In Pruteanu v. Team Select Home Care of Missouri, Inc., a Missouri District Court granted defendant’s motion to compel arbitration, staying the action pending completion of the arbitration. After the court entered its order, defendant’s counsel unsuccessfully attempted to persuade plaintiff’s counsel to initiate the arbitration. When plaintiff’s counsel balked, asserting that defendant should commence, the matter found its way back to the court when defendant moved to dismiss the action based on plaintiff’s failure to proceed with the arbitration. Noting that “[i]t is indeed regrettable that the parties permitted the matter to reach this impasse,” the court placed the onus for initiation on plaintiff, providing one last opportunity to initiate the arbitration or face “sanctions including dismissal for failure to prosecute.”

Christina Gallo of Carlton Fields has authored this article in JD Supra, discussing the court’s determination in Young v. Grand Canyon University, Inc. that the District Court “was wrong to compel arbitration of a student’s breach of contract and misrepresentation claims against a university, as federal regulation 34 C.F.R. § 685.300(e)-(f) prohibits a college or university that accepts federal student loan money from enforcing pre-dispute arbitration agreements when a student brings a ‘borrower defense claim.'” As Ms. Gallo noted, the Eleventh Circuit held that  “the regulation’s definition of ‘borrower defense claim’ includes breach of contract and substantial misrepresentation claims and therefore shields those claims from arbitration. “

The Ninth Circuit’s recent decision in DiCarlo v. MoneyLion, __ F.3d __ (9th Cir. Feb. 19, 2021) is the subject of this article in Lexology by Jay Ramsey and Fred Puglisi of Sheppard Mullin. They posit that the court’s ruling “should aid companies across a wide-spectrum of consumer facing industries, many of which are having their arbitration clauses come under attack by plaintiffs asserting claims under California’s consumer protection statutes.”

Traci McKee and Lexi Fuson of Faegre Drinker have this article in The National Law Review, discussing the Florida Supreme Court’s recent decision in Krol v. FCA US LLC. The Florida court held that a a binding arbitration agreement does not constitute “[i]nformation respecting the availability of any informal dispute settlement mechanism elected by the warrantor,” which would require its inclusion in the disclosure of information required by the Federal Trade Commission’s “single document rule.” The authors caution that, since the Florida Supreme Court ruling “departed from Eleventh Circuit authority,” a warrantor of consumer products should nonetheless tread lightly insofar as it faces the prospect of litigating in federal courts in Florida.

This is shaping up to be FAA pre-emption week. Just hours ago, I posted on the Vermont Supreme Court’s decision in Masseau v. Luck, holding that the Federal Arbitration Act pre-empts a Vermont law requiring that an arbitration provision be separately acknowledged in writing.

Now, I have encountered this article by Edward Spiro and Christopher Harwood of Morvillo Abramowitz, published in Lexology–“The Federal Arbitration Act Precludes New York from Exempting Claims from Arbitration”–discussing the Southern District’s recent decision in Gilbert v. Indeed, No. 20-3826, 2021 WL 169111 (S.D.N.Y. Jan. 19, 2021), holding that §7515 of the New York Civil Practice Law and Rules is pre-empted, thereby precluding it from enabling a victim of sexual assault to assert claims in court rather than arbitration.

Those confronting issues that would be decided differently under the Federal Arbitration Act than their state arbitration law may be interested in the Vermont Supreme Court’s decision in Masseau v. Luck.

The question of federal or state law was outcome determinative in that Vermont law provides that an arbitration agreement, to be enforceable, must contain a “written acknowledgement that provides ‘substantially’ as follows:

“ACKNOWLEDGMENT OF ARBITRATION.
I understand that (this agreement/my agreement with _ of _) contains an agreement to arbitrate. After signing (this/that) document, I understand that I will not be able to bring a lawsuit concerning any dispute that may arise which is covered by the arbitration agreement, unless it involves a question of constitutional or civil rights. Instead, I agree to submit any such dispute to an impartial arbitrator.“

The court held that the FAA–which does not require such an acknowledgment–controlled because, “although this is a close case,” “the home-inspection contract between the parties does substantially affect interstate commerce for two reasons. First, the home inspectors “operated their business pursuant to a franchise agreement with a company located outside of Vermont.” Second, “[h]ome inspections are frequently preconditions to securing financing to buy a house, and are accordingly integral to the real estate market.”

Thus, according to the court, even though “there is no dispute that the parties’ contract took place in intrastate commerce,” the operative question was “whether the transaction affects interstate commerce.” Because according to the court it did, the Vermont requirement that a party acknowledge its awareness of an arbitration provision was pre-empted by the FAA.

