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Gentry: Cert denied
March 31, 2008 by Ross Runkel at LawMemo

The US Supreme Court denied certiorari in Circuit City Stores, Inc. v. Gentry on March 31. (This case was Gentry v. Superior Court (Supreme Court of California 08/30/2007) (4-3 vote)).

Robert Gentry brought a class action suit claiming that the employer had misclassified salaried customer service managers as exempt from the overtime provisions of the California Labor Code. Because Gentry had signed an agreement to arbitrate, and the agreement contained a class action waiver, the trial court ordered arbitration on an individual basis. The California Court of Appeal affirmed; the California Supreme Court (4-3) reversed.

The California Supreme Court held that in some cases a class arbitration action waiver may be contrary to public policy.

Rather than relying on the unconscionability doctrine, the court focused on the fact that Gentry's claim dealt with the "unwaivable" statutory right to receive overtime pay.

The California Supreme Court concluded that:

"under some circumstances such a provision would lead to a de facto waiver and would impermissibly interfere with employees' ability to vindicate unwaivable rights and to enforce the overtime laws."

"[W]hen it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can 'vindicate [their] unwaivable rights in an arbitration forum.'" The California court remanded for findings on these issues.

(Oh my. I predicted [here] that the US Supreme Court would deny cert in this case.)

LawMemo publishes Employment Law Memo.

Hall Street: Non-statutory grounds for review
March 27, 2008 by Ross Runkel at LawMemo

Hall Street Associates v. Mattel [details] (US Supreme Court 03/25/2008) (6-3) held that "§§10 and 11 respectively provide the [Federal Arbitration Act's] exclusive grounds for expedited vacatur and modification" of an arbitrator's award.

And some brave souls are asking "Do they really mean that? What about the various non-statutory grounds that courts seem to use for overturning arbitrators' awards, such as manifest disregard of the law, public policy, arbitrary and capricious, irrational?"

Well, here comes the truth:

• "Public policy" is the easiest. Yes, it exists as a non-statutory ground, but it will very rarely succeed. A court will not enforce an award that violates public policy because this is an inherent limitation on a court's power, and it needs no statutory statement.

  However, "public policy" is an extraordinarily narrow concept. You have to show that enforcing the award would violate a clear and well-articulated policy that is stated in statutes, regulations, or precedents. Courts can't just make up policy as they go along.

• "Manifest disregard of the law" is trickier. The Supreme Court has never said (and I believe never will say) that "manifest disregard" exists as a ground separate from the FAA. In Hall Street the Court referred to the concept as "a supposed judicial expansion by interpretation," and mused that it might refer to the §10 grounds collectively, or might be "shorthand" for §10(a)(3) (“guilty of misconduct”) or §10(a)(4) (“exceeded their powers").

  And "manifest disregard" is extremely narrow. Usually it means that there is proof that the arbitrator knew there was a law, but then ignored it. This is not the same as making a legal error, which is not a ground for overturning an award.

• Other grounds such as "arbitrary," "capricious," "irrational," will never make the cut at the Supreme Court. At their best, these concepts lack precision. At their worst, they are simply restatements of disagreement with the arbitrator's reasoning process.
• Bottom line: If you are attacking an arbitrator's award under the FAA, then you must use the statutory grounds, or "public policy," but don't get your hopes up if you must resort to public policy.

LawMemo publishes Employment Law Memo.

Hall Street: No expansion of FAA grounds for vacating award
March 27, 2008 by Ross Runkel at LawMemo

The Federal Arbitration Act (FAA) contains specific grounds for a federal court to vacate or correct an arbitrator's award. None of the statutory grounds includes correcting the award if the arbitrator's conclusions of law were erroneous.

In Hall Street Associates v. Mattel [details] the parties agreed to arbitrate a portion of their lawsuit, and included an agreement that a federal district court

"shall vacate, modify or correct any award: (i) where the arbitrator’s findings of facts are not supported by substantial evidence, or (ii) where the arbitrator’s conclusions of law are erroneous."

The US Supreme Court decided (6-3) on March 25

1. "§§10 and 11 respectively provide the FAA’s exclusive grounds for expedited vacatur and modification."

