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Archive for the ‘Class Action Arbitration’ Category

Absent Class Members, Class Arbitration, Class Certification Awards, Consent, Coercion, and the Second Circuit

November 29th, 2019 Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Confirm Award | Exceeding Powers, Consent to Class Arbitration, Exceeding Powers, FAA Chapter 1, Federal Arbitration Act Section 10, Judicial Review of Arbitration Awards, United States Court of Appeals for the Second Circuit No Comments »
absent class members

While federal, and many state, courts have class-action procedural rules that permit them to bind absent class members to a judgment or settlement, arbitration is different because it is based on party consent, not coercion. While the critical, threshold issues presented in class arbitration is party consent to class arbitration, class certification disputes arising out of a class arbitration proceeding can be just as challenging, especially when they involve absent class members who have not opted in to the proposed or certified class (“absent class members” or “absent members”).

Suppose Employer A requires each of its employees to sign a form arbitration agreement that clearly and unmistakably authorizes the arbitrator to decide all disputes arising out of or relating to the employment relationship as well as arbitrability and procedural issues. More than 250 employees (including putative class representatives) assert that an arbitrator (the “Arbitrator”) should determine whether Employer A consented to class arbitration. Employer A submits that issue to the Arbitrator.

The Arbitrator hears and considers the evidence and arguments and makes a Clause Construction Award, which rules that Employer A and each of the employees consented to class arbitration by signing the employment agreement. Employer A challenges the award as exceeding the arbitrator’s powers under Section 10(a)(4) of the Federal Arbitration Act, but the challenge fails because an appellate court finds that the Arbitrator was at least arguably construing the employment agreement. .

After further proceedings the Arbitrator makes another award, this one certifying a class consisting of approximately 44,000 employees, which included not only the more than 250 persons who were either class representatives or opted in to the class, but also tens of thousands of persons who were absent class members in the sense that they had been notified of the class arbitration and proposed class but had not opted in to the class and had not otherwise appeared in the arbitration proceedings.  

Did the Arbitrator have the power to make that class certification award, which purports to bind each of the 44,000 class members, the vast majority of whom were never parties to the arbitration and had never submitted to the Arbitrator any of the issues that were decided by the Arbitrator’s Clause Construction and class certification awards?  

On November 18, 2019, the United States Court of Appeals for the Second Circuit said the answer to that question was “yes.”  But with all due respect to the Second Circuit, and understanding that reasonable minds can and do differ on this subject, we think the better answer would have been “no.”

This post briefly discusses the Second Circuit’s decision.

A subsequent post will explain why we believe the Second Circuit should have held that the arbitrator in that case did not have the authority to bind absent class members, who were not parties to the Clause Construction Award, did not opt into the class, did not otherwise agree to be bound by the Clause Construction Award or the class certification award, and did not otherwise submit to the Arbitrator the issues decided by the Clause Construction and class certification Awards.

 The result would be that the class arbitration could proceed, albeit with a far smaller, certified class (which might be expanded to accommodate any absent members who might be given an additional opportunity to opt-in). But that result, we think, is consistent with the consensual nature of arbitration— a dispute resolution method that is fundamentally different from its coercive counterpart, court litigation.   

Absent Class Members: Background and Procedural History of Jock v. Sterling Jewelers Inc.

The Second Circuit’s recent decision was the fourth appeal in the Jock v. Sterling Jewelers Inc. case, a long-running class arbitration dispute. The first of these appeals,  Jock v. Sterling Jewelers, Inc., 646 F.3d 113 (2d Cir. 2011) (“Jock I”), was decided in 2011—the most recent one, Jock v. Sterling Jewelers Inc., No. 18-153-cv, slip op. (2d Cir. November 18, 2019) (“Jock IV”), and the subject of this post, was decided November 18, 2019.

Jock and her co-plaintiffs are retail sales employees of Sterling Jewelers, Inc. (“Sterling”). Back in 2008 they sought relief on behalf of a class under Title VII of the Civil Rights Act of 1964, and under the Equal Pay Act, alleging Sterling, based on their gender, paid them less than their similarly situated male co-workers. 

Sterling employees, including Jock and her co-plaintiffs were required to sign a “RESOLVE Program” agreement (the “Agreement”), which imposed mandatory arbitration. By executing the agreement employees expressly “waiv[ed] right[s] to obtain any legal or equitable relief . . . through any government agency or court, and . . . also waiv[ed] [their] right[s] to commence any court action.” The Agreement provided that they “may. . . seek and be awarded equal remedy through the RESOLVE Program.”

The Agreement provided that “[t]he Arbitrator shall have the power to award any types of legal or equitable relief that would be available in a court of competent jurisdiction[,]” and that any claim arising thereunder will be arbitrated “in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association.”

Class arbitration ensued, and the arbitrator construed the Agreement to permit class arbitration. The district court overturned the award on the ground that the class construction award exceeded under the arbitrator’s powers for the reasons stated in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010).

