If you don’t look at anything else in this issue, check out Judge Selya’s decision in LeVine v. Grubhub  and the article which is linked to it below. A fun read.

Interstate Commerce Worker

Since SCOTUS decided Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022), the lower courts have been figuring out the parameters of the “worker in interstate commerce” exception to the Federal Arbitration Act, 9 U.S.C. § 1.  Two cases last Friday focused on the section’s scope.

Whitaker v. Enbridge (U.S.), Inc., 2022 U.S. Dist. LEXIS 217623 (S.D. Tex. December 2, 2022)(Lake, J), is a claim for unpaid overtime under the Fair Labor Standards Act.  The plaintiff worked for an oil and gas pipeline transmission company.  He asserted that he was “primarily responsible for ‘inspecting pipeline construction and repairs to ensure the application of coating meets’ company, industry, and government requirements.”  Allegedly, if he did not perform his work correctly, the pipeline might explode, stopping the interflow flow of product. Enbridge moved to compel arbitration under Whitaker’s employment agreement; plaintiff did not dispute that he signed the agreement and that, if enforceable, it applies to his claim.  However, he asserted that  he was “engaged in foreign or interstate commerce.”  Section 1 of the FAA provides that it does not “apply to contracts of employment” for such workers, and, therefore, Whitaker argued that the District Court could not compel arbitration.  The court disagrees and grants the motion to compel. Judge Lake cites Saxon for the proposition that “a worker must play a play ‘direct and “necessary role in the free flow of goods” across borders’ to fall within the § 1 exception,” quoting Saxon at 1790 (Emphasis in Whitaker).  The court opines that “Plaintiff does not handle or transport the oil and gas, and it can physically flow without his inspection.  Although Plaintiff directly inspects pipelines, his effect on the flow of oil and gas is indirect.”  The court distinguishes Saxon, in which SCOTUS applied the Section 1 exception to an airline ramp supervisor “who physically handled and loaded cargo onto and off of planes.”  The opinion is noteworthy in that Judge Lake takes a deep dive into the statute’s statutory and historical context and its relation to cases under the Federal Employers Liability Act (FELA), the federal workers’ compensation act.  Courts are going to be dealing with the outlines of Section 1 for a long time, so this is a case worth putting in your notebook.

LeVine v. Grubhub Holdings, Inc. 2022 U.S. App. LEXIS 33321 (1^st Cir. December 2, 2022), is a short opinion; it simply refers to the panel’s decision in Immediato v. Postmates, Inc., 2022 U.S. App. LEXIS 32848 (1^st Cir. November 11, 2022), in which the same panel (Selya, J., writing for himself, Judge Lynch, and District Judge McElroy sitting by designation) held that couriers who deliver food from local restaurants and merchandise from local stores are not within the Section 1 exception.[1]  The way that Judge Selya gets there, though, is worth a quote.  After citing Immediato, he opines that “it would serve no useful purpose to repastinate ground already well-plowed.”  That one sent me to the dictionary: Respastination – “the act of digging over again,” Merriam-Webster.com.  Judge Selya is well-known in the First Circuit for his erudition.  One of his former clerks even wrote a compilation of the Judge’s greatest hits, Brodie, A Guide to ‘Selyaisms,’ National Law Journal, January 28, 2008, available at https://www.law.com/nationallawjournal/almID/1201169140964/ .  Try out “philotheoparoptesism” on someone at the holiday table this year.

Personal Jurisdiction and Venue

Most of the cases in “Highlights” addressing motions to compel arbitration deal with the merits.  Worth Group, Inc. v. Morales, 2022 U.S. Dist. LEXIS 217656 (S.D. Fla. Dec. 2, 2022)(McCabe, M.J.), is a reminder that counsel need to keep in mind lessons from 1L Civil Procedure.  In May 2022, Respondent Morales commenced an arbitration in California.  Petitioners were not  included in the initial filing, but were added in an Amended Demand.  The relevant arbitration clause provided that “all arbitration proceedings subject to this Agreement shall occur before [JAMS] in Palm County, Florida.”  Since the arbitration was brought in California, Petitioners asked the arbitrator to dismiss them based on the quoted sentence.  The arbitrator denied the motion.  Petitioners, then, brought this action in Florida, seeking an order compelling Morales to refile the arbitration in that state and a stay of the California arbitration.

