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Posts Tagged ‘Circuit Judge Richard A. Posner’

Circuit Court Judge Richard A. Posner Weighs in on Federal Policy in Favor of Arbitration

May 23rd, 2015 Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Class Action Waivers, Contract Interpretation, Federal Arbitration Act Enforcement Litigation Procedure, Federal Policy in Favor of Arbitration, Labor Arbitration, Practice and Procedure, Presumption of Arbitrability, United States Court of Appeals for the Seventh Circuit, United States Supreme Court Comments Off on Circuit Court Judge Richard A. Posner Weighs in on Federal Policy in Favor of Arbitration

Introduction

Ronald v. Sprint Spectrum L.P., No. 14-3478, slip op. (7th Cir. May 11, 2015) (Posner, J.)

Ronald v. Sprint Spectrum L.P., No. 14-3478, slip op. (7th Cir. May 11, 2015) arose out of a class action lawsuit brought in the U.S. District Court for the Northern District of Illinois by a putative class of mobile phone customers—represented by Mr. and Ms. Andermann (the “Andermanns”)—against Sprint, which sought damages for alleged violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227.

Sprint moved to compel arbitration, but the district court denied its motion. Sprint appealed to the U.S. Court of Appeals for the Seventh Circuit as authorized by 9 U.S.C. § 16(a)(1)(B). The Seventh Circuit, in an opinion written by Circuit Judge Richard A. Posner, and joined in by Circuit Judge Diane S. Sykes and Chief District Court Judge Philip P. Simon of the Northern District of Indiana (sitting by designation), reversed and remanded with instructions to compel arbitration.

The Sprint Spectrum facts; the legal rules and principles that determined the outcome; and the outcome itself were not controversial.  Had the court limited its task to applying the material facts to the applicable law, then the case likely would not have warranted a reported opinion.

But occasionally appellate judges, particularly ones as prominent, skilled and engaged as Judge Posner, will use a case like Sprint to make a point in passing that might influence other judges in the future and perhaps provide valuable information to attorneys and their clients. Judge Posner, with the apparent blessing of the other two judges, used the case to make a couple of points, one purely legal, the other bearing on both the law and, and at least to some extent, on matters pertinent to court administration.

The purely legal issue concerned the  proper scope and practical significance of the federal policy in favor of arbitration, which a majority of the U.S. Supreme Court, Judge Posner and some other judges apparently believe lawyers and judges may misunderstand or misinterpret. In Sprint Spectrum Judge Posner, in dictum, raises the topic and shares some important insights about it.

The hybrid legal and judicial administration point concerned his view of the merits of the underlying Telephone Consumer Protection Act dispute.  While the Court acknowledged that it was for the arbitrators to decide the merits, it nevertheless explained why it believed the claim would likely fail, whether in arbitration or in court.

Sprint Spectrum: Background

yay-985888-digital---CopyIn 2000 the Andermanns entered into a two-year renewable mobile-phone service contract with U.S. Cellular, which was renewed continuously, and for the last time in 2012. The contract contained an arbitration agreement requiring arbitration of “any controversy or claim arising out of or relating to this agreement.” The parties agreed that the obligation to arbitrate would “survive[] the termination of [the] [mobile phone] service agreement[,]” and that “U.S. Cellular may assign this Agreement without notice to” the customer.

In 2013 U.S. Cellular sold the contract to Sprint, and notified the Andermanns of the sale in a letter sent months later. The letter informed the Andermanns that their service would be terminated effective January 2014  because of a compatibility problem between the Andermann’s mobile phone and the Sprint network. The letter explained that the Andermanns would have to obtain a new cell phone or find a new carrier, but “that Sprint was offering attractive substitutes for the terminated service,” and, if interested, the customer should contact Sprint by telephone. See slip op. at 2.

In December Sprint phoned the Andermanns to remind them that their service was about to expire, and added that Sprint had “a great set of offers and devices available to fit [their] needs.'” Slip op. at 3. Sprint called each of three members of the Andermann family twice (a total of six calls), but by the time the calls were made, the Andermanns had obtained cell phone service from another carrier.

yay-10331162-digitalThe Andermanns did not answer any of the six calls, except by commencing a class action lawsuit against Sprint, which contended that the unsolicited calls violated the Telephone Consumer Protection Act. Sprint moved to compel arbitration, contending that the dispute arose out of and related to the contract renewed in 2012. Even though that contract was between U.S. Cellular and the Andermanns, U.S. Cellular had, as permitted by the contract, assigned its rights to Sprint, who had now stepped into U.S. Cellular’s shoes under the contract.

The Seventh Circuit’s Decision

The district court denied Sprint’s motion because its contract with the Andermanns had terminated prior to the allegedly offending telephone calls at issue in the lawsuit. The district court reasoned that the dispute did  not arise out of or relate to the terminated agreement.

