The main case today is a rarity – a decision in which the District Court overrules the decision of an arbitrator resolving a labor grievance.  Elsewhere, there is another look at how to measure damages for purposes of diversity jurisdiction and an unusual fact pattern on waiver of the right to arbitrate. 

Vacating a labor dispute arbitration award

Any number of previous cases show that the standard for the court’s review of a labor arbitrator’s award could not be more forgiving. As the court says in Phillips 66 Company v. Alternation Union of Operating Engineers, 2020 U.S. Dist. LEXIS 224663 (E.D. Tex.) (Oct. 14, 2020), “A court’s review of arbitral awards interpreting labor agreements is exceedingly deferential.  If an arbitrator’s decision draws its essence from the CBA, it should be sustained.  Even if the court believes the arbitrator seriously erred in his fact finding or contract interpretation, it should uphold a decision that is rationally inferable from the purpose of the CBA.” [Citations omitted] (Emphasis added) Phillips is the unusual case where the court finds that the arbitrator strayed over the line.

The parties’ dispute arose over a change in the employer’s vacation policy.  Previously, employees were awarded a full year’s worth of vacation on January 1^st each year. Effective January 1, 2018, Phillips changed that policy, awarding vacation on an accrual basis in 10% increments at the end of each month through October.  The CBA provided that “Company vacation policy dictates vacation allotment” (Art. IV) and “The conditions, rules and regulations of such [Benefit] plans as may be established by the Company shall determine all questions arising thereunder.”  (Art. VIII).  Significantly, in the view of Judge Kacsmaryk, the agreement also contained a “zipper clause,” which provided that “[n]o practices, payments of wages or benefits prior to or subsequent to this Agreement date shall act to change or enlarge the express wording of this Agreement.”

The arbitrator found in favor of the Union, holding that “it is clear that the material change in the vacation policy may have negatively affected some of the bargaining unit employees employed as of December 31, 2017.”  In reaching this decision, despite the zipper clause, he considered the testimony of three Union employees about past practices and decades-old vacation policies. However, according to the court, he failed to analyze the text of the CBA, merely “reflexively conclud[ing] that Phillips 66 must have violated the CBA if Union members have been ‘adversely impacted.’”  (Emphasis in original) Nor did he find Article IV to be ambiguous, which might have justified consideration of some facts beyond the four corners of the agreement.  Indeed, the court opines “the Arbitrator never once analyzed the language” in Articles IV or VIII (Emphasis in original).  Holding that the arbitrator did not interpret the CBA, but merely dispensed his “own brand of industrial justice,” the Court vacates the award.

The case is valuable reading for its analysis and citation of authorities on the difference between an arbitrator’s proper conduct in construing an ambiguous contract and his or her impermissible disregard of the terms thereof.

For comparison, while applying the same deference standard, Bally’s Las Vegas Manager, LLC v. Local Joint Executive Board, 2020 U.S. Dist. LEXIS 224436 (D. Nev.) (Dec. 1, 2020) reaches a different result, as the court confirms an award based on the arbitrator’s interpretation of a guaranteed shift pay provision.  Here, the court finds that the arbitrator specifically anchored his decision in the CBA, interpreting the term “mutually” therein.

Waiving a conflict of interest

Magid v. Waldman, 2020 U.S. Dist. LEXIS 224688 (S.D.N.Y.) (Dec. 1, 2020) is an appeal from a strange arbitration in which Waldman’s advocate, a non-lawyer, was allegedly also acting as a clerk for the arbitrator. In an earlier opinion, the court, perhaps generously, wrote that the arbitration was not “a model of what alternative dispute resolution should be.”  However, Judge Furman holds that Waldman waived any conflict by continuing the arbitration when he not only knew of the relationship between the advocate and the arbitrator, but “tried to exploit it to his benefit.”  Only after losing the arbitration, the court opines, did Waldman complain.  The case’s value lies in dictum holding that actual knowledge of a conflict is not necessary to trigger the obligation to raise an alarm. An objection must be voiced as soon as “the complaining party should have known of the relationship, or could have learned of the relationship just as easily before or during the arbitration rather than after it lost its case.”  (Emphasis in original).  In short, do not wait.  Speak up as soon as you learn of any facts raising a concern about the panel’s impartiality or have any other concern about the arbitral process.

