Today’s Highlights is unusual in that it focuses heavily on one case – but what a case! Calderon contains a concurring opinion which challenges the Supreme Court to reconsider the long-standing presumption of arbitrability. It is mandatory reading for any of us involved in arbitration. There are also interesting and important opinions, including one of first impression, related to the arbitrability of claims for discrimination in public accommodations and the availability of the FAA’s “evident partiality” defense in international disputes. Happy reading.
A textualist attack on judicial policies favoring arbitration
In Moses H. Cone Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25 (1983), the Supreme Court opined that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Circuit Judge Newsom clearly does not like that predisposition, and he uses a concurring opinion in Calderon v. Sixt Rent a Car, 2021 U.S. App. LEXIS 20854 (11th Cir. July 14, 2021), to voice his displeasure. This law review comment wrapped into an opinion reads as a call upon the Supreme Court to reconsider the long-standing Moses H. Cone doctrine and provides a draft of an opinion for them to do so.
The basic case is a fairly routine question of contract interpretation. Ancizar Marin, a plaintiff, booked a rental car with Sixt through Orbitz.com. The Orbitz website provides for arbitration of “Claims,” which include “disputes or claims relating in any way to . . . (3) any services or products provided.” A dispute arose over whether Marin was responsible for $700 of body damage. He brought a class action against Sixt claiming breach of contract and violation of consumer-protection statutes. He did not sue Orbitz, but Sixt sought to compel arbitration under the Orbitz agreement, alleging that it was a provider of “services or products.”
The panel’s opinion contains three sections. The entire panel, consisting of Circuit Judges Newsom (who wrote the opinion), Marcus, and Jill Pryor, join in the first two. Applying Florida law, the panel unanimously holds that the dispute between Marin and Sixt is outside the scope of the Orbitz arbitration clause. In support thereof, the Court relies upon three factors. First, the other specifications of “disputes,” among which the “services and products” clause is “sandwiched,” all relate solely to the relation between the customer and Orbitz itself. Therefore, the court opines, “it would be odd if [the allegedly relevant provision] referred to a massive and seemingly boundless set of activity – Sixt calls it ‘unlimited’ – encompassing services or products provided by anyone.” Second, the panel holds that, because the dispute resolution process requires initial contact with “Orbitz Legal: Arbitration Claim Manager,” it does not apply to disputes with entities with whom customers book through Orbitz. To hold otherwise, Judge Newsom opines, would mean that “Marin himself was obligated to route this lawsuit through Orbitz’s legal department, even though Orbitz has no discernible interest in it and no authority to resolve it. (What would Orbitz’s ‘Arbitration Claim Manager’ do with 60 days to contemplate a claim about another company’s damage fees?)” (Emphasis in original). One has to ask why the Court reaches this conclusion about Orbitz’s business operations. Wouldn’t Orbitz, in fact, have an interest in making sure that those who run into issues with travel services booked through its website get a satisfactory resolution and, therefore, want to continue using Orbitz? In its third rationale, I suggest that the court stretches the contract language through the litigation technique of the “parade of horribles.” It posits a situation in which a customer rents a car through Orbitz and, during the trip, checks into a hotel which discriminates against him on the basis of race. While the court is right that “the hotel is undoubtedly a ‘travel supplier’ because hotel rooms are travel-related amenities,” there would be no tie whatsoever between Orbitz and the hotel since the customer did not book his room through the site and, therefore, this distinct situation might not be arbitrable. That does not require, as the Court infers, that all third-party services fall outside the scope of Clause 3.
Perhaps the most precedential part of the opinion is the third section. Here, the majority holds that, even in the face of Moses H. Cone, the claims must have more than a “tangential” relationship to the underlying contract with Orbitz. Since the plaintiffs’ claims do not allege any misdoing by Orbitz, name Orbitz as a defendant, or allege any violation of Orbitz’s terms of service, the majority holds that the allegations are insufficiently connected to the original transaction to require arbitration. In an interesting sidenote, the court relies heavily upon Revitch v. DIRECTTV, LLC, 977 F 3d 713 (9th Cir. 2020), written by Circuit Judge O’Scannlain for whom Circuit Judge Newsome clerked. Judge Jill Pryor, in a one-paragraph concurrence, does not join in this portion of the opinion, finding any consideration of Moses H. Cone to be unnecessary and choosing to decide the matter solely as one of contract interpretation.
