Petition to Compel Arbitration Archives - The Arbitration Law Forum The Arbitration Law Forum

Archive for the ‘Petition to Compel Arbitration’ Category

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

appellate arbitration-law developments In 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:

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
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:

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.
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).
Consumer arbitration and unconscionability, including Live Nation v. Heckman, 69 F.4th 1257 (9th Cir. 2023).
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.)
FAA §3 stays and procedural consequences, as discussed in Smith v. Spizzirri, 144 S. Ct. 1173 (2024). (For a discussion of Spizzirri, see here.)
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:

Arbitration law disputes increasingly turn on procedural and jurisdictional mechanics rather than on arbitration’s legitimacy as a dispute resolution mechanism.
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.
Strategic decisions at the motion-to-compel stage may determine whether other FAA litigation will proceed in state, rather than federal court.
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.

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

Introduction

Section 3 Default | Section 4 Aggrieved From 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 »

Unlawful Limitations Period Provision Renders Arbitration Agreement Unenforceable Says South Carolina Supreme Court

January 2nd, 2025 Contract Defenses, Enforcing Arbitration Agreements, FAA Chapter 1, FAA Section 2, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, Petition to Compel Arbitration, Policy, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Public Policy, Section 2, Section 4, Severability, South Carolina Supreme Court, State Courts Comments Off

Severability of Limitations Provision: Introduction

Limitations

One defense to a motion to compel arbitration is that the arbitration agreement on which the movant relies is, as a matter of arbitration-neutral state law, void or unenforceable on public policy grounds. (See, e.g., here.) But if only one term or provision of an arbitration agreement is unenforceable on public policy grounds, can that offending provision simply be removed from the contract and the rest of the arbitration agreement enforced?

In Huskins v. Mungo Homes, LLC, No. 28245, slip op. (S.C. Sup. Ct. December 11, 2024), the South Carolina Supreme Court said the answer depends principally on the intent of the parties. And as respects the adhesive, “take-it-or-leave-it” home sale contract before it, the Court said the answer was no.

By statute South Carolina prohibits and deems void contractual provisions that purport to shorten the statute of limitations. S.C. Code Ann. § 15-3-140 (2005). In Mungo Homes, the defendant sold the plaintiff a new home, the contract of sale for which contained an arbitration agreement that said: “Each and every demand for arbitration shall be made within ninety (90) days after the claim, dispute or other matter in question has arisen, except that any claim, dispute or matter in question not asserted within said time periods shall be deemed waived and forever barred.” Slip op. at 2 (quotation omitted). The parties agreed that provision violated Section 15-3-140.

The question before South Carolina’s highest court was whether the provision could be severed from the contract, leaving intact the rest of the arbitration agreement, and the contract containing it (the “container contract”), or whether that unlawful provision rendered invalid and unenforceable the entire arbitration agreement. In Huskins the Court held that the limitations period provision could not be severed and the arbitration agreement was accordingly unenforceable on public policy grounds. The container contract was not affected by the Court’s decision. Slip op. at 6.

Discussion

Severability of Limitations Provision: Party Intent and Relevance of not Including a Severability Clause in the Agreement

The Court said “[t]he only question we are left with is whether we should sever the illegal term and let the remainder of the arbitration agreement stand.” Slip op. at 3. The touchstone for answering that question was party intent: “whether an agreement can be modified so its remaining provisions survive [generally] depends upon what the parties intended.” Slip op. at 2.

The Court observed that the parties did not include in their contract a severability provision and the contract otherwise did not suggest the parties intended the arbitration agreement to survive if any part of it, including the limitations provision, was deemed void. Slip op. at 2.

The Court explained that the absence of a severability clause, in and of itself, may be grounds for not severing an unenforceable clause from a contract. For courts are not supposed to “rewrite contracts” but (subject to certain exceptions) enforce them according to their terms. Slip op. at 2.

But the Court decided not to rest its decision solely on the parties’ decision not to include a severability clause in their contract. The Court explained that, in the absence of a severability clause, Courts are reluctant to impose severability on the parties. Slip op. at 2-3. Yet “devotion to that principle[,]” said the Court, “can work a cost to other interests. It can exact a needless forfeiture or cause unjust enrichment, tossing out the essence of a bargained for exchange over a trivial technicality.” Slip op. at 3 (citation omitted).

Severability of the Limitations Provision: Common Law, South Carolina Law, and the Restatement (Second) of Contracts

The Court briefly discussed pertinent English common law, and U.S. and South Carolina precedent on the severability issue, explaining how courts have “stricken illegal parts from contracts and upheld the legal parts, as long as the central purpose of the parties’ agreement did not depend on the illegal part.” Slip op at 3. South Carolina, said the Court, “followed this main current and interpreted contracts as severable if consistent with the parties’ intent.” Slip op. at 3 (citations omitted).

