As regular readers of the blog may recall, Liz wrote a brief note about a decision by the Supreme Court of Missouri holding that arbitration is not available when companies select a defunct institution to administer their arbitrations with consumers.  See A-1 Premium Acceptance, Inc. v. Hunter, 2018 WL 4998256 (Mo. Oct. 16, 2018).  In the case, the commercial party — A-1 — had designated, in a 2006 arbitration agreement contained loan documents, the National Arbitration Forum (“NAF”) as the administering institution.  The NAF, however, entered into a consent decree in 2009 requiring it immediately to stop providing arbitration services for consumer claims nationwide.

Other courts around the country have enforced similar arbitration agreements.  But a Circuit split exists about how best to handle this situation.  The Missouri court took one approach, distinguishing between agreements where the parties agree to arbitrate regardless of the availability of a particular arbitration and agreements where the two sides agree to arbitrate only in a particular forum.  Under the first kind of agreement, the Missouri court conceded that the FAA authorizes courts to name a substitute arbitrator if the forum contemplated in the original agreement is unavailable. But under the second kind of contract, in which the agreement specifies the arbitration forum, the FAA doesn’t grant courts the authority to swap in a new institution. “Nothing in the FAA authorizes (let alone requires) a court to compel a party to arbitrate beyond the limits of the agreement it made,” the Missouri court said.

Although the case presented an opportunity for SCOTUS to provide guidance on this issue, on March 18, it declined to do so.

 

At least in theory, mutual assent remains a cornerstone of contract law and thus of arbitration.  The tricky part has become understanding what counts as mutual assent in a world where overwhelming empirical evidence, not to mention our own lived experience, demonstrates that no one reads standardized terms and conditions, including arbitration provisions buried in fine print, or more commonly these days, a maze of hyperlinks.

Basically, to get around the unilateral character of adhesive contracting, U.S. courts have, over the past five decades, refocused contract formation on constructive notice.  If a reasonable person in the position of the recipient of boilerplate should have seen the terms, the recipient will be bound by those terms, regardless of whether she ever actually read or understood the them.  Constructive awareness coupled with an individual purchasing something from a commercial party amounts to assent.  See, e.g., Starke v. SquareTrade, Inc., No. 17-2474, 2019 WL 149628 (2d Cir. Jan. 10, 2019) (“Where an offeree does not have actual notice of certain contract terms, he is nevertheless bound by such terms if he is on inquiry notice of them and assents to them through conduct that a reasonable person would understand to constitute assent.”) (citations omitted).

But a great deal of confusion persists about what counts as “reasonable notice.”  Liz has written about two conflicting cases involving Uber and arbitration.  She also wrote about a recent “shinglewrap” arbitration agreement – in a putative class action brought by homeowners against a vendor of roof shingles — upheld by the 11thCircuit.

This week, we’ll look at a recent Second Circuit case that might help make things just a tiny bit more tractable.

In  Starke v. SquareTrade, Inc., the Second Circuit concluded that the a purchaser of a consumer product protection plan did not have reasonable notice of an arbitration provision contained in the terms and conditions communicated via a hyperlink in a post-sale email.

The court starts with some generic stuff about conspicuousness.  It says that in determining whether an offeree is on inquiry notice of contract terms, courts look to whether the term was obvious and whether it was called to the offeree’s attention.  This usually “turns on whether the contract terms were presented to the offeree in a clear and conspicuous way.”  In the context of “web-based contracts, [courts] look to the design and content of the relevant interface.”

The court  goes on to list, in bullet points, various features of interfaces that were too inconspicuous and interfaces that were acceptably conspicuous.  But these bullet points sort of distill to whether the court thought that the interface was cluttered or not.  At best it feels like defining obscenity — you know it when you see it.  At worst, it feels like defining beauty — it’s in the eye of the beholder.  Either way, it’s not very helpful.

