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Law Digest — 4th US Circuit — Feb. 24, 2022

U.S. Court of Appeals for the 4th Circuit

Administrative; jurisdiction: Where a federal contractor sought clarification on whether the nature of its Navy service contract made it subject to California’s labor laws, the suit was dismissed because the contractor failed to satisfy the exhaustion requirements of the Contract Disputes Act, or CDA. Systems Application & Technologies Inc. v. United States, Case No. 20-2275 (filed Feb. 14, 2022).

Arbitration; preemption: Where a customer alleged his bank violated the Truth in Lending Act, or TILA, by using money in his deposit accounts to pay the outstanding balance on a Home Equity Line of Credit, or HELOC, the bank could not compel arbitration because the arbitration agreements were executed after passage of the Dodd-Frank Act, which imposed restrictions on the use of mandatory arbitration agreements for mortgage-related transactions.  Lyons v. PNC Bank NA, Case Nos. 21-1058, 21-1289 (filed Feb. 15, 2022).

Arbitration; statutory language: Where parties to a trust agreement disputed which employers were covered by the agreements, neither the statute nor the trust agreement required the dispute to be arbitrated. Krueger v. Angelos, Case No. 21-1260 (filed Feb. 15, 2022).  

Civil Practice; standing: Where a man sued the Maryland governor and attorney general over an executive order that he interpreted as prohibiting him from bidding on state procurement contracts due to his personal boycotts of Israel-tied products, but the executive order only prohibited a business from engaging in anti-Israel national origin discrimination in the process of preparing a bid for a state procurement contract, his suit was dismissed.  Ali v. Hogan, Case No. 20-2266 (filed Feb. 18, 2022).

Administrative

Jurisdiction

BOTTOM LINE: Where a federal contractor sought clarification on whether the nature of its Navy service contract made it subject to California’s labor laws, the suit was dismissed because the contractor failed to satisfy the exhaustion requirements of the Contract Disputes Act, or CDA.

CASE: Systems Application & Technologies Inc. v. United States, Case No. 20-2275 (filed Feb. 14, 2022) (Judges Gregory, WYNN, Thacker).

FACTS: In 2015, employees of a Navy services contractor, Systems Application & Technologies Inc., or SA-TECH, sued the contractor in California state court for violations of the state’s labor laws. Before and during that suit, SA-TECH sought guidance from the Navy as to whether California’s labor laws applied to it and its subcontractors, given the federal nature of its service contract. When its requests went unanswered, SA-TECH filed a claim with its contracting officer under the CDA. The contracting officer denied the claim.

SA-TECH then filed a complaint in federal district court in Maryland, seeking declaratory and injunctive relief. The district court dismissed the complaint for lack of subject matter jurisdiction pursuant to the CDA’s exhaustion requirements.

LAW: SA-TECH’s claim in Count One concerned whether it is an agent of the Navy. The parties agree that this claim is nonmonetary. SA-TECH therefore could have satisfied the exhaustion requirement by asserting a claim for (1) “the adjustment or interpretation of contract terms” or (2) “other relief arising under or relating to th[e] contract.” Either way, it needed to show that it was entitled to seek the contract interpretation or other relief “as a matter of right.” The court agrees with the district court that SA-TECH failed to meet this standard.

SA-TECH failed to point to a specific contract term whose meaning required adjustment or interpretation. Instead, SA-TECH primarily argues that the control exercised by the Navy over SA-TECH and its operation of some Navy ships, as evidenced by the contracts and other facts in the record, proves that SA-TECH is the Navy’s agent under the Vessels and Admiralty Acts. It then demands the Navy confirm, or this court declare, that position to be true.

The court agrees with the district court that SA-TECH’s agency-status claim does not truly seek an interpretation or adjustment of any contractual terms, but instead requests “other relief” relating to the contracts. However, SA-TECH’s claim fares no better under the “other relief” prong. Even allowing that the relief sought “relat[es] to th[e] contract[s],” SA-TECH has not shown it is legally entitled to the opinion it seeks “as a matter of right.” The district court’s ruling as to Count One is affirmed.

Counts Two and Three are SA-TECH’s claims concerning wage and overtime payments under California law. Although the district court acknowledged that “the distinction between monetary and non-monetary claims is not always straightforward,” it ultimately concluded that these counts primarily sought monetary payment. This court agrees.

