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Archive for the ‘Arbitration Practice and Procedure’ Category

Status of Arbitration-Law Cases Pending Before SCOTUS this Term

February 12th, 2024 Appellate Practice, Applicability of Federal Arbitration Act, Application to Appoint Arbitrator, Application to Compel Arbitration, Application to Enforce Arbitral Summons, Application to Stay Litigation, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, CPR Alternatives, CPR Speaks Blog of the CPR Institute, CPR Video Interviews, Delegation Agreements, Exemption from FAA, FAA Chapter 1, FAA Section 16, FAA Section 3, FAA Transportation Worker Exemption, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Question, Federal Subject Matter Jurisdiction, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Professor Downes, Richard D. Faulkner, Russ Bleemer, Section 3 Stay of Litigation, Subject Matter Jurisdiction, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Second Circuit No Comments »

Status of Arbitration Cases Pending Before SCOTUS this TermThere are three arbitration-law cases pending before the United States Supreme Court (“SCOTUS”) this October 2023 Term. SCOTUS will presumably decide all three cases by this June, 2024.

 

The Cases: Bissonnette

The first is  Bissonnette v. LePage Bakeries Park St., LLC, No. 23-51 (U.S.), a case that concerns the scope of Section 1 of the Federal Arbitration Act (“FAA”), which exempts from the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1 (the “Section 1 Exemption”). SCOTUS granted cert. in Bissonnette on September 29, 2023. As set forth in the question presented:

The First and Seventh Circuits have held that [the Section 1 Exemption] applies to any member of a class of workers that is engaged in foreign or interstate commerce in the same way as seamen and railroad employees-that is, any worker ‘actively engaged’ in the interstate transportation of goods. The Second and Eleventh Circuits have added an additional requirement: The worker’s employer must also be in the ‘transportation industry.’

The question presented is: To be exempt from the Federal Arbitration Act, must a class of workers that is actively engaged in interstate transportation also be employed by a company in the transportation industry?

(Bissonnette Question Presented Report)

We summarized the case briefly here and provided a link to an October 24, 2023 video conference in which our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (CPR) (“CPR Alternatives”), interviewed Professor Angela Downes, University of North Texas-Dallas College of Law Professor of Practice and Assistant Director of Experiential Education; Richard D. Faulkner, arbitrator, mediator, arbitration-law attorney, and former judge; and yours truly, Loree Law Firm principal, Philip J. Loree Jr., about the case, its implications, and how SCOTUS might decide it. You can watch the video-conference interview here.

SCOTUS has set Bissonnette down for oral argument for Tuesday, February 20, 2024 (here). You can listen to SCOTUS arguments on C-Span or on the Court’s website.

The Cases: Coinbase, Inc. v. Suski (a/k/a “Coinbase II”)

The second case  is Coinbase, Inc. v. Suski, No. 23-3 (U.S.) (“Coinbase II”), a case that is related to Coinbase, Inc. v. Bielski, 143 S. Ct. 1915 (2023) (“Coinbase I”), which was decided on June 23, 2023, and discussed hereCoinbase II concerns the application of a delegation provision—an agreement to arbitrate arbitrability disputes—contained in  a contract (“Contract 1”) clearly and unmistakably requires the parties to submit to the arbitrator the question whether the Contract 1 arbitration agreement requires the parties to arbitrate disputes concerning a subsequent contract, Contract 2, even though Contract 2 does not provide for arbitration and requires the parties to submit all disputes concerning Contract 2 exclusively to litigation before the California courts. Is Contract 1’s delegation provision, as applied to the dispute over Contract 2, and in light of the parties’ agreement to litigate, not arbitrate,  disputes concerning Contract 2, clear and unmistakable, as required by SCOTUS precedent? Or, as put differently by the question presented: “Where parties enter into an arbitration agreement with a delegation clause, should an arbitrator or a court decide whether that arbitration agreement is narrowed by a later contract that is silent as to arbitration and delegation?”

SCOTUS granted certiorari in Coinbase II on November 3, 2023, and on November 10, 2023, CPR’s Bleemer interviewed Professor Downes, Faulkner, and Loree about the certiorari grant, what it means, and how the Court might rule on it. You can watch the video-conference interview here. Our blog post about the interview and cert. grant is here.

