Two cases today are of particular interest and significance. In one, the court addresses the effect of SCOTUS’s grant of cert. in Servotronics on the issuance of subpoenas while the Supreme Court proceeding is pending – and the risk that the arbitration might wrap up while SCOTUS considers the matter, making the subpoenas irrelevant. A second reminds practitioners of the risks of email service of documents where the rules still fall back on snail mail.
On March 22, 2021, the U.S. Supreme Court granted certiorari in Servotronics, Inc. v. Rolls-Royce PLC, 975 F. 3d 689 (7th Cir. 2020) to resolve a Circuit split over whether the authority granted a District Court by 28 U.S.C. § 1782(a) to assist, generally through the issuance of a subpoena, in gathering evidence for use in a “foreign or international tribunal” extends to proceedings before private commercial arbitration panels. Servotronics, Inc. v. Rolls-Royce PLC, 2021 U.S. Dist. LEXIS 63988 (D. Minn. April 1, 2021) is an offshoot of that case and emphasizes the problems resulting from the current disagreement among the Circuits. Here, Servotronics, a party to an arbitration pending in the United Kingdom and the named plaintiff in the case before the Supreme Court, filed an application in the District Court in South Carolina, where the Fourth Circuit has held that Section 1782 covers private proceedings, seeking to depose a witness. However, Servotronics learned that the witness moved to Minnesota, thus requiring this new proceeding. The Court of Appeals for the Eighth Circuit, which covers the District of Minnesota, has not yet decided the relevant Section 1782 issue. Magistrate Judge Menendez stays the application for discovery, holding that, because of the lack of binding Circuit precedent and the divided holdings elsewhere, resolution should await the Supreme Court’s authoritative decision on the issue. The interesting side issue, which one of the amici has addressed before SCOTUS, is whether this whole issue may become moot. The arbitration is presently set for May 10, 2021 and, according to the opinion, the panel has indicated that it will not delay the case pending resolution of the discovery issue here in the U.S. If the arbitration goes forward and the subpoena becomes irrelevant, will SCOTUS still resolve this important question?
Stay pending appeal of denial of a motion to compel
In United States ex rel. Dorsa v. Miraca Life Sciences, Inc., 2021 U.S. Dist. LEXIS 64863 (M.D. Tenn. April 2, 2021), the court stays an action during defendant’s appeal of the denial of its application to compel arbitration. To require the parties to continue to litigate the case where the matter might ultimately go to arbitration might be fruitless, Judge Friedman holds. “Simply put, both the parties’ and the court’s resources are potentially wasted if the district court permits the parties to continue litigating pending an appeal from an order denying a motion to compel arbitration. . . . “
Service of a motion to vacate
O’Neal Constructors LLC v. DRT America, LLC., 2021 U.S. App. LEXIS 9519 (11th Cir. April 1, 2021) addresses the serving of a motion to vacate an arbitration award. An arbitrator ordered DRT to pay O’Neal approximately $1.4 Million. DRT moved to vacate the portion of the award related to attorneys’ fees. DRT emailed a “courtesy copy” of the memorandum in support of the application to O’Neal’s counsel, but did not make service of the application by a marshal until after the three-month time limit for vacatur set by Section 12 of the FAA. The issue is whether the earlier email service was sufficient under either Federal Rule of Civil Procedure 5(b)(2)(E) or AAA Construction Rule 44 to commence the proceeding. In affirming the District Court’s denial of the motion to vacate as untimely, the panel, Carnes, J., for himself, Chief Judge William Pryor, and Judge Jill Pryor, holds that Rule 5 allows service by email only if counsel to be served has agreed to such service in writing; there was no such agreement in this case. Rule 44(b), which provides for email service of “notices required under these rules. . . .” is likewise inapplicable, as a motion to vacate falls under the FAA, not under the Construction Rules. Rule 44(a), which the court opines might be applicable in that it extends to “any court action in connection [with the arbitration],” requires mail, not electronic service.
Check all the boxes before starting arbitration
An agreement applicable to disputes between Synopsys, Inc. and Siemens adopted an increasingly common dispute resolution procedure under which “responsible representatives” of the parties would meet to settle the dispute. If they were unsuccessful, the parties would try “an appropriate alternative dispute resolution (ADR) proceeding (for example mediation, conciliation, expert determination, dispute board, adjudication).” If there was still no agreement, either party could initiate arbitration under the ICC rules. Synopsis brought this patent infringement action; Siemens moved to stay and compel arbitration. Finding that the parties had not gone through the first two steps of dispute resolution, the court, Orrick, J., holds that the application to compel arbitration is premature and denies it without prejudice, Synopsis, Inc. v. Siemens Industry Software, Inc., 2021 U.S. Dist. LEXIS 65099 (N.D. Cal. April 2, 2021). While this portion of the case is straightforward, its interest primarily lies in the court’s discussion of whether the arbitrator or the court should decide the issue. Although he recognizes that the Supreme Court has “repeatedly held” that the issue of whether preconditions to arbitration have been satisfied is a procedural question for the arbitrator, citing John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (1964) and Howsam v. Dean Witter Reynolds, Inc. 537 U.S. 79 (2002), Judge Orrick distinguishes those cases, holding that, where “it is clear that the conditions precedent to an arbitration provision have not been met, the arbitration provision is not triggered, and the FAA’s provisions do not apply.” For anyone considering the delegation of decisions regarding the satisfaction of preconditions and their effect on arbitration, the case is a good resource, as it cites numerous cases on both sides of the question.
