Posts Tagged ‘Arbitrability’

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When Do Cost Provisions in an Arbitration Agreement Effectively Deny a Party a Forum in Which to Vindicate Statutory Rights?

April 6th, 2010 Arbitrability, Authority of Arbitrators, Employment Arbitration, New York Court of Appeals, United States Supreme Court Comments Off on When Do Cost Provisions in an Arbitration Agreement Effectively Deny a Party a Forum in Which to Vindicate Statutory Rights?

Introduction

Under the federal Federal Arbitration Act statutory claims are generally arbitrable if they fall within the scope of the arbitration agreement, but arbitrator and arbitration-service-provider fees that may impose undue financial burdens on employees or other individuals seeking to vindicate those rights.   Cost provisions in arbitration agreements allocate these fees and costs, and even when the allocation is 50-50, disputes may arise concerning whether they are so burdensome as to effectively deny one of the parties a forum in which to pursue his or her claims.   

In Green Tree Financial Corp v Randolph, 531 U.S. 79 (2000), the United States Supreme Court acknowledged that “the existence of large arbitration costs could preclude a litigant from effectively vindicating her federal statutory rights in the arbitral forum.”  531 U.S. at 90.  And it said that “where, a party seeks to invalidate an arbitration agreement on the ground that arbitration would be prohibitively expensive, that party bears the burden of showing the likelihood of incurring costs that would deter the party from arbitrating the claim.”  531 U.S. at 92.   While the Court did not purport to enunciate the standards courts should apply in evaluating challenges to cost provisions, it held that the “risk” of  “prohibitive costs is too speculative to justify the invalidation of an arbitration agreement.”  531 U.S. at 91. Continue Reading »

First Circuit Considers Whether an Arbitration Clause is Mandatory or Optional: PowerShare, Inc. v. Syntel, Inc.

March 5th, 2010 Arbitrability, Stay of Litigation, United States Court of Appeals for the First Circuit 1 Comment »

Not all arbitration agreements are mandatory.  Strange as it may seem, some are optional. 

In PowerShare, Inc. v. Syntel, Inc., ___ F.3d ___, No. 09-1625, slip op. (1st Cir. Mar. 1, 2010) the Court addressed a claim that the following arbitration clause was optional:

 All disputes, controversies and claims directly or indirectly arising out of or in relation to this Agreement or the validity, interpretation, performance, breach, enforceability of the Agreement (collectively referred to as “Dispute”) shall be resolved amicably between Syntel and PowerShare at an operational level in consultation with the top management of both companies.  If any such Dispute cannot be resolved, as stated above, the same shall be settled in accordance with the principles and procedures of the American Arbitration Association and per the decision of an accredited arbitrator acceptable to both parties.  Nothing in this clause shall prejudice Syntel or PowerShare’s right to seek injunctive relief or any other equitable/legal relief or remedies available under law.

A dispute arose under the parties’ contract, and PowerShare commenced an action in the Federal District  Court in Massachusetts.  Syntel moved for a stay under Federal Arbitration Act Section 3.  PowerShare said the arbitration agreement was optional, a Magistrate Judge denied the motion for a stay, and the District Court affirmed the Magistrate Judge’s order.  

The key question before the First Circuit  was whether the Magistrate Judge’s finding that the clause was optional was contrary to law.  The First Circuit reversed, finding that the arbitration clause was mandatory.   (The First Circuit also answered a question about the standard of review under which a district court should review a Magistrate Judge’s decision on a motion to stay litigation under Section 3 of the Federal Arbitration Act, but we need not dwell on that.)   

The crux of the Magistrate Judge’s order, and PowerShare’s position on appeal,  was the last sentence of the arbitration clause:  “[n]othing in this clause shall prejudice Syntel or PowerShare’s right to seek injunctive relief or any other equitable/legal relief or remedies available under law.”  The Magistrate Judge read that as preserving a party’s right to seek a jury trial in the event of a dispute — notwithstanding anything to the contrary in the arbitration clause —  because a jury trial is a “remedy” “under law.” 

But the First Circuit disagreed.  According to the First Circuit, the parties’ choice-of-law clause required application of the laws of the United States, which the parties agreed brought into play federal common and statutory law.  Under federal common law, “courts must be guided by commonsense rules of contract construction,” and one of those rules is that “an interpretation which gives effect to all the terms of a contract is preferable to one that harps on isolated provisions, heedless of context.”  (citations and quotation omitted) 

The Court reasoned that interpreting the third sentence as making arbitration optional would be to negate the mandatory nature of the second sentence:  

 [PowerShare’s].  .  .  interpretation cannot be reconciled with the unvarnished language of Paragraph 18’s second sentence.  That sentence states explicitly that disputes between the parties “shall” be settled through arbitration.  The word “shall” denotes obligation, not choice; therefore, accepting PowerShare’s interpretation of the third sentence would drain the second sentence of its essential meaning.  Put bluntly, the word “shall” in the second sentence would be rendered nugatory were we to read the arbitration provision as creating nothing more than an option.  That PowerShare’s interpretation of Paragraph 18 would negate the obvious meaning of the second sentence is a powerful argument against accepting that interpretation.  (citations and quotations omitted). 