Oral argument in Coinbase II has been scheduled for February 28, 2024.

Smith v. Spizzirri

The third case is Smith v. Spizzirri, No. 22-1218, which concerns FAA Section 3’s stay-of-litigation-pending-arbitration provision. The Court granted certiorari on January 12, 2024.

FAA Section 3 provides that, once a court determines that a dispute must be arbitrated, the court “shall on application of one of the parties stay the trial of the action until” conclusion of the arbitration.  9 U.S.C. § 3 (emphasis added). Most circuits addressing the question have determined that a stay is mandatory if requested. The Ninth Circuit, and a few others, have held that, despite the statute’s mandatory text, courts retain discretion to dismiss an action where all disputes in the action are subject to arbitration.

The Ninth Circuit below held that it was bound to follow prior precedent concerning discretion to dismiss (rather than stay), even though it acknowledged that the statute’s “plain text” suggests otherwise. The Ninth Circuit acknowledged the circuit split and two judges, in an occurring opinion, encouraged “the Supreme Court to take up this question.” (See Question Presented Report.)

The question presented to SCOTUS is “[w]hether Section 3 of the FAA requires district courts to stay a lawsuit pending arbitration, or whether district courts have discretion to dismiss when all claims are subject to arbitration.” (See Question Presented Report.)

Oral argument has not yet been scheduled and merits briefs have not yet been filed.

The case is more noteworthy than may initially meet the eye. It has important implications concerning appealability. If an action is stayed, rather than dismissed, a granted motion to compel arbitration cannot be immediately appealed, see 9 U.S.C. § 16(b)(1),(2), (3) & (4); but if a motion to compel is granted, and the action is dismissed, then the right to appeal the denial begins to run immediately. 9 U.S.C. § 16(a)(3); Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 85-89 (2000). If a Section 3 stay is mandatory when requested, then there will presumably be fewer cases where courts compel arbitration and dismiss  (rather than stay) the underlying lawsuit, and therefore fewer cases where a grant of a motion to compel or denial of a motion to stay or enjoin arbitration is immediately appealable.

The subject matter jurisdiction implications of the case are equally significant. As we explained in a recent post, under Badgerow, a court’s federal-question subject matter jurisdiction can, for purposes of a motion to compel arbitration, be based on whether the underlying dispute would fall under the Court’s federal question jurisdiction.

But subject matter jurisdiction over a petition to confirm or vacate an award resulting from that arbitration cannot, after Badgerow, be based on such “look through” jurisdiction. An independent basis for subject matter jurisdiction must appear from the face of the petition and cannot be based on whether a court would have federal question jurisdiction over the underlying dispute.

As we explained in our Badgerow post, in cases where a Section 3 stay has been requested and granted, there may nevertheless be a so-called “jurisdictional anchor” on which subject matter jurisdiction over subsequent motions to confirm, vacate, or modify awards, to enforce arbitral subpoenas, or appoint arbitrators may be based. Under that jurisdictional anchor theory as long as the court stays the litigation, the court would retain its subject matter jurisdiction, and could exercise it to grant subsequent motions for FAA relief. While there remains a question whether the jurisdictional anchor theory survived Badgerow,  the theory makes sense, even under Badgerow, and is supported by pre-Badgerow case law. (See Badgerow Post.)

If the Court in Spizzirri rules that a motion to stay litigation pending arbitration must be granted if supported and requested, then it will presumably be easier for parties to assert subject matter jurisdiction based on a jurisdictional anchor theory.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, or the services that the Loree Law Firm offers, then please contact the author, Philip J. Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. (bio, here) has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related-litigation. He is licensed to practice law in New York and before various federal district courts and circuit courts of appeals.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

New York Arbitration Law Focus: Appellate Division, Second Department Vacates Attorney’s Fee Award Because it was Irrational and Violated New York Public Policy

