Articles Posted in Arbitration

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Any contract you’ve signed with a company (including the “Terms of Service” most of us don’t read before clicking the box next to “I agree that I have read and agree to the terms”) has included a clause about where you and that company can resolve legal disputes. In some cases, it’s in a certain state, or even a specific county, but increasingly courts have been forcing their customers, vendors, and employees into arbitration.

Arbitration was originally designed as a way for companies to settle legal disputes with other companies outside of court so they wouldn’t flood the court system. But several years ago companies started including arbitration clauses in their contracts with individuals, often without those individuals realizing they were signing away their rights to a fair trial.

As the issue of companies getting out of control when it comes to their arbitration clauses has become more widespread, judges and legislators have started taking measures to curb companies’ use of arbitration agreements with individuals – especially when it comes to their customers and employees.

So far, Pennsylvania is the only state to pass a law requiring all corporations doing business in the state to consent to being sued in Pennsylvania court by anyone, for conduct the corporation engaged in anywhere. Continue reading ›

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In today’s society, license agreements are everywhere. With the advent of Software as a Service (SaaS) and web-based services, click-wrap or clickthrough agreements—agreements where the licensee agrees to the terms of the license agreement by clicking a button or ticking a box—are commonplace. The software and online services industries depend on such agreements. Recently however, a federal district court judge out of the Northern District of California issued a potentially industry-shaking ruling invalidating amendments to such click-wrap agreements unless a user is required to manifest assent to such amendments through something more than mere continued use of the service.

The defendant in the suit is Dropbox and the plaintiff is a user of Dropbox’s online file storage service. The plaintiff, who filed the suit pro se, alleged that he suffered injury as a result of a 2012 data breach which the plaintiff alleged involved the compromise of his Dropbox account. In response to the complaint, Dropbox moved to compel arbitration arguing that its amended terms of service (TOS) required the claim to be resolved through binding arbitration instead of a lawsuit. Continue reading ›

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The United States Court of Appeals for the Seventh Circuit recently decided a case concerning the enforceability of an arbitration clause in a trade secret dispute. In its decision, the Court affirmed the district court’s ruling that denied a defendant’s motion to enforce an arbitration clause in a software license agreement entered into under false pretenses by one of the defendant’s employees using the name of a fake company at the request of the defendant.

The two companies involved in the lawsuit, CCC Intelligent Solutions and Tractable, are competitors that provide estimates for the cost of repairing damaged cars and trucks to their customers, including insurance companies. Both do this by applying algorithms, embedded in their software, to data generated by body shops and other repair centers. CCC is a leader in the industry.

CCC licenses its software to third parties. That license prohibits licensees from disassembling the software code or incorporating it into other software. Further the license, forbids a customer from assigning the license without CCC’s consent and requires the licensee to affirmatively represent that he or she is not acting as an agent of any third party. The license includes an arbitration clause. Continue reading ›

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In a recent decision, the Seventh Circuit federal court of appeals reaffirmed the limited role courts have in reviewing arbitration awards. The decision also provides a lesson to litigants about the need for a clearly written and well-reasoned arbitration decision.

The case stems from a fallout between a technology company and an inventor turned equity owner in the company. The defendant Roe invented a nozzle that transforms gases into liquids. Nano Gas expressed interest in acquiring and commercializing the technology. The parties embarked on negotiations resulting in Roe assigning the nozzle to Nano Gas in exchange for a 20% ownership of Nano Gas, a board seat, and a potential salary. Under the terms of the parties’ agreement, Roe’s salary was tied to either Nano Gas successfully raising capital or Roe’s developing his invention into a working machine. Before either milestone could be reached, the parties’ relationship soured.

Roe ultimately left Nano Gas and took with him a prototype machine and a box of Nano Gas’s intellectual property. The parties initially began litigation in a Michigan federal court before the dispute was referred to arbitration. Following a hearing, the arbitrator entered an award generally favoring Nano Gas but awarding compensation to both parties.

The arbitrator found that Nano Gas should compensate Roe for the continued use of his invention. It also found though that Roe should compensate Nano Gas for the financial harms he caused when he continued to use the technology he assigned to Nano Gas and made off with Nano Gas’s intellectual property. The arbitrator considered awarding Roe some sort of royalty on future profits that might flow from Nano Gas’s use of the device Roe invented, but in the end decided against this approach. The arbitrator determined a royalty was not necessary to compensate Roe because he “remains a major shareholder in Nano Gas, and that, as such, he could benefit financially from this in the future should Nano Gas experience profitability and an increase in value.”

