Arbitrability Archives - The Arbitration Law Forum The Arbitration Law Forum

Posts Tagged ‘Arbitrability’

Ineffective Objections and Untimely Filings Lead to FAA Forfeiture: Sivanesan v. YBF, LLC, _ A.D. 3d _, 2024 N.Y. Slip Op. 4327 (2d Dep’t 2024)

A good chunk of FAA practice and procedure —including FAA practice and procedure in state court—involves knowing when, how, and why to make timely and effective objections and filings in arbitration enforcement litigation. Sivanesan v. YBF, LLC, ___ A.D. 3d ___, 2024 N.Y. Slip Op. 4327 (2d Dep’t 2024), which New York’s Appellate Division, Second Department, decided on August 28, 2024, illustrates this point well.

Appellants were not signatories to the arbitration agreement, did not agree to arbitrate any matters, and did not clearly and unmistakably agree to arbitrate questions of arbitrability. But the Court found that they participated in the arbitration without lodging adequate objections to the arbitrator’s jurisdiction and did not timely file in the confirmation litigation their petition to vacate the awards at issue. Accordingly, the Appellants were—by their participation in the arbitration without effective objections to the arbitrator’s jurisdiction—deemed to have impliedly consented to arbitrate all issues before the arbitrator, including whether they were bound by the contract and arbitration agreement as successors-in-interest. Not a happy place to be.

Background

The transactions pertinent to Sivanesan began in 2008 when YBF, LLC (“YBF”) sold to Cosmetics Specialties, East LLC (“CSE”) an exclusive license to Continue Reading »

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 No Comments »

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 No Comments »

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 »

U.S. Supreme Court Decides Coinbase II and Promulgates a New Arbitrability Rule Applicable to Multiple, Conflicting Contracts

June 11th, 2024 Application to Compel Arbitration, Application to Stay Litigation, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Challenging Arbitration Agreements, Clear and Unmistakable Rule, Enforcing Arbitration Agreements, Equal Footing Principle, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 2, Federal Arbitration Act Enforcement Litigation Procedure, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Forum Selection Agreements, Gateway Disputes, Gateway Questions, International Institute for Conflict Prevention and Resolution (CPR), Motion to Compel Arbitration, Professor Angela Downes, Richard D. Faulkner, Russ Bleemer, Section 2, Separability, Severability, Substantive Arbitrability, United States Court of Appeals for the Ninth Circuit, United States Supreme Court 1 Comment »

Introduction

Coinbase II - Dogecoin Photo

Coinbase, Inc. v. Suski, 602 U.S. ___ (2024) (“Coinbase II”), which the U.S. Supreme Court (“SCOTUS”) decided on May 23, 2024, was the last of the three arbitration-law cases SCOTUS heard and decided this 2023 Term. Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (CPR) (“CPR Alternatives”), recently interviewed University of North Texas-Dallas College of Law Professor Angela Downes; arbitrator, mediator, arbitration-law attorney, and former judge, Richard D. Faulkner; and the author about Coinbase II, and the other two cases, Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024), and Smith v. Spizzirri, 601 U.S. ___ (2024). (See posts here and interview here.) Russ also interviewed Angela, Rick, and the author about Coinbase II back when SCOTUS granted certiorari to hear it, an interview you can view here (see also post, here).

Coinbase II concerned the allocation of power between courts and arbitrators in a situation in which agreements with conflicting dispute-resolution provisions cover or appear to cover some or all of the same, disputed subject matter. The general principles and rules of arbitrability, as applied to the facts, did not clearly answer the question of who gets to decide whether the parties’ merits dispute was arbitrable, and so the Court created a new rule of arbitrability: “where. . . parties have agreed to two contracts—one sending arbitrability disputes to arbitration and the other either explicitly or implicitly sending arbitrability disputes to the courts—a court must decide which contract governs.” Coinbase II, slip op. at 8. Applying the new rule to the facts, the Court concluded “that a court, not an arbitrator must decide whether the [Coinbase II] parties’ first agreement was superseded by their second.” Slip op. at 8.

