In Guan v. BMW of North America, LLC, a California District Court, acknowledging a split of authority, held that an automobile manufacturer could not compel arbitration of a purchaser’s claims regarding defects in a new car based on a provision in the purchase agreement that required arbitration of claims between the purchaser and the dealer or the dealer’s “employees, agents, successors or assigns.” The court held that, “while acknowledging there exists a split of authority as to whether a vehicle manufacturer can enforce such an arbitration provision on the basis of equitable estoppel or as a third-party beneficiary, finds more persuasive the reasoning of the decisions addressing essentially the same arguments raised here by BMW and finding the manufacturer cannot enforce the provision.”

Amy Hoyt and Greg Kettles of Best Best & Krieger have authored this article, available in JD Supra, discussing the appellate decision in Langere v. Verizon Wireless Services, holding that “[a] plaintiff may not avoid arbitration and manufacture appellate jurisdiction simply by voluntarily dismissing his claims.”

The North Dakota has overruled a lower court’s order compelling arbitration of a consumer’s claim against a time share provider. The consumer alleged high pressure sales tactics, as follows:

“she attended a sales meeting with a Diamond Resorts representative, the sales meeting lasted approximately five hours, and she asked to leave the meeting on at least one occasion and Diamond Resorts refused to allow her to leave. She claimed Diamond Resorts knew she was a diabetic and experienced fatigue and confusion, Diamond Resorts knew she was a vulnerable adult subject to a durable power of attorney for financial management, and Diamond Resorts would not allow her to leave the sales meeting until she signed the timeshare agreement. [She] asserted she lacked the capacity to enter into the agreement, Diamond Resorts used high-pressure and abusive sales tactics and knowledge of her medical condition to unduly influence and coerce her into signing the agreement, and any consent was obtained by duress and menace.”

Recognizing that applicable law provides for the arbitrator to determine “the validity of the contract as a whole,” the court noted “that the issue of a contract’s validity is different from the issue of whether an agreement was ever formed and a contract exists.” Thus, “[b]ecause [the consumer] claimed she lacked the capacity to consent to the timeshare agreement at the time it was executed, and provided an affidavit supporting her argument, we conclude the district court erred in ordering arbitration without holding an evidentiary hearing and
deciding whether a contract exists.”

As the court continued, “if the district court determines that a contract exists and arbitration is appropriate,” then the arbitrator will decide the consumer’s fraud, duress, menace and undue influence claims, which “are arguments about the validity of the entire contract” but “do not challenge the validity of the arbitration agreement itself.”

In Sanh v. Opportunity Financial, LLC, a Washington District Court rejected a lender’s assertion that claims of usurious conduct brought by a borrower should be arbitrated under terms of the loan agreement. As the court explained,

“Between April and August 2019, plaintiff entered into three loan agreements with FinWise
Bank C/O Opportunity Financial, LLC. Each successive loan paid the outstanding balance on the previous loan and provided a few hundred dollars directly to plaintiff. All three loan agreements contained an “Arbitration Clause” consisting of a series of questions and answers describing arbitration, its procedures, and its limitations. The clause governs all “claims, ” which is defined to have “the broadest reasonable meaning” and includes “all claims even indirectly related to your application, the loan, this Note and your agreements with us. . . . It includes all past agreements. It includes extensions, renewals, refinancings or payment plans.” … “Us, ” for purposes of the promise to arbitrate, includes FinWise’s successors, assigns, and related third-parties “who have provided services in connection with any loan to you, including [Opportunity Financial].” Id. The arbitration provision also includes a notice and cure requirement … and an opt-out provision … Plaintiff timely notified FinWise that she was opting out of the arbitration provision contained in the third loan agreement.“

The lender argued that, notwithstanding plaintiff’s exercise of the opt-out in the third refinance, arbitration remained appropriate “because the parties did not ‘sign an agreement stating it doesn’t’ and because the arbitration clause states that it covers refinancings and will remain in effect regardless of prepayment, performance, or amendment.”

The court disagree, however, holding that the parties “entered into a series of loan documents, each declaring itself to be the complete expression of the parties’ agreement and containing an arbitration clause that applied to all claims, past and future. The claims covered by the third arbitration clause specifically included ‘all past agreements.’ Her previous promises to arbitrate were therefore superceded by the third arbitration clause, from which plaintiff timely and effectively opted out.”

The National Law Review has published this article by Frederick Acomb and Emily Ladd of Miller Canfield, discussing the Third Circuit’s recent decision in Pennsylvania National Mutual Casualty Insurance Group v. New England Reinsurance Corp., Nos. 20-1635, 20-1872, 2020 WL 7663878 (3d Cir. Dec. 24, 2020), where the court “held that an arbitration award filed with a petition to confirm the award was a judicial record and therefore subject to the common-law right of access.”

Kristin Bryan and Meghan Quinn of Squire Patton Boggs have this article in The National Law Review, discussing the Illinois District Court decision in  Sosa v. Onfido, Inc., 2021 U.S. Dist. LEXIS 658 (N.D. Ill.) refusing to compel arbitration of a lawsuit brought under Illinois’ Biometric Information Privacy Act.

