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Archive for the ‘Appellate Jurisdiction’ Category

Seventh Circuit Blocks Mass Arbitration: Wallrich v. Samsung Electronics America, Inc.  

July 16th, 2024 American Arbitration Association, Appellate Jurisdiction, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Fees, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Class Arbitration Waivers, Clear and Unmistakable Rule, Delegation Agreements, Equal Footing Principle, FAA Chapter 1, FAA Chapter 2, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 4, Federal Subject Matter Jurisdiction, Mass Arbitration, Petition to Compel Arbitration, Practice and Procedure, Procedural Arbitrability, Questions of Arbitrability, Richard D. Faulkner, Section 4, United States Court of Appeals for the Seventh Circuit No Comments »

Mass ArbitrationIntroduction: Mass Arbitration

For many years consumers, employees, and others fought hard—with varying degrees of success—to compel class arbitration, and sellers, employers, and other more economically powerful entities fought equally hard to compel separate arbitrations in multi-claimant situations. Over time, companies included in their agreements—and courts enforced—clear class-arbitration waivers.

That might have been the end of the story but for a stroke of genius on the part of certain plaintiffs’ attorneys. These clever attorneys devised what is now known as “mass arbitration.”

In mass arbitration, as in class arbitration, multiple claimants—each represented by the same lawyer or group of lawyers—assert at the same time numerous  claims against a corporate defendant.

The result is that business entity defendants may be are forced to pay upfront hundreds of thousands or millions of dollars in arbitration provider and arbitrator fees as a precondition to defending thousands of individual arbitration proceedings that raise one or more common issues.

Saddling the business entity defendants at the outset with those enormous arbitration fees obviously puts them in an untenable settlement position. The business entities also incur very substantial legal costs for arbitration-related litigation.

Given the vigor with which business entities have opposed class arbitration—which, despite its cumbersome nature, purports to be (but really isn’t) a workable mechanism for resolving multiple, similar, arbitral claims—one can hardly fault a judge for concluding that business entity defendants have reaped what they’ve sown. But it would be strange to think that Federal Arbitration Act (“FAA”) arbitration should, in multiple claimant situations, boil down to the business entity choosing one form of economic extortion (endless, inefficient, and prohibitively expensive class arbitration) over another (being forced to pay millions of dollars of arbitration fees upfront before being able to defend any of the individual arbitrations).

There have been some recent efforts on the part of arbitration providers to amend their rules to address mass arbitration in a more equitable manner. But those rules, and the ins, outs, and idiosyncrasies of mass arbitration are beyond this post’s ambit.

Our focus instead is on a very important mass-arbitration development: the first U.S. Circuit Court of Appeals decision to address mass arbitration, Wallrich v. Samsung Electronics America, Inc., No. 23-2842, slip op. (7th Cir. July 1, 2024). The case is especially significant because it may portend the end of mass arbitration, at least in the form it typically takes.

The U.S. Court of Appeals for the Seventh Circuit derailed petitioners’ efforts to compel judicially the respondent to pay millions of dollars of arbitration fees demanded by mass arbitration claimants. It did so in two blows, the second more decisive than the first. Continue Reading »

SCOTUS Decides Spizzirri, Saying that FAA Section 3 Stays of Litigation Pending Arbitration are Mandatory if Requested

May 21st, 2024 Appellate Jurisdiction, Appellate Practice, Arbitration Law, Arbitration Practice and Procedure, FAA Chapter 1, FAA Section 16, FAA Section 3, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Look Through, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 16, Section 3 Stay of Litigation, Section 4, Stay of Litigation, Stay of Litigation Pending Arbitration, Stay Pending Appeal, Subject Matter Jurisdiction, Textualism, Uncategorized, United States Court of Appeals for the Fourth Circuit, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Seventh Circuit, United States Supreme Court No Comments »

Section 3 Stay of LitigationOn May 16, 2024, the U.S. Supreme Court (“SCOTUS”) in Smith v. Spizzirri, 601 U.S. ___, No 22-1218, slip op. (U.S. May 16, 2024), decided 9-0 that Section 3 of the Federal Arbitration Act (the “FAA”) does not “permit[] a court to dismiss the case instead of issuing a stay when the dispute is subject to arbitration and a party requests a stay pending arbitration.” 601 U.S. at ___; slip op. at 1.

