Topic: "Arbitrable claims" | Main
Credit card holders must arbitrate claims
January 10, 2012 by Ross Runkel at LawMemo
The US Supreme Court held today that the Credit Repair Organizations Act (CROA) does not trump the Federal Arbitration Act (FAA) requirement that an arbitration agreement must be enforced according to its terms.
CompuCredit Corp v. Greenwood (US SUpreme Court 01/10/2012).
The Court's syllabus:
Although respondents’ credit card agreement required their claims to be resolved by binding arbitration, they filed a lawsuit against petitioner CompuCredit Corporation and a division of petitioner bank, alleging, inter alia, violations of the Credit Repair Organizations Act (CROA). The Federal District Court denied the defendants’ motion to compel arbitration, concluding that Congress intended CROA claims to be nonarbitrable. The Ninth Circuit affirmed.
Held: Because the CROA is silent on whether claims under the Act can proceed in an arbitrable forum, the Federal Arbitration Act (FAA) requires the arbitration agreement to be enforced according to its terms. Pp. 2–10.
(a) Section 2 of the FAA establishes “a liberal federal policy favor- ing arbitration.” Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1, 24. It requires that courts enforce arbitration agreements according to their terms. See Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213, 221. That is the case even when federal statutory claims are at issue, unless the FAA’s mandate has been “over-ridden by a contrary congressional command.” Shearson/American Express Inc. v. McMahon, 482 U. S. 220, 226.
(b) The CROA provides no such command. Respondents contend that the CROA’s disclosure provision—which requires credit repair organizations to provide consumers with a statement that includes the sentence “ ‘You have a right to sue a credit repair organization that violates the [Act],’ ” 15 U. S. C. §1679c(a)—gives consumers the right to bring an action in a court of law; and that, because the CROA prohibits the waiver of “any right of the consumer under this sub- chapter,” §1679f(a), the arbitration agreement’s waiver of the “right” to bring a court action cannot be enforced. Respondents’ premise is flawed. The disclosure provision creates only a right for consumers to receive a specific statement describing the consumer protections that the law elsewhere provides, one of which is the right to enforce a credit repair organization’s “liab[ility]” for “fail[ure] to comply with [the Act].” §1679g(a). That provision does not override the FAA’s mandate. Its mere contemplation of judicial enforcement does not demonstrate that the Act provides consumers with a “right” to initial judicial enforcement.
(c) At the time of the CROA’s enactment in 1996, arbitration clauses such as the one at issue were no rarity in consumer contracts generally, or in financial services contracts in particular. Had Congress meant to prohibit these very common provisions in the CROA, it would have done so in a manner less obtuse than what respondents suggest. Pp. 8–9.
615 F. 3d 1204, reversed and remanded.
SCALIA, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, THOMAS, BREYER, and ALITO, JJ., joined. SOTOMAYOR, J., filed an opinion concurring in the judgment, in which KAGAN, J., joined. GINSBURG, J., filed a dissenting opinion
SOX ban on pre-dispute arbitration agreements is retroactive
March 01, 2011 by Ross Runkel at LawMemo
Pezza v. Investors Capital (D Mass 03/01/2011):
Pezza sued claiming retaliation in violation of the whistleblower provisions of the Sarbanes-Oxley Act. While the employer's motion to compel arbitration was under advisement, Congress enacted the Dodd-Frank Act which enacted a bar to pre-dispute arbitration agreements for whistleblower claims brought under the Sarbanes-Oxley Act.
The US District Court for Massachusetts held that the Dodd-Frank ban on pre-dispute arbitration agreements is retroactive, and denied the employer's motion to compel arbitration.
Although the Act says nothing about retroactive application, leaving the question "far from clear," the court reasoned that the ban was in the nature of a procedural provision rather than one dealing with substantive rights.
Arbitration agreement cannot waive right to administrative wage hearing
February 24, 2011 by Ross Runkel at LawMemo
The California Supreme Court held today [Sonic-Calabasas A Inc v. Moreno (California 02/24/2011) (4-3)] that an arbitration agreement cannot waive an employee's right to have an administrative hearing to resolve a claim for unpaid wages.
Under California's unpaid wages statute, an employee can seek an administrative hearing which results in a nonbinding decision, followed by an appeal de novo to a trial court. Moreno, who had signed an agreement to arbitrate all claims, filed an administrative wage claim with the state Labor Commissioner. The employer petitioned the trial court to compel arbitration and dismiss the administrative proceeding, but this was denied as premature. The California Supreme Court agreed that the petition to compel arbitration was premature and must be denied, holding that:
(1) A waiver of the administrative hearing violates public policy. The right to this administrative proceeding is an unwaivable right that an employee cannot relinquish as a condition of employment. The administrative proceeding provides many benefits to employees (e.g., the Labor Commissioner's representation in the superior court of employees unable to afford counsel, the requirement that the employer post an undertaking in the amount of the award, and a one-way attorney fee provision that requires an employer that is unsuccessful in the appeal to pay the employee's attorney fees) as a means of furthering the public purpose of ensuring the payment of wages owed.
