Arbitration case law did not break any new ground in 2015.  Instead, a larger sector of the public became aware of the ground already broken in 2011 and 2013, as well as how common arbitration is in professional sports.

Let’s review some of the attention-grabbing arbitration headlines of 2015.  There was:

  • That time in February when the arbitration award in Lance Armstrong’s favor got reversed, ten years after the fact.
  • Also in February, the arbitration award against Adrian Peterson (a football star, my fellow arbitration nerds) was vacated.
  • Then in March, the CFPB (a new federal agency, you football nerds) issued an insanely long report, finding, in short, that it is nearly impossible to avoid arbitration agreements (with their waivers of class actions) in consumer financial products, consumers have no idea they are subject to arbitration, and consumers seem to get higher awards in federal court than in arbitration when they challenge financial institutions.
  • In April, Missouri’s high court found it was unconscionable to allow the NFL Commissioner to serve as the arbitrator deciding an employee’s age discrimination claims.
  • Acting against type, in August the California Supreme Court applied SCOTUS opinions and upheld an arbitration agreement in a consumer clause, despite two lower courts having found it unenforceable. (Okay, that was not headline-grabbing, except in select legal publications.  But it should have been.)
  • Back to football again, in September a federal judge vacated the arbitration award against Tom Brady.  (He’s the quarterback who sells Wrangler jeans, right?  Just kidding, football fans, just kidding.)
  • In October, the CFPB started its pre-rulemaking process by describing two ways it plans to change consumer financial arbitration.  It is likely to: 1) invalidate arbitration agreements for any members of a putative class action “unless and until class certification is denied or the class claims are dismissed;” and 2) collect and publish consumer financial claims filed in arbitration.
  • In November, the New York Times published a three-part series on arbitration, which was generally unflattering.  It focused on the impact of SCOTUS’s decisions, especially in Concepcion and Italian Colors, on individuals’ ability to obtain redress for claims.  More than any court decision in the last five years, this newspaper series got lots of people talking about arbitration and reacting to the series.
  • Finally, in December, SCOTUS capped off this year of arbitration headlines by reversing California’s intermediate appellate court , which had refused to uphold a class action waiver in arbitration.  SCOTUS’s “eye of Sauron” is stuck on California.  Despite evidence that California is (begrudgingly?) enforcing federal decisions interpreting the Federal Arbitration Act (see bullet point five above and this decision from 2014), SCOTUS still sees California as the black sheep of the national arbitration family.  (This year, I nominate Kentucky for that role.  Didn’t SCOTUS see this opinion comparing arbitration to abortion?)

What would casual observers learn from this year of arbitration headlines?  Two lessons: first, famous athletes have an uncanny knack for vacating arbitration awards; and second, there is a real battle brewing between SCOTUS and the executive branch (CFPB as well as NLRB) over enforcement of class action waivers in arbitration agreements.  If that battle erupts in 2016, then arbitration will really take center stage in our national debate.  As usual, you can monitor the drama right here at www.arbitrationnation.com.

Happy New Year everyone!

A lot of interesting arbitration law was made this year, on topics from validity to vacatur, but the banner issue was arbitrator authority.  SCOTUS announced that theme for the year with its BG Group decision in March and federal and state courts around the country ran with it.  [Warning: this post is a doozy.  Get comfortable.  Like my cat in the picture.]

Arbitrator Authority

What did we learn about arbitrator authority?  Well, SCOTUS reminded us in BG Group PLC v. Republic of Argentina that arbitrators presumptively have authority to decide the meaning and applicability of contractual conditions precedent. That is true even when the contract states those conditions precedent must be completed before arbitration may proceed.  Why is that important?  Well, first, parties need to know in what forum to make a motion to dismiss, and second, when the arbitrator decides an issue within his or her authority, that decision is entitled to the full deference of the FAA.  Therefore, the arbitrator’s decision in BG Group to excuse a party’s non-compliance with unreasonable conditions precedent was confirmed.

Following suit, federal circuit courts held that arbitrators have authority to: determine the timeliness of an arbitration demand (5th Cir – Why Nada Cruz); determine whether a non-signatory had to arbitrate, based on incorporated AAA rules (8th Cir – Eckert/Wordell); determine whether claims fall within the scope of the parties’ arbitration agreement, based on incorporated AAA rules (11th Cir. —U.S. Nutraceuticals); determine whether a subcontractor was properly licensed, based on a broadly worded agreement (despite arguments that only a state agency had that jurisdiction, 10th Cir — Hungry Horse LLC); void an agreement based on mutual mistake (8th Cir – Assoc. Elec. Coop.); and determine that third parties benefited from an agreement, despite language prohibiting third parties from having rights (11th Cir —Southern Mills, Inc.).