Morales moved to dismiss the litigation for lack of personal jurisdiction.  Recognizing that the FAA does not authorize nationwide service of process, Magistrate Judge McCabe looked to Florida’s long-arm statute.  The statute grants jurisdiction over cases based on the defendant’s “failing to perform acts required by the contract to be performed in this state,” Fla. Stat. § 48.193(1)(a)7.  Petitioners claimed that, by filing the arbitration in California, rather than Florida, Morales fell within that provision. Based the Florida Supreme Court’s holding in McRae v. J.D./M.D., Inc., 511 So. 2d 540 (Fla. 1987), the Magistrate Judge opines that “failing to abide by a contract calling for arbitration in Florida, standing alone” does not bring the dispute within the scope of the subsection.  In so ruling, he holds that it is irrelevant whether the venue provision of the contract is mandatory or permissive.  Accordingly, he recommends that the District Judge dismiss the case for lack of personal jurisdiction.  Since long-arm provisions vary in each state, the holding of Morales may be inapplicable elsewhere; however, the case raises an issue that needs to go into the advocate’s checklist when faced with an application to compel.

Since Morales, as an alternative to dismissal, sought a transfer of the motion to compel to California, Magistrate Judge McCabe also addresses venue.   One of the requirements of a transfer, the court holds, is that the recipient District would have been a permissible jurisdiction in which to file the case in the first instance. Section 4 of the FAA, which addresses petitions to compel arbitration, provides that “the hearing on proceedings under such agreement [to arbitrate] shall be within the district in which the petition for an order directing such arbitration is filed.”  The Seventh Circuit, in Merrill, Lynch, Pierce, Fenner & Smith, 49 F. 3d 323 (7^th Cir. 1995),  held that, under that language, only a District Court in the district in which the arbitration was to be held can issue an order compelling arbitration.  Petitioners urged the court to follow that decision.  However, the Ninth Circuit, which covers the District of California to which Defendant sought to transfer the case, has adopted a contrary standard, “finding venue proper in the California court, notwithstanding the language in the arbitration agreement [which located the arbitration in Georgia],” Textile Unlimited, Inc. v. A..BMH and Co., Inc., 240 F. 3d 784 (9^th Cir. 2001). Therefore, Magistrate Judge McCabe finds that the action could have been filed in California and, therefore, that a transfer is permissible.  After applying a balancing test, he recommends that, if the District Judge does not dismiss the case, he or she should transfer it to the Southern District of California. Again, the issue will vary based upon the jurisdiction involved, but counsel should be aware of the question.

Failure to Participate in the Arbitration

“Half the battle is just showing up,” Stephen Hawking. Gustin v. Kleen Concepts, LLC, 2022 U.S. Dist. LEXIS 216875 (D. Ariz. December 1, 2022)(Rayes, J.), shows what happens when you ignore that advice.

Kleen commenced an arbitration against Quantum Fluids.  When Fluid announced that it was going out of business, Kleen filed an amended demand for arbitration adding the plaintiffs in this case as Respondents. It made service of the demand by mail and email.  Rather than appearing in the arbitration, even after they were served with requests for admission, Plaitniffs did nothing until the arbitrator entered an uncontested summary judgment against them, entering awards against each. They, then, commenced this application to vacate the award, arguing that the arbitrators “misbehaved” in a way that denied them a fair hearing. Such misbehavior is a basis to vacate under Section 10 of the FAA.   After rejecting claims that the Plaintiffs did not get proper service, the court opines, “Plaintiffs were given a fundamentally fair opportunity to participate in the decision and they chose not to.  Plaintiffs’ decision to unilaterally except themselves entirely from the proceeding does not render a hearing fundamentally unfair.”  In a lengthy footnote loaded with citations, the court also “notes” that, “although the issue was not briefed. . . such abject non-participation despite having notice would constitute waiver of the arbitrability issue.”

Have a good week.

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

[1] Immediato was featured in the December 2 issue of “ADR Highlights.”