(2) A waiver of the administrative hearing is unconscionable because the arbitration agreement was an adhesion agreement and the waiver is "markedly one-sided."
(3) The Federal Arbitration Act does not preempt a decision that waiver of the administrative proceeding violates public policy and is unconscionable. [Ed. Note: A decision on a closely related issue is pending in the US Supreme Court in AT&T Mobility v. Concepcion.]
(4) Courts may enforce the arbitration agreement as it relates to the court proceedings that may follow after the administrative hearing is held.
The DISSENT argued that (1) when parties have agreed to arbitrate, the Federal Arbitration Act supersedes state laws that lodge primary jurisdiction in administrative agencies, and (2) enforcing the arbitration provision does not violate California public policy and is not unconscionable.
Rent-A-Center West v. Jackson: Details and briefs
April 19, 2010 by Ross Runkel at LawMemo
On Monday, April 26, the US Supreme Court will hear oral arguments in Rent-A-Center West v. Jackson.
Here is the question presented:
Is the district court required in all cases to determine claims that an arbitration agreement subject to the Federal Arbitration Act ("FAA") is unconscionable, even when the parties to the contract have clearly and unmistakably assigned this "gateway" issue to the arbitrator for decision?
Here are the briefs that have been filed:
- Brief for Petitioner Rent-A-Center, West, Inc.
- Brief for Respondent Antonio Jackson
- Reply Brief for Petitioner Rent-A-Center, West, Inc.
- Brief for the Equal Employment Advisory Council in Support of Petitioner
- Brief for the Chamber of Commerce of the United States of America in Support of Petitioner
- Brief for American Federation of Labor and Congress of Industrial Organizations in Support of Respondent
- Brief for Professional Arbitrators and Arbitration Scholars in Support of Respondent
- Brief for Lawyers' Committee for Civil Rights Under Law, Alliance for Justice, Asian American Justice Center, Constitutional Accountability Center, National Partnership for Women & Families, and National Women’s Law Center in Support of Respondent
- Brief for National Association of Consumer Advocates in Support of Respondent
- Brief for American Association for Justice and AARP in Support of Respondent
- Brief for National Consumer Law Center and Consumer Action in Support of Respondent
- Brief for Service Employees International Union, Legal Aid Society - Employment Law Center, National Employment Lawyers Association, National Employment Law Project, Women’s Employment Rights Clinic, and The Employee Rights Advocacy Institute for Law & Policy in Support of Respondent
USERRA claims are subject to arbitration
August 13, 2008 by Ross Runkel at LawMemo
The 6th Circuit has decided that claimed violations of the Uniformed Services Employment and Reemployment Rights Act (USERRA) are subject to arbitration.
Landis v. Pinnacle Eye Care (6th Cir 08/11/2008)
Timothy Landis sued the employer, asserting (among other things) a claim for violation of the Uniformed Services Employment and Reemployment Rights Act (USERRA).
The trial court granted the employer's motion to stay the case and compel arbitration.
The 6th Circuit affirmed, holding that USERRA claims are subject to arbitration.
The court noted that the 5th Circuit has come to the same conclusion, and cited with approval that circuit's decision in Garrett v. Circuit City Stores, Inc., 449 F3d 672 (5th Cir 2006).
The court reasoned that
1) nothing in USERRA's statutory language or legislative history demonstrates a Congressional intent to preclude arbitration; and
2) there is no inherent conflict between arbitration and USERRA's underlying structure and purpose.
My view: Hardly a surprise. The court followed the US Supreme Court's analytical method in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).
Magnuson-Moss Warranty Act arbitration
March 22, 2007 by Ross Runkel at LawMemo
It's a rare case when a court holds that an agreement to arbitrate a statutory claim cannot be enforced - due to a finding that the statute does not allow it.
Koons Ford v. Lobach (Maryland Court of Appeals 03/20/2007) did it.
When Koons Ford sold a car to the Lobachs, one of the papers they signed contained an agreement for binding arbitration. Claiming defects in the car, the Lobachs brought a law suit that was based in part on the federal Magnuson-Moss Warranty Act. Koons Ford wanted the case taken out of court and sent to arbitration, as had been agreed.
The Maryland Court of Appeals held that the Lobachs "may not be forced to resolve their claims through binding arbitration because Congress expressed an intent to preclude binding arbitration when it enacted the Magnuson-Moss Warranty Act."
