Source: https://www.arbitrationnation.com/
Timestamp: 2019-04-20 05:04:49+00:00

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At least in theory, mutual assent remains a cornerstone of contract law and thus of arbitration. The tricky part has become understanding what counts as mutual assent in a world where overwhelming empirical evidence, not to mention our own lived experience, demonstrates that no one reads standardized terms and conditions, including arbitration provisions buried in fine print, or more commonly these days, a maze of hyperlinks.
Basically, to get around the unilateral character of adhesive contracting, U.S. courts have, over the past five decades, refocused contract formation on constructive notice. If a reasonable person in the position of the recipient of boilerplate should have seen the terms, the recipient will be bound by those terms, regardless of whether she ever actually read or understood the them. Constructive awareness coupled with an individual purchasing something from a commercial party amounts to assent. See, e.g., Starke v. SquareTrade, Inc., No. 17-2474, 2019 WL 149628 (2d Cir. Jan. 10, 2019) (“Where an offeree does not have actual notice of certain contract terms, he is nevertheless bound by such terms if he is on inquiry notice of them and assents to them through conduct that a reasonable person would understand to constitute assent.”) (citations omitted).
But a great deal of confusion persists about what counts as “reasonable notice.” Liz has written about two conflicting cases involving Uber and arbitration. She also wrote about a recent “shinglewrap” arbitration agreement – in a putative class action brought by homeowners against a vendor of roof shingles — upheld by the 11thCircuit.
This week, we’ll look at a recent Second Circuit case that might help make things just a tiny bit more tractable.
The court goes on to list, in bullet points, various features of interfaces that were too inconspicuous and interfaces that were acceptably conspicuous. But these bullet points sort of distill to whether the court thought that the interface was cluttered or not. At best it feels like defining obscenity — you know it when you see it. At worst, it feels like defining beauty — it’s in the eye of the beholder. Either way, it’s not very helpful.
These “coupling” rules of thumb could be useful for drafters. It’s not clear whether the court would have enforced the arbitration clause if it had been included in a hyperlink on the purchase page, but that’s certainly the suggestion.
In this week’s installment of Arbitration Nation, we’re going to look at when a “decision with respect to an arbitration” may be appealed. 9 U.S.C. § 16 provides part, but only part, of the answer. The rule essentially establishes the right of a party losing a motion to compel arbitration in a federal court to appeal that decision immediately. In contrast, a party who has been compelled to arbitration cannot appeal that decision immediately unless she first secures permission from both the district court and the court of appeals under 28 U.S.C. § 1292(b). See 9 U.S.C. § 16(b).
That seems pretty easy, right? Well, maybe it should be, but some wicked complications come up in at least four situations.
More courts, however, reason that the FAA’s mandatory stay does not impose an immutable limitation on a court’s discretion to dismiss claims requiring arbitration, and that dismissal may be proper if “all of the issues raised in the [suit] must be submitted to arbitration.” See, e.g., Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).
So, back to three of the four complications.
The first isn’t really a complication, I suppose, as there’s a very clear-cut answer: what happens if the district court dismisses an underlying lawsuit with prejudice instead of staying the case pending arbitration? The answer: dismissal with prejudice constitutes an immediately appealable decision. Such an “order plainly dispose[s] of the entire case on the merits and [leaves] no part of it pending before the court.”Green Tree, 531 U.S. at 86.
The second complication, however, deserves the label: what happens if the district court dismisses an underlying lawsuit without prejudice instead of staying the case pending arbitration? The Sixth Circuit recently confirmed that a dismissal without prejudice paired with an order compelling arbitration constitutes an immediately appealable final decision. See Hilton v. Midland Funding, LLC, 687 F. App’x 515, 518 (6th Cir. 2017).
But, as the case notes, SCOTUS has never addressed this particular issue. Moreover, I think that there are some decent policy arguments that the Sixth Circuit has gotten it wrong. Basically, allowing a district court to dismiss a case without prejudice and treating such a dismissal as appealable does an end run around FAA §§ 3 and 16. Combined, these provisions bolster the parties’ recourse to arbitration and push any doubts about the arbitrability of a dispute to arbitration. But I digress.
