Welcome back to ArbitrationNation after a pandemic and protests hiatus.  I hope that you and your families are safe and that you’re confronting and coping with the injustices of our world.

I’m glad to have a good reason to write about arbitration again.  I’ve got a boatload of arbitration developments and cases to catch up on in the coming weeks.  But there’s no better day to get rolling than on a day that SCOTUS grants cert on a new(ish) arbitration case—Henry Schein, Inc. v. Archer and While Sales, Inc. Part II: Revenge of the Wholly Groundless Doctrine’s Zombie.

Yeah, okay, it’s a good thing I’m a law professor and not someone naming sequels.

Before getting to the new case, let’s have a quick refresher on Henry Schein Part I.  Henry Schein Part I focused on the wholly groundless doctrine.  The wholly groundless doctrine, you might recall, was basically a smell test for arbitrability.  It gave courts the right to regulate dubious arbitration agreements even if those agreements included a delegation provision.  A unanimous Supreme Court sounded the death knell on the doctrine.

But SCOTUS “express[ed] no view about whether the [particular] contract at issue in th[e] case in fact delegated the arbitrability question to an arbitrator.”  Accordingly, the Court remanded the case to the Fifth Circuit.  As I mentioned here, the Fifth Circuit on remand doubled down on its original conclusion.  It held that the contract at issue did not, in fact, assign arbitrability to the arbitrator.  See Archer and White Sales, Inc. v. Henry Schein, Inc., 2019 WL 3812352 (5th Cir. Aug. 14, 2019).

The court agreed that there was a valid delegation clause (through the AAA rules – Rule 7(a)).  But the claimant sought, at least partially, injunctive relief, and the arbitration clause carved out “actions seeking injunctive relief.”  The Fifth Circuit determined that the delegation provision did not “clearly and unmistakably” assign questions about the arbitrability of injunctive relief to the arbitrator, so a court got to decide if the claimant had to arbitrate.  It decided the claimant did not have to arbitrate.

Today, SCOTUS took the case up again.  Essentially, the issue presented is whether an arbitration clause containing a carve-out provision necessarily requires a court to determine whether the claims fall within the scope of the arbitration agreement before following the complying with a delegation provision.  To date, courts have split on this issue.

Delaware and the Second Circuit take the view that a carve-out generally requires a court to decide whether the dispute falls within the carve-out or not.  The delegation provision only becomes relevant after this threshold court determination.  See James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76 (Del. 2006) (In the presence of a carve-out, “something other than the incorporation of the AAA rules” was “needed to establish that the parties intended to submit arbitrability questions to an arbitrator.”); NASDAQ OMX Group, Inc. v. UBS Securities, LLC, 770 F.3d 1010 (2d. Cir. 2014) (“The presence of the carve-out provision. . . delays application of AAA rules until a decision is made as to whether a question does or does not fall within the intended scope of arbitration, in short, until arbitrability is decided.”).

In contrast, the Ninth Circuit and Kentucky find that a delegation provision includes the question of whether a dispute falls within the carve out or not.  See Oracle America, Inc. v. Myriad Group A.G., 724 F.3d 1069, 1076-1077 (9th 2013) (determining that incorporation of the AAA rules unmistakably delegated questions of arbitrability to the arbitrator and rejecting the argument that the carve-out provision negated that delegation); Ally Align Health, Inc. v. Signature Advantage, LLC, 574 S.W.3d 753, 756-758 (Ky. 2019) (“A carve-out provision . . . does not negate the clear and unmistakable mandate of the AAA’s [r]ules that the arbitrability of claims is to be decided by an arbitrator [because to hold] the opposite would conflate the two separate and distinct questions of (1) who decides what claims are arbitrable with (2) what claims are arbitrable.”).

And that brings me back to my admittedly terrible sequel titles.  But I stand by the notion that the Fifth Circuit wants to resurrect the wholly groundless doctrine in a stronger, more potent form.  Under the original wholly groundless doctrine, a court could override a delegation provision if, but only if, a party seeking to compel arbitration had a frivolous interpretation of arbitrability.  Under the standard that the Fifth Circuit now proposes, a court could override a delegation provision anytime it simply disagrees with a party’s interpretation of the scope of the arbitral clause.

