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Important Considerations for Mediation

“You can’t always get what you want. But if you try sometimes, well, you just might find, you get what you need.” – Mick Jagger and Keith Richards

Successful Mediation. Unlike the regular adjudication of a legal dispute, in mediation there is no “decision-maker” to determine who is “right” or “wrong.” No final order or judgment is issued. Instead, a good mediation will result in a resolution created by both parties that satisfy both parties’ interests or concerns. Mediators are not looking to find fault or assign blame – rather, a mediator works with the parties to problem solve and find creative solutions and proposals.

Selecting a Mediator. In some court programs there is a list of “pre-approved” mediators. The mandatory Alternative Dispute Resolution program in the Western District of Pennsylvania has such a list. In the Allegheny County Court of Common Pleas there will be no such guidance on preferred mediators. Pennsylvania does not have any national or statewide organization that certifies mediators. However, there is training available and basic mediation training is generally a 40-hour course covering problem solving, conflicts, communication skills, ethics and practical skills in role plays and other exercises. Mediators should have attended at least a basic mediation training course as well as have experience in mediating civil cases.

Article By Kathryn L. Clark of Strassburger McKenna Gutnick & Gefsky

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US Supreme Court Holds That Airline Cargo Loaders Are Exempt From Arbitration

The US Supreme Court has held that airline cargo loaders who load and unload cargo from planes that travel across state lines are exempt from the Federal Arbitration Act (FAA) because they belong to a “class of workers engaged in foreign or interstate commerce” under § 1 of the FAA. Southwest Airlines Co. v. Saxon (June 6, 2020).

Background

Latrice Saxon worked for Southwest Airlines and was responsible for training and supervising teams of ramp agents who load and unload airplane cargo on Southwest planes that travel across state lines. Saxon brought a collective action alleging failure to pay proper overtime wages FLSA in the Northern District of Illinois. However, Saxon had signed an arbitration agreement requiring her to arbitrate her wage disputes, and Southwest moved to dismiss the lawsuit and to compel arbitration under the FAA.

Saxon opposed the motion, invoking § 1 of the FAA, which exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” She argued that ramp supervisors, like seamen and railroad employees, were an exempt “class of workers engaged in foreign or interstate commerce,” but the district court agreed with Southwest and found that only employees involved in “actual transportation,” not those who merely handle goods, fell within § 1 of the FAA. On appeal, the Seventh Circuit Court of Appeals disagreed with the District Court’s decision, holding that “[t]he act of loading cargo onto a vehicle to be transported interstate is itself commerce.” The Seventh Circuit’s decision conflicted with an earlier decision of the Fifth Circuit, Eastus v. ISS Facility Services, Inc., 960 F. 3d 207 (2020), and the Supreme Court granted certiorari to resolve the conflict between the two circuits.

The Supreme Court’s Decision

In a unanimous decision, the Supreme Court held that loaders who load and unload airplane cargo that travels intrastate play a direct role in the interstate transportation of goods and therefore belong to a “class of workers engaged in foreign or interstate commerce” under § 1 of the FAA. The Court engaged in a two-step analysis. First, it considered how to define the relevant “class of workers.” The Court rejected Saxon’s argument that the “class of workers” should be defined as virtually all airline employees, which would include shift schedulers or those who design Southwest’s website. Rather, the Court held that the inquiry must focus on the job duties of the employees themselves, rather than the employer’s business and that Saxon “belongs to a class of workers who physically load and unload cargo on and off airplanes on a frequent basis.”

Next, the Court considered whether that class of airplane cargo loaders “engaged in foreign or interstate commerce.” It determined that “one who loads cargo on a plane bound for interstate transit is intimately involved with the commerce of that cargo” and that workers like Saxon who load and unload airplane cargo that travels in interstate commerce are exempt from the FAA.

Takeaway for Employers

Though the Court did find a class of workers exempt from the Federal Arbitration Act, it expressly rejected the assertion that this exemption should apply to all employees of an employer engaged in foreign or interstate transportation. It went on to provide examples of positions that would not satisfy the exemption, such as workers engaged in the sale of interstate asphalt or workers who supply janitorial services to a corporation engaged in interstate commerce.

Employers engaged in interstate or foreign transportation commercial should consult legal counsel if they plan to utilize arbitration agreements as part of their dispute resolution process.

Article By John P. Zaimes and Natalie C. Kreeger of ArentFox Schiff LLP

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BREAKING: Supreme Court Reverses California Court of Appeal in Viking River Cruises v. Moriana

On June 15, 2022, the U.S. Supreme Court issued its decision on Viking River Cruises, Inc. v. Moriana (Case No. 20-1573) reversing the California Court of Appeal’s decision to affirm the denial of Viking’s motion to compel arbitration Moriana’s “individual” PAGA claim and to dismiss her other PAGA claims.

As previously reported, the question presented in Viking River Cruises involved whether the Federal Arbitration Act (“FAA”) preempts the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC, 58 Cal.4th 380 (2014), which invalidates contractual waivers of representative claims under California’s Labor Code Private Attorneys General Act (“PAGA”).

In a majority opinion authored by Justice Alito, the Court held that while Iskanian’s prohibition on “wholesale waivers” of PAGA claims is not preempted by the FAA, Iskanian’s rule that PAGA actions cannot be divided into “individual” and “non-individual claims” is preempted.

Applying this holding to the parties, the Court held that Viking was entitled to enforce the parties’ arbitration agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim. As for Moriana’s non-individual PAGA claims, because PAGA itself “provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding,” Moriana lacks “statutory standing” under PAGA to litigate her “non-individual” claims separately in state court. Accordingly, “the correct course is to dismiss her remaining claims.”