The Restatement (Second) of Contracts, said the Court, “takes the further view that if only part of a contract term is unenforceable on the grounds of public policy, a court may enforce the rest of the term as long as 1) ‘the performance as to which the agreement is unenforceable is not an essential part of the agreed exchange’ and 2) the party seeking to enforce the term ‘obtained it in good faith and in accordance with reasonable standards of fair dealing.’” Slip op. at 3-4 (quoting Restatement (Second) of Contracts § 184). Restatement (Second) Section 184’s comments, in turn, “emphasize that ‘a court will not aid a party who has taken advantage of his dominant bargaining power to extract from the other party a promise that is clearly so broad as to offend public policy by redrafting the agreement so as to make a part of the promise enforceable.’” Slip op. at 4 (quoting Restatement (Second) § 184, comment b).

No Question of Fact that the Parties did not Intend to Permit Severability of the Limitations Provision

The Court determined that, although party intent is often a question of fact, there were three reasons why there was no such question concerning party intent not to allow severability:

The parties did not agree to a severability clause;
The contract’s merger clause states that the “contract ‘embodies the entire agreement’ and that it can only ‘be amended or modified’ by a writing executed by both the Huskins and Mungo[;]” and
Mungo conceded that the contract was an adhesion contract.

Slip op. at 4.

The Court found that the contract was offered on a “‘take it or leave it’” basis, drafted by Mungo, deemed nonnegotiable, and not editable by the Huskins. Slip op. at 4. “This forceful proof,” said the Court, “of Mungo’s intent that the contract could not be tinkered with convinces us we should not rewrite it now.” Slip op. at 4.

The Court further concluded that the illegal provision in the arbitration agreement was material because it would be outcome determinative of many disputes. Slip op. at 4. The Court viewed the provision not as a “mere ‘ancillary logistical concern’ of the arbitration agreement” but “a brash push to accomplish through arbitration something our statutory law forbids.” Slip op. at 4 (citation omitted). Were the Court to to “lift[] out the clause, the legal statute limitations period (which in most cases allows claims to be filed within three years of their reasonable discovery) would drop in.” Slip op. at 4 (parenthetical material in original). That “would rewrite arbitration agreement to expand the statute of limitations by several orders of magnitude.” Slip op. at 4.

Arbitration, said the Court, is designed “to provide an alternative way to resolve disputes in a fair an efficient manner[,]” but “Mungo designed its arbitration provision not to streamline the resolution of disputes but to reduce their number” by greatly reducing the limitation period for bring those disputes. Slip op. at 4. The Court “conclud[ed] Mungo’s manipulative skirting of South Carolina public policy goes to the core of the arbitration agreement and weighs heavily against severance.” Slip op. at 4-5 (citations omitted)

The Court ruled that it would not save the arbitration agreement by severing the offending limitations provision, finding that because this was an “adhesion contract” it was “highly doubtful that the parties truly intended for severance to apply.” Slip op. at 5 (citation omitted). The contract was a consumer home-purchase agreement, triggering the “public policy concerns that [Damico v. Lennar Carolinas, LLC, 437 S.C. 596, 619-20 (2022)] eloquently addressed.” Slip op. at 5.

Permitting Severance would Provide a Perverse Incentive for Dominant Parties to Include in Adhesion Contracts Illegal Contract Provisions

“We have[,]” said the Court, been steadfast in protecting home buyers from unscrupulous and overreaching terms, and applying severance here would erode that laudable public policy.” Slip op. at 5 (citation omitted). Mungo wanted an “adhesion contract so its terms could not be varied and would stick[,]” and, now, “Mungo was stuck with its choice.” Slip op. at 5. Finding otherwise would ensure there was “no downside to throwing in blatantly illegal terms, betting they will go unchallenged or, at worst, that courts will throw them out and enforce the rest.” Slip op. at 5 (citations omitted).

The Court thus did not sever the offending contract provision and held that the arbitration agreement was therefore unenforceable. Slip op. at 6. It further found that the container contract contract was not affected by the Court’s ruling. Slip op. at 6.

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.

