Sometimes you know that a judge was just waiting for a case where he or she could sound off on a pet peeve. We have one this week in Cellinfo. Also, good cases on the interface of Federal jurisdiction and removal in a case under the New York Convention and the Law of the Shop.
What happens when a party runs out of money
Cellinfo, LLC v. American Tower Corporation, 2020 U.S. Dist. LEXIS 222866 (D. Mass.) (Nov. 30, 2020) deals very thoughtfully with an issue of first impression in the First Circuit – when can a party come back to court if it can no longer afford arbitration. But first, Judge Young unleashes in a way that can only be appreciated in a full quote.
This case requires analysis of the substantive provisions of the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 3-4. Such cases are relatively rare today since the overly expansive interpretation of that Act by a majority of the Supreme Court and the acquiescence of the Congress has led to marginalizing the American jury, once the conscience of the community and the “crown jewel” of American jurisprudence, the evisceration of our civil rights and consumer protection laws in the workplace and the marketplace, barring thousand of Americans from their day in Court and largely banishing the lower courts from the development of law in these areas. As every district judge knows, about all that’s left is figuring out whether the parties can somehow be said to have actually agreed to arbitration, and, if so, sending the parties off to arbitrate and closing the case.
“But let that bide.”
There are also seven footnotes, including a reference to Captain Abel Jones, HQ Army of the Potomac, Late Sergeant, 24th Foot (South Wales Borderers).
Having let the world know what he really thinks of arbitration, the judge undertakes a very deep analysis of when a court may terminate an arbitration and lift a stay of litigation based upon the inability of one of the parties to continue to pay the costs of an arbitral proceeding.
The case arises out of the failure of a consulting relationship between Cellinfo and American Tower. The court had previously stayed this litigation and ordered arbitration of Cellinfo’s claims. During the course of the arbitration, Cellinfo allegedly incurred attorneys’ fees in excess of $2,000,000, with more coming, and arbitrator and tribunal fees of $270,000 were either paid or due. Plaintiff’s counsel withdrew from the arbitration and the tribunal, ultimately, terminated the proceeding for non-payment. According to Cellinfo, its investors, who had been funding the litigation, turned off the spigot and, without funds, it could not continue to arbitrate. Accordingly, it sought permission to lift the stay and reopen the litigation. The court held a two-day evidentiary hearing. In this opinion, Judge Young finds that Cellinfo failed to demonstrate that it could not afford to arbitrate. The court directly faults Cellinfo for failing to reach out to the AAA, the administering tribunal, to seek an adjustment under Commercial Rule 53, which provides the Association with discretion to reduce administrative fees in the event of hardship. In summary, the court opines, “Cellinfo had met true financial challenges: however, the good faith standard required it to do more. In sum, Cellinfo has simply not demonstrated a sufficiently sincere good faith effort to comply with the flexible AAA requirements. Therefore, lifting the stay would be unwarranted.” The court distinguishes Tillman v. Tillman, 825 F. 3d 1069 (9th Cir. 2016), where the court lifted the stay and allowed litigation to continue, on what it considers greater, albeit unsuccessful, efforts by that stayed party to obtain the funding and relief necessary to continue its arbitration.
In another case filed Monday, Croasmun v. Adtalem Global Education, Inc., 2020 U.S. Dist. LEXIS 223076 (N.D. Ill.) (Nov. 30, 2020), the parties disputed who had the obligation to pay JAM’s administrative fees. Judge Lefkow holds that the issue of who pays arbitration fees falls within the arbitrator’s purview under the parties’ broad arbitration agreement. Recognizing that there is no arbitration panel to make this decision unless and until JAMS appoints one, the court opines that the parties may return to court if the administrator declines to open a file until its fees are paid.
A lesson emerges from both cases. Before you ask the court for relief, be sure you have exhausted your tribunal’s potential remedies.
Federal jurisdiction and removal
WJ Holding Ltd. v. Shireen Maritime, Ltd., 2020 U.S. Dist. LEXIS 223312 (E.D.N.Y.) (Nov. 25, 2020) is an “everything you need to know” case about removal of an action which is arguably governed by the New York Convention. The proceedings underlying the decision are complicated and I refer you to the opinion. In short, the issue before Magistrate Judge Pollak was whether the court had subject matter jurisdiction over a case which defendant removed from New York Supreme Court (for those of you who are not New Yorkers, that is the state trial level) in which plaintiff sought relief related to a failed financing. While the action was pending in state court, the London Court of International Arbitration entered a final award against the plaintiff on a related question. Although plaintiff did not participate in the fact finding in that arbitration, alleging that the arbitration clause was invalid, Defendant pled as a defense in state court that the LCIA award to Defendant precluded WJ’s current claim. Defendant also removed the Supreme Court action to Federal court. This decision rules on Plaintiff’s motion to remand, in which it claimed the federal court lacked subject matter jurisdiction. The decision considers the impact of Sections 203 and 205 of the Federal Arbitration Act. Section 203 provides that “any action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts . . shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.” Section 205 allows removal of an action that “relates to” an arbitration or arbitral award under the Convention “at any time before the trial [of the case].” Defendant claimed that there was federal question jurisdiction by virtue of the “related to” language of Section 205. The court dismisses that argument and recommends granting plaintiff’s motion to remand. Citing a series of cases, the court holds that only Section 203 may be used as a jurisdictional hook and that Section 205 merely sets forth the timing for removal of a Convention case. Since the Second Circuit has limited Section 203 to actions to compel, confirm, or vacate an arbitral award or to address limited measures in aid of the arbitration itself, the court lacks jurisdiction where, as here, the foreign arbitration is only involved as a defense in an otherwise non-removable action.
