Topic: "Procedures" | Main
Court will not order consolidation of union's multi-unit grievance
March 08, 2011 by Ross Runkel at LawMemo
UFCW v. MultiCare Health Sys (W.D. Wash 03/03/2011) is an interesting case.
The union filed a grievance in response to the employer's change in its policy on paying employees who are furloughed due to infectious conditions.
The union represents employees in eight bargaining units, and sought a court order to conduct a single arbitration for all units.
The US District Court held that (1) the court (not an arbitrator) should decide this issue, and (2) consolidation will not be ordered.
The court found that the parties did not intend consolidated arbitration.
The eight collective bargaining agreements differ as to arbitrator selection; two use a pre-selected list of arbitrators, and six provide for selection using an FMCS list. If one arbitrator decided the case, then he or she would act in excess of authority by deciding an issue under contracts that did not provide for his or her appointment.
Imposing class arbitration on parties who have not agreed to it violates Federal Arbitration Act (5-3)
April 27, 2010 by Ross Runkel at LawMemo
The US Supreme Court has decided Stolt-Nielsen v. AnimalFeeds (US Supreme Ct 04/27/2010)
The parties in this case are parties to an international maritime contract that contains an arbitration clause. The contracts are silent as to whether arbitration is permissible on behalf of a class, and the parties submitted that issue to arbitration. A panel of arbitrators decided that the arbitration clause allowed for class arbitration. The District Court vacated the award on the ground that it was made in "manifest disregard" of the law. The 2nd Circuit reversed.
The US Supreme Court held (5-3) that imposing class arbitration on parties who have not agreed to authorize class arbitration is inconsistent with the Federal Arbitration Act (FAA).
(1) The arbitrators exceeded their powers by imposing their own policy choice instead of identifying and applying a rule of decision derived from the FAA or from maritime or New York law. (2) Imposing class arbitration in this case is inconsistent with the FAA. The Court restated the principles that arbitration "is a matter of consent, not coercion," that "private agreements to arbitrate are enforced according to their terms," and that parties are "generally free to structure their arbitration agreements as they see fit." Based on these principles, "parties may specify WITH WHOM they chose to arbitrate." [Emphasis in original] Because the parties stipulated that there was no agreement on class arbitration, the parties cannot be compelled to submit to class arbitration.
The DISSENT argued that the arbitrators' "partial award" was not ripe for judicial review. On the merits, the dissent would have upheld the arbitrators due to the strict limitation the FAA places on judicial review of arbitral awards.
US Supreme Ct argument on class action arbitration
September 28, 2009 by Ross Runkel at LawMemo
The US Supreme Court announced today the schedule for oral arguments in Stolt-Nielsen S.A., et al. v. AnimalFeeds International Corp. - December 9 at 10:00 a.m. Eastern time.
The parties in this case are parties to international maritime contracts that contain arbitration clauses. The contracts are silent as to whether arbitration is permissible on behalf of a class of contracting parties. A panel of arbitrators, tasked with deciding whether that silence permitted or precluded class arbitration, received evidence and briefing from both sides. The arbitrators issued an award deciding that the contracts permit class arbitration.
Stolt-Nielsen petitioned the United States District Court to vacate the award. That court did vacate the award on the ground that the award was made in manifest disregard of the law.
The 2nd Circuit reversed. The 2nd Circuit applied the rule that courts vacate arbitration awards in the rare instances in which "the arbitrator knew of the relevant [legal] principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it." Using this principle, the court found that the arbitration panel did not manifestly disregard a rule of federal maritime law, and did not manifestly disregard New York State law.
The official "Question Presented" is:
In Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), this Court granted certiorari to decide a question that had divided the lower courts: whether the Federal Arbitration Act permits the imposition of class arbitration when the parties’ agreement is silent regarding class arbitration. The Court was unable to reach that question, however, because a plurality concluded that the arbitrator first needed to address whether the agreement there was in fact "silent." That threshold obstacle is not present in this case, and the question presented here--which continues to divide the lower courts--is the same one presented in Bazzle:Whether imposing class arbitration on parties whose arbitration clauses are silent on that issue is consistent with the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.
The briefs are collected here.
What? AAA stops consumer debt collection arbitration
July 22, 2009 by Ross Runkel at LawMemo
The American Arbitration Association (AAA) announced yesterday that it will stop administering consumer debt collection arbitrations.
The Wall Street Journal quotes an unnamed AAA official as saying that AAA will stop taking these cases "until some standards or safeguards are established."
This announcement comes on the heels of a lawsuit against the National Arbitration Forum (NAF) and a decision by NAF to stop taking similar cases.
Both organizations have recently posted self-laudatory statements on their web sites, praising the fairness and effectiveness of arbitration proceedings between consumers and corporations.
These two organizations are quite different from each other. NAF is a for-profit close-held company. AAA is non-profit of long standing.
My view:
The two organizations seem to have different reasons for their actions. NAF has been hit with law suits, the most recent claiming undisclosed overlaps in ownership between NAF and some of its corporate customers, and it looks like they spend more on defense than they earn on the arbitrations. AAA is now suggesting there is a actually a fairness issue in these cases, citing the need for "some standards or safeguards."