International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the Heckman v. Live Nation Entertainment Ninth Circuit Mass Arbitration Decision

November 13th, 2024 Appellate Practice, Applicability of Federal Arbitration Act, Application to Compel Arbitration, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitration Agreement Invalid, Arbitration Agreements, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Challenging Arbitration Agreements, Class Action Arbitration, Class Action Waivers, Class Arbitration Waivers, Clear and Unmistakable Rule, CPR Alternatives, CPR Video Interviews, Delegation Agreements, FAA Chapter 1, FAA Section 2, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, International Institute for Conflict Prevention and Resolution (CPR), Mass Arbitration, New Era ADR, Petition to Compel Arbitration, Philip J. Loree Jr., Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Professor Angela Downes, Professor Downes, Repeat Players, Richard D. Faulkner, Russ Bleemer, Section 2, Section 4, The Loree Law Firm, Unconscionability, United States Court of Appeals for the Ninth Circuit 1 Comment »

CPR Interview

Heckman

Do you want to learn more about the Heckman mass arbitration case?

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) 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, here, and here.) These interviews are posted on CPR’s YouTube channel, @CPRInstituteOnline.

On Monday, November 11, 2024, Russ interviewed Professor Downes, Rick and me about the Ninth Circuit’s recent mass-arbitration decision in Heckman v. Live Nation Entertainment, No. 23-55770, slip op. (9th Cir. Oct. 28, 2024). The video is here.

Heckman

The Heckman case centered around unusual mass-arbitration rules promulgated and administered by New Era ADR, which among many other things, included a broad delegation provision, which delegated to the arbitrator the authority to decide the validity of the parties’ arbitration agreement. The parties’ online ticket purchase agreement terms (the “Terms”) provided for arbitration pursuant to the New ERA Rules, which in the Heckman case meant New Era’s Rules for Expedited/Mass Arbitration proceedings.

Plaintiffs commenced in 2022 a putative class action against Live Nation Entertainment and Ticketmaster LLC, alleging that the companies violated the Sherman Act by engaging in anticompetitive practices. Those defendants moved to compel arbitration, but the district court denied the motion, holding that the delegation clause and the arbitration agreement were procedurally and substantively unconscionable under California law.

Circuit Judge Lawrence VanDyke wrote a very interesting concurring opinion in Heckman in which he said he would have decided the case solely on the ground that the arbitration scheme violated the Discover Bank Rule, which was not preempted by the FAA because the scheme was not arbitration as envisioned by the FAA in 1925. This concurring opinion also discussed in some detail the conflict of interest that arises when arbitrators deciding arbitrability under a delegation clause conclude, or have reason to conclude, that an arbitration provider’s scheme—it’s business model—is unenforceable, pitting the arbitrator’s financial interest in continued employment against his or her neutral-decision-making interests.

Russ, Rick, Angela, and I discuss various aspects pertinent to the Heckman decision in the interview and identify issues that are likely to arise in future cases following the decision.
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.

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 commercial and business 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.

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

July 16th, 2024 American Arbitration Association, Appellate Jurisdiction, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Fees, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Class Arbitration Waivers, Clear and Unmistakable Rule, Delegation Agreements, Equal Footing Principle, FAA Chapter 1, FAA Chapter 2, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 4, Federal Subject Matter Jurisdiction, Mass Arbitration, Petition to Compel Arbitration, Practice and Procedure, Procedural Arbitrability, Questions of Arbitrability, Richard D. Faulkner, Section 4, United States Court of Appeals for the Seventh Circuit Comments Off

Introduction: Mass Arbitration

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

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

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

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

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

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

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

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

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

S.K.A.V. v. Independent Specialty Ins. Co.: Fifth Circuit Decides Louisiana Statute Invalidating Arbitration Agreements in Insurance Contracts Applies to Surplus Lines Policies

June 27th, 2024 Anti-Arbitration Statutes, Applicability of Federal Arbitration Act, Application to Compel Arbitration, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreement Invalid, Arbitration Law, Arbitration Practice and Procedure, Clear and Unmistakable Rule, Delegation Agreements, Existence of Arbitration Agreement, FAA Chapter 1, FAA Preemption of State Law, FAA Section 2, FAA Section 4, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, Federal Arbitration Act Section 4, Formation of Arbitration Agreement, Gateway Disputes, Gateway Questions, Insurance Contracts, Louisiana Supreme Court, McCarran-Ferguson Act, Motion to Compel Arbitration, Petition to Compel Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Questions of Arbitrability, Section 2, Section 4, State Arbitration Law, State Arbitration Statutes, State Courts, Statutory Interpretation and Construction, United States Court of Appeals for the Fifth Circuit Comments Off

Introduction: LA Stat. Ann. § 22.868 and its Application to Surplus Lines Policies

surplus lines policy regulation

Louisiana has a statute, LA Stat. Ann. § 22.868, that courts have construed to make unenforceable arbitration provisions in insurance contracts, including surplus lines policies. The statute has an exception or savings provision that removes from the statute’s scope “a forum or venue selection clause in a policy form that is not subject to approval by the Department of Insurance[,]” LA Stat. Ann. § 22.868(D), for example, a venue- or forum-selection provision in a surplus lines policy.