Coinbase II: Background

Petitioner Coinbase, Inc. (“Coinbase”) is a cryptocurrency exchange platform 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

There 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.

International Institute for Conflict Prevention and Resolution (CPR) Interviews Professor Angela Downes, Richard D. Faulkner, and Philip J. Loree Jr. about the United States Supreme Court Certiorari Grant in Coinbase II Delegation Agreement Dispute

November 14th, 2023 Arbitrability, Arbitrability - Nonsignatories, Arbitrability | Clear and Unmistakable Rule, Arbitrability | Existence of Arbitration Agreement, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Challenging Arbitration Agreements, Clear and Unmistakable Rule, Contract Interpretation, CPR Alternatives, CPR Speaks Blog of the CPR Institute, CPR Video Interviews, Delegation Agreements, Existence of Arbitration Agreement, FAA Chapter 1, FAA Section 2, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 2, First Options Reverse Presumption of Arbitrability, First Principle - Consent not Coercion, Gateway Disputes, Gateway Questions, Presumption of Arbitrability, Questions of Arbitrability, Richard D. Faulkner, Russ Bleemer, Section 2, Separability, Small Business B-2-B Arbitration, The Loree Law Firm, United States Court of Appeals for the Ninth Circuit Comments Off

On November 3, 2023, the United States Supreme Court (“SCOTUS”) granted certiorari in Coinbase, Inc. v. Suski, No. 23-3 (U.S.) (“Coinbase II”), a case that is related to Coinbase, Inc. v. Bielski, 143 S. Ct. 1915 (2023) (“Coinbase I”), which was decided on June 23, 2023, and discussed here. Coinbase II involves an issue entirely different from Coinbase I: the application of a “delegation provision”—an agreement to arbitrate arbitrability disputes. That issue arises in a unique context: who decides whether a dispute concerning a later agreement is arbitrable when that later agreement, among other things, expressly submits all disputes concerning it to the exclusive jurisdiction of the California courts and not to arbitration? Is the delegation provision, as applied to this dispute over a subsequent contract, clear and unmistakable, as required by prior SCOTUS precedent?

On November 10, 2023, our friend and colleague Russ Bleemer, Editor of Alternatives to the High Cost of Litigation, Newsletter of the International Institute for Conflict Prevention and Resolution (CPR) (“CPR Alternatives”), interviewed our friends and colleagues, University of Professor Angela Downes, University of North Texas-Dallas College of Law Professor of Practice and Assistant Director of Experiential Education; arbitrator, mediator, arbitration-law attorney, and former judge, Richard D. Faulkner; and yours truly, Loree Law Firm principal, Philip J. Loree Jr., about the recent certiorari grant, what it means, and how the Court might rule on it.

You can watch the video-conference interview HERE.

As we discuss in the interview Coinbase II promises to be an extremely interesting case, one which could (and perhaps should) result in a decision that the parties did not clearly and unmistakably agree to arbitrate an arbitrability dispute concerning a contract that: (a) was entered into some time after the contract containing the arbitration and delegation provisions; (b) expressly provides that any disputes concerning it must be decided in a judicial forum only; and (c) features as a party a person who is not a party to the arbitration and delegation provisions or any other aspect of the earlier contract.

Lee Williams, a CPR Intern, and a second-year law school student, wrote for CPR Speaks (CPR’s blog) an excellent article about Coinbase II, which CPR Speaks recently published, here. Among other things, the article explains the relationship between Coinbase II and other matters previously before SCOTUS, including the very similar Schein II matter. (For a discussion of Schein II, including a link to a CPR video, see here.)

The U.S. Supreme Court ultimately dismissed certiorari in that Schein II matter as improvidently granted, and as we briefly touch on in the interview, a similar fate might also befall Coinbase II. Perhaps more on that in another post, but for now, enjoy!

Contacting the Author

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

Philip J. Loree Jr. is a partner and founding member of the Loree Law Firm. He has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.

