Because courts apply a presumption of arbitrability when they analyze whether particular claims fall within the scope of an arbitration clause, and arbitration clauses are generally drafted very broadly, I don’t usually get to write about courts finding that a dispute falls outside the scope of arbitrable claims.  But this week, both the Second and Third Circuits issued decisions holding that defendants could not compel arbitration because the plaintiffs’ claims fell outside the arbitration clause.

In Allstate Ins. Co. v. Mun, 2014 WL 1776007 (2d Cir. May 6, 2014), Allstate alleged that two New York providers had engaged in insurance fraud.  Allstate had already paid the providers for their services, and sought to recover those payments.  After Allstate sued, the providers moved to compel arbitration.  The district court denied the motion and the Second Circuit affirmed that decision.  Both courts found that the arbitration provision, although “appear[ing] quite broad,” only applied to disputes over claims for first-party benefits (i.e. the providers’ initial request for payment).  The courts reached that conclusion in part because of its interpretation of aspects of New York’s no-fault insurance statutes, which had been interpreted to require arbitration only of first party claims..

In CardioNet, Inc. v. Cigna Health Corp., 2014 WL 1778149 (3d Cir. May 6, 2014), medical device providers sued CIGNA for its decision not to pay for services related to those devices (after it had covered such services for four years).  The device company had brought two types of claims: 1) direct tort claims relating to a letter that CIGNA sent to doctors calling the devices experimental and unproven; and 2) derivative claims on behalf of individual insureds under ERISA.  CIGNA moved to compel arbitration.  The district court granted the motion, but the appellate court vacated that decision, finding both categories of claims fell outside the scope of the parties’ arbitration agreement.

The Third Circuit found the direct claims about the letter to doctors were not arbitrable.  The parties’ contract provided for arbitration of disputes “regarding the performance or interpretation of the Agreement,” and the court found that “whether CIGNA performed its obligations under the Agreement has no bearing on whether it harmed the [device company] by providing physicians with misleading information” about their services.

The Third Circuit also found that the derivative claims were outside the scope of the Agreement’s arbitration provision.  The district court had enforced the arbitration agreement because it felt to do otherwise would allow the device company to “nullify their agreement to arbitrate these claims for payment by becoming assignees of the Plan Participants’ claims.”  The Third Circuit disagreed for two reasons.  First, it found that the underlying claims did not concern the “performance or interpretation of the Agreement” and therefore the claims would not have been arbitrable even if the device company brought them directly.  Second, it found that as an assignee, the device company was in the same legal position as the plan participants, and therefore should be treated as a non-signatory even if the claims fell within the arbitration clause.  “Just as the burden of arbitration must travel with a claim, so too, must the right to litigate.”

These decisions may be part of a new direction in arbitration case law.  Courts are only authorized to decide three things: whether the parties formed an arbitration agreement; whether that agreement is valid under state and federal law; and whether the instant dispute falls within the scope of that arbitration agreement.  But SCOTUS continues to narrow (via Buckeye Check Cashing, Concepcion, Italian Colors, etc) — or should I say knock out — the potential bases for finding an arbitration agreement invalid.  It is then a very logical reaction for parties, counsel, and courts who want to get around arbitration agreements to focus on the other two categories of arguments — formation and scope.  Indeed there have been many state cases recently finding the parties never formed an arbitration agreement (often based on lack of authority).  And these two cases may be leading the way on scope.  (I note that the Third Circuit raised concerns about the “policy implications” of forcing the participants’ claims into arbitration…)

California is the Judd Nelson of The Preemption Club.  (Or the John Bender, if you prefer using character names.)  The Supreme Court has sent the California courts to preemption detention for ignoring the Federal Arbitration Act in blockbuster, groundbreaking cases (see Concepcion).  But California cannot help itself.  It keeps coming up with novel arguments to avoid arbitration.  And in doing so, it keeps inviting reversal.  Of course, other states get sent to The Preemption Club (West Virginia and Oklahoma, for example), just not with the same panache.

Just last week, the Supreme Court reversed a decision of the California Court of Appeals and remanded it for reconsideration in light of AmEx. In CarMax Auto Superstores California, LLC v. Fowler, a putative class of CarMax employees alleged CarMax violated California labor laws.  The parties engaged in discovery and motion practice for over a year and then stayed the case.  Two years into the stay period, in June of 2011, CarMax moved to compel the plaintiffs to individually arbitrate their claims, in accordance with the terms of their employment agreement.  The plaintiffs opposed the motion, arguing that CarMax had waived its right to arbitrate and that the arbitration agreement was unconscionable.  Plaintiffs also relied on California’s Gentry rule, which provides that class-action waivers in employment arbitration agreements are invalid if “a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration.”

