Gibbons Law Alert

Gibbons Law Alert

Tagged: Arbitration

Supreme Court Further Restricts Class Arbitration Finding It Must be Unambiguously Authorized

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Posted in Class Action Defense

On May 9, 2019

In a 5-4 decision authored by Chief Justice Roberts, joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh, the U.S. Supreme Court in Lamps Plus Inc. v. Varella held that courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis. Lamps Plus Inc. v. Varella involved an employee who had filed a class action against his employer. Lamps Plus responded by seeking to compel arbitration on an individual rather than a classwide basis. The district court dismissed the case and compelled arbitration, but on a class basis. Lamps Plus appealed, and the Ninth Circuit upheld the district court’s decision. The Ninth Circuit’s reasoning hinged on the fact that the arbitration agreement was ambiguous about the availability of class arbitration. The Ninth Circuit thus distinguished Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), arguing that in Stolt-Nielsen the parties had stipulated that the agreement was silent about class arbitration, whereas the parties had no such stipulation in Lamps Plus. Because the Ninth Circuit held that the agreement was ambiguous, the appellate court turned to California’s contra proferentem rule and held that this state law contract principle required the court to interpret the ambiguous language against the drafter—here, Lamps Plus. The Supreme Court reversed because the principle...

Accepting the Risks of Arbitration Clauses: The Southern District of New York Upholds Arbitrator’s Decision Allowing Class-Wide Arbitration

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Posted in Class Action Defense

On January 28, 2019

On January 2, 2019, the Southern District of New York (SDNY) in Wells Fargo Advisors LLC v. Tucker, declined to vacate an arbitrator’s clause construction award, which construed the parties’ arbitration agreement as permitting class-wide arbitration. Importantly, prior decisions from the SDNY and Second Circuit concluded the parties’ arbitration agreement clearly and unmistakably expressed the parties’ intent that an arbitrator should decide the gateway issue of whether the agreement permitted class arbitration. Having delegated that authority to the arbitrator, the District Court found no basis in law to overturn that clause construction award. The two prior decisions in this matter, addressing the issue of who should decide whether an agreement permits class arbitration, align well with the United States Supreme Court’s January 9, 2019 holding in Henry Schein, Inc. v. Archer & White Sales, Inc. There—resolving a circuit split—the High Court held that when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract, and possesses no power to decide the arbitrability issue, even if the court believes the argument that the arbitration agreement applies to a particular dispute is “wholly groundless.” The clause construction award in Wells Fargo Advisors LLC arose out of a claim by Wells Fargo financial advisors that Wells Fargo, through policy, did not...

Eleventh and Seventh Circuits Hold Class and Collective Arbitration Are Questions of Arbitrability

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Posted in Class Action Defense

On November 5, 2018

In two recent precedential decisions, JPay, Inc. v. Kobel and Herrington v. Waterstone Mortgage Corp., the Eleventh and Seventh Circuits, respectively, held that whether an arbitration may proceed on a class-wide basis (or as a collective action when a claimant is seeking relief under the Fair Labor Standard Act) is a “question of arbitrability” to be decided by the courts, unless the parties specifically delegate that responsibility to an arbitrator. The Supreme Court previously noted the lack of a majority decision on the subject in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. and declined to address this question in Oxford Health Plans LLC v. Sutter, leaving the decision to the circuits. In JPay, the dispute arose when two plaintiffs, users of JPay’s fee-for-service amenities to send money to inmates, filed suit alleging the service dissuaded users from sending funds through free paper money orders, and that the fees charged by JPay were “exorbitant” and used to “fund kickbacks to corrections departments.” JPay’s Terms of Service included a provision that the American Arbitration Association (AAA) would arbitrate and govern any disputes, claims, or controversies that arose between the parties and “[t]he ability to arbitrate the dispute, claim or controversy shall likewise be determined in arbitration.” The plaintiffs filed a demand for arbitration on a class basis, and, in response,...

