Today’s “Highlights” features a law journal article addressing an important, non-theoretical issue for practitioners – maintaining the confidentiality of an award.  Also, there is a contentious case of first impression from the Ninth Circuit and a look at determining whether the FAA or state law provides the law of arbitration.

Confidentiality and Uncontested Confirmations

Usually, I put literature at the end of “Highlights” and only if there is a dearth of caselaw.  Today is an exception.  Mitch Zamoff, McClendon Professor of Law and Alternative Dispute Resolution at the University of Minnesota Law School, has written an important journal article on preserving the confidentiality of awards during the confirmation process, Zamoff, ARTICLE: Safeguarding Confidential Arbitration Awards in Uncontested Confirmation Actions, 59 American Business Law Journal Vol. 3, p. 505  (Fall, 2022), available on-line at ARTICLE: Safeguarding Confidential Arbitration Awards in Uncontested Confirmation Actions (lexis.com).  The article addresses the balance between the arbitral parties’ desire to maintain the agreed-upon confidentiality of an award and the public’s right know the basis for a court’s decision to confirm that award.  Professor Zamoff breaks the sealing cases into three categories: those in which the parties have not agreed to confidentiality;  those in which the court must review some aspect of the underlying award, such an application to confirm where issues related to the propriety of the award are at issue; and those in which the confirmation is uncontested and the applicant merely seeks to convert the award into an enforceable judgment.  He recommends that a court allow sealing of awards falling into the third class. In reaching that conclusion, Professor Zamoff considers a number of factors: the cursory review which court gives uncontested awards, the limited information which the public obtains from such a review, the parties’ interest in privacy, the “countenancing” of undesirable strategic considerations, and the disincentivizing of reasoned awards.  The article, like Professor Zamoff’s other work, is deeply researched, extensively footnoted (172 of them), and practical.[1]

The article also serves as a reminder that, absent a state statute to the contrary (and I haven’t researched to see if there are any), arbitrations are not confidential; they are merely private.   If the parties want to avoid disclosure of the results of the proceeding or the parties’ citing of the award to other tribunals, they need to enter into a confidentiality agreement.

Litigation Waiver post-Morgan

Hill v. Xerox Business Services, LLC., 2023 U.S. App. LEXIS 2735 (9^th Cir. February 3, 2023), is the Ninth Circuit’s first consideration of litigation waiver after the U.S. Supreme Court’s decision in Morgan v. Sundance, 142 S. Ct. 1708 (2022).  In Morgan, SCOTUS struck down a judicially created requirement that a party alleging waiver of the right to arbitrate must show prejudice to the party claiming waiver, even where no such element existed as to other waiver claims.

The facts of the case are complex.  The underlying dispute involves two Dispute Resolution Plans (“DRP”), one from 2002 and a second from 2012.  In 2012, the plaintiffs commenced a class action alleging that Xerox’s compensation plan for call center employees violated various minimum wage laws.  Over the next eight years, the parties litigated various issues related to the composition of the class under the 2002 DRP and the timing and nature of notice to class members. After the notice administrator issued his report as to class size, Xerox moved to compel arbitration as to the class members who signed the 2002 DRP.  The District Court held that Xerox’s litigation efforts since the filing of the case waived any right to arbitrate.

In a 2-1 decision, the majority, in an opinion by Circuit Judge Bea, joined by Circuit Judge Bress, affirms.  It adopts a test with two elements – the alleged waiving party’s “knowledge of an existing right to compel arbitration” and its “intentional acts inconsistent with that existing right.”  The Court opines that Xerox (“XBS”) “exerted a significant amount of energy challenging the merits of the legal theory underlying the claims that Hill raised personally and on behalf of the class members, including the 2002 DRP signatories.”  The majority acknowledges that, because of pending issues, XBS “could not actively move to compel arbitration until the moment it did.”  However, “the litigation history. . . tells the story of XBS’s tactical choice to resolve the claims judicially and reveals that XBS belatedly chose to retreat and to claim the benefit of arbitration under the 2002 DRP only once its judicial strategy failed.”  In a lengthy recitation of evidence which it finds demonstrates that “tactical choice,” the majority points to Defendant’s assertion of its right to arbitrate under the 2012 DRP, discovery which it undertook related to “Putative Class Member[s],” and “’active litigat[ion]’ . . . through filing a motion for partial summary judgment” which, if granted “would have defeated a substantial amount of the claims in this case. . . .”

