This week, we’ll get to the nitty gritty of a topic that can be extremely relevant to litigators: the law applicable to determine the preclusive effect of an arbitral award.

If something’s been arbitrated, it generally cannot be relitigated. In other words, arbitral awards usually have preclusive effect.  There’s not much controversy about this much.

But what law determines the preclusive effect of the arbitral award?  At least with respect to awards that have been confirmed by a federal court sitting in diversity, most of the doctrinal ingredients needed to supply an answer have been in place for a while.  The Ninth Circuit, though, just put those ingredients together in NTCH-WA, Inc. v. ZTE Corp., 2019 WL 1810776 (April 25, 2019).

First, a court order confirming an award has “the same force and effect” as a final judgment on the merits. FAA § 13.  This includes, of course, the preclusive effect of the award. See, e.g., Restatement (Second) of Judgments § 84(1).  So far, simple enough.

Second, “[F]ederal common law governs the claim-preclusive effect of” a judgment rendered “by a court sitting in diversity.”  Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508, (2001).  Cool, cool, cool.

Third, federal common law, in these circumstances, looks to the law of the state where the federal district court rendering the judgment sits.  A moment’s pause to think through this confirms that it squares with the federalism concerns of Erie. In fact, this is just a variation on the Erie-inspired choice-of-law principle of Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)).  Long and short of it, so long as the state preclusion rules are not incompatible with federal interests, they apply.

Those ingredients all laid out, the Ninth Circuit mixes them altogether:

Because a federal-court order confirming an arbitration award has “the same force and effect” as a final judgment on the merits, 9 U.S.C. § 13, and because we determine the preclusive effect of a prior federal diversity judgment by reference to the law of the state where the rendering court sat, we hold that when a federal court sitting in diversity confirms an arbitration award, the preclusion law of the state where that court sits determines the preclusive effect of the arbitral award.

My students are sometimes surprised to learn that statutory rights are, with a handful of very minor exceptions, fully arbitrable.  That surprise often turns to indignation when they read Justice Scalia’s majority opinion in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and realize that this is true even absent class-wide proceedings.  Without aggregative process, of course, the enforcement many statutory rights becomes prohibitively expensive.  But Italian Colors makes it clear that individuals still have the right to pursue their statutory claims, even if doing so just doesn’t make a lick of economic sense.

In short, Italian Colors deflated the “effective vindication” doctrine.  Civil rights are arbitrable even when people can’t “effectively” vindicate those rights.

But something important might have survived Italian Colors.  Or, that’s, at least, what the Second Circuit says in a hot-off-the-presses decision, Gingras v. Think Finance, Inc., 2019 WL 1780951 (April 24, 2019).

In Gingras, borrowers brought a putative class action against individuals and companies involved in an online lending operation owned by the Chippewa Cree Tribe in Montana.  The borrowers alleged that the “payday” loans offered by the lender violated Vermont and federal consumer protection laws.  Some defendants moved to dismiss on the basis of tribal sovereign immunity, and all defendants moved to compel arbitration under terms of loan agreements.

The loan agreements provided that Chippewa Cree tribal law would govern. Additionally, the arbitral clauses specified that the arbitrator “shall apply Tribal Law” and any arbitral award must “be supported by substantial evidence and must be consistent with [the loan agreement] and Tribal Law.” Chippewa Cree tribal courts were then empowered to set aside the arbitrator’s award if it did not comply with tribal law.  Finally, and perhaps most significantly, the agreements provided that they were not “subject to the laws of any state of the United States” and “no other state or federal law or regulation shall apply.”

The tribal sovereign immunity arguments are quite interesting, but obviously beyond the scope of our interest here.  Suffice it to say, the Second Circuit held that sovereign immunity was not a bar.  The then court when on to hold that the arbitration clauses were not enforceable.

