SCOTUS to decide Coinbase Arbitrability

Last week, the U.S. Supreme Court granted cert and agreed to hear a cryptocurrency case that would move a dispute with users of a cryptocurrency exchange out of courts and into private arbitration. At issue is whether upon creating their Coinbase accounts, users agreed to resolve disputes through arbitration. A subsequent agreement related to a Dogecoin sweepstakes stipulated that any issues related to the contest must be addressed in state court. Users later accused Coinbase of violating California’s false advertising law by luring them into a sweepstakes offering Dogecoin prizes so they brought a class-action lawsuit in federal court. A federal district judge in California refused Coinbase's request to enforce arbitration, as the company argued its user agreements required. The Ninth Circuit Court of Appeals affirmed the trial judge's decision. In a related dispute last summer, the U.S. Supreme Court ruled 5-4 in favor of Coinbase. In that case, the justices supported Coinbase’s request to suspend customer lawsuits while seeking appeals to move disputes from courts to private arbitration. The review of the current case will likely impact the current status of arbitrability decisions by courts verus arbitrators and the utilization of arbitration clauses and enforcement of user agreements, especially in digital currency trading. When parties enter into successive contracts, and the first contains an arbitration agreement with a delegation clause but the second does not, who decides whether the first contract’s arbitration agreement governs any later disputes? This may finally resolve a regional circuit split. See more here-- https://tinyurl.com/ycy8xr67 and https://tinyurl.com/32s87z6t and https://tinyurl.com/2z57nbez

SCOTUS Arbitration Decisions

As this tumultous term comes to a close, a pair of recent employment case rulings has given some to insight into the future of the U.S. Supreme Court's direction on arbitration which has been pretty firm as of late. Traditionally, the Court has relied upon precendent and the Federal Arbitration Act (FAA) in enforcing the right to arbitrate as contractual in nature and upholding those agreements. More recently, the Court is reversing decisions that apply even-handed rules to the FAA. In Morgan v. Sundance, a unanimous Court rejected the two-part test applied by most federal circuits in evaluating whether a party has waived its right to compel enforcement of an arbitration agreement. Under that test, waiver would be found only if a party acted in a manner inconsistent with its arbitration rights and that inconsistency caused prejudice to the other side. The principal justification for requiring prejudice was federal policy favoring arbitration. Finding that the usual test for contractual waiver typically requires only inconsistent conduct, the Court held it improper to add a prejudice requirement onto the waiver analysis just for arbitration agreements. The text of the FAA makes clear that courts are not to create arbitration-specific procedural rules. In Viking River Cruises v. Moriana, eight of nine justices agreed with the result relying in part on a severability provision in the arbitration agreement to narrow an otherwise invalid wholesale waiver of state Private Attorneys General Act (PAGA) claims. This suggests that whether courts will compel arbitration of individual PAGA claims may turn on the specific language of the arbitration agreement at issue. The lone dissent came from Justice Thomas, who long has viewed the Federal Arbitration Act does not apply to cases in state courts. The FAA also can preempt rules “that are generally applicable as a formal matter” but have the effect of making arbitration agreements ineffective because they are inherently inconsistent with arbitration. Such rules would include those that would require a party to arbitrate on a class basis or not at all. See decisions-- http://tinyurl.com/3e6hbek9 and http://tinyurl.com/57r87jzc and more here-- http://tinyurl.com/yeaw7sdd and http://tinyurl.com/yc4ktrmv

