Lit Alerts—September 2020
Arbitration: Ninth Circuit Finds Presumption in Favor of Post-Termination Arbitration
Earlier this month, the Court of Appeals for the Ninth Circuit held that arbitration clauses survive termination of the contract that contains the clause unless the contract specifically says otherwise. Shivkov v. Artex Risk Sols., Inc., No. 19-16746, 2020 WL 5405687 (9th Cir. Sept. 9, 2020). The Ninth Circuit thus joined the Courts of Appeals for the First, Second, Sixth, Eighth, and District of Columbia Circuits in holding that there is a presumption in favor of post-termination arbitration. See Biller v. S-H OpCo Greenwich Bay Manor, LLC, 961 F.3d 502, 513 (1st Cir. 2020); Breda v. Cellco P'ship, 934 F.3d 1, 7 (1st Cir. 2019); Huffman v. Hilltop Cos., LLC, 747 F.3d 391, 395–96 (6th Cir. 2014); Wolff v. Westwood Mgmt., LLC, 558 F.3d 517, 520–21 (D.C. Cir. 2009); Koch v. Compucredit Corp., 543 F.3d 460, 465–66 (8th Cir. 2008); CPR (USA) Inc. v. Spray, 187 F.3d 245, 254–56 (2d Cir. 1999), abrogated on other grounds as explained in Accenture LLP v. Spreng, 647 F.3d 72, 76 (2d Cir. 2011).
In Shivkov, the plaintiffs and defendants entered into agreements containing arbitration clauses. Pursuant to the agreements, the defendants formed and managed insurance companies on behalf of the plaintiffs. The arrangement was intended to provide tax benefits to the plaintiffs, but instead led to IRS penalties. As a result of the penalties, the plaintiffs brought a putative class action alleging, inter alia, breach of fiduciary duty and RICO violations. The district court granted the defendants' motion to compel individual arbitration and dismissed the action; plaintiffs appealed. The Ninth Circuit affirmed the district court's decision dismissing the complaint.
The plaintiffs contended the arbitration clause was unenforceable because (1) the defendants breached a fiduciary duty to point out and fully explain the clause to plaintiffs; and (2) the arbitration clause did not survive the agreements' terminations. Applying state law, the Ninth Circuit found that the defendants did not owe a fiduciary duty with respect to the "purely commercial aspects of [the] relationship." The Ninth Circuit then held that the arbitration clause still bound the plaintiffs, notwithstanding termination of the agreements. The Ninth Circuit noted Supreme Court precedent in the collective bargaining context, which recognizes a "presumption in favor of postexpiration arbitration of matters unless 'negated expressly or by clear implication' [for] matters and disputes arising out of the relation governed by contract." Litton Financial Printing Division v. NLRB, 501 U.S. 190, 204 (1991). The Ninth Circuit adopted the same presumption for arbitration clauses governed by the Federal Arbitration Act.
Applying the presumption to this case, the Ninth Circuit held that the parties did not "expressly negate the presumption in favor of post-termination arbitration, or clearly impl[y] that their arbitration obligations would not survive termination." The court noted that it "might have arrived at a different conclusion if the survival clause stated that only the terms of that section and no other terms in the Agreement would survive termination, if the Agreement included a comprehensive survival clause, or even if the Arbitration Clause explicitly stated that it does not survive termination."
Defamation: Second Circuit Slaps Down Use of Anti-SLAPP Special Motion to Strike in Federal Court
In La Liberte v. Reid, No. 19-3574 (2d Cir. July 15, 2020), the Second Circuit widened an existing circuit split by holding that California's Anti-Strategic Lawsuits Against Public Participation (anti-SLAPP) statute does not apply to defamation claims filed in federal court. Approximately 30 states have anti-SLAPP statutes, which are intended to "decrease the 'chilling effect' of certain kinds of libel litigation … [often] by making it easier to dismiss defamation suits at an early stage of the litigation." California's anti-SLAPP statute does so by, among other things, allowing a defendant accused of defamation based on protected speech to respond to a complaint with a "special motion to strike" that must be granted "unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim." Cal. Civ. Proc. Code § 425.16(b)(1). The statute also awards attorneys' fees and costs to defendants who prevail on such motions. Cal. Civ. Proc. Code § 425.16(c)(2).
The La Liberte case arose from a photo posted to Twitter that appears to show the plaintiff, Rosyln La Liberte, yelling at a Latino teenager at a Simi Valley, California city council meeting concerning a bill limiting local cooperation with federal immigration authorities. MSNBC commentator Joy Reid posted the photo on Instagram and Facebook, claiming that Ms. La Liberte used racial slurs, and likening the scene to a photo of the Little Rock Nine. Ms. La Liberte sued Ms. Reid for defamation in the Eastern District of New York. The parties agreed to the application of California law. Ms. Reid moved for dismissal under Federal Rule of Civil Procedure 12(b)(6) and to strike under California's anti-SLAPP statute. The district court granted the motion on both grounds, and also granted Ms. Reid leave to seek attorneys' fees and costs under the anti-SLAPP statute for prevailing on the motion to strike.
The Court of Appeals reversed, holding that the anti-SLAPP motion to strike procedure does not apply in federal court because it conflicts with Federal Rules of Civil Procedure 12 and 56. (The court also reversed, on other grounds, the dismissal under Rule 12(b)(6).) The panel noted that it joined the Fifth, Eleventh, and D.C. Circuits in declining to apply state anti-SLAPP statutes that raise the plaintiff's burden in resisting a pretrial dismissal motion. See Klocke v. Watson, 936 F.3d 240, 242 (5th Cir. 2019) (Texas); Carbone v. Cable News Network, Inc., 910 F.3d 1345, 1350 (11th Cir. 2018) (Georgia); Abbas v. Foreign Policy Grp., LLC, 783 F.3d 1328, 1335 (D.C. Cir. 2015) (D.C.). The First and Ninth Circuits have previously held otherwise, allowing federal defendants to utilize the pretrial procedures of Maine's and California's anti-SLAPP statutes, respectively. See Godin v. Schencks, 629 F.3d 79, 86-87 (1st Cir. 2010); United States ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 972 (9th Cir. 1999). The La Liberte panel hewed closely to the reasoning of the D.C. and Eleventh Circuits, concluding that the anti-SLAPP procedure abrogates Rule 12(b)(6) and Rule 56 by imposing a probability-of-success standard in place of the Federal Rules' plausibility and "genuine dispute of material fact" standards.
Accordingly, the court held, California's special motion to strike impermissibly "requires the plaintiff to make a showing that the Federal Rules do not require." The panel disagreed with the Ninth Circuit's view that the California procedure supplements rather than conflicts with the Federal Rules. The panel also rejected the argument that its decision conflicted with an earlier Second Circuit opinion, Adelson v. Harris, 774 F.3d 803 (2d Cir. 2014), which approved sections of Nevada's anti-SLAPP statute providing for immunity from civil liability and mandatory fee-shifting (ultimately resulting in a significant fee award to the defendants), reasoning that those aspects of the Nevada statute were substantive, not procedural. Finally, because the fee-shifting provision of California's anti-SLAPP statute is tied to the special motion to strike procedure, the La Liberte court reversed the district court's grant of leave to pursue fees and costs and further ruled that the defendant could not recover fees under the California anti-SLAPP statute if she later prevailed by other means.
The Court of Appeals denied en banc review in La Liberte on September 25, 2020.
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