Arbitration Nation is seven years old, and has 330 posts under its belt (and no seven year itch).  Hip hip hooray!  One of those posts is a perennial favorite, coming up over and over in search results: When Should You Choose JAMS, AAA or CPR Rules?  Because that comparison is five years old, we give you an update.  Here is a chart comparing the three sets of commercial rules on important topics.  Fair warning: the rules are very similar.  So, we added an asterisk in the first column to indicate an issue where there is some difference among the administrators.

Comparison of Popular Arbitration Rules in U.S.

Rule/Topic

Commercial Arbitration Rules – AAA

(Oct. 1, 2013)

JAMS Comprehensive Rules & Procedures

(July 1, 2014)

CPR Administered Arbitration Rules (July 1, 2013)
Filing Fee for $1,000,000 Claim * $8,475 For a two-party matter: $1,500 initial filing fee paid by the party initiating the arbitration and $1,500 for counterclaims. For matters involving three or more parties: $2,000. After that, a case management fee of 12% is assessed against all professional fees charged by arbitrator(s).

Non-refundable filing fee: $1,750

Admin Fee: $7,250

Deadline for Filing Answer/Response to Claim Within fourteen days after respondent receives notice of claim. Within fourteen days after respondent receives notice of claim. Within twenty days after the Respondent receives notice of claim from CPR.
Time to Hearing * None specified None specified The dispute should in most circumstances be submitted to the tribunal within six months after the initial pre-conference.

Number of Arbitrators *

(if not specified in arbitration agreement or agreed upon by parties)

If claim or counterclaim is under $1,000,000, the dispute will be heard by one arbitrator. If it is above that, then three arbitrators shall determine the case. The dispute will be heard by one arbitrator. The dispute will be heard by three arbitrators.
Mediation “Required” * In all cases where a claim or counterclaim exceeds $75,000, during the time that the arbitration is pending, the parties shall mediate their dispute, unless one or both parties opts out.

Not required; however, the Parties may agree, at any stage of the Arbitration process, to submit the case to JAMS for mediation.

 

Not required, however, the arbitrator may request CPR to arrange for mediation by a mediator acceptable to the parties.
Modification of Rules Parties may modify rules or procedures by written agreement. However, after appointing an arbitrator, such modifications require the consent of the arbitrator. Parties may modify rules as long as modification is legal and consistent with JAMS policies. Parties must notify JAMS and shall confirm the modifications in writing. Modifications are allowed; however, the parties must agree in writing to such modifications during the course of the arbitral proceeding.

 

 

Authority to Determine Jurisdiction

The arbitrator has the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim. The arbitrator has the authority to determine jurisdiction and arbitrability issues, including the existence, scope, and validity of an arbitration agreement, as a preliminary matter. The tribunal has the power to hear and determine challenges to its jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.
Discovery * For cases of all sizes, the arbitrator manages the exchange of information “with a view to achieving an efficient and economic resolution of the dispute, while … safeguarding each party’s opportunity to fairly present its claims and defenses.” Cases with claims under $1,000,000 contemplate just document exchange, while those with claims exceeding $1,000,000 clarify that the arbitrator has discretion to order depositions “upon good cause shown.” For cases of all size, the parties are expected to exchange all relevant ESI and documents within 21 days after pleadings are filed.   In addition, each party may take one deposition of an opposing party. Empowers the tribunal to facilitate “such discovery as it shall determine is appropriate,” but must take into account the needs of the party and the desirability of making discovery efficient and cost effective.
Dispositive Motions The moving party must show that the motion is likely to succeed and dispose of or narrow the issues in the case. The arbitrator may permit summary disposition of a particular claim or issue, either by agreement of all interested parties or at the request of one party, provided such other interested parties are given reasonable notice to respond.

There is no specific rule regarding summary disposition.

However, the CPR has provided guidelines outlining principles & procedures that note dispositive motions are appropriate when a requesting party can demonstrate that early disposition of any factual or legal issue may be accomplished efficiently and fairly, or when all parties agree that early disposition of a particular issue would be desirable.

Emergency Relief and

Interim Protection

Before an arbitrator is appointed, a party may seek emergency relief and an emergency arbitrator will be appointed within one business day, and a schedule established within two business days.

The (regular) arbitrator may take whatever interim measures he or she deems necessary for the protection or conservation of property.

Before an arbitrator is appointed, a party can seek emergency relief and an Emergency Arbitrator will be appointed within 24 hours, and a schedule established within two days.

The (regular) arbitrator may grant whatever interim measures are deemed necessary, including injunctive relief and measures for the protection or conservation of property.

Before the tribunal is constituted, any party can request that an interim/emergency measure of protection be granted by a special arbitrator. The arbitrator will be appointed within one business day and shall conduct the proceedings “as expeditiously as possible.”

The (regular) panel may take any interim measures as the tribunal deems necessary to preserve assets or property.