The district court sided with CarMax but in March of 2013 the California Court of Appeals reversed.  It did not rest its decision on an uncontroversial issue like waiver, however.  (It gave CarMax a break for not moving to compel arbitration before Concepcion, as the motion would have likely been futile under California law, and it also said that the discovery and dispositive motion proceedings could have taken place in arbitration so there was no prejudice.)  The court also did not rest its decision on the alleged illusoriness of the arbitration agreement, because California law does not find agreements illusory, even if they can be modified without advance notice.  Instead, the court went with the riskiest possible basis for its decision: finding that Gentry was not preempted under the Concepcion analysis.  After the California Supreme Court refused to review the decision, CarMax took the issue up to the Supreme Court.

The Supreme Court made short work of the matter.  Just three days after considering the certiorari petition in conference, the Supreme Court granted cert, reversed the Court of Appeals, and remanded the case for reconsideration in light of AmExAmEx is the decision that, in June of 2013, seriously weakened the “effective vindication of statutory rights” line of cases.  So, what will the Court of Appeals do now?  I don’t see much room for fitting the case into what is left of the “effective vindication” doctrine, because that only applies to federal statutory rights and CarMax appears based on state statutory rights.  So if California really wants these CarMax employees to continue as a class, it either has to reverse itself on waiver, or come up with a different basis for finding the arbitration agreement unenforceable.  And in doing so, it will effectively say “Eat… My… Shorts” to SCOTUS.

The ABA Journal released its seventh annual list of the top 100 legal blogs in the country and ArbitrationNation is honored to be included for a second year in a row.  ArbitrationNation is the only blawg on the list devoted to arbitration.  (And it looks like one of only two from Minnesota authors…)

Now that the editors have made their picks, the ABA Journal is asking readers to weigh in and vote on their favorites in each of the 7th Annual Blawg 100’s 13 categories. To vote for ArbitrationNation, please click here, register your name, and vote for me in the “Litigation” category.   Voting ends at close of business on Dec. 20, 2013.

Thank you for your readership and support.  Have a great Thanskgiving!


This blog might as well have been called Arbitration Elation on November 26!  Not only was there a new arbitration decision from the Supreme Court, which only happens a couple times a year, but editors of the ABA Journal announced that they selected Arbitration Nation as one of the 100 best blogs in the country for a legal audience.  Arbitration Nation was the only arbitration blog on the list.  (Please check out some of the other blogs on the list — it is a stellar group of blogs on a wide variety of legal subjects.)

Thank you to all of you who nominated this blog for the Blawg 100 list.  And, if you missed your opportunity to vote, it’s not too late!  Until Dec. 21, the ABA Journal is asking for votes to help them differentiate among the top 100 (Arbitration Nation is in the “niche” category).  Needless to say, I’d love your continued support.




Take out your birthday hats and balloons — Arbitration Nation is celebrating its first full year of existence!  I have enjoyed reading all the developments in arbitration law over the past year and connecting with many people — through this blog, listservs, emails and Twitter– about their reactions to the case law. 

Here are some fun stats:

Posts: 58

Visitor Growth:  The volume of monthly visitors has grown six-fold in the past twelve months  (plus many people see the content on other websites, like Lexology, ADRTimes, JDSupra, and then the content scraping sites that we battled for a few months….)

Pages per visit: 1.72

Most visited post: Dissonance between SCOTUS and BUSINESS on Arbitration

Most frequent search terms that get people to the blog (after “not provided”): Arbitration Nation and (or fat finger variations, like Arbitration natino); then “supreme court arbitration cases florida”

Award: Among “Top 25 Minnesota Blawgs”

Posts with pop culture references in title: 7 

Reflecting on the past year reminded me of Malcolm Gladwell’s book Outliers.  I took away two main things from that book:  1) I should red-shirt my son from kindergarten if I want him to play professional sports; and 2) it takes 1,000 practices to be really good at something.  At this rate, it would take me 17 years to become an “outlier!” (And my son would be ready to red-shirt for college, not kindergarten.)  But, whether I have another sixteen years in me or not, the point is I am just getting started, and I hope to keep fine-tuning the content.  As always, please contact me if you have ideas for a blog post or for how to make this blog more useful!

Happy Thanksgiving from Arbitration Nation! 

There are no new and exciting cases to talk about,* so I am reverting to the Thanksgiving staple — talking about what I am thankful for.  And, I am thankful for all of you!  Starting this blog has been one of the highlights of my professional year.  Not only has Arbitration Nation gotten an impressive number of visitors in its first three months, but it has been featured as a “contributor” on other websites about dispute resolution, and has prompted fascinating emails from many of you (forwarding me articles and journals, or telling the tales of your own arbitration or your litigation over arbitration). 

For those of you who just can’t get enough information about dispute resolution, here are some other blogs and websites you may want to check out**: (variety of articles and resources on conflict resolution, mediation and arbitration) (focus is international arbitration) (the AAA’s newsletter) (“Disputing”) (“ADR toolbox” — has a “blog roll” of interesting articles in the header)

* But there are always un-exciting cases to talk about.  For example, the Federal Circuit does not consider arbitration proceedings privileged, and therefore held that a third-party can discover information about a completed arbitration (Kimberly-Clark Worldwide, Inc. v. First Quality Baby Products, LLC, 2011 WL 5529821 (Fed. Cir. Nov. 15, 2011)), and the highest court in New York will not vacate an arbitration just because the arbitrator’s son is a member of Congress who has taken positions on issues relevant to the arbitration (U.S. Electronics, Inc. v. Sirius Satellite Radio, Inc., 2011 WL 5526016 (N.Y. Nov. 15, 2011)).

