Justia Contracts Opinion Summaries

Fetch! Pet Care, Inc., a nationwide franchisor of pet-care services, alleged that a group of former franchisees coordinated to exit their franchise agreements and start competing businesses, allegedly misappropriating Fetch!’s branding, client lists, intellectual property, and trade secrets. The franchisees contended that the newer “2.0” franchise model imposed high fees, delivered poor support, and led to high attrition, while some “1.0” franchisees claimed they were forced out of the system unexpectedly, leaving them no choice but to start their own businesses. A franchisee association was formed, and many franchisees sent rescission notices and pursued arbitration. Fetch! responded by filing suit for breach of contract, trademark infringement, and misappropriation of trade secrets, and sought injunctive relief to prevent the franchisees from operating competing businesses or using its intellectual property.The United States District Court for the Eastern District of Michigan held evidentiary hearings and granted Fetch!’s motion for a temporary restraining order and preliminary injunction in part, ordering defendants to stop using Fetch!’s trademarks and cease communication with current Fetch! franchisees, but denied broader injunctive relief. The court reasoned that a full injunction could harm ongoing arbitration proceedings and found sufficient evidence to invoke the doctrine of unclean hands against Fetch!, based on allegedly deceptive conduct in selling franchises. Fetch! timely appealed the district court’s order.The United States Court of Appeals for the Sixth Circuit reviewed the district court’s application of the unclean hands doctrine for abuse of discretion and affirmed. The appellate court held that the district court acted within its discretion in denying broad injunctive relief based on Fetch!’s bad faith and deceptive marketing practices as an underlying cause of franchisee conduct. The court clarified standards for irreparable harm and affirmed the partial denial of preliminary injunction, relying on the doctrine of unclean hands rather than other defenses. View "Fetch! Pet Care, Inc. v. Atomic Pawz Inc." on Justia Law

USAA Savings Bank closed Michael Goff’s credit card account, providing him with inconsistent explanations for its actions. Goff pursued arbitration under the arbitration agreement contained in his credit card contract, seeking actual and punitive damages. The agreement allowed the arbitrator to award punitive damages but explicitly required a post-award review of such damages, with procedural protections and a written, reasoned explanation, before any punitive damages award could become final.An arbitrator held an evidentiary hearing and determined that USAA had violated the Equal Credit Opportunity Act by failing to provide Goff with adequate notice upon closing his account. Despite finding that Goff suffered no actual damages, the arbitrator awarded $10,000 in punitive damages and over $77,000 in attorney’s fees. USAA requested the post-award review mandated by the agreement, but the arbitrator declined, citing American Arbitration Association rules, and finalized the award without conducting the review.USAA filed a motion in the United States District Court for the Northern District of Illinois, seeking to vacate the arbitral award on the ground that the arbitrator had exceeded her authority by disregarding the post-award review requirement. The district court acknowledged the arbitrator’s error but confirmed the award, concluding it nonetheless “drew from the essence of the arbitration agreement.” USAA appealed, and Goff sought sanctions.The United States Court of Appeals for the Seventh Circuit held that the arbitrator exceeded her authority by ignoring the arbitration agreement’s clear requirement for a post-award review of punitive damages. The court determined there was no “possible interpretive route” to support the arbitrator’s action, vacated the district court’s judgment, denied Goff’s motion for sanctions, and remanded with instructions to refer the matter back to the original arbitrator for proceedings consistent with the agreement. View "USAA Savings Bank v Goff" on Justia Law

