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Archive for the ‘Arbitrability’ Category

First Circuit Considers Whether an Arbitration Clause is Mandatory or Optional: PowerShare, Inc. v. Syntel, Inc.

March 5th, 2010 Arbitrability, Stay of Litigation, United States Court of Appeals for the First Circuit 1 Comment »

Not all arbitration agreements are mandatory. Strange as it may seem, some are optional.

In PowerShare, Inc. v. Syntel, Inc., ___ F.3d ___, No. 09-1625, slip op. (1^st Cir. Mar. 1, 2010) the Court addressed a claim that the following arbitration clause was optional:

All disputes, controversies and claims directly or indirectly arising out of or in relation to this Agreement or the validity, interpretation, performance, breach, enforceability of the Agreement (collectively referred to as “Dispute”) shall be resolved amicably between Syntel and PowerShare at an operational level in consultation with the top management of both companies. If any such Dispute cannot be resolved, as stated above, the same shall be settled in accordance with the principles and procedures of the American Arbitration Association and per the decision of an accredited arbitrator acceptable to both parties. Nothing in this clause shall prejudice Syntel or PowerShare’s right to seek injunctive relief or any other equitable/legal relief or remedies available under law.

A dispute arose under the parties’ contract, and PowerShare commenced an action in the Federal District Court in Massachusetts. Syntel moved for a stay under Federal Arbitration Act Section 3. PowerShare said the arbitration agreement was optional, a Magistrate Judge denied the motion for a stay, and the District Court affirmed the Magistrate Judge’s order.

The key question before the First Circuit was whether the Magistrate Judge’s finding that the clause was optional was contrary to law. The First Circuit reversed, finding that the arbitration clause was mandatory. (The First Circuit also answered a question about the standard of review under which a district court should review a Magistrate Judge’s decision on a motion to stay litigation under Section 3 of the Federal Arbitration Act, but we need not dwell on that.)

The crux of the Magistrate Judge’s order, and PowerShare’s position on appeal, was the last sentence of the arbitration clause: “[n]othing in this clause shall prejudice Syntel or PowerShare’s right to seek injunctive relief or any other equitable/legal relief or remedies available under law.” The Magistrate Judge read that as preserving a party’s right to seek a jury trial in the event of a dispute — notwithstanding anything to the contrary in the arbitration clause — because a jury trial is a “remedy” “under law.”

But the First Circuit disagreed. According to the First Circuit, the parties’ choice-of-law clause required application of the laws of the United States, which the parties agreed brought into play federal common and statutory law. Under federal common law, “courts must be guided by commonsense rules of contract construction,” and one of those rules is that “an interpretation which gives effect to all the terms of a contract is preferable to one that harps on isolated provisions, heedless of context.” (citations and quotation omitted)

The Court reasoned that interpreting the third sentence as making arbitration optional would be to negate the mandatory nature of the second sentence:

[PowerShare's]. . . interpretation cannot be reconciled with the unvarnished language of Paragraph 18’s second sentence. That sentence states explicitly that disputes between the parties “shall” be settled through arbitration. The word “shall” denotes obligation, not choice; therefore, accepting PowerShare’s interpretation of the third sentence would drain the second sentence of its essential meaning. Put bluntly, the word “shall” in the second sentence would be rendered nugatory were we to read the arbitration provision as creating nothing more than an option. That PowerShare’s interpretation of Paragraph 18 would negate the obvious meaning of the second sentence is a powerful argument against accepting that interpretation. (citations and quotations omitted).

The Court concluded that the only “plausible interpretation” of the arbitration clause that gave effect to the “plain meaning” of the second sentence was that “the second sentence mandates arbitration and the third sentence furnishes the arbitrator with broad legal and equitable powers should either party seek special kinds of relief (say, an injunction).”

The Court based its decision solely on contract interpretation principles without deciding whether the federal presumption of arbitrability applied. The presumption of arbitrability requires ambiguities concerning the “scope” of an arbitration clause to be resolved in favor of arbitration. PowerShare argued that the presumption did not apply where, as here, the question was not the scope of an arbitration clause, but whether a mandatory arbitration clause existed in the first place.