 

Default Award Does not allow the arbitrator to render an award solely on the basis of default or absence of a party. Does not allow the arbitrator to render an award solely on the basis of default or absence of a party. The arbitration will proceed even if the Respondent fails to file a timely notice of defense. The tribunal is empowered to make an award on default; however, such award may only be made after the production of evidence and supporting legal arguments by the non-defaulting party.
Confidentiality * None JAMS and the Arbitrator are required to maintain the confidential nature of the Arbitration proceeding and the award, including the hearing, unless disclosure is necessary e.g. in connection with a judicial challenge or otherwise required by law. Unless otherwise agreed, the parties and the arbitrators shall treat the proceedings and related discovery as confidential, unless disclosure is necessary i.e. a judicial challenge or if required by law or to protect the legal right of a party.
Authority to Grant Relief

The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable, and within the specific scope of the agreement of parties (e.g. specific performance of a contract).

The arbitrator may apportion the arbitration fees and expenses among the parties, and may award attorneys’ fees if all parties requested such an award or it is authorized by the arbitration agreement or law.

In determining the relief to be granted, the arbitrator should be guided by the rules of law agreed upon by the parties and the rules of law and equity that he or she deems most appropriate.

The arbitrator may allocate arbitration fees and arbitrator compensation, unless the parties’ agreement precludes that. The arbitrator also may award attorneys’ fees if provided by the parties’ agreement or applicable law.

The Tribunal may grant any remedy or relief, including but not limited to specific performance of a contract, which is within the scope of the agreement of the parties and permissible under the law(s) or rules of law applicable to the dispute.

Unless the parties’ agreement precludes it, the Tribunal may also allocate the costs of arbitration, including attorneys’ fees, in such manner as it deems reasonable.

Award Deadline Thirty days after the end of hearings, or if hearings are waived thirty days after arbitrator receives all of materials by the parties. Thirty days after the end of hearings, or if hearings are waived thirty days after arbitrator receives all of materials by the parties. Thirty days after the end of hearings; however, as long as the tribunal must only use “best efforts” to comply with this requirement.

Arbitration Nation thanks Haaris Pasha, a law student at the University of Minnesota, for contributing to this post.

Today’s post continues our series of arbitration refreshers, to combat the Summer Slide.  It was researched and written by Anne Marie Buethe from the University of Iowa Law School.

Despite clear grounds for authority, arbitrators remain wary of hearing and granting dispositive motions.* While arbitrators posit reasons for their reluctance—the risk of vacatur being of primary concern—courts’ consistent affirmance of arbitrators’ summary awards demonstrates that these reasons are overstated. As long as an arbitrator provides parties a fair opportunity to present their case, he or she can grant a dispositive motion without violating the right to a fundamentally fair hearing—the touchstone for whether or not a court will vacate an arbitral award.

Arbitrators have long had the implicit authority to grant dispositive motions. The AAA made that authority explicit for its arbitrators when it amended it rules in 2013. Rule 33 of the AAA Commercial Rules states, “[t]he arbitrator may allow the filing of and make rulings upon a dispositive motion only if the arbitrator determines that the moving party shows that the motion is likely to succeed and dispose of or narrow the issues in the case.” JAMS, FINRA, and CPR rules also allow for summary judgment.

Even before Rule 33, courts assumed arbitrators’ summary disposition authority. In Schlessinger v. Rosenfeld, Meyer & Susman, 40 Cal. App. 4th 1096 (Cal. App. Ct. 1995), for example, the California Court of Appeals upheld an award where the arbitrator decided the primary issues through summary adjudication motions. The court held that arbitrators have the implicit authority to rule on dispositive motions even if, at the time, there was no explicit power. There are at least a dozen cases before 2013 that uphold this implicit authority and affirm summary dispositions.**

Post-2013, courts have not changed their approach. For example, in South City Motors, Inc. v. Automotive Industries Pension Trust Fund, 2018 U.S. Dist. LEXIS 88452 (N.D. Cal. May 25, 2018), the Northern District of California affirmed a summary disposition, citing a long line of precedent in stating that “[t]he purpose of arbitration is to permit parties to agree to a more expedited and less costly means to resolve disputes than litigation in the courts. Summary judgment by an arbitrator is consistent with that purpose.” In NFL Management Council v. NFL Players Association, 820 F.3d 527 (2d Cir. 2016), the Second Circuit affirmed a summary award, emphasizing that judicial review of arbitral awards “is narrowly circumscribed and highly deferential—indeed, among the most deferential in law.” There are cases from a majority of federal circuits affirming arbitrators’ authority to grant dispositive motions.***

In the rare instance where courts have vacated a summary award, there is a common thread—fundamentally unfair proceedings. For example, in International Union, United Mine Workers of America v. Marrowbone Development Company, 232 F.3d 383 (4th Cir. 2000), the claimant highlighted the existence of a material factual dispute—seeking to distinguish the present facts from a prior dispute between the parties, to introduce testimony, and to present pertinent evidence. The arbitrator summarily dismissed the complaint, relying on the facts of the prior dispute between the parties without hearing the claimant’s argument, testimony, or evidence distinguishing the two cases. The Fourth Circuit vacated the arbitrator’s summary award, holding that by refusing to hear evidence material to the case’s resolution, the arbitrator denied the claimant a fair opportunity to present their case.

