Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

Articles Posted in Arbitration & Mediation
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Grubhub, an online and mobile food-ordering and delivery marketplace, considers its delivery drivers to be independent contractors rather than employees. The plaintiffs alleged, in separate suits, that Grubhub violated the Fair Labor Standards Act by failing to pay them overtime but each plaintiff had signed a “Delivery Service Provider Agreement” that required them to submit to arbitration for “any and all claims” arising out of their relationship with Grubhub. Grubhub moved to compel arbitration. The plaintiffs responded that their Grubhub contracts were exempt from the Federal Arbitration Act (FAA). Section 1 of the FAA provides that “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” 9 U.S.C. 1. Both district courts compelled arbitration.The Seventh Circuit affirmed. The FAA carves out a narrow exception to the obligation of federal courts to enforce arbitration agreements. To show that they fall within this exception, the plaintiffs had to demonstrate that the interstate movement of goods was a central part of the job description of the class of workers to which they belong. They did not even try to do that. View "Wallace v. Grubhub Holdings, Inc." on Justia Law

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FCE administered health insurance policies underwritten by the Insurers. After a few years, the Insurers became dissatisfied with FCE’s performance and invoked the Agreement’s arbitration clause. In Phase I of the arbitration, the arbitrators awarded the Insurers damages of more than five million dollars. The Insurers attempted to confirm this award under the Federal Arbitration Act, 9 U.S.C. 9, but the district court concluded that the case was not yet ripe for adjudication. The arbitrators had not yet resolved all matters that had been submitted to them. In Phase II, the arbitrators denied the Insurers’ remaining claim for reimbursement of excessive administrative fees and FCE’s counterclaim for lost profits.The district court confirmed the arbitration results in their entirety. The Seventh Circuit affirmed. The court rejected FCE’s arguments that the Phase II Award superseded the Phase I Award such that the district court could confirm only the Phase II Award; that part of the Phase I Award must be vacated because the arbitrators exceeded their authority by hearing and deciding the Insurers’ indemnification claims; and that it was reversible error for the court to confirm the portion of the Phase I Award labeled as damages for “embezzlement.” View "Standard Security Life Insurance Co. of New York v. FCE Benefit Administrators, Inc." on Justia Law

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DePuy manufactures medical instruments. Its Los Angeles area exclusive distributor was OrthoLA. The agreement included an arbitration provision. When that distribution arrangement ended, OrthoLA sued in Los Angeles Superior Court, alleging tort and contract claims. DePuy moved, unsuccessfully, to refer those claims to arbitration. DePuy appealed and filed a demand for arbitration with the American Arbitration Association. Three days later, DePuy filed this suit in the federal district court in Indianapolis, seeking an order compelling arbitration and an injunction against the state court proceedings.The district court stayed the case, pending the resolution of the California action. The Seventh Circuit affirmed. The lawsuits are parallel by any definition. Evaluating the “exceptional circumstances,” the court reasoned that the risk of splintering this litigation was great: functionally identical suits in two places creates a high risk of inconsistent results and wasteful duplication. The California courts were the first to take jurisdiction; that litigation is well along the road to resolution. The state courts are co-equal partners with the federal courts in protecting federal rights. The court speculated that “DePuy’s decision to open a second front in its effort to obtain arbitration just three days after it filed its appeal in the California courts was at best opportunistic and at worst manipulative.” View "Depuy Synthes Sales, Inc. v. Orthola, Inc." on Justia Law

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Brickstructures and Coaster executed a fill‐in‐the‐blank joint venture agreement to design a roller coaster kit, compatible with LEGOs. Many of the blanks went unfilled. The agreement contained an arbitration clause. They successfully released one product but the relationship fizzled. Coaster independently launched another LEGO‐compatible kit, without any credit to Brickstructures. Brickstructures sued, claiming that Coaster breached the agreement and its fiduciary duties and violated the Lanham Act. Coaster moved to dismiss, arguing that the arrangement was not an enforceable contract. The court dismissed the complaint for a jurisdictional defect. An amendment cured that issue. Coaster again moved to dismiss, arguing that the amended complaint did not allege a binding joint venture or, alternatively, that arbitration was the exclusive forum for the claims. Brickstructures demanded that Coaster withdraw the arbitration arguments, claiming Coaster waived them by not advancing them in its first motion. Coaster formally withdrew those arguments. The court found that the amended complaint adequately alleged a binding agreement. Coaster then moved to compel arbitration.The court found that Coaster waived arbitration, rejecting an argument that it was reasonable to abandon an arbitration demand in acquiescence to Brickstructures’s threat to seek sanctions. The Seventh Circuit affirmed. "Having put the arbitration card on the table and then taken it back, Coaster was not permitted to play that card again." A court has the discretion to allow recission of a waiver of the right to arbitrate only in “abnormal” circumstances, View "Brickstructures, Inc. v. Coaster Dynamix, Inc." on Justia Law