So, like all too many sequels, I’m afraid that the original will probably be a lot better and more interesting.  I’m getting out my crystal ball and making a bold predication— I think SCOTUS will overturn the Fifth Circuit once again.  In fact, I wouldn’t be surprised if it’s another unanimous decision.

The Third Circuit welcomed us to the fall arbitration season with an important decision for the gig economy, Singh v. Uber Techs. Inc., 2019 WL 4282185 (3d Cir. Sept. 11, 2019).  Relying on the key logic of SCOTUS’s January ruling in New Prime, Inc. v. Oliveira, the Third Circuit concluded that Uber drivers may qualify FAA § 1’s exemption for “any other class of workers engaged in foreign or interstate commerce.”  I say “may qualify” because the Third Circuit technically remanded the case.

This is an important one, so it’s worth thinking through it carefully.  There at least three key takeaways from the case: (1) workers may qualify for the § 1 exemption if they belong to a class of workers moving passengers or goods in interstate commerce; (2) the determination of whether workers fall within such a class hinges on consideration of a non-exclusive list of factors; and (3) lower courts can and should demand discovery necessary to make this factor-based determination.

Exciting stuff!  Let’s dive in!

The facts are simple: a New Jersey Uber driver brought a putative class action in state court.  He alleged that Uber misclassified drivers as independent contractors rather than employees.  That deprived the drivers of over overtime pay and it forced them to incur business expenses that Uber should have paid.  Uber removed the case.  Then it sought to compel arbitration on an individual basis.  The employee resisted on a number of grounds, including that the contract with Uber fell within the exemption of FAA § 1.  The district court, however, decided that the employee did not qualify for the exemption.  It reasoned that the exemption only applies to workers who transport goods, not passengers.  The district court then rejected the employee’s other objections and sent the case to arbitration.

That sets the stage for the first of the three big takeaways: according to the Third Circuit, the FAA § 1 exemption “may extend to a class of transportation workers who transport passengers, so long as they are engaged in interstate commerce or in work so closely related thereto as to be in practical effect part of it.”  This is huge.  Uber argued vigorously that the exemption should be narrowly construed to apply only to transportation workers moving goods.  Some dicta would seem to have supported that proposition.  But the Third Circuit roundly rejected it.

That, in turn, raised the second big takeaway: the lower court needs to evaluate various factors to determine if particular employees belong to a class of employees engaged in interstate commerce.  Notice the phrasing here.  The question isn’t whether the particular workers were engaged in interstate commerce.  It’s whether the particular workers belong to a class of workers who are engaged in interstate commerce.

Both the employee and Uber argued that the question could be resolved based on the existing record.  The employee argued that the court should look at the contract between the parties.  That contract implicitly contemplated a relationship with drivers from all fifty states and thus encompassed interstate travel.  Uber countered that the court should look only to its lived experience – Uber drivers inherently serve a local market, even if they occasionally might cross a state line here or there.

The court rejected both arguments.  The contract between the parties is one source of evidence about whether the workers belong to a class of workers engaged in interstate commerce.  But it’s not dispositive.  Similarly, the local nature of much of the work might be a factor, but it’s hardly the only factor.  Instead, the court instructed the lower court, on remand, to consider “various factors” including but not limited to “the contents of the parties’ agreement(s), information regarding the industry in which the class of workers is engaged, information regarding the work performed by those workers, and various texts—i.e., other laws, dictionaries, and documents—that discuss the parties and the work.”

And that brings us to the third big takeaway, which, in some respects, seems perhaps the most general and significant: the court’s instruction about what procedural framework governs a motion to compel, Fed. R. Civ. P. 12(b)(6) (motion to dismiss) or 56 (summary judgment).  The Third Circuit doubled down on an approach that it laid out in Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013).  That approach uses a motion to dismiss standard for a motion to compel if the existence of a valid agreement to arbitrate between the parties is apparent from the face of the complaint or incorporated documents.  On the other hand, if the complaint and its supporting documents are unclear” as to whether the parties agreed to arbitrate, “or if the plaintiff has responded to a motion to compel arbitration with additional facts sufficient to place the agreement” in dispute, a “restricted inquiry into factual issues [is] necessary . . . .”

In this case, the court concluded that the complaint and supporting documents were unclear about whether the driver belonged to class of workers engaged in interstate commerce.  Accordingly, the court ordered the district court, on remand, to “permit discovery on the question before entertaining further briefing.”