SA-TECH maintains that its request—declaratory relief as to whether a California Supreme Court decision (Mendiola) applies, and, if so, whether the government will allow settlement, sleep-time or other costs—is a valid, future-looking nonmonetary claim. SA-TECH argues that these questions implicate significant consequences, unrelated to money damages, such as an interpretation of governing law. It further contends that the approach adopted by the district court, which looked to whether the “gravamen” of the claim was money, would turn all contract claims into monetary damages claims, since money is inherently at issue in all contracts.

The court disagrees and concludes that SA-TECH seeks indemnification by another name. To be sure, the initial claim and complaint also request a decision regarding whether Mendiola or federal law govern wage-time provisions under the contract. However, it is not clear what specific contract clause or rate schedule, if any, SA-TECH requests interpretation of.

What SA-TECH wants this court to do, either explicitly or in effect, is to declare whether California or federal labor law applies to all “future missions under the 2013 Contract,” irrespective of any applicable contract provisions or particular SA-TECH subcontractors. In turn, SA-TECH wishes for the Navy to “support (financially and legally) its interpretation” by guaranteeing any necessary payments of unknown settlement and labor costs.

Counts Two and Three are monetary claims for which SA-TECH did not present a requested sum certain, as required to exhaust its remedies. Accordingly, the district court correctly dismissed SA-TECH’s claims under Counts Two and Three.

Affirmed.

Arbitration

Preemption

BOTTOM LINE: Where a customer alleged his bank violated the Truth in Lending Act, or TILA, by using money in his deposit accounts to pay the outstanding balance on a Home Equity Line of Credit, or HELOC, the bank could not compel arbitration because the arbitration agreements were executed after passage of the Dodd-Frank Act, which imposed restrictions on the use of mandatory arbitration agreements for mortgage-related transactions.

CASE:  Lyons v. PNC Bank NA, Case Nos. 21-1058, 21-1289 (filed Feb. 15, 2022) (Judges GREGORY, Floyd) (Judge Quattlebaum, concurring in part, dissenting in part).

FACTS: William Lyons Jr. filed suit against PNC Bank NA, alleging violations of TILA related to PNC’s set-off of funds from two of Mr. Lyons’s deposit accounts to pay the outstanding balance on a HELOC. PNC moved to compel arbitration based on an arbitration provision in the parties’ agreement applicable to the two deposit accounts.

The district court found that amendments made by the Dodd-Frank Act to TILA barred arbitration of Mr. Lyons’s claims related to the 2014 account because it was opened after the effective date of the provisions but that those restrictions did not apply retroactively to bar arbitration of his claims related to the 2010 account.

PNC appeals the district court’s partial denial of its motion to compel arbitration, and Mr. Lyons cross-appeals the district court’s partial grant of the motion to compel arbitration.

LAW: The Dodd-Frank Act amended TILA, including by adding a section entitled “Arbitration,” which imposed restrictions on the use of mandatory arbitration agreements for mortgage-related transactions. The plain language of § 1639c(e)(3) is clear and unambiguous: a consumer cannot be prevented from bringing a TILA action in federal district court by a provision in an agreement “relate[d] to” a residential mortgage loan—like a HELOC.

PNC insists, however, that § 1639c(e)(3) cannot prohibit arbitration of Mr. Lyons’s claims because the provision was not intended to restrict agreements to arbitrate. Rather, argues PNC, the provision limits a consumer from agreeing to waive certain claims but does not control the proper judicial forum for resolution of such claims.

PNC notes that § 1639c(e)(3) does not include the term “arbitration” and cites to a series of Supreme Court cases which have held that arbitration is not precluded merely because a statute provides a plaintiff with a cause of action.

But these cases are inapposite. In contrast to the provisions at issue in the cases cited by PNC, which authorize a cause of action, § 1639c(e)(3) expressly prohibits a covered agreement from barring a consumer “from bringing an action in an appropriate district court of the United States, or any other court of competent jurisdiction.”

Further, PNC’s position is difficult to reconcile with the structure of Dodd-Frank. While the text of § 1639c(e)(3) does not include the term “arbitration,” the provision is found in a short section entitled “Arbitration.” Moreover, the court’s interpretation is consistent with the legislative history of the provision. And it is also consistent with the Consumer Financial Protection Bureau’s implementing regulations.

