There have been no particularly significant cases since Monday, so here’s a rundown on various topics which the courts covered. If you’ve got a case on the desk – or the brain – in one of these areas, perhaps this format will direct you to something new and relevant.
The parties’ arbitration agreement followed the increasingly less common format under which each party would select an arbitrator, who would, in turn, select a third panel member. Since the agreement invoked the AAA’s rules, the Magistrate Judge holds that the parties must select their appointees from the Association’s roster, Cook v. XL Specialty Insurance Co., 2022 U.S. Dist. LEXIS 144466 (S.D. Fla. August 12, 2022)(Reinhardt, M.J.).
Confidentiality of Mediation Documents
Graham v. Peltz (In re: Wendy’s Shareholder Derivative Action), 2022 U.S. App. LEXIS 22275 (6th Cir. August 11, 2022)(Reader, C.J., for himself and Bush and White, C.Js.), reaffirms the confidentiality of mediation materials. Even though “that material would have aided the district court in assessing the settlement’s propriety,” the Court of Appeals upholds a District Court’s refusal to consider information from mediation sessions in evaluating whether to approve the resolution of two derivative actions.
Scope of Arbitration Agreement; Interest Awards
ExxonMobil Oil Corp. v. TIG Insurance Co., 2022 U.S. App. LEXIS 22433 (2nd Cir. August 12, 2022)(Nardini, C.J., for himself and Walker and Menashi, C.Js.), focuses on specific language in the “ADR Endorsement” to the parties’ insurance policy. The agreement set up a multi-stage resolution process. In the first stage, either party could request in writing that “the dispute be settled by an alternative dispute resolution (‘ADR’) process. . . . “ The agreement listed mediation, neutral fact-finding and binding arbitration before various ADR institutions as examples of such processes. The agreement then provided that “if the parties cannot agree on an ADR process within 90 days” of that request, “the parties shall use binding arbitration.” The Court of Appeals holds that this language automatically triggered arbitration after 90 days and affirms the District Court’s denial of vacatur of a $25 million award in favor of Exxon. The case also addresses interest awards under New York law and the effect of a judge’s recusal on previously entered orders.
R & C Oilfield Services, LLC v. American Wind Transportation Group, LLC., 2022 U.S. App. LEXIS 22572 (3rd Cir. August 15, 2022)(Shwartz, C.J. for herself and Krause and Roth, C.Js.), is another example of the lesson that appears in numerous cases – be proactive and, if there is any doubt as to whether you need to appeal an order, do so immediately. R & C was ordered to arbitrate its dispute with American Wind. It did not seek an interlocutory appeal of that order. When R & C stated that it would not participate in the arbitration, the District Court dismissed the case. In its appeal from that dismissal, Plaintiff asked the Court of Appeals to consider the merits of the order compelling arbitration. The Court refuses to do so, holding that the interlocutory order does not merge into the final judgment, at least where the appellant “sat on its rights for a year and a half. . . .”
Effect of Statutory Changes Barring Pre-dispute Arbitration Agreements; Certification of Interlocutory Appeal
In 2016, the Department of Education adopted regulations barring schools participating in the federal student loan program from enforcing pre-dispute arbitration agreements. In 2020, the department removed that provision from the student loan program requirements. Britt v. IEC Corp., 2022 U.S. Dist. LEXIS 146629 (S.D. Fla. August 16, 2022)(Altman, J.), holds that the revocation of the prohibition applies to cases filed after the date thereof. Therefore, the court compels arbitration. It, also, denies Plaintiff’s motion to certify an interlocutory appeal of that order under 28 U.S.C. § 1292(b). The case is a good example of how a judge might analyze the elements of that rarely granted interim review.