New Jersey Court Invalidates Arbitration Agreement that Fails to Designate an Arbitration Forum

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Posted in Alternative Dispute Resolution

On October 30, 2018

The New Jersey courts have consistently held that the mutual assent necessary to support a binding arbitration agreement is not present where the agreement does not sufficiently put the parties on notice that, by agreeing to arbitrate, they are giving up the right to have their dispute resolved in a judicial forum and are waiving whatever rights they might have to a jury trial. In Flanzman v. Jenny Craig, Inc., the New Jersey Appellate Division has now held that the mutual assent necessary to support a binding arbitration agreement will also be found lacking when the agreement does not designate the forum in which the arbitration will take place and otherwise fails to define the arbitration process. Background The plaintiff, Marilyn Flanzman, after being terminated from her position as a weight loss counselor for the defendant, a weight loss and nutrition company, brought suit in Superior Court, Law Division under the New Jersey Law Against Discrimination, alleging age discrimination and harassment. The defendant moved to compel arbitration based on an arbitration agreement into which the parties had entered during the plaintiff’s employment, which, in relevant part, stated: Any and all claims or controversies arising out of or relating to [plaintiff’s] employment, the termination thereof, or otherwise arising between [plaintiff] and [defendant] shall, in lieu of...

Federal Courts Uphold Arbitration Agreements Via Email

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Posted in Alternative Dispute Resolution

On October 24, 2018

Recently, federal district courts in New York and New Jersey turned aside employee attacks on arbitration agreements challenged on the grounds that the employer’s communication of its arbitration policy via email was inadequate. The courts in both Lockette v. Morgan Stanley and Schmell v. Morgan Stanley held that the employees’ assertions that they never saw the email forwarding the terms of the arbitration agreement were insufficient to overcome the employer’s evidence that the email had been delivered to the employees’ email inboxes. Lockette John Lockette sued Morgan Stanley in federal court in New York after Morgan Stanley terminated his employment in 2016. Lockette alleged he had been the victim of race discrimination and retaliation in violation of federal law. The company moved to compel arbitration. Prior to 2015, the company had in place an internal dispute resolution program entitled “CARE” (Convenient Access to Resolutions for Employees) for employees registered with FINRA, who could select, but were not required to select, arbitration as a means of resolving statutory discrimination claims. In 2015, however, the company expanded the CARE program to cover all employees and to require the arbitration of employment claims, including discrimination claims, among others. Under the terms of the expanded program, an employee’s continued employment would be considered his or her acceptance to be covered by...

Arbitration Clause’s Punitive Damages Waiver Held Unenforceable Under the LAD

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Posted in Alternative Dispute Resolution

On October 23, 2018

In Roman v. Bergen Logistics, LLC, the Appellate Division recently held that a plaintiff was required to arbitrate her claims of sexual harassment and retaliation with her former employer. The court also held, however, that the arbitration agreement’s contractual provision that barred the employee’s access to punitive damages was unenforceable. Background Plaintiff Milagros Roman was hired by the defendant, Bergen Logistics, as a human resources generalist. She signed an arbitration agreement at the outset of her employment. In addition to requiring Roman to arbitrate any and all claims related to her employment, the arbitration agreement compelled her to waive any claim for punitive damages. After her termination, Roman filed a complaint in New Jersey Superior Court alleging that her former supervisor sexually harassed her, created a hostile work environment, and retaliated against her in violation of the New Jersey Law Against Discrimination (LAD). The defendants moved to dismiss Roman’s complaint and compel her to arbitrate her claims. The Law Division found that Roman knowingly signed the arbitration agreement and that the agreement contained an unambiguous waiver of claims for punitive damages. Accordingly, that court held that Roman was required to submit her claims to arbitration and could not seek punitive damages. Roman timely appealed. The Appellate Division’s Decision The Appellate Division held that the arbitration...

SCOTUS to Have the Last Word on “Wholly Groundless” Standard for Delegation of Arbitrability

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Posted in General Litigation

On July 6, 2018

If the parties to an arbitration agreement have agreed that an arbitrator should decide whether a dispute is arbitrable, the question of arbitrability should be decided by an arbitrator. But who should decide arbitrability when the suggestion of arbitrability is so frivolous as to be wholly groundless? Should the party resisting arbitration be required to arbitrate arbitrability before seeking judicial relief? The United States Supreme Court will soon decide. According to the United States Supreme Court, questions of arbitrability are “undeniably . . . issues for judicial determination”—“unless the parties clearly and unmistakably provide otherwise.” Thus, when contracting parties have clearly and unmistakably agreed that an arbitrator must decide questions of arbitrability, the parties’ dispute should be sent to an arbitrator in the first instance to determine whether the dispute is arbitrable. Some circuits, however, provide exception to this rule where the argument for arbitrability is “wholly groundless.” In such instances, the parties’ dispute can proceed directly to court without a stop at an arbitrator’s desk. The Fifth Circuit initially adopted this rule in Douglas v. Regions Bank, and most recently applied it in Archer and White Sales Inc. v. Henry Schein, Inc. In Archer, a dental-equipment distributor sued its direct competitor for alleged antitrust violations and sought injunctive relief. Defendants moved to compel arbitration,...

