Two articles discussing two cases from California.

In Berman v. Freedom Financial Network LLC, discussed in this Lexology article by Om Alladi at Proskauer Rose, the Ninth Circuit held that an arbitration provision contained in websites was not sufficiently conspicuous to make it enforceable against consumers who ostensibly agreed to it by clicking on a “Continue” button.

On the other hand, Buckley has posted this article, also in Lexology, discussing a California state appellate decision in B.D. v. Blizzard Entertainment, Inc. holding that the “terms of an arbitration agreement contained in a defendant video game company’s online license agreement” were sufficiently conspicuous to make them enforceable.

The takeaway–or the unifying thread, such as it is–is that these cases are fact specific, and perhaps subject to a court’s view as to whether the glass is half full or half empty. Those seeking to provide for enforceable arbitration provisions should err in taking necessary steps to overcome any claims that a reasonable site visitor would not understand they were agreeing to arbitrate disputes.

In Park Plus, Inc. v. Palisades of Towson, LLC, the Maryland Court of Appeals held that the three year statutory period for suing for breach of contract did not bar the assertion of the contract claim in an arbitration proceeding contemplated by the parties’ agreement. As the court explained,

“Statutes of limitations have historically been considered procedural, not substantive defenses, and are generally understood to extinguish the remedy for enforcing a right, not the right itself… So, if Park Plus and Palisades had not included the arbitration provision in the contract, then Palisades could have filed a complaint seeking monetary damages in the circuit court instead of a petition to compel arbitration. In that scenario, the statute of limitations could have extinguished the remedy of a circuit court action, resulting in its dismissal.

“But because the parties did include an arbitration provision and given the limited nature of our role, the only substantive right we are concerned with here is the contractual right to arbitrate, not Palisades’ contractual right to a functioning parking system. Based on our traditional understanding of statutes of limitations, the expiration of the statute of limitations did not extinguish Palisades’ right to arbitrate.“

The court further held that compelling arbitration was consistent with the parties agreement:

When Park Plus and Palisades executed the contract with a binding arbitration clause, they agreed to the limitations imposed by Maryland law on the nature and scope of the court’s involvement over arbitrable disputes. As discussed above, when faced with a petition to compel arbitration, the court’s only function is to decide whether an agreement to arbitrate the dispute exists, and, if so, to enforce it with an order compelling arbitration. Also, [the statute of limitations] applies only to civil actions at law, therefore it does not apply to petitions to compel arbitration. Thus, our holding honors the parties’ agreement and applies Maryland law precisely as the General Assembly intended.

Brian Koosed, Whitney Smith, Kodey Haddox and Ashley Song of K&L Kates have this article in The National Law Review, in which they discuss a “lingering problem” of courts that “will not enforce a contract between cannabis companies” based on their view that awarding relief under the agreements would endorse violating the federal Controlled Substances Act. The authors explain that a way out of the conundrum is for the parties to contractually provide for arbitration of their disputes, providing a checklist of terms that “a carefully-crafted arbitration agreement and thoughtful selection of which laws govern the contract” will maximize the likelihood of enforceability.

Joseph A. Apatov , Stephanie Hand-Cannane , James W. Sandy , Chase Stoecker and Alyssa Weiss of McGlinchey Stafford have this article, available at Mondaq, discussing the Ohio Court of Appeals recent decision in Franklin Dissolution L.P. v. Athenian Fund Management, Inc. As the article explains, the court held that “a party does not waive enforcement of an agreement’s arbitration provisions simply because that agreement has been terminated.” Accordingly, an investment advisor seeking payment for fees was required to take its claim to arbitration, even though the underlying agreement had been terminated by the investment fund.

The New Jersey appellate division recently invalidated an company’s attempt to compel arbitration of claims brought by a former employee. In Guc v. Raymours Furniture Company, Inc., the court was presented with a contractual provision that required the employee to commence an arbitration of her employment related claims within 180 days. Because the contractual time limit was shorter than that provided by New Jersey law, the court, relying on judicial precedent, found it to be unenforceable.

Moreover, the court rejected the company’s argument that the arbitration should nonetheless proceed, with the time limitation being severed from the contract. Reviewing the agreement in its entirety, the court held that the company “chose to link and intertwine the time-limitation concept with the agreement to arbitrate. To sever the time-limitation provisions would require a rewriting of the contract…” Accordingly, the court refused to compel arbitration, leaving the company to judicially defend the employee’s claims.

