Just as SCOTUS held its nose and confirmed an arbitration award it thought stunk in Sutter, the Supreme Court of Alabama has confirmed an arbitration award made after only the claimant presented evidence and grounded in a possible misunderstanding of Alabama law.  Tucker v. Ernst & Young, __ So.3d__, 2014 WL 2619860 (Ala. June 13, 2014).

In Tucker, shareholders of HealthSouth Corporation (in the name of the company) asserted claims against HealthSouth’s accountants, Ernst & Young, alleging that E&Y should have discovered accounting fraud at HealthSouth.  The shareholders’ case-in-chief took almost two years.  They presented testimony from 14 live witnesses and 61 video witnesses over the course of 81 days, plus thousands of pages of exhibits.  At least five months before the shareholders rested their case, E&Y sought and received permission to file a dispositive motion based on E&Y’s affirmative defenses at the end of the shareholders’ evidence.  The panel allowed the shareholders to add any relevant evidence and witnesses they wanted to their case-in-chief to address the affirmative defenses.

After the shareholders rested, and the panel heard arguments on the motion, the panel granted E&Y’s motion, dismissing all claims.  The gist of the motion was this: the fraud at HealthSouth was widespread and knowledge of it must be imputed to the company, therefore the company should not be allowed to blame others for its own misconduct.  The panel cited Alabama common law (the Hinkle rule), as well as the doctrines of in pari delicto and contributory negligence to support the dismissal.

The shareholders moved to vacate the award under Section 10(a)(3) and 10(a)(4) of the Federal Arbitration Act.  They argued the arbitrators committed misconduct in granting a motion for judgment as a matter of law and that the arbitrators exceeded their power by ignoring Alabama precedent.  The Alabama courts disagreed and confirmed the award.

The Tucker court found no misconduct because the panel had authority to allow a dispositive motion and it allowed the shareholders every opportunity to present evidence relating to the affirmative defenses.  The court also found the panel had not exceeded its authority in applying Alabama law.  Citing extensively from Sutter, the court characterized the shareholders’ arguments as indistinguishable from “manifest disregard of the law,” a basis which Alabama has concluded is unavailable under the FAA.  In any case, the court found the panel “arguably and in apparent good faith” applied Alabama law to resolve the dispute and therefore its award must stand.  Finally, with respect to the shareholders’ argument that affirmative defenses were not within the scope of the parties’ arbitration agreement, the court found the shareholders had waived that basis for vacatur by not raising it to the panel (and by asserting the same affirmative defenses against E&Y’s counterclaims).

Although no justices dissented, one wrote a separate concurrence.  After setting forth why the arbitrators mis-interpreted Alabama law about imputing conduct, the concurrence states “further reflection has caused me to question whether arbitrators who willfully ignore applicable state law are not, in fact, ‘exceeding their power’ or acting ‘beyond their authority’ within the contemplation of” Section 10(a)(4).  He concurred, though, because that view is clearly precluded by SCOTUS’s interpretation of the FAA.

Two courts recently refused to compel arbitration because the defendants could not prove that the parties had entered into an arbitration agreement at all.  Therefore, the musical accompaniment to this post is “Do Re Mi” from The Sound of Music.  “Let’s start at the very beginning, a very good place to start.  When you read, you begin with ABC,” [and I add]  “when you compel you begin with we agree.”

In Bellman v. i3Carbon, LLC, 2014 WL 2210739 (10th Cir. May 29, 2014), two plaintiffs sued for securities fraud, alleging that defendants had made misstatements when convincing plaintiffs to invest $600,000 in an energy company.  Defendants then moved to compel arbitration based an arbitration agreement in the (unsigned) Operating Agreement.   However, Defendants were unable to prove that there was any meeting of the minds with respect to an arbitration agreement, so the district court denied the motion and the appellate court affirmed the denial.  As the Tenth Circuit explained:

Defendants’ argument essentially boils down to their assertion that Plaintiffs’ mere investment in i3Carbon following their receipt of a binder containing an unsigned Operating Agreement somehow establishes that Plaintiffs agreed to, and accepted, the terms of the Operating Agreement, including its arbitration provision.  However… this argument is unpersuasive.

