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Archive for the ‘Federal Arbitration Act Enforcement Litigation Procedure’ Category

Circuit Court Judge Richard A. Posner Weighs in on Federal Policy in Favor of Arbitration

May 23rd, 2015 Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Class Action Waivers, Contract Interpretation, Federal Arbitration Act Enforcement Litigation Procedure, Federal Policy in Favor of Arbitration, Labor Arbitration, Practice and Procedure, Presumption of Arbitrability, United States Court of Appeals for the Seventh Circuit, United States Supreme Court 1 Comment »

Introduction

Ronald v. Sprint Spectrum L.P., No. 14-3478, slip op. (7th Cir. May 11, 2015) (Posner, J.)

Ronald v. Sprint Spectrum L.P., No. 14-3478, slip op. (7th Cir. May 11, 2015) arose out of a class action lawsuit brought in the U.S. District Court for the Northern District of Illinois by a putative class of mobile phone customers—represented by Mr. and Ms. Andermann (the “Andermanns”)—against Sprint, which sought damages for alleged violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227.

Sprint moved to compel arbitration, but the district court denied its motion. Sprint appealed to the U.S. Court of Appeals for the Seventh Circuit as authorized by 9 U.S.C. § 16(a)(1)(B). The Seventh Circuit, in an opinion written by Circuit Judge Richard A. Posner, and joined in by Circuit Judge Diane S. Sykes and Chief District Court Judge Philip P. Simon of the Northern District of Indiana (sitting by designation), reversed and remanded with instructions to compel arbitration.

The Sprint Spectrum facts; the legal rules and principles that determined the outcome; and the outcome itself were not controversial.  Had the court limited its task to applying the material facts to the applicable law, then the case likely would not have warranted a reported opinion.

But occasionally appellate judges, particularly ones as prominent, skilled and engaged as Judge Posner, will use a case like Sprint to make a point in passing that might influence other judges in the future and perhaps provide valuable information to attorneys and their clients. Judge Posner, with the apparent blessing of the other two judges, used the case to make a couple of points, one purely legal, the other bearing on both the law and, and at least to some extent, on matters pertinent to court administration.

The purely legal issue concerned the  proper scope and practical significance of the federal policy in favor of arbitration, which a majority of the U.S. Supreme Court, Judge Posner and some other judges apparently believe lawyers and judges may misunderstand or misinterpret. In Sprint Spectrum Judge Posner, in dictum, raises the topic and shares some important insights about it.

The hybrid legal and judicial administration point concerned his view of the merits of the underlying Telephone Consumer Protection Act dispute.  While the Court acknowledged that it was for the arbitrators to decide the merits, it nevertheless explained why it believed the claim would likely fail, whether in arbitration or in court.

Sprint Spectrum: Background

yay-985888-digital---CopyIn 2000 the Andermanns entered into a two-year renewable mobile-phone service contract with U.S. Cellular, which was renewed continuously, and for the last time in 2012. The contract contained an arbitration agreement requiring arbitration of “any controversy or claim arising out of or relating to this agreement.” The parties agreed that the obligation to arbitrate would “survive[] the termination of [the] [mobile phone] service agreement[,]” and that “U.S. Cellular may assign this Agreement without notice to” the customer.

In 2013 U.S. Cellular sold the contract to Sprint, and notified the Andermanns of the sale in a letter sent months later. The letter informed the Andermanns that their service would be terminated effective January 2014  because of a compatibility problem between the Andermann’s mobile phone and the Sprint network. The letter explained that the Andermanns would have to obtain a new cell phone or find a new carrier, but “that Sprint was offering attractive substitutes for the terminated service,” and, if interested, the customer should contact Sprint by telephone. See slip op. at 2.

In December Sprint phoned the Andermanns to remind them that their service was about to expire, and added that Sprint had “a great set of offers and devices available to fit [their] needs.'” Slip op. at 3. Sprint called each of three members of the Andermann family twice (a total of six calls), but by the time the calls were made, the Andermanns had obtained cell phone service from another carrier.

yay-10331162-digitalThe Andermanns did not answer any of the six calls, except by commencing a class action lawsuit against Sprint, which contended that the unsolicited calls violated the Telephone Consumer Protection Act. Sprint moved to compel arbitration, contending that the dispute arose out of and related to the contract renewed in 2012. Even though that contract was between U.S. Cellular and the Andermanns, U.S. Cellular had, as permitted by the contract, assigned its rights to Sprint, who had now stepped into U.S. Cellular’s shoes under the contract.