The question before the U.S. Court of Appeals for the Fifth Circuit in S.K.A.V. v. Independent Specialty Ins. Co., ___ F.4^th ___, No. 23-30293, slip op. (5^th Cir. June 5, 2024), was whether the statute invalidates arbitration provisions contained in surplus lines insurance policies, that is, whether arbitration provisions in such contracts fall within the subsection (D) exception. Predicting how it thinks the Louisiana Supreme Court would rule if faced with the question, the Court held that the subsection (D) exemption did not apply, and accordingly, the statute rendered unenforceable arbitration agreements in surplus lines contracts. The Court accordingly affirmed the judgment of the district court, which denied the arbitration proponent’s motion to compel arbitration.

Pushing the Elephant Out of the Room. . .

Before taking a closer look at how the Court arrived at its conclusion, let’s deal with the “elephant in the room.” Why is the Court in a case governed by the Federal Arbitration Act (“FAA”) even considering enforcing a state statute that would (or could) render unenforceable an FAA-governed arbitration agreement? Doesn’t the FAA preempt state law that puts arbitration agreements on a different footing than other contracts?

The answer is “undoubtedly”, but, as insurance and reinsurance practitioners know, under the McCarran-Ferguson Act, 15 U.S.C. §§ 1011, et seq., “[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance. . . .” 15 U.S.C. § 1012(b).

LA Stat. Ann. § 22.868 has been construed to be one that “regulat[es] the business insurance[,]” and the FAA is not an “Act [that] specifically relates to the business of insurance. . . .” Section 22.868 thus “reverse preempts” the FAA under McCarran-Ferguson. See slip op. at 2. (See, e.g., here.)

The Court’s Interpretation of Section 22.868, Including its Surplus Lines Policy Exemption

LA Stat. Ann. § 22.868, provides, in pertinent part: Continue Reading »

SmartSky: Fourth Circuit Says No Jurisdictional Anchor Post Badgerow

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.4^th ___, No. 22-1253, slip op. (4^th 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:

A and B, both New York citizens, entered a contract containing an arbitration agreement;
A and B become embroiled in a dispute that is governed by a federal statute;
A sues B in federal court, properly invoking the federal court’s federal- question jurisdiction, 28 U.S.C. § 1331;
B demands arbitration, and moves to compel arbitration under Section 4 and for a stay of litigation pending arbitration under Section 3;
A unsuccessfully opposes the motion, the Court compels arbitration and grants a Section 3 stay of litigation pending arbitration.
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.
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.4^th 1099 (7^th 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 »

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

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

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

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

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

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

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

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

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

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

Introduction

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

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

Introduction: This Term’s SCOTUS Arbitration Cases

The 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 »

Archive for the ‘Petition to Compel Arbitration’ Category

Appellate Arbitration Developments: Supreme Court Certiorari as the Organizing Principle

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

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

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

Continuing Uncertainty Under FAA § 1

Other Appellate Developments Discussed

Practical Implications for Arbitration Practitioners

Looking Ahead to 2026

Share this Post on:

Introduction

Background: What Transpired in Merritt Island Woodwerx?

Share this Post on:

Severability of Limitations Provision: Introduction

Discussion

Severability of Limitations Provision: Party Intent and Relevance of not Including a Severability Clause in the Agreement

Severability of the Limitations Provision: Common Law, South Carolina Law, and the Restatement (Second) of Contracts

No Question of Fact that the Parties did not Intend to Permit Severability of the Limitations Provision

Permitting Severance would Provide a Perverse Incentive for Dominant Parties to Include in Adhesion Contracts Illegal Contract Provisions

Contacting the Author

Photo Acknowledgment

Share this Post on:

CPR Interview

Heckman

Share this Post on:

Introduction: Mass Arbitration

Share this Post on:

Introduction: LA Stat. Ann. § 22.868 and its Application to Surplus Lines Policies

Pushing the Elephant Out of the Room. . .

The Court’s Interpretation of Section 22.868, Including its Surplus Lines Policy Exemption

Share this Post on:

Introduction

Badgerow

A “Jurisdictional Anchor” Post-Badgerow?

SmartSky Caused a Circuit Split Concerning the Viability of Anchor Jurisdiction

SmartSky’s Petition for Rehearing and Rehearing En Banc

Share this Post on:

Share this Post on:

Introduction

Share this Post on:

Introduction: This Term’s SCOTUS Arbitration Cases

Share this Post on:

Subscribe to Blog via Email

Recent Posts

Top Posts & Pages

Categories

Archives

Blogroll

Attorney Advertising Notice: Prior results do not guarantee a similar outcome.

**Background: What Transpired in Merritt Island Woodwerx?**