Because the plaintiffs had never signed the Operating Agreement at issue, nor was there any evidence that the parties understood the Operating Agreement to be necessary to the investment, the court found defendants had not created any genuine issue of material fact “as to whether or not there was a meeting of the minds” that would require a trial on the issue.  It affirmed the trial court’s denial of the motion to compel arbitration.  [The Tenth Circuit reiterated its recent guidelines for when formation issues can be decided on motion versus by a trial: the court may decide the existence of an arbitration agreement if “there are no genuine issues of material fact regarding the parties’ agreement.”  If such a genuine dispute exists, the court shall move to a summary trial.”]

The Tenth Circuit also rejected the defendants’ argument that plaintiffs were equitably estopped from denying their acceptance of the Operating Agreement.  Importantly, plaintiffs were not claiming a breach of the Operating Agreement, nor trying to enforce any rights or remedies contained in the Operating Agreement.

Bank of the Ozarks, Inc. v. Walker, __S.W.3d__, 2014 WL 1946742 (Ark. May 15, 2014), reached a similar holding.  In that case, a putative class of customers sued a bank over overdraft fees, and the bank moved to compel arbitration.  The trial court denied the motion, finding the arbitration clause unconscionable, and the court of appeals reversed that decision.  The Supreme Court of Arkansas found both courts had jumped the gun.  In response, the plaintiffs argued that not all of the bank’s account agreements had arbitration clauses and the bank had waived any right it had to arbitrate by moving to dismiss.  However, the lower courts did not make any findings about whether arbitration agreements existed for all customers.  Therefore, the court “reverse[d] and remand[ed] to the [trial court] to determine, in the first instance, whether there is a valid agreement to arbitrate between the parties.”

Today we take a close look at that rare creature: an opinion finding sufficient basis under the FAA to vacate an arbitration award. In Tenaska Energy Inc. v. Ponderosa Pine Energy, LLC, __S.W.3d __, 2014 WL 2139215 (Tex. May 23, 2014), the Supreme Court of Texas found an arbitrator had shown “evident partiality” due to his misleading “partial” disclosures of his contacts with the law firm representing the claimant.

The underlying dispute was over whether Tenaska had breached representations and warranties to Ponderosa in a power plant purchase agreement. The purchase agreement required that any disputes be arbitrated before a panel of three arbitrators, with each party choosing one neutral arbitrator and the two party-appointed arbitrators selecting the third. Ponderosa, represented by Nixon Peabody, demanded arbitration and chose Samuel Stern as its arbitrator. Stern, along with the third arbitrator, awarded Ponderosa $125 million.

Tenaska moved to vacate the award, arguing that Stern had shown evident partiality. After “extensive discovery” on the issue of Stern’s contacts with Nixon Peabody, the trial court agreed and vacated the award. The intermediate appellate court reversed the trial court, finding that Tenaska had waived its right to argue evident partiality by not objecting to Stern’s appointment after receiving his limited disclosures. The Texas Supreme Court reinstated the district court’s order vacating the arbitration award.

Upon his appointment, Stern  disclosed that Nixon Peabody had designated him as an arbitrator in three other disputes, that he was a director of a litigation services company, LexSite, based in India, and that he had met with Nixon Peabody lawyers about outsourcing some of their discovery tasks to LexSite. However, he said the firm had done no business with LexSite and “it is not clear that Nixon-Peabody would ever have any business to give LexSite.”

