Morrison Foerster’s Class Dismissed blog provides insights, recommendations, and timely reports on the latest defense news, developments, and trends in the most current class actions lawsuits and product liability issues that affect consumer-facing companies. Through Class Dismissed, attorneys from our nationally recognized Consumer Class Action and Products Liability practices offer a real-time assessment of the developments in matters that are shaping the industry. This blog examines the full spectrum of consumer-related class action and product liability lawsuits ranging from false advertising, privacy, consumer product safety, ADA, food misbranding, TCPA, environment, retail, and government actions as well as nationwide and multidistrict litigation class actions.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Partner

Adam Hunt is a partner in the Litigation Department of Morrison Foerster’s New York office. His practice focuses on complex litigation, with an emphasis on class action and commercial litigation.

Adam Hunt

Alexandra Barlow is a partner in the Litigation Department of Morrison Foerster’s San Diego office.Alexandra litigates product liability matters involving medical devices, pharmaceuticals, consumer products, automobiles, and AI. Alexandra's litigation expertise spans the entire case life cycle in both state and federal courts. She handles all phases of discovery, including fact investigation and expert discovery. Alexandra has taken over twenty-five depositions, including experts, plaintiffs, treating physicians, and third-party witnesses. She drafts and argues motions of all types, including motions for summary judgment, motions to quash, and motions for preliminary injunction.Alexandra has significant trial experience. She has first-chaired a one-week jury trial and second-chaired a five‑week jury trial, both involving multiple claims and witnesses. She also has extensive experience in alternative dispute resolution, representing clients at mediations, mandatory settlement conferences, and early neutral evaluations.Alexandra enjoys tracking developments and keeping her clients updated on product liability and personal injury claims, frequently writing or presenting on emerging areas such as autonomous vehicles and smart devices. Alexandra’s experience also extends to professional liability, warranty claims, eminent domain, and construction law.Alexandra earned her J.D. from the University of San Diego School of Law. While in law school, the San Diego Law Review published her comment on the recovery of damages by plaintiffs in a persistent vegetative state, and she also served as a comment editor. She received her B.A. from the University of California, Los Angeles, where she majored in Political Science and minored in Spanish. A San Diego native, she attended a Spanish immersion school through the eighth grade. Alexandra is active in the San Diego community, advising students at a local college. She is also a member of several legal organizations in San Diego, including Lawyer’s Club, the Association of Business Trial Lawyers, and Wallace Inn of Court.

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Alexandra Barlow is a partner in the Litigation Department of Morrison Foerster’s San Diego office. Alexandra litigates product liability matters involving medical devices, pharmaceuticals, consumer products, automobiles, and AI. Alexandra’s litigation expertise spans the entire case life cycle in both state and federal courts. She handles all phases of discovery, including fact investigation and expert discovery. Alexandra has taken over twenty-five depositions, including experts, plaintiffs, treating physicians, and third-party witnesses. She drafts and argues motions of all types, including motions for summary judgment, motions to quash, and motions for preliminary injunction.

Alexandra Barlow is a partner in the Litigation Department of Morrison Foerster’s San Diego office. Alexandra litigates product liability matters involving medical devices, pharmaceuticals, automobiles, AI, and robotics. Alexandra's litigation expertise spans the entire case life cycle in both state and federal courts. She handles all phases of discovery, including fact investigation and expert discovery. Alexandra has taken over twenty-five depositions, including experts, plaintiffs, treating physicians, and third-party witnesses. She drafts and argues motions of all types, including motions for summary judgment, motions to quash, and motions for preliminary injunction.

Alexandra Barlow

<div class="videoWrapper"><iframe frameborder="0" class="sticky-video" allowfullscreen="1" title="Meet Penny Preovolos, Litigation Partner" src="https://www.youtube-nocookie.com/embed/hv7hYn-Bl7c?rel=0&showinfo=0;vq=hd1080" title="iframe"></iframe></div>Penelope has served as lead counsel in major consumer class actions and antitrust cases for more than 35 years, successfully representing high-profile defendants in antitrust, consumer fraud, and product defect matters. Her clients span a range of industries, including consumer electronics, technology, retail, publishing, food and beverage, cosmetics, and household products. According to Chambers USA, Penelope has a “great reputation for antitrust and product liability work” and is a “superb all-around antitrust lawyer.”Penelope was named the 2019 Antitrust Lawyer of the Year by the Antitrust, UCL, and Privacy Section of the California Lawyers Association. She was co-chair of MoFo’s antitrust practice for 14 years. She has served as chair of the Antitrust and Trade Regulation Section of the State Bar of California and as a member of the Ninth Circuit Advisory Committee on Local Rules and Operations. She is an editor of and frequent contributor to Morrison & Foerster’s <a href="https://classdismissed.mofo.com/">Class Dismissed blog</a>, as well as a frequent speaker about class action and antitrust issues.More About PenelopePenelope clerked for the Honorable Charles M. Merrill, United States Court of Appeals for the Ninth Circuit. She graduated cum laude from Harvard Law School, where she was executive editor of the Harvard Civil Rights – Civil Liberties Law Review. Penelope was a member of Phi Beta Kappa at the University of California, Berkeley. She was awarded the University Medal, the highest undergraduate honor at the university, as well as the English Departmental Citation (awarded to the outstanding graduate in that department).

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Senior Counsel

Penelope has served as lead counsel in major consumer class actions and antitrust cases for more than 35 years, successfully representing high-profile defendants in antitrust, consumer fraud, and product defect matters. Her clients span a range of industries, including consumer electronics, technology, retail, publishing, food and beverage, cosmetics, and household products.

Penelope A. Preovolos

Zak is an associate in the Litigation Department in Morrison Foerster’s New York office.Zak’s practice focuses on class actions, commercial litigation, white collar defense, government investigations, and antitrust litigation and counseling. He has represented clients before federal and state courts in complex commercial matters, as well as in arbitration tribunals.Zak received his J.D. from New York University School of Law in 2018, where he was inducted into the Order of the Barristers. During law school, Zak also served as the Marden executive editor for the NYU Law Moot Court Board. In 2013, Zak received his B.A. and M.A. in political science from Yale University, receiving honors in his major and the Ellsworth Prize for Best Senior Essay in the Social Sciences.

