No Court of Appeals decisions today, but a couple of important, interesting cases, particularly an extensively researched opinion on stays pending arbitration by only one party, a holding related to sub-agent assent to arbitration,  and a reminder that reference to tribunal rules is not the be-all and end-all in determining delegation questions.

Effect of Tribunal Rules on Delegation of Gateway Questions

It has become almost a rubric that incorporating arbitral tribunal rules that allow the arbitrator to determine his or her jurisdiction delegates gateway issues, such as arbitrability, from the court to the arbitrator.   Kassim v. CVS Albany, LLC., 2022 U.S. Dist. LEXIS 169730 (E.D.N.Y. September 20, 2022)(Chen, J.), is a reminder that such rules are only one factor to be considered in that determination; the ultimate issue is the intent of the parties.  Did the “parties ‘evince[] a “clear and unmistakable” agreement to arbitrate arbitrability.’”?  (Brackets in original; citation omitted).  While incorporation of such rules, like those of the AAA, is an indicia of such intent, “’context matters’ and ‘[i]ncorporation of such rules into an arbitration agreement does not, per se, demonstrate clear and unmistakable evidence of the parties’ intent to delegate threshold questions of arbitrability to the arbitrator where other aspects of the contract create ambiguity as to the parties’ intent.’” (Brackets in original, citation omitted.) The court holds that, despite a carve-out of certain claims from arbitration, where that subset is very narrow and the claimant’s allegations do not fall within that grouping, an intent to delegate other claims is still evident.

“Full Agreement” Clauses and Arbitration

Kalypsys, LLC. v. Blue Label Solutions, Inc., 2022 U.S. Dist. LEXIS 169929 (D.N.J. September 20, 2022)(Wigenton, J.), is a routine case in which the court compels arbitration.  It is worth a read, though, as a reminder that the basic principles of contract law apply to disputes over the formation of an agreement to arbitrate.  Plaintiff alleged that, during the negotiation of the parties’ services agreement, it objected to the venuing of any arbitration in Washington State, arguing for a seat in New Jersey.  According to Plaintiff, Defendant’s representative assured it that the venue would be irrelevant; “Don’t worry.  We’ve never had to use it.”  The contract contained a typical integration clause, providing that the writing “constitutes the entire agreement and understanding of the [p]arties and supersedes all prior oral or written agreements. . . relating to the subject matter of this Agreement.”  That provision, the court holds, “renders the pre-signing discussion of the location of arbitration wholly irrelevant.”

Dismissal of Claims of Arbitrating Plaintiffs and Stays of Claims of Non-Arbitrating Ones

There are multiple plaintiffs in Riley v. Ntan, LLC., 2022 U.S. Dist. LEXIS 169618 (M.D. Tenn. September 20, 2022), some of whom are bound to arbitrate their employment disputes with Defendant and some of whom are not.  Judge Richardson holds that, despite an order to arbitrate, the court may not dismiss the claims of arbitrating parties, so long as there are still claims pending by non-arbitrating parties.  He analyzes the scope of the “judicially created exception” to Section 3 of the FAA – an exception which, he opines, “permits the court to dismiss, rather than stay, an action when ‘all claims’ or (‘all issues’) before the court are referred to arbitration.” However, he holds that the doctrine does not allow dismissal of less than an entire action, i.e., “all claims of all plaintiffs in a particular lawsuit.” (Emphasis added).  Since the non-arbitrating parties are still before the court, Section 3 of the FAA requires that the claims of the arbitrating plaintiffs must be stayed, not dismissed.

The question becomes what to do with the claims of the non-arbitrating plaintiffs. The court reviews authorities from various jurisdictions and opts for a “balancing approach,” weighing prejudice to non-arbitrating plaintiffs due to the delay in resolving their suit against judicial economy and efficiency.  Here, he opines, the non-arbitrating plaintiffs will not “be harmed by the stay.”[1] Ultimately, the court adopts the practical approach that the litigation by the non-arbitrating parties might be “aided by whatever insight (which could be substantial indeed) is to be gained from the happenings in, findings from, or results of the arbitration proceeds” and totally stays the litigation.  In this day, in which overburdened courts push for settlements, one has to suspect that one of those “insights” is that the parties who are not arbitrating might resolve their claims based on the arbitration result or that the arbitration process will bring about a global settlement.

