Today’s “Highlights” features a case which focusing on the precision with which a court (or arbitrator in a case in which the parties delegate arbitrability) must review the agreement’s language to determine the scope of the arbitration obligation. There are also looks at the scope of “tribunal” in Section 1782, along with an update on the status of the issue before SCOTUS after Servotronics; the effect of an arbitration clause on class certification; and reference to a comprehensive article on discovery in arbitration.
The scope of an “arising from” arbitration clause
Whether a particular dispute falls within the scope of the arbitration clause is a recurring theme in arbitration law. In Aryze, LLC v. Sweig, 2021 U.S. Dist. LEXIS 215314 (D. Mass. Nov. 8, 2021), Judge Burroughs discusses the issue’s dividing line and creates a penumbra which will require thoughtful evidentiary management by arbitrators. The dispute is both factually and procedurally entangled, and I’ll refer you to the opinion for the details. In shorthand, the arbitration issue hinged on the scope of an agreement which contained a clause providing for arbitration of “disputes between the parties arising from” their agreements. The court parses in detail each count of the parties’ arbitration claim before JAMS and analyzes which defendants were involved in each claim. Thus, the judge mandates arbitration of contract claims alleging that plaintiff improperly terminated the agreement, because “resolving [those] claims will undoubtedly involve construction of the Agreements’ provisions.” However, he refuses to require arbitration of claims that do not have a specific grounding in the language of the agreement. Accordingly, he does not compel arbitration of a claim that plaintiff “frustrated” the “vision” of the agreements, because “the Agreements do not set out a specific ‘vision’. . . .” Nor does he require arbitration of claims of fraud or negligent misrepresentation as the arbitration “provision does not mean that any claim brought by Defendants against Askey [a plaintiff] . . . related to their business relationship must be arbitrated.” (Emphasis added; ellipsis in original). Likewise, the court looks to the specific language of the agreement to determine what parties are covered thereby and rejects Sweig’s claim that he was a third-party beneficiary of the arbitration provision. “The fact that the arbitration clauses use the phrase ‘between the parties’ in defining the universe of arbitrable claims is clear evidence that the Agreements did not confer arbitration rights or duties on Sweig as he is not a party to the Agreement. The contracting parties could have included (and contracting parties often do include) language in arbitration agreements to evidence an intent to bind non-parties, but here they did not.” Based on that analysis, the court grants defendants’ motion to compel arbitration only in part, holding claims are arbitrable only “to the extent those claims are premised on” certain conduct. (Emphasis added). The challenge for the arbitrator will be to determine in real time whether proffered evidence falls inside or outside of that boundary.
Section 1782 discovery
In light of the parties’ resolution of the now-famous Servotronics arbitration and the resulting dismissal of the case before the Supreme Court, the issue of whether a private, commercial arbitral panel is a “tribunal” under the provisions of 28 U.S.C. § 1782 is still a live one. In In re: Ex Parte Application of Iraq Telecom Limited, 2021 U.S. Dist. LEXIS 215684 (E.D. Pa. Nov. 5, 2021), Judge Burrick joins the side permitting such discovery.
The case relates to an arbitration before the ICC’s Court of International Arbitration in which Iraq Telecom claims that “it was the victim of a corrupt scheme to divest it of its investment made into the telecommunications industry in Iraq.” Part of the scheme, it alleges, involved the purchase of real estate in the U.K. by “sham buyers” “for the benefit of Iraqi government [sic] in exchange for regulatory decisions that were monetarily harmful to Iraq Telecom.” Iraq here sought non-party discovery from counsel for the buyers. The law firm took no position on whether the subpoena should be enforced, but litigation counsel for the firm’s clients opposed production. In a fact-intensive discussion, the court first holds that the clients waived any objection to the requested discovery. Judge Burrick, then, addresses the more broadly applicable issue of the scope of Section 1782. Since the Third Circuit has not resolved whether a private arbitral panel is a “tribunal” under Section 1782, the court cites to District and Court of Appeals authorities on both sides of the question. Allowing the cited cases to speak for themselves, the court, without extensive discussion of its reasoning, follows the Sixth Circuit in In re: Application to Obtain Discovery for Use in Foreign Proceedings, 939 F. 3d 710 (6th Cir. 2019), and holds that the law firm must produce the requested material, subject to any attorney-client privilege. For arbitrators and parties faced with the privilege question in an international arbitration, the case is also valuable for its analysis of the choice of laws for determining applicable privileges and the mechanics for proving foreign law. On all of these issues, the case is replete with citations and provides a good starting point for research.
While Servotronics will not provide a vehicle for SCOTUS to resolve the unfortunate Circuit split on the scope of Section 1782, there are two pending petitions for certiorari, ZF Automotive US v. Luxshare, Ltd., Dkt. No. 21-401, and AlixPartners, LLC v. Fund for Protection of Investor Rights in Foreign States, Dkt. No. 21-518, which might take its place. A decision on the petitions should be forthcoming soon. ZF Automotive has been distributed for conference on November 19th; petitioner in AlixPartners has waived the fourteen-day waiting period following the filing of the respondent’s opposition to cert., urging consideration of its petition in the same conference. (Full docket sheets, petitions, and opposition memoranda are available on SCOTUSblog.com). Since SCOTUS not only granted cert. in Servotronics, but scheduled oral argument, a grant of cert. should be forthcoming. Perhaps, we will finally get a solution to this conundrum this Term or early in the next.
Effect of an arbitration provision on class certification
Valencia v. VF Outdoor, LLC, 2021 U.S. Dist. LEXIS 214998 (E.D. Cal. Nov. 5, 2021), addresses the effect on a class action of an arbitration clause that binds some members of a class, but not the purported representative plaintiff. Valencia alleges that she and approximately 2300 members of the putative class were required to undergo security checks which took approximately twenty minutes per shift, for which plaintiffs were not compensated. She alleges that, as a result, VF Outdoor failed to pay legally mandated wages. Before the commencement of the action, defendant implemented revised dispute resolution procedures for existing employees and new hires which included an arbitration provision and the waiver any right to bring a class or collective action. Approximately 59% of the putative class signed the agreement; Valencia did not. Magistrate Judge Oberto addresses defendants’ motion to deny class certification. The Judge holds that, because defendant may have defenses against plaintiffs who are bound by the dispute resolution agreement which do not apply to Valencia, she lacks typicality with the signing employees and cannot adequately represent their interests. Accordingly, the Magistrate Judge recommends denying class certification “based on the classes as currently defined and proposed to be represented by Plaintiff Briana Valencia.” Those classes included “all individuals” who were required to undergo pre-shift and post-shift security and who were employed as hourly, non-exempt employees between August 26, 2018, and the filing of the action. The interesting issue, not directly related to arbitration, will be whether the action goes forward as to the more limited class of those not required to arbitrate.
The November issue of the Illinois Bar Journal has an interesting article on non-party discovery in cases subject to the FAA. The authors address splits among Circuits on whether a subpoena may be used for prehearing discovery, federal court jurisdiction to enforce such subpoenas, and the geographical limits of such enforcement. The article, Marinello and Haarlow, “Nonparty Discovery & the Federal Arbitration Act,” 109 Illinois Bar Journal #11, (Nov. 2021), is full of citations and provides a valuable addition to the notebooks of both arbitration litigators and neutrals who may face disputes over subpoenas. The article is linked through JDSupra.
Please take time tomorrow to remember not only those who wear a uniform, but also their families. They, too, sacrifice so the rest of us may live in peace.
David A. Reif