The Circuits were busy on Thursday and Friday. Two significant decisions came out of the Ninth Circuit, one reversing long-standing precedent on competence-competence in labor disputes and another on the effect of FINRA’s rule related to class arbitrations on the underlying arbitrability of statutory employee claims. Meanwhile, the Eleventh Circuit, in an opinion including a dissent, addressed the distinction between an arbitrator’s mistake and his or her exceeding of the authority granted under the arbitration agreement. Two District Court cases raise interesting issues related to motor vehicle arbitrations and the on-going dispute over discovery in international arbitrations.

I hope you had a good weekend.  Welcome back to the office – whatever that may mean these days.

Arbitrator’s mistake or overreach?

Two conflicting principles are addressed by the Eleventh Circuit in Gherardi v. Citigroup Mkts., Inc. 2020 U.S. App. LEXIS 29683 (11^th Cir.) (Sept. 17, 2020). On the one hand, in deciding an application to confirm or vacate an arbitration award, the reviewing court does not second guess the arbitrator’s decision even when they make “a serious error.” Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671 (2010).  However, an arbitrator may not exceed the scope of the authority granted under the enabling agreement and it is error when he or she “strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice,” Major League Baseball Players Ass’n v. Garvey,532 U.S. 504 (2001).  Gherardi addresses the nuanced question of where along that hazy line an arbitrator’s award fell.

Gherardi arises out of an employment-related claim. Neither party disputed that the parties agreed to arbitrate such disputes.  Gherardi had been a financially successful broker and investment advisor for Citi, who was fired for what Citi characterized as abusive behavior.  Plaintiff claimed Citi’s goal was to make him effectively “unemployable” elsewhere, thus keeping for itself his 500-600 clients.  Citi’s Arbitration Policy required all “employment-related disputes” to be arbitrated under the auspices of FINRA.  The arbitration panel awarded Gherardi $3,452,000 in compensatory damages for wrongful termination. The District Court on cross applications to confirm and vacate, determined that the arbitrators exceeded their powers under the Policy and vacated the award.

The majority and dissent hinge on two portions of the Policy.  The Policy stated that it was not a “waiver by Citi of its rights under the ‘employment-at-will’ doctrine” nor did it “afford an employee or former employee any rights or remedies not available under applicable law.”  However, the Policy also prohibited retaliatory firings. In reversing the District Court, Judge Grant describes the issue before the court as “whether the arbitrator[s] (even arguably) interpreted the parties’ contract, not whether [they] got its meaning right or wrong,” citing cases, including SCOTUS in Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013).   Gherardi was terminated three days after he complained about a letter from Citi’s HR department reprimanding him for profane language toward a colleague.  Applying these facts, Judge Grant holds that the panel may have interpreted the agreement by analyzing which provision applied – the at-will language or the anti-retaliatory provision – and applying the latter.  Since interpretation of the Policy was the role given to the arbitrators, the Court of Appeals holds that the panel did not clearly exceed its authority and their holding should be confirmed. In dissent, Judge Martin focuses, instead, on the portion of the Policy retaining Citi’s right to treat Gherardi as an at-will employee and, therefore, subject to termination at any time. Since compensatory damages for wrongful termination are not available to at-will employees under applicable Florida state law, Judge Martin opines that, by awarding damages, the arbitrators exceeded the scope of their authority. He would have affirmed the District Court.

Whichever side you come down on after reading these well-written opinions, they highlight a nuanced question in the judicial review of arbitration awards – assuming an arbitration panel has made a mistake, have they merely erred in reading or applying the contract or does the mistake take them beyond the enabling agreement’s bounds?

Class action waivers in FINRA arbitrations

FINRA Rule 13204(a)(4) provides that “class action claims may not be arbitrated under the Code [of Arbitration Procedures for Industry Disputes].”  Laver v. Credit Suisse Sec., LLC, 2020 U.S. App. LEXIS 29820 (9^th Cir.) (Sept. 18, 2020) discusses the effect of this Rule on the right of a FINRA member firm to compel arbitration at all, even on a non-class basis.

Laver worked as a financial advisor at Credit Suisse (“CCSU”). In October 2015, CCSU entered what it characterized as a “recruiting agreement” with Wells Fargo and shut down its advisory services. Under the agreement, Wells could recruit CCSU financial advisors, but was not required to do so. Laver was not recruited.  Since CCSU paid deferred compensation only to recruited advisors, Laver did not receive that benefit.  He brought an action on behalf of himself and other similarly situated advisors, claiming that the “recruiting agreement” was an attempt to end run a “change of control” provision, which would have allowed the advisors to retain unvested deferred compensation despite the transaction. CCSU sought both to enforce a waiver of class actions contained in its Employee Dispute Resolution Program (“EDRP”) and to compel arbitration of Laver’s claim on an individual basis, as provided in that program.

