Finding that some of its previous pronouncements were leading district court judges astray, the Ninth Circuit clarified its precedent regarding the scope of review of labor arbitration awards. “We conclude that it is time for us to retire the use of ‘plausibility’ as a term to describe the courts’ role in reviewing labor arbitration awards.” Southwest Regional Council of Carpenters v. Drywall Dynamics, Inc., 2016 WL 2909241 (9th Cir. May 19, 2016).

In Drywall Dynamics, the district court had vacated the arbitration award for two reasons.  It found the arbitration panel’s interpretation of the labor contracts was not “plausible”, and it found the award violated a clear public policy.  The Ninth Circuit un-vacated the arbitration award, and took the occasion to clarify the limited bases for vacating labor arbitration awards.

First, the court tackled its precedent.  Although there are “a long line of” cases that required an arbitrator’s decision to be based on a “plausible interpretation of the contract,” the court found that was “in sharp contrast to the judicial ‘hands off’ approach long required in labor arbitration cases.” Therefore, the court took the opportunity to make clear that the only relevant inquiry on the merits of the award is whether “the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority.”

With respect to the public policy exception, the court noted that is also narrow. When there are “countervailing policy considerations,” it is not appropriate to vacate an arbitrator’s decision on public policy grounds.

In this case, the court found the panel did construe and apply the contract, and that there were competing policy considerations, so the award must be affirmed.


The Ninth Circuit is not the only appellate court affirming arbitration awards (and clarifying bases for vacatur). The Supreme Court of Oregon affirmed an arbitration award last month, over an objection that the arbitrator did not have authority to grant the awarded remedies. Couch Investments, LLC v. Peverieri, 2016 WL 1593701 (Or. Apr. 21, 2016).  And last week the Supreme Court of Texas affirmed an arbitration award in a trust dispute.  In its opinion, Texas’s highest court held that the bases for vacatur set forth in the Texas  General Arbitration Act are exclusive.  “[A] party may avoid confirmation only by demonstrating a ground expressly listed in” that statute. Hoskins v. Colonel Clifton Hoskins, 2016 WL 2993929 (Tex. May 20, 2016).  (Read more at Disputing.)

What are the defining characteristics of an arbitration agreement? The dissent in a new 9th Circuit case took on that vexing issue, while the majority sidestepped it altogether while refusing to compel arbitration.

In Boardman v. Pacific Seafood Group, __ F.3d __, 2016 WL 1743350 (9th Cir. May 3, 2016), a group of fishermen brought antitrust claims against seafood processors in 2010.  They settled in 2012, and Paragraph 3(a) of the settlement agreement provided:

In the event that [] Pacific Seafood and Ocean Gold intend to enter into any new agreement that requires Pacific Seafood Group to act as the exclusive marketer of any seafood product produced by Ocean Gold Seafoods, [defendants] shall first give 60 days’ notice to class counsel and…an opportunity to object to the agreement. In the event of an objection to the new contractual arrangement, Judge Hogan shall determine whether the proposed new agreement…may be approved.

[Hogan was a federal judge in the District of Oregon until 2012.] Pause for a moment. Does that look like an arbitration agreement to you? It never says “arbitrate,” there is no third party administering the dispute, no indication what rules would govern any arbitration, and the decision maker is a federal judge.  But, it also does not require the plaintiffs to institute a new action, and it provides for a swift resolution…

In any case, fast forward to December of 2014, when Pacific Seafood tells the fishermen that it plans to acquire Ocean Gold. The plaintiffs object, but instead of using Judge Hogan to resolve it (who had retired by then), they started a new antitrust action, alleging monopolization and violation of the settlement agreement.  In response, the defendants move to compel arbitration.  The district court denies the motion, saying that the dispute is outside the scope of the arbitration agreement.

The Ninth Circuit affirmed that decision, finding that the fishermen’s new claims were not encompassed by the language about using Judge Hogan to resolve objections. In particular, the court found that the purchase and sale agreements between the processors do not deal with the marketing of Ocean Gold’s products, and do not require that Pacific Seafood act as the exclusive marketer of Ocean Gold’s products.  (Even though Pacific Seafood would own Ocean’ Gold.)