On one hand, this third takeaway threatens, if read for all it’s worth, to authorize the same sort of “smell test” that SCOTUS unanimously rejected earlier this year in Henry Schein, Inc. v. Archer & White Sales, Inc.  Remember, there the Court put to rest the “wholly groundless” doctrine, which some circuits had used to do an end-run around a delegation clause.  Taken at face value, this Guidotti approach could do much the same thing by giving courts the opportunity to second guess the validity of an arbitration agreement.

On the other hand, in this particular case, the Third Circuit probably got things right.  Although the Uber agreement contains a delegation clause, as SCOTUS made clear in New Prime, such a delegation clause only kicks in once a court concludes that an arbitration agreement subject to the FAA exists.  In other words, a court must first determine if the contract falls within the  § 1 exemption.

All that said, the combination of the second and third takeaways from this case make things very messy, at least for a while, for the gig economy.  Until the dust settles, parties may wind up spending a lot of time litigating whether the FAA even applies.

Delegation provisions are a hot topic this year!  This week, we’re going to look at two more circuit court decisions centering on delegations and finding ways around them.

Just to set the stage, though, I’ve got to put a little egg on my own face.  To quote myself from back in June: “it’s almost impossible to imagine ‘an additional ground or basis’ for invalidating a delegation clause.  The target that a party wanting to avoid a delegation clause must hit is so small that it’s virtually invisible.”  Weeelllll . . . . Turns out that I might have been overstating things just a smidge.

Part of the reason that I said what I did was because of the unanimous decision by SCOTUS in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019).  You’ll recall that Henry Schein sounded a death knell for the wholly groundless doctrine.  The wholly groundless doctrine was basically a smell test for arbitrability.  It gave courts the right to police at least the most questionable arbitration agreements despite the existence of a delegation provision.  A unanimous Supreme Court, however, reversed the Fifth Circuit and concluded that when the parties’ contract delegates arbitrability to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless.

Still, SCOTUS “express[ed] no view about whether the [particular] contract at issue in th[e] case in fact delegated the arbitrability question to an arbitrator.”  Accordingly, the Court remanded the case to the Fifth Circuit.

Last week, the Fifth Circuit doubled down on its original conclusion.  It held that the contract at issue did not assign arbitrability to the arbitrator.  See Archer and White Sales, Inc. v. Henry Schein, Inc., 2019 WL 3812352 (5th Cir. Aug. 14, 2019).  Everybody agreed that the arbitration agreement was valid.  Moreover, everybody agreed that there was a valid delegation clause (through the AAA rules – Rule 7(a)).  One might have reasonably thought that this should end the matter.  But the claimant sought, at least partially, injunctive relief, and the arbitration clause carved out “actions seeking injunctive relief.”  Given the syntax of the clause, the Fifth Circuit determined that the delegation provision did not “clearly and unmistakably” assign arbitrability to the arbitrator.

A few weeks earlier, the Eighth Circuit also wrestled with a delegation clause and found that it didn’t mandate that arbitrability go to an arbitrator.  In Shockley v. PrimeLending, 929 F.3d 1012, 1015 (8th Cir. 2019), the court addressed the enforceability of an arbitration agreement and delegation provision in an employee handbook.

The handbook was available to employees on a computer network.  The employee accessed the handbook a couple of times, and the system logged an acknowledgement of her review.  The employee, however, testified that she did not recall reviewing the handbook and there was no other evidence to suggest that she ever opened or examined the handbook’s full text.

When the employee filed a lawsuit in federal court for violations of the FSLA, the employer sought to compel arbitration.  The employee resisted on the ground that she had never assented to the arbitration agreement or the delegation provision.  The district court agreed, and the Eighth Circuit affirmed.

Essentially, the Eighth Circuit reasoned that, even if the employer had made an offer to the employee, the employee never accepted it.  Merely continuing to work does not manifest the necessary assent to the terms of arbitration.  At best, the employee “acknowledged the existence of the delegation clause. . . . [but the court said it] was aware of no legal authority holding that an employee’s general knowledge or awareness of the existence of a contract constitutes the positive and unambiguous unequivocal acceptance required” to form a contract.

I’m unpersuaded by either case. But both suggest that courts remain more willing to scrutinize delegation provisions than I’ve previously indicated on this Blog.

