I am a true arbitration nerd.  But, when SCOTUS takes a THIRD arbitration case for its upcoming term, I wonder if the Justices are more obsessed with arbitration than I am.  (Reminder of the other two here.)  If they hear about the same total number of cases as this year (69), arbitration will make up more than 4% of their docket.  Now, 4% isn’t huge.  For reference, intellectual property cases made up less than 4% of cases filed in federal district courts last year, and there were three I.P. cases decided by SCOTUS (two on inter partes review and the WesternGeco case).  At least I.P. cases have a category in the annual judiciary report, though.  That’s more than arbitration can say.  And still, it has three cases before the Supremes.

Enough stats, what is this case?  It is Henry Schein Inc. v. Archer and White Sales Inc., in which SCOTUS is going to resolve the circuit split over the “wholly groundless” doctrine.  Given how the NLRB decision just came out, I don’t think I’m stepping too far out on a limb if I predict: “wholly groundless” will be grounded.  (Maybe even “grounded wholly?”  Seriously, there has got to be some good word play possible, but I am too tired from watching the World Cup to develop it.)  Put simply, that doctrine will not stand in the way of any future delegation clauses.

(Thanks to Mark Kantor for being the first to tell me certiorari was granted in this case.)

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Switching gears, there are three new decisions from state high courts on the arbitrability of claims against nursing homes.  Two enforce the arbitration clauses, and one decidedly does not.

Nebraska and Colorado issued the pro-arbitration decisions, in both cases reversing a trial court’s refusal to enforce arbitration agreements.  In Colorow Health Care, LLC v. Fischer, 2018 WL 2771051 (Colo. June 11, 2018), the district court denied the nursing home’s motion to compel arbitration because it was not in bold text, as required by a state statute.  Without any discussion of the FAA (which would have been a much easier ground for reversal), the Colorado Supreme Court found that the statute only requires substantial compliance, and the defendant had substantially complied (by including the right language, in a larger font size than required, just not in bold). In Heineman v. Evangelical Lutheran Good Samaritan Society, 300 Neb. 187 (June 8, 2018), the district court had found the arbitration agreement lacked mutuality, violated the state arbitration statute, and violated public policy (because of the CMS rule on arbitration).  On appeal, the Supreme Court of Nebraska found mutuality, found the FAA applied and preempted the state arbitration statute, and noted that the CMS rule had been enjoined.

A week later, though, Nebraska rejected arbitrability in a different case against a nursing home.  In Cullinane v. Beverly Enterprises-Nebraska, Inc., 300 Neb. 210 (June 15, 2018), the issue was whether the arbitration agreement signed by the deceased’s husband was enforceable.  He admitted he signed all the admission documents, but stated in an affidavit that he understood he had to agree to arbitrate for his wife to be admitted to the facility.  He also stated that he did not understood he was waiving his wife’s right to a jury trial, and would not have signed if he had known that and that arbitration was optional.  Applying the FAA and state contract law, the Nebraska Supreme Court found the district court was not “clearly wrong” when it found the husband was fraudulently induced to executing the arbitration agreement for his wife.  Critically, the facility had not introduced any affidavit contradicting the alleged statements made at the time of admission.

Sometimes current events provide an occasion perfect storm to educate about arbitration basics. This is one of those occasions.

Here are questions that friends and colleagues  storming mad people have asked me in the past day or so, with my best answers:

  • Does an arbitration agreement have to be signed by both parties to be enforceable (i.e. ride out the storm)?
    • The Federal Arbitration Act provides that an arbitration agreement must be “written,” but it does not also say it must be signed by all parties.  Whether a signature is required, along with all answers about the enforceability of arbitration agreements, depends on state contract law. In general, a contract requires an offer, acceptance, and consideration. And in most states, “acceptance” of an offer can take many forms. (See, for example,  this case (about Macy’s) finding a valid agreement without one party’s signature , but these cases finding no valid agreement where a signature was missing.)
  • Do arbitrators have authority to issue temporary or ex parte injunctions?
    • It depends. Arbitrators derive their authority from the parties’ arbitration agreement. If that arbitration agreement expressly grants the power to issue emergency, temporary, or ex parte injunctions, or if the arbitration agreement incorporates rules of an administrator (like the AAA) and those rules grant the power to issue those types of injunctions, then the arbitrator has power to enjoin the parties on an emergency or temporary basis (but only the parties, otherwise non-parties will kick up a storm and vacate the award).
  • How are injunctions from arbitrators enforced?
    • Within the arbitration proceeding, a party may seek sanctions from the arbitrator if the arbitrator’s temporary injunction is violated. Those sanctions can include anything authorized by the applicable rules. (Remember in this case, when the sanction was over $600 million?  Oh, that created a sh*tstorm.) Outside the arbitration proceeding, the party wanting to enforce the injunction (whether temporary or permanent) must first obtain a final arbitration award, and then have that award confirmed in federal court. (Remember, only “final” awards can be confirmed under the Federal Arbitration Act.) After that final award is confirmed in court, it is a judgment that can be enforced like any other court judgment.
    • However, when the winning party asks a court to confirm an award, the losing party often moves to vacate the arbitration award.  And the absence of a valid arbitration agreement is a solid basis to vacate the award.  For example, the Revised Uniform Arbitration Act authorizes vacatur if: “there was no agreement to arbitrate, unless the person participated in
      the arbitration proceeding without raising the objection.”

**Thanks for all the nudges about writing this post.  You convinced me that my desire to offer context to the news should trump my desire to storm off and pretend it is not happening.

What happens when state courts disagree with SCOTUS’s interpretation of the Federal Arbitration Act?  They resist, and they have a thousand different ways of doing so.  The Mississippi Supreme Court demonstrated one way to resist recently in Pedigo v. Robertson, Rent-A-Center, Inc., 2017 WL 4838243 (Miss. Oct. 26, 2017). (I neglected to mention the state appellate courts as important actors in last week’s post about what we may see now that the CFPB rule is dead.)

In Pedigo, the plaintiff entered into a Rental Purchase Agreement (RPA) from Rent-A-Center.  (Yes.  The same Rent-A-Center of delegation clause fame.)  Within about four months, he stopped making payments.  At that point, Rent-A-Center found out that plaintiff had sold the television to a pawn shop shortly after purchasing it.  Rent-A-Center then filed a complaint with the police, and the plaintiff was arrested and incarcerated.

After the plaintiff was released from jail, he filed a civil action against Rent-A-Center, alleging the police report was false.  Rent-A-Center moved to compel arbitration.  The trial court judge compelled arbitration.

On appeal, the high court found that plaintiff’s claims of malicious prosecution were outside the scope of the parties’ arbitration agreement.  The RPA itself prohibited the sale or pawning of the leased goods.  The arbitration agreement in the RPA stated that covered claims “shall be interpreted as broadly as the law allows and mean[] any dispute or controversy between you and RAC….based on any legal theory…”  The only claims not covered were those for injunctive or declaratory relief, or those seeking less than $5,000 in damages.  However, because “the agreement fails to contemplate that a lessor/signatory might pawn collateral and subsequently be indicted and jailed” the court did not require the plaintiff to arbitrate his claims.

Why do I call this “resistance”?  Because there are many cases saying that as part of the federal policy favoring arbitration, courts presume that claims are within the scope of a valid arbitration agreement.  The coin is weighted towards “heads.”  And here, the agreement explicitly prohibited pawning the TV, and the arbitration clause was about as broad as it could be.  Yet the court refused to compel arbitration.  The implication of this court ruling seems to be that if a specific claim is not enumerated in an arbitration clause in Mississippi (to show it was contemplated), the claim is not arbitrable.  And that just does not fit within the federal precedent.

You know what state is not currently resisting?  Missouri.  The Supreme Court of Missouri faithfully followed the instructions SCOTUS gave in Rent-A-Center, and enforced a delegation clause over the votes of two dissenting justices.  In Pinkerton v. Fahnestock, 2017 WL 4930289 (Mo. Oct. 31, 2017), the Missouri high court found that the parties’ incorporation of the AAA rules was a clear and unequivocal delegation clause.  It also found that the great majority of the plaintiff’s challenges were not specific to the delegation provision (they applied to the arbitration agreement as a whole) and so could not be considered; the only specific challenge was plaintiff’s argument that it is unconscionable to delegate arbitrability to “a person with a direct financial interest in the outcome.”  The court dismissed that out of hand, citing Rent-A-Center.  Because the plaintiff had made no successful challenge to the delegation clause, the Missouri high court enforced it, sending the issue of the arbitration agreement’s validity to the arbitrator.