But the Court  said “[a]ctually, there’s an intimate relation” between the dispute and the contract. “The contract,” said the Court, authorized an assignment, and because of the incompatibility of the assignor’s (U.S. Cellular’s) cellphones and the assignee’s (Sprint’s) mobile phone network, Sprint had had to terminate the U.S. Cellular customers, such as the Andermanns, whom it had acquired by virtue of the assignment.  .  .  .” Slip op. 4. Sprint made the calls, and “offer[red] substitute service[]”  “to prevent the loss of.  .  .  customers because of the incompatibility.  .  .  .” Slip op. at 4.

yay-10348120-digitalThe Andermanns attempted to support their argument by offering an “untenable interpretation” of Smith v. Steinkamp, 318 F.3d 775, 777 (7th Cir. 2003). See Slip op. at 4. Steinkamp explained “‘absurd results’ would ensue if the arising from and relating to provisions contained in a payday loan agreement defining what disputes would have to arbitrated rather than litigated, were cut free from the loan and applied to a subsequent payday loan agreement that did not contain those provisions.” Slip op. at 4-5 (quoting Steinkamp, 318 F.3d at 777).

The Andermanns argued that Steinkamp suggested that the same type of “absurd results” would ensue under the facts of this case. But Steinkamp, explained the Court, “is not this case[,]” which concerns a single contract containing an arbitration agreement, not two successive contracts, one with an arbitration agreement and one without an arbitration agreement. See slip op. at 5.

yay-2220659-digitalWhile the Andermanns received a mild (and perhaps well-deserved) rebuke, Sprint’s argument prompted the verbal version of a roll of the eyes coupled with a quiet sigh—not so much because there was anything really wrong with the argument, but presumably because it overstated the importance of the federal policy in favor of arbitration. But that gave Judge Posner an opportunity to make a somewhat subtle, but important point.

The Court  said “Sprint gilds the lily, however, in telling us that arbitration is a darling of federal policy, that there is a presumption in favor of it, that ambiguities in an arbitration clause should be resolved in favor of arbitration, and on and on in this vein.” Slip op. at 5. “It’s true,” said the Court, “that such language (minus the “darling”) appears in numerous cases.” Slip op. at 5 (citations omitted): “But the purpose of that language is to make clear, as had seemed necessary because of judges’ historical hostility to arbitration, that arbitration was no longer to be disfavored — especially in labor cases, see, e.g., Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 298­-99 (2010), where arbitration is now thought a superior method of dispute resolution to litigation.” Slip op. at 5.

Noting that “[t]he Federal Arbitration Act is inapplicable to labor disputes,  .  .  . and merely makes clauses providing for the arbitration of disputes arising out of transactions involving interstate or foreign commerce.  .  . enforceable in federal and state courts[,]” the Court said it was “not clear that arbitration, which can be expensive because of the high fees charged by some arbitrators and which fails to create precedents to guide the resolution of future disputes, should [in commercial cases] be preferred to litigation.” Slip op. at 5-6. Continue Reading »

Faithful to the “First Principle” of Arbitration Law, the Texas Supreme Court Shores up the “Cornerstone of the Arbitral Process”

August 5th, 2014 American Arbitration Association, Appellate Practice, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Arbitrator Selection and Qualification Provisions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, Party-Appointed Arbitrators, Practice and Procedure, State Courts, Texas Supreme Court Comments Off on Faithful to the “First Principle” of Arbitration Law, the Texas Supreme Court Shores up the “Cornerstone of the Arbitral Process”

Introduction  

Anyone versed in arbitration-law basics knows that “arbitration is a matter of consent, not coercion.” Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 678-80 (2010) (citation and quotations omitted). That is the “first principle” of arbitration law (the “First Principle”) set forth in the Steelworkers’ Trilogy.[1] See, e.g., Granite Rock Co. v. International Brotherhood of Teamsters, 561 U.S. 287, 295 & n.7, 294 n.6 (2010); AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 648 (1986).

The First Principle is integrally intertwined with “the central or primary purpose of the [Federal Arbitration Act (“FAA”)][,]” which is “to ensure that  private agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen, 559 U.S. at 679 (citations and quotations omitted). To “enforce” an arbitration agreement “courts and arbitrators must give effect to the contractual rights and expectations of the parties.” Id. When courts do not give effect to the parties’ contractual rights and expectations, they violate the First Principle.

Courts and arbitrators are supposed to apply the First Principle faithfully and rigorously whenever  they interpret or apply material arbitration-agreement-terms, and in “doing so [they] must  not lose sight of the purpose of the exercise: to give effect to the intent of the parties.” See Stolt-Nielsen, 559 U.S. at 679-81. And if that admonition applies with special force in any particular context, it would be in the interpretation and enforcement of arbitrator selection and qualification provisions.