The Supreme Court issued another arbitration decision today in New Prime v. Oliveira.  And like last week’s decision in Henry Schein, it was unanimous (but Kavanaugh did not participate).  Today’s New Prime decision has two key holdings:  First, it is for courts, and not arbitrators (regardless of any delegation clause) to determine whether the Federal Arbitration Act applies.  Second, the Federal Arbitration Act does not apply to interstate transportation workers.  Those are pretty technical and dry, at least on the surface.

The Oliveira case did not start out as a dry arbitration case.  It started out as a class action by drivers for an interstate trucking company, all of whom were classified as independent contractors by the company, and all of whom alleged wage violations.  In response, the company moved to compel arbitration.

But the drivers had a great case for not arbitrating: the Federal Arbitration Act itself.   Section 1 carves out “contracts of employment of . . . workers engaged in foreign or interstate commerce.”  The drivers argued that they were workers engaged in foreign or interstate commerce.  The company’s rebuttal was two-fold: 1) the arbitrator should decide that issue, based on the parties’ delegation clause, and 2) the carve-out only applies to employees, not independent contractors.  Those arguments lost; Mr. Oliveira won at both the district court and in the First Circuit.

Writing for the unanimous court, Justice Gorsuch agreed with the lower courts.

With respect to the “who decides” question, the Court emphasized that Section 1 “warns” that nothing in the Act shall apply to those interstate workers.  So, the enforcement of Sections 2, and the authority to stay a case and compel arbitration in Sections 3-4, simply don’t apply.  The Court emphasizes the “statute’s sequencing” in its analysis — basically commenting that you don’t get to take advantage of step four of the FAA until you have passed step one.  So, you can throw your delegation clause out the window when the question is whether the FAA applies at all.

With respect to the substantive question, the Court concluded that Section 1’s exemption is not only for those who meet the current definition of “employee,” but it also encompasses independent contractors.  Why?  Because… dictionaries.  In determining the plain meaning of the text of Section 1 when it was adopted, the Court reviewed a lot of old dictionaries and legal authorities and concluded “the evidence before us remains that, as dominantly understood in 1925, a contract of employment did not necessarily imply the existence of an employer-employee or master-servant relationship.”   Therefore, the federal court lacked authority to order arbitration.

This decision raises many questions for me.  For example:

  • Did SCOTUS grant cert in these two easy cases (Henry Schein and New Prime) just to have some unanimous opinions?  Oliveira had already won at the district court and appellate court, so it’s not like SCOTUS needed to jump to his rescue.  (I expect Lamps Plus not to be unanimous…)
  • Why does it follow logically that if the FAA does not apply, then there is no authority to order arbitration?  The parties still have a contract that calls for arbitration, that the drivers are breaching by pursuing their case in court, and there can be remedies for breaching that contract…
  • Why would this exception be limited to interstate transportation workers?  If the text of the exception includes “workers engaged in foreign or interstate commerce,” that could blow a huge hole in SCOTUS’s arbitration jurisprudence.  With the case law on federal preemption in mind, pretty much every worker is engaged in interstate commerce…  And Justice Ginsburg’s dissent in Epic Systems suggested that the legislative intent was to exclude all workers from the FAA.  If so, this case turns into a backdoor Arbitration Fairness Act.
  • Why can’t these opinions be more engaging?  I swear that Justice Gorsuch was purposely trying to put us to sleep with this one.

I am sure there will be good articles discussing these questions and more in the upcoming days.  Send them my way if you are so inclined!

I called it.  SCOTUS issued its unanimous opinion today in Henry Schein v. Archer & White, vacating and remanding the Fifth Circuit decision and making clear that there is no “wholly groundless” exception to the Federal Arbitration Act’s enforcement of delegation clauses.

As you may recall, a circuit split had developed over the “wholly groundless” exception.  Some circuits, including the Fifth, concluded that even when parties have delegated questions of arbitrability (questions like: is the arbitration agreement valid? and does it cover the current dispute?) to an arbitrator, courts have the right to do an initial smell test.  If the court finds the defendant’s argument for arbitrability is “wholly groundless” (and stinks), then it can refuse to send it to arbitrator.  Other circuits, however, found room for no such exception in SCOTUS’s decisions.