In the words of the majority, “it need not decide whether Paragraph 3(a) of the [settlement] constitutes a valid agreement to arbitrate because we conclude that Plaintiff’s claims are not encompassed by Paragraph 3(a)’s plain language.”

The dissent, however, found that Paragraph 3(a) was an arbitration agreement, and the Plaintiff’s claims fell within it.  The dissent defined arbitration as an agreement: 1) to submit a dispute for decision by a third party; and 2) not to pursue litigation until that third-party process is complete. In this case, the dissent found that because the parties agree to submit disputes to a third party (the judge), and did not allow litigation before the judge made a decision, it “should properly be considered as an arbitration agreement.”  The dissent was unmoved by the lack of the word “arbitrate” and plaintiffs’ arguments that federal judges are precluded from serving as arbitrators.

I have written before about “accidental arbitration” clauses. This case is a reminder that anytime drafters provide for a third party to decide a dispute, that clause may be construed as an arbitration clause, and carry with it all the trappings of the Federal Arbitration Act.

Today’s post is brought to you by the number 8.  The 8th Circuit Court of Appeals issued a new opinion yesterday finding that a defendant who litigated in court for 8 months waived its right to arbitrate (aka, ARBITR8) plaintiff’s employment claims.  [That could be my vanity plate!!]

Messina v. North Central Distributing, Inc., 2016 WL 2640911 (8th Cir. May 10, 2016), involved an employee’s claims of wrongful termination and breach of contract against his employer.  The employee brought those claims in Minnesota state court.  In response, the employer removed the case to federal court, filed an answer asserting 24 affirmative defenses, and later moved to transfer the case to federal court in California.  Only after the federal judge in Minnesota denied the motion to transfer did the employer move to compel arbitration.  That motion came eight months after the plaintiff had filed his complaint.  The district court denied the motion to compel, finding the employer had waived its right to arbitrate, and the appellate court affirmed that result.

The appellate court agreed that all three elements of the test for waiving arbitration rights were met.  First, the employer “knew of [its] existing right to arbitration,” because it had the arbitration agreement in its possession.  Second, the employer “acted inconsistently with that right” by litigating for eight months, including making two motions (removal and transfer), and filing scheduling reports that indicated the case would proceed to trial.  The court also faulted the employer for not raising arbitration at the earliest possible time — in its Answer or in the Rule 26(f) report.  And third, the employer “prejudiced the other party by these inconsistent acts,” in that it caused delay and forced the employee to respond to motions and participate in procedures not available in arbitration.

The 8th Circuit seemed most concerned about the gamesmanship, however.  It commented that “[t]he timing of [the employer’s] actions demonstrates that it ‘wanted to play heads I win, tails you lose,’ which ‘is the worst possible reason’ for failing to move for arbitration sooner than it did.”

The test used by the 8th Circuit to determine waiver of arbitration rights is similar to that used in many circuits, so this case is a good opportunity to remind parties and counsel that there are serious risks to not raising the existence of an arbitration agreement early in a case.  My rule of thumb — not yet adopted by any court — is that it should be raised within the first three months of litigation and before making any (other) affirmative motion that requires court resources.

Today the Consumer Financial Protection Bureau proposed the rules that it previewed last fall, following up on its Arbitration Study. Those rules would essentially ban class action waivers from consumer financial agreements, as well as requiring arbitral institutions to provide data on consumer financial disputes to the CFPB.  (As an aside, the proposal is 377 pages long. Are all proposed notices of rulemaking so long??  If so, I am very happy not to practice in administrative law.)

There will be lots of analysis of the rules and their potential impact in the coming days, but for now here are the deets on the proposal, with direct quotes from it where appropriate:

What Do the Proposed Rules Say? Two things.

  •  First, financial consumers will be entitled to participate in class actions in court, even if the governing agreements call for arbitration generally:

 “A provider shall not seek to rely in any way on a pre-dispute arbitration agreement . . . with respect to any aspect of a class action that is related to any of the consumer financial products or services covered by § 1040.3 including to seek a stay or dismissal of particular claims or the entire action, unless and until the presiding court has ruled that the case may not proceed as a class action and, if that ruling may be subject to appellate review on an interlocutory basis, the time to seek such review has elapsed or the review has been resolved.”

The arbitration agreement must clarify:

“We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action even if you do not file it.”