PNC nevertheless contends that, when Mr. Lyons opened the 2014 account, he was not entering a new contractual relationship with PNC but merely continuing an existing relationship with the bank and, therefore, that the later account is properly covered by the arbitration provision in the earlier account agreement. But the record makes clear that the arbitration provision applicable to the 2010 account via the 2013 account agreement was not entered into by Mr. Lyons until June 11, 2013—ten days after the effective date of § 1639c(e)(3). Thus, the arbitration clause is precluded by § 1639c(e)(3) from applying to Mr. Lyons’s claims related to either the 2010 account or the 2014 account.

PNC argues, however, that the court lacks jurisdiction to review the district court’s order compelling arbitration of the 2010 account agreement. But the district court’s partial grant of PNC’s order to compel arbitration of the 2010 account is “inextricably intertwined” with the district court’s partial denial of the order to compel arbitration of the 2014 account because the court’s consideration of the latter order necessarily resolves the former. PNC may not compel arbitration of Mr. Lyons’s claims as to both the 2010 account and the 2014 account.

Affirmed in part, reversed in part.

CONCUR/DISSENT: I agree with the majority’s analysis that § 1639c(e)(3) applies to the kind of set-off claim Mr. Lyons raises here. I also concur that § 1639c(e)(3) bars arbitration over the 2014 account because both the account and its own terms and conditions postdate Dodd-Frank. I write separately from my colleagues, however, because I do not believe we have jurisdiction to adjudicate Mr. Lyons’s cross-appeal.

Arbitration

Statutory language

BOTTOM LINE: Where parties to a trust agreement disputed which employers were covered by the agreements, neither the statute nor the trust agreement required the dispute to be arbitrated.

CASE: Krueger v. Angelos, Case No. 21-1260 (filed Feb. 15, 2022) (Judges Gregory, QUATTLEBAUM, Floyd).

FACTS: Under the Labor Management Relations Act, unions and management can enter into trust agreements to provide employment benefits. And sometimes the management of several employers join together to reach those agreements with a union. When that happens, disputes may arise about adding or removing employers from the trust agreement’s coverage. In this appeal the court must decide, whether by statute or agreement, labor unions and management are required to arbitrate disputes about which employers are covered by the trust agreements that create funds for employee benefits.

LAW: The union trustees argue that 29 U.S.C. § 186(c)(5)(B) compels arbitration of the dispute over amending the definition of “employer” in the trust agreements. But § 186(c)(5)(B)’s arbitration provision applies only in a narrow set of circumstances. That section provides that in the event of a “deadlock on the administration of such fund,” an arbitrator resolves “such deadlock.” Thus, to the extent that arbitration must occur under § 186(c)(5)(B), it is only over the “administration” of employee benefit trust funds.

This court has not yet interpreted the term “administration” in § 186(c)(5)(B), but some other circuits have. The court agrees with these courts, which have held that amending the trust agreements, which would be changing how the trusts are constituted, is not part of managing the trusts or administering the trusts. This understanding also comports with the rest of the statutory language in § 186(c)(5)(B).

In arguing that § 186(c)(5)(B) includes amending the definition of “employee,” the union trustees primarily rely on Barrett v. Miller, 276 F.2d 429 (2d Cir. 1960) and Emp. Trustees of W. Pa. Teamsters v. Union Trustees of W. Pa. Teamsters (Western Pennsylvania Teamsters), 870 F.3d 235 (3d Cir. 2017). However, these cases do not advance the union trustee’s position.

Finally, the union trustees also cite to this court’s decision in United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union AFL-CIO/CLC, Local No. 850L v. Continental Tire North America, Inc., 568 F.3d 158 (4th Cir. 2009), which compelled arbitration under 29 U.S.C. § 185. This decision, however, has no bearing for interpreting § 186(c)(5)(B), which is the statutory provision at issue here.

In sum, the authority on which the union trustees rely is not persuasive. Section 186(c)(5)(B) does not provide a valid reason to compel arbitration over the proposal of the union trustees to expand the definition of “employer” in the trust agreements.

The union trustees argue that, independent from § 186(c)(5)(B), arbitration may be compelled by contract. Section 8.01 confers arbitration “[i]n the event the Trustees cannot decide any matter or resolve any dispute because of a tie vote.” But § 8.01’s reach is limited by § 8.03, which states: “[t]he arbitrator shall not have the power or authority to change or modify the basic provisions of this Agreement.” At oral argument, the union trustees’ counsel conceded that the term “employer,” which as stated above determines, among other things, who contributes to the trusts, is a “basic provision” of the trust agreements. And for good reason.