The court’s opinion engendered a concurrence, acknowledging the correctness of the pre-emption holding based on United States Supreme Court precedent, but questioning whether this result, in a normative sense, was appropriate:

“[I]n this case, there is scant evidence to suggest that the parties’ contract implicates interstate commerce. The record reflects that the contract’s only connection to interstate commerce is that defendant inspector operates its business under a franchise agreement with a company located outside of Vermont. But the parties to the contract—the homeowner and the individual hired to perform the inspection—are Vermont residents. The contract was signed in Vermont and the work was to take place within Vermont’s borders. Yet we cannot conclude that home inspections, in the aggregate, do not substantially affect interstate commerce. So, the FAA applies and preempts Vermont law. While the majority outcome is consistent with the United States Supreme Court’s FAA jurisprudence, I write to make the point that the FAA when passed by Congress was not originally intended to preempt state law in such situations.”

Inviting further jurisprudence–or perhaps Congressional action–the concurrence also noted:

“The result is inconsistent with principles of federalism and harmful to consumers. Under these decisions, ‘federal courts have increasingly policed, and struck down . . . safeguards on arbitration passed by state legislatures’” … State notice requirements, which have been adopted by ‘a mix of traditionally conservative and liberal’ states, are intended to protect consumers and parties with unequal bargaining power by ensuring that they knowingly agree to arbitrate any disputes and forego rights they would have in court. … As the Montana Supreme Court explained, these requirements do not prevent parties from entering into arbitration agreements or otherwise undermine arbitration agreements. Such protections simply do not conflict with the FAA.”

With arbitration coming increasingly under the legislative microscope, opinions such as Masseau may serve to encourage those seeking to amend the FAA.

John Lewis of Baker & Hostetler offers his take on the Massachusetts District Court’s decision in In re: Intuniv Antitrust Litigation, in this article published by Lexology. Explaining that “[i]mportant arbitration and waiver issues emerged from this antitrust class action environment,” Mr. Lewis reviews in particular the court’s “careful analysis of the waiver factors, based on First Circuit decisions,” noting that the opinion “is instructive for potential litigants,” while acknowledging the varying waiver tests applied by courts in the federal circuits.

A California appellate court has affirmed a lower court’s order that a legal malpractice defendant cannot force its former client into arbitration unless it agrees to pay all but $1000 of her arbitration fees and expenses. In Frausto v. Lawyers for Employee and Consumer Rights, APC, the lower court found that plaintiff could reasonably anticipate her share of the costs of the arbitration would exceed $23,000 an amount which “would consume
nearly an entire year’s worth of her take-home pay.” Under those circumstances, plaintiff had argued that the arbitration provision contained in the retainer agreement with her former attorneys was “substantively unconscionable.” Agreeing with plaintiff, the Court of Appeal held that “the trial court properly gave [the defendant] the choice either to pay [plaintiff’s] arbitration expenses in excess of $1,000 or to waive arbitration.”

In this National Law Review article, Gilbert Samberg of Mintz offers this discussion of questions he feels remain to be decided by the United States Supreme Court regarding whether arbitrability should be decided by the court or the arbitrator: “(a) who in the first instance should decide whether there is an antecedent agreement to delegate arbitrability issues; (b) who should do so when one of the parties litigating the delegation issue is not a signatory to the relevant arbitration agreement; and indeed (c) whether a non-signatory to an arbitration agreement can enforce a purported antecedent delegation agreement between other parties.”

Jeffrey Galvin of Downey Brand has this article, published in JD Supra, discussing the recent California appellate decision in Breslin v. Breslin, holding “that a California probate judge may order the private mediation of trust disputes and then disallow the objections of any nonparticipating parties to a settlement agreement reached in mediation.”

According to the appellate decision, even though the probate rules did not explicitly empower the court to order mediation, the court was so authorized by a rule which provided that “[t]he court in its discretion may make any orders and take any other action necessary or proper to dispose of the matters presented by the petition.” As the appellate court continued, the probate court “made participation in mediation a prerequisite to an evidentiary hearing. By failing to participate in the mediation, the Pacific parties waived their right to an evidentiary hearing. It follows that the Pacific parties were not entitled to a determination of factual issues…”

Attorney Galvin notes that the decision, especially if it survives subsequent appellate challenges, has the potential to change the judicial landscape in California: “Stepping back, the big question here is whether California courts, in trust disputes and more broadly in civil cases, can compel private mediation as a prerequisite to conducting a trial. While courts can and often do order ‘mandatory settlement conferences’ with a judicial officer in advance of trial, many practitioners take the view that courts generally cannot (and should not) force parties to go to private mediation with a paid mediator.”