In turn, state high courts held that arbitrators have authority to: issue severe sanctions for fabricating evidence, based on incorporated AAA rules (Minnesota- Seagate Technology LLC); grant dispositive motions and disregard applicable state law (Alabama — Tucker); and determine arbitrability, based on the parties’ agreement (Hawaii–Hawaii State Teachers Assoc.).

There were also many, many decisions this year confirming arbitration awards, which can be seen as a subset of “arbitrator authority” decisions.  Most surprising this year was the volume of arbitration awards that were un-vacated, in other words, an appellate court confirmed the arbitration award after a lower court had vacated it.  At least five state supreme court decisions fit in that category. (Three I already blogged about, Delaware, Florida, and Minnesota, and two other labor decisions I did not blog about from Connecticut (Town of Stratford) and Montana  (City of Livingston).)  And at least five federal circuit court decisions also had to un-vacate arbitration awards — the Second Circuit, the Sixth Circuit, the Tenth Circuit, the Eighth Circuit, and the Fourth Circuit (in Washington Gas Light Co.).  These ten decisions confirm the extreme deference that the FAA grants to arbitrators’ decisions within their authority.

While arbitrator authority was this year’s hot topic, with much of that authority coming from incorporated AAA rules, some of the topics from past years continued to trend.  For example…

Validity

2014 produced some novel challenges to the validity of arbitration agreements.  My personal favorites were the two federal circuit courts that refused to enforce identical agreements calling for arbitration before a Native American tribe that does not actually conduct arbitration–finding the agreements unavailable and illusory.

Another notable validity decision was Missouri’s refusal to enforce an arbitration clause, in part because it was illusory and because continued at-will employment was insufficient consideration for the arbitration agreement.  In making those arguments, the plaintiff followed the current best bet for avoiding an arbitration clause — attack the formation of the clause (offer, acceptance, consideration, peppercorns) and use the word “illusory.”

Formation

Speaking of formation, there were a number of cases this year that confronted whether an arbitration agreement could be enforced if it was simply on a website, provided after the fact, or in an agreement that was incorporated by reference.   Recall the website arbitration agreements that failed (Barnes & Noble, General Mills), along with the similar failure of a “shrinkwrap” type arbitration agreement sent after the purchase, where the customer lacked reasonable notice (Sirius XM)?  With respect to incorporated manuals or agreements containing arbitration clauses, those were not enforced in this Fifth Circuit decision or this Fifth Circuit decision, but were enforced in this Eleventh Circuit decision.  Finally, the D.C. Court of Appeals found that clients of a D.C. law firm could compel arbitration of a fee dispute with the law firm, although the parties had no written arbitration agreement, because the D.C. bar rules obligate attorneys to arbitrate.

In the sub-category of states refusing to compel arbitration ofwrongful death cases against nursing homes, the Supreme Court of Oklahoma issued two decisions (Johnson and Boler) finding that arbitration agreements signed by attorneys-in-fact of the resident were not enforceable or binding.  (At least four state courts issued similar decisions in 2013.)

Preemption

Although the flood of post-Concepcion preemption decisions has subsided, there were a few notable decisions this year.  In CarMax Auto Superstores, SCOTUS asked California to take a very hard look at whether its Gentry line of cases, finding class actions necessary for effective vindication of rights, was preempted after 2013’s AmEx decision.  Three months later, California did just that, finding Gentry preempted.  And in THI of New Mexico, the Tenth Circuit found New Mexico’s rule that arbitration clauses must be mutual was preempted.

At least three state courts proactively declared that their arbitration decisions were not preempted by federal law. In Iskanian, California said that plaintiffs’ ability to bring private attorney general claims on a representative basis cannot be waived, even via an arbitration agreement, and the FAA does not preempt that result because the FAA does not apply to claims made by the state.  (See final paragraph below for potential next chapter on Iskanian.)  In Alltel, Arkansas found a consumer arbitration agreement unenforceable because it lacked mutuality, and said the result was not preempted because mutuality is a requirement of all contracts.  (Note the opposite result in THI above.)  Similarly in Atalese, New Jersey found a consumer arbitration agreement unenforceable because it did not clearly advise consumers that they were giving up their rights to a jury trial, and said the outcome was not preempted because the rule applies to all New Jersey contracts.

