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Roundup: 4th, 5th, 9th and 11th Circuits

Arbitration rights remain after more than six months of litigation; Decision creates circuit split on CAFA; Court tosses $10.2 million jury verdict for lack of Daubert hearing; Banks may be liable for fraudulent wire transfers.

4th Circuit

Maryland, North Carolina, South Carolina, Virginia, West Virginia

Arbitration rights remain after more than six months of litigation

The 4th Circuit recently found that a defendant didn’t waive its right to arbitrate despite litigating for six-and-a-half months. 

In Rota-McLarty v. Santander Consumer USA Inc., plaintiffs in a proposed class action claimed a finance company violated Maryland consumer protection laws. The company entered into litigation. Six-and-a-half months later, it moved to compel individual arbitration. It said its delayed action was due to “uncertainty” about class arbitration, and it wanted to wait until district courts began applying the 2010 Supreme Court case Stolt-Nielsen v. AnimalFeeds International Corp., in which the court held that “a party simply may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”

The district court found that the company waived its right to arbitrate, but the 4th Circuit reversed the decision on Nov. 28, 2012. The court said the defendant’s delay didn’t cause prejudice and that six-and-a-half months of litigation is “relatively short.”

Other circuits have ruled differently. On Nov. 15, 2012, the 3rd Circuit ruled that 10 months of litigation waives arbitration rights. And in the 11th Circuit, a litigant that delays moving to compel arbitration until the law develops in its favor waives arbitration rights.


5th Circuit

Louisiana, Mississippi, Texas

Decision creates circuit split on CAFA

The 5th Circuit’s Nov. 21, 2012, decision in Mississippi v. AU Optronics Corp. creates a circuit split.

Mississippi Attorney General Jim Hood accused AU Optronics and other makers and distributors of liquid crystal display (LCD) panels of price-fixing. He sued them in state court on behalf of the state and all Mississippi consumers who purchased LCD products.

The defendants removed the case to federal court, claiming it qualified as a mass action under the Class Action Fairness Act (CAFA), which allows an action to be removed to federal court if it involves claims of 100 or more people and seeks at least $5 million in damages. But the plaintiff, claiming the state was the only party of interest in the case, moved to remand the case to state court, and the district court granted the motion.

On appeal, the 5th Circuit reversed and remanded the district court’s decision. The court found that the suit qualified as a mass action under CAFA.

The 4th, 7th and 9th Circuits have ruled that similar cases didn’t qualify as class actions or mass actions under CAFA because attorneys general do not have to show standing or seek certifications in such suits.


9th Circuit

Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington

Court tosses $10.2 million jury verdict for lack of Daubert hearing

On Nov. 16, 2012, the 9th Circuit vacated a $10.2 million jury verdict because a district court didn’t conduct a pretrial assessment of a prospective expert witness’ scientific reliability—also known as a Daubert hearing.

In Barabin v. AstenJohnson Inc., a worker at a paper mill in Washington claimed he suffered from mesothelioma caused by asbestos exposure at work. He sued the makers of some of the mill’s equipment.

The defendants moved to exclude testimony from the plaintiff ’s expert, whose theory is that any exposure to asbestos is sufficient to cause mesothelioma. The district court excluded the proposed expert because of his “dubious credentials.” But the district court later reversed its decision without conducting a Daubert hearing, and a jury returned a $10.2 million verdict for the plaintiff.

On appeal, the 9th Circuit vacated the jury verdict and remanded the case to district court for a new trial. The court said the district court abused its discretion by not conducting a Daubert hearing.


11th Circuit

Alabama, Florida, Georgia

Banks may be liable for fraudulent wire transfers

In an issue of first impression, the 11th Circuit held that a bank was liable for a fraudulent in-person wire transfer.

In Chavez v. Mercantil Commercebank, Roger Chavez claimed an imposter physically presented a fraudulent payment order to a Mercantil Commercebank representative, and the bank transferred $329,500 from his account to someone in the Dominican Republic. Chavez sued the bank to recover the money. The bank argued that a Florida law protects banks from liability for fraudulent transfers if the bank and customer agree on a commercially reasonable security procedure and the bank follows it in good faith.

The bank said its employee confirmed the information on the payment order, the customer’s identity, the funds in the account and the authenticity of the signature on the payment order. Chavez’s account was also subject to a mutually agreed-upon funds transfer featuring security procedures.

The district court granted summary judgment to the bank, but on Nov. 27, 2012, the 11th Circuit reversed the decision. It said the bank’s security procedure didn’t satisfy the Florida law that would protect it from liability.

Contributing Author

Ashley Post

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