(I’ll just say, as an aside, that I was at an academic conference a week ago, and one of the presentations was on an empirical study about conspicuousness — still in progress, but if you’re interested, you could reach out to the author, Yonathan Arbel.  The study looks at the effectiveness — or more precisely, ineffectiveness — of all-caps.  Basically, all-caps seems to do nothing to help make things more conspicuous and may well make things far less readable.  That discussion reminds me that courts are offering opinions about what is or isn’t conspicuous with very little empirical evidence guiding them.)

Maybe the more useful rules of thumb that the court provides have to do with the fact that the relevant hyperlink was “neither spatially nor temporally coupled with the transaction.” The relevant link was given to the purchaser in a post-sale email.  Spatially, the court noted that the hyperlink could have (and should have?) been provided on the purchase page.  In the court’s view, doing so would have more clearly indicated that the terms and conditions, including the arbitration clause, were part of the purchase transaction. Temporally, the court concedes that “providing contract terms after a transaction has taken place may be an appropriate way to contract in certain situations,” but it found “little justification” for that sort of pay-now-terms-later structure in the particular case. Instead, “it would have been virtually costless for SquareTrade to provide the governing terms and conditions to Starke before he bought the Protection Plan.”

These “coupling” rules of thumb could be useful for drafters.  It’s not clear whether the court would have enforced the arbitration clause if it had been included in a hyperlink on the purchase page, but that’s certainly the suggestion.

In this week’s installment of Arbitration Nation, we’re going to look at when a “decision with respect to an arbitration” may be appealed.  9 U.S.C. § 16 provides part, but only part, of the answer.  The rule essentially establishes the right of a party losing a motion to compel arbitration in a federal court to appeal that decision immediately. In contrast, a party who has been compelled to arbitration cannot appeal that decision immediately unless she first secures permission from both the district court and the court of appeals under 28 U.S.C. § 1292(b)See 9 U.S.C. § 16(b).

That seems pretty easy, right?  Well, maybe it should be, but some wicked complications come up in at least four situations.

Three of those situations involve a court dismissing a pending lawsuit rather than staying it.  It’s worth noting that Several Circuits reason that dismissal is the wrong procedural complement to an order compelling arbitration.  See, e.g., Aqua-Chem, Inc. v. Bariven, S.A., No. 3:16-CV-553, 2018 WL 4870603, at *2 (E.D. Tenn. Mar. 16, 2018) (discussing the Circuit split in detail).  The Supreme Court has, to date, punted on this issue.  See Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 87 n.2, 121 S. Ct. 513, 520, 148 L. Ed. 2d 373 (2000) (“The question whether the District Court should have [dismissed the underlying lawsuit instead of granting a stay] is not before us, and we do not address it.”).  Basically, courts that find dismissal problematic read FAA § 3 literally: “the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action. . . .”

More courts, however, reason that the FAA’s mandatory stay does not impose an immutable limitation on a court’s discretion to dismiss claims requiring arbitration, and that dismissal may be proper if “all of the issues raised in the [suit] must be submitted to arbitration.” See, e.g., Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).

So, back to three of the four complications.

The first isn’t really a complication, I suppose, as there’s a very clear-cut answer: what happens if the district court dismisses an underlying lawsuit with prejudice instead of staying the case pending arbitration?  The answer: dismissal with prejudice constitutes an immediately appealable decision.  Such an “order plainly dispose[s] of the entire case on the merits and [leaves] no part of it pending before the court.”Green Tree, 531 U.S. at 86.

The second complication, however, deserves the label: what happens if the district court dismisses an underlying lawsuit without prejudice instead of staying the case pending arbitration?  The Sixth Circuit recently confirmed that a dismissal without prejudice paired with an order compelling arbitration constitutes an immediately appealable final decision.  See Hilton v. Midland Funding, LLC, 687 F. App’x 515, 518 (6th Cir. 2017).

