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Archive for the ‘Contract Interpretation’ Category

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.

 

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 »

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 »

Delegation Agreements, Separability, Schein II, and the October 2019 Edition of CPR Alternatives

November 12th, 2019 Appellate Practice, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitration Agreements, Arbitration Practice and Procedure, Arbitration Provider Rules, Clear and Unmistakable Rule, Contract Interpretation, Delegation Agreements, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Practice and Procedure, Separability, Severability, United States Court of Appeals for the Fifth Circuit, United States Supreme Court 1 Comment »
Delegation Provision

There have been a number of important cases decided in 2019 concerning the application and effect of “delegation provisions”—clear and unmistakable agreements to arbitrate arbitrability issues. Delegation provisions, which we’ll refer to as “delegation agreements,” are not a recent phenomenon, and are quite common, especially in administered arbitration, where consent to applicable arbitration rules typically includes clear and unmistakable consent to arbitrate arbitrability. But there’s been a good deal of judicial controversy this year over whether delegation agreements should, in certain circumstances, be given the full force and effect that they deserve.  

We think that delegation provisions should ordinarily be enforced as written and according to their terms. When Courts interpret and apply delegation agreements, they should, consistent with Rent-a-Center West, Inc. v. Jackson, 561 U.S. 63 (2010), consider those agreements to be separate and independent from the arbitration agreements in which they are contained.

Much of the controversy has centered on whether terms of the arbitration agreement should define or circumscribe the scope of the delegation agreement and even effectively negate it. Consequently, certain courts have conflated the question of who gets to decide whether an issue is arbitrable with the separate question of what the outcome of the arbitrability dispute should be, irrespective of who decides it. 

The SCOTUS Schein Decision and The Fifth Circuit’s Schein II Decision on Remand

The first significant delegation-agreement development this year came on

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Manifest Disregard of the Law | Manifest Disregard of the Agreement | Second Circuit Remands Award to Arbitrator for Do-Over

October 25th, 2019 Authority of Arbitrators, Award Vacated, Awards, Challenging Arbitration Awards, Contract Interpretation, Enforcing Arbitration Agreements, Exceeding Powers, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Grounds for Vacatur, Manifest Disregard of the Agreement, Manifest Disregard of the Law, Uncategorized, United States Court of Appeals for the Second Circuit, Vacate Award | 10(a)(4), Vacate Award | Manifest Disregard of the Law, Vacatur Comments Off on Manifest Disregard of the Law | Manifest Disregard of the Agreement | Second Circuit Remands Award to Arbitrator for Do-Over
Second Chance to Make Award not in Manifest Disregard of Law or Agreement

Arbitrators are human and occasionally they make awards that cannot be squared with logic and law, and courts may, in appropriate circumstances, vacate those awards as being in manifest the agreement, or in some circuits, in manifest disregard of the law. The U.S. Court of Appeals for the Second Circuit considered such an award in Weiss v. Sallie Mae, Inc., ___ F.3d ___, No. 18-2362, slip op. (Sept. 12, 2019), and solved the problem in a way that imposed minimal costs and delay on the parties and, at the same time, gave effect to the parties’ reasonable contractual expectations, including that the arbitrator would make an award with a colorable basis in the law or the parties’ agreement, not one in manifest disregard of the law or the agreement. It is therefore a good example of a case that promotes arbitration as an alternative to litigation.

Background

W is a student-loan borrower who in 2011 defaulted on a loan issued by S (N is the successor of S, but we shall refer to both as “S”). W gave S her phone number (“Phone Number 1”) when she obtained the loan and consented to S contacting her via an automatic telephone dialing system (“ATDS”). S made ATDS calls to her using Phone Number 1 prior to her default on the loan in 2011.

Also prior to her 2011 default W obtained a second telephone number (“Phone Number 2”) but did not give S consent to contact her on that number via an ATDS.

After W’s 2011 default, S contacted W seven or eight times a day at Phone Number 2 via an ATDS, attempting to collect the debt. S made 774 ATDS calls to Phone Number 2 during the period September 16, 2011 through July 1, 2013.