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

Photo Acknowledgment

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

Expert-Determination Clauses: Third Circuit Holds Dispute Resolution Clause Provided for Expert-Determination, not Arbitration

July 31st, 2023 Applicability of Federal Arbitration Act, Application to Compel Arbitration, Application to Stay Litigation, Appraisal, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Authority of Arbitrators, Challenging Arbitration Agreements, Challenging Arbitration Awards, Contract Interpretation, FAA Chapter 1, Federal Arbitration Act Enforcement Litigation Procedure, Federal Arbitration Act Section 3, Federal Arbitration Act Section 4, Practice and Procedure, Questions of Arbitrability, Section 3 Stay of Litigation, Section 4, United States Court of Appeals for the Third Circuit Comments Off

Introduction: Third Circuit’s Ruling on Expert-Determination Clauses Versus Arbitration Clauses

Not every dispute resolution clause contained in a contract is an arbitration clause, let alone an arbitration clause governed by the Federal Arbitration Act (“FAA”). Absent a statute stating otherwise, dispute resolution clauses that are not arbitration agreements must be enforced via ordinary contract-law rules only, not through FAA- or state-arbitration-statute-authorized motions to compel arbitration, motions to stay litigation pending arbitration, or motions to confirm, vacate, or modify awards.

The U.S. Court of Appeals for the Third Circuit recently decided a case that turned on whether the dispute resolution clause in the contract was an arbitration clause, or simply a contractual provision calling for resolution of an issue by experts, sometimes referred to as an “expert-determination provision[,]” slip op. at 14, or “expert-determination clause.” In Sapp v. Indus. Action Servs., No. 22-2181, slip op. (3d Cir. July 20, 2023) the Court held that the clause before it was not an arbitration agreement, but an expert clause and consequently reversed the district court’s decision to compel arbitration and vacated the Court’s order granting the motion to confirm the expert’s decision and denying the motion to vacate it. Slip op. at 3, 19.

Whether or not you are—in a particular case—advocating for or opposing arbitration, Sapp demonstrates how important it is to make an early determination as to whether the alternative dispute resolution clause at issue is, in fact, an arbitration agreement whose enforcement is governed by the FAA or a state arbitration statute.

Another point about Sapp is that its interpretation of the Federal Arbitration Act is arguably more narrow than that of the Second Circuit. The Second Circuit has said that a dispute resolution provision otherwise falling under Section 2 of the FAA is an “arbitration agreement” for purposes of the FAA, including an “appraisal” provision in an insurance contract. The test is whether the dispute resolution provision “clearly manifests an intention by the parties to submit certain disputes to a specified third party for binding resolution.” McDonnell Douglas Finance Corp. v. Pennsylvania Power & Light Co., 858 F.2d 825, 830 (2d Cir. 1988); Bakoss v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135, 707 F.3d 140, 143 (2d Cir. 2013). That dispute resolution clauses, such as appraisal clauses, typically do not use the term “arbitration” is of no moment—all that counts “is that the parties clearly intended to submit some disputes to their chosen instrument [e.g., appraisal] for the definitive settlement of certain grievances under the Agreement.” Id. (quotations omitted); see Bakoss, 707 F.3d at 143. (See also Arbitration Law Forum post here.)

The reason for this difference is most likely because, as we shall see, Sapp ruled that state law—specifically, that of Delaware—not federal common-law, governs what constitutes an arbitration agreement for purposes of the FAA. See Slip op. at 12-16. In the Second Circuit, however, federal common-law governs that question. See Bakoss, 707 F.3d at 143. Continue Reading »

Presumption of Arbitrability: Second Circuit Clarifies the Law

May 30th, 2023 Applicability of Federal Arbitration Act, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Enforcing Arbitration Agreements, FAA Chapter 1, Federal Policy in Favor of Arbitration, First Principle - Consent not Coercion, Labor Arbitration, Motion to Compel Arbitration, Practice and Procedure, Pre-Award Federal Arbitration Act Litigation, Presumption of Arbitrability, Questions of Arbitrability, United States Court of Appeals for the Second Circuit, United States Supreme Court Comments Off

Introduction: Presumption of Arbitrability

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

The presumption of arbitrability—grounded in the federal policy in favor of arbitration—is an important but sometimes misunderstood rule of Labor-Management-Relations-Act (“LMRA”)- and Federal-Arbitration-Act (“FAA”) arbitration law.