The high courts of two states have allowed non-signatories to compel arbitration in recent weeks.  The cases show courts are addressing non-signatory issues using different standards and raise important drafting issues for joint ventures and business affiliates.

In Locklear Automotive Group, Inc. v. Hubbard, 2017 WL 4324852 (Alabama Sept. 29, 2017), the Supreme Court of Alabama found most of the claims against the non-signatory must be arbitrated.  [But before we get into the merits, I have to ask: what the heck is going on in Alabama?  Is some plaintiffs’ lawyer trolling for cases against dealerships? This is the third arbitration case   involving claims against dealerships coming out of that state’s high court in the last two months!]  Seven plaintiffs brought separate actions alleging that personal financial information they provided the dealership was not safeguarded.  All seven plaintiffs were the victims of identity theft.  They sued the dealership’s LLC, as well as the corporate entity which is the sole member of that LLC (the non-signatory).

Each plaintiff had at some point signed an arbitration agreement with the dealership, but not with the non-signatory.  The court separated plaintiffs into three groups.  The first group, made up of five plaintiffs, established that defendants had waived any argument to enforce the delegation clause at the trial court.  However, the non-signatory was able to compel arbitration with this group using an estoppel theory because: a) the language of the arbitration agreement was not limited to disputes between the signing parties; and b) the claims against the non-signatory were intertwined with the claims against the dealership.  The second group involved a single plaintiff, against whom the non-signatory had preserved its delegation argument.  Therefore the court enforced the delegation clause, sending the issue of arbitrability to an arbitrator.  Finally, in the third group, the court refused to compel arbitration of a plaintiff’s claims because the signed arbitration agreement related to a previous purchase, not the credit application that resulted in identity theft.

West Virginia reached a similar result, albeit through a different analysis, in Bluestem Brands, Inc. v. Shade, 2017 WL 4507090 (W. Va. October 6, 2017).  In that case, Bluestem (aka Fingerhut) had teamed up with banks to offer credit to its customers for Fingerhut purchases.  The credit agreements between the banks and consumers called for arbitration of any disputes.  In response to a credit collection case, Ms. Shade (such a great name for a plaintiff alleging bad deeds) claimed that Bluestem violated West Virginia law with its credit program.  Ms. Shade did not assert claims against the banks.  When Bluestem moved to compel arbitration under the “alternative estoppel” theory, the court held that it could compel arbitration if “the signatory’s claims make reference to, presume the existence of, or otherwise rely on the written agreement.”  (Note that W. Va. did not require the language of the arbitration agreement to encompass more than the signing parties, like Alabama above.)  The court found that Ms. Shade’s claims all were “predicated upon the existence of the credit” agreement, so it was appropriate to compel arbitration of the claims.

So, we have two high courts applying different standards for estoppel.  And we have the Bluestem case reaching the oppose result of a recent federal court in a very similar factual circumstance (the Sunoco case, involving jointly marketed credit cards).  This leaves less than clear guidance for lawyers who are trying to craft arbitration agreements that can stick, no matter the type of case, or who the plaintiff is that is attacking the product.

One of the few “get out of arbitration free” cards that SCOTUS offers litigants is this: find another federal statute that clearly entitles plaintiff(s) to a court trial. In a recent 8th Circuit case, that court carefully considered, and then rejected, the argument that the Age Discrimination in Employment Act (ADEA) constituted that type of “get out of arbitration free” statute.

The claims in McLeod v. General Mills, Inc., 2017 WL 1363797 (8th Cir. Apr. 14, 2017), stem from a 2012 reduction in force at General Mills.  In exchange for severance packages, terminated employees released the company from claims relating to their termination, and agreed to individual arbitration of future disputes.  In McLeod, 33 of those employees sued the company alleging violations of the ADEA.  In response, the company moved to compel arbitration on an individual basis.