The court's reasoning: The Magnuson-Moss Warranty Act contains a provision that allows a seller (like Koons Ford) to include an informal dispute-settlement procedure (like arbitration) in a warranty, and a consumer cannot go to court unless he uses that procedure first. The Federal Trade Commission (FTC) adopted a formal rule saying that decisions under such procedures are not legally binding. Therefore, giving proper deference to the FTC's rule, the arbitration provision in this case cannot be enforced.
The Magnuson-Moss Warranty Act was enacted in 1975 - before the Supreme Court had interpreted the Federal Arbitration Act as requiring enforcement of a vast array of arbitration agreements. Therefore, Congress could not have intended for an agreement for binding arbitration of Magnuson-Moss claims to be enforceable.
My view: The case is wrong.
The intent of Congress comes primarily from the text of the statute. Magnuson-Moss permits sellers to include non-binding arbitration as a pre-litigation requirement. There is not a single word that says anything about traditional binding arbitration, let alone anything saying that an agreement for binding arbitration cannot be enforced. The FTC rule should get no deference because it has no roots in the statute.
By the way, most other courts go the other way, enforcing these arbitration agreements in the same way that other arbitration agreements are enforced.
Britney Spears arbitration
June 21, 2006 by Ross Runkel at LawMemo
Three former employees of three of Britney Spears' companies will have to arbitrate their wage claims, says a California state court judge.
News reports say the employees were security guards hired to protect Spears and her home.
As is common, the former employees would rather be in court, and the defendant companies would rather be in arbitration. The guard's lawyer is quoted as saying the arbitration will take place in New York rather than California, and he thinks New York law is less favorable to the guards.
U-Haul arbitration case - its implications
June 19, 2006 by Ross Runkel at LawMemo
The NLRB held it was an unfair labor practice for a non-union employer to adopt a mandatory arbitration provision that covered "any other legal or equitable claims and causes of action recognized by local, state, or federal law or regulations."
Reason: because it would reasonably tend to inhibit employees from filing charges with the National Labor Relations Board. U-Haul Co of California (NLRB 06/08/2006) (2-1).
Three things come to mind.
1. NLRB unfair labor practices
Expect unions to file a lot of unfair labor practice charges against non-union employers that have arbitration programs. Don't expect the NLRB to do anything unless the arbitration plan has language, such as that quoted above, that employees would reasonably read as cutting off their ability to file NLRB charges. Do expect employers that have such language to take immediate steps to change the language in their existing arbitration policies.
It is possible that the U-Haul decision will encourage the EEOC to resume its attacks against mandatory arbitration agreements. See Policy Statement on Mandatory Binding Arbitration of Employment Discrimination Disputes as a Condition of Employment. It is not obvious to me how the EEOC can succeed in this.
3. Arbitration generally
It's important to point out that the U-Haul decision will not have any effect on the remainder of U-Haul's arbitration policy. The case does not mean U-Haul will be unable to enforce its arbitration policy as to all claims other than NLRB charges.
Arbitration clause was unfair labor practice
June 19, 2006 by Ross Runkel at LawMemo
When a non-union employer adopted a mandatory arbitration program, that was an unfair labor practice, violating the National Labor Relations Act.
So holds the National Labor Relations Board in U-Haul Company of California (NLRB 06/08/2006) (2-1).
Why? "because the employees would reasonably construe the broad language to prohibit the filing of unfair labor practice charges with the Board."
The employer made agreement to an arbitration policy a condition of employment or continued employment. The policy states that it:
. . . applies to all ... employees, regardless of length of service or status and covers all disputes relating to or arising out of an employee’s employment with [the employer] or the termination of that employment. Examples of the type of disputes or claims covered by the [Arbitration Policy] include, but are not limited to, claims for wrongful termination of employment, breach of contract, fraud, employment discrimination, harassment or retaliation under the Americans With Disabilities Act, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 and its amendment, the California Fair Employment and Housing Act or any other state or local anti-discrimination laws, tort claims, wage or overtime claims or other claims under the Labor Code, or any other legal or equitable claims and causes of action recognized by local, state or federal law or regulations.
The NLRB put its focus on this language: "any other legal or equitable claims and causes of action recognized by local, state, or federal law or regulations."
We recognize that the language in the arbitration policy does not explicitly restrict employees from resorting to the Board’s remedial procedures. However, the breadth of the policy language, referencing the policy’s applicability to causes of action recognized by “federal law or regulations,” would reasonably be read by employees to prohibit the filing of unfair labor practice charges with the Board. Plainly, the employees would reasonably construe the remedies for violations of the National Labor Relations Act as included among the legal claims recognized by Federal law that are covered by the policy. Thus, we find that the language of the policy is reasonably read to require employees to resort to the Respondent’s arbitration procedures instead of filing charges with the Board.