The handful of outlier cases should not dissuade arbitrators from issuing summary dispositions but should help them determine when to grant a dispositive motion. Some important pointers: (1) the arbitrator must apply the appropriate summary judgment standard; (2) the arbitrator should consider requests for discovery carefully to ensure that they do not deny discovery of material evidence; (3) the arbitrator should only consider motions likely to succeed; (4) the arbitrator should engage in a cost-benefit analysis, weighing the benefits of speed and efficiency with the potential risks for delay and improper denial of a fundamentally fair hearing; and (5) in granting a dispositive motion, an arbitrator may benefit by issuing a written decision detailing their reasoning, taking care to articulate why any unheard evidence or unpermitted discovery was immaterial.****

If arbitrators follow this guidance, they should feel confident in granting dispositive motions. Not only is the concern of vacatur overblown, appropriately granting dispositive motions helps streamline the efficiency and speed of arbitrated disputes by providing fair remedies without unnecessary proceedings.

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* For example, a 2013 survey found that seventy percent of arbitrators granted dispositive motions fewer than five times. Edna Sussman, The Arbitrator Survey—Practices, Preferences and Changes on the Horizon, 26 Am. Rev. Int’l Arb. 517, 523 (2015).

** See, e.g., Sherrock Bros., Inc. v. DaimlerChrysler Motors Co., LLC, 260 Fed. App’x 497, 499 (3d. Cir. 2008) (affirming a summary adjudication issued on res judicata and collateral estoppel grounds); Ozormoor v. T-Mobile USA Inc., 2010 WL 3272620, *4 (E.D. Mich. Aug. 19, 2010) (affirming a summary adjudication issued on statute of limitation grounds); Global Int’l Reinsurance Co. Ltd. v. TIG Ins. Co., 2009 WL 161086, *5 (S.D.N.Y. Jan. 21, 2009) (affirming a summary adjudication issued on plain meaning of contract grounds); LaPine v. Kyocera Corp., 2008 WL 2168914, *10 (N.D. Cal. May 23, 2008) (affirming a summary adjudication issued on waiver and estoppel grounds); Hamilton v. Sirius Satellite Radio Inc., 375 F. Supp. 2d 269, 273, 277 (S.D.N.Y. 2005) (affirming a summary adjudication issued on insufficient evidence grounds); Warran v. Thacher, 114 F. Supp. 2d 600, 602 (W.D. Ky. 2000) (affirming a summary adjudication on failure to state a claim grounds); Max Marx Color & Chem. Co. Employees’ Profit Sharing Plan v. Barnes, 37 F. Supp. 2d 248, 255 (S.D.N.Y. 1999) (affirming a summary adjudication issued on standing and preemption grounds); Intercarbon Bermuda, Ltd. v. Caltex Trading and Transp. Corp., 146 F.R.D. 64 (S.D.N.Y. 1993) (affirming a summary adjudication issued without holding in-person evidentiary hearings); Atreus Cmtys. Grp. of Ariz. v. Stardust Dev., Inc., 229 Ariz. 503, 508 (Ct. App. Ariz. May 1, 2012) (affirming a summary adjudication even though the parties’ arbitration agreement did not expressly allow for such authority); Pegasus Constr. Corp. v. Turner Constr. Co., 84 Wash.App. 744, 750 (Ct. App. Wash. 1997) (affirming a summary adjudication issued on failure to comply with contractual obligations grounds); Goldman Sachs & Co. v. Patel QDS: 224S164, 222 N.Y.L.J. 35 (S. Ct., N.Y. Cty. 1999) (affirming a summary adjudication issued on employment at will grounds).

*** See, e.g., NFL Mgmt. Council v. NFL Players Ass’n, 820 F.3d 527, 547–48 (2d Cir. 2016) (affirming a summary adjudication issued for failure to state a claim); Samaan v. Gen. Dynamics Land Sys., 835 F.3d 593, 603–05 (6th Cir. 2016) (affirming summary adjudication issued without an evidentiary hearing); South City Motors, Inc. v. Auto. Indus. Pension Trust Fund, 2018 U.S. Dist. LEXIS 88452, *8 (N.D. Cal. May 25, 2018) (affirming a summary adjudication issued without full evidentiary hearing); McGee v. Armstrong, 2017 U.S. Dist. LEXIS 129734, *10 (N.D. Ohio Aug. 15, 2017) (affirming a summary adjudication issued on all claims); Weirton Med. Ctr. v. Comm. Health Sys., 2017 LEXIS 203725, *13–14  (N.D. W. Va. Dec. 12, 2017) (upholding a summary award even though the parties’ arbitration agreement did not expressly allow for such authority); Balberdi v. FedEx Ground Package Sys., 209 F. Supp. 3d 1160, 1162, 1168 (D. Haw. 2016) (affirming a summary adjudication issued on statute of limitations grounds); Kuznesoff v. Finish Line, Inc., 2015 U.S. Dist. LEXIS 71388, *4, *11 (M.D. Penn. June 3, 2015) (affirming a summary adjudication issued on statute of limitation and failure to state a claim grounds); Tucker v. Ernst & Young LLP, 159 So. 3d 1263, 1285 (Ala. 2014) (affirming a summary adjudication issued on all claims).