The Arbitration

A dispute arose between W and S about whether S’s ATDS calls had violated the Telephone Consumer Protection Act (“TCPA”) and W commenced an action in the U.S. District Court for the Western District of New York. The action was stayed after the parties stipulated to arbitration pursuant to an arbitration agreement in a student-loan promissory note.

The Award: Was it in Manifest Disregard of the Law or the Agreement?

Final Award 2 - yay-15399450

Following a hearing an arbitrator made an award granting W $108,000 in statutory damages under the TCPA. But the award held that W was a class member in a class action that S had settled. The class-action settlement (the “Arthur Settlement”) “included as a class member, ‘any person who received ATDS calls from [S] between October 27, 2005 and September 14, 2010.’” Slip op. at 5 (citation omitted).

W did not contend that the calls S made to Phone Number 1 violated the TCPA (W had consented to those calls), and W contended that, accordingly, she was not bound by the settlement, even though she had received ATDS on Phone Number 1 during the specified period. The arbitrator, however, found that argument “‘unpersuasive,’” and “ruled that Weiss was a class member and that ‘the proof was conclusive that [S] provided [W] with the required notice of the settlement and of her rights and obligations under the terms of the settlement.’” Slip op. at 5-6 (citation omitted).

The Arthur Settlement “notice offered class members the opportunity to file a ‘consent Revocation’ document by September 15, 2012; absent such a filing, ‘the ATDS calls would not stop and the borrower’s prior consent to give them [sic] would be deemed to have been given.’” Slip op. at 6 (citation omitted; bracketed text in original).  

While W contended that she was not aware of the Arthur Settlement, S testified that notice was successfully emailed to W.

The agreement implementing the Arthur Settlement featured a general release, “under which class members were ‘deemed to have fully released and forever discharged [S]’. . . from any and all claims and causes of action, inter alia, ‘that arise out of or are related in any way to the use of an [ATDS]. . . used by any of the Released Parties in connection with efforts to contact or attempt to contact Settlement Class Members including, but not limited to, claims under or for violations of the [TCPA].’” Slip op. at 6 (citations omitted; some bracketed text in original).

Even though the general release, to which the arbitrator determined W was bound, deemed W to have “waived ‘any and all’ TCPA claims effective the date of final judgment in the Arthur Settlement action[,]” the arbitrator’s award did not acknowledge the existence of that release. Slip op. at 6-7. “Instead,” said the Court, “the arbitrator interpreted [W]’s failure to submit a consent revocation pursuant to the Arthur class notice as precluding recovery for any calls placed to [Phone Number 2] after the September 15, 2012 deadline but also as permitting recovery for ATDS calls placed to [Phone Number 2] between September 6, 2011, and September 16, 2012.” Slip op. at 7.

The arbitrator awarded TCPA statutory damages in the amount of $108,500 ($500 per call for 217 calls during the applicable period). W moved to confirm the award and S cross-moved to vacate it.

The district court vacated the award, finding that “by neglecting to ‘apply—or even address—an explicit, unambiguous term of the settlement agreement,’ which “clearly and unambiguously bars recovery for claims until and including the date of the agreement,’ the arbitrator manifestly disregarded the law.” Slip op. at 7. W appealed.

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Attorney Fees and Arbitrability Addressed by New York Appellate Court

July 30th, 2019 Applicability of Federal Arbitration Act, Arbitrability, Arbitrability | Existence of Arbitration Agreement, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Award Confirmed, Award Vacated, Awards, Choice-of-Law Provisions, Confirm Award | Attorney Fees, Confirm Award | Exceeding Powers, Confirm Award | Manifest Disregard of the Law, Confirmation of Awards, Contract Interpretation, Enforcing Arbitration Agreements, Exceeding Powers, FAA Chapter 1, Federal Arbitration Act Section 10, Grounds for Vacatur, Judicial Review of Arbitration Awards, Manifest Disregard of the Law, New York Arbitration Law (CPLR Article 75), Practice and Procedure, Vacate Award | 10(a)(4), Vacate Award | Arbitrability, Vacate Award | Attorney Fees, Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers, Vacate Award | Existence of Arbitration Agreement, Vacate Award | Manifest Disregard of the Law, Vacatur Comments Off on Attorney Fees and Arbitrability Addressed by New York Appellate Court
Attorney Fees in Arbitration | TV

