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Archive for the ‘Equal Footing Principle’ Category

2021 Term SCOTUS Arbitration Cases: Is the Pro-Arbitration Tide Beginning to Ebb?

July 18th, 2022 Amount in Controversy, Applicability of Federal Arbitration Act, Application to Appoint Arbitrator, Application to Compel Arbitration, Application to Stay Litigation, Arbitrability, Arbitral Subpoenas, Arbitration Agreements, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Challenging Arbitration Agreements, Challenging Arbitration Awards, Equal Footing Principle, FAA Chapter 1, FAA Transportation Worker Exemption, Federal Arbitration Act Section 1, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, Federal Arbitration Act Section 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Policy in Favor of Arbitration, Federal Question, Federal Subject Matter Jurisdiction, International Arbitration, International Judicial Assistance, Judicial Review of Arbitration Awards, Look Through, Modify or Correct Award, Moses Cone Principle, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Modify Award, Petition to Vacate Award, Policy, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Presumption of Arbitrability, Richard D. Faulkner, Section 10, Section 11, Section 1782, Section 3 Stay of Litigation, Section 5, Section 6, Section 7, Section 9, Small Business B-2-B Arbitration, State Arbitration Law, Statutory Interpretation and Construction, Subject Matter Jurisdiction, Substantive Arbitrability, Textualism, United States Supreme Court, Vacatur, Waiver of Arbitration No Comments »

Introduction: This Term’s SCOTUS Arbitration Cases 

SCOTUS FAA CasesThe 2021 Term was a busy and controversial one for the United States Supreme Court (“SCOTUS”) regarding abortion, First Amendment rights, Second Amendment rights, and administrative agency power.  However, many may not know SCOTUS decided four Federal Arbitration Act cases during the 2021 Term (the “FAA Cases”), as well as a pair of cases consolidated into one concerning whether U.S. Courts may provide under 28 U.S.C. § 1782 judicial assistance to international arbitration panels sited abroad. See Viking River Cruises, Inc. v. Moriana, 596 U. S. ____, No. 20–1573, slip op. (June 15, 2022) (construing FAA); ZF Automotive US, Inc., et al. v. Luxshare, Ltd., 596 U.S. ___, No. 21–401, slip op. (June 13, 2022) (construing 28 U.S.C. § 1782); Southwest Airlines Co. v. Saxon, 596 U.S. ___, No. 21-309, slip op. (June 6, 2022) (construing FAA); Morgan v. Sundance, Inc., 596 U.S. ___, No. 21-328, slip op. (May 23, 2022) (construing FAA); Badgerow v. Walters, 596 U.S. ___, No. 20-1143, slip op. (March 31, 2022) (construing FAA).  

Three of the SCOTUS FAA Cases, Badgerow, Morgan, and Southwest Airlines signal SCOTUS’s apparent intention to construe strictly the Federal Arbitration Act’s text without indulging in any pro-arbitration presumptions or applying arbitration-specific rules intentionally encouraging arbitration-friendly outcomes. ZF Automotive, the 28 U.S.C. § 1782 judicial-assistance case also  employed a strict, textualist approach to interpreting 28 U.S.C. § 1782, used the FAA to help support its conclusion, and held that 28 U.S.C. § 1782 did not authorize U.S. district courts to provide judicial assistance to private arbitration panels sited abroad—an outcome not particularly solicitous of international arbitration. It is therefore at least indirectly supportive of the more textually oriented and arbitration-neutral approach SCOTUS appears to have endorsed with special force during the 2021 Term.  

The SCOTUS 2021 Term FAA Cases are not the first ones in which the Court applied textualist interpretations to the FAA. There are others. See, e.g., New Prime Inc. v. Oliveira, ___ U.S. ___, 139 S. Ct. 532 (2019) (discussed here and here). But common themes in three of those FAA Cases—echoed in ZF Automotive —suggest a marked trend by the Court to interpret the FAA in a less expansive manner that is not presumptively arbitration friendly. The expression of these common themes in four cases decided in a single term is particularly significant because Morgan, Southwest Airlines, and ZF Automotive were decided unanimously by all participating Justices and Badgerow was decided 8-1, with now retired Associate Justice Stephen G. Breyer dissenting.  

Many previous FAA SCOTUS decisions of the last three or four decades have been very indulgent of arbitration. The Court encouraged arbitration proliferation far beyond B-2-B commercial and industry arbitration between sophisticated and resource-laden entities of roughly equal bargaining power.  Arbitration was introduced into consumer and employment disputes and other disputes involving persons (including businesses) of vastly disparate resources and sophistication. SCOTUS made arbitration agreements readily enforceable, interpreted them expansively in favor of arbitration, limited defenses to arbitration agreements and awards, and promoted arbitration to make it, at least in the eyes of some, an attractive alternative to litigation. Critics challenged that view and assailed arbitration as “do it yourself court reform.”  The SCOTUS arbitration decisions developed and implemented an expansive federal policy in favor of arbitration and a presumption of arbitrability and championed a very pro-arbitration approach to arbitration law in general.  

