some that are more rarely seen, like the constitutionality of the Federal Arbitration Act. At the end of the fifty-four-page opinion, the court provides a summary of the issues considered.  Because of the limited length of this blog, the most efficient thing I can do is to simply incorporate his list and let you go to the opinion for more detail.

Per Judge Ellis, the opinion addresses:

• Whether a valid arbitration agreement exists between the plaintiffs and IINK;
• Whether Plaintiffs’ claims fall within the scope of any such agreement;
• Whether the agreement contains an unenforceable “infinite arbitration provision:”
• Whether a District Court in Virginia may enforce an agreement calling for the siting of the proceeding in Florida;
• Whether the court should transfer the claims of the non-arbitrating Plaintiff; and
• Whether the FAA is unconstitutional under the provisions of the Seventh Amendment to the U.S. Constitution.

Save the opinion in your notebook for future use.  However, if you are an arbitration law junkie, this is a great case to read over a cup of coffee or adult beverage, as it is a summary of both arbitration issues and some basic civil procedure.[1]

Unconscionability

In a 2-1 decision, the Ninth Circuit has reversed an order compelling arbitration, Streedharan v. Stanley Industrial & Automotive, LLC, 2024 U.S. App. LEXIS 192 (January 4, 2024). The decision is mainly worth reading by Ninth Circuit practitioners, as it does not break any new ground.  The majority, Judges M. Smith and Van Dyke, reaffirm that the burden rests on the party opposing arbitration, not on the proponent of the motion, to establish that the agreement is unconscionable.  Based on the record below, the majority holds that the District Court erred in holding that Streedharan did not have an opportunity to make a meaningful choice as to whether to sign the arbitration agreement.  Having, thus, decided that the agreement is not procedurally unconscionable, the panel never addresses the adequacy of the District Court’s consideration of substantive unconscionability and reverses the lower court’s denial of arbitration.  Judge Bea dissents, opining that the majority misreads relevant California law as to procedural unconscionability and that the agreement meets the applicable standards.  Therefore, he moves on to consider whether the agreement is substantively unconscionable.  He concludes that, while the lower court did not err in finding substantive unconscionability, it did make a procedural error.  Because the District Court held that a forum selection clause was excluded from the parties’ contract due to a lack of mutual assent, Judge Bea opines that it erred in considering that provision in its determination as to whether to deny arbitration altogether, rather than merely severing the offensive terms.  Therefore, Judge Bea would remand to the District Court to reconsider severability.

I may be unavailable for the next couple of days because of a program at Quinnipiac Law School and a CLE presentation on Early Dispute Resolution.  So, if “Highlights” is not back until Thursday, have a good week.  

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

[1] I’ve also got to say that Plaintiffs’ counsel’s firm has a creative moniker.  In this day when firms still bear the names of long-deceased partners, this one is called “Da Vinci’s Notebook.”  Talk about a celebrated namesake!!