In Steyn v. CRTV, LLC (In re Steyn), 175 A.D. 3d 1 (1st Dep’t 2019), New York’s Appellate Division, First Department decided a case falling under the Federal Arbitration Act (the “FAA”) that involved two challenges: one to an award of attorney fees on manifest disregard of the law grounds, and the other to an award that a nonsignatory obtained by joining the petitioner’s counterclaim.

The Court rejected the manifest-disregard challenge to the attorney fee award in favor of a signatory to the arbitration agreement, but held that the trial court should have vacated the award made in favor of a nonsignatory (which included both damages and attorney fees).

Background: Attorney Fee and Arbitrability Challenges

Terms and Conditions

The appeal arose out of a contract “dispute between Mark Steyn, a renowned author and television and radio personality, and CRTV, an online television network, currently known as BlazeTV, which features conservative commentators such as Glenn Beck and Phil Robertson.” 2019 N.Y. Slip Op. 5341, at *2. We’ll call Steyn the “Host” and CRTV the “Network.”

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

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

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

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

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Can Arbitrators Exceed their Powers by Making an Award in Manifest Disregard of the Parties’ Agreement?

April 17th, 2019 Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Challenging Arbitration Awards, Confirmation of Awards, Contract Interpretation, Contract Interpretation Rules, Exceeding Powers, Grounds for Vacatur, Manifest Disregard of the Agreement, Nuts & Bolts, Nuts & Bolts: Arbitration, Outcome Risk, Practice and Procedure, United States Court of Appeals for the Eighth Circuit, United States Supreme Court, Vacatur Comments Off on Can Arbitrators Exceed their Powers by Making an Award in Manifest Disregard of the Parties’ Agreement?
authority

Suppose arbitrators decide an issue within the scope of their authority but do so in manifest disregard the parties’ contract. Do they exceed their authority by making an award that has not even a barely colorable basis in the parties’ contract or in applicable law?

The answer to that question, is, of course, “yes,” and over the years we’ve discussed in a number of posts how arbitrators can exceed their powers under Federal Arbitration Act Section 10(a)(4) or Section 301 of the Labor Management Relations Act by making awards in manifest disregard of the parties’ agreement. (See Loree Reinsurance and Arbitration Law Forum Posts here, here, here, here, here, here, here, here, and here.) As discussed in those posts, the U.S. Supreme Court has on multiple occasions ruled that commercial and labor arbitrators can exceed their powers by making an award that manifestly disregards—or does not “draw its essence” from—the parties’ agreement. See Stolt-Nielsen S.A. v. AnimalFeeds Int’l Inc., 130 S.Ct. 1758, 1768-70 (2010); Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064, 2067, 2068 (2013); Eastern Associated Coal Corp. v. Mine Workers, 531 U.S. 57, 62 (2000); Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599 (1960); Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987).

In our April 12, 2019 post (here) we reviewed how it is that the limited review powers courts have to vacate commercial and labor arbitration awards are designed to provide a limited, but very important, safety net to protect parties against egregious, material violations of arbitration agreements. Without that limited protection, the risks associated with agreeing to arbitrate would be intolerably high and parties would be much less apt to opt for arbitration over court litigation.

Courts vacate arbitration awards where arbitrators act outside the scope of their authority by ruling on issues that the parties did not agree to submit to them. That’s what happened in Brock Indus. Servs., LLC v. Laborers’ Int’l Union., __ F.3d ___, No. 17-2597, slip op. (7th Cir. April 8, 2019), which we discussed in our April 12, 2019 post here.

