Author: Caroline E. Oks

New Jersey Appellate Division Continues to Hold Sky-High Bar for Arbitration Clauses

In determining the enforceability of arbitration agreements, the New Jersey Appellate Division recently considered the interplay of the U.S. Supreme Court’s 2017 decision in Kindred Nursing Ctrs. v. Clark and the New Jersey Supreme Court’s 2014 decision in Atalese v. U.S. Legal Services Grp., L.P. In Defina v. Go Ahead and Jump 1, the Appellate Division held that Kindred Nursing did not abrogate the holding in Atalese. In Defina, the plaintiff, a minor, broke his ankle while playing trampoline dodgeball at Defendant’s facility. Plaintiff’s father had signed a document entitled “Participation Agreement, Release, and Assumption of Risk,” which contained the following arbitration provision: If there are any disputes regarding this agreement, I on behalf of myself and/or my child(ren) hereby waive any right I and/or my child(ren) may have to a trial and agree that such dispute shall be brought within one year of the date of this Agreement and will be determined by binding arbitration before one arbitrator to be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. . . . Plaintiffs sued, and the trial court granted Defendant’s motion to compel arbitration. On appeal, the Appellate Division reversed, holding that “the arbitration clause at issue in this matter did not clearly and unambiguously inform plaintiff that he was giving up his right...

Third Circuit Holds Anti-Assignment Clauses in ERISA Plans Are Enforceable

The Third Circuit, in a decision that may limit the remedies available to medical providers in the event of non-payment, recently clarified that “anti-assignment clauses in ERISA-governed health insurance plans as a general matter are enforceable.” In so holding, the Third Circuit joins all other circuit courts that have addressed the issue. On the basis of that clause, the Court held that the plaintiff out-of-network health care provider seeking reimbursement for a participant’s medical claims lacked standing to pursue the claim against the insurers on the participant’s behalf. In October 2015, the plaintiff provider performed shoulder surgery on a patient who was covered by an ERISA-governed health-insurance plan. In billing the individual for the procedure, the provider – because it was not part of the plan’s provider network – charged amounts that far exceeded the plan’s reimbursement limits for the surgery. The plan’s insurers applied its out-of-network limit in processing the claim and reimbursed only a fraction of the total amount charged. The provider appealed the claim on the patient’s behalf. At the same time, the provider had the patient sign an assignment-of-benefits form which assigned to the provider the patient’s right to pursue claims under his health-insurance plan for the surgery. The insurers denied the appeal, and the provider sued alleging ERISA violations. The insurers...

In Defective Shingles Class Action, Third Circuit Rejects Novel “Expected Useful Life” Defect Theory Premised on Warranty Period

The Third Circuit recently confirmed that plaintiffs must provide evidence of a specific defect, capable of classwide proof, in order to prevail on proposed class claims, holding that, where defective design is “an essential element of Plaintiffs’ misrepresentation-based claims,” whether proof of the defect “is susceptible to classwide evidence is dispositive of whether Plaintiffs can satisfy predominance” under Rule 23(b)(3). In Gonzalez v. Owens Corning, the plaintiffs sued the manufacturer of Oakridge fiberglass roofing shingles, claiming that their shingles, which were subject to warranties of 25 years or more, were “plagued by design flaws that result in cracking, curling and degranulation” and “will eventually fail.” The plaintiffs argued that the product warranties amounted to representations about the shingles’ expected useful life. Plaintiffs did not dispute that the design specifications for all shingles met the applicable industry design standard (“ASTM”), but claimed that compliance with the ASTM specifications did not consistently yield shingles that would last the stated warranty period. Thus, plaintiffs claimed that the issue of “defectiveness should be judged by the expected useful life of the shingles as represented by the applicable warranty period.” The plaintiffs’ expert, whose testimony was largely stricken as unreliable under Daubert, acknowledged that there was no single set of measurements applicable to all shingles that would constitute a design...

