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O’Dell v. Aya Healthcare Services: The Ninth Rejects Non-Mutual Offensive Collateral Estoppel as a Basis for Invalidating Arbitration Agreements

April 15th, 2026 Arbitration Agreement Invalid, Arbitration Agreement Unenforceable, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Challenging Arbitration Agreements, Class Action Arbitration, Class and Collective Proceedings, Contract Defenses, Delegation Agreements, Delegation Provision, Drafting Arbitration Agreements, Equal Footing Principle, FAA Chapter 1, FAA Section 13, FAA Section 2, FAA Section 3, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 13, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, First Principle - Consent not Coercion, Gateway Disputes, Gateway Questions, Issue Preclusion, Mass Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Preclusion Doctrines, Preclusive Effect of Awards, Res Judicata or Claim Preclusion, Section 13, Section 2, Section 3 Default, Section 3 Stay of Litigation, Section 4, United States Court of Appeals for the Ninth Circuit No Comments »

Introduction

non-mutual, offensive collateral estoppelIn O’Dell v. Aya Healthcare Services, Inc., No. 25-1528, slip op. at 2-3 (9th Cir. Apr. 1, 2026), the Ninth Circuit overturned a district court ruling that invoked non-mutual, offensive collateral estoppel to deem unconscionable hundreds of separate, bilateral arbitration agreements agreements between a corporate health care provider and its individual, nurse employees. O’Dell, a 3-0 opinion, is of  interest to entity and individual parties litigating gateway arbitrability disputes arising out of  mass, class, or collective proceedings.

Background

The case concerned wage-related claims asserted by travel-nurse employees against a healthcare provider, Aya Healthcare Services, Inc. (“Aya”). As a condition of employment, Aya required its employees to sign arbitration agreements containing similar terms. The agreements also contained delegation provisions that required an arbitrator, rather than a court, to decide arbitration-agreement validity disputes. Id. at 4-6. (You can read about delegation provisions here and here.)

The district court initially sent four named plaintiffs’ disputes to four separate arbitrations each to be decided by a different, individual arbitrator. The results were evenly split: Two arbitrators held the agreements unconscionable based on their fee allocation and venue provisions; the other two ruled that the agreements were enforceable, determining that a savings clause (presumably providing  for severability) cured any unconscionability problem. Id. at 6. The district court confirmed three of the four awards, refusing to confirm one of the awards because of Aya’s alleged failure to pay the arbitration fee.  Id.

After 255 additional plaintiffs opted into a Fair Labor Standards Act (“FSLA”) collective action, the district court declined to send their disputes to arbitration. Instead, invoking non-mutual, offensive collateral estoppel, the district court gave preclusive effect to the two arbitral rulings invalidating the agreements, refused to give the same effect to the two rulings upholding the agreements, and held that Aya was barred by collateral estoppel from enforcing the remaining agreements. Id. at 6-7.

The Court did not accord preclusive effect to the two awards that upheld the agreement to arbitrate, dismissing them as not “reasoned” or “thorough.” Id. at 7.

The Court of Appeals for the Ninth Circuit reversed and remanded.

Offensive, Non-Mutual Collateral Estoppel: The Question Presented

The Ninth Circuit considered whether “application of non-mutual offensive collateral estoppel to preclude the enforcement of arbitration agreements is compatible with the Federal Arbitration Act [(the “FAA”)].” Id. at 4. The Court said the answer was no. Id. at 4-5, 12-13.

The Ninth Circuit’s Analysis: Non-Mutual, Offensive  Collateral Estoppl is Incompatible with the FAA

The court’s reasoning was straightforward, but its implications are significant. It began with the FAA’s text.

FAA Section 2 provides, in pertinent part, that arbitration agreements “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. Under Section 2, “generally applicable contract defenses such as fraud, duress, or unconscionability” are “grounds for revocation.” Slip op. at 8 (quotations and citations omitted) But there were no such grounds here.

The Ninth Circuit explained that non-mutual offensive issue preclusion is not a “generally applicable contract defense” of the kind contemplated by Section 2’s savings clause. O’Dell, slip op. at 8-9 (quotations and citation omitted). For irrespective of whether a case concerns contract enforceability, this preclusion doctrine may, to avoid relitigation, accord certain judgments preclusive effect. “In other words,” said the Court, “the doctrine is not about contracts or contract defenses.”  It is a judge-made preclusion doctrine which—if used as it was here—would indirectly but effectively invalidate arbitration agreements that the FAA says should be enforced. Id. at 8-10.

It is not a ground for “revocation”—which is “‘[t]he recall of some power, authority, or thing granted, or a destroying or making void of some deed that had existence until the act of revocation made it void.’” Id. at 9 (quotations and citations omitted). “Revocation” under Section 2 “includes fraud, duress, and unconscionability[,]” but “does not pertain to a deficiency with respect to the formation of contracts. . . that might result in “revocation.” Slip op. at 9 (quotations and citations omitted).

Even assuming “revocation broadly encompasses the indirect but effective invalidation of the agreement through preclusion, And to the extent that “revocation broadly encompasses the indirect but effective invalidation of agreements through preclusion,” the doctrine would “contravene critical features of the FAA.” Slip op. at 9 (quotations and citations omitted).

The Court also considered context, considering Sections 3, 4, 10, and 13 of the FAA. Sections 3 and 4 require courts to stay litigation and compel arbitration in accordance with the parties’ agreement once the making of the agreement is not in issue. 9 U.S.C. §§ 3-4. Section 10 provides limited grounds for vacatur focused on defects in the arbitral process, such as corruption, fraud, or evident partiality. Id. § 10. In the Ninth Circuit’s view, nothing in that statutory scheme suggests that Congress contemplated a non-mutual preclusion doctrine that would frustrate arbitrations the parties had separately agreed to undertake. O’Dell, slip op. at 9-10. The court specifically rejected the employees’ reliance on Section 13, reasoning that Section 13 makes confirmed awards enforceable as judgments, but does not authorize using one confirmed award to abrogate distinct arbitration agreements involving other parties. Id. at 12-13.

Application of Offensive, Nonmutual Collateral Estoppel Violates Arbitration’s First Principle

The FAA’s first principle—consent, not coercion—provided the Court with a second— and perhaps in some ways, more important—rationale. (For a discussion of arbitration’s “first principle,” see here.) The FAA, the panel explained, presupposes that arbitration is a matter of consent, not coercion. Id. at 10-11 (citing Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 681 (2010); Lamps Plus, Inc. v. Varela, 587 U.S. 176, 184 (2019)). The employees’ preclusion theory disregarded this first principle. See slip op. at 10-11. As the Court explained, “[p]recluding an arbitration” to which “the parties agreed. . .— because a different arbitrator in a different proceeding had concluded that an agreement between different parties was unconscionable—would render the parties’ consent meaningless.” Slip op. at 11.