According to the presumption, “where. . . parties concede that they have agreed to arbitrate some matters pursuant to an arbitration clause, the law’s permissive policies in respect to arbitration counsel that any doubts concerning the scope of arbitral issues should be resolved in favor of arbitration.” Granite Rock Co. v. Teamsters, 561 U.S. 287, 298-99 (2010) (citations and quotations omitted).

There is an understandable tendency among decision makers and commentators to interpret the presumption broadly, sometimes more broadly than the United States Supreme Court (“SCOTUS”)’s pronouncements warrant. But the presumption is not an overarching command that courts decide arbitration-law disputes in a way that yields arbitration-friendly outcomes. The presumption is, as SCOTUS explained in Granite Rock—and more recently, in Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713 (2022)—simply a limited-use tool to assist Courts in resolving ambiguities in arbitration agreements.

The presumption is, SCOTUS has said, “merely an acknowledgment of the FAA’s commitment to overrule the judiciary’s longstanding refusal to enforce agreements to arbitrate and to place such agreements upon the same footing as other contracts.” Morgan, 142 S. Ct. at 1713 (quoting Granite Rock, 561 U.S. at 302). “The [federal] policy [in favor of arbitration[,]” SCOTUS said, “is to make ‘arbitration agreements as enforceable as other contracts, but not more so.’” Morgan, 142 S. Ct. at 1713 (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n. 12 (1967)).

The policy—and the presumption implementing it— merely requires courts to “hold a party to its arbitration contract just as the court would to any other kind.” Morgan, 142 S. Ct. at 1713. Courts, Morgan said, cannot “devise novel rules to favor arbitration over litigation.” Morgan, 142 S. Ct. at 1713 (quotation omitted). For “[t]he federal policy is about treating arbitration contracts like all others, not about fostering arbitration.” Morgan, 142 S. Ct. at 1713-14 (citation omitted).

Granite Rock and Morgan express SCOTUS’s intention to narrowly limit the application of the presumption of arbitrability and to prohibit its use as an extracontractual basis for justifying enforcement of arbitration agreements more vigorously or expansively than ordinary contracts. (See here (Arbitration Law Forum, 2021 Term SCOTUS Arbitration Cases: Is the Pro-Arbitration Tide Beginning to Ebb? (July 18, 2022)).) Rather SCOTUS precedent treats it as a default rule of last resort for resolving scope ambiguities in arbitration agreements. See Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1418-19 (2019) (Not applying contra proferentem rule to resolve arbitration-agreement-scope ambiguities “is consistent with a long line of cases holding that the FAA provides the default rule for resolving. . . [such] ambiguities. . . .”) (citations omitted).

A recent, per curiam decision of the U.S. Court of Appeals for Second Circuit decision evidences the Second Circuit’s clear intention to follow SCOTUS’s presumption-of-arbitrability guidance and shows how it applies to the question before the Second Circuit in that case: At what point in the interpretative framework for determining arbitrability questions does the presumption of arbitrability come into play? See Local Union 97, Int’l Bhd. Of Elec. Workers, AFL-CIO v. Niagara Mohawk Power Corp., ___ F.4d ___, No. 21-2443-cv, slip op. (2d Cir. May 3, 2023) (per curiam).

Niagara Mohawk explains, among other things, that the presumption of arbitrability is a rule of last resort. Courts have no business resolving in favor of arbitration any doubts about the scope of arbitrable issue unless and until the Court has determined that the parties’ arbitration agreement is ambiguous as to whether the dispute is arbitrable. And even if there is an ambiguity, and the presumption applies, the presumption may be rebutted. Continue Reading »

Henry Schein Inc. v. Archer & White Sales Inc. | CPR’s Video Conference Interview of Rick Faulkner and Phil Loree Jr. about Schein’s Second Trip to the the Nation’s Highest Court