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Associate

Zak Newman

Mitchell A. Hokanson is an associate in the Litigation Department of Morrison Foerster’s San Diego office.Mitchell’s practice focuses on commercial litigation and consumer class actions. He has extensive experience with civil litigation, including managing day-to-day strategy, propounding and responding to discovery, taking and defending depositions, and engaging in motion practice. He also has experience providing regulatory advice to clients, including pro bono partners and multinational corporations. Mitchell maintains an active pro bono practice.After law school, Mitchell worked as a judicial clerk for Justice Susan M. Carney of the Alaska Supreme Court, where he drafted bench memoranda and opinions on a wide range of state and federal law topics. Prior to joining MoFo, Mitchell worked for another international law firm, where he was a member of the Complex Civil Litigation practice group, in Los Angeles, California.Mitchell received his J.D. from Columbia Law School, where he was honored as a James Kent Scholar and Harlan Fiske Stone Scholar. While in law school he was the senior executive editor of the Columbia Journal of Environmental Law and worked as a judicial intern for Judge Sandra S. Ikuta of the United States Court of Appeals for the Ninth Circuit and Judge George B. Daniels of the United States District Court, Southern District of New York. Prior to that, Mitchell earned his B.A. from Stanford University.

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Mitchell Hokanson

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Software Gains New Status as a Product Under Strict Liability Law

MAHA Commission Publishes Report to Highlight Childhood Chronic Disease Drivers

Tenth Circuit Denies Challenge to CPSC Rule Regulating High-Powered Magnets

Ousted CPSC Democrats Fight Back Against President Trump

Setting Consumer Standards for Lithium-Ion Batteries Act

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On May 23, 2024, the United States Supreme Court decided Coinbase, Inc., v. Suski, No. 23-3, serving a reminder to companies with mandatory consumer-facing arbitration provisions that contractual consistency is a key to enforceability. In Justice Jackson’s unanimous opinion, the Court found that “[w]here parties have agreed to two contracts—one sending arbitrability disputes to arbitration, and the other either explicitly or implicitly sending arbitrability disputes to the courts—a court must decide which contract governs.”This case involved the users of a cryptocurrency exchange platform, Coinbase, Inc. (“Coinbase”), entering into two digital contracts. The first contract, the Coinbase User Agreement (“User Agreement”), contained a delegation clause that provided that any disputes regarding arbitrability would be decided by an arbitrator. The second contract, the Official Rules for the Dogecoin promotional sweepstakes (“Sweepstakes Rules”), contained a forum selection clause that provided sole jurisdiction over sweepstakes-related disputes to the California courts.Plaintiff assented to both the User Agreement and Sweepstakes Rules. But following the sweepstakes, he filed a putative class action in the United States District Court for the Northern District of California alleging that Coinbase misrepresented entrance requirements into the Dogecoin sweepstakes in violation of various California laws. Coinbase moved to compel arbitration and argued that the User Agreement’s delegation clause meant that an arbitrator had to decide any arbitrability challenges to the scope or enforceability of the arbitration provision. But the district court held that it first needed to decide which contract’s dispute resolution provisions applied, since this would determine if the court or an arbitrator should decide who would ultimately hear the case, based on the dueling provisions. The court held that it, not the arbitrator, should determine which contract controlled. The court, applying California state law, then also held that the Sweepstakes Rules’ forum selection clause controlled, denying Coinbase’s motion to compel. The Ninth Circuit Court of Appeals affirmed.On May 23, 2024, the Supreme Court affirmed, explaining that when two contracts conflict as to which one decides the arbitrability of a dispute, this threshold issue must be decided by a court in the first instance. The Court based this decision on “basic legal principles” that “disputes are subject to arbitration if, and only if, the parties actually agreed to arbitrate those disputes.” This includes if the dispute is over arbitrability itself. In other words, “before either the delegation provision or the forum selection clause can be enforced, a court needs to decide what the parties have agreed to—i.e., which contract controls.” Here, this means the issue of whether the parties’ second agreement superseded their earlier agreement regarding who decides arbitrability for the sweepstakes-related disputes is therefore to be decided by the court before referring the dispute to arbitrators.The Court did make clear that their decision was limited in scope, particularly in Justice Gorsuch’s concurrence. They “reaffirm[ed] well-established principles about the primacy of the parties’ agreements when it comes to arbitration,” with their decision turning on the very specific conflict between the two contracts. The Court declined to address the secondary holding that the Sweepstakes Rules’ forum selection clause took precedence over the User Agreement’s arbitration clause, leaving the Ninth Circuit holding in place and leaving the case in the California court.Key takeaways: Companies seeking to enforce arbitration clauses should keep in mind the importance of uniform language across contracts, particularly when it comes to arbitration agreements. In particular, companies with consumer-facing agreements online, which are often supplemented by side promotions or sweepstakes that contain unique terms, need to consider the interplay between these various contracts. As this decision demonstrates, a delegation clause in the initial terms of service does not always guarantee arbitration if companies are not meticulous across all terms and agreements. But the Supreme Court did make clear that this holding is narrow—if the second Sweepstakes Rules contract didn’t exist, the court would have compelled arbitration. So beware of conflicting terms!Read the <a href="https://www.supremecourt.gov/opinions/23pdf/23-3_879d.pdf" target="_blank">Court’s opinion</a>.

Beware of Conflicting Terms: When Customers Entered into Multiple Contracts, SCOTUS Says Courts Must Decide Which One Governs Arbitrability 

Adam Hunt is a partner in the Litigation Department of Morrison Foerster’s New York office. His practice focuses on complex litigation, with an emphasis on class action and commercial litigation.

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Jenny Morris is an associate in the Litigation Department of Morrison Foerster’s Washington, D.C. office.

Jenny Morris

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Beware of Conflicting Terms: When Customers Entered into Multiple Contracts, SCOTUS Says Courts Must Decide Which One Governs Arbitrability

High Court Orders Rethink Of $9.7M Award After TransUnion

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On May 23, 2024, the United States Supreme Court decided Coinbase, Inc., v. Suski, No. 23-3, serving a reminder to companies with mandatory consumer-facing arbitration provisions that contractual consistency is a key to enforceability.

Beware of Conflicting Terms: When Customers Entered into Multiple Contracts, SCOTUS Says Courts Must Decide Which One Governs Arbitrability

Appellate & Supreme Court

Arbitration

The United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), is welcome news for California employers.  In short, employers can compel “individual” claims under the Labor Code Private Attorneys General Act of 2004 (PAGA) to arbitration.  With the “individual” PAGA claims compelled to arbitration, a court must dismiss the “non-individual” PAGA claims for lack of standing.To learn more, read our <a href="https://www.mofo.com/resources/insights/220617-viking-river-paga-claim-arbitration.html">client alert</a>.

