New York Commercial Division Clarifies How Claims Will Be Valued
The New York Commercial Division, the specialized arm of the New York State Supreme Court composed of justices experienced in handling complex civil matters, recently amended its rules to clarify how actions seeking equitable or declaratory relief will be valued for purposes of meeting the Commercial Division’s monetary thresholds. See AO/038/25 (Jan. 28, 2025).
In order to qualify for assignment to the Commercial Division, the relief sought in an action must exceed a certain monetary value, which varies from county to county. In New York County, for example, actions must meet the monetary threshold of $500,000. NYCRR 202.70(a).
The rule change clarifies how actions seeking equitable or declaratory relief are valued. Going forward, whether such actions meet the Commercial Division’s monetary threshold will be measured by the “value of the object of the action,” defined as “the value of the suit’s intended benefit, the value of the right being protected, or the value of the injury being averted, whichever is greatest.” NYCRR 202.70(b). The court will assess the value based on the Commercial Division addendum filed with the Request for Judicial Intervention, as well as the allegations in the operative pleadings when the case is sought to be assigned to the Commercial Division.
The rule change provides litigants and Commercial Division justices with much-needed guidance for evaluating the monetary value of actions seeking equitable or declaratory relief and whether such actions qualify for assignment to the Commercial Division.
This Week in 340B: February 25 – March 3, 2025
Find this week’s updates on 340B litigation to help you stay in the know on how 340B cases are developing across the country. Each week we comb through the dockets of more than 50 340B cases to provide you with a quick summary of relevant updates from the prior week in this industry-shaping body of litigation.
Issues at Stake: Antitrust; Contract Pharmacy; HRSA Audit Process; Rebate Model
In an antitrust class action case, the court granted the defendant’s motion to dismiss.
In an appealed case challenging a proposed state law governing contract pharmacy arrangements, a group of amici filed an amicus brief in support of appellees.
In an appealed case challenging a proposed state law governing contract pharmacy arrangements, defendants-appellants filed an opening brief.
In a Freedom of Information Act (FOIA) case, the plaintiff filed a reply in support of its motion to strike the government’s motion for summary judgment.
In one Health Resources and Services Administration (HRSA) audit process case, the plaintiff filed a supplemental brief in support of the plaintiff’s motion for preliminary injunction.
A group of 340B covered entities filed a complaint against a group of commercial payors, alleging that the payors were in breach of their contracts by failing to pay the proper amounts for 340B-acquired drugs.
In three cases challenging a proposed state law governing contract pharmacy arrangements in Missouri, the court denied in part and granted in part two separate motions to dismiss and denied plaintiff’s motion for a preliminary injunction in a third case.
In two cases against HRSA alleging that HRSA unlawfully refused to approve drug manufacturers’ proposed rebate models:
In one such case, a group of amici filed an amicus brief in support of defendants.
In one such case, a group of amici moved for leave to file an amicus brief in support of plaintiffs’ motion for summary judgment.
Additional Authors: Kelsey Reinhardt and Nadine Tejadilla
Assembly Bill 3 Proposes to Raise Jurisdictional Cap on Nevada Diversion Program
Jurisdictional changes may be coming to Nevada’s court annexed non-binding arbitration program, which currently involves most civil cases where the amount in controversy is $50,000 or less. Nevada’s courts have proposed AB 3, which is currently before the Assembly’s judiciary committee. This bill would change the NRS 38.310(1)(a) jurisdictional cap for that program from $50,000 to $100,000, effective for cases filed on or after January 1, 2026. The arbitration program was created in 1992 with an original cap of $25,000. That cap was increased to $40,000 in 1995 and raised to $50,000 in 2005. The Bureau of Labor Statistics Consumer Price Index Inflation Calculator estimates that the buying power of $50,000 in February 2005 equates to approximately $83,000 of buying power in January 2025.
