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 would understand if not every state supreme court got the memo from last year’s SCOTUS decision on FAA preemption, Kindred, which reminded state courts that the FAA prevents state courts from imposing additional requirements on arbitration agreements that are not required for other types of contracts.  But Kentucky definitely got the memo.  The memo was addressed to Kentucky. Yet, last week the Supreme Court of Kentucky released a new decision that continues to convey hostility to arbitration and SCOTUS’s decisions interpreting the FAA.

The legal issue in Northern Ky. Area Development District v. Snyder, 2018 WL 4628143 (Ky. Sept. 27, 2018) is straightforward: Does the FAA preempt a Kentucky statute that prohibits employers from conditioning employment on an employee’s agreement to arbitrate claims.  The statute prohibits an employer from requiring an employee to “waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled.”  In this case, the plaintiff was required to sign an arbitration agreement in order to work for the governmental entity.  When she sued over her termination, the employer moved to compel arbitration.

The trial court refused to compel arbitration.  Then the court of appeals affirmed, finding that the employer never had authority to enter into the arbitration in the first place (due to the statute), so the arbitration agreement did not technically exist.  (Too cute by half.  Plus, Justice Kagan specifically said that formation issues could also be preempted.)

The Kentucky Supreme Court affirmed.  It also concluded that the employer, a state agency, was covered by the anti-arbitration statute.  And therefore, when it conditioned employment on an agreement to arbitrate, in violation of the statute, its action was “ultra vires,” and the resulting arbitration agreement was void.  (See parenthetical above.)

The court went on to find the anti-arbitration statute at issue was not preempted by the FAA.  The decision states with an apparently straight face that the statute “does not actually attack, single out, or specifically discriminate against arbitration agreements” and did not “evidenc[e] hostility to arbitration”.  The statute “simply prevents [the employer] from conditioning employment” on the arbitration agreement. Furthermore, it notes that the statute does not just preclude arbitration agreements, but also any agreement that waives or limits an employee’s rights.

BUT HERE’S THE PROBLEM.  Kentucky’s reasoning only makes sense if we agree that arbitration is a limitation or a diminishment of the employee’s rights.  If, instead, you assume that arbitration is simply an alternative forum for resolving the employee’s full set of rights, the logic falls apart.  But, will SCOTUS really want to hear another Kentucky decision?  Kentucky is betting that it won’t.  Maybe this should not surprise anyone; Kentucky did not exactly bend to SCOTUS’s will when Kindred was remanded.  And btw, the nursing home is seeking certiorari from the remand decision, and SCOTUS just relisted it, meaning it still has a chance. (For good measure, Kentucky’s high court issued a decision compelling arbitration on the same day, overruling an objection that the arbitration clause was not fully mutual.  Grimes v. GHSW Enterprises, 2018 WL 4628160 (Ky. Sept. 27, 2018).)

————————–

Speaking of SCOTUS, Monday it denied cert in at least four arbitration cases.  Two were companion cases (from Cal. and Neb.) that sought guidance on what types of challenges can invalidate a delegation clause.  (My blog post here, SCOTUSblog here and here.)  Another presented issues regarding binding non-signatories to arbitration through equitable estoppel. The fourth involved a question of whether an employer waived its right to arbitration (Cash Biz).  (My post here, filings here.)

And – this morning, SCOTUS hears arguments in New Prime, addressing the exemption in FAA Section One.

[Thanks to @PerryCooper for alerting me to a few of these cert denials.]

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.

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.)

 

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!

Whenever people ask me why I choose arbitration law to write and talk about, one of the reasons I give is that the law is in flux, creating a demand for information and analysis.  Despite the fact that the Federal Arbitration Act has been around for over 90 years, there are constantly new developments in its interpretation.  Especially in the past two decades, with the Supreme Court highly engaged in the enforcement of arbitration agreements, the pace of legal development has quickened.  That pace means that litigants, advocates, arbitrators and judges are struggling to keep up.  It also means that even on recurring issues, there is still a lack of consensus on how to apply the rules that have been developed.

