I got my first COVID vaccination last week, am set for a follow-up on February 10, and look forward to resuming a more normal life – whatever that will mean. Who would have thought that the day would come when a needle in the arm becomes a topic of conversation?
Taking the Schein off
As you probably know by now, on Monday SCOTUS dismissed certiorari as improvidently granted (a DIG) in Henry Schein, Inc. v. Archer & White Sales, Inc., 2021 U.S. LEXIS 746 (Jan. 25, 2021). While the actual issue before the Supreme Court – whether the exclusion of certain types of relief from arbitration negates the requisite “manifest intent” to send gateway issues to the arbitrator – may have been narrow, there was some hope that SCOTUS would give broader guidance on the standard for determining competence-competence. The DIG, together with the denial of cert. in Piersing v Domino’s Pizza Franchising, LLC, Dkt. No 20-965, referenced in Monday’s “Highlights,” seems to indicate that the Justices are done with arbitration standards for a while, although the other cases referenced in the December 20, 2020 “Highlights” are still pending. For a good discussion of the impact of the DIG, see the SCOTUS blog, Scotusblog.com.
Delegation of Gateway Issues
Incorporation of AAA rules
No one can accuse Judge Lanza of failing to be current on the law. Quantum Fluids, LLC. v. Kleen Concepts, LLC, 2021 U.S. Dist. LEXIS 13043 (D. Ariz., Jan. 25, 2021) addresses the delegation of gateway issues to the arbitrator. Quantum claimed that Kleen had violated the parties’ Master Supply Agreement by shipping non-compliant product and only providing part of the order. The MSA contained an arbitration clause. When Quantum sued for breach of the MSA, Kleen sought to invoke the arbitration clause and moved to compel. Since one of the issues was whether arbitrability should be delegated to the arbitrator, Quantum requested a stay pending the SCOTUS decision in Schein. In denying the stay, the court advises the parties that the Supreme Court “earlier today” dismissed Schein. The court, then, compels arbitration and refers the gateway issues of contract formation and scope to the arbitrator, citing Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015), which it considers to be clear Ninth Circuit precedent. “This Court must follow Ninth Circuit law, which firmly establishes that ‘incorporation of the AAA rules constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability.’” In declining to rule on unconscionability challenges to the agreement, Judge Lanza adopts the “container contract” theory and holds that, since Quantum challenges the conscionability of the entire agreement, rather than just the arbitration clause, the question goes to arbitrator.
Deference to the arbitrator
Informatech Consulting, Inc. v. Bank of America Corp., 2021 U.S. Dist. LEXIS 13576 (N.D. Cal., Jan. 25, 2021) also references Brennan and demonstrates the extent to which a court steps aside where gateway issues are sent to arbitration. The case arises out of an interesting claim that Bank of America favored large customers in the distribution of the first round of PPP money and, therefore, ran out of funds before it reached smaller applicants, such as plaintiff. The court found that, as part of the process for applying for funds, Informatech filled out a deposit card which contained an arbitration agreement. Bank of America relied upon that card to argue that the PPP dispute was subject to arbitration. Judge Chhabria finds the tie between that deposit account-based arbitration agreement and the PPP money flimsy, “[b]ut because the deposit agreement contains a delegation clause, the Court must defer these questions of arbitrability to the arbitrator, even if it seems dubious that the arbitration clause would apply here.” (Emphasis added).
Plaintiff in Pennsylvania Skill Games, LLC v. Action Skill Games, LLC., 2021 U.S. Dist. LEXIS 13270 (W.D. Pa., Jan. 25, 2021) sought an interlocutory appeal of the court’s allocation of a judicially mandated Early Neutral Evaluation’s (“ENE”) costs. In denying certification, Magistrate Judge Dodge opines that the application meets none of the criteria set forth in 28 U.S.C. §1292(b) which governs such applications. She specifically rejects Plaintiff’s claim that ENE is, by its nature, more expensive than mediation, which Pennsylvania Skill Games preferred. Further, she recognizes that ENE is authorized by the Alternative Dispute Resolution Act of 1998, 28 U.S.C. §652(b), and that the court has discretion to order the same.
Quick Hits –
“The Arbitrator’s wrong, but. . .”
Gradall Industries, Inc. v. International Association of Machinists, 2021 U.S. Dist. LEXIS 12811 (N.D. Ohio, Jan. 25, 2021) is one more example of a court deferring to an arbitrator, despite voicing at least implicit disagreement with the award’s conclusions. At issue was the allocation of overtime work. The CBA provided that “the Company will attempt to distribute overtime equitably to those who performed the work on straight time. . . . Under no circumstances will the Company have an economic liability for failure to equalize overtime.” Gradall awarded overtime to an employee who did not ordinarily work in the relevant job classification. The Union filed a grievance. The arbitrator, based on past bargaining history and a prior history of overtime disputes, awarded six hours of overtime pay to a worker within the classification who would have otherwise gotten the overtime job. The Company moved to vacate, based on the CBA’s prohibition against the company’s “economic liability for failure to equalize overtime.” The court holds that, since the arbitrator based the award on his interpretation of the collective bargaining agreement, the petition to vacate must be denied. Judge Calabrese hints at his opinion of the award, however, as he writes, “Although Gradall presents a possible, even likely, interpretation of . . . the collective bargaining agreement. . .” and “Because the arbitrator was construing the agreement and acting within the scope of his authority, the Court may not set aside the award even if convinced the arbitrator committed a serious error.” (Emphasis added.)
The great website SCOTUS blog, which is mentioned above, has a new look. While it still carries updated lists of petitions and summaries of pending cases, it now has more commentary and a fresher layout. It is worth a daily look.
Not a whole lot going on today; let’s see what the rest of the week brings. See you Friday.
David A. Reif