The Circuits spoke up over the last few days, so here is a quick look to guide you to those varied cases.

Intentional torts and claim abandonment

In Maglana v. Celebrity Cruises, Inc., 2022 U.S. App. LEXIS 21662 (11^th Cir. August 5, 2022)(Per Curiam by Judges Jill Pryor, Branch, and Hull), the court addresses whether the arbitration clause in a seaman’s employment contract covered intentional tort claims.   Plaintiffs allege that, when Celebrity shut down its cruises during the COVID pandemic, the defendant refused to allow Filipino crew members to disembark and repatriate. They brought this purported class action alleging false imprisonment and intentional infliction of emotional distress.   Defendants moved to compel arbitration under a provision in the standard employment terms and conditions which provided for arbitration of “[a]ll grievances and any dispute whatsoever . . . relating to or in any way connection with the Seafarer’s service.”  The District Court granted the motion; the Court of Appeals here reverses.

As a threshold question, the court rejects Celebrity’s claim that the arbitrator, not the court, should decide arbitrability, holding that the claim was not appropriately raised in the District Court.  Then, following the holding in Doe v. Princess Cruise Lines, Ltd., 657 F. 3d 1204 (11^th Cir. 2011)(rape of a crew member), the court holds that the arbitration clause’s language – “arising from,” “relating to,” and “connected with” employment – covers only claims which are “’an immediate, foreseeable result of the performance of the parties’ contractual duties or [the plaintiffs’] services’ as cruise line employees.”  (citation omitted, brackets in opinion).  In doing so, it clarifies an “unpublished” decision in Montero v. Carnival Corp., 523 F. App’x 623 (11^th Cir. 2013).  There, the court held that allegedly improper medical treatment of a seaman injured in the course of his employment had to be arbitrated under similar contractual language because “but for Montero’s service on the vessel, none of those claims would have been viable.”  In Maglana, the court makes it clear that the earlier opinion’s “but for” language extends only to claims “available only to seaman.”  “By contrast, intentional tort claims like false imprisonment and intentional infliction of emotional distress are available to all kinds of plaintiffs.”

The case has a potentially broad impact. The boilerplate contract language under which Maglana signed on as a seaman is common in the maritime industry, and, because the Eleventh Circuit includes Florida with its busy cruise ship trade, the Circuit’s courts hear a lot of claims by injured seamen.  More broadly, language like “arising from,” “related to,” and “connected with” is common in all types of employment contracts; Maglana’s holding that intentional torts do not fall under that arbitration umbrella may be precedential in cases far away from the bounding main.

Rule 12(b) v. Rule 56 standards; Discovery in determining arbitrability; CAFA

Two cases address whether a party is entitled to discovery in connection with threshold disputes over arbitrability and, if so, the scope of that discovery.

Robert D. Mabe, Inc. v. OptumRX, 2022 U.S. App. LEXIS 21547 (3^rd Cir. August 4, 2022), involves a mass action brought by numerous pharmacies alleging that Optum, a pharmacy benefits manager, paid them less than was due under their contracts.[1]  Some of those pharmacies entered into contracts directly with Optum, while others worked through pharmacy services administrative organizations (“PSAOs”).  Each contract, known as a Provider Agreement, contained an arbitration clause. Optum moved to dismiss the action under Federal Rule 12(b) based on those arbitration provisions.  The District Court denied the motion, and the Court of Appeals agrees – but only as to the ruling under 12(b)(6); it reverses and remands to the extent that the lower court ruled under the summary judgment standard in Federal Rule 56.  Under Rule 12(b)(6), the pharmacies “were required to show only that the complaint and its supporting documents were not clear enough on their face to establish that the parties agreed to arbitration.”  The complaint relied upon the Provider Agreement, which “when read in the light most favorable to the pharmacies. . . could plausibly prevent the PSAO from sharing the Provider Agreement’s terms with any third party, including the PSAO’s member pharmacies.”  Therefore, Circuit Judge Smith, writing for himself and Judges McKee and Ambro, holds that it is possible that the pharmacies who contracted through PSAO’s might not have been aware of – and, therefore, not agreed to – the arbitration clause.