That SCOTUS, the lower federal courts, and eventually even the skeptical state courts that are bound by its FAA decisions, have been solicitous and supportive of arbitration is unsurprising. The assumed (but not necessarily realized) benefits of arbitration have long been touted by academics and promoted by business and industry representatives.  Of course, courts have for many years recognized that arbitration helps reduce docket congestion, which was exacerbated by COVID and remains a problem today, even with the help of proliferated arbitration proceedings. Arbitral dispute resolution is also a very impressive business sector in and of itself, generating billions in revenues for law firms, arbitrators, and arbitration providers. It therefore has many proponents.  

But Badgerow, Morgan, Southwest Airlines, and ZF Automotive suggest that SCOTUS is rethinking its prior expansive, and highly-arbitration-friendly approach to the FAA and might be more willing to entertain seriously arguments for interpreting: (a) arbitration agreements less expansively, and more like ordinary contracts; and (b) Sections 10 and 11 of the FAA strictly according to their text and not in an exceedingly narrow manner designed to encourage, arbitration-award-favoring outcomes. These cases may also embolden lower courts, especially the state courts, to do the same. Continue Reading »

CPR Interviews Downes, Faulkner & Loree About Recent SCOTUS Developments

December 8th, 2021 Amount in Controversy, Appellate Practice, Application to Compel Arbitration, Application to Stay Litigation, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Contract Defenses, CPR Speaks Blog of the CPR Institute, Diversity Jurisdiction, Equal Footing Principle, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Courts, Federal Question, International Arbitration, International Institute for Conflict Prevention and Resolution (CPR), International Judicial Assistance, Laches, Loree and Faulkner Interviews, Moses Cone Principle, Nuts & Bolts, Nuts & Bolts: Arbitration, Petition to Compel Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 3 Stay of Litigation, Small Business B-2-B Arbitration, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Supreme Court, Waiver of Arbitration Comments Off on CPR Interviews Downes, Faulkner & Loree About Recent SCOTUS Developments
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Steps and columns on the portico of the United States Supreme Court in Washington, DC.

Arbitration is an important topic this year at the U.S. Supreme Court (“SCOTUS”). On Monday, November 23, 2021 the International Institute of Conflict Protection and Resolution (“CPR”) conducted a video interview of Professor Angela Downes,  Assistant Director of Experiential Education and Professor of Practice Law at the University of North Texas-Dallas College of Law; Dallas-based arbitrator, attorney, and former judge Richard D. Faulkner, Esq.;  and Loree Law Firm principal Philip J. Loree Jr. about three recent SCOTUS arbitration-law developments. To watch and listen to the video-conference interview, CLICK HERE or HERE.

As reported in CPR’s blog, CPR Speaks, the three SCOTUS arbitration-law developments are:

  1. SCOTUS’s recent decision to Grant Certiorari in Morgan v. Sundance Inc.No. 21-328, which will address the question: “Does the arbitration specific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court’s instruction that lower courts must ‘place arbitration agreements on an equal footing with other contracts?’” Morgan v. Sundance, Inc., No. 21-328, Petition for a Writ of Certiorari (the “Petition”), Question Presented (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). (See SCOTUS Docket here for more information and copies of papers.) Prior to SCOTUS granting certiorari, we discussed the Morgan petition in detail here.
  2. Two SCOTUS petitions for certiorari that address the issue whether, for purposes of 28 U.S.C. 1782’s judicial-assistance provisions, an arbitration panel sited abroad is a “foreign or international tribunal” for purposes of the statute, which permits “any interested person” to seek U.S. judicial assistance to obtain evidence in the U.S. for use abroad. These petitions are AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign StatesNo. 21-518, and ZF Automotive US Inc. v. Luxshare Ltd.No. 21-401. Information about these cases is available at Bryanna Rainwater, “The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court,” CPR Speaks(Oct. 22, 2021) (available here) and “CPR Asks Supreme Court to Consider Another Foreign Tribunal Evidence Case,” CPR Speaks (Nov. 12, 2021) (available here).
  3. Badgerow v. WaltersNo. 20-1143, a recently-argued SCOTUS case that presents the question “[w]hether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.” See id., Question Presented Report, here. The case was argued before SCOTUS on November 2, 2021, and you can listen to the oral argument here. The oral argument is discussed in Russ Bleemer, “Supreme Court Hears Badgerow, and Leans to Allowing Federal Courts to Broadly Decide on Arbitration Awards and Challenges,” CPR Speaks (November 2, 2021) (available here).