A woman with dementia was admitted to a memory care facility, where her family warned staff about her tendency to wander and need for supervision. Three days after admission, she was found unattended in a courtyard on a 102-degree day, suffering from severe burns and heatstroke, ultimately dying days later. Her family, acting as successors in interest and individually, sued the facility for elder neglect, negligence, fraud, wrongful death, and negligent infliction of emotional distress. Upon admission, her niece had signed an arbitration agreement on her behalf, which the family argued should not bind their individual claims or override their right to a jury trial.The Superior Court of Sacramento County considered the facility’s motion to compel arbitration and stay the proceedings. The court found a valid arbitration agreement existed for the decedent’s survivor claims but ruled that the agreement did not bind the family members' individual claims, as they were not parties to the agreement. The court also declined to compel arbitration of the survivor claims under California Code of Civil Procedure section 1281.2, subdivision (c), citing the risk of conflicting rulings if the family’s claims proceeded in court while survivor claims were arbitrated. The court further held that the agreement’s reference to the Federal Arbitration Act (FAA) did not expressly incorporate the FAA’s procedural provisions to preempt California law.On appeal, the California Court of Appeal, Third Appellate District, affirmed the trial court’s judgment. It held that the arbitration agreement did not clearly and unmistakably delegate threshold issues of arbitrability to the arbitrator, and that the FAA’s procedural provisions were not expressly adopted by the agreement. Therefore, California law applied, and the trial court properly exercised its discretion to deny arbitration to avoid inconsistent rulings. The judgment was affirmed, and costs were awarded to the plaintiffs. View "Wright v. WellQuest Elk Grove" on Justia Law

A business agreement was made in early 2020 for the rental of a yacht for an event. The agreement involved a payment of $18,280, which was to cover a deposit and a down payment toward the rental fee. The event was canceled due to the COVID-19 pandemic, and the party that made the payment requested a refund. The yacht provider did not return the funds. The party seeking the refund sued under several theories, including unjust enrichment and breach of contract.After mandatory arbitration resulted in an award for the plaintiff, the defendant requested a trial de novo, and the matter proceeded under Nevada’s Short Trial Program. A short trial judge rendered a proposed judgment in favor of the plaintiff. The defendant objected to this proposed judgment, but the short trial judge, after consulting with the Alternative Dispute Resolution Office, ruled on the objection and later denied the defendant’s NRCP 59 motion to alter or amend the judgment, or for a new trial. The district court then entered judgment in favor of the plaintiff, apparently approving the short trial judge’s proposed judgment.On appeal, the Supreme Court of Nevada considered whether a short trial judge has authority to adjudicate objections to a proposed judgment and post-judgment NRCP 59 motions. The court held that under the plain language of NSTR 3(d), only the district court—not a short trial judge—may review and adjudicate objections to proposed judgments and NRCP 59 motions. The court found that the short trial judge exceeded her authority by ruling on these matters. The Supreme Court of Nevada vacated the district court’s judgment and the short trial judge’s post-judgment orders, remanding the case to the district court for further proceedings consistent with its opinion. View "VEGAS AQUA, LLC VS. JUPITOR CORP." on Justia Law

A financial advisor sold her company to a buyer, with a portion of the purchase price to be paid up front and the remainder in quarterly installments. When the buyer failed to make the scheduled payments, the seller initiated arbitration through the Financial Industry Regulatory Authority (FINRA), as required by their agreement. The arbitration panel found the buyer in default and awarded damages to the seller. The buyer then sought to vacate the arbitration award in the Circuit Court for the City of Richmond, arguing that one of the arbitrators had “evident partiality” due to undisclosed past connections with the seller and her company.The circuit court reviewed the motion to vacate and applied the “evident partiality” standard as interpreted by the Fourth Circuit in ANR Coal Co., Inc. v. Cogentrix of N.C., Inc., and denied the motion, finding no clear evidence of bias. The buyer appealed to the Court of Appeals of Virginia, which affirmed the circuit court’s decision. The appellate court concluded that the arbitrator’s prior connections with the seller and her company were too remote and insubstantial to suggest partiality, and that the undisclosed interactions did not create an appearance of bias that would require vacatur of the award.The Supreme Court of Virginia reviewed the case to clarify the standard for “evident partiality” under the Virginia Uniform Arbitration Act. The court held that, to vacate an arbitration award for evident partiality, a party must objectively show that a reasonable person, knowing all relevant facts, would perceive the arbitrator’s conduct as obvious bias against that party. Applying this standard, the Supreme Court of Virginia found that the arbitrator’s remote and inconsequential past connections did not meet this threshold. The court affirmed the judgment of the Court of Appeals and remanded for further proceedings regarding attorney fees. View "Garofalo v. Di Vincenzo" on Justia Law