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Viking River Is Victorious in Compelling Individual PAGA Claim to Arbitration

Viking River Is Victorious in Compelling Individual PAGA Claim to Arbitration

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The United States Supreme Court’s decision in Viking River Cruises, Inc. v. Moriana, 142 S. Ct. 1906 (2022), is welcome news for California employers.  In short, e

Yesterday, the Supreme Court established a clear rule that a party litigating in federal court cannot later compel arbitration by arguing that there was no harm to the opposing party.  In Morgan v. Sundance, the Court unanimously held that a party opposing arbitration does not need to show that it experienced any prejudice in order to establish that the party attempting to invoke arbitration waived that right by pursuing litigation in federal court.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftn1">[1]</a>The Court’s decision in Sundance resolved a circuit split over what test federal courts should apply to assess whether a party waived its right to compel arbitration.  The Seventh Circuit and D.C. Circuit employed a two-element test for waiver, which required a party to show (1) knowledge of an existing right to compel arbitration and (2) intentional acts inconsistent with that right to arbitration.  But the First Circuit, Second Circuit, Third Circuit, Fourth Circuit, Fifth Circuit, Sixth Circuit, Ninth Circuit, and Eleventh Circuit added a third element that made establishing waiver more difficult: the party opposing arbitration had to show that it experienced prejudice.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftn2">[2]</a>  In a short seven-page opinion by Justice Elena Kagan, the Court endorsed the two-factor test.The plaintiff in Sundance brought a nationwide collective action against her employer in federal court for violations of the Fair Labor Standards Act, despite having signed a confidential binding arbitration agreement for all employment disputes.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftn3">[3]</a>  After litigating the case for nearly eight months in federal court, including filing a motion to dismiss, the defendant filed a motion to compel arbitration.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftn4">[4]</a>  The plaintiff opposed the motion, arguing that the defendant had waived its right to arbitration by litigating for too long.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftn5">[5]</a>Following the lead of eight other circuits, the Eighth Circuit applied the three-element test to determine waiver because of “the strong federal policy favoring arbitration.”<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftn6">[6]</a>  But in a surprising departure from the majority circuit rule, the Supreme Court rejected that approach, explaining that the Federal Arbitration Act does not authorize federal courts to create special, arbitration-preferring procedural rules.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftn7">[7]</a>Sundance is a cautionary tale for parties seeking to enforce arbitration agreements.  Without the additional hurdle of showing prejudice, plaintiffs will have a lower burden to show waiver if a defendant choses to litigate in federal court.  Moving forward, companies will need to strategically consider whether and when to pursue arbitration in order to ensure they do not engage in acts that may waive their right to arbitration later on.  If a company affirmatively litigates in federal court, arbitration likely will not be a fallback option. <a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftnref1">[1]</a> Morgan v. Sundance, Inc., No. 21-328, 2022 WL 1611788, at *4 (U.S. May 23, 2022).<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftnref2">[2]</a> Id. at 3.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftnref3">[3]</a> Id. at 2.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftnref4">[4]</a> Id.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftnref5">[5]</a> Id. at 2-3.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftnref6">[6]</a> Id. at 3.<a href="file:///C:/Users/TLW9/AppData/Roaming/OpenText/DM/Temp/SAN_FRANCISCO-%234840672-v4-Morgan_v__Sundance_CAMT_Blog_Post.docx#_ftnref7">[7]</a> Id. at 4–5.

Choose Your Forum Wisely: Supreme Court Rejects “No Harm, No Foul” Approach to Arbitration Waiver Analysis

Healthcare, Biologics, and Severability: Will the ACA—and the BPCIA—Survive the Latest Challenge?

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Yesterday, the Supreme Court established a clear rule that a party litigating in federal court cannot later compel arbitration by arguing that there was no harm

Choose Your Forum Wisely: Supreme Court Rejects “No Harm, No Foul” Approach to Arbitration Waiver Analysis

Cyber incidents top the list of issues keeping in-house counsel up at night. And as we continue to see the number of incidents climb, we continue to see class actions filed in their wake. So what are the highlights from 2021 and what can we expect in the coming year?<h4>Class Action Filing Trends</h4>We count 36 major data breach class actions filed this past year, treating multiple cases filed against a single defendant as one major class action.<a href="https://www.mofo.com/resources/insights/220104-privacy-litigation-2021-year-review.html?utm_source=publication&utm_medium=email#_ftn1" class="anchor">[1]</a> This is a significant increase over the 25 major class actions filed last year. Here’s what we are seeing in these cases:Plaintiff’s counsel continue to jockey for position. Plaintiff’s attorneys continue to try to beat others to the courthouse.  In five of the major data breach cases filed, plaintiffs filed the first-filed case within a week of announcement of the breach.  On average, cases were filed within four weeks of the announcement. Three of the cases were the subject of MDL proceedings; 21 of them were consolidated.What was stolen. In 26 cases, plaintiffs alleged exfiltration of social security numbers, significantly more than the number of cases we saw last year. Last year, the majority of cases concerned allegedly compromised payment card information. This kind of information allegedly was compromised in about one-third of the cases this year, and about half of the cases concerned alleged exfiltration of sensitive medical data.Who was impacted. As compared to 15% of the cases last year, plaintiffs in about one-third of the cases this year were employees. The rest of the plaintiffs were customers, patients, or account holders.Novel liability theories. We saw further evolution of plaintiff’s counsel’s theories in the last year. In a suit filed in response to the Colonial Pipeline ransomware attack, for example, plaintiff alleges that consumers and gas station owners were harmed by increased gas prices as a result of the company’s negligence.<a href="https://www.mofo.com/resources/insights/220104-privacy-litigation-2021-year-review.html?utm_source=publication&utm_medium=email#_ftn2" class="anchor">[2]</a> And a federal court in Los Angeles followed other courts in rejecting plaintiff’s theory that the value of his personal information decreased due to the breach.<a href="https://www.mofo.com/resources/insights/220104-privacy-litigation-2021-year-review.html?utm_source=publication&utm_medium=email#_ftn3" class="anchor">[3]</a>To learn more, read our <a href="https://www.mofo.com/resources/insights/220104-privacy-litigation-2021-year-review.html">client alert</a>.

