ADR cases in the District Courts can, as one judge pointed out in a case discussed in an earlier “Highlights,” become a routine matter of determining whether the parties formed an agreement to arbitrate and whether the current dispute falls within that agreement.  Today, we get to look at some other arbitration issues.

Confirming or vacating an emergency order

The AAA rules provide for the appointment of an Emergency Arbitrator, who is empowered to make decisions before a panel is constituted and full arbitration proceedings begin.  Such arbitrators and their awards are important in litigation, such as cases involving franchises and distributorships, where the status of the parties’ on-going relationship during the pendency of the arbitration is important to their respective businesses. Vital Pharmaceuticals v. PepsiCo., Inc. 2020 U.S. Dist. LEXIS 239469 (S.D. Fla. Dec. 21, 2020) discusses the enforcement of those interim orders.

In March 2020, the parties entered into an agreement under which Pepsi agreed to distribute Plaintiff’s Bang-branded energy drinks. On October 23, 2020, Bang purported to terminate the agreement, claiming that Pepsi was not using “commercially reasonable efforts” to distribute the product.  Pepsi countered that it was not in violation of the contract and that any termination without cause would require three years notice.  On November 23, 2020, Pepsi demanded arbitration before the American Arbitration Association and requested the AAA’s appointment of an Emergency Arbitrator. On December 7, 2020, the Emergency Arbitrator entered an Interim Order holding that Pepsi demonstrated that it is “likely entitled to the relief that it seeks in this Arbitration, namely a declaration that [Pepsi} remains [VPX’s] exclusive distributor pursuant to the [Distribution Agreement] through October 24, 2023.”  Also finding that, absent emergency relief, Pepsi would suffer “immediate and irreparable loss or damage,” the Emergency Arbitrator ordered VPX to abide by the terms of the Distribution Agreement pending further order of the arbitration panel.  The parties responded in two different ways.  Pepsi filed the application to confirm the award, to which this opinion is addressed. VPX filed a notice of appeal with the AAA.

Judge Ruiz addresses both issues.  First, he holds that the court need not withhold judgment pending the AAA’s resolution of the internal appeal. The AAA’s Optional Appellate Arbitration Rules are only applicable when the parties “have provided in their contract . . . for appeal of an arbitration award. . ..”  Since the Distribution Agreement provides only for reference of “the decision of the arbitration panel to the AAA in accordance with the AAA rules” (Emphasis in the opinion) and the subject order was issued by an Emergency Arbitrator, not a full panel, the court holds the provision does not invoke the AAA’s appellate review.  The AAA agreed, as it said it would not commence an appellate hearing absent court order or agreement of the parties.  Turning to the application to the court to confirm the order, the court holds that the Emergency Arbitrator’s action was “sufficiently final to be confirmed under the FAA,” as it was not a “relatively inconsequential procedural decision . . ..”  While recognizing that the Eleventh Circuit has not ruled on the issue of whether a District Court may consider an arbitrator’s interim order, the court cites ten cases from other jurisdictions on the question. On the merits, the court finds that entering the order was within the Emergency Arbitrator’s jurisdiction and confirms the same.

Considering the importance of Emergency Orders in many cases, it is surprising that there are so few decisions on the issue.  Arbitration and distribution lawyers should be sure that they can find this case easily.

Staying a state-court mandated arbitration

The Anti-Injunction Act, 28 U.S.C. 2283, provides that a “court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or when necessary in aid of its jurisdiction, or to protect or effectuate its judgments.”  Owners Insurance Company v. Lowe’s Home Centers, LLC,  2020 U.S. Dist. LEXIS 239815 (S.D. Ga. Dec. 21, 2020) reviews the application of the Act to an arbitration ordered by a state court.