** If you know of a great arbitration website that I did not include, please email me about it!   (My email is on the “our bloggers” tab.)

Enjoy your holiday!

Despite the Supreme Court’s best efforts, some myths of arbitration law just will not die.  In yesterday’s per curiam decision of the Supreme Court, the Justices tried to put a stake through the heart of a common myth: that a party may successfully avoid a motion to compel arbitration by arguing that not all claims and/or not all parties fall within the scope of the arbitration agreement.  KPMG LLP v. Cocchi, __ U.S. __, 2011 WL 5299457 (Nov. 7, 2011).  Surely you have seen this in your cases, the non-moving party usually invokes the phrase “piecemeal litigation,” i.e. “if I am forced to arbitrate, it will result in expensive and duplicative piecemeal litigation.”  SCOTUS is tired of this argument.

 In Cocchi, 19 investors in what turned out to be a Ponzi scheme brought four claims against the auditor, KPMG, in state court in Florida.  (Florida is the same state whose refusal to compel arbitration got smacked down in 2006’s Buckeye Check Cashing v. Cardegna decision.)  KPMG moved to compel arbitration based on provisions of its contract with its client, the alleged Ponzi schemer.  The contract stated that “[a]ny dispute or claim arising out of or relating to … the services provided [by KPMG] … (including any dispute or claim involving any person or entity for whose benefit the services in question are or were provided) shall be resolved” either by mediation or arbitration.

The Florida trial court and appellate court denied KPMG’s motion to compel arbitration.  Because KPMG was relying on its contract with the Ponzi schemer, and had not contracted with the investors, the Florida courts noted that the arbitration provisions could only be enforced if the claims were “derivative.”  After analyzing two of the four claims and finding that they were direct, the Florida courts denied the motion to compel arbitration. 

The Supreme Court vacated the Florida appellate decision and remanded the case for consideration of all four claims.  If any of those claims are derivative, the Court directed, the investors must be compelled to arbitrate the derivative claim(s) against KPMG.  It took the occasion to remind us all that: “when a complaint contains both arbitrable and nonarbitrable claims, the Act requires courts to ‘compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.'”


Minnesota Senator Al Franken, among others, responded to the Supreme Court’s Concepcion decision  by introducing a bill called the Arbitration Fairness Act of 2011 (S.987, also in the House as H.R. 1873) last May, which would legislatively nullify arbitration provisions in various types of agreements.  The Senate Judiciary Committee heard two hours of testimony on the bill last Thursday (Oct. 13), from speakers including Minnesota’s Attorney General (in support of the legislation), a representative of the Chamber of Commerce (opposing the legislation), an emergency room doctor (who supports the legislation and told the committee of her bad experience arbitrating a discrimination claim), a member of the non-profit Public Justice (in favor of the legislation) and a law professor (also opposing the legislation).  The remarks of each speaker are available here.

Senator Franken opened the hearing with this comment: “Personally, I’m troubled that our private arbitration system is, at least in part, eclipsing the United States Supreme Court, the highest court in the land. Perhaps today’s hearing can help us determine whether there is a sound middle ground -one where we use arbitration to the fullest fair extent, but allow our Supreme Court to fulfill its role as the true final arbiter.”

If passed, the Arbitration Fairness Act would invalidate any contractual arbitration clause that requires arbitration of an employment dispute (other than those with labor unions), consumer dispute, a claim involving constitutional rights, or a statutory discrimination claim.  The bill specifies that any dispute over whether the Arbitration Fairness Act applied would be decided by a court, even if the litigant did not raise a challenge to the arbitration provision itself (contrary to the Prima Paint decision and its progeny).   The Senate Judiciary Committee will continue to take some testimony and comments about the Act until October 20, and then the Chair will decide whether the Act will go any further.

 A similar bill was introduced in 2009 (Arbitration Fairness Act of 2009) in the U.S. House and Senate.  The 2009 bill was slightly different than the 2011 legislation: instead of invalidating arbitration clauses covering constitutional or discrimination claims, the 2009 version invalidated arbitration agreements in franchise disputes.  However, despite its 126 co-sponsors in the House and Senate, and the more liberal composition of the Congress at that time, the Arbitration Fairness Act of 2009 did not gain any traction and never made it out of its respective committees.  Unless there is significant public reaction to the Concepcion v. AT&T Mobility decision that persuades Congress to make this bill a priority for both parties, the Arbitration Fairness Act of 2011 is also unlikely to be passed.  But it may continue to raise legislative awareness of the policy issues raised by the U.S. Supreme Court’s recent rulings on arbitration.