Vacatur
I found four significant decisions vacating arbitration awards this year.  They showed that arbitration awards can be vacated if the arbitrators are impartial when the agreement calls for partial arbitrators (Texas) , that arbitration awards can be vacated if the arbitrator does not fully disclose significant relationships with the law firm representing one of the parties (also Texas),  and that arbitration awards can be vacated if the arbitrators grant a remedy that is precluded by the parties’ agreement (South Dakota and Ohio).

And for 2015…

What can we look forward to in 2015?  In their conference on January 9, 2015, SCOTUS has two arbitration cases on deck.  One is the California Supreme Court decision in Iskanian, presenting interesting preemption issues, and the second is a case presenting the issue of whether availability of class arbitration is a gateway issues that is presumptively for courts to decide (Opalinksi v. Robert Half Int’l.).

I hope this long post alleviates some of my guilt for posting less frequently in 2014 than in previous years…  Here’s to a 2015 with well-reasoned arbitration decisions that help clarify some of the still-thorny topics arising under the FAA!  And me having more time to write about them!  Happy New Year.

Do you remember Balki’s Dance of Joy from the TV show Perfect Strangers?  That is what I am doing today.  Editors of the ABA Journal announced yesterday they have selected ArbitrationNation as one of the top 100 best blogs for a legal audience for the third straight year (out of 4,000+ legal blogs).  I am very thankful to the many readers who nominated this blog.  ArbitrationNation is the only blog devoted to arbitration law on the list and one of only two blogs authored by Minnesota attorneys (the other is www.duetsblog.com).

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 8th Annual Blawg 100’s 13 categories. If you feel so inclined, click here to register and vote. (ArbitrationNation is in the “Litigation” subcategory.)  Voting ends at close of business on Dec. 19, 2014.

“No longer to be confused as a fad or the realm of the tech-savvy, law blogs are rooted in the legal media landscape,” ABA Journal Editor and Publisher Allen Pusey said. “While traditional media sources often break news, law blogs dive deeper to offer insight into what the news means for clients, the legal profession and the public. They are sometimes-irreverent watchdogs of the bench and bar. And the ones on our list are well-written and, more often than not, entertaining.”

If you want to know how I ended up blogging and why I am glad I did, here is a piece I wrote for an ABA publication on that subject.

Finally, if the Blawg 100 brought you here for the first time, and you are wondering what Arbitration Nation is all about, here are some classic posts to check out: The Only Five Good Reasons to Put Arbitration in your Contract; Recipe for the Best Arbitration Agreement Ever; and Five Tips for State Courts Considering Whether to Vacate Arbitration Awards.

Happy Thanksgiving everyone!

After reading more than 40 decisions about arbitration from state high courts, issued just in the past eight months, I have two bits of wisdom to share.  First, that is not the best way to spend your summer vacation, even for a devoted arbitration nerd.  And second, there are arbitration issues percolating in state courts that counsel practicing in this area should be aware of.  In particular, state courts are: 1) working hard to avoid having the FAA preempt their developed defenses to arbitration clauses; and 2) confronting a lot of issues relating to whether there is an agreement to arbitrate at all (especially authority issues in nursing home settings).

PREEMPTION

A big category of cases relate to preemption.  Most of these cases involve state courts trying to explain how application of state law is not preempted by federal law under Concepcion.  (One case that falls under this heading, Feeney, has already been reversed.)

The Supreme Court of Washington, in particular, spilled a lot of ink explaining why Concepcion did not bar it from reaching various results.  For example, it held that an arbitration clause requiring that the demand be made within 30 days, the hearing take place in California, and the prevailing party recover attorneys fees was unconscionable.  Gandee v. LDL Freedom Enterprises, Inc., 293 P.3d 1197 (Wash. 2013).  It found Concepcion did not preclude that result.  Washington also concluded that Concepcion did not preclude it from enforcing a state statute prohibiting insurance contracts from calling for arbitration (it held FAA preemption was essentially preempted by the McCarran-Ferguson Act).  State v. James River Ins. Co., 292 P.3d 118 (Wash. 2013).  Finally, Washington refused to vacate an arbitration award in favor of Subway franchisees based on the franchisor’s argument that its arbitration agreement called for arbitration in Connecticut, but the Washington court compelled arbitration in Washington.  Saleemi v. Doctor’s Assocs., Inc., 292 P.3d 108 (Wash. 2013).  While rejecting the franchisor’s preemption arguments, the court said (pre Amex) “[w]hether Concepcion reaches beyond class arbitraiton procedures is subject to debate.”  Id.