The first, and a sufficient, reason why the arbitration clauses couldn’t be enforced was because they were “designed to avoid federal and state consumer protection laws.”  The court went on to clarify that

[b]y applying tribal law only, arbitration . . . appears wholly to foreclose [the plaintiffs] from vindicating rights granted by federal and state law. . . . [T]he just and efficient system of arbitration intended by Congress when it passed the FAA may not play host to this sort of farce.

Although the Second Circuit doesn’t connect all of the doctrinal dots, its animating idea derives from dicta in Italian Colors.  There, SCOTUS suggested that an arbitration provision could amount to a substantive waiver of federally protected civil rights if the agreement were to forbid the very assertion of those rights.  See Italian Colors, 133 S. Ct. at 2310.  Remember, the actual arbitral clause at issue in Italian Colors didn’t forbid assertion of anything.  Instead, by waving class-wide proceedings, it just made it stupidly expensive to assert the antitrust rights at issue.

By latching onto this dicta, the Second Circuit joins at least the Fourth and Seventh Circuits.  See Hayes v. Delbert Servs. Corp., 811 F.3d 666 (4th Cir. 2016); Jackson v. Payday Fin., LLC, 764 F.3d 765 (7th Cir. 2014).  (Liz wrote about Hayes, but she focused on the procedural aspects of the case.)

The Second Circuit also joins at least the spirit, if not the particulars, of California’s jurisprudence on this issue, which looks at five factors to determine if the arbitration of statutory rights would amount to a substantive waiver of them.  See, e.g., Ramos v. Superior Court, 28 Cal. App. 5th 1042, 1047 (Ct. App. 2018) (confirming the continuing validity of the California Supreme Court’s watershed decision in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000)).  In California, those five factors evaluate process issues to make sure, fundamentally, that arbitration gives rights holders a fair shake.  I’m not persuaded that all of these factors can be squared with Italian Colors, but I think that the bigger thematic point is that California courts aren’t willing to completely abandon the effective vindication concept.

Anyway, the Second Circuit’s decision in Gingras also noteworthy because it raises at least one objection to the arbitral process:  the arbitration clause was substantively unconscionable because tribal courts were given “unfettered discretion to overturn an arbitrator’s award” and this “effectively insulates the tribe from any adverse award and leaves [the plaintiffs] without a fair chance of prevailing in arbitration.”

In short, Gingras serves as a reminder that employers and commercial parties wanting to include broad arbitration provisions covering statutory rights can’t be cavalier.  The effective vindication doctrine may not be what it once was, but it seems like courts aren’t yet ready to give up on the notion that statutory rights holders must be assured some sort of meaningful opportunity to present their claims.

It’s not at all evident to me why SCOTUS felt the need to grant review of Lamps Plus, Inc. v. Varela. But it did. And the majority decision, authored by Chief Justice Roberts, did precisely what I think that everyone who looked at the case expected: it held that courts cannot find the necessary consent to class arbitration in an ambiguous arbitration clause. (See Liz’s prediction, for instance (“In my view, the issue of class arbitration has largely been hammered out.”)

Still, the case has reverberations that may be far more significant than its simple holding.

As a reminder, the case involved an employee who had filed a class action against his employer, Lamps Plus. Lamps responded by seeking to compel arbitration on an individual rather than a classwide basis. The district court compelled arbitration but on a class basis and dismissed the employee’s case. Lamps appealed and the Ninth Circuit upheld the district court. SCOTUS reversed.

Critical to SCOTUS’s decision, the Ninth Circuit’s reasoning hinged on the fact that the employment arbitration agreement was ambiguous about the availability of class arbitration. The Ninth Circuit thus distinguished Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), arguing that in Stolt-Nielsen the parties had stipulated to the fact that the agreement was silent about class arbitration. In contrast, in Lamps Plus, the parties had no such stipulation.

Because the agreement was ambiguous, the Ninth Circuit turned to California’s contra proferentem rule – a general rule of contract law that serves as a tie-breaker when a contract of adhesion is ambiguous, reading the adhesive contract against the drafter.

A majority of SCOTUS disagreed. The reasons why matter. Quite a lot, I think.