Whatever the reasons, this is a major development. Many phone companies and credit-card issuers insert arbitration clauses in their contracts. So what will happen now?
SCOTUS takes another arbitration case
June 21, 2009 by Ross Runkel at LawMemo
The US Supreme Court has announced that it will decide whether the Federal Arbitration Act (FAA) permits arbitrators to impose class arbitration on parties whose arbitration clauses are silent on that issue.
The case: Stolt-Nielsen S.A. v. AnimalFeeds International (certiorari granted 06/15/2009) [Details, Briefs]
The parties in this case are parties to international maritime contracts that contain arbitration clauses. The contracts are silent as to whether arbitration is permissible on behalf of a class of contracting parties.
A panel of arbitrators, tasked with deciding whether that silence permitted or precluded class arbitration, received evidence and briefing from both sides. The arbitrators issued an award deciding that the contracts permit class arbitration.
Stolt-Nielsen petitioned the United States District Court to vacate the award. That court did vacate the award on the ground that the award was made in manifest disregard of the law.
The 2nd Circuit reversed, and applied the rule that courts vacate arbitration awards in the rare instances in which "the arbitrator knew of the relevant [legal] principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it." Using this principle, the court found that the arbitration panel did not manifestly disregard a rule of federal maritime law, and did not manifestly disregard New York State law.
The US Supreme Court granted certiorari on June 15, 2009 to review the 2nd Circuit judgment. I expect the Court will hear oral arguments some time in October, November, or December.
The question to be decided by the Court in this case was left open in Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), and there appears to be split of authority among the federal Circuit Courts.
My view: This case presents a tug-of-war between two fundamental principles of arbitration law.
First, It is for the arbitrator to decide matters of arbitration procedure. Following this principle, the argument is that the arbitrators simply interpreted the contract (that is, the silence of the contract) as permitting class arbitration, and the courts must enforce the arbitrators' interpretation.
Second, Arbitration agreements must be enforced according to their terms. Following this principle, the argument is that neither a court nor an arbitrator has the authority to "re-write" the silent arbitration agreement so as to require class arbitration.
(As an aside, it is noteworthy that many courts, applying state law relating to unconscionability or public policy, have held that many arbitration agreements that forbid class arbitrations are unlawful.)
Vaden v Discover Bank: Federal courts "look through" arbitration petition to determine jurisdiction
March 09, 2009 by Ross Runkel at LawMemo
The US Supreme Court has decided Vaden v Discover Bank (03/09/2009).
[Details] [Full text of opinions]
This was a unanimous decision on one point, and a 5-4 split decision on another point.
Facts:
Discover Bank sued 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; existence of a federal question does not depend on the nature of the underlying dispute to be arbitrated.
The US Supreme Court really decided two separate questions, one in favor of the bank, and one in favor of Vaden. The holding: A federal court may “look through” a §4 petition to determine whether it is predicated on a controversy that “arises under” federal law; in keeping with the well-pleaded complaint rule ..., however, a federal court may not entertain a §4 petition based on the contents of a counterclaim when the whole controversy between the parties does not qualify for federal-court adjudication.
First question: Can a federal court "look through" the petition to the parties' underlying controversy? Yes. All Justices concur on this point.
FAA §4’s text drives the conclusion that a federal court should determine its jurisdiction by “looking through” a §4 petition to the parties’ underlying substantive controversy. The phrase “save for [the arbitration] agreement” indicates that the district court should assume the absence of the agreement and determine whether it “would have jurisdiction under title 28” over “the controversy between the parties,” which is most straightforwardly read to mean the “underlying dispute” between the parties.
Second question: Can a federal court base its federal question jurisdiction on the contents of a counterclaim when the whole controversy between the parties does not qualify for federal court adjudication? No. 5-4 vote.
The majority reasoned: Because §4 does not enlarge federal-court jurisdiction, a party seeking to compel arbitration may gain such a court’s assistance only if, “save for” the agreement, the entire, actual “controversy between the parties,” as they have framed it, could be litigated in federal court. Here, the actual controversy is not amenable to federal-court adjudication. The “controversy between the parties” arose from Vaden’s “alleged debt,” a claim that plainly did not “arise under” federal law; nor did it qualify under any other head of federal-court jurisdiction.
The Fourth Circuit erred when it concluded that jurisdiction was proper because Vaden’s state-law counterclaims were completely preempted. Under the well-pleaded complaint rule, a completely preempted counterclaim remains a counterclaim, and thus does not provide a key capable of opening a federal court’s door.
The dissent argued that the majority's approach is "contrary to the language of §4, and sharply restricts the ability of federal courts to enforce agreements to arbitrate." In the dissent's view, "Discover’s petition does not seek to arbitrate its state-law debt-collection claims, but rather Vaden’s allegation that the fees Discover has been charging her (and other members of her proposed class) violate the FDIA."
My view: This decision will indeed limit the ability of federal courts to enforce arbitration agreements in some cases. However, there will be many cases in which it will be easy to demonstrate that a federal question exists or that there is diversity of citizenship.
Oh yes, I almost forgot. States still exist. State courts are still in operation. Discover Bank could have remained in state court (which is the court they originally selected) and filed a motion to compel arbitration.