In a sharply worded dissent, Circuit Judge VanDyke, opines that the majority has created a “new forfeiture rule,” in place of the Circuit’s reliance upon the defendant’s “waiver” of its arbitration rights. “Under that new rule, a defendant forfeits its right to compel arbitration not only if it engages in a concrete inconsistent act, but also if a court conjectures from the ‘totality of the circumstances’ that the defendant secretly intended to forfeit that right.”  The dissent, then, undertakes a point-by-point analysis of each litigation act upon which the majority relies; however, it views them in the context of XBS’s litigation against Ms. Hill individually, rather than as to the class against whom it later sought to arbitrate, and in light of the court’s need to resolve the scope of the class.  In summarizing those efforts, the dissent would hold that “the well-established test is whether the defendant took any actions inconsistent with the right to arbitrate.  Litigating against someone with whom you have no right to arbitrate (such as Ms. Hill), or litigating issues that you have no right to arbitrate (such as the class certification issues in this case), is not inconsistent with the right to arbitrate.” (Emphasis in original). Judge VanDyke argues that, in holding otherwise, the “majority substitutes its intuition that, sure, XBS may have been actually litigating against Ms. Hill, but in its craven heart it was really going after the absent class members.  I would stick to what XBS actually did and the actual legal import of its actions, not attempt to divine any motives it possibly had.” (Emphasis in original). [2]

For litigation nerds, one of the interesting aspects of the case lies buried in footnote 15, which discusses the difference between waiver and forfeiture.  The majority opines that ”a party cannot forfeit what is not available because it never would have had an opportunity to raise that right in the first instance.”  It reiterates that forfeiture and waiver are different concepts.  That difference raises a tactical opportunity for counsel in the right case.  Rather than ceding the ground that conduct of the party seeking arbitration should be measured by a waiver test, can counsel recast the debate into one of forfeiture? Would doing so allow it to shift the focus away from all of the steps it may have previously taken in the litigation to the question of whether it even had the right to move to compel earlier?  While the instances in which the shift might apply may not be common, counsel should think about its availability; winning arguments sometimes come from left field and imagination is part of why clients pay counsel.

State Arbitration Law v. the FAA

Riley v. QuantumScape Corp., 2023 U.S. Dist. LEXIS 17744 (N.D. Cal. February 2, 2023)(Freeman, J.), considers whether the FAA or the California Arbitration Act is the law of arbitration in the case.  The parties executed two agreements.  The arbitration clause in the “Separation and Release” provided that “The arbitrator shall administer and conduct any arbitration in accordance with California Law, including the California Code of Civil Procedure. . . .” The “Consulting Agreement” contained a reference to the California Code of Civil Procedure, but also provided that “The Federal Arbitration Act shall continue to apply with full force and effect notwithstanding the application of the procedural rules set forth in the Act [the Code of Civil Procedure].”  Applying Ninth Circuit precedent, Judge Freeman holds that that there is a “strong presumption” that the FAA applies the rules for arbitration; to overcome that presumption, parties “must explicitly state their intent to incorporate California law as it relates to arbitration,” citing ValueSelling Associates, LLC v. Temple, 2011 U.S. Dist. LEXIS 68250 (S.D. Cal. June 23, 2011), aff’d 520 F. App’x 593 (9^th Cir. 2013).  A general reference to the California Code of Civil Procedure is not adequate to overcome that presumption, “because the [California Arbitration Act] is only a part of the CCP, as it is only a part of California law.”  The court also looks to the parties’ “conduct in the arbitration,” in which the Arbitrator, throughout the proceeding “note[d] that the FAA applies to the arbitration.”

There is a practical lesson to be drawn from the case.  The Arbitrator and counsel should consider and resolve at the first preconference hearing what law will govern the arbitration, as opposed to the substantive law on the merits.  That determination should be included in Procedural Order #1, so that everyone is on the same page moving forward.

Have a good week.  On Friday, I hope (depending on space) to cover upcoming meetings and CLE opportunities.

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

[1]  For example, he has written an article on the issue of arbitrator disclosure of social media contacts that changed my practice, Zamoff and Bellwood, Proposed Guidelines of Arbitral Disclosure of Social Media Activity, 23 Cardozo Journal of Conflict Resolution, Vol. 1, p. 1 (Spring, 2022), available on-line at  https://static1.squarespace.com/static/60a5863870f56068b0f097cd/t/621808f19975c26755b22702/1645742321667/CAC106_crop.pdf.

[2] In the January 27^th issue of “Highlights,” I mentioned the difference between the respectful treatment of dissenting views in Compania De Inversiones Mercantiles S.A. v. Grupo Cementos De Chihuahua S.A.B. De C.V., 2023 U.S. App. LEXIS 602 (10^th Cir. January 10, 2023), and the aggressive snark that seems to have grown more prevalent in judicial opinions.  I respectfully suggest that the dissent in this case falls on the wrong side of that line.