  • Second, providers of arbitration services must submit redacted copies of the following documents to the CFPB for its continuing monitoring:

“In connection with any claim filed in arbitration by or against the provider concerning any of the consumer financial products or services covered by § 1040.3;

(A) The initial claim and any counterclaim;

(B) The pre-dispute arbitration agreement filed with the arbitrator or arbitration administrator;

(C) The judgment or award, if any, issued by the arbitrator or arbitration administrator”

 CFPB’s Authority:  “In the Dodd-Frank Act, Congress also authorized the Bureau, after completing the [Arbitration] Study (hereinafter Study), to issue regulations restricting or prohibiting the use of arbitration agreements if the Bureau found that such rules would be in the public interest and for the protection of consumers.”   In particular, the Bureau relies on sections 1022(b) and (c), and 1028(b) of the Dodd-Frank Act.

Why CFPB is Proposing the Rule (in its own words):

“The Bureau preliminarily concludes, consistent with the Study and based on its experience and expertise, that: (1) the evidence is inconclusive on whether individual arbitration conducted during the Study period is superior or inferior to individual litigation in terms of remediating consumer harm; (2) individual dispute resolution is insufficient as the sole mechanism available to consumers to enforce contracts and the laws applicable to consumer financial products and services; (3) class actions provide a more effective means of securing relief for large numbers of consumers affected by common legally questionable practices and for changing companies’ potentially harmful behaviors; (4) arbitration agreements block many class action claims that are filed and discourage the filing of others; and (5) public enforcement does not obviate the need for a private class action mechanism.”

Which entities are affected: “[P]roviders of certain consumer financial products and services in the core consumer financial markets of lending money, storing money, and moving or exchanging money.” This includes entities that provide credit to consumers (banks, credit card issuers), extend auto leases, provide debt relief services, collect debts, provide check cashing services, and provide credit reports.

When would the rule take effect?  “Compliance with this part is required for any pre-dispute arbitration agreement entered into after” 211 days after the final rule is published in the federal register.  (So, affected entities likely have about a year to prepare.)

What Other Agencies are Doing on Arbitration:  CFPB spends three pages of its proposal explaining what other agencies have done, or are doing, to protect consumers in the context of arbitration.  The most recent examples are from the Centers for Medicare and Medicaid Services (in the context of long-term health care facilities) and the Department of Education (in the context of college enrollment agreements).

Deadline for comments: The public has 90 days to comment on this proposed rule.

These proposed rules are a continuation of the battle between the executive and judicial branches of the federal government over arbitration.  If passed, they will undoubtedly lead to a significant increase in consumer financial class actions.  It will be interesting to see if they also affect the willingness of companies to include arbitration agreements at all.

The Second Circuit reminded us yesterday that judicial review of arbitration awards is “among the most deferential in the law.”  And when district courts are not sufficiently deferential, their decisions are likely to be overturned.  That happened recently in Tom Brady’s “deflate-gate” arbitration, and in an arbitration over how much a pedestrian was owed after a car accident.

In the pedestrian’s dispute, the arbitrator was assigned to determine the extent of the pedestrian’s injury and what compensation should flow from that injury.  Lemerise v. The Commerce Ins. Co., 2016 WL 1458213 (R.I. April 13, 2016).  The arbitrator determined the pedestrian was entitled to $150,000 in damages plus interest of $47,550.  The insurance company moved to modify the arbitration award down to $100,000 – the limits of the policy.  The trial court granted that motion, and the pedestrian appealed.  The Supreme Court of Rhode Island reinstated the full arbitration award.  It found that the trial court had erred by considering the limits of the policy, when the insurance company had not introduced that policy as an exhibit in the arbitration.  Furthermore, the court found the limited statutory grounds for modifying the arbitrator’s award were not present.

In a case that garnered much more news coverage, the four-game suspension against Tom Brady was also reinstated yesterday by the Second Circuit Court of Appeals.  Although the district court had found the arbitration hearing lacked fundamental fairness, in a 2-1 decision the Second Circuit found the arbitrator met the low bar required by the LMRA: he acted within his authority and he was at least arguably construing the parties’ contract.