As the majority frames it, the real issue is “the interaction between a state contract principle for addressing ambiguity and a ‘rule[] of fundamental importance’ under the FAA, namely, that arbitration ‘is a matter of consent, not coercion.”

The state contract principle at issue, of course, was the contra proferentem rule, which again everyone admits is a generally applicable rule. In other words, it applies not just to adhesive arbitration contracts but to all adhesive contracts. Thus, it would have seemed that this generally applicable contract rule could apply to the arbitration agreement under FAA § 2’s “savings clause.” But here’s where the majority threw a curve ball.

Justice Roberts reiterated that class arbitration constitutes a radically different and more risky form of adjudication than traditional bilateral arbitration. Citing to AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis, Justice Roberts highlighted the fact that, given the differences and extra risks of class arbitration – including the due process risks to absent parties – it’s incumbent on courts to make darned sure that parties are actually consenting to class proceedings.

But the contra proferentem rule does not make any pretense of uncovering the actual intentions of the parties. Instead, it’s just a tie-breaker: “Unlike contract rules that help to interpret the meaning of a term, and thereby uncover the intent of the parties, contra proferentem is by definition triggered only after a court determines that it cannot discern the intent of the parties.” Accordingly, “contra proferentem seeks ends other than the intent of the parties.” Basically, the doctrine reads against the drafter for public policy reasons, implicitly concluding that weaker parties should be protected in close calls.

That understanding of the doctrine in place, the majority ties a bow on its reasoning: “[c]lass arbitration, to the extent it is manufactured by [state law] rather than consen[t], is inconsistent with the FAA.”

Of course, this is not the first time that SCOTUS has rejected the application of what appears to be a generally-applicable contract rule to arbitration agreements. (Most recently, the Court did so in Kindred Nursing Centers L. P. v. Clark (2017).) But the Court’s transparent elevation of the “object preemption” rule of the FAA merits attention. (By object preemption, I mean the Court’s view that state law not only cannot expressly interfere with the parties’ recourse to arbitration, but it also cannot stand as an obstacle to the fundamental attributes of arbitration.)

Finally, it’s worth mentioning Justice Ginsberg’s trenchant dissent, especially in light of my recent post on mutual assent in arbitration. Basically, Justice Ginsberg recognizes the “irony of invoking ‘the first principle’ that ‘arbitration is strictly a matter of consent’ . . . to justify imposing individual arbitration on employees who surely would not choose to proceed solo.” In short, she puts her finger on a critical and increasingly significant point: boilerplate presents a “Hobson’s choice”: accept the terms and conditions offered, whether you know about them or not, or give up on the transaction. That framework may make practical sense, but it hardly amounts to “assent” in any traditional sense.

One of arbitration’s supposed virtues is that it’s fast and simple – streamlined, as many courts are fond of saying.  As a consequence, arbitral awards generally do not need to be supported by any reasoning or rationale.  Unless the parties have requested a specific form of award, an arbitrator may issue an award that does nothing more than announce a result – declare the winner and the loser. See Cat Chater LLC v. Schurtenberger,646 F.3d 836, 844 (11thCir. 2011).

Sometimes that’s just not good enough for parties, however.  So, it’s becoming more and more common for them to contract around this default, requiring arbitrators to issue more detailed awards. (A number of international institutional rules of arbitration include requirements that arbitrators issue “reasoned” awards.  Thus, parties who incorporate these rules by reference are implicitly opting for this reasoned award requirement.  See, e.g., LCIA Arbitration Rules Art. 26.2 (“The Arbitral Tribunal shall make any award in writing and, unless all parties agree in writing otherwise, shall state the reasons upon which such award is based.”); ICC Arbitration Rules Art. 32(2) (“The award shall state the reasons upon which it is based.”); SIAC Arbitration Rule 32.4 (“The Award shall be in writing and shall state the reasons upon which it is based unless the parties have agreed that no reasons are to be given.”)

