Although I took Monday off from writing, the world did not stop publishing decisions. Because of the volume of opinions, today’s “Highlights” is a series of quick hits. I hope you go on to read the cases that interest you.
Henry Schein argued before SCOTUS
While it is not a decision, the most important event today may have been the Supreme Court argument of Henry Schein, Inc. v. Archer and White Sales, Inc. This second appearance of the case before SCOTUS has the potential of resolving the recurring issue of what constitutes a “clear and unmistakable” delegation of gateway questions of arbitrability to the arbitrator. For a good discussion of the argument and questions raised by various Justices, see “Scotusblog” at Scotusblog.com.
Newton’s Third Law is abridged to “for every action, there is an equal and opposite reaction.” The most recent decision in the CenturyLink class action is a judicial example of the rule. In light of the contractual ban on class litigation in CenturyLink’s customer contract, a law firm simultaneously filed approximately 1,000 arbitrations on behalf of customers who opted out of the class. In re: CenturyLink Sales Practices and Securities Litigation, 2020 U.S. Dist. LEXIS 227550 (D. Minn. Dec. 4, 2020) addresses the claims of what seems to be a test group of five proposed intervenors. CenturyLink maintained that the claimants, by failing to comply with a pre-arbitration dispute resolution procedure, materially breached their customer agreements. Accordingly, CenturyLink took the position that any arbitration requirement was nullified. Judge Davis holds that the alleged breach was not so material as to terminate the customer contracts and he compels arbitration. However, in dictum, he raises the question of the impact of that shortcut on the ultimate outcome of the claims, leaving the resolution of that question to the arbitrator.
Waiver of sovereign immunity; the interaction of the Foreign Sovereign Immunities Act and the New York Convention
The FSIA provides the sole basis for jurisdiction of U.S. courts over a foreign state and imposes substantial constraints on such litigation. However, it contains an exception for those actions “in which the foreign state has waived its immunity, either explicitly or by implication. . . ,” essentially subjecting the foreign state to the full range of remedies available under U.S. procedure. Process and Industrial Developments, Ltd. v. Federal Republic of Nigeria, 2020 U.S. Dist. LEXIS 229283 (D.D.C. Dec. 4, 2020) addresses whether a country’s entry into the New York Convention constitutes such a waiver. The case arises out of a $10 billion arbitration in Plaintiff’s favor against Nigeria, which related to a failed gas production deal. A series of cases followed in the High Court of Justice in London and the Federal High Court in Lagos, at least one of which is still pending. In this case, P & I D sought to confirm the award. In defense, Nigeria raised the protections afforded it by the FSIA. Judge Cooper holds that Nigeria’s entry into the New York Convention brought it within the FSIA’s waiver exception. The New York Convention requires contracting states to recognize arbitration awards from proceedings held in other contracting states. The court holds that it is implicit that a nation participating in such arbitrations waives any objection to jurisdiction of the courts of contracting nations when enforcement is sought of such an award. “The Convention’s effectiveness as a stimulant for international commerce would be reduced if states could avail themselves of the Convention’s benefits, then assert immunity from award-enforcement actions that the Convention expressly contemplates.” The court discusses and distinguishes cases finding and rejecting waiver of FSIA protections, making this an important case for anyone involved in sovereign state arbitration.
Waiver of the right to compel arbitration
While on the topic of waiver, two cases provide a comparison of the Third and Ninth Circuits’ different standards for determining whether a party has waived its right to compel arbitration. In Howard v. LVNV Funding, LLC, 2020 U.S. Dist. LEXIS 227896 (W.D. Pa. Dec. 4, 2020), Judge Gibson takes a deep dive into each of the waiver considerations in Hoxworth v. Blinder, Robinson & Co. Inc., 980 F. 2d 912 (3rd Cir. 1992) – the timeliness of the motion to arbitrate, the extent of litigation on the merits, whether the party seeking arbitration informed its opponent of its reliance on the arbitration provision, the extent of non-merits motion practice, acquiescence to pretrial orders, and the extent of discovery. Finding that these factors weight against LVNV, the court denies defendant’s motion to compel arbitration. While Buchsbaum v. Digital Intelligence Systems, LLC. 2020 U.S. Dist. LEXIS 226555 (S.D. Cal. Dec. 2, 2020) mostly focuses on fairly routine questions of unconscionability and severance, it analyzes the three-factor waiver test set out in Fisher v. A.G. Becker Paribas Inc., 791 F. 2d 691 (9th Cir. 1986) – knowledge of a right to compel arbitration, intentional acts inconsistent with that right, and prejudice to the party opposing arbitration – and holds that Becker did not waive arbitration. While the two standards differ and other Circuits may consider a waiver on still other terms, the decisions’ weighing of the relevant factors on the basis of a real record makes them valuable reading for anyone handling a waiver issue.
