Highlights has been on a short hiatus, but during the break the Supreme Court scheduled four arguments on arbitration cases. (Since it consolidated two cases with similar issues, there are actually five cases which it will consider).   Today, rather than the usual run-down of decisions, we’ll take a look at those upcoming matters.

Prejudice as a requirement of arbitration waiver

One of the basic precepts of arbitration jurisprudence, going back to AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), is the idea that arbitration agreements are to be viewed like any other contract.  Morgan v. Sundance, Inc., Dkt. No. 21-328, addresses whether adding prejudice as a necessary element for establishing waiver of arbitration, where that element is not a requirement for demonstrating waiver of a contractual right in other circumstances, violates that concept.

The petition arises from a decision in the Eighth Circuit, Morgan v. Sundance, Inc., 992 F.3d 711 (8^th Cir. 2021).  The District Court had found that Sundance utilized the litigation process and, therefore, waived its right to arbitrate. Court of Appeals reversed.  “In the absence of a showing of prejudice to Morgan, we conclude Sundance did not waive its contractual right to arbitrate.” Circuit Judge Colloton dissented, opining that there was “sufficient prejudice” to support the District Court’s decision denying Sundance’s motion to compel arbitration.

In her petition for certiorari, Morgan claimed that there is a Circuit split on the prejudice question. She argued that the Seventh and D.C. Circuits view waiver solely through the prism of the defendants’ participation in litigation; that the First Circuit requires only a “modicum” of prejudice; and that the Fourth and Eleventh Circuits “consider prejudice the crucial, dispositive facet of the analysis.”   In her merits brief, she maintains that waiver is nothing more than the “intentional relinquishment of a known right.”  While the related doctrines of equitable estoppel and laches require a showing of prejudice, Morgan argues that waiver focuses solely on the conduct of the waiving party, not on the effect of the conduct on the counterparty; to “graft” that element onto the waiver defense in arbitration cases violates both the letter and spirit of Section 2 of the Federal Arbitration Act.

Respondent’s brief is due today, and I will summarize its argument next week.  The American Association for Justice (previously known as ATLA), the National Academy of Arbitrators, Public Citizen, thirty-one law professors, and eighteen states and the District of Columbia have filed amicus briefs supporting the plaintiff.

Argument is set for March 21^st.

Section 1782(a) Discovery

Last fall, the Court scheduled argument in Servotronics, Inc. v. Rolls-Royce PLC , Dkt. 20-794, decision below 975 F. 3d 689 (7^th Cir. 2020).  The case sought to resolve the Circuit split over whether 28 U.S.C. § 1782(a), which authorizes District Courts to allow third-party “discovery” for the use before “foreign tribunals” extends to foreign, private arbitrations.  After the parties resolved their dispute, the matter was dismissed on their joint stipulation. Two cases, ZF Automotive US v. Luxshare, Ltd., Dkt. No. 21-401, and AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign States, Dkt. No. 21-518, give the Court a second chance to look at the issue.  Neither ZF Automotive nor AlixPartners addresses the issue in exactly the same context as did Servotronics.  In ZF Automotive, at the time that Luxshare sought discovery from ZF Automotive, no arbitration was yet pending.  However, Luxshare alleged that it was planning to file such a proceeding before the German Arbitration Institute.  A more interesting nuance is raised in AlixPartners.  There, while the arbitration is a private proceeding under the UNCITRAL Rules, its underlying issues relate to a state treaty.  In light of the prevalence of sovereign fund arbitrations, SCOTUS will hopefully address whether Section 1782(a) applies differently to treaty-based and purely commercial disputes.