Article By Timothy Kim and Michele J. Beilke of Hunton Andrews Kurth

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SCOTUS Significantly Narrows Scope of 28 U.S.C. § 1782 for International Arbitrations

The United States Supreme Court’s recent decision in ZF Automotive US, Inc., et al., v. Luxshare, Ltd., No. 21-401, holds that U.S. federal courts cannot order discovery in aid of international commercial arbitrations or investor-state arbitrations. In a unanimous decision, the Court reasoned that a “foreign tribunal,” under 28 U.S.C. § 1782, “is best understood as an adjudicative body that exercises governmental authority” rather than a private body that is merely located in another country. Because the private arbitral tribunal in the ZF Automotive case did not exercise governmental authority, the Supreme Court denied discovery in aid of the proceeding under Section 1782.

The decision resolves a circuit split over whether private commercial arbitration panels should be considered “foreign or international tribunals” under 28 U.S.C. § 1782, and thus whether U.S. discovery should be allowed in such private commercial arbitrations. Section 1782 authorizes a district court to order the production of evidence “for use in a proceeding in a foreign or international tribunal.” The Fourth and Sixth Circuits have previously held that international commercial arbitrations are foreign tribunals under the statute, while the Second, Fifth, and Seventh Circuits have held that they are not. The availability of discovery under Section 1782 is a key issue for the international arbitration community because the scope of discovery allowed under Section 1782 is generally broader than any discovery allowed under institutional arbitral rules or under foreign arbitration laws.

In reaching its decision, the Court found that the word “tribunal” carries a distinctively governmental flavor. A prior version of Section 1782 covered only “judicial proceeding[s]” in any court in a foreign country, however, Congress later expanded the legislation’s scope to cover proceedings in a “foreign or international tribunal.” The Court found that while this change broadens the understanding of “tribunal” to include tribunals that are not formal courts, the term is still best understood to refer to an adjudicative body that exercises governmental authority. Under the decision, a “foreign tribunal” is a tribunal belonging to a foreign nation while an “international tribunal” is best understood as one that involves two or more nations imbued with governmental authority. Location of the tribunal or the nature of the parties to the dispute are not determinative in this interpretation.

The Court also noted that extending Section 1782 discovery to cover international arbitrations would conflict with the Federal Arbitration Act, which governs domestic arbitrations. Thus, interpreting Section 1782 as applying to international arbitration would create a “notable mismatch between foreign and domestic arbitration.”

The Court’s decision came in a consolidated case arising out of appeals in the Sixth and Second Circuits. The first case involves a dispute between Luxshare, a Hong Kong company and ZF Automotive US Inc., a Michigan-based company, over an allegedly fraudulent sales transaction. The agreement between the parties provided that all disputes would be resolved by an arbitral panel under the Arbitration Rules of the German Arbitration Institute (DIS). In preparation for bringing an arbitration, Luxshare filed an ex parte petition under Section 1782 in the U.S. District Court for the Eastern District of Michigan seeking information from ZF Automotive and its officers. The district court granted the petition and ZF Automotive moved to quash, arguing that a panel formed under the auspices of the DIS was not a “foreign or international tribunal” under Section 1782. The district court denied the motion and the Sixth Circuit denied a stay.

The second case involves AB bankas SNORAS, a Lithuanian bank which was nationalized by Lithuanian authorities. The Fund for Protection of Investors’ Rights in Foreign States, a Russian corporation, commenced an ad hoc arbitration proceeding against Lithuania under a bilateral investment treaty that the country entered with Russia. The Fund filed a petition under Section 1782 in the district court seeking information from AlixPartners, LLP, a New York-based consulting firm, and one of its officers. AlixPartners challenged the petition, arguing that the ad hoc panel was also not a “foreign or international tribunal” under Section 1782. The district court rejected that argument in a decision that was affirmed by the Second Circuit.

The Court’s decision is likely to spark much discussion in the international arbitration community. There will likely be a significant impact on current and future international arbitrations, with parties having to consider their strategies for discovery in light of the unavailability of a critical information-gathering tool. On the other hand, for better and for worse, this decision will further streamline the international arbitration process, as many arbitral proceedings will not be delayed by related litigation over discovery in U.S. courts.

Article By Travis A. Gonyou of Binder & Schwartz

For more arbitration legal news, click here to visit the National Law Review.

Supreme Court Holds That Judges Can’t Invent Rules Governing Arbitration Waiver

Litigators who defend cases brought under the Fair Labor Standards Act (“FLSA”), particularly ‘collective actions” alleging wage-and-hour violations, often have been able to counter, or even sometimes support, allegations that arbitration agreements have been waived where the conduct of a party has caused prejudice to the other side. In the case of Morgan v. Sundance, Inc., a unanimous Supreme Court has now held that the determinant of waiver is solely dependent upon the nature and magnitude of the actions of the party that might be inconsistent with arbitration, without respect to alleged prejudice.

Morgan thus is an important case for any civil litigator, but it is especially significant for those who deal with employment disputes potentially governed by arbitration agreements, and for those who draw up such agreements in the first place. As is well known, the Court has, in recent years, frequently upheld the primacy of arbitration agreements pursuant to the Federal Arbitration Act (FAA). In the Morgan case, a unanimous Court does it again. Ms. Morgan was an hourly employee at a Taco Bell franchise who had signed an arbitration agreement intended to govern employment disputes. Notwithstanding the arbitration agreement, Morgan went to federal court to bring a nationwide “collective action” arguing that her employer had violated the Fair Labor Standards Act. Sundance, a franchisee of Taco Bell, initially defended against the lawsuit as if the arbitration agreement didn’t exist—filing a motion to dismiss (which the District Court denied) and engaging in mediation (which was unsuccessful). Next, Sundance moved to stay the litigation and compel arbitration under the FAA—almost eight months after Morgan filed the suit. Morgan then expectedly opposed on grounds of waiver of the right to arbitrate.