Venue and arbitration in a virtual age
Judge Rosenthal refers to the proceedings surrounding Sullivan v. Feldman, 2020 U.S. Dist. LEXIS 227774 (S.D. Tex. Dec. 4, 2020) as “the Bleak House of arbitration.” The case involves, by the judge’s count, twenty-one parties spread across six different arbitrations in front of six different arbitrators. Unless you are engaged in the litigation or enjoy figuring out the difference between a second cousin three times removed and a third cousin twice removed, do not worry about the facts of the case. Its interest lies in two issues. First, is venue selection a question of procedure or arbitrability? After citing cases from numerous Circuits and Districts, the court holds that the factual issues related to venue should be left to the arbitrator, at least where, as here, they raise an “unclear procedural question.” However, he distinguishes cases where the party demanding arbitration or the arbitrators themselves have chosen “a location clearly foreclosed by the parties’ forum selection clause,” which situations may need judicial intervention. Second, the opinion briefly addresses the issue raised in the age of COVID shutdowns and remote arbitrations – where is a virtual proceeding being “held.” While the discussion here is dictum and cites to only two authorities, the potential issue reminds arbitrators holding virtual proceedings to designate a venue, as this may become relevant in determining where vacatur or confirmation hearings may be held and what court gets involved if judicial assistance is needed during the proceedings. Likewise, parties drafting arbitration clauses should consider inserting language providing that their designated venue controls, even if no one is literally in that location.
Dear to the heart of every arbitrator and forum is their privilege against being subpoenaed to testify as to acts within the scope of that quasi-judicial role. United Mine Workers v. Consol Energy, Inc. 2020 U.S. Dist. LEXIS 226391 (D.D.C. Dec. 1, 2020) discusses the scope of the privilege and of the exception allowing discovery where there is evidence of bias or misconduct. Referring to allegedly “suspicious timing” between the arbitral proceedings and related civil litigation, the defendant sought to depose the arbitral forum, the Trustees of the Mineworkers’ Benefit Plan. The court quashes the subpoena, holding that Consol failed to provide more than “general allegations of suspicious timing” and distinguishes authorities allowing subpoenas where “specific evidence was proffered.”
Public policy exception to confirming awards
As cited in earlier “Highlights,” the standard of review of awards issued in arbitrations under a collective bargaining agreement is extremely narrow and those awards are confirmed so long as arbitrator is interpreting provisions of the contract. However, there is a judicially created exception which allows a court to refuse enforcement where the award violates public policy. Illinois Central R.R. Co. v. Brotherhood of Locomotive Engineers and Trainmen, 2020 U.S. Dist. LEXIS 227842 (E.D. La. Dec. 4, 2020) explores the scope of that exception. An off-duty locomotive engineer, during a phone call with an on-duty coworker, used a racial epithet. The coworker, who was white, was using a speaker phone in a room with African American employees, one of whom filed a complaint. The Illinois Central, after an internal grievance hearing, immediately dismissed the engineer. The Union submitted the matter to the Public Law Board under the Railway Labor Act. The PBL recognized the offensiveness of the statement, but held that discharge was too strict a penalty in light of the employee’s twenty-four years of discipline-free service and the complainant’s “willingness to continue working with [him].” It ordered diversity sensitivity training and reinstatement, but without back pay. The case’s interest arises from its discussion of the public policy exception. The court distinguishes between situations where the employee conduct violates public policy, as embodied here by Title VII, and where the award itself is violative. The public policy exception applies only to the latter case. Here, while the employee may have created a hostile work environment, the court holds that the Board’s remedy did not and declines to apply the exception. Having moved past the public policy exception, the court, Fallon, J., applies the usual deference standard and affirms the award.
In Shivaraju v. Advocate Christ Medical Center, 2020 U.S. Dist. LEXIS 229141 (N.D. Ill. Dec. 7, 2020), a cardiologist sued her employers, alleging constructive discharge on the basis of her sex in violation of Title VII. The employers moved to invoke a clause in her contract requiring arbitration under the rules of the American Health Lawyer Association, now the American Health Law Association. Among the reasons given by Plaintiff for opposing arbitration was an assertion that language in the AHLA employment arbitration rules that “an arbitrator may apply any relief authorized by contract or applicable law that appears to be fair under the circumstances” allowed the arbitrator to ignore applicable state and federal law (Emphasis added). The court rejected the argument, categorizing it as “unreasonable” and holding that Plaintiff excluded the context of the phrase. As Judge Guzman opines, “The provision does not in any way imply that arbitrators can ‘ignore’ the law.”
Employee gets benefit of arbitration clause with employer
Mathys v. Hartford Gold Group, 2020 U.S. Dist. LEXIS 229145 (N.D. Ill. Dec. 7, 2020) restates the Seventh Circuit rule that, although an employee is not an express party to an arbitration agreement between his employer and a third-party, he or she gets the benefit thereof. Here, Judge Kocoras compels arbitration of claims which Mathys has asserted against both Hartford Gold, with whom he signed an agreement to invest approximately $500,000 from his IRA in gold and silver, and a salesperson, even though the employee was not a signatory to the agreement and the agreement does not specifically reference claims against employees.
See you Friday. I will be keeping an ear out to see if the terrific podcasts “Strict Scrutiny” and “Arbitration Station” cover Schein. If so, they should be informative and fun.