In a very rough sense, awards can fall into three broad categories: simple awards that are merely announcements of the conclusion of the arbitrators without any support; reasoned awards, which are something more than “a line or two of unexplained conclusions, but something less than full findings of fact and conclusions of law on each issue raised before the panel,”Leeward Const. Co., Ltd. v. Am. Univ. of Antigua-College of Medicine, 826 F.3d 634, 640 (2d Cir. 2016); and awards that set out full findings of fact and conclusions of law.  (See also Liz’s brief discussion of Leeward here.)

The middle category can create problems, though.  Just how much reasoning is enough reasoning?  And what happens if an award isn’t sufficiently reasoned?

A recent decision, Smarter Tools, Inc. v. Chongquing Senci Import & Export Trade Co., Ltd., from the Southern District of New York, sheds some light on these questions.  The basic dispute involved a dispute over the sale of generators.  The seller claimed over $3 million was owed to it for deliveries, and the buyer counterclaimed for liability for fines it had to pay because the generators were not compliant with certain regulatory requirements and the seller failed to deliver a number of generators it promised to deliver.  Additionally, the buyer sought damages for lost profits and damage to its goodwill.

It’s worth noting that this was an international sales transaction, and thus the arbitration was governed by the AAA’s The International Centre for Dispute Resolution (ICDR) rules.  More importantly, the parties specifically required, in their arbitral agreement, that the arbitrator issue a “reasoned” award.

The final award was six pages long, most of which set out basic facts about the dispute and recognized a stipulation between the parties that the buyer owed $2.4 million, after credits, for delivered generators.  With respect to buyer’s counterclaims, the arbitrator made a credibility determination about a key witness for the buyer and then simply concluded that the buyer’s claims against the seller were denied.

The court didn’t like this.  It said that the award was not sufficiently reasoned because “it contain[ed] no rationale for rejecting [buyer’s] claims.”  While the credibility determination was a partial rationale, it was not, in the court’s view, sufficient to address all of the buyer’s counterclaims.  As a result, the court concluded that the arbitrator had exceeded his powers under FAA § 10.

This portion of the opinion is noteworthy because it suggests that a “reasoned” award requires at least some sort of explanation to support each and every necessary conclusion in the award.  The court conceded that the arbitrator’s credibility finding was some reasoning, but it failed to account for each of the counterclaims.

Perhaps the more noteworthy part of the case, however, has to do with the remedy the court granted. Rather than vacating the award, the court “remanded” it to the arbitrator for “clarification.”  The grounds for “remanded” an award are extremely limited under the FAA, but that didn’t seem to deter the court.

I think that this issue is well worth thinking about more, so look for an upcoming primer post to discuss the circumstances when the proper remedy for an unenforceable award is remand rather than vacatur.

 

You might recall SCOTUS’s 2017 smack down of a Kentucky common law rule regulating the formation of an arbitration agreement in Kindred Nursing Centers Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1424 (2017).  Liz wrote about the case here and here.  Basically, in the case, the Kentucky Supreme Court said some unkind things about arbitration, reminiscent of the old-time hostility that the FAA was designed to overcome.

More particularly, three wrongful death cases had been consolidated.  In all three, a family member with power of attorney for the decedent had signed admission documents with care facilities that included an arbitration clause.  The Kentucky Supreme Court said that the POAs did not grant the family members the necessary authority to waive the principal’s constitutional right of access to courts.

The case was modestly interesting doctrinally – but only modestly, as the core issue has been essentially settled since SCOTUS’s watershed 1984 decision, Southland v. Keating, 465 U.S. 1 (1984).  Still, the Kentucky Supreme Court attempted to denominate its rule as a “generally applicable” contract defense that would apply to other sorts of serious waivers of rights in POAs.  The idea was to squeeze into the savings clause of FAA § 2.  But, in no uncertain terms, SCOTUS said it didn’t believe the state court.  “We do not suggest that a state court is precluded from announcing a new, generally applicable rule of law in an arbitration case. We simply reiterate here what we have said many times before—that the rule must in fact apply generally, rather than single out arbitration.”  Hammer. Dropped.