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Privacy Litigation 2021 Year in Review: Data Breach Litigation

Privacy Litigation 2021 Year in Review: Data Breach Litigation

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Cyber incidents top the list of issues keeping in-house counsel up at night. And as we continue to see the number of incidents climb, we continue to see class a

Privacy

A split panel of the Ninth Circuit vacated in part a <a href="https://elc.mofo.com/topics/Federal_Court_Preliminarily_Enjoins_the_Attorney_General_from_Enforcing_AB_51.html">preliminary injunction</a> barring enforcement of AB 51, the California law banning mandatory employment arbitration agreements.[1]  But the Ninth Circuit found that the penalties for violation of this provision are preempted by the Federal Arbitration Act (FAA), so the enforcement path remains unclear.Read the original blog post <a href="https://elc.mofo.com/topics/Not-so-fast-ninth-circuit-resurrects-ban-on-mandatory-employment-arbitration-agreements.html">here</a>.

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Not So Fast: Ninth Circuit Resurrects Ban On Mandatory Employment Arbitration Agreements

Not So Fast: Ninth Circuit Resurrects Ban On Mandatory Employment Arbitration Agreements

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A split panel of the Ninth Circuit vacated in part a preliminary injunction barring enforcement of AB 51, the California law banning mandatory employment arbitr

When can you compel arbitration of a putative class action? The law is developing quickly<a href="#_ftn1" name="_ftnref1" id="_ftnref1">[1]</a> and still doesn’t provide a crystal clear answer. The Ninth Circuit recently weighed in on two cases examining what happens when the parties don’t have an arbitration agreement to begin with. In Stafford v. Rite Aid Corporation and Franklin v. Community Regional Medical Center, et al., the defendants sought to compel arbitration on the basis of equitable estoppel, based on arbitration agreements between the defendants and third parties. The Ninth Circuit affirmed the district court’s denial of the motion to compel arbitration in Stafford but came to the opposite conclusion in Franklin. The decisions show that the nature of the parties’ business and relationships, and the allegations in the complaint, can shape whether a dispute is arbitrable.<h3>STAFFORD V. RITE AID CORPORATION</h3>The Parties’ Relationship and Claims at Issue:Plaintiff Byron Stafford filed a putative class action against Rite Aid Corporation, alleging that it had fraudulently inflated the reported prices of prescription drugs to insurance companies. This practice allegedly resulted in plaintiff and others being overcharged for co-payments to Rite Aid.<a href="#_ftn2" name="_ftnref2" id="_ftnref2">[2]</a> According to plaintiff, Rite Aid submitted claims for prescription drugs to the insurance company through its pharmacy benefits manager, who coordinated insurance reimbursements and co-payment calculations. The price on a claim form submitted to the pharmacy benefits manager allegedly determined the price that plaintiff was charged for his prescription drugs. Plaintiff claimed that because Rite Aid reported an improperly high price to the pharmacy benefits manager, Stafford paid more for the drugs than he should have. Based on these allegations, plaintiff asserted claims against Rite Aid under California’s Unfair Competition Law and the California Consumer Legal Remedies Act and for unjust enrichment and negligent misrepresentation.Rite Aid and plaintiff did not have a contract between them containing an arbitration clause. But, Rite Aid moved to compel arbitration based on the theory of equitable estoppel, arguing that plaintiff’s claims were intertwined with Rite Aid’s contracts with the pharmacy benefits managers, which contained arbitration clauses, and thus plaintiff’s claims were subject to arbitration. Under California law, plaintiffs can be bound by arbitration clauses in contracts they did not sign if the claims asserted are “dependent upon, or founded in and inextricably intertwined with, the underlying contractual obligations of the agreement contained the arbitration clause.”<a href="#_ftn3" name="_ftnref3" id="_ftnref3">[3]</a>The Ninth Circuit Affirms the Denial of Rite Aid’s Motion to Compel:The district court denied Rite Aid’s motion to compel, finding that the principles of equitable estoppel did not bind plaintiff to the arbitration provisions in contracts he did not sign because his claims were based on Rite Aid’s alleged fraudulent actions rather than any breach of Rite Aid’s contracts with the pharmacy benefits managers. Rite Aid appealed, and the Ninth Circuit affirmed.The Ninth Circuit similarly held that equitable estoppel was inapplicable to plaintiff’s claims because he was not seeking damages for Rite Aid’s breach of its contracts with the pharmacy benefits managers, but rather for Rite Aid’s alleged fraud. The Ninth Circuit therefore found “irrelevant” Rite Aid’s contracts with the pharmacy benefits managers because “Rite Aid’s duty not to commit fraud is independent from any contractual requirements with the pharmacy benefits managers.”<a href="#_ftn4" name="_ftnref4" id="_ftnref4">[4]</a> Because plaintiff’s claims did not depend on Rite Aid’s contractual obligations, the Court held that equitable estoppel did not bind plaintiff to the arbitration agreements in contracts to which he was not a party.<h3>FRANKLIN V. COMMUNITY REGIONAL MEDICAL CENTER, ET AL.</h3>The Parties’ Relationship and Claims at Issue:The same day Stafford came out, the Ninth Circuit issued its opinion in Franklin, a putative wage and hour lawsuit asserting claims under the Fair Labor Standards Act and California law.