**** See Edna Sussman & Solomon Ebere, Reflections on the Use of Dispositive Motions in Arbitration, 4 N.Y. Disp. Resol. Law., 28, 30 (2011).

Okay, folks, we are still combating the summer slide here.  Today’s refresher rule is this: If an arbitrator fails to disclose a substantial relationship, the resulting award can be vacated under 9 U.S. C. 10 (a)(2).  But, not all relationships are substantial, as the cases today make clear.

Beginning in my backyard,  the appellant in Ploetz v. Morgan Stanley Smith Barney LLC, 2018 WL 3213877 (8th Cir. June 12, 2018), sought to vacate a FINRA arbitration award due to an alleged failure to disclose.  The chairperson disclosed that he was currently serving as an arbitrator in two other cases where Morgan Stanley was a party and had served in 8 previous cases involving Morgan Stanley or an affiliated company.  However, he did not disclose he had once served as a mediator in a case involving Morgan Stanley, and the FINRA rules require disclosure of past service as a mediator.  After the three-person panel dismissed appellant’s claims, she moved to vacate the award.  The district court denied the motion, and the 8th Circuit affirmed that result.  After noting the test for evident partiality is unclear in this circuit and refusing to clarify it (srsly??), the court found no evidence that the lack of disclosure “creates even an impression of possible bias.” Instead, the court found it “represented at most a trivial and inconsequential addition to that relationship.”  It also faulted appellant for failing to seek discovery into the earlier mediation.

The D.C. Circuit reached a similar result in Republic of Argentina v. AWG Group Ltd., 2018 WL 3233070 (D.C. Cir. July 3, 2018).  There, the losing party in arbitration (Argentina) argued the award should be vacated because one of the three arbitrators failed to disclose her service on a board of directors.  Three years into a twelve-year arbitration, this arbitrator was named to UBS’s board of directors, and UBS managed investments in two of the other parties in the arbitration (the “opposing parties”).  The arbitrator did not know of UBS’s investments, and they did not turn up in a conflict check run by UBS when she joined the board.  Argentina asked her to recuse due to her service on the UBS board, but the other arbitrators rejected the challenge.   After the award, both the district court and D.C. Circuit found this did not rise to the level of evident partiality.  Critically, while the arbitrator had “some degree” of interest in Argentina’s opposing parties, it failed to show she had a “substantial interest.”  In addition, there was no proof that the opposing parties had “more than trivial” import to UBS, a passive investor (though it had invested more than $2 billion).  The court raised public policy concerns about how many disqualifications and vacaturs could result if this type of financial relationship was sufficient to establish evident partiality.

In Certain Underwriting Members of Lloyds of London v.  Florida, 2018 WL 2727492 (2d Cir. June 7, 2018), the issue was what disclosure standards apply to party-appointed arbitrators.  In the reinsurance arbitration at issue, one party (ICA) had appointed Campos as its arbitrator.  Campos failed to disclose that he was president of a human resources firm that officed out of the same suite as ICA, and used a former director of ICA as a vendor, and had just hired a former director of ICA as its CFO.  The district court vacated the award based on evident partiality, citing the number and depth of relationships.  The Second Circuit remanded, finding that a different test should apply to party-appointed arbitrators.  It noted that reinsurers seek arbitrators with industry expertise, who are often “repeat players with deep industry connections”, and courts should be “even more indulgent” of undisclosed relationships for party-appointed arbitrators who are expected to serve as advocates.  Therefore, the Second Circuit followed the lead of four other circuits, and set a different standard for evident partiality by a party-appointed arbitrator.  It clarified that nondisclosure by a party-appointed arbitrator is only fatal if it violates the “contractual requirement” (here, “disinterested”) or “prejudicially affects the award.”  On remand, the district court must determine whether Campos was disinterested (had a personal or financial stake in the outcome) and whether his failure to disclose had a prejudicial impact on the award.

Have you heard of the “summer slide“?  It’s the name for how students forget information they learned during the school year over summer vacation, but it’s equally apt for grown ups.  I definitely feel a little less smart when I am reading vampire novels by the pool in 95 degree heat.

Anyhow, Arbitration Nation to the rescue.  We are here to ensure no one loses their sharpness on the Federal Arbitration Act over the summer.  Today’s reminder: the general rule is that an arbitration agreement can only be enforced by the parties to that agreement.  And how better to timely bring that lesson to life than with an international pop star and a World Cup contest?!

