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Posts Tagged ‘Clear and Unmistakable Agreement’

Can a Court Order a Party not to Request in Arbitration a Remedy the Arbitrator may not have the Authority to Grant?

May 10th, 2015 Arbitrability, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Federal Arbitration Act Enforcement Litigation Procedure, Federal Courts, Injunctions in Aid of Arbitration, Practice and Procedure, United States Court of Appeals for the Second Circuit Comments Off on Can a Court Order a Party not to Request in Arbitration a Remedy the Arbitrator may not have the Authority to Grant?

Can a Court Forbid a Party from Requesting in Arbitration a Remedy the Arbitrator may not Have the Authority to Grant?

Benihana Case: Introduction

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In appropriate circumstances, Courts can vacate under Federal Arbitration Act Section 10(a)(4) an award that does not draw its essence from the parties’ agreement but instead was based on the arbitrators’ own notions of economic justice.

In Benihana, Inc. v. Benihana of Tokyo, LLC, ___ F.3d ___, No. 14-841, slip op. (2d Cir. April 28, 2015), the U.S. Court of Appeals for the Second Circuit  was faced with a different issue: whether before an award was made a court can enjoin a party from asking the arbitrators to award it a remedy that the parties’ contract does not authorize them to award.

The Court quite correctly ruled that district  courts do not  have the discretion to grant such an injunction because, among other things, doing so would violate the Federal Arbitration Act by infringing upon the parties’ agreement to arbitrate. In so holding the court was able to clarify a misunderstanding about arbitrability that is all too common among lay persons, a number of lawyers and apparently even the occasional judge.

Benihana Case: Background

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Benihana, Inc. (“Benihana U.S.”) and Beni-Hana of Toky (“Benihana Tokyo”)  were parties to a 1995 licensing agreement, which granted Benihana Tokyo the right to open Benihana restaurants in Hawaii. The agreement contained a New York choice of law clause.

yay-1557903The licensing agreement was designed, among other things, to require Benihana of Tokyo’s Hawaii restaurants to conform with Benihana standards, including those applicable to the menu and the use of Benihana trademarks. The Agreement, for example, required written approval by Benihana U.S. of “products and services” to be sold by Beni-Hana Tokyo, and stipulated that approval would “not be unreasonably withheld.”

The licensing agreement’s termination provisions provided that Benihana U.S. could terminate Benihana Tokyo’s license for good cause in the event of a “violation of ‘any substantial term or condition of th[e] Agrement [that Benihana Tokyo] fails to cure. .  . within thirty days after written notice from [Benihana U.S.].” Three cured defaults within a 12 month period also constituted good cause.

The Agreement contemplated both arbitration and injunctions in aid of arbitration (i.e., to preserve the status quo) as respects “violation of certain articles— including Article 5.2 restricting Benihana of Tokyo’s trademark use and Article 8.1(c) restricting the items Benihana of Tokyo may advertise or sell.  .  .  .” The injunctive-relief provisions specified that violations of those articles “would result in irreparable injury to [Benihana U.S.] for which no adequate remedy at law may be available. . . .”  They also  stipulated that Benihana U.S. “may obtain ‘an injunction against [such] violation . . . without the necessity of showing actual or threatened damage.'”

yay-1916763-digitalArticle 13 of the Agreement provided for arbitration in two types of situations. First, disputes about termination of the Agreement were subject to mandatory arbitration:

If this Agreement shall be terminated by [Benihana U.S.] and [Benihana of Tokyo] shall dispute [Benihana U.S.’s] right of termination, or the reasonableness thereof, the dispute shall be settled by arbitration at the main office of the AmericanArbitration Association in the City of New York in accordance with the rules of said association and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitration panel shall consist of three (3) members, one (1) of whom shall be chosen by [Benihana U.S.], and (1) by [Benihana Tokyo] and the other by the two (2) so chosen.

Slip op. at 7.

Second, the agreement contained a broad, catchall provision that provided for arbitration of “any other dispute” at the election of either party:

In the event that any other dispute arises between the parties hereto in connection with the terms or provisions of this Agreement, either party by written notice to the other party may elect to submit the dispute to binding arbitration in accordance with the foregoing procedure. Such right shall not be exclusive of any other rights which a party may have to pursue a course of legal action in an appropriate forum. Enforcement of any arbitration  award, decision or order may be sought in any court having competent jurisdiction.

Slip op. at 7.

yay-10331162-digitalDuring the period 1995 until 2012 the parties enjoyed an amicable contractual relationship, but after a 2012 sale of Benihana U.S. to Angelo Gordon & Co., disputes started to arise. In May 2013 Benihana U.S., now under new ownership, notified Benihana Tokyo that: (a) Benihana U.S. had learned that Benihana Tokyo was selling “BeniBurgers” (a type of hamburger) at its Honolulu restaurant; (b) the licensing agreement required that new menu items be approved by Benihana U.S.; and (c) Benihana U.S. had not approved the sale of “BeniBurgers.” Benihana U.S. demanded that Benihana Tokyo remove BeniBurgers from the menu.