After quickly shooting down the four primary arguments proffered in favor of the exception, the Court concluded:

In sum, we reject the “wholly groundless” exception. The exception is inconsistent with the statutory text and with our precedent. It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability. When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.

Given that this outcome was expected, is there anything interesting about this decision?   On first glance, there is at least one thing.  The Court’s emphasis in this decision is on the parties’ agreement: it reasons that “a court may not decide an arbitrability question that the parties have delegated to an arbitrator.”  That could be read as a signal that the Court also favors arbitrators determining the availability of class arbitration, in the circuit split on whether a delegation clause authorizes an arbitrator to decide that issue.

However, SCOTUS inserted a final paragraph that leaves it some wiggle room on that question.  It notes that “We express no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator. The Court of Appeals did not decide that issue.”  In other words, if the Court is going to keep the decision regarding class arbitrability in courts, it will likely be because it finds that an incorporation of arbitral rules is not sufficient to “clearly and unmistakably” delegate arbitrability to an arbitrator.


As we close out 2018, it is a good time to reflect on the year in arbitration law.  Overall, I would characterize the year as another in which everyone was mildly obsessed with class actions, the U.S. Supreme Court again showed its willingness to enforce arbitration agreements of all kinds, and lower courts and groups of citizens attempted to resist the high court’s blind faith in arbitration with some success.  Here are my thoughts on the biggest stories of the year:

  • Decision With Biggest Impact: SCOTUS’s ruling in Epic Systems Groups of employees argued that the National Labor Relations Act gave them the right to join class actions and no arbitration agreement could overcome that statutory right.  But the Court emphatically rejected that argument, holding that employees are bound to the agreements they sign and nothing in the NLRA contradicts that result.  The outcome of this case was not unexpected, but the fallout was dramatic.  Many class actions dried up almost immediately, while others took a few months.  Yet other employees decided to give mass individual arbitration a go, filing hundreds of arbitration demands against the same employer simultaneously.
  • Circuit Split Most Likely To Go To SCOTUS: The split over who — judges or arbitrators — should decide whether the parties’ arbitration agreement allows class arbitration.   Seven federal circuits have looked at this issue.  Four have concluded that the issue of class arbitration is a big enough deal that it is presumptively for courts to decide, even when the parties have incorporated arbitration rules that authorize an arbitrator to decide jurisdictional questions.  Three circuits disagree.  Given the Supreme Court’s attraction to everything class arbitration, this seems likely to pique the Justices’ interest.  (Indeed, a cert petition has been filed in the 11th Circuit case, which is on the minority side of this circuit split, and the Justices have asked the winning party to respond.)
  • Best Evidence That Arbitration Law Is Still In Its Infancy: The conflicting cases over whether Uber’s arbitration agreement is enforceable.  Nothing says “This is a developing area of law” like having the First Circuit refuse to enforce the same arbitration agreement that the Second Circuit had just agreed to enforce.  Even better — the difference turned on the color of the hyperlink.  [Runner up in this category are the conflicting cases over whether the arbitration agreements printed on the outside of roofing shingle packages are enforceable.]
  • Most Successful Political Attack on Arbitration: The #MeToo movement successfully brought public attention to  concerns that having arbitration agreements in employment contracts may exacerbate a discriminatory workplace.  As a result, legislation declaring arbitration agreements invalid in cases of sexual assault or harassment was introduced at the federal level and many states.  To date, I am aware of it passing in only New York and Washington.  But, those state statutes are likely preempted by the Federal Arbitration Act.  More effective may be the public pronouncements by many major corporations that they will not enforce arbitration agreements in cases of sexual assault or harassment.
  • New Face of the Resistance: Kentucky.  First place had to go to Kentucky, after this decision, in which it just ignored the fact that the U.S. Supreme Court had schooled it on arbitration law last year.  But there are many runners-up in this category, frequently consisting of courts who are using the flexibility inherent in state contract law to find ways around arbitration.  For example, the courts who have recently decided that if the parties either did not choose an entity to administer the arbitration, or chose one that is no longer available, that voids the entire arbitration agreement. (See postscript on this entry.)  Or the courts who found that, despite the federal presumption in favor of arbitrability, the parties’ disagreement was outside the scope of their arbitration agreement.
  • Most Outrageous Motion To Compel: There are moments you just want to say “What were you thinking??” to counsel for the defense.  This year, this case stood out to me for outrageous conduct, as the plaintiffs did not originally have an arbitration agreement but apparently were duped into signing one a year into the class action litigation.  But, this case was a close second (where the defense argued that blind plaintiffs should be bound by the arbitration agreement, despite no evidence they were made aware of its existence).

