Source: https://blog.cpradr.org/category/judiciary/
Timestamp: 2019-04-20 04:36:56+00:00

Document:
A recent decision by the United States Court of Appeals for the Third Circuit reminds us that when we want an arbitration clause to apply in certain situations or to certain parties, we have to build that intention into the plain terms of the contract. In White v. Sunoco, Inc., — F.3d —, No. 16-2808, 2017 WL 3864616 (3d Cir. Sept. 5, 2017), Sunoco promoted the “Sunoco Awards Program,” under which customers who used a Citibank-issued “Sunoco Rewards Card” credit card were supposed to receive a 5-cent per gallon discount on gasoline purchased at Sunoco gas stations. The promotional materials included a document entitled “Terms and Conditions of Offer,” which indicated that Citibank issued the Sunoco Rewards Card and applicants had to meet Citibank’s creditworthiness criteria to obtain the credit card.
Plaintiff Donald White obtained the Sunoco Rewards Card and realized that Sunoco did not apply the 5-cent discount on all fuel purchases at every Sunoco location. He then brought various class action claims for fraud against Sunoco, alleging that Sunoco omitted that limitation to the rewards program from the promotional materials to induce customers to sign up for the Sunoco Rewards Card and patronize Sunoco gas stations.
The Sunoco Rewards Card is governed by a card agreement, which White obtained from Citibank when he first obtained the credit card. The only parties to the card agreement were Citibank and White. Sunoco was not a signatory to the card agreement. Neither Sunoco nor the 5-cent discount program are mentioned in the card agreement.
After White brought his lawsuit, Sunoco filed a motion to compel arbitration based on the arbitration clause in the card agreement. The card agreement provided that either party to the card agreement could elect mandatory arbitration to resolve any disputes between them: “[e]ither you or we may, without the other’s consent, elect mandatory, binding arbitration for any claim … between you and us.” The card agreement defined ‘we’ and ‘us’ as Citibank – the card issuer and ‘you’ as the card holder. In a paragraph entitled “Whose Claims are subject to arbitration?” the agreement stated, “[n]ot only ours and yours, but also claims made by or against anyone connected with us or you or claiming through us or you, such as a co-applicant or authorized user of your account, an employee, agent, representative, affiliated company, predecessor or successor, heir, assignee, or trustee in bankruptcy.” The key issue on Sunoco’s motion to compel arbitration was whether Sunoco could invoke the arbitration provision even though it was not a signatory to the card agreement.
The District Court denied Sunoco’s motion to compel, holding that the agreement itself did not allow a non-signatory to invoke the arbitration clause and that Sunoco could not compel arbitration under any contract, agency or estoppel principles because it was not a third-party beneficiary of the card agreement or an agent of Citibank and that estoppel principles did not apply. Accordingly, the District Court denied the motion to compel arbitration.
On appeal, Sunoco argued that its promotional materials and Citibank’s card agreement had to be considered as an “integrated whole” contract between White, Citibank, and Sunoco. The Third Circuit disagreed, noting that Sunoco’s promotional materials were not an “offer” such that they supplied any terms or obligations to be integrated with the card agreement. The court also reasoned that Sunoco failed to identify any ambiguity in the card agreement that would allow it to use the promotional materials as parol evidence to construe the meaning of the card agreement.
Sunoco also argued that it was “connected” to Citibank for purposes of the card agreement’s “Whose Claims” provision and that under that provision, “connected” entities such as Sunoco could demand arbitration for resolution of any claims relating to the Sunoco Rewards Card. The court disagreed with this argument, too, finding that Sunoco confused the “nature of the claims covered by the arbitration clause with the question of who can compel arbitration.” The court found that the “Whose Claims” clause applied to the former and that the arbitration clause applied to the latter. The court concluded that “[n]owhere does the agreement provide for a third party, like Sunoco, the ability to elect arbitration or to move to compel arbitration.” Finally, the court expressed its skepticism that Sunoco’s and Citibank’s joint marketing efforts rendered the two “connected” entities for purposes of the “Whose Claims” provision, especially since Sunoco was not even mentioned in the card agreement.
Judge Roth filed a dissenting opinion in which she concluded that because Citibank and Sunoco were jointly involved in the paper process by which a customer could obtain a Sunoco Rewards Card, the card agreement and promotional materials comprised an integrated contract between White, Citibank and Sunoco. In support of her opinion, Judge Roth drew on the legal precept that multiple documents may constitute a single contract and reasoned that the nature and terms of the various documents, including their internal references to and dependence on each other, indicated that the parties’ intent was for the promotional materials and card agreement to be read together as one contract. Based on that characterization of the contract, Judge Roth concluded that Sunoco was a party to the contract and that the parties’ intent was to allow Sunoco to invoke the mandatory arbitration clause Judge Roth also disagreed with the majority’s reading of the provisions of the card agreement describing the mechanism for electing mandatory arbitration as allowing only the signatories—Citibank and White—to make that election. Judge Roth concluded that the majority’s reading was overly narrow and neglected to account for or harmonize other provisions in the card agreement.