Ratification by Conduct; Arbitration by a Non-signatory Insurer; Equitable Estoppel
For those seeking to enforce arbitration clauses which might not be conspicuous, Glover v. Bob’s Discount Furniture, Inc., 2022 U.S. Dist. LEXIS 144544 (S.D.N.Y. August 12, 2022)(Koeltl, J.), is a useful read. The Court enforces an arbitration clause located on the rear of a receipt, even though one of the parties did not sign the document. Relying on Plaintiff’s acceptance and use of the sofa which accompanied the receipt, the court holds that she ratified the entire agreement, including the arbitration provision. The court also holds that the insurance company which backed Bob’s warranty of the sofa may enforce the arbitration provision; Plaintiff’s claims against the insurer are “intertwined with the contract between [Plaintiff] and Bob’s and it would be inequitable to allow [Plaintiff] to escape the contract’s obligation to arbitrate with respect to [the insurer].”
Has Arbitration “Failed” under the FAA?
Section 4 of the Federal Arbitration Act provides that a party “aggrieved by the alleged failure, neglect, or refusal of another to arbitrate” may seek an order compelling arbitration. Stavis v. One Technologies, Inc., 2022 U.S. Dist. LEXIS 144909 (N.D. Tex. July 13, 2022)(Godbey, J.), joins the cases which hold that, where the AAA refuses to accept a matter because the proposed respondent has previously failed to comply with the Association’s rules, the filing party has not “fail[ed], neglect[ed] or “refus[ed]” to arbitrate. Therefore, the FAA does not empower the court to compel arbitration.
“Public Policy” as a Basis for Vacating an Award
Since the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), the Circuits have split on whether doctrines such as “manifest disregard” or “violation of public policy,” which are not specifically enumerated in the FAA, provide a basis for vacating an award. In Spirit of the East, LLC v. Yale Products, Inc., 2022 U.S. Dist. LEXIS 146628 (S.D. Fla. August 16, 2022)(Moreno, J.), the court opines that the 11th Circuit “prohibits ‘all extra-statutory grounds for vacatur, whether judicially-created or contractually agreed upon,’” quoting Frazier v. CitiFinancial Corp., LLC., 604 F.3d 1313 (11th Cir. 2010)(Emphasis in opinion). Accordingly, the court rejects Plaintiff’s claim that the arbitration award violated public policy by failing to follow Florida law regarding the transfer of vessels and denies vacatur. Hall was decided almost fifteen years ago, and the Circuit split over the viability of extra-statutory grounds for vacatur continues. It will be interesting to see if SCOTUS, which now seems to be interested in arbitration, will have an opportunity through cert. to address the Circuits’ divide on this important question and will choose to do so.
Stay of Pending Arbitration
In J.P. Morgan Securities, LLC v. Duncan, 2022 U.S. Dist. LEXIS 143924 (E.D. Mich. August 11, 2022)(Murphy, J.), Plaintiff sought a temporary restraining order under Fed. R. Civ. P. 65 to enjoin Duncan from soliciting clients of his former employer or using the employer’s documents or confidential information. The court finds in favor of Morgan on each of the requisite elements for a TRO – likelihood of success, irreparable harm, substantial harm to others, and the public interest. For anyone either seeking or opposing an injunction pending arbitration, the case provides a good template for the elements to consider. It is, also, a reminder to those drafting arbitration clauses that they should consider carving injunctive relief out of the scope of arbitration, so as to avoid the potentially time-consuming process of obtaining an emergency arbitrator when there may be imminent harm.
“Highlights” is two years old, and, as you may have noticed, this issue tries a new format. Rather than a deep dive into a couple cases, I’ve covered more decisions in less depth. My thought is that this format lets me flag more decisions and, if they are of interest to your practice, you can go to the case itself – as you probably would anyway. It would be helpful if you’d drop me an email (my email address is always at the end of the issue) or comment on the site where you read “Highlights” and let me know which approach you prefer. My goal is to make this blog as useful as possible.
I’ll be traveling through mid-September, so “Highlights” will on hiatus for the next three weeks. If you’re in the U.S., enjoy the Labor Day break. With many returning to the office and live arbitration hearings increasing, this fall should be much busier than the past two years. I hope you’re rested. Stay safe.
David A. Reif, FCIArb