FMCS will change rules
August 13, 2008 by Ross Runkel at LawMemo
FMCS - the Federal Mediation and Conciliation Service - plans to change some of its rules relating to arbitration services, and invites public comment on or before October 6, 2008. [Federal Register Notice]
In a nutshell, here are the changes:
- Increase the listing fee FMCS charges arbitrators - from $100 to $150.
- Change procedure regarding complaints about arbitrators.
- Change procedures for arbitrators on inactive status.
- Change procedure relating to parties requesting arbitration panels. These are the lengthiest changes, and mostly deal with (a) situations where the collective bargaining agreement requires a joint request and (b) situations in which each party advises FMCS of its order of preference by numbering each name on a panel.
My view: These are incremental changes designed to improve the operations of the FMCS, an agency that already is awesomely efficient and effective.
No "manifest disregard" as to class "opt out" provision
February 04, 2008 by Ross Runkel at LawMemo
An arbitrator's application of AAA's "opt-out" class certification provision (rather than FLSA's "opt-in" provision) didn't constitute "manifest disregard" of the law, says the 4th Circuit.
Long John Silver's v. Cole (4th Cir 01/29/2008).
Cole and her co-workers initiated class-wide arbitration proceedings against their employer pursuant to an arbitration agreement. The employees prevailed on their Fair Labor Standards Act (FLSA) claims, and the employer petitioned the trial court for an order vacating the arbitration award. The petition was denied, and the 4th Circuit affirmed.
The arbitration agreement provided that "[a]ny arbitration will be administered by the American Arbitration Association under its commercial arbitration rules...."
The American Arbitration Association's (AAA's) Supplementary Rules for Class Arbitrations provide for "opt-out" class certification.
However, the FLSA provides for "opt-in" class certification (29 USC Section 216(b)).
The arbitrator applied the AAA's opt-out provision.
The court concluded that the arbitrator's decision to apply that provision did not constitute a "manifest disregard" of applicable law justifying vacatur of the arbitration award.
The employer argued that the FLSA's opt-in provision constitutes a substantive right not waivable under an arbitration (or any other) agreement. However, no court has held that the FLSA's opt-in provision creates a substantive, non-waivable right. The court thus concluded "[i]t is far from clear that the 'opt-in' aspect of the Section 16(b) [opt-in] provision is such a nonwaivable substantive right." Disregard of a legal principle cannot constitute "manifest disregard" unless the principle is "clearly defined and not subject to reasonable debate." Thus, the arbitrator's decision on this issue did not constitute "manifest disregard."
Statute of limitations for vacating an award (ouch)
November 02, 2007 by Ross Runkel at LawMemo
The Federal Arbitration Act has a three months statute of limitations for moving to vacate an award.
This invites two questions, both of which were answered today in Webster v. A. T. Kearney, Inc (7th Cir 11/02/2007):
- When does the period begin?
- When does the period end?
Webster took his age discrimination and breach of contract case to arbitration, and lost. So he wanted to get a court to vacate the arbitrator's award.
The three months begins:
On January 4 the award was placed in the mail and emailed.
On January 4 the email reached Webster's attorney's computer.
On January 5 Webster's attorney opened the email.
On January 9 Webster's attorney received the award in the mail.
The FAA says the three months begins when the award is "filed or delivered."
The court noted that Webster agreed to use the AAA Rules, including this one: "The parties shall accept as legal delivery of the award the placing of the award or a true copy thereof in the mail."
Aha! The court held that the statutory word "delivered" meant putting the award in the mail, because that's what Webster agreed to.
This way, the court ducked the issue of whether "delivered" normally means when the mail arrives, and the issue of whether "delivered" means when an email comes into one's computer.
The three months ends:
On April 3 Webster filed his motion to vacate.
On April 5 the employer was served.
(Oops, one day after the end of three months.)
The court had to pick between the filing date and the service date.
This was easy. The Federal Arbitration Act says "service of notice." Never mind what the Rules of Civil Procedure say, because the FAA trumps the rules.
In the end, Webster lost because he didn't serve the defendant within three months of when the award was delivered.
Can a union assign its right to arbitrate to an employee?
May 12, 2007 by Ross Runkel at LawMemo
Collective bargaining agreements provide that the union can arbitrate disputes. They typically do not give the individual employee that right.
Question: Can the union assign its right to arbitrate to an individual employee, so now that right belongs to the employee?
Mitchell H. Rubinstein has an interesting article - Assignment of Labor Arbitration, 81 St. Johns L. R. 41 (2007) - in which he argues that such assignments should be allowed.
The abstract:
An individual employee is not a party to the collective bargaining agreement between a union and an employer. Additionally, under the terms of most collective bargaining agreements, the union owns the arbitration procedure, and therefore, it is entirely up to the union whether it will proceed with the arbitration. As a party to the arbitration, it is also the union’s decision whether to appeal any adverse arbitration award. Stated another way, the grievant simply does not have standing to proceed without the support of his or her union.Under existing law, if the union does not agree that an arbitration case has merit, there is very little an individual employee can do other than to sue the union for breach of the duty of fair representation. This Article argues, however, that there is a way to avoid hostility and unnecessary litigation in a way which will satisfy the grievant, his or her union, and perhaps even the employer. It is submitted that in certain cases the union could assign its right to proceed with the arbitration to the grievant. The grievant would have his day in court, and the union would not have to bear the time and considerable expense of arbitration with respect to a claim it believed either lacked merit or which should be presented by the individual grievant.
