One focus of today’s “Highlights” is the Badgerow case as to which the SCOTUS has granted cert. Also, there are three cases dealing with delegation to the arbitrator of the authority to decide his or her own jurisdiction, along with some cautions as to how to attack that delegation. Plus, a look at the retroactivity of the CMS limits on arbitration clauses in nursing home contracts, a deeper-than-usual dive into the review of CBA arbitrations, and a few Quick Hits.
Supreme Court grants certiorari re: federal question jurisdiction over confirmation and vacatur
On Monday, SCOTUS granted certiorari in Badgerow v. Walters, Dkt. No. 20-1143. The case raises the issue of whether the Court’s holding in Vaden v. Discover Bank, 556 U.S. 49 (2009) applies to an action to confirm or vacate an arbitration award. In Vaden, SCOTUS ruled that, in determining whether a District Court has federal question jurisdiction under 28 U.S.C. § 1331 over an application to compel arbitration, the court should look to the nature of the claims asserted in the arbitral proceeding; if those allegations would support federal question jurisdiction had they been pled in litigation, the court has jurisdiction over an action to compel the arbitration thereof. In the underlying litigation in this case, Badgerow v. Walters, 975 F. 3d 469 (5th Cir. 2020), plaintiff sought to vacate a FINRA arbitration award which the District and Circuit Courts held involved claims of employment discrimination under Title VII, thus including at least some claims that arose under federal law. Accordingly, based Vaden and, more importantly to the cert. application, a prior Fifth Circuit decision in Quezada v. Bechtel OG & C Construction Services, Inc., 946 F. 3d 837 (5th Cir. 2020), the Court of Appeals held that the District Court had subject matter jurisdiction over the application to vacate.
In her petition for certiorari, Badgerow frames the question presented as follows:
Whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.
Plaintiff alleges that the issue constitutes a split between the Third and Seventh Circuits, which do not apply the look-through approach to motions under Sections 9 and 10, and the First, Second, Fourth, and Fifth Circuits, which hold that the approach is appropriate.
As always, the Scotus blog, Scotusblog.com, is a great source for all the filings in the case.
Parenthetically, the Supreme Court on Monday rejected an application for certiorari in Seldin v. Estate of Silverman, Dkt. No. 20-895, which raised issues regarding whether an award may be vacated under the FAA based on public policy and the test of determining whether an arbitrator was biased.
Retroactivity of the prohibition on nursing home arbitration clauses
In 2019, the Centers for Medicare and Medicaid Services (“CMS”) adopted a regulation providing that a facility such as a nursing home may not require any resident or his representative to sign an agreement to binding arbitration as a condition to admission or continuing care and must advise the resident or representative that he or she need not sign such an agreement. The regulation, 42 C.F.R. § 483.70(n) (2019), became effective on September 16, 2019. Reed v. Eastside Medical Center, LLC., 2021 U.S. Dist. LEXIS 92968 (N.D. Ga. May 14, 2021) addresses the applicability of the regulation to patients already under care as of that date.
Eddie Reed was admitted to the defendants’ facility on September 5, 2017. At that time his wife, who had the patient’s power of attorney, executed an arbitration agreement with the facility. Two days after his discharge on September 24, 2017, Mr. Reed died, allegedly because of the Defendants’ negligence. In this wrongful death action, the defendants moved to compel arbitration under that agreement. Reed argued that the regulation was retroactive and, therefore, invalidated the subject agreement. The court, Grimberg, J., rejects the claim. Applying the principle that a court defers to an agency’s interpretation of its own regulations, the court points out that CMS noted during the rule-making process that “CMS does not have the power to annul valid contracts. . . . [T]hese provisions are only effective prospectively.” Accordingly, after finding elsewhere in the opinion that there was agreement to the arbitration provision, the court compels arbitration of the claim.
Three cases address the question of the scope of an arbitrator’s authority to resolve issues related to his or her own jurisdiction.
Grabowski v. Platepass, L.L.C., 2021 U.S. Dist. LEXIS 98259 (N.D. Ill. May 17, 2021), involves a third-party’s right to assert arbitration rights under a contract to which it is not a signatory. Plaintiff rented a car from Hertz which was equipped with a device which enabled the driver to use EZ-pass and similar services to avoid lines at toll booths. Platepass provided the devices to Hertz. Grabowski brought a class action against Platepass alleging that the administrative costs associated with the program were excessive and unnecessary, resulting in unjust enrichment to defendant. The contract into which plaintiff entered with Hertz included an arbitration clause; Platepass here moved to compel arbitration pursuant to that agreement. The Court, Blakey, J., first holds that the arbitration clause delegates all disputes to the arbitrator, “including his or her jurisdiction.” Accordingly, he holds the issue of whether a third-party, Passport, may assert the benefits of the arbitration clause is a question for the arbitrator and compels arbitration.