Both the majority and the dissent turn on the contract language. (Although Judge Roth’s dissent contends that the contract is not limited to the card agreement, the ultimate conclusion is that the majority misread the arbitration election clause to preclude a non-signatory from invoking arbitration.) The majority’s critical conclusion was that: “[n]owhere does the agreement provide for a third party, like Sunoco, the ability to elect arbitration or to move to compel arbitration.” If Sunoco and Citibank intended the card agreement to govern Sunoco’s relationship with White, in addition to Citibank’s relationship with White, Sunoco and Citibank easily could have included a clear provision in the agreement so stating. But they didn’t—and perhaps more significantly, Sunoco’s name was nowhere to be found in the agreement.
Obviously, companies may want to consider revising this form credit card agreement. But the lesson of White applies more generally: if a party wants an arbitration clause in a contract to apply broadly to multiple claims or multiple parties—including non-signatories (where agency, third party beneficiary or estoppel principles might not apply), it needs to say so.
Stephen Orlofsky leads Blank Rome LLP’s appellate practice and is the administrative partner of the firm’s Princeton, New Jersey office. Judge Orlofsky concentrates his practice in the areas of complex litigation and alternative dispute resolution. He can be reached at Orlofsky@BlankRome.com.
Deborah Greenspan is a leading advisor on mass claims strategy and resolution. Her practice focuses on class actions, mass claims, dispute resolution, insurance recovery, and mass tort bankruptcy. She can be reached at DGreenspan@BlankRome.com.
The US Court of Appeals for the Seventh Circuit, in Appeal of Jana Yocum Rine in Hunt v. Moore Brothers, No. 16-2055 (June 27, 2017), recently upheld sanctions imposed by the trial court against an attorney personally for her frivolous arguments seeking to avoid an arbitration agreement in a contract between an independent trucker and a trucking company. The appellate opinion is available at http://cases.justia.com/federal/appellate-courts/ca7/16-2055/16-2055-2017-06-29.pdf?ts=1498759242.
James Hunt worked as a truck driver in Nebraska. On July 1, 2010, he signed an Independent Contractor Operating Agreement with Moore Brothers, a small company located in Norfolk, Nebraska. Three years later, Hunt and Moore renewed the Agreement. Before the second term expired, however, relations between the parties soured. Hunt hired Attorney Jana Yocum Rine to sue Moore on his behalf. She did so in federal court, raising a wide variety of claims, but paying little heed to the fact that the Agreements contained arbitration clauses. Rine resisted arbitration, primarily on the theory that the clause was unenforceable as a matter of Nebraska law. Tired of what it regarded as a flood of frivolous arguments and motions, the district court granted Moore’s motion for sanctions under 28 U.S.C. § 1927 and ordered Rine to pay Moore about $7,500. The court later dismissed the entire action without prejudice.
This Agreement and any properly adopted Addendum shall constitute the entire Agreement and understanding between us and it shall be interpreted under the laws of the State of Nebraska. … To the extent any disputes arise under this Agreement or its interpretation, we both agree to submit such disputes to final and binding arbitration before any arbitrator mutually agreed upon by both parties.
When Rine decided to take formal action on Hunt’s part, she ignored that language and filed a multi‐count complaint in federal court. The complaint was notable only for its breadth: it accused Moore of holding Hunt in peonage in violation of 18 U.S.C. § 1581 (a criminal statute), and of violating the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962; the federal antitrust laws, 15 U.S.C. §§ 1, 4, 14; the Illinois Employee Classification Act, 820 ILCS 185/1 et seq.; and for good measure, the Illinois tort of false representation.
We have no need to consider whether the sanctions imposed by the district court were also justified under the court’s inherent power. See Chambers v. NASCO, Inc., 501 U.S. 32, 45–46 (1991). Nor are we saying that the district court would have erred if it had denied Moore’s sanctions motion. We hold only that it lay within the district court’s broad discretion, in light of all the circumstances of this case, to impose a calibrated sanction on Rine for her conduct of the litigation, culminating in the objectively baseless motion she filed in opposition to arbitration. We therefore AFFIRM the district court’s order imposing sanctions.
The judicial decisions in Hunt v. Moore Brothers are yet another illustration of the increasing peril to counsel personally in US Federal courts if the attorney pursues a frivolous “take no prisoners” approach seeking to avoid arbitration.

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