Computing jurisdictional amount and anticipating litigation

While the Federal Arbitration Act sets forth the procedure for seeking to vacate, confirm, or manage an arbitration, it does not create federal jurisdiction.  ADT LLC v. Madison, 2020 U.S. Dist. LEXIS 223827 (N.D. Tex.) (Nov. 30, 2020) considers how to measure the $75,000 jurisdictional amount in relation to an action regarding a third-party subpoena. In a separate state court action, Ms. Madison sued an ADT security system installer whom she alleged had accessed cameras which he installed in her home and those of others. ADT is not a party to that suit, in which she sought damages and injunctive relief.  However, Madison served ADT with a third-party subpoena.  In this case, ADT seeks an order requiring Madison to arbitrate, under a clause in the security system contract, her right to the subpoena.  The court dismisses the action for lack of subject matter jurisdiction, holding that it is a legal certainty that the cost of complying with the subpoena would not reach $75,000 and, therefore, that ADT did not meet the requisite jurisdictional amount.  Likewise, the threat that Ms. Madison might sue ADT, even if valid, was not supported with enough evidence to demonstrate a $75,000 risk. Looking at the nature of the claims that someone was using a security camera to spy into a woman’s home, it is hard to understand the court’s reluctance to find that the threshold was met, particularly in light of rejected settlement offers and other litigation which Judge Boyle references in her opinion.   However, her decision may be influenced by her rejection on ripeness grounds of ADT’s claim that Madison must arbitrate any claim she chooses to assert in the future against ADT.

For arbitration folks, the important issue is the one which Judge Boyd does not reach because of her decision on subject matter jurisdiction.  Does an arbitration agreement mandating parties to arbitrate “any and all disputes between [them]” require or even justify arbitration of disputes regarding judicial process?  Does a court’s interest in making sure that its authority to compel attendance at a proceeding is honored override the parties’ agreement to submit disputes to an arbitrator? Could an arbitrator really tell a party to ignore a subpoena?

Quick Hits –

Unenforceability due to vagueness

Plaintiff in Gala v. Tesla Motors TN, Inc., 2020 U.S. Dist. LEXIS 225851 (W.D. Tenn.) (Dec. 2, 2020) claimed that the arbitration agreement contained in her purchase agreement, which provided that the customer was “waiving your right to have a court, other than a small claims tribunal, resolve any claim”  was fatally vague.  Since states have various limits for small claims jurisdiction, she argued, the provision might refer either to a court which handles small matters informally or to the “regular” court which has the lowest jurisdictional amount within the state.  The court rejects the argument and compels arbitration.

Mandatory splitting of arbitration costs

The employment arbitration agreement at issue in Watkins v. Vision Academy Charter School, 2020 U.S. Dist. LEXIS 225549 (E.D. Pa.) (Dec. 2, 2020) mandated the parties to share equally the   administrative fees of any arbitration tribunal and required the prevailing party to pay the winner’s attorneys’ fees and costs.  The court holds that those provisions are substantively unconscionable.  However, finding that they are not “essential parts of the Agreement nor part of a systematic effort to impose an inferior forum,” the court severs them and orders that the arbitration go forward.

Arbitration award as claim preclusion

Although ultimately holding that Plaintiff’s claims were not precluded because they were not necessarily a part of the earlier award, the court in Langer v. Paysafe Partners, LP, 2020 U.S. Dist. LEXIS 224666 (E.D.N.Y.) (Nov. 30, 2020) joins those opinions holding that arbitration may estop claims in a later forum.

Notice to class members with arbitration agreements

I have finally been doing this newsletter long enough to see follow up to cases which appeared earlier.  Ortiz v. Trinidad Drilling, LLC, 2020 U.S. Dist. LEXIS 225567 (W.D. Tex.) (Dec. 2, 2020) supplements the court’s earlier decision in Ortiz v. Trinidad Drilling, LLC, 2020 U.S. Dist. LEXIS 200263 (W.D. Tex.) (Oct. 28, 2020), discussed in the October 30, 2020 “Highlights.”  There, the court ordered defendant to provide plaintiff with copies of the arbitration agreements of those whom Trinidad maintained were barred thereby from litigation.  In the current embodiment of the case, the court holds that defendant acted properly in redacting the names, addresses and other identifying information from those tendered agreements.  The court also rejects Ortiz’s claim that his counsel may contact those individuals whom Trinidad claims are parties to those proffered agreements.  To allow such contact “merely stirs up litigation.”

It is exam time at Quinnipiac Law School where I am teaching Civil Procedure, so there may not be an “ADR Highlights” this coming Monday. If not, I will see you on Wednesday; with a break, there should be a lot to write about.

Dave Reif
Reif ADR
Dreif@reifadr.com
Reifadr.com