Proponents of AB 3 testified at a committee hearing that the percentage of civil cases entering the program has dropped by nearly 20% in recent years due to inflationary pressures negatively impacting medical bills, property damage repairs, and other types of damages. If fewer cases enter the program, the caseload for the district courts increases. Proponents assert that by increasing the cap to $100,000, the number of cases entering the program should return to historical averages.
AB 3 generally appears to benefit defense clients. The arbitration program was expressly designed to streamline discovery and reduce litigation costs, allowing lower-value disputes to be litigated on their merits. Raising the jurisdictional cap to $100,000 would benefit litigants by enabling more cases to enter the program. Another benefit of program participation is that principal damages are capped at the jurisdictional maximum.
At a committee hearing on February 17, several attorneys testified in support of AB 3, but there was no participation from broker or carrier lobbying groups. Notably, the plaintiff-oriented Nevada Justice Association (NJA) testified that while it presently opposes AB 3, it is willing to work with the bill’s proponents to reach a compromise. However, the NJA did not hint regarding what it may want in return for supporting AB 3.
The judiciary committee did not vote on AB 3 at the February 17 hearing but is expected to continue consideration of AB 3.
Federal Circuit Refuses to Rehear Case Involving Orange Book Listing of Device Patents
Late last year we reported on the United States Court of Appeals for the Federal Circuit decision holding that certain device patents should not have been listed in the FDA’s Orange Book since the claims of the patents in question did not recite the active drug substance.
Following that decision, the brand company patent holder, Teva, filed a petition to request the Federal Circuit to rehear the case in front of all judges in the Circuit. Teva’s position was supported by a number of brand pharmaceutical companies, as well as the Pharmaceutical Research and Manufacturers of America.
On Monday, March 3, 2025, the Federal Circuit entered an Order denying Teva’s rehearing request. Teva may still attempt to appeal the December 2024 Federal Circuit decision to the United States Supreme Court, but there is no guarantee that the Supreme Court will agree to hear the case.
If left undisturbed by the Supreme Court or further legislative or regulatory actions, the Federal Circuit decision begins to provide some clarity regarding whether device patents can be listed in the Orange Book when they do not recite the active ingredient. Either way, further litigation involving Orange Book patent listings can be expected. It will be important for both brand and generic companies to carefully review the specific language of all patent claims that may be or are currently in the Orange Book for approved drugs where there are device components associated with the drug.
What to Do If the Government Doesn’t Pay You as a Federal Contractor
Winning a federal contract can be a significant opportunity, but what happens if the government doesn’t pay you on time — or at all? While the federal government is typically a reliable payer, delays or disputes can arise, especially in today’s political climate. If you’re facing non-payment under your contract, here’s what you need to do:
Review Your Contract
Start by carefully reviewing the payment terms in your contract.
Check deadlines, invoicing requirements, and any clauses related to payment disputes.
Government contracts generally follow the Federal Acquisition Regulation (FAR), which provides guidelines for how and when payments must be made.
Follow Up with the Contracting Officer
Your contracting officer is your primary point of contact.
If a payment is late, send a formal inquiry to confirm the status of your invoice.
Sometimes, delays result from administrative errors that can be resolved quickly.
If a formal inquiry from the contractor doesn’t do the trick, then consider having your attorney contact agency counsel about the matter.
Submit a Proper Invoice
Ensure that your invoice meets all federal requirements, including:
Proper formatting per FAR 32.905
Correct payment information
Invoice submission through the designated payment portal (such as Wide Area Workflow (WAWF) for DoD contracts)
File a Claim Under the Contract Disputes Act
If informal efforts fail, you can file a formal claim under the Contract Disputes Act (CDA).
For a formal claim, the contractor should prepare (usually with the assistance of legal counsel) and submit a written claim to the contracting officer, clearly stating the amount owed, the basis for payment, citing relevant law, and certifying the claim, if appropriate.
As the U.S. Court of Appeals for the Federal Circuit has made clear, “a ‘pure breach’ [of contract] claim accrues when a [contractor] has done all [they] must do to establish [their] payment and the [government] does not pay.” Brighton Village Assoc. v. United States, 52 F.3d 1056, 1060 (Fed. Cir. 1995).