The Chief Judge of the District of Minnesota denied General Mills’ motion. He found that the plain language of the statute at issue “requires General Mills to defend the validity of the plaintiffs’ release agreements in court, not in an arbitral forum.” The statute reads: “any dispute that may arise over whether any of the requirements, conditions, and circumstances set forth in [Section 626(f)(1) ] have been met, the party asserting the validity of a waiver shall have the burden of proving in a court of competent jurisdiction that a waiver was knowing and voluntary.” 29 U.S.C. § 626(f)(3) (emphasis added).

On appeal, the Eighth Circuit reversed. It found that the statute relied upon by the district court was not applicable, because General Mills was not asserting the validity of a waiver within the meaning of that statute.  Furthermore, the Eighth Circuit concluded that the ADEA does not grant employees the substantive right to a jury trial or to a class action, but only provides procedural rights that can be waived.

**Yikes – three weeks since my last post. Where was I?  In arbitration of course!

The 9th Circuit’s decision to enforce the arbitration agreement in Uber’s agreements with drivers made lots of news last week.  And although it includes no new principles of law, it does emphasize some principles that come up regularly in consumer and employment arbitration, so it’s worth reviewing the details.

Former drivers brought an action in federal court, alleging two primary things: that when Uber terminated them for having bad consumer credit, Uber violated statutes regulating the use of credit reports; and that Uber had misclassified them as independent contractors.  Mohamed v. Uber Technologies, Inc., __ F.3d __, 2016 WL 4651409 (9th Cir. Sept. 7, 2016).  Uber responded by moving to compel arbitration.  The district court denied the motion, finding that the delegation clauses were not “clear and unmistakable” and that the delegation clauses were unconscionable.

The appellate court disagreed on both fronts.  Critically, the operative agreements had this language in the Arbitration Provision: “Such disputes include without limitation disputes arising out of or relating to interpretation or application of this Arbitration Provision, including the enforceability, revocability or validity of the Arbitration Provision or any portion of the Arbitration Provision.”  Furthermore, the agreements mandated arbitration on an individual basis (precluding class or collective actions).  Drivers could opt out of the Arbitration Provision, but the named plaintiffs did not exercise that option.

The 9th held:

  • The delegation clause — authorizing an arbitrator to determine the validity of the Arbitration Provision — was clear and unmistakable (and therefore likely enforceable).  Although the drivers’ contracts also had venue clauses, providing that San Francisco courts had exclusive jurisdiction, the appellate court found the “conflicts are artificial.”  The venue provisions address the jurisdiction for fights over arbitration or those outside the scope of the Arbitration Provision; they don’t nullify the Arbitration Provision.  [This is an issue that comes up frequently, and the 9th Circuit addressed it head on.]
  • The delegation clause was not unconscionable.  Importantly, the ability of drivers to opt out of arbitration meant the delegation clause could not be procedurally unconscionable (a requisite aspect of unconscionability) under 9th Circuit precedent.  Nor did the requirement that drivers opt out in person or by overnight delivery make the ability to opt out illusory.  The court noted that some drivers successfully opted out.  [While not all federal circuits have addressed this issue, it provides good persuasive authority to use in favor of the conscionability of arbitration agreements with opt outs in any court.]
  • The drivers could effectively vindicate their rights in arbitration.  Plaintiffs argued they could not effectively vindicate their federal statutory rights because they had to split the costs of arbitration, which “may exceed $7,000 per day.”  However, because Uber “committed to paying the full costs,” the court did not reach that legal question.  [By agreeing to just pay the costs, Uber avoided a fight over the costs of arbitration to the drivers and probably helped its chances of winning the appeal.  This is a tactic that other litigants should consider when facing strong opposition to enforcement of an arbitration agreement.]

 

Using a different analysis, but reaching the same result as a recent decision from the Seventh Circuit, the Eleventh Circuit agreed that a defendant could not compel arbitration of consumer claims before the Cheyenne River Sioux Tribal Nation in South Dakota.  Inetianbor v. CashCall, __ F.3d__, 2014 WL 4922225 (11th Cir. Oct. 2, 2014).  The Eleventh Circuit found that arbitral forum was integral to the parties’ agreement, but unavailable, and therefore the dispute could remain in federal court.