Our good friend Russ Bleemer, Editor of CPR’s newsletter, Alternatives to the High Cost of Litigation, did a fantastic job conducting the interview.

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

Waiver of Arbitration: Will the U.S. Supreme Court Resolve the Circuit Split Concerning Prejudice?

September 28th, 2021 Application to Compel Arbitration, Application to Stay Litigation, Arbitration Law, Arbitration Practice and Procedure, Equal Footing Principle, Estoppel, FAA Chapter 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, Laches, Nuts & Bolts: Arbitration, Practice and Procedure, Prejudice, Section 3 Stay of Litigation, Small Business B-2-B Arbitration, Stay of Litigation, Stay of Litigation Pending Arbitration, United States Supreme Court, Waiver of Arbitration 1 Comment »

Waiver of Arbitration based on Litigation-Related Conduct

Waiver | Prejudice | Supreme Court | Cert Granted

United States Supreme Court

Whether an arbitration challenger must show prejudice to establish waiver of arbitration based on litigation-related conduct is an issue that might be the subject of a United States Supreme Court opinion in the not too distant future.

Federal Arbitration Act (“FAA”) Section 3 authorizes a stay of litigation in favor of arbitration “providing the applicant for the stay is not in default in proceeding with . . . arbitration.” 9 U.S.C. § 3 (emphasis added). The most common application of the “not in default” language occurs when a defendant in a lawsuit delays seeking a Section 3 stay and litigates on the merits. See, generally, Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 217-19 (3d Cir. 2007); Doctor’s Associates, Inc. v. Distajo, 66 F.3d 438, 454-56 (2d Cir. 1995).

Defending the suit on the merits—rather than seeking a stay of litigation and moving to compel arbitration—is inconsistent with arbitration and at some point constitutes at least an implied rejection or abandonment of the right to arbitrate. Section 3’s “not in default” condition authorizes a plaintiff resisting a stay to assert that the defendant has waived its right to arbitrate. 9 U.S.C. § 3; see 482 F.3d at 218; 66 F.3d at 454-56.

We discussed waiver of arbitration based on litigation-related conduct in a prior post, here. Under general principles of contract law, waiver is the “intentional relinquishment of a known right.” See, e.g., Professional Staff Congress-City University v. New York State Public Employment Relations Board, 7 N.Y.3d 458, 465 (2006) (“A waiver is the intentional relinquishment of a known right with both knowledge of its existence and an intention to relinquish it. . . . Such a waiver must be clear, unmistakable and without ambiguity”) (citations and quotations omitted).

Waiver may be established by demonstrating that a party renounced or abandoned contract rights, whether by its representations or other conduct inconsistent with an intent to assert those rights. See, e.g., Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt, L.P., 7 N.Y.3d 96, 104 (2006).

It focuses solely on the conduct of the party charged with waiver—it does not require any showing that the other party detrimentally relied on the conduct or otherwise suffered any prejudice. See, e.g., United Commodities-Greece v. Fidelity Int’l Bank, 64 N.Y.2d 449, 456-57 (1985); Fundamental Portfolio Advisors, 7 N.Y.3d at 104, 106-07; Albert J. Schiff Assoc. v. Flack, 51 N.Y.2d 692, 698-99 (1980).

The concept that another’s untimely assertion of a right has prejudiced a person is central to the equitable doctrine of laches, not waiver. See Capruso v. Village of Kings Point, 23 N.Y. 3d 631, 641 (2014) (“Laches is defined as such neglect or omission to assert a right as, taken in conjunction with the lapse of time, more or less great, and other circumstances causing prejudice to an adverse party, operates as a bar in a court of equity. The essential element of this equitable defense is delay prejudicial to the opposing party.”) (citations and quotations omitted).

Prejudice is also an element required to establish estoppel, which is an equitable bar to enforcement of a contract right. See, e.g., Schiff Assoc., 51 N.Y.2d at 699 (“Distinguished from waiver, of course, is the intervention of principles of equitable estoppel, in an appropriate case, such as where an insurer, though in fact not obligated to provide coverage, without asserting policy defenses or reserving the privilege to do so, undertakes the defense of the case, in reliance on which the insured suffers the detriment of losing the right to control its own defense.”)

Waiver: The Circuit Split on Prejudice

There is a split in the circuits concerning whether a party opposing a stay must not only demonstrate litigation-related conduct inconsistent with arbitration to establish waiver but must also establish prejudice.

