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Posts Tagged ‘Steelworkers Trilogy’

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 on Presumption of Arbitrability: Second Circuit Clarifies the Law

Introduction: Presumption of Arbitrability

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 »

Delegation Provisions: SCOTUS Says Courts Must Compel Arbitration of Even “Wholly-Groundless” Arbitrability Disputes

January 16th, 2019 American Arbitration Association, Arbitrability, Arbitration Agreements, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitration Provider Rules, Authority of Arbitrators, Class Action Arbitration, Class Action Waivers, Exceeding Powers, Existence of Arbitration Agreement, Federal Arbitration Act Enforcement Litigation Procedure, Stay of Litigation, United States Supreme Court 3 Comments »
Wholly Groundless 1

Arbitrability questions are ordinarily for courts to decide, but parties may, by way of a “delegation provision,” clearly and unmistakably agree to submit them to arbitration. See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942-46 (1995); Rent-A-Center, West, Inc. v. Jackson, 130 S. Ct. 2772, 2777 (2010). (See, e.g., Loree Reinsurance and Arbitration Law Forum posts here, here, and here.)

But suppose parties to a delegation provision disagree about whether they are required to arbitrate a dispute, yet their contract clearly excludes the dispute from arbitration. Can a Court preemptively decide the merits of an arbitrability question delegated to the arbitrators, and refuse to compel arbitration of the arbitrability question, if the Court decides that the argument for arbitration of the underlying dispute is wholly groundless?

Some federal courts have held that a federal court can, despite a clear and unmistakable agreement to arbitrate arbitrability, refuse to compel arbitration of a “wholly groundless” arbitrability question, but others have held that the FAA requires Courts to refer to arbitration even “wholly groundless” arbitrability questions. Compare Simply Wireless, Inc. v. T-Mobile US, Inc., 877 F. 3d 522 (4th Cir. 2017); Douglas v. Regions Bank, 757 F. 3d 460 (5th Cir. 2014); Turi v. Main Street Adoption Servs., LLP, 633 F. 3d 496 (6th Cir. 2011); Qualcomm, Inc. v. Nokia Corp., 466 F. 3d 1366 (Fed. Cir. 2006), with Belnap v. Iasis Healthcare, 844 F. 3d 1272 (10th Cir. 2017); Jones v. Waffle House, Inc., 866 F. 3d 1257 (11th 2017); Douglas, 757 F. 3d, at 464 (Dennis, J., dissenting).

On January 8, 2019 the U.S. Supreme Court, in a 9-0 decision, held that where parties have clearly and unmistakably agreed to arbitrate arbitrability disputes, courts must compel arbitration even if the argument in favor of arbitration is “wholly groundless.” Schein v. Archer & White Sales, Inc., 586 U.S. ____, slip op. at *2, 5, & 8 (January 8, 2019).

Wholly Groundless Exception 2

The Court said that “[t]he [FAA] does not contain a ‘wholly groundless’ exception, and we are not at liberty to rewrite the statute….” Slip op. at 2; see also slip op. at 8. “When,” said the Court, “the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.” Slip op. at 2; see also slip op. at 8. The “wholly groundless” exception, said the Court, “is inconsistent with the statutory text and with precedent[,]” and “confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.” Slip op. at 8.

Facts and Procedural History

Wholly Groundless Exception 3

Schein was a dispute between a dental equipment manufacturer and a distributor. The parties’ contract contained an arbitration agreement, which required arbitration of “[a]ny dispute arising under or related to [the Parties’] Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [the manufacturer]….” Slip op. at 2. Arbitration was to be “in accordance with the arbitration rules of the American Arbitration Association [(the “AAA”)].” Slip op. at 2.

Continue Reading »

Arbitrator-Imposed Claims Protocols, Honorable Engagement and Access-to-Records: First State Ins. Co. v. National Cas. Co.

April 10th, 2015 Access to Records, Arbitration Practice and Procedure, Arbitrator-Imposed Claims Protocols, Authority of Arbitrators, Claims Handling, Follow-the-Settlements/Follow-the Fortunes, Grounds for Vacatur, Honorable Engagement, Judicial Review of Arbitration Awards, Practice and Procedure, Reinsurance Arbitration, Reinsurance Claims, United States Court of Appeals for the First Circuit Comments Off on Arbitrator-Imposed Claims Protocols, Honorable Engagement and Access-to-Records: First State Ins. Co. v. National Cas. Co.

Introduction

yay-10424184---CopyAt first glance the U.S. Court of Appeals for the First Circuit’s opinion in First State Ins. Co. v. National Cas. Co., No. 14-1644, slip op. (1st Cir. Mar. 20, 2015) appears to be an honorable engagement clause case, but it is really an arbitrator-imposed-claims-payment-protocol case.  First State concerned a claims protocol (the “Claims Protocol”) which said claims payments “may be made subject to an appropriate reservation of rights by [the reinsurer] in instances where it has or does identify specific facts  which  create a reasonable question regarding coverage under the subject reinsurance agreement(s).” It also explained that “[p]ayment obligations on the part of [the reinsurer] are not conditioned upon the exercise of its right to audit or the production of additional information or documents, other than those provided by [the cedent] as described . . .[in the portion of the protocol specifying the cedent’s proof-of-loss requirements].” Slip op. at 3.

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The reinsurer contended the protocol’s reservation-of-rights procedure impaired its contractual rights to access of records, including its right to recoup claim payments in circumstances where, as of the time the Claims Protocol required the reinsurer to pay a  claim, the reinsurer had not yet been given the opportunity to inspect the cedent’s records concerning the claim and thus would not have the opportunity to determine whether there were “specific facts which create a reasonable question regarding coverage.  .  . ”  That, argued the reinsurer, denied or effectively impaired its contractual rights in a least two ways: (a) once it paid a claim as required by the Protocol without reserving its rights based on “specific facts” creating a reasonable question about coverage, then the Cedent could refuse to provide it access to its records of the claim; and (b) even if the cedent provided post-payment access-to-records, and even if the reinsurer’s post-payment audit uncovered for the first time specific facts demonstrating the claim was invalid, the Protocol’s reservation of rights feature would foreclose the reinsurer from obtaining recoupment of the claim unless the reinsurer somehow had knowledge of those specific facts, and asserted them at the time it was required to pay the claim.

Had the reinsurer’s interpretation of the Claims Protocol’s reservation of rights procedure been the only one to which it was susceptible, then the reinsurer’s Section 10(a)(4) challenge might have succeeded. As it turned out, there was at least one other interpretation of the Protocol, and under that interpretation, the reinsurer’s access-to-records and recoupment rights were not foreclosed by the reinsurer not making a Claims-Protocol-compliant reservation of rights.

So the Court quite correctly affirmed the district court’s decision to confirm the award. But National Casualty did not walk away empty handed. As we’ll see, the Court’s opinion confers upon National Casualty a deserved benefit that is arguably as valuable as would have been a decision reversing the district court’s judgment with instructions to vacate the arbitration award.

Let’s first briefly review what transpired in First State, and what the Court, in Senior Circuit Court Judge Bruce M. Selya’s sometimes arcane and colorful—but always clear, concise and well-organized— prose, had to say about it. 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 »