Next week marks the seven-month anniversary of “ADR Highlights.” In evaluating the intervening issues, I think that “Highlights” could be more useful if it traded a full discussion of a few cases for a briefer touch on more decisions. As the tag line of the favorite rock station of my youth said, “Less talk. More music.” So, you will see a content difference starting with this issue, with the case descriptions now reading like the former “Quick Hits.” If a decision is relevant to a case currently on your desk or becomes so later, you can read the case for more detail.
Also, this is a good time to remind you that my goal in selecting cases is to pick those which seem most important or topical and my descriptions and quotes reflect the views of the judge deciding the case, not my personal opinions. A good arbitrator decides each case only on the facts and legal arguments presented to him or her in that proceeding, not on some preconception of the law, and I am committed to that role.
Two cases within the Second Circuit discuss the manifest disregard standard for vacating an arbitration award. In Hdi Global SE v. Phillips 66 Co., 2021 U.S. App. LEXIS 8540 (2nd Cir. Mar. 24, 2021) the court opines that a party seeking to set aside an award under the manifest disregard standard “bears a heavy burden” and that “this Court will uphold an arbitration award if the arbitrator’s decision has a ‘barely colorable justification.’” (Citation omitted) Upholding the arbitration panel’s definition of “end use” as it applies to the “Pollution Exclusion” of an excess liability policy, the Second Circuit affirms. “Even if we disagreed with the arbitration panel’s reading of the Policy, that would be insufficient to vacate the award.”
At the District Court level, the court in Stonington Capital Advisors, LLC v. Southfield Capital, LLC, 2021 U.S Dist. LEXIS 56933 (S.D.N.Y. Mar. 25, 2021) confirms an award related to private equity fund raising. Judge Ramos upholds the arbitrator’s reconciliation of two contract provisions which Stonington argued were in conflict. As in Hdi Global, the court limits the “manifest disregard” standard, holding that, in a case involving a commercial contract, the court may only vacate an award under that principle when “the arbitral award ‘contradicts an express and unambiguous term of the contract or if the award so far departs from the terms of the agreement that it is not even arguably derived from the contract.’” (Citation omitted).
Preclusive effect of an arbitral award
UFT Commercial Finance, LLC. v. Fisher, 2021 U.S. App. LEXIS 8444 (7th Cir. Mar. 23, 2021) is the appeal of a legal malpractice case in which UFT Commercial sought indemnification from its former general counsel for an arbitration award which held that the general counsel himself was entitled to certain unpaid compensation. UFT claimed that, but for bad advice that counsel gave while employed by plaintiff, he would not have been able to receive those payments after his employment was terminated. The District Court dismissed the action and the Court of Appeals here affirms. The arbitration aspect of the case is contained in the Court’s discussion, with citations, of whether the findings of arbitrators are to be given issue-preclusive effect.
Validity of attorney-client arbitration clause
Frederic v. Law Office of Fox Kohler & Associates, PLLC, LLC, 2021 U.S. App. LEXIS 8551 (3rd Cir. Mar. 24, 2021) points out the importance of choice of laws in the determination of the validity of an arbitration clause, as the court discusses differences between the requirements of New Jersey law and what it characterizes as a more lenient Delaware standard. The panel holds that, even under New Jersey precedent which it opines requires that a valid arbitration clause explain “that the plaintiff is giving up her right to bring her claims in court or to have a jury resolve the dispute,” the arbitration mandate in the parties’ legal services engagement letter is enforceable. Further, the panel finds that the scope of the arbitration provision encompasses plaintiff’s claims of alleged violations of federal and state consumer statutes. The Court of Appeals reverses the District Court’s denial of the law firm’s motion to compel arbitration.
On-line acceptance of an arbitration clause
In this electronic age, most consumer transactions to which an arbitration clause is arguably attached arise through a computer interface. In Emmanuel v. Handy Technologies, Inc., 2021 U.S. App. LEXIS 8467 (1st Cir. Mar. 22, 2021), the Court of Appeals for the First Circuit, applying Massachusetts law, holds that the existence and terms of the arbitration clause on Handy’s app were sufficiently prominent to bind plaintiff thereto. The court relies upon the Massachusetts Supreme Judicial Court’s recent decision analyzing issues of online contract formation, Kauders v. Uber Technologies, Inc., 486 Mass. 557 (2021).