<a href="#_ftn5" name="_ftnref5" id="_ftnref5">[5]</a> Plaintiff was employed as a nurse by staffing agency United Staffing Solutions Inc. (“USSI”), and USSI assigned her to work at the defendant hospital. USSI and plaintiff signed two arbitration agreements—one in her employment agreement and another in the assignment contract governing her wages, overtime, shifts, and reimbursements at the hospital. The hospital was not a signatory to either contract, and no contracts existed between either (a) the hospital and plaintiff or (b) the hospital and USSI. Instead, the hospital contracted with a managed service provider to source nursing staff like plaintiff, and the managed service provider in turn contracted with USSI to provide the nursing staff for the hospital. Under this multi-party arrangement, the hospital retained supervision over plaintiff, but did not pay her directly. Rather, the hospital paid the managed service provider, which then paid USSI, which then paid plaintiff for her work.<div align="center" style="margin-bottom: 15px;"><img src="https://media2.mofo.com/v3/images/blt5775cc69c999c255/blt1c85f96dfef80244/627315da8e09542a15b7de7b/210528-class-dismissed.gif?format=auto&quality=60" alt="Arbitration Chart" type="asset" sys-style-type="download"></div>In 2018, plaintiff filed a putative class and collective action against the hospital, alleging violations of the FLSA, California Labor Code, and California Unfair Competition law for the hospital’s purported failure to pay plaintiff for work she performed during meal breaks and off the clock, failure to provide accurate itemized wages statements, and failure to reimburse her for travel expenses. The hospital moved to compel arbitration of plaintiff’s claims.The Ninth Circuit Affirms the Compelling Plaintiff’s Claims to Arbitration:The district court granted the hospital’s motion to compel arbitration under the theory of equitable estoppel. It found that even though the hospital was a non-signatory to the arbitration provisions between Franklin and USSI, plaintiff’s statutory claims against the hospital were intimately founded in and intertwined with her contracts with USSI. Plaintiff appealed, and the Ninth Circuit affirmed.The Ninth Circuit ultimately followed the California Court of Appeal’s decision in Garcia v. Pexco, LLC, 217 Cal. Rptr. 3d 793 (Ct. App. 2017), which held that an employee’s Labor Code claims against a staffing agency’s non-signatory client were subject to arbitration because they were “intimately founded in and intertwined with” his employment contract with the staffing agency that contained binding arbitration provisions. The Ninth Circuit in Franklin found that “[i]t does not matter that Franklin’s allegations are leveled only at the Hospital and not USSI” because “[i]n matters of equity, such as the application of equitable estoppel, it is the substance of the plaintiff’s claim that counts, not the form of its pleading.”<a href="#_ftn6" name="_ftnref6" id="_ftnref6">[6]</a> Based on the allegations and claims asserted in the complaint, the Court found that plaintiff’s employment with USSI “is central to her claims.”<a href="#_ftn7" name="_ftnref7" id="_ftnref7">[7]</a> Because USSI was responsible for various employment practices plaintiff alleged were violated (including paying her), and plaintiff’s other claims required reference to the terms of her contracts with USSI, plaintiff could not avoid arbitration simply because she had sued only the hospital and omitted any mention of USSI in her complaint.<h3>TAKEAWAYS</h3>Stafford and Franklin are reminders that the way a company structures its business and contractual relationships can subject even the most carefully drafted arbitration provisions to an uncertain future. Applying the same principles of equitable estoppel, the Stafford court found the plaintiff’s fraud-based claims were not subject to arbitration, while the Franklin court found the plaintiff’s employment-related claims must be arbitrated. These two decisions—issued the same day by the same Court (albeit different panels of judges)—demonstrate the fact-specific analysis involved if a motion to compel is not based on a direct agreement containing an arbitration provision between the plaintiff and defendant.Morrison & Foerster’s Class Actions and Mass Torts attorneys have advised companies on a variety of arbitration-related issues. They can provide further insights on these recent court decisions, share best practices, and help draft and present arbitration provisions based on the needs of your business.<a href="#_ftnref1" name="_ftn1" id="_ftn1">[1]</a> See, e.g., our October 2020 post on how appellate courts have addressed “delegation clauses” in arbitration agreements. Available at <a href="https://classdismissed.mofo.com/topics/recent-appellate-decisions-on-delegation-clauses-arbitration-agreements.html">https://classdismissed.mofo.com/topics/recent-appellate-decisions-on-delegation-clauses-arbitration-agreements.html</a>.<a href="#_ftnref2" name="_ftn2" id="_ftn2">[2]</a> See generally Stafford v. Rite Aid Corp., No. 20-55333, 2021 WL 2024511 (9th Cir. May 21, 2021).<a href="#_ftnref3" name="_ftn3" id="_ftn3">[3]</a> Id. at *3 (quoting Goldman v. KPMG, LLP, 92 Cal. Rptr. 3d 534, 542 (Ct. App. 2009)).<a href="#_ftnref4" name="_ftn4" id="_ftn4">[4]</a> Id. at *4.<a href="#_ftnref5" name="_ftn5" id="_ftn5">[5]</a> See generally Franklin v. Cmty. Reg'l Med. Ctr., No. 19-17570, 2021 WL 2024516 (9th Cir. May 21, 2021).<a href="#_ftnref6" name="_ftn6" id="_ftn6">[6]</a> Id. at *6.<a href="#_ftnref7" name="_ftn7" id="_ftn7">[7]</a> Id.