To this commentator’s astonishment, there is no academic commentary addressing the important issue of whether or not unions can assign their right to arbitrate or their right to appeal to an individual grievant. Additionally, there are only three judicial decisions on this issue, and all three opinions arose in the public sector. In all three of these decisions, the courts held that the union could not make the assignment. As explained in this Article, a close examination of these decisions demonstrates that all three of these decisions were wrongly decided.
Mitchell H. Rubinstein (mrubinst@nysutmail.org) is Senior Counsel to the New York State United Teachers, affiliated with the American Federation of Teachers, National Education Association AFL-CIO in New York City, and is an Adjunct Professor of Law at St. John’s Law School and New York Law School. He received his B.S. degree from Cornell University School of Industrial and Labor Relations and his J.D. degree from Hofstra University School of Law. The views expressed in this article are entirely the author’s, and may not necessarily represent the views of any organization with which he is affiliated.
When AAA won't act
December 14, 2006 by Ross Runkel at LawMemo
What if the American Arbitration Association refuses to administer a case even though two parties have agreed to arbitrate under AAA rules?
Actually the answer is pretty simple, as discussed in Deeds v. Regence BlueShield of Idaho (Idaho Supreme Court 07/28/2006).
Brooke Deeds had a health care insurance policy with Regence. After Deeds was injured in a car wreck, Regence refused to pay for treatment for her injuries.
Deeds sued. Regence pointed out that the insurance policy included an agreement to arbitrate disputes, which required "arbitration in accordance with the applicable rules of the American Arbitration Association."
Problem: AAA refused to administer the arbitration.
The Idaho Supreme Court pointed out that all this meant was that AAA rules had to be followed. It did not mean that AAA had to administer or conduct the arbitration. Therefore, the court ordered the parties to arbitrate, and the trial court will appoint the arbitrator.
My view: Correct outcome and reasoning.
There was no language in the agreement that said the arbitration had to be conducted by AAA, only that AAA rules had to be followed.
I learned about this case from Florida Arbitration Law . Com: Idaho SC Enforces Arbitration When AAA Refuses: "in accordance with applicable rules of the AAA" Doesn't Require Using the AAA.
Employee reinstated, and then fired again
December 12, 2006 by Ross Runkel at LawMemo
An arbitrator ordered a company to reinstate a discharged employee with back pay. The company paid the back pay, and simultaneously discharged the employee a second time for conduct independent of the first discharge.
Local 1776 v. Excel (3rd Cir 12/01/2006) held that the company did not violate the arbitrator's award by doing this.
The arbitration had to do with the first discharge on a claim of theft. The second discharge had to do with a claim that the employee assaulted a security guard.
The issue for the 3rd Circuit was whether the employer satisfied the arbitrator's award when it paid the employee back wages and simultaneously discharged the employee a second time for conduct independent of the first discharge.
The court said yes, considering the circumstances of this case: (1) the employer notified the employee that his attack on the security guard was grounds for discharge, (2) the arbitrator only considered the alleged theft by the employee, not the attack on the security guard, (3) the employer effectively reinstated the employee as required by the arbitral award by paying him for the period between the time he was suspended pending investigation of the attempted theft through the effective date of his discharge, (4) the employer had an independent reason (the attack on the security guard) to discharge the employee, and (5) the union had already filed a second grievance pursuant to which a second arbitrator will have the opportunity to rule on the issues of notice, waiver, and the existence of good cause for the second discharge.
FAA does not grant federal court jurisdiction
June 12, 2006 by Ross Runkel at LawMemo
Judge Posner took up a jurisdictional question which he said was "mishandled by the parties and the district court."
As Judge Posner put it, there is federal court jurisdiction in a Federal Arbitration Act case only when the underlying dispute would have been within federal jurisdiction if it had been litigated rather than arbitrated.
The good judge figured out that there was diversity of citizenship in the immediate case, so he went on to adjudicate the merits.
Wise v. Wachovia Securities (7th Cir 06/07/2006).
ADR Florida style
June 07, 2006 by Ross Runkel at LawMemo
A federal District Judge in Orlando, Florida has ordered litigants to use "rock, paper, scissors" to resolve a dispute over where a deposition will be held. An ancient form of ADR - alternative dispute resolution.
Straying a bit from arbitration, the usual subject here, I offer you the full text of the judge's order, courtesy of Robert Ambrogi's Lawsites.
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
AVISTA MANAGEMENT, INC., d/b/a Avista Plex, Inc.,
Plaintiff,
-vs-
WAUSAU UNDERWRITERS INSURANCE COMPANY,
Defendant.
