Alerts-Arbitration in the Fifth

Arbitration in the Fifth – March 2023

April 10, 2023

March 2023 was a busy month for the courts of the Fifth Circuit. In the Western District of Louisiana, Bufkin Enters. LLC v. Indian Harbor Ins. Co. considered and allowed a creative strategy to avoid application of the New York Convention in an insurance dispute. Meanwhile, Ipsen Biopharm Ltd. v. Galderma Labs., L.P., in the Northern District of Texas, determined that the doctrine of forum non conveniens was the proper way to review a “forum-selection clause” in an arbitration agreement subject to the New York Convention. And, in the Eastern District of Texas, JLR Global, LLC v. PayPal Holding Co., considered enforcement of an arbitration clause embedded in a click-wrap agreement.

Opinions of the Fifth Circuit Court of Appeals

Dream Med. Grp., L.L.C. v. Old S. Trading Co., L.L.C., 22-20286, 2023 WL 2366982 (5th Cir. Mar. 6, 2023) (sales). Order confirming award affirmed. The text of the Federal Arbitration Act (“FAA”) supplies the only grounds upon which a reviewing court may vacate an arbitration award. Section 10(a)(3) does not allow vacatur of an arbitration award based upon the court’s decision regarding the merits of a party's claims. A court may only overturn an award under Section 10(a)(4) if the arbitrator acted outside the scope of the arbitrator’s contractually delegated authority—issuing an award that simply reflected the arbitrator’s own notions of economic justice rather than drawing its essence from the contract. Even if a contract “had been induced by fraud, the arbitration clause is enforceable unless the plaintiffs were fraudulently induced into agreeing to the arbitration clause itself.”

Opinions of United States District Courts

Motions to Compel Arbitration

Antoine's Rest., LLC v. Certain Underwriters at Lloyd's, London, CV 23-229, 2023 WL 2302953 (E.D. La. Mar. 1, 2023) (insurance). Motion to compel granted. Although Louisiana law ordinarily prohibits enforcement of arbitration clauses concerning insurance disputes, the New York Convention supersedes state law.

Bufkin Enters. LLC v. Indian Harbor Ins. Co., No. 2:21-CV-04017, 2023 WL 2393700 (W.D. La. Mar. 7, 2023) (insurance). Motion to compel denied. Plaintiff first sued its domestic insurers. Plaintiff then added the international underwriters and moved to dismiss them with prejudice. Because each of the eight insurers that remined had separate contracts with the insured and all were domestic, plaintiff was not compelled to arbitrate under the Convention. Further, application of equitable estoppel did not apply plaintiff’s claims against the international underwriters were barred by res judicata. The claims against the “nonsignatory” domestic insurers were not “interdependent on any claims against signatories.” The arbitration clause was jurisdictional, unlike forum or venue clauses, and therefore it was reverse preempted by Louisiana Revised Statutes section 22:868(A)(2).

Stor-All Gentilly Woods, LLC v. Indian Harbor Ins. Co., No. CV 23-334, 2023 WL 2585982 (E.D. La. Mar. 21, 2023) (insurance). Motion to compel granted. The arbitration agreement was not adhesionary under Louisiana law. The endorsement and service of suit clauses were construed as complementing the arbitration clause. Equitable estoppel precluded an objection to arbitration with the domestic insurers because the claims against all defendants, foreign and domestic, are inextricably intertwined.

Next Level Hospitality LLC v. Indep. Specialty Ins. Co., No. 2:21-CV-04240, 2023 WL 2771583 (W.D. La. Mar. 31, 2023) (insurance). Motion to compel denied. There was no foreign insurer involved, thus the New York Convention did not apply. The parties’ arbitration clause was reverse-preempted under Louisiana law.

JLR Global, LLC v. PayPal Holding Co., No. 4:22-CV-559, 2023 WL 2527158 (E.D. Tex. Mar. 15, 2023) (termination of account). Motion to compel granted. The arbitration agreement was contained in a clickwrap agreement. Clickwrap agreements are binding contracts under Delaware law. An affirmative click is deemed a signature that binds the parties. The parties’ original agreement did not contain the arbitration agreement, but it allowed the provider to amend the agreement with “continuing to use” constituting agreement to the changes. Users were given an opportunity to opt out of the mandatory arbitration amendment. Non-signatories to the agreement were bound by direct benefits estoppel. The arbitration provision survived the service providers’ termination of the agreement.

Le v. CVS Rx Services, Inc., No. 3:23-CV-0122-B, 2023 WL 2518852 (N.D. Tex. Mar. 14, 2023). Motion to compel granted. Clause requiring arbitration of any claims involving “disputes arising out of or relating to the validity, enforceability or breach of this Policy” was a valid and enforceable delegation clause.

Palumbo v. AT&T Servs, Inc., No. 3:21-CV-1818-N, 2023 WL 2531488 (N.D. Tex. Mar. 14, 2023) (internet service). Motion to compel granted. Arbitration agreement included in an online click through registration process was enforced.