Courthouse News Service has published this article discussing the Supreme Court of Wisconsin’s decision in Loren Imhoff Homebuilder, Inc. v. Taylor, in which the court was required to take up the awkward issue of an arbitrator who allegedly fell asleep multiple times during a five day hearing. Summarizing testimony by one of the parties during proceedings to vacate the arbitrator’s award, the court observed that:

The homeowners testified that his sleeping happened repeatedly and that “[t]here was never a day . . . where he was not sleeping.” Specifically, the homeowners noted that the arbitrator had “glazed eyes, haziness, drowsiness, and sometimes [went into a state of outright] sleep.” The homeowners further testified that the arbitrator’s sleeping prejudiced their case because it often coincided with their expert witness’s testimony.

The issue on appeal was whether the homeowners had waived their right to seek vacatur by waiting until after the close of evidence to raise the sleeping issue, as opposed to doing so contemporaneously at the time(s) when the arbitrator allegedly was dozing. Disagreeing with the appellate court, which found waiver, the Supreme Court found that it was sufficient that the homeowners flagged the issue before the arbitrator issued his award.

As the Courthouse News Service article explained, the homeowners’ counsel at oral argument explained “that they’d waited until after the hearing to bring it up because ‘figuring out a way to delicately raise [the issue of sleeping] during a hearing is difficult.’” 

As for whether an arbitrator sleeping on the job warrants vacating an award, the Supreme Court has sent that issue back to the appellate court. Stay awake and stay tuned.

Donald Swanson of Koley Jessen has this article in Lexology, discussing the Fourth Circuit’s opinion in PIA McAdams v. Robinson. Attorney Swanson addresses the problems inherent in imposing dual roles of “judicial mediator and decider” in a bankruptcy matter where a judge, designated as mediator, thereafter addresses the imposition of the settlement on the parties (including a class member who objected to the mediation).

In my universe as an arbitrator and mediator, the issue arises when parties sometimes seek to have one neutral serve in both capacities, something that rarely is appropriate.

I’m not sure this is the ringing endorsement sought by proponents of alternative dispute resolution, but as this Insurance Journal article notes, “[c]yber criminal gangs are getting increasingly adept at hacking and becoming more professional, even setting up an arbitration system to resolve payment disputes among themselves.”

The article discusses this recent report of the Cybersecurity & Infrastructure Security Agency, based upon information provided by cybersecurity authorities in the United States, Australia and the United Kingdom. According to the report,

The market for ransomware became increasingly “professional” in 2021, and the criminal business model of ransomware is now well established. In addition to their increased use of ransomware-as-a-service (RaaS), ransomware threat actors employed independent services to negotiate payments, assist victims with making payments, and arbitrate payment disputes between themselves and other cyber criminals. NCSC-UK observed that some ransomware threat actors offered their victims the services of a 24/7 help center to expedite ransom payment and restoration of encrypted systems or data.

JD Supra has published this article by Philip Bruce of McAfee & Taft, discussing the Tenth Circuit’s decision in Reeves v. Enterprise Products Partners, Inc., in which the court held that an arbitration agreement between a staffing agency and its employee served to preclude the employee from bringing judicial claims against the third party company to which he was assigned to work. As the article explains, staffing companies inclusion of arbitration provisions with class action waivers, made it “increasingly difficult for plaintiffs to file to class action lawsuits. To get around this, more plaintiffs were suing the companies that used the staffing agencies and did not have arbitration agreements with the workers, arguing that they were either a direct employer or joint employer.” The Tenth Circuit’s decision, according to the article, will substantially restrict, if not completely foreclose, this litigation tactic.

Kevin Brodehl and Zachary Young of Patton Sullivan Brodehl have this article, available in JD Supra, discussing the California Court of Appeal’s decision in California Union Square L.P. v. Saks & Company LLC, where the court was called upon to construe a lease agreement’s interplay between an arbitration provision calling for the parties to assume their respective attorneys’ fees in the arbitration and a general lease provision entitling the prevailing party in an “action or proceeding to enforce this Lease or any provision hereof” to recover its attorneys’ fees. The victorious party in the arbitration claimed it was entitled to recover the legal fees it incurred in the litigation proceedings to vacate an initial arbitration award and confirm the second arbitration award. The court disagreed. Both the article and the court’s opinion provide valuable insight to those drafting commercial agreements to ensure harmonization of attorneys’ fees provisions.