Before the last World Cup, Sony sponsored a song-writing contest.  It invited entrants to submit an original song and music video, with a promise that the winning composition would be on the official World Cup Album.  (Didn’t know there was such a thing?  Check out the songs.)  The plaintiff in this case submitted his song, but did not win.  About two years later, Ricky Martin (who had been involved with the World Cup contest) released the song “Vida.”  Plaintiff alleged that the “Vida” music video was similar to plaintiff’s contest video and violated federal copyright/trademark laws.

In response, Ricky Martin moved to compel arbitration.  He relied on the arbitration agreement in the contest rules.  The district court granted his motion, noting that Martin was a third-party beneficiary and referenced in many parts of the contest terms.  On appeal, however, the First Circuit reversed, finding Ricky Martin was a non-signatory who did not fit any exception to the general rule.  Cortes-Ramos v. Martin-Morales, 2018 WL 3134601 (1st Cir. June 27, 2018). In finding no clarity that the contracting parties intended to make the singer a third-party beneficiary, the appellate court focused on two things: the carve-out language in the arbitration agreement which implied that the only parties were the entrants and the co-sponsors; and references to Martin in other parts of the contest rules, but not in the arbitration agreement (suggesting the drafters knew how to reference him when they wanted to).

Nobody Wants To Be Lonely, of course, so let’s be sure to point out that other non-signatories have lost bids to compel arbitration recently:

  • In Olshan Foundation Repair Company of Jackson, LLC v. Moore, 2018 WL 3153353 (Miss. June 28, 2018), a contractor lost its effort to compel arbitration with the daughter of its customers.  The contract was between the contactor and the parents to repair the foundation of the parents’ home.  But the adult daughter also sued the contractor for her emotional distress after the repairs went awry.  The court found she was not a third-party or direct beneficiary of the contract and that estoppel was not appropriate because the daughter’s claims did not rely on the terms of the contract.
  • In Jody James Farms v. The Altman Group, Inc., 2018 WL 2168306 (Tex. May 11, 2018), an insurance agency lost its effort to prove that the arbitration agreement in the insurance policy between the insured and insurer also covered the independent agent.  The court began by finding that incorporating the AAA rules does *not* show a clear and unmistakable intent to arbitrate arbitrability (unlike this 8th Cir. case and most others), so that the court did not have to defer to the jurisdictional ruling already made by the arbitrator.  On the merits, the court found that the insurance policy treated arbitration as only between the insured and insurer, and that the insurance agent also did not prove application of the exceptions for agency (!), third-party beneficiary, or estoppel.
  • In Huckaba v. Ref-Chem, L.P., 2018 WL 2921137 (5th Cir. June 11, 2018), an employer lost its effort to compel arbitration of a former employee’s claims.  In a wake up call for employers everywhere, the employer lost because it did not counter-sign the employment agreement.  The court found that under Texas law, the parties intended not to be bound unless both parties signed the agreement.  They demonstrated that intent by: including a signature block for the employer, noting that “by signing this agreement the parties are giving up any right they may have to sue each other,” and requiring any modifications be signed by all parties.

Okay, today’s refresher course is complete.  Go back to your summer fun.

Almost a year ago, the Second Circuit praised the clean, readable design of Uber’s app.   Because the reference to Uber’s terms of service was not cluttered and hyperlinked to the actual terms, the Second Circuit held Uber could enforce its arbitration agreement and the class action waiver within it.  But, just last week, the First Circuit disagreed.  In Cullinane v. Uber Technologies, Inc., 2018 WL 3099388 (1st Cir. June 25, 2018), it refused to enforce an arbitration clause in Uber’s terms of service and allowed a putative class action to proceed.  The First Circuit found customers were not reasonably notified of Uber’s terms and conditions, because the hyperlink to those terms was not conspicuous.

The Cullinane opinion was applying Massachusetts law on contract formation.  Massachusetts has not specifically addressed online agreements (or smart phone apps), but in analogous contexts has held that forum selection clauses should be enforced if they are “reasonably communicated and accepted.”  In particular, there must be “reasonably conspicuous notice of the existence of contract terms and unambiguous manifestation of assent.”  The Meyer opinion was applying California law on contract formation.  But the test was identical, because both states had borrowed it from a Second Circuit decision about Netscape.  So, the state law at issue does not explain the different outcome.

The one thing that might explain the different outcome is that the two federal appellate courts appear to have analyzed slightly different versions of Uber’s app.  In Cullinane, the lead plaintiffs had signed up between Dec. 31, 2012 and January 10, 2014.  (The court reproduced the actual screen shots early in its opinion.)  In Meyer, the lead plaintiff had signed up in October, 2014, and Uber had altered the design of its sign-up screens.  (There, the screen shot is an addendum to its opinion.)  For example, the background was now white in late 2014, instead of black, and the “Terms of Service & Privacy Policy” were in teal, instead of white text.