The governing precedent in the Eighth Circuit, where the case was litigated below, conditioned a finding of waiver of an arbitration agreement on whether the party knew of the right, “acted inconsistently with that right,” and—critical here– “prejudiced the other party by its inconsistent actions.” In deciding that issue, the Court below, as had eight other circuits, invoked “the strong federal policy favoring arbitration” to decide the matter of waiver. Two circuits rejected that rule, and the Supreme Court granted cert. to resolve that split. Justice Kagan, writing for all of the Justices, agreed with those two circuits.

Holding that “the FAA’s ‘policy favoring arbitration’ does not authorize federal courts to invent special, arbitration-preferring procedural rules,” and deciding no other issue with respect to the merits, the Court remanded the case for further proceedings that focus on the whether the employer relinquished its right to arbitrate by its actions that were inconsistent with it. Whatever an employer might otherwise have preferred (given the prior law in most courts of appeals), given the Supreme Court’s holding that any presumption of arbitration and the fact of prejudice are irrelevant, the Morgan case gives clear guidance in several regards, particularly demanding arbitration, if applicable, at the outset of a formal dispute, and resisting any discovery, to the extent possible, until the issue of arbitrability is decided. A defense against waiver simply based on prejudice is not going to fly.

Article By Stuart M. Gerson of Epstein Becker & Green, P.C.

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Your Employee As Your Arbitrator? Maybe!

The Hon’ble Supreme Court of India (“Court”) has, by its order dated August 24, 2009, in the matter of Indian Oil Corporation Ltd. & Ors. (“Appellants”) Vs. M/s. Raja Transport (P) Ltd. (“Respondent”)¹, once again upheld that the Court must give full effect and meaning to the appointment procedure set by the parties in the arbitration agreement before appointing arbitrator of their choice.

BRIEF FACTS OF THE CASE:

The Appellant and Respondent entered into an agreement dated February 28, 2005 (“Agreement”), where under, the Respondent was appointed as the dealer of the Appellant for the retail sale of petroleum products. Clause 69² of the Agreement provided for settlement of disputes by arbitration where the Director, Marketing of the Appellant, or a person appointed by him, was to act as the sole arbitrator.

On August 06, 2005, the Appellant terminated the dealership. The Respondent filed suit in the Civil Court, Dehradun, seeking (1) a declaration that the order of termination of dealership was illegal and void and (2) for a permanent injunction restraining the Appellant from stopping the supply of petroleum products to the retail outlet of the Appellant. In this same suit, the Appellant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (“the Act”), praying that the suit be rejected and the matter be referred to arbitration in terms of Section 69 of the Agreement. The Ld. Judge allowed the Appellant’s application and directed the parties to refer the matter to arbitration within two months and also directed the Appellant not to stop supplies to the Respondent for a period of two months.

Both parties challenged the said order before the District Court, Dehradun. The Respondent also filed an application under Section 9 of the Act seeking an interim injunction against the Appellant. Both appeals and the Section 9 application were disposed off by a common order dated January 20, 2006, whereby, both appeals were dismissed and the Section 9 application was allowed, retraining the Appellant from interrupting the supply of petroleum products to the Respondent for two months as well as directing the parties to refer the matter to arbitration as per the agreement, within the said period of two months.

While the appeals were pending, the Respondent issued letter dated January 04, 2006, through their counsel, wherein, the Respondent, referring to the Appellant’s insistence that only its Director, Marketing could be appointed as the Arbitrator, inter alia alleged that it (the Respondent) did not expect fair treatment or justice if the Director, Marketing or any other employee of the Appellant was appointed as the Arbitrator and called upon the Respondent to have a joint meeting so as to enable the parties to mutually agree on an independent arbitrator. This request was not accepted by the Appellant.

Thereafter, the Respondent filed an application before the Chief Justice of the Uttaranchal High Court under Section 11(6) of the Act for appointment of an independent arbitrator to decide the dispute. This application⁷ was allowed and a retired High Court Judge was appointed as the Sole Arbitrator to decide the dispute. The Ld. Chief Justice inter alia assigned the following two reasons to appoint a retired Judge as an Arbitrator instead of the persons as named in the arbitration agreement.

The Director (Marketing) of the Appellant, being its employee, should be presumed not to act independently or impartially.
1. The Respondent had taken steps in accordance with the agreed appointment procedure contained in the arbitration agreement and directions of the civil court by issuing notice dated January 04, 2006, calling upon the Appellant to appoint an arbitrator. After receipt of the said notice, the Appellant had to refer the matter to its Director, Marketing, which it did not do, nor did it take any steps for the appointment of an Arbitrator. The Appellant had, thus, failed to act as required under the agreed procedure.
Aggrieved by the said order, the Appellant preferred an appeal before the Court.

