Today’s cases involve several looks from the Circuits, including the Fifth Circuit’s reaffirmance of a “look through” jurisdictional issue as to which a cert. application is presently pending.  Also, there are important decisions on the familiar issues of the FAA’s exemption of workers engaged in interstate or foreign commerce and the timing of conditional certification and notice in a collective action. As usual, there are also a basketful of other issues.                     

Federal Question “look through” Jurisdiction; “broad” vs. “narrow arbitration clauses

The most significant case this issue comes from the Fifth Circuit. Polyflow, L.L.C. v. Specialty RTP, L.L.C., 2021 U.S. App. LEXIS 9295 (5^th Cir. Mar. 30, 2021) is the appeal from the denial of a motion to compel arbitration.  Since the District Court “denied Polyflow’s motion to compel arbitration in a single-sentence order without analysis,” the Court of Appeals was writing on an essentially blank slate.  The panel considers the differing effects of “broad” and “narrow” arbitration clauses, holding that “arising out of” clauses fall into the broad category.  The opinion is significant as it writes off Fifth Circuit precedent in Pennzoil Exploration v. Ramco Energy, 139 F. 3d 1061 (5^th Cir. 1998), which described “arising out of” clauses as narrow; Polyflow holds that the language so opining was merely dictum and that the case “stands alone in this court’s jurisprudence.”

Although the court’s consideration of federal jurisdiction only covers three pages, it addresses an important question.  While the FAA provides that a federal court should compel arbitration, it does not create federal jurisdiction to enable the court to do so.  So, how does a court determine whether federal jurisdiction exists over an action to compel, absent diversity of citizenship?  In Polyflow, the Court of Appeals holds that a District Court should determine whether “the claims involved in the underlying dispute. . . show[] that the dispute itself. . . could have been brought in federal court. . . .” If so, “then federal jurisdiction lies over the FAA petition,” quoting Badgerow v. Walters, 975 F. 3d 469 (5^th Cir. 2020). (There is a pending petition for cert. in Badgerow, Dkt. No. 20-1143 (Feb. 12, 2021); although briefs have been filed by both the petitioner and the respondent, the petition has not been assigned for conference.)  Since the underlying dispute here contains a Lanham Act claim, the District Court had federal question jurisdiction to resolve the application to compel the arbitration thereof. The Court of Appeals reverses the District Court’s dismissal of the action.

Federal jurisdiction over an application to enforce an arbitration subpoena

The Ninth Circuit considers how to determine the amount in controversy for purposes of diversity jurisdiction in an FAA Section 7 action to compel compliance with a third-party subpoena, Maine Community Health Options v. Albertsons Companies, Inc., 2021 U.S. App. LEXIS 9382 (9^th Cir. Mar. 31, 2021). The majority, Hurwitz, J., writing for himself and Judge Fletcher, holds that the court must look at both the cost to the defendant in complying with the subpoena and the value to the plaintiff of obtaining the subpoenaed material.  Here, the parties agreed that the cost to Albertson to respond was about $1,400, well below the $75,000 threshold for federal diversity jurisdiction.  Therefore, the issue became the value to Health Options of obtaining compliance with the subpoena.  Opining that the $75,000  threshold for federal jurisdiction is a small fraction of the $17 Million at issue in the arbitration and crediting certain expert testimony, the majority, applying the usual jurisdictional standard that the plaintiff’s allegation as to the amount in dispute is to be credited unless it appears “to a legal certainty that the claim is really for less than the jurisdictional amount,” holds that jurisdiction exists (Emphasis in the opinion,)

Judge Watford, in concurrence, would apply a different test.  Adopting a rationale similar to the “look through” theory employed in Polyflow, he would apply a bright-line test.  If the amount at issue in the arbitration underlying the subpoena request is greater than $75,000, then the federal jurisdictional amount is met, and the subpoena request should be considered on its merits. “Grounding the jurisdictional analysis on the underlying controversy between the parties in arbitration has the added virtue of avoiding the tortured amount-in-controversy inquiry that federal courts will otherwise be forced to make.”

The court reverses the District Court’s dismissal on jurisdictional grounds of the application to compel compliance and remands for further proceedings. (The District Court’s holding is discussed in the October 9, 2020 edition of “Highlights.”)

Interstate or foreign commerce  worker exemption to the FAA

In Saxon v. Southwest Airlines Co., 2021 U.S. App. LEXIS 9370 (7^th Cir. Mar. 31, 2021), the Court of Appeals, St. Eve, J., writing for herself and Judges Wood and Manion, holds that a ramp supervisor, who manages and assists workers loading and unloading airplane cargo, is a “worker engaged in interstate or foreign commerce” akin to stevedores, longshoremen and railroad cargo loaders. To address Southwest’s argument that finding the FAA exemption applicable here will raise issues related to ticket agents and others, the court limits the scope of the current holding to those who actually load bags, noting that, although she was a supervisor, Saxon covered three full shifts per week loading and unloading cargo. “We need not consider then whether supervision of cargo loading alone would suffice.”  The court, in opining that arbitration might still be appropriate under state law, raises a distinction sometimes lost in discussion of the scope of the FAA exemptions.  The FAA provisions do not prohibit arbitration of claims asserted by those exempted employees; they merely hold that the FAA is not the vehicle to compel such arbitration.

