Eighth Circuit Provides Guidance Regarding The Enforceability Of Browsewrap Arbitration Agreements

In Foster v. Walmart, Inc., the Eighth Circuit was confronted with claims brought by Walmart gift-card purchasers who did not receive a refund after third parties allegedly tampered with, and stole the funds that were loaded onto, the cards. Walmart sought to compel arbitration of the claims, invoking a notation on the back of the cards that directed purchasers to “[s]ee Walmart.com for complete terms.” According to Walmart, a visit to the referenced website would lead the gift card purchaser to “an arbitration provision covering ‘ALL DISPUTES ARISING OUT OF OR RELATED TO THESE TERMS OF USE OR ANY ASPECT OF THE RELATIONSHIP BETWEEN YOU AND WALMART.’” The website further provided that customers “accep[ed]” arbitration by “[u]sing or accessing the Walmart sites.”

As the Eighth Circuit explained, the district court erred when it denied Walmart’s motion to compel without holding an evidentiary hearing to determine whether the plaintiffs had notice of the arbitration provision. As the Eighth Circuit explained, the Walmart cards constituted an example of a “browsewrap” arrangement, whereby assent to the contract terms is imputed “through the user’s performance of some specific act–here, ‘using or accessing’ Walmart’s website.”

Once a user clicks on the url, “notice can come in one of two forms”–actual notice (“which occurs “most commonly after clicking on a hyperlink and reviewing [the terms of use]”) or inquiry notice (which “depends on ‘whether the website puts a reasonably prudent user on inquiry notice of the terms'”). Here, according to the Eighth Circuit, “the district court got ahead of itself when it concluded, on this ‘meager record[],’ that inquiry notice was absent.” Instead, the district court was required to conduct a hearing to obtain the necessary facts to render a conclusion as to whether the plaintiffs were on inquiry notice of the existence of an arbitration agreement.

The Eighth Circuit provided guidance that is useful to all companies that use browsewrap arrangements to refer customers to arbitration provisions. In particular, “the exact
location and prominence of the terms-of-use hyperlink, how many clicks it would
have taken for the user to discover the arbitration provision, and whether the website
changed during the relevant period” are key to determining whether a “case belongs in arbitration or litigation.” Moreover, the court also noted that specifics about the size and placement of the gift card directive that customers should go to “Walmart.com for complete terms” might be significant in whether customers were provided adequate “notice to inquire further by telling them where to go for more information.”

“Arbitration Statistics 2020 – In Full Sail Through the COVID Storm”

Dr. Markus Altenkirch and Elias Klodt of Baker McKenzie have this article, published in Lexology, reviewing international arbitration data from 2020 and comparing the information with prior years. Posing a question that is of interest to many, they ask how the various international arbitration tribunals “weather[ed] the COVID-19 storm.” The answer: “In short: they did very well. Despite – or maybe even because – of COVID-19, the field of arbitration continued to grow throughout 2020.”

Failure To Pay Arbitration Fees Dooms Motion To Compel

In Rivers v. Pegar Investments LLC, an Arizona federal court denied a finance company’s motion to compel arbitration of claims brought by a borrower, for the reason that the company failed to timely pay the fees assessed by the American Arbitration Association. The plaintiff, aware of the parties’ arbitration provision, filed an arbitration demand with AAA. As the court explained, “Plaintiff paid her filing fee and AAA sent correspondence to Defendant advising it of the fees due. Defendant never paid the fees to AAA and on March 3, 2021, the parties received a letter from the AAA via email informing them that the AAA was declining to administer.”

Plaintiff thereafter filed suit in court, and defendant moved to compel arbitration, invoking the arbitration provision in the parties’ agreement.

Denying the motion, the court rejected the notion that the company could subsequently rectify the matter, explaining that “the [Federal Arbitration Act] does not require the Court to return parties to arbitration once Defendant has defaulted by failing to pay required fees…In this case, Defendant failed to pay the required fee or raise the issue with AAA and has lost its right to compel arbitration.”

