Usually “Highlights” focuses on federal cases.  However, Cardozo Law School recently published an important article on the direction in which arbitration may be moving.  That article is today’s lede.  However, this issue also cover cases, including one from the Fifth Circuit that has gotten a lot of attention in the insurance coverage world. 

Where Is Arbitration Going?

One of the most important and interesting items that was published recently is an article by Imre Szalai, a professor at Loyola University New Orleans College of Law, The Future of Arbitration in the United States: Textualism, A Tectonic Shift, and a Reshaping of the Civil Justice System, 25 Cardozo J. of Conflict Resolution, 13 (2023). The article runs thirty-eight pages and is deeply thoughtful, so a summary here cannot do it justice; you need to read it in full.

The general thesis is summed up in Professor Szalai’s opening: “Today, after decades of expansion, arbitration and arbitration law are undergoing a Teutonic shift, and a new phase of contraction of arbitration law is currently unfolding.”  The article argues that courts, in developing presumptions of arbitrability and other doctrines, strayed from the concept that an arbitration agreement is a contract that should be interpreted under generally accepted contract principles.  Using Morgan v. Sundance, Inc., 142 S. Ct. 1708 (2022)(no arbitration-specific elements in determining whether a defendant has waived the right to arbitrate), Badgerow v. Walters, 142 S. Ct. 1310 (2022)(no “look through” to determine the existence of federal question jurisdiction in hearing a motion to confirm an arbitration), ZF Auto, U.S., Inc. v. Luxshare, Ltd., 142 S. Ct. 2078 (2022), and Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022)(application of exceptions in Section 1 of the Federal Arbitration Act), as examples, the article argues that the Supreme Court has become more textual and less policy driven in applying the FAA.  Professor Szalai summarizes his conclusion as follows: “[T]he Court has ushered in a new era of FAA jurisprudence where the primary focus will be on the FAA’s text, and this approach, although subject to a few caveats, is a significant shift from the past.  This new approach can lead to a constrained or limited interpretation of the FAA, along with a reconceptualization of arbitration as involving a contract that does not deserve special treatment.”

While the article is long and heavily footnoted (this is not a quick “over morning coffee” read), its audience should not be limited to arbitration academics.  If Professor Szalai is right about the direction in which arbitration is moving, it may create “tension” with older precedents.  For practitioners, those potential “tensions” create an opportunity to distinguish precedents which impede an advocate’s opposition to a motion to compel arbitration.  For example, Professor Szalai launches a potential bomb in three lines buried in a footnote, p. 47, n. 257, when he states that the FAA was “originally intended” to be “limited to contractual disputes.”  As such, it was “never supposed to cover federal claims. . . .,” and the Supreme Court in Badgerow should have “properly limited the FAA to non-employment cases.”  Without making any judgment on whether he is right or not, I predict that this concept will be part of a panel discussion at upcoming conferences for plaintiff employment lawyers.

Quick Hits

There were several cases which are reminders of basic principles.

Arbitration under an Expired Agreement; Ohio Law

The decision on compelling arbitration in Clotz v. Mason Companies, Inc., 2024 U.S. Dist. LEXIS 37863 (N.D. Ohio, March 5, 2024), hinges on whether the relevant provision survived the expiration of the agreement in which it was contained.  Applying Ohio law, Judge Gwin holds both that it did not and that the agreement lacked consideration.  The case is worth reading for two reasons.  First, it analyzes the usual elements in determining whether an obligation contained in an agreement survives the end of the agreement’s term.  Secondly, it is a reminder that District Courts look to applicable state law to determine whether a contract has been formed.

Equitable Estoppel

On the merits, Filed Bufkin Enterprises, L.L.C. v. Indian Harbor Insurance Co., 2004 U.S. App. LEXIS 5176 (5^th Cir. March 5, 2024)(Per curiam by Judges Willett, Wilson, and Ramirez), is an important case for those involved in insurance coverage litigation.  For more general arbitration practitioners, it is a reminder of the principles of equitable estoppel. Plaintiff sought to recover from its insurers for damage arising from Hurricane Laura in Louisiana.  While eight of the insurers were U.S.-based, two were international.  The issue was whether, under the terms of the New York Convention which only applies if there is a non-U.S. party involved in the dispute, those insurers should be treated as a single group.  The court holds that, since the Plaintiff submitted a single claim to all the companies and referred to them by the collective noun “insurers,” it was estopped from claiming that they were each a separate entity for arbitration purposes.  The Court of Appeals reverses the District Court’s decision not to grant the domestic carriers’ motion to compel arbitration under the Convention.  Again, the court applies state law, in this case looking to Louisiana to set the elements of estoppel.

Appeal from Dismissal of Action in Favor of Arbitration

In Hong Zhuang v. EMD Performance Materials Corp. 2024 U.S. App. 5261 (3^rd Cir. March 5, 2024)(per curiam, by Judges Bibas, Porter, and Montgomery-Reeves), the court opines that it has subject matter jurisdiction under the final judgment rule when the District Court dismisses an action and orders the parties to proceed to arbitration.  The case is a reminder that SCOTUS will hear argument on April 22, 2024, in Smith v. Spirrizzi, Dkt. No. 22-1218, which will determine whether the FAA allows a District Court to dismiss an action after compelling arbitration or whether it can only enter a stay.

Assuming that the courts cooperate in generating material, I’ll see you Thursday.

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