The contracting officer has 60 days to respond to the claim.
Escalate the Issue
If the contracting officer denies your claim or fails to respond, you have the right to appeal to:
The Civilian Board of Contract Appeals (CBCA) for civilian contracts
The Armed Services Board of Contract Appeals (ASBCA) for defense contracts
The U.S. Court of Federal Claims for both civilian and defense contracts
Final Thoughts
Unfortunately, non-payment by the government is becoming more common lately.
However, understanding your contract, maintaining proper documentation, communicating with your contracting officer, and following dispute resolution procedures can help you recover your rightful payments.
TRANSFERRED: Shelton Suit Against Freedom Forever Pulled from PA and Sent to California
Famous TCPA litigator James Shelton had home court advantaged yanked away from him yesterday when a court ordered his TCPA suit against Freedom Forever, LLC transferred to California.
In Shelton v. Freedom Forever, 2025 WL 693249 (E.D. Pa March 4, 2025) the Court ordered the case transferred where the bulk of the activity leading up to the calls at issue took place in California.
While Shelton claims to have received calls in PA, the calling parties and all applicable principles and policies were California based. Since the case was a class action–and not an individual suit–the court determined Shelton’s presence in one state was not important as an entire nation worth of individuals must be taken into account.
On balance it made more sense to have the case tried in California where the key defense witnesses were rather than in PA where only Shelton resided.
Pretty straightforward and good ruling. TCPA defendants should consider transfer motions where a superior jurisdiction may exist that aligns with the interests of justice.
Generally California is not where one wants to litigate a case but let’s assume Freedom Forever thought that through before filing their motion.
CASE OF THE STOLEN LEADS?: Court Refuses to Enforce Lending Tree Lead That Was Not Transferred to the Mortgage Company That Called Plaintiff
So a loan officer at one mortgage company leaves the mortgage company he was with and seemingly steals leads and takes them to another mortgage company (maybe this was allowed, but I doubt it.)
While at the new mortgage company he sends out robocalls to the leads he obtained from the prior company–including leads submitted on leandingtree.com.
One of the call recipients sues under the TCPA claiming she had consented to receive calls from the first mortgage company but not the second because Lending Tree had only transferred the lead to the first company.
The second mortgage company–Fairway Independent Mortgage Company– moved for summary judgment in the case arguing that because it too was on the vast Lending Tree partners list, the consumer’s lead was valid for the calls placed by the LO while employed by it as well.
Well in Shakih v. Fairway, 2025 WL 692104 (N.D. Ill March , 2025) the Court determined a jury would have to decide the issue.
Although Plaintiff submitted the Lending Tree form and thereby agreed to be contacted by over 2,000 companies–including both of the mortgage companies at issue– the Lending Tree website provided the information would only be provided to five of those companies.
In the Court’s view a jury could easily determine the consumer’s agreement to provide consent was limited to only the five companies Lending Tree selected on the consumer’s behalf to receive calls– not to all 2,000 companies.
Lending Tree itself submitted a brief explaining that sharing leads between partners is not permitted, and the Court found this submission valuable in assessing the scope of the consent the consumer was presumed to have given.
The Court was also unmoved that the LO had previously spoken to the plaintiff while employed at his previous mortgage company–the mere fact that the LO changed jobs did not expand the scope of the consent that was previously given.
So like I said, absolutely fascinating case. The jury will have to sort it out and we will pay close attention to this one.
ESG Update: Texas Federal Court Cites Loper Bright in Upholding Biden-Era ESG 401(k) Investing Rule
A Biden-era US Department of Labor (DOL) Rule permitting consideration of environmental, social, and governance (ESG) factors when choosing investments as a “tiebreaker” was recently upheld by Texas federal Judge Matthew Kacsmaryk. This decision applied the US Supreme Court’s 2024 ruling in Loper Bright v. Raimondo, revisiting three topics lost in 2025’s Department of Government Efficiency-era drama.