The consumer in this case sued the loan servicer in federal court and the servicer moved to compel arbitration.  The loan agreement called for disputes to be “resolved by Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules.”  The district court initially compelled arbitration and the consumer twice tried to demand arbitration.  In response, the Tribe explained it did not conduct arbitration.  (In fact, the Tribal Elder that the servicer chose as an arbitrator explained that the “Tribe has nothing to do with any of this business.”)  Based on that evidence, the district court changed course and refused to compel arbitration.

The Eleventh Circuit affirmed.  First, it found that because the agreement had many references to the Tribe (it was referenced in five of nine paragraphs about arbitration), the choice of that arbitral forum was “integral” to the arbitration agreement.  The pervasive references to the Tribe also prevented the court from using the severability clause to “sever” the choice of forum and compel arbitration in some alternative forum.  Second, the court agreed with the district court that the chosen forum was unavailable.  It noted that the Tribe did not authorize arbitration, the chosen arbitrator refused to serve, and the Tribe lacked any consumer dispute resolution rules.

An interesting aspect of this decision is how the analysis differs from the Seventh Circuit’s analysis of the same provision in August.  The Seventh Circuit refused to enforce the arbitration agreement because it found it: 1) illusory; and 2) unconscionable.  It did not analyze whether the forum was integral to the parties’ arbitration agreement.

Another interesting point of comparison is with the decisions that enforce arbitration provisions, even when they call for an arbitral forum that no longer accepts cases (like the National Arbitration Forum), because the forum was not integral to the parties’ arbitration agreement.  A concurrence in Inetianbor distinguished those cases by noting that the NAF was a valid forum, with relevant rules, when the contracts were drafted and simply became unavailable over time.  In contrast, in these payday loan cases it appears the Cheyenne River Sioux Tribal Nation was never prepared to handle consumer arbitration.

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Other ArbitrationNation News

SCOTUS recently decided NOT to review two arbitration cases.  The first was a decision from the West Virginia Supreme Court, finding an arbitration agreement was not properly incorporated into the parties’ contract.  (Here’s the SCOTUSblog case page.)  The second was a decision from the Ninth Circuit about when to find parties have waived their right to arbitrate.  (Here’s the SCOTUSblog case page.)  To my knowledge, there are no juicy arbitration cases coming up on the Supreme Court’s docket. 🙁

A few months ago, you would have reasonably thought that West Virginia was one of the most anti-arbitration states in the country.  There was not an unconscionability argument that the state didn’t seem to buy with respect to arbitration clauses.  (Recall its arbitration feud with SCOTUS in 2012?)  But, this month, West Virginia’s highest court issued two decisions enforcing arbitration agreements, suggesting it has had a change of heart.

In the first opinion, New v. Gamestop, __S.E.2d__, 2013 WL 5976104 (W. Va. Nov. 6, 2013), the court found an employee handbook was sufficient to create an arbitration agreement between the employee and employer and that the arbitration agreement was enforceable.  The primary argument from the employee was that the agreement was unconscionable because the employer could change it at any time.  (Didn’t I tell you the illusory argument is hot this year?!)

The arbitration agreement provided that “GameStop may from time to time modify or discontinue [its dispute resolution program] by giving covered employees thirty (30) calendar days notice…any such modification…shall be applied prospectively only.”  The court found that the 30-day notice requirement, and the fact that existing disputes would proceed under the terms existing when they were submitted, meant the agreement was not unconscionable

In the second opinion, Ocwen Loan Serv. v. Webster, __S.E.2d__, 2013 WL 6050723 (W. Va. Nov. 13, 2013), the court reversed a circuit court’s denial of a motion to compel individual arbitration.  The lower court had concluded the Dodd-Frank Act prevented arbitration of claims by mortgagees and that the arbitration agreement was unconscionable.

On appeal, West Virginia’s highest court made short work of the Dodd-Frank argument.  (One part of Dodd-Frank provides that residential mortgage loans may not require arbitration.  15 USC § 1639c(e)(1).)  It noted that the named plaintiffs’ mortgage was executed in 2006 while the Dodd-Frank Act was not effective until 2010 and was not retroactive.

With respect to procedural unconscionability, the plaintiffs argued their relative lack of sophistication and lack of counsel.  The court disagreed, finding that presence of counsel is not dispositive and because of language in all caps in the agreement providing “THIS IS A VOLUNTARY ARBITRATION AGREEMENT.  IF YOU DECLINE TO SIGN THIS ARBITRATION AGREEMENT, LENDER WILL NOT REFUSE TO COMPLETE THE LOAN TRANSACTION.”