Jock I

But the Second Circuit in Jock I reversed the district court’s judgment. As the Court explained in Jock IV, the Jock I Court “reversed, holding that the District Court impermissibly substituted its own legal analysis for that of the arbitrator instead of focusing its inquiry on whether the arbitrator was permitted to reach the question of class arbitrability that had been submitted to her by the parties.” Jock IV, slip op. at 5-6. The Jock I Court also “explained. . . that the arbitrator had a colorable justification under the law to reach the decision she did.” Jock IV, slip op. at 6.

Jock I “distinguished Stolt-Nielsen on the ground that the parties in Stolt-Nielsen stipulated that their arbitration agreement contained ‘no agreement’ on the issue of class arbitration, whereas the plaintiffs in [Jock I] merely conceded that there was no explicit agreement to permit class arbitration, thus leaving open the possibility of an ‘implied agreement to permit arbitration.’”  Jock IV, slip op. at 6 (citation omitted). 

The Class Certification Award

After Jock I the arbitrator made a class certification award, certifying a class of “approximately 44,000 women, comprising the then-254 plaintiffs as well as other individuals who had neither submitted claims nor opted in to the arbitration proceeding (‘the absent class members’).” Jock IV, slip op. at 6 (parenthetical in original). The arbitrator’s class certification was limited to those with Title VII disparate impact claims seeking declaratory and injunctive relief.

The district court denied Sterling’s motion to vacate the certification award. As Jock IV explains, the district court reasoned “that Sterling’s argument that the arbitrator had exceeded her powers in ‘purporting to bind absent class members who did not express their consent to be bound’ was ‘foreclosed by’ this Court’s holding in Jock I that ‘there is no question that the issue of whether the agreement permitted class arbitration was squarely presented to the arbitrator.’” ”  Jock IV, slip op. at 7 (citation omitted).

Jock II

The district court’s decision refusing to vacate the class certification award resulted in the second appeal, Jock v. Sterling Jewelers Inc., 703 Fed. Appx. 15 (2d Cir. 2017) (summary order). (“Jock II”). In July 2017 we wrote a short post (here) about Jock II.

Jock II vacated and remanded the district court’s decision refusing to vacate the certification award because it purported to bind absent members, who (because of their absence) could not have “squarely presented” to the arbitrator the question whether the agreement authorized class procedures, let alone the issue of whether they should be deemed part of a class in a class arbitration to which they had not consented. See Jock II, 703 Fed. Appx. at 16, 17-18 (quotation and citation omitted).

In Jock II, the Second Circuit directed the district court to “consider[] on remand. . . ‘whether an arbitrator, who may decide. . . whether an arbitration agreement provides for class procedures because the parties “squarely presented” it for decision, may thereafter purport to bind non-parties to class procedures on this basis.’”) Jock IV, slip op. at 7-8 (citation omitted).  

The Jock II Remand

The district court vacated the class determination award on remand for two reasons. First, the district court said that it had ruled in 2010 that the Agreement did not authorize class procedures and that, accordingly, the absent class members had not consented to class arbitration.

Second, the submission by the plaintiffs and defendants (not the absent members) to the arbitrator of the question whether the Agreement authorized class arbitration did not confer on the arbitrator the authority to make a ruling binding on the absent members (who did not submit the issue to the Arbitrator). “The District Court[,]” said the Second Circuit, “reasoned that, even if the arbitrator’s ‘erroneous interpretation’ of the [Agreement] could bind the 254 plaintiffs who had ‘authorized the arbitrator to make that determination by submitting the question to her or opting into the proceeding, that erroneous interpretation could not bind absent class members.” Jock IV, slip op. at 8.

The Jock IV Appeal

The district court ruling on the Jock II remand resulted in the Jock IV appeal. (The Jock III decision was the dismissal of an appeal of a district court ruling that it lacked subject matter jurisdiction to vacate an interim decision rendered by the arbitrator. Jock v. Sterling Jewelers Inc., 691 F. App’x 665 (2d Cir. 2017) (summary order).) 

Since the issue before the district court on the Jock II remand  was whether the arbitrator’s class certification decision should be vacated under Section 10(a)(4) of the Federal Arbitration Act, the applicable standard of review was the manifest disregard of the agreement standard set forth in Stolt-Nielsen and Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 568-69 (2013). See Jock IV, slip op. at 9-11. (For discussion of that deferential standard, see here, here, here, and here)  

Sterling (the “Award Challenger”) argued, consistent with the district court’s decision,  that the deferential standard should not apply to the question whether the absent members had consented to class arbitration, because they were not parties to the class construction award that was the subject of Jock I, did not submit the issue of class consent to the arbitrator, or otherwise agree to be bound by a determination of consent to class arbitration to which they were not parties.