“Ninth Circuit Splits From the Second, Third and Fourth Circuits in ‘Brain Twister’ Arbitration Case”

Today’s trip into the arbitration weeds comes via the Ninth Circuit’s decision in Brice v. Plain Green, LLC, with explanatory help provided in this article authored by Om Alladi at Proskauer, available on JD Supra.

As explained by Attorney Alladi,

“An interesting puzzle arises when a contract contains both of these elements: a choice-of-law clause precluding the arbitrator from applying federal law, and a delegation clause requiring the arbitrator to resolve disputes relating to arbitrability.  In such a case, there is an unresolved order-of-analysis issue: Does a court first look at the delegation clause and send the case to arbitration?  Or does the court look first at whether the arbitration agreement would result in prospective waiver due to the choice-of-law clause?”

Tackling this issue, the Ninth Circuit in a 2-1 decision determined that the delegation issue takes priority. This decision conflicts with those of the Second, Third and Fourth Circuits, and sets up a scenario with major practical implications. As Attorney Alladi notes, the Ninth Circuit majority “explained that if there is a valid delegation clause, whether or not arbitration would result in waiver of federal rights ‘is not for us—nor anyone else wearing a black robe—to decide.’” 

With the split in the circuits, this decision, if it survives en banc review in the Ninth, could be en route to the US Supreme Court.

“The Passionate World Of Business Divorce”

Does this sound familiar?

“The time often comes when business owners decide they no longer wish to work together. Whether certain owners will depart, or the business will be terminated altogether, the parties usually are quite angry and frustrated and they blame each other for everything. These feelings create conditions ripe for litigation. It usually takes several months after a lawsuit is filed before passions cool sufficiently to even try to negotiate a settlement. But by that time, the parties have already incurred substantial legal fees and their business has already been damaged. Even if rationality ultimately prevails and their attorneys are able to help them negotiate a business divorce, all sides will receive a share of a badly damaged carcass.” [Excerpt from The Passionate World of Business Divorce]

“Georgia Supreme Court Sides With Nursing Home on Arbitration Issue Briefed by AGG Attorneys”

Theoretically, guardianship is temporary. A guardian is appointed to care for a ward who is incompetent. The health circumstances warranting a guardianship can change, removing the need for someone to make decisions on behalf of the ward.

Against this background, the question arises as to whether a guardian can enter into a pre-dispute arbitration clause, agreeing on behalf of the ward that disputes arising in the future will be arbitrated. The Georgia Supreme Court has answered this question in the affirmative. Reversing the appellate court, the Supreme Court held in CL SNF, LLC v. Fountain that a guardian’s powers encompass such action. Otherwise, as the court noted, “the guardian would be required to return to the probate court for permission to enter into such agreement or, at least, into any unnecessary contractual provisions.”

Discussing the case in an article available at JD Supra, Attorneys Jason Bring, Kara Gordon Silverman and Jerad Rissler of Arnall Golden Gregory explain that, without this power, “guardians would either be unable to execute routine contracts such as telephone, banking, and utility contracts (most of which include arbitration agreements), or they would have to obtain approval from the probate court for each agreement—an unworkable process.”

“Waiver of Arbitration: Will the U.S. Supreme Court Resolve the Circuit Split Concerning Prejudice?”

This article by Phil Loree provides a great overview of federal cases addressing claims that a party has waived its contractual right to pursue arbitration, with special attention paid to whether a showing of prejudice is required. Mr. Loree suggests that a split in the circuits makes this issue appropriate for determination by the U.S. Supreme Court. At minimum, those facing a (potential) claim of waiver will find the article to be a great starting point for research of applicable federal cases.