Using Offensive, Non-Mutual Collateral Estoppel to Impose a Bellwether Scheme without Party Consent

The court’s third rationale will likely attract the most attention. The district court’s ruling, the panel said, effectively transformed individualized arbitrations into a binding “bellwether” or class-like device without the parties’ consent. Id. at 5, 11-12. That is significant because Supreme Court precedent has repeatedly held that the FAA does not permit courts or arbitrators to impose class  procedures that alter the “fundamental attributes” of arbitration unless there is a contractual basis to do so. See Epic Sys. Corp. v. Lewis, 584 U.S. 497, 507-09 (2018) (quotation and citations omitted); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011); Stolt-Nielsen, 559 U.S. at 684-87. O’Dell extends that line of authority in an important way. It treats offensive non-mutual preclusion, when used to wipe out separate bilateral arbitrations, as another unauthorized claim aggregation scheme that is inconsistent with the FAA’s consent-based, bilateral structure. See O’Dell, slip op. at 11-13.

The Court said “the imposition here [of an aggregation mechanism] is more concerning than in” prior cases. See slip op. at 11. Because in ordinary class proceedings named representative plaintiffs must “adequately represent” class members. Slip op. at 11. Not so here. “Indeed,” said the Court, under the district court’s logic, just one  arbitration proceeding would be enough to preclude hundreds (or thousands) of other arbitration proceedings.” Slip op. at 12. “That,” remarked the Court, “is a class action stripped of all  its important protective features.” Slip op. at 12. Permitting offensive collateral estoppel to preclude agreed individual arbitrations from taking place “would supplant arbitrations with binding bellwether class actions lacking the procedural safeguards of ordinary class actions.” Slip op. at 12. That would violate the FAA. See Slip op. at 12.

The Court accordingly rejected “this new application of preclusion doctrine as it would be “fundamentally at war with the FAA and undermine Congress’s efforts to protect arbitration from judicial opposition.” Slip op. at 12 (citation omitted).

Implications of the Decision

O’Dell is important for at least three reasons. First, it clarifies that FAA Section 2’s saving clause authorizes only generally applicable contract defenses, not equitable doctrines which apply to litigation generally, as opposed to contract actions specifically. That is especially so, where, as here, the doctrine may, as applied, interfere with arbitration’s key attributes or is otherwise incompatible with arbitration.

Second, O’Dell reminds us that, pursuant to delegation agreements, and in the absence of contractual consent to the contrary, gateway arbitrability disputes are disputes between the parties to the particular individual arbitration agreement at issue. They are, in the absence of an agreement to the contrary, to be decided in an arbitration between those parties, not by proxy using  a bellwether aggregation device.

Here, the district court had already enforced the delegation clauses as written by sending the first four validity disputes to arbitration. Id. at 5-6. Once those arbitrations produced mixed results, the district court used the two invalidity awards as a shortcut to avoid further arbitrations. The Ninth Circuit rejected that move. In practical terms, where the parties have agreed to arbitrate gateway validity questions one by one, courts may not convert a few early rulings into a substitute for resolving each of the remaining individual arbitrations. See slip op. at 10-12.

Third, O’Dell has implications for collective, coordinated, and mass arbitration litigation. Plaintiffs’ counsel will often look for ways to convert favorable early rulings into leverage across a broader claimant pool. Defendants, too, sometimes seek global effect from threshold rulings. O’Dell does not foreclose contractual bellwether arrangements or other consensual aggregation mechanisms. But it does show that courts may not impose them through non-mutual offensive issue preclusion when the parties agreed to bilateral arbitration. Id. at 11-13.

Conclusion

O’Dell should be read as an important Ninth Circuit reaffirmation of three connected FAA principles: arbitration agreements must be enforced according to their terms; not all defenses are generally applicable contract defenses, and arbitration remains a matter of consent, not coercion. Where parties agreed to bilateral arbitration, courts may not use non-mutual offensive collateral estoppel to create a de facto class, bellwether, or other aggregation mechanism to which the parties never agreed.

Contacting the Author

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

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

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

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

 

Arbitration and Sexual Harassment Disputes: The Sixth Circuit Adopts the EFAA Entire-Case Rule in Bruce v. Adams & Reese

March 23rd, 2026 Arbitrability, Arbitration Agreement Invalid, Arbitration Agreement Unenforceable, Arbitration Law, EFAA - FAA Chapter 4, Employment Arbitration, Enforcing Arbitration Agreements, FAA Chapter 4, FAA Section 2, FAA Section 3, FAA Section 4, FAA Section 401, FAA Section 402, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Gateway Disputes, Gateway Questions, Motion to Compel Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Predispute Arbitration Agreements, Section 4, Stay of Litigation, Stay of Litigation Pending Arbitration, Textualism, United States Court of Appeals for the Sixth Circuit No Comments »

Introduction: Under the EFAA a Covered Sexual Harassment Dispute May Render the Entire Case Non-Arbitrable

Sexual Harassment Disputes and the EFAA | U.S. Court of Appeals for the Sixth CIrcuitThe presence of a sexual harassment claim in a case featuring otherwise arbitrable claims may mean that Chapter 4 of the FAA renders the entire case non-arbitrable. In our recent overview of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of  2021 (the “EFAA”),  we identified the statute’s arguably most consequential open question: when a complaint includes a covered sexual-harassment dispute and non-covered claims, does the EFAA keep the whole lawsuit in court, or only the harassment claim, thereby effectively bifurcating the dispute-resolution process?

The U.S. Court of Appeals for the  Sixth Circuit recently  answered that controversial open question, becoming the first U.S. Circuit Court of Appeals to do so. In Bruce v. Adams & Reese, LLP, No. 25-5210, slip op. (6th Cir. Feb 25, 2026), the U.S. Court of Appeals for the Sixth Circuit—in a 2-1 opinion written by U.S. Circuit Judge Karen Nelson Moore— held that, under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of  2021 (the “EFAA”), a single plausibly pleaded sexual-harassment claim can keep an entire mixed-claim employment case out of arbitration, even if the other non-harassment/non-assault claims would otherwise be arbitrable.

Bruce places the first federal-circuit-court-of-appeals imprimatur on the broad reading of Section 402(a), which several district courts have adopted, and which we flagged in our earlier article as a likely flashpoint. It also raises the stakes of the pleading-stage fight over whether the plaintiff has adequately alleged a covered sexual-harassment or sexual-assault dispute.

In Bruce, adequate pleading was linked to arbitrability: because the plaintiff plausibly pleaded a Title VII hostile-work-environment claim, the employer could not compel arbitration of her ADA claims, which would otherwise have been arbitrable.