But the Second Circuit did not agree with the district court or the Award Challenger. It agreed with the plaintiff-appellants (the “Award Defending Parties”), who “argue[d] that the absent class members have, in fact, authorized the arbitrator to determine whether the [Agreement] permits class arbitration procedures.” Jock IV, slip op. at 11.  They urged “that because all Sterling employees signed the RESOLVE Agreement, all Sterling employees “agreed that, if any of them initiated a putative class proceeding, the arbitrator in that proceeding would be empowered to decide class-arbitrability—and, if he or she found it appropriate, to certify a class encompassing other employees’ claims.” Jock IV, slip op. at 11-12.

The Award Defending Parties asserted that “the District Court erred by ‘never ask[ing] what authority absent class members conferred on [the arbitrator] by joining the RESOLVE Program [i.e., signing the Agreement],’ a question that is a matter of contract interpretation.” Jock IV, slip op. at 12.

The Second Circuit determined that, by signing the Agreement, the employer and the absent class members agreed that: (a) any other employee who signed the Agreement was authorized to arbitrate on behalf of any absent member of a yet-to-be certified class the issue of consent to class arbitration, irrespective of whether the absent class member was a party to the arbitration, and irrespective of whether the absent member had notice of, and consented to, the arbitration; (b) any absent class member would be bound by the outcome of such a class-arbitration-consent arbitration proceeding, even though the absent class member did not participate in the arbitration, did not consent to the arbitration (apart from signing the Agreement), and did not play any role in the selection of the arbitrator who presided over the arbitration; and (c) the decision on class arbitration reached by the arbitrator in his or her absence would be subject to review under the exceedingly deferential Oxford/Stolt-Nielsen standard only, and the absent members would be bound by the result of that judicial review even though they were not parties to the Clause Construction Award or to the judicial proceeding in which the Clause Construction Award was reviewed.  

Absent Class Members: What to Make of Jock IV?

We’ll discuss that in an upcoming post….

New Clear and Unmistakable Outcome Exception to the Old Clear and Unmistakable Rule? (Part II)

August 15th, 2019 Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Class Arbitration Waivers, Clause Construction Award, Clear and Unmistakable Rule, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, FINRA Arbitration, First Options Reverse Presumption of Arbitrability, Manifest Disregard of the Agreement, Manifest Disregard of the Law, United States Court of Appeals for the Fifth Circuit, United States Court of Appeals for the Second Circuit, United States Supreme Court 1 Comment »
Clear and Unmistakable Rule | Analysis

Part I of this post discussed how the Second and Fifth Circuits, in  Metropolitan Life Ins. Co. v. Bucsek, ___ F.3d ___, No. 17-881, slip op. (2d Cir. Mar. 22, 2019), and 20/20 Comms. Inc. v. Lennox Crawford, ___ F.3d ___, No. 18-10260 (5th Cir. July 22, 2019), suggest a trend toward what might (tongue-in-cheek) be called a “Clear and Unmistakable Outcome Exception” to the First Options Reverse Presumption of Arbitrability (a/k/a the “Clear and Unmistakable Rule”).

Under this Clear and Unmistakable Outcome Exception to the Clear and Unmistakable Rule, courts consider the merits of an underlying arbitrability issue as part of their analysis of whether the parties clearly and unmistakably agreed to arbitrate arbitrability issues.

But the Clear and Unmistakable Outcome Exception runs directly counter to the U.S. Supreme Court’s decision in Schein v. Archer & White Sales, Inc., 586 U.S. ___, 139 S. Ct. 524 (January 8, 2019), and thus contravenes the Federal Arbitration Act as interpreted by Schein. 139 S. Ct. at 527-28, 529-31.

This Part II analyzes and discusses how Met Life and 20/20 Comm. effectively made an end run around Schein and considers what might have motivated those Courts to rule as they did.

Making an End Run Around Schein?

Clear and Unmistakable Rule | Circumvent | End Run

When, prior to 20/20 Comm. we wrote about Met Life, we said it “an important decision because it means in future cases where parties have not expressly agreed to arbitrate arbitrability questions, but have agreed to a very broad arbitration agreement, the question whether the parties’ have nevertheless clearly and unmistakably agreed to arbitrate arbitrability questions may turn, at least in part, on an analysis of the merits of the arbitrability question presented.” (See here. )

But after the Fifth Circuit decided 20/20 Comm. this July, in comments we made to Russ Bleemer, Editor of Alternatives, the Newsletter of the International Institute for Conflict Prevention & Resolution (“CPR”)—which were reproduced with our consent in Mr. Zhan Tze’s CPR Speaks blog article about 20/20 Comm. (here)—we expressed the belief that the Fifth Circuit was (whether intentionally or unintentionally) making an end run around Schein, effectively creating an exception to the Clear and Unmistakable Rule.

After analyzing 20/20 Comm. and comparing it to the Second Circuit’s Met Life decision, we concluded that the Second Circuit’s decision also ran counter to Schein.