With a February 14 decision, Judge Kacsmaryk upheld the Biden-era Rule allowing retirement plan fiduciaries to consider ESG factors when choosing investments as a “tiebreaker.” In other words, when all other considerations for competing investments are equal. The court held that the Rule was in accordance with a strict reading of the Employment Retirement Income Security Act of 1974 (ERISA). The decision is available here.
Below, we break down the court’s decision and answer four questions on the minds of regulatory decisionmakers.
But first, some background. Until President Trump took office in January, ESG litigation, Loper Bright, and indeed, Judge Kacsmaryk were among our most chronicled topics:
Past content referencing ESG litigation is here, here, and here.
Here and here are discussions of the impact of the Supreme Court’s decision in Loper Bright v. Raimondo.
We last discussed Judge Kacsmaryk here, here, and here.
What Is in the Rule?
The Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights Rule (Investment Duties Rule) was adopted in late 2022 and became effective on January 30, 2023. The DOL intended this rule to permit consideration of “climate change and other environmental, social, and governance factors” by plan investors “as they make decisions about how to best grow and protect” retirement savings, clarifying the duties of fiduciaries to ERISA employee benefits plans. The Biden Administration’s Rule neutralized a Trump-era Rule forbidding retirement plan fiduciaries from considering nonpecuniary factors — generally considered as factors that do not have a material effect on financial risk, financial return, or both — when making investment decisions.
In Texas federal court, 26 states and several other parties challenged the DOL’s Investment Duties Rule. After the case was filed, defendants moved to transfer the case to the US District Court for the District of Columbia or a district court where a plaintiff resided. The plaintiffs in turn amended their complaint to add the State of Oklahoma and Alex L. Fairly, an Amarillo, Texas, resident, as plaintiffs. After this amendment, a Texas federal court determined that the venue was proper.
What Is in the Decision?
The Valentine’s Day decision in Utah v. Micone, which began as Utah v. Walsh then Utah v. Su, came after a 2024 Fifth Circuit remand for reconsideration after the Supreme Court’s decision in Loper Bright, which overruled precedent giving rise to “Chevron deference.” Chevron deference used to require a court to defer to the relevant agency’s interpretation of an ambiguous statute so long as the agency interpretation of the statute was reasonable. In Loper Bright, the Supreme Court overruled Chevron and held that courts must “exercise their independent judgment” when interpreting federal statutes and may not defer to agency interpretations simply because they determine that a statute is ambiguous.
Earlier, the initial Northern District of Texas ruling upheld the Biden-era Rule relying, in part, on Chevron deference, holding that the DOL’s interpretation of fiduciary duty provisions in ERISA was reasonable. On remand, the Fifth Circuit instructed the District Court to reconsider whether the Rule violated ERISA under a post-Chevron, Loper Bright analysis.
To some’s surprise (particularly considering another Northern District of Texas ruling issued days earlier, read more here), Judge Kacsmaryk again upheld the Rule as being in accordance with ERISA following remand. The opinion rejected Republican-state (and other) plaintiffs’ claim that the Investment Duties Rule’s nonpecuniary factor or tiebreaker provision violates ERISA’s text. The opinion explained that ERISA’s fiduciary provisions require that “a fiduciary must always discharge his duties in the interest of the beneficiary alone and only for the purpose of gaining financial benefit.” However, the provisions do not explicitly limit what a fiduciary may consider while discharging his or her duty.
Does Loper Bright Indicate the Executive Branch Always Loses?
The court stated that, under a strict textual reading, “ERISA’s text does not invalidate” tiebreaker provisions. In conclusion, Judge Kacsmaryk warns fiduciaries against letting impermissible considerations taint their decisions but further notes it is not the province of the court to decide the “wisest” outcome, ultimately holding that the Investment Duties Rule “does not permit a fiduciary to act for other interests than the beneficiaries’ or for other purposes than the beneficiaries’ financial benefit. For that reason, under the Loper Bright standard, it is not contrary to law.”