And, those are some of the aspects of the design that the First Circuit pointed to as critical.  It noted that hyperlinked terms are usually in blue text and underlined, but that the Cullinane plaintiffs’ were faced with hyperlinked “Terms of Service” that were not blue or underlined.  Instead, they were in white text in a gray box, no different than other non-hyperlinked text like “scan your card” on the same screen.   In addition, the First Circuit found the text stating “by creating an Uber account you agree to the [Terms]” was insufficiently conspicuous for similar reasons.  For those reasons, the Cullinane opinion found “the Plaintiffs were not reasonably notified of the terms of the Agreement, they did not provide their unambiguous assent to those terms.”

This is another example of how unsettled some aspects of arbitration law are (and maybe consumer contracting in general).  In Meyer, the district court had denied Uber’s motion to compel arbitration, and the appellate court reversed, granting the motion to compel arbitration.  And in Cullinane, the district court had granted Uber’s motion to compel arbitration, and the appellate court reversed, denying the motion to compel arbitration.  Those four courts were applying the exact same legal standard of conspicuousness, and reached opposite conclusions in the span of less than a year.

The lesson here is two-fold.  First, there is no clear standard for when terms on a website (or on a receipt, or in a box) are sufficiently conspicuous, so judges are left to their own devices (pun intended) to answer that question.  Second, unless an on-line provider wants judges — who are likely untrained in the psychology of consumer design related to five inch screens (and may not even have any apps) — to keep on getting to whatever result they please, the only solution is to require a consumer to actually click “I agree” after viewing a screen of the terms and conditions.  Unless, of course, SCOTUS grants certiorari of this new “circuit split” and issues guidance…

 

I am a true arbitration nerd.  But, when SCOTUS takes a THIRD arbitration case for its upcoming term, I wonder if the Justices are more obsessed with arbitration than I am.  (Reminder of the other two here.)  If they hear about the same total number of cases as this year (69), arbitration will make up more than 4% of their docket.  Now, 4% isn’t huge.  For reference, intellectual property cases made up less than 4% of cases filed in federal district courts last year, and there were three I.P. cases decided by SCOTUS (two on inter partes review and the WesternGeco case).  At least I.P. cases have a category in the annual judiciary report, though.  That’s more than arbitration can say.  And still, it has three cases before the Supremes.

Enough stats, what is this case?  It is Henry Schein Inc. v. Archer and White Sales Inc., in which SCOTUS is going to resolve the circuit split over the “wholly groundless” doctrine.  Given how the NLRB decision just came out, I don’t think I’m stepping too far out on a limb if I predict: “wholly groundless” will be grounded.  (Maybe even “grounded wholly?”  Seriously, there has got to be some good word play possible, but I am too tired from watching the World Cup to develop it.)  Put simply, that doctrine will not stand in the way of any future delegation clauses.

(Thanks to Mark Kantor for being the first to tell me certiorari was granted in this case.)

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Switching gears, there are three new decisions from state high courts on the arbitrability of claims against nursing homes.  Two enforce the arbitration clauses, and one decidedly does not.

Nebraska and Colorado issued the pro-arbitration decisions, in both cases reversing a trial court’s refusal to enforce arbitration agreements.  In Colorow Health Care, LLC v. Fischer, 2018 WL 2771051 (Colo. June 11, 2018), the district court denied the nursing home’s motion to compel arbitration because it was not in bold text, as required by a state statute.  Without any discussion of the FAA (which would have been a much easier ground for reversal), the Colorado Supreme Court found that the statute only requires substantial compliance, and the defendant had substantially complied (by including the right language, in a larger font size than required, just not in bold). In Heineman v. Evangelical Lutheran Good Samaritan Society, 300 Neb. 187 (June 8, 2018), the district court had found the arbitration agreement lacked mutuality, violated the state arbitration statute, and violated public policy (because of the CMS rule on arbitration).  On appeal, the Supreme Court of Nebraska found mutuality, found the FAA applied and preempted the state arbitration statute, and noted that the CMS rule had been enjoined.

A week later, though, Nebraska rejected arbitrability in a different case against a nursing home.  In Cullinane v. Beverly Enterprises-Nebraska, Inc., 300 Neb. 210 (June 15, 2018), the issue was whether the arbitration agreement signed by the deceased’s husband was enforceable.  He admitted he signed all the admission documents, but stated in an affidavit that he understood he had to agree to arbitrate for his wife to be admitted to the facility.  He also stated that he did not understood he was waiving his wife’s right to a jury trial, and would not have signed if he had known that and that arbitration was optional.  Applying the FAA and state contract law, the Nebraska Supreme Court found the district court was not “clearly wrong” when it found the husband was fraudulently induced to executing the arbitration agreement for his wife.  Critically, the facility had not introduced any affidavit contradicting the alleged statements made at the time of admission.