New Jersey Appellate Division Holds Rescission of Contract Also Rescinds Agreement to Arbitrate Contractual Disputes

In a recent published opinion, the New Jersey Appellate Division held that an arbitration provision will not survive rescission of the contract in which it is contained unless the parties expressly agree otherwise, and that the issue is properly decided by the trial court and not the arbitrator. This opinion marks one more step in New Jersey’s evolving landscape regarding questions of arbitrability. In Goffe v. Foulke Management Corp., the panel considered two actions consolidated on appeal. Both actions involved consumers who attempted to purchase cars from two separate dealerships. Both consumers signed some of the initial paperwork (which contained an arbitration provision), accepted possession of the vehicle, but returned the vehicles after a few days for different reasons. When their respective security deposits for the vehicles were withheld, they each brought suit claiming wrongful conduct on the part of the dealerships. The defendant dealerships successfully moved to dismiss, asserting that plaintiffs were contractually required to arbitrate their pleaded claims. Plaintiffs appealed. After determining that issues of fact as to whether valid sales contracts had been formed and were enforceable should have prevented dismissal of the actions, the Appellate Division addressed whether the arbitration provisions in the contracts were rescinded when the sales contracts were rescinded. Specifically, the Appellate Division considered “whether an arbitration provision...

Inadvertent Production Deemed Waiver of Privilege Where Counsel Was Reckless and Clawback Agreement Was Unclear

The Southern District of Ohio recently clarified the relationship between FRE 502 and clawback agreements in its finding that a party’s counsel was “completely reckless” in producing the same privileged documents on two separate occasions. In Irth Sols., LLC v. Windstream Commc’ns LLC, the parties entered into a clawback agreement that was memorialized in three bullet points in an email exchange between counsel. The agreement provided that an inadvertent disclosure (a term not defined in the agreement) would not waive the attorney-client privilege. The parties further agreed that, “based on the scale of the case,” it was unnecessary to ask the court to enter an order under Rule 502(d), whereby the court may order “that the privilege or protection is not waived by disclosure connected with the litigation pending before the court.” Defendant then produced documents, 43 of which defendant later discovered were privileged. Defense counsel argued the reviewing defense attorney failed to designate the documents privileged because he was not familiar with the name of defendant’s in-house counsel and the second level review neither caught this error nor flagged search words such as “legal.” Upon discovering the error, defense counsel requested a clawback of the 43 documents. Plaintiff’s counsel sequestered the 43 documents but challenged the clawback agreement’s application, arguing the disclosure resulted from...

Plaintiffs No Longer Need a “Nexus” to Pennsylvania in Order to Bring Claims Under the Unfair Trade Practices and Consumer Protection Law

In answering a certified question from the Third Circuit, the Pennsylvania Supreme Court recently issued a decision that greatly expands the reach of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL). In Danganan v. Guardian Protection Services, the Supreme Court held that “a non-Pennsylvania resident may bring suit under the UTPCPL against a [Pennsylvania]-headquartered business based on transactions that occurred out-of-state.” Plaintiff Danganan contracted with Guardian Protection Services (“Guardian”), a Pennsylvania-headquartered business, for home security equipment and services at the plaintiff’s then-home in Washington, DC. The contract contained, inter alia, a choice-of-law provision, stating that the “Agreement shall be governed by the laws of Pennsylvania.” After moving to California, the plaintiff attempted to cancel the agreement, but Guardian continued to bill the plaintiff, claiming the agreement authorized ongoing charges through the contract’s term, regardless of cancellation attempts. The plaintiff brought suit in Pennsylvania state court, and Guardian removed the matter to the United States District Court for the Western District of Pennsylvania. Guardian then moved to dismiss, arguing that the plaintiff had not, pursuant to the UTPCPL, demonstrated a “sufficient nexus” between Pennsylvania and the improper conduct alleged in the complaint. The district court agreed and dismissed the complaint. On appeal, the Third Circuit certified two questions to the Pennsylvania Supreme Court: (1) Whether...

Dos and Don’ts for Online Retailers Listing Terms and Conditions on Their Websites

A recent California federal decision states clear guidelines for consumer-focused companies’ online terms and conditions. In McKee v. Audible, Inc., the plaintiff signed up on his smartphone for a free one-month trial with Audible, an Amazon subsidiary offering audiobook subscription services. Thereafter, the plaintiff filed a putative class action against Audible and Amazon.com taking issue with Audible’s policy regarding unused credits. Defendants then filed a motion to compel arbitration. The motion to compel arbitration was granted as to Amazon, but denied as to Audible. The court found that while both companies’ arbitration agreements were valid and enforceable, Audible’s customer user agreements were not clearly displayed when consumers signed up for the service online and were blocked by certain images when using the Audible app. Therefore, customers were not given the requisite actual or constructive notices of the terms of service, such that they could mutually assent to the terms of service in order to create a valid and enforceable contract. The court offered the following guidelines for constructive notice in internet commerce: (1) “terms of use” will not be enforced where there is no evidence that the website user had notice of the agreement; (2) a user should be encouraged by the design and content of the website and the agreement’s webpage to examine the...