Perhaps not surprisingly, the appellate court’s description of the Brady arbitration sounds like an entire different proceeding than the one described by the district court.  This opinion describes the evidence against Brady to support the conclusion that he participated in the scheme to deflate game balls (not just was “generally aware”).  It makes ten hours of testimony and 300 exhibits sound exorbitant.  And it places significant emphasis on the cell phone destruction.

The opinion also went out of its way to emphasize that this process was what the players association bargained for, even if it “may appear somewhat unorthodox” to have the Commissioner first impose discipline and then preside over a challenge to his discipline in arbitration.  As a result, the players’ remedy “is not judicial intervention, but” to negotiate a different deal next time.  In an example of the snarky tone used for many of the arguments made on behalf of Brady, the majority wrote (about the comparison to substance abuse) that even if Brady “may have been entitled to notice of his range of punishment, it does not follow that he was entitled to advance notice of the analogies the arbitrator might find persuasive in selecting a punishment within that range.”

Today’s lesson is that famous athletes are not entitled to a less deferential standard of review for arbitration awards than the rest of us.  And, if an arbitration award in your favor is vacated by a trial court, it may be worth your while to appeal.

On Monday of this week, after stringing the parties along for five months, SCOTUS denied cert  in a case involving the intersection between arbitration and franchise regulation.  The petition was filed in November of 2015, and after the respondent initially declined to respond, the Court specifically requested a response, and conferenced the case twice, before denying the petition.   This could be an indication that, without Scalia, the Court is less interested in arbitration issues, or at least less interested in those that will not garner five of the current eight votes.

The case is Chorley Enterprises Inc. v. Dickey’s Barbecue Restaurants, Inc., 807 F.3d 553 (4th Cir. 2015).  [I admit that I did not blog about it when it initially came out last summer because it was complicated and messy and I was feeling lazy.  But, today, I came up with a few Prince tie-ins, so I am taking it on.]  Franchisees of the barbecue chain alleged the franchisor misrepresented costs and profits, and the franchisor alleged the franchisees were in breach for poor operation of the restaurants.  The franchisor also demanded that the claims be arbitrated.

The problem is that the franchise agreement called for both arbitration and litigation in court.  First there was an “Arbitration Clause” requiring arbitration of all claims related to the franchise agreement.  Then, in a “Maryland Clause” required by the state of Maryland, the agreement said the franchisees retained their right to file a lawsuit under the Maryland Franchise Law in court.  (Maryland franchise regulations make it illegal for a franchisor to require a franchisee to waive the franchisee’s right to file a court lawsuit under the franchise statutes.)  The Fourth Circuit essentially enforced both provisions, by allowing the franchisees’ claims under the franchise statutes to proceed in court, while directing the franchisor’s contractual claims to proceed in arbitration.

In reaching its Solomonic decision, the court rejected arguments from both sides.  It rejected the franchisees’ argument that the Maryland Clause completed trumped the Arbitration Clause, reasoning that the Maryland Clause only applies to claims under the franchise statutes, and finding that the franchisees could still raise affirmative defenses based on the franchise statutes in the arbitration.  It reminded the parties that SCOTUS is just fine with piecemeal litigation, when it conforms with the parties’ contracts.

The Fourth Circuit also rejected the franchisor’s argument that the Maryland Clause was forced on it by state law in Maryland, and therefore the clause is preempted by the FAA.  Its harsh assessment of the franchisor’s options follows:

Dickey’s was not forced to do anything…It could have simply declined to do business in Maryland.  Or…it could have filed a declaratory action challenging the [state’s] position before including the Maryland Clause in its agreements.

This is a fascinating issue.  Can state agencies that regulate franchisors preclude arbitration of franchise claims?  Wouldn’t that be exactly the kind of state law that stands as an obstacle to the goals of the FAA and is therefore preempted under ConcepcionI look forward to another franchisor setting up a stronger record of state insistence on the arbitration waiver and taking another run at a preemption argument.


I’m sure Dickey’s serves ribs, unlike Prince (“ I don’t serve ribs / You better be happy that dress is still on/
I heard the rip when you sat down”).  And before I was known for being an arbitration geek, I was known for being a Prince geek.  As we are all mourning today in Minneapolis, I used some “purple” in today’s title and image.  If you want a recommendation for a great song that is outside the usual Prince play list, try “How Come U Don’t Call Me Anymore?”