Class-action arbitration allowed in antitrust case
April 23, 2006 by Ross Runkel at LawMemo
Cable TV subscribers sued their cable provider claiming antitrust violations, and the provider moved to compel arbitration in accordance with subscriber-provider agreements. The subscribers had several problems with the agreement, and tried to block the arbitration.
The court ordered the arbitration to go forward, that's the main thing.
Kristian v. Comcast Corp (1st Cir 04/20/2006).
Here's how the court treated five items:
- Class action. The contract prohibited class and consolidated arbitrations. The court found that it was unlikely for any consumer to bring a private antitrust action without a class-action, and held that removing the prohibition was necessary for plaintiffs to be able to vindicate their statutory rights.
- Limitation period. The contract required consumers to "contact" Comcast within one year of an event giving rise to a dispute. Federal and state antitrust statutes have a four year statute of limitations. The court held that the conflict between statute and contract must be decided by the arbitrator.
- Treble damages. The contract excluded treble damages. Both federal and state statutes provide for treble damages.
- Federal. The contract directly conflicts with the "shall" language in the federal statute, the antitrust statute's remedies cannot be waived, and therefore the court severed this clause from the contract (as it applied to the federal claim).
- State. The state statute says "may." That created an ambiguity that the court said must be resolved by the arbitrator.
- Attorney fees and costs. The contract said "you are responsible" for attorney fees and costs. Both federal and state antitrust statutes allow these items to be recovered by successful plaintiffs. The court disallowed this clause.
- Discovery. The court found no problem with limits on discovery.
Sarbanes-Oxley whistleblowing - Arbitrator to decide arbitrability
April 12, 2006 by Ross Runkel at LawMemo
An alleged Sarbanes-Oxley whistleblower has to let an arbitrator decide whether his claim will be arbitrated, says the 2nd Circuit.
Who decides the question of arbitrability? Court or arbitrator?
- General rule: Courts decide whether parties have agreed to arbitrate a specific dispute.
- Exception: Arbitrator gets to decide the issue if the arbitration agreement clearly says so.
But there's some confusion when the arbitration rules are the NASD rules and the underlying issue is Sarbanes-Oxley whistleblowing.
The facts in Alliance Bernstein Investment v. Schaffran (2nd Cir 04/12/2004): Schaffran claimed his employer fired him in violation of the Sarbanes-Oxley Act whistleblower provision. The employer said he quit. Schaffran filed a demand for arbitration under the NASD arbitration rules. The employer resisted. So Schaffran went to court to compel the employer to arbitrate.
The employer cited an NASD rule that says a statutory "employment discrimination" claim can be arbitrated only if both parties agree to arbitrate it.
Schaffran argued that his claim was not an "employment discrimination" claim and that it came under the NASD rule that requires arbitration of all disputes.
So somebody has to interpret the NASD rules to decide where Schaffran's claim fits. Does a court do this? Does an arbitrator do this?
The answer is easy. The NASD rules themselves say that it is for the arbitrator to "interpret and determine the applicability of all provisions" of the NASD rules.
The parties agreed to be bound by the rules. The rules say the arbitrator interprets the rules. So it's for the arbitrator to decide the question of whether this case comes under the rules' general requirement to arbitrate or whether there is an exception because it's an employment discrimination case.
Tort was not arbitrable
April 08, 2006 by Ross Runkel at LawMemo
The federal policy favoring arbitration applies only after a court decides that the parties have agreed to arbitrate a particular dispute. Agreeing to arbitrate a contract claim does not necessarily mean the parties have agreed to arbitrate a tort claim that may have some relationship to the contract.
An investor set up some accounts at Prudential Securities, and Prudential assigned employee Trumbo to be the broker on these accounts. After Trumbo was "permitted to resign" from Prudential, he took the accounts with him and allegedly mismanaged them.
The investor sued Prudential claiming Prudential breached its fiduciary duty by failing to warn of Trumbo's troubled history, and claiming this caused the investor to suffer losses.
A trial court ordered arbitration, and the arbitrator ruled against the investor.
Back in court, the investor sought to vacate the award, and lost, but the Florida Court of Appeals reversed, holding that the tort claim was not covered by the arbitration agreement.
|Episcopal Diocese v. Prudential Securities (Florida Ct App 04/07/2006).|
There were two arbitration agreements:
- I agree that all controversies which may arise between us concerning any transaction (whether executed or to be executed within or outside of the United States), my account or this or any other agreement between us, whether entered into prior, on, or subsequent to the date indicated on the signature page, shall be determined by arbitration.