Benihana Tokyo did not remove BeniBurgers from the menu, which prompted Benihana U.S. to declare a breach of contract and notify Benihana Tokyo that it had 30 days to cure. Benihana U.S. extended the cure period twice, and Benihana Tokyo commenced  an action in New York State Supreme Court for an injunction staying the cure period pending arbitration of the parties’ dispute about BeniBurgers. Continue Reading »

Gateway Keeping: The Third Circuit Joins the Sixth in Holding that Courts get to Decide whether Parties Consented to Class Arbitration

August 28th, 2014 American Arbitration Association, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Awards, Class Action Arbitration, Class Action Waivers, Consent to Class Arbitration, Consolidation of Arbitration Proceedings, Drafting Arbitration Agreements, Existence of Arbitration Agreement, Judicial Review of Arbitration Awards, Practice and Procedure, Stay of Litigation, United States Court of Appeals for the Sixth Circuit, United States Court of Appeals for the Third Circuit, United States Supreme Court Comments Off on Gateway Keeping: The Third Circuit Joins the Sixth in Holding that Courts get to Decide whether Parties Consented to Class Arbitration

On June 10, 2013 the U.S. Supreme Court in Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) considered whether an arbitrator exceeded his powers under Federal Arbitration Act (“FAA”) Section 10(a)(4) by finding that a fairly run-of-the-mill arbitration agreement authorized class arbitration. Applying the deferential, manifest-disregard-of-the-agreement outcome-review standard authorized by FAA Section 10(a)(4), the Court upheld an arbitrator’s determination that an arbitration agreement authorized class arbitration because the arbitrator had, at least arguably, interpreted the arbitration agreement, albeit in a highly creative and doubtful way. (See Loree Reins. & Arb. L. Forum posts here, here, here & here.)

In a footnote, the Court explained that it “would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called ‘question of arbitrability.’” 133 S. Ct. at 2068 n.2. The Court said that Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 680 (2010), “made clear that this Court has not yet decided” whether class-arbitration-consent presents a question of arbitrability. But “Oxford agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures[,]” and “Oxford submitted that issue to arbitrator not once, but twice—and the second time after Stolt-Nielsen flagged that it might be a question of arbitrability.” 133 S. Ct. at 2068 n.2. (emphasis added)

Had Oxford opted to request the Supreme Court to determine whether class- arbitration consent presented a question of arbitrability, and had the Court determined that it was such a question, then the Court would have determined independently—that is, without deferring to the arbitrator’s decision—whether the parties consented to class arbitration. See BG Group plc v. Republic of Argentina, No. 12-138, slip op. at 6 (U.S. March 5, 2014); First Options of Chicago, Inc. v. Kaplan, 543 U.S. 938, 942 (1995). And we doubt that a majority of the Supreme Court would have upheld the Oxford award had it reviewed the class-arbitration-consent determination de novo. See, e.g., Oxford, 133 S. Ct. at 2071 (Alito, J., concurring) (“If we were reviewing the arbitrator’s interpretation of the contract de novo, we would have little trouble concluding that he improperly inferred “[a]n implicit agreement to authorize class-action arbitration … from the fact of the parties’ agreement to arbitrate.”) (quoting Stolt-Nielsen, 559 U.S. at 685).  

Those who have been tracking developments in class and consolidated arbitration since the turn of this century no doubt recall that, after a plurality of the Court determined in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452-53 (2003), that a class-arbitration-consent-related dispute did not present a question of arbitrability, but merely a procedural question, parties began to submit routinely and unreservedly class-arbitration-consent questions to arbitration.

But after Stolt-Nielsen, and, no doubt with renewed vigor after Oxford, class arbitration opponents began to argue that class-arbitration-consent presented a question of arbitrability for the Court to decide. And U.S. Circuit Courts of Appeals are beginning to rule on those challenges.

The first one to do so was the U.S. Court of Appeals for the Sixth Circuit in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), where the Court in November 2013 held “that the question whether an arbitration agreement permits classwide arbitration is a gateway matter, which is reserved for judicial determination unless the parties clearly and unmistakably provide otherwise.” 734 F.2d at 599 (quotation and citation omitted).

The second, and most recent Circuit Court of Appeals to rule on the issue, was the U.S. Court of Appeals for the Third Circuit in Opalinski v. Robert Half Int’l Inc., ___ F.3d ___, No. 12-4444, slip op. (3rd Cir. July 30, 2014), which on July 30, 2014 “join[ed] the Sixth Circuit Court of Appeals in holding that.  .  .  “the availability of” class arbitration “is a substantive gateway question rather than a procedural one[,]” and thus “is a question of arbitrability.” Slip op. at 15, 16-17.  The Court’s decision turned on “the critical differences between individual and class arbitration and the significant consequences of that determination for both [a] whose claims are subject to arbitration[;] and [b] the type of controversy to be arbitrated.” Slip op. at 15 (emphasis added). Where, as in Opalinski, the arbitration agreement did not “mention” class arbitration, the Court “believ[ed] the parties would have expected a court, not an arbitrator, to determine the availability of class arbitration[,]” and that was “especially so given the critical differences between individual and class arbitration and the significant consequences” of the class-arbitration-consent determination as respects “whose claims are subject to arbitration and the type of controversy to be arbitrated.” slip op. at 16-17.

The Third Circuit’s Opalinski decision, like the Sixth Circuit’s in Reed Elsevier, is well reasoned and reaches the conclusion we likewise think is required by the Supreme Court’s long-line of arbitrability jurisprudence, and by its post-Bazzle class-arbitration cases, beginning with Stolt-Nielsen. We suspect that other circuits will, for largely the same reasons, that class-arbitration-consent presents a question of arbitrability.

Let’s have a look at what transpired in Opalinski.  .  .  . Continue Reading »