Court Clarifies Burden Of Proving Validity Of Electronically Signed Arbitration Agreement

The increased popularity of electronic signing of contracts has generated litigation regarding disputes over whether a party agreed to arbitrate disputes. In Valdez v. Tesla, Inc., a California court has reinforced that, once a purported electronically signed arbitration agreement is presented to the court, the party challenging the enforceability of the agreement bears the burden of introducing evidence that he did not sign. When such evidence is introduced, through a declaration or otherwise, the burden transfers to the party invoking the agreement to provide that the electronic signature is authentic.

In Valdez the lower court ignored this burden-switching sequence. Instead of requiring the party challenging the agreement to offer evidence, the court determined the arguments of counsel were sufficient to impose upon the proponent of the agreement the burden of proof.

Reversing, the appellate court noted as follows:

“The weakness in Valdez’s position is that he submitted no evidence he did not electronically sign the offer letter that contained the arbitration clause. He points to no authority, and our own research has disclosed none, in which a party opposing arbitration on this ground has been held to meet his burden without providing, at a minimum, a declaration under penalty of perjury stating he or she did not sign or does not recall signing the agreement. Rather, courts have consistently relied on a declaration contesting signature in some form as an evidentiary basis for a finding that the signature is not valid.”

Court Provides Guidance Regarding The Circumstances Warranting Postponement Of An Arbitration Hearing

Those familiar with the arbitration process understand that a court will rarely vacate an award based on the arbitrator’s substantive determinations. A court’s only concern under both federal and state statutes is that the process be procedurally fair. For example, the Federal Arbitration Act provides that an award may be vacated:

(1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.”

At the same time, arbitration offers an aspirational goal of providing the parties with a more expeditious proceeding than what they may encounter in a judicial court proceeding. Thus, arbitrators are tasked with exercising control over the process to ensure it “moves along,” while recognizing that failure to provide a party with a fair opportunity to present its case may result in the award being set aside by a court.

A recent decision by the Connecticut Appellate Court provides insight into this balancing act. In Lemma v. York and Chapel, Corp., an employee prevailed in an arbitration seeking damages associated with a claim of wrongful termination. The employer moved to vacate, asserting as one of its grounds that the arbitrator unreasonably failed to grant a postponement of the hearing. The underlying circumstances, set forth in detail by the trial court, explained that the hearing was scheduled to proceed on May 22 and 23, 2019. On May 17,

“the respondent’s attorney sent an e-mail to opposing counsel at 6:15 p.m. …—on which the arbitrator was copied—which reads in part as follows: ‘I was informed Thursday morning of an impending death of a friend of over [forty] years. He passed yesterday afternoon. I knew he was in hospice. I was unable to work at all yesterday and very little today. The arrangements are still not firm but are anticipated to be Monday/Tuesday or Tuesday/Wednesday. It will be in [Foxborough] MA. I am giving the eulogy. I plan to work Monday [morning, as] I have a [long-standing] mediation in an important case and then will be out of town. Because I was unable to attend to this, I request a continuance of the hearing.”

The arbitrator partially acceded to the request, granting a one day postponement, with the directive that the arbitration hearing would be reduced to one day, May 23. The arbitrator advised that, if the respondent’s designated counsel was not available, another attorney from his firm “should handle the case on behalf of the respondent.”

As the trial court explained, “[t]he respondent’s attorney did not return home from Massachusetts ‘until very late on May 22, 2019.'” On May 22, 2019, in the early afternoon, the respondent’s attorney sent a second continuance request, which was denied.”

The arbitrator’s denial of the postponement was made in the context of various objections raised by claimant’s attorney:

“[M]y client is literally en route from points west to attend the hearing tomorrow. [The] [r]espondent has an entire firm (including [one attorney], who participated in the preliminary conference call in the arbitration and has represented [the] [r]espondent in related litigation proceedings) available to handle this proceeding. [The] [c]laimant has paid all of the fees for this arbitration, the hearing of which was scheduled in November. [The] [r]espondent has ignored deadlines, failed to make payments and caused avoidable motion practice (motion to dismiss counterclaim). Enough is enough. As I wrote last week, I, as a solo attorney, do not have availability to handle a rescheduled hearing for several weeks. The prejudice to [the] [c]laimant is therefore even more palpable than it was several days ago. [The] [c]laimant insists that we proceed as ordered tomorrow. … One last point—at least one [third-party] witness has been subpoenaed to the hearing tomorrow as well. Disrupting the hearing therefore causes inconvenience to more than just the [p]anel, the parties and counsel.”

