Today we get a chance to look at some procedural issues, as well as a comparison between how two courts view arbitrability completely differently under the same form agreement.

Reasoned awards

In most commercial arbitrations, the parties request that the arbitrator issue a “reasoned” award, setting out the basis for his or her conclusions. In fact, in some tribunals, the rules presume that a reasoned award will be issued unless the parties specifically waive it. In re: Romanzi, 2020 U.S. Dist. LEXIS 246632 (E.D. Mich. Nov. 30, 2020) addresses two questions about such awards.  First, what does such a reasoned award include?  Second, what does a reviewing court do if the panel falls short of that standard?

In 2019, the parties arbitrated for four days before a three-member panel, which awarded the Plaintiff approximately $1.3 Million. Defendant moved to vacate the award based on procedural errors, including the panel’s failure to issue a “reasoned decision,” as the parties had agreed.  In a prior opinion, the court found that the panel’s final award did not meet the “reasoned” standard.  However, rather than vacating the award, it remanded the case to the panel with instructions to make the award more specific.  The panel did so and issued a supplemental award.  This case involves a motion to reconsider the court’s failure to vacate first the award, rather than remanding it, and a request to set aside the supplemental award.

Defendants argue, first, that the court violated the principle of functus officio in allowing the panel to rewrite its award.  Functus officio is a basic arbitration principle that provides that an arbitrator, upon issuing his or her award, loses authority to change the award, except in limited circumstances such as to correct a mathematical error.  Relying upon Green v. Ameritech Corp., 200 F. 3d 967 (6^th Cir. 2000) and “a plethora of case authority,” Judge Drain holds that a remand, such as that which he ordered, merely seeks a clarification of the earlier decision and, accordingly, is not foreclosed by functus officio.  What that concept forbids, the court holds, is for the panel to “revisit the merits of their decision.”

The court, then, addresses whether the supplemental award is “reasoned.”  It lays out certain basics which a reasoned decision must include – a discussion of the claims and defenses which the parties presented, the panel’s decision on each of those positions, and the basis for that decision.  The court specifically rejects defendant’s argument that the panel, in drafting the supplemental award, erred in requesting each party to submit a draft decision and in adopting one party’s proposal.  Such a shortcut, the court holds, is consistent with arbitration’s goal to “achieve a just, speedy and cost-effective resolution of the Arbitration.”  After rejecting, under the standard principle that an arbitrator is given deference on procedural issues, defendant’s objections to various evidentiary rulings by the panel, the court confirms the supplemental award.

Arbitrability of auto warranty claims

Anyone who believes that the identity of the judge deciding a case is irrelevant need only compare Nation v. BMW of North America, LLC, 2020 U.S. Dist. LEXIS 246435 (C.D. Cal. Dec. 28, 2020) and Robinson v. BMW of North America, LLC, 2020 U.S. Dist. LEXIS 246785 (C.D. Cal. Nov. 10, 2020) to discover the error of their ways.  The two cases, which interpret the same arbitration clause contained in the standard form purchase agreement for a BMW but emphasize different parts thereof, come out diametrically opposed on the issue of whether the manufacturer is a third-party beneficiary of the buyers’ agreement with the dealer and, therefore, may compel arbitration thereunder.

In Nation, Judge Holcomb distinguishes between two concepts within the agreement.  While he holds that the contract requires the arbitration of claims against BMW, he interprets the language that “you or I may choose to have any dispute between us decided by arbitration. . . .” to include only the dealer (“you”) or the customer (“I”) in those who may compel use of that procedure. Since BMW, not the dealer, filed the motion to compel, the court denies the motion.  The decision raises the interesting question of what happens if the consumer sues both BMW and the dealer for a warranty issue and the dealer, who is a direct party to the contract, rather than BMW, its assignee, files the motion to compel.  Should that procedural coincidence drive a different result as to the use of arbitration?   In a lengthy discussion of equitable estoppel, Judge Holcomb follows the Ninth Circuit’s precedent in Kramer v. Toyota Motor Corp., 705 F. 3d 1122 (9^th Cir. 2013) and holds that car manufacturers may not compel arbitration where the claims, as he opines is the case here, do not rely on the terms of the purchase agreement.