Ultimately, the arbitrator ordered Roe to return Nano Gas’s intellectual property or pay Nano Gas $150,000 if he did not return the IP. Then the arbitrator ordered Roe to pay damages to Nano Gas in the amount of $1,500,000, with such payment “to be made by (1) first, subtracting from the amount to be paid to Roe by Nano Gas under this decision ($1,500,000) the amount to be paid to Nano Gas by Roe under this decision ($1,000,000) and (2) thereafter, the remainder ($500,000) in such manner as Roe chooses.” Continue reading ›

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Arbitration has been a hot topic in legal circles and court opinions over the last decade. The U.S. Supreme Court and Federal Appeals courts have issued a number of high-profile decisions addressing issues of the enforceability of arbitration agreements, who gets to decide the threshold issue of arbitrability, and whether class claims can be decided in arbitration. Proponents of arbitration argue that it is quicker and less expensive than traditional litigation and provides greater confidentiality than the public court record. Opponents argue that it provides fewer avenues for discovery and allows unscrupulous defendants to shield their unsavory conduct or practices from the public eye.

Regardless of which side of the argument you fall on, the undeniable truth is that arbitration agreements are ubiquitous. Consumers find them in everything from cellphone contracts to gym membership agreements and everything in between. Many employers include them in employment contracts requiring employees to arbitrate claims of discrimination or harassment. And nearly all car dealerships include them in their sales contracts. In short, arbitration agreements are impossible to escape in modern life.

One customer of Hyline Auto Sales, a used car dealer, found this out the hard way. In April 2019, the plaintiff, Jason Taylor, purchased a vehicle from Hyline. Included in his sales contract was an agreement to submit disputes for arbitration by the Better Business Bureau (BBB).

Only weeks after his purchase, Taylor filed an arbitration demand with the BBB. After no response from the BBB for a week, Taylor wrote the BBB asking for a hearing date. He requested a hearing again on May 1, 2019. On May 27, 2019, Taylor again wrote the BBB and asked for the appointment of an arbitrator. Over the following several months, Taylor contacted the BBB dozens of times requesting the appointment of an arbitrator and to set an arbitration date, without success. Continue reading ›

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The Seventh Circuit in a recently issued decision held that an employer cannot invoke an arbitration provision to evade a shareholder class-action lawsuit seeking broad relief under the Employee Retirement Income Security Act (ERISA), a federal law aimed at protecting participants in private employer retirement plans. In its decision, the Court found that claims under ERISA are generally subject to arbitration, but ultimately concluded that the District Court did not err in denying the defendants’ motion to compel arbitration of plaintiff’s class action under section 1132(a)(2) of ERISA due to a class action waiver in the arbitration agreement that would have precluded the plaintiff from asserting certain statutory rights.

The plaintiff, James Smith, worked for Triad Manufacturing, a shelving and fixture company, back in 2015 and 2016. While employed by Triad, he participated in the company’s employee stock ownership program, known as a “defined contribution plan” under ERISA. Triad’s board of directors created the plan for its employees in early December 2015.

According to his lawsuit, after forming the plan, three members of Triad’s board sold all Triad’s stock to the plan at a price of $58.05 per share, totaling more than $106 million. Four days later the board appointed GreatBanc Trust Company as plan trustee. GreatBanc then approved the transaction, seemingly after it had already occurred. Less than two weeks later, Triad’s share price dropped to $1.85, according to the plan’s financial statements. In effect, what had been valued at over $106 million plummeted in two weeks to just under $4 million. The suit alleges that the earliest the plan’s members could sell their shares was the end of 2016 due to vesting requirements, at which time the shares were worth only $1.15. By the end of 2018, the share price had dipped to less than $1 per share. Continue reading ›

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It is not at all uncommon for a company to require individuals to agree to its Terms of Use when they sign up for an online service or when creating an account on a website or mobile app. It is also not uncommon for that service, website, or app to incorporate technology from multiple different providers. Such was the case in a case recently decided by the federal Seventh Circuit Court of Appeals. In its opinion, the Seventh Circuit rebuffed arguments by a technology company that it should be entitled to enforce certain arbitration provisions in a user agreement between OfferUp and its users.

Onfido owns and licenses the TruYou facial recognition software, which is marketed as software aimed at helping online resellers verify their identity. OfferUp, an online marketplace for buying and selling used items, uses the TruYou software in its mobile app to verify the identities of its users.

One of OfferUp’s users, Fredy Sosa, sued Onfido, alleging that its TruYou software violated the Illinois Biometric Information Privacy Act (BIPA). Sosa signed up to become a verified user on OfferUp’s mobile app. The identity verification process involved uploading photographs of his driver’s license and face. OfferUp’s verification process allegedly involved using Onfido’s TruYou software to extract and store biometric identifiers contained in the uploaded photos to verify that the face in the photograph matches the face on the driver’s license. Sosa subsequently filed a putative class action lawsuit against Onfido alleging that the company violated the BIPA by failing to provide him with a biometric data retention policy or to advising him whether and when it will permanently delete the biometric identifiers that it derived from his face. Sosa additionally alleged that Onfido violated the BIPA by failing to require him to sign a written release allowing it to “collect, use, or store his biometric identifiers derived from his face.”