The court found it material that Stern did not disclose the following facts: Stern owned shares of LexSite, was being paid $6,000 per month by LexSite to actively solicit business from U.S. law firms, had communicated multiple times with the individual lawyers representing Ponderosa on this very matter about Nixon Peabody using LexSite, and allowed Ponderosa’s counsel to edit his arbitration disclosures. The court held that “[t]aken together, this undisclosed information might cause a reasonable person to view Stern as being partial toward [Nixon Peabody’s] client, Ponderosa, to gain their favor in securing business for LexSite from Nixon Peabody.” Because the court found that the Tenaska did not have to prove “actual bias,” the fact that a reasonable, objective person could conclude Stern was partial was sufficient to vacate the award. [In a nod to Stern, the court “reiterate[d] that [its] holding should not be read as indicating that Stern was actually biased.”]

Furthermore, the court found that Tenaska did not waive its right to vacate the award by accepting Stern’s appointment after he disclosed his relationship to LexSite and his meeting with Nixon Peabody. The court concluded that because material information was withheld from Tenaska, it did not waive its partiality challenge. “To hold otherwise ‘would put a premium on concealment’ in a context where the Supreme Court has long required full disclosure.”

This case has important practical implications for arbitrators and counsel alike: if you choose an arbitrator who you believe will be a strong voice in your client’s corner, do not put that appointment at risk by making partial disclosures.

Legally, I find it interesting that even though the Texas Supreme Court acknowledged that the FAA governed, it rested its analysis largely on its own precedent decided under its state arbitration act. The court did not discuss, for example, the Fifth Circuit decision from just two years ago, finding a party had waived its claim of partiality under the FAA when it received partial disclosures from an arbitrator and took no further action. The Fifth Circuit found the disclosures at issue in that case “ were sufficient to put [the party] on notice of a potential conflict” and the party had a duty to reasonably investigate. That holding appears at odds with the Texas Supreme Court’s Tenaska decision, even though both courts are applying the FAA.

This week the Eighth Circuit confronted an interesting question: if a union member believed he failed a drug test, and therefore agreed his employer could terminate him if he tested positive again, can the arbitrator invalidate that agreement if the union member never actually failed the drug test? The appellate court answered yes, reversing the district court, in Assoc. Elec. Coop., Inc. v. IBEW, Local No. 53, 2014 WL 1910604 (8th Cir. May 14, 2014).

The employee’s story proves that sometimes being proactive is not wise. The employer conducted random drug testing. Its employee of 28 years informed management that he would test positive because he had recently smoked marijuana. In response, the employer and employee signed a last chance agreement (LCA), providing that if the employee was found under the influence or in possession of drugs again, he would be terminated. The employee was suspended without pay and had to immediately begin chemical dependency treatment. A week later, the employee found out that the random drug test did not reveal the presence of marijuana. Despite that, both parties treated the LCA as remaining in force. When a follow-up urine sample revealed the presence of a prescription drug that the employee had not been prescribed, the employer terminated him pursuant to the LCA.

The union submitted the dispute to arbitration under the parties’ Collective Bargaining Agreement (CBA). The arbitrator found the LCA was unconscionable because the initial drug test was negative. Therefore the termination lacked “just cause” under the CBA. The arbitrator awarded the employee back pay from the date of the random drug test.

The district court vacated the arbitrator’s award. It concluded that the arbitrator lacked authority to ignore the LCA.

The Eighth Circuit reversed. It held that LCAs are binding in arbitration only when they: 1) involve the union; and 2) resolve pending disciplinary proceedings governed by the CBA grievance process. In this case, the LCA did not involve the union and did not resolve any pending disciplinary proceeding. Therefore, the LCA did not supersede the CBA and its requirement of just cause for termination. The court noted that “it is customary and appropriate for arbitrators to pass upon claims for reformation for mutual mistake, often applying principles more liberal than judicial equity…” The Eighth Circuit found that the arbitrator was only authorized to award back pay from the date of termination, not the date of suspension, however, because only the termination was timely raised in arbitration. (That issue drew a dissenting opinion.)