What Happened in Bruce

Bruce worked in a law-firm liquor practice that moved from Firm A to Continue Reading »

When Arbitration-Fee Nonpayment Derails the Process: Tenth Circuit says the Default Lifts the Section 3 Stay, Allowing Litigation to Proceed | Myers v. Papa Texas, LLC, ___ F.4th ___, No. 25-2020, slip op. (10th Cir. Feb. 12, 2026)

February 18th, 2026 Arbitration Fees, Arbitration Law, Arbitration Practice and Procedure, Default in Proceeding with Arbitration, FAA Chapter 1, FAA Section 3, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Section 3 Default, Stay of Litigation, Stay of Litigation Pending Arbitration, Uncategorized, United States Court of Appeals for the Tenth Circuit, Waiver of Arbitration No Comments »

Introduction: a Section 3 Default in Case Where Arbitration Proponent Failed to Pay Arbitration Fees 

Default Under FAA Section 3 in Nonpayment of Arbitration Fees CaseDefault in the FAA Section 3 context is not limited to litigation conduct that establishes waiver of arbitration. In Myers v. Papa Texas, LLC, ___ F.4th ___, No. 25-2020, slip op. (10th Cir. Feb. 12, 2026) the U.S. Court of Appeals for the 10th Circuit made three key points about Section 3 default in a nonpayment of fees case:

  1. A party that fails to pay required arbitration fees and thereby causes the arbitration administrator (here, the American Arbitration Association (the “AAA”) to close the case risks being found “in default in proceeding with such arbitration” under FAA § 3, allowing the district court to lift an the stay of litigation and resume the litigation.
  2. In the Tenth Circuit, the “default” inquiry under § 3 is not the same thing as waiver-by-litigation (the usual “did you litigate too much before seeking arbitration?” question). A party can avoid waiver-by-litigation and still default in arbitration by not performing the steps needed to arbitrate, especially payment of arbitration fees.
  3. If you want arbitration, you must be prepared to fund it, comply with the forum’s rules, and build a record showing any inability to pay or good-faith efforts to make arrangements.

What Happened

Luke Myers brought an action against his employer, Papa Texas, LLC, in federal district court. Papa Texas obtained a stay pending arbitration under FAA § 3, and the case moved toward arbitration administered by the AAA.

But arbitration is not free, particularly for business entity defendants. It runs on process—and fees, which (all too often) can be quite substantial.

The AAA demanded payment. Papa Texas did not tender it. After repeated notices and extensions, AAA closed the arbitration for nonpayment—what would one expect? Myers understandably wanted to proceed to litigation and so he asked the Court to lift the stay. Why? Because, said Myers, Papa Texas had “default[ed] in proceeding with arbitration” within the meaning of Section 3.

The district court agreed and lifted the stay. Papa Texas appealed and the Tenth Circuit affirmed.

What Arbitration-Law Issues did the Tenth Circuit Principally Address?

Myers resolved two closely-related and important FAA issues:

  1. What “default in proceeding with such arbitration” means under FAA § 3 when arbitration is derailed by nonpayment; and
  2. Whether and to what extent that § 3 “default” inquiry differs from waiver-by-litigation-conduct, especially after the U.S. Supreme Court’s instruction that courts must avoid arbitration-specific procedural rules? See Morgan v. Sundance, 596 U.S. 411, 414, 419 (2022).

Discussion

 

FAA § 3: “Default in Proceeding with such Arbitration” is a Real, Independent Off-Ramp for Arbitration Opponents

Most FAA practitioners instinctively think about waiver when a party engages in litigation conduct that is materially inconsistent with their agreement to arbitrate. But FAA § 3 contains specific limiting language that contemplates waiver not only by litigation conduct but other kinds of “default:” a court “shall…stay the trial…until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” 9 U.S.C. § 3.

That last clause is not window dressing or surplusage. The Tenth Circuit treated it as an independent basis to terminate a previously ordered stay and to allow the litigation to proceed. (For more on Section 3 default, see here , here, and here.)

Default is not Limited to “Waiver by Litigation”

Papa Texas tried to reframe the § 3 default question as if it were the familiar waiver framework: multi-factor tests, litigation conduct, and (prior to Morgan) prejudice. But the Tenth Circuit rejected this category error. Default in arbitration is about whether the party who asked the court to halt litigation and send the dispute to arbitration proceeded with arbitration in a manner consistent with the agreement and the forum’s requirements.

Put differently, a party can “win” the waiver-by-litigation fight but still “lose” under § 3 if it does not move the arbitration forward as required by the agreement and applicable arbitration rules.

Nonpayment that Causes the Administrator to Close the File is Compelling Evidence of Default

The panel relied heavily on practical reality: the AAA closed the case because Papa Texas didn’t pay—despite repeated warnings.

The employer tried to blunt that with alternative glosses (including arguments drawn from other circuits’ approaches and attempts to import broader “totality of the circumstances” standards). But the court viewed the facts as straightforward:

  1. The arbitration forum demanded payment;
  2. The payment obligation was clearly communicated;
  3. The AAA granted extensions;
  4. Nonpayment persisted; and
  5. The forum closed the case.

That sequence supported the district court’s conclusion that the party seeking arbitration had defaulted in proceeding with arbitration.

Ability to Pay can Matter—But You Must Prove it

 A notable aspect of the Tenth Circuit’s analysis is what it emphasized as missing: evidence that Papa Texas could not afford the fees or tried to make alternative arrangements.

That matters for two reasons.

First, courts are understandably reluctant to let a party weaponize arbitration costs—especially when the party invoked arbitration to stop litigation—and then refuse to pay, leaving the opposing party with nowhere to go. That’s the kind of “heads, I win, tails you lose” tactic that waiver or default doctrine abhors. Cf. Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) (party opposing waiver “wanted to play heads I win, tails you lose”).

Second, a genuine inability to pay, documented contemporaneously, could change the equities and sometimes the analysis. But the Tenth Circuit found no record support for that kind of inability here.

The Court Resisted “Arbitration-Specific” Procedural Requirements Without Weakening § 3’s Default Clause

Papa Texas attempted to draw energy from the Supreme Court’s insistence that courts not craft arbitration-specific procedural rules. The panel did not disagree with that principle. Instead, it treated § 3’s default clause as plain statutory text: if you’re the one who asked for the stay, you must not be in default while arbitration is pending.

That framing is doctrinally important. It positions § 3 default as a text-based limit on the stay remedy—not a court-made, arbitration-hostile overlay.

Seen through that lens, Section 3 is not a special judge-made  procedural rule favoring arbitration agreements over other contracts. If anything, it is an FAA procedural rule that neither favors nor disfavors arbitration and simply prescribes the circumstances under which a stay is either unavailable in the first place or subject to early termination.

The Default Argument was not Waived

Papa Texas also tried a different tack: even if nonpayment could support § 3 default, Myers supposedly waived the default argument by not emphasizing it when Papa Texas first sought the stay. According to Papa Texas, Myers waived the default argument by intentionally opting not to make at the first available opportunity.

The Tenth Circuit affirmed the district court’s rejection of that contention, finding that the district court did not abuse its discretion. The Court said that the district court “was well within its discretion to conclude that nothing about Myer’s counsel’s explanation [for having earlier argued waiver rather than default], or Myer’s behavior before raising the default argument[]” evidenced an intentional relinquishment of the default argument. Slip op. at 18.