The Seventh Circuit’s Decision

The district court denied Sprint’s motion because its contract with the Andermanns had terminated prior to the allegedly offending telephone calls at issue in the lawsuit. The district court reasoned that the dispute did  not arise out of or relate to the terminated agreement.

But the Court  said “[a]ctually, there’s an intimate relation” between the dispute and the contract. “The contract,” said the Court, authorized an assignment, and because of the incompatibility of the assignor’s (U.S. Cellular’s) cellphones and the assignee’s (Sprint’s) mobile phone network, Sprint had had to terminate the U.S. Cellular customers, such as the Andermanns, whom it had acquired by virtue of the assignment.  .  .  .” Slip op. 4. Sprint made the calls, and “offer[red] substitute service[]”  “to prevent the loss of.  .  .  customers because of the incompatibility.  .  .  .” Slip op. at 4.

yay-10348120-digitalThe Andermanns attempted to support their argument by offering an “untenable interpretation” of Smith v. Steinkamp, 318 F.3d 775, 777 (7th Cir. 2003). See Slip op. at 4. Steinkamp explained “‘absurd results’ would ensue if the arising from and relating to provisions contained in a payday loan agreement defining what disputes would have to arbitrated rather than litigated, were cut free from the loan and applied to a subsequent payday loan agreement that did not contain those provisions.” Slip op. at 4-5 (quoting Steinkamp, 318 F.3d at 777).

The Andermanns argued that Steinkamp suggested that the same type of “absurd results” would ensue under the facts of this case. But Steinkamp, explained the Court, “is not this case[,]” which concerns a single contract containing an arbitration agreement, not two successive contracts, one with an arbitration agreement and one without an arbitration agreement. See slip op. at 5.

yay-2220659-digitalWhile the Andermanns received a mild (and perhaps well-deserved) rebuke, Sprint’s argument prompted the verbal version of a roll of the eyes coupled with a quiet sigh—not so much because there was anything really wrong with the argument, but presumably because it overstated the importance of the federal policy in favor of arbitration. But that gave Judge Posner an opportunity to make a somewhat subtle, but important point.

The Court  said “Sprint gilds the lily, however, in telling us that arbitration is a darling of federal policy, that there is a presumption in favor of it, that ambiguities in an arbitration clause should be resolved in favor of arbitration, and on and on in this vein.” Slip op. at 5. “It’s true,” said the Court, “that such language (minus the “darling”) appears in numerous cases.” Slip op. at 5 (citations omitted): “But the purpose of that language is to make clear, as had seemed necessary because of judges’ historical hostility to arbitration, that arbitration was no longer to be disfavored — especially in labor cases, see, e.g., Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 298­-99 (2010), where arbitration is now thought a superior method of dispute resolution to litigation.” Slip op. at 5.

Noting that “[t]he Federal Arbitration Act is inapplicable to labor disputes,  .  .  . and merely makes clauses providing for the arbitration of disputes arising out of transactions involving interstate or foreign commerce.  .  . enforceable in federal and state courts[,]” the Court said it was “not clear that arbitration, which can be expensive because of the high fees charged by some arbitrators and which fails to create precedents to guide the resolution of future disputes, should [in commercial cases] be preferred to litigation.” Slip op. at 5-6. Continue Reading »

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.

Can a Court Order a Party not to Request in Arbitration a Remedy the Arbitrator may not have the Authority to Grant?

May 10th, 2015 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Federal Arbitration Act Enforcement Litigation Procedure, Federal Courts, Injunctions in Aid of Arbitration, Practice and Procedure, United States Court of Appeals for the Second Circuit 1 Comment »

Can a Court Forbid a Party from Requesting in Arbitration a Remedy the Arbitrator may not Have the Authority to Grant?

Benihana Case: Introduction

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In appropriate circumstances, Courts can vacate under Federal Arbitration Act Section 10(a)(4) an award that does not draw its essence from the parties’ agreement but instead was based on the arbitrators’ own notions of economic justice.

In Benihana, Inc. v. Benihana of Tokyo, LLC, ___ F.3d ___, No. 14-841, slip op. (2d Cir. April 28, 2015), the U.S. Court of Appeals for the Second Circuit  was faced with a different issue: whether before an award was made a court can enjoin a party from asking the arbitrators to award it a remedy that the parties’ contract does not authorize them to award.