But, as the case notes, SCOTUS has never addressed this particular issue.  Moreover, I think that there are some decent policy arguments that the Sixth Circuit has gotten it wrong.   Basically, allowing a district court to dismiss a case without prejudice and treating such a dismissal as appealable does an end run around FAA §§ 3 and 16. Combined, these provisions bolster the parties’ recourse to arbitration and push any doubts about the arbitrability of a dispute to arbitration.  But I digress.

The third complication comes up when a district court stays a pending case, compels arbitration and then the party sent to arbitration voluntarily dismissesher federal court case without prejudice.  The Ninth Circuit just addressed this situation and said, “[i]t makes no difference that [the plaintiff] then secured a voluntary dismissal without prejudice. A plaintiff’s ‘voluntary dismissal without prejudice is ordinarily not a final judgment from which the plaintiff may appeal.’”  Gonzalez v. Coverall N. Am., Inc., No. 17-55787, 2019 WL 911884, at *2 (9th Cir. Feb. 22, 2019) (citations omitted).

The fourth complication arises when a district court just isn’t very clear about whether it’s staying the pending lawsuit or dismissing it.  That was at stake in a very recent Second Circuit case, MELINA BERNARDINO, individually & on behalf of other similarly situated persons, Plaintiff-Appellant, v. BARNES & NOBLE BOOKSELLERS, INC., Defendant-Appellee., No. 18-607, 2019 WL 1076834 (2d Cir. Mar. 7, 2019).  There, the plaintiff argued that a district court “entered judgment dismissing, rather than staying, the action,” because the end of the order directed that “[t]he Clerk shall close the case.”  Id. at *1.  The court explained that there is “no jurisdictional significance to [a] docket entry marking [a] case as ‘closed,’ which we will assume was made for administrative or statistical convenience.”  Id. (citations omitted).

Spring is just around the corner!  And with spring comes an outstanding conference that the ABA Section of Dispute Resolution will be presenting on April 10-13, 2019 at the Hyatt Regency in Minneapolis, Minnesota – see the conference flyer for a quick overview of the conference and a registration form.

The theme of the conference, “Shining the Light on the Parties in Dispute Resolution,” reflects its principal focus — what parties and their counsel need to know to use ADR effectively in the domestic and international arenas and, more specifically, what parties want and need from ADR stakeholders.

The conference begins on April 10 with a Symposium on ADR in the Courts. The main program follows on April 11 and 12, featuring over 60 concurrent panels and many networking opportunities. The conference ends with the Legal Educators’ Colloquium on April 13.

Highlights of the conference will include:

• Wednesday evening reception at the United States District Court for the District of Minnesota;
• Thursday evening reception at the Minneapolis Hyatt Regency; and
• Friday evening reception at the Minneapolis Institute of Art.

The online conference registration is available here: http://ambar.org/spring2019 on the ABA’s main website, or https://www.xpressreg.net/eReg/?ShowCode=DRSC0419.

An online reservation link for the Minneapolis Hyatt Regency, as well as Hotel and Travel information, is just a click away.

Liz and I will both be there.  We hope to see many of you as well.

Discovery in international arbitrations can be controversial for a lot of reasons. The District Court for the District of South Carolina recently added another one to the list in In re Servotronics, Inc., No. 2:18-MC-00364-DCN, 2018 WL 5810109 (D.S.C. Nov. 6, 2018). The case addresses a very practical question: does 28 U.S.C. § 1782, which allows a district court to order a person who resides in the court’s district to provide testimony or documents to be used in a proceeding in a foreign tribunal, apply to a private international arbitration? According to the court, the answer is “no.”

The dispute arose from an arbitration related to a fire at a Boeing facility in Charleston, South Carolina. Boeing was testing a plane when the plane’s engine caught fire. The fire caused several million dollars of damage to the plane and the test facility. Boeing sought compensation from the engine’s manufacturer, Rolls-Royce. Rolls-Royce, in turn, demanded indemnity from Servotronics, who had manufactured a valve in the engine. Servotronics refused the demand, and Rolls-Royce initiated an arbitration in London.

