Federal judges – and their clerks – must be clearing their desks in anticipation of summer vacation.  Because of the volume of decisions published over the last three days, today’s Highlights will be a series of quick hits, rather than a usual analysis of a few decisions.

Morgan and waiver

In Morgan v. Sundance, Inc, 142 S. Ct. 1708 (2022), SCOTUS held the Federal Arbitration Act precludes requiring proof of prejudice in order to establish a waiver of arbitration where that element is not needed to prove the waiver of any other contractual right. Two recent cases addressed that holding.

In Herrera v. Manna 2^nd Avenue LLC, 2022 U.S. Dist. LEXIS 127431 (S.D.N.Y. July 18, 2022), Judge Woods takes an unusual approach to applying Morgan.  He focuses, not just on the court’s holding, which he summarizes as follows: “Substantively, then, the Supreme Court’s decision suggests that courts should toss out special rules for considering waivers of the right to arbitration, and instead use the same test for waiver as would be used in any other contractual dispute.” Rather, the court looks at the language of the remand, where “the Supreme Court commented that the Eighth Circuit could ‘strip’ its test ‘of its prejudice requirement’. . . .”  This language, Judge Woods opines, “suggests that the Eighth Circuit should merely strip analysis of prejudice from its existing test for waiver of the right to arbitrate, rather than applying the Circuit’s standard test for evaluating waiver in cases not involving arbitration agreements.“ Consequently, he applies two tests in determining whether there was waiver. First, he looks at the “traditional waiver analysis,” i.e., what would applicable law require if the court were considering the waiver of a contract term unrelated to arbitration.  However, he also asks how the waiver should be analyzed under “the Second Circuit’s previous test for waivers of the right to arbitrate, absent its prejudice requirement.”  Under either test, the court holds, there was no waiver. It will be interesting to see whether this focus on SCOTUS’s remand language, which may merely be dictum, gains traction elsewhere or will Herrara stand alone.

Streety v. Parsley Energy Operations, LLC., 2022 U.S. Dist. LEXIS 129218 (W.D. Tex. June 17, 2022)(Counts, J.), implicitly takes a more conservative view and opines simply that Morgan does not allow consideration of prejudice in resolving waiver.

Denying waiver

Say it, repeat it, repeat it  – and, then, repeat, again. That is the lesson of Brady v. Verizon Wireless (VAW) LLC, 2022 U.S. Dist. LEXIS 127502 (E.D. Wisc. July 19, 2022)(Ludwig, J.). Plaintiff claimed that, by participating in litigation, Verizon had waived the right to arbitrate set forth in the parties’ Consumer Agreement.  And, in fact, Verizon had participated in the litigation.  It had removed the action to federal court, filed an answer and an amended answer, held a meet and confer, prepared a joint Rule 26(f) report, participated in a scheduling conference, and served the requisite initial disclosures.   At each of those steps, however, Verizon had specifically state that it was reserving its claim that the matter was arbitrable. Thus, the court held that “those circumstances [surrounding removal] demonstrate quite clearly that Verizon did not intend to waive its arbitration rights and no reasonable person would have thought otherwise.  At every other step in the litigation, Verizon has clearly stated its intent to arbitrate.”  So, bottom line, if the Federal Rules require that you take some steps in defense of an action, like removing the matter from state court within a set time frame or providing mandatory disclosures, be sure to state that you are not waiving any arbitration rights.  Also, still beware of the effect of voluntary litigation activities. Judge Ludwig specifically notes that the motion to compel arbitration was made before the service of any discovery or the filing of any other motions.

Removal under the New York Convention

Terra Towers Corp. v. Gelber Schachter & Greenberg, P.A., 2022 U.S. Dist. LEXIS 127417 (S.D. Fla. July 19, 2022), arises from a motion to remand an action which Gelber had removed from state court.  In doing so, the opinion addresses the requirements of the notice of removal in a case to which the New York Convention applies, see 28 U.S.C. § 205.  Citing Eleventh Circuit law, Judge Scola holds that removal is appropriate where the notice describes an action which may fall under the Convention and there is a “non-frivolous basis to conclude that [the] agreement sufficiently relates to the case before the court such that the agreement could conceivably affect the outcome of the case.” (citations omitted, emphasis added).  This “non-frivolous basis” creates a “low bar,” and, in making that determination, the court may not “combine the jurisdictional and merits inquiry [of a motion to compel arbitration] into a single stage.” (citation omitted). Here, because the dispute relates to the authority to retain counsel under a shareholders’ agreement and that agreement contains an arbitration clause, the court finds that such a basis exists. It denies the motion to remand.

