Today’s leads are from the Fifth Circuit, which addresses the arbitration of claims under the Federal Whistleblower Act, and District Courts on the collateral estoppel  effect of an arbitration, the results of loosely drawn arbitration agreements and awards, and the purchase of a right to arbitrate.

Arbitration of Whistleblower claims

Monday’s “Highlights” discussed Tokio Marine Specialty Ins. Co. v. South Chicago Property Maintenance Co., Ltd., 2020 U.S. Dist. LEXIS 182904 (N.D. Ohio) (Oct. 2, 2020), in which the court listed four considerations in determining whether to compel arbitration – one of which was whether a federal statute on which the claim was based precluded arbitration.  On Friday, the Fifth Circuit addressed just that issue in Robertson v. Intratek Computer, Inc. 2020 U.S. App. LEXIS 31455 (4^th Cir.) (October 2, 2020). Robertson brought an action against his former employer under the federal whistleblower act, 41 U.S.C. §4712 (the “Act”).  As a condition of employment, Robertson had agreed that he would “submit to binding arbitration any employment related controversy, dispute or claim between me and the Company. . . including but not limited to. . . any claims for violation of any federal . . . law, statute, regulation or ordinance. . . .”  Intratek sought arbitration, based on that provision.  Robertson argued that the language of the Act exempts claims thereunder from arbitration.

The Act creates a right to jury trial, providing that in any action thereunder “at the request of either party to the action [it shall] be tried by the court with a jury.” The Act elsewhere provides that “the rights and remedies provided for in this section may not be waived by any agreement, policy, form or condition of employment.”  Since an arbitration does not include a jury, Robertson argued, the arbitration provision of his employment agreement was void.

The Fifth Circuit, Oldman, J., affirmed the District Court’s holding that this anti-waiver provision did not preclude arbitration. (The Court reversed the District Court’s holding that claims against a non-employee of Intratek fell within the arbitration provision.)  In a single paragraph, the court explores the statute’s text and holds that the reference to a jury trial in the Act is merely “one way to vindicate a whistleblower’s statutory rights after the whistleblower exhausts administrative remedies; the jury trial is not itself a “right” or “remedy” created by §4712.” (Emphasis in original)  The more analytical portion of the opinion is the court’s review of Supreme Court precedent holding that such anti-waiver provisions do not invalid arbitration requirements, as “the ‘right’ to a judicial forum wasn’t a ‘right’ protected by the waiver limitation at all,” citing to 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009) (Age Discrimination in Employment Act of 1967) and  CompuCredit Corp. v. Greenwood, 565 U.S. 95 (2012) (Credit Repair Organizations Act). Finally, the court rejects Robertson’s appeal to legislative history through his analysis of earlier drafts of the bill.  Such “drafting history ‘tells us nothing,’” [citing to Murphy v. Smith, 138 S. Ct. 784 (2018)], since we cannot tell why legislators acted as they did in dropping the language on which Robertson relies. (Cue the snarky comments about the opaqueness of legislators’ intent.)

Again, a footnote provides a potential way to distinguish the case for those faced with the issue in other litigation.  Referencing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the court, in dictum, states that a conflict between arbitration and a statute’s underlying purposes may establish that claims under that statute are not arbitrable.  As the plaintiff did not raise that argument here, the court does not consider it.  Is this an invitation from the court for others to raise the issue?

Arbitration as Collateral Estoppel

Holtec Int’l v. ARC Machines, Inc., 2020 U.S. Dist. LEXIS 183916 (W.D. Pa.) (Oct. 5, 2020) addresses whether an arbitration award triggers collateral estoppel in later litigation.  Holtec had purchased a welding system from Pandjiris Industries that incorporated the ARC equipment at issue in this case. When the system allegedly failed, Holtec commenced an arbitration against Pandjiris, which Holtec lost.  The arbitration panel held that Holtec had failed to prove that the problems with the welding system were the result of any defect in materials in the equipment into which the ARC parts were incorporated. The litigation involved in this opinion relates to those same components, with ARC claiming that the unfavorable arbitration award precluded Holtec’s litigation claim under the doctrine of collateral estoppel.  Invoking the Restatement (Second) of Conflict of Laws, Section 95, the court looks to Pennsylvania, the state where the arbitration award was entered, to determine applicable substantive law.  After laying out the elements of collateral estoppel in Pennsylvania, Magistrate Judge Kelly, holds that the arbitrators’ limitations on discovery and their exclusion of testimony by ARC employees regarding failed attempts to repair the equipment demonstrate that Holtec may not have had the “full and fair opportunity to litigate its claims” necessary to create a preclusive effect.  It appears from the opinion that the parties in the Pandjiris arbitration may not have had a court reporter transcribe those proceedings.  The absence of a transcript drives, at least in part, the Magistrate Judge’s decision on whether Holtec met its burden of proof on the adequacy of the arbitration proceedings. So, here is a caution to arbitrating parties as to whether the savings on transcription are worth the unknown risks of non-reported proceedings.

Quick Hits –

Specificity of arbitration agreements and virtual arbitrations

Hill v. Bank of America, 2020 U.S. Dist. LEXIS 183999 (S.D. Iowa) (August 20, 2020) considers whether the parties had agreed to arbitrate and, if so, whether the Southern District of Iowa was the proper venue for the confirmation of an arbitration award. The arbitration took place virtually, with arbitrators in New Jersey, Texas, and Oregon. The award in favor of plaintiff, which may have been either standard or reasoned, did not specify the scope of the parties’ arbitration agreement or state the jurisdiction in which the award was made, describing the location only as “virtual.”  Therefore, the court, holding that it cannot determine both whether the parties contracted to arbitrate this particular dispute or whether it has jurisdiction to confirm the award, grants dismissal of the action.  As more arbitrations go virtual during the Covid-19 era – and perhaps thereafter – it is important that the parties or panel designate a location for entry of the award, so that it can be enforced under the FAA.

Assignment of Arbitration Rights

Rosales v. Portfolio Recovery Associates, LLC, 2020 U.S. Dist. LEXIS 183694 (N.D. Ill.) (Oct. 5, 2020) holds, on the facts of the case as set forth in affidavits and deposition testimony, that the Defendant’s purchase of a credit card portfolio, of which Rosales’s account was a part, included the assignment of the initial creditor’s right to compel arbitration.  The case reminds drafters of contract assignments to be sure to include all the rights which the assignor has against the original counterparty.

We are halfway through the week.  Enjoy the rest of it or keep looking toward the end of the work week, as your case may be.  Be safe.

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