JUDGMENT:

The facts and circumstances of this case raised three issues for the Court to consider:
1. Whether the Ld. Chief Justice of the Uttaranchal High Court was justified in assuming that when an employee of one of the parties to the dispute is appointed as an arbitrator, he will not act independently or impartially.
On this issue, the Court inter alia noted as under:
- Arbitration is a binding and voluntary dispute resolution process by a private forum so chosen by the parties.
- Where a party, with open eyes and full knowledge and comprehension of the said provision enters into a contract with a government/statutory corporation/public sector enterprise, where such arbitration agreements providing for settlement of disputes where the arbitrator will be one of its senior officers, were common, such party cannot subsequently turn around and contend otherwise unless performance of that part of the arbitration agreement is impossible, or is void being contrary to the provisions of the Act.
- It was settled law that arbitration agreements in government contracts providing that an employee of the department (usually a high official unconnected with the work or the contract) will be the arbitrator are neither void, nor unenforceable.
- Whilst the provisions relating to independence, impartiality and freedom from bias are implicit under the Arbitration Act, 1940, the same are made explicit in the Act.
- This position may differ where the person named as the arbitrator is an employee of a company/body/individual other than the state and its instrumentalities e.g. a Director of a private company who is party to the arbitration agreement. In such cases, there may be a valid and reasonable apprehension of bias in view of his position and interest. In such cases, the court has the discretion not to appoint such a person.
1. In what circumstances the Chief Justice or his designate can ignore the appointment procedure or the named arbitrator in the arbitration agreement to appoint an arbitrator of his choice.
On this issue, the Court inter alia noted as under:
- The court must first ensure that the terms of the agreement are adhered to or given effect to, as far as possible and those remedies, as provided for, are exhausted.
- It is not mandatory to appoint the named arbitrator but at the same time, due regard has to be given to the qualifications required by the agreement and other considerations. Referring the disputes to the named arbitrator shall be the rule. Ignoring the named arbitrator and nominating an independent arbitrator shall be the exception to the rule, which is to be resorted to for valid reasons.
Interestingly, the Court also proceeded to expound on the scope of Section 11 of the Act, which contains the scheme of appointment of arbitrators.
1. Whether the Respondent had taken the necessary steps for the appointment of an arbitrator in terms of the agreement, and the Appellant had failed to act in terms of the agreed procedure, by not referring the dispute to its Director, Marketing for arbitration.
On this issue, the Court inter alia noted as under:
- In view of the order dated January 20, 2006, the Respondent ought to have referred the dispute to the Director (Marketing) of the Appellant within two months from January 2006. The Respondent had not done so and in light thereof, it was the Respondent that had failed to act in terms of the agreed procedure and not the Appellant.
- As the Arbitrator was already identified, there was no need for the Respondent to ask the Appellant to act in accordance with the agreed procedure.
The Court proceeded to hold that the Chief Justice had erred in having proceeded on the basis that the Respondent had performed its duty under the agreement and that there was justification for appointment of an independent arbitrator.

The Court then proceeded to allow the appeal, set aside the impugned order and appointed the Director (Marketing) of the Appellant as the sole arbitrator to decide the disputes between the parties.

ANALYSIS:

By this decision, the Court has once again upheld that when a person enter into a contract with a government/statutory corporation/public sector enterprise having an arbitration agreement providing for settlement of disputes where the arbitrator will be one of its senior officers, such person cannot subsequently turn around and contend otherwise unless performance of that part of the arbitration agreement is impossible, or is void being contrary to the provisions of the Act. However, this position may differ where the person named as the arbitrator is an employee of a company/body/individual other than the state and its instrumentalities e.g. a Director of a private company who is party to the arbitration agreement.

Referring to its decision taken earlier in the matter of Northern Railway Administration, Ministry of Railway, New Delhi Vs. Patel Engineering Company Ltd. (please refer to our earlier hotline dated August 26, 2008) Court reiterated that it is important to first ensure that the terms of the arbitration agreement are adhered to or given effect to, as far as possible and those remedies, as provided for, are exhausted, before they intervene in any manner.

However, If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else.

FOOTNOTES

¹ Civil Appeal No. 5760 of 2009 arising out of SLP (C) No. 26906 of 2008.

² “69. Any dispute or a difference of any nature whatsoever or regarding any right, liability, act, omission or account of any of the parties hereto arising out of or in relation to this Agreement shall be referred to the sole arbitration of the Director, Marketing of the Corporation or of some officer of the Corporation who may be nominated by the Director Marketing. The dealer will not be entitled to raise any objection to any such arbitrator on the ground that the arbitrator is an officer of the contract related or that in the course of his duties or differences. ………………..It shall also be a term of this contract that no other person other than the Director, Marketing or a person nominated by such Director, marketing of the Corporation as aforesaid shall act as arbitrator hereunder…………………….”
Nishith Desai Associates 2022. All rights reserved.

Article By Sahil Kanuga and Vyapak Desai with Nishith Desai Associates.

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Look at Me, Not Through Me: Supreme Court Limits Federal Jurisdiction for Post-arbitration Award Petitions

On 31 March 2022, the United States Supreme Court in Badgerow v. Walters limited federal subject matter jurisdiction over post-arbitration award petitions under the Federal Arbitration Act (FAA) §§ 9 and 10. After years of widening disagreement between circuit courts regarding when a federal court may exercise jurisdiction to confirm or vacate an award, the Supreme Court weighed in and held that federal courts may only exercise jurisdiction to confirm or vacate an award if the face of the application supports diversity or federal-question jurisdiction. One of the implications of this ruling is that many more post-arbitration proceedings to confirm or vacate an arbitration award may be channeled into state courts.

BACKDROP: FAA SECTIONS AT ISSUE

Section 4 states that a party seeking to compel arbitration can file suit in any court that, “save for” the arbitration agreement, would have federal jurisdiction over the underlying dispute.¹

Section 9 provides that parties may apply to confirm an arbitration award in the United States court “in and for the district” where the award was made.²

Section 10 provides that parties may apply to vacate an arbitration award in the United States court “in and for the district” where the award was made.³

PRELUDE: VADEN

In its 2009 decision in Vaden v. Discover Bank, the Supreme Court found that federal-question jurisdiction could exist under a “look-through” approach in a § 4 petition to compel arbitration.⁴ In that case, two questions were presented: (1) whether a district court, when asked to compel arbitration, should “look through” the petition and compel arbitration if the court originally would have had federal jurisdiction; and (2) if so, may the court exercise jurisdiction over the § 4 petition when the original complaint rests on state law but the counterclaim rests on federal law?