Dash for Arbitration

DoorDash delivery workers filed thousands of individual claims at once as initial fees approach $12 million for the company. Under District Judge William Alsup’s order this week in Abernathy v. DoorDash pending in the Northern District of California, DoorDash must arbitrate over 5,000 individual disputes with various workers who claim that they were misclassified as independent contractors, when they should be treated as employees. It also must pay a $1,900 fee for each of these individual arbitration proceedings. As with other gig economy platforms, DoorDash includes an arbitration agreement in its contracts with couriers, who deliver food orders. But after facing a flood of claims, DoorDash balked at the costs of going into arbitration administered by the American Arbitration Association (AAA) where couriers themselves paid more than $1.2 million in filing fees. After Uber imposed arbitration and a class action ban, more than 60,000 of those drivers sought to arbitrate claims against the company. Faced with legal costs of at least $600 million, Uber settled the a majority of these claims last spring. Could the same happen in this case? Another California federal judge similarly compelled arbitration in a case with thousands of claims against Postmates, asking the attorneys to explain how the company’s refusal to pay arbitration fees didn’t amount to contempt. A ruling is pending on that issue. DoorDash had asked to suspend the court proceedings until the approval of a settlement could be reached in a separate class-action case, given the potential for overlap. The company reportedly stands ready and willing to defend legitimate arbitration demands, but maintains it should only be responsible for arbitrating legitimate claims. See more here-- https://bit.ly/39uUehT and https://bit.ly/38qRDWa and https://bit.ly/2OSRQcW

More Arbitration Argument Before SCOTUS

Today, the U.S. Supreme Court (SCOTUS) has oral arguments in two arbitration cases. In the first matter, Henry Schein, Inc. v. Archer & White Sales, Inc., the justices consider if a judge or an arbitrator should decide if a particular dispute should be resolved in arbitration rather than in court. In the second case, Lamps Plus Inc. v. Varela, the issue is whether the Federal Arbitration Act (FAA) precludes state law interpretation of arbitration contracts allowing for class arbitration and who decides whether a particular dispute should be decided in arbitration rather than a court. SCOTUS has already recognized that arbitrators decide issues of arbitrability if the parties clearly and unmistakably agree the arbitrator can assess whether any particular dispute is sufficiently related to the contract to warrant arbitration. Apparently, the U.S. Court of Appeals for the 5th Circuit will not send a case to the arbitrator decide the question of arbitrability, even if the parties have agreed that the arbitrator should decide such questions, if the court finds the claim of arbitrability wholly groundless. The contract in the first case mentioned above provided for arbitration of any dispute arising under or related to the contract, except for actions seeking injunctive relief. The complaint sought damages for Sherman Act violations, as well as injunctive relief. The defendants sought arbitration, arguing the thrust of the complaint was to seek damages, and that injunctive relief could issue after the arbitrator ruled on the merits. Lower courts refused to send the matter to arbitration, finding the request for arbitration groundless because of the inclusion in the complaint of a count for injunctive relief. Because SCOTUS already decided parties can delegate issues of arbitrability to an arbitrator in precedents that do not include exceptions for cases in which courts regard the request for arbitration as groundless, a reversal is likely given recent trends in favor of arbitration. The second case hinges on whether the U.S. Court of Appeals for the 9th Circuit correctly held that an employer did consent to class arbitration when it included language in the arbitration contract that committed the parties to use arbitration in lieu of any and all lawsuits or other civil legal proceedings. This case too may find itself going back, but on procedural grounds as the FAA dictates that an appeal may not be taken from an interlocutory order directing arbitration to proceed. See more here-- https://bit.ly/2AzcN6e and https://bit.ly/2JodgdX and https://bit.ly/2w5K2O8

Arbitrator to Decide Trump Campaign Staffer Claim

Earlier this month, a New York Supreme Court judge decided a former campaign staffer‘s lawsuit regarding harassment could not be moved to private arbitration because her NDA didn’t specify that. Rather, it was merely an option and contained nothing about her job responsibilities, terms of her employment, salary, benefits, or her ability to pursue her own claim. Per the ruling, the state court observed the arbitration clause confined arbitration to "any dispute arising under or relating to this agreement." The state judge also decided it did not require arbitration for any "dispute between the parties" or even "any dispute arising out of plaintiff’s employment." In fact, the court did recognize an arbitrator's province in determining arbitrability, but said is was not even close call and was so clear on this specific, narrow clause as to be a question for the courts alone. Now, however, an arbitrator should have the first stab at deciding over the validity of an arbitration agreement according to a U.S. District in the Southern District of New York who ruled yesterday in a decision that appears to run counter to the state case. The new federal decision is reportedly in accordance with the prior state ruling, as it suggests that each turned on different wording of the separate complaints filed in the respective courts. The latest federal decision is certain to be presented as strong support for the appeal Trump’s legal team plans to file at the state court level. The employee sought to have the arbitration agreement declared unenforceable, saying it had been “weaponized” against her by the campaign. In his opinion and order, the federal judge said the terms of the NDA agreement she signed demands that her very argument about the agreement’s unenforceability must be determined by an arbitrator. The language of the arbitration states that any dispute "arising under or relating to" the agreement was subjected to the rules for commercial arbitration of the American Arbitration Association. Those rules state that the arbitrator has the power to rule on issues of his or her own jurisdiction, including the validity of the agreement itself. Interestingly, in noting the prior ruling at the state level, and specifically that the federal court was in no way bound by it, the judge quoted the state court critique of the language of the agreement failing to require any claims needing to be sent to arbitration, rather than any dispute under or related to the agreement. "Instead, the clause is much narrower: it allows defendant to choose whether to arbitrate any dispute that arises out of the agreement." In this, the federal judge found the claimant raised a "dispute that arises out of the agreement" --whether the agreement is enforceable, and further finding it follows that,"even on the state-court’s view of the arbitration clause, this dispute falls with the clause’s scope." As such, the federal case was dismissed, with neither party requesting to stay the case pending arbitration. See full story here-- https://bit.ly/2PTAHPh