Practice Considerations for Arbitration Proponents and Arbitration Opponents

 

Arbitration Proponents

If you prefer to arbitrate, budget for it and document any inability to pay.

  1. Assume the court will expect the party who demanded arbitration to pay its share of arbitration fees promptly.
  2. If you cannot, create a record: declare the inability, propose structured payment, request fee relief if the rules permit it, and document pertinent communications.
  3. Do not let the administrator close the case and then argue later that you still want arbitration.

Arbitration Opponents

If the other side doesn’t pay, move fast. If your opponent is stalling arbitration by nonpayment:

  1. Request administrator enforcement (warnings, deadlines, and closure).
  2. Return to court and seek an order lifting the stay under FAA § 3 once default is clear.
  3. Preserve the record: notices, invoices, extensions, closure and other communications.

Conclusion

Myers is a clean, practitioner-facing reminder that arbitration is not self-executing. The FAA favors arbitration, but it does not require courts to keep cases on pause while the party who demanded arbitration refuses to do what the arbitration agreement requires.

Contacting the Author

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

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

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.

 

Hot Topics in Appellate Arbitration: Supreme Court Review, Jurisdictional Fault Lines, and a Look Ahead to 2026

December 19th, 2025 Appellate Practice, Applicability of Federal Arbitration Act, Applicability of the FAA, Application to Confirm, Application to Stay Litigation, Application to Vacate, Arbitration Agreement Invalid, Arbitration Agreements, Arbitration Fees, Arbitration Law, Arbitration Practice and Procedure, Awards, California Supreme Court, Challenging Arbitration Awards, Choice-of-Law Provisions, Confirmation of Awards, Exemption from FAA, FAA Chapter 1, FAA Preemption of State Law, FAA Section 1, FAA Section 10, FAA Section 11, FAA Section 2, FAA Section 3, FAA Section 4, FAA Section 9, FAA Transportation Worker Exemption, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 1, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 12, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Independence, International Arbitration, International Institute for Conflict Prevention and Resolution (CPR), Loree and Faulkner Interviews, Personal Jurisdiction, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Modify Award, Petition to Vacate Award, Professor Angela Downes, Professor Downes, Richard D. Faulkner, Russ Bleemer, Section 1, Section 10, Section 11, Section 2, Section 3 Stay of Litigation, Section 4, Section 6, Service of Process, State Arbitration Law, State Arbitration Statutes, State Courts, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, Supreme Court, Textualism, The Loree Law Firm, United States Court of Appeals for the Fifth Circuit, United States Court of Appeals for the Fourth Circuit, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Second Circuit Comments Off on Hot Topics in Appellate Arbitration: Supreme Court Review, Jurisdictional Fault Lines, and a Look Ahead to 2026

appellate arbitration-law developmentsIn late 2025, the International Institute for Conflict Prevention and Resolution (“CPR”) presented a CPR Speaks YouTube program entitled “Hot Topics: Year-End Wrap-Up, and 2026 Look-Ahead, on Appellate Arbitration Cases.” Moderated by our friend and colleague, Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of CPR (“CPR Alternatives”), the program brought together a panel of highly experienced arbitration practitioners to discuss recent appellate arbitration developments and to assess issues likely to command attention in the current 2025 Supreme Court Term and beyond.

The panel included Professor Angela Downes, University of North Texas-Dallas College of Law(“UNTD”) Professor of Practice, UNTD Assistant Director of Experiential Education, and JAMS Neutral (arbitrator and mediator);  Richard D. Faulkner, veteran arbitration and appellate practitioner, arbitrator, mediator, former trial judge, prosecutor, and law professor; and the author, Philip J. Loree Jr., principal of The Loree Law Firm; founder, author,  and editor of the Arbitration Law Forum; and former BigLaw partner, who focuses his practice on arbitration and appellate and trial-court arbitration litigation.

You can review the video of the presentation here. This was the 17th arbitration-related, CPR-sponsored video presentation in which Mr. Loree and other members of the panel have participated. Russ is to be thanked profusely not only for hosting and moderating the program, but also  posting links and citation references to blog posts, articles and cases relevant to the matters discussed.

While the discussion canvassed a wide range of cases, the panel placed particular emphasis on two matters in which the United States Supreme Court (“SCOTUS”) has granted certiorari: Jules v. Andre Balazs Properties, No. 25-83 (U.S.) and Flowers Foods, Inc. v. Brock, No. 24-935 (U.S.).  Together, those cases underscore the Court’s renewed engagement with arbitration-related procedural and jurisdictional questions under the Federal Arbitration Act (the “FAA”).

This post summarizes the panel’s discussion of these important appellate arbitration developments, focusing primarily on Jules and Flowers and the issues they present. It then turns to other appellate decisions that have recently shaped the arbitration-law landscape.

Appellate Arbitration Developments: Supreme Court Certiorari as the Organizing Principle

A central premise of the CPR program was that Supreme Court certiorari activity is itself a critically important signal indicating the direction in which arbitration law is trending at the appellate level. . Even where arbitration doctrine appears settled, the Court’s willingness to take certain cases—and its refusal to take others—often reveals where doctrinal fault lines have emerged or are emerging.

In this respect, Jules and Flowers Foods are especially significant. Both cases present issues that go to the scope and operation of the FAA, but neither involves a frontal assault on arbitration enforceability. To be sure, their outcomes will in Flowers determine whether, under the facts, Section 1 of the FAA exempts from the FAA certain end-point workers who transport goods without crossing borders, and in Jules, whether an FAA-governed arbitration award must be confirmed in a state, rather than federal, forum. Instead, they raise jurisdictional questions that can determine whether arbitration-related disputes are heard in federal court at all (Jules) or in any court under the FAA (Flowers).

Key Appellate Arbitration-Law  Development I: Jules v. Andre Balazs Properties—Continuing or Anchor Subject Matter Jurisdiction Following a Section 3 Stay and a Section 4 Motion to Compel

In Jules, the Supreme Court granted certiorari to address whether a federal court that stays an action pending arbitration under FAA § 3, and compels arbitration under Section 4, retains subject-matter jurisdiction to adjudicate  post-arbitration applications to confirm or vacate the award under FAA §§ 9 or 10.

Although narrow in formulation, the question is complex and has sweeping practical consequences, particularly in light of the Court’s 2022 decision in Badgerow v. Walters, 596 U.S. 1 (2022), which sharply limited federal courts’ ability to exercise so-called “look-through” jurisdiction over post-arbitration proceedings.

As the panel emphasized, Jules sits at the intersection of two doctrinal developments in appellate arbitration law:

  1. Mandatory stays under FAA § 3, increasingly reinforced by Supreme Court precedent, which apply only when a party requests the stay and a court finds referable to arbitration a claim that is the subject or part of a pending federal-court lawsuit on the merits; and
  2. Following Badgerow, restricted federal jurisdiction over pre- or post-award arbitration enforcement proceedings, at least where those proceedings are standalone, independent proceedings that do not arise out of a preexisting but stayed federal-court lawsuit.