State courts and state legislatures cannot regulate the recourse to arbitration on any grounds other than generally applicable contract law defenses.

The Kentucky Supreme Court, however, didn’t get the message.  (Or, more likely, it just didn’t seem to care. Remember, there’s an ongoing theme on this blog about some state court resistance to SCOTUS’s strong pro-arbitration policy.)  In Northern Ky. Area Development District v. Snyder, 2018 WL 4628143 (Ky. Sept. 27, 2018), it held that the FAA did not preempt a Kentucky statute that prohibited 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.”  Employees, in short, could not be required to submit to arbitration as a condition of employment or ongoing employment.

Liz wrote about this case as well.  And, as she said, what the hell!  (Sorry, I’m paraphrasing.)

Fast forward to the waning days of March.  The Kentucky legislature stepped in and saved SCOTUS from having to worry about reigning in the Kentucky Supreme Court.  The legislature amended the statute at issue in Snyder, and on March 25, 2019, Governor Matt Bevin signed the Bill into law.

In a nutshell, the newly minted amendment nullifies Snyderand clarifies that employers may, among other things, require an employee or person seeking employment to execute an agreement for arbitration, mediation, or other form of alternative dispute resolution as a condition or precondition of employment.

The details of the new statute matter, of course, to lawyers, employers, and employees in Kentucky, but I think that the more interesting point is that we sometimes forget – or I do, at least – the potentially important role that state legislatures have to play in upholding the policies of the FAA.

As regular readers of the blog may recall, Liz wrote a brief note about a decision by the Supreme Court of Missouri holding that arbitration is not available when companies select a defunct institution to administer their arbitrations with consumers.  See A-1 Premium Acceptance, Inc. v. Hunter, 2018 WL 4998256 (Mo. Oct. 16, 2018).  In the case, the commercial party — A-1 — had designated, in a 2006 arbitration agreement contained loan documents, the National Arbitration Forum (“NAF”) as the administering institution.  The NAF, however, entered into a consent decree in 2009 requiring it immediately to stop providing arbitration services for consumer claims nationwide.

Other courts around the country have enforced similar arbitration agreements.  But a Circuit split exists about how best to handle this situation.  The Missouri court took one approach, distinguishing between agreements where the parties agree to arbitrate regardless of the availability of a particular arbitration and agreements where the two sides agree to arbitrate only in a particular forum.  Under the first kind of agreement, the Missouri court conceded that the FAA authorizes courts to name a substitute arbitrator if the forum contemplated in the original agreement is unavailable. But under the second kind of contract, in which the agreement specifies the arbitration forum, the FAA doesn’t grant courts the authority to swap in a new institution. “Nothing in the FAA authorizes (let alone requires) a court to compel a party to arbitrate beyond the limits of the agreement it made,” the Missouri court said.

Although the case presented an opportunity for SCOTUS to provide guidance on this issue, on March 18, it declined to do so.

 

At least in theory, mutual assent remains a cornerstone of contract law and thus of arbitration.  The tricky part has become understanding what counts as mutual assent in a world where overwhelming empirical evidence, not to mention our own lived experience, demonstrates that no one reads standardized terms and conditions, including arbitration provisions buried in fine print, or more commonly these days, a maze of hyperlinks.

Basically, to get around the unilateral character of adhesive contracting, U.S. courts have, over the past five decades, refocused contract formation on constructive notice.  If a reasonable person in the position of the recipient of boilerplate should have seen the terms, the recipient will be bound by those terms, regardless of whether she ever actually read or understood the them.  Constructive awareness coupled with an individual purchasing something from a commercial party amounts to assent.  See, e.g., Starke v. SquareTrade, Inc., No. 17-2474, 2019 WL 149628 (2d Cir. Jan. 10, 2019) (“Where an offeree does not have actual notice of certain contract terms, he is nevertheless bound by such terms if he is on inquiry notice of them and assents to them through conduct that a reasonable person would understand to constitute assent.”) (citations omitted).

