I’ve been tied up on an arbitration (the day job), so “Highlights” been quiet. Fortunately, there have not been a lot of particularly interesting District Court cases. So, today, we’ll look at the last week of Court of Appeals decisions and, because things are slow, catch up on recent literature.
In Symetra Life Insurance Co. v. Administration Systems Research Corp., 2022 U.S. App. LEXI 30996 (6th Cir. November 7, 2022), the Court addresses two recurring issues in the enforcement of subpoenas under Section 7 of the Federal Arbitration Act. In connection with a dispute among insurers of an employee benefit plan, an arbitration panel issued a subpoena requiring the respondent, ASR, to testify at a hearing in Grand Rapids, Michigan. When ASR refused to appear, Symetra brought this case under Section 7 of the FAA seeking to compel compliance.
The Court of Appeals, with Judge Siler writing for himself and Judges Gibbons and Stranch, first holds that the federal courts have subject matter jurisdiction. At issue is the amount in dispute in an application to compel compliance with a subpoena. Calling the question a matter of first impression in the Sixth Circuit, the court joins the Second and Ninth Circuits in holding that the appropriate measure is the “subpoenaed information’s value to the plaintiff in the underlying arbitration dispute.” See Maine Community Options v. Albertson Companies, 993 F. 3d 720 (9th Cir. 2021); Washington National Insurance Co. v. OBEX Group, LLC, 958 F. 3d 126 (2nd Cir. 2020). “Steer[ing] clear” of the question of whether that value is measured from the perspective of the claimant or respondent, the court opines that, since the amount in dispute in the arbitration is “at least three million dollars,” the documents sought in the subpoena “need only pertain to a small fraction of the arbitral award for the amount-in-controversy [of $75,000] to be satisfied.” Accordingly, the court holds that District Court had diversity jurisdiction under 28 U.S.C. § 1332.
On the merits, the most interesting question for arbitration nerds is where the panel “sits” for subpoena purposes. Is it where the panel will receive the subpoenaed material or is it the venue for the merits hearing? Section 7 of the FAA restricts the power to issue a subpoena to the courts in “district in which such arbitrators, or a majority of them are sitting. . . .” The merits hearing in the underlying arbitration was set for Houston, Texas; therefore, ASR argued, the District Court in this matter, which sat in the Western District of Michigan, lacked authority to issue the subpoena. However, as the arbitrators stated that they would sit in Grand Rapids, Michigan – which is within the Western District – for the hearing which related to the subpoena, the District Court held that it could and would issue the subpoena. The Court of Appeals affirms.
Arbitration under the Terms of an Expired Collective Bargaining Agreement; Retiree Claims
Local 97, IBEW v. NRG Energy, Inc., 2022 U.S. App. LEXIS 31217 (2nd Cir. November 10, 2022)(Judge Pooler for herself; Judge Perez; and District Judge Rakoff, sitting by designation), considers the applicability of a broad arbitration clause to disputes that arise after the agreement’s expiration. The arbitration clause in the parties’ 2019-2023 CBA provided that it related to “a dispute or difference . . . . as to the meaning, application, or operation of any provision of this agreement.” The court holds that such language covers health benefit claims of those who retired before the execution of the agreement. Relying upon the presumption that claims between parties who have executed a “broad” arbitration clause are arbitrable, the court reverses the District Court’s denial of the Union’s motion to compel arbitration. The Court also holds that the District Court erred in ruling that the dispute was not arbitrable under the parties’ prior CBAs, even though the claim was not asserted until after their expiration. First, the court opines that a memorandum of agreement, related to retiree benefits, was incorporated into the parties’ 2003 CBA as an “arbitrable side agreement.” Further, it holds that the Union’s agreement that the retirees’ benefits were “grandfathered” must be arbitrated. It is sufficient if the Union “has raised an arguable claim that the benefit was intended to be provided. . . .” (Emphasis added). In summary, the Court holds that “presumptions favoring arbitrability must be negated expressly or by clear implication” if the parties to a CBA are to avoid resolution of their disputes through that procedure.
Arbitration of Disputes over Broker Loans
It is a common practice in the securities business for a broker-dealer to make loans to newly employed financial advisors, with the loans to be repaid out of future commissions. Roberts v. Wells Fargo Clearing Services, LLC, 2022 U.S. App. LEXIS 30999 (11th Cir. November 9, 2022)(per curiam)(Judges William Pryor, Jordan, and Branch), addresses the arbitrability of claims for repayment of any unpaid debts on the termination of employment. The Court holds that FINRA’s arbitration provisions apply to claims by the representative that the broker-dealer improperly garnished his bank accounts to pay off those loans. Although Roberts’ claims sound in conversion, the Court opines that, “because Robert’s claims exist solely because of his business relationship with Wells Services and the termination of that relationship,” they fall within FINRA Rule 13200 which requires arbitration when “a dispute arises out of the business activities of a member. . . .”