May 22nd, 2020 ADR Social Media, American Arbitration Association, Appellate Practice, Arbitrability, Arbitrability | Clear and Unmistakable Rule, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Law, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitration Providers, Arbitration Risks, Clear and Unmistakable Rule, CPR Speaks Blog of the CPR Institute, Delegation Agreements, Federal Arbitration Act Section 2, Gateway Disputes, Gateway Questions, International Institute for Conflict Prevention and Resolution (CPR), Loree & Loree Comments Off

On May 20, 2020, the International Institute of Conflict Protection and Resolution (“CPR”) interviewed our good friend and fellow arbitration attorney Richard D. Faulkner and Loree & Loree partner Philip J. Loree Jr. about a two-part article we wrote about the Schein case for the May 2020 and June 2020 issues of Alternatives to the High Cost of Litigation, CPR’s international ADR newsletter published by John Wiley & Sons, Inc. To watch and listen to the video-conference interview, CLICK HERE.

Jury Trial | Application to Compel Arbitration | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice under Sections 2, 3, and 4 (Part V)

April 28th, 2020 Application to Compel Arbitration, Arbitrability | Existence of Arbitration Agreement, Arbitration Law, Arbitration Practice and Procedure, Challenging Arbitration Agreements, Existence of Arbitration Agreement, FAA Chapter 1, Gateway Disputes, Gateway Questions, Nuts & Bolts, Nuts & Bolts: Arbitration, Pre-Award Federal Arbitration Act Litigation 1 Comment »

This segment of the Businessperson’s Federal Arbitration Act FAQ Guide discusses the provisions of Section 4 relating to the jury trial of arbitrability issues.

The last instalment discussed the following FAQs related to Section 4 applications to compel arbitration:

How does a Federal Court “Hear” an Application to Compel Arbitration?
In what Federal Court may an Application to Compel Arbitration be Filed?

This segment addresses the FAQ “What Happens when a Court Determines there is a Genuine Issue of Material Fact Concerning the Making of the Arbitration Agreement or the Failure, Neglect, or Refusal to Perform that Agreement?”

What Happens when a Court Determines there is a Genuine Issue of Material Fact Concerning the Making of the Arbitration Agreement or the Failure, Neglect, or Refusal to Perform that Agreement?

In the last post we explained that district courts adjudicate applications to compel by applying a standard akin to that which applies to summary judgment motions. Courts therefore ascertain whether there are any genuine issues of material fact in dispute. If the material facts are not in dispute, then the Court determines whether the motion should be granted or denied by applying the law to the undisputed facts.

Posts Tagged ‘Arbitrability’

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

Pushing the Elephant Out of the Room. . .

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

Status of Arbitration-Law Cases Pending Before SCOTUS this Term

The Cases: Bissonnette

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

Smith v. Spizzirri

Jury Trial | Application to Compel Arbitration | Businessperson’s Federal Arbitration Act FAQ Guide | Nuts and Bolts of Pre-Award Federal Arbitration Act Practice under Sections 2, 3, and 4 (Part V)

What Happens when a Court Determines there is a Genuine Issue of Material Fact Concerning the Making of the Arbitration Agreement or the Failure, Neglect, or Refusal to Perform that Agreement?

Subscribe to Blog via Email

Recent Posts

Top Posts & Pages

Follow Philip J. Loree Jr. on Twitter

Categories

Archives

Blogroll

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

Posts Tagged ‘Arbitrability’

Background

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

Coinbase II: Background

Share this Post on:

The Cases: Bissonnette

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

Smith v. Spizzirri

Share this Post on:

Share this Post on:

Introduction: Third Circuit’s Ruling on Expert-Determination Clauses Versus Arbitration Clauses

Share this Post on:

Introduction: Presumption of Arbitrability

Share this Post on:

Share this Post on:

What Happens when a Court Determines there is a Genuine Issue of Material Fact Concerning the Making of the Arbitration Agreement or the Failure, Neglect, or Refusal to Perform that Agreement?

Share this Post on:

Subscribe to Blog via Email

Recent Posts

Top Posts & Pages

Follow Philip J. Loree Jr. on Twitter

Categories

Archives

Blogroll

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