But to obtain vacatur of an award based on manifest disregard of the agreement, however, an award challenger must satisfy an exceedingly demanding standard. We’ve addressed the parameters of that standard in a number of other posts. (See, e.g., here, here, here, here, here, here, here, here, and here. Our blog has also tried to give a feel for how Courts apply (or are supposed to apply) the standard by comparing the U.S. Supreme Court decision in Stolt-Nielsen, which held that an award should be vacated for manifest disregard of the agreement, to the Supreme Court decision in Oxford, which held that an award should not be vacated under that manifest disregard standard. (See Loree Reinsurance and Arbitration Law Forum posts here, here, and here.) And from time-to-time we’ve reported on other cases that have applied the standard.

While challenges to awards based on manifest disregard of the agreement are not uncommon, a very large majority of those challenges are either virtually certain to fail or at least highly unlikely to succeed. It is a relatively small universe of remaining, close cases that pose the biggest challenges for parties and courts.

Today we’ll look at one of those close cases, which was decided by the Eighth Circuit Court of Appeals and explain why the case failed to satisfy the demanding standard, even though, at least at first glance, it may be difficult to square the arbitration award with the parties’ agreement.

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Arbitrability of Arbitrability Questions: the Second Circuit Pushes Back (a little)

April 3rd, 2019 Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Contract Interpretation, Contract Interpretation Rules, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Stay of Arbitration, United States Court of Appeals for the Second Circuit, United States Supreme Court 1 Comment »
Thurgood Marshall U.S. Courthouse

Abitrability Questions
Thurgood Marshall U.S. Courthouse, 40 Centre Street, New York, NY 10007

In a January 16, 2019 post (here) on the U.S. Supreme Court’s decision in Schein v. Archer & White Sales, Inc., 586 U.S. ____, slip op. (January 8, 2019), we explained that arbitrability questions are ordinarily for courts to decide, but parties may, by way of a “delegation provision,” clearly and unmistakably agree to submit them to arbitration. See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-46 (1995); Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010). (See also Loree Reinsurance and Arbitration Law Forum posts herehere, and here.)

Typically, a “delegation provision” states in clear and unmistakable terms that arbitrability questions are to be decided by the arbitrators. It might, for example, state that the parties agree to submit to arbitrators questions concerning their “jurisdiction,” or the “existence, scope, or validity” of the arbitration agreement.

The U.S. Court of Appeals for the Second Circuit, however, does not require the parties to expressly state in their agreement that they agree to submit arbitrability questions to the arbitrators. The Second Circuit has found that the parties may “clearly and unmistakably” submit arbitrability questions to arbitration when they agree to a very broad arbitration clause. See Wells Fargo Advisors, LLC v. Sappington, 884 F.3d 392, 394, 396 (2d Cir. 2018) (An agreement “to arbitrate any dispute, claim or controversy that may arise between you and Wells Fargo Advisors, or a client, or any other person[, and] . . . giving up the right to sue Wells Fargo Advisors . . . in court concerning matters related to or arising from your employment” “demonstrate[d] the parties’ clear and unmistakable intent to arbitrate all questions of arbitrability.”); PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996) (A contractual provision that “any and all controversies . . . concerning any account, transaction, dispute or the construction, performance, or breach of this or any other agreement . . . shall be determined by arbitration” and that “the parties are waiving their right to seek remedies in court” clearly and unmistakably demonstrated “parties’ intent to arbitrate all issues, including arbitrability.”) (emphasis omitted); Alliance Bernstein Investment Research and Management, Inc. v. Schaffran, 445 F.3d 121 (2d Cir. 2006) (NASD Code Rule 10324, which authorized arbitrators “to interpret and determine the applicability of all provisions under [the] Code[]” was a clear and unmistakable delegation to arbitrators of arbitrability questions concerning interpretation of the NASD Code.).

In Metropolitan Life Ins. Co. v. Bucsek, No. 17-881, slip op. (2d Cir. Mar. 22, 2019), the Second Circuit was faced with an unusual situation where party A sought to arbitrate against party B, a former member of the Financial Industry Regulatory Authority (“FINRA”)’s predecessor, the National Association of Securities Dealers (“NASD”), a dispute arising out of events that occurred years after party B severed its ties with the NASD.