Despite the court’s cautioning and explicit reference to the replaced Trump-era Rule as potentially wise guidance, the decision remains significant. While narrow, the decision acts as a considerable example of a court approving the use of ESG principals and stands as a potential case study for the limited impact Loper Bright may have on agency deference decisions.
What Happens Next?
It is no secret that the Trump Administration does not support ESG investment considerations. Republicans have consistently stated that embracing ESG considerations ignores fiduciary duties, and both Florida and Texas have enacted laws prohibiting ESG considerations and banning money managers that engage in climate-action causes.
With the Biden-era Rule now affirmed at the District Court level, we see three paths forward for the Trump Administration: (1) stand back while plaintiffs potentially appeal the decision to the Fifth Circuit, allowing another bite at the apple for overturning the Rule without executive action; (2) begin a DOL formal notice-and-comment rulemaking process to issue a new Rule, revoking and replacing the Investment Duties Rule promulgated in 2022; or (3) work through a less formal process, allowing agencies like the DOL’s Employee Benefits Security Administration to use their sub-regulatory power to interpret law and make enforcement recommendations.
While the regulations do not carry legal weight in the same way a formal rule would, they can impact the actions and decisions those regulated take. There is certainly precedent for such an approach, provided by the 2022 DOL compliance assistance release, which warned against 401(k) investments into cryptocurrency and was upheld after a federal court challenge.
Whichever route is taken, we think it is unlikely the Trump Administration will allow the Rule to remain on the books into perpetuity.
Trump Media Claims Corporate Law Decisions Are Better When Made Locals
Trump Media & Technology Group Corp., a Delaware corporation, operates Truth Social and its securities trade on The Nasdaq Stock Market LLC. The company’s largest stockholder is Donald J. Trump, Jr. Given Trump pere’s affiliation with Elon Musk and Mr. Musk’s disdain for Delaware’s corporate law regime, it likely will come as no surprise that TMTG has filed preliminary proxy materials that include a proposal to reincorporate from Delaware to Florida. Also, it should forgotten that President Trump’s erstwhile rival for the presidency hails from Delaware.
TMTG makes the interesting argument that is better to have corporate law decided by the locals:
Another advantage of home-state incorporation is that the legislators and judges making corporate law - and the juries deciding fact disputes - are drawn from the community in which the Company operates. Corporate law and litigation often overlap with and impact business, employment and operational matters. The Board believes that local decision-makers have a deeper understanding of our business, and therefore are best situated to make decisions about our corporate governance.
TMTG supports this position by citing other companies that have chosen to be incorporated in their home states:
Successful companies are incorporated in many U.S. states and other jurisdictions outside of the United States. Some of the most successful consumer-facing companies in the United States are headquartered and incorporated in the same state, demonstrating identification with their home state, including, among others, Apple and Southwest Airlines. For example, Microsoft reincorporated from Delaware to its home state in order to reunite the company’s legal and physical homes. One of the reasons given by Microsoft when it left Delaware was that Washington was “the location of the Company’s world headquarters and the location of its primary research and development efforts.” Similarly, the Board believes there is value in unifying TMTG’s legal and physical homes
Although the Silicon Valley has spawned a great many public companies, Apple Inc. is one of the very few publicly traded companies that has remained incorporated in California.
TMTG also takes aim at two recent Delaware court decisions, In re Match Group, Inc. Derivative Litigation, 315 A.3d 446 (Del. 2024) and Tornetta v. Musk, 310 A.3d 430 (Del. Ch. 2024), concluding that reincorporation “will result in less unmeritorious litigation against the Company, our directors and officers and our controlling stockholder, which in turn would better allow our directors and officers to focus on our business and save the Company the costs of such litigation”.
