Today’s cases largely focus on the interpretation of arbitration statutes, including March’s federal statute limiting arbitration of sexual assault and sexual harassment claims.

Sexual Assault Arbitration Limits

On March 3, 2022, President Biden signed the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2022” (the “Act”), which limits contract provisions mandating that a claimant, generally an employee, arbitrate claims of sexual assault or sexual harassment.  In relevant part, the statute provides, “[A]t the election of the person alleging conduct constituting a sexual harassment dispute or a sexual assault dispute. . . no predispute arbitration agreement . . . shall be valid or enforceable . . . .” The statute applies “with respect to any dispute or claim that arises or accrues on or after the date of enactment of this Act.” Zinsky v. Russin, 2022 U.S. Dist. LEXIS 130115 (W.D. Pa. July 22, 2022), addresses that effective date provision.

Ms. Zinsky alleges that, since 2019, she has been employed by one or more of the corporations which she names as defendants.  In connection with that employment, she signed contracts containing a broad arbitration clause, which included “any alleged violation of any state or federal statute, regulation, law or order of any kind. . . “  She alleges that an employee of the corporate defendants sexually assaulted her.  The assault or assaults occurred prior to March 3, 2022, the effective date of the Act.  On April 11, 2022, after the signing of the Act, she brought suit alleging violation of the federal Fair Labor Standards Act and various state statutory and common laws.  Defendants moved to compel arbitration, pursuant to Zinsky’s contracts.  The court holds that the relevant issue in determining whether the Act bars arbitration is when the claim or dispute “arises or accrues.”

Zinsky argued that the claim arose as of the date of the filing of her action; if she were correct, the Act would invalidate the arbitration clause, and she could proceed in federal court. The court, Horan, J., rejects that position. Applying Texas tort law principles,[1] the court holds that an action accrues “when facts come into existence that authorize a claimant to seek a judicial remedy.” (citation omitted).  If applicable, she opines, Pennsylvania law is similar.  Nor, the court holds, is the arbitration provision a “predispute agreement,” which the Act defines as “any agreement to arbitrate a dispute that had not arisen at the time of the making of the agreement.” (Emphasis added).   Judge Horan specifically rejects Plaintiff’s claims that the statute’s legislative history indicates that it should have a retroactive effect. “While the Act represents a significant sea change in the enforcement of arbitration provisions, Congress has chosen to temper that change through prospective rather than retrospective applicability.”

If this is not the first case interpreting the “arises or accrues” language of the Act, it is certainly one of them; Judge Horan cites no other authorities on the issue. However, there is  a question that this bellwether does not really resolve.  Do “claim” and “dispute” or “arises” and “accrues” have the same meaning under the Act that they do in tort law, as Judge Horan assumes?  Did Congress, in its effort to shut down arbitration of these disputes, intend “claim” or “dispute” to refer to the litigation itself, rather than to the tortious conduct which underlies the action?  While counsel for Plaintiff apparently referenced Congressional intent in argument to the District Court, a footnote in the opinion states that counsel’s comments “are accompanied neither with specific citations nor with clear reference points as to their presence in the [Act’s] legislative history.”  It will be interesting to see how other judges and counsel address this question as experience in raising the issue fleshes it out more fully.

Dismissal for Failure to Arbitrate

Section 4 of the Federal Arbitration Act authorizes the court to compel arbitration on the application of a person “aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration.” Forby v. One Technologies, LP, 2022 U.S. Dist. LEXIS 129356 (N.D. Tex. July 21, 2022), addresses whether an application to arbitrate, which the arbitral institution rejects, triggers that section.

