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Archive for March, 2010

International Institute for Conflict Prevention and Resolution Newsletter Features Philip J. Loree Jr. Cover Story on Rent-A-Center and Granite Rock

March 16th, 2010 Arbitrability, Authority of Arbitrators, Labor Arbitration, United States Court of Appeals for the Ninth Circuit, United States Supreme Court Comments Off on International Institute for Conflict Prevention and Resolution Newsletter Features Philip J. Loree Jr. Cover Story on Rent-A-Center and Granite Rock

The March 2010 issue of Alternatives to the High Cost of Litigation, the excellent newsletter of the International Institute for Conflict Prevention and Resolution (“CPR”), featured as its cover story an article I wrote on Rent-A-Center West v. Jackson, No. 09-497, and Granite Rock Co. v. Int’l Brotherhood of Teamsters, No. 08-1214, two of the three cases pending before the United States Supreme Court this term.  The article is entitled “It’s Time for Doctrines: The Supreme Court Wrestles with ‘Severability’ and the ‘Clear and Unmistakable’ Standard.” 

These two cases involve, to some degree, the Buckeye Check Cashing/Prima Paint doctrine of severability—a/k/a “separability.”  Rent-A-Center also examines the “clear and unmistakable doctrine,” under which arbitrators can decide arbitrability questions if the parties clearly and unmistakably so agree. 

Rent-a-Center, which arises under the Federal Arbitration Act,  raises the question whether courts or arbitrators get to decide whether an arbitration agreement is unconscionable if the parties clearly and unmistakably agree to submit arbitrability questions to arbitration.  (See our prior posts here, here and here.)   Granite Rock, which arises under Section 301 of the Labor Management Relations Act, concerns whether, on the facts presented, arbitration must go forward and what it should encompass.  (See our prior post here.)

In the article I argue that both cases were wrongly decided by the Court of Appeals for the Ninth Circuit, and that, in Granite Rock, the Ninth Circuit reached the right result (an order compelling arbitration) for the wrong reasons.  I predict that the United States Supreme Court will reverse the Rent-A-Center decision and vacate the Granite Rock decision.

Alternatives to the High Cost of Litigation is a subscription-only publication.   Anyone interested in obtaining a copy of the article can request one at this page.  Subscription information is available at that page, too, as well as publisher John Wiley & Sons, here.

I would like to take this opportunity to thank CPR, and Russ Bleemer, Editor of Alternatives, for their kind assistance and support in featuring my article.  Russ is not only a keen, professional editor, but a pleasure to work with as well.

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. (1st 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. (4th 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 »