- The undersigned agrees, and by carrying an account for the undersigned you agree, all controversies which may arise between us concerning any transaction or the construction, performance or breach of this or any other agreement between us, whether entered into prior, on or subsequent to the date hereof, shall be determined by arbitration.
The court held that the breach of fiduciary duty tort was not covered by these agreements to arbitrate. The alleged tort took place after the contract was terminated, the investor's complaint did not rely on the investor-Prudential agreements, and the resolution of the tort claim is not dependent on the construction of those agreement.
The message: The arbitration agreement controls what disputes are arbitrable. In this case the dispute was too far removed from what the parties agreed to arbitrate.
Arbitrator awards sales commissions; court affirms
March 31, 2006 by Ross Runkel at LawMemo
An arbitrator ruled that the parties' contract for sales commissions did not apply, and awarded the salesman a commission anyhow. The 9th Circuit upheld the award. Schoenduve Corp v. Lucent Technologies (9th Cir 03/22/2006).
Lucent and Schoenduve had a contract authorizing Schoenduve to solicit orders for Lucent's wireless communication products. Schoenduve courted Apple Computer, and two days before Lucent signed a deal with Apple, Lucent terminated its contract with Schoenduve.
Schoenduve went to arbitration, seeking commissions. Schoenduve won.
The arbitrator ruled that the Lucent-Schoenduve had been lawfully terminated because that contract expressly allowed termination. Therefore, there could be no commissions awarded under the terms of that contract. Then the arbitrator awarded commissions on the basis of "quasi-contract." ("Quasi-contract" is a non-contract legal theory that often is called restitution for unjust enrichment.)
Lucent claimed that the arbitrator's award should be vacated on the grounds that the arbitrator went outside of the submission agreement and modified the express language of the contract.
The 9th Circuit upheld the award on the following reasoning:
The arbitration clause in the contract was broad enough to cover non-contractual claims. It applied "if a dispute arises out of or relates to this Agreement."
The submission agreement was broad enough to include non-contractual claims. Schoenduve's demand for arbitration asked for damages for "breach of contract and other claims." Lucent did not object to this statement of the issues.
The 9th Circuit also made it clear that "the arbitrator's interpretation of the scope of his powers is entitled to the same level of deference as his determination on the merits."
My view: The court got it right. The parties used broad language in describing the disputes that were covered by the agreement to arbitrate. It was no stretch for the arbitrator to decide that the language included claims for commissions based on quasi-contract.
Union had standing to represent retirees in arbitration
March 14, 2006 by Ross Runkel at LawMemo
The message: If both the union and company submit to the arbitrator the issue of whether the union has standing to represent the interests of retirees, then the arbitrator's decision on that question will be upheld.
Cleveland Electric v. Utility Workers Union (6th Cir 03/14/2006)
The union filed a grievance, on behalf of its members and retirees, relating to the company's change in health care provisions and providers. The company's position was that the grievance was not arbitrable as to the retirees, and that question was submitted to the arbitrator.
The arbitrator ruled that the union had standing to seek arbitration on behalf of the retirees, and that the retiree's consent was not necessary.
When the company sued to vacate the arbitrator's award, the trial court held that the union had standing to represent the retirees, but that the retirees' consent was necessary.
The 6th Circuit affirmed.
- The issue of arbitrability was submitted by both parties to the arbitrator, and his decision drew its essence from the collective bargaining agreement.
- It was necessary for the retirees to consent to union representation because they had statutory rights to the benefits which they could pursue against the company, and those could be lost in arbitration.
I didn't see any mention of whether the union had standing to represent the retirees in the court action, which was brought under Section 301. See Machinists v. Goodrich (5th Cir 05/18/2005), in which a union sued under Section 301 to compel the employer to arbitrate an issue involving retiree benefits. The court held that the union had standing in court because the retirees had signed consent forms. That's the only case I ever heard of in which a union could sue under Section 301 on behalf of non-employees simply because the non-employees consented.
Buckeye v. Cardegna: Contract validity is for arbitrator to decide
February 21, 2006 by Ross Runkel at LawMemo
The US Supreme Court says it is for an arbitrator - not a state court - to decide whether or not a contract containing an arbitration clause is illegal.
This is a strong re-statement (extension?) of the rule laid down in Prima Paint Corp v. Flood & Conklin, 388 US 395 (1967), in which the US Supreme Court said that it was up to the arbitrator - not the court - to decide whether the underlying contract was subject to a defense of fraud in the inducement.