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One Estopp Shop: The Ninth Circuit Weighs in on the Use of Equitable Estoppel to Compel Arbitration in Two Recent Decisions

Relief for the Unharmed: Supreme Court Considers Whether Article III & Rule 23 Permit Certification Where Most Class Members are Uninjured (Ramirez v. TransUnion)

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When can you compel arbitration of a putative class action? The law is developing quickly and still doesn’t provide a crystal clear answer. The Ninth Circuit re

One Estopp Shop: The Ninth Circuit Weighs in on the Use of Equitable Estoppel to Compel Arbitration in Two Recent Decisions

This summer, we <a href="https://classdismissed.mofo.com/consumer-products/schein-on-supreme-court-to-decide-key-arbitration-delegation-question/">discussed</a> that the Supreme Court is reviewing whether an arbitration agreement’s clear delegation of the question of arbitrability to the arbitrator can be negated by a provision that exempts certain claims from arbitration. Henry Schein, Inc. v. Archer & White Sales, Inc., 207 L. Ed. 2d 1050 (2019). Since the Supreme Court granted certiorari in that case, three notable appellate decisions, two in the Ninth Circuit and one in the Third Circuit, have confronted related delegation questions. These cases all underscore the importance of paying careful attention to the drafting and presentation of arbitration provisions. Even seemingly minor differences in drafting and approach can result in disputes being heard outside their intended fora.NINTH CIRCUITShivkov v. Artex Risk Solutions, Inc.On September 9, 2020, the Ninth Circuit issued a ruling in Shivkov v. Artex Risk Solutions, Inc. that addressed an issue of first impression in the circuit.[1] A large group of individuals and related business entities involved in the insurance industry filed a putative class action lawsuit alleging that the captive insurance companies that the defendants had formed and managed were illegal and abusive tax shelters. The relevant agreements between the parties contained an arbitration clause governed by the FAA, and the defendants moved to compel arbitration based on those terms. One of the key issues that the court addressed was whether the determination of the availability of class arbitration was presumptively for the court (rather than an arbitrator) to decide. The Shivkov court ruled definitively that “class arbitration is a gateway issue for a court to presumptively decide.”This did not end the court’s analysis, though. The Shivkov court still needed to address the plaintiffs’ contention that the relevant arbitration provision evidenced “a clear and unmistakable intent to delegate the issue to the arbitrator.” The plaintiffs relied on the Ninth Circuit’s 2015 decision in Brennan v. Opus Bank, where the court held that “incorporation of the AAA Rules constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability.”[2] But, unlike in Brennan, in Shivkov the relevant arbitration provisions did not incorporate the AAA rules, but rather merely required that any arbitration, if necessary, be conducted before AAA. Accordingly, the Shivkov court did not “find clear and unmistakable evidence that the parties intended to delegate the gateway issue of class arbitration to the arbitrator by virtue of the AAA Rules . . . .”  And “[b]ecause Plaintiffs d[id] not claim that any other provision demonstrate[d] a clear and unmistakable intent to delegate the availability of class arbitration to the arbitrator,” the Shivkov court determined that the availability of class arbitration remain[ed] a gateway issue” for the court to decide.[3] Ultimately, because the arbitration agreement was silent as to the availability of class arbitration, the Shivkov court easily found that the agreements did not permit class arbitration pursuant to the Supreme Court’s recent ruling in Lamps Plus. But, importantly, it was the court, not the arbitrator, that made this determination.SEIU Local 121RN v. Los Robles Regional Medical CenterEven more recently, SEIU Local 121RN v. Los Robles Regional Medical Center addressed whether the issue of the delegation of arbitrability should be treated differently in the labor context.[4] In 1996, the Ninth Circuit had determined that labor cases are different and that an arbitrator (rather than a court) should decide arbitrability as long as the agreement included a broad arbitration clause.[5] In 2010, however, the Supreme Court rejected the notion that labor arbitration disputes should be analyzed differently than commercial arbitration disputes.[6] As a result, the Los Robles court overruled the Ninth Circuit’s earlier ruling and now held that questions regarding the delegation of issues of arbitrability must be analyzed in the same way in both the labor and commercial contexts. With this new framework in place, the Los Robles court relied on the “well-settled principles ‘that whether parties have agreed to submit a particular dispute to arbitration is typically an issue for judicial determination,’” absent “‘clear and unmistakable’ evidence of the parties’ intent to have an arbitrator—rather than the court—decide whether the grievance is arbitrable.” Because the CBA at issue in Los Robles was silent as to the arbitrator’s authority to determine its own jurisdiction, the Ninth Circuit held that the district court was responsible for determining whether the grievance filed by SEIU was arbitrable.THIRD CIRCUITMZM Construction Co. v. New Jersey Building Laborers Statewide Benefit FundsOn September 14, 2020, the Third Circuit also issued a ruling regarding the delegation of questions of arbitrability to arbitrators.[7] In MZM Construction Co. v. New Jersey Building Laborers Statewide Benefit Funds, the court was confronted with an arbitration agreement that explicitly stated that the parties agree to arbitrate “questions or grievances involving the interpretation and application of this Agreement” and that “[t]he Arbitrator shall have the authority to decide whether an Agreement exists, where that is in dispute.” Despite this clear and unmistakable language, MZM argued that the entire agreement was unenforceable due to fraud in the execution of the contract containing these arbitration provisions. MZM’s president had signed a one-page short-form agreement that incorporated by reference, but did not attach, an unsigned collective bargaining agreement that contained the relevant arbitration and delegation provisions. MZM argued that the entire agreement—the short-form agreement incorporating the collective bargaining agreement that contained the arbitration and delegation provisions—could not be enforced because the company’s president had felt pressured to sign the short-form agreement due to a threatened work stoppage and there was no evidence that MZM’s president ever saw the collective bargaining agreement containing the relevant provisions. As described by the court, the “critical question” was “who decides MZM’s contract defense.”After summarizing several earlier Supreme Court and Third Circuit decisions, the MZM court recognized that none of them “dealt with a contract-formation dispute involving a delegation provision assigning that task to the arbitrator.” Relying on Section 4 of the FAA—which mandates that a court be “satisfied” that an arbitration agreement exists—the MZM court settled this open question in the Third Circuit. In line with the Fourth, Fifth, and Eighth Circuits, and district courts in the Seventh Circuit, the Third Circuit held that, “under section 4 of the FAA, courts retain the primary power to decide questions of whether the parties mutually assented to a contract containing or incorporating a delegation provision.” Therefore, because the plaintiff had stated a claim for fraud in the execution of the contract containing the delegation provision, the plaintiff had “put the formation of the delegation provision in issue and thus triggered the District Court’s power to adjudicate that claim.”The Third Circuit explained “that nothing in our decision today precludes parties from delegating issues of contract formation.”  However, “the legal effect of the delegation must come from an ‘independent source’ outside the contract whose formation or existence is being disputed,” such as a “pre-negotiation contract in which the [parties] agree to arbitrate all arbitrability issues pertaining to future contracts between them.” Ultimately, the Third Circuit held that “unless the parties clearly and unmistakably agreed to arbitrate questions of contract formation in a contract whose formation is not in issue, those gateway questions are for the courts to decide.”TAKEAWAYSShivkov and Los Robles are reminders that if a company wants an arbitrator (not the court) to determine arbitrability and treatment of class claims, it should make sure that its arbitration agreement says so in “clear and unmistakable” language. Otherwise, courts in the Ninth Circuit and elsewhere may default to the court deciding these gateway issues. The Third Circuit’s decision in MZM also shows that, even if clear and unmistakable delegation language exists, the way a company presents the agreements to the other party could result in those agreements (and the arbitration provisions within them) being interpreted by a court rather than the intended arbitrator, and even ultimately being found unenforceable. Morrison & Foerster’s <a href="https://www.mofo.com/capabilities/class-actions-mass-torts.html">Class Actions and Mass Torts</a> attorneys have advised companies on a variety of arbitration-related issues. They can provide further insights on these recent court decisions, share best practices, and help draft and present arbitration provisions based on the needs of your business.[1] 974 F.3d 1051 (9th Cir. 2020). In 2014, the Ninth Circuit issued an unpublished and nonprecedential opinion that was consistent with the ruling in Shivkov.  The Supreme Court has never taken up this gateway issue.   [2] 796 F.3d 1125, 1130 (9th Cir. 2015).[3] The Ninth Circuit rejected several other arguments offered by the plaintiffs in their attempt to escape arbitration, including their contentions that the arbitration provisions were unconscionable on fiduciary duty related grounds, the arbitration obligations did not survive termination, the parties had not agreed to arbitrate all of the plaintiffs’ claims, and non-signatories to the agreements could not compel arbitration. [4] No. 19-55185, 2020 WL 5583677 (9th Cir. Sept. 18, 2020).[5] United Bhd. of Carpenters & Joiners of Am., Local No. 1780 v. Desert Palace, Inc., 94 F.3d 1308 (9th Cir. 1996).[6] Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 300–01 (2010).[7] 974 F.3d 386 (3d Cir. 2020).