The case is a deep piece of scholarship on the Convention and FAA, but also on federal subject matter jurisdiction and the process for removal and remand of cases generally. It bears reading by all federal court litigators.
Law of the shop
Twin River-Tiverton, LLC v. United Auto Workers, 2020 U.S. Dist. LEXIS 223002 (D.R.I.) (Nov. 30, 2020) raises the issue of what a labor arbitrator may consider in reaching a decision as to the meaning of a provision in the parties’ collective bargaining agreement. The dispute arose out of the Plaintiff’s elimination of its prior practice of providing one-half hour pay to employees who worked eight or more hours per day. That practice began under a previous owner because employees at the casino were often too busy to take the half hour paid meal break provided in the CBA. The casino, after its second change in ownership, removed the extra pay and reduced employees’ shifts to seven-and-a-half hours. The subject arbitration resulted from the Union’s grievance. The arbitrator held that the elimination of “meal pay” breached the CBA. Although the payment was not directly discussed in the agreement, the arbitrator applied “the law of the shop,” which the court characterizes as “the industrial common law – the practices of the industry and the shop.” Such practices are those which are so “well-known, uniform, long-established, and generally acquiesced in so as to induce a belief that the parties contracted with reference to it, nothing in the contract to the contrary.” [citations omitted] (Emphasis in the original). Finding nothing specific in the collective bargaining agreement which halted the existing practice of paying an employee for unused meal time, the arbitrator upheld the Union’s grievance. Judge McConnell confirms the award. The case itself is fact specific and delves into intricacies of labor law. The review standard which the court applies, however, is universal. “Judicial review of labor arbitrations ‘is among the narrowest known to law.’” [citation omitted] Since the arbitrator presumably has expertise in the law of the shop and the parties have bargained to accept his or her interpretation of the agreement, “the court’s task ‘is limited to determining if the arbitrator’s interpretation of the contract is in any way plausible’” (Emphasis added). Manifest disregard as a basis for vacating an award arises only where “the arbitrator ignores the plain language of a contract or knowingly disregards law applicable to the dispute” [Citation omitted]. Here, the court holds, the arbitrator could legitimately find that the applicable section of the CBA, when flavored with the law of the shop, justified retaining meal pay.
Quick Hits –
The issue of whether the parties have delegated arbitrability is one of the most common issues considered in resolving motions to compel. Ferguson v. Weatherford Lamb, Inc. 2020 U.S. Dist. LEXIS 223249 (S.D. Tex.) (Nov. 30, 2020) is useful in its discussion of the distinction between explicit and implicit delegation. Although finding no explicit statement of competence-competence in the arbitration agreement, the court still delegates the arbitrability question, holding that the parties’ invocation of the ICC rules, which provide that an arbitrator may rule on his or her own jurisdiction, provides implicit delegation.
Time limit for a motion to vacate under the FAA
Two cases remind us that a motion to vacate, modify or correct an award must be served within three months of the date when the award is filed or delivered. In Caron v. TD Ameritrade, Inc., 2020 U. S. Dist. LEXIS 223310 (S.D.N.Y.) (Nov. 30, 2020), the pro se plaintiff sought to use Fed. R. Civ. P. 60(b) to set aside a state court judgment compelling arbitration. Holding that the rule only allows a court to set aside its own judgments, the court denies the relief. Judge Nathan further holds that, if she were to treat the motion as an application to vacate the arbitration award, the case must still be dismissed, as plaintiff’s challenge was served several years after the conclusion of the arbitration and would be untimely.
In Parrella v. Orange Rabbit, Inc., 2020 U.S. Dist. LEXIS 223100 (S.D.N.Y.) (Nov. 30, 2020), the court explicitly reminds the pro se plaintiff that he must serve his motion to vacate the arbitration on the date of the opinion, since he received notice of the award on August 30, 2020.
There are a couple more cases to discuss, but in the interest of space, I will hold them until Friday. See you then.