During the course of the proceeding, Servotronics sought the deposition of three Boeing employees residing in Charleston. Boeing would not voluntarily produce them, so Servotronics filed an action in the US District Court in South Carolina seeking to compel discovery for use in a foreign proceeding under §1782.

In denying Servotronics’ request, the court concluded that a private arbitral body does not qualify as a foreign or international “tribunal” for purposes of §1782. As the court noted, this conclusion squares with decisions of the Second and Fifth Circuits. See Nat’l Broad. Co. v. Bear Sterns & Co., Inc., 165 F.3d 184 (2d Cir. 1998); Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880 (5th Cir. 1999).

The Second and Fifth Circuit decisions, however, were cast into some question by SCOTUS’s subsequent interpretation of §1782 in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). Specifically, in dicta, SCOTUS said that Congress had amended §1782, expanding its application from “any judicial proceeding” to “a proceeding in a foreign or international tribunal.” Id. at 257–58. The Court noted that “Congress understood that change to ‘provide the possibility of U.S. judicial assistance in connection with administrative and quasi-judicial proceedings abroad.’” Id. (citations omitted). The Court went on to deploy a definition of “tribunal” from a law professor (Yay!) to include “ investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.” Id. at 258 (citations omitted).

In the wake of Intel, lower courts have divided over the question of whether §1782 applies to international arbitration bodies. Compare, e.g., In re Operadora DB Mexico, S.A. de C.V., 2009 WL 2423138, at *6 (M.D. Fla. Aug. 4, 2009) (“The Intel Court was not faced with—and did not address—the question of whether a private arbitral tribunal is a foreign or international tribunal under § 1782.”) with In re Roz Trading Ltd., 469 F. Supp. 2d 1221, 1224 (N.D. Ga. 2006) (“Although the Supreme Court in Intel did not address the precise issue of whether private arbitral panels are ‘tribunals’ within the meaning of the statute, it provided sufficient guidance for this Court to determine that arbitral panels convened by the [private arbitral institution] are ‘tribunals’ within the statute’s scope.”).

Joining the negative side of the ledger, the District Court for the District of South Carolina held that the Intel decision did nothing to alter the Second and Fifth Circuit precedent, noting that

[s]tretching the language of Intel to apply to private arbitration is simply too far of a reach absent more explicit language from Congress or the Supreme Court.

Given just how important the question is, I go on record now to predict that we’re going to see more Circuits weigh in on the issue in the very near future. If I were a betting person, I’d say that SCOTUS would come down in favor of broad support for international commercial arbitration and read §1782 as applying to arbitral bodies.

Pick up any textbook or treatise on arbitration law, and you’ll find the same thing in the chapter on enforcing arbitral awards: courts cannot conduct a merits review of awards. Courts, in other words, do not second guess the conclusions of the arbitrators about law or facts.

Or at least they’re not supposed to do so.

Still, losing parties often try to convince a reviewing court that the arbitrator “exceeded her powers.”  These sorts of excess of authority arguments have become quite common.

That’s exactly the sort of argument at issue in a hot-off-the-presses Tenth Circuit case, MEMC II, LLC v. Cannon Storage Sys., Inc., No. 18-6079, 2019 WL 549633 (10th Cir. Feb. 12, 2019).

In the case, the parties entered into a standard form construction contract, containing an arbitration clause. Cannon was supposed to build a commercial storage facility for MEMC. A dispute arose because Cannon decided that it needed to make some changes to the structural plans. When MEMC discovered this, it refused to continue to pay Cannon. Cannon then initiated arbitration to recover the payments.

MEMC defended by saying that Cannon had committed a material breach. It maintained that, under applicable Texas law, Cannon’s unilateral decision to depart from the specifications constituted a per se material breach discharging it from its duty to pay under the contract. The arbitrator listened to the arguments at a three-day hearing, reviewed over 100 exhibits, and concluded that MEMC had breached by failing to pay Cannon. She also found that Cannon had breached by not getting approval for several of the changes it made, but that the cost of remediating Cannon’s breaches had not be sufficiently proven by MEMC. Accordingly, she awarded $143,608 in damages to Cannon and nothing to MEMC.