The latest case, Buckeye Check Cashing, Inc. v. Cardegna (US Supreme Court 02/21/2006) involved a claim that the entire contract was illegal and therefore void under Florida's usury laws. 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. It's for the arbitrator to decide.
- Cardegna claimed that Buckeye made illegal usurious loans disguised as check cashing transactions in violation of Florida law. The agreement Cardegna signed contained an arbitration clause, so Buckeye filed a motion to compel arbitration.
- Buckeye relied on Prima Paint Corp v. Flood & Conklin, 388 US 395 (1967).
- The Florida Supreme Court distinguished Prima Paint, saying that case dealt with whether the contract was voidable. In Cardegna's case the issue was whether the contract was void under Florida law. Therefore, said the Florida court, since a void contract would mean the arbitration clause could not be enforced, the issue was to be decided by a court.
The US Supreme Court's reasoning:
- Regardless of whether it is brought in federal or state court, a challenge to the validity of a contract as a whole, and not specifically to the arbitration clause within it, must go to the arbitrator, not the court.
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, and Southland Corp. v. Keating, 465 U. S. 1, answer the question presented here by establishing three propositions.
- First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Prima Paint.
- Second, 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. Prima Paint.
- Third, this arbitration law applies in state as well as federal courts. Southland.
- The crux of Cardegna's claim is that the Agreement as a whole (including its arbitration provision) is rendered invalid by the usurious finance charge. Because this challenges the Agreement, and not specifically its arbitration provisions, the latter are enforceable apart from the remainder of the contract, and the challenge should be considered by an arbitrator, not a court. The Florida Supreme Court erred in declining to apply Prima Paint's severability rule, and Cardegna's assertion that that rule does not apply in state court runs contrary to Prima Paint and Southland.
Justice Thomas DISSENTED, arguing that the Federal Arbitration Act does not apply in state courts.
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).
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.'"
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.
Buckeye Check Cashing v. Cardegna: void vs. voidable contracts
November 23, 2005 by Ross Runkel at LawMemo
Feb 21, 2006 update: Case decided in favor of Buckeye.
The US Supreme Court hears oral argument on November 29 on the question of who should decide whether a contract is void under state law - an arbitrator or a court. Buckeye Check Cashing v. Cardegna.
John Cardegna borrowed money from Buckeye Check Cashing and now claims the deal was usurious under Florida law and that the whole "contract" was void from the very beginning. Cardegna sued, and Buckeye moved to send the case to arbitration as provided in the loan agreement. The trial court denied the motion, saying that the issue of whether the whole contract is void (not merely voidable) is an issue for the court to decide. The Florida Supreme Court agreed. Cardegna v. Buckeye Check Cashing (Florida 2005).
It all goes back to Prima Paint Corp v. Flood & Conklin Mfg (US Supreme Court 1967), where a contract contained an arbitration clause and one party claimed the underlying contract was voidable because it was procured by fraud. The Supreme Court said that unless there is a claim that the arbitration agreement itself was procured by fraud, a court should send to an arbitrator the question of whether the underlying contract is voidable.
- Cardegna's argument: Prima Paint applies only when the claim is that the underlying contract is voidable. Here the entire "contract" was void, so there was no valid agreement to arbitrate. Alternatively, the FAA language used in Prima Paint applies in federal courts, not state courts, so the Florida courts were free to make the decision they made.
- Buckeye's arguments: Follow the Federal Arbitration Act (FAA). Prima Paint says that the FAA requires that the issue of the validity of the underlying contract must be decided by an arbitrator.
Briefs supporting Buckeye
- Petitioner Buckeye Check Cashing
- Petitioner Buckeye Check Cashing - Reply
- Florida Bankers Assoc and American Bankers Assoc
- Chamber of Commerce et al.
- Community Financial Svcs Assoc
- Financial Service Centers et al.
Briefs supporting Cardegna
Brief supporting No Party
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.
Bill to exclude employment contracts from FAA
June 29, 2005 by Ross Runkel at LawMemo
House Democrats have introduced a bill to exclude all employment contracts from coverage of the Federal Arbitration Act. The bill would not apply to collective bargaining agreements, and would not apply to post-dispute agreements.
Here is the bill:
Preservation of Civil Rights Protections Act of 2005 (Introduced in House) - HR 2969 - 109th CONGRESS, 1st Session
To amend title 9 of the United States Code to exclude all employment contracts from the arbitration provisions of chapter 1 of such title; and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
June 17, 2005. Mr. KUCINICH (for himself, Mr. GEORGE MILLER of California, Mr. CONYERS, Mr. FRANK of Massachusetts, Mr. MARKEY, and Mr. ANDREWS) introduced the following bill; which was referred to the Committee on the Judiciary, and in addition to the Committee on Education and the Workforce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned
To amend title 9 of the United States Code to exclude all employment contracts from the arbitration provisions of chapter 1 of such title; and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the 'Preservation of Civil Rights Protections Act of 2005'.