Schein’s Abrogation of the “Wholly Groundless Exception” to the Clear and Unmistakable Rule

Clear and Unmistakable Rule | Jettison

In Schein the U.S. Supreme Court abrogated the so-called “wholly groundless exception” to the Clear and Unmistakable Rule. Prior to Schein certain courts, including the Fifth Circuit, held that even when parties clearly and unmistakably agreed to arbitrate arbitrability questions, courts could effectively circumvent the parties’ agreement and decide for itself arbitrability challenges that it determined were “wholly groundless.”  

The rationale Schein used to jettison the “wholly groundless exception” to the Clear and Unmistakable Rule is incompatible with the rationales the Second and Fifth Circuit used to support their decisions in Met Life and 20/20 Comm.

Under FAA Section 2, the Schein Court explained, “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.” Schein, 139 S. Ct. at 529 (citation omitted). When those contracts delegate arbitrability questions to an arbitrator, “a court may not override the contract[,]” and has “no power to decide the arbitrability issue.” 139 S. Ct. at 529. That is so even where a Court “thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.” 139 S. Ct. at 529.

Schein explained that its conclusion was supported not only by the FAA’s text, but also by U.S. Supreme Court precedent. Citing and quoting cases decided under Section 301 of the Labor Management and Relations Act, the Court explained that courts may not “‘rule on the potential merits of the underlying’ claim that is assigned by contract to an arbitrator, ‘even if it appears to the court to be frivolous[,]’” and that “[a] court has “‘no business weighing the merits of the grievance’” because the “‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’” 139 S. Ct. at 529 (quoting AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649–650 (1986) and Steelworkers v. American Mfg. Co., 363 U.S. 564, 568 (1960)).

This “principle,” said the Schein Court, “applies with equal force to the threshold issue of arbitrability[]”—for “[j]ust as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator.” 139 S. Ct. at 530.

Exception to Clear and Unmistakable Rule? Why the Second and Fifth Circuit Decisions Conflict with Schein

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New Clear and Unmistakable Outcome Exception to the Old Clear and Unmistakable Rule? (Part I)

August 13th, 2019 Arbitrability, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Clear and Unmistakable Rule, FAA Chapter 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, FINRA Arbitration, First Options Reverse Presumption of Arbitrability, United States Court of Appeals for the Fifth Circuit, United States Court of Appeals for the Second Circuit, United States Supreme Court 1 Comment »
Federal Arbitration Act Secction 1 6

Arbitration law is replete with presumptions and other rules that favor one outcome or another depending on whether one thing or another is or is not clear and unmistakable. Put differently, outcomes often turn on the presence or absence of contractual ambiguity.

There are three presumptions that relate specifically to questions arbitrability, that is, whether or not an arbitrator or a court gets to decide a particular issue or dispute:   

  1. The Moses Cone Presumption of Arbitrability: Ambiguities in the scope of the arbitration agreement itself must be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Rebutting this presumption requires clear and unmistakable evidence of an intent to exclude from arbitration disputes that are otherwise arguably within the scope of the agreement.
  2. The First Options Reverse Presumption of Arbitrability:  Parties are presumed not to have agreed to arbitrate questions of arbitrability unless the parties clearly and unmistakably agree to submit arbitrability questions to arbitration. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-46 (1995)
  3. The Howsam/John Wiley Presumption of Arbitrability of Procedural Matters: “‘[P]rocedural’ questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557 (1964)) (internal quotation marks omitted). To rebut this presumption, the parties must clearly and unmistakably exclude the procedural issue in question from arbitration.

These presumptions usually turn solely on what the contract has to say about the arbitrability of a dispute, not on what the outcome an arbitrator or court would—or at least should—reach on the merits of the dispute.

Some U.S. Circuit Courts of Appeal, including the Fifth Circuit, recognized an exception to the First Options Reverse Presumption of Arbitrability called the “wholly groundless exception.” Under that “wholly groundless exception,” courts could decide “wholly groundless” challenges to arbitrability even though the parties have clearly and unmistakably delegated arbitrability issues to the arbitrators. The apparent point of that exception was to avoid the additional time and expense associated with parties being required to arbitrate even wholly groundless arbitrability disputes, but the cost of the exception was a judicial override of the clear and unmistakable terms of the parties’ agreement to arbitrate.  

Earlier this year the U.S. Supreme Court in Schein v. Archer & White Sales, Inc., 586 U.S. ___, slip op. at *1 (January 8, 2019) abrogated the “wholly groundless” exception. Schein, slip op. at *2, 5, & 8. “When,” explained the Court, “the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Schein, slip op. at 2, 8. The “wholly groundless” exception, said the Court, “is inconsistent with the statutory text and with precedent[,]” and “confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.” Schein,slip op. at 8.    