Dave Reif has this interesting discussion of two federal judges in California construing the same arbitration provision differently within weeks of one another, resulting in conflicting rulings on motions to compel arbitration. As Dave explains, in Nation v. BMW of North America, LLC, 2020 U.S. Dist. LEXIS 246435 (C.D. Cal. Dec. 28, 2020) and Robinson v. BMW of North America, LLC, 2020 U.S. Dist. LEXIS 246785 (C.D. Cal. Nov. 10, 2020), “[t]he two cases, which interpret the same arbitration clause contained in the standard form purchase agreement for a BMW but emphasize different parts thereof, come out diametrically opposed on the issue of whether the manufacturer is a third-party beneficiary of the buyers’ agreement with the dealer and, therefore, may compel arbitration thereunder.”

In Knaresborough Enterprises, LTD v. Dizazzo, the Vermont Supreme Court addressed a circumstance described as follows by the court:

“In this property dispute between neighboring landowners, defendants appeal a provision in the trial court’s final order that requires the parties to submit future disagreements to binding arbitration. The court included the provision in the order based on plaintiff’s representation during the final hearing that the parties had orally agreed to such a provision. Defendants argue that this was error because they did not confirm plaintiff’s assertion and the parties did not sign a written agreement or acknowledgement of arbitration, as required by the Vermont Arbitration Act.“

Finding that the court’s entry of the order did not constitute a written agreement to arbitrate, the court also held that the defendants neither waived nor were estopped from invoking the Vermont Arbitration Act’s requirement that an arbitration agreement be in writing. According to the court:

“Here, defendants did not unequivocally agree on the record to the material terms of an arbitration agreement or to waive their statutory right to a written acknowledgement of
arbitration. At the April 2019 hearing, plaintiff’s counsel told the court simply that the parties had orally agreed to an arbitration provision and planned to work out the terms between themselves. Defendants did not respond, and arbitration was not mentioned again by either party or the court during the hearing. Defendants’ silence at the hearing was insufficient to demonstrate a knowing and voluntary waiver of the protections of [the Act]. And their subsequent actions similarly do not support a conclusion of waiver. Before the court issued its final order and afterward, defendants repeatedly objected to the inclusion of an arbitration provision on several different grounds, including failure to comply with [the Act].“

The takeaway: those wanting a settlement agreement to provide for arbitration of future disputes should be sure to either document the expectation in a written settlement agreement signed by the parties, or, at minimum, to agree upon specific language to be read into the record with both parties acknowledging the agreement on the record. Don’t treat the agreement to arbitrate casually.

Lidia Dinkova of Daily Business Review has authored this interesting article discussing a Florida appellate decision in Jacocks v. Capital Commercial Real Estate Group, Inc. As described, Mr. Jacocks, a real estate agent, was victimized twice in pursuit of his share of a real estate commission to which he claimed entitlement from the sale of an apartment complex. First, he asserts that the buyer and seller secretly executed the transaction so as to avoid payment of a commission. Second, after the brokerage company, with the assistance of counsel, pursued legal action to recover the commission, a settlement was implemented through which the brokerage company refused to share the commission with him.

Mr. Jacocks thereafter sued the law firm claiming malpractice, alleging that it improperly chose sides, pursuing the interests of the brokerage firm while ignoring him. He claims he initially was viewed as a client by the firm even though the did not sign the retainer agreement, having paid part of the firm’s retainer and working closely with the attorneys. However, after separating from the brokerage firm during the pendency of the legal fight, the law firm thereafter ignored him and his interests without addressing the attendant conflicts of interest.

The law firm sought to arbitrate Mr. Jacocks’ malpractice claims, pointing to language in the retainer agreement and arguing that, as a claimed third party beneficiary of the agreement, Jacocks was bound by the arbitration provision. This argument prevailed with the lower court, but was reversed on appeal. According to the appellate court, “Jacocks is suing the defendants for negligence, not to enforce the retainer agreement. The fact that Jacocks relies on his status as an intended third-party beneficiary of the retainer agreement to establish that the defendants owed him a duty of care does not transform the basic nature of his claim from negligence to breach of contract.”

A District Court in Maryland confronted a scenario where a bank depositor brought suit based on the setoff of deposit accounts following the depositor’s failure to make payments under a home equity loan. The borrower claimed the bank’s actions constituted a violation of the Truth in Lending Act (“TILA”). The bank sought to compel arbitration of the claim based upon an arbitration agreement embodied in the documents establishing the deposit accounts.

Confronting the court in Lyons v. PNC Bank, N.A. was the interplay between the deposit agreements and statutory prohibition of arbitration contained in the Dodd-Frank Wall Street Reform Act which applied to the TILA cause of action. The court framed the issue as follows:

“It is clear from the plain language that, at the very least, mortgage notes and other security instruments directly tied to a mortgage loan cannot contain arbitration clauses, but the prohibition’s reach beyond such clear cases remains unsettled. Against this backdrop, this Court must determine whether Plaintiff has carried his burden to show that Congress intended [Dodd-Frank] to preclude arbitration where the dispute arises under a mortgage agreement, but the lender seeks to invoke an arbitration clause in a separate contract purportedly empowering it to unilaterally use funds from the mortgagee’s deposit accounts to pay off the mortgage instrument.”

The court denied the motion to compel arbitration, holding that Dodd-Frank’s arbitration prohibition was sufficiently broad to encompass separate and ostensibly discrete deposit accounts.