In today’s Highlights, the Seventh Circuit deals with the interplay between a contract invoking the Federal Arbitration Act and state law.  The case is important to arbitration counsel, as it relates to those situations in which the federal court cannot compel arbitration because of Bissonnette.  Also, because the relevant state law is the Uniform Arbitration Act, the case has wide applicability.

Procedure to Enforce an Arbitration Clause under the Federal Rules of Civil Procedure; the Uniform Arbitration Act and the FAA

On April 24, 2024,  SCOTUS held that the “interstate commerce worker” exception to the Federal Arbitration Act is based upon the employee’s job, not the industry in which he or she works, Bissonnette v. LePage Bakeries Park St., LLC, 601 U.S. 246 (2024).  So, where does employer counsel look in order to enforce the arbitration clause in such a worker’s contract?  One option is applicable state law, and, in light of the expansion of the FAA exemption, more counsel will be “going local.”  Rodgers-Rouzier v. American Queen Steamboat Operating Company, LLC, 2024 U.S. App. LEXIS 14807 (7^th Cir. June 18, 2024), with Judge Rovner writing for herself and Judges Brennan and Pryor, addresses the interface between state arbitration laws and the FAA.

In this collective action, Plaintiff, a bartender on defendant’s steamboats, alleges that she and coworkers were denied overtime pay in violation of the Fair Labor Standards Act.  Defendant moved to dismiss under Fed. R. Civ. P. 12(b)(3) for improper venue, seeking to compel arbitration under the provisions of an arbitration agreement which Rodgers-Rouzier signed as part of her employment.   Section 6 of the Agreement provided that “this Agreement and the applicability/construction of any arbitration decision shall be governed by the Federal Arbitration Act.”

The District Court determined that Rodgers-Rouzier was a “seaman” for purposes of the FAA exemption.  Therefore, it denied the defendants’ motion to compel arbitration.  Not to be deterred,  American Queen filed a second motion under Rule 12(b)(3), arguing that it was entitled to compel arbitration under Indiana’s version of the Uniform Arbitration Act, Ind. Code §§ 34-57-2-1 to 22.[1]  The Uniform Act, unlike the FAA, does not except any specific class of employee, so, this time, the District Court compelled arbitration and dismissed the case.  The Court of Appeals reverses.  It reasons that, in applying the Uniform Act, an Indiana court would treat the Agreement’s reference to the FAA as an enforceable choice of law provision.  However, the panel opines, in choosing to arbitrate under the FAA, the parties invoked all of the provisions of that act – including its inapplicability to certain classes of employees such as “seamen” like the plaintiff. “Because the parties agreed that the arbitration would be governed by the FAA, which would not permit American Queen to compel arbitration, we conclude that Indiana law also would not compel Rodgers-Rouzier to arbitrate under this agreement.”

Arbitration clause drafters take note.  Based on Rodgers-Rouzier, there is now a published risk in calling out the FAA as the guide to arbitration where your client might later need to rely on state law.  Be sure there is a reason to reference the federal statute.  Remember that, if the transaction involves interstate commerce, the FAA may apply as a matter of law, even if you do not reference it in your arbitration provision.

The case is important reading for several reasons.  First, thirty-five states have adopted the Uniform Arbitration Act.  (Eighteen states have adopted the Revised Uniform Arbitration Act; clearly some jurisdictions have adopted both).  Therefore, this issue is likely to arise often under this uniform state statute as the effects of Bissonnette roll forward, and this is a case that arbitration litigators need to have close-at-hand.  Second, the Rodgers-Rouzier case treats the choice-of-law provision as a matter of contract law, so “ordinary contract law always fills in crucial gaps in any arbitration agreement.”  Therefore, the court opines, “it is conceptually possible for this choice-of-law clause to be the rare exception that the Indiana courts deem void for public policy reasons.”  However, Judge Rovner notes, “American Queen has provided no basis for us to conclude that would be true here.”  As a strategic matter, defense counsel who are faced with a Rodgers-Rouzier argument might argue that the subject state would consider the exclusion of entire classes of employees, like “workers in interstate commerce,” from the application of its arbitration statute to be a violation of its public policy.  Check applicable state law and, where appropriate, use relevant state public policy as a factor in your choice-of-law argument.  Third, the court sets out the procedure for moving to compel arbitration.  In a strange context involving multiple motions to dismiss under Federal Rule 12, the panel opines that “the Supreme Court has clarified that Rule 12(b)(3) is limited to challenges to statutory venue,” citing Atlantic Marine Construction Co. v. United States District Court, 571 U.S. 49 (2013). Therefore, “common law doctrines like forum non conveniens are the preferred mechanism by which to dismiss a suit brought in the wrong forum, if it cannot be transferred to the right one.”  Practitioners in the Seventh Circuit, you have been warned; do not frame your motion to compel arbitration around Fed. R. Civ. P. 12.

Finally, in a long, historical, law review-like discussion, Judge Rovner opines that “remedies for violation of arbitration agreements fall on the substantive line of Erie’s substance-procedure divide,” see Erie R.R. v. Thompkins, 304 U.S. 64 (1938). Therefore, the panel says, one must the look to state law to determine those remedies.  Does that include, or example, the question of whether the language of a specific agreement requires the parties to arbitrate?

Have a great weekend.  If you’re in one of the unusually hot portions of the U.S., to quote Sergeant Esterhaus in Hill Street Blues, “Let’s be careful out there.”

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

[1] The case was heard in the U.S. District Court for the District of Indiana.  The trial court and the District Court both applied Indiana substantive law.