But since Schein both the Second and Fifth Circuits have decided First Options Reverse Presumption of Arbitrability cases by effectively conflating the question of who gets to decide an arbitrability issue with the separate question of who should prevail on the merits of that arbitrability issue. The Courts in both cases determined whether the parties clearly and unmistakably agreed to arbitrate arbitrability questions by considering, as part of the clear and unmistakable calculus, the merits of the arbitrability question.

These two cases suggest a trend toward what might (tongue-in-cheek) be called a “Clear and Unmistakable Outcome Exception” to the First Options Reverse Presumption of Arbitrability. But the problem with that trend is that it runs directly counter to the Supreme Court’s decision in Schein, and thus contravenes the Federal Arbitration Act as interpreted by Schein.

In Part I of this post we discuss the Second Circuit and Fifth Circuit decisions. In Part II we analyze and discuss how— and perhaps why — those courts effectively made an end run around Schein.

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2018-2019 Term SCOTUS Arbitration Cases: What About Lamps Plus?

June 20th, 2019 Appellate Jurisdiction, Appellate Practice, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Class Action Arbitration, Clause Construction Award, Consent to Class Arbitration, Contract Interpretation, Contract Interpretation Rules, Drafting Arbitration Agreements, FAA Preemption of State Law, Federal Policy in Favor of Arbitration, United States Court of Appeals for the Ninth Circuit, United States Supreme Court 2 Comments »
Lamps Plus - Supreme Court Building
U.S. Supreme Court

On April 24, 2019 in Lamps Plus Inc. v. Varela, 587 U.S. ___, No. 17-998 (April 24, 2019), the United States Supreme Court considered whether whether consent to class arbitration may be inferred from ambiguous contract language.

In a 5-4 opinion written by Chief Justice John G. Roberts Jr. the Court held that ambiguity in and of itself was not enough to infer party consent to class arbitration. Parties would have to clearly express their consent to class arbitration before courts could impose it on them under the Federal Arbitration Act.

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Delegation Provisions: SCOTUS Says Courts Must Compel Arbitration of Even “Wholly-Groundless” Arbitrability Disputes

January 16th, 2019 American Arbitration Association, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Exceeding Powers, Existence of Arbitration Agreement, Federal Arbitration Act Enforcement Litigation Procedure, Stay of Litigation, United States Supreme Court 3 Comments »
Wholly Groundless 1

Arbitrability questions are ordinarily for courts to decide, but parties may, by way of a “delegation provision,” clearly and unmistakably agree to submit them to arbitration. See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-46 (1995); Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010). (See, e.g., Loree Reinsurance and Arbitration Law Forum posts here, here, and here.)

But suppose parties to a delegation provision disagree about whether they are required to arbitrate a dispute, yet their contract clearly excludes the dispute from arbitration. Can a Court preemptively decide the merits of an arbitrability question delegated to the arbitrators, and refuse to compel arbitration of the arbitrability question, if the Court decides that the argument for arbitration of the underlying dispute is wholly groundless?

Some federal courts have held that a federal court can, despite a clear and unmistakable agreement to arbitrate arbitrability, refuse to compel arbitration of a “wholly groundless” arbitrability question, but others have held that the FAA requires Courts to refer to arbitration even “wholly groundless” arbitrability questions. Compare Simply Wireless, Inc. v. T-Mobile US, Inc., 877 F. 3d 522 (4th Cir. 2017); Douglas v. Regions Bank, 757 F. 3d 460 (5th Cir. 2014); Turi v. Main Street Adoption Servs., LLP, 633 F. 3d 496 (6th Cir. 2011); Qualcomm, Inc. v. Nokia Corp., 466 F. 3d 1366 (Fed. Cir. 2006), with Belnap v. Iasis Healthcare, 844 F. 3d 1272 (10th Cir. 2017); Jones v. Waffle House, Inc., 866 F. 3d 1257 (11th 2017); Douglas, 757 F. 3d, at 464 (Dennis, J., dissenting).

On January 8, 2019 the U.S. Supreme Court, in a 9-0 decision, held that where parties have clearly and unmistakably agreed to arbitrate arbitrability disputes, courts must compel arbitration even if the argument in favor of arbitration is “wholly groundless.” Schein v. Archer & White Sales, Inc., 586 U.S. ____, slip op. at *2, 5, & 8 (January 8, 2019).

Wholly Groundless Exception 2

The Court said that “[t]he [FAA] does not contain a ‘wholly groundless’ exception, and we are not at liberty to rewrite the statute….” Slip op. at 2; see also slip op. at 8. “When,” said the Court, “the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Slip op. at 2; see also slip op. at 8. The “wholly groundless” exception, said the Court, “is inconsistent with the statutory text and with precedent[,]” and “confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.” Slip op. at 8.