That third portion of the opinion presages Circuit Judge Newsom’s concurrence in his own majority opinion, an unusual judicial touch. There is really no way to summarize the full concurrence here, but anyone practicing arbitration law needs to read it. In fifteen pages, the judge labels the Supreme Court’s language as a “substantive” canon, which “directs courts to depart from a contract’s most natural interpretation of – and to further – a policy preference for arbitration.” Citing to law review articles by Justices Kavanagh and Barrett, he purports to educate “the uninitiated” among us on the nature of canons. This leads him to “the more problematic  characteristics of Moses H. Cone’s pro-arbitration canon: It is both especially potent and essentially made up.” (Emphasis added). He, then, characterizes the doctrine as “a judicial invention” and a deviation from the Federal Arbitration Act. “I’m not aware of a single straight-faced attempt to defend Moses H. Cone as an interpretation of the FAA’s text.” In short, Circuit Judge Newsom opines, “I tend to think we might be better off without the Moses H. Cone canon, which can put a court in the untenable position of having to ignore the best evidence of a contractual provision’s meaning.”
Whether one agrees with the concurrence or not, this is an important, perhaps seminal, opinion; it is clearly an appeal to SCOTUS to reconsider or limit Moses H. Cone, even invoking in that effort the academic work of two sitting Justices. Whether the Supreme Court will take that bait remains to be seen, but everyone interested in arbitration – either as a practitioner or advocate – should follow its progress. It will undoubtedly be cited widely by those opposing arbitration; I am sure Highlights will be referring to it often as opinions reject or accept the reasoning. For those interested in the underlying discussion, there is a Case Note in the current Harvard Law Review to which Circuit Judge Newsome refers which discusses Revitch, “Contract Law – Federal Arbitration Act – Ninth Circuit Refuses to Enforce Infinite Arbitration Agreement,” 134 Harv. L. Rev. 2871 (June 2021), expressing a viewpoint skeptical of what the author characterizes as “the corporate bar’s latest arbitration excesses.”
Arbitration of Title II claims
Selden v. Airbnb, Inc., 2021 U. S App. LEXIS 20632 (D.C. Cir. July 13, 2021), decides what the Court, with Circuit Judge Rao, writing for herself and Circuit Judges Katsas and Edwards, opines is a matter of first impression – are claims under Title II of the Civil Rights of 1964 arbitrable? The opinion begins from the premise of Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987), that any mandate of arbitration of a claim under the FAA “may be overridden by a contrary congressional command.” The Court, then, considers the text and structure of Title II, which prohibits racial discrimination in public accommodations, and concludes that nothing therein “forecloses arbitration.” The Plaintiff raised and the court rejects two arguments. First, Title II provides that, prior to commencing an action, claimant need not exhaust “other remedies that may be provided by law.” The Court concludes that arbitration is not a “remedy,” but a “dispute-resolution process” (Emphasis added). The court, in support of its position, cites to a treatise defining a “remedy” as a “a cure.” But does that limitation make sense in the context of the statute and the opinion? One does not “exhaust” a “remedy,” such as money damages; one “exhausts” alternative methods of reaching that award. Second, the statute provides that the “remedies provided in this subchapter shall be the exclusive means of enforcing the rights based on the subchapter.” Rejecting Plaintiff’s argument that this precludes all actions except a suit in District Court, Judge Rao applies the rubric that, when Congress intends to overrule arbitration, it must do so with “clarity,” opining that “if Congress wanted to prohibit arbitration of Title II claims, it could have done so in a ‘less obtuse’ manner.” Disposing of routine arguments that the Air BnB website did not make the arbitration provision clear, that arbitrator acted improperly, and that the agreement is unconscionable, the Court affirms the District Court’s refusal to vacate an arbitration award in favor of defendant.
Application of the FAA to international disputes; evident partiality
Hamilton v. Royal Caribbean Cruise Lines, 2021 U.S. Dist. LEXIS 130684 (S.D. Fla. July 13, 2021)(Martinez, J.) resolves cross motions to vacate and confirm an arbitration award in favor of Royal Cruise lines arising out of the death of an employee on board the Enchantment of the Seas. The issue before the court is whether the defenses to confirmation under the Federal Arbitration Act apply to claims covered by the New York Convention. Following the Eleventh Circuit’s “unambiguous” rejection of the idea that the FAA applies, the court goes through the seven defenses available under the Convention. The court holds that “evident partiality” by the arbitrator is not among those included therein. Accordingly, Judge Martinez rejects as a matter of law the plaintiff’s claim that the arbitrator favored the cruise line. As an alternative ground, he holds that the mere fact that the arbitrator after appointment joined JAMS, which plaintiff claimed was “well-known in the community for its ties to the cruise industry,” was insufficient to raise an actionable claim of bias. Further, in a reminder to advocates to assert objections to an appointment as soon as they become evident, he holds that by failing to make a written challenge within fifteen days of learning of the alleged conflict, as the ICDR’s International Arbitration Rules require, Hamilton waived his objection.
Enjoy your weekend. See you Monday.
David A. Reif