Turning our sights forward, what can we expect in 2019?  Well, SCOTUS owes us three arbitration decisions (Henry Schein, Lamps Plus, and New Prime).  None of those are likely to have broad impact on arbitration law, as they each deal with fairly narrow issues.  So, big stories will likely come from elsewhere.  Maybe the new Democratic majority in the House will have more interest (and success) in passing federal arbitration legislation?   Maybe mass individual arbitration filings will change the cost-benefit-analysis of class action waivers for corporations?  I look forward to watching it unfold with all of you!  Happy New Year.

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.)


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.

Remember when Maria sang “Let’s start at the very beginning, it’s a very good place to start”?  Well, that seems to be what federal circuit courts are doing with their arbitration decisions recently.  This post will run through some Do Re Mis of arbitration law, as articulated by those decisions (and will close with some arbitration cases on SCOTUS’s docket).

  • In most circuits, arbitrators cannot subpoena documents in advance of an in-person hearing.  The 9th Circuit affirmed that applies within its jurisdiction as well.  CVS Health Corp. v. Vividus, __ F.3d __, 2017 WL 6519942 (9th Cir. Dec. 21, 2017).
  • When an arbitration agreement calls for application of arbitral rules, and those rules give the arbitrator power to rule on her own jurisdiction, then the district court should send any dispute over arbitrability to the arbitrator.  The 4th Circuit confirmed that holding applies to JAMS rules, just as it does to AAA rules.  Simply Wireless, Inc. v. T-Mobile US, Inc., __ F.3d __, 2017 WL 6374105 (4th Cir. Dec. 13, 2017).
  • Claims under the Fair Labor Standards Act are subject to arbitrationRodriguez-Depena v. Parts Authority, Inc., __ F.3d __, 2017 WL 6327827 (2d Cir. Dec. 12, 2017).  (The Second Circuit is at least the third federal circuit to reach that conclusion.)
  • An arbitration agreement that carves out injunctive relief means what it saysArcher & White Sales v. Henry Schein, Inc., __ F.3d __, 2017 WL 6523680 (Dec. 21, 2017).  The arbitration agreement called for arbitration of any dispute under the agreement “except for actions seeking injunctive relief and disputes related to [intellectual property].”  Plaintiff brought an antitrust action seeking damages and injunctive relief. Applying the exception, the district court denied the motion to compel arbitration and the appellate court affirmed.
  • Independent contractors are not “agents” that can be bound as a non-signatory to arbitration clauseOudani v. TF Final Mile, LLC, __ F.3d __, 2017 WL 5587648 (1st Cir. Nov. 21, 2017) (refusing to compel arbitration of class action brought by independent contractors for wage-and-hour claims).
  • Ambiguous awards can be sent back to the arbitrator.  Herll v. Auto-Owners Ins. Co., __ F.3d __, 2018 WL 296870 (8th Cir. Jan. 5, 2018)  (sending ambiguous “appraisal award” back to arbitrator under Minnesota’s Revised Uniform Arbitration Act.)
  • If the losing party failed to raise an argument in arbitration, it can’t use that argument to vacate the arbitration awardLaborers’ Pension Fund v. W.R. Weis Co., __ F.3d __, 2018 WL 316555 (7th Cir. Jan. 8, 2018) (finding in an ERISA dispute that one party “waived its statutory-interpretation argument by failing to raise it in the arbitration.”)
  • First Amendment arguments will not get a putative class out of arbitration with a private party.  Okay, this is not an arbitration law “basic” point, but instead one that confirms the ingenuity of plaintiffs’ class action lawyers. These plaintiffs opposed arbitration “on First Amendment grounds” and asserted there was state action because the FAA and judicial interpretations of it encourage arbitration to the point that AT&T’s actions are attributable to the state.  Roberts v. AT&T Mobility, __ F.3d __, 2017 WL 6275537 (9th Cir. Dec. 11, 2017).  The 9th Circuit found no state action, and noted that plaintiffs’ arguments that the FAA violates consumers’ constitutional rights are incompatible with the Supreme Court’s decisions on arbitration.


