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April 4, 2022

Lit Alerts—March 2022

A Publication of the Litigation Practice Group

Arbitration: Federal Court Enforces Arbitration Clauses That Require Arbitrators to Decide Questions of Arbitrability

In Micheli & Shel, LLC v. Grubhub, Inc, et al., the US District Court for the Southern District of New York compelled arbitration of a delivery fee dispute between an Israeli-style bakery and food delivery apps.

The lawsuit, brought by Micheli & Shel, alleges that defendants Grubhub, Uber Eats, Postmates, and Doordash violated New York City laws limiting COVID-19 delivery fees. The plaintiff admitted it entered into arbitration agreements with three of the defendants—Grubhub, Uber Eats and Doordash—but argued its claims fell outside of those covered by the arbitration clauses. The defendants countered that public policy, as evidenced by the Federal Arbitration Act, strongly favors arbitration in cases such as this.

The court ruled that the plaintiff’s challenge to arbitrability had to be decided by the arbitrators, as required by the parties’ arbitration agreement. The court thus entered an order compelling arbitration and staying the action pending the outcome. As to one defendant, Postmates, the court allowed the plaintiff’s claims to remain in the district court because no arbitration agreement governed the parties’ relationship.

Data Privacy: District Court Declines to Certify Interlocutory Appeal of Its Decision Allowing Claims Against Macy’s for Accessing Facial Recognition Data to Assist with In-Store Loss Prevention

An Illinois federal court recently denied a motion by Macy's Retail Holdings, LLC (Macy’s) for an interlocutory appeal to review its decision allowing consumers to pursue claims that Macy’s violated Illinois's Biometric Information Privacy Law (BIPA). The case stems from consumers’ claims that Clearview AI, Inc. (Clearview AI) covertly scraped billions of facial images from the internet and used them to harvest individuals’ biometric information. The plaintiffs alleged Macy’s purchased access to this biometric information and used it to identify people appearing in surveillance camera footage from Macy’s retail stores. The district court’s earlier ruling dismissed claims against Macy’s under California’s Unfair Competition Law and New York common law, but allowed claims that Macy’s used Clearview AI’s facial recognition technology for its own business purposes and profited from its use in violation of BIPA. BIPA requires informed consent before biometric data is collected.

Macy’s sought to pursue an interlocutory appeal to the Seventh Circuit on three questions: 1) whether the US Supreme Court’s decision in TransUnion LLC v. Ramirez, 141 S.Ct. 2190, 2200 (2021), means that a victim of a privacy harm can suffer injury-in-fact for Article III standing purposes only if the victim’s information is disseminated to a third party, 2) whether a company’s use of a biometric database for loss prevention can constitute “profit” under Section 15(c) of BIPA, and 3) whether California and New York statutes and common law protect the same set of rights secured by BIPA.

In declining to certify the appeal, the district court distinguished TransUnion: that case involved the Fair Credit Reporting Act (FCRA), which is analogous to the tort of defamation, while BIPA violations are more akin to common-law privacy torts, meaning a violation stems from the invasion of the victim’s private domain. Given this difference, the court found that the plaintiffs sufficiently alleged a BIPA claim based on the harm associated with Macy’s invasion of their biometric information, and no transfer to a third party was necessary. The court also concluded that the plaintiffs plausibly alleged that Macy’s profited from using their biometric information by reducing the number of stolen goods. Finally, the court stated that it had never considered or concluded whether the plaintiffs’ California and New York claims protected the same set of rights secured by BIPA. Therefore, Macy’s contentions were not a question of law for interlocutory appeal.

Jury Verdicts: Fourth Circuit Holds a Hung Jury Cannot Be Used to Conduct a Consistency Analysis on a Rule 59 Motion for a New Trial

The US Court of Appeals for the Fourth Circuit last month in Jordan v. Large, No. 19-7855 (4th Cir. Mar. 4, 2022), that a hung jury on one claim in a civil case cannot be used to conduct a consistency analysis on a motion for post-trial relief under Federal Rule of Civil Procedure 59. In Jordan, a prisoner brought § 1983 claims for excessive force and retaliation against a prison guard who allegedly assaulted him because he had filed a grievance and lawsuits. The jury deadlocked on the excessive force claim but found for the plaintiff on the retaliation claim and awarded compensatory damages. The guard moved under Rule 59 for a new trial, arguing the verdicts were irreconcilably inconsistent. The district court granted the motion, reasoning that the jury, in finding for the plaintiff on the retaliation claim, must have found that the guard caused physical injury for purposes of the excessive force claim.

The Fourth Circuit reversed without evaluating the substance of the claims, holding that the district court erred on the threshold issue whether a hung jury is a finding that a court can use to conduct an inconsistent verdict analysis under Rule 59. The court noted that, under existing US Supreme Court precedent, “the fact that a jury hangs is evidence of nothing—other than, of course, that it has failed to decide anything.” The court explained there was no way of knowing why the jury deadlocked on one of the claims—it could have been based on the merits of the claim, but also could have been that “some members of the jury grew weary of the debate on excessive force and just wanted a hamburger or beer.” By guessing what happened inside the closed quarters of the jury room and deeming the verdicts inconsistent, the district court erred. The very nature of a hung jury prohibits a consistency analysis, the Fourth Circuit held.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.