Manifest Disregard

Two cases out of the Ninth Circuit reiterate that Court’s strict standard for vacating an award based on the arbitrator’s manifest disregard of the law. Both the Court of Appeals, Ticketops Corp. v. Costco Wholesale Corp., 2022 U.S. App. LEXIS 19813 (9^th Cir. July 18, 2022), and one of the Circuit’s District Courts, Andrews v. Nabors Completion &  Production Services Co., 2022 U.S. Dist. LEXIS 127342 (C.D. Cal. July 14, 2022), decline to find manifest disregard because there is no evidence that the arbitrator “understood and correctly states the law, but proceeded to disregard the same,” Ticketops at *2.

Confidentiality and sealing

One of the main advantages of arbitration is its confidentiality. The issue, however, is the degree to which the parties can retain that cloak when one moves to compel arbitration. In Allegiant Travel Co. v. Kinzer, 2022 U.S. Dist. LEXIS 127568 (D. Nev. July 19, 2022), Magistrate Judge Koppe addresses the trade-off between the parties’ desire for confidentiality and the public’s interest in the matters underlying a court’s decisions.  Here, the court seals certain portions of the record, while requiring the disclosure of others.  For practitioners, the opinion provides a lesson in maximizing the chances for sealing the record.  One of the factors upon which the Court relies in allowing redaction of certain portions of the award is that “the arbitrator himself found that the award warrants protection from public disclosure.”  In short, if you may want to seal the award in a subsequent enforcement proceeding, ask the arbitrator to opine in the award itself as to the need for confidentiality.

Zoom mediations

During the COVID shutdown, remote mediation became the norm.  Because of the reduction in travel costs and the ease in having decision-makers present,  on-line dispute resolution is still prevalent.  However, what if one party wants to go remote and the other refuses.  Genreis, Inc. v. Brown, 2022 U.S. Dist. LEXIS 126930 (D. Neb. July 18, 2022)(Zwart, M.J.), addresses that issue. The court had previously ordered mediation.  Defendant maintained that those negotiations should be in person. “Zoom mediations do not work as well as mediations in person,” he claimed, because the parties are “physically confined [apparently counsel’s term] in one location with each other” and “they invest a significant amount of energy to attend mediation.”  Plaintiff countered that a Zoom mediation would satisfy the court’s earlier mandate. Based on the briefing, “the court questions the parties’ ability to communicate and compromise, and perhaps Plaintiff’s interest in fully participating in mediation.” Because a “party can simply walk away from the camera,” those “impediments” may be heightened, she holds, in a remote setting. Therefore, the court orders that the mediation take place in-person.  An interesting sidenote in the opinion is the question of who makes the location decision.  Since the issue is one of enforcing the court’s previous order, Magistrate Judge Zwart holds, she, not the mediator, is vested with that power.

Arbitration requirements in a handbook

Tuesday’s Highlights addressed the issues raised in enforcing an arbitration provision contained in an employee handbook, but which was not incorporated into a separate, signed agreement.  Etienne v. All Seasons in Naples, LLC., 2022 U.S. Dist. LEXIS 126965 (M.D. Fla. July 18, 2022)(Steele, J.), reiterates those concerns. The arbitration provision in the employee handbook “expressly provide[d]” that employees agree to arbitrate their claims “[b]y signing the acknowledgement sheet to this Handbook.” However,  the court finds, there was no evidence that Ms. Etienne signed the actual Agreement itself, even though she “does not dispute that her electronic signature appears on the cover of the handbook.” Further, since Acknowledgement does not specifically incorporate by reference the Arbitration Provision, even if the Acknowledgement were signed, it would be insufficient to constitute an agreement to arbitrate under Florida law.  Lesson – be safe; be sure that everything is signed and that any acknowledgement that the employee received the handbook also specifically references the arbitration obligation and the employee’s agreement thereto.

What law governs?

Green Renewable Organic and Water Holdings, LLC v. Bloomfield Investments, LLC., 2022 U.S. Dist. LEXIS 128864 (N.D. Cal. July 20, 2022)(Gilliam, J.), raises, but does not resolve, the issue of what law governs the question of whether non-signatories are bound by an arbitration provision. Is it the state law that would apply under normal choice of law provisions or is it Federal substantive law?  The parties had not addressed that threshold question in their earlier submissions, and the court directs them to  file supplemental briefs “of no more than 5 pages.”  I will try to pick up the court’s decision on the question in future Highlights, but, in case I miss it, counsel who have matters pending where the applicable law could make a difference might set a LEXIS alert.

Have a good weekend. 

David A. Reif, FCIArb
Reif ADR
Dreif@reifadr.com
Reifadr.com