Now that we’ve run through those reminders on issues that arise frequently in arbitration law, let’s talk about some unsettled issues.  SCOTUS today is considering two cases involving delegation clauses and how lower courts should put its Rent-a-Center, West decision into practice:

  • New Prime, Inc. v. Oliveira — this case comes from the First Circuit and raises the question whether the court should determine that the FAA applies before enforcing a delegation clause.  Why does that matter?   In this case a worker successfully argued the FAA did not govern, because he was an exempt transportation worker, and therefore the court refused to compel arbitration.  [Jan. 22 update: SCOTUS’s order list today does not include this as a grant or deny, so it will likely be considered again in February.]
  • Applied Underwriters Captive Risk Assurance Co. v. Minnieland Private Day School — this case comes from the Fourth Circuit and raises this question: Can a defense to arbitration that applies to the arbitration agreement as a whole ever be specific to the delegation clause?   [Disclosure: I was involved with this petition.] [ Jan. 22 update: SCOTUS denied cert.]

SCOTUS is also being asked to review a decision of the California Court of Appeal that refused to compel arbitration based on a state statute.  That California statute gives courts the discretion to deny enforcement of an arbitration provision when there is a possibility of conflicting rulings in pending litigation with third parties.  The cert petition asks whether the FAA preempts that California statute and will be considered in February.

Last month, SCOTUS  denied cert in another California arbitration case.  That petition, Betancourt v. Prudential Overall Supply, challenged California’s rule that private attorney general disputes cannot be arbitrated.  (SCOTUS passed on the same issue in 2015.)

Here’s hoping that in 2018 SCOTUS sticks with its recent practice of deciding at least one arbitration case per year!  And, here’s hoping the Vikings get in the Super Bowl!

Before I can sum up 2015 in arbitration (next post!), I need to report on some new cases coming out of the federal and state appellate courts in recent weeks.  Two are just good reminders of basic arbitration law, but the third addresses an interesting question of double recovery.

Our first “reminder” case comes from New York’s highest court.  In Cusimano v. Schnurr, 2015 WL 8787554 (N.Y. Dec. 16, 2015), that court held that the Federal Arbitration Act applies, even to intrafamily transactions among New York residents (sing: “it’s a family affaaaair…”), and even when defendants argue their family business is “passive” and has no impact on interstate commerce.  The court basically said family shmamily, look at the type of business you have and what it owns.  “The idea that the intrafamilial nature of the agreements has some bearing on whether the FAA is applicable finds no support in the caselaw.”  Instead, the fact that the family business owned commercial properties inside and outside New York was key.  (But, the plaintiffs waived their right to arbitrate by litigating aggressively for a year.)

The second “reminder” comes from the Eleventh Circuit and relates to appeal timing.  In the Wise Alloys case, 2015 WL 8119326 (11th Cir. Dec. 8, 2015), that court held that the defendant did not appeal the district court order compelling arbitration within the allowed deadline.  (The court had fun with this one, quoting Carole King to say “it’s too late…”)  Critically, the entire complaint related to the union’s effort to compel the defendant company to arbitration.  The district court compelled arbitration in June of 2012, but the company did not appeal until after the arbitration was complete and the award had been confirmed in late 2014 (well beyond the 30-day deadline in the federal rules).  The lesson from this case is that while Section 16 of the FAA commands that “interlocutory” orders compelling arbitration are not immediately appealable, not all orders compelling arbitration are interlocutory: if the only relief a complaint seeks is an order compelling arbitration, then the order granting that relief is final and immediately appealable.

The most interesting outcome in this group comes from the Ninth Circuit (with Judge Shira Scheindlin from SDNY sitting by designation on the opposite coast).  In Uthe Technology Corp. v. Aetrium, Inc., 2015 8538090 (9th Cir. Nov. 19, 2015), the plaintiff had already been awarded millions of dollars against related defendants in an arbitration and then brought a RICO claim for treble damages in U.S. federal court for the same conspiracy.  The question was whether that RICO claim was precluded by the “one satisfaction” rule that avoids double recovery.  (P.s. That arbitration lasted two decades.  Score one for litigation.)   The Ninth Circuit found the RICO claims were not precluded, largely because the arbitration claim was against a different set of defendants, and RICO provides remedies that were not available to Uthe in the arbitration, and the arbitration award specifically noted that it was made without prejudice to Uthe’s right to bring further claims in federal court.  The 9th Circuit did note that any damages in the RICO case must be offset by the sums paid as a result of the arbitral award

