Kardashians Kept Out of Arbitration
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Just three weeks into the year and already my pile of arbitration cases is a skyscraper! So, I will cover a lot of ground in this update.
First, the headline. Kimberly, Kourtney, and Khloe Kardashian moved to compel arbitration, although they were not signatories to the arbitration agreement. Kroma Makeup EU v. Boldface Licensing + Branding, 2017 WL 192690 (11th Cir. Jan. 18, 2017). Despite their celebrity status, they lost in both the Florida district court and the 11th Circuit. The problem was that the claims they wanted to arbitrate were not within the scope of the arbitration clause, because the clause was limited to “disputes arising between [the Parties]” and they were not parties. The court had a lot of fun with the fact that the dispute was over makeup companies, writing:
“Like makeup, Florida’s doctrine of equitable estoppel can only cover so much. It does not provide a non-signatory with a scalpel to re-sculpt what appears on the face of a contract.”
(A defendant was also unable to compel arbitration of a non-signatory class of plaintiffs in Jones v. Singing River Health Services Foundation v. KPMG, 2017 WL 65384 (5th Cir. Jan. 5, 2017). There, the court found the plaintiff did not rely on the contract to make their claims.)
SCOTUS. On January 13, the U.S. Supreme Court agreed to wade into the issue of whether class arbitration waivers are a violation of the federal labor laws. The National Labor Relations Board (under the Obama Administration) has repeatedly found that they are, but a split developed among the federal courts on whether the NLRB was correct. ( You can read more about the three cases in which cert was granted at Scotusblog. And, yes, normally SCOTUS action on arbitration would be my headline, but I couldn’t pass up a chance to see if the Kardashians led to more blog traffic…)
California’s exception that could swallow the rule. In Prima Paint, a 1967 case, SCOTUS found that a plaintiff’s claim that a contract was induced by fraud must be sent to arbitration if that contract has an arbitration clause, as long as there is no argument that that the arbitration clause itself was induced by fraud. But this week the 9th Circuit affirmed a finding that, under California law, there was “fraud in the inception” of a contract, making it void and the arbitration provision unenforceable. DKS, Inc. v. Corporate Business Solutions, Inc., 2017 167475 (9th Cir. Jan. 17, 2017). If I were a plaintiff, I might just try variations on the theme, maybe a claim of “misrepresentation in the inducement”?
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