Tagged: Arbitration

Third Circuit Enforces Delegation Provision in Arbitration Agreement

A “delegation provision” in an arbitration agreement authorizes the arbitrator to decide issues concerning the arbitrator’s own jurisdiction over disputes before him or her. Absent a delegation provision, such jurisdictional issues are for courts to decide when adjudicating motions to compel arbitration. In its recent decision in Carrone v. United Health Care Group Inc., the United States Court of Appeals for the Third Circuit clarified the circumstances under which courts may entertain challenges to arbitration agreements with delegation provisions. Background Michele Carrone filed suit in federal district court in New Jersey charging her employer and coworkers with discrimination. The defendants moved to compel arbitration. The parties’ arbitration agreement incorporated by reference the Employment Dispute Resolution Rules of the American Arbitration Association (AAA). Rule 6(a) of those rules sets forth a “delegation” provision, to wit: “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement”; and, further: “The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part.” Carrone opposed the motion to compel arbitration on the grounds that “(1) the arbitration agreement’s amendment provision rendered the agreement illusory, (2) the arbitration agreement as a...

New Jersey Appellate Division Finds Parties’ Agreement for Arbitrator to Participate in Settlement Discussions and Continue as Arbitrator Need Not Be in Writing

In Pami Realty, LLC v. Locations XIX Inc., the New Jersey Appellate Division, in a to-be-published opinion, reversed a trial court’s determination that an agreement between litigants that an arbitrator could participate in settlement discussions and then continue as arbitrator must be in writing. After commencing litigation over a construction contract dispute, the parties agreed to participate in arbitration proceedings to resolve their dispute. On the second day of arbitration, the parties discussed settlement. When the settlement negotiations were unsuccessful, the arbitration resumed for a final day of testimony. Six weeks after the submission of post-hearing briefs, the arbitrator reported that he had finished his opinion and would be finding in favor of the defendant. Plaintiff’s counsel responded that the arbitrator “had no authority to act as a mediator in this matter and then re-assume the role of arbitrator,” and his “decision to act as mediator created a conflict of interest that neither party waived through the arbitration agreement.” After the arbitrator issued an award in favor of the defendant, the defendant moved to confirm the award. The plaintiff filed a cross motion to vacate the award, again arguing that the arbitrator had “exceeded his powers when he resumed the role of arbitrator after acting as a mediator mid-arbitration.” In a one-page statement of reasons,...

New Jersey Appellate Division Holds Semblance of Acknowledgement Needed for Internet-Based Terms and Conditions Arbitration Clause to Apply

In Wollen v. Gulf Streams Restoration and Cleaning LLC, the New Jersey Appellate Division, in a to-be-published opinion, reversed a trial court’s determination that a plaintiff was bound to an arbitration provision found on an internet-based company’s website. Specifically, the Appellate Court found that the plaintiff did not “knowingly and voluntarily agree to waive her right to resolve her disputes in court.” Defendant HomeAdvisor is an internet-based home improvement website that refers potential customers to third-party local service providers. A potential customer would log on to the HomeAdvisor website and create an online account in order to submit a service request. The customer was then required to provide information about the project before reaching the final webpage, which featured a button for the user to press requesting “free project cost information” from contractors in the area. An orange button with the words “View Matching Pros” was at the bottom of the page, with a line of text beneath it stating “[b]y submitting this request, you are agreeing to our Terms & Conditions.” The phrase “Terms & Conditions” was in blue and contained a hyperlink to a separate document entitled “HomeAdvisor Terms and Conditions.” However, a customer could click “View Matching Pros” without viewing the terms and conditions. Further, there was nothing to indicate that a...

New Jersey Supreme Court Confirms Enforceability of Arbitration Agreements Concerning Transportation Workers Under the NJAA

In Colon v. Strategic Delivery Solutions, LLC and Arafa v. Health Express. Corp., plaintiffs contracted with corporate defendants to provide transportation and delivery services as independent contractors and signed arbitration agreements governing the terms and conditions under which they were to provide services. The agreements at issue explicitly referenced the Federal Arbitration Act (“FAA”), but neither referenced the New Jersey Arbitration Act (“NJAA”). In both cases, plaintiffs brought claims in New Jersey Superior Court asserting they were misclassified as independent contractors and alleging violations of wage payment and wage hour laws, and in both cases, defendants sought to compel arbitration and dismiss the lawsuits. Both trial courts granted the respective employers’ motions to dismiss the claims and compel arbitration, and plaintiffs appealed these decision to the Appellate Division of the New Jersey Superior Court. As detailed in a prior blog post, in June 2019, different panels of the Appellate Division issued divergent holdings concerning the appeals. The Colon panel observed that both the FAA and NJAA “favor arbitration” as a way to resolve disputes, and that the NJAA “governs all agreements to arbitrate” entered into on or after January 1, 2003 (with limited exceptions that did not apply). It further found that the FAA “does not occupy the entire field of arbitration” and, therefore, the...

New Jersey Appellate Panels Disagree on Enforceability of Arbitration Agreements Concerning Transportation Workers

On June 4 and June 5, 2019, separate panels of the Appellate Division of the New Jersey Superior Court issued diametrically opposed decisions calling into question the enforceability of arbitration agreements involving employees and independent contractors who provide transportation services. In Colon v. Strategic Delivery Solutions, LLC and Arafa v. Health Express Corporation, two Appellate Division panels considered the same legal question: are arbitration agreements enforceable under New Jersey law where one of the signatories is exempt from arbitration under the Federal Arbitration Act (FAA)? Despite the uniformity of the issue considered, the respective holdings stand in stark contrast to one another, creating confusion as to how to interpret arbitration agreements moving forward. Colon and Arafa involved strikingly similar facts. Both the Colon and Arafa plaintiffs contracted with the respective corporate defendants to provide transportation and delivery services on their behalf with regard to pharmaceutical products. Both defendants classified the plaintiffs as independent contractors; and both plaintiffs executed arbitration agreements governing the terms and conditions under which they were to provide transportation services. Most significantly, in both cases the arbitration agreements at issue explicitly stated that they were to be governed pursuant to the FAA (The Arafa agreement stated that it “is governed by the Federal Arbitration Act,” while the Colon agreement stated that the...

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

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

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

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

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

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...