The plaintiffs argued the arbitration agreement was substantively unconscionable because it waived class actions, restricted attorneys’ fees, lacked mutualty, and limited discovery.  After block quoting ad nauseum from AmEx (reading these opinions, I started to wonder if the members of this court get paid per block-quoted word…), the court concluded that the class waiver did not make the agreement unconscionable.  The court also found that the requirement that each party pay its own attorneys fees, and the lender’s carveout of its foreclosure right (and a few others) from the scope of the arbitration, did not render the agreement unconscionable.  Finally, the agreement’s statement that “discovery in the arbitration proceedings may be limited by the rules” of the provider also did not make the agreement unconscionable.

I am not convinced that West Virginia is a bellwether and other reliably anti-arbitration states may be following suit.  But this is still an interesting shift.

This post is dedicated to a perennial favorite topic: subpoenas for documents in arbitration.  Why this topic and not something hot off the presses?  Because SCOTUS has not yet accepted or denied the cert petition in Sutter, and no cases have come out recently that meet my high standards for discussion on this blog (is it about arbitration?  does it lend itself to a fun title?  at least a fun photo?).

If the arbitration involves interstate commerce, the Federal Arbitration Act governs the issuance of subpoenas.  Section 7 authorizes an arbitrator to “summon in writing any person to attend before them or any of them as a witness and in a proper case to bring with him or them any book, record, document, or paper which may be deemed material as evidence in the case.”  9 U.S.C. § 7.  The section also specifies that if the recipient of the subpoena does not cooperate, the issuing party must bring a motion in the federal district court in “the district in which such arbitrators, or a majority of them, are sitting.”  (If your arbitration does not involve interstate commerce, then the applicable state arbitration act will govern the availability of subpoenas.)

The language of Section 7 has led to a circuit split on whether the FAA authorizes document discovery from third parties.  The plain text of the statute suggests that documents are only available if they are in the possession of a third-party witness who is testifying during the arbitration hearing (but not available in advance of the hearing without a testifying witness).  And, indeed, that is the interpretation that both the Second and Third Circuits have offered in recent years.  E.g., Life Receivables Trust v. Syndicate 102 of Lloyd’s of London, 549 F.3d 210 (2nd Cir. 2008); Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404 (3d Cir.2004).   The Second Circuit characterized its decision as part of an “emerging rule” and a “growing consensus,” probably due in part to the fact that Justice Alito wrote the Hay Group opinion before joining the Supreme Court.

The only strong opposition comes from a  twelve year old decision from the Eighth Circuit, finding that if an arbitrator has the power to order a third-party to bring documents to a hearing, it must also have the power to order that the documents be produced in advance.  In re Arbitration Between Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir.2000).  The Fourth Circuit struck out a middle ground, without the benefit of any of the previously-cited decisions, noting that arbitrators have the power to order third parties to produce documents in advance of the hearing only in cases of special need.  COMSAT Corp. v. Nat’l Sci. Found., 190 F.3d 269, 275 (4th Cir.1999).

Of course, parties have found creative ways around the rule against pre-hearing discovery from third parties.  For example, arbitrators have conducted mini-hearings, in advance of the full hearing on the merits, for the sole purpose of hearing testimony and/or receiving documents from a third party.  See Alliance Healthcare Services, Inc. v. Argonaut Private Equity, LLC, 804 F. Supp. 2d 808 (N.D. Ill. 2011).   In addition, the rules of the forum may authorize third-party discovery before a hearing (FINRA does, for example).

Assuming the arbitrator has the power to subpoena a third party for documents in advance of the hearing, are there any limits on who those third parties can be?  In particular, can they be outside the state where the arbitration will occur, or more than 100 miles from the hearing site (the limitations in FRCP 45)?  Again, courts are split on whether the geographic limitations of Rule 45 apply in the arbitration context.  A number of courts find the limits do not apply.  E.g., In re Arbitration Between Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir.2000); Festus & Helen Stacy Fdn. v. Merrill Lynch, 432 F. Supp. 2d 1375, 1378 (N.D. Ga. 2006).  Other courts hold that the geographic limitations apply equally to arbitration and court subpoenas.  E.g., Legion Ins. Co. v. John Hancock Mutual Life Insurance Co., 2002 WL 537652, at *27–28 (3d Cir. April 11, 2002).   Finally, other courts get around the perceived unfairness of arbitration subpoenas being limited to third parties in a certain geographic radius by using FRCP 45(a)(3)(B) as a gap-filler of sorts, allowing for the issuance of third-party subpoenas outside the federal district where the arbitration hearing will proceed.  See Ferry Holding Corp. v. GIS Marine, LLC, 2012 WL 88196 (E.D. Mo. 2012).