Both AlixPartners and ZF Automotive have filed their merits briefs.  Each approaches the case in a similar fashion.  They rely first on common usage of the words “tribunal” and “foreign.”  ZF, for example, quotes extensively from dictionaries, which define “tribunal” as varieties of the “seat of a judge.”  Likewise, it argues that the common use of “foreign” relates to something government related.  In a great turn of phrase that is clever, if not persuasive, ZF Automotive argues that “foreign official,” “foreign flag,” and “foreign law” “do not refer to Canadian hockey officials, the official flag of the Cannes Film Festival, or Kosher dietary laws privately observed in Russia.”  Both briefs also argue from the legislative history of the statute, with particular emphasis on an article by Hans Smit, the Reporter of the Rules Commission which made recommendations to Congress that became Section 1782(a).  Prof. Smit describes an “international tribunal” as “one owing both its existence and powers to an international agreement.”   A private agreement, petitioners argue, does not fall within that scope.  Query, though, is an “international” tribunal the same as a “foreign” one?

Respondents have not yet filed their briefs.  When they do, I will include it in an upcoming Highlights.  Meanwhile, as it did in Servotronics, the United States has filed an amicus brief arguing that Section 1782(a) should not include private tribunals.  A bevy of interested parties, including arbitral tribunals; the U.S. Chamber of Commerce; Halliburton, which has a similar case pending in the Third Circuit; trade associations; and China-based arbitrators have also filed amicus briefs, some of which address the merits of the issue and some of which merely express views emphasizing the importance of leaving discretion to the arbitrators as to what evidence is relevant.

The two cases have been joined for argument, which will be held on March 23, 2020.

The interstate commerce worker exception to the Federal Arbitration Act

With the increase in on-line retail and ride-share services, a recurring issue in motions to compel arbitration is whether Uber and last-mile delivery drivers, whose work may touch on products which have moved interstate or passengers who are either being driven across state lines or are going to an airport for such travel, are “engaged in foreign or interstate commerce.”  If so, they are excepted from coverage under the Federal Arbitration Act, by reason of the scope provisions of Section 1 thereof. While Southwest Airlines v. Saxon, Dkt. No. 21-309, does not directly involve these workers, its holding will shape the debate.

Saxon was a non-union ramp supervisor employed by Southwest at Midway Airport in Chicago. While she trained and supervised ramp agents, the employees who actually load and unload baggage from planes, she would occasionally actually do that task herself.  As part of her employment, she signed an employment agreement which included an arbitration provision for all employment disputes.  However, she brought this collective action, seeking overtime pay on behalf of herself and other ramp supervisors.  Southwest sought to invoke the arbitration clause. The Seventh Circuit held that Respondent did not fall within its authority to compel arbitration under the FAA, as she was engaged in foreign or interstate commerce.

The legal argument before the court begins with Section 1 of the FAA, which excepts from its coverage “contracts of employment by seamen, railroad employees, and any other class of workers engaged in foreign or interstate commerce.”  In its merits brief, Southwest argues for a narrow interpretation of the “other class” and seeks to limit such workers to those who have “direct participation in the cross-border transportation of goods or people“ (Emphasis added).  As Southwest argues, “[c]rossing borders is an essential defining part of foreign and interstate commerce.”  It claims that such a view aligns with the full text of the exception, which includes “seamen,”  who clearly cross national boundaries, and “railway employees,” whom Southwest also maintains generally cross state lines.  Perhaps recognizing that a lot of railway employees do not cross state lines (witness, for example, here in the Northeast, conductors on Metro North or the LIRR), or even climb on a train, Southwest harkens back to the Hours of Service Act of 1907, which was interpreted by SCOTUS in 1911 to not include those who break up trains within the covered class of “railroad employees” for purposes of that Act, see Atchinson, Topeka & Santa Fe Ry. V. United States, 269 U.S. 266 (1925).

Respondent has not yet filed her brief.  Again, there will be more comment to come in Highlights when she does.  In the meantime, as would be expected, amicus briefs have been filed in support of Southwest, by Uber, Lyft, Amazon, the conservative Washington Legal Foundation, and the major airlines trade association.

Argument is set for March 28^th.