December 7th, 2023 Application to Confirm, Application to Vacate, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Attorney Fee Shifting, Attorney Fees and Sanctions, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Irrational, Award Vacated, Awards, Challenging Arbitration Awards, CPLR Article 75, Enforcing Arbitration Agreements, Exceeding Powers, Grounds for Vacatur, Judicial Review of Arbitration Awards, Making Decisions about Arbitration, New York Arbitration Law (CPLR Article 75), New York State Courts, Outcome Risk, Petition or Application to Confirm Award, Petition to Vacate Award, Policy, Practice and Procedure, Public Policy, Second Department, State Arbitration Law, State Arbitration Statutes, State Courts, Vacate, Vacate Award | Attorney Fees, Vacate Award | Attorney's Fees, Vacate Award | Public Policy, Vacatur No Comments »

Attorney's FeesThe question before the Appellate Division, Second Department in In re D & W Cent. Station Fire Alarm Co. v. Flatiron Hotel, ___ A.D. 3d ___, 2023 N.Y. Slip Op. 6136 (2d Dep’t Nov. 29, 2023), was whether an arbitration award had to be vacated because the amount of fees the arbitrator awarded was irrational and excessive and therefore exceeded the arbitrator’s powers under N.Y. Civ. Prac. L. & R. (“CPLR”) 7511(b)(1)(iii). The arbitrator awarded fees that were 13.5 times the amount the prevailing party’s attorney said it charged its client on an hourly basis. The fee award was 44% of the amount the arbitrators awarded for the prevailing party’s claim. See 2023 N.Y. Slip Op. 6136 at *1.

The Court concluded that the fee award was irrational and violative of New York’s strong public policy against the enforcement of contracts or claims for excessive legal fees. It therefore reversed the trial court’s judgment granting the motion to confirm and denying the motion to vacate, and remanded the matter back to the trial court. See 2023 N.Y. Slip Op. 6136 at *2.

Flatiron Hotel is of particular interest because it shows that there is authority under New York arbitration law for challenging successfully awards of legal fees that are authorized by the parties’ contract but are off the rails in their amount. While not a high-stakes arbitration involving hundreds of thousands of dollars in legal fees, it was one where the losing party was socked with a fee that was so far out of proportion of what it consented to pay that there was nothing whatosever in the record to support it.

Fortunately for the appellant in Flatiron Hotel, the Appellate Division set aside the fee award even though the standard of review for granting such relief is highly deferential. While decisions vacating awards are understandably quite rare, this was one where vacatur was quite appropriate, as we shall see. Continue Reading »

International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the United States Supreme Court Certiorari Grant in FAA Section 1 Dispute: Bissonnette v. LePage Bakeries Park St., LLC  

November 21st, 2023 Applicability of Federal Arbitration Act, Arbitration Agreements, Arbitration Law, Arbitration Practice and Procedure, Exemption from FAA, FAA Chapter 1, FAA Section 1, Federal Arbitration Act Section 1, International Institute for Conflict Prevention and Resolution (CPR), Loree and Faulkner Interviews, Professor Downes, Richard D. Faulkner, Russ Bleemer, Section 1, Textualism, The Arbitration Law Forum, The Loree Law Firm, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off on International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the United States Supreme Court Certiorari Grant in FAA Section 1 Dispute: Bissonnette v. LePage Bakeries Park St., LLC  

BissonnetteOn September 29, 2023, the United States Supreme Court (“SCOTUS”) granted certiorari in Bissonnette v. LePage Bakeries Park St., LLC, No. 23-51 (U.S.), a case that concerns the scope of Section 1 of the Federal Arbitration Act (“FAA”). Section 1 exempts from the FAA “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1.

A key question presented by the text of Section 1 is whether the contract is a “contract[] of employment” of a “class of workers engaged in foreign or interstate commerce.”  SCOTUS has decided three cases that have addressed that issue—or aspects of it—in one context or another.

In 2001, in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001), the Court decided that Section 1’s exemption applied not to all employment contracts, but only to contracts involving “transportation workers.”

In 2019, in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (discussed here and here) the Court held that the term “contracts of employment” means “agreements to perform work,” irrespective of whether those agreements establish an employer-employee relationship or merely an “independent contractor” relationship.

Finally, on June 6, 2022, in Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022) (discussed here) the U.S. Supreme Court (“SCOTUS”) held that certain ramp supervisors, who worked for Southwest Airlines, whose work frequently included assisting with the loading or unloading of baggage and other cargo on or off airplanes, were members of a “class of workers engaged in foreign or interstate commerce” for purposes of Section 1. (Southwest Airlines is discussed here.)