Lots of folks are writing about the long-term impact of SCOTUS’s recent decision in Epic Systems, but it is also important to note that there has been immediate, short-term impact.

For example, a lead plaintiff agreed to take her sex discrimination case against a law firm  to individual arbitration, abandoning her putative class action, after the Epic decision was released.  A federal judge is ready to dismiss a separate class action against Epic Systems (regarding overtime pay) as a result of the new decision.  And a class action against Chipotle may get sliced and diced up, with about 30% of employees being sent to individual arbitration, while 70% of the class can proceed in court (because they started working for the chain before it instituted the arbitration program). There must be dozens (hundreds?) of similar employment class actions around the country.

Speaking of the trickle down effects of SCOTUS’s arbitration cases, last year’s Kindred decision is certainly a relevant headwater for the Supreme Court of West Virginia’s recent opinion upholding the arbitration agreement in nursing home admission documents.  Although West Virginia used to be reliably anti-arbitration, its recent decisions are pro-arbitration.  So, it’s not too surprising that in AMFM LLC v. Shanklin, 2018 WL 2467770 (W. Va. May 30, 2018), that court reversed a trial court’s ruling that the arbitration agreement signed by the resident’s daughter was not enforceable.  Careful not to interpret its statutes and common law regarding power of attorney in a way that stands as an obstacle to the FAA, West Virginia’s high court found that the daughter’s role as understudy in the POA document (fine, it says “successor” or “alternate”) was sufficient to bind her mother to the arbitration agreement.  The position drew a spirited dissent from one lone justice.

 

I have been making my way through the rest of the May arbitration cases (the photo shows how high my stack got), and one thing that stands out is this: I was right.  Delegation clauses remain a hot topic in arbitration law.

Three recent cases demonstrate the power of having a delegation clause in an arbitration agreement.

The Fifth Circuit enforced a delegation clause in Edwards v. DoorDash, 2018 WL 1954090 (5th Cir. Apr. 25, 2018), a case involving a putative FLSA class action brought by “Dashers.”  Not to be confused with reindeers who pull Santa’s sleigh, these Dashers  deliver restaurant food to people’s homes.  And they all signed an Independent Contractor Agreement with an arbitration agreement.  That agreement called for AAA rules and waived class and collective actions.  In response to the filing of the class action, DoorDash successfully moved to compel individual arbitration. On appeal, the class representative argued the arbitration agreement was unconscionable.  But once the Fifth Circuit was satisfied that the independent contractor agreement was validly formed, it found the incorporation of AAA rules was a valid delegation clause that the plaintiffs had failed to challenge.  The case was sent to arbitration.

In another Fifth Circuit case, Arnold v. HomeAway, Inc., 2018 WL 2222661 (5th Cir. May 15, 2018), incorporation of AAA rules also served as the parties’ delegation clause.  In that case, consumers filed putative class action complaints against a company that facilitates short-term vacation rentals.  HomeAway argued that its 2016 terms and conditions applied, which contained an arbitration clause providing that arbitration would be governed by AAA rules and that awards would be “on an individual basis.”  The consumers argued that the 2015 terms and conditions applied, which lacked an arbitration agreement (and that any subsequent modification was invalid).  The district court denied the motion to compel arbitration, finding the arbitration agreement illusory.

On appeal, the Fifth Circuit faulted the district court for ignoring the delegation clause in the terms and conditions.  It found the incorporation of AAA rules was a clear and unmistakable delegation of questions relating to the validity of the arbitration agreement to an arbitrator.  Because the plaintiffs’ challenge to the arbitration agreement was not specific to the delegation clause, arbitration must be compelled.

Not far away, in the Supreme Court of Alabama, another delegation clause was enforced.  Eickhoff Corp. v. Warrior Met Coal, LLC, 2018 WL 2075985 (Alabama May 4, 2018), did not involve a putative class action, but something just as sexy: five agreements between the parties, only two of which had arbitration clauses (both calling for AAA rules).  When one party filed in court, the other moved to compel arbitration.  The party opposing arbitration claimed that its court claims were based on the three contracts without arbitration clauses and the trial court agreed.  The Supreme Court reversed, finding that the incorporation of AAA Rules was an enforceable delegation clause, delegating questions of scope to an arbitrator, and it should have resulted in an order compelling arbitration.

SCOTUS finally delivered its decision today in Epic Systems Corp. v. Lewis, the consolidated case that addresses whether employers can require employees to give up their right to class or consolidated litigation as part of an arbitration agreement.  In a 5-4 decision authored by Justice Gorsuch, the Court found that class action waivers are enforceable under the FAA, and nothing in the labor laws preclude that conclusion.

As usual, how the Court frames the question gives away its answer.  Justice Gorsuch began the majority opinion by asking: “Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?”* In contrast, Justice Ginsburg’s dissent frames the issue as “Does the [FAA] permit employers to insist that their employees, whenever seeking redress for commonly experienced wage loss, go it alone, never mind the right secured to employees by the National Labor Relations Act . . . ‘to engage in . . . concerted activities’ for their ‘mutual aid or protection'”?