If a federal court in a lawsuit on the merits of a dispute compels arbitration, and if a party requests a stay of the federal lawsuit pending arbitration, then under Smith v. Spizzirri, 144 S. Ct. 1173 (2024), the federal court must grant the stay. But if the same court lacks jurisdiction to confirm or vacate the resulting award, the practical utility of the initially selected and stayed  federal forum is substantially diminished, and serious questions arise about whether Congress intended the FAA to permit such a result.

This is especially so since finding jurisdiction based on the preexisting jurisdiction of the federal lawsuit does not implicate any concerns about “looking through” to the underlying arbitration proceeding. As long as jurisdiction is based on the jurisdiction of the Court in the underlying lawsuit, then there is no “look through”—it’s really just “look at”—if there was subject matter jurisdiction over the stayed lawsuit, then there should presumably be subject matter jurisdiction over a motion made in that stayed lawsuit for relief under the FAA relating to the subject matter of that stayed lawsuit. See Badgerow, 596 U.S. at 15 (“Jurisdiction to decide the case includes jurisdiction to decide the motion; there is no need to “look through” the motion in search of a jurisdictional basis outside the court.”) The tension associated with all of this is what Jules brings to the fore.

CPR’s discussion of the case highlights how lower courts have divided on this issue and why the Supreme Court guidance is required. (See CPR’s analysis of Jules here.)

SmartSky Networks v. DAG Wireless: Context for the Jules Question

Against that backdrop, the panel discussed SmartSky Networks LLC v. DAG Wireless Ltd., 70 F.4th 615 (4th Cir. 2023),  a Fourth Circuit decision addressing whether a federal court that compelled arbitration, and stayed proceedings pending arbitration, retained jurisdiction to confirm or vacate the resulting award. The U.S. Court of Appeals for the Second Circuit ruled in Jules that the district court, which had federal question jurisdiction over a lawsuit on the merits, had continuing subject matter or anchor jurisdiction over post-award enforcement proceedings because it had granted a Section 3 stay and a Section 4 motion to compel arbitration. In SmartSky, however, the U.S. Court of Appeals for the Fourth Circuit reached the diametrically opposite conclusion in a case involving essentially the same material facts as Jules.

Importantly, as the panel made clear, SmartSky was not discussed as an end in itself. Rather, it served as a concrete illustration of the jurisdictional problem now before the U.S. Supreme Court in Jules. The resolution of Jules will most likely determine whether SmartSky is a good law, a very important question to appellate and trial-court arbitration law practitioners.

SmartSky, unlike Jules, concluded that the district court lacked jurisdiction over post-arbitration proceedings, notwithstanding the Section 3 stay. That approach reflects a strict reading of Badgerow and highlights the risk that federal courts may become jurisdictionally stranded after compelling arbitration. That would leave a significant amount of additional FAA litigation to the state courts, who would be expected to apply the FAA to substantive matters but be free to apply state arbitration law to procedural matters.

The panel discussed how courts have taken different approaches, creating uncertainty for practitioners and litigants alike. These divergent outcomes underscore why Supreme Court review is warranted.

As CPR’s year-end materials explain, SmartSky and Jules, taken together, demonstrate the kind of materially different approaches to the same important issue that often prompt a grant of certiorari. (See CPR’s overview here.)

Key Appellate Arbitration-Law  Development II: Flowers Foods, Inc. v. Brock— FAA § 1 and the Scope of the Transportation Worker Exemption

The panel also discussed Flowers Foods, Inc. v. Brock, No. 25-121 (U.S.), the other case in which the Supreme Court has granted certiorari. Flowers Foods concerns the scope of the FAA § 1 exemption for certain “transportation workers” and the criteria courts should apply in determining whether that exemption applies.

The question before the Court is: “[a]re workers who deliver locally goods that travel in interstate commerce—but who do
not transport the goods across borders nor interact with vehicles that cross borders—’transportation workers’ ‘engaged in foreign or interstate commerce’ for purposes of the Federal Arbitration Act’s § 1 exemption?”

Continuing Uncertainty Under FAA § 1

Although the Supreme Court has addressed FAA § 1 in recent years, the panel noted that lower courts continue to struggle with its application, particularly in cases involving workers who perform mixed or indirect transportation-related functions, or where (as here) a bona fide question arises concerning whether the workers are engaged in interstate commerce within the meaning of FAA § 1.

Flowers Foods presents an opportunity for the Court to clarify how broadly—or narrowly—the exemption should be construed, with significant implications for employment arbitration and independent contractor agreements.

The panel emphasized that FAA § 1 litigation has become one of the most active areas of appellate arbitration law, making the Court’s intervention both timely and consequential.

Other Appellate Developments Discussed

With the cert-granted-recently Supreme Court cases as the anchor, the panel surveyed several additional appellate decisions that illustrate broader trends:

  1. International arbitration and sovereign immunity, including the U.S. Supreme Court’s decision in CC/Devas (Mauritius) Ltd. v. Antrix Corp. Ltd., 145 S.Ct. 1572 (2025), addressing a Foreign Sovereign Immunities Act of 1976 (“FSIA”), 28 U.S.C. §§ 1330, 1602 et seq., personal jurisdiction issue arising out of an award enforcement matter.
  2. FAA preemption of State Law, as reflected in Hohenshelt v. Superior Court, 18 Cal.5th 310 (2025) (finding no preemption of state law concerning prompt payment of arbitrator fees).
  3. Consumer arbitration and unconscionability, including Live Nation v. Heckman, 69 F.4th 1257 (9th Cir. 2023).
  4. Severability of illegal arbitration agreement provisions and contract enforcement, discussed through Mungo Homes LLC v. Huskins, 379 S.C. 199, 665 S.E.2d 590 (S.C. 2023). (For a discussion of Mungo Homes, see here.)
  5. FAA §3 stays and procedural consequences, as discussed in Smith v. Spizzirri, 144 S. Ct. 1173 (2024). (For a discussion of Spizzirri, see here.)
  6. Flores v. New York Football Giants, Inc.,104 F.4th 205 (2d Cir. 2024), in which the U.S. Court of Appeals for the Second Circuit refused to enforce an arbitration agreement that required disputes to be arbitrated by an arbitrator who lacked independence from the parties. (For a discussion of Flores, see here.)

Practical Implications for Arbitration Practitioners

The panel’s discussion yielded several practical takeaways, including:

  1. Arbitration law disputes increasingly turn on procedural and jurisdictional mechanics rather than on arbitration’s legitimacy as a dispute resolution mechanism.
  2. At least until the Supreme Court decides Jules, federal subject matter jurisdiction based on an “anchor” or “continuing jurisdiction” theory cannot be assumed simply because the court has compelled arbitration and stayed litigation pending arbitration.
  3. Strategic decisions at the motion-to-compel stage may determine whether other FAA litigation will proceed in state, rather than federal court.
  4. Arbitration clause drafting should account for jurisdictional endgames—including vertical (state vs. federal) choice of law—not just enforceability generally.