Enforcement of California’s Private Attorney General Act

Viking River Cruises, Inc. v. Moriana, Dkt. No. 20-1573, will resolve an issue that repeatedly appears in arbitration cases in California.  The state statute at issue, known as the Private Attorney General Act (“PAGA”), authorizes civil penalties for violation of the California Labor Code.  It further provides that an employee may also seek damages on behalf of other employees who were allegedly subjected to the same violations, but only to the extent that a state enforcement agency could bring such a claim.  The California Supreme Court in Iskanian v. CLS Transportation LA, LLC, 327 P. 3d 129 (Cal. 2014), held that an agreement requiring an employee to arbitrate his or her employment claims did not prohibit a collective action under PAGA because of the limitation of claims to those which would otherwise be subject to state enforcement.  The Ninth Circuit adopted that reasoning in Sakkab v. Luxottica Retail North America, Inc., 803 F. 3d 425 (9^th Cir. 2011).  The lower court cases addressing PAGA rely upon either Iskanian or Sakkab, depending on whether they are pending in state or federal court. This petition for certiorari is addressed to the California Court of Appeals, which affirmed the trial court’s denial of Viking’s motion to compel arbitration of Moriana’s California Labor Code claims, Moriana v. Viking River Cruises, Inc., 2020 Cal. App. Unpub. LEXIS 6045 (2^nd App. Dist. September 18, 2020) under Iskanian.

Viking argues that the case is indistinguishable from AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011), which held that California’s doctrine invalidating class action waivers in consumer arbitration agreements violated the Federal Arbitration Act. The only difference, it argues, is that this case involves collective, rather than class, action.  While Moriana has not yet filed her merits brief in her opposition to certiorari she sought to distinguish Concepcion on the basis that PAGA claims, unlike those of a consumer in Concepcion¸ do not belong to the plaintiff.  Rather, because he or she is only asserting such claims as might otherwise be brought forward by a state enforcement agency, the plaintiff is a de facto arm of the state.  Any limits on his or her power to assert such claims, therefore, damages the state’s interest and is violative of public policy.

While this dispute certainly will be of primary interest to California employers and counsel, the implications of the decision could be more far-reaching.  For example, a New York statute purporting to invalidate pre-dispute prohibitions against the arbitration of certain employment claims was invalidated under the Concepcion doctrine.  It is certainly easy to imagine such a statute being restructured to track PAGA if Moriana prevails.  On a more general basis, the case will test the outer limits of Concepcion’s jaundiced eye on any state-imposed restrictions on arbitration.  Where would limits on the doctrine leave cases such as Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018)(arbitration mandate is not a violation of the National Labor Relations Act) and Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019)(resolving ambiguities in favor of arbitration), with their strong bias away from litigation?  Will a Supreme Court that is generally viewed as conservative use the narrow walkway of private attorney general status to remove a large group of claims from arbitration into full-blown collective litigation?

The amicus briefs have not yet begun to flow.  The only filing so far was made today by the California New Car Dealers in support of the petitioner. We can certainly expect briefs from Uber and Lyft, as they have cert. petitions pending on the same issue as is raised here.

Argument is set for March 30^th.

Other SCOTUS arbitration news –

There is not yet a decision in Badgerow v. Walters, Dkt. 20-1143, which addresses whether the “look through” doctrine can create federal question jurisdiction over a claim to vacate or confirm an arbitration award.  The case may break down into a debate over the policy of the FAA v. a strict interpretation of statutory language.

The Solicitor General has not yet filed in response to the Court’s invitation to express the views of the United States in Robertson v. Intratek Computer, Inc., Dkt. 20-1229, which addresses whether an employee may be compelled to arbitrate claims of reprisal for his or her actions under the Whistleblower Act.  Accordingly, the petition for certiorari is still pending.

As always, you can find news about and, more importantly, easy access to filings in these cases at the fantastic SCOTUS blog, Scotusblog.com.  The site provides a hyperlink to every application, brief, and other document in all significant cases in which an application for cert. is filed and all cases in which the Court grants the petition. I use it as first link to anything SCOTUS.  Also, after argument, tune into the never-boring Strict Scrutiny podcast and get a read from three smart law profs on the parties’ presentations and the Justices’ questions.

No guarantees, but, depending on other matters, I will try to monitor and report on oral argument in these cases.  At a minimum, I expect to provide links to the work of others.

If you are in the Midwest and under the storm watch, be safe.  Meanwhile, to all the rest of you, have a good weekend.

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