Forum Non-conveniens; Arbitrator Bias

Sprint Corp. v. Shichinin, 2022 U.S. Dist. LEXIS 169406 (N.D. Tex. September 20, 2022)(Godbey, J.), raises cross-petitions to confirm or vacate an arbitration which was held in Texas before a JAMS panel. Respondent sought to transfer the post-arbitration litigation to Hawaii under the doctrine of forum non-conveniens.  While the court finds that Hawaii would be an “adequate” forum, it holds that all other factors favor retaining the case in Texas, as most of the witnesses and evidence are located there and “Texas courts have an interest in adjudicating disputes regarding the conduct of arbitrators who reside in the state.” The court, then, rejects Respondent’s claims of bias arising out of the arbitrators’ ownership interest in JAMS, which they disclosed; multiple appearances by the Sprint’s counsel’s firm in JAMS arbitrations; and campaign contributions by some of that firm’s lawyers to one arbitrator’s judicial campaign.

Building Subcontractor as Agent for Determining Notice of Arbitration Clause

Melnick v. TAMKO Building Products LLC., 2022 U.S. Dist. LEXIS 170082 (D. Kan. September 20, 2022)(Robinson, J.), addresses who constitutes an agent for purposes of notice of an arbitration requirement. Plaintiff asserted claims against TAMKO for defective roofing shingles.  The wrapping of each package of shingles contained some version of an arbitration agreement.  The court holds that the opening of that package by a roofing contractor constituted acceptance of the agreement by the property owner.  Since the property owner’s developer, in turn, hired the roofing contractor, there was a sub-agency relationship under which the roofer’s knowledge bound the owner. (I suspect that those who represent property owners in liability litigation would have a different view as to the whether that roofer was an agent, rather than an independent contractor).  Finding that the agreement delegated determination of the scope of the arbitration clause to the arbitrator, the court grants TAMKO’s motion to compel.

Arbitrator’s Management of Proceeding

Evan K. Halperin Revocable Living Trust v. Charles Schwab & Co., 2022 U.S. Dist. LEXIS 169078 (S.D.N.Y. September 19, 2022)(Castel, J.), reaffirms the broad discretion which arbitrators have to manage the proceeding before them. The court rejects Petitioner’s application to vacate an award in favor of Schwab based on claims that the panel’s refusal to grant certain of Halperin’s discovery motions showed bias. Schwab had asserted that it did not possess some of the information that Halperin “continually sought.”  The panel, in reviewing the claim of non-disclosure, had ordered Schwab to file a declaration attesting to that fact under penalty of perjury.

Scope of an Arbitration Clause Covering Matters in Performance of the Agreement

Plaintiff in Garg v. Hughston Clinic Orthopaedics, 2022 U.S. Dist. LEXIS 169623 (M.D. Tenn. September 20, 2022)(Campbell, M.J.), alleged that he was fired in violation of his employment contract; he also alleged racial discrimination and retaliation.  The parties’ agreement covered “any party’s performance under this Agreement (including whether a breach has occurred or any interpretation of a provision of this Agreement).”  While holding that the breach of contract claims are subject to arbitration, the court denies the motion to compel as to the discrimination and retaliation claims, since they do not involve the agreement itself. “Indeed, those claims could exist even in the absence of the Agreement.”  “While Dr. Garg’s claims for retaliation and discrimination could arguably be found to arise out of the parties’ relationship, that is not the language Defendants selected for their contract.”  (Emphasis in original).  Lesson for drafters – think through all the potential claims that you might want to remove from litigation and be sure that your language is broad enough to cover them.

Rule Changes

The AAA has changed its Commercial Rules for proceedings filed after September 1, 2022. The major changes relate to consolidation of matters, a clear expression of the leeway given arbitrators in managing proceedings, and increases in the dollar limits for expedited proceedings and three-member panels.  A summary of the rules is available on the AAA website, AAA409_CommRules_Significant_Amendments_Sept2022.pdf (adr.org). The Association is providing in-person and on-line training for its panel members.

As a reminder, the ICSID rule changes became effective on July 1, 2022.

Have a good week.  See you on Monday.

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

[1] In a somewhat gratuitous footnote, he “remind[s]” the non-arbitrating plaintiffs “that it was their choice to join as co-plaintiffs with individuals with arbitration agreements that patently raised a substantial risk that their claims would be stayed” and implies that they should stop complaining, as their complaint “could support a colorable motion to dismiss them as plaintiffs without prejudice pursuant to Fed. R. Civ. P. 21.”