Arbitrability of warranty claims against an auto manufacturer
Two more cases weigh in on whether the arbitration clause in a purchase agreement between a car dealer and the customer covers claims against the non-signatory manufacturer. In Schoenfield v. Mercedes-Benz USA, LLC, 2021 U.S. Dist. LEXIS 60644 (S.D. Ohio Mar. 30, 2021)(Rice, J.) and Almada v. BMW of North America, LLC., 2021 U.S. Dist. LEXIS 63623 (C.D. Cal. Feb. 11, 2021) (Carter, J.), the courts hold that equitable estoppel does not compel arbitration of an alleged vehicle defect, as the customer need not rely upon the sales contract to assert statutory warranty and Lemon Law claims. Schoenfield also rejects a claim that the determination of arbitrability should be delegated to the arbitrator.
Travel agent’s execution of arbitration clause
Hunter v. NCL (Bahamas) LTD, 2021 U.S. Dist. LEXIS 64890 (M.D. Fla. Feb. 15, 2021) raises the question of whether Plaintiff’s ADA claims must be arbitrated. The court holds, in part, that the travel agent’s use of an electronic booking process, which required acknowledgement and acceptance of Guest Ticket Contract terms, including an arbitration provision, put the passenger on constructive notice of that requirement. The court, Richardson, Magistrate Judge, also discusses potential unconscionability of the agreement based on its conspicuousness. Finding that the plaintiff is bound to arbitrate, the court recommends dismissal.
Equitable Estoppel against the party asserting arbitration; conflicting provisions
Most equitable estoppel cases seek to compel arbitration by a non-signatory to the arbitration clause. Garg v. VHS Acquisition Subsidiary Number 7, 2021 U.S. Dist. LEXIS 65104 (D. Mass. Mar. 9, 2021), and Garg v. VHS Acquisition Number 7, 2021 U.S. Dist. LEXIS 64076 (D. Mass. Mar. 31, 2021), which accepts the Magistrate Judge’s recommendation, hold that defendant hospital is estopped from relying upon the arbitration clause contained in its “Fair Treatment Process” (FTP) to resolve Garg’s claims of age discrimination in the termination of his radiology residency. Both Magistrate Judge Hennessey and Judge Hillman find that hospital employees advised Garg that, despite the mandatory arbitration provision in the FTP, the provisions of a conflicting Graduate Medical Education Policy (“GMEP”) made arbitration optional. As a result of that advice, the courts find, Garg filed his claim under the GMEP, rather than the FTP and, if he were to now file for arbitration, his claim would be time-barred under the FTP’s one-year limitation. The case is also a resource for those considering the question of conflicting employment policies, as the Magistrate Judge addresses the interrelationship and conflicts between the FTP and GME and holds that, absent estoppel, there would be an arbitration obligation.
Proving attorneys’ fees
Chen v. Kyoto Sushi, Inc., 2021 U.S. Dist. LEXIS 64627 (E.D.N.Y. April 1, 2021) is a reminder to introduce evidence as to each element which the arbitrator must find before the hearing is closed. Chen is an action under the Fair Labor Standards Act and other labor law statutes. An arbitrator hearing the claim entered an award in favor of Plaintiffs, but did not assess attorneys’ fees, as Plaintiffs had presented no evidence as to the amount thereof. In a post-award motion, plaintiffs asked the arbitrator to award fees, but she held that she did lacked continuing jurisdiction – the doctrine of functus officio. The court, Reyes, M.J., here refuses to modify the award to grant fees. While the court opines that a fee award may be statutorily required under the FLSA and that an arbitration agreement not allowing the arbitrator to make such an award may not be enforceable, it holds that the issue here is a narrower one – did Chen present evidence in the arbitral proceeding to support such an award. Plaintiff’s post-hearing, pre-award brief, he opines, would have been the “appropriate juncture at which to submit an explicit request for, and to provide proof of, his fees and costs prior to the arbitrator’s final decision.”
Another “putative arbitration award”
Domino v. Barr, 2021 U.S. Dist. LEXIS 64811 (D. Minn. Feb. 8, 2021) addresses another of the strange arbitration awards issued by some “tribunals,” despite the absence of the usual agreement to arbitrate. This time, the party seeking to enforce the award is a federal prisoner, whose award is based upon an implied agreement to arbitrate arising from his birth certificate and the federal constitution. According to the court, Thorson, M.J., Arbitrator Brett “Eeon” Jones entered an award in Domino’s favor conferring him diplomatic immunity, expungement of all criminal records, and $100 million dollars. In dismissing the application to confirm and ordering that filing fees be deducted from Domino’s jail trust fund, the court in a footnote references three other cases in which “an arbitration agreement drafted by Jones, or an entity associated with Jones, has been put into dispute.” The Magistrate Judge quotes from one such case – “Jones ‘appears to make money by selling unwitting consumers fraudulent legal documents. . . .’”
Have a good week and continue to be safe.
David A. Reif