The third complication comes up when a district court stays a pending case, compels arbitration and then the party sent to arbitration voluntarily dismissesher federal court case without prejudice. The Ninth Circuit just addressed this situation and said, “[i]t makes no difference that [the plaintiff] then secured a voluntary dismissal without prejudice. A plaintiff’s ‘voluntary dismissal without prejudice is ordinarily not a final judgment from which the plaintiff may appeal.’” Gonzalez v. Coverall N. Am., Inc., No. 17-55787, 2019 WL 911884, at *2 (9th Cir. Feb. 22, 2019) (citations omitted).
The fourth complication arises when a district court just isn’t very clear about whether it’s staying the pending lawsuit or dismissing it. That was at stake in a very recent Second Circuit case, MELINA BERNARDINO, individually & on behalf of other similarly situated persons, Plaintiff-Appellant, v. BARNES & NOBLE BOOKSELLERS, INC., Defendant-Appellee., No. 18-607, 2019 WL 1076834 (2d Cir. Mar. 7, 2019). There, the plaintiff argued that a district court “entered judgment dismissing, rather than staying, the action,” because the end of the order directed that “[t]he Clerk shall close the case.” Id. at *1. The court explained that there is “no jurisdictional significance to [a] docket entry marking [a] case as ‘closed,’ which we will assume was made for administrative or statistical convenience.” Id. (citations omitted).
The theme of the conference, “Shining the Light on the Parties in Dispute Resolution,” reflects its principal focus — what parties and their counsel need to know to use ADR effectively in the domestic and international arenas and, more specifically, what parties want and need from ADR stakeholders.
The conference begins on April 10 with a Symposium on ADR in the Courts. The main program follows on April 11 and 12, featuring over 60 concurrent panels and many networking opportunities. The conference ends with the Legal Educators’ Colloquium on April 13.
• Friday evening reception at the Minneapolis Institute of Art.
The online conference registration is available here: http://ambar.org/spring2019 on the ABA’s main website, or https://www.xpressreg.net/eReg/?ShowCode=DRSC0419.
An online reservation link for the Minneapolis Hyatt Regency, as well as Hotel and Travel information, is just a click away.
Liz and I will both be there. We hope to see many of you as well.
Or at least they’re not supposed to do so.
Still, losing parties often try to convince a reviewing court that the arbitrator “exceeded her powers.” These sorts of excess of authority arguments have become quite common.
That’s exactly the sort of argument at issue in a hot-off-the-presses Tenth Circuit case, MEMC II, LLC v. Cannon Storage Sys., Inc., No. 18-6079, 2019 WL 549633 (10th Cir. Feb. 12, 2019).
In the case, the parties entered into a standard form construction contract, containing an arbitration clause. Cannon was supposed to build a commercial storage facility for MEMC. A dispute arose because Cannon decided that it needed to make some changes to the structural plans. When MEMC discovered this, it refused to continue to pay Cannon. Cannon then initiated arbitration to recover the payments.
MEMC defended by saying that Cannon had committed a material breach. It maintained that, under applicable Texas law, Cannon’s unilateral decision to depart from the specifications constituted a per se material breach discharging it from its duty to pay under the contract. The arbitrator listened to the arguments at a three-day hearing, reviewed over 100 exhibits, and concluded that MEMC had breached by failing to pay Cannon. She also found that Cannon had breached by not getting approval for several of the changes it made, but that the cost of remediating Cannon’s breaches had not be sufficiently proven by MEMC. Accordingly, she awarded $143,608 in damages to Cannon and nothing to MEMC.
The Tenth Circuit took the opportunity to give us all an Arbitration 101 lesson. Citing another Tenth Circuit case from last year – which indicates that parties may not be learning the lesson – the Court said, “[E]rrors in either the arbitrator’s factual findings or his interpretation of the law (unless that interpretation shows a manifest disregard of controlling law) do not justify review or reversal on the merits of the controversy.” (quoting Dish Network L.L.C. v. Ray, 900 F.3d 1240, 1243 (10th Cir. 2018)).
Like the doctrine of separability, the goal of a delegation clause is to insulate and protect the arbitral process, preventing the parties from having to waste time and money fighting in court before getting to arbitration.