To demonstrate this point, I went back through the important cases from 2017.  I found multiple instances where two cases with very similar facts received opposite results.  And I am not talking about circuit splits over novel issues like the NLRB and “wholly groundless” exception.  I am talking about issues like formation, waiver, and non-signatories, where the “rules” have ostensibly been settled for some time.

Two Tales of Non-Signatories

These two cases involve a bank teaming up with a retail entity to issue branded credit cards that offered rewards.  The credit card agreement, which called for arbitration of disputes, was only between the consumers and the banks, however. In each case, plaintiffs sued the retail entity regarding the card and the retail entity moved to compel arbitration as a non-signatory to the credit card agreement.  In one case, White v. Sunoco, Inc., 2017 WL 3864616 (3d Cir. Sept. 5, 2017), the retail entity’s motion was denied.  In the other, Bluestem Brands, Inc. v. Shade, 2017 WL 4507090 (W. Va. Oct. 6, 2017), the retail entity’s motion was granted.  While these cases depend on the laws of different states, the courts were applying the same general estoppel rules, but reaching opposite results.

Two Tales of Waiver

Whether a party has waived its contractual right to arbitrate is an issue that comes up regularly.  Yet it remains surprisingly hard to predict whether a court will find waiver or not on any set of circumstances.

These two cases involve lenders bringing collection actions in state court for credit card debts.  In both, they were granted a default judgment.  And in both, the credit card holder later sued for problems with the collection efforts.  In response to that suit, the lenders moved to compel arbitration.  In one case, Cain v. Midland Funding, LLC, 156 A.3d 807 (Md. Mar. 24, 2017), the court denied the motion to compel, finding the lender had waived its rights.  In the other, Hudson v. Citibank, 387 P.3d 42 (Alaska Dec. 16, 2016), the court granted the motion to compel, finding the lender did not waive its rights.  In both cases, the analysis turned on whether the default action and later action were sufficiently related.

Two Tales of Formation

All of us do more and more of our business over mobile devices and the internet, where we don’t physically sign our name to contracts, and in fact we generally don’t read the terms and conditions.  That leads to hard legal questions over when a contract is validly formed and what terms the parties agreed to.

In these two cases, consumers have little or no choice between providers.  In order to sign up for the service, they receive one message.  In the first case, the message is “your account…[is] governed by the terms of use at [defendant’s website].”  In the second case, the message is “by creating an [] account, you agree to the TERMS OF SERVICE & PRIVACY POLICY.”  The consumers did not have to take any affirmative act to consent to the terms other than proceeding to set up their account.  In both cases, consumers later sued the provider and the providers moved to compel arbitration based on the terms available at their websites.  The consumers responded by arguing the parties had not validly formed any arbitration agreement.

In the first case, the provider was not successful in compelling arbitration.  James v. Global Tellink Corp., 852 F.3d 262 (3d Cir. Mar. 29, 2017).  In the second case, the provider was successful in compelling arbitration.  Meyer v. Uber Technologies, Inc., 868 F.3d 66 (2d Cir. Aug. 17, 2017).  Can it be that the wording difference between “your account.. is governed” and “by creating an account, you agree” explains the outcomes?  Or the fact that the consumers in the Uber case could have just clicked on the terms from the same device they were using to set up the account, while the prisoners in the first case would have had to hang up their telephones, find a computer and find the website?  The cases really give us no assistance in figuring that out.

Maybe every area of law has similar issues regarding the predictability of decisions.  But arbitration law is rife with legal “rules” to guide decision making that are so flexible as to hardly constitute rules at all.  And courts have not yet applied those rules enough times to allow them to develop a systemic approach, with internal consistency between the decisions.  And I predict that will only get worse, not better, as consumers and employees find new and creative ways to challenge arbitration agreements.