In an opinion written by Associate Justice Sonia Sotomayor, the Court concluded that the “text, structure, and purpose” of Section 3 and the FAA all “point to the same conclusion: When a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration , the court does not have discretion to dismiss the suit on the basis that all the claims are subject to arbitration.” 601 U.S. at ___, slip op. at 3. The Court therefore held that if a lawsuit “involves an arbitrable dispute, and a party requests a Section 3 stay, the Court must stay the litigation. 601 U.S. at ___; slip op. at 6.

The Court’s opinion resolves a long-standing and deepening split in the circuits, which the Court left open in Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79, 87 n.2 (2000), and Lamps Plus v. Varela, 587 U.S. 176, 181 n.1 (2019). That split in the circuits is discussed in note 1 of the Court’s opinion. 601 U.S. at ___ n.1, slip op. at 2-3 n.1 (citing cases).

Background

The underlying merits litigation that resulted in an order granting a motion to compel arbitration—but a dismissal despite the request for a Section 3 stay— was a state court action between current and former drivers for a delivery service and the operators of that service. Claims were made under state and federal employment laws based on alleged misclassification of the drivers as independent contractors rather than employees. Claimants sought damages for sick leave and overtime wages.

Defendants removed the case to federal district court in Arizona and moved to compel arbitration and dismiss the action. Claimants conceded arbitrability but argued that the action should be stayed under Section 3.

Ninth circuit precedent granted district courts considering an application to stay litigation under Section 3 the discretion to either stay or dismiss the action. Relying on that precedent, the district court dismissed the suit, reasoning that all claims in the litigation had been ordered to arbitration.

The Ninth Circuit affirmed, but two judges concurred, suggesting that this Ninth Circuit precedent was wrong and that SCOTUS should resolve the split in the circuits concerning whether a requested Section 3 stay was mandatory when claims in the litigation are subject to arbitration and a stay is requested.

SCOTUS granted certiorari, reversed the Ninth Circuit’s decision, and resolved the split. Continue Reading »

Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards

November 13th, 2023 Amount in Controversy, Appellate Jurisdiction, Appellate Practice, Application to Compel Arbitration, Application to Confirm, Application to Enforce Arbitral Summons, Application to Stay Litigation, Arbitral Subpoenas, Arbitration Law, Arbitration Practice and Procedure, Confirmation of Awards, FAA Chapter 1, FAA Chapter 2, FAA Section 16, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Modify or Correct Award, Motion to Compel Arbitration, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Enforce Arbitral Summons, Petition to Modify Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 10, Section 11, Section 3 Stay of Litigation, Section 4, Section 5, Section 7, Section 9, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Court of Appeals for the Second Circuit Comments Off on Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards

Jurisdictional Anchor | Subject Matter JurisdictionThe U.S. Supreme Court decision, Badgerow v. Walters, 142 S. Ct. 1310 (2022) (discussed here), requires that an independent basis for subject matter jurisdiction (usually diversity) must appear on the face of petitions to confirm, vacate, or modify arbitration awards, and, by extension, petitions to enforce arbitral subpoenas or appoint arbitrators. See Badgerow, 142 S. Ct. at 1314, 1320. That independent basis for subject matter jurisdiction cannot be established by “looking through” to the underlying arbitration proceeding. In other words, the federal court cannot base subject matter jurisdiction on whether the court would have had subject matter jurisdiction over the merits of the controversy had they been submitted it to court rather than to arbitration.  See Badgerow, 142 S. Ct. at 1314, 1320.

Badgerow does not change the rule that federal question jurisdiction over a Section 4 petition to compel arbitration can be established by “looking through” to the underlying dispute that is or is claimed to be subject to arbitration. 142 S. Ct. at 1314; see  Vaden v. Discover Bank, 556 U.S. 49, 53 (2009); Hermès of Paris, Inc. v. Swain, 867 F.3d 321, 324-26 (2d Cir. 2017) (diversity of citizenship not determined by “look through”).

