The U.S. Court of Appeals for the Eleventh Circuit concluded that a confidentiality provision in an arbitration clause in a bank account holder agreement was substantively unconscionable. Larsen v. Citibank FSB, 871 F.3d 1295 (11th Cir. Sep. 26, 2017). The case concerned a putative class of account holders who challenged the bank’s overdraft policy. The arbitration clause in the account holder agreement required both parties to keep confidential any decision of an arbitrator. The account holder argued that this provision disproportionately favored the bank as a repeat participant in the arbitration process. The court agreed, concluding that where the outcomes of prior arbitration proceedings remain concealed, as the arbitration clause purported to require, prospective claimants have little context in which to assess the value of their cases, to avoid repeating past claimants’ mistakes, or to leverage prior successes. The court further reasoned that the information disadvantage that the bank holds at the outset of a dispute may have the effect of discouraging consumers from pursuing valid claims. The court concluded that severing the confidentiality clause would not significantly alter the tone or nature of arbitration between the account holders and the bank. Accordingly, the court severed the confidentiality clause and enforced the remainder of the clause.
Howard S. Suskin
An employment agreement contained an arbitration clause, and the employees signed it. But the court sided with the employees’ argument, at least at the pleading stage, that they may not have agreed to arbitrate their claims, because their signatures were directly under a bolded sentence that read, “I certify, by my signature below, that I have received a copy of the Mortgage Sales Commission Plan, which has been provided to me.” The employees argued that their signatures simply acknowledged receipt of the Mortgage Sales Commission Plan, not their intent to be bound by the terms of the arbitration clause contained in the document. The court concluded that because the contract is susceptible to two logical constructions, the court could not find at the motion to dismiss stage that the employees had agreed to arbitration. The court noted that because the employer had provided the employees with the agreement, any ambiguous language would be construed against the employer as the drafter of the contract. Ranieri v. Banco Santander, No. 15-3740 (D. N.J. April 4, 2016).
The Fifth Circuit held that the monetary amount sought in the underlying arbitration, not the amount of the arbitration award, determines the amount in controversy for purposes of diversity jurisdiction to confirm an award under the Federal Arbitration Act (FAA). Pershing LLC v. Kiebach, No. 15-30396 (5th Cir. April 6, 2016). Investors in an alleged Ponzi scheme brought an arbitration against their broker seeking $80 million in damages, but the arbitration panel awarded only $10,000. The broker then moved to confirm the award under the FAA. The investors moved to dismiss, arguing that the federal court lacked diversity jurisdiction because the amount of the award was below the $75,000 threshold for diversity jurisdiction. The district court denied the motion to dismiss and the Fifth Circuit affirmed, concluding that measuring the amount in controversy by the amount of the arbitration demand recognizes the true scope of the dispute between the parties and measures the amount in controversy in the same way as if the dispute were being litigated.
A district court in the Northern District of California rejected a claim by a putative class of wireless users that the First Amendment bars enforcement of their arbitration clause with their wireless provider. Roberts v. AT&T Mobility LLC, No. 15-cv-03418-EMC (N.D. Cal. Feb. 29, 2016). Plaintiffs did not dispute that their wireless service contracts contained an arbitration provision, but argued that the provision was unconstitutional on the theory that if the court were to compel arbitration, that would be state action violating their First Amendment rights to petition a court for redress of grievances. The court found no merit to plaintiffs’ assertion that the mere fact of judicial enforcement automatically establishes state action. In the decision on defendant’s motion to compel arbitration, District Judge Edward M. Chen noted that in many private contracts there are provisions that arguably affect access to the courts, such as choice of venue, choice of law, statutes of limitations, and limitations on damages provisions; although these provisions may be subject to restrictions imposed by statutory and/or common law, courts have not held that judicial enforcement of these provisions, particularly as found in contracts between private parties, amounts to state action or raises constitutional claims.
A district court granted defendant’s motion to compel arbitration even though the arbitration forum specified in the parties’ arbitration agreement does not exist. PR Group, LLC Windmill International LTD., No. 14-0401-CV-W-BP (W.D. Mo. Feb. 1, 2016). The court concluded that the failure to properly specify an arbitration forum does not render the agreement to arbitrate ineffective. Section 5 of the Federal Arbitration Act, which permits the court to designate an arbitrator when there is a lapse in the parties’ agreement for naming an arbitrator, applies when the arbitration forum ceases to exist as well as when one has not been designated. Accordingly, the court exercised its power to direct that arbitration be conducted by the American Arbitration Association.
The U.S. Supreme Court has granted certiorari to address whether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. §1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice. Microsoft Corp. v. Baker, No. 15-457 (cert. granted Jan. 15, 2016). In the proceedings below, the Ninth Circuit held that a stipulated dismissal of an individual claim is an adverse and appealable final judgment and that the plaintiffs did not lose their ability to appeal from a stipulated dismissal with prejudice of their lawsuit and from the order striking their class allegations. A link to the Ninth Circuit’s opinion is available here.
A contract provision stating that the parties expressly agreed not to challenge the validity of their arbitration or an arbitration award was held to be contrary to public policy and void and unenforceable. Atlanta Flooring Design Centers, Inc. v. R.G. Williams Construction, Inc., A15A0664 (Ga. Ct. App., 2d Div., July 16, 2015). The contract stated: “The award rendered by the arbitrator(s) shall be final and binding on the parties and judgment upon the award may be entered in any court of competent jurisdiction. Contractor and Subcontractor hereby expressly agree not to challenge the validity of the arbitration or the award.” Applying Georgia law, and relying on cases decided under the Federal Arbitration Act, the court concluded that the statutory grounds for vacating an arbitration award may not be waived or eliminated by contract. The court reasoned that the statutory grounds for a court to review and vacate an award demonstrate Congressional intent to provide a minimum level of due process for parties to an arbitration.
A defendant in a class action antitrust suit that did not move to compel arbitration until shortly before trial was set to begin was held to have waived its right to arbitrate. In re: Cox Enterprises, Inc. Set-Top Cable Television Box Antitrust Litigation, No. 14-6158 (10th Cir., June 24, 2015). Defendant’s motion to compel arbitration followed extensive discovery, class certification, and potentially dispositive motions. The court found that the defendant’s assertion of its right to arbitrate was overly late and inconsistent with its conduct in litigating the case. Here
A California federal district court denied Uber’s motion to compel arbitration of its driver’s disputes concerning background checks, holding that the arbitration provisions in the drivers’ contracts were procedurally and substantively unconscionable. Mohamed v. Uber Technologies, No. C-14-5200 EMC (N.D. Cal. June 9, 2015). As an initial matter, the court found that delegation clauses contained in the drivers’ contracts, which purported to reserve the adjudication of the validity and enforceability of the contracts’ arbitration provisions to an arbitrator, were unenforceable because they were not clear and unmistakable and conflicted with other language in the contracts. The court also found that the delegation clauses were unconscionable, as they were buried in the lengthy contract, had an onerous opt-out provision, and imposed substantial arbitration costs and fees on the driver. The court then concluded, on similar grounds, that the arbitration provisions in the Uber contracts were procedurally and substantively unconscionable and therefore unenforceable under California law. The court further found that contractual provisions purporting to waive private attorney general claims were void as a matter of California law.