« Arbitration Law Memo January 2006 | Main | Arbitration Law Memo March 2006 »
Arbitration Law Memo February 2006
by Ross Runkel at LawMemo
| Arbitration Law Memo - February 2006 by LawMemo - World's Best
|
| *** Arbitration - Individual Contracts ***
*** Arbitration - Collective Bargaining Agreements ***
*** Arbitration - Individual Contracts ***US - Contract validity is for the arbitrator to decide (7-1).Buckeye Check Cashing v. Cardegna (US Supreme Court 02/21/2006) The lending agreement between Cardegna and Buckeye Check Cashing contained an arbitration agreement. When Cardegna sued, Buckeye moved to compel arbitration. The Florida Supreme Court held that the entire agreement was illegal under Florida's usury laws, that this made the entire agreement void, and that this decision was to be made by the court rather than by an arbitrator. The US Supreme Court reversed. The Court concluded (7-1) that it did not matter whether the issue was stated in terms of "void" or "voidable," or whether the matter arose in federal court or state court. The legality of the entire contract is for the arbitrator to decide. (a) As a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. (b) unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance. (c) This analysis applies in state as well as federal courts. CA - Class action waiver in arbitration agreement was enforceable.Gentry v. Superior Court (California Ct App 01/19/2006) Gentry sued the employer in a putative class action, asserting claims for violations of state statutes. The claims arose from the employer's alleged misclassification of Gentry and others as "exempt" managerial or executive employees not entitled to overtime pay. The trial court granted the employer's petition to compel arbitration pursuant to the employer's arbitration agreement. Since the agreement contained a provision waiving Gentry's right to pursue a class action, the trial court ordered Gentry to arbitrate on an individual basis. On remand from the California Supreme Court for reconsideration in light of Discover Bank v. Superior Court 36 Cal. 4th 148 (2005), the court concluded that the class action waiver was enforceable. The court determined that the class action provision was (1) not procedurally unconscionable because Gentry was given 30 days within which to opt out of the arbitration agreement, and (2) not substantively unconscionable because it didn't fit the type of facts involved in the Discover Bank case. In Discover Bank the waiver clause was "found in a consumer contract of adhesion in a setting in which disputes between the contracting parties predictably involve small amounts of damages," and it was "alleged that the party with the superior bargaining power as carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money ...." TX - Arbitration compelled in employee's suit for defamation.In re Dillard Dept Stores (Texas 01/27/2006) The employee sued the employer for defamation. The trial court denied the employer's motion to compel arbitration. The Texas Supreme Court reversed, finding that that both signed the arbitration agreement and that the employer did not retain a unilateral right to modify the agreement. The court noted that the arbitration agreement specifically mentioned "personal injury" claims which, in Texas, includes defamation. 4th - Determining number of arbitrators was arbitral decision.Dockser v. Schwartzberg (4th Cir 01/19/2006) Dockser sued Schwartzberg alleging violation of a definitive settlement agreement (DSA) by requesting three-arbitrator panel. The trial court granted Schwartzberg's motion to dismiss. The 4th Circuit Court affirmed. The issue on appeal was whether a court or the arbitral forum should determine the number of arbitrators. Reviewing Congress's purpose in the passage of the Federal Arbitration Act (FAA), the court applied the presumption favoring arbitrability to find that because the parties did not contractually agree otherwise in the DSA, the question of the proper number of arbitrators was for arbitral rather than judicial decision. TX - Employer established the existence of a valid arbitration agreement encompassing employee's claims.In re Autotainment Partners (Texas Ct App 01/20/2006) The employer (a non-subscriber to the state's workers' compensation system) was sued by an employee for injuries allegedly sustained in the workplace. The Texas Court of Appeals court concluded that the employer established the existence of a valid arbitration agreement encompassing the employee's claim, and that the employee failed to show that the agreement was somehow unenforceable. 9th - ERISA plan participant wasn't bound by arbitration agreement between the plan and its investment advisor.Comer v. Micor Inc (9th Cir 02/01/2006) Comer's Employee Retirement Income Security Act (ERISA) plan retained an investment firm to provide investment advice to the plan. After the plan suffered heavy losses, Comer sued the firm under ERISA for breach of fiduciary duty. The firm moved to compel arbitration pursuant to an agreement entered into between the firm and the plan. The trial court denied the motion; the 9th Circuit affirmed. The court concluded that "[the investment firm's] petition comes within the general rule that a nonsignatory is not bound by an arbitration clause." In so concluding, the court rejected the firm's arguments that Comer was bound by the arbitration clause as a matter of equitable estoppel and as a third party beneficiary. In addition, the court was critical of a 3rd Circuit opinion (E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediaries, 269 F.3d 187 (3rd Cir 2001)) which posited that "whether seeking to avoid or compel arbitration, a third party beneficiary has been bound by contract terms where its claim arises out of the underlying contract to which it was an intended third party beneficiary." *** Arbitration - Collective Bargaining Agreements ***6th - Court suggested rehearing en banc to review test for vacating arbitrators' decisions.Michigan Family Resources v. SEIU (6th Cir 01/27/2006) The arbitrator awarded an increase in the cost of living to the union. The trial court granted the employer's motion for summary judgment vacating the award. The 6th Circuit Court affirmed. The court found that the collective bargaining agreement (CBA) was clear and did not require parity in the sum of cost of living and merit increases between union and non-union employees. The court stated the arbitrator had no basis for consulting evidence of the parties' custom of wage increases. The court suggested a petition for rehearing en banc to review the 6th Circuit's test for vacating arbitrators' decisions. NV - Court adopted reasonable impression of partiality standard for determining evident partiality.Thomas v. City of North Las Vegas (Nevada 02/09/2006) Thomas filed a motion to vacate an arbitration award in favor of the employer. The trial court granted Thomas' motion. The Nevada Supreme Court reversed. The court noted that it had never interpreted NRS 38.145(1)(b)'s evident partiality grounds for vacating an arbitration award. After discussing Commonwealth Corp. v Casualty Co., 393 US 145 (1968) and Schmitz v Zilveti, 20 F3d 1043 (1994), the court held that the proper standard for determining whether a party had demonstrated evident partiality by the arbitrator's nondisclosure of a relationship, was whether the undisclosed relationship gave rise to a "reasonable impression of partiality." The court found that under the collective bargaining agreement (CBA), arbitrations were to be conducted by the Federal Mediation and Conciliation Services (FMCS), which did not require disclosure of the arbitrator's membership on a permanent panel because it was not a managerial, representational, or consultative relationship. 6th - Equivocal statements about arbitration did not trigger NLRA's statute of limitations.Intl Union v. Cummins, Inc (6th Cir 01/18/2006) The 6th Circuit Court affirmed the trial court's order compelling arbitration. The primary issue on appeal was whether the suit to compel arbitration was barred by the six-month statute of limitations established by section 10(b) of the National Labor Relations Act (NLRA). The court stated that the statute of limitations began to run when the employer took an unequivocal position that it would not arbitrate. The court agreed that communications by the employer prior to the six-month period before the filing of the suit were equivocal. OH - Arbitrator exceeded his authority by using Daugherty's seven elements of "good cause."Summit City Children Services v. Communications Workers (Ohio Ct App 02/01/2006) The union appealed an order by the trial court vacating a grievance arbitration award rendered in its favor. The court affirmed. The court reasoned that the arbitrator ignored the plain language of the parties' collective bargaining agreement and relied upon an extraneous definition of "good cause." The court used a definition from Black's Law Dictionary, and rejected the arbitrator's use of Arbitrator Carroll Daugherty's seven elements of "just cause." Fed - MSPB regulation regarding jurisdiction upheld and then applied to constructive adverse action "mixed" case (10-2).Garcia v. Dept of Homeland Security (Fed Cir 02/10/2006) Garcia appealed the Merit Systems Protection Board's (MSPB's) dismissal of her claim for constructive reduction in grade. Garcia's case was a "mixed" case - involving allegations of an adverse action and allegations of discrimination. The MSPB determined that Garcia had not proven that her actions were involuntary and therefore dismissed her case without a hearing for lack of jurisdiction. Sitting en banc, the Federal Circuit vacated and remanded. An adverse action (in this context) is an official action taken by a federal agency and imposed on a federal employee, such as removal from employment or reduction in pay or grade. 5 USC Section 7512. An employee aggrieved by such an action can appeal the action to the MSPB for a determination as to whether the action was proper. 5 USC Section 7513(d). A constructive adverse action arises when an agency's conduct leaves an employee no alternative but to impose the adverse action on himself. The MSPB has jurisdiction over cases involving constructive adverse actions. The court observed that "[i]n constructive adverse action cases, whether the Board's jurisdiction under 5 USC Section 7512 is established on a showing of preponderant evidence or a non-frivolous allegation is an issue of considerable importance, especially in mixed cases." The court further observed, "[w]e sua sponte decided to hear Ms. Garcia's case en banc in order to resolve issues concerning the appropriate test for Board jurisdiction under the relevant statutes and regulation." The court concluded, "we hold that, under 5 USC Section 7512, non-frivolous allegations do not establish the Board's jurisdiction. We further hold that the Board's regulation, 5 C.F.R. Section 1201.56, which requires an employee to prove the Board's jurisdiction by a preponderance of the evidence, is entitled to deference and is therefore lawful[.]" The court explained, "[t]o summarize, under 5 USC Section 7701 and 7512, once a claimant makes non-frivolous claims of Board jurisdiction, namely claims that, if proven, establish the Board's jurisdiction, then the claimant has a right to a hearing. At the hearing, the claimant must prove jurisdiction by a preponderance of the evidence. If the Board determines that the claimant fails to prove jurisdiction by a preponderance of the evidence, then the Board does not have jurisdiction and the case is dismissed for lack of jurisdiction." The court concluded additionally, "we reaffirm ... that in a constructive adverse action case, a claimant must prove that the action was involuntary and that the Board may not reach discrimination issues in mixed cases unless jurisdiction is established with respect to the adverse action alleged." The court concluded ultimately that "the Board did not adequately determine whether or not Ms. Garcia has presented non-frivolous" allegations prior to denying her a hearing. The DISSENT argued that "[t]oday, this court overrules this court's decisions holding that the Board must apply a non-frivolous allegation standard for jurisdiction in constructive adverse action cases alleging unlawful discrimination. In my view, the majority decision reflects a profound misunderstanding of the statutory scheme." |
| Employment Law Editor: Ross Runkel, Professor of Law Emeritus. |
|
|
|
Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
|
