I took a hiatus from “Highlights” for a couple of months.  But, I have surprisingly had some readers tell me that they miss the updates – as did I.  So, to quote “Friday the 13^th, 5” – “He’s back.”

ERISA; Non-arbitrable Claims; Stay

In Cooper v. Ruane Cunniff & Goldfarb, Inc., 990 F. 3d 173 (2^nd Cir. 2021) and Cedeno v. Sasson, 100 F. 4^th 386 (2^nd Cir. 2024), the Second Circuit held that a provision requiring individual arbitration of all claims under ERISA is not enforceable because it requires the waiver of the beneficiary’s statutory rights to seek Plan-wide relief under ERISA Section 502(a)(2).   In Duke v. Luxottica U.S. Holdings Corp., 2024 U.S. Dist. LEXIS 216345 (E.D.N.Y. November 27, 2024), Judge Choudhury addresses whether litigation should go forward on those non-arbitrable issues while the parties arbitrate the plaintiff’s individual claims.

The claim centers around Duke’s contention, on behalf of herself and a class of former and current employees, that Luxottica used outdated actuarial tables in computing joint and survivor annuity benefits.  She brought two sets of claims under ERISA.  In claims under Section 502(a)(2) she sought reformation of the Plan, various injunctive relief, restoration of losses to the Plan, disgorgement of profits which the Plan Committee received, and other relief. Judge Choudhury characterizes these claims as “Plan-wide relief.”  Duke also asserted personal claims under Section 502(a)(3) for alleged violations of the terms of the Plan.  Reconsidering a previous decision by District Judge Azrack, Duke v. Luxottica U.S. Holdings Corp., 2023 U.S. Dist. LEXIS 176479 (E.D.N.Y. September 30, 2023), Judge Choudhury holds that the Section 502(a)(2) claims are non-arbitrable and must be resolved by the court.  However, based upon Duke’s employment agreement, the Court compels arbitration of the Section 502(a)(3) individual breach of contract claims.  The issue, then, becomes whether to stay the litigation until the parties complete the arbitration proceedings.

The court denies Defendant’s motion for such a stay.  Citing frequently to the “heavy burden” a movant takes on in seeking a stay, Judge Choudhury opines that, although there will be overlapping issues between the arbitration and the litigation, the record does not demonstrate how “the interplay of the factual issues [in the two proceedings] might affect one another.”  Further, since the relief in the arbitration would not allow “relief on behalf of others,” staying the litigation would “undermine ERISA’s goal of providing private litigants a cause of action on behalf of the Plan to remedy fiduciary violations.” While he does not say so, Judge Choudhury seems to be concerned that granting a stay would delay granting that Plan-wide relief, not foreclose it completely; even if the litigation stay were granted, the Plan-wide issues could still be taken up after the arbitration terminated, but such relief would happen months or years down the road.

The opinion is a must-read for those seeking to stay litigation during the arbitration of related issues.  In setting forth the items which he finds that Defendant did not establish in seeking a stay, Judge Choudhury provides counsel with a checklist of the proof they should compile to increase the chances of winning such a motion.

Purdue Pharma mediation

Some cases are interesting because of the nature of the underlying litigation, not the specific issue addressed.  Maryland v. Pharma L.P., 2024 U.S. Dist. LEXIS 216421 (S.D.N.Y. November 26, 2024)(McMahon, J.), is one of those cases.  In November 2019, the Bankruptcy Court entered an order prohibiting all government and private entities from litigating claims or taking any administrative action against the Debtor and a number of “Related Parties,” among them the Sackler Family, including claims related to Purdue’s sale of OxyContin.  The injunction is broader than the usual automatic stay in a bankruptcy proceeding. Ultimately, after lengthy mediation, the parties reached a reorganization plan which granted a release to those Related Entities, including the family.  However, the Supreme Court rejected that plan in Harrington v. Purdue Pharma L.P., 144 S. Ct. 2071 (2024).