Montana found that Concepcion did not prevent it from declaring the arbitration agreement in a payday loan unconscionable.  Kelker v. Geneva-Roth Ventures, Inc., 303 P.3d 777 (Mont. 2013).  The Supreme Court of Montana applied a Montana rule invalidating adhesion contracts if they are not within the weaker party’s “reasonable expectations” or are otherwise oppressive.  In applying the rule, it focused on the facts that the arbitration clause was not conspicuous, the plaintiff did not understand it, the plaintiff was less sophisticated than the lender, and the clause was vague.  Two justices dissented, noting that Montana has only applied the rule to evaluate arbitration clauses and therefore it is preempted under the Concepcion reasoning.  Those two justices got the last laugh — the Ninth Circuit in July found that Montana’s rule is preempted under Concepcion.

In another case involving a payday lender, the Supreme Court of Florida concluded the lower court’s ruling was preempted.  McKenzie Check Advance of Florida, LLC v. Betts, 112 So. 3d 1176  (Fla. 2013).  In that case, the trial court found the arbitration clause was void as against public policy because it would prevent consumers from vindicating their state statutory rights.  The high court, however, found that Concepcion prevented Florida from adopting its own state-law version of the Green Tree rule at issue in Amex (which only applies to federal statutes, and has now been decimated in any case). 

Finally, addressing both nursing home arbitration and preemption, New Mexico held that the party alleging an arbitration agreement is unconscionable bears the burden of proving that unconscionablility, even when the other party is a nursing home accused of negligent care.  Strausberg v. Laurel Healthcare Providers, LLC, __ P.3d __, 2013 WL 3226753 (N.M. 2013).  The court noted that to adopt the opposite rule would be preempted by the FAA.

AUTHORITY

Really, the heading for this could be “Nursing Home Arbitration Litigation,” because in 2013 there have already been five separate opinions from state high courts relating to when wrongful death or negligence claims against nursing homes have to be arbitrated.  In general, the issue is: did the relative who signed documents for the nursing home resident have the resident’s authority to sign on his or her behalf?  Without proof of authority, state courts have concluded that there is no valid arbitration agreement in the nursing home admission documents.  E.g., SSC Montgomery Cedar Crest Ooperating Co. v. Bolding, __ So. 3d__, 2013 WL 1173975 (Ala. 2013); Courtyard Gardens Health & Rehab., LLC v. Quarles, __ S.W.3d __, 2013 WL 2361051 (Ark. 2013); GGNSC Batesville, LLC v. Johnson,  109 So. 3d 562 (Miss. 2013); State v. King, 740 S.E.2d 66 (W. Va. 2013).  However, if the resident dies, his or her estate and heirs are bound by an arbitration agreement the resident actually signed.  Laizure v. Avante at Leesburg, Inc., 109 So. 3d 752 (Fla. 2013).

NON-SIGNATORIES

Another issue that comes up regularly in both state and federal courts is when arbitration can be enforced by or against non-signatories.  On that topic, the Supreme Court of New Jersey found that the lower courts had erred by allowing a non-signatory to compel arbitration.  Hirsch v. Amper Fin. Servs., LLC, __ A.3d __, 2013 WL 4005282 (N.J. 2013).  The court disliked the way the lower courts had applied the equitable estoppel doctrine.  “Equitable estoppel is more properly viewed as a shield to prevent injustice rather than a sword to compel arbitration.”  Id. at *1.   Even when the parties and claims are intertwined, New Jersey will not compel arbitration without proof of detrimental reliance.

DID THE PARTIES INTEND ARBITRATION TO BE PART OF THE AGREEMENT?

The Supreme Court of Iowa recently concluded that an agreement to arbitrate existed, even though all negotiations of the contract were oral and did not mention arbitration.  Bartlett Grain Co. v. Sheeder, 829 N.W.2d 18 (Iowa 2013).  Over the course of several phone calls, Sheeder agreed to sell corn to Bartlett at particular prices on certain dates.  Bartlett then sent Sheeder confirmation forms to sign, which provided for arbitration under the National Grain Feed Association arbitration rules.  The court relied largely on the UCC to reject Sheeder’s argument that he was not bound by the arbitration term in the confirmations.