In Midwest Neurosciences Associates, LLC v. Great Lakes Neurosurgical Associates, (Wis. 2018), however, the Wisconsin Supreme Court effectively created a new rule that allows a court to ignore a delegation clause. As the dissenting Justice says, the case “creat[es] a new rule bestowing on the judiciary the power to decide arbitrability even though the parties agreed an arbitrator would resolve this issue.” Accordingly, parties who choose arbitration in Wisconsin, may wind up stuck waging preliminary battles about arbitrability in courts, even if they include clear and unmistakable language saying that they want all of their fights resolved before an arbitrator.
The case involved a potential conflict between two contracts. The first was an Operating Agreement, which contained an arbitration clause and a choice to arbitrate pursuant to the JAMS Arbitration Rules (which include a delegation provision). The Operating Agreement substantively contained a set of non-compete obligations preventing certain behavior by the defendants. The second, and subsequent, contract was a Redemption Agreement, which did not contain any reference to arbitration, included a merger clause, and was intended to at least partially supersede the earlier agreement. Specifically, the Redemption Agreement was supposed to release the defendants from their obligations under the Operating Agreement.
The defendants started acting in contravention to their non-compete obligations. The plaintiffs objected, saying that they had never actually agreed to the Redemption Agreement. Instead, they believed it to be a mere proposal that they had ultimately rejected.
The Wisconsin Supreme Court concluded that the questions of whether the Redemption Agreement was valid and, if so, whether it changed the forum for dispute resolution were for the court rather than the arbitrator. In reaching this conclusion, the majority effectively ignored the delegation clause, relegating it to an aside in a footnote.
While the foundation of the majority’s preference for court resolution of arbitrability disputes is unclear, its disdain for arbitration as a method of dispute resolution is transparent . . . The majority misunderstands that the choice of method for dispute resolution belongs to the parties, not the court.
Don’t get me wrong, Liz is going to be an outstanding Solicitor General, and Minnesota couldn’t be luckier to have her. In fact, I think hiring her for the gig is one of the smartest things Minnesota has done in years. Yay Minnesota.
But come on Liz, what about me? I was terrified, you see, about what would happen to ArbitrationNation. I’ve been an avid reader of the blog for many years, and it’s been a tremendous resource for me, as I’m sure it has been for all of you.
Then she suggested that I take over the primary responsibility for maintaining it. Turns out that I didn’t really know what panic was.
The truth is that I am honored to step in, roll up my sleeves, and do my best to continue Liz’s amazing work. But it is a daunting enterprise. Liz’s expertise, humor, and intellect have built this blog from nothing into one of the most respected and valuable resources on the law and practice of arbitration out there. I will miss Liz’s regular contributions and insights. But rest assured, I’ll bug her plenty to help me out. And I hope that you all will help me out as well. As you did with Liz, please send me your questions, comments, insights, cases, studies, and ideas for posts.
I’ll not bore you with a bunch of details about me, though please feel free to check out my bio. But as Liz said, I’m definitely a fellow arbitration nerd. I teach and write about arbitration, I serve as a mediator and arbitrator for commercial disputes (I’m happy to talk about serving in that role if you find yourself in need of a neutral), and I represent clients in arbitration-related matters as Of Counsel for Greene Espel, P.L.L.P. (I’m also happy to talk about helping as counsel or co-counsel on arbitration-related issues).
Most importantly, I love this stuff and I am looking forward to engaging with you.
Thankfully, however, I have a wonderful replacement lined up. My friend and fellow arbitration geek, Prof. Henry Allen Blair, has agreed to serve as the primary blogger here. I trust you will welcome him and keep him informed, just as you did with me, sending new cases, new studies, as-yet-unpublished data, and ideas for interesting posts. He will bring different expertise (and different cultural references) to his posts, and I can’t wait to read them.
Accepting that I would no longer be the sole and primary individual associated with this blog was a much bigger psychological hurdle than I anticipated. In 2011, when I started blogging, I was just hoping for the best, with no idea whether anyone would be interested in posts about arbitration law. Now, ArbitrationNation reaches an average of 8,000 readers each month, including journalists, judges, arbitrators, and many inside counsel. I am thrilled to have helped create this community. I am also thrilled to leave it in excellent hands.
Thank you all. Thank you for supporting this blog, for engaging with me on tough issues, for asking me to contribute to articles or to speak at conferences, and for being friends.

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