A Montana limited liability company and its sole member obtained a $450,000 loan secured by real property from a lender affiliated with New York-based entities. The loan documents included a promissory note, guaranty, and deed of trust, all referencing the lender as Axos Bank, though the servicing and assignment of the loan eventually resided with the lender’s subsidiaries. The loan imposed a high annual interest rate, and after the company defaulted, the property was sold. The borrower alleges it paid more than twice the loan amount and asserts that the lender’s arrangement with Axos Bank was a scheme to avoid Montana’s usury laws.The borrowers sued in the Montana Eighteenth Judicial District Court, seeking, among other relief, a declaration that the lender—not Axos Bank—was the true lender and subject to Montana usury law. The lender moved to dismiss and compel arbitration under the arbitration provisions in the loan documents. The District Court considered extrinsic evidence, including the borrower’s declaration, and found that the arbitration provisions conflicted with bold, capitalized jury trial waiver language, resulting in ambiguity. The District Court determined that the borrower had not knowingly, voluntarily, and intelligently waived its constitutional right of access to the courts, denied the motion to compel arbitration, and the lender appealed.The Supreme Court of the State of Montana reviewed the District Court’s denial of the motion to compel arbitration de novo. The Supreme Court affirmed, holding that the loan documents were ambiguous due to conflicting provisions regarding dispute resolution, and that such ambiguity prevented the borrower from giving the required knowing, voluntary, and intelligent consent to arbitrate and waive constitutional rights. As a result, the arbitration provisions were held unenforceable, and the District Court’s denial of the motion to compel arbitration was affirmed. View "Bluebird v. World Business Lenders" on Justia Law

A steel subcontractor was hired to perform work for a university construction project and entered into a subcontract with the general contractor. The general contractor began defaulting on payments, prompting the subcontractor to notify the surety insurance company, which had issued a payment bond guaranteeing payment for labor, materials, and equipment. The surety made partial payment but disputed the remaining amount. The subcontractor then demanded arbitration against the contractor, with the surety notified and invited to participate. The contractor filed for bankruptcy and did not defend in arbitration, nor did the surety participate. The arbitrator awarded the subcontractor damages, including attorneys’ fees and interest, and the award was confirmed in court. The subcontractor sought to enforce the arbitration award against the surety, including attorneys’ fees and prejudgment interest, and also brought a bad faith claim under Pennsylvania’s insurance statute.The Centre County Court of Common Pleas initially excluded evidence of the arbitration award against the surety at trial and ruled the surety was not liable for attorneys’ fees or bad faith damages. A jury found for the subcontractor on the underlying debt, and the court awarded prejudgment interest at the statutory rate. Both parties appealed. The Superior Court held the arbitration award was binding and conclusive against the surety, who had notice and opportunity to participate, and affirmed liability for attorneys’ fees related to pursuing the contractor in arbitration. The court rejected the bad faith claim, holding the statute did not apply to surety bonds, and confirmed the statutory interest rate.On appeal, the Supreme Court of Pennsylvania affirmed in all respects. It held that Pennsylvania’s insurance bad faith statute does not apply to surety bonds, based on statutory language. The court also held that the surety is bound by the arbitration award against its principal, and is liable for attorneys’ fees incurred in arbitration and prejudgment interest at the statutory rate. View "Eastern Steel v. Int Fidelity Ins. Co." on Justia Law