The Court concluded that the only “plausible interpretation” of the arbitration clause that gave effect to the “plain meaning” of the second sentence  was that “the second sentence mandates arbitration and the third sentence furnishes the arbitrator with broad legal and equitable powers should either party seek special kinds of relief (say, an injunction).”  

The Court based its decision solely on contract interpretation principles without deciding whether the federal presumption of arbitrability applied.  The presumption of arbitrability requires ambiguities concerning the “scope” of an arbitration clause to be resolved in favor of arbitration.  PowerShare argued that the presumption did not apply where, as here, the question was not the scope of an arbitration clause, but whether a mandatory arbitration clause existed in the first place.

SCOTUS Oral Argument in Jackson v. Rent-A-Center West, Inc. Set for April 26, 2010

February 17th, 2010 Arbitrability, Authority of Arbitrators, Practice and Procedure, United States Court of Appeals for the Ninth Circuit, United States Supreme Court Comments Off on SCOTUS Oral Argument in Jackson v. Rent-A-Center West, Inc. Set for April 26, 2010

The United States Supreme Court has set for April 26, 2010 oral argument in Jackson v. Rent-A-Center West, Inc., ___ F.3d ___, slip op. (9th Cir. Sept. 9, 2009), petition for cert. granted  Jan. 15, 2010 (No. 09-497) (oral argument calendar here).  Jackson addresses the question who decides unconscionability of an arbitration agreement when the agreement clearly and unmistakably says arbitrators decide arbitrability.  The Ninth Circuit said the court decides the question, but we think there is a reasonable chance the United States Supreme Court will reverse.   We touched on some of the reasons why in prior posts, here and here. 

We shall keep readers apprised of further developments as and when they occur.  .  .  .

Stolt-Nielsen Oral Argument Analysis: Part IV

January 6th, 2010 Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Practice and Procedure, United States Supreme Court 1 Comment »

Introduction

Stolt-Nielsen turns on the allocation of power between courts and arbitrators.   No matter how thoroughly and neatly you parse the issues, the question that repeatedly and continuously begs for an answer is:  who decides?  Answer that question as it relates to one issue and it pops up again in relation to the next. 

Up until Bazzle the Supreme Court did an admirable job of delineating the bounds of arbitral versus judicial authority.  The lines were blurred in Bazzle, where under the peculiar facts there was a question whether the agreement precluded class arbitration.  (See our Disputing guest post here.)  The question required interpretation of ambiguous contract language – a task arbitrators have both the authority and the competence to perform – so it was remanded to the arbitrators.  The four-Justice plurality said the question was not one of arbitrability, but concerned the “kind” of arbitration to which the parties agreed.  

But many of the lower courts — including the United States Court of Appeals for the Second Circuit — read Bazzle to mean that arbitrators have the authority under a broad arbitration agreement to determine whether the parties agreed to class arbitration when their agreements say nothing about class or consolidated arbitration.   That is a very different question from whether an arbitration agreement precludes class arbitration, and it is not one that the parties in Stolt-Nielsen clearly and unmistakably submitted to the arbitrators.      

Stolt-Nielsen presents the United States Supreme Court with a unique opportunity to draw a sharper and stronger line between the arbitrable and non-arbitrable in cases concerning class or consolidated arbitration.  Whether or not the Court will seize it is an open question, because, as explained in Part III, AnimalFeeds has articulated a plausible argument that Stolt-Nielsen has not established the predicate for the Court’s grant of certiorari:  that the parties’ agreements were silent on class arbitration.  If at least five justices are satisfied with the (we believe, unsatisfactory) status quo concerning class arbitration, or otherwise believe that the best course is to allow class arbitration to continue (and even flourish), then AnimalFeed’s argument may provide an interpretive path for a ruling that the case is not properly before the Court.   