Fourth Circuit Vacates Securities Arbitration Award: Raymond James Financial Services, Inc. v. Bishop

March 2nd, 2010 Arbitrability, Authority of Arbitrators, Awards, Grounds for Vacatur, Securities Arbitration, United States Court of Appeals for the Fourth Circuit 1 Comment »

I. Introduction

Arbitration is not a perfect process for resolving disputes, but neither is court adjudication. One advantage of court adjudication is a fairly rigorous standard of review: appellate courts generally review the trial court’s factual findings for clear error and legal conclusions de novo. By contrast, courts review arbitration awards under the very deferential standards of review prescribed by Sections 10 and 11 of the Federal Arbitration Act. The trade-off is one of informality, speed and reduced expense for a heightened risk that the decision maker will commit unreviewable legal and factual errors — even some pretty egregious ones.

But every so often an arbitration award can be so far off the mark that one of the parties is deprived of the benefit of the bargain it made when it agreed to arbitrate. These are not cases where the arbitrators merely did a shoddy job, but ones where the arbitrators did not do the job the parties asked them to do. These are the cases that Section 10(a)(4) of the Federal Arbitration Act was designed to address: ones where “the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final award on the subject matter was not made.”

Today we take a brief look at Raymond James Financial Serv., Inc. v. Bishop, ___ F.3d ___, No. 09-1038, slip op. (4^th Cir. Feb. 22, 2010), a recent example of one of those rare cases. And we’ll see how how confusion about the scope of Section 10(a)(4) resulting – quite unintentionally – from the United States Supreme Court decision in Hall Street Assoc., L.L.C. v. Mattel , Inc, 552 U.S. ___, slip op. at __ (March 25, 2008) apparently motivated the United States Court of Appeals for the Fourth Circuit to decide the case solely on the ground that the arbitrators were not authorized to rule on the claim on which they admittedly based their award. (See, generally, “Hall Street Meets Pearl Street: Stolt-Nielsen and the Federal Arbitration Act’s New Section 10(a)(4).”)

The Court reached the right result, but its decision is of limited utility in future cases. For under many broad arbitration agreements and submissions the arbitrators have authority to rule on pretty much any claim that is related to the subject matter of the parties’ dispute. Abitrators may have the authority to resolve a claim, but may do so in a way that has not even a barely colorable justification under the law and facts.

We would have liked to see the Court rule not only on the authority issue, but also on two other grounds relied upon by the district court: manifest disregard of the law and the award’s failure to “draw its essence” from the parties’ agreements. As we have said before, we believe that those grounds are statutorily permitted by Section 10(a)(4), and that they provide a useful safety valve for addressing those (thankfully) rare cases where the arbitrators resolve a dispute within the scope of their authority, but do so in a way that completely deprives one of the parties of the benefit of its arbitration agreement. Continue Reading »

Professor Aaron Bruhl’s Analysis of Rent-a-Center, West v. Jackson (No. 09-497)

February 24th, 2010 Arbitrability, Authority of Arbitrators, United States Court of Appeals for the Ninth Circuit, United States Supreme Court No Comments »

Professor Aaron Bruhl, an Assistant Professor of Law at the University of Houston Law Center, recently published in PrawfsBlawg a thought-provoking and insightful article on Rent-a-Center, West v. Jackson (No. 09-497). (Post here) Regular readers no doubt remember that the United States Supreme Court recently granted certiorari in Rent-a-Center, and will be hearing argument on April 26, 2010. (See our prior posts here and here).

Professor Bruhl points out that, in addition to being of interest to those practicing employment, consumer or plain old arbitration law, Rent-a-Center “is just as interesting for those who study federal courts and judicial politics.” He reminds us that one of the few remaining “safety valves” for challenging arbitration agreements is unconscionability:

In the last few years, as other routes for challenging arbitration have been closed off, unconscionability has become a surprisingly common and surprisingly effective way of attacking arbitration agreements. The challenges do not attack arbitration per se – federal law favors arbitration – but instead target various aspects of a particular arbitration process: a given clause might forbid class arbitrations, bar punitive damages or otherwise restrict remedies, sharply curtail discovery, require a consumer to pay hefty arbitrator’s fees, etc. There have been many cases on these topics in recent years, and a good number of them sustain the challenge to the arbitration clause.