Looking Ahead to 2026

As the panel concluded, the Supreme Court’s decisions in Jules and Flowers Foods are likely to shape arbitration practice well beyond the this 2025 Term, and the Court’s 2026 Term, which starts later next year. Together, they reflect a Court that is less concerned with whether arbitration is favored, and more concerned with how arbitration fits within the text of the FAA concerning subject matter jurisdiction and exemptions to FAA applicability.

For arbitration practitioners, staying attuned to these developments is critical. Programs like CPR’s year-end “Hot Topics” discussion provide an invaluable forum for understanding not just where arbitration law has been—but where it is heading.

Contacting the Author

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

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and trial court and appellate arbitration-related litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

This blog features links to several arbitration-related videos and webinars in which Mr. Loree appears.

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.

 

 

 

 

 

 

 

 

First American Title Arbitration Decision: Tenth Circuit Says Nonsignatory Escrow Agent Can’t Compel Arbitration

September 23rd, 2025 Appellate Practice, Application to Compel Arbitration, Application to Stay Arbitration, Arbitrability, Arbitrability - Equitable Estoppel, Arbitrability - Nonsignatories, Arbitrability | Existence of Arbitration Agreement, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Challenging Arbitration Agreements, Drafting Arbitration Agreements, Estoppel, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 1, FAA Section 2, FAA Section 3, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, First Principle - Consent not Coercion, Formation of Arbitration Agreement, Intended Beneficiaries, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Rights and Obligations of Nonsignatories, Section 2, Section 3 Stay of Litigation, Section 4, Stay of Litigation Pending Arbitration, Third-Party Beneficiaries, United States Court of Appeals for the Tenth Circuit, Waiver of Arbitration Comments Off on First American Title Arbitration Decision: Tenth Circuit Says Nonsignatory Escrow Agent Can’t Compel Arbitration

First American Title Arbitration DecisionThe Tenth Circuit’s First American Title arbitration decision, Fucci v. First Am. Title Ins. Co., 24-4051, slip op. (10th Cir. Sep 10, 2025), clarifies the limits of arbitration enforcement by nonsignatories under Florida and Ohio law, and recognizes that the arbitration agreement itself may further restrict that enforcement.

As the Supreme Court recognized in Arthur Andersen LLP v. Carlisle, 556 U. S. 624, 631 (2009), and as we discussed in a 2009 post, “traditional principles of state law allow a contract to be enforced by or against nonparties to the contract through assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, [and] waiver and estoppel.” 556 U.S. at 631. The First American Title arbitration decision’s nonsignatories argued for enforcement of the arbitration agreement on the ground they were allegedly parties, third-party beneficiaries, or agents. They also sought enforcement under equitable estoppel principles. But the Court rejected all of their  arguments and affirmed the district court’s denial of the motion for an order staying litigation and compelling arbitration.

The First American Title Arbitration Decision: Background

Real estate investors bought interests in Ohio and Florida event-center projects through Purchase and Sale Agreements (“PSAs”) Continue Reading »

Sixth Circuit Says Employee Physician Assistant Gets to Litigate Her Religious Discrimination Claims Because the Employer Defendants were Guilty of Section 3 Arbitration Default

September 18th, 2025 American Arbitration Association, Amicus Brief Submissions, Appellate Practice, Applicability of Federal Arbitration Act, Applicability of the FAA, Application to Compel Arbitration, Application to Stay Litigation, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Providers, Challenging Arbitration Agreements, Charles Bennett, Default in Proceeding with Arbitration, Enforcing Arbitration Agreements, FAA Chapter 1, FAA Section 3, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Forfeiture, Practice and Procedure, Richard D. Faulkner, Section 3 Default, Section 3 Stay of Litigation, Section 4, Stay of Litigation, Stay of Litigation Pending Arbitration, United States Court of Appeals for the Sixth Circuit, Waiver of Arbitration Comments Off on Sixth Circuit Says Employee Physician Assistant Gets to Litigate Her Religious Discrimination Claims Because the Employer Defendants were Guilty of Section 3 Arbitration Default

Section 3 Arbitration Default | Kloosterman Introduction

Does Section 3 arbitration default result from moving to dismiss the entire case on the merits? The Sixth Circuit says yes.

Since Morgan v. Sundance, 596 U. S. 411 (2022), most of the cases concerning loss of arbitration rights by litigation conduct have focused not on prejudice—Morgan nixed the requirement that arbitration opponents show prejudice to establish forfeiture or waiver, 596 U.S. at 1-2—but on what type and degree of inconsistent-with-arbitration conduct results in a loss of arbitration rights.

But on August 27, 2025, the U.S. Court of Appeals for the Sixth Circuit, took a slightly different tack on Section 3 arbitration default. In Kloosterman v. Metropolitan Hospital, No. 24-1398, slip op. (6th Cir. Aug. 27, 2025), the Court reversed a district court order that had compelled arbitration of a physician assistant (“PA”)’s religious discrimination claims. The Sixth Circuit made two significant rulings bearing on loss of arbitration rights by litigation conduct.

First, the Court held— in an opinion written by Circuit Judge Eric Continue Reading »

Eleventh Circuit: Arbitration Provider’s Decision not to Administer Means Arbitration is no Longer Required 

July 1st, 2025 American Arbitration Association, Application to Compel Arbitration, Application to Stay Litigation, Arbitration Fees, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Arbitration Risks, Challenging Arbitration Agreements, Charles Bennett, FAA Section 3, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Petition to Compel Arbitration, Practice and Procedure, Richard D. Faulkner, Section 3 Default, Section 3 Stay of Litigation, Section 4, Section 4 "Aggrieved" Requirement, Small and Medium-Sized Business Arbitration Risk, Small Business B-2-B Arbitration, Stay of Litigation, United States Court of Appeals for the Eleventh Circuit, Waiver of Arbitration Comments Off on Eleventh Circuit: Arbitration Provider’s Decision not to Administer Means Arbitration is no Longer Required 

Introduction

Section 3 Default | Section 4 AggrievedFrom time-to-time, arbitration providers may decline to administer an arbitration. What happens then according to Federal Arbitration Act “FAA”) Section 3 and Section 4? Must the parties arbitrate before an alternative provider or can a party insist on litigating the dispute in court?

If FAA Section 3 and Section 4, as applied to the parties’ agreement and the facts, authorize an order compelling arbitration and staying litigation, arbitration will (or at least should) ordinarily proceed. But as the U.S. Court of Appeals for the Eleventh Circuit’s decision in Merritt Island Woodwerx, LLC v. Space Coast Credit Union, No. 24-10019, slip op. (11th Cir. May 21, 2025) shows, if arbitration cannot be compelled, and litigation stayed—and the agreement can be legitimately construed as not to require further arbitration—then one or more parties can insist on Court resolution of their dispute, including, in an appropriate case, by jury trial.