The question SCOTUS has taken up in Bissonnette is whether Section 1 includes an additional requirement—one not apparent from either the text of the FAA or any of the above three decisions – that the person performing the work be a member of the “transportation industry.”  The United States Court of Appeals for the Second Circuit determined that the answer was yes, and SCOTUS granted certiorari.

The reason that the question whether participation in the “transportation industry” is claimed to be relevant to the Section 1 FAA exemption is because the Bissonnette plaintiffs were commercial truck drivers who worked not for companies in the transportation industry but for ones in the baking industry—Flowers Food, Inc. and its two subsidiaries (the “Flowers Companies”). One or more of the Flowers Companies owns and sells “Wonder Bread.”

Each plaintiff had to form a corporation and enter in the name of that entity into a distribution agreement with one of the Flowers, Inc. subsidiaries. Those agreements provided the corporate entities with certain distribution rights in exchange for money. Each contained a mandatory, pre-dispute arbitration agreement.

The agreements required the plaintiffs to work forty hours per week minimum, driving vehicles to stores in their assigned territories within the State of Connecticut, transporting and delivering defendants’ baked goods (including Wonder Bread) and displaying them in the stores according to the defendants’ specifications.

The agreements subjected the plaintiffs to defendants’ policies and procedures, which regulated, among other things, the time, place, and manner of pickups, and required plaintiffs to report to the warehouse each day to upload data concerning their deliveries and pickups. Plaintiffs had to obtain and insure their own vehicles.

The district court held that the plaintiffs had to arbitrate their FLSA claims with the defendants, the Second Circuit affirmed for different reasons, and SCOTUS will decide the case this Term, which ends in June 2024.

We think it likely that SCOTUS will hold that Section 1’s FAA exemption for transportation workers is not conditioned on the workers being in the “transportation industry.” Provided a worker is within a class of transportation workers engaged in foreign or interstate commerce, then it should qualify for the Section 1 exemption from the FAA.

Aside from the lack of an FAA textual hook for such an argument (and other reasons outside the scope of this post), just last Term SCOTUS in Saxon, construing the text of Section 1, provided a straightforward test to determine who is exempted from the FAA. The Saxon Court provided an easy test to determine who falls within the scope of FAA Section 1’s exemption. The Court held that “any class of workers directly involved in transporting goods across state or international borders falls within § 1’s exemption.”  Saxon, 142 S. Ct at 1789.  Accordingly, as long as a worker is within a class of transportation workers engaged in foreign or interstate commerce, it will qualify for the Section 1 exemption.

The workers in Bissonnette are transportation workers because a large part of their work involves driving commercial trucks distributing Flowers’ goods to Flowers retailers in interstate commerce. Just as the Ramp Supervisors in Southwest Airlines were classified as “transportation workers” because they frequently loaded cargo on and off airplanes, so too, will SCOTUS probably rule that the plaintiffs in Bissonnette are “transportation workers” because they frequently drive trucks transporting goods in interstate commerce.

On October 24, 2023, our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (CPR) (“CPR Alternatives”), interviewed our friends and colleagues, University of Professor Angela Downes, University of North Texas-Dallas College of Law Professor of Practice and Assistant Director of Experiential Education; arbitrator, mediator, arbitration-law attorney, and former judge,  Richard D. Faulkner; and yours truly, Loree Law Firm principal, Philip J. Loree Jr., about the Bissonnette certiorari grant, its implications and how SCOTUS might decide the case. You can watch the video-conference interview HERE.

Johnathan Baccay, a CPR Intern, and a second-year law school student, on September 29, 2023 wrote for CPR Speaks (CPR’s blog) an excellent article about Bissonnette, which CPR Speaks published.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Phil Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is a partner and founding member of the Loree Law Firm. He has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

 

International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the United States Supreme Court Certiorari Grant in Coinbase II Delegation Agreement Dispute