Laver argued that, since the EDRP required arbitration under the FINRA Rules and since Rule 13204 provide that class actions – such as the one which he brought – may not be arbitrated, Rule 13204 invalidated the arbitration mandate.  The Court of Appeals rejects that argument, holding that the effect of Laver’s argument would be to allow employees to move all cases from FINRA arbitration merely by seeking class relief. Rather, it holds that the EDRP and the FINRA rule stand separately.  The waiver merely prohibited class status and, since the claim between the broker and the FINRA member would, then, become an individual action, arbitration thereof does not violate 13204.

Ninth Circuit overrules Desert Palace

In SEIU Local 121RN v. Los Robles Reg’l Med. Ctr., 2020 U.S. App. LEXIS 29908 (9^th Cir.) (Sept. 18, 2020), a case which is important to Ninth Circuit practitioners, but of limited interest elsewhere, the Court of Appeals overrules its precedent in United Bhd. Of Carpenters & Joiners, Local No. 1780 v. Desert Palace, Inc., 94 F.3d 1306 (9^th Cir. 1996) (“Desert Palace”). Desert Palace had held that, despite SCOTUS’s holding in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) that mere silence in the parties’ arbitration agreement as to competence-competence did not delegate authority to the arbitrator to decide its own jurisdiction, a less restrictive rule would apply to collective bargaining disputes.  In those cases, a broad arbitration clause which did not exclude arbitrability or jurisdictional issues would delegate competence questions to the arbitrator, exactly the opposite rule from the holding in First Options that any delegation to the arbitrator of the gateway question must be included in the arbitration provision.  Relying on Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (2010), which held that the First Options standard for determining delegation of jurisdiction from court to arbitrator applies in labor cases, Judge VanDyke, writing for the majority, abolishes the Desert Palace doctrine, on which the District Court reluctantly relied in ordering arbitration, and remands the case for the lower court to make its own determination of arbitrability of the underlying dispute.

In dissent, Judge Lee adopts a constrained approach to the overruling of precedent.  While recognizing that, after Granite Rock, Desert Palace’s distinction between delegation in collective bargaining agreements and commercial disputes “teeters on a flawed foundation,” he argues Desert Palace still has breath and must be followed.  His view is summarized in the quote he takes from another Ninth Circuit case – “if we can apply our precedent consistently with that of the higher authority, we must do so.” (Emphasis added). Analyzing the two precedents, Judge Martin finds a way to reconcile Desert Palace and Granite Rock.  I will leave to the reader whether that attempt is successful, but, bottom line, Desert Palace has been demolished.

Quick Hits

Cianchetta v. BMW of N. Am., LLC, 2020 U.S. Dist. LEXIS 170809 (E.D. La.) (Sept. 17, 2020) addresses the common issue of whether an arbitration agreement between the buyer of a car and the dealer extends to disputes with the manufacturer.  Considering both third-party beneficiary arguments and estoppel, Judge Mueller holds that it does not.

In re: Axion Holding Cyprus, 2020 U.S. Dist. LEXIS 171293 (Sept. 18, 2020) addresses the on-going dispute over whether 28 U.S.C. 1782 authorizes discovery in private foreign or international arbitration proceedings. Recognizing that the Third Circuit has yet to rule on the question, Judge Noreika joins other judges in the District, holding that such proceedings are not “tribunals” under Section 1782 and, therefore, discovery is not permitted. The Circuits which have addressed the issue are split, with the Fourth and Sixth Circuits allowing discovery and the Second and Fifth taking the opposite view. The issue is currently pending before the Third, Seventh and Ninth Circuits.  Ultimately, SCOTUS will have to resolve the question.  For practitioners considering the issue, this opinion provides a good summary of existing authority.

Scholarly opportunity

The International Council for Commercial Arbitration is undertaking a research project on the question “Does a Right to a Physical Hearing Exist in International Arbitration?”  They are seeking national reporters.  Those interested can find more information at arbitration-icca.org.  Applications to participate are due by Friday, September 25^th.

Have a good start to your week.  See you Wednesday.

David Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com