There are no blockbusters in this issue, as we await a decision from SCOTUS in Coinbase, but there are some interesting cases on more standard issues and a rare look at the Franken Amendment.
“Interstate Commerce Worker” Exception to the FAA
The exception in Section 1 of the Federal Arbitration Act for “workers engaged in foreign or interstate commerce” continues to get attention. In Nair v. Medline Industries, Inc., 2023 U.S. Dist. LEXIS 50469 (E.D. Cal. March 24, 2023), Judge Drozd views the exception’s application to warehouse workers.
Plaintiff was a Warehouse Operator, who worked in one of Medline’s warehouses. She alleges that Medline did not pay her or members of a putative class statutorily mandated wages. Medline sought to compel arbitration under the parties’ employment agreement. The issue before the court is whether the FAA empowers it to compel arbitration.
In opposition to Medline’s motion to compel, Nair alleged that she “‘packaged medical devices and other items [d]efendant manufactured at its Tracy California warehouse and loaded them onto trucks that were traveling to various destinations,’ including daily shipments to Nevada.” This work, she asserted, involving “walk[ing] straight onto the truck with pallets [that were shrink wrapped for shipment].” Medline countered that “[t]he bulk of the work performed by Warehouse Operators is nearly always. . . either putting away incoming inventory, picking product, packing it, repackaging it, or staging it for shipment.” Last Term, SCOTUS held that an airline ramp supervisor was engaged in interstate commerce when she “handle[d] goods traveling in interstate and foreign commerce either to load them for air travel or to unload them when they arrive,” Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783, 1792 (2022)(brackets in Nair). Here, the court finds that Medline’s declaration in support of arbitration “does not meaningfully contest that warehouse operators like plaintiff frequently load and unload pallets on and off trucks or are otherwise directly involved in the ‘shipping, processing, and receiving’ of goods. . . .” (Emphasis added). Citing to both Southwest Airlines and the Ninth Circuit’s holding in Rittmann v. Amazon.com, Inc., 971 F. 3d 904 (9th Cir. 2020)(Amazon last mile drivers are not covered under the FAA), the court holds that, by virtue of Section 1 of the FAA, such workers do not fall within the scope of the Act, even if their employer is not in the transportation business. Therefore, the FAA does not empower a federal court to compel arbitration, and the court denies Medline’s motion.
The case is interesting for several reasons. First, it joins those authorities holding that, post-Saxon, the focus of a Section 1 inquiry is on the nature of the worker’s job, not on the employer’s industry. Unlike Southwest Airlines, which was clearly in the transportation business, Medline is a healthcare materials provider. Second, in a footnote, Judge Drozd opines that, because “the Supreme Court expressly declined to address the Ninth Circuit’s definition of a ‘transportation worker engaged in interstate commerce.’ See 142 S. Ct. at 1789 n. 2,” Rittman is still good law. Third, the court holds that Ms. Nair and other Warehouse Operators “frequently” loaded and unloaded trucks. What does “frequent” mean in this context? If the worker only loads or unloads trucks on those occasions when another employee is absent, does he or she meet the Saxon/Nair test?
If you ever had the irrational thought that “manifest disregard of the law” might provide a grounds for vacating an award, the court’s language in Maro v. Commuter Advertising Inc., 2023 U.S. Dist. LEXIS 49657 (S.D. Ohio March 22, 2023)(Newman, J), should disabuse you.
Maro alleged that Defendant discriminated against her on the basis of pregnancy. Applying Ohio law, an arbitration panel issued a final award in her favor in the approximate amount of $640,000. In doing so, it applied a “mixed-motive” test, holding that, although Commuter considered some reasons which might justify termination, such as missed flights and meetings and concerns about “her leadership,” the determining factor was her pregnancy. In seeking to vacate the award, Commuter argued that Ohio does not recognize such claims and, therefore, that the panel’s award should be set aside under the “manifest disregard of the law” standard.
As often is the case in “manifest disregard” cases, Judge Newman begins by describing the high bar which those seeking vacatur must meet. “If a court can find any line of argument that is legally plausible and supports the award, then it must be confirmed. Only where no judge or group of judges could conceivably come to the same determination as the arbitrators must the award be set aside,” quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F. 3d 418, 421 (6th Cir. 1995)(Emphasis added). Here, the court opines, the Ohio Supreme Court has not yet ruled upon the viability of mixed-motive claims. Further, intermediate Ohio appellate courts took different stances on the question; the court cites cases on both sides of the issue. Thus, Judge Newman opines that “based on the silence from the Ohio Supreme Court and the varied opinions amongst the Ohio appellate courts, the Court finds that there is no clearly established rule ” which the arbitration panel disregarded.
Even if the panel was wrong on the law, the court holds that such a mistake alone does not “satisfy the manifest disregard standard,” as an “[e]rror in interpreting the applicable law. . . is  insufficient to warrant vacatur.” (Citation omitted, bracket in Maro). Rather, the court looks to the process which the arbitration panel applied in attempting to reach a correct conclusion. “There is no basis to vacate the final arbitration award because the Panel faced an unsettled legal area, requested guidance from both sides, analyzed the issues, took testimony, and reached a reasonable conclusion based on the evidence before it.” The Court confirms the award.
For those of us who act as arbitrators, this quoted language should serve as a road map when considering unclear legal issues. Under the “manifest disregard” standard, so long as the panel works hard at reaching the right answer, the court will be forgiving of an error in the conclusion – although in our self-analysis late at night, we will not be so lenient.
Delegation; the Franken Amendment; Arbitration and Federal Contracts
Talhouk v. The RMR Group LLC, 2023 U.S. Dist. LEXIS 50489 (N.D. Ga. March 23, 2023)(Anand, M.J), addresses compulsory employment agreements between federal contractors and their employees.