So, everything moved back to the Bankruptcy Court.  Bankruptcy Judge Lane granted a further extension of the stay, while the parties continued to mediate. Maryland, apparently alone among the claimants, appealed from that order, arguing that the State needs to move forward with “civil, administrative, and regulatory law enforcement to protect the public health.”  (Remember that the underlying claims relate to the distribution and sale of OxyContin).  Judge McMahon sustains the order extending the stay.  She opines that, since “there is no meaningful prospect that [the Sacklers] will ever again be involved in selling opioids,” there is no need for Maryland to take regulatory action against such sales.  Rather, the Court finds, “what would be meaningful to the citizens of Maryland who have been and are being impacted by the opioid crisis is money. . . The best chance – perhaps the only meaningful  chance of obtaining that relief is a successful mediation. . . .” (Emphasis in original).  The court, however, recognizes that this is the fortieth extension and that litigation has been stalled against the Sacklers for five years.  Therefore, she warns, referencing a question in the movie Spaceballs of “when will then be now,” “’then’ had better become ‘now’ pretty ‘soon’ or the preliminary injunction factors will cease to favor further postponement of the ability of parties who have every right to sue the Sacklers to start the war of all against all.”

Per the court, “the appointed mediators and most of the major stakeholders are confident that a successful reorganization plan is imminent.”  We shall see.

Quick Hits –

An Adequate Application to Compel Arbitration

In Correa v. Soho House and Co.,  2024 U. S. Dist. LEXIS 216284 (C.D. Cal. November 27, 2024)(Wright, J.), the court denies Defendant’s motion to compel arbitration because, rather than filing a complete copy of the purported arbitration agreement, Soho only supplied “a series of webpage screenshots or prints, cobbled together to create the twenty-page [Dispute Resolution Agreement].”  Further the hyperlink contained in the digital copy of the DRA was “either incomplete or invalid.” Opining that a “complete copy of the arbitration agreement is essential where, as here, the language of the agreement informs the Court’s analysis,” Judge Wright refuses to grant Soho’s motion to compel arbitration.

The lesson is clear.  Even where providing a complete copy of the arbitration agreement may be difficult – as it certainly can be when dealing with digital Terms and Conditions – find some way to accomplish that end.

Preclusion and Arbitration Awards; Stays under Spizzirri

In National Casualty Company v. Continental Insurance Co., 2024 U.S. App. LEXIS 29826 (7^th Cir. November 22, 2024), Circuit Judge Scudder, writing for himself and Circuit Judges St. Eve and Jackson-Akiwumi, holds that the question of whether an earlier award has a preclusive effect in a subsequent arbitration is one for the arbitrator, not the court.  The panel rejects National’s assertion that Section 13 of the FAA mandates a different result.  While a court’s confirmation of an award “shall have the same force and effect, in all respects as, and be subject to all of the provisions of law relating to, a judgment in an action,” 9 U.S.C. § 13, the panel holds that the FAA does not mandate that a court, rather than the arbitrator, decide the scope of that effect. Such a determination, the court opines, is a procedural one and arbitrators decide the procedure used in their cases.

Notably, this case is an appeal from an order granting a motion to compel and dismissing the action. Would the result be different if the question of the preclusive effect  arose in the context of an application to vacate an award in which the arbitral panel blatantly refused to follow a confirmed arbitration award which was non-distinguishable from the case before it?  Would such a failure justify a vacatur under the “manifest disregard” standard?

You may be wondering how an appeal can lie from a motion compelling arbitration in light of Smith v. Spizzirri, 601 U.S. 472 (2024)(District Court compelling arbitration may only stay the case, not dismiss it).  The appellate panel opines that the Spizzirri doctrine only applies where one of the parties moves to stay the case and “neither party did so here.” So, be sure to make that motion.

Have a great week.  It feels good to be back at the keyboard.

David Reif, FCIArb
Reif ADR
Dreif@reifadr.com