But a great deal of confusion persists about what counts as “reasonable notice.”  Liz has written about two conflicting cases involving Uber and arbitration.  She also wrote about a recent “shinglewrap” arbitration agreement – in a putative class action brought by homeowners against a vendor of roof shingles — upheld by the 11thCircuit.

This week, we’ll look at a recent Second Circuit case that might help make things just a tiny bit more tractable.

In  Starke v. SquareTrade, Inc., the Second Circuit concluded that the a purchaser of a consumer product protection plan did not have reasonable notice of an arbitration provision contained in the terms and conditions communicated via a hyperlink in a post-sale email.

The court starts with some generic stuff about conspicuousness.  It says that in determining whether an offeree is on inquiry notice of contract terms, courts look to whether the term was obvious and whether it was called to the offeree’s attention.  This usually “turns on whether the contract terms were presented to the offeree in a clear and conspicuous way.”  In the context of “web-based contracts, [courts] look to the design and content of the relevant interface.”

The court  goes on to list, in bullet points, various features of interfaces that were too inconspicuous and interfaces that were acceptably conspicuous.  But these bullet points sort of distill to whether the court thought that the interface was cluttered or not.  At best it feels like defining obscenity — you know it when you see it.  At worst, it feels like defining beauty — it’s in the eye of the beholder.  Either way, it’s not very helpful.

(I’ll just say, as an aside, that I was at an academic conference a week ago, and one of the presentations was on an empirical study about conspicuousness — still in progress, but if you’re interested, you could reach out to the author, Yonathan Arbel.  The study looks at the effectiveness — or more precisely, ineffectiveness — of all-caps.  Basically, all-caps seems to do nothing to help make things more conspicuous and may well make things far less readable.  That discussion reminds me that courts are offering opinions about what is or isn’t conspicuous with very little empirical evidence guiding them.)

Maybe the more useful rules of thumb that the court provides have to do with the fact that the relevant hyperlink was “neither spatially nor temporally coupled with the transaction.” The relevant link was given to the purchaser in a post-sale email.  Spatially, the court noted that the hyperlink could have (and should have?) been provided on the purchase page.  In the court’s view, doing so would have more clearly indicated that the terms and conditions, including the arbitration clause, were part of the purchase transaction. Temporally, the court concedes that “providing contract terms after a transaction has taken place may be an appropriate way to contract in certain situations,” but it found “little justification” for that sort of pay-now-terms-later structure in the particular case. Instead, “it would have been virtually costless for SquareTrade to provide the governing terms and conditions to Starke before he bought the Protection Plan.”

These “coupling” rules of thumb could be useful for drafters.  It’s not clear whether the court would have enforced the arbitration clause if it had been included in a hyperlink on the purchase page, but that’s certainly the suggestion.

In this week’s installment of Arbitration Nation, we’re going to look at when a “decision with respect to an arbitration” may be appealed.  9 U.S.C. § 16 provides part, but only part, of the answer.  The rule essentially establishes the right of a party losing a motion to compel arbitration in a federal court to appeal that decision immediately. In contrast, a party who has been compelled to arbitration cannot appeal that decision immediately unless she first secures permission from both the district court and the court of appeals under 28 U.S.C. § 1292(b)See 9 U.S.C. § 16(b).

That seems pretty easy, right?  Well, maybe it should be, but some wicked complications come up in at least four situations.

Three of those situations involve a court dismissing a pending lawsuit rather than staying it.  It’s worth noting that Several Circuits reason that dismissal is the wrong procedural complement to an order compelling arbitration.  See, e.g., Aqua-Chem, Inc. v. Bariven, S.A., No. 3:16-CV-553, 2018 WL 4870603, at *2 (E.D. Tenn. Mar. 16, 2018) (discussing the Circuit split in detail).  The Supreme Court has, to date, punted on this issue.  See Green Tree Fin. Corp.-Alabama v. Randolph, 531 U.S. 79, 87 n.2, 121 S. Ct. 513, 520, 148 L. Ed. 2d 373 (2000) (“The question whether the District Court should have [dismissed the underlying lawsuit instead of granting a stay] is not before us, and we do not address it.”).  Basically, courts that find dismissal problematic read FAA § 3 literally: “the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action. . . .”