Lowe’s was sued by Pamela Jones for claims arising out of a contract for home improvements (“the Jones Arbitration”).  The Superior Court for Columbia County, Georgia ordered Jones and Lowe to arbitrate pursuant to their contract. Owner’s Insurance defends Lowe’s in that arbitration.  Owner’s Insurance is a declaratory judgment action in which the insurer seeks to determine its obligations under its insurance policy with Lowe’s, arguing that the claims which Jones asserts do not trigger coverage.  As part of the federal court action, Owner’s sought a preliminary injunction staying the Jones Arbitration.  Recognizing that the Court of Appeals for the Eleventh Circuit, which covers Georgia, had not decided whether the Anti-Injunction Act prohibits such a stay, Judge Hall looks to the Ninth Circuit’s holding in Empire Blue Cross & Blue Shield v. Janet Greeson’s A Place for Us, Inc., 985 F. 2d 459 (9^th Cir. 1993).  That court poses the issue as one of whether the state court’s action in mandating arbitration involves “a judicial inquiry, more than a mere ministerial or administrative act.”  Emphasizing the federal policy favoring arbitration and the Georgia court’s retention of jurisdiction, Judge Hall, in this case, denies the injunction which Lowe’s seeks.  The place for Lowe’s to have objected to arbitration, he holds, was in the Georgia proceeding.

Parallel State and Federal proceedings

A variation of the Owners Insurance issue is presented in Haljohn-San Antonio, Inc. v. Ramos, 2020 U.S. Dist. LEXIS 239201 (N.D. Tex. Dec. 21, 2020). There, a state court judge stayed a personal injury action brought by Ramos, an employee of Plaintiff’s McDonald’s franchise, and ordered arbitration.  The arbitration resulted in an award, which Haljohn, rather than returning to the state court in which the matter was still pending, seeks to confirm in this action.  The issue before the court, Starr, J., is whether it has jurisdiction and, if so, whether it should exercise its discretion and abstain in light of the pending state court matter.  The court applies the five prongs of the abstention test established in Colorado River Water Conservation District v United States, 424 U.S. 800 (1976) and holds that it should retain jurisdiction.  The District Court in Dallas is not inconvenient to the parties, compared to the state court’s location; the only step left in the litigation process is the confirming of the award, so there is no risk of piecemeal litigation; federal law, codified in the FAA, will apply regardless of the court considering the matter; and the parties will get appropriate protection in either venue. Weighing those factors and recognizing that abstention is the exception, not the rule, the court declines to abstain. On the merits, Judge Starr reminds us that a motion to vacate an award must be served within three months and that the validity thereof may not be challenged solely in the defense of an action to confirm. Since no timely application to vacate was filed in either state or federal court, he confirms the award.

The effectiveness of post-proceeding arbitration agreements

Kalenga v. Irving Holdings, Inc., 2020 U.S. Dist. LEXIS 239681 (N.D. Tex. Dec. 20, 2020) addresses the question of when a party may establish a binding arbitration policy.  On August 16, 2019, Kalenga, a taxi driver for Irving Holdings, brought this collective action under the Fair Labor Standards Act, alleging that Irving misclassified members of the class as independent contractors, rather than employees. On September 3, 2019, after the action was brought, Irving implemented an arbitration policy covering the class members. As of June 22, 2020, 186 members of the class had signed a document incorporating that agreement. The issue before the court was whether those agreements were enforceable, since this case had been filed before the policy was implemented. After considering issues of contract formation, the court looks outside the Fifth Circuit for guidance on the question of post-litigation amendment, since its Circuit has not addressed the question. Finding authority in both the Fourth and Eleventh Circuits, Degidio v. Crazy Horse Saloon & Restaurant, Inc. 880 F. 3d 135 (4^th Cir. 2008); Billingsley v. Citi Trends, 560 F. App’x 914 (11^th Cir. 2014), the court, Scholer, J., holds that enforceability of the arbitration mandate depends on whether the employer’s action in propounding and distributing notice of the change was “overtly misleading and coercive.”  Finding that Irving did not impose any sanctions on non-signers or misrepresent the effects of not signing, the court joins other District Courts, whose opinions she cites, and enforces the arbitration agreements and holds that the drivers subject thereto may not opt into the class.

I will not be publishing on Friday.  To all of you celebrating the holiday, in whatever different ways Covid may be imposing on us, Merry Christmas. May the promise that Christians find in that day and the beginning of lengthening sunshine here in the Northern Hemisphere move us out of what has been a very dark 2020.

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