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6th Circuit award review standards under fire
January 29, 2006 by Ross Runkel at LawMemo
A 6th Circuit panel has practically begged the rest of the court to grant a rehearing en banc to review the 6th Circuit's test for vacating arbitrators' awards. Michigan Family Resources v. SEIU (6th Cir 01/27/2006).
First the court decided that an arbitrator's decision did not "draw its essence from the collective bargaining agreement." The flaw, according to the court, was that the arbitrator took a contract that was perfectly clear, decided it was actually ambiguous, and then used the parties' custom of granting wage increases as a source for construing the agreement. The court said this imposed an additional requirement not expressly provided for in the agreement.
What really happened is that the court believed that the arbitrator's legal analysis was wrong. Maybe it was, but that is not a valid ground for vacating an award (except in the 6th Circuit).
As one of the judges pointed out, the 6th Circuit's test for vacating a labor arbitration award is not as deferential as the US Supreme Court has indicated it must be.
Appended to the opinions is an appendix of published and unpublished opinions that have either upheld or vacated awards. It's quite a list. 27 percent have been vacated.
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"Procedural" unconscionability is now the battleground
January 28, 2006 by Ross Runkel at LawMemo
In California (and many other states) a court will find a contract clause unconscionable only if it is both "procedurally" and "substantively" unconscionable. A consumer or employee must show both in order to get the clause thrown out.
A class-action waiver clause in an arbitration agreement creates a classic situation. In Discover Bank v. Superior Court (2005), a bank included an arbitration agreement (complete with a class-action waiver) in a bill stuffer. The California Supreme Court found the waiver clause unconscionable - both procedurally and substantively.
Banks that want their customers bound by such clauses will likely focus on the procedural aspect. (To focus on the substantive aspect would probably mean they would need to completely exclude the waiver clause.)
When it comes to bill-stuffers, there are two examples that illustrate the opposite ends of the spectrum.
1. The banks says that you have to either agree to the waiver or close out your account. That is what was happening in Discover Bank. Procedurally unconscionable.
2. The bank says you have 30 days to decide whether to opt out, and you can keep your account either way. That eliminates the "take-it-or-leave-it" nature of the transaction.
How about something in between? In Jones v. Citigroup (California Ct App 01/26/2006) the bank's bill-stuffer allowed customers 26 days to opt out. Those who opted out could keep their credit card accounts until the end of the current membership year or until the expiration date on the card, whichever was longer. Then the account would be closed.
The California court held (2-1) that there was no procedural unconscionability. The primary reasoning was that the case did not involve an "adhesion" contract because the consumer was able to opt out. Therefore, no procedural unconscionability. Therefore, the waiver clause was enforceable.
The dissent would hold that procedural unconscionability existed because the customer had to either accept the waiver clause or forfeit the use of the credit card within a relatively short amount of time. The dissent did not see much difference between this case and the Discover Bank case. In addition, the dissent went beyond unconscionability analysis to say that the waiver clause violated public policy.
There is another way to view unconscionability analysis, which is followed in several states. Although the court continues to examine both the "substantive" and "procedural" aspects, neither one is considered on an all-or-nothing basis. It is a sort of balancing approach. Under that view, a clause that is "very" unconscionable substantively need not have as much procedural unconscionability.
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Post-employment defamation is arbitrable
January 27, 2006 by Ross Runkel at LawMemo
Andrea Martinez got fired after 20 years, and sued her employer claiming defamation. The employer moved to compel arbitration, in accordance with an arbitration agreement signed by Martinez.
Martinez argued that the agreement, which expressly included "personal injury" claims, did not include her claim for post-employment defamation.
The Texas Supreme Court ruled that the arbitration agreement should be enforced. In Re Dillard Department Stores (Texas 01/27/2006).
Two reasons:
1. In Texas, "personal injury" includes defamation. (I'm wondering how many other states would consider defamation to be personal injury.)
2. "A court should not deny arbitration 'unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.'"
My view:
Certainly the second reason has become the standard in almost every court. If there is an arbitration clause, then there is essentially a presumption that all claims are included. The party resisting arbitration has the burden to persuade the court that the claim was meant to be excluded.
I heard about this from Michael Fox, Jottings by an Employment Lawyer. His post has this great title: Like Horseshoes and Hand Grenades - Close Is Enough for Arbitration Clause in Texas.
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Lost arbitration agreement is enforceable
January 25, 2006 by Ross Runkel at LawMemo
Sorry, Your Honor, but I just can't seem to find the arbitration agreement that the customer signed. Can you help me out?
It seemed that a customer bought a car, and then some dispute arose between the customer and the car dealer. The dealer resisted having the dispute resolved in court, arguing that the customer had signed a written agreement to arbitrate. The only hitch was that the dealer could not produce the written agreement.