The arbitration proceeded, with the respondent being represented at the hearing by other counsel from other attorneys than the designated lead counsel. Having lost the arbitration, respondent moved to vacate, citing the arbitrator’s refusal to postpone.

The trial court denied the motion to vacate, explaining as follows:

“The court concludes that the arbitrator … acted within his discretion when he denied the respondent’s second request to continue the arbitration. This is because there were reasonable grounds for the refusal. To begin, the reason for the requested postponement— attendance at a close friend’s funeral in a neighboring state—is insufficiently compelling to require an arbitrator to postpone, twice, a previously scheduled hearing. While the court takes seriously the attorney’s loss of a close personal friend, that circumstance does not rise to the level of an event that would prescribe an adjournment in many circumstances, such as a medical emergency materially affecting the admission or presentation of evidence…

“Moreover, according to the respondent, [the attorney] was back home from the funeral on May 22, 2019, albeit ‘very late.’ Thus, the respondent’s attorney had returned by May 23, 2019, and the record does not reflect that [he] was unable to attend the hearing…In addition, and while [respondent’s preferred attorney] did not attend the hearing, the respondent was represented by counsel at the hearing, namely, by two of [his] colleagues, at least one of whom had been involved previously in the case.

“Finally, in declining the respondent’s request for a second continuance, the arbitrator was not limited to a consideration of the respondent’s concerns. Rather, the arbitrator was required to balance ‘the prejudice to the moving party resulting from the failure to postpone against the prejudice to the opposing party due to granting a postponement . . . and other circumstances as warranted in each case.’ … Here, in opposing the second requested continuance, the applicant’s counsel cited as prejudicial, inter alia, the fact that (1) the applicant was ‘en route from [the West Coast] to attend the hearing,’ (2) at least one third-party witness had been subpoenaed to the hearing, and (3) the applicant’s counsel, as a solo attorney, could not handle a rescheduled hearing for a period of time.”

Having failed to convince the trial court to vacate the award, the respondent appealed. The Connecticut Appellate Court was not persuaded, holding that the trial court “thoroughly addressed the arguments that are now before this court on appeal,” and adopting “its well reasoned decision.”

The takeaway from Lemma, at least in Connecticut, is that arbitrators will be afforded substantial deference in their management of a proceeding, without undue fear that their decisions will render the award vulnerable to vacatur.

“Attorneys Turn Back Their Sanctions Over Client’s Absence”

As discussed by Bloomberg Law in this article discussing the Eleventh Circuit’s decision in Miller v. Midland Credit Management, Inc., attorneys need not pay the price for a client who fails to show at a court-ordered mediation. The trial court, dissatisfied with the client’s failure to appear, directed counsel to “address whether they have regained contact with their client.” The court thereafter received an explanation from the client “that she did not attend the mediation because she was relieved of duty from work three hours late, and could not access her phone to inform her attorneys of this unexpected issue.”

The court responded with a sanctions order against both the client and her two attorneys. Reversing, the Eleventh Circuit disagreed, holding that the lower court provided no prior notification that it was considering sanctioning the attorneys. Nor did the court make a finding that the attorneys had engaged in the requisite bad faith to warrant a sanctions order against them. Sending the case back to the lower court, the Eleventh Circuit noted (“[i]It may be that the district court’s imposition of sanctions was based on a finding of bad faith and was supported by the record. At this time, however, we cannot make this determination.”

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