The Fifth Circuit recently addressed a hard question: what should the court consider when determining the amount in controversy for purposes of federal jurisdiction over an arbitration award?  The court decided to rely on the amount originally sought by the claimant in the demand for arbitration.  Pershing, LLC v. Kiebach, __ F.3d __, 2016 WL 1375874 (5th Cir. April 6, 2016).

In Pershing, the claimants demanded $80 million in damages from their broker.  The arbitration panel rejected their claims, but awarded them $10,000 for expenses.  The broker moved to confirm the award in federal court, and the customers sought to have the confirmation suit dismissed for lack of federal jurisdiction.  (Why?  So they could move to vacate in Louisiana state court, which they must have thought would be more friendly.)

The court then had to decide whether the amount in controversy should be determined by: 1) the amount of the final award or 2) the amount sought in the arbitration demand.  The Fifth Circuit sided with the courts that have used the damages sought in the demand.  It reasoned that the initial damage amount “recognizes the true scope of the controversy between the parties…the amount at stake is the $80 million that Appellants initially sought in arbitration, not the minimal award.”  It also sought to mirror the test for jurisdiction over a motion to compel arbitration, which relies on the amount demanded in the petition.

Joining the Sixth and Third Circuit Courts of Appeals, the Fourth Circuit this week held that “whether an arbitration clause permits class arbitration is a gateway question of arbitrability for the court.”  Dell Web Communities, Inc. v. Carlson, 2016 WL 1178829 (4th Cir. Mar. 28, 2016).

At issue was whether a federal judge or an arbitrator would decide whether class arbitration was appropriate for claims of construction defects in “approximately 2,000” homes.  The individual arbitration agreements had no explicit language regarding the availability of class actions.  The district court had determined the arbitrator should  decide the availability of the class mechanism.

The Fourth Circuit reversed.  It reviewed recent case law from SCOTUS, noting that while the Court “has not conclusively told us who gets to decide whether an arbitration agreement provides for class arbitration,” it has provided plenty of hints that the issue should be presumptively for courts.  As a result, the Fourth Circuit declined to follow its own unpublished precedent, and remanded the case to the district court for a determination “whether the parties agreed to class arbitration.”

This is an important trend in putative class action cases where the plaintiffs have signed arbitration agreements.  Defendants now have three federal appellate decisions to cite in favor of the proposition that courts should decide whether a class is allowed.  Keeping those decisions in court will help build precedent regarding the type of language in arbitration agreements that can constitute an agreement to class actions.


The Supreme Court of California this week enforced the arbitration agreement between an employee and employer.  Yes, you read that right.  While reputed to be reliably anti-arbitration, California’s highest court continues to provide evidence that it is tired of being reversed by SCOTUS * and is ready to follow federal precedent on the FAA.

In Baltazar v. Forever 21, Inc., 2016 WL 1176599 (Cal. Mar. 28, 2016), the question was whether the employee’s arbitration agreement was unconscionable.  The district court found it procedurally and substantively unconscionable, but the court of appeal reversed.  The Supreme Court of California agreed with the court of appeal.

While the arbitration agreement was procedurally unconscionable because the employee lacked any choice, the court found it was not substantively unconscionable for any of the three reasons asserted by the employee.  Most importantly, the court “disapproved” of a previous case from the courts of appeal (Trivedi).  That case had held that if an arbitration agreement allows the parties to seek interim relief in court, it is substantively unconscionable because the employers are more likely to take advantage of interim relief.  In Baltazar, the court noted that California statutes expressly allow parties to seek interim relief in court, therefore “simply reciting the parties’ rights under section 1281.8 does not place [the employee] at an unfair disadvantage.”

In addition, the court found the arbitration agreement was not one-sided either because it provided that the employer’s trade secrets would be kept confidential in the arbitration, or because it said all employment claims must be arbitrated, but then listed as examples only the types of claims that employees bring.

In my opinion, this arbitration agreement was not even close to the line of substantive unconscionability.  So the decision on its own is not very newsworthy, except for its disapproval of the earlier case.  But it is newsworthy in context, because this opinion is the third recent decision from the Supreme Court of California that enforces arbitration agreements even in consumer or employment contexts.  (This is the first, this is the second.)  (*The most recent California decision that got reversed by SCOTUS–DIRECTV–was actually a decision from the intermediate appellate court, not the Supreme Court of California.)  This trend is significant, given California’s reputation.