The majority opinion started by painting the NLRB’s opposition to class action waivers as a sudden shift after 77 years of peaceful coexistence with the FAA.  It then finds that the NLRA cannot be applied via the savings clause of Section 2 of the FAA because it interferes with one of arbitration’s fundamental attributes — individual resolution — and therefore is not the type of defense that applies to any contract. (It cites Concepcion for the proposition that individual resolution is fundamental to arbitration.)

After finding nothing in the FAA itself that would prevent enforcement of the class action waivers at issue, the majority opinion looks to see if the NLRA clearly and manifestly indicates that Congress intended to override the FAA.  It finds no statutory or contextual evidence of that clear intent.  It also made short work of the employees’ argument for Chevron deference to the NLRB.  [One of the best lines from the opinion is in that section.  Noting that Chevron was based, in part, on the idea that policy choices should be left to the executive branch which voters can hold accountable, the majority writes: “whatever argument might be mustered for deferring to the Executive on grounds of political accountability, surely it becomes a garble when the Executive speaks from both sides of its mouth, articulating no single position on which it might be held accountable.”]

Interestingly, the majority decision acknowledges that there is a vigorous policy debate over the merits of class action waivers in arbitration.  At multiple points during the opinion Justice Gorsuch bows to the possibility that the FAA could be flawed: “You might wonder if the balance Congress struck in 1925 between arbitration and litigation should be revisited in light of more contemporary developments.”  And later “This Court is not free to substitute its preferred economic policies for those chosen by the people’s representatives.”  But each time he returns to the idea that the Court is bound by the law to rigidly enforce arbitration agreements.  In her dissent, Justice Ginsburg agrees that Congress is now the right branch of government to act.  The dissent states: “Congressional correction of the Court’s elevation of the FAA over workers’ rights to act in concert is urgently in order.”

The dissent would hold that Section 7 of the NLRA does guarantee the right to pursue collective litigation and trumps the FAA.  The dissent reviews the text and legislative history of the NLRA to support its conclusion and addresses the majority’s arguments.  What I found most interesting in the dissent, however, was its review of the legislative history behind Section 1 of the FAA.  Apparently, organized labor was concerned about the FAA’s impact, and Herbert Hoover amended the legislation to specifically exclude workers’ contracts.  Congress passed the amended version and labor withdrew its opposition.  [Justice Ginsburg’s research on that topic may come in handy next term when the Court addresses the New Prime case.]

This is the result that everyone expected based on oral argument and the current politics of the court.  But still, when I read the “Justice Gorsuch delivered the opinion of the Court,” I can’t help feeling like it should say “Justice Gorsuch delivered on President Trump’s promises of a conservative court.”  Would it have been better to just let the new appointments to the NLRB reverse the Board’s course of action, much like the reversals of other agencies, and save the Court from this particular insertion into politics?

*  (Do you hear that growly “one on one” from this song when you read that?   Maybe it’s just me.)

 

The Supreme Court of Mississippi issued a new opinion that sheds light on a topic that doesn’t come up often: when can an arbitration award be modified due to miscalculation?  D.W. Caldwell, Inc. v. W.G. Yates & Sons Construction Co., 2018 WL 2146355 (Miss. May 10, 2018).

The context for the case was a construction dispute between a general contractor and a roofing subcontractor.  The arbitrator awarded damages to the subcontractor, and the general contractor filed a motion to the arbitrator to have the award modified.  The arbitrator denied the motion.

The contractor them made a motion in court to modify the award.  After taking testimony and exhibits in an evidentiary hearing, the court granted the motion to modify the award, reducing the subcontractor’s damages by over $100,000.  The contractor argued that the arbitrator “miscalculated” in two ways: first, by declaring that the amount of retainage was not ripe for decision; and second by double-counting some labor costs.

On appeal, the Mississippi Supreme Court reversed the trial court decision and instructed that the original award be confirmed.  In doing so, it established some guidelines for handling these types of motions in the future.  (It applied Mississippi statutes, finding that while the FAA would otherwise govern, the parties contracted for application of the state arbitration statutes.  But, it looked to federal precedent to inform its analysis.)  Importantly, it held that an evident miscalculation “must be apparent from nothing more than the four corners of the award and the contents of the arbitration record.”  Therefore, the district court erred by taking new evidence during the appeal.  In addition, the court found that the face of the award (and the arbitration record) did not show any mathematical error, and therefore there was “insufficient proof of an evident miscalculation.”

This case confirms that not only are the bases for vacatur under Section 10 of the FAA (and its state counterparts) interpreted very narrowly, but the bases for modification in Section 11 are just as hard to prove, if not more so.

p.s. Yikes!  It has been more than two weeks since my last post.  What have I been up to?  Well, preparing to present here  and  here and then updating the Arbitration chapter of this book.  Such a fun time of year!  Let me know if you’ll be at those events so we can connect.