Today we explain why accepting AnimaFeeds’ argument would contravene the letter and spirit of the Federal Arbitration Agreement, breed further litigation, and undermine confidence in arbitration as an effective alternative dispute resolution mechanism.   More to the point, we discuss why and how the Court can reach the merits of Stolt-Nielsen consistently with how Stolt-Nielsen presented the question.     Continue Reading »

Stolt-Nielsen Oral Argument Analysis: Part III

December 23rd, 2009 Arbitrability, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, United States Supreme Court 2 Comments »

On December 9, 2009 the United States Supreme Court held oral argument in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2009), petition for cert. granted June 15, 2009 (No. 08-1198) (oral argument transcript here).  Stolt-Nielsen concerns whether class or consolidated arbitration may be imposed on parties whose contracts are silent on that point, and we have written extensively on it, including an ongoing series of guest-post articles for our friend Karl Bayer’s  Disputing blog.  (Posts available here,  here, here, here, here, here, here, here and here.)  

On December 16, 2009 we posted Part II of our analysis of the oral argument (Parts  I, here, Part II, here).   In this Part III we focus on what transpired with respect to the second of four key interrelated issues raised at oral argument and identified in Part I:  What exactly did the arbitrators decide?  Continue Reading »

Global Arbitration Review Publishes Article on Hansen v. Everlast and Quotes Philip J. Loree Jr.

November 3rd, 2009 Arbitrability, Authority of Arbitrators, Awards, Functus Officio, New York Court of Appeals, Nuts & Bolts: Arbitration, Uncategorized, United States Court of Appeals for the Second Circuit Comments Off on Global Arbitration Review Publishes Article on Hansen v. Everlast and Quotes Philip J. Loree Jr.

Readers may recall our recent post on the New York Court of Appeals’ decision in Re Joan Hansen & Co v. Everlast World’s Boxing Headquarters Corp., ___ N.Y.3d ___, slip op. (Oct. 15, 2009), a case which demonstrates how important the parties’ submission is in determining arbitral authority.  The Court held that, after an award, a party cannot reopen an arbitration proceeding to request that the arbitrators decide an issue that had not previously been submitted to the arbitrators.  A copy of our post is here.  

On November 2, 2009 Kyriaki Karadelis of the U.K.-based trade publication Global Arbitration Review (“GAR”)  (website here) wrote what I thought was a concise and insightful article on the case.  And we would have said that even if she had not quoted some of our comments in her article!  But she did, and we’re flattered by that. 

With Global Arbitration Review’s permission, and with the required copyright disclaimer, we have posted the article as a “Slide Share Presentation” in my LinkedIn profile, which you can view by clicking here.  Also posted there (again with GAR’s permission and the required disclaimer) is a Global Arbitration Review Article on the United States Court of Appeals for the Second Circuit’s decision in  ReliaStar Life Ins. Co. v. EMC National Life Co., ___ F.3d ___, ___ (2009) (Raggi, J.) (blogged here and here), in which the United States Court of Appeals for the Second Circuit held that an arbitration panel was authorized to award under the bad faith exception to the American Rule attorney and arbitrator fees to a ceding company in a case where the parties had agreed that “[e]ach party shall bear the expense of its own arbitrator.  .  .  and related outside attorneys’ fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator.”  We reported on GAR’s article concerning ReliaStar case here, which also quotes some of our comments on that case. 

We ask our readership to remember that GAR is a subscription-only publication and that it has copyrights in these posted materials.  GAR has authorized us to post them online and distribute them for marketing purposes, but that authorization does not extend to others not similarly situated.  Please do the right thing and respect GAR’s copyrights — GAR has to make a living just like the rest of us!     

Jackson v. Rent-A-Center West, Inc.: Who Gets to Decide Whether an Arbitration Agreement is Unconscionable when the Parties Clearly and Unmistakably Say the Arbitrators Decide Arbitrability?

September 23rd, 2009 Arbitrability, Unconscionability, United States Court of Appeals for the Ninth Circuit 4 Comments »

I.            Introduction

We have explained in prior posts the First Options/AT&T Technologies rule that arbitrators get to decide arbitrability when the parties clearly and unmistakably so agree.  (See, e.g., here and here.)  That’s all well and good, but what happens when:  (a)  two parties sign an arbitration agreement which says, among other things, that the arbitrators shall decide any claim, including any claim concerning the applicability, formation or enforceability of the arbitration agreement; and (b) despite that clear and unmistakable agreement to arbitrate arbitrability, one of the parties challenges the arbitration agreement in court on unconscionability grounds?      