THE ARBITRATION CLAUSE IS UNENFORCEABLE

An interesting New Mexico case found an arbitration agreement was illusory.  Much like a 2012 Fifth Circuit case applying Texas law, the New Mexico Supreme Court found the employer’s promise to arbitrate was illusory because the employer could amend or terminate its Dispute Resolution Program at any time, even after the employee’s claim accrued.  Flemma v. Halliburton Energy Servs., Inc., 303 P.3d 814 (N.M. 2013).

In addition, the Gandee decision from Washington and Kelker decision from Montana (discussed in the preemption section above) both found arbitration agreements unconscionable in consumer settings.

APPEALS

One area where state courts seem to be completely in line with the federal courts is in enforcing the limited bases for appealing arbitration awards.  So far this year, for example, Mississippi declared that “manifest disregard of the law” is not a valid basis for vacating arbitration awards under Mississippi’s arbitration act.  Robinson v. Henne, 115 So. 3d. 797 (Miss. 2013); but see C-Sculptures, LLC v. Brown, __ S.E.2d __, 2013 WL 1898379 (S.C. 2013) (applying the state uniform arbitration act, not the FAA, and vacating an award based on the arbitrator’s “manifest disregard” of state law).

New Mexico held that an employee who did not raise any objection about the scope of his arbitration proceedings with the arbitrator had waived any right to later argue that he reserved some claims for litigation.  Horne v. Los Alamos Nat’l Security, LLC, 296 P.3d 478 (N.M. 2013).  That decision is in accord with the recent decisions of the Minnesota Court of Appeals finding that parties must raise objections with arbitrators or else they are waived.

**Why this doozy of a blog post?  Because ArbitrationNation just celebrated its second birthday!  Nothing else quite says “thanks for sticking with me” like 1250 dense words… **

The big issue in arbitration law in 2012 was class arbitration.  Many state court opinions that had found class arbitration waivers unconscionable were preempted under federal law based on application of Concepcion.  And the federal circuit courts developed a split on how to interpret Stolt-Nielsen in cases where the parties’ arbitration agreement lacks language either allowing or disallowing class arbitrations.  It is no surprise, then, that the Supreme Court (including Santa Scalia, pictured here) accepted two cases relating to class arbitration for review in early 2013.

Fallout from Concepcion

At least five states had their pro-class-arbitration decisions reversed based on application of SCOTUS’ 2011 decision in Concepcion, which held that states could not impermissibly interfere with arbitration when they define what contract clauses are unconscionable. In the past few years, the state courts in California, Washington, Pennsylvania, Missouri and New Jersey had all declared an affinity for allowing class arbitrations, even if the parties’ agreement called exclusively for individual arbitration (California had also said claims for public injunctive relief were not appropriate for arbitration).  In 2012, all that precedent was voided, with Westlaw assigning big red flags to opinions around the country.    The Eleventh Circuit even stopped the Florida Supreme Court before it could impermissibly side with class arbitration.  The rule, articulated nicely by the Third Circuit this summer in Homa, is: “a state law that seeks to impose class arbitration despite a contractual agreement for individualized arbitration is inconsistent with, and therefore preempted by, the FAA.”

Stolt-Nielsen Split

Even if you disagree with Concepcion, you can agree that the decisions applying it are uniform.  That is not true with the decisions applying a 2010 SCOTUS arbitration opinion: Stolt-Nielsen.  In that case, SCOTUS held that arbitrators had exceeded their authority when they concluded that arbitration should proceed on a class-wide basis.  The facts were maddeningly unique, however — the parties had stipulated that their agreement was “silent” as to the availability of class actions and the panel of arbitrators had based their conclusion on public policy rationale, instead of standard gap-filling bases. Those unique facts have led courts to apply Stolt-Nielsen in at least two ways.

The popular way to interpret Stolt-Nielsen is more friendly to class arbitration.  It interprets the case’s message as a reminder to arbitrators everywhere that their job is to enforce the contract, not to be legislators.  Therefore arbitrators may authorize class arbitration as long as either the text of the arbitration agreement or other evidence shows the parties intended to allow class arbitration.   That is the approach the First, Second, and Third Circuits have taken (with opinions from the First and Third Circuits issued in 2012).  This approach is also consistent with the default rule that arbitrators interpret contracts calling for arbitration, and their interpretations are entitled to the highest level of deference.