If the District Court had ended its consideration there, the case would have proceeded and arbitrability might ultimately have been resolved as a factual issue. However, perhaps because it considered evidence outside the four corners of the complaint, such as a deposition from Optum’s corporate representative, the District Court went beyond the standard set forth in Rule 12(b)(6) and decided the case under the provisions of Rule 56, i.e., the existence of a material question of fact and the right of the movant to recover as a matter of law. It is here that the Court of Appeals finds fault.  Having decided that the complaint raised issues of arbitrability, the District Court, under the Circuit’s precedent in Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F. 3d 764 (3^rd Cir. 2013), should have allowed the parties discovery as to arbitrability and, only then, considered any motions for summary judgment on arbitrability.  Therefore, the Court of Appeals reverses and remands for such further proceedings.

The case is interesting for two other reasons.  First, like Maglana, it provides guidance on preserving a claim that the parties delegated arbitrability to the arbitrator, rather than reserving that gateway question for the court.  Second, for those involved in complex, multi-party litigation outside the arbitration framework, it is an important decision on the application of CAFA beyond pure class litigation into increasingly more common mass plaintiff cases.

Flores v. The National Football League, 2022 U.S. Dist. LEXIS 139132 (S.D.N.Y. August 4, 2022), is most interesting because of the parties involved.  Flores and the other plaintiffs argue that teams treated them in a discriminatory manner both in hiring and, at least in one case, in providing them a “meaningful chance to succeed.” The case involves the application of the “Rooney rule,” which requires that teams interview diverse candidates for head coaching positions.  Flores alleges that teams view the rule as a nothing more than a box to check, even though they have already decided on a non-minority candidate.  Plaintiffs sought discovery prior to any motion to compel arbitration.  Judge Caproni denies that request.  She rejects Plaintiffs’ broad request for “agreements between Plaintiffs and Defendants that might bear on the issue or arbitration,” holding that Plaintiffs “should know” what contracts they signed.  Nor, she holds, is discovery appropriate to determine NFL Commissioner Goodell’s “history of arbitration decisions and his relationship with the NFL;” such questions “do not bear on the issue of whether the arbitration agreement is contractually valid.”  The court tips her hand as an additional reason she may have denied discovery.  She cites Olsen v. Charter Communications, Inc., 2019 U.S. Dist. LEXIS 135439 (S.D.N.Y. August 9, 2019) for the proposition that “courts cannot delay ruling on a motion to arbitrate based on conclusory statements that one party’s consent was deficient.”  This decision may be her affirmation that the court intends to keep a generally tight rein on this high-profile matter.

Dismissal to create appellate jurisdiction

While Sperring v. LLR, Inc., 2022 U.S. App. LEXIS 21763 (9^th Cir. August 5, 2022), technically revolves around a District Court’s discretion under Fed. R. Civ. P. 60(b)(6) to reopen a dismissal, for arbitration practitioners it is a reminder that a voluntary dismissal will not allow a party to get around the Federal Arbitration Act’s prohibition of appeals from orders compelling arbitration, 9 U.S.C. § 16.  In Langere v. Verizon Wireless Services, LLC, 983 F. 3d 1115 (9^th Cir. 2020), the Circuit applied Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017)(a voluntary dismissal did not create a final judgment for purposes of appeal), to hold that voluntarily dismissing a complaint after the court orders arbitration does not create a reviewable final judgment.  Here, the court finds that, based on decisions in other Circuits and the Supreme Court’s holding in Lamps Plus, Inc. v. Varela, 139 U.S. 1407 (2019),  the Plaintiff should have foreseen at the time that it dismissed its case that an appeal might be prohibited, even though the Langere decision had not yet been issued.

