« June 2005 | Main | August 2005 »
Armendariz doesn't apply to common-law claims
July 29, 2005 by Ross Runkel at LawMemo
California's Supreme Court threw cold water on the notion that Armendariz v. Foundation Health Psychcare Services (California 2002) should be applied across-the-board to all common-law claims such as breach of contract and intentional infliction of emotional distress. Boghos v. Certain Underwriters (California 07/18/2005).
In Armendariz an employee claimed that his employer violated California's Fair Employment and Housing Act (FEHA). The parties had signed an agreement to arbitrate, but the California Supreme Court said that employer-mandated agreements to arbitrate FEHA claims would be enforced only if they
provide for neutral arbitrators, more than minimal discovery, a written award, and all of the types of relief that would otherwise be available in court and, in addition, “ ‘do[] not require employees to pay either unreasonable costs or any arbitrators’ fees or expenses as a condition of access to the arbitration forum.’ ”
Armendariz was extended in Little v. Auto Steigler (California 2003) to apply the same requirements to employer-mandated agreements to arbitrate tort claims for wrongful discharge in violation of public policy.
Antone Boghos sued his insurance company for ceasing to pay benefits under his disability insurance policy. The policy contained an arbitration provision, so the company moved to compel arbitration. Boghos resisted arbitration on the ground that the arbitration agreement required that the arbitration costs be split among the parties. The cost-splitting provision was one of the items forbidden by Armendariz.
The California Supreme Court made an important distinction between Armendariz-Little claims and the claims brought by Boghos.
- In Armendariz the plaintiff was suing on a statutory claim, and the FEHA statute was one that created rights for the benefit of individuals and also for the benefit of the public.
- In Little the plaintiff sought to enforce public policies that are carefully tethered to fundamental policies delineated in constitutional or statutory provisions.
- Boghos' case, on the other hand, raised claims of plain old garden-variety common-law breach of contract and intentional infliction of emotional distress. These claims clearly are not "unwaivable claims based on or tethered to statutes."
In sending the case back to the lower courts, the California Supreme Court invited inquiry into
(1) whether the clause of the arbitration provision requiring Boghos to share the costs of arbitration and the arbitrator’s (or arbitrators’) fees is is unenforceable under the general law of unconscionability, (2) whether Boghos’s ability to pay his share of the costs and fees is relevant to the question of unconscionability and, if so, whether he must prove he is factually unable to pay, (3) whether the clause of the arbitration provision selecting the venue of arbitration (“Los Angeles County or at another location if agreed by all parties”) is unconscionable, and (4) whether, if the cost-sharing clause, the venue-selection clause or both are unconscionable, the offending clause or clauses should be severed and the matter nevertheless referred to arbitration (see Civ. Code, § 1670.5).
|
|
"Reverse" discrimination violates public policy
July 18, 2005 by Ross Runkel at LawMemo
Arbitration awards will not be enforced if they violate public policy. "Clear" public policy, that is. And it's not always clear whether the public policy is clear, and that split the 8th Circuit 2 to 1.
Federal law does not prohibit employers from preferring older workers over younger ones. State law can, and Minnesota law does prohibit older worker preferences.
A collective bargaining agreement required 1 out of every 5 electrical workers in a unionized shop to be 50 years of age or over. The employer let go two over-50 employees as part of a reduction in force. The union filed a grievance, which went to arbitration.
The arbitration panel ruled that the employer violated the agreement by not maintaining the 1-to-5 ratio, and awarded lost wages to the two employees.
The 8th Circuit held (2-1) that the arbitration award could not be enforced because it violated public policy - a rare outcome. The public policy was found in the Minnesota Human Rights Act. That statute, says the court, "prohibits using a person's age as a basis for a decision if the person is over the age of majority." Ace Electrical Contractors v. IBEW (8th Cir 07/14/2005).
The dissent would have upheld the arbitration award under the usual highly deferential rules for reviewing such awards, noting that "the law of Minnesota simply does not provide the clarity necessary to invoke the public policy exception.
My view:
- A reminder that federal and state law can be quite different on important questions of employment discrimination law.
- This case is an unusual example of a court refusing to uphold an arbitration award, on the ground that the award violated public policy.
|
|
Forum clause controls which court can order arbitration
July 14, 2005 by Ross Runkel at LawMemo
An arbitration agreement specified Washington, DC as the place for arbitration, but one of the parties asked a Colorado federal court to order arbitration. Held:
- Can't order them to arbitrate in Colorado, because the agreement requires arbitration in Washington, DC.