November 14th, 2023 Arbitrability, Arbitrability - Nonsignatories, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Challenging Arbitration Agreements, Clear and Unmistakable Rule, Contract Interpretation, CPR Alternatives, CPR Speaks Blog of the CPR Institute, CPR Video Interviews, Delegation Agreements, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Gateway Disputes, Gateway Questions, Presumption of Arbitrability, Questions of Arbitrability, Richard D. Faulkner, Russ Bleemer, Section 2, Separability, Small Business B-2-B Arbitration, The Loree Law Firm, United States Court of Appeals for the Ninth Circuit Comments Off on International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the United States Supreme Court Certiorari Grant in Coinbase II Delegation Agreement Dispute

CoinbaseOn November 3, 2023, the United States Supreme Court (“SCOTUS”) granted certiorari in Coinbase, Inc. v. Suski, No. 23-3 (U.S.) (“Coinbase II”), a case that is related to Coinbase, Inc. v. Bielski, 143 S. Ct. 1915 (2023) (“Coinbase I”), which was decided on June 23, 2023, and discussed here. Coinbase II involves an issue entirely different from Coinbase I: the application of a “delegation provision”—an agreement to arbitrate arbitrability disputes. That issue arises in a unique context: who decides whether a dispute concerning a later agreement is arbitrable when that later agreement, among other things, expressly submits all disputes concerning it to the exclusive jurisdiction of the California courts and not to arbitration? Is the delegation provision, as applied to this dispute over a subsequent contract, clear and unmistakable, as required by prior SCOTUS precedent?

On November 10, 2023, our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (CPR) (“CPR Alternatives”), interviewed our friends and colleagues, University of Professor Angela Downes, University of North Texas-Dallas College of Law Professor of Practice and Assistant Director of Experiential Education; arbitrator, mediator, arbitration-law attorney, and former judge,  Richard D. Faulkner; and yours truly, Loree Law Firm principal, Philip J. Loree Jr., about the recent certiorari grant, what it means, and how the Court might rule on it.

You can watch the video-conference interview HERE.

As we discuss in the interview Coinbase II promises to be an extremely interesting case, one which could (and perhaps should) result in a decision that the parties did not clearly and unmistakably agree to arbitrate an arbitrability dispute concerning a contract that: (a) was entered into some time after the contract containing the arbitration and delegation provisions; (b) expressly provides that any disputes concerning it must be decided in a judicial forum only; and (c) features as a party a person who is not a party to the arbitration and delegation provisions or any other aspect of the earlier contract.

Lee Williams, a CPR Intern, and a second-year law school student, wrote for CPR Speaks (CPR’s blog) an excellent article about Coinbase II, which CPR Speaks recently published, here. Among other things, the article explains the relationship between Coinbase II and other matters previously before SCOTUS, including the very similar Schein II matter. (For a discussion of Schein II, including a link to a CPR video, see here.)

The U.S. Supreme Court ultimately dismissed certiorari in that Schein II matter as improvidently granted, and as we briefly touch on in the interview, a similar fate might also befall Coinbase II. Perhaps more on that in another post, but for now, enjoy!

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, then please contact Phil Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is a partner and founding member of the Loree Law Firm. He has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

 

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 »

Subject Matter Jurisdiction in FAA Proceedings: Eighth Circuit Demonstrates It’s a Trap for the Unwary

August 23rd, 2023 Amount in Controversy, Application to Compel Arbitration, Arbitration Law, Arbitration Practice and Procedure, Award Vacated, Awards, Challenging Arbitration Awards, Confirmation of Awards, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, 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, Look Through, or Modify Award, 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 4, Section 5, Section 7, Section 9, United States Court of Appeals for the Eighth Circuit Comments Off on Subject Matter Jurisdiction in FAA Proceedings: Eighth Circuit Demonstrates It’s a Trap for the Unwary

Introduction

Subject Matter Jurisdiction | Petition to Confirm | Petition to Vacate The U.S. Court of Appeals for the Eighth Circuit recently decided a case that provides a good—and simple—example of how subject matter jurisdiction can be a trap for the unwary, especially for parties seeking to confirm or vacate arbitration awards under the Federal Arbitration Act (the “FAA”). In Prospect Funding Holdings (N.Y.) v. Ronald J. Palagi, P.C., No. 22-1871, slip op. (8th Cir. Aug. 7, 2023), the Eighth Circuit vacated a district court’s judgment vacating two arbitration awards because the petitioner failed to plead the citizenship of the parties and therefore could not establish the requisite independent basis for subject matter jurisdiction. But there was more to it than that. Continue Reading »