   In other words, if you're using the FAA's statutory method for vacating (or confirming) an award, then you can use only the statutory grounds. You can't make a court review the arbitrator's award under a more expansive standard.

   [My comment on October 22, 2007: "It is beyond my imagination that the Supreme Court would allow private parties to convey on federal courts a review power that Congress withheld."]

2. The Hall Street case was a bit more complex than some cases because the agreement to arbitrate was approved by the district court, and was entered as a court order. Therefore, it is possible that court review of the award could be had in some way other than the FAA. For example, there might be a state statutory method or a common law method. In the alternative, it could be that the district court had authority as part of its case-management powers. However, these possibilities did not become part of the parties' arguments until after the case got to the Supreme Court, and the Court did not want to consider them without giving lower courts the first chance. Therefore, the Court remanded so the lower courts can look at these possible alternatives.

   [My comment on December 1, 2007: "If the procedure followed by the district court was allowed by either its local rules or state law, then the FAA does not purport to disallow that. Therefore, the Supreme Court should (1) declare that the FAA does not block the procedure followed here if it is otherwise allowed by local rules or state law, and (2) remand to the lower courts to decide whether the procedure is allowed. (The Supreme Court should not tackle local issues that have not been previously ruled on by the lower courts.)"]
   

Many onlookers are asking what effect the Hall Street case will have on other "non-statutory" grounds for overturning an arbitrator's award: manifest disregard for the law, public policy, arbitrary and capricious, irrational, etc. I'll give you my answer in a later post.

I was surprised that a couple of law professors were surprised by this decision. See Marcia McCormick, Hall Street v. Mattel and the Future of Arbitration on Workplace Prof Blog; and Sarah Cole, Hall Street Decision Today: Parties Cannot Expand Judicial Review of Arbitration Awards on ADR Prof Blog.

Other comments on this case:

• The Word on Hall Street Is No Expanded Review on National Arbitration Forum Blog
• U.S. Supreme Court finds Federal Arbitration Act states exclusive grounds for review of arbitration awards on Northwest Business Litigation Blog (from the Ater Wynne law firm)
• SCOTUSwiki
• No Longer can you Craft Your Own Arbitral Standard of Review on Disputing

LawMemo publishes Employment Law Memo.

Supremes take another arbitration case
March 17, 2008 by Ross Runkel at LawMemo

The US Supreme Court this morning granted certiorari in Vaden v. Discover Bank, et al. (Docket number 07-773).

Briefs are available from LawMemo and SCOTUSblog. Oral arguments will be scheduled for the Fall of 2008.

Discover Bank sued Betty Vaden in state court for nonpayment of her credit card balance. Vaden counterclaimed, raising state-law claims of breach of contract and violation of state statutes regulating credit card fees and charges. Discover Bank then petitioned a federal district court seeking to compel arbitration of Vaden's state-court counterclaims. The federal district court granted the motion to compel arbitration. The 4th Circuit affirmed (2-1).

The Federal Arbitration Act (FAA) itself does not create jurisdiction in the federal courts, and there must be a federal question or diversity of citizenship.

The 4th Circuit held (2-1) that federal courts have jurisdiction because of the presence of a federal question in the underlying dispute. Because Discover Bank is a federally-insured bank, the Federal Deposit Insurance Act (FDIA) is implicated by Vaden's counterclaims. The court also found that Vaden's counterclaims are completely preempted by the FDIA.

The DISSENT argued that the federal court should look no further than the face of the petition to compel arbitration to see whether a federal question exists.

LawMemo publishes Employment Law Memo.

Gentry at the US Supreme Court
March 15, 2008 by Ross Runkel at LawMemo

Circuit City Stores has filed a petition for a writ of certiorari in Circuit City Stores, Inc. v. Gentry, known previously as Gentry v. Superior Court (California Supreme Court 08/30/2007) (4-3 vote)

Briefs filed at the US Supreme Court are available at LawMemo and at SCOTUSblog.

The Court will consider the petition at its March 28 private conference, and should announce its decision (to grant or deny the petition) March 31. If the petition is granted, oral arguments will be scheduled for the fall. If denied, then the California judgment will remain undisturbed.