The Supreme Court of Arkansas has issued three opinions within the span of four weeks, all on the topic of whether defendants can compel arbitration. Each of the opinions came with a vigorous dissent.  The cases offer an interesting look at a state high court that appears to be struggling to deal with FAA case law from SCOTUS; on one hand the court cites recent federal arbitration jurisprudence, but on the other it displays real skepticism about arbitration (at least of consumer disputes) and uses some creativity in its state contract law.

Two of the opinions relate to whether nursing homes can compel arbitration of claims brought by former residents or their estates. In each of those cases, the Supreme Court of Arkansas allowed the nursing home to compel arbitration.  First, in Courtyard Gardens Health & Rehabilitation v. Arnold, 2016 Ark. 62 (Feb. 18, 2016), the court held that the agreement’s selection of the National Arbitration Forum (NAF, which no longer administers consumer arbitration) did not make the arbitration agreement impossible to perform, nor was the choice of NAF integral to the agreement.  Three justices dissented.  [The 11th Circuit just came out the other way on this issue, finding NAF was integral to an arbitration agreement and therefore refusing to compel arbitration in Flagg v. First Premier Bank, 2016 WL 703063 (11th Cir. Feb. 23, 2016).]

Then in GGNSC Holdings v. Lamb, 2016 Ark. 101 (March 10, 2016), the majority compelled arbitration of two nursing home plaintiffs’ claims.  Again, the court held that the unavailability of the NAF did not make the arbitration agreement impossible to perform.  It also held that the arbitration agreement was not unconscionable.  Two justices “strongly” dissented:

The majority’s opinion in this case goes far beyond resolving any doubts in favor of arbitration. It rubber-stamps the arbitration agreements before it based simply on our policy favoring arbitration.  This begs the question: Going forward, could there ever be an arbitration agreement the majority determines to be invalid or unenforceable?  If today’s decision is any indication, the answer to that question is no.

In a third case, the Supreme Court of Arkansas refused to compel arbitration of a class action alleging breach of contract and deceptive trade practices against a bank. Bank of the Ozarks, Inc. v. Walker, 2016 Ark. 116 (March 17, 2016).  The court found the arbitration agreement lacked mutuality and therefore was unenforceable.  (“Mutual obligation” is the fifth “essential element” of a contract in Arkansas.)  In one of the two provisions causing the lack of mutuality, the arbitration agreement obligated the customer to pay any attorneys’ fees the bank incurred “in good faith” in a dispute.  “In imposing all of the costs of arbitration on appellees, the parties in this case are treated differently, and ‘this disparate treatment results in a lack of mutuality.'”  The majority stated that it was cognizant of the severability doctrine and of Concepcion and was not violating either. [The court also seemed to hold that the one-sided fee provision precluded the customers from “effectively vindicating” their rights, citing to Green Tree.  The court conveniently ignored the subsequent language in Italian Colors, limiting that doctrine, and the fact that the doctrine only applies to federal statutory rights…]

The lone dissenter in Bank of the Ozarks sided with FAA preemption.  Citing DIRECTV, the dissenting justice pointed out occasions where the Supreme Court of Arkansas has recognized that “a contract does not lack mutuality merely because every obligation of one party is not met by an equivalent counter obligation of the other party.  With the decision in this case, the majority stretches the concept of mutuality of obligation so as to undermine our basic principles of contract law.”


By the way, Arkansas is not the only court compelling arbitration of nursing home disputes. Alabama recently found that a resident’s daughter had apparent authority to bind her mother to the arbitration agreement. Kindred Nursing Centers East, LLC v. Jones, 2016 WL 762450 (Ala. Feb. 26, 2016). (Two justices dissented.)  The Fifth Circuit also reversed a district court’s refusal to compel arbitration of residents’ claims against nursing homes in Gross v. GGNSC Southaven, LLC, 2016 WL 1019200 (5th Cir. March 14, 2016).  The district court had held there was insufficient evidence that the individual signing the arbitration agreement had been authorized by the resident.  The Fifth Circuit found Mississippi law on authority was not so restrictive and remanded for further fact finding.