I may have buried the lede, but be sure to notice the new AAA Guidelines on Artificial Intelligence at the end of the blog.
Delegation of the Decision on Litigation Waiver
Waiver of the right to arbitrate can arise in two ways. First, the waiving party can take some step outside the litigation to knowingly abandon that right, e.g., novating the original contract through a subsequent agreement that disclaims the arbitration provision (“contractual waiver”). Second, once a suit is brought, the defendant may take steps that are inconsistent with arbitration (“litigation waiver”). Where the arbitration clause contains a provision delegating gateway issues to the arbitrator, the resolution of the waiver question is generally handled differently depending on the type of waiver involved. Contractual waivers usually go to the arbitrator for decision; but there is a presumption that the trial judge adjudicates litigation waivers, since those involve the court’s supervisory powers.
In Liu v. Equifax Information Services, LLC, 2024 U.S. Dis. LEXIS 14083 (D. Mass. January 26, 2024), Equifax sought to enforce its arbitration clause in response to Plaintiff’s Fair Credit Reporting Act claim. The parties’ broad arbitration clause is quoted in full in the opinion. For our purposes, it provided that “All issues are for the arbitrator to decide, including the scope and enforceability of this arbitration provision . . . including . . . any claim that all or any part of this arbitration provision or Agreement is void or voidable.” Experian argued that this broad language demonstrated “clear and unmistakable evidence” that the parties intended to delegate resolution of the waiver question to the arbitrator. Judge Burroughs holds that such “all issues” language does not overcome the presumption in favor of judicial resolution. “The court agrees with these latter cases and finds that without an explicit reference to waiver or similar terms, the language of the Arbitration Provision, though broad, is insufficient to evince a “clear and unmistakable” intent by the parties to have an arbitration decide the issue of waiver by litigation conduct.” (Emphasis added, Citation omitted)
The Court’s analysis of litigation waiver follows the usual path. In a case-specific way, Judge Burroughs assesses the defendant’s conduct. While opining that the waiver issue is a “close question,” the Judge Burroughs holds that the filing of two answers, without raising the arbitration defense; agreeing to the Liu’s filing of an amended complaint; completing discovery; participating in court-sponsored mediation; and seeking extensions of deadlines constitutes conduct “inconsistent with asserting a right to arbitrate and, in fact, could have been intended to lull Liu into thinking that Experian had foregone any option of arbitration in favor of litigation.”
If a contract drafter’s goal is to maximize the number of issues that are resolved in arbitration, this case is an important read. Judge Burrough’s lesson – while it is important for counsel who wishes to minimize contact with the judiciary to include a broad arbitration clause, they should also take the time to spell out those delegable issues that are of particular significance.
Ending Forced Arbitration of Sexual Harassment Act (“EFAA”)
Edwards v. CVS Health Corp. 2024 U.S. Dist. LEXIS 13896 (S.D.N.Y. January 25, 2024)(McMahon, J.), is a reminder that the EFAA applies to claims where the alleged harassment or assault occurred on or after March 3, 2022, the effective date of the act. Judge McMahon holds that, even though this case was filed after the act became effective, Plaintiff still is covered by an employment arbitration agreement, because the acts of which she complains occurred in 2020.
State Law Governs the Formation of the Agreement
Two recently published cases serve as reminders that, in determining whether the parties contracted for arbitration, as opposed to the scope of any such clause, the federal courts look to state law. James v. RPS Holdings, LLC, 2024 U.S. App. LEXIS 1283 (4th Cir. January 19, 2024)(North Carolina substantive law governs whether a contract made in a trade name is enforceable); Swenson v. Clay County Memorial Hospital, 2023 U.S. Dist. LEXIS 233903 (N.D. Tex. December 5, 2023)(Texas substantive law governs the enforceability of an unsigned agreement).
A Rose by Any Other Name
Under the asset purchase agreement at issue in Regal Games LLC v. SellerX Eight GMBH, 2024 U.S. Dist. LEXIS 13736 (S.D.N.Y. January 25, 2024), the parties were required to submit certain disputes to an independent CPA, who would act as an “Auditor” and whose “determination . . . shall be final and binding and non-appealable.” After SellerX failed to make certain deferred payments, Regal brought this action. SellerX moved to compel arbitration. Judge Ramos holds that, even though the agreement does not “employ the words ‘arbitration’ or ‘arbitrator,’” the process which the parties selected is actually an arbitration. “The Second Circuit has held that it is ‘irrelevant that the contract language in question does not employ the work ‘arbitration’ as such,” (citation omitted). Since the agreement provides for a final and binding dispute resolution by a third party, the court grants SellerX’s motion to compel.
AAA Guidelines on the Use of AI
The American Arbitration Association has adopted Guidelines for panel arbitrators’ use of Artificial Intelligence. The provisions warn arbitrators to be careful that they are not breaching confidentiality expectations by posting material that might become public and to double-check that the information which AI provides is accurate. A fourth guideline requires arbitrators to disclose to the parties that he or she is using AI in connection with the proceeding, such as in the preparation of an award. The guidelines are available on the AAA’s website. Even for those not operating under the aegis of the AAA, the guidelines provide important direction, and arbitrators should adopt them in their ad hoc proceedings.
My computer is off to the shop, so a posting tomorrow depends on the speed of the tech. How did our lives become so dependent on a piece of machinery (I know that there is no question mark at the end of this sentence, and now you know why the keyboard is off to Nerds to Go).
David Reif, FCIArb