He notes that the United States Supreme Court has consistently denied certiorari in cases where lower courts have invalidated arbitration agreements on state-law unconscionability grounds and the question is whether the invalidation offended the Federal Arbitration Act. He suspects “the Court has avoided these cases because it feels ill-equipped to resolve whether a lower court is discriminating against arbitration:”

First, unconscionability analysis often requires a fact-intensive inquiry. Second, and more important, determining whether a lower court is using unconscionability differently when it comes to arbitration requires an engagement with the details of state law and a comparison of lots of prior unconscionability cases. Third, and maybe most important of all, a holding that the lower court is applying unconscionability unfairly, especially when the lower court says it is applying the same analysis it applies elsewhere, carries with it some serious expressive baggage. Essentially, it requires the Supreme Court to say that the lower court is being dishonest. That happens, but when it does so, it is a big deal (think cases like Bush v. Gore or the cases from the 50s/60s rejecting supposed procedural defaults in the state courts).

But the Court granted certiorari in Rent-a-Center, a case involving not the merits of a state law unconscionability challenge, but the question who gets to decide unconscionability when the parties clearly and unmistakably submit it to the arbitrators. Professor Bruhl believes certiorari was granted because addressing the “who” question, and resolving it in favor of arbitration, will cleanly dispose of the unconscionability problem from the standpoint of the federal courts, at least in cases where the parties clearly and unmistakably agreed to arbitrate arbitrability:

That doesn’t require diving into the weeds of state law and the record. If the Court assigns the issue to the arbitrator, that will be a very easy rule to monitor for compliance (unlike deciding whether the lower court applied unconscionability correctly). All of those unconscionability cases out there will instantly become not wrong but irrelevant – because courts won’t be deciding the issue anymore. And it won’t matter whether some lower courts can be trusted to apply unconscionability correctly, because they will be cut out of the picture. Continue Reading »

SCOTUS Oral Argument in Jackson v. Rent-a-Center West, Inc. Set for April 26, 2010

February 17th, 2010 Arbitrability, Authority of Arbitrators, Practice and Procedure, United States Court of Appeals for the Ninth Circuit, United States Supreme Court No Comments »

The United States Supreme Court has set for April 26, 2010 oral argument in Jackson v. Rent-a-Center West, Inc., ___ F.3d ___, slip op. (9^th Cir. Sept. 9, 2009), petition for cert. granted Jan. 15, 2010 (No. 09-497) (oral argument calendar here). Jackson addresses the question who decides unconscionability of an arbitration agreement when the agreement clearly and unmistakably says arbitrators decide arbitrability. The Ninth Circuit said the court decides the question, but we think there is a reasonable chance the United States Supreme Court will reverse. We touched on some of the reasons why in prior posts, here and here.

We shall keep readers apprised of further developments as and when they occur. . . .

Stolt-Nielsen Oral Argument Analysis, Part V: Should Class or Consolidated Arbitration be Imposed if the Contract is Silent?

February 16th, 2010 Arbitrability, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Practice and Procedure, United States Supreme Court No Comments »

I. Introduction

This is the final installment of our five-part series on the Stolt-Nielsen oral argument. It addresses the fourth issue identified in Part I (here): what the import of the agreements’ silence is or should be. It assumes the Court reaches the merits; as explained in Parts III and IV (here and here), the United States Supreme Court may take another “pass” on the question presented (the first pass was taken in Bazzle), and hold that the predicate for granting certiorari was not established because the arbitrators ruled that the agreement was not silent on class arbitration.