Two individuals each purchased a Mercedes-Benz vehicle that included a subscription-based system called “mbrace,” which provided various features through a 3G wireless network. When newer cellular technology rendered the 3G-dependent system obsolete, both customers asked their dealerships to replace the outdated system at no charge, but their requests were denied. Subsequently, they filed a class action lawsuit against Mercedes-Benz USA, LLC and Mercedes-Benz Group AG, asserting claims including breach of warranty under federal and state law.The United States District Court for the Northern District of Illinois, Eastern Division, considered Mercedes’s motion to compel arbitration pursuant to the Federal Arbitration Act, based on the arbitration provision within the mbrace Terms of Service. The district court found in favor of Mercedes, concluding that the plaintiffs were bound by an agreement to arbitrate their claims. Since neither party requested a stay, the court dismissed the case without prejudice. The plaintiffs appealed, arguing that they had not agreed to arbitrate.The United States Court of Appeals for the Seventh Circuit reviewed the district court’s factual findings for clear error and legal conclusions de novo. Applying Illinois contract law, the appellate court determined that Mercedes had provided sufficient notice of the arbitration agreement to the plaintiffs through the subscription activation process and follow-up communications. The court found that Mercedes established a rebuttable presumption of notice, which the plaintiffs failed to overcome, as they only stated they did not recall receiving such notice, rather than expressly denying it. The Seventh Circuit held that the plaintiffs had assented to the agreement by subscribing to the service and thus were bound by the arbitration provision. The judgment of the district court was affirmed. View "Jim Rose v Mercedes-Benz USA, LLC" on Justia Law

A dispute arose following the acquisition of an online video game company, where the buyer agreed to pay a base purchase price with the possibility of an additional earnout payment if certain financial targets were met. The merger agreement included a provision requiring disputes over the calculation of this earnout to be resolved by a mutually agreed-upon accounting firm acting as an arbitrator. After closing, the seller representative alleged that the buyer acted in bad faith to reduce the earnout, failed to provide required information and access, and breached both express and implied contractual obligations. The buyer responded by invoking the alternative dispute resolution (ADR) clause and moved to compel arbitration.The Court of Chancery of the State of Delaware granted the buyer’s motion, finding that the seller’s claims—including those alleging bad-faith conduct and denial of information access—were fundamentally disputes over the earnout calculation and thus fell within the scope of the ADR provision. The court held that questions about information access and related procedural matters were for the arbitrator to decide. The seller’s complaint was dismissed with prejudice, and the dispute proceeded to arbitration, where the arbitrator ruled in favor of the buyer. The Court of Chancery later confirmed the arbitrator’s award, rejecting the seller’s arguments regarding undisclosed conflicts of interest.The Supreme Court of the State of Delaware reviewed the case. It affirmed the Court of Chancery’s judgment, holding that the bad-faith breach claims and the information-access claim were properly subject to arbitration under the agreement. The court found no error in the lower court’s refusal to vacate the arbitration award, concluding that the seller failed to demonstrate an undisclosed relationship that would indicate evident partiality. The Court of Chancery’s decisions to compel arbitration and to confirm the award were affirmed. View "Fortis Advisors LLC vs. Stillfront Midco AB" on Justia Law

Lanesborough 2000, LLC and Nextres, LLC entered into a loan agreement for the funding of a self-storage facility in Corning, New York. The deal included an arbitration agreement that required disputes to be resolved by binding arbitration. Lanesborough alleged that Nextres breached the agreement by failing to disburse loan funds as promised. An arbitrator found in favor of Lanesborough, awarding consequential damages, declaratory and injunctive relief, and attorney’s fees based on Nextres’s bad faith conduct. The arbitration agreement contained a waiver of the “right to appeal,” but did not specify its scope.The United States District Court for the Southern District of New York partially confirmed the arbitrator’s awards. It confirmed the awards of consequential damages, declaratory relief, and attorney’s fees, finding that the fee award was permissible because it was based on a finding of bad faith. The District Court also granted Lanesborough’s requests for injunctive relief by ordering Nextres to comply with the loan agreement and enjoining Nextres from pursuing foreclosure actions, including a pending state court foreclosure against a related party. The District Court awarded Lanesborough post-award prejudgment interest and stayed enforcement of its judgment pending appeal.On appeal, the United States Court of Appeals for the Second Circuit first held that the parties’ contractual waiver of the “right to appeal” was ambiguous and not sufficiently clear or unequivocal to preclude appellate review. On the merits, the Second Circuit affirmed the district court’s confirmation of the arbitrator’s awards and its grant of post-award prejudgment interest. However, it vacated the district court’s injunction barring the state-court foreclosure action because the lower court had not considered whether the injunction was consistent with the Anti-Injunction Act. The case was remanded for further proceedings on that issue. View "Lanesborough 2000, LLC v. Nextres, LLC" on Justia Law