As many know, a number of corporations determined that the inclusion in their consumer agreement of a provision requiring arbitration on an individual and not class basis would substantially reduce the likelihood that they would defend claims, as the economics seemingly made the prosecution of claims cost-prohibitive given the potential recovery.
However, as this article in Ars Technica explains, “[t]ech-savvy lawyers have begun using digital marketing tools to recruit and sign up thousands—even tens of thousands—of customers to participate in arbitration.” The resulting arbitration fees to the companies, totaling nearly $10 million in one example described by Ars Technica, have caused the entities to rethink the strategy.
Eugene Volokh, in his Volokh Conspiracy blog, has flagged this decision in Dentons US LLP v. Zhang, in which the Southern District of New York denied a law firm’s request for leave to file under seal a petition to confirm an emergency arbitration award. Notwithstanding that “the parties agreed to file under seal any papers associated with an arbitration proceeding,” the court held that “while enforcement of contracts is undeniably an important role for a court, it does not constitute a ‘higher value’ that would outweigh the presumption of public access to judicial documents.”
Adam Hunt, Angela Kleine and Neil Tyler of Morrison & Foerster have this article, available at JD Supra, discussing two Ninth Circuit decisions (Stafford v. Rite Aid Corp. and Franklin v. Community Regional Medical Center), both issued on May 21, and reaching different results regarding the arbitrability of disputes based on equitable estoppel. As the authors explain, the divergent rulings confirm that “the way a company structures its business and contractual relationships can subject even the most carefully drafted arbitration provisions to an uncertain future,” and “demonstrate the fact-specific analysis involved” in seeking to compel arbitration when one of the litigants is not a party to the arbitration agreement.
In Aerotek, Inc. v. Boyd, the Supreme Court of Texas granted an employer’s application to compel arbitration of claims brought by four terminated employees based upon electronic records ostensibly demonstrating the parties’ agreements to arbitrate. In reaching this conclusion, the Supreme Court reversed the trial court and a divided appeals court which, relying on affidavits signed by the employees, found that the employees had not electronically signed the agreements upon which the employer relied.
In reversing, the Supreme Court accepted the company’s factual evidence about its onboarding, electronic contracting process to conclude agreements had been reached, notwithstanding the employees’ sworn denials.
In dissent, one justice took issue with the majority’s decision, asserting that the Supreme Court was improperly intruding on the trial court’s province to find the facts. As he noted, “[t]o put things bluntly, someone here testified under oath to facts that cannot be true. Either the employees were wrong (or lying) when they denied that they ever saw or signed the arbitration agreement, or Aerotek’s program manager was wrong (or lying) when she described how the electronic-onboarding process works.”
A Texas federal court in Nii-Moi v. McAllenHospitalist Group rejected a physician employee’s argument that his former employer waived a condition precedent to arbitration by failing to participate in a mediation proceeding mandated by the employment agreement. According to the court, the issue of waiver was for the arbitrator, not the court to decide. The court’s decision was perhaps preliminarily influenced by its observation that, “from the limited record,” the physician waived the mediation condition precedent by filing the lawsuit without first invoking the mediation process.
Latiqua Liles of Genova Burns has this article in JD Supra, discussing the New Jersey Appellate Division’s decision in Hampton v. ADT, LLC , which overruled a trial court order compelling a former employee to arbitrate claims against his former employer’s predecessor. As the article explains, the Appellate Division held that the lower court erred in sending the case to arbitration without determining “unresolved controlling facts,” including those needed to ascertain whether the successor employee was the assignee of an enforceable arbitration agreement signed by the employee but not his employer.
Michael Holecek of Gibson Dunn has authored this Client Alert, discussing various techniques that companies are incorporating into their ADR provisions in response to the mass arbitration strategies that have evolved in response to class-action waivers found in arbitration agreements.
A California appeals court has affirmed the denial of a petition to compel arbitration in a dispute between an elderly individual and the residential care facility where she lived. The agreement between the parties provided for the arbitration of claims to be “administered by the National Arbitration Forum under the Code of Procedure then in effect.”
The lower court found “the arbitration provision was unenforceable because the National Arbitration Forum (NAF) was no longer in the business of providing arbitration services and the parties’ selection of NAF was integral to the parties’ agreement.” The appellate court agreed.
As the court explained in Miller v. MBK Senior Living, LLC, under California law “an agreement to arbitrate before a particular forum is as integral a term of a contract as any other, which courts must enforce…if an arbitration agreement designates an exclusive arbitral forum…and arbitration in that forum is not possible, courts may not compel arbitration in an alternate forum by appointing substitute arbitrators.”
According to the court, “the NAF arbitral forum and procedure terms selected by defendants were integral to the arbitration provision of the assisted living residence and services agreement. That NAF is no longer available to serve as arbitral forum renders the arbitration provision unenforceable.”
The takeaway for contract drafters: if there is any doubt as to the ongoing viability of a designated arbitration tribunal, include language enabling the parties or the court to select an alternative provider if the need arises.
In Off-Spec Solutions, LLC v. Transportation Investors, LLC, the Idaho Supreme Court determined that commercial parties contractual agreement to arbitrate disputes in California was unenforceable in light of an Idaho statute rendering void contract provisions that attempt to prevent a party from enforcing its rights in Idaho tribunals. Confronting the contract’s California choice of law provision, the Idaho Supreme Court purported to apply California law, nonetheless holding that, notwithstanding the contract’s designation of California for the arbitration, a California court applying California law would defer to the Idaho statute as controlling.
The takeaway seems to be that contracting with an Idaho party carries an inherent possibility that disputes will need to be arbitrated (or litigated) there, regardless of how emphatically the parties express a contractual intent for a different venue.
My guess is that most practitioners would be surprised to think that failure to assert arbitration as an affirmative defense in an answer would constitute a waiver of the right to arbitrate. However, an Oklahoma intermediate appeals court concluded that it did, resulting in an appeal to the Oklahoma Supreme Court. In Howell’s Well Service, Inc. v. Focus Group Advisors, LLC, the Oklahoma Supreme Court, reversed the appellate court’s decision holding that, per the law of Oklahoma and its comparable federal counterpart, arbitration rights are appropriately raised by separate motion and need not be asserted as an affirmative defense in a party’s answer to a complaint.