Defendant Acting With “A Pure Heart But Empty Head” Not Subject to Spoliation Sanctions Under Amended Rule 37(e)

A recent decision denying a motion for spoliation sanctions highlights that a moving party must show that even clearly spoliated ESI is not available from other sources to qualify for an award of any form of sanction under Rule 37(e). In Snider v. Danfoss, LLC, the Northern District of Illinois held that a defendant’s admitted and erroneous destruction of duplicative ESI did not prejudice the plaintiff and therefore sanctions were not warranted. In other words, “no harm, no foul.” Plaintiff Snider worked for Danfoss for a number of years, during which time she was sexually harassed by another employee. Plaintiff informed her acting supervisor of the harassment, and was later transferred to a different position, which she viewed as a demotion and retaliation for her complaint. Approximately one week after the transfer, Plaintiff’s counsel sent a generalized, “preserve all evidence” letter to Danfoss. She then quit, and, pursuant to Danfoss’s policy, her emails were deleted 90 days after her employment ended. Plaintiff’s acting supervisor also later left Danfoss’s employment, and her emails were deleted in accordance with Danfoss’s auto-deletion policy. After the case was filed, Plaintiff deposed her acting supervisor, who suffered from a case of “testimonial amnesia” and was unable to recall a variety of facts, even benign, irrelevant facts. Plaintiff thereafter sought production...

Supreme Court Rejects Class Action Plaintiffs’ Attempts to Circumvent Rule 23(f)

As previously discussed on this blog, the Supreme Court granted certiorari to address the question of whether federal courts of appeals have jurisdiction to review an order denying class certification after the named Plaintiffs voluntarily dismissed their claims with prejudice. In the June 12, 2017 decision in Microsoft Corp. v. Baker, the high court answered this question with a very resounding “no.” In Baker, a putative class of owners of Microsoft Corporation’s Xbox 360® video game console filed suit, alleging that the console suffered from a design defect that gouged game discs. Microsoft opposed Plaintiffs’ motion to certify the class. The District Court denied certification, citing comity considerations and relying on the class certification denial in a similar case. The Ninth Circuit denied the Plaintiffs’ 23(f) petition for interlocutory appeal. Plaintiffs then voluntarily dismissed the case with prejudice for the express purpose of obtaining immediate Ninth Circuit review of the District Court’s denial of class certification. Plaintiffs filed an appeal from the final judgment, challenging the denial of class certification, but not the order dismissing the case with prejudice. The Ninth Circuit held that it had jurisdiction under 28 U.S.C. § 1291 because the stipulated dismissal did not involve a settlement, and thus was a sufficiently adverse and appealable, final decision. The Supreme Court disagreed....

Supreme Court to Decide Whether Class Action Plaintiffs Can Ring Their Own “Death Knell” Bell

The United States Supreme Court heard oral argument last month on the issue of whether a federal court of appeals has jurisdiction to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice. The case comes to the Supreme Court from the Ninth Circuit’s decision in Baker v. Microsoft Corp. In Baker, a putative class of owners of Microsoft Corporation’s (Microsoft) Xbox 360® video game console filed suit, alleging that the console suffered from a design defect that gouged game discs. Microsoft opposed Plaintiffs’ motion to certify the class. The District Court denied certification, citing comity considerations and relying on the class certification denial in a similar case. Thereafter, Plaintiffs filed a 23(f) petition for interlocutory appeal with the Ninth Circuit, which was denied. The Plaintiffs then voluntarily dismissed the case with prejudice, with the express purpose of obtaining immediate Ninth Circuit review of the District Court’s denial of class certification. Plaintiffs filed an appeal from the final judgment, challenging the denial of class certification. On appeal, Microsoft argued that the Ninth Circuit lacked jurisdiction because a voluntary dismissal with prejudice does not sufficiently affect the merits of the substantive claims to constitute an appealable final judgment. However, the Ninth Circuit had previously rejected a similar argument in...