- Can't order them to arbitrate in Washington, DC, because FAA Section 4 requires a geographical nexus between the arbitration forum and the district court issuing the order.
So says the 10th Circuit in Ansari v. Qwest Communications (10th Cir 07/12/2005).
It's all about Federal Arbitration Act (FAA) Section 4, which deals with federal district court orders to compel arbitration:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action . . . of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.
It turns out courts have taken three different approaches when deciding whether a district court may compel arbitration when the arbitration agreement states that arbitration shall take place in another district:
- One is the 5th Circuit: A district court may compel arbitration in the district specified in the arbitration agreement, even though that district is outside its own district. Dupuy-Busching Gen. Agency, Inc. v. Ambassador Ins. Co., 524 F.2d 1275, 1276, 1278 (5th Cir. 1975). Wrong, says the court, because "no statutory language supports this approach."
- Two is the 9th Circuit: A district court can compel arbitration in its own district and ignore the forum specified in the arbitration clause. Unlimited, Inc. v. A..BMH & Co., 240 F.3d 781, 783 (9th Cir. 2001). Wrong, says the court, because Section 4 says "the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement."
- Three is the majority rule: Where the parties agreed to arbitrate in a particular forum only a district court in that forum has authority to compel arbitration under Section 4. Correct, says the court, finding in Section 4 a "mandate that arbitration and the order compelling arbitration issue from the same district."
My view:
- A court cannot order arbitration at a venue different from the one chosen by the parties. Section 4 is clear on that.
- Section 4 is less clear on whether one district court can order arbitration in another district. Still, it's a good idea not to.
- I like the outcome. It creates a bright line, and prevents forum-shopping.
- What does the Colorado District Court do with the fact that a law suit has been filed there, yet that court cannot compel arbitration? Simple. Just stay the court proceedings pending a decision in the District of Columbia as to whether the matter is arbitrable. That's what happened in the Ansari case.
|
|
Arbitration Law Memo
July 13, 2005 by Ross Runkel at LawMemo
LawMemo sent its monthly Arbitration Law Memo to its email subscribers today. It's a nifty compilation of court decisions dealing with "employment arbitration" under individual contracts and "labor arbitration" under collective bargaining agreements.
For each case, a single click takes you to the full text of the court decision.
Some sample headlines:
- 5th - Continued employment constituted consent to arbitration.
- DC - Sever the ban on punitive damages and compel arbitration.
- 6th - Employee bound by implied-in-fact arbitration agreement.
- 8th - Award didn't evidence "manifest disregard for law."
- 10th - Interlocutory appeal from the denial of a motion to compel arbitration divests a district court of jurisdiction to proceed.
- 4th - Internal dispute program was not part of arbitration agreement.
- CA - Arbitrator's award enforcing covenant not to compete was upheld.
- CT - Arbitrators' award did not violate public policy against theft.
Email subscription available [here].
Also on the web [here].
|
|
Side agreement not arbitrable
July 11, 2005 by Ross Runkel at LawMemo
The union and the employer had two agreements: (1) a collective bargaining agreement which had an arbitration clause, and (2) a side agreement which was silent as to arbitration. The union claimed breach of the side agreement and sued to compel the employer to arbitrate.
Should the court compel arbitration? Arbitration is a matter of agreement, or consent, or intent. So It all boils down to figuring out what the parties intended. Intent in this context does not mean that we ask the negotiators what was going on in their minds. It means that a court looks at the situation from an "objective" viewpoint.
It's clear that the parties agreed to arbitrate something. The question is, what is the scope of that agreement to arbitrate?
If you're in the 9th Circuit, the court does it this way: "Disputes arising under a side agreement must be arbitrated if the dispute relates to a subject that is within the scope of the CBA's arbitration clause. . . . [and] [t]he clause contains no exclusion for disputes arising under side agreements." Inlandboatmens Union of the Pacific v. Dutra Group, 279 F.3d 1075 (9th Cir 2002).
If you're in the 2nd or 8th Circuit, you get a two-step analysis:
- Decide whether the arbitration clause is narrow or broad.
- If narrow, then decide "whether the dispute involves an agreement collateral to the agreement containing the arbitration clause."
- If broad, then decide "whether the dispute relates to the subject matter of the agreement."
In this case the arbitration clause was narrow. It defined a "grievance" as being an alleged violation of the CBA itself. (A broad clause might say something like "any dispute arising out of or relating to this agreement.")
The next question is whether the dispute is "collateral" to the CBA rather than "part and parcel of" the CBA.
In this case the side agreement dealt with retiree insurance, a topic that was not mentioned at all in the CBA. And nothing in the side agreement or the CBA indicated an intent to incorporate the side agreement into the CBA or to incorporate the arbitration clause into the side agreement.
