My New Year’s resolution (a little early) is to revamp “Highlights” to make it a faster read – and write.  Look for shorter and more frequent posts, so you can get to the cases you need or that pique your interest right after they come out. I hope you’ll make the blog one of your regular reads.

Unpaid Administrative Fees

In 2017, SCOTUS upheld arbitration agreements that require the parties to proceed on an individual basis, rather than on behalf of a class of consumers or employees, Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2017).  In response, Claimants’ counsel began to file hundreds or even thousands of arbitrations at once. Since a number of arbitration institutions have rules for consumer or employment cases which require the respondent to advance a significant portion of any administrative fees, subject to reallocation by the arbitrator, the trend imposed a major financial burden on companies subject to such filings. The AAA further required that some respondents register their arbitration agreements with the Association.  If those payments are not made or the Respondent otherwise fails to comply with the institution’s rules, the forum may refuse to accept the proceeding.  So, where would such a refusal leave the Claimant?  How does he or she get the case resolved?  The Second and Eleventh Circuits addressed that question in the last two days.  In Bedgood v. Wyndham Vacation Resorts, Inc., 2023 U.S. App. LEXIS 33600 (11^th Cir. December 19, 2023), Judge Newsom, writing for himself, Judge Jordan, and District Judge Grimberg, holds that Plaintiffs who filed demands for arbitration which the institution rejected due to the Defendant/Respondent’s failure to comply with institution rules may proceed to litigation. In Brown v. Peregrine Enterprises, Inc., 2023 U.S. App. LEXIS 33730 (2^nd Cir. December 20, 2023), while the procedural posture differs from Bedgood, the court opines that failure to comply with the AAA’s payment requirements does not constitute a “default” under Section 3 of the Federal Arbitration Act and that the District Court, therefore, erred in lifting the litigation stay imposed under that Section.

The cases also analyze – or at least tease up- the questions of whether the default issue is one for the arbitrator or court to resolve and the District Court’s authority to appoint a substitute arbitrator under Section 5 of the FAA.  Finally, anyone drafting an arbitration clause which might be subject to mass arbitration claims needs to read Brown, as it provides a potential way to work around an institution’s fee allocation rules.

Limitations on Delegation

It is close to black letter law that an arbitration agreement’s invocation of the rules of an institution, such as the AAA, which provide that the arbitrator decides his or her own jurisdiction delegates arbitrability, which is usually a threshold question for the court to decide, to the arbitral panel.  Tempe Hospital Ventures, LLC v. Highgate Hotels, LP, 2023 U.S. App. LEXIS 33421 (9^th Cir. December 18, 2023)(Mem.)(Judges Ikuta, Bade, and Bress), addresses an attempt to draft around that rubric. The parties’ agreement contains a carve-out which provides that “the Parties shall have the right to commence litigation or other legal proceedings with respect to any Claims solely relating to . . . the enforcement of the dispute resolution provisions of this Agreement.”  The Court rejects the Plaintiff-Appellant’s  argument that this provision demonstrates that the parties did not “clearly and unmistakably” delegate arbitrability to the arbitrator, citing earlier Circuit precedent in Oracle America, Inc. v. Myriad Group A.G., 724 F.3d 1069 (9^th Cir. 2013).  The majority renders this holding in two paragraphs; however, the interesting part of the opinion and the opportunity for drafters to avoid delegation lies in Judge Bress’s concurrence.  He holds that such a carve-out could effectively reserve arbitrability for the court, but that the language here fails to do so.  Judge Bress draws a distinction between “enforcement” – the language used in the agreement – and “enforceability.”  The latter wording, he opines, could avoid delegation.

For those of you celebrating Christmas, it’s time to get out of the office and into the mall. Santa – and your spouse, partner, family, and friends – won’t wait much longer.

David Reif, FCIArb
ReifADR
Dreif@Reifadr.com
ReifADR.com