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…)

The Fourth Circuit found this week that the Dodd-Frank Act did not override all arbitration agreements betwen publicly-traded employers and their employees.  Santoro v. Accenture Federal Servs., LLC, 2014 WL 1759072 (4th Cir. May 5, 2014).  Instead, “where the plaintiff is not pursuing Dodd-Frank whistleblower claims, neither [section of the Dodd-Frank Act] overrides the FAA’s mandate that arbitration agreements are enforceable.”

This case involved the termination of a 66-year-old Accenture employee.  The employee sued for age discrimination and Accenture moved to compel arbitration.  The employee opposed the motion, arguing that the arbitration provision in his employment agreement was void under the Dodd-Frank Act.  The district court granted the motion to compel arbitration and the Fourth Circuit affirmed.

At issue is the interpretation of two sections of the Dodd-Frank Act (7 U.S.C. § 26(n)(2), 18 U.S.C. 1514A(e)(2)).  For example, the Act provides “no predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”  7 U.S.C. § 26(n)(2).  The Fourth Circuit noted this clear congressional command is sufficient to override the FAA’s mandate to enforce arbitration agreements.  However, the Fourth Circuit found it did not apply to this employee’s dispute.  It analyzed the placement of the language within the larger statute and concluded that Congress intended only to prohibit predispute agreements to arbitrate whistleblower claims.  Because this employee was not bringing any whistleblower claims contemplated by the Dodd-Frank Act, his arbitration agreement was valid and enforceable.

[Note that all whistleblower claims are not necessarily exempt from arbitration, as one of my colleagues wrote recently — there are key differences between the Dodd-Frank and Sarbanes-Oxley statutes.]

 

In a decision this week, the Third Circuit found two related parties had waived their right to arbitrate claims.  One was no suprise — it had vigorously litigated the dispute for eleven months.  But the second may have been simply guilty by association, as it had only litigated for two months.  Supermedia v. Affordable Electric, Inc,, 2014 WL 1690749 (3d Cir. April 30, 2014).

In Supermedia, the plaintiff sued AEI for breach of contract.  The contract at issue had been signed by Mr. Morley, AEI’s alleged president.  AEI moved to dismiss the complaint, and when that failed, it answered the compaint and engaged in months of discovery, incuding discovery motions to the court.  During those eleven months, AEI never mentioned its alleged right to arbitrate the dispute.  Instead, it primarily disputed Mr. Morley’s right to bind it to a contract.  Therefore, about nine months after filing its first suit, the plaintiff also sued Mr. Morley directly.  The two cases were then consolidated.

Mr. Morley and AEI made a joint motion to compel arbitration.  The district court denied the motion, finding both defendants had waived any right to arbitrate.  On appeal, the Third Circuit affirmed.

In analyzing AEI’s waiver, the Third Circuit focused on the eleven months during which AEI never mentioned its alleged right to arbitrate and vigorously pursued the litigation.  Furthermore, AEI had taken the position that the arbitration agreement was unenforceable in previous litigation between the parties.  With respect to Mr. Morley, the court acknowledged it was “a closer call.”  Although Mr. Morley moved to compel arbitration just two months after the lawsuit began, he did three things that the court found sufficient to constitute waiver.  First, he asserted claims against third parties.  Second, in answering claims, he asserted that there was no binding agreement among the parties.  And third, he participated in the pre-trial conference and acquiesced in the consolidation of the cases.

I field a lot of good procedural questions about how arbitration pleadings should be styled. Some of them are answered within the text of the FAA, but many of them leave clerks of court and practitioners scratching their heads and getting creative. I will address one of those common questions today: is a motion to compel arbitration a sufficient “answer” under Rule 12? Short answer: yes.