The Supreme Court answered the first question affirmatively. In doing so, it emphasized that a “federal court may ‘look through’ a § 4 petition to determine whether it is predicated on an action that ‘arises under’ federal law; in keeping with the well-pleaded complaint rule.”⁵ However, the Court found that the district court could not exercise jurisdiction over the petition presented in that case, because the complaint was “entirely state-based” and “federal-court jurisdiction cannot be invoked on the basis of a defense or counterclaim.”⁶

Since Vaden, circuit courts have been divided over whether the “look-through” approach also applies to applications to confirm or vacate awards under FAA §§ 9 and 10. For example, the Fifth Circuit acknowledged the circuit split in Quezada v. Bechtel OG & C Constr. Servs., Inc., noting that the Third and Seventh Circuits decline to apply the look-through approach for confirmation, vacatur, or modification of arbitration awards, but the First, Second, and Fourth Circuits permit the look-through approach.⁷

Ultimately, a divided Fifth-Circuit panel in Quezada agreed with the majority and held that the Vaden look-through approach applies to applications to confirm or vacate arbitration awards.

OPENING ACTS: BADGEROW V. WALTERS IN THE LOWER COURTS

Badgerow v. Walters followed, implicating the Supreme Court’s Vaden decision and the Fifth Circuit’s Quezada decision on the issue of whether a federal court has subject-matter jurisdiction to review an application to confirm or vacate an arbitration award when the underlying dispute presents a federal question.

The plaintiff in Badgerow initiated arbitration against her former employer’s principals, alleging violation of federal employment law. The arbitration panel dismissed all of her claims, so she filed an action in state court to vacate the arbitration award. The defendants removed the action to the United States District Court for the Eastern District of Louisiana and filed a motion to confirm the award. Plaintiff moved for remand to state court, arguing that the district court did not have jurisdiction over the award; however, the district court denied remand and granted defendant’s motion to confirm the award.⁸

On appeal, the Fifth Circuit held that it was bound by its precedent in Quezada and applied the look-through approach.⁹ The Fifth Circuit thus affirmed the district court’s decision to exercise jurisdiction over the dispute.

Plaintiff filed a petition for writ of certiorari, which the Supreme Court granted on 17 May 2021.¹⁰

FEATURE: THE SUPREME COURT’S DECISION

In an 8-1 decision,¹¹ the Supreme Court reversed and remanded the case, holding that FAA §§ 9 and 10 lack § 4’s “distinctive language directing a look-through” approach. Thus, without statutory language directing otherwise, “a court may look only to the application actually submitted to it in assessing its jurisdiction.”¹² Noting that Congress could have replicated § 4’s look-through language in §§ 9 and 10 but chose not to, the Court held that a federal court only has jurisdiction over an application to confirm or vacate an arbitration award when the face of the application demonstrates diversity or federal-question jurisdiction.

Applying the new rule to the facts of plaintiff’s appeal, the Court explained that the parties were not contesting the federal employment dispute at this stage; rather, the parties were contesting enforcement of the arbitration award. Therefore, the Court held that federal jurisdiction was not appropriate because enforcement of the award, which was “no more than a contractual resolution of the parties’ dispute,” did not amount to federal-question jurisdiction and the parties were not diverse.

SOUVENIR: THE KEY TAKEAWAYS

Following the Supreme Court’s decision in Badgerow limiting federal subject matter jurisdiction over arbitration awards, counsel and parties seeking to confirm or vacate arbitration awards must analyze whether their application, on its face, supports an independent basis for federal subject-matter jurisdiction if they wish to bring their application in federal court. Without the “look-through” approach for §§ 9 and 10 petitions, and in particular where the parties to arbitration provisions are citizens of the same state (and thus lack diversity jurisdiction), state courts will more likely be the primary venue for post-award petitions.

FOOTNOTES

¹ 9 U.S.C. § 4.

² 9 U.S.C. § 9.

³ 9 U.S.C. § 10.

⁴ Vaden v. Discover Bank, 129 S. Ct. 1262, 1268 (2009) (“A federal court may ‘look through’ a § 4 petition and order arbitration if,” notwithstanding the arbitration agreement, “the court would have jurisdiction over ‘the [substantive] controversy between the parties.’” (citations omitted)).

⁵ Id. at 1273.

⁶ Id. at 1269.

⁷ Quezada v. Bechtel OG & C Constr. Servs., Inc., 946 F.3d 837, 841 (5th Cir. 2020) (“After Vaden, a circuit split developed regarding whether the same look-through approach also applies to applications to confirm an arbitration award under section 9, to vacate under section 10, or to modify under section 11.”).

⁸ Badgerow v. Walters, — S. Ct. —-, 2022 WL 959675, at *3 (2022).

⁹ Badgerow v. Walters, 975 F.3d 469, 472–74 (5th Cir. 2020).

¹⁰ Badgerow v. Walters, 141 S. Ct. 2620 (2021).

¹¹ Justice Breyer in dissent wrote that although the Court’s decision “may be consistent with the statute’s text,” practical application would create curious consequences, artificial distinctions, and results that are “overly complex and impractical.” Badgerow, 2022 WL 959675, at *10 (Breyer, J., dissenting).

¹² Badgerow, 2022 WL 959675, at *3.