New Jersey Appellate Division Continues to Hold Sky-High Bar for Arbitration Clauses

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Posted in General Litigation

On June 29, 2018

In determining the enforceability of arbitration agreements, the New Jersey Appellate Division recently considered the interplay of the U.S. Supreme Court’s 2017 decision in Kindred Nursing Ctrs. v. Clark and the New Jersey Supreme Court’s 2014 decision in Atalese v. U.S. Legal Services Grp., L.P. In Defina v. Go Ahead and Jump 1, the Appellate Division held that Kindred Nursing did not abrogate the holding in Atalese. In Defina, the plaintiff, a minor, broke his ankle while playing trampoline dodgeball at Defendant’s facility. Plaintiff’s father had signed a document entitled “Participation Agreement, Release, and Assumption of Risk,” which contained the following arbitration provision: If there are any disputes regarding this agreement, I on behalf of myself and/or my child(ren) hereby waive any right I and/or my child(ren) may have to a trial and agree that such dispute shall be brought within one year of the date of this Agreement and will be determined by binding arbitration before one arbitrator to be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. . . . Plaintiffs sued, and the trial court granted Defendant’s motion to compel arbitration. On appeal, the Appellate Division reversed, holding that “the arbitration clause at issue in this matter did not clearly and unambiguously inform plaintiff that he was giving up his right...

New Jersey Appellate Court Upholds Class Waiver & Arbitration Provision

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Posted in Class Action Defense

On June 15, 2018

The New Jersey Supreme Court has noted that both “federal and state policies favor[] arbitration.” Nevertheless, the High Court’s Atalese v. Legal Servs. Grp. decision—rejecting the enforceability of an arbitration clause—continues to raise questions about whether New Jersey state courts view such provisions with more skepticism than other jurisdictions. In this regard, the Appellate Division’s recent decision in Signor v. GWC Warranty Corp. provides some welcome guidance. In Signor, the trial court refused to dismiss and compel arbitration of class claims grounded in a particular automobile service contract. The contract contained an arbitration provision with language including: ARBITRATION PROVISION: READ THE FOLLOWING ARBITRATION PROVISION (“Provision”) CAREFULLY, IT LIMITS CERTAIN RIGHTS, INCLUDING YOUR RIGHT TO OBTAIN RELIEF OR DAMAGES THROUGH COURT ACTION. Any and all claims, disputes, or controversies of any nature whatsoever . . . shall be resolved by binding arbitration before a single arbitrator. You agree that any arbitration proceeding will only consider Your Claims. Claims by, or on behalf of, other individuals will not be arbitrated in any proceeding that is considering Your Claims. You and We understand and agree that because of this Provision neither You nor Us will have the right to go to court except as provided above and to have a jury trial or to participate as any member of a...

Third Circuit Holds Agreement to Arbitrate in Illusory Forum Is Unenforceable

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Posted in Class Action Defense

On June 11, 2018

The Third Circuit Court of Appeals recently held, in a precedential decision, that when parties enter an agreement directing them to arbitrate in an illusory forum, the forum selection clause is not severable and the entire agreement to arbitrate is unenforceable. In MacDonald v. CashCall, Inc. et al., a plaintiff brought suit on behalf of himself and a putative class, alleging a loan agreement between the parties was unconscionable and usurious. The agreement at issue included “(1) a provision requiring that all disputes be resolved through arbitration conducted by a representative of the Cheyenne River Sioux Tribe (‘CRST’) and (2) a clause that delegates questions about the arbitration provision’s enforceability to the arbitrator.” The defendants moved to compel arbitration. The district court declined to compel arbitration because the agreement at issue expressly disavowed federal and state law, thus rendering the arbitration provisions invalid as an impermissible prospective waiver of federal and state statutory rights. The district court further held that the arbitration agreement was unenforceable because the forum was illusory, as the selected forum did not conduct arbitrations or have rules for conducting arbitrations. The Third Circuit affirmed the district court’s conclusion that the loan agreement’s arbitration provision cannot direct arbitration to an illusory forum—here, the CRST. Similar to its sister circuits, the Third Circuit...

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