The district and appellate courts held in favor of Sundance, and the Supreme Court granted certiorari to resolve a split among the circuits on the question of whether waivers in an arbitration context require a showing of prejudice. Writing for the Court, Justice Kagan rejected the idea that the “policy favoring arbitration” underlying the Federal Arbitration Act creates a basis for heightened requirements to demonstrate waiver. She noted that, “Outside the arbitration context, a federal court assessing waiver does not generally ask about prejudice.” A court should examine, instead, the actions of the person holding the right, looking for evidence of relinquishment or abandonment. “If an ordinary procedural rule—whether of waiver or forfeiture or what-have-you— would counsel against enforcement of an arbitration contract, then so be it. The federal policy is about treating arbitration contracts like all others, not about fostering arbitration . . . . [A court] may not make up a new procedural rule based on the FAA’s ‘policy favoring arbitration.’”
Mediated Settlement of Individuals with Disabilities Education Improvement Act Claims Bars All Other Claims
Gibson v. Winton Woods City School District, ___ F. Supp. 3d. ___ (S.D. Ohio 2022)
Kimberly Gibson brought a complaint against a local school district claiming that her son, whose disabilities include “autism, ADHD and related executive function deficits, language impairments, [and] anxiety,” had been denied his right to a free and appropriate public education. Gibson and the school district entered into mediation, which resulted in a settlement of her Individuals with Disabilities Education Improvement Act (IDEIA) claims. Under the terms of the settlement, the school district set aside money for tutoring and counseling. The settlement also included a Limited Release clause under which the parties acknowledged that monetary damages are unavailable under the IDEIA and “specifically exempted” any claims brought under the Americans with Disabilities Act (ADA) or any other statutory claims. Gibson then filed a lawsuit against the school district seeking monetary damages, citing violations of the ADA and several constitutional protections. The district subsequently sought summary judgment on the grounds that Gibson had failed to exhaust the administrative proceedings required under the Individuals with Disabilities Education Act (IDEA).
Gibson argued that the settlement of her IDEIA claim fell outside the scope of her lawsuit because the lawsuit sought monetary damages, which are unavailable under the IDEIA. The court rejected this argument, noting that the claim was fundamentally about the same wrong—the denial of a free and appropriate public education—even if the remedies were different. The court instead concluded that by opting to settle the IDEIA claim prior to a due process determination on the IDEIA claim, Gibson had made a “tradeoff” under which funds were set aside for her son’s use, but she could “never file the IDEA claim or any other corresponding statutory claim in court.” Regarding the Limited Release, the court expressed “understanding” of Gibson’s reading that the clause aimed to preserve her rights. Pointing, however, to the plain statutory requirement that plaintiffs exhaust their administrative remedies, the court granted summary judgment for the school district.
Unconscionable Arbitration Clause, Within Unconscionable Contract, Basis to Reject Motion to Compel and to Deny Severance
Damico v. Lennar Construction, __ S.E.2d __ (S.C. S. Ct. 2020)
Homeowners brought a construction defect claim against a developer and general contractor, who then sought to compel arbitration, pointing to the arbitration provision in the homeowner’s purchase agreements. The trial court noted sweeping examples of unconscionability throughout the contract and denied the motion to compel. Citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), the appellate court reversed, ruling that unconscionable provisions outside of the arbitration clause itself could not form a basis for rejecting arbitration. The South Carolina Supreme Court reversed as to this aspect of the opinion and reinstated the denial of the motion to compel. It wrote, “While we agree with the court of appeals that the circuit court violated the Prima Paint doctrine, we nonetheless agree with Petitioners and find the arbitration provisions—standing alone—contain a number of oppressive and one-sided terms, thereby rendering the provisions unconscionable and unenforceable under South Carolina law.” In particular, the court pointed to provisions that permitted the developer to control which parties could be brought into any arbitration claim. The court went on to reject the developer’s argument for severance, saying, “were we to honor the severability clause in contracts such as these, it would encourage sophisticated parties to intentionally insert unconscionable terms—that often go unchallenged—throughout their contracts, believing the courts would step in and rescue the party from its gross overreach.” Instead, it said, “the better policy is to decline the invitation for judicial severance.”
Mediation Agreement Binding Even If Not Finalized. Duress Only If from Opposing Party
Murphy v. Institute of International Education, 32 F.4th 146 (2nd Cir. 2022)
Philana Murphy brought a pro se complaint against her employer, alleging employment discrimination. Represented by pro bono counsel in mediation, Murphy eventually signed a summary agreement in mediation under which she received one year of salary along with extended benefits in exchange for resolving “all issues.” The agreement included a clause providing that “A full settlement agreement w/ applicable releases will follow.” The mediator, the parties, and their attorneys all signed the agreement. Lawyers for each side subsequently negotiated a number of additional terms into the “full settlement,” including not only waivers, but also confidentiality provisions and an agreement that Murphy would not seek subsequent employment with the employer. Three days later, Murphy contacted the district court, stating that she wished to revoke her agreement and refusing to sign the subsequently negotiated “full agreement.”
The Second Circuit considered the agreements in light of New York contract law. It held that the original agreement contained all of the material terms of the agreement and that the parties intended for the agreement to be binding, noting, however, that Murphy would not be held to additional terms (such as the confidentiality clause) added in subsequent negotiations. Murphy argued that her consent was secured through coercion. She indicated that her lawyer had advised her that this was “the most compensation she would ever receive,” and that the mediator had told her that if she rejected the agreement, she “would be stuck in a room filled with white men that would question every aspect of [her] life for hours.” The Second Circuit rejected this as the basis for a claim of duress or coercion, because “a party seeking to void an agreement based on duress must show that the alleged coercive behavior originated with the defendant or was known to the defendant at the time the agreement was made.” Here, the Second Circuit held, “Insofar as Murphy was put under any pressure to sign the mediation agreement, that pressure came from her counsel and the mediator.”