Manifest disregard; FAA Section 10 vacatur

Cox v. Dex Media, Inc., 2022 U.S. App. LEXIS 21418 (10^th Cir. August 3, 2022), demonstrates the narrow scope of judicial review of an arbitrator’s award. Plaintiff alleged that Dex constructively discharged her by demoting her from sales director to sales rep.  She asserted claims under the Age Discrimination in Employment and Americans with Disability Acts.  The parties arbitrated those disputes under an employment contract of which two provisions are relevant to the Circuit’s decision.  First, the agreement provided that “the arbitrator shall have no authority to add to, detract from, change, amend, or modify existing law.” Second, it required the arbitrator to issue a written opinion with the “essential findings and conclusions.” The arbitrator found for the plaintiff in an award which the court characterizes as “in some ways, letting the facts speak for themselves.”  In the award, the “arbitrator noted that although she ‘considered all the evidence,’ she did not ‘specifically reference[]’ the ‘majority of the evidence’ in her analysis.”  However, to quote the court, “the arbitrator sprinkled in some analysis along the way.”  (Emphasis added).  Dex moved to vacate the award under Section 10(a)(4) of the FAA, which permits setting aside an award when the arbitrator “exceeded [his or her] powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter was not made.” The District Court refused to vacate and confirmed the award.  The Court of Appeals, Carson, J. writing for himself and Judges Holmes and Kelly, affirms.

Dex first argues that the arbitrator ignored the “but-for causation standard” which Gross v. FBL Financial Services, Inc., 557 U.S. 167 (2009) applies in ADEA discrimination cases.  The Court holds that “even if the arbitrator used inartful language that could reasonably be construed as disregarding Gross, her analysis shows she applied the correct standard.” “The arbitrator applied the Gross standard to find in Plaintiff’s favor, without saying so.”  Likewise, the panel rejects Defendant’s claim that the arbitrator failed to comply with that portion of the arbitration agreement requiring that the award set forth its “essential findings and conclusions.”  Dex went so far as to allege that “the arbitrator’s findings and conclusions were so thin that she purposefully made her decision unreviewable” and “leaves [the court] to guess her thought process. . . .”  While the arbitrator’s “findings and conclusions may appear sparse,” the court holds that she included all the “analysis necessary to find Plaintiff successful on her ADEA claim.”  The court, therefore, concludes that “Defendant ignores the key wording of the agreement; it only required the arbitrator to make essential findings and conclusions.  The arbitrator did just that.  We thus will not vacate the award.” (Emphasis in original).

Cox has an important lesson for arbitrators.  While being overly wordy can create vacatur-inviting ambiguities, failing to lay out in detail your thought process when called on to write a reasoned award can be even more dangerous. In reading Cox, I get the impression that the panel was troubled by the absence of more detailed analysis in the award. A panel which took a more expansive approach to its role in reviewing the arbitrator’s result might have come out the other way.

“Sham” arbitration awards

While the refusal to confirm arbitration awards from what courts have characterized as “bogus,” unilateral arbitrations is generally not worth comment, three cases decided by Judge Mazzant on August 5^th are an exception. That was a bad day for Howard James Redford as the court dismissed multiple of his petitions for confirmation with similar reasoning and results, Redmond v. Wells Fargo Bank, N.A., 2022 U.S. Dist. LEXIS 139715 (E.D. Tex. August 5, 2022)(purported $4,509,000 award); Redmond v. Prlap, 2022 U.S. Dist. LEXIS 139724 (E.D. Tex. August 5, 2022)(purported $300,000 award); Redmond v. Graham, 2022 U.S. Dist. LEXIS 139719 (E.D. Tex. August 5, 2022)(purported $552,000 award).[2]  The cases are worth reading because of the court’s detailed description of the process by which “arbitration” institutions and claimants generate these awards.  The decisions also provide a list of other cases which likewise reached the conclusion that such awards are “bogus,” as “there was never an agreement to arbitrate.”  Finally, although he dismisses the cases without prejudice for lack of subject matter jurisdiction, Judge Mazzant opines that the matters were “frivolous” and refers the lawsuits to the U.S. Attorney’s “for investigation.”  Perhaps more such referrals by other judges will have an effect on this “industry” which other cases have opined preys on unsuspecting consumers.  

Have a good week.  With family around I may be off-line Friday.  If so, see you next week.

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

 

[1] The caption listing the parties takes up three-and-a-half pages.

[2] The three cases bear consecutive docket numbers.  So apparently Mr. Redmond filed petitions to confirm arbitration awards against three separate defendants, arising out of three separate sets of alleged facts, at one time.  Interestingly, though, all three awards were issued by the same arbitrator, Thomas Bradford Schaults; two were issued by the same “tribunal,” the “Private International Arbitration Association,” and the third by one called the “Private Universal Arbitration Association.”