In addition to cases out of the District Courts and the Sixth Circuit, today’s issue covers two very good journal articles.  There are links in the text, so I suggest reading them in full.

State Court Jurisdiction and the FAA’s “Transportation Worker” Exemption

Last Term SCOTUS held that the scope of the “transportation worker” exception to the coverage of the Federal Arbitration Act is based upon the employee’s duties, not the employer’s industry, Bissonnette v. LePage Bakeries Park St. LLC, 601 U.S. 246 (2024).  As a result, workers in a broad range of businesses are now clearly within the exception.

But does removal from the FAA always render such a worker’s arbitration clause unenforceable?  What about the applicability of state arbitration statutes, which may not exclude coverage of such employees?  LeRoy Lambert and Brian McEwing address the issue in a terrific article in the Tulane Maritime Law Journal, ARTICLE: Enforcement of Arbitration Agreements in Seafarer Employment Contracts: May State Law Arbitration Statutes Apply?, 46 Tulane Maritime Law Journal 55 (Winter, 2025), available on Lexis at ARTICLE: Enforcement of Arbitration Agreements in Seafarer Employment Contracts: May State Law Arbitration Statutes Apply?, 49 Tul. Mar. L. J. 55.   Although the article focuses on maritime law (both of the authors are life-long veterans of the industry), their discussion addresses in depth the case split in non-maritime cases over whether the FAA’s exclusion preempts state law coverage of the exempted class of workers.  It is an important read for anyone litigating issues related to or drafting arbitration clauses covering employees who might even tangentially touch the delivery of goods which have crossed state lines.  Hint to drafters – include in the arbitration clause a specific provision that, if the FAA does not apply, the enforcement of the agreement is governed by the arbitration laws of a specified state.

This is a valuable addition to the literature.  Thanks to the authors.

Choice of Law in Determining Arbitrability; Equitable Estoppel and the New York Convention

Continuing the maritime theme, Anderson v. MSC Cruises, S.A., 2025 U.S. Dist. LEXIS 20731 (S.D. Fla. February 5, 2025)(Strauss, M.J.), arises out of an injury suffered by seaman injured aboard a cruise ship.  While the ship was owned and operated by MSC Cruises, S.A., the employee, a salesperson in one of the shops, was under contract to Espit Ventures PTE; that contract included an arbitration clause.  As a result of his fall, Anderson commenced an arbitration against Espit.  However, rather than arbitrating against MSC, he brought this litigation.  MSC moved to compel arbitration pursuant to a provision of the Espit employment contract, relying on the doctrine of equitable estoppel.  The Magistrate Judge agrees that the doctrine applies and recommends that the District Judge grant the motion to compel.

That conclusion, though, buries the lede, which addresses choice of laws in the context of the New York Convention.  As a threshold matter, Judge Strauss concludes that “the Court should apply federal common law to threshold questions of arbitrability, which include whether MSC can compel arbitration through principles of equitable estoppel.”  In so holding, he rejects the parties’ various contentions for the application of Maltese law, which the employment contract invoked; Singaporean law, under which Espit was formed,; and Nicaraguan law, which is that of Anderson home country.  The court opines that the question of whether to apply federal common law or state principles in a case involving the New York Convention and arbitrability is one as to which “there is no binding case law from the Supreme Court or Eleventh Circuit. . . .”  After a lengthy analysis, Judge Strauss adopts Circuit Judge Tjoflat’s reasoning in his concurrence in Outokumpu Stainless USA, LLC v. Coverteam SAS, 2022 WL 2643936 (11^th Cir. July 8, 2022).  Therefore, opining that “applying either Maltese, Singaporean, or Nicaraguan law to the threshold question of arbitrability would ‘frustrate the uniform standards the [Convention] and Chapter 2 of the FAA were enacted to create,’” (citation omitted; brackets in opinion), the court concludes that it should apply federal common law. Applying those principles and using a standard equitable estoppel analysis, it holds, based upon the Plaintiff’s duties and the highly similar allegations in the demand for arbitration and the lawsuit, that Defendant may rely upon the arbitration clause.  The court compels arbitration.

The case specifically involves a seaman’s contract.  However, like the general principles laid out in the article referenced in the section above, it has broader implications.  Counsel should keep this opinion in his or her notebook for use in any case involving the New York Convention in which a party’s right to arbitrate is based on a claim of equitable estoppel.