Institution Rules and Delegation
In Howsam v. Dean Witter Reynolds, 537 U.S. 79 (2002), the Supreme Court held that the court, not the arbitrator, decides questions of arbitrability, unless the parties “clearly and unmistakably” provide that the arbitrator should resolve those issues. The rules of most arbitral institutions, such as JAMS and the AAA, provide that the arbitrator decides his or her own jurisdiction, and courts have consistently held that the invocation of those rules demonstrates the parties’ intent to delegate most gateway issues to the tribunal. In Acheron Portfolio Trust v. Mukamal, 2022 U.S. App. LEXIS 30702 (11th Cir. November 4, 2022)(per curiam), Judges William Pryor, Jill Pryor, and Grant require very specific language in order to invoke that tribunal principle. The parties’ contract provided that the dispute “shall be submitted to JAMS” for arbitration and that, before that submission, “the parties may pursue a provisional remedy ‘authorized by law or by the JAMS Rules or by agreement of the parties.’” The agreement, however, “did not say that the JAMS Rules would govern arbitration.” Therefore, the court holds, the parties did not express “the ‘clear and unmistakable’ evidence necessary to over the presumption that the court, rather than the arbitrator, decides the gateway question of arbitrability.” The opinion distinguishes Terminix International Co. v. Palmer Ranch Limited Partnership, 432 F. 3d 1327 (11th Cir. 2005), which compelled arbitration of this gateway question, on the basis the parties there “expressly agreed that ‘arbitration shall be conducted in accordance with the Commercial Arbitration Rules then in force of the American Arbitration Association.’” In short, the court holds that, in order to overcome the presumption that a court resolves arbitrability, the parties’ agreement must not only state that they are submitting the dispute to a tribunal, but specifically state that they are doing so pursuant to that tribunal’s rules.
The case leaves an interesting question unanswered. The AAA’s Commercial Rules state that the parties “shall be deemed to have made these Rules part of their arbitration agreement whenever they have provided for arbitration” by the institution, AAA Commercial Rules, R-1(a). Even more specifically, Rule R-1(e) provides that, with some irrelevant exceptions, “all other cases shall be administered in accordance with Rules R-1 through R-60 of these Rules.” One of those rules, Rule R-7, specifically provides that the arbitrator decides arbitrability. JAMS, which was to administer the arbitration in Acheron, has a similar format, see JAMS Commercial Rules, 1(b) and 11(b). Since the process of submitting a dispute to the institution automatically invokes the institution’s rules, isn’t a requirement that the arbitration agreement also recite that the rules apply not just surplusage and a trap for the unwary?
Whether the decision is right or wrong (or is followed in other Circuits), drafters need to review all their arbitration agreements as soon as possible in order to assure that they include the incantation “pursuant to the rules” of the relevant institution.
Since there are not a lot of cases today, here is some of the recent literature on arbitration. Some of these pieces express strong policy views; my including them here is not an endorsement or rejection of those ideas, but they are all worth reading.
Mandatory Arbitration of Representative Claims
In an article that invokes Star Wars, Professor Imre Szalai of Loyola University Law School analyzes the Viking River Cruises decision and its impact on cases where “the plaintiff worker is serving as a bounty hunter for the State.” Think PAGA. The article is available on Lexis ARTICLE: Boba Fett, Bounty Hunters, and the Supreme Court’s Viking River Decision: A New Hope, 80 Wash. & Lee L. Rev. Online 97 (lexis.com)
Considerations on Whether to Arbitrate
While it focuses on the London financial markets, an article in the New Law Journal is a useful analysis of the thought process in deciding whether to arbitrate or go to court, Walsh, Arbitration v. Litigation: Choices, choices, 172 NLJ 8002, 15 (November 11, 2022). The article is available on Lexis, Arbitration vs litigation: choices, choices (lexis.com)
One of the issues which mediators regularly consider is when – and if – to make his or her own settlement proposal. Mark Zukowski addresses the question in Feature: Special Feature: A Mediator’s Settlement Proposal, 59 AZ Attorney 32 (November, 2022), see LEXIS FEATURE: SPECIAL FEATURE: A MEDIATOR’S SETTLEMENT PROPOSAL (lexis.com)
Nursing Home Arbitration Clauses
A student note in the University of Missouri Law Review discusses in depth a Missouri Supreme Court decision related to the binding effect of an arbitration provision signed by the patient’s attorney-in-fact under a durable power of attorney, Harrington, Note: Nightmare on High Street: The Haunting Effects of Voluntary Arbitration in Nursing Home Administration, 87 Mo. L. Rev. 863 (Summer, 2022), see LEXIS NOTE: Nightmare on High Street: The Haunting Effects of Voluntary Arbitration in Nursing Home Administration (lexis.com). Even for those who don’t agree with the author’s conclusions, the article lays out the relevant issues well.
Dispute Resolution Journal
The latest issue of the AAA’s Dispute Resolution Journal, Volume 75, Number 2 (November 202), is, as usual, full of well thought out articles on practical issues. Bartkus, Dispute Resolution Provisions in Life Sciences Agreements; Duffy, Arbitration’s Benefits for the Life Sciences Industry; Finch and Griffin, Best Practices for Statutory Cost-Shifting Offers in Arbitration; Bender, Chairing an Arbitration Tribunal; and Lesser and Silver, Drafting a Bulletproof Reasoned Award. We all get overwhelmed with literature, but this journal is worth following.
Have a great week. If you are in the New York area, you can still catch the last days of New York Arbitration Week through Friday. The programming is topical and presented by the cream of the arbitrator crop. I will be in on Wednesday. If you will be attending, please let me know at email@example.com; it would be great to meet.
David A. Reif