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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.

Photo Acknowledgment

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

 

CPR’s March 27 Appellate Arbitration Video Panel: Jules, Flowers Foods, Goff, and Bruce

April 1st, 2026 Appellate Jurisdiction, Appellate Practice, Applicability of Federal Arbitration Act, Applicability of the FAA, Application to Compel Arbitration, Application to Confirm, Application to Stay Litigation, Application to Vacate, Arbitrability, Arbitration Agreement Invalid, Arbitration Agreement Unenforceable, Arbitration Agreements, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Award Fails to Draw Essence from the Agreement, Award Irrational, Award Vacated, Awards, Confirmation of Awards, Conflict between Arbitration Clause and Another Clause, Contract Interpretation, CPR Alternatives, CPR Speaks Blog of the CPR Institute, CPR Video Interviews, Employment Arbitration, Enforcing Arbitration Agreements, Exceeding Powers, Exemption from FAA, FAA Chapter 1, FAA Chapter 4, FAA Section 10, FAA Section 401, FAA Section 402, 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 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 9, Federal Policy in Favor of Arbitration, Federal Subject Matter Jurisdiction, Grounds for Vacatur, International Institute for Conflict Prevention and Resolution (CPR), Loree and Faulkner Interviews, Manifest Disregard of the Agreement, Nuts & Bolts: Arbitration, Petition to Vacate Award, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Professor Angela Downes, Professor Downes, Questions of Arbitrability, Richard D. Faulkner, Section 3 Stay of Litigation, Section 6, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, Substantive Arbitrability, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit, United States Court of Appeals for the Sixth Circuit, United States Supreme Court, Vacate Award | 10(a)(4), Vacate Award | Exceeding Powers, Vacate Award | Excess of Powers No Comments »

arbitration video CPR

The International Institute for Conflict Prevention & Resolution (“CPR”) presented on March 27, 2026, the latest instalment of its long-running hot-topics in arbitration video series: “Hot Topics: The Supreme Court’s March on Arbitration.” Our good friend and colleague Russ Bleemer, editor of Alternatives to the High Cost of Litigation, moderated the presentation. The panelists were our other good friends and colleagues Professor Angela Downes and Richard D. Faulkner— plus the author, Philip J. Loree Jr.

This developments in arbitration video looked backward to the March 25, 2026, Supreme Court argument in Flowers Foods, Inc. v. Brock, No. 24-935 (U.S. argued Mar. 25, 2026), forward to the March 30 argument in Jules v. Andre Balazs Properties, No. 25-83 (U.S. argued Mar. 30, 2026), and sideways to certain consequential circuit decisions, including USAA Savings Bank v. Goff, No. 25-1730, slip op. (7th Cir. Mar. 19, 2026), and Bruce v. Adams & Reese, LLP, No. 25-5210, slip op. (6th Cir. Feb. 25, 2026). This was the eighteenth CPR arbitration video presentation this panel (or most of it), has given during the past four or five years.

The March 27, 2026, Video

The March 27 program is best understood not as a one-off webinar, but as the newest installment in a continuing conversation about where appellate arbitration law is heading. CPR’s December 2025 year-end program had already previewed Jules and Flowers Foods, the two U.S. Supreme Court arbitration-law  cases the Court has thus far accepted this 2025 Term for review.

What the March 27, 2026, Video Shows About the Current State of Arbitration Law

This latest arbitration video shows that the four featured matters are different on their facts but closely related in what they reveal about the present state of arbitration law. None is a frontal assault on arbitration. Each instead concerns a doctrinal pressure point: where post-award litigation belongs, who falls within the FAA’s Section 1 transportation-worker exemption, when courts will conclude that arbitrators exceeded the bounds of the contract by not interpreting it, and how far Congress’s Ending Forced Arbitration Act (“EFAA”) carve-out extends once sexual-harassment or sexual-assault claims are pleaded together with other claims not covered by the EFAA.

In that respect, Jules remained the centerpiece. Jules asks whether a federal court that properly exercised federal question jurisdiction over an action, and then stayed that action pending arbitration under FAA Section 3, may later adjudicate post-award FAA motions without having a new and independent basis for subject-matter jurisdiction. The question is narrow only on the surface. In practical terms, it concerns whether a federal court that has federal question jurisdiction over the merits dispute, and pursuant to FAA Section 3 stays  the litigation pending arbitration of the merits dispute, may, at the request of one of the parties, and without having a new and independent basis for subject matter jurisdiction (such as diversity), complete the job after the award returns, or whether the parties must instead start over in state court. The CPR panel’s discussion came only days before the March 30 argument, which made the presentation a timely and useful preview of one of the Court’s most important FAA jurisdiction-related  cases since Badgerow v. Walters, 596 U.S. 1 (2022), and Smith v. Spizzirri, 601 U.S. 472 (2024).

Readers who view the March 27, 2026 presentation and the subsequent March 30, 2026 oral argument can see that the panelists’ comments were largely or entirely on the mark. CPR Speaks followed the argument with a very thoughtful same-day report, Supreme Court Hears Case on Federal Courts’ Powers to Confirm Arbitration Awards. A decision likely will issue before the close of the October 2025 Term in late June.

Flowers Foods concerns the scope of FAA Section 1’s transportation-worker exemption. But both Jules and Flowers Foods share an important feature: both concern where the FAA stops, and both therefore affect whether arbitration disputes will be resolved in court, in arbitration, or in some jurisdictional or procedural limbo between the two. The March 27 program accordingly framed Flowers not as an isolated exemption dispute, but as part of the Court’s broader and continuing effort to define the FAA’s boundaries with greater textual precision.