That’s a big “if,” and an equally big “and,” but if all conditions are satisfied, then an arbitration opponent may have a solid basis for seeking judicial resolution of its dispute. That is ordinarily a big win, and one that is not otherwise easy to come by.

Understanding Merritt Island Woodwerx—and cases of like ilk—can help you identify opportunities to argue that a provider’s decision to proceed no further means arbitration proceed no further. Successfully taking advantage of those opportunities is the key, but if you do not spot them at the outset, then you may lose them.

If you’re an arbitration proponent, then understanding Merritt Island Woodwerx—and how to avoid or mitigate its consequences—is equally  important. The stakes are big: loss of arbitration rights a arbitration proponent had or should have can be an expensive and unwelcome proposition.

Background: What Transpired in Merritt Island Woodwerx?

The dispute was between a credit union (the “Arbitration Proponent”) Continue Reading »

International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the Three SCOTUS Cases Decided this Term and More  

June 3rd, 2024 Application to Stay Litigation, Arbitrability, 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, Clear and Unmistakable Rule, CPR Alternatives, CPR Video Interviews, Delegation Agreements, Exemption from FAA, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 1, FAA Section 2, FAA Section 3, FAA Transportation Worker Exemption, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 1, Federal Arbitration Act Section 2, Federal Arbitration Act Section 3, Federal Courts, Federal Subject Matter Jurisdiction, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Forum Selection Agreements, Loree and Faulkner Interviews, Professor Angela Downes, Questions of Arbitrability, Richard D. Faulkner, Russ Bleemer, Stay of Litigation, Stay of Litigation Pending Arbitration, United States Supreme Court 1 Comment »

CPR SCOTUS Wrap Up

As readers may know, over the last four years or so, 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”), has hosted presentations about significant arbitration-law developments (principally in the United States Supreme Court (“SCOTUS”)) that feature interviews of our friends and colleagues: 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.  (See, e.g., here, here, and here.) These interviews are posted on CPR’s YouTube channel, @CPRInstituteOnline.

On Wednesday, May 29, 2024, Russ interviewed Professor Downes, Rick and me about the three arbitration cases SCOTUS heard and decided this 2023 Term: (a) Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024); (b) Smith v. Spizzirri, 601 U.S. ___ (2024); and (c) Coinbase, Inc. v. Suski, 602 U.S. ___ (2024). We also discussed what one might expect on the arbitration front from the 2024 SCOTUS Term, Samsung’s mass arbitration case pending in the Seventh Circuit, and recent, controversial arbitration awards rendered against a major U.S. retail pharmacy company and their implications. You can view that interview here.

As always, we express our gratitude to Russ and CPR for hosting these interviews, and, along with Angela and Rick, look forward to contributing to future programs hosted by CPR.

On a related matter,  CPR Alternatives recently published parts I and II of our article discussing and analyzing SmartSky Networks LLC v. DAG Wireless Ltd., ___ F.4th ___, No. 22-1253, slip op. (4th Cir. Feb. 13, 2024) (available at https://bit.ly/4aviBLS). That case has created a split in the circuits concerning whether a Court having the requisite subject matter jurisdiction to hear a federal question lawsuit on the merits, and thus the requisite subject matter jurisdiction to grant a Section 3 stay of litigation pending arbitration, can be deemed to have subject matter jurisdiction over a post-award application to confirm, vacate, or modify an award—or an application to appoint an arbitrator or enforce a Section 5  arbitral summons—in circumstances where, if the application were made in a standalone, independent action, the Court would not have had subject matter jurisdiction under Badgerow. Prior to Spizzirri, we wrote a number of articles concerning this sometimes-vexing issue. (See here, here, and here.)

Part I of the article is entitled Philip J. Loree Jr., The Fourth Circuit Weighs the Post-Badgerow Jurisdictional Anchor—and Finds It Won’t Set, 42 Alternatives 73 (May 2024), and was published in the May 2024 issue of Alternatives. Part II is entitled Philip J. Loree Jr., More on Independent Actions and the “Jurisdictional Anchor”: Where the Law on Award Enforcement May Be Going, 42 Alternatives 95 (June 2024), which was published in the June 2024 issue of Alternatives. We recently submitted to Alternatives a short, post-script article about how the Spizzirri case, which was not decided until after the other two articles had been submitted, might bear on SmartSky. We expect that article will be published in CPR Alternatives next issue.

Although CPR Alternatives is a subscription-only publication (available to CPR Members only), Russ has said that upon email request, CPR will provide, for fair use purposes only, a copy of each of these articles. You can make your  request by emailing Alternatives@cpradr.org.

Contacting the Author

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

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has nearly 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance or reinsurance-related and other matters.

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.

 

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

May 21st, 2024 Appellate Jurisdiction, Appellate Practice, Arbitration Law, Arbitration Practice and Procedure, FAA Chapter 1, FAA Section 16, FAA Section 3, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Look Through, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 16, Section 3 Stay of Litigation, Section 4, Stay of Litigation, Stay of Litigation Pending Arbitration, Stay Pending Appeal, Subject Matter Jurisdiction, Textualism, Uncategorized, United States Court of Appeals for the Fourth Circuit, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Seventh Circuit, United States Supreme Court Comments Off on SCOTUS Decides Spizzirri, Saying that FAA Section 3 Stays of Litigation Pending Arbitration are Mandatory if Requested

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

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

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

Background

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

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

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

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

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

SmartSky: Fourth Circuit Says No Jurisdictional Anchor Post Badgerow

March 23rd, 2024 Application to Compel Arbitration, Application to Confirm, Application to Stay Litigation, Application to Vacate, Arbitration Law, Arbitration Practice and Procedure, Award Confirmed, Confirmation of Awards, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Diversity Jurisdiction, Enforcing Arbitration Agreements, FAA Chapter 1, FAA Chapter 2, FAA Section 10, FAA Section 11, FAA Section 3, FAA Section 4, FAA Section 9, 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 207, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Motion to Compel Arbitration, New York Convention, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Modify Award, Petition to Vacate Award, Section 10, Section 11, Section 6, Section 9, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Court of Appeals for the Fourth Circuit 4 Comments »

SmartSky

 

Introduction

This post discusses the U.S. Court of Appeals for the Fourth Circuit’s recent decision in SmartSky Networks, LLC v. DAG Wireless, Ltd., ___ F.4th ___, No. 22-1253, slip op. (4th Cir. Feb. 13, 2024). SmartSky held that, under Badgerow v. Walters, 596 U.S. 1, 142 S. Ct. 1310 (2022), if a party makes a motion to confirm, vacate, or modify an award in an action over which the Court has federal-question subject matter jurisdiction, then it must nevertheless demonstrate that the Court would have had subject matter jurisdiction had the motion been brought as a standalone petition to confirm, vacate, or modify. That is so even if the Court has under Federal Arbitration Act (“FAA”) Section 3 stayed the action pending arbitration.