Finally, TMTG discounts the recently proposed and highly controversial amendments to Delaware’s General Corporation Law:
Though there are proposed amendments to the DGCL to, among other things, increase protections for officers of a corporation, we believe Florida strikes a better balance between the benefits and costs of litigation to the Company and its stockholders than does Delaware because Florida has a statute-focused approach to corporate law whereas Delaware’s approach depends upon judicial interpretation that lends itself to greater uncertainty.
In a recent post, Professor Stephen Bainbridge asseverated:
“Assuming SB 21 passes the Delaware legislature, those decisions will be overturned and the incentive driving DExit will be significantly reduced”.
Evidently, TMTG does not agree.
District Court Enjoins DEI Executive Orders
On February 21, 2025, a U.S. District Court judge blocked portions of Trump Administration executive orders focused on diversity, equity, and inclusion programming (“DEI”). The preliminary injunction issued in National Association of Diversity Officers in Higher Education et al. v. Trump et al., Dkt. No. 1:25-cv-00333 (D. Md. Feb. 21, 2025) applies narrowly to specific aspects of the orders, but may have further impact not only to institutions of higher education that receive federal funds, but also the private sector. On February 25, an additional lawsuit was filed challenging the Department of Education’s February 14 Dear Colleague Letter (“DCL”), which may lead to further court action to block the administration’s attempts to ban DEI programming.
The executive orders subject to the February 21 preliminary injunction were issued on January 20 and 21, 2025. These executive orders required that:
all executive agencies terminate “equity-related grants or contracts” (the “Termination Provision”);
all executive agencies require federal contractors or grantees to certify that they do not operate illegal programs promoting DEI and agree that they are in compliance with “all applicable Federal anti-discrimination laws” (the “Certification Provision”); and
directed the Attorney General to take “appropriate measures to encourage the private sector to end illegal discrimination and preferences” including by identifying “potential civil compliance investigations” to deter illegal DEI programs (the “Enforcement Provision”).
By focusing on federal contractors and grantees and private sector entities, the executive orders would have allowed executive agencies to withdraw federal funding and potentially subject federal contractors and grantees and private sector entities to False Claims Act liability. Notably, the executive orders did not state criteria to evaluate the legality of a given DEI program.
In National Association of Diversity Officers in Higher Education et al. v. Trump et al., the plaintiffs, including the National Association of Diversity Officers in Higher Education (NADOHE) and the American Association of University Professors (AAUP), sued to block the enforcement of these executive order provisions, alleging that the executive orders’ lack of definitions for illegal DEI rendered them unconstitutionally vague, and that the executive orders amounted to speech restrictions based on content and viewpoint that violated the First Amendment. The plaintiffs further argued that the executive branch does not have the authority to place conditions – including the Certification Provision – on government spending that had been authorized by Congress.
The U.S. District Court for the District of Maryland found that the plaintiffs had cognizable claims that were likely meritorious, and issued a nationwide preliminary injunction preventing the executive orders from being enforced while the litigation is pending. The preliminary injunction applies nationwide, as follows:
The administration may not pause, freeze, impede, block, cancel or terminate its obligations or awards under current contracts, or change the terms of current obligations due to DEI programming as contemplated in the Termination Provision;
The administration may not require any grantee or contractor sign “certification” or other representation regarding its DEI programs as contemplated in the Certification Provision; or
The administration may not bring enforcement action based on allegedly illegal DEI programs as contemplated in the Enforcement Provision.
What does this mean for institutions of higher education?
Institutions of higher education who receive federal funds through grants or contracts should be aware that under the terms of the preliminary injunction, their DEI programming cannot be the reason for the federal government or their granting agencies to terminate those grants or contracts.
Further, pursuant to the court’s findings, the federal government may not require institutions of higher education who receive federal funds through grants or contracts to make certifications or representations regarding their DEI programming as a condition of receiving such grants or contracts.
Institutions of higher education should also be aware that additional challenges have been mounted to the Department of Education’s February 14 DCL, which asserts that DEI programming is unlawful discrimination in violation of Title VI, and should pay close attention to developments in that matter.