The Tenth Circuit addressed this issue and gave a clear answer, with authority that others can use:

“[a] defendant in a pending lawsuit may file a petition or motion to compel arbitration in lieu of an answer to the complaint,” Jay A. Grenig, Alternative Dispute Resolution § 23:3 at 574 (3d ed.2005)—as procedural summaries in arbitration cases uncontroversially reflect, see, e.g., Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 83, 121 S.Ct. 513, 148 L.Ed.2d 373 (2000); Davis v. S. Energy Homes, Inc., 305 F.3d 1268, 1270 (11th Cir.2002). And, as [defendant] points out, requiring a party to file an answer denying material allegations in the complaint and asserting potential affirmative defenses—in short, formally and substantively engaging in the merits of the litigation—in order to enforce its right not to litigate is a non-sequitur.

 Lamkin v. Morinda Properties Weight Parcel, LLC, 440 Fed.Appx. 604, 607-08 (10th Cir. 2011).

Other courts have implicitly noted that a motion to compel arbitration, pursuant to Sections 3 or 4 of the FAA, may be filed instead of an answer that responds to the substance of a plaintiff’s complaint. E.g., Tuttle v. Sallie Mae, Inc., 2014 WL 545379, at *2 (N.D. Ind. Feb. 11, 2014); MQDC, Inc. v. Steadfast Ins. Co., 2013 WL 6388624, at *6 (E.D.N.Y. Dec. 6, 2013); Whaley v. T-Mobile, Inc., 2013 WL 5155342, at *2 (E.D. Ky. Sept. 12, 2013).

Therefore, if you are (or represent) a defendant who is served with a federal lawsuit, and the dispute is covered by an arbitration clause, you have two choices:

1) file a substantive answer within 21 days, which raises arbitration as an affirmative defense, with a motion to compel arbitration following soon after; or

2) file a motion to compel arbitration in lieu of any substantive answer (obviously, still within the 21 days).

Three decisions came out recently that offer guidance on appealing from arbitration awards.  Here are three pearls of arbitration appeal wisdom, one from each case:

1.  If you want to appeal from an arbitration, you must have a record.  Sounds basic, right?  But many parties, either due to confidence they will win in arbitration or due to penny-pinching, choose not to hire a court reporter to provide a transcript of the arbitration.  Similarly (though less frequently in my experience), parties sometimes opt for an arbitration award that does not include the arbitrator’s reasoning.  (I always advise clients to choose the highest level of award possible. If there were a Super Monster Supreme Award With Chocolate Sprinkles, I would recommend that.)  Those decisions can be the death knell of an arbitration appeal.  As the Sixth Circuit found recently, a party who fails to preserve a “complete record of the arbitration proceedings [] cannot meet its high burden of showing that the arbitration award must be vacated.”  Physicians Ins. Capital v. Praesidium Alliance Group, 2014 WL 1388835 (6th Cir. April 10, 2014).

2.  You cannot appeal in the middle of arbitration.  There are only two times to come to court about your arbitration: before it happens, when you want to figure out whether arbitration is required under your contract; and after it is complete, when you want to either vacate or confirm the final award.  The corollary is: you cannot appeal in between.  That rule was reiterated in Savers Property & Cas. Ins. Co. v. Nat’l Union Fire Ins. Co. of Pittsburg, 2014 WL 1378134 (6th Cir. April 9, 2014).  (Other circuits take note — Savers was argued on March 21 and the decision came out less than three weeks later.  Such efficiency!)  In Savers, the panel of arbitrators had issued an interim award on liability and were accepting submissions on damages when the liable party convinced the federal court to enjoin any further orders from the panel (based largely on allegations of evident partiality).  The Sixth Circuit reversed the district court’s injunction saying that the liable party “is entitled to its day in court to challenge the fairness of the proceedings and the partiality of the arbitrators — just not until the panel has concluded its work and issued a final award.”