This matter comes before the Court on Plaintiff's Motion to designate location of a Rule 30(b)(6) deposition (Doc. 105). Upon consideration of the Motion – the latest in a series of Gordian knots that the parties have been unable to untangle without enlisting the assistance of the federal courts – it is
ORDERED that said Motion is DENIED. Instead, the Court will fashion a new form of alternative dispute resolution, to wit: at 4:00 P.M. on Friday, June 30, 2006, counsel shall convene at a neutral site agreeable to both parties. If counsel cannot agree on a neutral site, they shall meet on the front steps of the Sam M. Gibbons U.S. Courthouse, 801 North Florida Ave., Tampa, Florida 33602. Each lawyer shall be entitled to be accompanied by one paralegal who shall act as an attendant and witness. At that time and location, counsel shall engage in one (1) game of "rock, paper, scissors." The winner of this engagement shall be entitled to select the location for the 30(b)(6) deposition to be held somewhere in Hillsborough County during the period July 11-12, 2006. If either party disputes the outcome of this engagement, an appeal may be filed and a hearing will be held at 8:30 A.M. on Friday, July 7, 2006 before the undersigned in Courtroom 3, George C. Young United States Courthouse and Federal Building, 80 North Hughey Avenue, Orlando, Florida 32801.
DONE and ORDERED in Chambers, Orlando, Florida on June 6, 2006.
GREGORY A. PRESNELL
UNITED STATES DISTRICT JUDGE
#5 of 5 - Kristian v. Comcast Corp - discovery limitations
May 02, 2006 by Ross Runkel at LawMemo
In Kristian v. Comcast Corp (1st Cir 04/20/2006) the court ordered arbitration even though the arbitration agreement provided:
Moreover, participating in arbitration may result in limited discovery.
Kristian was an antitrust case, but the court's ruling will be equally applicable in employment cases. This exact issue was resolved by the US Supreme Court in Gilmer v. Interstate/Johnson Lane, 500 US 20 (1991).
This is #5 in a series of 5 on the Kristian case.
Others in this series:
- #4 of 5 - Kristian v. Comcast Corp - attorney fees and costs
- #3 of 5 - Kristian v. Comcast Corp - limits on damages in arbitration
- #2 of 5 - Kristian v. Comcast Corp - limitation period
- #1 of 5 - Kristian v. Comcast Corp - class action arbitration
- Overview of the Kristian case
#4 of 5 - Kristian v. Comcast Corp - attorney fees and costs
April 30, 2006 by Ross Runkel at LawMemo
Kristian v. Comcast Corp (1st Cir 04/20/2006) may apply to arbitration clauses in employment agreements, especially as to who pays attorney fees and costs.
This is #4 in a series of 5 on the Kristian case.
Background: Kristian was an antitrust case brought by cable TV subscribers against their cable provider. The provider moved to compel arbitration as required in the subscriber-provider contract. The 1st Circuit held that arbitration was required.
Making plaintiff responsible for attorney fees and costs: The contract provided:
The Company will pay for all reasonable arbitration filing fees and arbitrator's costs and expenses except that YOU ARE RESPONSIBLE FOR ALL COSTS THAT YOU INCUR IN THE ARBITRATION, INCLUDING, BUT NOT LIMITED TO, YOUR EXPERT WITNESSES OR ATTORNEYS.
Holding: The court held that the applying the above clause would burden the plaintiffs with "prohibitive" arbitration costs, preventing them from vindicating their statutory rights. However, the clause was severable.
Reasoning:
- First, before reaching the issue of costs and attorney fees, the court had already decided that (1) the case could proceed as a class action and (2) expert witness fees could be in the range of $300,000 to $600,000 and attorney fees could be $1 million.
- Second, the contract conflicts with both state and federal statutes, both of which provide for recovery of costs and attorney fees. The court rejected Comcast's reading of the contract, which was that it merely provided that plaintiffs must pay these items up-front but still can recover them if they prevail. The court found this argument "implausible."
- Third, the likely costs and attorney fees are so high that requiring plaintiffs to pay them would be such a great financial burden as to prevent them from vindicating their statutory rights.
- The court severed this clause from the contract and allowed the arbitration to proceed without it.
Applied to employment cases: Costs and attorney fees in most employment cases will not be as high as in this case, although they potentially could be in a large class-action case. Whatever the dollar amount, the test is whether the financial burden is so great that it will prevent a plaintiff from vindicating statutory rights.
My view: The court was really dealing with a clause that prevented cost-shifting and fee-shifting, and not with payment of the costs of the arbitration proceeding itself (such as arbitrator fees and administrative fees). Cost-shifting and fee-shifting is a remedy that the antitrust statutes allow, and that is allowed in many employment statutes. In my opinion, this issue should be covered by the following proposed rule: The arbitrator must have the authority to award whatever remedies a court could award.
#3 of 5 - Kristian v. Comcast Corp - limits on damages in arbitration
April 29, 2006 by Ross Runkel at LawMemo
Employment arbitration agreements that put a limit on awardable damages could be affected by Kristian v. Comcast Corp (1st Cir 04/20/2006). This is #3 in a series of 5 on the Kristian case.
Background: Kristian was an antitrust case brought by cable TV subscribers against their cable provider. The provider moved to compel arbitration as required in the subscriber-provider contract. The 1st Circuit held that arbitration was required.
Ban on treble damages: The contract specified that an arbitrator could not award treble damages.
Holding: The court held that the contract did not bar federal statutory treble damages, and that an arbitrator should decide the effect on state statutory treble damages.