Facts and Procedural History

Wholly Groundless Exception 3

Schein was a dispute between a dental equipment manufacturer and a distributor. The parties’ contract contained an arbitration agreement, which required arbitration of “[a]ny dispute arising under or related to [the Parties’] Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [the manufacturer]….” Slip op. at 2. Arbitration was to be “in accordance with the arbitration rules of the American Arbitration Association [(the “AAA”)].” Slip op. at 2.

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California Appeals Court Says Clause Construction Award is not Final Award Subject to Confirmation or Vacatur

August 29th, 2018 Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Awards, California State Courts, Class Action Arbitration, Clause Construction Award, Confirmation of Awards Comments Off on California Appeals Court Says Clause Construction Award is not Final Award Subject to Confirmation or Vacatur

Introduction

Clause Construction Award 1

Clause Construction Award 1

We have discussed (here) what constitutes a final award under the Federal Arbitration Act, an issue that is important for a host of reasons, but is particularly so to any business faced with an adverse clause construction award. A clause construction award is an interim or partial final arbitration ruling that determines the threshold issue of whether the parties consented to class arbitration.

 

But not all arbitrations – even class arbitrations – are governed by the Federal Arbitration Act (“FAA”), and even when they are, parties may agree to procedural rules that are different from those of the FAA. See Preston v. Ferrer, 128 S.Ct. 978, 987-89 (2008); Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ.,  489 U.S. 468, 478-79 (1989). In Maplebear, Inc. v. Busick, ___ Cal. App.5th ___, slip op. (Cal. App., 1st Dist. August 21, 2018) (certified for publication), the parties agreed that  “the arbitration would be conducted by JAMS under its rules and procedures; the arbitrator would apply California substantive law; the arbitrator had no ‘power or authority to commit errors of law or legal reasoning’; and ‘[a]ny action to review the arbitration award for legal error or to have it confirmed, corrected or vacated’ would be decided under California law by ‘a California state court of competent jurisdiction.’” Slip op. at 2.

At issue in Maplebear was whether the California courts had jurisdiction to vacate a partial final Clause Construction Award, which concluded that the parties had consented to class arbitration. The California Appeals Court said “no,” which means that—unless the California Supreme Court (or the U.S. Supreme Court) hears an appeal and says otherwise—the parties have to endure through an entire class arbitration procedure before there is any judicial review of the Clause Construction Award. (Whether or not review by the California Supreme Court or the U.S. Supreme Court is even possible given the procedural posture of this case is outside the scope of this post.)

 

An Unfair Burden on the Clause Construction Award Challenger?

Clause Construction Award 2

Clause Construction Award 2

Consider the burden the decision imposes on the class-arbitration opponent. According to the majority opinion in Concepcion, then fairly current American Arbitration Association statistics showed that: (a) “[a]s of September 2009, the AAA had opened 283 class arbitrations[;]” (b) “[o]f those, 121 remained active, and 162 had been settled, withdrawn, or dismissed[;]” (c) “[n]ot a single one, however, had resulted in a final award on the merits[;]” and (d) “[f]or those cases that were no longer active, the median time from filing to settlement, withdrawal, or dismissal—not judgment on the merits—was 583 days, and the mean was 630 days.” AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1751 (2011).

Clause Construction Award 4

Clause Construction Award 4

While we have not researched whether more recent statistics tell a different story, it seems quite likely that the Court’s decision on finality means that the class arbitration opponent will have to spend an awful lot of time and money before the issue of class arbitration consent is reviewed by a court, assuming it is ever reviewed.

 

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Class-Arbitration-Consent: The Eleventh Circuit Creates Circuit Split by Ruling that Incorporation of AAA Rules is Clear and Unmistakable Consent to Arbitrate Class-Arbitration-Consent Questions

August 24th, 2018 Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Consent to Class Arbitration, FAA Preemption of State Law, United States Court of Appeals for the Eleventh Circuit, United States Supreme Court Comments Off on Class-Arbitration-Consent: The Eleventh Circuit Creates Circuit Split by Ruling that Incorporation of AAA Rules is Clear and Unmistakable Consent to Arbitrate Class-Arbitration-Consent Questions

Introduction

Class-Arbitration-Consent 1

Class-Arbitration-Consent 1

In prior posts we’ve discussed how footnote 2 of the U.S. Supreme Court’s decision in Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2072 n.2 (2013) said it was an open issue whether class-arbitration-consent presented a question of arbitrability, and how certain U.S. Circuit Courts of Appeals have, subsequent to Oxford, held that consent-to-class-arbitration presents a question of arbitrability, which is ordinarily for the court to decide. (See, e.g., here.)

We have also discussed how, under First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-46 (1995), even though questions of arbitrability are ordinarily for the court to decide, parties may clearly and unmistakably agree to submit questions of arbitrability to the arbitrators. In Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010), the Supreme Court of the United States referred to such agreements as “delegation provisions.” Id.