The district court rejected A’s arguments, ruling that: (a) this particular arbitrability question was for the Court to decide; and (b) the dispute was not arbitrable because it arose years after B left the NASD, and was based on events that occurred subsequent to B’s departure. The Second Circuit affirmed the district court’s judgment.

After the district court decision, but prior to the Second Circuit’s decision, the U.S. Supreme Court decided Schein, which—as we explained here—held that even so-called “wholly-groundless” arbitrability questions must be submitted to arbitration if the parties clearly and unmistakably delegate arbitrability questions to arbitration. Schein, slip op. at *2, 5, & 8.

The Second Circuit faced a situation where a party sought to arbitrate a dispute which clearly was not arbitrable, but in circumstances under which prior precedent, including Alliance Berstein (cited above), suggested that the parties clearly and unmistakably agreed to arbitrate arbitrability.

To give effect to the parties’ likely intent that they did not agree to arbitrate arbitrability questions that arose after B left the NASD, the Second Circuit had no choice but distinguish and qualify its prior precedent without falling afoul of the Supreme Court’s recent pronouncement in Schein. That required the Second Circuit to modify, to at least some extent, the contractual interpretation analysis that courts within the Second Circuit are supposed to engage to ascertain whether parties “clearly and unmistakably” agreed to arbitrate arbitrability in circumstance where they have not specifically agreed to arbitrate such issues.

Metropolitan Life is an important decision because it means in future cases where parties have not expressly agreed to arbitrate arbitrability questions, but have agreed to a very broad arbitration agreement, the question whether the parties’ have nevertheless clearly and unmistakably agreed to arbitrate arbitrability questions may turn, at least in part, on an analysis of the merits of the arbitrability question presented.

It is easy to see how applying Metropolitan Life in future cases could raise some interesting and challenging questions for parties, their attorneys, and the courts. We may look at those challenges in more detail in a future post, but for now, let’s take a careful look at the Second Circuit’s decision.

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Confluence of the Arcane: Headings Clauses, Arbitration Law and Reinsurance

November 28th, 2016 Arbitrability, Arbitration Agreements, Arbitrator Selection and Qualification Provisions, Contract Interpretation, Reinsurance Contracts, Uncategorized, United States Court of Appeals for the Second Circuit Comments Off on Confluence of the Arcane: Headings Clauses, Arbitration Law and Reinsurance

yay-20384852-digital

Introduction

A Headings Clause typically provides that contract provision headings and captions are for reference purposes only, and do not negate, modify or otherwise affect the provisions to which they relate. While arguments can be made for or against Headings Clauses, they are fairly common in commercial contracts.

Contract dispute outcomes rarely turn on the interpretation or application of these clauses. But on November 16, 2016, the U.S. Court of Appeals for the Second Circuit decided Infrassure, Ltd. v. First Mutual Trasp. Assur. Co., No. 16-306, slip op. (2d Cir. 2016) (summary order), which not only turned on the meaning and application of a headings clause, but did so in the context of an arbitration-law dispute in a reinsurance case. A confluence of the arcane, indeed!

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Infrassure: Background

Infrassure was a dispute between the parties to a facultative reinsurance contract. The facultative reinsurance contract (the “Certificate”) contained two different arbitration clauses. One was in the body of the pre-printed contract (the “Form Arbitration Clause”). The other was in Endorsement No. 2 (the “Endorsement No. 2 Arbitration Clause”). Endorsement No. 2 was titled “LONDON ARBITRATION AND GOVERNING LAW (UK AND BERMUDA INSURERS ONLY).”

The Form Arbitration Clause provided for arbitration of “any dispute arising out of the interpretation, performance or breach of this Certificate.” It designated a specific set of arbitration rules to govern the arbitration, and provided that “[a]ll arbitrators will be disinterested active or former officers of insurance or reinsurance companies.”

The Endorsement No. 2 Arbitration Clause provided for arbitration of “[a]ny dispute, controversy or claim arising out of or relating to this agreement or the breach, termination or invalidity thereof,” and prescribed different arbitration rules. It did not require arbitrators to be active or former officers of insurance or reinsurance companies.