In short, subpoenaing documents from third parties is an area where the law is in flux, so you want to reserve your requests for third parties whose documents are critical and merit the expense of fighting over whether they should be produced. The issuing party must check the precedent in the federal district where the arbitration hearing will take place to see if pre-hearing document discovery is allowed and whether it is restricted to the geographic limits of Rule 45.  If courts in the relevant district have limited the reach of subpoenas for documents, you will need to get creative to get your discovery.  For those who want to object to a subpoena for documents from an arbitrator, you can bring to bear all the usual objections under Rule 45, as well as the unique arbitration-related objections that document discovery from third parties is not available in arbitration.

Three federal circuit courts have recently looked at the shelf-life of an arbitration agreement.  Can it apply even before the contract is effective?  What about after a successor takes over the relationship?  What if one party unilaterally changes its terms?  The answer is that a properly worded arbitration agreement can apply in all those instances, with appropriate notice.

In Gove v. Career Systems Development Corp., ___ F.3d ___, 2012 WL 2892472 (1st Cir. July 17, 2012), a pregnant woman applied for a job and was rejected.  After she sued in federal court alleging gender discrimination, the defendant moved to compel arbitration based on a provision in the job application stating that her “submission of this Employment Application constitutes [her] agreement that the procedure set forth in the Arbitration Agreement will also be used to resolve all pre-employment disputes.”  The district court denied the motion to compel and the First Circuit affirmed that ruling. 

The appellate court found that the language “pre-employment disputes” was susceptible to two meanings: either the period of time between applying and discovering whether or not the applicant obtained the position; or only the process leading up to an actual hiring of the applicant, because “pre-employment” assumes employment.  Therefore, the agreement was ambiguous and the court construed it against the drafter, the defendant.  Interestingly, the court noted that the contract rule of interpreting language against the drafter conflicted with the arbitration rule of construing ambiguity in favor of arbitration, and said that under the applicable state law, the contract interpretation rule trumped (which elicited a significant dissent).

In another employment dispute, Dawson v. Rent-A-Center, Inc., 2012 WL 3038175 (6th Cir. 2012), the employee had entered into an arbitration agreement with Rent-Way, Inc.  After Rent-Way became a subsidiary of Rent-A-Center, Inc. through a merger, the employee sued Rent-A-Center for racial discrimination.  Rent-A-Center moved to compel arbitration and the district court denied the motion, finding insufficient continuity between Rent-Way and Rent-A-Center.  The Sixth Circuit reversed, noting that the arbitration agreement defined Rent-Way to include “its present and future parents, subsidiaries, affiliates, successors and assigns.”  Because Rent-A-Center is a “successor” to Rent-Way by virtue of the merger, and because the applicable state law binds all successor corporations to assume the predecessors’s liabilities, the court concluded that Rent-A-Center could enforce the arbitration agreement at issue.

Filho v. Safra Nat’l Bank of N.Y., 2012 WL 3023805 (2d Cir. July 25, 2012), dealt with a successor agreement, not a successor corporation.  In it, a customer’s original agreement with a bank did not require arbitration.  But, it did authorize the Bank to change the terms of the agreement, and three years later the bank changed its general terms to include an arbitration clause.  However, the customer said he never received notice that the terms had changed.  Because the Second Circuit found the bank had not sufficiently proven that the customer received actual or constructive notice of the change in the term, it remanded the case to the district court for a trial on that issue.

**ARBITRATION NATION IS ALMOST ONE YEAR OLD!  Help me celebrate by following my arbitration news on Twitter (@KramerLiz) and/ or subscribing to this blog (via the button on the right of www.arbitrationnation.com).  It’s the Summer Lovin’ campaign!  **