The second way to interpret Stolt-Nielsen is as a federal presumption against class arbitration, much like the one against arbitrating arbitrability.  Courts will not assume that parties intend to arbitrate issues relating to the validity and scope of the arbitration provision itself without “clear and unmistakable” evidence of that intent (see Rent-a-Center).  Similarly, some courts (and litigants) read Stolt-Nielsen as essentially requiring clear and unmistakable evidence of the parties’ intent to allow class arbitration before an arbitrator may authorize that procedure.  In 2012 the Fifth Circuit, in particular, found that an arbitrator exceeded his authority by concluding that a common arbitration provision showed an intent to allow class arbitration.  (The provision said ““any dispute arising from [the agreement]…shall be resolved by binding arbitration.”)

SCOTUS will likely clarify its position on when class arbitrations are allowed in two cases it will hear in early 2013 (AmEx is set for argument on Feb. 27), so class arbitration is likely to be part of my year-end round up next year as well…

Even if we do not know for certain whether class arbitration will end up on Scalia’s naughty list or his nice list, we do know three courts that received big lumps of coal from SCOTUS in 2012: the West Virginia Supreme Court, Oklahoma Supreme Court, and Second Circuit.  The tone of its opinions vacating decisions of the high courts in West Virginia and Oklahoma was that of a parent washing out a child’s mouth with soap.  The Court seemed disgusted that those two lower courts would defy its authority by refusing to follow federal precedents on arbitration, to say nothing of the cheeky language those courts used to describe federal precedent.  And one has to believe that after remanding the AmEx case once already to the Second Circuit, someone at the Court is banging their head against the wall about hearing that case again.  (How could they not get the hint?!  We wanted them to reverse themselves!)

That’s the beauty of this area of the law, though.  It is changing rapidly, SCOTUS seems passionate about it, and the interplay between the FAA and state contract law is a constant tug of war about federalism and public policy.  I can’t wait to see what’s on Scalia’s naughty list in 2013!

Illustration by Jason Bryan (jason@fivepointsarthouse.com)

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 arbitrationnation.com (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!

As we pile up the cardboard boxes that held holiday gifts for the recycling truck and select our new year’s resolutions for 2012, here are a few reflections on the last twelve months in arbitration law.  I would summarize it as another year where the U.S. Supreme Court was playing whack-a-mole, trying to tamp down all the different ways that courts around the nation are creatively using state common law or statutes to nullify arbitration agreements that they find inequitable.    And the U.S. Supreme Court simply can never keep up (I should specify that the current majority of the Court that reflexively rules in favor of arbitration cannot keep up, because there have been vigorous dissents).

This year’s biggest arbitration “whack” from the Supreme Court was the Concepcion case in April.  That case held that the Federal Arbitration Act preempts a line of California case law that found most “collective-arbitration waivers” in consumer arbitration provisions were unconscionable.   After Concepcion, circuit courts found similar lines of case law in New Jersey and Florida were preempted by the FAA.  (Just last week the Third Circuit remanded another unconscionability case for consideration in light of Concepcion.  Antkowiak v. Taxmasters, 2011 WL 6425567 (3d Cir. Dec. 22, 2011).)  I expect that this trend will continue in 2012, with parties who seek to enforce arbitration agreements arguing that any positions their opponents take based on state contract law are preempted by the FAA.

Of course, federal and state courts spent much of 2012 still trying to figure out how to deal with 2010’s big whack from the Supreme Court: Rent-A-Center.  In that case, the Supreme Court held that because the employee did not challenge the validity of the particular delegation provision within his stand-alone arbitration agreement with his employer, the Court could not address his arguments about the validity of that arbitration agreement as a whole.  The four dissenters, however, worried that the majority’s reasoning could result in a situation where a party who seeks to avoid arbitration is required to prove that the specific sentence calling for arbitration is invalid.  (For example, imagine trying to argue that this phrase is invalid: “any and all disputes arising under this agreement shall be resolved by binding arbitration.”)  In the great majority of 2011 cases that addressed this issue, however, courts interpreted Rent-A-Center as applying only when the arbitration agreement contained a delegation provision (that authorized the arbitrator to decide questions of the agreement’s validity).   I predict that courts will continue to limit Rent-A-Center‘s impact in 2012, although it may lead to some circuit splits about the proper interpretation of the case as well as more litigation to define what is and is not a delegation provision.