Class-Arbitration-Consent 2

Class-Arbitration-Consent 2

In Spirit Airlines, Inc. v. Maizes, ___ F.3d ___, slip op. (11th Cir. August 15, 2018), the United States Court of Appeals for the Eleventh Circuit addressed a question that called in to play these two related concepts: “whether the [parties’] agreement’s choice of American Arbitration Association rules, standing alone, is clear and unmistakable evidence that [the parties] intended that the arbitrator decide” the consent-to-class-arbitration question. Slip op. at 2. The Court said the answer to that question was “yes.”

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Class Arbitration: Second Circuit in Jock II Rejects Jock I Bootstrapping Bid and Nixes Class Certification Award that Purported to Bind Non-Parties

July 26th, 2017 Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Consent to Class Arbitration, Exceeding Powers, Judicial Review of Arbitration Awards, United States Court of Appeals for the Second Circuit Comments Off on Class Arbitration: Second Circuit in Jock II Rejects Jock I Bootstrapping Bid and Nixes Class Certification Award that Purported to Bind Non-Parties

Arbitration law’s “first principle” is “arbitration is a matter of consent, not coercion[,]” and class arbitration is no exception. (See, e.g., here.) In Jock v. Sterling Jewelers, Inc., 703 Fed.Appx. 15 (2d Cir. 2017) (summary order), the U.S. Court of Appeals for the Second Circuit enforced that principle by vacating and remanding the district court’s judgment, which confirmed in part a class arbitration class certification award that purported to bind non-parties, that is, persons (other than named class representatives), who had not opted into the putative class.

Because the Second Circuit held in an earlier appeal, Jock v. Sterling Jewelers, Inc., 646 F.3d 113, 124 (2d Cir. 2011) (“Jock I”), that the “issue of whether the agreement permitted class arbitration was squarely presented to the Arbitrator,” see id., the district court concluded that holding was law of the case, and confirmed in part an award certifying a class that “included absent class members, i.e., employees other than the named plaintiffs and those who have opted into the class.” 703 Fed. Appx. at 17-18.

Photographer: stuartmilesThe Second Circuit vacated and remanded the judgment partially confirming the certification award because it purported to bind absent class members, who (because of their absence)  could not have “squarely presented’ to the arbitrator the question whether the agreement authorized class procedures, let alone the issue of whether they should be deemed part of a class in a class arbitration to which they had not consented. See 703 Fed. Appx. at 16, 17-18.

While in Jock I the parties had “squarely presented to the arbitrator” the issue of whether the agreement “permitted class arbitration,” Jock I did not address the more “narrow question” “whether an arbitrator, who may decide … whether an arbitration agreement provides for class procedures because the parties `squarely presented’ it for decision, may thereafter purport to bind non-parties to class procedures on this basis.” Id. at 18. The answer to that question is “no”— as Associate Justice Samuel A. Alito, Jr. suggested in his concurring opinion in Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2071-72 (2013) (Alito, J., concurring), and as the Second Circuit confirmed in Jock II. See 703 Fed. Appx. at 16, 17-18.

Photo Acknowledgements:

All photos used in the text portion of this post are licensed from Yay Images and are subject to copyright protection under applicable law. The Yay Images abbreviations of the photographer’s name for each of the two images are:

Image 1: CartoonResource

Image 2: stuartmiles

 

SCOTUS Denies Americo and Jupiter Medical Cert. Petitions: All Eyes now on DIRECTV. . . .

May 19th, 2015 American Arbitration Association, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Awards, Choice-of-Law Provisions, Class Action Arbitration, Class Action Waivers, Confirmation of Awards, Consent to Class Arbitration, Contract Interpretation, FAA Preemption of State Law, Federal Arbitration Act Enforcement Litigation Procedure, Judicial Review of Arbitration Awards, State Courts, United States Supreme Court Comments Off on SCOTUS Denies Americo and Jupiter Medical Cert. Petitions: All Eyes now on DIRECTV. . . .

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On March 28, 2015 we reported (here) that the U.S. Supreme Court (“SCOTUS”) had asked for a response to the petition for certiorari in Americo Life, Inc. v. Myer, 440 S.W.3d 18 (Tex. 2014). In Americo the Texas Supreme Court held that an arbitration award had to be vacated because it was made by a panel not constituted according to the parties’ agreement. The parties’ agreement, among other things, incorporated the American Arbitration Association (the “AAA”)’s rules, which at the time the parties entered into the contract followed the traditional, industry arbitration rule that party-appointed arbitrators may be partial, under the control of the appointing party or both. But by the time the dispute arose the AAA Rules had been amended to provide that the parties are presumed to intend to require parties to appoint only neutral arbitrators—that is, arbitrators that are both impartial and independent.

Five Justices of the nine-member Texas Court determined that the parties had agreed that party-appointed arbitrators need not be impartial, only independent. Because the AAA had, contrary to the parties’ agreement, disqualified the challenging party’s first-choice arbitrator on partiality grounds, the panel that rendered the award was not properly constituted and thus exceeded its powers. See 440 S.W.3d at 25. (Copies of our Americo posts are here and here.)

yay-12776482As reported here and here, the losing party requested Supreme  Court review to determine whether the Texas Supreme Court should have deferred to the AAA’s decision on disqualification rather than independently determining whether the parties intended to require party-appointed arbitrators to be neutral. The petition argues that there is a split in the circuits on the issue.