Vacating for Manifest Disregard – the Test; Public Policy Vacatur

Froedtert South, Inc v. Stone, 2025 U.S. Dist. LEXIS 22275 (E.D. Wisc. February 7, 2025)(Stadtmueller, J.), arose from an arbitration against a physician who allegedly violated his employment agreement with the Petitioner.  The arbitrator found a breach, and the damage award included the cost of locum tenens physicians whom Froedtert hired to cover for Stone during his absences. The arbitrator did not offset the salary that Petitioner would have paid Stone if he did not resign before the end of his contract.  The parties respectively filed motions to compel and vacate. Stone argued that the arbitrator disregarded governing Wisconsin damages law and that the award violated the state’s public policy “against double recovery.”

One of the disputes among the Circuits is whether  “manifest disregard” of the law is still a viable basis for vacatur after SCOTUS’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc, 607 U.S. 246(2008).  Another centers on differences in defining the standard to apply in such cases.  Judge Stadtmueller was faced with an even more surgical question – which of two possibly conflicting Seventh Circuit tests applies in reviewing the arbitrator’s decision making.  The Court first refers to Renard v. Ameriprise Financial Service, Inc., 778 F. 3d 563 (7^th Cir. 2015).  There, Judge Wood, writing for herself and Judges Easterbrook and Sykes, opined “that an arbitral award may be vacated under 9 U.S.C. § 10 ‘if “the arbitrator deliberately disregards what he knows to be the law,”’ also termed ‘manifest disregard of the law.’” (citations omitted).  On the other hand, he writes, in Hyatt Franchising, L.L.C. v. Shen Zhen New World 1, LLC., 876 F. 3d 900 (7^th Cir. 2017), Judge Easterbrook and Judges Rovner and Hamilton, stated that Section 10(a)(4) “does not make legal errors a ground on which a judge may refuse to enforce an [arbitration] award.” (Citation omitted; bracket in opinion). After a “catalog” of Seventh Circuit jurisprudence, the court concludes that Renard is “more of an exception to a line of cases construing the vacatur standard narrowly.”  That reading, the court opines “accords with the purpose of arbitration – ‘swift, inexpensive and conclusive resolution of disputes’ – which the Seventh Circuit has emphasized time and time again.” (Citation omitted).  Accordingly, the court holds that an arbitrator’s error of law does not provide a basis for vacating an award.

The public policy analysis is shorter, but gives a good roadmap for considering the issue.  Any such vacatur must be based on a public policy that is “well defined and dominant.” (Citation omitted).  Stone argued that it was “always against public policy to allow a party to secure the windfall of a double recovery.”  However, Judge Stadtmueller opines, while that argument “may be right as a normative matter,” Stone fails to cite specific, relevant cases or authority “establishing” a “well defined and dominant” public policy against double recovery “applicable in the circumstances of this case. “  Does requiring that degree of specificity effectively kill the doctrine?

Every litigator in the Seventh Circuit who faces or raises a “manifest disregard” post-award challenge needs this case at hand.  It is a compendium of Circuit authority on the issue.  Pick your side and you will find referenced cases supporting it.  Argue for a restricted view of “manifest disregard,” and you have Judge Stadtmueller’s case as authority.

Quick Hits –

EFFA

Ding v. Structure Therapeutics, Inc., 2025 U.S. Dist. LEXIS 21088 (N.D. Cal. February 5, 2025)(Corley, J.) –  Discrimination on the basis of gender constitutes “sexual harassment” for purposes of invalidating an arbitration clause where applicable state law says sexual harassment includes “treating the plaintiff less well than other employees based on her gender.”  The court rejects the contrary holding in Sing v. Meetup LLC, 2024 WL 3904799 (S.D.NY August 22, 2024).

“Binding Mediation”

In Burns v. Evergreen Design & Construction, LLC, 2025 U.S. App. LEXIS 2728 (6^th Cir. February 4, 2025), Circuit Judge Bush, writing for himself and Circuit Judges Batchelder and Bloomekatz, holds that there is no such thing as “binding mediation.” “Binding mediation is an oxymoron because the key attribute of mediation is that it is nonbinding.”  Interpreting the agreement against the drafter,  Evergreen, the court affirms the District Court’s refusal to compel arbitration. (I feel that there should be a line here comparing “binding mediation” to the non-existent Big Foot, but I can’t quite reach it.).

New AAA Construction Industry Rules

The American Arbitration association has adopted new rules governing construction disputes.  In FEATURE: In-Depth Look at the New AAA Construction Industry Arbitration Rules, 72 Louisiana Bar Journal 334 (February/March 2025), available on-line at https://www.lsba.org/documents/publications/BarJournal/Journal-Whole-Feb-2025.pdf, Iman Hyder-Eliz and Anthony DiLeo analyze those changes.

Depending on how busy the courts are, I hope to cover some journal articles and upcoming programs in the Friday edition.  Watch this space.

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