Suppose:

  1. A and B, both New York citizens, entered a contract containing an arbitration agreement;
  2. A and B become embroiled in a dispute that is governed by a federal statute;
  3. A sues B in federal court, properly invoking the federal court’s federal- question jurisdiction, 28 U.S.C. § 1331;
  4. B demands arbitration, and moves to compel arbitration under Section 4 and for a stay of litigation pending arbitration under Section 3;
  5. A unsuccessfully opposes the motion, the Court compels arbitration and grants a Section 3 stay of litigation pending arbitration.
  6. B ultimately obtains a $100,000 (exclusive of costs and interest) award in its favor and moves in the stayed action to confirm the award.
  7. A opposes the motion on the ground the court has no subject matter jurisdiction to confirm the award.

SmartSky would require the Court to dismiss A’s motion for lack of subject matter jurisdiction, even though A made the motion in an action over which the Court had subject matter jurisdiction, the Court had compelled the arbitration that resulted in the award, and the Court had stayed the action pending arbitration under Section 3.  There is no federal-question jurisdiction, and because both A and B are citizens of New York, no diversity jurisdiction.

According to SmartSky, the dismissal of the motion to confirm would be required by Badgerow.

Badgerow 

In Badgerow the Supreme Court of the United States (“SCOTUS”) held that a basis for subject-matter jurisdiction—independent from the FAA itself—must appear on the face of a standalone, petition to confirm or vacate an arbitration award and that independent basis cannot be established by “looking through” to the underlying arbitration proceeding that resulted in the award. See Badgerow, 142 S. Ct. at 1314, 1320.

Simply petitioning a court for relief under Sections 9, 10, 0r 11 of the Federal Arbitration Act (“FAA”) raises no federal question and does not confer on a court federal-question subject-matter jurisdiction, as strange as that might sound to the uninitiated. In the absence of a federal question appearing on the face of the freestanding petition—such as a claim for relief falling under Chapter Two of the FAA, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”), see 9 U.S.C. §§ 202, 203; 28 U.S.C. § 1331, or one falling under Chapter Three, which implements or Inter-American Convention on International Commercial Arbitration (the “Inter-American Convention”), see 9 U.S.C. §§ 301, et seq.; 28 U.S.C. § 1331—the only possible basis for federal subject-matter jurisdiction over such a standalone petition is diversity of citizenship. See 28 U.S.C. § 1332(a).

If there is no diversity jurisdiction, and if the action does not concern an award falling under the New York or Inter-American Conventions, then the substantive provisions of Chapter One still apply but enforcement must be sought in state court. See Vaden v. Discover Bank, 556 U.S. 49, 59 (2009) (“Given the substantive supremacy of the FAA, but the Act’s nonjurisdictional cast, state courts have a prominent role to play as enforcers of agreements to arbitrate”).

A “Jurisdictional Anchor” Post-Badgerow?

The author explained in a recent Arbitration Law Forum post—Philip J. Loree Jr., Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards, Arbitration Law Forum (Nov. 13, 2023) (the “Jurisdictional Anchor Post”)— that Badgerow leaves unanswered an important question. It arises when—in a preexisting action over which the Court already has federal-question subject matter jurisdiction—a Court grants a motion made under Sections 4 and 3 of the FAA to compel arbitration and stay litigation, and a party subsequently moves in the same, stayed action to confirm, vacate, or modify an award resulting from the compelled arbitration. Does the Court in the stayed action have continuing subject matter jurisdiction to hear the parties’ motions to confirm or vacate the award, even though there is no independent basis for federal question or diversity jurisdiction? Can the existing but stayed federal-question lawsuit provide a “jurisdictional anchor” for the motions to confirm or vacate even though the Court would not, under Badgerow, have subject matter jurisdiction over those motions if either were brought as an independent, freestanding petition to confirm or vacate an award?

SmartSky, as we’ve seen, says the answer to those questions is no: the parties moving to confirm or vacate must establish an independent basis for subject matter jurisdiction even when the motion is brought in a pre-existing but stayed lawsuit over which the Court undisputedly had federal question  jurisdiction.

SmartSky has flatly rejected the “jurisdictional anchor” theory (a/k/a “anchor jurisdiction”), under which the answer would be yes: the parties do not have to establish an independent basis for subject matter jurisdiction because they are filing their motions in a preexisting  stayed action over which the Court has subject matter jurisdiction.

SmartSky Caused a Circuit Split Concerning the Viability of Anchor Jurisdiction 

SmartSky‘s conclusion directly conflicts with the only other post-Badgerow U.S. Circuit Court of Appeals decision to address anchor jurisdiction, Kinsella v. Baker Hughes Oilfield Operations, LLC, 66 F.4th 1099 (7th Cir. 2023). If we count pre-Badgerow cases, SmartSky also conflict with the pro-anchor-jurisdiction holdings of the Second, Fifth, Eighth, Ninth, Tenth, and Eleventh Circuits. Dodson Int’l Parts v. Williams Int’l Co., 12 F.4th 1212, 1227-28 (10th Cir. 2021) (citing cases).

SmartSky’s Petition for Rehearing and Rehearing En Banc

Arbitration proponent SmartSky has added to its legal team SCOTUS ace Daniel L. Geyser, Esq., Chair of Haynes and Boone, LLP‘s U.S. Supreme Court Practice,  and, with Mr. Geyser’s assistance, prepared and submitted a very well-written and persuasive Petition for Rehearing and Rehearing En Banc, which among other things, pointed out the Circuit conflicts which SmartSky has created with both pre- and post-Badgerow decisions and explained why SmartSky believes the Fourth Circuit misconstrued Badgerow and failed to adhere to settled subject-matter-jurisdiction principles. SmartSky, No. 22-1253, Dk. 77.

The Petition also pointed out that, even if SmartSky correctly construed Badgerow, there is an independent basis for jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) because two of the parties are foreign citizens, DAG Wireless LTD (“Wireless”) and David D. Gross.

Both of these persons are, according to SmartSky, identified on the face of the petition as Israeli citizens (Wireless was identified as an Israeli company and D. Gross as an Israeli resident).  Smartksy points out that the award therefore falls under the Convention and its enforcement raises a federal question. See 9 U.S.C. §§ 202, 203, & 207; 28 U.S.C. § 1331; 22-1253, Dk. 77 at 13-16.

On March 13, 2024, the Fourth Circuit denied the petition. 22-1253, Dk. 80. That raises the possibility that SmartSky might petition SCOTUS for certiorari, something that wouldn’t surprise the author given that Mr. Geyser has joined its team.  If SmartSky petitions for certiorari, SCOTUS will presumably have to consider whether the current split in the circuits warrants certiorari or whether it should wait until more circuits have ruled on the issue post-Badgerow.  

The author plans to submit to an ADR trade publication an article analyzing and critiquing  SmartSky in some detail. For now, we briefly summarize what transpired in SmartSky and the reasons the Court gave for its ruling. Continue Reading »

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