The lower court held that failure to produce the written agreement meant that there was a failure to prove that there was an agreement to arbitrate. (I can hear my first year law students laughing at this one.)
The dealer produced an affidavit to the effect that the dealer sold the car, all such transactions have arbitration agreements attached to them, and the form of the agreement would include the current dispute.
The 5th Circuit held that under the law of Mississippi it is not required that a party produce the writing if there is (1) proof that the writing actually existed at one time plus (2) proof of what was in the writing. (Can there possibly be a state that does not follow that rule?)
The question of whether there was an agreement to arbitrate is a question of state law, so the court held that the dispute must be arbitrated.
The case is Banks v. Mitsubishi Motors Credit (5th Cir 12/09/2005). Issued per curiam, no doubt because it was a no-brainer.
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Class action waiver in arbitration agreement was enforceable
January 23, 2006 by Ross Runkel at LawMemo
Arbitration agreements that contain class-action waiver clauses can be unconscionable, but they are not always so. The big case from the California Supreme Court was Discover Bank v. Superior Court (2005), which involved an arbitration class-action waiver in a bank's cardholder agreement. The court found the clause unconscionable.
What about such a clause in an employment agreement?
The California Court of Appeal has held that such a clause is not unconscionable under the facts of the particular case. Gentry v. Superior Court (California Ct App 01/19/2006).
The agreement was not procedurally unconscionable because the employee was allowed a 30 day period within which to decide whether to opt out. The employee did not opt out. Signing the agreement was not a condition of employment.
The agreement was 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 . . . ."
The Court of Appeal noted that "[t]he infirmities that plagued the Discover Bank class action waiver are not present here."
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Who decides how many arbitrators will hear a case?
January 19, 2006 by Ross Runkel at LawMemo
Schwartzberg filed an arbitration demand with the American Arbitration Association (AAA), asking for appointment of three arbitrators. Dockser sued Schwartzberg claiming there should be only one arbitrator.
The question before the court wasn't how many arbitrators there should be. The question was who should decide how many arbitrators there should be.
The 4th Circuit held that this was not a question for the court to decide. It must be decided by the AAA. The parties agreed to abide by the AAA rules, so that is the body that is authorized to make the decision. Dockser v. Schwartzberg (4th Cir 01/19/2006).
My view: I agree with the outcome and the reasoning. And with the court's comment that the litigation of this case did not serve the arbitration goals of saving time and money.
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Blog birthday
January 15, 2006 by Ross Runkel at LawMemo
Happy Birthday.
Ross' Employment Law Blog is now one year old.
Within a few weeks I started Ross' Arbitration Blog. Later I began using the blogging software to add new sections (not blogs exactly) to the LawMemo web site:
- Arbitration Law Memo
- NLRB Law Memo
- Employment Law 101
- Ross' Employment Law Reviews (articles, books, courses)
I am grateful to a lot of people for the success of these projects:
- Layne, my wife, who is always encouraging whenever I start another "foolish" project.
- My readers, who keep coming back.
- A long list of fellow bloggers who have been unfailing in their support and encouragement.
- Six Apart, who makes software that works (I've used TypePad, and now use Moveable Type) for a good price.
- Google, who provides an awesome search engine and whose AdSense helps pay the bills.
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Reverse preemption of the FAA
January 14, 2006 by Ross Runkel at LawMemo
The 5th Circuit says that a Mississippi statute "reverse preempts" the Federal Arbitration Act (FAA).
The state statute prohibits required arbitration of disputes arising from uninsured motorist provisions in personal automobile insurance policies.
The FAA normally preempts any state statute that purports to invalidate an arbitration agreement. However, this case involved an insurance policy, and the federal McCarran-Ferguson Act has a narrow exception for state laws governing the insurance industry.
The 5th Circuit decided that the state statute took priority over the FAA, so the policy-holder was not obligated to arbitrate his claim against the insurance company.
American Bankers Insurance v. Inman (5th Cir 01/11/2006).
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Nondisclosure results in vacated arbitration award
January 13, 2006 by Ross Runkel at LawMemo
Oops. After an arbitrator issued an award, the losing party discovered that seven years earlier he and his former law firm were co-counsel in a lengthy litigation with one of the law firms and counsel in the current arbitration.
The 5th Circuit held that the arbitrator was required to disclose these facts "because it might have created an impression of possible bias," and failure to disclose justified vacating the arbitration award. Positive Software Solutions v. New Century Mortgage (5th Cir 01/11/2006).
The court based its decision on the "evident partiality" language in Section 10 of the Federal Arbitration Act (FAA), and on a number of court decisions from the Supreme Court and other Circuits.
In addition, there was no "waiver" of objection because the losing party did not discover the situation until after the award was issued.
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