Assignment and Separability: Can an Assignor Compel Arbitration? The South Carolina Supreme Court Says the Arbitrators Get to Decide

August 2nd, 2023 Application to Compel Arbitration, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Clear and Unmistakable Rule, Contract Defenses, Existence of Arbitration Agreement, FAA Chapter 1, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Policy in Favor of Arbitration, Gateway Disputes, Gateway Questions, Practice and Procedure, Questions of Arbitrability, Section 4, Separability, Severability, South Carolina Supreme Court, United States Supreme Court Comments Off on Assignment and Separability: Can an Assignor Compel Arbitration? The South Carolina Supreme Court Says the Arbitrators Get to Decide

Introduction: Assignment and the Separability Doctrine 

Separability and Assignment

Suppose A and B enter a contract imposing mutual obligations on them. The contract contains an arbitration agreement requiring arbitration of all disputes arising out of or related to the contract. The contract does not purport to prohibit assignment, and the parties’ rights under the contract are otherwise capable of assignment.

A assigns to assignee C its rights to receive performance under the contract. B commences an action against A under the contract and A demands arbitration. B resists arbitration, arguing that A has assigned to C its right to enforce the contract (we’ll call it a “container contract” because it contains an arbitration agreement) and thus there is no longer any arbitration agreement that A can enforce against B. Judgment for whom?

In Sanders v. Svannah Highway Auto Co., No. 28168, slip op. (July 26, 2023),  the Supreme Court of North Carolina said that, under the Federal Arbitration Act’s “separability” doctrine, the claim that the contract—including the arbitration agreement— could no longer be enforced was an issue that concerned the enforceability of the container contract as a whole, not the enforceability of the arbitration agreement specifically. And because the assignment concerned only the continued existence of the container contract, and not a claim that the container contract was never formed, the exception to the separability doctrine under which courts get to decide whether a contract has been concluded did not apply.

Accordingly, explained the South Carolina Supreme Court, it was for the arbitrator to decide what effect, if any, the assignment had on A’s right to enforce the container contract, including the arbitration agreement. Continue Reading »

Expert-Determination Clauses: Third Circuit Holds Dispute Resolution Clause Provided for Expert-Determination, not Arbitration

July 31st, 2023 Applicability of Federal Arbitration Act, Application to Compel Arbitration, Application to Stay Litigation, Appraisal, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Challenging Arbitration Agreements, Challenging Arbitration Awards, Contract Interpretation, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Practice and Procedure, Questions of Arbitrability, Section 3 Stay of Litigation, Section 4, United States Court of Appeals for the Third Circuit Comments Off on Expert-Determination Clauses: Third Circuit Holds Dispute Resolution Clause Provided for Expert-Determination, not Arbitration

Introduction: Third Circuit’s Ruling on Expert-Determination Clauses Versus Arbitration Clauses

expert-determination

Not every dispute resolution clause contained in a contract is an arbitration clause, let alone an arbitration clause governed by the Federal Arbitration Act (“FAA”). Absent a statute stating otherwise, dispute resolution clauses that are not arbitration agreements must be enforced via ordinary contract-law rules only, not through FAA- or state-arbitration-statute-authorized motions to compel arbitration, motions to stay litigation pending arbitration, or motions to confirm, vacate, or modify awards.

The U.S. Court of Appeals for the Third Circuit recently decided a case that turned on whether the dispute resolution clause in the contract was an arbitration clause, or simply a contractual provision calling for resolution of an issue by experts, sometimes referred to as an “expert-determination provision[,]” slip op. at 14, or “expert-determination clause.” In Sapp v. Indus. Action Servs., No. 22-2181, slip op. (3d Cir. July 20, 2023) the Court held that the clause before it was not an arbitration agreement, but an expert clause and consequently reversed the district court’s decision to compel arbitration and vacated the Court’s order granting the motion to confirm the expert’s decision and denying the motion to vacate it. Slip op. at 3, 19.

Whether or not you are—in a particular case—advocating for or opposing arbitration, Sapp demonstrates how important it is to make an early determination as to whether the alternative dispute resolution clause at issue is, in fact, an arbitration agreement whose enforcement is governed by the FAA or a state arbitration statute.