The lawyers who sought to disqualify their opposing counsel during a pending arbitration must have been giddy when they drew Judge Shira Scheindlin of the Southern District of New York as their judge.  Judge Scheindlin, who is famously tough on unscrupulous lawyers, did not disappoint.  She went out of her way to exercise jurisdiction over the motion and disqualified  attorneys who had received improper communications from the arbitrator in Northwestern Nat’l Ins. Co. v. Insco, Ltd., 2011 WL 4552997 (S.D.N.Y. Oct. 3, 2011).

At issue in Insco was the communication between the defendant’s lawyer and the arbitrator the defendant had appointed.  The arbitration agreement called for each party to appoint one non-neutral arbitrator, and then for a third neutral arbitrator to be chosen by lottery.  At the outset, the parties and arbitrators agreed that each party could communicate ex parte with their appointed arbitrator, but there could be no ex parte communication about pending motions after they were fully briefed. 

One year into the arbitration proceedings, the arbitrator appointed by the defendant shared 130 e-mails with the defendant’s counsel (ostensibly because he was concerned about another arbitrator’s bias).  The e-mails included many private emails that had been exchanged solely among the arbitrators during their deliberations over various motions.   The arbitrator who had turned over the e-mails then resigned, another arbitrator was appointed, and the panel noted that the resigned arbitrator’s actions were “highly inappropriate” but that the panel would proceed to the hearing and would decide the case on the merits.   After the plaintiff’s summary judgment motion was denied, it asked the federal court to disqualify the defendant’s counsel from representing defendant any further in the arbitration, based on its actions in obtaining the private emails and failing to timely disclose their contents. 

Judge Scheindlin disqualified the defendant’s attorneys, finding they had engaged in “serious violation[s] of arbitral guildelines, as well as ethical rules.”  The Judge further found that the ethical violations could taint the arbitration hearing itself, because the private e-mails “relate[d] to actual and ongoing disputes in the arbitration” — indeed the e-mails included drafts of orders and the neutral arbitrator’s views on a number of pending issues.  The Judge noted that: “Allowing parties to obtain confidential panel deliberations would provide an unfair advantage in the legal proceedings and have a chilling effect on the ability of arbitrators to communicate freely.”

The case is unusual in large part because the Court was willing to hear this mid-arbitration motion.  In general, the FAA only allows courts to consider any arguments as to the arbitration after the final award is issued.  For example, a non-party to an arbitration agreement recentlly brought a petition to federal court, seeking to overturn an arbitrator’s decision to join that non-party to the arbitration proceeding.  The court dismissed the action, noting that Section 10 of the Federal Arbitration Act only authorizes a court to review the fairness of the arbition proceeding after a final award.  Northland Truss Sys., Inc. v. Henning Constr. Co., LLC, ___ F. Supp. 2d ___, 2011 WL 3915538, at *4 (S. D. Iowa Sept. 2011). 

In Insco, however, the court relied on New York precedent finding attorney discipline is beyond the jurisdiction of arbitrators and can only be decided by courts.   The court also noted that the arbitration panel had refused to consider any sanctions as a result of the e-mail disclosure.   The court included some choice quotes from the panel, like “I avoid that whole circumstance because I go forward in life.  I don’t go backward.”  Those glib quotes from the panel may well have influence the court’s decision to intercede before the final award. 

If New York law applies in an arbitration, there is now a new basis to seek court intervention during an arbitration gone very, very wrong: the unethical conduct of lawyers that may taint the hearing.  In fact, the argument may hold water under the law of other jurisdictions as well.  A Connecticut court has also been willing to consider a motion to disqualify a lawyer in the middle of an arbitration proceeding.  City of Bridgeport v. Kasper Group, Inc., 2002 WL 1008244 (Conn. Sup. Ct. 2002) (denying motion to disqualify, after noting that was an issue for the courts).  Furthermore, Judge Scheindlin’s high regard as a jurist will make most courts take a mid-arbitration motion for attorney disqualification seriously going forward.