Determining which entity must contribute to the trust agreements goes to the “essence” of the trusts, or at the very least qualifies as the “starting point,” “foundation” and “principal component” of the trusts. Thus, § 8.03’s express bar of arbitration to amend basic provisions—combined with the fact that the definition of “employer” is a basic provision—provides the “positive assurance” that the parties never agreed to arbitrate disputes about amending the definition of “employer.”

Despite their concession about the term “employer,” the union trustees insist that any expansion of who may contribute to the funds is a trivial matter that does not amount to amending any basic provision. They offer three reasons for this characterization, none of which are persuasive.

Affirmed.

Civil Practice

Standing

BOTTOM LINE: Where a man sued the Maryland governor and attorney general over an executive order that he interpreted as prohibiting him from bidding on state procurement contracts due to his personal boycotts of Israel-tied products, but the executive order only prohibited a business from engaging in anti-Israel national origin discrimination in the process of preparing a bid for a state procurement contract, his suit was dismissed.

CASE: Ali v. Hogan, Case No. 20-2266 (filed Feb. 18, 2022) (Judges KING, Thacker, Harris).

FACTS: Saqib Ali seeks to pursue § 1983 proceedings against Maryland’s governor and attorney general, challenging as unconstitutional an executive order that prohibits boycotts of Israel by business entities that bid on the state’s procurement contracts. The district court dismissed with prejudice Ali’s lawsuit for want of Article III standing to sue.

LAW: Ali’s primary argument that he has sustained a direct injury is predicated on his own interpretation and understanding of the executive order, a construction that prohibits him from bidding due to his personal boycotts of Israel-tied products. The court cannot agree, however, with Ali’s interpretation of the executive order.

As the district court recognized, “Section C, which contains the language Mr. Ali would have to sign to submit a bid, does require that bidders affirm that they would not take ‘other actions intended to limit commercial relations’ with ‘a person or entity on the basis of Israeli national origin.’” But as the court further observed, that language “is limited by [two] ‘prefatory clauses’ — ‘[i]n preparing its bid on this project’ and ‘in the solicitation, selection, or commercial treatment of any subcontractor, vendor, or supplier.’”

Accordingly, the court determined that the key passage of Section C should be read as follows: “In preparing its bid on this project, the bidder . . . has not, in the solicitation, selection, or commercial treatment of any subcontractor, vendor, or supplier, . . . taken other actions intended to limit commercial relations, with a person or entity on the basis of Israeli national origin.” The court then explained that, read in that manner, the certification required by “Section C is effectively limited to an affirmation that the bidder has not discriminated in the bid formation process.” The court agrees with the district court’s well-reasoned distillation of the plain text of the executive order.

If a business entity has engaged in anti-Israel national origin discrimination in the process of preparing a bid for a state procurement contract, the executive order would bar that entity from being awarded the contract. If, by contrast, the entity has engaged in a boycott of Israel entirely unrelated to the bid formation process, the executive order is of no moment.

The amended complaint alleges that Ali boycotts Israel in his personal capacity only, by “refus[ing] to purchase Sabra hummus or SodaStream products, which have ties to Israel and its occupation of Palestine.” Those limited factual allegations are problematic for Ali, in that the amended complaint “does not allege that he boycotts Israel in his business capacity,” much less in the context of preparing a bid for a state procurement contract. As such, the court rejects Ali’s related theory that he possesses standing to sue premised on a direct injury.

Ali relies on recent district court decisions that involve similar procurement provisions of other states; in them, the courts ruled that plaintiffs sustained direct injuries that conferred Article III standing to sue. In two of these cases, however, “[a]s a result of their refusal to sign, the plaintiffs . . . either lost a contract that otherwise would have been theirs, or were refused payment on a contract under which they had already rendered performance.” By contrast, Ali has not submitted a bid for any state procurement contract, much less been offered or accepted one.

As an additional source of direct injury, Ali argues on appeal that section C constitutes an unconstitutionally vague loyalty oath. The court is satisfied, however, that Ali’s characterization of the executive order as an unconstitutional loyalty oath does not create a direct injury that confers Article III standing to sue. The executive order requires a business entity to refrain from discriminating on the basis of Israeli national origin only in forming a bid. It does not require the entity to, for example, pledge any loyalty to Israel or profess any other beliefs.

Finally, although the court is satisfied that Ali has not alleged facts adequate to establish Article III standing to sue, the dismissal of his amended complaint should be without prejudice.

Affirmed as modified.