Reasoning: The court separately analyzed the no-treble-damages clause as it applied to plaintiffs' state law claim and federal law claim. This was because the state statute said treble damages "may" be awarded, and the federal statute said treble damages "shall" be awarded.
The federal claim:
- First, the federal statute uses the word "shall." Thus there is a clear conflict between the contract's damages limitation and the statute. There is no ambiguity for an arbitrator to deal with, so this is a question of "arbitrability" for the court to decide rather than a question of "procedure" for the arbitrator to decide.
- Second, the federal statute's treble damages provision cannot be waived.
- Third, the contract's savings clause provided that claimants were entitled to seek remedies that could not be waived. Therefore, as the court interpreted the contract, the contract actually allowed treble damages. Thus, the contract's damages limitation did not apply to the federal claim.
The state claim:
- First, the state statute says treble damages "may" be awarded.
- Second, it is not clear whether waiver of treble damages is allowed under state (Massachusetts) law. In other words, the state law is "ambiguous" on this point.
- Third, because there is "an underlying legal ambiguity," the arbitrator must decide the underlying legal question.
Applied to employment cases: Treble damages are rarely available in employment cases. However, some statutes provide for punitive damages or "liquidated" damages. One would think that the court would use the same analysis for these statutes.
My view: The court seems to take the position that it is for arbitrators to interpret "ambiguous" things - both contractual and legal. And it is for courts to step in when the contract or the law is "plain" and non-ambiguous. I think this is unworkable. Every lawyer knows that "ambiguity" is in the eyes of the beholder. It will be better in the long run to have a bright-line rule that determines whether an issue is to be decided by a court or an arbitrator. "Ambiguity" is not a bright-line rule, and will only lead to more litigation.
I propose this rule: The arbitrator must have the authority to award whatever remedies a court could award.
#2 of 5 - Kristian v. Comcast Corp - limitation period
April 28, 2006 by Ross Runkel at LawMemo
Should employment lawyers care what Kristian v. Comcast Corp (1st Cir 04/20/2006) says about contractual limitation periods? This is #2 in a series of 5 on the Kristian case.
Background: Kristian was an antitrust case brought by cable TV subscribers against their cable provider. The provider moved to compel arbitration as required in the subscriber-provider contract. The 1st Circuit held that arbitration was required.
Limitation period: The contract required that subscribers "contact" Comcast within one year of an even giving rise to a dispute. State and federal antitrust statutes have a four year statute of limitations.
Holding: The court held that any potential conflict between the contract and the statutes of limitations must be decided by the arbitrator.
Reasoning:
- First, unlike previous cases in which a similar issue was for an arbitrator to decide, this is a case where the contract's limitation period "conflicts" with statutory limitation periods.
- Second, the subscribers are claiming an "ongoing injury" that could operate to toll a statute of limitations under certain circumstances.
- Third, the question of tolling raises factual issues which are the province of an arbitrator.
- Fourth, a statute of limitations is raised as an affirmative defense, and does no0t raise an issue of "arbitrability."
Applied to employment cases: I see no reason for the court to have any different reasoning in an employment case.
#1 of 5 - Kristian v. Comcast Corp - class action arbitration
April 28, 2006 by Ross Runkel at LawMemo
What does Kristian v. Comcast Corp (1st Cir 04/20/2006) have to do with employment law? This is #1 in a series of 5 on that question, with the focus on anti-class-action clauses.
Background: Kristian was an antitrust case brought by cable TV subscribers against their cable provider. The provider moved to compel arbitration as required in the subscriber-provider contract. The 1st Circuit held that arbitration was required.
Class action waiver: The contract prohibited class-action and consolidated arbitrations.
Holding: The court held that this clause had to be removed before enforcing the agreement to arbitrate.
Reasoning:
- First, the issue was for the court to decide, not for an arbitrator. The court distinguished Green Tree Financial v. Bazzle, 539 US 444 (2003), in which the Supreme Court held that an arbitrator must determine whether class-action arbitration was forbidden by a contract. Here, the contract clearly did forbid class arbitration. The issue, therefore, is one of "arbitrability" rather than arbitration "procedure." And that issue is whether "the prospective litigant effectively may vindicate its statutory rights in the arbitral forum."
- Second, enforcing the anti-class-action clause would prevent the plaintiffs from vindicating their statutory rights. Antitrust actions are extremely complex factually and legally. The value of each individual claim is small. It is unlikely that any consumer would litigate such a small claim on an individual basis when the up-front costs (attorney fees, expert witnesses) are so great. No sensible claimant or attorney would take on such a case. Only through the use of class-action will consumers be able to effectively vindicate their statutory rights.
- Third, the offending anti-class-action clause should be severed from the agreement, and arbitration should go forward without it. The contract contained a severance clause.
- Fourth, no point in discussing state unconscionability law (which follows similar reasoning), because federal law analysis takes care of the issue.
Distinguishing contrary authority: The court distinguished cases from four other Circuits which had allowed anti-class arbitration clauses. These were all cases brought under the federal Truth in Lending Act. In those cases, the facts are simple and the law is clear. In antitrust cases, expert fees alone can run $300,000 to $600,000, and lawyer time can run into the millions of dollars.