Part I identified two loose “coalitions” of Justices – the “Breyer Coalition” consisting of Associate Justices John Paul Stevens, Stephen G. Breyer, and Ruth Bader Ginsburg, and the “Roberts Coalition,” consisting of Chief Justice John G. Roberts and Associate Justices Antonin G. Scalia and Samuel A. Alito, Jr. The Breyer Coalition appears to be leaning toward either taking a pass or affirming the decision of the United States Court of Appeals for the Second Circuit, which upheld the arbitrators’ award imposing class arbitration, while the Roberts Coalition appears to be leaning toward reversal. We explore the import of the charter-party agreements’ silence on class arbitration from the standpoint of both coalitions. Continue Reading »

Stolt-Nielsen Oral Argument Analysis: Part III

December 23rd, 2009 Arbitrability, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, United States Supreme Court 2 Comments »

On December 9, 2009 the United States Supreme Court held oral argument in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2009), petition for cert. granted June 15, 2009 (No. 08-1198) (oral argument transcript here). Stolt-Nielsen concerns whether class or consolidated arbitration may be imposed on parties whose contracts are silent on that point, and we have written extensively on it, including an ongoing series of guest-post articles for our friend Karl Bayer’s Disputing blog. (Posts available here, here, here, here, here, here, here, here and here.)

On December 16, 2009 we posted Part II of our analysis of the oral argument (Parts I, here, Part II, here). In this Part III we focus on what transpired with respect to the second of four key interrelated issues raised at oral argument and identified in Part I: What exactly did the arbitrators decide? Continue Reading »

Stolt-Nielsen Oral Argument Analysis: Part II

December 16th, 2009 Arbitrability, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, United States Supreme Court 3 Comments »

Introduction

On December 9, 2009 the United States Supreme Court held oral argument in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2009), petition for cert. granted June 15, 2009 (No. 08-1198) (oral argument transcript here). Stolt-Nielsen concerns whether class or consolidated arbitration may be imposed on parties whose contracts are silent on that point, and we have written extensively on it, including a series of guest-post articles for the Disputing blog. (Posts available here, here, here, here, here, here, here, here and here.)

Former Solicitor General Seth Waxman, a partner of the prestigious law firm of Wilmer Cutler Pickering Hale & Dorr LLP, and Chair of the firm’s Appellate and Supreme Court Litigation Practice Group, represented the Stolt-Nielsen petitioners before the Court (Mr. Waxman’s bio is here). Georgetown University Law Center Professor Cornelia T.L. Pillard represented respondent AnimalFeeds. (Professor Pillard also represented the Bazzle respondents in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003)). Both attorneys did a very admirable job of presenting their cases on behalf of their clients.

On December 13, 2009 we posted Part I of our analysis of the oral argument (Part I here). In this Part II we focus on what transpired with respect to the first of the four key, interrelated issues raised by the Justices and identified in Part I: The scope of the submission and the corresponding scope of the arbitrators’ authority. We shall address the remaining three in one or more future posts. Continue Reading »

Global Arbitration Review Publishes Article on Hansen v. Everlast and Quotes Philip J. Loree Jr.

November 3rd, 2009 Arbitrability, Authority of Arbitrators, Awards, New York Court of Appeals, Nuts & Bolts: Arbitration, Uncategorized, United States Court of Appeals for the Second Circuit, functus officio No Comments »

Readers may recall our recent post on the New York Court of Appeals’ decision in Re Joan Hansen & Co v. Everlast World’s Boxing Headquarters Corp., ___ N.Y.3d ___, slip op. (Oct. 15, 2009), a case which demonstrates how important the parties’ submission is in determining arbitral authority. The Court held that, after an award, a party cannot reopen an arbitration proceeding to request that the arbitrators decide an issue that had not previously been submitted to the arbitrators. A copy of our post is here.

On November 2, 2009 Kyriaki Karadelis of the U.K.-based trade publication Global Arbitration Review (”GAR”) (website here) wrote what I thought was a concise and insightful article on the case. And we would have said that even if she had not quoted some of our comments in her article! But she did, and we’re flattered by that.