As the federal government’s interpretation of discrimination law changes, colleges and universities are referring to and relying upon state law, written regulations, and court precedent for guidance. Institutions seeking assistance with reviewing their institutional policies or programs, complying with requests for certification for their federal grants or contracts, or clarifying their obligations under federal or state discrimination law, should reach out to their Hunton lawyer for guidance.
Michigan Federal Court Holds CTA Reporting Rule Unconstitutional, Enjoins Enforcement Against Named Plaintiffs
On March 3, 2025, a Michigan federal district court in Small Business Association of Michigan v Yellen, Case No. 1:24-cv-413 (W.D Mich 2025) (SBAM), held that the CTA’s reporting rule is unconstitutional under the Fourth Amendment (unreasonable search) and entered a judgment permanently enjoining the enforcement of the CTA reporting requirements against the named plaintiffs and their members only. The district court did not find it necessary to, and did not, rule on the plaintiffs’ separate Article 1 and Fifth Amendment constitutional claims, instead leaving them “to another day, if necessary.”
The SBAM plaintiffs include (a) the Small Business Association of Michigan and its more than 30,000 members, (b) the Chaldean American Chamber of Commerce and its more than 3,000 members, (c) two individual reporting company plaintiffs, and (d) two individual beneficial owner plaintiffs owning membership interests in reporting companies.
We are not aware as of the date of this Alert whether the defendants have, or intend to, appeal the SBAM judgment to the Sixth Circuit Court of Appeals.
Plaintiffs, Not Defendants, Must Initiate Arbitration
Arzate v. Ace American Insurance Company, — Cal. Rptr. 3d — (2025) began as a familiar case: plaintiffs signed arbitration agreements (“Agreement”) with their employer that contained a class action waiver. But when a dispute arose, plaintiffs disregarded their Agreements and filed a class action lawsuit. The defendant filed a motion to compel arbitration. The trial court granted the motion, enforced the class action waiver, and stayed the action pending arbitration.
However, plaintiffs did not initiate arbitration. Unsurprisingly, neither did the defendant. After all, who sues themselves? Nonetheless, the trial court concluded that based on the terms of the Agreement, the defendant—not the plaintiffs—was required to initiate arbitration. And because the defendant did not do so, it waived the right to arbitrate the dispute.
The express terms of the Agreement are instructive. Specifically, the Agreement required that the “party who wants to start the [a]rbitration [p]rocedure should submit a demand,” which must be filed “within thirty (30) calendar days from the date of entry of the court order.”
The trial court reasoned that while the plaintiffs filed the class action suit and sought relief, “they have heavily contested any requirement to arbitrate these claims” and therefore never “wanted” or “demanded” arbitration. Instead, the court held that the defendant was the party who “wanted” arbitration. And because the defendant “took no action within 30 days” of the court’s order staying the action pending arbitration, it was “in material breach.”
The California Court of Appeal sided with the defendant/employer and reversed the trial court’s decision. When doing so, the Court of Appeal explained that contract interpretation rules required that the arbitration-initiation provisions be read in the context of the Agreement as a whole, not in isolation.
The Court of Appeal explained that, in the context of an arbitration agreement, the provision for “wanting” arbitration could not “refer to a preference for arbitration over litigation becausethe parties already ruled out litigation as an option in any dispute governed by the arbitration agreements.” Instead, “wanting” arbitration could only refer to a desire to seek redress for an employment-related claim. The Court of Appeal also noted that the Agreement incorporated the American Arbitration Association’s Employment Arbitration Rules and Mediation Procedures, which defined the “claimant” as the initiating party. The Court of Appeal reasoned that because the employees initiated the lawsuit, they were the claimant and were responsible for initiating arbitration.
Arzate stands for the proposition that—where valid and enforceable arbitration agreements exist—employees bringing claims against their employers must initiate arbitration. But for the avoidance of any doubt, employers should consider drafting their arbitration agreements to expressly state which party must initiate arbitration.