After Onfido removed the case to an Illinois federal court, it sought to have the lawsuit dismissed and to compel arbitration of Sosa’s claims. The company relied on an arbitration provision in OfferUp’s Terms of Service which Sosa agreed to when signing up as a user of the OfferUp marketplace as the basis for seeking to compel arbitration of Sosa’s claims. The district court denied Onfido’s motion to stay Sosa’s complaint and compel individual arbitration, finding that Onfido cannot enforce the arbitration provision because it wasn’t a party to the agreement between OfferUp and its users. Continue reading ›

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After a spectator at a Chicago Cubs game, who was hit in the face by a baseball, sued, the team and MLB moved to compel arbitration. The Illinois trial court rejected the motion, finding that the arbitration provision was procedurally unconscionable and therefore unenforceable. The Illinois appellate court agreed, pointing to the fact that the fine print on the back of the ticket failed to include all of the arbitration terms and conditions, and that expecting a ticketholder to access a separate website to view the full terms and conditions while navigating the commotion of a baseball game was so onerous that it could not be said that the plaintiff had fairly agreed to the conditions.

Laiah Zuniga was hit in the face by a foul ball while attending a Chicago Cubs baseball game at Wrigley Field. Zuniga obtained entry to the ballpark by presenting a paper ticket created by the Cubs’ ticket office. Zuniga had been given the ticket earlier that day by her father, who won it in a raffle at his workplace. The front of the ticket contained artwork depicting one of the Cubs players; information about the opponent, the date and time of the game, the seat location, the ticket price, a barcode, and small print that stated that the ticket was subject to terms/conditions on the reverse side.

On the back of the ticket was an advertisement as well as six paragraphs of fine print. The fine print made reference to terms and conditions available either on the Cubs’ website or available at the Cubs administrative office. The ticket did not specify where the administrative office could be found. The fine print contained a warning that baseballs could be hit into the stands and that spectators should stay alert and disclaimed liability for any injuries resulting from such occurrences. The final paragraph specified that any disputes would be resolved by binding arbitration. Continue reading ›

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Major League Baseball’s efforts to end a lawsuit filed by a woman struck by a foul ball at Wrigley Field hit a snag when an Illinois appellate court ruled recently that the injured fan can move ahead with her lawsuit. In its ruling affirming the decision of the trial court, the First District appellate court held that the plaintiff was not required to arbitrate her case with the MLB per the terms of the arbitration agreement printed on the back of her ticket.

The case stems from events that took place during the Chicago Cubs’ August 27, 2018 home game, where the plaintiff, Laiah Zuniga, was hit in the face by a foul ball while at the game played at Wrigley Field, the Chicago Cubs home ballpark. Zuniga received her ticket on the day of the incident from her father who won it in a raffle at his workplace. The paper ticket would be familiar to anyone who has attended sporting or entertainment events. The front of the ticket included artwork depicting one of the Cubs players; information about the opponent, the date and time of the game, the seat location, and ticket price; a barcode; and small print that stated, “Event date/time subject to change. No refund. No exchange. Subject to terms/conditions set forth on the reverse side.”

A large portion of the back of the ticket was taken up by an advertisement. Next to the advertisement were six paragraphs of fine print. The first paragraph provided that by using the ticket, the individual “agrees to the terms and conditions available at www.cubs.com/ticketback (the ‘Agreement’), also available at the Chicago Cubs administrative office. Key terms of the Agreement are summarized below (the Agreement controls in the event of any conflict).” The third paragraph included a sentence in all capital letters stating that baseballs might be hit into the stands, that spectators should stay alert, and that the Cubs and other entities would not be liable for resulting injuries.

Important to the plaintiff’s lawsuit, the fifth paragraph of text stated, in regular type, “Any dispute/controversy/claim arising out of/relating to this license/these terms shall be resolved by binding arbitration, solely on an individual basis, in Chicago, Illinois.” Zuniga attested in an affidavit that she never read the fine print or visited the URL printed on the back of the ticket where the terms and conditions supposedly accompanying her ticket could be viewed. Had she done so, she would have found a much longer and more detailed arbitration agreement, which the Court reproduced verbatim and which spanned more than 3.5 pages of the Court’s opinion. Continue reading ›

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Two corporations agreed to arbitrate a dispute in front of a foreign arbitration panel in Birmingham, England, under the terms of their agreement. After they agreed to arbitrate, one of the parties filed an ex parte application to a U.S. district court asking the court to issue a subpoena compelling a third company to produce documents for use in the arbitration. The district court initially granted the motion, but later quashed it after the defendant objected. The plaintiff appealed, and the appellate panel determined that the district court did not err. The appellate panel found that private arbitration panels did not qualify for the kind of discovery assistance provided for foreign state-sponsored tribunals under §§ 1781 and 1782 of Title 28.

Rolls-Royce PLC manufactured and sold a Trent 1000 aircraft engine to the Boeing Company for incorporation into a 787 Dreamliner aircraft. In January 2016, Boeing tested the new aircraft at its facility near the Charleston International Airport in Charleston, South Carolina. A piece of metal became lodged in an engine valve, restricting the flow of fuel to the engine. As Boeing employees attempted to fix the problem, the engine caught fire, damaging the aircraft. Boeing demanded compensation from Rolls-Royce, and in 2017 the companies settled for $12 million. Rolls-Royce then sought indemnification from Servotronics, Inc., the manufacturer of the valve. Continue reading ›

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