With Global Arbitration Review’s permission, and with the required copyright disclaimer, we have posted the article as a “Slide Share Presentation” in my LinkedIn profile, which you can view by clicking here. Also posted there (again with GAR’s permission and the required disclaimer) is a Global Arbitration Review Article on the United States Court of Appeals for the Second Circuit’s decision in ReliaStar Life Ins. Co. v. EMC National Life Co., ___ F.3d ___, ___ (2009) (Raggi, J.) (blogged here and here), in which the United States Court of Appeals for the Second Circuit held that an arbitration panel was authorized to award under the bad faith exception to the American Rule attorney and arbitrator fees to a ceding company in a case where the parties had agreed that “[e]ach party shall bear the expense of its own arbitrator. . . and related outside attorneys’ fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator.” We reported on GAR’s article concerning ReliaStar case here, which also quotes some of our comments on that case.

We ask our readership to remember that GAR is a subscription-only publication and that it has copyrights in these posted materials. GAR has authorized us to post them online and distribute them for marketing purposes, but that authorization does not extend to others not similarly situated. Please do the right thing and respect GAR’s copyrights – GAR has to make a living just like the rest of us!

Arbitration Nuts & Bolts: New York Court of Appeals Says the Submission Defines the Scope of the Panel’s Authority

October 26th, 2009 Arbitrability, Authority of Arbitrators, New York Court of Appeals, Nuts & Bolts, Nuts & Bolts: Arbitration, Reinsurance Arbitration, Reinsurance Claims, functus officio 2 Comments »

On October 15, 2009 The New York Court of Appeals decided Re Joan Hansen & Co v. Everlast World’s Boxing Headquarters Corp., ___ N.Y.3d ___, slip op. (Oct. 15, 2009) (here), a case which demonstrates how important the parties’ submission is in determining arbitral authority. The Court held that, after an award, a party cannot reopen an arbitration proceeding to request that the arbitrators decide an issue that had not previously been submitted to the arbitrators.

The power of arbitrators appointed to resolve a particular dispute or disputes is defined by the submission, not the arbitration agreement. The scope of the agreement to arbitrate tells us only what must be submitted to arbitration. It is the submission itself that “serves not only to define, but to circumscribe the authority of the arbitrators.” Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir. 1987) (here).

As the United States Court of Appeals for the Fifth Circuit explained, a predispute arbitration agreement generally is “not self-executing” — “[b]efore arbitration can … proceed, it is necessary for the parties to supplement the agreement to arbitrate by defining the issue to be submitted to the arbitrator and by explicitly giving him the authority to act.” Piggly Wiggly Operators’ Warehouse Inc v. Piggly Wiggly Operators’ Warehouse Independent Truck Drivers Union, 611 F2d 580 (5th Cir. 1980) (here). The disputes presented to the panel for resolution without objection constitute the submission, which may be embodied in a formal submission agreement or determined from the arbitration demand in conjunction with the arguments and contentions made by the parties during the proceeding. Continue Reading »

Jackson v. Rent-a-Center West, Inc.: Who Gets to Decide Whether an Arbitration Agreement is Unconscionable when the Parties Clearly and Unmistakably Say the Arbitrators Decide Arbitrability?

September 23rd, 2009 Arbitrability, Unconscionability, United States Court of Appeals for the Ninth Circuit 2 Comments »

I. Introduction

We have explained in prior posts the First Options/AT&T Technologies rule that arbitrators get to decide arbitrability when the parties clearly and unmistakably so agree. (See, e.g., here and here.) That’s all well and good, but what happens when: (a) two parties sign an arbitration agreement which says, among other things, that the arbitrators shall decide any claim, including any claim concerning the applicability, formation or enforceability of the arbitration agreement; and (b) despite that clear and unmistakable agreement to arbitrate arbitrability, one of the parties challenges the arbitration agreement in court on unconscionability grounds?

That is, for all practical purposes, what happened in Jackson v. Rent-a-Center West, Inc., ___ F.3d ___, slip op. (9^th Cir. Sept. 9, 2009) (here). And the United States Court of Appeals for the Ninth Circuit ruled 2-1 that the court gets to decide the question. Continue Reading »