While today’s “Highlights” contains decisions from the Courts of Appeals for the Sixth, Ninth, and Eleventh Circuits, the most important case is probably one from the District Court in New Jersey invalidating the state’s prohibition on contracts requiring arbitration of discrimination, harassment, and retaliatory discharge claims.  Also, there are cases on the scope of arbitration, preclusion, and several procedural issues.  The headings should provide a good guide to areas that interest you.           

Federal Arbitration Act trumps New Jersey arbitration prohibition

In 2019, New Jersey enacted legislation which provided that “a provision in any employment contract that waives any substantive or procedural right or remedy related to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable” and which prohibited the prospective waiver of any right or remedy under the “Law Against Discrimination.”  New Jersey Civil Justice Institute v. Grewal, 2021 U.S. Dist. LEXIS 57437 (D.N.J. Mar. 25, 2021), Thompson, J., relying upon Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) and Kindred Nursing Centers LP v. Clark, 137 S. Ct. 1421 (2017), holds that the statute is preempted by the FAA.  The court enjoins the N.J. Attorney General from “enforcing Section 12.7 with respect to arbitration agreements between employers and employees that are governed by the FAA.”  A case reported in the March 8^th Highlights, Rollag v. Cowen, Inc., 2021 U.S. Dist. LEXIS 39942 (S.D.N.Y. Mar. 3, 2021), reached the same conclusion as to a similar New York statute.

Ninth Circuit standard of review

In China Fortune Land Development v. 1955 Capital Fund I GP, LLC, 2021 U.S. App. LEXIS 8852 (9^th Cir. Mar. 26, 2021), the Ninth Circuit affirms the District Court’s confirmation of an award related to the authority of the Respondents to execute Limited Partnership Agreements on behalf of the Petitioner.  The case sets forth the Circuit’s narrow standard holding that the FAA allows vacatur of an award “only if the arbitrators ‘exceed their powers’ by rendering an award that is ‘completely irrational’ or exhibits a ‘manifest disregard of the law.’”

Broad v. Narrow arbitration clauses

The Sixth Circuit weighs in on the scope of an arbitration clause in United Steel Workers v. LLFlex, LLC, 2021 U.S. App. LEXIS 8883 (6^th Cir. Mar. 24, 2021), discussing the difference between “broad” and “narrow” provisions.  The issue, which resulted in a split panel decision, is whether a dispute regarding retired employee benefits was arbitrable under the parties’ CBA. While recognizing the presumption of arbitrability, the majority, Griffin, J., writing for himself and Batchelder, J., holds that limits on grievance committee jurisdiction to “working conditions, discharges, seniority rights, layoff, and re-employment” also define the scope of the arbitration clause.  In dissent, Judge Stranch holds that the CBA’s “broad” arbitration clause extends to this dispute, even if it is not an issue for the grievance committee. Based upon the language of the CBA, she would compel arbitration.

Review under the New York Convention

Northrup & Johnson Yachts-Ships, Inc. v. Royal Van Lent Shipyard, B.V., 2021 U.S. App. LEXIS 8797 (11^th Cir. Mar. 26, 2021) arises from a dispute over whether the broker’s commission agreement on the sale of a newly built yacht entitled it to a payment upon the sale of a second vessel.  While the underlying dispute is largely driven by the language of the specific contract and is fact-intensive, the decision resonates more broadly as the panel opines that the presumption of arbitrability applicable under the FAA is even “stronger when the [New York] Convention is implicated.”

Arbitrator discretion on the admission of evidence

Utility Systems, Inc. v. International Union of Operating Engineers, 2021 U.S. Dist. LEXIS 57911 (D.N.J. Mar. 24, 2021) considers the interface between an arbitrator’s refusal to admit alleged rebuttal evidence and the FAA’s provision for vacatur based upon arbitrator misconduct. After it had rested, Utility Systems asked the arbitrator to reopen the record to permit further testimony by two of its principals. The arbitrator denied the request. On cross applications to vacate and confirm the award in favor of the Union, the court discusses when an arbitrator’s refusal to admit evidence or reschedule a hearing denies a party a “fair hearing.”  Here, the court holds, the arbitrator’s conclusions are supported by the record as “both parties had ample opportunity to present their cases-in-chief.”  The court confirms the award.

Arbitration awards as preclusive

Two cases today address when an arbitration award precludes relitigation of an issue and discuss how to determine the scope of that preclusion.

Shasha v. Malkin, 2021 U.S. Dist. LEXIS 58186 (S.D.N.Y. Mar. 24, 2021) raises the issue in an unusual procedural posture. After completion of a thirty-nine-day arbitration, during which this case was stayed, the arbitrator denied most of Plaintiff’s claims. Thereafter, Plaintiffs moved to lift the stay and amend their complaint.  Magistrate Judge Lehrburger here recommends lifting the stay, denying amendment, and dismissing the action.  He applies the “futility” standard, under which amendment is not allowed where to do so would make no difference in the resolution of the matter.  Holding that all the claims which Plaintiff sought to add had already been addressed in the arbitration, the court opines that the res judicata effect of the award precludes a judicial decision in favor of the Plaintiffs.

Dudley v. Buffalo Rock Co., 2021 U.S. Dist. LEXIS 58225 (N.D. Ala. Mar. 26, 2021) is an appeal from a decision in the Bankruptcy Court, holding that certain life insurance policies which Buffalo provided Dudley are not exempt from inclusion in the Plaintiff’s bankruptcy estate. In an earlier arbitration between Dudley and Buffalo Rock, the arbitrator issued a final award, confirmed in state court, which held that the parties’ agreement created an express trust over the policies in favor of Buffalo Rock and enjoined Dudley from taking any action in respect to the policies. The Bankruptcy Judge held that the factual issues resolved by the arbitrator precluded Dudley’s claim that the policies were exempt from the bankruptcy estate under Alabama law.