The Court quite correctly ruled that district  courts do not  have the discretion to grant such an injunction because, among other things, doing so would violate the Federal Arbitration Act by infringing upon the parties’ agreement to arbitrate. In so holding the court was able to clarify a misunderstanding about arbitrability that is all too common among lay persons, a number of lawyers and apparently even the occasional judge.

Benihana Case: Background

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Benihana, Inc. (“Benihana U.S.”) and Beni-Hana of Toky (“Benihana Tokyo”)  were parties to a 1995 licensing agreement, which granted Benihana Tokyo the right to open Benihana restaurants in Hawaii. The agreement contained a New York choice of law clause.

yay-1557903The licensing agreement was designed, among other things, to require Benihana of Tokyo’s Hawaii restaurants to conform with Benihana standards, including those applicable to the menu and the use of Benihana trademarks. The Agreement, for example, required written approval by Benihana U.S. of “products and services” to be sold by Beni-Hana Tokyo, and stipulated that approval would “not be unreasonably withheld.”

The licensing agreement’s termination provisions provided that Benihana U.S. could terminate Benihana Tokyo’s license for good cause in the event of a “violation of ‘any substantial term or condition of th[e] Agrement [that Benihana Tokyo] fails to cure. .  . within thirty days after written notice from [Benihana U.S.].” Three cured defaults within a 12 month period also constituted good cause.

The Agreement contemplated both arbitration and injunctions in aid of arbitration (i.e., to preserve the status quo) as respects “violation of certain articles— including Article 5.2 restricting Benihana of Tokyo’s trademark use and Article 8.1(c) restricting the items Benihana of Tokyo may advertise or sell.  .  .  .” The injunctive-relief provisions specified that violations of those articles “would result in irreparable injury to [Benihana U.S.] for which no adequate remedy at law may be available. . . .”  They also  stipulated that Benihana U.S. “may obtain ‘an injunction against [such] violation . . . without the necessity of showing actual or threatened damage.'”

yay-1916763-digitalArticle 13 of the Agreement provided for arbitration in two types of situations. First, disputes about termination of the Agreement were subject to mandatory arbitration:

If this Agreement shall be terminated by [Benihana U.S.] and [Benihana of Tokyo] shall dispute [Benihana U.S.’s] right of termination, or the reasonableness thereof, the dispute shall be settled by arbitration at the main office of the AmericanArbitration Association in the City of New York in accordance with the rules of said association and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitration panel shall consist of three (3) members, one (1) of whom shall be chosen by [Benihana U.S.], and (1) by [Benihana Tokyo] and the other by the two (2) so chosen.

Slip op. at 7.

Second, the agreement contained a broad, catchall provision that provided for arbitration of “any other dispute” at the election of either party:

In the event that any other dispute arises between the parties hereto in connection with the terms or provisions of this Agreement, either party by written notice to the other party may elect to submit the dispute to binding arbitration in accordance with the foregoing procedure. Such right shall not be exclusive of any other rights which a party may have to pursue a course of legal action in an appropriate forum. Enforcement of any arbitration  award, decision or order may be sought in any court having competent jurisdiction.

Slip op. at 7.

yay-10331162-digitalDuring the period 1995 until 2012 the parties enjoyed an amicable contractual relationship, but after a 2012 sale of Benihana U.S. to Angelo Gordon & Co., disputes started to arise. In May 2013 Benihana U.S., now under new ownership, notified Benihana Tokyo that: (a) Benihana U.S. had learned that Benihana Tokyo was selling “BeniBurgers” (a type of hamburger) at its Honolulu restaurant; (b) the licensing agreement required that new menu items be approved by Benihana U.S.; and (c) Benihana U.S. had not approved the sale of “BeniBurgers.” Benihana U.S. demanded that Benihana Tokyo remove BeniBurgers from the menu.

Benihana Tokyo did not remove BeniBurgers from the menu, which prompted Benihana U.S. to declare a breach of contract and notify Benihana Tokyo that it had 30 days to cure. Benihana U.S. extended the cure period twice, and Benihana Tokyo commenced  an action in New York State Supreme Court for an injunction staying the cure period pending arbitration of the parties’ dispute about BeniBurgers. Continue Reading »

What can a Federal Arbitration Act Practitioner Learn from an ERISA MPPAA Pension Plan Arbitration Case?