Article By Jacquelyn S. Celender, Wesley A. Prichard, and Kelsi E. Robinson with K&L Gates.

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Supreme Court’s New Arbitration Ruling: Limits Federal Jurisdiction For Confirming or Challenging Arbitration Awards Under the FAA

On March 31, 2022, the Supreme Court of the United States issued a decision in Badgerow v. Walters, No 20-1143, addressing when federal courts have jurisdiction to rule on motions to confirm, modify, or vacate arbitration awards under the Federal Arbitration Act (FAA). In an 8-1 decision, the Court narrowed the circumstances in which federal courts have such jurisdiction. Under the Court’s new decision, employers (and employees) will now more often be required to file their motions to confirm, modify, or vacate arbitration awards in state rather than federal court.

The Court’s Decision

The Court’s decision addresses a number of arcane questions of civil procedure and federal jurisdiction that could make for a nightmarish law school exam.

The decision starts from the well-accepted premise that the FAA does not grant federal courts jurisdiction. The FAA does, however, give parties to arbitration agreements certain rights, including the right to move a court to compel arbitration and the right to move a court to vacate, modify, or confirm an arbitration award. So the question that follows is: When can parties file these FAA motions in federal court and when must they file them in state court?

Under Badgerow, we now know that the answer is not the same for motions to compel arbitration and motions to vacate, modify, or confirm arbitration awards.

Under the Court’s prior case law, Vaden v. Discover Bank (2009), an employer can file a motion to compel arbitration in federal court so long as the underlying dispute to be arbitrated involves a question under federal law. For example, if an employee is alleging claims under a federal statute, such as Title VII of the Civil Rights Act of 1964, the Family and Medical Leave Act, or any of the myriad other federal employment laws, a federal court would have jurisdiction to rule on a motion to compel arbitration of those claims. In addition to this “federal question” jurisdiction, the federal court might also have jurisdiction based on the diversity of the parties. Under a federal court’s diversity jurisdiction, a court also has jurisdiction to hear disputes between parties that are citizens of different states where the amount in controversy exceeds $75,000.

In Badgerow, the Court held that a different analysis applies to motions to vacate, modify, or confirm arbitration awards, which are governed by different sections of the FAA. Unlike motions to compel arbitration, federal courts are not permitted to “look through” a motion to vacate, modify, or confirm to see whether there is a federal question involved in the underlying arbitration matter. Instead, a federal court must determine whether it has jurisdiction based on the motion itself.

Asking a court to vacate, modify, or confirm an arbitration award will usually raise questions about contract interpretation and enforcement. Contract law is usually state law. Thus, a motion to vacate, modify, or confirm arbitration awards will generally present questions of state law rather than federal law.

Since motions to vacate, modify, or confirm arbitration awards will rarely present federal questions on their face, federal courts will rarely have “federal question” jurisdiction over such motions. Federal courts may still have diversity jurisdiction if the parties on opposite sides of the motion to vacate, modify, or confirm arbitration awards are citizens of different states and the amount in controversy exceeds $75,000. It is also theoretically possible that a federal court could still have federal question jurisdiction on some other grounds, but the Badgerow decision did not delve into that subject.

Key Takeaways

Under the Supreme Court’s new decision, employers will more often need to turn to state courts for motions to confirm, modify, or vacate arbitration awards under the FAA.

State courts historically have been more hostile to arbitration than federal courts. In losing the option of going to federal court to confirm some arbitration awards, arbitration may become marginally less reliable. However, this new decision should not affect the overall benefits that many employers conclude they receive from using employment arbitration.

In addition, the new decision will likely affect employers’ strategies in moving to compel arbitration, because the scope of federal jurisdiction is broader for such motions. In seeking to compel arbitration, employers may now more frequently ask the federal court to retain jurisdiction pending the outcome of the arbitration so that the parties may return to that federal court to address any subsequent motion to vacate, modify, or confirm the resulting arbitration award.

Finally, by forcing employers (and other parties to arbitration agreements) more frequently to go to state court to vacate, modify, and confirm arbitration awards, the Badgerow decision will likely bring to the fore another question that has been looming on the horizon: do the FAA’s provisions permitting motions to vacate, modify, and confirm arbitration awards even apply in state court? Several courts around the country have suggested that they do not, meaning that employers (and other parties to arbitration agreements) will need to rely on state arbitration statutes for such motions in some jurisdictions. But that is another topic for another day.

Article By Christopher C. Murray and Hera S. Arsen with Ogletree, Deakins, Nash, Smoak & Stewart P.C.

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Supreme Court to Consider Whether the FAA Mandates Arbitration of PAGA Actions

On Dec. 15, 2021, the United States Supreme Court granted certiorari in Viking River Cruises, Inc. v. Moriana, and likely will decide by summer 2022 whether the Federal Arbitration Act (FAA) preempts California public policy and requires enforcement of arbitration agreements that purport to waive an employee’s ability to pursue representative actions under the California Private Attorneys General Act (PAGA). Employers have been waiting for the Supreme Court to take up this issue and are watching the case with interest.

Currently, per the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, arbitration agreements that waive an employee’s right to pursue PAGA representative actions are considered void and unenforceable. In Iskanian, the California Supreme Court held the FAA does not preempt California state law prohibiting prospective PAGA waivers because PAGA actions are between the employer and the state, not the employee. Thus, the state of California is the real party in interest, not the employee bringing suit, and although the employee may have executed a binding arbitration agreement, the state of California did not. Thus, arbitration agreements that purport to waive the right, expressly or otherwise, to bring a PAGA representative action are not enforceable.