The panel also highlighted two significant circuit courts of appeals decisions that underscore how much important arbitration doctrine is shaped outside the U.S. Supreme Court. In Goff, the Seventh Circuit addressed a rare circumstance in which a court vacated an award on the ground that the arbitrator had, disregarded the parties’ contract and thus did not even arguably interpret it. That issue is significant not because courts often vacate awards on that basis, but because they rarely do. Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569, 572-73 (2013), made clear how narrow the path is for setting aside an award under FAA Section 10(a)(4) when the arbitrator is at least arguably construing the agreement. A decision like Goff therefore commands attention because it tests the line between genuine contract interpretation and an arbitrator’s substitution of her own notions of “[economic] justice” or “sound policy.” See id. at 569; Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 672, 675 (2010).

Bruce, in turn, is one of the most important circuit-court decisions construing the EFAA. The Sixth Circuit adopted what is sometimes called the entire-case rule: when a case includes an EFAA-covered sexual-harassment dispute, the statute renders the arbitration agreement unenforceable as to the whole case, not merely as to the EFAA-covered claims. See Bruce, slip op. at 17-19. Whether one agrees or disagrees with that reading, the decision is consequential because it gives the statute a broader practical effect than a claim-by-claim approach would have done. The March 27 CPR program usefully placed Bruce in the same conversation as Jules, Flowers Foods, and Goff because all four cases illuminate a common theme: appellate courts are increasingly defining arbitration law through technical yet consequential disputes over scope, forum, remedy, and statutory carve-outs, rather than through  generalized debates about whether the federal policy in favor of arbitration should in a given case drive an arbitration-friendly outcome.

The presentation also illustrated the value of continuity among panelists. Professor Downes, Rick Faulkner, Russ Bleemer, and the author bring different vantage points to the discussion: academic, arbitral, appellate- and district-court practitioner, and editorial. Because the same group has returned repeatedly over several years, the programs have developed into something more useful than mere episodic commentary.

For readers of The Arbitration Law Forum, the key takeaway is straightforward. The March 27 program is worth watching not only for its discussion of the four featured cases, but also for the broader picture it paints. The doctrinal stakes of the Supreme Court’s arbitration docket are larger than they first appear. Lower federal courts continue to generate important arbitration law at a brisk pace. And many of the most consequential disputes now concern not whether arbitration will or should be enforced in the abstract, but how courts define the boundaries of arbitral power, arbitral forum, and arbitral exception. This eighteenth CPR presentation captures, in one discussion, several of the issues likely to shape arbitration-law practice in the months and years ahead.

Contacting the Author

If you have any questions about this article, arbitration, arbitration law, or arbitration-related litigation, then you may contact the author at pjl1@loreelawirm.com or +1 (516) 941-6094.

Philip J. Loree Jr. is principal of The Loree Law Firm, a New York attorney who focuses his practice on arbitration and arbitration-law matters. The Loree Law Firm’s website is https://loreelawfirm.com/.

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.

 

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

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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 »

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 »

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

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:

  1. The parties did not agree to a severability clause;
  2. 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
  3. 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.

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 on 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

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.4th ___, No. 23-30293, slip op. (5th 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 »

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 »

Status of Arbitration-Law Cases Pending Before SCOTUS this Term

February 12th, 2024 Appellate Practice, Applicability of Federal Arbitration Act, Application to Appoint Arbitrator, Application to Compel Arbitration, Application to Enforce Arbitral Summons, Application to Stay Litigation, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, CPR Alternatives, CPR Speaks Blog of the CPR Institute, CPR Video Interviews, Delegation Agreements, Exemption from FAA, FAA Chapter 1, FAA Section 16, FAA Section 3, FAA Transportation Worker Exemption, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Question, Federal Subject Matter Jurisdiction, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Professor Downes, Richard D. Faulkner, Russ Bleemer, Section 3 Stay of Litigation, Subject Matter Jurisdiction, United States Court of Appeals for the Ninth Circuit, United States Court of Appeals for the Second Circuit Comments Off on Status of Arbitration-Law Cases Pending Before SCOTUS this Term

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

 

The Cases: Bissonnette

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

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

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

(Bissonnette Question Presented Report)

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

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

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

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

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

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

Smith v. Spizzirri

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

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

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

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

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

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

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

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

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

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

Contacting the Author

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

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

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

Photo Acknowledgment

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

 

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

November 13th, 2023 Amount in Controversy, Appellate Jurisdiction, Appellate Practice, Application to Compel Arbitration, Application to Confirm, Application to Enforce Arbitral Summons, Application to Stay Litigation, Arbitral Subpoenas, Arbitration Law, Arbitration Practice and Procedure, Confirmation of Awards, FAA Chapter 1, FAA Chapter 2, FAA Section 16, Federal Arbitration Act 202, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 10, Federal Arbitration Act Section 11, Federal Arbitration Act Section 202, Federal Arbitration Act Section 203, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Federal Arbitration Act Section 5, Federal Arbitration Act Section 7, Federal Arbitration Act Section 9, Federal Courts, Federal Question, Federal Subject Matter Jurisdiction, Modify or Correct Award, Motion to Compel Arbitration, Petition or Application to Confirm Award, Petition to Compel Arbitration, Petition to Enforce Arbitral Summons, Petition to Modify Award, Petition to Vacate Award, Post-Award Federal Arbitration Act Litigation, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Section 10, Section 11, Section 3 Stay of Litigation, Section 4, Section 5, Section 7, Section 9, Stay of Litigation, Stay of Litigation Pending Arbitration, Subject Matter Jurisdiction, United States Court of Appeals for the Second Circuit Comments Off on Weighing the “Jurisdictional Anchor”: Post-Badgerow Second Circuit Subject Matter Jurisdiction Requirements for Applications to Confirm, Modify, or Vacate Arbitration Awards

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

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

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

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

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

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

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

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

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