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Defendants, commodities futures investors, maintained trading accounts with FCStone, a clearing firm that handled the confirmation, settlement, and delivery of transactions. In 2018, extraordinary volatility in the natural gas market wiped out the defendants’ account balances with FCStone, leaving some defendants in debt. The defendants alleged Commodity Exchange Act violations against FCStone and initiated arbitration proceedings before the Financial Industry Regulatory Authority (FINRA). FCStone sought a declaratory judgment, claiming the parties must arbitrate their disputes before the National Futures Association (NFA), and that FINRA lacks jurisdiction over the underlying disputes. The district court ruled for FCStone, ordered arbitration and designated an arbitration forum, then stayed the case to address related issues, including the arbitration venue. The Seventh Circuit dismissed an appeal for lack of jurisdiction under 28 U.S.C. 1291 or the Federal Arbitration Act, ” 9 U.S.C. 16(a)(3). The district court’s decisions were non-final and no exception to the rule of finality applies. The court rejected an argument that the order amounted to an injunction prohibiting FINRA arbitration. A pro‐arbitration decision, coupled with a stay (rather than a dismissal) of the suit, is not appealable. The court noted that the district court did not decide whether the parties’ arbitration agreements relinquished defendants’ purported rights to FINRA arbitration. View "INTL FCStone Financial Inc. v. Farmer" on Justia Law

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Facebook employee Bigger sued Facebook alleging violations of the Fair Labor Standards Act (FLSA), 29 U.S.C. 201, overtime-pay requirements, on behalf of herself and all similarly situated employees. The district court authorized notice of the action to be sent to the entire group of employees. Facebook argued the authorization was improper because many of the proposed recipients had entered arbitration agreements precluding them from joining the action.The Seventh Circuit remanded, stating that, in authorizing notice, the court must avoid even the appearance of endorsing the action’s merits. A court may not authorize notice to individuals whom the court has been shown entered mutual arbitration agreements waiving their right to join the action and must give the defendant an opportunity to make that showing. When a defendant opposing the issuance of notice alleges that proposed recipients entered such arbitration agreements, the court must determine whether a plaintiff contests the defendant’s assertions about the existence of valid arbitration agreements. If no plaintiff contests those assertions, then the court may not authorize notice to the employees whom the defendant alleges entered valid arbitration agreements. If a plaintiff contests the defendant’s assertions, then— before authorizing notice to the alleged “arbitration employees”—the court must permit the parties to submit additional evidence on the agreements’ existence and validity. View "Bigger v. Facebook, Inc." on Justia Law

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Gupta joined Morgan Stanley and signed an employment agreement containing an arbitration clause; an employee dispute resolution program (CARE) applied to all U.S. employees. The CARE program did not then require employees to arbitrate employment discrimination claims but stated that the program “may change.” In 2015, Morgan Stanley amended its CARE program to compel arbitration for all employment-related disputes, including discrimination claims, and sent an email to each U.S. employee, with links to the new arbitration agreement and a revised CARE guidebook. The email attached a link to the arbitration agreement opt-out form and set an opt-out deadline, stating that, if the employee did not opt-out, continued employment would reflect that the employee agreed to the arbitration agreement and CARE guidebook and that opting out would not adversely affect employment status. Gupta did not submit an opt-out form or respond to the email. He continued to work at Morgan Stanley for two years until, he alleges, the company forced him to resign because of military leave. Gupta sued for discrimination and retaliation under the Uniformed Services Employment and Reemployment Rights Act, 38 U.S.C. 4301–35. The court agreed with that Illinois law permits an offeror to construe silence as acceptance if circumstances make it reasonable to do so; based on pretrial evidence, Gupta could not dispute he received the email. The Seventh Circuit affirmed an order compelling arbitration under the Federal Arbitration Act, finding the existence of a written agreement to arbitrate, a dispute within the scope of that agreement, and a refusal to arbitrate. View "Gupta v. Morgan Stanley Smith Barney, LLC" on Justia Law

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After plaintiff filed class and collective actions against her former employer for wage and hour violations, the district court compelled arbitration pursuant to an agreement between the parties. The district court also struck as unlawful a waiver clause that appeared to forbid class or collective arbitration of plaintiff's claims. The arbitrator awarded more than $10 million in damages and fees to plaintiff and 174 similarly situated employees.The Seventh Circuit held that the availability of class or collective arbitration is a threshold question of arbitrability. Accordingly, the court remanded for the district court, rather than the arbitrator, to evaluate plaintiff's contract with her employer to determine whether it permitted class or collective arbitration. View "Herrington v. Waterstone Mortgage Corp." on Justia Law

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Plaintiff filed suit against GC Services, alleging violations of the Fair Debt Collections Practices Act (FDCPA). The Seventh Circuit affirmed the district court's denial of GC Services' motion to compel arbitration and held that the company waived any right to arbitrate. In this case, GC Services did not discover the existence of the arbitration agreement for eight months, and then the company did not notify the court or move to compel arbitration for another five months. Furthermore, none of the explanations offered for the delays were adequate, and GC Services' decision to litigate the merits of plaintiff's legal theory and request for class certification was inconsistent with a desire to arbitrate. View "Smith v. GC Services LP" on Justia Law

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The employer sought review by the federal district court and obtained a judicial order vacating an award on the ground that the arbitrator improperly applied external law to contradict the terms of the collective bargaining agreement (CBA). The Seventh Circuit reversed the judgment of the district court and upheld the arbitrator's award, holding that the text of the CBA permitted the arbitrator to look to external law in interpreting the agreement. The court held that the language contained in the preamble of the CBA suspended any part of the CBA that either the company or union believed to conflict with state law. In this case, while the court would have preferred that the arbitrator cite to that language before applying the Concealed Carry Act to reinstate the employee, the extraordinarily deferential standard of review compelled the court to uphold the award. View "Ameren Illinois Co. v. International Brotherhood of Electrical Workers" on Justia Law