SEC. 2. AMENDMENT TO FEDERAL ARBITRATION ACT.
Section 1 of title 9, United States Code, is amended by striking `of seamen' and all that follows through `commerce'.
SEC. 3. UNENFORCEABILITY OF ARBITRATION CLAUSES IN EMPLOYMENT CONTRACTS.
(a) Protection of Employee Rights- Notwithstanding any other provision of law, any clause of any agreement between an employer and an employee that requires arbitration of a claim arising under the Constitution or laws of the United States shall not be enforceable.
(1) WAIVER OR CONSENT AFTER CLAIM ARISES- Subsection (a) shall not apply with respect to any claim if, after such claim arises, the parties involved voluntarily consent to submit such claim to arbitration.
(2) COLLECTIVE BARGAINING AGREEMENTS- Subsection (a) shall not preclude an employee or union from enforcing any of the rights or terms of a valid collective bargaining agreement.
SEC. 4. APPLICATION OF AMENDMENTS.
This Act and the amendment made by section 2 shall apply with respect to all employment contracts in force before, on, or after the date of the enactment of this Act.
My view: Dead on arrival. There is not now, nor will there soon be, majority support for this bill in the House or in the Senate.
Who decides legality of the contract?
June 20, 2005 by Ross Runkel at LawMemo
The US Supreme Court has agreed to take up a Florida case to decide whether it is for an arbitrator - or for a court - to decide whether or not a contract containing an arbitration clause is illegal.
The case: Buckeye Check Cashing, Inc. v. Cardegna (Docket No. 04-1264), certiorari granted 06/20/2005.
The Florida case: Cardegna v. Buckeye Check Cashing, Inc. (Florida 01/20/2005).
Cardegna claimed that Buckeye made illegal usurious loans disguised as check cashing transactions in violation of Florida law. The agreement Cardegna signed contained an arbitration clause, so Buckeye filed a motion to compel arbitration.
Buckeye argued from Prima Paint Corp v. Flood & Conklin, 388 US 395 (1967), in which the US Supreme Court said that it was up to the arbitrator - not the court - to decide whether the underlying contract was subject to a defense of fraud in the inducement.
The Florida Supreme Court distinguished Prima Paint, saying that case dealt with whether the contract was voidable. In Cardegna's case the issue was whether the contract was void under Florida law. Therefore, said the Florida court, since a void contract would mean the arbitration clause could not be enforced, the issue was to be decided by a court.
My view: I don't see Prima Paint as being limited to voidable as opposed to void contracts. Prima Paint stands for the proposition that a court decides whether the arbitration clause is legal and, if it is, an arbitrator decides whether the contract as a whole is legal.
Resources relating to the Florida Supreme Court proceedings:
- Initial Brief of Appellants Cardegna et al.
- Answer Brief of Respondent Buckeye Check Cashing, Inc.
- Reply Brief of Appellants Cardegna et al.
- Amicus Curiae Brief of the Check Cashing Store, Inc.
- Brief Amici Curiae of AARP, Consumer Federation of America and National Consumer Law Center
- Transcript of oral arguments
email did not create duty to arbitrate
May 24, 2005 by Ross Runkel at LawMemo
The company president sent an email to all employees, including Roderick Campbell, and attached a new policy containing an arbitration clause. When Campbell sued under the ADA, the company moved to compel arbitration. Motion denied. Campbell v. General Dynamics Government Systems Corp (1st Cir 05/23/2005).
The company's theory was simple. They sent an email with a new policy attached, and that was an offer which Campbell (an at-will employee) accepted by continuing to work. Presto, a contract, enforceable under the Federal Arbitration Act (FAA).
The 1st Circuit said this agreement could not be enforced as to Campbell's claim arising under the Americans with Disabilities Act (ADA).
The court assumed that the agreement would be enforceable under state law.
The ADA contains a dispute resolution provision, Section 513 (42 USC 12212):
Where appropriate and to the extent authorized by law, the use of alternative means of dispute resolution, including settlement negotiations, conciliation, facilitation, mediation, factfinding, minitrials, and arbitration, is encouraged to resolve disputes arising under this Act.
The focus became the statutory word "appropriate." The court found no general problem with the use of email, and even cited the E-Sign Act (15 USC 7001-7031). The problem was that the company typically did not use email to handle personnel matters, and had never before used email as means of creating a contractual term that was to become a condition of employment. In addition, the email message did not sufficiently bring home to Campbell that the attached policy contained an arbitration clause that would bind him if he kept working. In short, the email did not provide the employee with "minimally sufficient notice by signalling to a reasonable employee that the Policy was a contractual instrument whose terms would be deemed accepted upon continued employment."