In Viking River, the employee filed a PAGA representative action seeking civil penalties for various alleged violations of the California Labor Code, despite signing an arbitration agreement with her employer agreeing to resolve all future employment-related disputes with the employer via individual arbitration. Relying on the agreement, the employer moved to compel the action to arbitration. The trial court denied the motion, and the Court of Appeal affirmed the denial citing California state law as articulated in Iskanian. The California Supreme Court subsequently denied the employer’s petition for review.

Viking River then petitioned the U.S. Supreme Court for certiorari, relying on the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis. These decisions held that courts may not disregard bilateral arbitration agreements or reshape traditional individualized arbitration by mandating class-wide arbitration procedures without all parties’ consent. Viking River argued the Supreme Court needed to review the case to reaffirm the FAA and national policy in favor of arbitration. Viking River further argued review was necessary to ensure that Concepcion and Epic promote bilateral arbitration, rather than simply result in “representational litigation” under PAGA by those who agreed to arbitrate individually. In granting review, the Supreme Court will decide “[w]hether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.”

This will be a closely watched decision for both sides of the bar and will likely have a groundbreaking effect on California employment litigation. Should the Supreme Court decide in Viking River’s favor, PAGA-only actions, which have become the preference of California plaintiffs’ attorneys in the face of arbitration agreements containing class action waiver provisions, will largely become a thing of the past for those employers who mandate individual arbitration for employees. Although it is by no means certain how the Supreme Court will decide this issue, employers should certainly be ready to revisit any arbitration agreements with California employees and consider what if any changes the ultimate ruling may warrant.

Article By Ashley M. Farrell Pickett and Radha D.S. Kulkarni of Greenberg Traurig, LLP

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Lessons From Above: SCOTUS Declines to Review a Class Arbitrability Case (the Issue Had Been Delegated to an Arbitrator)

In its restraint, SCOTUS has shown us the mischief that arbitrators may do if parties are lax in setting boundaries in their agreement to arbitrate. By declining to grant certiorari regarding the Second Circuit’s most recent decision in Jock v. Sterling Jewelers, Inc., 2019 U.S. App. LEXIS 34205 (2d Cir. Nov. 18, 2019), cert. den., No. 19-1382, 2020 U.S. LEXIS 4133 (Oct. 5, 2020), SCOTUS reminds us of the significance of the doctrine of judicial deference to the authorized decisions of an arbitrator.

In Jock, the ultimate issue was formidable — class arbitrability. And the subsidiary issues were and are daunting. For example,

(1) parties to an arbitration agreement can delegate the class arbitrability issue (is class arbitration permitted?) to an arbitrator in the first instance, but would that delegation bind non-appearing putative class members, who are of course not parties to the operative arbitration agreement?

(2) who decides that delegation issue?

(3) would an arbitrator’s determination that class arbitration is permitted bind (a) non-appearing putative class members or (b) an unwilling respondent vis-à-vis those non-appearing putative class members?

The Second Circuit held that an arbitrator had acted within her authority in “purporting to bind the absent class members to class procedures,” 2019 U.S. App. LEXIS 34205 at *14, and that that determination therefore would stand “regardless of whether [it] is, as the District Court believes, ‘wrong as a matter of law.’” Id. Indeed, the Second Circuit had framed its inquiry as “whether the arbitrator had the power, based on the parties’ submissions or the arbitration agreement, to reach a certain issue” and “not whether the arbitrator correctly decided that issue.” Id. at *8-*9, citing Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 (2013).

Thus, the Court of Appeals did not review the merits of the arbitrator’s Class Determination Award (“CDA”), but rather defended it from scrutiny on the merits. Instead, the Second Circuit focused on the delegation question — did the parties clearly and unmistakably delegate the class arbitrability issue to the arbitrator for determination in the first instance?

The first lesson: if the issue of class arbitrability is delegated to an arbitrator for determination in the first instance, the resulting award becomes a hardened target with respect to its legal merits. It may be challenged on the narrow grounds for vacatur set out in Section 10(a) of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 10(a), and it then benefits from the deference accorded to all arbitral awards. Consequently, a decision concerning class arbitrability that might be reversed on de novo review if issued by a court will likely be left undisturbed if issued by an arbitrator.

That lesson alone is important to any company that uses a form arbitration clause in many substantially similar contracts – e.g, employment, consumer, financial, or insurance agreements. It highlights the urgency of getting one’s form(s) of arbitration agreement in order, including the advisability (i) to state clearly whether arbitrability issues – and class and/or collective arbitrability issues in particular – are to be determined by a court or an arbitrator in the first instance, and (ii) to expressly prohibit class and collective arbitration if bilateral arbitration is the sole desired structure for dispute resolution.

To illustrate the point, consider that SCOTUS decided in Lamps Plus, Inc. v. Varela, 139 S.Ct. 1407, 2019 U.S. LEXIS 2943 (U.S. Apr. 24, 2019), that when a court is deciding the matter under the FAA in the first instance, neither silence nor ambiguity in an arbitration agreement regarding the permissibility of class arbitration is a sufficient basis to find that the parties agreed to permit class arbitration. And SCOTUS implied that incorporation by reference of institutional rules such as those of the American Arbitration Association (“AAA”), including its Supplementary Rules for Class Arbitration, is not a sufficient basis to infer an agreement to permit class arbitration. (The AAA’s Supplementary Rules are expressly consistent with that. See R-3.)

But, as the Second Circuit pointed out, the parties in Lamps Plus had agreed that a court, not an arbitrator, should resolve the class arbitrability question, and so the District Court’s decision in Lamps Plus was subject to de novo review on appeal, rather than the deferential review that applies concerning a motion to vacate an arbitrator’s award. See, 2019 U.S. App. LEXIS 34205 at *18.