SCOTUS Upholds Employer Arbitration Requirement

This month, in a 5-4 decision, the U.S. Supreme Court ruled that an employer can lawfully require employees to arbitrate as a condition of employment any related disputes on an individual basis and to waive their right to participate in a class action suit or class arbitration. The case involved an effort by workers to file a class action suit against an employer for violating the federal minimum wage law. The employer sought to dismiss the case because it insisted as a condition of employment that the employees waive their ability to go to court or be part of any class action. Rather, any dispute had to be resolved out of court in a private arbitration. The case, Epic Systems v. Lewis, arose from the U.S. Court of Appeals for the Seventh Circuit. Companion cases, Ernst & Young v. Morris, from the Ninth Circuit and National Labor Relations Board v. Murphy Oil, from the Fifth Circuit were argued as a trio before the Supreme Court which decided they differed only in detail, not substance. The Federal Arbitration Act (FAA) requires courts to enforce arbitration agreements between employers and employees according to their terms, even when the agreements provide only for arbitration through “individualized proceedings” rather than a class. In this holding, the Court refused to read the National Labor Relations Act (NLRA) to prohibit arbitration agreements requiring individualized arbitration as an impermissible restriction on employee rights under the NLRA to “engage in … concerted activities for the purpose of … mutual aid or protection,” 29 U.S.C. § 157, holding that Section 7 of the act “focuses on the right to organize unions and bargain collectively” and “does not even hint at a wish to displace" the FAA. The Court stated the FAA and the NLRA have long coexisted (since 1925 and 1935 respectively) and found the suggestion they might conflict something quite new. The Court reasoned that the employees’ theory ran “afoul of the usual rule that Congress does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions..." See more in article here-- https://bit.ly/2Jk3e04 and read full opinion here-- https://bit.ly/2rWzAE8

Uber Arbitration Agreements Upheld

Last week, the Ninth Circuit Court of Appeals in the case of Mohamed v. Uber Technologies, Inc. overturned a District Court’s ruling which originally found Uber’s arbitration agreements to be unenforceable. Last year, the District Court held Uber's arbitration agreements were unconscionable due to the inclusion of a waiver of claims brought under California’s Private Attorneys General Act (“PAGA”). The decision invalidated nearly 250,000 arbitration agreements between Uber and independent drivers, allowing the case against Uber to proceed as a class action in civil court. Uber appealed the decision, arguing that the District Court should have simply severed the PAGA waiver pursuant to a severability provision, rather than invalidating the entire agreement. The Court of Appeals agreed with Uber, ruling that the PAGA waivers be severed from the arbitration agreements and the agreements are otherwise enforceable. The Ninth Circuit dismissed the trial judge's reasons for declaring parts of the arbitration agreement unenforceable as artificial. The appeals panel found the lower court judge also ignored Ninth Circuit precedent, erroneously applying a California Supreme Court decision that itself cited a relevant Ninth Circuit decision. This lastest decision will allow Uber drivers to pursue their PAGA claims in court, but will allow Uber to compel individual arbitration on all other claims. Uber had agreed to a $100 million settlement, which the trial court rejected last month, calling it unfair and inadequate. See more on here-- http://bit.ly/2cB6ylD and full decision-- http://bit.ly/2cnJaco