Applied to employment cases: The court's focus was on the relationship between the small value of the individual claims vs. the high cost of proving a claim (due to factual and legal complexity). Typical discharge cases and harassment cases should not fall into this category. There may be some cases in which the Kristian analysis will prevail, such as small-amount FLSA claims.
Caution: The issue of anti-class-action clauses can be raised as a matter of state law (unconscionability, violation of public policy). State law varies from state to state, so there is an element of unpredictability. Even if you conclude that the Kristian court was wrong, you still have the sate law question to deal with.
Class-action arbitration and interlocutory appeals
April 19, 2006 by Ross Runkel at LawMemo
(1) Court orders arbitration. (2) Arbitrator interprets agreement as allowing class-wide arbitration. (3) Court upholds arbitrator.
No big surprise, as the arbitrator is the one who is supposed to interpret the contract and to decide "procedural" matters such as class-wide proceedings.
The surprise was that the court entertained an "appeal" from the arbitrator's procedural ruling before the arbitration had been completed. Call it an interlocutory appeal, if you will.
My view: Seems to me that entertaining such interlocutory appeals of arbitrators' procedural rulings does not advance the process. Correct on the merits.
Timeline:
- January 1, 2005: Court orders arbitration.
- February 7, 2005: Arbitration begins.
- October 12, 2005: Arbitrator rules on class-action issue.
- April 6, 2006: Court approves arbitrator's decision.
Roughly a five months delay.
Genus Credit Mgmt. Corp. v. Jones (D. Md. 04/06/2006)
Consolidation issue goes to the arbitrator
April 06, 2006 by Ross Runkel at LawMemo
"Procedural" is the label being used to identify some of the issues that are to be decided by an arbitrator rather than by a court.
Consolidation of two arbitrations into one is one of those issues.
Take these facts:
There were two companies. There were two agreements between them. Each agreement had an arbitration clause. Both companies acknowledge they are required to arbitrate.
One company demands that there be a consolidated arbitration. The other insists on two separate arbitrations. Both of the two agreements were silent on the question of consolidation. And a lawsuit followed.
The first issue for a court to decide is not whether there should be a consolidated arbitration.
The first issue for the court is to decide who decides.
The answer is clear, although the 7th Circuit felt a need to write a 17 page opinion.
The answer is that consolidation (or not) is a "procedural" matter for the arbitrator to decide.
| Employers Ins Co v. Century Indemnity Co (7th Cir 04/04/2006). |
The court relied on Howsam v. Dean Witter Reynolds, 537 US 79 (2002), which held that an arbitrator, not a court, is to decide a question dealing with a time-limit rule in the NASD rules.
The court cited decisions from other circuits holding that it is for an arbitrator to decide an issue of consolidation, and an issue of whether there should be one rather than three arbitrators.
It's really a matter of "what kind of arbitration proceeding" the parties agreed to, which is a question of contract interpretation, which is a question for the arbitrator.
Interesting that the court did not rely on Green Tree Financial v. Bazzle, 539 US 444 (2003), which involved the issue of whether there could be a class action arbitration when the agreement was silent on the question. The court did not rely on Green Tree because the Supreme Court's decision resulted in multiple opinions and no one opinion commanded a majority. (Note that the 5th Circuit has held that Green Tree should be read to mean that the arbitrator decides on the validity of a class action, absent evidence that the parties intended the issue to resolved by a court. Pedcor Mgt Welfare v. Nations Personnel, 343 F3d 355 (5th Cir 2003).)
Parties picked FAA over state law
February 21, 2006 by Ross Runkel at LawMemo
Parties to an arbitration agreement can select whether to use state law or federal law to govern the arbitration. And it can make a huge difference.
In Rodriguez v. American Technologies (California Ct App 02/16/2006) they expressly picked the Federal Arbitration Act (FAA).
American sought a court order compelling arbitration. Rodriguez pointed out that there was a third party involved who was not subject to arbitration, and that splitting the case between arbitration and litigation could result in conflicting rulings on common issues of law and fact.
- A California statute says that a court has several options. It may refuse to compel arbitration, or it may stay either the arbitration or the court proceeding pending completion of the arbitration proceedings. (California Code of Civil Procedure § 1281.2(c).
- The Federal Arbitration Act requires that a federal court must stay the court proceeding and compel the arbitration.
So when the California trial court applied California law and denied the motion to compel arbitration, that was wrong. So says the California Court of Appeal.
My view:
- Yes, parties can - by agreement - select either federal law or California law to govern the arbitration proceedings.
- I'm troubled by the fact that the relevant part of the FAA (Section 3) specifically refers to federal courts when it says a court must issue a stay of court proceedings.
- There is a missing link in the logic.
- Incorporating the FAA into an agreement is not the same thing as agreeing that the express words of the FAA (that is, the reference to federal courts) will have a new meaning (that is, a reference to state courts).
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.
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.
Arbitration subpoena to non-party enforced
November 22, 2005 by Ross Runkel at LawMemo
The Second Circuit has not decided whether it will enforce an arbitration subpoena to a non-party compelling pre-hearing depositions or pre-hearing document discovery.
In Stolt-Nielsen SA v. Celanese AG (2nd Cir 11/21/2005) the arbitration panel issued subpoenas to compel attendance at a hearing that was scheduled in advance of a "merits hearing." The party opposing the subpoenas argued that this was a "thinly disguised effort to obtain pre-hearing discovery, and that Federal Arbitration Act (FAA) Section 7 does not authorize that.