MEMC challenged the award on the basis of excess of authority. The argument was essentially that “the arbitrator was required to apply the law and by awarding damages when the law would not allow for recovery of damages, the arbitrator exceeded her authority.”

The Tenth Circuit took the opportunity to give us all an Arbitration 101 lesson. Citing another Tenth Circuit case from last year – which indicates that parties may not be learning the lesson – the Court said, “[E]rrors in either the arbitrator’s factual findings or his interpretation of the law (unless that interpretation shows a manifest disregard of controlling law) do not justify review or reversal on the merits of the controversy.” (quoting Dish Network L.L.C. v. Ray, 900 F.3d 1240, 1243 (10th Cir. 2018)).

[F]ederal courts strongly defer to an arbitrator’s decisions. Because of this, “a party seeking relief under § 10(a)(4) bears a heavy burden.” [Oxford Health Plans LLC, 569 U.S. 564, 564 (2013) (quotations omitted).] “[C]onvincing a court of an arbitrator’s error—even his grave error—is not enough” to warrant vacatur under § 10(a)(4). Id. at 572. “Because the parties ‘bargained for the arbitrator’s construction of their agreement,’ an arbitral decision ‘even arguably construing or applying the contract’ must stand, regardless of a court’s view of its (de)merits.” [citations omitted]

Liz has written before about the ways that state courts sometimes try to resist SCOTUS’s love affair with arbitration.  Resistance can come in many and varying forms, some more subtle than others.

One persistent source of confusion in arbitration law, and thus a locus for resistance, centers on delegation clauses. As a quick refresher, in the United States, courts decide questions of arbitrability (questions about the proper scope of an arbitration agreement as well as the contractual validity of an arbitration agreement) unless the parties, in clear and unmistakable language, delegate these questions to the arbitrator.  Parties may provide such a delegation, most courts agree, by including express language in the arbitration clause to this effect or by incorporating by reference a set of arbitration rules that include such a delegation.  (See, e.g., Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1074 (9th Cir. 2013) (“Virtually every circuit to have considered the issue has determined that incorporation of [institutional] arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”  But for a different take, check out this blast from ArbitrationNation’s past.)

Like the doctrine of separability, the goal of a delegation clause is to insulate and protect the arbitral process, preventing the parties from having to waste time and money fighting in court before getting to arbitration.

In Midwest Neurosciences Associates, LLC v. Great Lakes Neurosurgical Associates, (Wis. 2018), however, the Wisconsin Supreme Court effectively created a new rule that allows a court to ignore a delegation clause.  As the dissenting Justice says, the case “creat[es] a new rule bestowing on the judiciary the power to decide arbitrability even though the parties agreed an arbitrator would resolve this issue.”   Accordingly, parties who choose arbitration in Wisconsin, may wind up stuck waging preliminary battles about arbitrability in courts, even if they include clear and unmistakable language saying that they want all of their fights resolved before an arbitrator.

The case involved a potential conflict between two contracts.  The first was an Operating Agreement, which contained an arbitration clause and a choice to arbitrate pursuant to the JAMS Arbitration Rules (which include a delegation provision).  The Operating Agreement substantively contained a set of non-compete obligations preventing certain behavior by the defendants.  The second, and subsequent, contract was a Redemption Agreement, which did not contain any reference to arbitration, included a merger clause, and was intended to at least partially supersede the earlier agreement.  Specifically, the Redemption Agreement was supposed to release the defendants from their obligations under the Operating Agreement.

The defendants started acting in contravention to their non-compete obligations. The plaintiffs objected, saying that they had never actually agreed to the Redemption Agreement. Instead, they believed it to be a mere proposal that they had ultimately rejected.