Arbitration of statutory claims
Nealy v. Shelly & Sands, Inc., 2021 U.S. App. LEXIS 8720 (6th Cir. Mar. 23, 2021) asks whether plaintiff’s claims of racial discrimination and retaliation are arbitrable under a provision in the Collective Bargaining Agreement with plaintiff’s union. Both the majority, Batchelder, J. and Bush, J., and the dissent, Moore, J., apply the standard set forth in Wright v. Universal Maritime Services Corp., 525 U.S. 70 (1998) -a CBA’s waiver of a judicial forum to resolve statutory claims must be “clear and unmistakable.” The majority holds that, even though the specific statutes under which plaintiff asserts his claims, including Title VII and the Civil Rights Act, 42 U.S.C. §1981, are not called out in the CBA, the intent of the agreement, as expressed in other language therein, was that such claims are to be arbitrated. The court affirms the District Court’s dismissal of the action. In dissent, Judge Moore opines that she believes Circuit precedent establishes a “bright-line rule” under which the “’statutory claims must be expressly recounted in the CBA.’” (Internal citation omitted). She would reverse the dismissal and allow litigation.
Murphy v. United Parcel Service, Inc., 2021 U.S. Dist. LEXIS 54338 (E.D. Wisc. Mar. 23, 2021) raises the same issue as to claims under the ADA. Addressing the language of the CBA, which contained a section addressing “Permanently Disabled Employees,” the court holds that the language thereof “does not articulate a clear intent to require employees to submit ADA claims to the grievance process [which included arbitration], nor does it contain a clear waiver of an employee’s right to pursue an ADA claim in the federal court.” Based upon that finding, the court denies UPS’s motion to dismiss the action in favor of arbitration.
The scope of an “arising under or relating to” arbitration clause
In a very brief opinion, Balan v. Tesla, Inc., 2021 U.S. App. LEXIS 8203 (9th Cir. Mar. 22, 2021) the Ninth Circuit reverses the District Court’s denial of a motion to compel arbitration. The issue is whether a defamation claim, based upon Tesla statements that Balan was “working on a ‘secret project’ during company time,” that she “illegally recorded internal conversations within Tesla,” and that she “booked an unapproved trip to New York at Tesla’s expense,” falls within an arbitration clause covering claims “arising from or relating to” plaintiff’s employment. Ruling that the claims “’touch upon’ matters covered by the defined scope of the arbitration agreement, with any doubts resolved in favor of arbitrability,” the court holds that the District Court erred in denying, in part, Tesla’s motion to compel arbitration and reverses.
Notice in a FLSA collective action and arbitration clauses
How to deal with notice of conditional certification of a collective FLSA action where some of the members of the plaintiff class may be bound by arbitration agreements which prohibit litigation or bar participation in collective actions is a recurring question. However, Fox v. Ttec Services, Corp., 2021 U.S. Dist. LEXIS 52925 (E.D. Ark. Mar. 22, 2021) describes the issue as one of first impression in the Eighth Circuit. Guided by Fifth and Seventh Circuit precedent, In re: J.P. Morgan Chase & Co., 916 F. 3d 494 (5th Cir. 2019); Bigger v. Facebook, Inc. 947 F. 3d 1043 (7th Cir. 2020), the court establishes a process under which the defendant tenders the names of those employees whom it claims are subject to individual arbitration agreements and plaintiff may, then, challenge those designations. Notice goes to those remaining class members who are not bound to arbitrate.
Failure to follow the arbitration tribunal’s rules
Heisman v. Wyndham Vacation Resorts, Inc., 2021 U.S. Dist. LEXIS 55369 (D.N.J. Mar. 22, 2021) addresses the judicial response to a party’s failure to comply with an arbitral forum’s rules. Plaintiffs purchased time shares from Wyndham. When a dispute arose, Plaintiffs, pursuant to the purchase contract, filed for arbitration with the AAA under its Consumer Arbitration Rules. Because Defendant failed to comply with the AAA’s rules in at least one other matter, the association declined to administer the dispute. Plaintiffs, thereafter, brought this action on those claims; Wyndham moved to compel arbitration. Evaluating the case under theories of waiver and material breach and the text of the Federal Arbitration Act, the court denies the motion.
I hope this new format increases the usefulness of “Highlights.” If you have any thoughts, comments, or suggestions for improvement, please send me an email at the address below.
Have a good weekend.
David A. Reif