This dichotomy is in play in one of two Uber cases decided by Judge Nathan on March 31, 2021. In Haider v. Lyft, Inc., 2021 U.S. Dist. LEXIS 62690 (S.D.N.Y. Mar. 31, 2021), she holds that Mohammed Islam, one of the plaintiffs, falls within the FAA’s interstate commerce exemption because he regularly drives passengers across state lines and to and from airports.  Accordingly, the court holds that it may not use the FAA to compel arbitration of Plaintiff Islam’s claim that Lyft improperly deducted state taxes from his earnings.  However, in Halder v. Lyft, Inc., 2021 U.S. Dist. LEXIS 62683 (S.D.N.Y. Mar. 31, 2021), she directs the parties to brief the choice of law issues relevant to determining whether arbitration may be compelled under applicable state law. She also orders the parties to brief any preclusive effect from an earlier decision in Islam v. Lyft, Inc., 2021 U.S. Dist. LEXIS 42839 (S.D.N.Y. Mar. 9, 2021)(Abrams, J.), which held that Islam was required by New York law to arbitrate issues related to Lyft’s minimum ride requirements. (That decision is discussed in the March 12^th issue of “Highlights”).

Delegation of gateway issues

In a split decision, the First Circuit considers whether an agreement demonstrates a clear and manifest intention to delegate the threshold issue of arbitrability to the arbitrator, rather than reserving it for the court.  In Bosse v. New York Life Insurance Co, 2021 U.S. App. LEXIS 9270 (1^st Cir. Mar. 30, 2021), the court reviewed the District Court’s refusal to compel arbitration.  The subject arbitration agreement provided that “any dispute, claim or controversy arising between [the parties]. . . as well as any dispute as to whether such Claim is arbitrable, shall be resolved by an arbitration proceeding. . . .”  The majority, Lynch, J., writing for herself and Chief Judge Howard, holds that this language demonstrates the “clear and unmistakable evidence” needed under Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) to delegate arbitrability questions to the arbitral tribunal.  In summary, the majority holds, the District Court should never have reached the issue of the arbitrability of the dispute, but should simply have compelled arbitration thereof.  In dissent, Judge Barron focusses very precisely on the language of the arbitration clause, holding that there is a difference between “the Claim,” which references arbitrability, and “such Claim,” which references delegation of threshold question.   Therefore, he would hold, the District Court was correct in resolving the merits of arbitrability.  Based on issues related to the timing of the alleged discrimination against Bosse and the date of execution of relevant agreements, Judge Barron finds that the discrimination issues raised by Bosse are not arbitrable.  He would affirm.

Conditional certification of a collective action where some claims may be arbitrable

Two courts address the issue of whether notice of conditional certification of an FLSA collective action should be sent to potential class members whose individual claims may be subject to mandatory arbitration – a question which splits the Circuits.

In Filho v. OTG Management, LLC, 2021 U.S. Dist. LEXIS 60904 (S.D.N.Y. Mar. 30, 2021), applying what she characterizes as “the practice in this Circuit,” Magistrate Judge Netburn holds that notice of conditional certification should be given to current and former employees before determining if they signed an arbitration agreement.  A decision as to the arbitrability of their claims “is available only after notice has issued and those employees have consented to put themselves before the Court.”

In a decision which is a good source of citations from around the Circuits on both sides of the notice question, but which reaches no conclusion, Judge McAuliffe discusses the timing of notice, Winsor v. TBD Pizza, Inc., 2021 U.S. Dist. LEXIS 60769 (D.N.H. Mar. 30, 2021).  However, despite what is clearly his interest in the question, he holds that, under a choice of forum provision in the relevant employment agreements, the court must defer to the U.S. District Court in Massachusetts.  The court  transfers the matter to the U.S. District Court in Boston.

Effect of a subsequent agreement

In NH Learning Solutions Corp. v. New Horizons Franchising Group, Inc., 2021 U.S. Dist. LEXIS 61764 (E.D. Mich. Mar. 31, 2021), the defendant-franchisor and plaintiff-franchisees, well after signing their initial franchise agreement, executed an additional contract (referred to in the opinion as the “PA”) which changed some of the parties’ original commitments.  While the initial franchise agreement contained an arbitration clause, the PA did not.  A dispute arose between the parties regarding the franchisor’s compliance with “Minimum Instructor Commitments” under the PA and amendments thereto, and Plaintiff-franchisees brought this action for breach of contract.  The franchisor moved to compel arbitration under the provision in the initial franchise agreement, arguing that the PA incorporated it.  The court, Parker, J., disagrees, citing the integration clause contained in the PA, which provided that “[T]his amendment constitutes the entire agreement between Franchisor and Franchisee concerning the subject matter herein and supersedes and cancels all proposals and other written or oral agreements between the parties related to the subject matter set forth here.”  She denies the motion to compel arbitration.

Stay pending review of arbitration

Rreef Infrastructure G.P. Ltd. v. Kingdom of Spain, 2021 U.S. Dist. LEXIS 63261 (D.D.C. Mar. 31, 2021) is an action in which Plaintiff seeks to recognize and enforce an arbitration award issued by the International Centre for Settlement of Investment Disputes (IDSID) against the Kingdom in the amount of €59.6 million. Spain sought to dismiss the petition in light of a request which it has pending before the ICSID to annul the award. The court, Nichols, J., stays the case, rather than dismissing it. In so ruling, he opines that both judicial economy and the balance of hardships favor a stay.  “If this Court were to affirm an award that ICSID later annuls, ‘[m]ore expensive litigation involving more complex issues would result.’” (internal citation omitted). In addition, if the court were to affirm the award and Plaintiff were to begin collection thereon, “Spain could face the arduous task of trying to recover seized assets. . . .”

If you are celebrating Passover or Easter this weekend, have a pleasant holiday.  Hopefully, next year we will be able to sit around Seder and Easter dinner tables with family gathered.

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