Prohibition against requiring arbitration of mortgage defenses

Webb v. CMH Homes, Inc., 2021 U.S. Dist. LEXIS 57442 (S.D. W. Va. Mar. 26, 2021) centers on whether Plaintiffs’ claims arising from alleged defects in their mobile home relate to the relevant sales contract or a simultaneous financing contract.  CMH sought to enforce an arbitration provision in the sales contract; however, the court holds that the claim is part of the financing agreement and, therefore, denies arbitration.  The case serves as a reminder of the provisions of 15 U.S.C. §1639c(e)(3) which prohibit arbitration clauses in loan agreements secured by the debtor’s principal dwelling.

Alternative service of a motion to compel arbitration

In CKR Law LLP v. Anderson Investments International, LLC, 2021 U.S. Dist. LEXIS 58169 (S.D.N.Y. Mar. 26, 2021), petitioner sought an order under the provisions of Fed. R. Civ. P. 4(f)(3) for alternative service of an application to compel arbitration in New York. The court, Rakoff, J., had previously denied a motion seeking the same relief, holding that petitioner had failed to establish that service by registered mail would reach the applicable respondent, whom petitioner claimed was located in the London.  Here, the court grants a renewal of the motion after a private investigator established “with confidence” a London residential address for the party to be served and her ties to companies in the U.K. and Nevis. The case discusses the standard for alternative service into a foreign country – the absence of any prohibition under an international agreement of such service and comportment with constitutional notions of due process.  An earlier decision in the case, CKR Law LLP v. Anderson Investments International, LLC, 2021 U.S. Dist. LEXIS 40890 (S.D.N.Y. Mar. 12, 2021), reported in the March 15^th “Highlights,” discusses email and WhatsApp service on other defendants.

Abstention because of pending state litigation

The Colorado River doctrine, derived from the U.S. Supreme Court decision in Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), provides that in certain instances a District Court may abstain from resolving an issue because of the pendency of a similar claim between the same parties in a state court.  In Mazlin Trading Corp. v. WJ Holding, Ltd., 2021 U.S. Dist. LEXIS 58331 (S.D.N.Y. Mar. 26, 2021), the court analyzes the six factors in the test – the existence of a res, whether the federal forum is less convenient, the desire to avoid piecemeal litigation, the order of filing and the status of the cases, the applicability of federal law to resolution of the merits, and whether the state procedures will protect the plaintiff’s federal rights. Finding that two of the factors are neutral and four favor deferring to state court actions in New York and Florida, the court, Swain, J., abstains and dismisses Plaintiff’s action to confirm an arbitration award.

Notice of Collective Action where some parties may be bound to arbitrate

Shafer v. Red Tie, LLC, 2021 U.S. Dist. LEXIS 57346 (C.D. Cal. Mar. 25, 2021) is another take on the issue of whether conditional certification of a collective action and notice thereof to potential collective members should be made before or after determination of which members may be bound by arbitration clauses.  Applying decisions by other District Courts in the Ninth Circuit, the court, Wright, J., grants conditional certification and orders the parties to draft the appropriate notice, opining that “notice shall not be withheld from dancers who signed arbitration agreements.”

Admissibility of mediation proceedings

Part of the process in a mediation generally includes some expression by the mediator of his or her thoughts as to the risks faced by a party if the case goes to trial. Thiems v. United Fire & Casualty Insurance Co., 2021 U.S. Dist. LEXIS 57913 (S.D. Ill. Mar. 26, 2021) addresses whether those statements are admissible in later litigation. Plaintiffs sued United Fire, alleging that, because of its failure to settle a case within policy limits, a jury rendered a verdict against the corporate plaintiff for punitive damages not covered by the policy.  This decision addresses several of defendant’s  motions in limine, one of which seeks to preclude statements by a mediator in the underlying action “warning United Fire they would have a bad result” at trial. While the court, Yandle, J., holds that the confidentiality provisions of the Uniform Mediation Act, as adopted in Illinois, would not bar introduction of the statements, the failure of plaintiff to disclose the mediator as an expert and the potential prejudice and confusion to the jury of the mediator’s statements preclude admission of the testimony.

Timing and method of serving notice of a motion to vacate

Cox v. Dex Media, Inc., 2021 U.S. Dist. LEXIS 57933 (D. Colo. Mar. 26, 2021) addresses an unusual aspect of the question of whether a party has complied with the timing requirement of the FAA for a motion to vacate.  Section 12 thereof provides that “notice of a motion to vacate, modify, or correct an award must be served upon the adverse party or his attorney within three months after the award is filed or delivered.” The parties disputed whether the clock started running upon issuance of an interim award which determined liability and the entitlement to attorneys’ fees or was deferred until the amount of those fees was decided. While Magistrate Judge Mix cites cases on both sides of that question, she holds that the issue is not determinative, as Dex referenced its intention to seek to vacate the award in a Joint Status Report and Motion to Reopen within three months of the interim award, although it did not file a formal motion within three months of that decision.  Thus, the court holds, Cox was “on notice of Dex’s intent to file a motion to vacate within the three-month period after issuance of the Interim Award.”  She specifically rejects Cox’s argument that a formal motion to vacate is required within the statutory time frame.

I hope this new format makes “ADR Highlight” more useful for you, while keeping it fresh.  As always, please drop me an email with any suggestions.  See you Wednesday.

David A. Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com