Section 4 of the Federal Arbitration Act expressly authorizes a Court to exercise subject-matter jurisdiction on that basis: “A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.” 9 U.S.C. § 4; see Badgerow, 142 S. Ct. at 1317.

Unlike Section 4, Sections 5 (appointment of arbitrators), 7 (arbitral subpoena enforcement), 9 (confirmation of awards), 10 (vacatur of awards), and 11 (modification of awards), do not expressly authorize the exercise of subject matter jurisdiction on a “look through” basis.  See 142 S. Ct. at 1317-18; 9 U.S.C. §§ 4, 5, 7, 9, 10, & 11.

Badgerow, in the specific context of an action commenced by petition to vacate an award under FAA Section 10—which, in turn, prompted a cross-petition to confirm under FAA Section 9—held that the absence in Sections 9 and 10 of Section 4’s express language authorizing subject matter jurisdiction based on “look through” meant that Congress did not authorize “look through” subject matter jurisdiction for Section 9 and 10 claims (and presumably for claims seeking relief under Sections 5, 7, or 11). See 142 S. Ct. at 1319.

An independent basis for subject matter jurisdiction is required, and in the absence of a federal question appearing on the face of the petition (such as a claim for relief under Chapter Two of the FAA, see 9 U.S.C. § 203; 28 U.S.C. § 1331), the only possible basis for subject matter jurisdiction is diversity of citizenship. See 28 U.S.C. § 1332(a). And there could be no diversity jurisdiction in Badgerow because the parties to the petitions were citizens of the same state. See 142 S. Ct. at 1316.

Badgerow’s reasoning certainly applies to independent, summary proceedings in which the only relief sought is under the FAA. But does it apply with equal force where litigation on the merits of an arbitrable or allegedly arbitrable dispute has commenced, and the motion to compel arbitration is made by motion in the pending action, which is stayed pending arbitration? Can the stayed merits litigation act as what former Associate Justice Stephen G. Breyer, in his Badgerow dissent, referred to as a “jurisdictional anchor” for not only the motion to compel arbitration, but also other subsequent applications for pre- or post-award FAA relief relating to the arbitration?  See Badgerow, 142 S. Ct. at 1326 (Breyer, J., dissenting).

That is an open question in the Second Circuit after Badgerow, although pre-Badgerow the answer was yes. Let’s look at it more closely and try to get a sense of how the Second Circuit might rule on it considering Badgerow. Continue Reading »

SCOTUS Decides Coinbase, Ruling that District Court Proceedings on Merits Must be Stayed Pending Interlocutory Appeal of Order Denying Motion to Compel Arbitration

July 14th, 2023 Appellate Jurisdiction, Appellate Practice, Application to Compel Arbitration, Arbitrability, Arbitrability | Existence of Arbitration Agreement, Arbitration Practice and Procedure, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 16, Federal Arbitration Act Enforcement Litigation Procedure, Federal Courts, Federal Policy in Favor of Arbitration, International Institute for Conflict Prevention and Resolution (CPR), Loree and Faulkner Interviews, Richard D. Faulkner, Stay Pending Appeal, United States Court of Appeals for the Fifth Circuit, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit, United States Supreme Court Comments Off on SCOTUS Decides Coinbase, Ruling that District Court Proceedings on Merits Must be Stayed Pending Interlocutory Appeal of Order Denying Motion to Compel Arbitration

Coinbase - Stay Pending Appeal

Introduction: Must District Courts Grant a Stay Pending Appeal of an Order Denying a Motion to Compel?  

Section 16(a) of the Federal Arbitration Act authorizes interlocutory appeals of orders denying motions to compel arbitration. 9 U.S.C. § 16(a)(1)(B) & (C). This is a “rare statutory exception to the usual [federal] rule that parties may not appeal before final judgment.”   Coinbase, Inc. v. Bielski, 599 U.S. ___, No. 22-105, slip op. at 3 (June 23, 2023).  It authorizes interlocutory “appeals of orders denying—but not of orders granting—motions to compel arbitration.” Slip op. at 3 (emphasis in original).