2017 was a big year in arbitration law.  We went from a country that seemed on the verge of banning arbitration in most consumer and employee contracts to a country whose federal policy embraces arbitration in nearly every context.  From my vantage point, here are the ten top developments in the last twelve months:

  1. Regulation Reversal.  At the end of 2016, federal agencies were proposing rules to ban arbitration in various settings (student loans, nursing home agreements, consumer financial contracts).  Today, all of those have been reversed.  Most were reversed by the agencies themselves (CMS, Dept of Ed.), but in the big CFPB story, it was Congress that did the reversing.
  2. New Preemption Case from SCOTUS: Kindred Nursing Ctrs v. Clark, 137 S. Ct. 1421 (May 15, 2017).  This case found Kentucky had developed a rule for analyzing “power of attorney” documents that stood as an obstacle to arbitration.  What should state supreme courts learn from this decision?  To avoid FAA preemption, don’t insult SCOTUS, don’t worship the jury, and you really should be able to cite to a case where you’ve applied the same rule outside the arbitration context.  (Read the postscript.)
  3. Arbitration on Trial.  The public discourse in 2017 was hostile to arbitration.  Arbitration was literally on trial in a case against JAMS (for an arbitrator’s alleged resume-padding), but also was figuratively on trial as a contributor to the problem for sexual harassment victims and an obstacle for consumers impacted by the fake accounts at Wells Fargo and Equifax data breaches.  However, the level of public interest in this issue does not seem high enough to capture the interest of Congress (see vote on CFPB in #1), and one primary arbitration critic in the Senate, Al Franken, will resign shortly.
  4. Waiting for NLRB.  This fight between the NLRB and the courts has been brewing for so long!  My first post about the NLRB’s decision that class action waivers in employment agreements violated the federal labor laws, and the federal courts’ disagreement with that decision, was in 2013.  This year, the drama heated up as not only did SCOTUS take the case and hear argument in October, but the Dept. of Justice shifted its support from one side to the other shortly before the argument.
  5. Circuit Split on “Wholly Groundless.”  Should courts do any spot check on arbitrability before enforcing a delegation clause?  Until this year, the only answer was yes, and that came from three circuits (Fed, 5th, 6th), but in 2017, two circuits said “no way!” because it violates SCOTUS’s precedent (10th, 11th).  This could end up on SCOTUS’s docket soon.
  6. Small Claims Court Confusion.  A number of cases took up the issue of whether a company’s effort to collect a debt in small claims court (usually pursuant to a carve out in the arbitration clause) waived its right to later enforce arbitration when that consumer sued about the debt collection effort.  E.g., Cain v. Midland Funding, LLC, 156 A.3d 807 (Md. Mar. 24, 2017). The case outcomes were inconsistent.
  7. Statutory Preclusion.  Attempting to avoid arbitration by holding up a statute that appears to require a claim to be heard in court is always a solid argument (but usually unavailable).  This year it came up often, but not successfully.  See McLeod v. General Mills, Inc., 854 F.3d 420 (8th Cir. 2017).
  8. Non-Signatories Get Divergent Results.  Another perennial favorite topic is defendants who want to compel the arbitration clause in a plaintiff’s contract with someone else.  This came up often again this year, but with notable losses and generally inconsistent results.  (Teaser for an upcoming post…)
  9. Clarifying That Awards Don’t Get Vacated For Trivial or Old Relationships. One area of law that courts seem to be trying to clean up this year is the standard for what types of relationships are significant enough that the award could be vacated.  What’s not enough?  Having decided a different matter with the same expert, and having been colleagues with counsel for one party 15 years before are two examples of what is not enough.
  10. Are There Exceptions To The Three Month Window For Vacating Awards?  The Ninth Circuit said yes (in the case of fraud), but the Nebraska Supreme Court found no exceptions available.  Given that this statute has been in place since 1925, this seems like the kind of thing that would have been settled by now…

 

It’s the most wonderful time of the year!  Not just because of the chestnuts roasting and mistletoeing, but because it is when the ABA Journal names the best legal blogs.  Arbitration Nation made it to the Top 100 list for the sixth year running, and remains the only arbitration blog on the list.  Even more exciting, Arbitration Nation was one of five blogs added to the ABA Journal’s “Blawg Hall of Fame,” which recognizes the “very best law blogs, known for their untiring ability to craft high-quality, engaging posts sometimes on a daily basis.”

I am very grateful to the ABA Journal for highlighting this “new” way of lawyering and marketing for the past ten years.  I am also grateful to all of you for reading the posts, for sending me cases to blog about, and for recommending me to clients!  No time to rest on any laurels, there are new arbitration cases coming out every day and now I have lots of new law blogs to check out…