More courts, however, reason that the FAA’s mandatory stay does not impose an immutable limitation on a court’s discretion to dismiss claims requiring arbitration, and that dismissal may be proper if “all of the issues raised in the [suit] must be submitted to arbitration.” See, e.g., Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992).

So, back to three of the four complications.

The first isn’t really a complication, I suppose, as there’s a very clear-cut answer: what happens if the district court dismisses an underlying lawsuit with prejudice instead of staying the case pending arbitration?  The answer: dismissal with prejudice constitutes an immediately appealable decision.  Such an “order plainly dispose[s] of the entire case on the merits and [leaves] no part of it pending before the court.”Green Tree, 531 U.S. at 86.

The second complication, however, deserves the label: what happens if the district court dismisses an underlying lawsuit without prejudice instead of staying the case pending arbitration?  The Sixth Circuit recently confirmed that a dismissal without prejudice paired with an order compelling arbitration constitutes an immediately appealable final decision.  See Hilton v. Midland Funding, LLC, 687 F. App’x 515, 518 (6th Cir. 2017).

But, as the case notes, SCOTUS has never addressed this particular issue.  Moreover, I think that there are some decent policy arguments that the Sixth Circuit has gotten it wrong.   Basically, allowing a district court to dismiss a case without prejudice and treating such a dismissal as appealable does an end run around FAA §§ 3 and 16. Combined, these provisions bolster the parties’ recourse to arbitration and push any doubts about the arbitrability of a dispute to arbitration.  But I digress.

The third complication comes up when a district court stays a pending case, compels arbitration and then the party sent to arbitration voluntarily dismissesher federal court case without prejudice.  The Ninth Circuit just addressed this situation and said, “[i]t makes no difference that [the plaintiff] then secured a voluntary dismissal without prejudice. A plaintiff’s ‘voluntary dismissal without prejudice is ordinarily not a final judgment from which the plaintiff may appeal.’”  Gonzalez v. Coverall N. Am., Inc., No. 17-55787, 2019 WL 911884, at *2 (9th Cir. Feb. 22, 2019) (citations omitted).

The fourth complication arises when a district court just isn’t very clear about whether it’s staying the pending lawsuit or dismissing it.  That was at stake in a very recent Second Circuit case, MELINA BERNARDINO, individually & on behalf of other similarly situated persons, Plaintiff-Appellant, v. BARNES & NOBLE BOOKSELLERS, INC., Defendant-Appellee., No. 18-607, 2019 WL 1076834 (2d Cir. Mar. 7, 2019).  There, the plaintiff argued that a district court “entered judgment dismissing, rather than staying, the action,” because the end of the order directed that “[t]he Clerk shall close the case.”  Id. at *1.  The court explained that there is “no jurisdictional significance to [a] docket entry marking [a] case as ‘closed,’ which we will assume was made for administrative or statistical convenience.”  Id. (citations omitted).

Spring is just around the corner!  And with spring comes an outstanding conference that the ABA Section of Dispute Resolution will be presenting on April 10-13, 2019 at the Hyatt Regency in Minneapolis, Minnesota – see the conference flyer for a quick overview of the conference and a registration form.

The theme of the conference, “Shining the Light on the Parties in Dispute Resolution,” reflects its principal focus — what parties and their counsel need to know to use ADR effectively in the domestic and international arenas and, more specifically, what parties want and need from ADR stakeholders.

The conference begins on April 10 with a Symposium on ADR in the Courts. The main program follows on April 11 and 12, featuring over 60 concurrent panels and many networking opportunities. The conference ends with the Legal Educators’ Colloquium on April 13.

Highlights of the conference will include:

• Wednesday evening reception at the United States District Court for the District of Minnesota;
• Thursday evening reception at the Minneapolis Hyatt Regency; and
• Friday evening reception at the Minneapolis Institute of Art.