The Wisconsin Supreme Court concluded that the questions of whether the Redemption Agreement was valid and, if so, whether it changed the forum for dispute resolution were for the court rather than the arbitrator.  In reaching this conclusion, the majority effectively ignored the delegation clause, relegating it to an aside in a footnote.

Lest you think that I’m being too harsh in saying that the decision evidences resistance to arbitration, I’ll just quote Justice Rebecca Bradely’s dissent in closing:

While the foundation of the majority’s preference for court resolution of arbitrability disputes is unclear, its disdain for arbitration as a method of dispute resolution is transparent . . . The majority misunderstands that the choice of method for dispute resolution belongs to the parties, not the court.

 

 

When Liz first told me that she was going to be our state’s new Solicitor General, I was overwhelmed, feeling a great wave of pure, abject panic.

Don’t get me wrong, Liz is going to be an outstanding Solicitor General, and Minnesota couldn’t be luckier to have her. In fact, I think hiring her for the gig is one of the smartest things Minnesota has done in years. Yay Minnesota.

But come on Liz, what about me? I was terrified, you see, about what would happen to ArbitrationNation. I’ve been an avid reader of the blog for many years, and it’s been a tremendous resource for me, as I’m sure it has been for all of you.

Then she suggested that I take over the primary responsibility for maintaining it. Turns out that I didn’t really know what panic was.

The truth is that I am honored to step in, roll up my sleeves, and do my best to continue Liz’s amazing work. But it is a daunting enterprise. Liz’s expertise, humor, and intellect have built this blog from nothing into one of the most respected and valuable resources on the law and practice of arbitration out there. I will miss Liz’s regular contributions and insights. But rest assured, I’ll bug her plenty to help me out. And I hope that you all will help me out as well. As you did with Liz, please send me your questions, comments, insights, cases, studies, and ideas for posts.

I’ll not bore you with a bunch of details about me, though please feel free to check out my bio. But as Liz said, I’m definitely a fellow arbitration nerd. I teach and write about arbitration, I serve as a mediator and arbitrator for commercial disputes (I’m happy to talk about serving in that role if you find yourself in need of a neutral), and I represent clients in arbitration-related matters as Of Counsel for Greene Espel, P.L.L.P. (I’m also happy to talk about helping as counsel or co-counsel on arbitration-related issues).

Most importantly, I love this stuff and I am looking forward to engaging with you.

As many of you know from LinkedIn or Twitter, I have accepted an exciting new position. I will be Minnesota’s Solicitor General starting next week.  Because I want to give my full attention to serving this great state, I need to step back from ArbitrationNation.

Thankfully, however, I have a wonderful replacement lined up.  My friend and fellow arbitration geek, Prof. Henry Allen Blair, has agreed to serve as the primary blogger here. I trust you will welcome him and keep him informed, just as you did with me, sending new cases, new studies, as-yet-unpublished data, and ideas for interesting posts.  He will bring different expertise (and different cultural references) to his posts, and I can’t wait to read them.

Accepting that I would no longer be the sole and primary individual associated with this blog was a much bigger psychological hurdle than I anticipated.  In 2011, when I started blogging, I was just hoping for the best, with no idea whether anyone would be interested in posts about arbitration law.  Now, ArbitrationNation reaches an average of 8,000 readers each month, including journalists, judges, arbitrators, and many inside counsel.  I am thrilled to have helped create this community.  I am also thrilled to leave it in excellent hands.

Thank you all.  Thank you for supporting this blog, for engaging with me on tough issues,  for asking me to contribute to articles or to speak at conferences, and for being friends.

First, SCOTUSblog referenced “arbitration nation” last fall, which was flattering.  Then last week the Ninth Circuit declared: “we have become an arbitration nation.”   That was basically the title of my first post on this blog seven years ago!  (“We are becoming an arbitration nation.”) I am going to turn up the  Janet Jackson  (“Rhythm Nation”) and feel smugly validated while I draft the rest of this post.  Because there is more to talk about than just the catchy phrase spreading far and wide.  Three federal circuits have vacated arbitration awards this month, giving new hope to parties who are trying to vacate awards and offering cautionary tales to arbitrators.

Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors2019 WL 333339 (9th Cir. Jan. 28, 2019), dealt with a subcontractor constructing army facilities in Afghanistan.  The subcontractor claimed it was owed significant funds after the project was terminated for convenience by the U.S. government.  It proceeded to arbitration against the prime contractor, and an arbitrator awarded the subcontractor just over $1,000,000.  The prime contractor petitioned to vacate the award.

Both the district court and Ninth Circuit found that the award should be vacated.  The appellate court found the arbitrator exceeded his power within the meaning of Section 10 (a)(4) by issuing a “completely irrational” award.  And what made it completely irrational in the court’s view?  It was the fact that the arbitrator explicitly refused to enforce material provisions of the parties’ subcontract because the Arbitrator concluded  “it was not reasonable to expect that Afghanistan subcontractors would be able to conform to the strict and detailed requirements of general contractors on U.S. Federal projects.”    The court found that the resulting award directly conflicted with the parties’ subcontract.  “By concluding that [subcontractor] need not comply with the FAR requirements, the Arbitrator exceeded his authority and failed to draw the essence of the Award from the Subcontracts…Such an award is ‘irrational.'”

In the opinion’s conclusion, the court reminds us that it is more than just a rubber stamp for arbitral awards:

We have become an arbitration nation.  An increasing number of private disputes are resolved not by courts, but by arbitrators.  Although courts play a limited role in reviewing arbitral awards, our duty remains an important one.  When an arbitrator disergards the plain text of a contract without legal justification simply to reach a result that he believes is just, we must intervene.

The Ninth Circuit was not the only federal circuit court of appeals to vacate an arbitration award this month.  The Fifth Circuit vacated an award in Southwest Airlines Co. v. Local 555, Transport Workers Union of America, 2019 WL 139247 (5th Cir. Jan. 9, 2019) for a similar reason.  The court found “the arbitrator ignored the unambiguous terms of the CBA.”  In particular, the arbitrator treated the final execution date of the Collective Bargaining Agreement (CBA) as the effective date, even though the record established the parties had ratified it weeks earlier. The court found the arbitrator’s analysis “was not an arguable construction of the CBA and instead amounted to the arbitrator’s own brand of industrial justice.”  Indeed, it introduced the case by saying “this case is an example of when an arbitrator goes too far.”  (The allowable bases for vacatur in this case were governed by the Railway Labor Act, and are similar to those in the FAA.)

The third case comes from the Federal Circuit, in Koester v. U.S. Park Police, 2019 WL 81105 (Fed. Cir. Jan. 3, 2019).   In that labor case, an arbitrator had upheld the park police’s decision to remove an officer from service.  But the court found the arbitrator abused his discretion by refusing to consider evidence, then vacated the award and remanded back to the arbitrator.  (Vacatur in Koester is not governed by the narrow standards of the Federal Arbitration Act, but instead by by the less deferential standards in a federal statute specific to labor relations with government employees.)

In the Midwest, however, arbitration awards fared just fine under the FAA. In fact, the Eighth Circuit un-vacated an award in Great American Ins. Co. v. Russell, 2019 WL 387032 (8th Cir. Jan. 31, 2019).   That case involved a farmer’s claim that his crop insurer wrongfully denied his claim for damage to his corn crop.  A panel of three arbitrators awarded the farmer $1,433,008.  The insurer moved to vacate the award under the Federal Arbitration Act, claiming the arbitrators violated applicable federal regulations that require the arbitrators to make factual findings, including the basis for any award and breakdown any award by claim.  The insurer argued that because the panel did not break the award down by county or otherwise explain the damage calculation, the award must be vacated.  The district court agreed and vacated the award, but the Eighth Circuit reversed, finding “nothing in the regulations required the panel to segregate this claim into multiple separate claims.”