The focus today is recent state appellate court decisions on arbitration. Because there are an awful lot of them, I am going to divide them roughly into those that are pro arbitration, and those that are hostile to arbitration. This post focuses on the three relatively hostile cases (with the friendly cases coming in a sequel), on issues of scope, delegation clause, and vacatur.
In Keyes v. Dollar General Corp., 2018 WL 1755266 (Miss. April 12, 2018), the Mississippi Supreme Court wrestled with whether claims of “malicious prosecution” are within the scope of an arbitration agreement. Just as it did a few months ago, the court concluded those claims are not within the scope of the arbitration agreement. Even though in Keyes, the employee’s arbitration agreement provided for arbitration of all disputes “arising out of your employment…or termination of employment” and the employee was accused of stealing a gift card, which led to a criminal complaint. The court noted that there was no evidence the employee “contemplated” this situation and that the employer could have specifically included claims of malicious prosecution, false imprisonment, etc. in the arbitration agreement. [Can you imagine if we all had to list every possible claim for it to be covered by an arbitration agreement? So. Many. Pages.] On a similar issue, Texas reached the opposite result.
In Citizens of Humanity, LLC v. Applied Underwriters Captive Risk Assurance Co., Inc., 299 Neb. 545 (April 6, 2018), the Nebraska Supreme Court refused to enforce the delegation clause in the parties’ agreement. [Yes, *that* Citizens of Humanity, of fancy jean fame.] Just as in a similar 4th Circuit case, the party wanting to avoid arbitration alleged an anti-arbitration insurance statute precluded enforcement of the arbitration agreement (under the dreaded McCarran-Ferguson doctrine, which for a long time I refused to even acknowledge on this blog for fear of getting sucked into the morass). The party seeking to arbitrate argued that the parties’ delegation clause assigned the issue of the anti-arbitration statute to the arbitrator, and that there had been no specific challenge to the delegation clause as required by Rent-A-Center. The Nebraska Supreme Court found the challenge was sufficiently specific in this case because the amended complaint mentioned the anti-arbitration statute and sought a declaration that the arbitration agreement was invalid, and because the challenger said during its hearing that its challenge included the delegation of arbitrability. [Well, if you uttered the magic words at oral argument, then I guess that’s good enough…] The court went on to find the delegation clause invalid and remanded the remaining arbitrability issues to the district court.
[The Third Circuit also found that a plaintiff had asserted a sufficiently specific challenge to a delegation clause in MacDonald v. Cashcall, Inc., 2018 WL 1056942 (Feb. 27, 2018). But there, the complaint alleged that “any provision requirement that the enforceability of the arbitration procedure must be decided through arbitration is  illusory and unenforceable.” And the plaintiff’s brief at least stated that the delegation clause had the same defect as the arbitration provision.]
Last but not least, the Minnesota Court of Appeals issued a decision vacating an arbitration award for violating public policy. In City of Richfield v. Law Enforcement Labor Servs., Inc., 2018 WL 1701916 (Minn. Ct. App. April 9, 2018), the city terminated a police officer following his improper use of force in a traffic stop and failure to self-report that force. The officer challenged his discharge in arbitration, and the arbitrator found the use of force was not excessive and that the failure to report it was not malicious, and ordered the city to reinstate him. The city appealed the award. The district court refused to vacate the award, but the appellate court found vacatur appropriate under the public-policy exception. The court looked to the officer’s previous failures to report his use of force and found “the interest of the public must be given precedence over the arbitration award.” The court noted its decision is rare and unusual, but that it did “not take this action lightly.”