Arbitrator selection provisions are what Circuit Court Judge Richard A. Posner once dubbed the “cornerstone” of the parties’ agreement: “Selection of the decision maker by or with the consent of the parties is the cornerstone of the arbitral process.” Lefkovitz v. Wagner, 395 F.3d 773, 780 (2005) (Posner, J.); see, e.g., 9 U.S.C. § 5 (“If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed.  .  .  .”); Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. V(1)(d), June 10, 1958, 21 U.S.T. 2519, T.I.A.S. No. 6997 (a/k/a the “New York Convention”) (implemented by 9 U.S.C. §§ 201, et. seq.) (award subject to challenge where “[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties”); Stolt-Nielsen, 559 U.S. at 668, 670 (one of the FAA’s “rules of fundamental importance” is parties “may choose who will resolve specific disputes”) (emphasis added; citations omitted); Encyclopaedia Universalis S.A. v. Encyclopaedia Brittanica, Inc., 403 F.3d 85, 91-92 (2d Cir. 2005) (vacating award by panel not convened in accordance with parties’ agreement); Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos Basicos, 25 F.3d 223, 226 (4th Cir. 1994) (same); Avis Rent A Car Sys., Inc. v. Garage Employees Union, 791 F.2d 22, 25 (2d Cir. 1986) (same).

Americo Life, Inc. v. Myer

On June 20, 2014, a divided Texas Supreme Court in Americo Life, Inc. v. Myer, ___ S.W.3d __, No. 12-0739, slip op. (Tex. June 20, 2014), adhered to and correctly applied the First Principle by holding that an arbitration award had to be vacated because it was made by a panel not constituted according to the parties’ agreement.  Five Justices of the nine-member Court determined that the parties had agreed that party-appointed arbitrators need not be impartial, only independent. Because the American Arbitration Association (the “AAA”) had, contrary to the parties’ agreement, disqualified the challenging party’s first-choice arbitrator on partiality grounds, the panel that rendered the award was not properly constituted and thus exceeded its powers. See Slip op. at 10. Continue Reading »

Improving Arbitration-Award Making and Enforcement by Faithfully Implementing the Purposes and Objectives of the Federal Arbitration Act

November 13th, 2013 Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, General, Grounds for Vacatur, Practice and Procedure, Small Business B-2-B Arbitration, United States Supreme Court Comments Off on Improving Arbitration-Award Making and Enforcement by Faithfully Implementing the Purposes and Objectives of the Federal Arbitration Act

Part II:

A Consent-Based Framework

for Making and Enforcing Arbitration Awards

Introduction

In Part I we argued that improving arbitration in general—and the award making and enforcement process in particular—requires persons with a stake in arbitration’s success to adjust how they think about arbitration. We also argued that the purposes and objectives of the Federal Arbitration Act (the “FAA”) provide a relatively simple analytical framework which, if consistently and properly applied, can help persons with a stake in arbitration’s continued success make decisions that should help facilitate the achievement of that goal.

This Part II discusses that analytical framework, which is based on United States Supreme Court interpretations of the FAA and its purposes and objectives. It posits that arbitration’s improvement and continued success as a dispute resolution mechanism for a broad range of disputes depends on it being an attractive alternative to litigation, and that arbitration can remain such an attractive alternative for a broad range of disputes only if courts, arbitrators, and parties fully and forthrightly accept that arbitration is a matter of contract, and that the awards that it yields should be freely and summarily enforced, provided that they represent a legitimate product of the agreement to arbitrate. Continue Reading »

Oxford Health Plans LLC v. Sutter—SCOTUS Reaffirms FAA Section 10(a)(4) Manifest Disregard of the Agreement Outcome Review Standard and Elaborates on Its Scope: Part II.B

August 18th, 2013 Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, Practice and Procedure, United States Supreme Court Comments Off on Oxford Health Plans LLC v. Sutter—SCOTUS Reaffirms FAA Section 10(a)(4) Manifest Disregard of the Agreement Outcome Review Standard and Elaborates on Its Scope: Part II.B

 

Part II.B: To what Extent, if at all, will Oxford Likely Influence FAA Law and Practice?

While Oxford is uncontroversial in the sense that it does not purport to change the standard of review applicable to Federal-Arbitration-Act (“FAA”)-governed arbitration awards, it will likely influence FAA arbitration law and practice concerning the judicial review of arbitration awards under FAA Section 10(a)(4) in at least three ways. Continue Reading »

Oxford Health Plans LLC v. Sutter—SCOTUS Reaffirms FAA Section 10(a)(4) Manifest Disregard of the Agreement Outcome Review Standard and Elaborates on Its Scope: Part II.A

August 16th, 2013 Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consolidation of Arbitration Proceedings, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, Labor Arbitration, Practice and Procedure, United States Supreme Court Comments Off on Oxford Health Plans LLC v. Sutter—SCOTUS Reaffirms FAA Section 10(a)(4) Manifest Disregard of the Agreement Outcome Review Standard and Elaborates on Its Scope: Part II.A

Part II.A:  What to Make of Oxford?

In our last post (here) we discussed the U.S. Supreme Court’s recent decision in Oxford Health Plans LLC v. Sutter, No. 12-135, slip op. (U.S. June 10, 2013), which, among other things, reaffirmed that Section 10(a)(4) of the Federal Arbitration Act (“FAA”) authorizes judicial review of FAA-governed-arbitration-award outcomes based on the labor-arbitration-derived “manifest disregard of the agreement” standard.  This post, which has been divided into three segments, discusses what to make of Oxford.  This part A addresses the scope of Oxford, including whether it undermines Stolt-Nielsen and whether it authorizes arbitrators to disregard or modify the clear terms of the parties’ agreement. Continue Reading »