This is another quiet day on the decision front, except for the news in Servotronics. With so little case law this week, I feel like Audrey II, the man-eating plant in the 1980s movie “Little Shop of Horrors” – “Feed me.”
Monday’s “Highlights” reported on the Fourth Circuit’s refusal to stay discovery under 28 U.S.C. § 1782(a), despite the Supreme Court’s consideration of whether the statute applies to private arbitrations. Whether Servotronics will enjoy its success is still an open issue, as Rolls-Royce has filed an application with the Supreme Court to stay discovery, App. 20A160. Per Rolls-Royce, “the district court’s authorization of the subpoena upends the status quo that should have prevailed while this Court considered the pure legal question regarding the scope of section 1782(a).” Chief Justice Roberts has ordered Servotronics to file its response by 5:00 Tuesday, April 17, 2021. According to the petition, depositions are scheduled for May 3rd and 5th. Thanks to the informative Altnewsletter for picking up this development. You can access the petition through their Twitter feed @altnewsletter.
Geographical Scope of an order to compel arbitration; waiver; delegation
United States Securities and Exchange Commission v. Collector’s Coffee, Inc., 2021 U.S. Dist. LEXIS 75986 (S.D.N.Y. April 19, 2021) does not add much to the law of arbitration, but it is worth reading just for the unusual facts and cast of characters. According to the SEC, Collector’s Coffee, d/b/a Collector’s Café, (“CCI”) fraudulently issued a series of notes which it alleged were secured by the value of two contracts signed by Jackie Robinson. However, according to the Commission, Defendant had pulled a George Allen and used the contracts and their proceeds to secure two previous series of notes. As a result, according to the allegations of the complaint, “Collector’s Café only owned a fraction of the Jackie Robinson contracts and was only entitled to a fraction of the proceeds from the sale of the contracts. . . .” Meanwhile, the Dodgers claimed that “the Contracts were their property and therefore could not be sold by Collectors Coffee.” Got it? The arbitration issues arise from claims asserted by intervenors (“the Holders”) who alleged that they held one series of notes purportedly secured by the contracts and who sought a declaratory judgment that they had a first security interest and title in the contracts. The Defendants asserted that the Holders cannot pursue their claims because of a covenant not to sue contained in a 2017 “Settlement and Release Agreement” (“the Agreement”). The Court, Gorenstein, Magistrate Judge, first considers the question of whether disputes as to the effect of the covenant are delegated to the arbitrator pursuant to an arbitration clause contained in the Agreement. Based on a carve-out in the contract and the incorporation of the JAMS arbitration rules, he finds delegation. Second, he rejects the Holders’ claim that defendants waived the right to arbitrate, opining that the “little substantive litigation” in which the defendants engaged, which appears to have been largely opposition to motions to amend and for a stay, does not rise to the level of required for a litigation waiver. This part of the opinion is most interesting for its consideration of prejudice, coupled with the Magistrate Judge’s statement that such prejudice “is the most important factor” in a waiver consideration. Finally, the court addresses the remedies available to it. Section 4 of the FAA only allows a District Court to compel arbitration “within the district in which the petition for an order directing such arbitration is filed.” As the arbitration clause at issue provides that the arbitration “shall be conducted in Clark County, Nevada,” the Magistrate Judge holds that he may not compel arbitration. However, he recommends that the District Judge stay the Holders’ claims pending arbitration. “If the defendants fail to participate in the arbitration or otherwise obstruct it, the plaintiff will of course have leave to seek a vacatur of the stay.”
Review of labor arbitrations
Two cases reiterate the limited scope of judicial review of a labor arbitrator’s award. In Cascades Containerboard Packaging v. Graphic Communications Conference of International Brotherhood of Teamsters, Local 503, 2021 U.S. Dist. LEXIS 76400 (W.D.N.Y. April 20, 2021), the court, Schroder, Magistrate Judge, recommends confirming an arbitrator’s decision to reinstate an allegedly malingering employee. “It was well within the arbitrator’s authority to determine that, absent prior warning, termination was too harsh a penalty for [the employee’s] abuse of FMLA leave.” Magistrate Judge Ray, in Bennett v. CSX Transportation, 2021 U.S. Dist. LEXIS 76882 (S.D. Ga. April 21, 2021) recommends dismissing a locomotive engineer’s challenge to an arbitrator’s decision to suspend him for speeding. The opinion highlights the narrow scope of review of an arbitral award. “’[S]ubstantive review of an arbitral award is limited to a determination of whether the award is irrational, whether it fails to draw its essence from the collective bargaining agreement, or whether it exceeds the scope of the arbitrator’s contractual authority. . . .’ A determination is ‘irrational’ only where ‘the reasoning [of the award] is so palpably faulty that no judge, or group of judges, could ever conceivably have made such a ruling.’” (citations omitted, emphasis added)
Reference to arbitration clause in employee handbook
Wednesday’s “ADR Highlights” discussed a case in which the court refused to enforce an arbitration clause contained in the defendant’s employment policy handbook, holding that the document did not create a contract with its employee. Brown v. Hyatt Place, 2021 U.S. Dist. LEXIS 75646 (N.D. Ill. April 20, 2021)(Rowland, J.) enforces such a clause. The distinction between the two cases lies in the documents, specifically referencing arbitration, which Ms. Brown signed when acknowledging her receipt of the handbook and in the handbook’s provision, in bold type, that “Unlike other provisions in this handbook, this Associate Dispute Resolution Policy is a binding contract.”
In Murray v. DCH Toyota City, 2021 U.S. Dist. LEXIS 75660 (S.D.N.Y. April 20, 2021), plaintiff alleges violation of the Federal Truth-in-lending act based on disclosures at the time of her purchase of a vehicle from DCH. The parties’ retail installment contract, which underlies the dispute, contained an arbitration clause which defendant sought to enforce through a motion to compel. The parties had previously engaged in state court litigation, in which DCH sought damages arising out of Murray’s alleged failure to pay for the vehicle. The court, Halpern, J., holds that the state court litigation did not waive defendant’s right to compel arbitration here, as the “Defendants did not litigate in the State Court Action issues going to the merits of the Plaintiff’s instant claims. . . .”
Hopefully, judges and their clerks are writing like crazy to give us more than “thin gruel” for Monday’s Highlights. Meanwhile, have a good weekend.
David A. Reif
 Allen traded the Redskins’ 1973 draft choice twice – once to the Jets and again to the Rams.