May 5th, 2015 Appellate Practice, Arbitration Practice and Procedure, Arbitration Risks, Awards, ERISA, Federal Arbitration Act Enforcement Litigation Procedure, Federal Courts, Federal Rules of Civil Procedure, Judicial Review of Arbitration Awards, Labor Arbitration, Managing Dispute Risks, MPPAA Arbitration, Practice and Procedure, United States Court of Appeals for the Fourth Circuit Comments Off on What can a Federal Arbitration Act Practitioner Learn from an ERISA MPPAA Pension Plan Arbitration Case?

 Fourth Circuit Says Proceeding to Overturn ERISA MPPAA Pension Plan Dispute Arbitration Award is Commenced by Filing a Complaint—not a Federal Arbitration Act Application, Petition or Motion

Introduction

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“Sorry, I’m a bit of a stickler for paperwork. Where would we be if we didn’t follow the correct procedures?”

Sam Lowry (played by Jonathan Pryce ), Brazil (1985)

Dystopian-future bureaucratic procedure may be one thing, but federal court litigation procedure is quite another—not because of where we might or might not be if we don’t follow it—but simply because not following it can have disastrous consequences. That is true in spades in Federal Arbitration Act enforcement litigation, where proceedings to enforce arbitration agreements and awards are governed by a strange amalgam of procedural rules derived from the Federal Arbitration Act, the Federal Rules of Civil Procedure and district court local rules. See Fed. R. Civ. P. 1, 2, 3, 6(c), 7, 8, 9, 10, 12, 15, 43(c) & 81(a)(6)(B); 9 U.S.C. §§ 6, 9, 10, 11, 12 & 13; see, e.g., IFC Interconsult v. Safeguard Int’l Partners, 438 F.3d 298, 308-09 (3rd Cir. 2006); Productos Mercantiles Industriales, S.A.  v. Faberge USA, Inc., 23 F.3d 41, 46 (2d Cir. 1994).

On April 21, 2015 the U.S. Court of Appeals for the Fourth Circuit decided Freight Drivers and Helpers Local Union No. 557 Pension Fund v. Penske Logistics LLC,  ___ F.3d ___, No. 14-1464, slip op. (4th Cir. April 21, 2015), a case that helps illustrate the risks associated with assuming that the Federal Rules of Civil Procedure’s liberal pleading and amendment rules apply to applications for relief under the Federal Arbitration Act. As it turns out, the appellant did nothing wrong by assuming that the Federal Arbitration Act’s procedural rules did not trump Federal Rules of Civil Procedure, because the case fell under the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), and the district court erred by interpreting the MPPAA to require compliance with Federal Arbitration Act litigation procedure rules.

The MPPAA was enacted to strengthen the Employee Retirement Income Security Act (“ERISA”)’s provisions designed to protect multi-employer pension plans (i.e., collectively bargained pension plans funded by multiple employers, which are generally participants in the same industry).  It features a mandatory arbitration requirement applicable to disputes about collectively bargained pension plans funded by multiple employers, including disputes about an employer’s withdrawal liability—that is the amount an employer must contribute to  the fund when it stops participating in it.

It requires a party seeking judicial review of an award to do so in 30-days and, as we’ll see, it contains a provision that at first glance appears to make the Federal Arbitration Act’s litigation procedure rules applicable to judicial review of an MPPAA arbitration award. The Court held that under the MPPAA, the Federal Arbitration Act governed only arbitration procedure, not litigation procedure, and that accordingly, the award challenger’s amended complaint related back to the timely-filed original one.

yay-608942-digitalEndingFreight Drivers illustrates how important compliance with Federal Arbitration Act procedures can be, especially given the short limitation periods applicable to motions to confirm, vacate, modify and correct awards.  Had the Federal Arbitration Act’s litigation procedures applied, then the plaintiff’s “amended complaint” might have been deemed time-barred on the ground that Fed. R. Civ. P. 15(c)’s relation-back provisions apply to pleadings only, and under the Federal Rules of Civil Procedure, and the Federal Arbitration Act, the amended complaint had to be deemed to be a motion, not a pleading. As we’ll see, that’s what the district court concluded, and the Fourth Circuit decided the case on the sole ground that the Federal Arbitration Act did not apply to MPPAA litigation procedure. Continue Reading »