Lusk v. Guggenheim-Netter, No. CV H-22-4183, 2023 WL 2500453 (S.D. Tex. Mar. 14, 2023) (employment). Motion to compel granted. The parties’ relationship was defined by four agreements only one of which contained an arbitration clause. The arbitration clause provided for application of the “American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration.” Those rules granted the arbitrator the power to determine arbitrability. It was therefore for the arbitrator to decide whether nonarbitrable claims were asserted.

Weslaco Indep. Sch. Dist. v. Certain Underwriters at Lloyd’s, London, No. 7:22-CV-00432, 2023 WL 2541959 (S.D. Tex. Mar. 16, 2023) (insurance). Motion to compel granted. Plaintiff’s argued that an order compelling arbitration should wait until the parties were clear on what property damage was in dispute. This “Goldilocks argument” that the case was “too ripe to dismiss, but not quite ripe enough to arbitrate” was rejected. Once the moving party passes the four-prong test for compelling arbitration, “the [New York] Convention requires the district court to order arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

Garcia v. Wonderful Sales, LLC, No. 7:23-CV-00055, 2023 WL 2537282 (S.D. Tex. Mar. 16, 2023) (employment). Motion to compel granted. Incorporation of the JAMS rules into an agreement constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. Arguments that the arbitration agreement was invalid and ambiguous were for the arbitrator.

Moreno v. Reliable Life Ins. Co., No. 7:22-CV-00319, 2023 WL 2663254 (S.D. Tex. Mar. 28, 2023) (insurance). Motion to compel granted. Where the claimed unconscionability relates to the entire agreement, rather than just the arbitration clause, the FAA requires that the unconscionability argument be heard by an arbitrator.

Galvez v. Arandas Bakery No. 3 Inc., No. 4:22-CV-00712, 2023 WL 2652249 (S.D. Tex. Mar. 24, 2023) (FLSA). Motion to compel granted. Texas law has no presumption in favor of arbitration when determining whether a valid arbitration agreement exists. An employer attempting to enforce an arbitration agreement must establish that the agreement meets all requisite contract elements. Where the identity of the employer wasn’t apparent from the face of the parties’ signed agreement, it was appropriate to consider parol evidence on the identity and relationship of the contracting parties. To obtain a jury trial on whether a valid arbitration agreement exists, the party must actually put the existence of an arbitration agreement at issue.

Noble Capital Fund Mgmt., LLC v. US Capital Global Inv. Mgmt., LLC, No. 1:20-CV-1247-RP, 2023 WL 2711635 (W.D. Tex. Mar. 30, 2023) (Hightower, Mag. J.) (investment). Motion to compel granted. Agreements to arbitrate implicate forum selection and claims-processing rules, not subject-matter jurisdiction. Defendants that were not parties to a prior arbitration that had been dismissed for failure to pay fees did not waive their right to arbitrate.

Other Arbitration-Related Issues

Hudnall v. State of Texas, EP-22-CV-36-KC-RFC, 2023 WL 2338009 (W.D. Tex. Mar. 2, 2023) (Castañeda, Mag. J.) report and recommendation adopted 2023 WL 2592295 ( Mar. 22, 2023) (construction). Arbitration award given preclusive effect. Courts apply state law when considering the preclusive effect of a state court judgment.

Ipsen Biopharm Ltd. v. Galderma Labs., L.P., No. 4:22-CV-00662-O, 2023 WL 2412838 (N.D. Tex. Mar. 8, 2023) Arbitration clause enforced as a mandatory forum-selection. During the pendency of an arbitration, one party sought, from both the tribunal and the court, an injunction against an affiliate of the other party to the arbitration. In assessing whether to dismiss the case, the court reviewed the agreement to arbitrate in the context of a motion to dismiss under forum non conveniens and not as a motion to compel arbitration. Rejecting the argument that dismissal should be resolved under the New York Convention and the FAA, the court concluded that “an agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause” and “the appropriate way to enforce a forum-selection clause pointing to a state or foreign forum is through the doctrine of forum non conveniens.” Accordingly, the court held that “the doctrine of forum non conveniens is the proper way to enforce a forum-selection clause, including forum-selection clauses in arbitration agreements subject to the New York Convention and the FAA.” Deciding the motion to dismiss under forum non conveniens, the court held that questions “about the scope and arbitrability of the [agreement] are not at issue here.” The “forum-selection clause” under consideration by the court provided:

This Agreement shall be governed by the laws of Belgium. All disputes arising out of or in connection with the present Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the said Rules. The seat of arbitration shall be Brussels and the language of arbitration shall be English.

Work v. Intertek Res. Sols., Inc., No. 4:22-CV-02960, 2023 WL 2574987 (S.D. Tex. Mar. 16, 2023) (FLSA). Arbitrator to decide availability of class arbitration. The availability of class arbitration is a question of arbitrability. Therefore, the incorporation of the JAMS rules clearly and unmistakably delegated the question of class arbitrability to the arbitrator.