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Arbitrating Arbitrability: Three Recent Appellate Decisions on Delegation Clauses in Arbitration Agreements

U.S. Supreme Court’s Decision to Review a Pair of FTCA Cases Could Spell a Sea Change in FTC’s Enforcement Authority

This summer, we discussed that the Supreme Court is reviewing whether an arbitration agreement’s clear delegation of the question of arbitrability to the arbitr

Arbitrating Arbitrability: Three Recent Appellate Decisions on Delegation Clauses in Arbitration Agreements

If a company enters an arbitration agreement with a consumer, can its future affiliate companies enforce the arbitration agreement even though the affiliate relationship did not exist at the time the consumer signed the agreement? The Ninth Circuit recently answered “no” in Revitch v. DIRECTV, LLC, __ F.3d __, 2020 WL 5814095 (9th Cir. Sept. 30, 2020), creating a split with the Fourth Circuit. The plaintiff, Jeremy Revitch, alleged that DIRECTV, a satellite television services company, placed prerecorded telemarketing calls to his mobile phone without his consent and in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”). He filed a class action complaint against DIRECTV in 2018. Revitch did not have a service agreement with DIRECTV. He did, however, have a contract for mobile phone wireless services with AT&T Mobility LLC (“AT&T Mobility”) that contained an arbitration agreement, which he entered in 2011. The arbitration agreement provided that “AT&T [Mobility] and you agree to arbitrate all disputes and claims between us. This agreement to arbitrate is intended to be broadly interpreted. It includes, but is not limited to . . . claims arising out of . . . any aspect of the relationship between us, whether based in . . . statute . . . or any other legal theory.”  2020 WL 5814095, at *11. The contract’s definition of AT&T Mobility included all “affiliates.” Id. at *2. AT&T Mobility and DIRECTV became “affiliates” (i.e., companies under common ownership) in 2015 when AT&T Mobility’s parent company, AT&T, Inc., acquired DIRECTV. Accordingly, DIRECTV moved to compel arbitration of Revitch’s complaint pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1–16 (“FAA”). The district court denied the motion on the ground that the arbitration agreement between Revitch and AT&T Mobility did not reflect the parties’ intent to arbitrate his claim against DIRECTV. DIRECTV appealed.The Ninth Circuit affirmed, holding that a valid agreement to arbitrate did not exist between Revitch and DIRECTV, a satellite television company that became an affiliate of AT&T Mobility three years after Revitch signed the wireless services contract containing the arbitration agreement. 2020 WL 5814095, at *5. The court reasoned that “absurd results follow from DIRECTV’s preferred interpretation,” which would require Revitch “to arbitrate any dispute with any corporate entity that happens to be acquired by AT&T, Inc., even if neither the entity nor the dispute has anything to do with providing wireless services to Revitch—and even if the entity becomes an affiliate years or even decades in the future.” Id. at *4. It thus affirmed based on its application of California’s “absurd results” canon of contract construction.   Judge O’Scannlain penned a concurring opinion, suggesting that even if the court analyzed the issue in terms of whether the arbitration clause in Revitch’s contract with AT&T Mobility encompassed his TCPA claim against DIRECTV, rather than asking whether a valid agreement to arbitrate exists between Revitch and DIRECTV, the court still would deny DIRECTV’s motion to compel arbitration. Judge O’Scannlain reasoned that, under the FAA, the claim to be settled by arbitration “must be one ‘arising out of’ the contract or transaction. By negative implication, the FAA does not require the enforcement of an arbitration clause to settle a controversy that does not arise out of the contract or transaction.” 2020 WL 5814095, at *7. Because, in his view, Revitch’s TCPA suit based on allegedly unsolicited advertisements for DIRECTV’s satellite television services is unrelated to Revitch’s contract for wireless services with AT&T Mobility, the suit does not “aris[e] out of” the contract and is not subject to the FAA. Id. at *10.Judge Bennett dissented, explaining that because “[n]either party disputes the existence and validity of the arbitration clause on which DIRECTV . . . relies,” the issue before the court is not one of contract formation, but one of scope: “‘whether the agreement encompasses the dispute at issue.’” Id. (citation omitted). In his view, “affiliates” includes DIRECTV because “[n]othing in the arbitration clause or in the dictionary definition of the word ‘affiliate’ confers any type of temporal scope to the term so that ‘affiliates’ should be read to refer only to present affiliates.” Id. at *11. “Because Revitch agreed to arbitrate ‘all disputes and claims,’” DIRECTV may compel arbitration under the agreement. Judge Bennett further noted that, “[e]ven if some ambiguity exists,” Supreme Court precedent would require the court to construe the agreement to apply to future affiliates and enforce the arbitration clause. Id. at *10 (citing Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1418 (2019) (“[A]mbiguities about the scope of an arbitration agreement must be resolved in favor of arbitration.”)). He further reasoned that the majority’s application of California’s “absurd results” canon disfavors arbitration agreements compared to other contracts and, therefore, contravenes the Supreme Court’s precedent in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 341–42 (2011). 2020 WL 5814095, at *13.The Ninth Circuit’s decision creates a circuit split on this issue. Just two months ago, in a case involving substantially similar facts and the same arbitration clause, the Fourth Circuit concluded that the consumer-plaintiff formed an agreement to arbitrate with DIRECTV and that her TCPA claim “fit within the broad scope of that agreement, construed, as it must be, to favor arbitration.” Mey v. DIRECTV, LLC, 971 F.3d 284, 286 (4th Cir. 2020). Like Judge Bennett’s dissent, the Fourth Circuit concluded that the arbitration agreement “contains no explicit limitation on the term [affiliates],” and the term’s ordinary meaning includes present and future affiliates. Id. The Fourth Circuit thus concluded that plaintiff Mey formed an agreement to arbitrate with DIRECTV. Further, considering the arbitration agreement’s broad language (i.e., requiring arbitration of “all disputes and claims between us”), and applying the presumption in favor of arbitrability, the court concluded it must enforce the arbitration agreement. Id.Practice Pointers to Takeaway<ul><li>A company’s ability to rely on an arbitration clause in a later-acquired affiliate’s service agreement with a consumer will depend on the jurisdiction. Courts within the Fourth Circuit may enforce such arbitration agreements where the companies did not become affiliates until after the agreement was entered, while courts within the Ninth Circuit may not. It remains to be seen how other circuits will come out. </li></ul><ul><li>Companies should consider drafting arbitration clauses to cover future affiliates and subsidiaries expressly, since the Ninth Circuit opined that “[h]ad the wireless services agreement stated that ‘AT&T’ refers to ‘any affiliates, both present and future,’ we might arrive at a different conclusion.” Revitch, 2020 WL 5814095, at *4 (emphasis added).</li></ul><ul><li>In courts within the Ninth Circuit, all things being equal, a company’s future “successors” or “assignees” likely would have an easier time enforcing an arbitration agreement than a future “affiliate” would since an arbitration agreement’s reference to a “successor” or “assignee” necessarily contemplates an unknown future event. This is something to keep in mind when structuring acquisitions.</li></ul><ul><li>Finally, the court may have reached a different outcome if either DIRECTV or its dispute with Revitch had been materially related to the services provided under Revitch’s wireless services agreement with AT&T Mobility. In that regard, the enforcement of an arbitration agreement by an after-acquired affiliate likely is not entirely foreclosed in the Ninth Circuit.</li></ul>