Arbitration to the Main Stage

In an action by several exotic dancers and entertainers against the operators of Rachel’s Adult Entertainment and Steakhouse in West Palm Beach, a federal judge granted a the strip club’s motion to compel arbitration in a Fair Labor Standards Act (FSLA), finding the entertainers' objections to agreements they signed unpersuasive or incorrect. Plaintiffs sought unpaid wages, claiming they were misclassified as independent contractors and that defendants failed to pay them a proper minimum wage and overtime as workers. Enforcement of the arbitration clause had been objected to because it was asserted all pages were not provided to dancers when they signed the agreements, which they claimed was under duress. Others argued they did not understand the arbitration clause due to language barriers. However, testimony given at an evidentiary hearing was deemed not fully credible by U.S. District Judge Robin Rosenberg. The club provided evidence that the documents were prepared by a third party who routinely stapled the pages together before delivering them. “The court can discern no credible basis for defendants or agents of defendants to choose to extract signature pages for certain dancers, and not others,” Judge Rosenberg wrote. “Thus, the court concludes that plaintiffs must rise or fall together. Either defendants systematically engaged in a pattern of practice of removing signature pages at the time of execution or defendants did not.” She also found the dancers’ claim of duress was without merit because the defendants provided evidence that no one was penalized for asking for more time to read the documents. “Florida law also places a strong duty on signatories to read the contents of the contract before signing,” wrote the court. Apparently, language barrier claims were exaggerated and mostly raised by a claimant who provided substantial testimony in English. The judge further stated that FLSA claims are routinely arbitrated, that the plaintiffs’ counsel had recently moved for arbitration on FLSA claims in an analogous case, that the arbitrator has the authority to sever portions of the agreement that are invalid or unenforceable, and that the Eleventh Circuit has held that when an arbitration agreement invokes the rules of the American Arbitration Association (AAA), as this one does, then it is clear the arbitrator is expected to determine if the agreement is valid. See more on story here-- bit.ly/1TvUgLm and case-- Monteverde et al. v. West Palm Beach Food and Beverage LLC, case number 9:15-cv-81203, U.S. District Court for the Southern District of Florida

Congress Considers Arbitration

This month, U.S. Senator Patrick Leahy introduced the Restoring Statutory Rights Act and Interests of the States Act of 2016. If it becomes law, it would exempt from the Federal Arbitration Act (FAA) claims brought by individuals or small businesses arising from violations of federal or state law, the U.S. Constitution or a state constitution. Accordingly, it would permit these claims to proceed in a court of law. Apparently, under the measure, arbitration is still an option if the parties voluntarily choose to arbitrate a dispute after it arises. The bill would also allow federal and state courts to apply their respective jurisdictional laws concerning contract interpretation to find arbitration provisions unconscionable or unenforceable, notwithstanding the FAA. Finally, courts, not arbitrators, would have the essential task of determining and enforcing arbitrability. Congress is also considering the Arbitration Fairness Act of 2015, introduced last year by Senator Al Franken, which would prohibit the use of forced arbitration in consumer and employment disputes. That bill is still in committee, as is a companion bill in the House of Representatives. These Members of Congress take issue with recent majority decisions by the U.S. Supreme Court upholding federal preemption under the FAA. Arbitration remains a worthy alternative to litigation and perhaps these efforts, which pertain mainly to consumer disputes, will stop the backlash that has seemingly taken place and given the whole process a bad name. See more on S. 2506 and S. 1133 here-- www.congress.gov

Determining Arbitrability In Middle District Florida

In a recent decision on a Motion to Compel Arbitration and Stay Proceedings here in the federal Middle District of Florida, Senior Judge John Steele found that while arbitrability is generally a question reserved for the trial court, an arbitrator may interpret the scope of the arbitration agreement if the parties agree and provide for such delegation "clearly and unmistakably" within the agreement. Authorities for this finding included Terminix Int'l Co. v. Palmer Ranch Ltd. P'ship, 432 F.3d 1327, 1332 (11th Cir. 2005) and Norfolk S. Ry. Co. v. Fla. E. Coast Ry., No. 3:13-cv-576-J-34JRK, 2014 WL 757942 (M.D. Fla. Feb. 26, 2014). For this holding, Judge Steele also relied on prior case law from the Supreme Court, as well as the neighboring Southern District:

"[T]he question `who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter." First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). See also Shea v. BBVA Compass Bancshares, Inc., No. 1:12-cv-23324-KMM, 2013 WL 869526 (S.D. Fla. Mar. 7, 2013) (citing Terminix Int'l Co., 432 F.3d at 1332) ("[W]hen parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to the arbitrator").

Here, the court found delegation provisions clearly and unmistakably delegated the determination of arbitrability to the arbitrator. Pursuant to the delegation clauses contained within the arbitration provisions in the instant case, the court returned the determination of whether or not a Telephone Consumer Protection (TCPA) claim is subject to the arbitration agreement to the arbitrator. Plaintiffs agreed to Defendant's request to stay the action pending the determination by the arbitrator, while reserving their right to continue to proceed in court if the arbitrator rules that their TCPA cause of action is not subject to the arbitration agreement. Harrington v. Regions Bank, No. 2:15-cv-522-Ftm-29MRM (M.D. Fla. Jan. 29, 2016) See opinion here-- bit.ly/1SInxD8

Dodd-Frank Arbitration

Recently, a federal appeals court ruled that a prohibition on mandatory arbitration does not apply to new causes of action that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created to protect whistle-blowers. Congress banned mandatory arbitration in corporate and financial whistle-blower litigation by enacting the Dodd-Frank. With that, employees could no longer be compelled to arbitrate their retaliation claims under the Sarbanes-Oxley Act, the Commodity Exchange Act or the new Consumer Financial Protection Act. Though there is some overlap between Sarbanes-Oxley and newer Dodd-Frank claims, an employee may have no judicial remedy if they are subject to mandatory arbitration and also fail to exhaust the administrative remedies necessary to bring a Sarbanes-Oxley claim. The U.S. Court of Appeals for the Third Circuit, in Khazin v. TD Ameritrade Holding Corp., ruled last month that TD Ameritrade could compel arbitration of a former employee’s Dodd-Frank whistle-blower claim, because he had a written employment contract that required him to arbitrate all employment-related disputes and that was enforceable under the act. The district court had ruled he must arbitrate his claims, but for different reasons. The lower court reasoned that the employment contract predated the passage of Dodd-Frank, but the Third Circuit found on appeal that the Dodd-Frank legislation’s anti-arbitration section expressly amended Sarbanes-Oxley, but did not contain any reference to Dodd-Frank’s own anti-retaliation cause of action. Distinctions between Sarbanes-Oxley and Dodd-Frank could generate further splits of authority in the federal courts if this approach is rejected. See full story here-- http://bit.ly/1z646rA and a copy of the opinion here-- http://www2.ca3.uscourts.gov/opinarch/141689p.pdf

Federal Judge Orders Investigation of Arbitral Awards

Interestingly, a federal judge has ordered an investigation into why a municipality consistently loses arbitration cases with officers who are appealing discipline. U.S. District Judge Thelton Henderson opined that an arbitrator's recent decision overturning the termination of a the City of Oakland police officer videotaped tossing a tear gas grenade into a crowd of Occupy Oakland protesters struck at the heart of a reform he oversees. The judge maintains reversal of appropriate discipline at arbitration undermines the very objectives of a court-sanctioned reform effort following a police brutality scandal a decade ago. Reportedly, of the last fifteen arbitration cases by police officers challenging punishments, discipline was revoked in seven cases and reduced in five others, leaving only three wins for the city. Judge Henderson's unusual order apparently gives wide latitude to study every facet of the police department's investigation of officers and how the City Attorney's office prepares arbitration cases. The investigation will include a review into whether the city is getting adequate legal representation for arbitration hearings, whether it is selecting qualified expert witnesses and whether it should change the process for selecting arbitrators. It will also investigate the police department's discipline process, which officers have claimed is biased against them. See story here-- http://bit.ly/1pxuBTo