The online conference registration is available here: http://ambar.org/spring2019 on the ABA’s main website, or https://www.xpressreg.net/eReg/?ShowCode=DRSC0419.

An online reservation link for the Minneapolis Hyatt Regency, as well as Hotel and Travel information, is just a click away.

Liz and I will both be there.  We hope to see many of you as well.

Discovery in international arbitrations can be controversial for a lot of reasons. The District Court for the District of South Carolina recently added another one to the list in In re Servotronics, Inc., No. 2:18-MC-00364-DCN, 2018 WL 5810109 (D.S.C. Nov. 6, 2018). The case addresses a very practical question: does 28 U.S.C. § 1782, which allows a district court to order a person who resides in the court’s district to provide testimony or documents to be used in a proceeding in a foreign tribunal, apply to a private international arbitration? According to the court, the answer is “no.”

The dispute arose from an arbitration related to a fire at a Boeing facility in Charleston, South Carolina. Boeing was testing a plane when the plane’s engine caught fire. The fire caused several million dollars of damage to the plane and the test facility. Boeing sought compensation from the engine’s manufacturer, Rolls-Royce. Rolls-Royce, in turn, demanded indemnity from Servotronics, who had manufactured a valve in the engine. Servotronics refused the demand, and Rolls-Royce initiated an arbitration in London.

During the course of the proceeding, Servotronics sought the deposition of three Boeing employees residing in Charleston. Boeing would not voluntarily produce them, so Servotronics filed an action in the US District Court in South Carolina seeking to compel discovery for use in a foreign proceeding under §1782.

In denying Servotronics’ request, the court concluded that a private arbitral body does not qualify as a foreign or international “tribunal” for purposes of §1782. As the court noted, this conclusion squares with decisions of the Second and Fifth Circuits. See Nat’l Broad. Co. v. Bear Sterns & Co., Inc., 165 F.3d 184 (2d Cir. 1998); Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880 (5th Cir. 1999).

The Second and Fifth Circuit decisions, however, were cast into some question by SCOTUS’s subsequent interpretation of §1782 in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004). Specifically, in dicta, SCOTUS said that Congress had amended §1782, expanding its application from “any judicial proceeding” to “a proceeding in a foreign or international tribunal.” Id. at 257–58. The Court noted that “Congress understood that change to ‘provide the possibility of U.S. judicial assistance in connection with administrative and quasi-judicial proceedings abroad.’” Id. (citations omitted). The Court went on to deploy a definition of “tribunal” from a law professor (Yay!) to include “ investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.” Id. at 258 (citations omitted).

In the wake of Intel, lower courts have divided over the question of whether §1782 applies to international arbitration bodies. Compare, e.g., In re Operadora DB Mexico, S.A. de C.V., 2009 WL 2423138, at *6 (M.D. Fla. Aug. 4, 2009) (“The Intel Court was not faced with—and did not address—the question of whether a private arbitral tribunal is a foreign or international tribunal under § 1782.”) with In re Roz Trading Ltd., 469 F. Supp. 2d 1221, 1224 (N.D. Ga. 2006) (“Although the Supreme Court in Intel did not address the precise issue of whether private arbitral panels are ‘tribunals’ within the meaning of the statute, it provided sufficient guidance for this Court to determine that arbitral panels convened by the [private arbitral institution] are ‘tribunals’ within the statute’s scope.”).

Joining the negative side of the ledger, the District Court for the District of South Carolina held that the Intel decision did nothing to alter the Second and Fifth Circuit precedent, noting that

[s]tretching the language of Intel to apply to private arbitration is simply too far of a reach absent more explicit language from Congress or the Supreme Court.

Given just how important the question is, I go on record now to predict that we’re going to see more Circuits weigh in on the issue in the very near future. If I were a betting person, I’d say that SCOTUS would come down in favor of broad support for international commercial arbitration and read §1782 as applying to arbitral bodies.