Which Arbitration Clause Applies?

The parties disputed which arbitration clause applied. Reinsurer Infrassure, Ltd. (“Infrassure” or the “Reinsurer”), argued for the Form Arbitration Clause, with its more stringent arbitrator qualification requirements. Cedent First Mutual Transportation Assurance Company (“First Mutual” or the  “Cedent”), a New York State captive insurer of the Metropolitan Transportation Authority, apparently wanted to appoint (or nominate) arbitrators or arbitrator candidates who were not current or former officers or directors of insurance or reinsurance companies. It therefore argued that the Endorsement 2 Arbitration Clause applied.

Infrassure, which is a Swiss company, argued that the Endorsement No. 2 Arbitration Clause did not apply because the title of the endorsement contained the parenthetical limitation “(UK and Bermuda Insurers only)” (the “Parenthetical Limitation”). It asserted in the alternative that the Endorsement No. 2 Arbitration Clause should be construed to impose the same arbitrator qualification criteria as the Form Arbitration Clause imposed.

The Headings Clause

Headings ClauseFirst Mutual argued that the Certificate’s headings clause (the “Headings Clause,” which the Court refers to as the “Titles Clause”) rendered inapplicable the Parenthetical Limitation. The Headings Clause stated: “The several titles of the various paragraphs of this Certificate (and endorsements … attached hereto) are inserted solely for convenience of reference and will not be deemed in any way to limit or affect the provisions to which they relate.”

“This argument [was] thin,” observed the Court, but a reported opinion was in order, because the dispute “requires us to construe wording that apparently has not been construed before, and that is in a contract that may share features with other standard forms and endorsements.” Slip op. at 4.

Court Holds that Headings Clause did Not Strip the U.K.-and-Bermuda-Insurer-only Limitation on the Scope of Endorsement No. 2

The Court, in an opinion by Circuit Judge Dennis Jacobs (an esteemed member of the reinsurance bar before he was appointed to the Second Circuit), held that the Headings Clause was “unambiguous,” but did not negate the Parenthetical Limitation, even though that limitation appeared in the heading or title of Endorsement No. 2.

The Parenthetical Limitation, said the Court, “is not part of the title itself, though it shares the same line and bolded format.” The Heading Clause’s “purpose.  .  .  is not to strip away an express indication as to the context in which a particular provision operative, but to ensure that the text of a provision is not discounted or altered by the words of its  heading.” Slip op. at 4.

Court finds Further Support for its Conclusion by Applying First Mutual’s Heading Clause Interpretation to other Contract Provisions

The Court found confirmation of the accuracy of its conclusion “by consulting other [Certificate] provisions,” including “critical” ones, which would “would have no meaning at all if the Titles Clause were mechanically applied.” Id.

To illustrate, the Court referred to paragraph 14 of the Certificate, which, states:

Program Policy Limits

Various as per the attached schedule.

Id. (emphasis in original)

The Court observed that applying the Ceding Company’s interpretation of the Headings Clause to Paragraph 14 would reduce that paragraph to “the cryptic provision, ‘Various as per the attached schedule.’” Id. The “heading ‘Program Policy Limits,’ instructs the reader that the phrase ‘Various as per the attached schedule refers to program policy limits, as opposed to some other concern of the reinsurance agreement.” Id. That heading, said the Court, does not purport to contradict, alter or otherwise ambiguate the text that follows, but explains what the otherwise contextually ambiguous (indeed, meaningless) text was intended to mean in the context of the whole contract.

According to the Court, “other provisions beside Paragraph 14 likewise would be rendered meaningless if the [Headings Clause] were applied in the way pressed by First Mutual.” Slip op. at 4.

Given the Court’s holding, it was unnecessary to consider Infrassure’s alternative argument that the arbitrator selection provisions of the Form Arbitration Agreement should be made part of the Endorsement No. 2 Arbitration Agreement. All the Court had to say about this argument was “we need not reach [it], which  is just as well for well for Infrassure.” Slip op. at 5.

 

Photo Acknowledgements:

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

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