Keeping with the theme here, if those were the whacks, what kinds of moles popped up in 2011?  The most interesting fell into these three categories:

  • Protecting Nursing Home Residents.   This year,  West Virginia declared that arbitration agreements executed as part of standard admission packets for nursing home residents are unenforceable, and Florida refused to enforce any arbitration agreement against nursing home residents that curtails their statutory rights .  (A petition for cert has been filed in the West Virginia case, but the Supreme Court has not taken any action on it.)  If the Supreme Court does not intervene, watch for this trend to continue in other state courts, with exceptions made for particularly vulnerable categories of litigants.
  • Finding Legislative Overrides.  Another trend this year was for courts to find that that Congress intended particular federal statutes (enacted or amended after the FAA) to trump the FAA and require disputes be venued in court.  That happened at least twice this year, with the Magnuson-Moss Warranty Act and the Carmack Amendment.  The Supreme Court will either breathe additional life into that type of argument (and encourage Members of Congress who dislike the Supreme Court’s interpretations of the FAA to add similar language in new legislation) with its forthcoming decision in CompuCredit v. Greenwood or suck the life right out of those legislative preclusion arguments by setting an impossibly high standard for how clearly the statute must indicate that it is intended to nullify arbitration agreements.
  • Scope is the New Validity.  There are two broad arguments to make about an arbitration agreement — whether it is a valid agreement and whether the dispute at issue is within the scope of that agreement.  Many of the decisions from the U.S. Supreme Court in recent years have related to the validity of arbitration agreements, and since those have made it increasingly difficult to have a court address the enforceability of arbitration, litigators have begun to focus their arguments on the scope of arbitration agreements.  And some of those arguments have been successful.  For example, the Second Circuit found that the term “customer” — a person or company who can be compelled to arbitrate under FINRA rules — is not broad enough to include an entity with whom the FINRA member lacked any written or oral contract, when there were not enough other facts suggesting a business relationship.  Wachovia Bank, Nat’l Assoc. v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164, 172-74 (2d Cir. 2011).   Furthermore, the Eleventh Circuit found that an employee’s civil sexual assault claims were outside the scope of the arbitration agreement in her employment contract.   Parties who want to evade arbitration are likely to continue making creative arguments about why their dispute is outside the scope of their arbitration agreement in the coming year.

The Arbitration Nation award for the best “mole” of 2011, though, goes to the California courts, who have found creative ways around the Concepcion decision, including finding that it does not apply to suits under California’s Private Attorney General Act, see Brown v. Ralph’s Grocery Co., 197 Cal. App. 4th 489, (Cal. Ct. App. 2011) , and have suggested that Rent-A-Center may not apply in state courts at all, see Chin v. Advanced Fresh Concepts Franchise Corp.,  194 Cal. App. 4th 704, 708-09 (Cal. Ct. App. 2011).

Honorable mention in this category goes to Herron v. Century BMW, 2011 WL 6347845 (S.C. Dec. 19, 2011).   In 2010, the Supreme Court of South Carolina held that as a matter of state public policy, any arbitration agreements prohibiting motor vehicle consumers from bringing class action suits was unenforceable (the decision found the arbitration agreement at issue, which was fairly consumer-friendly, was not unconscionable).  The U.S. Supreme Court then vacated the decision and instructed the South Carolina court to reconsider its decision in light of Concepcion.   Just this month, the Supreme Court of South Carolina refused to reconsider its decision, finding that the question of whether the FAA preempted state public policy was not raised in the trial court or appellate courts of South Carolina:

Because the matter of preemption was not raised to and ruled upon in any of the South Carolina proceedings, we find the issue of preemption is procedurally barred as [a] matter of state law and further consideration in light of AT&T Mobility, LLC v. Concepcion is unwarranted.  We reinstate our original opinion and decline to revisit it.

Id.  I am pretty confident the U.S. Supreme Court was aware that Concepcion had not been decided when Herron was briefed, and therefore no parties had raised the preemption arguments implicated by Concepcion.  I am also pretty confident that the U.S. Supreme Court, in vacating Herron, did not mean to say “reconsider this case in light of Concepcion, if and only if you like the legal result of that reconsideration and/or you can find no legal basis not to do so.”

Happy New Year!

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