My view: The court applied federal law here, although the language is "offer-and-acceptance," suggesting state law of contract formation. The federal law is ADA Section 513.
This is an intensely fact-driven case. It does not mean employers can't use email to form contracts (including contracts to arbitrate ADA cases) that will be enforceable under the Federal Arbitration Act. It means that the email (or whatever communication method is used) must contain enough of a "red flag" to put an employee on notice that the employer intends to change the contractual relationship.
For more discussion, see Michael Fox's comments at Jottings By An Employer's Lawyer.
Can non-signatory successor union force arbitration?
April 17, 2005 by Ross Runkel at LawMemo
At the time employee Shutt was discharged, AFSCME had a collective bargaining agreement with an arbitration clause. The next day, another union - WMEA - got certified as the collective bargaining representative. Later, WMEA grieved Shutt's discharge and took it to arbitration. Although WMEA was certified, it was not signatory to any collective agreement.
Q: Can WMEA compel arbitration?
A (by the arbitrator): No.
A (by the court): Yes.
The arbitrator's reasoning (says the court): "The arbitrator concluded that the grievance was not arbitrable because there was no statutory or contractual basis to arbitrate the grievance. In particular, the arbitrator determined that there was no evidence that the town agreed to be contractually bound to WMEA by the agreement negotiated by AFSCME."
The court then decided that the arbitrator "exceeded his powers."
The court's reasoning: Although there was a change in unions, the collective agreement continued, and so did the employer's duty to arbitrate. But with whom? Once a new union is certified, the old union has no rights, and the new union can enforce the collective agreement. Beyond that, "The arbitrator's interpretation of the agreement was not based on any specific contractual language, nor has any contractual language supporting his interpretation been brought to our attention." "Rather, his interpretation ... appears to be grounded exclusively in a misreading of labor law cases and statutes."
My view: The court has conflated two separate questions. First, is the question of whether the case should be sent to an arbitrator, and the answer is clearly yes. Second, is whether to affirm the arbitrator's decision that the case was non-arbitrable. At that point, the court seems confused, first saying that the arbitrator reasoned that there was no contractual basis to arbitrate, and then dumping on the arbitrator for not citing contractual language to support that conclusion.
But let's assume, as the court says, that the arbitrator exceeded his powers in the manner he concluded that the grievance was non-arbitrable. That should not transfer to the court the power to decide that the grievance was arbitrable. Ultimately, it should be up to an arbitrator to make that decision. The proper thing for the court to do is to remand to the arbitrator to re-decide the question of arbitrability.
Otherwise, the courts are doing arbitrators' work. If you have been following this blog, you know I think that is a bad thing.
Connecticut court supports arbitration
March 17, 2005 by Ross Runkel at LawMemo
Kirby's Reports kindly gave permission to quote this post. The reasoning and result are mainstream, and I'm surprised that the trial judge's reasoning was so far off the mark. "Irrelevant," according to the high court.
More support for arbitration from [Connecticut] Supreme Court
In Board of Education v. Nonnewaug Teachers' Assn., SC17138 (Mar. 1, 2005), the Connecticut Supreme Court held that the proper distribution of the value of stock issued to the Board of Education (the “Board”) from the demutualization of Anthem Blue Cross and Blue Shield was an arbitrable grievance under the parties’ collective bargaining agreement. Here, the Nonnewaug Teachers’ Association (the “Association”) filed a grievance under Section V of the collective bargaining, which provided for the shares of health insurance costs paid for by the Board and the Associations’ members. When the Board denied the grievance, the Association filed for arbitration with the American Arbitration Association as called for in the arbitration clause of the agreement. The Board then filed an action in Superior Court seeking a judgment declaring that that the dispute was not arbitrable since the Board had not violated any provision in the agreement. The trial court subsequently held that the dispute was not subject to arbitration because “neither party could have anticipated” the unexpected distribution of stock and, accordingly, “the parties could not have agreed to arbitrate about it.” Id at 3. In a per curiam decision, the Supreme Court noted that the trial court’s analysis was “irrelevant” because “collective bargaining agreements typically contain provisions that are intended to have broad applicability irrespective of whether a particular occurrence specifically was contemplated by one or both of the parties.” Id. at 4 (internal quotation marks omitted). In rejecting the Board’s arguments, the court noted that the dispute in this case was indistinguishable from Board of Education v. Wallingford Education Assn., 271 Conn. 634, 635, 858 A.2d 762 (2004), an opinion that was issued after the subject appeal was filed, but before oral arguments were heard.
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