Uttam Chand Rakesh Kumar v. Derco Associates, Inc., 2021 U.S. Dist. LEXIS 93274 (E.D. Cal. May 17, 2021) addresses a dispute over the sale of almonds pursuant to a contract which contained an arbitration clause. The contract selected JAMS as the arbitral institution and specifically invoked its Streamlined Rules and Procedures. Rule 8(b) of those rules provides that the arbitrator “has the authority to determine jurisdiction and arbitrability issues as a preliminary matter.” Plaintiffs, in response to a motion to compel, argued that the contract which contained the arbitration clause was revoked through an earlier release between the parties. Applying the “container” doctrine in Rent-a-Center, W., Inc. v. Jackson, 561 U.S. 63 (2010) and the Ninth Circuit’s following opinion in Brennan v. Opus Bank, 793 F.3d 1125 (9th Cir. 2015), Judge Drozd holds that a general challenge to the agreement itself does not call into question the applicability of the delegation clause. Rather, such an attack must address that specific provision. “Because the plaintiffs here argue only that the Arbitration Agreement as a whole is terminated by the Release and do not make a specific argument as to the delegation provision, here, as in Brennan, the validity of the Arbitration Agreement and of the Seller Contract is therefore for the arbitrator to decide in light of the parties’ delegation of the question.” The court compels arbitration.
Neveja v. Primerica, Inc., 2021 U.S. Dist. LEXIS 93191 (E.D. Cal. May 17, 2021) (England, J.) addresses the same issue. The case raises the familiar question of whether plaintiff and members of her purported class were employees or independent contractors. Defendant sought to compel arbitration under a clause contained in plaintiff’s employment contract. The clause contained a provision expressly incorporating the AAA Commercial Arbitration Rules; Rule 7 thereof allows the arbitrator to determine his or her own jurisdiction. Relying upon Brennan, the court holds that, because the delegation clause itself is not unconscionable, the issue of the unconscionability and validity of the overall arbitration clause has been delegated.
As a practice tip, these cases show that counsel opposing arbitration should think of the various portions of the parties’ arbitration agreement as Matryoshka dolls, the traditional Russian dolls which are of decreasing size and nestle inside each other. Most challenges to the overall contract (picture the largest doll) will not invalidate an arbitration clause (the next smaller doll nesting therein). Likewise, the same challenges, if addressed to the arbitration clause (that second doll), will not invalidate a delegation clause (the next smaller doll). In short, pick your target.
Challenges to grievance arbitration awards
Steelcraft Manufacturing v. United Steelworkers, Local 7697, 2021 U.S. Dist. LEXIS 92847 (S.D. Ohio, May 17, 2021), repeats the familiar rule favoring the court’s affirmance of a labor arbitration, so long as the arbitrator “arguably interpreted” the contract. The opinion is worth reading, however, because Judge Black lays out specific indicia for making that determination. Did the arbitrator refer to or quote specific contract terms? Did he or she analyze the meaning of the terms’ relevant provisions? Did the arbitrator “appl[y] his reading of the CBA’s terms to the inquiries submitted by the parties[?]” A drafting hint to arbitrators!!
Section 1782(a) applications in aid of arbitration
In re: Application of Food Delivery Holding 12 S.A.R.L., 2021 U.S. Dist. LEXIS 93518 (C.D. Cal. May 17, 2021), continues the dispute over whether a private arbitration is a “tribunal” under the provisions of 28 U.S.C. § 1782(a), which permits a District Court to summon persons or documents within its jurisdiction to provide evidence in connection with a “tribunal’s” proceedings. Judge Walter acknowledges that the Ninth Circuit has not addressed the question. However, he joins the ranks of those holding that private arbitral institutions – in this case the Dubai Finance Centre-London Court of International Arbitration – are not included within the provisions of the statute. He denies the petitioner’s application for discovery. Perhaps because the court recognizes that the issue ultimately will be settled by the U.S. Supreme Court in the pending Servotronics case, the decision largely relies without elaboration on the opinion of the Magistrate Judge which it accepts and affirms. Anyone wanting to rely on S.A.R.L. may have to go to PACER to get that opinion, as it is not published on LEXIS.
Public nature of arbitration documents
While the opinion in Golub Capital LLC v. NB Alternative Advisers LLC, 2021 U.S. Dist. LEXIS 93046 (S.D. N.Y. May 17, 2021)(Liman, J.), does not lay out the “arbitration documents” which Defendants sought to seal, the case serves as a reminder that many arbitration-related documents, once used in connection with a post-award proceeding, “are ‘judicial documents to which the presumption of public access applies.’. . . Arbitral proceedings are not entitled to sealing merely because the proceedings are not public.” The opinion, thus, constitutes a warning both to counsel and arbitrators. To counsel, be careful what you attach as exhibits to your application to confirm or vacate. To arbitrators, be sure that you are not including in the award any materials which the parties submit pursuant to the provisions of a confidentiality agreement.
Summer has reached New England, and here in the New York area masks are mostly off for those of us who are vaccinated. It will be good to be arbitrating in person, again. See you Friday.
David A. Reif