Judge Fitzgerald comes out exactly the other way in Robinson.  Citing Jensen v. U-Haul Co., 18 Cal. App. 5^th 295 (2017), he holds that the same agreement as Judge Holcomb considered passes the three-part test under California law for determining whether a third-party is an intended beneficiary of a contract – would the third-party benefit from including it within the contract’s terms, was a motivating purpose of the signatories to benefit that party, and is including the third party consistent with the reasonable expectations of the signatories.  He focuses on terms of the agreement which provide that the parties must arbitrate any relationship with “third parties who do not sign this Contract” and encompass warranty claims for which BMW was responsible.  He gives particular weight to the fact that BMW as manufacturer is “explicitly mentioned in the Purchase agreement” (Italics and bold face in original) in regard to warranty claims.  Therefore, the court holds that it would be inconsistent for the plaintiff to adopt the very posture which Judge Holcomb seems to authorize – “on the one hand claim BMW NA was a stranger or had nothing to do with the Purchase Agreement but on the other hand sue it over the very Vehicle which was the subject of the Purchase Agreement.”  He compels arbitration of the claim.

Both courts acknowledge a split among District Court decisions on this issue and Judge Holcomb cites to cases on both sides.  Perhaps one of these two cases will provide a vehicle (yes, pun intended) for the Court of Appeals to give some uniformity to the Central District.

Interstate worker exception to the FAA

Carmona v. Dominos Pizza LLC, 2020 U.S. Dist. LEXIS 246774 (C.D. Cal. Dec. 9, 2020) addresses the on-going dispute over what workers   fall within the FAA’s provision excluding “contracts of employment of . . . any other class of workers engaged in foreign or interstate commerce” from its coverage. 9 U.S.C. §1.  Carmona and other named plaintiffs deliver products, like cheese, meats, and boxes, from Defendant’s “Southern California Supply Chain Center” to individual franchisees in Southern California. While the products at some point clearly are in interstate commerce, Carmona and similar drivers do not cross state lines.  Domino alleged that the items which Carmona delivered from the Supply Center were different from those the Center received from outside California, as Center employees would reapportion, weigh and package the goods, thus creating “Products.”  Accordingly, there was a break in the chain of interstate commerce.  The opinion by Judge Selna centers around the Ninth Circuit’s decision in Ritmann v. Amazon.com, Inc. 971 F. 3d 904 (9^th Cir. 2020). There, the Court of Appeals held that “last mile” drivers are engaged in interstate commerce because the goods they deliver move in interstate commerce and they are hired as part of that continuous chain of distribution. Consequently, the court lacked jurisdiction under the FAA to compel arbitration of their claims.  Dominos sought to distinguish Ritmann on the basis that the operations which it performed on items at the Supply Center changed the nature of the products.  Therefore, Carmona was not simply delivering goods that were still moving through commerce, but rather was part of a “pizza company.” The court rejects the argument, holding that adopting that position would result in “few or none of [Domino’s] employees” being engaged in interstate commerce, “even though it is a national company.”   The court further holds that the truck drivers are not similar to FAA exempt “food delivery service drivers,” such as those working for Grubhub, who deliver “prepared meals from local restaurants.”  Rather, Carmona delivers the items used to prepare those meals, not the meals themselves.

Perhaps SCOTUS will give direction on this recurring issue, as there is a currently pending application for cert. in Ritmann.

Since lots of people took a long weekend over New Years, this may be your first full week “back at work” – whatever that means in this remote, virtual world.  Settle in and get some coffee.  2021 must be a much better year than what we have left.

See you Wednesday.

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