3.  If your arbitration itself includes an appellate review, the court may review both levels of arbitral awards.  As you likely are aware, the AAA started offering optional appellate rules a few months ago. (CPR and JAMS already had optional appellate rules.)  If parties incorporate those appellate rules into their arbitration agreement, then they are entitled to have a first arbitrator/panel decide the issues in the case, and then a second panel of arbitrators decide if the first arbitrator(s) made any material errors of law or “clearly erroneous” factual determinations.  (I didn’t blog about it because *everyone* was blogging about it.  The same reason I am not blogging about the new General Mills policy today…)  One of the practical questions I had about that process was how the courts would review those two levels of arbitral awards on motions to confirm or vacate.  Would a court review only the “final” award of the appellate panel?  Or would it conduct an independent review of the initial arbitrators’ decision?  The Alaska Supreme Court had occasion to address that situation and decided to give both levels of arbitration award the same level of scrutiny.  In Dunham v. Lithia Motors Supports Servs., Inc., 2014 WL 1421780 (Alaska April 9, 2014), the employment agreement allowed a second arbitrator to review the award made by the first arbitrator.  Both arbitrators concluded the employees’ claims lacked merit.  In considering the employees’ allegations that the award should be vacated, the court applied the Section 10 standards to both levels of arbitration: “neither arbitrator manifestly disregarded the law nor issued a completely irrational award;”  “the arbitrators’ awards do not violate public policy.”  While that is a good belt-and-suspenders approach, it strikes me as inefficient and unworkable in cases where the appellate arbitrators actually reversed an aspect of the trial arbitrator’s award.

 

In a beautifully written opinion, the Tenth Circuit examined an under-used aspect of the Federal Arbitration Act this week: having a jury or court trial. Usually disputes about arbitrability can be determined on a motion akin to summary judgment, but the FAA states in Section Four: “If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.”  The Tenth Circuit held that’s what needs to happen in Howard v. Ferrellgas Partners, L.P., __ F.3d__2014 WL 1363963 (10th Cir. April 8, 2014).

Ferrellgas involves a class of propane customers who sued Ferrellgas for alleged overcharges.  Ferrellgas moved to compel individual arbitration.  The named plaintiff responded that he had no arbitration agreement with Ferrellgas because the parties reached a complete oral contract in their initial phone call that covered all subsequent orders, and negated the subsequent form contract sent by the company.  In response to open questions of fact raised on the motion, the district court allowed discovery and another set of motions.  When that second round of motions did not resolve the factual dispute, the court invited more discovery and a third round of motions.  Finally, the district court found that material disputes of fact remained and denied the motion to compel arbitration.

The Tenth Circuit reversed.  It found the district court erred in two respects.  First, the district court erred by allowing “death by discovery” on the issue of whether an arbitration agreement existed instead of calling for the “summary trial” envisioned in the FAA.  The court said that when “a quick look at the case suggests material disputes of fact do exist on the question whether the parties agreed to arbitrate, round after round of discovery and motions practice isn’t the answer.  Parties should not have to endure years of waiting… merely to learn where their dispute will be heard.”  (Another good line: “We appreciate both sides’ evident frustration at how long this case has lingered at the transom without having entered either the door into arbitration or litigation.”)

The Tenth Circuit also found the district court erred in denying the motion to compel arbitration after concluding that material disputes of fact remained.  It explained: “That’s like mixing apples and oranges, like saying someone who fails to win a summary judgment motion must necessarily lose after trial.”  Therefore, the court remanded the case for the summary trial called for in the FAA.

Of course, the Tenth Circuit had a relatively easy target in this particular instance.  Not many district court judges would allow three rounds of motions and multiple rounds of discovery on the issue of arbitrability.  But, it may be less clear in the future where the line is between allowing reasonable discovery on arbitrability and “death by discovery.”  Should judges allow just one round of discovery and say any factual disputes after that point will be decided by trial?  The Tenth Circuit does not try to set forth any rules about when exactly to push parties over the transom, if you will.

 

** P.s.:  SCOTUS denied cert in Walia v. Dewan on Monday.  The circuit split over manifest disregard will continue.