The procedural history of the case is complicated.  The relevant fact, however, is that the American Arbitration Association rejected Forby’s application to arbitrate under the AAA’s Consumer Rules because of non-compliance by the Defendant with certain AAA policies. In  doing so, the Association advised the parties that “should the AAA decline to administer an arbitration, either party may choose to submit its dispute to the appropriate court for administration.”  Because Forby filed for arbitration and the rejection thereof was not her fault, Judge Lindsay holds that “there is no ‘failure neglect or refusal . . . to arbitrate’ under Section Four of the FAA as Ms. Forby sought to arbitrate her . . . claim . . . and was turned away by the AAA because of Defendants’ failure to comply with the AAA’s rules and policies.”  The court further holds that it does not have authority to appoint an arbitrator under FAA Section 5.  That provision authorizes the court to appoint an arbitrator where “there shall be a lapse in the naming of the arbitrator. . . .” Here, Judge Lindsay opines, “There was no mechanical breakdown that requires the Court’s intervention.  Instead, it was Defendant’s failure . . . that prompted the AAA to decline to administer the arbitration. . . . Further, Ms. Forby initiated the arbitration of her . . . claim; she did not ‘fail to avail’ herself of the arbitration process.”

Waiver of Public Policy Defense

Tecnicas Reunidas de Talara S.A.C. v. SSK Ingeniera y Construccion S.A.C., 2022 U.S. App. LEXIS 20272 (11^th Cir. July 22, 2022), demonstrates that even a potentially grievous ground for vacatur is waived if a party fails to raise the claim in a timely fashion.

During the post-hearing briefing stage of the challenged arbitration, counsel for Tecnicas left his firm and joined the law firm representing SSK.  A year later, the panel issued a $40 Million award in favor of SSK. Tecnicas brought this action seeking to vacate that award. The District Court refused to do so and confirmed the award; the Eleventh Circuit, with Judge Pryor writing for himself and Judges Luck and Moorer, affirms.

Tecnicas argues that the Florida Rules of Professional Conduct apply to counsel’s conduct, since the arbitration was seated there, and that counsel’s switching of sides was unethical under those rules.  Thus, it extrapolates, an award after that switch constitutes a violation of U.S. public policy – one of the grounds for vacating an award under the Panama Convention, which applies here. The Court of Appeals holds that Tecnicas waived any such argument by failing to address it to the arbitrators. While a waiver “can occur only when a party has ‘full knowledge of the facts’ . . . Tecnicas knew all the relevant facts about the side-switching during the arbitration.  And it waited for more than one year – and for the arbitral panel to issue SSK a $40 million award – to complain.”  The court specifically rejects the argument that public-policy defenses are not waivable.  In doing so, it distinguishes the D.C. Circuit’s holding in Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria, 844 F. 3d 281 (D.C. Cir. 2016).  That case, Judge Pryor opines, related to a predispute, contractual waiver of the defense; here “we conclude only that a party can waive a public-policy defense by failing to raise its objection in a timely manner.”

So, this case joins that list which support the general rule that one needs to object often, specifically, and loudly when anything happens in the arbitration that might serve as a basis for a later challenge.  Counsel may decide not to pursue the issue later – but, at least, he or she has retained that option.                

Who decides the timeliness of an arbitration demand

Alliance Health and Life Insurance Co. v. American National Insurance Company, 2022 U.S. App. LEXIS 20300 (6^th Cir. July 22, 2022)(Larsen, J. writing for herself and Judges Boggs and Davis), addresses the division between issues to be resolved by the court and those which go to the arbitrator. The parties’ agreement covered the reinsurance of claims for medical services and supplies.  It established arbitration as “a precedent to any right of action” and provided that “[n]o arbitration may be commenced more than 3 years after the Effective Date of this Agreement.”  Alliance sued for the reimbursement of certain claims, and American National moved to dismiss in favor of arbitration. Alliance responded that the three-year time horizon had expired, leaving it free to go to court.

The court applies SCOTUS’s decision in Howsam v. Dean Witter Reynolds, Inc., 527 U.S. 79 (2002), which held that “procedural questions of arbitrability that ‘grow out of the dispute and bear on its final disposition’ are presumptively not for the judge, but for an arbitrator to decide.’” (citation omitted; emphasis in Alliance).  Citing Howsam’s holding that the applicability of a six-year time limit on arbitration was a procedural question, the court here holds that the District Court correctly referred the applicability of the three-year limit in the parties’ contract to arbitration. It affirms.

As the heat continues across much of the world, take care of yourselves and others.  See you on Friday.

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

[1] The contract provided for the application of Texas substantive law.