Result: The clause is narrow, the dispute is collateral, and arbitration is not compelled. United Steelworkers v. Duluth Clinic (8th Cir 07/07/2005).
My view: Whichever circuit one is in, the message is clear. Think about arbitration when you're drafting a side agreement. If you want disputes arbitrated, then say so. If not, say not. If you say nothing, then may get to spend lots of time in court.
|
|
Court severs anti-punitive damages clause
July 05, 2005 by Ross Runkel at LawMemo
An arbitration agreement was unenforceable as written because it precluded an award of punitive damages, which is available under state (D.C.) statute. What should a court do now?
- Sever the offensive clause and order arbitration?
- Disallow arbitration and send the case to court litigation?
The District of Columbia Circuit says to sever the offensive clause and compel arbitration. Booker v. Robert Half Intl (DC Cir 07/01/2005).
Timothy Booker had signed an agreement to arbitrate his employment disputes, but when he had a claim of racial discrimination and wrongful discharge he filed suit. When the employer moved to compel arbitration, Booker pointed out that the arbitration agreement contained a clause that was unlawful: a ban on punitive damages. So the trial court excised the punitive damages clause and enforced the agreement to arbitrate.
The DC Circuit approved. Although the court identified other Circuit decisions that seemed to go both ways on this issue, there were two factors that prevailed. (1) The agreement had only one flaw, and was not riddled with unlawful clauses. (2) The agreement had an express severability clause in it.
My view:
- On the facts of this case, a proper outcome. By analogy to the law of unconsionability, it seems proper, if possible, to cut out the offensive portion(s) of an agreement and preserve the remainder. Easily done here.
- I do remain sympathetic to one of Booker's arguments: Employers who know that courts will "prune" the illegality out of arbitration agreements will be encouraged to overreach and include improper clauses. Employees will be required to go to court to get the thing fixed. This adds another hurdle for the employee, and adds costs to the process, all of which is contrary to the spirit of arbitration as a dispute-resolution method.
|
|
Interlocutory appeal will stop lower court litigation
July 01, 2005 by Ross Runkel at LawMemo
If a court denies an employer's motion to compel arbitration, and the employer appeals, is the employer entitled to a stay of the trial court litigation proceedings? Circuits are split, and the 10th Circuit now says "yes." McCauley v. Halliburton Energy Services (10th Cir 06/28/2005)
When McCauley sued his former employer, the trial court granted the employer's motion to arbitrate certain claims, but denied the motion as to other claims and ordered the parties to proceed to trial. The employer appealed the partial denial of its motion to compel arbitration, as permitted by the Federal Arbitration Act (FAA), 9 USC Section 16(a)(1)(C). The trial court denied the employer's motion to stay further litigation pending resolution of the appeal, but the 10th Circuit granted the motion.
The legal issue, a matter of first impression in the 10th Circuit: "Whether an interlocutory appeal from the denial of a motion to compel arbitration divests a district court of jurisdiction to proceed on the merits of the underlying claim while the appeal is pending."
There is a split among the circuits on this issue.
- Refusing a stay: Motorola Credit Corp. v. Uzan, 388 F.3d 39 (2nd Cir 2004); Britton v. Co-Op Banking Group, 916 F.2d 1405 (9th Cir 1990).
- Allowing a stay: Blinco v. Green Tree Servicing, LLC, 366 F.3d 1249 (11th Cir 2004); Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504 (7th Cir 1997).
The 10th Circuit allowed a stay, assuming the appeal is non-frivolous.
The 9th Circuit has expressed concern over potential exploitation of a categorical rule that an appeal divests the trial court of jurisdiction, which "would allow a defendant to stall a trial simply by bringing a frivolous motion to compel arbitration." Addressing that concern, the 10th Circuit noted that "upon the filing of a motion to stay litigation pending an appeal from the denial of a motion to compel arbitration, the district court may frustrate any litigant's attempt to exploit the categorical divestiture rule by taking the affirmative step, after a hearing, of certifying the Section 16(a) appeal as frivolous or forfeited."
My view: There's no good answer for this dilemma, but I tend to favor disallowing a stay. Interlocutory appeals are already an exception to the general rule. These appeals should not keep the lower courts from doing their business. The 10th Circuit's technique of distinguishing frivolous from non-frivolous appeals will do little to help because it will be quite difficult to get a trial court to say an appeal is frivolous. As a result, interlocutory appeals will generally bring everything else to a halt. One more way to delay.
|
|
|
Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
|
