Welcome back. It was a strange Christmas this year. Opening gifts by Zoom, like Zoom mediations, accomplishes the purpose but lacks the pleasure of a personal touch. With the good news about vaccines, hopefully next year will have more families together for the holidays and, most importantly, fewer will suffer from a permanently empty chair.
Stay of arbitration – Regular readers know I am a sucker for an opinion with a great opening line. In In re: Managed Care Litigation, 2020 U.S. Dist. LEXIS 241925 (S.D. Fla. Dec. 22, 2020), which involves a fifteen-year-old arbitration, Magistrate Judge Goodman hits a winner:
Some things, like wine, improve with age. Other things, like the grapes used to make wine, do not fare well with age. And still others (like a bottle of wine) may (or may not) still be viable with the passage of time, depending on the circumstances (such as a bottle with a defective cork).
The court puts CIGNA’s request to stay the arbitration in the last of those three categories and recommends denying the motion.
The case is part of a massive health care insurance reimbursement MDL. The list of counsel takes up 11 pages of the LEXIS opinion. The procedural process has been tortured and the parties have litigated virtually every issue. As set forth in the opinion’s footnotes, the parties cannot agree on whether the decisionmaker to whom the court referred the matter is sitting as a Special Master or a replacement arbitrator or even on who are the “parties.” After all the wrangling, though, an arbitration was scheduled to begin on January 25, 2021. This decision arises out of CIGNA’s charges regarding fiscal misconduct by the Managed Care Advisory Group, which is handling the distribution of funds to class members. CIGNA seeks the removal of MCAG and, in the meantime, a stay of the arbitration.
The Magistrate Judge recommends the District Court deny the stay. Applying a traditional balancing of harms approach, he opines that any objections that CIGNA may have to MCAG’s role would not result in dismissal of the case with prejudice, but merely an alternative method of litigation or a disgorgement by MCAG of certain funds. On the other hand, “the harm to the Class Members arising from yet another delay of the final hearing in the arbitration would be inevitable and substantial.” Pushing the wine analogy to an extreme, he holds, “Placing that wine in de facto deep freeze may well cause the wine to go bad to the point where the Class Members will not be able to fully enjoy its financial body, reimbursement sweetness, and monetary tannins.”
Choice of laws
Rockware v. Etz Hayim Holding, Inc., 2020 U.S. Dist. LEXIS 241991 (D.N.J. Dec. 23, 2020) addresses the selection of applicable state law to determine an arbitration agreement’s enforceability. Plaintiff, a resident of New Jersey, was employed as defendant’s east coast sales manager. His employment agreement contained an arbitration clause and a choice of law provision identifying Washington State law as controlling. Defendant terminated plaintiff’s employment; plaintiff claims the termination was due to his age, in violation of the New Jersey Law Against Discrimination and brought this action. Defendant seeks to invoke the arbitration provision. Reviewing New Jersey law, i.e., the law of the forum, the court, Shipp, J., upholds the parties’ choice of Washington substantive law and mandates arbitration. While not a major opinion, Rockware is worth reading as a reminder that a general choice of law provision is often viewed as choosing not only which state’s law will determine the substantive issues of the dispute, but also the law which the parties will be deemed to have selected to determine arbitrability itself.
LMRA jurisdiction and the need for an active dispute
Sheet Metal Workers International v. Northshore Exteriors, Inc. 2020 U.S. Dist. LEXIS 241909 (W.D. Wash. Dec. 23, 2020) arises out of a dispute over the classification of certain construction workers. The details probably only interest labor lawyers, but the case surfaces a Circuit split on whether jurisdiction to review an arbitration award under Section 301 of the Labor Management Relations Act requires an active dispute. The court, Robart, J., begins with the basic proposition that the jurisdiction of federal courts is limited to true “cases” and “controversies,” U.S. Const. Article III, Section 2. Per the court, the Circuit split arises over whether Section 301 jurisdiction to confirm an award continues after the party against whom the award was issued has complied with the terms thereof. Compare Teamsters Local 177 v. United Parcel Service, 966 F. 3d 245 (3rd Cir. 2020) and National Football League Players Ass’n v. National Football Management Council, 2009 U.S. Dist. LEXIS 24859 (S.D.N.Y. Mar. 26, 2009) (Jurisdiction exists) with Derwin v. General Dynamics Corp., 719 F.2d 484 (1st Cir. 1983) (Declining jurisdiction). The court resolves the issue by finding that there is, in fact, an active dispute as represented by multiple pending grievances and charges related to the issue. Of more general interest to arbitrators and counsel is the question of whether a federal court may confirm a general commercial arbitration where one party has satisfied its obligation thereunder, see e.g., Collins v. D.R. Horton, Inc. 361 F. Supp. 2d 1085 (D. Ariz. 2005) (cited by Judge Robart).
Public access to arbitration awards
The Third Circuit’s lesson in Pennsylvania National Mutual Casualty Insurance Group v. New England Reinsurance Corporation, 2020 U. S. App. LEXIS 40342 (3rd Cir. Dec. 24, 2020) is to be careful what you attach to your application to confirm or vacate. Penn National and two of its reinsurers arbitrated a contractual issue regarding reimbursement. Penn National prevailed and filed an application to confirm the arbitration, along with a copy of the award. For reasons which the opinion does not specify, the District Court sealed the award. The parties settled and Penn National sent the court a letter withdrawing the petition to confirm; it is unclear whether the parties filed a formal stipulation to dismissal. Thereafter, Everest, another Penn National reinsurer, moved to intervene and unseal the award. This opinion, Porter, C.J., writing for himself and Circuit Judges McKee and Fisher addresses that motion. The court applies a bright line test; “if a document does make its way into the clerk’s file, then the common-law right of access ordinarily attaches.” (Emphasis in original). Finding no exception to the common-law test’s presumption that judicial records are available to the public, the court agrees with the District Court’s order unsealing the award and affirms. Lesson – When you move to confirm an award, if you believe that the case might settle while the application is pending, consider whether you want to or need to attach the award itself and, thus, expose it to the world and unnecessarily destroy the presumed confidentiality of arbitration proceedings.
Scope of an “arises under” clause
Arbitration clauses use a variety of ways to reference the scope of covered disputes and drafters often do not think about the nuances thereof. Berk v. Coinbase, Inc. 2020 U. S. App. LEXIS 40226 (9th Cir. Dec. 23, 2020) explores the edges of one of those phrasings. The case relates to losses from trading Bitcoins on Defendant’s Digital Asset Exchange. In using the exchange, Plaintiffs and Defendant entered into an arbitration clause which covered “any dispute arising under this Agreement.” The Circuit previously defined “arising under” to cover cases which “relate to the interpretation and performance of the contract itself,” Tracer Research Corporation v. National Environmental Services Co., 42 F.3d 1292 (9th Cir. 1994). Plaintiff claimed that its claim here, which sounds in negligence, not breach of contract, falls outside the clause. Applying California law, the court, Circuit Judges Tallman, Murguia, and Christen in a memorandum opinion, holds that, but for the contract, Coinbase would have no duty to prevent the plaintiffs’ losses. Therefore, the claims “arise under” that contract and are arbitrable. It reverses the District Court’s denial of a motion to compel and remands with instructions to mandate arbitration. For drafters this raises a question – in light of the possibility that there might be extra contractual claims between the parties, when is it better to tie the arbitration clause to the business relationship, rather than specifically to the contract?
For most this is a shortened – and quiet – week. Once upon a time, it was the week many of us stayed out of the office on purpose. Now, working from home is the norm. But, hopefully, your week is still more relaxed.
See you Wednesday.
David A. Reif