In the Jock case, on the other hand, the class arbitrability issue had been delegated to an arbitrator for determination in the first instance: (1) the appearing arbitrating parties had “squarely presented to the arbitrator” the issue of whether the controlling arbitration agreement permitted class arbitration, id. at *6, in effect resolving the delegation issue via an ad hoc agreement; (2) the operative arbitration agreement provided that the arbitrator shall decide questions of arbitrability and procedural questions, see id. at *12-*13; and (3) the operative arbitration agreement incorporated the AAA’s arbitration rules, including the delegation provision (see R-3) of its Supplementary Rules for Class Arbitration, which “evinces agreement to have the arbitrator decide the question of class arbitrability,” id. at *12, citing Wells Fargo Advisors, LLC v. Sappington, 884 F.3d 392, 396 (2d Cir. 2018). The Second Circuit justifiably took these manifestations to be “clear and unmistakable evidence” of an intent by the appearing parties to delegate the class arbitrability issue to an arbitrator.

The wild card question, however, was whether the non-appearing putative class members should be deemed bound by that delegation.

It is worth recalling that the Jock case has a lengthy history in the Southern District of New York and the Second Circuit, having bounced back and forth between those courts several times already. In an earlier go-round, after an arbitrator had “certified” a class of 44,000 employee claimants (including 250 active claimants),¹ the District Court denied respondent Sterling’s motion to vacate that CDA, but the Second Circuit reversed and remanded, noting that it had not previously squarely determined “whether the arbitrator had the power to bind absent class members to class arbitration given that they…never consented to the arbitrator determining whether class arbitration was permissible under the agreement in the first place.” 2019 U.S. App. LEXIS 34205 at *6. On remand, the District Court then vacated the arbitrator’s CDA. But the Second Circuit reversed again, this time based principally on the appellate court’s determination that the arbitrator had been authorized to adjudicate class arbitrability in the first instance, and so the District Court’s review of that award was therefore limited by (a) the narrow grounds for vacatur set out in FAA § 10(a)(4) and (b) the requisite deferential standard of review of such awards.

In that decision, which SCOTUS eventually let stand, the Second Circuit arguably could have addressed a number of issues:

(1) did the parties to the operative arbitration agreement delegate the class arbitrability issue to an arbitrator?

(2) did the non-appearing members of a putative class too delegate the class arbitrability issue to the particular arbitrator in the pending arbitral proceeding?

(3) are the non-appearing putative class members, who were not parties to the operative arbitration agreement, bound by that arbitrator’s decision regarding class arbitrability?

(4) should the District Court have vacated the arbitrator’s CDA?

The Second Circuit first determined that the class arbitrability issue had been delegated to an arbitrator. It also decided that the District Court should not have vacated the CDA because the arbitrator had the authority, based on the delegation, to resolve the class arbitrability issue in the first instance, and the merits of that determination therefore were not up for review even if the District Court believed that it had been wrongly decided as a matter of law.

Finally, the Second Circuit decided– and this was novel– that the arbitrator had the authority to reach the class arbitrability issue even with respect to the non-appearing putative class members. 2019 U.S. App. LEXIS 34205 at *15. Thus, the appellate court decided that, in the circumstances, the non-signatory “absent class members” (a) were deemed to have delegated the class arbitrability issue to the particular arbitrator in the proceeding in question, and (b) were bound by her determination that class arbitration was permitted.

The court’s rationale was: (1) each of the non-appearing putative class members respectively had made an arbitration agreement with respondent Sterling Jewelers that was substantially identical to the agreement upon which the appearing arbitration participants relied; (2) they thereby consented to, and indeed “bargained for,” an arbitrator’s authority to decide the class arbitrability issue, see id. at *11, *14; (3) that constituted an express contractual consent to delegation by the non-appearing putative class members, see id. at *17; and (4) even if the non-appearing class members had not expressly agreed to “this particular arbitrator’s authority,” id. at *15, that did not matter because judicial class actions routinely bind absent members of mandatory or opt-out classes, id. at *15-*16. (But of course, arbitration is not litigation, and Fed. R. Civ. P. 23 does not apply in arbitrations.)

Notably, this rationale appears to be inconsistent with the skepticism in this regard expressed by Justice Alito in his concurring opinion in the Oxford Health case. Justice Alito had opined that an arbitrator’s interpretation of an arbitration agreement generally “cannot bind someone who has not authorized the arbitrator to make that determination,” and that “it is difficult to see how an arbitrator’s decision to conduct class proceedings could bind absent class members who have not authorized the arbitrator to decide on a class-wide basis when arbitration procedures are to be used.” Oxford Health Plans, LLC v. Sutter, 133 S.Ct. at 2072 (Alito, J., concurring). Thus too, “an arbitrator’s ‘erroneous interpretation’ of a contract that does not authorize class procedures cannot bind absent class members who have ‘not authorized the arbitrator to make that determination.’” 2019 U.S. App. LEXIS 34205 at *10-*11, citing Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 574 (2013) (Alito, J., concurring).

Nevertheless, SCOTUS let the Jock decision, with all it entails, stand. And we are left to puzzle out what further lessons SCOTUS intended to convey in this regard.

¹The arbitrator “certified” an arbitration class solely for purposes of injunctive and declaratory relief, and it was an opt-out class (which is usually certified for class action litigations seeking money damages) rather than an opt-in class (which might have lent more justification to the CDA) or a mandatory class.

ARTICLE BY Gilbert A. Samberg of Mintz

For more articles on litigation, visit the National Law Review ADR / Arbitration / Mediation section.

Tag: Arbitration

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