Where such an order is made in a pending litigation on the merits, and an interlocutory appeal is taken, should the trial court litigation on the merits be stayed pending appeal? On June 23, 2023, in Coinbase, the U.S. Supreme Court (“SCOTUS”) ruled 5-4 that the answer was yes: a “district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing.” Slip op. at 1.

Discussion

To Stay or Not to Stay: SCOTUS says the Griggs Principle Controls

The Court initially noted the text of Section 16 says nothing about whether a stay of litigation pending an appeal of a denial of a motion to compel is required. See slip op. at 3. That said, “Congress enacted § 16(a) against a clear background principle prescribed by” Court “precedents[,]” which the Court referred to as the “Griggs principle[:]” “[a]n appeal, including an interlocutory appeal, ‘divests the district court of its control over those aspects of the case involved in the appeal.’” Slip op. at 3 (quoting Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982)). Continue Reading »

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.

Continue Reading »

Arbitration Nuts and Bolts: Federal Appellate Jurisdiction over Orders Compelling Arbitration and Staying Litigation

March 21st, 2019 Appellate Jurisdiction, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Authority of Arbitrators, FAA Section 16, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Stay of Arbitration, Stay of Litigation, United States Court of Appeals for the Second Circuit 1 Comment »

Introduction

Appellate Jurisdiction 1

Today we look at federal appellate jurisdiction over orders compelling arbitration and staying litigation.

Sections 3 and 4 of the Federal Arbitration Act (the “FAA”) provide remedies for a party who is aggrieved by another party’s failure or refusal to arbitrate under the terms of an FAA-governed agreement. FAA Section 3, which governs stays of litigation pending arbitration, requires courts, “upon application of one of the parties,” to stay litigation of issues that are “referable to arbitration” “until arbitration has been had in accordance with the terms of the parties’ arbitration agreement, providing [the party applying for a stay] is not in default in proceeding with such arbitration.” 9 U.S.C. § 3. Faced with a properly supported application for a stay of litigation of an arbitrable controversy, a federal district court must grant the stay. 9 U.S.C. § 3.

Section 4 of the FAA authorizes courts to make orders “directing arbitration [to] proceed in the manner provided for in [the [parties’ written arbitration] agreement[,]” and sets forth certain procedures for adjudicating petitions or motions to compel arbitration. 9 U.S.C. § 4. It provides that when a court determines “an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.” 9 U.S.C. § 4 (emphasis added). Just as courts must grant properly supported applications for relief under Section 3, so too must they grant properly supported applications for relief under Section 4. See 9 U.S.C. §§ 3 & 4.

There is much to be said about the many issues that may arise out of applications to stay litigation, compel arbitration, or both, but our focus here is on the appellate jurisdiction of the U.S. Circuit Courts of Appeals over appeals from the grant or denial of such applications. Before a U.S. Circuit Court of Appeals can hear an appeal on the merits of a federal district court’s order and judgment, it must be satisfied that: (a) the federal district court had original subject matter jurisdiction (e.g., diversity jurisdiction or federal question jurisdiction); (b) there is still a “case or controversy” within the meaning of Article III of the U.S. Constitution (e.g., the controversy has not become moot by settlement or otherwise); and (c) the order or judgment appealed from is one over which it has appellate jurisdiction.

Appellate Jurisdiction and the FAA

Appellate Jurisdiction 2

Appellate jurisdiction refers to a Circuit Court of Appeals’ power to review, amend, vacate, affirm, or reverse the orders and judgments of the district courts within the judicial circuit over which the Court of Appeals presides. Generally, and outside the context of injunctions and the certification procedure of 28 U.S.C. § 1292(b), U.S. Courts of Appeal have jurisdiction to review only “final decisions” of district courts. See 28 U.S.C. §§ 1291, 1292. A “final decision” “is a decision that ends the litigation on the merits and leaves nothing more for the court to do but execute the judgment.” Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 86 (2000) (citations and quotations omitted).

But Federal Arbitration Act litigation is quite different from ordinary litigation from both a substantive and procedural prospective, and so it comes as no surprise that the FAA features its own set of appellate jurisdiction rules.