Another point about Sapp is that its interpretation of the Federal Arbitration Act is arguably more narrow than that of the Second Circuit. The Second Circuit has said that a dispute resolution provision otherwise falling under Section 2 of the FAA is an “arbitration agreement” for purposes of the FAA, including an “appraisal” provision in an insurance contract. The test is whether the dispute resolution provision  “clearly manifests an intention by the parties to submit certain disputes to a specified third party for binding resolution.” McDonnell Douglas Finance CorpvPennsylvania Power & Light Co., 858 F.2d 825, 830 (2d Cir. 1988); Bakoss v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135, 707 F.3d 140, 143 (2d Cir. 2013). That dispute resolution clauses, such as appraisal clauses, typically do not use the term “arbitration” is of no moment—all that counts “is that the parties clearly intended to submit some disputes to their chosen instrument [e.g., appraisal] for the definitive settlement of certain grievances under the Agreement.” Id. (quotations omitted); see Bakoss, 707 F.3d at 143. (See also Arbitration Law Forum post here.)

The reason for this difference is most likely because, as we shall see, Sapp ruled that state law—specifically, that of Delaware—not federal common-law, governs what constitutes an arbitration agreement for purposes of the FAA. See Slip op. at 12-16. In the Second Circuit, however, federal common-law governs that question. See Bakoss, 707 F.3d at 143. 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 »

Fourth Circuit Says Labor Arbitrator Spoiled Award by Ignoring CBA’s Procedural Rules

June 29th, 2023 Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Vacated, Challenging Arbitration Awards, Contract Interpretation, Exceeding Powers, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Judicial Review of Arbitration Awards, Labor Arbitration, Procedural Arbitrability, Section 10, United States Court of Appeals for the Fourth Circuit, Vacate Award | 10(a)(4), Vacate Award | Exceeding Powers, Vacatur Comments Off on Fourth Circuit Says Labor Arbitrator Spoiled Award by Ignoring CBA’s Procedural Rules

Failure to Follow Procedural Rules: Introduction

Procedural Rule not Followed and Award VacatedUnder both the Federal Arbitration Act (the “FAA”) and Section 301 of the National Labor Relations Act (the “NLRA”), arbitrators exceed their powers by making awards that do not “draw [their] essence” from the parties’ agreement. See Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 568-69 (2013) (FAA); Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 559 U.S. 662, 671-72 (2010) (FAA); Eastern Associated Coal v. United Mine Workers, 531 U.S. 57, 62 (2000) (NLRA). (See, e.g., here, here, here, and here.)

In a case arising under Section 301 of the NLRA, the U.S. Court of Appeals for the Fourth Circuit “determine[d] whether an arbitration award failed to draw its essence from the agreement when an arbitrator ignored the parties’ agreed upon procedural rules for conducting the arbitration.” Advantage Veterans Servs. of Walterboro, LLC v. United Steel, Paper & Forestry, Rubber, Mfg. Energy, Allied Indus. & Serv. Workers Int’l, Local 7898, No. 22-1268, slip op. at 2 (4th Cir. June 15, 2023). The Fourth Circuit said, “[u]nder the language of the agreement here, the answer is yes[,]” and— reversing the district court’s order—vacated the award. Slip op. at 2 & 12.

Advantage Veterans is a proverbial breath of fresh air for those who wish—by way of clear, unambiguous, and precise contract language—to circumscribe the authority of arbitrators by conditioning the enforceability of an award on compliance with certain clear procedural rules. That is not to say it authorizes vacatur of an award every time the arbitrator does not comply with a clear procedural rule set forth in (or incorporated by) an arbitration agreement.  The doctrine of procedural arbitrability counsels deference to an arbitrator’s procedural decisions that even arguably represent the arbitrator’s interpretation of the contract, and disputes concerning arbitrator failure to comply with procedural provisions are frequently disposed of on that basis. See, e.g., BG Grp. PLC v. Republic of Argentina, 572 U.S. 25, 27-29, 33-36 (2014).

But at least where parties expressly condition enforceability of an award on compliance with a clear procedural rule, Advantage Veterans gives life to the parties’ clearly expressed intent that an arbitration to take place only as explicitly prescribed. Continue Reading »