On Monday, May 18, 2015, SCOTUS denied the petition for certiorari.  (You can access the Court’s May 18, 2015 Order List here.)

On Monday May 4, 2015, SCOTUS also denied the petition for certiorari in another Federal Arbitration Act case, Jupiter Medical Center, Inc. v. Visiting Nurse Assoc., No. 14-944, which was decided by the Florida Supreme Court. (You can access the Court’s May 4, 2015 Order List here.) Jupiter Medical Center, like Americo, concerned a post-award challenge under Section 10(a)(4) of the Federal Arbitration Act, and also like Americo, was decided by a state supreme court. In Jupiter Medical, however, the Florida Supreme Court rejected the post-award challenge.

yay-5257980-digitalSupreme Court watchers interested in arbitration cases will have to get their fix next term from DIRECTV v. Imburgia, which we discussed here. Will SCOTUS hold that the California intermediate Court did not give effect to the presumption of arbitrability? Will SCOTUS go even further and explain that, just as a statute cannot be interpreted “‘to destroy itself,'” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1748 (2011) (quoting  American Telephone & Telegraph Co. v. Central Office Telephone, Inc., 524 U.S. 214, 227-228 (1998) (quotation omitted)), so too cannot state law contract interpretation rules be applied in a way that would destroy an arbitration agreement to which the Federal Arbitration Act applies? Cf. Volt Info. Sciences, Inc. v. Trustees of Leland Stanford Junior Univ., 489 U.S. 468,  (1989) (“The question remains whether, assuming the choice-of-law clause meant what the Court of Appeal found it to mean, application of Cal. Civ. Proc. Code Ann. § 1281.2(c) is nonetheless pre-empted by the FAA to the extent it is used to stay arbitration under this contract involving interstate commerce.  .  .  . [because] “it would undermine the goals and policies of the FAA.”)

Stay tuned for DIRECTV.  .  .  .

 

Photo Acknowledgements:

All photos used in the text portion of this post are licensed from Yay Images and are subject to copyright protection under applicable law. Text has been added to image 2 (counting from top to bottom). Hover your mouse pointer over any image to view the Yay Images abbreviation of the photographer’s name.

U.S. Supreme Court Grants Certiorari in Another Class Arbitration Case: Can the Federal Arbitration Act Spare DIRECTV an Extended Stay in Class-Arbitration-Waiver Purgatory?

March 31st, 2015 Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, California State Courts, Choice-of-Law Provisions, Class Action Arbitration, Class Action Waivers, Contract Interpretation, FAA Preemption of State Law, Practice and Procedure, State Courts, United States Supreme Court Comments Off on U.S. Supreme Court Grants Certiorari in Another Class Arbitration Case: Can the Federal Arbitration Act Spare DIRECTV an Extended Stay in Class-Arbitration-Waiver Purgatory?

On March 23, 2015 the U.S. Supreme Court granted certiorari in DIRECTV, Inc. v. Imburgia, No. 14-462. If decided on its merits, the case will be by our count the fifth U.S. Supreme Court decision concerning class arbitration decided on its merits during the period 2010 forward.

yay-1341284-digitalImburgia is a decision by the California Court of Appeals, Second District, Division One of which the California Supreme Court denied review. Like many other Federal Arbitration Act cases, it presents some interesting vertical conflict of law questions, but the California Court of Appeals does not appear to have resolved them in the way the U.S. Supreme Court presumably intended them to be resolved under the Volt and Mastrobuono lines of cases. 

The case centers  on a class-action waiver non-severability provision included in a consumer contract DIRECTV entered into in 2007, about four years before the U.S. Supreme Court ruled in Concepcion that the Federal Arbitration Act preempted California’s Discover Bank rule. The Discover Bank rule provides that class action waivers are unenforceable in litigation or arbitration proceedings. See, generally, AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740, 1753 (2011).

yay-3535433-digitalBefore Concepcion not only did the California state courts hold that the Federal Arbitration Act did not preempt the Discover Bank rule, but so did the U.S. Court of Appeals for the Ninth Circuit. Thus, at the time, the risk companies like DIRECTV and others with consumer class arbitration exposure had was that applicable state law would not only ban class arbitration waivers, but applicable federal law would permit that to happen.

So companies like DIRECTV and others built into their arbitration agreements a fail-safe mechanism under which the entire arbitration agreement would be rendered uneneforceable if state law rendered the class arbitration waiver unenforceable. In other words, the companies understandably viewed class action litigation to be a more favorable alternative than class arbitration if forced to choose between the two. Continue Reading »