Continue Reading »

Pine Top Receivables, LLC v. Banco De Seguros Del Estado:  The Seventh Circuit Exorcises some Ghosts of Reinsurance Past, but has it Summoned an Erie Ghost of Reinsurance Future?

November 22nd, 2014 Appellate Jurisdiction, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Collateral Requirements for Unauthorized Reinsurance, Contract Interpretation, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 3, Federal Courts, Foreign Sovereign Immunities Act, Insolvency Proceedings, Inter-American Convention on International Commercial Arbitration, McCarran-Ferguson Act, New York Convention, Panama Convention, Pre-Answer Security, Reinsurance Arbitration, Reinsurance Claims, Reinsurance Litigation, Security Requirements, Unauthorized Reinsurance, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit, United States Supreme Court Comments Off on Pine Top Receivables, LLC v. Banco De Seguros Del Estado:  The Seventh Circuit Exorcises some Ghosts of Reinsurance Past, but has it Summoned an Erie Ghost of Reinsurance Future?

Part II: What Transpired in Pine Top?

 

In our last post on  Pine Top Receivables, LLC v. Banco De Seguros Del Estado, ___ F.3d ___, Nos. 13-1364/2331, slip op. (7th Cir. Nov. 7, 2014) (per curiam) (here), we offered our take on the case and what it might mean, particularly as respects the Court’s suggestion that state pre-answer security statutes may be procedural under the Erie doctrine, possibly inconsistent with federal procedural law and thus inapplicable in diversity cases. Now let’s take a closer look at what transpired in Pine Top, for even apart from the Court’s allusion to a possible Erie doctrine issue (our Erie ghost of reinsurance future), it involved a number of classic reinsurance issues (our ghosts of reinsurance past), as well as a notable appellate jurisdiction issue and the question whether the assignee of the insolvent ceding company acquired the right to demand arbitration against the reinsurer.  Continue Reading »

Pine Top Receivables, LLC v. Banco De Seguros Del Estado: The Seventh Circuit Exorcises some Ghosts of Reinsurance Past, but has it Summoned an Erie Ghost of Reinsurance Future?    

November 19th, 2014 Appellate Jurisdiction, Appellate Practice, Arbitrability, Arbitration Practice and Procedure, Contract Interpretation, FAA Chapter 3, Foreign Sovereign Immunities Act, Insolvency Proceedings, Inter-American Convention on International Commercial Arbitration, McCarran-Ferguson Act, Nuts & Bolts: Reinsurance, Panama Convention, Practice and Procedure, Pre-Answer Security, Reinsurance Litigation, United States Court of Appeals for the Seventh Circuit, United States Supreme Court Comments Off on Pine Top Receivables, LLC v. Banco De Seguros Del Estado: The Seventh Circuit Exorcises some Ghosts of Reinsurance Past, but has it Summoned an Erie Ghost of Reinsurance Future?    

In Pine Top Receivables, LLC v. Banco De Seguros Del Estado, ___ F.3d ___, Nos. 13-1364/2331, slip op. (7th Cir. Nov. 7, 2014) (per curiam) the United States Court of Appeals for the Seventh Circuit addressed a trio of issues that—once upon a time at least—arose fairly frequently in reinsurance litigation: pre-answer security; immunity from posting security, courtesy of the Foreign Sovereign Immunities Act (the “FSIA”), 28 U.S.C. § 1602-11 (2013); and the effect of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-­15 (2013), this time whether a state pre-answer security statute can reverse preempt the FSIA.

It did so in the somewhat unusual context of Chapter 3 of the Federal Arbitration Act, which implements the Inter-American Convention on International Commercial Arbitration (a/k/a the “Panama Convention”). That raised an arcane issue of appellate jurisdiction, which appears to have been caused by Congress failing to amend the appellate jurisdiction provisions of Chapter 1 (codified at 9 U.S.C. § 16 (2013)) to reflect Congress’ enactment of Chapter 3.

Throw in an assignment agreement between the insolvent cedent and a contract interpretation dispute over whether the cedent’s assignee purchased the right to compel arbitration under the reinsurance treaties between the insolvent cedent and the Uruguay-owned reinsurance company, and we have something that might appear to resemble a perfect storm of reinsurance and arbitration-related issues. Continue Reading »