That is, for all practical purposes, what happened in Jackson v. Rent-A-Center West, Inc., ___ F.3d ___, slip op. (9th Cir. Sept. 9, 2009) (here).  And the United States Court of Appeals for the Ninth Circuit ruled 2-1 that the court gets to decide the question.  Continue Reading »

Disputing Publishes Part IVB of our Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp. Guest Post

September 21st, 2009 Arbitrability, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Guest Posts, Practice and Procedure, United States Court of Appeals for the Second Circuit, United States Supreme Court 1 Comment »

On September 1, 2009 Disputing published Part IVA of our four-part guest post on Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2009), petition for cert. granted June 15, 2009 (No. 08-1198).  In Part IVA  (here) we considered whether the question in Stolt-Nielsen  was one for the court or the arbitrators to decide, and predicted that at least five Justices of the United States Supreme Court will hold that the court must decide it.  If we are correct, then the Supreme Court will consider on a de novo basis whether the arbitration panel had the authority to impose class arbitration on the Stolt-Nielsen parties. 

Today, Disputing published Part IVB of our guest post (here) in which we consider how the Supreme Court might rule on the merits of the question.  We believe that at least five Justices will rule that the arbitrators should not, in the face of the agreements’ silence, have imposed class arbitration where, as here, there is no basis in the Federal Arbitration Act, New York state law or federal maritime law for implying consent to class arbitration.    

The Supreme Court’s decision in Stolt-Nielsen may have some important ramifications for both commercial and consumer arbitration.  So for advance coverage, tune into Disputing….

Global Arbitration Review Quotes Loree Reinsurance and Arbitration Law Forum’s Critical Analysis of ReliaStar Life Ins. Co. v. EMC Nat’l Life Co.

August 10th, 2009 Arbitrability, Authority of Arbitrators, United States Court of Appeals for the Second Circuit 2 Comments »

On April 28, 2009 we published “ReliaStar Life Insurance Co. v. EMC National Life Co.: Critical Analysis of an Important Reinsurance Arbitration Decision,”  available here.  On July 13, 2009 the London-based  Global Arbitration Review published an interesting article about the Second Circuit’s decision in ReliaStar, which quoted from our critical analysis:  

Writing shortly after the appeal court’s decision, Philip Loree Jr of New York firm Loree & Loree, said the court had “violated New York contract interpretation rules.” He said that, according to New York law, “to ascertain whether a contract is ambiguous, courts are required to focus on what is said, not what is omitted.” “Given that the pre-eminent purpose of the Federal Arbitration Act is to enforce the parties’ arbitration agreement as written, this case may be one of those rare Second Circuit decisions that warrant rehearing and reversal en banc,” he added.

You can find the article (subscription only) here:  ‘Bad Faith’ Costs Decision Upheld, Global Arbitration Review, July 13, 2009, our summary of the decision here, our critical analysis here, and further commentary here.  Disputing’s coverage of the case can be found here and here.

Disputing Guest Post: Class And Consolidated Arbitration Under the Federal Arbitration Act: What Issues Will The United States Supreme Court Confront in Stolt-Nielsen, S.A. V. AnimalFeeds Int’l Co.?

August 6th, 2009 Arbitrability, Authority of Arbitrators, Consolidation of Arbitration Proceedings, Guest Posts, United States Court of Appeals for the Second Circuit, United States Supreme Court 3 Comments »

 The Loree Reinsurance and Arbitration Law Forum is delighted to guest post once again on Karl Bayer’s and Victoria VanBuren’s wonderful ADR blog, Disputing.  Because Victoria and I have both written fairly extensively about Hall Street Assoc. v. Mattel, Inc, 128 S. Ct. 1396 (2008), and about two of the most frequently cited cases construing Hall Street’s dictum on manifest disregard of the law — Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009) and Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2009), petition for cert. granted June 15, 2009 (No. 08-1198) –  and because the United States Supreme Court has granted certiorari in Stolt-Nielsen, we thought that our joint-readership might appreciate an analysis of the issues that the Supreme Court will likely address – or at least face — in that case.  That’s what we have set out to do in a four-part guest post, Part I of which was published today.  (Check it out  here.)

As readers may already know, the issue before the United States Supreme Court is whether it is consistent with the Federal Arbitration Act to impose class arbitration on parties whose arbitration agreement is silent on that point.  This is the same issue that the Supreme Court set out to decide in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), but ultimately never did because a plurality of the Court ruled that there was a disputed issue of contract interpretation as to whether the agreements in that case were, in fact, silent on class arbitration, which resulted in a remand to the arbitrator.  But in Stolt-Nielsen the panel ruled, and the parties agreed, that the contracts are silent on this key point, so the Supreme Court will presumably confront the issue head on. 

The Supreme Court’s decision next Term may have some important ramifications for both commercial and consumer arbitration.  And soon-to-be Justice Sotomayor may provide the swing vote in the case.  So for some advance coverage, tune into Disputing….

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