Facts:

Robert Gentry brought a class action suit claiming that the employer had misclassified salaried customer service managers as exempt from the overtime provisions of the California Labor Code. Because Gentry had signed an agreement to arbitrate, and the agreement contained a class action waiver, the trial court ordered arbitration on an individual basis. The California Court of Appeal affirmed; the California Supreme Court (4-3) reversed.

California Supreme Court's decision:

The California Supreme Court held that in some cases a class arbitration action waiver may be contrary to public policy.

Rather than relying on the unconscionability doctrine, the California court focused on the fact that Gentry's claim dealt with the "unwaivable" statutory right to receive overtime pay.

Circuit City Stores' petition states two "Questions Presented"

1. Whether the Federal Arbitration Act permits a court to refuse to enforce an agreement calling for individual arbitration based on state labor law policies that do not apply generally to "any contract." 9 U.S.C. § 2.
2. Whether the Federal Arbitration Act permits a state court to refuse to enforce an agreement to arbitrate based upon an unconscionability analysis "that takes its meaning precisely from the fact that a contract to arbitrate is at issue." Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987).

Gentry's reply brief argues:

1. The Supreme Court lacks jurisdiction because there is no final judgment.
2. The questions presented were not raised in the lower courts.
3. There are no conflicting decisions on the first question presented.
4. The second question is based on a mischaracterization of the California decision.

My view:

The Court should deny the petition for certiorari. Tom Goldstein at SCOTUSblog has it on his list of probable grants, but I think the Court will pass on this one.

Even if the SCt has jurisdiction, it's smarter for them to let the case go back and percolate some more. If the ultimate decision is that the class action waiver gets thrown out, then the Court can take another look at it. But that's quite a ways in the future.

Also, I don't think the California court was "picking on" arbitration. Their theory applies equally to litigation; so it's hard to see an important federal question here.

This California case has sparked a great deal of interest, mainly because the California Court split 4 to 3 on a controversial theory of state law. But the US Supreme Court is not in the business of correcting state law. The federal law question being raised is not of great significance, and the attempt to get to the US Supreme Court is really premature.

LawMemo publishes Employment Law Memo.

ABA ADR Conference
March 11, 2008 by Ross Runkel at LawMemo

The ABA Section of Dispute Resolution Presents
The 10th Annual Spring Conference
Pacific Currents: Sound Perspectives on ADR
April 3-5, 2008

Pacific Currents: Sound Perspectives on ADR is the premiere conference in the world for dispute resolution professionals and lawyers engaged in dispute resolution processes. This conference offers some of the best ADR CLE in the country presented by diverse and experienced faculty. With over 90 CLE programs planned, you can fulfill all of your CLE requirements over the course of a few short days.

This year’s conference also offers many dynamic and engaging plenaries. The opening plenary entitled Hot Topics in Arbitration: The Fair Arbitration Act, Hall Street, and More will discuss the most recent developments in arbitration law, including cases pending in the Supreme Court, as well as potential arbitration-related legislation.

Linda Babcock will present the Friday morning plenary: Women Don't Ask: Negotiation and the Gender Divide. Ms. Babcock will speak about the four-phase collaborative problem-solving approach to negotiation and how lawyers and mediators can use this approach to manage the reactions and emotions that may arise on both sides of a dispute.

ABA President William Neukom will deliver a keynote speech and Tom Stipanowich, Academic Director Straus Institute for Dispute Resolution and Professor of Law, Pepperdine University, will present at the Friday Luncheon.

Saturday offers The Language Conflict: How Aggression and Violence Inform the Way We Speak presented by Kenneth Cloke and Joan Goldsmith of the Center of Dispute Resolution. This skills-building plenary will examine strategies on how to turn hostile denunciations and debates into appreciative disagreements and dialogues. Don’t miss out! Register today to attend these exciting plenaries.

To review the conference brochure click here.

Book your hotel today! The negotiated conference room rate ends soon. Contact the Sheraton Seattle Hotel & Towers at 1-800-325-3535 or register online and reference the ABA Section of Dispute Resolution 10th Annual Conference to receive the discounted conference rate of $189. This discounted rate is available until March 4th or until the block has been filled.

LawMemo publishes Employment Law Memo.

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