Under the Franken Amendment, except in relation to contracts for the acquisition of commercial goods or services, federal departments and agencies are prohibited from using funds appropriated for any contracts in excess of $1,000, unless the contractor agrees not to enter into or take “any action to enforce” any agreement requiring arbitration of Title VII claims, 48 C.F.R. § 222.7403. Plaintiff alleges that RMR terminated him as an Area Chief Engineer based upon his race. The parties do not dispute that they agreed to arbitrate such Title VII claims. Defendant moved to compel arbitration under that agreement; Plaintiff claimed the agreement was invalid under the Franken Amendment.
The court first rejects Defendant’s claim that the applicability of the Amendment should be delegated to the arbitrator. Magistrate Judge Anand focuses on the Amendment’s prohibition of “any action” to enforce such an agreement. A request from the Defendant that the court “compel arbitration of even an arbitrability dispute would itself cross a line that the Plaintiff argues is legally barred, that is, to ‘take any action’ to enforce ‘any provision’ of an employee arbitration agreement involving Title VII claims.” (Emphasis added). Therefore, the court holds that it should decide the legal merits of whether the Amendment applies.
The court, then, holds that the Franken Amendment does not prohibit a contractor from entering into a provision mandating arbitration of Title VII claims. The court, again, focuses on the precise language of the regulation, highlighting its provision that ”’Departments and agencies are prohibited [from paying funds to contractors who require or enforce arbitration as to Title VII claims]. . . In other words, this is an appropriations restriction on the Executive Branch’s ability to spend funds.” (Emphasis and brackets in opinion). Any effort to “effectuate beneficial employment reforms” is done “indirectly,” by restricting what entities can act as federal contactors. It is not a “direct regulatory prohibition on the conduct of those contractors.” The court distinguishes Ashford v. PricewaterhouseCoopers, LLC, 954 F 3d 678 (4th Cir. 2020), which “describes the Franken amendment as a ‘legal prohibition’ that ‘bars defense contractors from mandatory arbitration of Title VII claims.’” Magistrate Judge Anand opines that the quoted language in Ashford was merely dictum and that the holding of the case centered on the cessation of the Defendant’s status as a federal contractor, not on restrictions upon those who still had that status.
In conclusion, the court rules that the Franken Amendment merely imposes “powerful carrots and sticks to change the behavior of federal contractors.” If such parties choose to enforce arbitration provisions, they “would presumably face serious possible consequences in terms of its federal contractor status and/or liability to replay funds received. Congress apparently decided that this power-of-the-purse would be the means to achieve the results it sought. It would not be ‘absurd’ to recognize that intent.”
Accordingly, the Magistrate Judge recommends that the District Judge grant RMR’s motion to compel arbitration. Perhaps anticipating that the reviewing judge might disagree with his conclusion, Magistrate Judge Anand, in a footnote, recommends that, “if this recommendation is not adopted,” the Court should sever the Title VII claim and stay the rest of the case spending arbitration of those claims. As the opinion says, “there appears to be surprisingly little in the way of reported court decisions as to the meaning and effect of the Franken Amendment, despite its having been on the books since 2010.” In this light, it is probable that Plaintiff will object to this recommended decision; I will try to track the case in future “Highlights.”
The parties to an arbitration undoubtedly recognize that they are giving up certain formalities in return for the efficiencies which the process provides over litigation. However, they certainly expect that the decision-maker will be unbiased. Since the decision in Monster Energy v. City Beverages, LLC, 940 F. 3d 1130 (9th Cir. 2019), the issue of arbitrator bias has been particularly visible. But, what should be the standard for a court’s evaluation of the arbitrator’s conduct? In an article in the Winter edition of the University of Missouri Law School’s Journal of Dispute Resolution, Viridian Marcial argues for a “possible impression of bias” standard. Whether one agrees or disagrees with the article’s conclusions, it is a very readable and thoughtful analysis of both the law and the social science of arbitrator bias. Marcial, Comment: Arbitrator Bias: Why We Should Adopt the Ninth Circuit’s Reasonable Impression Standard, 2023 J. Disp. Resol. 135 (Winter, 2023), available on Lexis at COMMENT: ARBITRATOR BIAS: WHY WE SHOULD ADOPT THE NINTH CIRCUIT’S REASONABLE IMPRESSION STANDARD (lexis.com)
One of the basic premises of mediation is that the parties have the right to make their own decisions. The ethical standards of the American Bar Association, the American Arbitration Association, and the Association for Conflict Resolution make such free choice a core principle. Robert Bush and Dan Berstein, in another article in the current issue of the Journal of Dispute Resolution, analyze ways in which mediators may inadvertently undercut self-determination, and they create a set of bench marks that practitioners might use to monitor their own conduct. Bush and Berstein, Article: Orienting Toward Party Choice: A Simple Self-Determination Tool for Mediators, 2023 J. Disp. Resol. 1 (Winter, 2023), available on Lexis at ARTICLE: ORIENTING TOWARD PARTY CHOICE: A SIMPLE SELF-DETERMINATION TOOL FOR MEDIATORS (lexis.com).
Periodically, I like to remind readers that the purpose of “ADR Highlights” is to summarize recent federal cases and other developments in the ADR area. None of my analysis should be interpreted as an indication of my own views, particularly any opinion I might have as to whether the decision is right or wrong. As an arbitrator, it is my job to decide cases solely based on the record and law that the parties present to the panel.
Winter sports are wrapping up with the Men’s and Women’s Final Four and the Frozen Four on the ice, so Spring is finally in sight. If you have sunshine this week, take some time to get outside and enjoy it.
David A. Reif, FCIArb