Rather than decide whether FAA Section 7 authorizes non-party subpoenas for the purpose of discovery (rather than for compelling attendance at an arbitration hearing), the court decided that these subpoenas were actually not discovery subpoenas.
- There was no order to appear for a deposition.
- Testimony was taken before the arbitrators, who made rulings on admissibility and privilege.
- The testimony became part of the arbitration record.
- The fact that the hearing was preliminary to later hearings did not turn this into a discovery device.
My view: FAA Section 7 authorizes arbitrators to "summon in writing any person to attend before them ...." That's exactly what happened. The attempt to characterize the subpoenas as being for the purpose of discovery really misses the point. The point is that the facts fit what the statute says, and the statute does not focus on the purpose of the subpoenas.
End run around state court
November 16, 2005 by Ross Runkel at LawMemo
Larry Wood sued his employer in West Virginia state court alleging state law claims of sex discrimination and wage law violations. There was an arbitration clause in his employment agreement, so you might expect the employer to file a motion to compel arbitration.
Not so.
The employer preemptively filed an action against Wood in federal district court seeking
- to compel arbitration of those claims under the Federal Arbitration Act (FAA), 9 U.S.C. § 4, and
- to enter a prohibition against Wood from prosecuting the state action against AGLA.
The district court granted that relief and entered judgment against Wood. And the 4th Circuit affirmed. American General Life v. Wood (4th Circuit 11/14/2005).
My view:
- Quite an interesting tactic.
- What? They don't trust the state courts?
- Why should federal court resources be used this way when an action is already pending in state court?
Untimely grievances not arbitrable
September 04, 2005 by Ross Runkel at LawMemo
The facts: The collective bargaining agreement expired in December 1999, the union discovered the facts giving rise to the grievances in February 2000, and the union waited until September 2001 to file the grievances.
Black letter law:
- If a company claims a union's grievance is filed too late, the court's job is to send the case to the arbitrator, and it's for the arbitrator to decide the question of untimeliness. Howsam v. Dean Witter Reynolds, 537 US 79 (2002).
- After a collective agreement expires, grievances that arose during the term of the agreement are still arbitrable. Nolde Bros v. Local No. 358, 430 US 243 (1977).
How about a giant exception? Read R.J. Corman Derailment Svcs v. Operating Engineers (7th Cir 09/02/2005).
The 7th Circuit's reasoning:
- Nolde is based on a presumption of arbitrability.
- The presumption of arbitrability does not last forever.
- The presumption lasts "a reasonable time," and 18 months is way too long.
- This is not contrary to Howsam, where the issue was untimeliness, because here the issue was "how long the expired agreement to arbitrate survived."
My view: Wrong. This is a classic situation in which it is the collective bargaining agreement that should provide the answer, and it is for an arbitrator to say what the agreement means. I assume an arbitrator would rule that an 18-month delay is too long, but that is a decision for an arbitrator rather than a court.
NASD Discovery Arbitrator Pilot
August 03, 2005 by Ross Runkel at LawMemo
NASD - National Association of Securities Dealers - announces a pilot program "to address concerns about the discovery process in arbitration." Here is the full text of the announcement:
Discovery Arbitrator PilotOverview
On August 1, 2005, NASD Dispute Resolution will launch a voluntary, two-year discovery arbitrator pilot to address concerns about the discovery process in arbitration. A single Discovery Arbitrator will be appointed to resolve all discovery disputes prior to the hearing. These Discovery Arbitrators will not be a part of the panel assigned to hear the merits of the case; they are appointed solely to resolve the parties' discovery disputes.The pilot, which will run for two years, will be conducted in the Southeast and Western Regional Offices, and will be available in all of the hearing locations overseen by these regions. At the end of the two-year period, we will evaluate the results of the pilot before deciding whether to extend it to the other regions.
As a voluntary pilot, only those parties that sign a Stipulation agreeing to authorize the use of a Discovery Arbitrator may avail themselves of the program. Also, only those parties represented by counsel are eligible for the pilot. After the parties sign the Stipulation, they may not unilaterally withdraw from the pilot; however, all parties may agree in writing to discontinue use of the Discovery Arbitrator.
Selection of Discovery Arbitrator
The Discovery Arbitrators are pre-selected public arbitrators currently on Dispute Resolution's roster who are lawyers with experience in resolving discovery-related disputes. After the parties sign the Stipulation agreeing to participate in this program, the Director of Arbitration will appoint an arbitrator from this roster of Discovery Arbitrators. Once the Discovery Arbitrator is assigned to a particular case, the parties may only file a Challenge for Cause or a Director's Authority to Remove to challenge the appointment of the Discovery Arbitrator.Authority of Discovery Arbitrator
Once the hearing commences, the Discovery Arbitrator's authority ceases. At that point, the panel appointed to hear the merits of the case will decide any new discovery issues. Until the hearings commence, the panel may not review any decision rendered by the Discovery Arbitrator. Thereafter, the panel may only review the Discovery Arbitrator's prior rulings on the basis of new facts or circumstances that arose after the commencement of the hearings.
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.
