While regular people count down the days to summer blockbusters that come in the form of high-paid actors fighting aliens or robots, I prefer my summer blockbusters in the form of arbitration opinions that have been months in the making (maybe finally released because the clerks are about to turn over?). Today, I report on three of these arbitration blockbusters, all from state high courts.
Blockbuster 1: New Hampshire Rejects Application of FAA.
In the most ambitious of the three decisions, the New Hampshire Supreme Court found that the FAA’s sections regarding confirming and vacating awards do not apply in state courts. Finn v. Ballentine Partners, LLC, __ A.3d __, 2016 WL 3268852 (NH June 14, 2016) (an opinion that took five months to produce). In that case, a company ousted one of its founders, and she instituted an arbitration challenging her termination. She was awarded about $6.5 million. After the company engaged in some major restructuring, which resulted in lots of cash, the ousted founder started a new arbitration. Although the company argued her claims were barred by res judicata, the second arbitration went all the way through hearing and she was awarded another $600,000.
The New Hampshire Supreme Court refused to confirm the award. Because the FAA allowed no avenue for vacating the award, the court based its decision on a state statute allowing courts to vacate an award for “plain mistake.” The founder had argued that the state statute was preempted by the FAA. The court responded that “we conclude that §§ 9-11 of the FAA apply only to arbitration review proceedings commenced in federal court.” WAIT, WHAT?? (Truly, this stuff is what keeps me blogging. There is never a dull moment with state courts and arbitration law.)* The court essentially found that since most of the state court cases that have ended up at SCOTUS were about enforcing arbitration agreements in the first place, enforcing arbitration agreements is the limit of the FAA’s application in state courts. (“Preemption… is at its apex when parties cannot get to arbitration… In contrast, state rules . . . without the potential consequence of invalidating an arbitration agreement are not preempted.”) Having gotten that pesky FAA out of the way, the court easily found that the failure to apply res judicata as the court interprets it was a “plain mistake” and reversible error.
Blockbuster 2: Michigan Allows Law Firm To Compel Arbitration Of Suit Against Its Principals
Michigan’s decision has more interesting facts but less of a jaw-dropping result. In Altobell v. Hartmann, __ N.W.2d__, 2015 WL 3247615 (Mich. June 13, 2016), a principal in a law firm had gotten the chance to be an assistant football coach at the University of Alabama. (What attorney has a second act as a football coach? I imagine him giving his clients half-time type pep talks during trial: “Clear eyes. Full hearts. Can’t lose!”) He got the impression that his firm would allow him to keep his ownership interest for a year, but the firm audibled and declared the coach had withdrawn from the partnership. No law firm money was coming his way.
The coach then sued seven principals of the law firm in court, and the firm moved to compel arbitration. Although the lower courts had found that naming individual defendants was sufficient to avoid his arbitration agreement with the firm, the Michigan Supreme Court sided with common sense. The arbitration agreement called for binding arbitration of any dispute “between the Firm…and any current or former Principal.” The court found it “must consider the concept of agency” in interpreting whether the firm was meant to include the individuals who makes its decisions. Therefore, the court found claims against the individual defendants were arbitrable, and the coach’s claims were also within the scope of the arbitration agreement.
Blockbuster 3: Kentucky Finds CPA Determination Is Not “Arbitration”
Kentucky waded into the muddy issue of defining arbitration in The Kentucky Shakespeare Festival, Inc. v. Dunaway, __ S.W.3d__, 2016 WL 3371085 (Ky. June 16, 2016). In that case, a theater fired its director but agreed to pay his bonus for 2013. The agreement noted that “the parties agree to abide by the determination of the … certified public accountants…in case of a dispute as to the true amount of the net profits, and each party agrees to accept such determination as final.” After the CPAs concluded the director was entitled to no bonus, the director filed suit. A year later, the theater filed for summary judgment, arguing the CPA determination was a binding arbitration award. The district court denied the motion and the intermediate appellate court agreed.
The Kentucky Supreme Court affirmed for two reasons. First, it found even if the language was binding, it related only to “net profits” not to the director’s bonus. But more interestingly, it rejected the concept that this was an arbitration clause, as it “makes no express reference to arbitration”, did not allow for “fundamental components of due process” like presenting evidence and cross-examining witnesses, and the agreement had a general venue provision selecting Kentucky state court.
Speaking of defining arbitration, watch for an upcoming post about how courts around the country are trying to put some parameters on what is and is not an arbitration.
*Would love to hear from any academic types who have looked into this argument. What about these statements from SCOTUS, not limited to Sections 2-4 of the FAA??
- “State and federal courts must enforce the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., with respect to all arbitration agreements covered by that statute.” Marmet Health Care Ctr., Inc. v. Brown, 132 S. Ct. 1201, 1202, 182 L. Ed. 2d 42 (2012).
- “It is well settled that ‘the substantive law the Act created [is] applicable in state and federal courts.’” Nitro-Lift Technologies, LLC v. Howard, 133 S.Ct. 500, 503 (2012).