Most circuit courts of appeals have determined that prejudice is required to establish waiver of arbitration based on litigation-related conduct. See Carcich v. Rederi A/B Nordie, 389 F.2d 692, 696 (2d Cir. 1968); Gavlik Constr. Co. v. H. F. Campbell Co., 526 F.2d 777, 783-84 (3d Cir. 1975), overruled on other grounds by Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271 (1988); Carolina Throwing Co. v. S & E Novelty Corp., 442 F.2d 329, 331 (4th Cir. 1971); Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 497 (5th Cir. 1986); O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th Cir. 2003); Stifel, Nicolaus & Co. v. Freeman, 924 F.2d 157, 158 (8th Cir. 1991); ATSA of Cal., Inc. v. Cont’l Ins. Co., 702 F.2d 172, 175 (9th Cir. 1983); S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507, 1514 (11th Cir. 1990); see also Joca-Roca Real Estate, LLC v. Brennan, 772 F.3d 945, 949 (1st Cir. 2014) (prejudice requirement is “tame at best”).

Courts frequently cite the FAA’s federal policy favoring arbitration as justifying a prejudice requirement for waiver. See, e.g., Stifel, Nicolaus & Co., 924 F.2d at 158 (citing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). Other circuit courts do not require prejudice. See St. Mary’s Med. Ctr. of Evansville, Inc. v. Disco Aluminum Prods. Co., 969 F.2d 585, 590 (7th Cir. 1992); Nat’l Found. for Cancer Rsch. v. A.G. Edwards & Sons, Inc., 821 F.2d 772, 774 (D.C. Cir. 1987).

State supreme courts are also split.  Compare, e.g., St. Agnes Med. Ctr. v. PacifiCare of Cal., 82 P.3d 727, 738 (Cal. 2003) (prejudice required under state arbitration law); Advest, Inc. v. Wachtel, 668 A.2d 367, 372 (Conn. 1995) (prejudice required; following Second Circuit authority) with Hudson v. Citibank (S.D.) NA, 387 P.3d 42, 47-49 (Alaska 2016) (prejudice not required under federal law); Raymond James Fin. Servs., Inc. v. Saldukas, 896 So.2d 707, 711 (Fla. 2005) (prejudice not required under federal law);  Cain v. Midland Funding, LLC, 156 A.3d 807, 819 (Md. 2017) (prejudice not required under state law).

The Morgan SCOTUS Petition: Waiver, Prejudice, and the “Equal Footing” Principle

This raises an important question concerning FAA Section 2’s “equal footing principle,” which has been presented to the Supreme Court in a recent petition for certiorari: “Does the arbitration specific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court’s instruction that lower courts must ‘place arbitration agreements on an equal footing with other contracts?’” Morgan v. Sundance, Inc., No. 21-328, Petition for a Writ of Certiorari (the “Petition”), Question Presented (quoting AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)). (See SCOTUS Docket here for more information and copies of papers.) Opposition papers are due on October 1, 2021, which means that the Court may grant or deny the petition before the end of 2021.

The question is a substantial one since the purpose of “savings clause” of FAA Section 2 “was to make arbitration agreements as enforceable as other contracts, but not more so.” See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967). FAA Section 2’s “savings clause” provides that arbitration agreements falling under the FAA “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.

Courts that require prejudice to establish waiver are arguably making arbitration agreements more enforceable than ordinary contracts. And that may violate the “equal footing” principle.

Back in 2011 the Supreme Court granted a petition for certiorari seeking review of essentially the same question, but the parties settled the case before it was fully submitted and SCOTUS dismissed it as moot without reaching the merits. Citibank, N.A. v. Stok & Assocs., P.A., 387 F. App’x 921 (11th Cir. 2010), cert. granted, 562 U.S. 1215 (2011), cert. dismissed, 563 U.S. 1029 (2011) (See SCOTUS Docket here.)

Morgan v. Sundance, Inc., presents another opportunity for the Court to resolve the circuit and state supreme court conflicts on litigation-conduct-related waiver. As set forth in the comprehensive and well-written petition, Morgan presents a good vehicle for SCOTUS to resolve a long-standing (and deep) circuit/state-supreme-court conflict, which continues to be worthy of review.

If the Supreme Court grants certiorari; reverses the U.S. Court of Appeals for the Eighth Circuit’s decision, which required the plaintiff to show prejudice; and holds that prejudice is not required to establish waiver, then parties who wish to demand arbitration after being named a defendant in a litigation will need to move promptly to stay litigation and compel arbitration or risk losing the right to do so. While that might create some enforcement risks for parties who wish to arbitrate, it may also reduce, or at least streamline, FAA enforcement proceedings concerning litigation-related-conduct-based waiver.

Contacting the Author

If you have any questions about arbitration, arbitration-law, arbitration-related litigation, or this article, or if you wish to discuss possibly retaining the Loree Law Firm to provide legal advice or other legal representation, please contact the author, Philip Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. 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.