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Does a Consumer Arbitration Agreement Apply to a Company’s Future Affiliates? The Ninth and Fourth Circuits Disagree

Does a Consumer Arbitration Agreement Apply to a Company’s Future Affiliates? The Ninth and Fourth Circuits Disagree

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If a company enters an arbitration agreement with a consumer, can its future affiliate companies enforce the arbitration agreement even though the affiliate rel

Consumer Products

The Henry Schein arbitration battle is making its way to the Supreme Court again. The Court recently <a href="https://www.supremecourt.gov/docket/docketfiles/html/public/19-963.html">granted</a> Henry Schein, Inc.’s certiorari petition to answer the question of “Whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.” Henry Schein, Inc. v. Archer & White Sales, Inc., No. 19-963 (2019). In other words, if an arbitration agreement carves out certain claims (like injunctive relief), does that create a loophole that allows the district court to decide the arbitrability of those claims?Round 1As we <a href="https://classdismissed.mofo.com/consumer-products/leave-arbitration-to-the-arbitrator/">explained</a> last year, the case started when Archer & White Sales, Inc., a small business that distributes dental equipment, sued a dental equipment manufacturer and Schein, a major distributor of the equipment, for alleged antitrust violations. The parties’ agreement provided that disputes “arising under or relating to” the agreement “shall be resolved by binding arbitration in accordance with the rules of the American Arbitration Association [AAA].” Henry Schein, Inc. (“Schein”) invoked the FAA and sought to compel arbitration. In opposition, Archer & White relied on a court-created exception permitting the court to decide arbitrability—notwithstanding a contractual delegation to the arbitrator—where the court finds the argument for arbitration to be “wholly groundless.” The trial court agreed and denied arbitration, and the Fifth Circuit <a href="http://www.ca5.uscourts.gov/opinions/pub/16/16-41674-CV0.pdf">affirmed</a>, 878 F.3d 488 (5th Cir. 2017). The Supreme Court vacated the decision, unanimously <a href="https://www.supremecourt.gov/opinions/18pdf/17-1272_7l48.pdf">concluding</a> that the “wholly groundless” exception was inconsistent with the FAA and the Court’s precedents, 139 S. Ct. 524 (2019). The decision suggested that the Court as constituted remains firmly on a pro-arbitration path and will continue to strictly adhere to the FAA.Round 2 On <a href="http://www.ca5.uscourts.gov/opinions/pub/16/16-41674-CV1.pdf">remand</a>, the Fifth Circuit again refused to compel arbitration, 935 F. 3d 274 (5th Cir. 2019). The Fifth Circuit acknowledged that the parties had delegated at least some questions of arbitrability to the arbitrator. But because the arbitration agreement carved out injunctive relief claims, the agreement did “not clearly and unmistakably delegate[] the question of arbitrability to an arbitrator.” The Fifth Circuit therefore concluded that the court—and not the arbitrator—was responsible for determining the arbitrability of the claims at issue. It then held that the action was one “seeking injunctive relief” and thus exempt from arbitration under the parties’ agreement.  Schein filed a <a href="https://www.supremecourt.gov/DocketPDF/19/19-963/130539/20200131112522163_Henry_Schein_cert_petition.pdf">petition for writ of certiorari</a>, which the Supreme Court granted.[1]As Schein’s petition pointed out, courts are divided on the question presented. Some hold that the question of whether the provision exempts a particular claim from arbitration is itself a question of arbitrability, and the arbitrator must decide that question once the moving party has demonstrated the existence of a clear and unmistakable delegation. Others, like the Fifth Circuit, hold that the presence of a carve-out provision negates an otherwise clear and unmistakable delegation. Schein argues that this approach “threatens to render even the clearest and most unmistakable delegation ineffective,” allowing courts to easily override a contract’s delegation of authority to the arbitrator. The Supreme Court’s decision is expected to provide much-needed clarity in this matter. In the meantime, Morrison & Foerster’s <a href="https://www.mofo.com/capabilities/class-actions-mass-torts.html">Class Actions and Mass Torts</a> attorneys can provide further insight on the implications of this action.[1] The Court denied a cross-petition by Archer & White Sales, which asked the Court to decide (1) whether an arbitration agreement that identifies a set of arbitration rules to apply if there is arbitration clearly and unmistakably delegates to the arbitrator disputes about whether the parties agreed to arbitrate in the first place; and (2) whether an arbitrator or a court decides whether a nonsignatory to an arbitration agreement can enforce the arbitration agreement through equitable estoppel.

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Schein On: Supreme Court to Decide Key Arbitration Delegation Question

The Henry Schein arbitration battle is making its way to the Supreme Court again. The Court recently granted Henry Schein, Inc.’s certiorari petition to answer 

Schein On: Supreme Court to Decide Key Arbitration Delegation Question

Drug & Medical Device

Antitrust

The Supreme Court’s decision in Lamps Plus, Inc. v. Varela made it clear that an arbitration agreement must explicitly contemplate and provide for class arbitration, building on a line of pro-arbitration rulings from the Supreme Court over the past decade, including American Express Co. v. Italian Colors Restaurant, Stolt-Nielsen, S.A. v. Animal Feeds Int’l Corp., and AT&T Mobility LLC v. Concepcion. We analyze the Supreme Court’s decision and discuss their ongoing commitment to traditional arbitration.Read our <a href="https://protect-us.mimecast.com/s/qRxIC4xYV2fMAQg6CBNqhI">client alert</a>.

Lamps Plus, Inc. v. Varela: The Supreme Court Clarifies that Clear Consent is Necessary for Class Arbitration

The Supreme Court’s decision in Lamps Plus, Inc. v. Varela made it clear that an arbitration agreement must explicitly contemplate and provide for class arbitra

Lamps Plus, Inc. v. Varela: The Supreme Court Clarifies that Clear Consent is Necessary for Class Arbitration