Supreme Court Rejects an International Arbitration Case

By Russ Bleemer

The U.S. Supreme Court this morning declined to hear the international arbitration case of Big Port Service DMCC v. China Shipping Container Lines, No. 20-128.

The issue in the case was the standard for issuing an injunction related to arbitration–specifically, “Whether the U.S. Court of Appeals for the 2nd Circuit erred in recognizing a cause of action for a party seeking to avoid arbitration and in concluding that courts have remedial power — untethered to any federal statute and unconstrained by the Supreme Court’s precedents governing the grant of injunctive relief — to issue injunctions against arbitration.”

The Second Circuit’s March 5 unpublished summary order (available at https://bit.ly/3lD1IpA) stands. It affirmed a U.S. District Court order barring U.S. arbitration in the case, deferring instead to the Singapore High Court which had determined that there was no agreement to arbitrate, according to court decisions and papers filed in the case.

The case is six years old. While Big Port took the matter to the nation’s top Court, the parties continued to litigate the costs incurred while the U.S. actions were stayed and the case proceeded in Singapore. 

China Shipping’s request for attorneys fees went to a report and recommendation by a federal judge, which was adopted in August by another New York Southern District federal court judge.  China Shipping sought more than $45,000 in attorneys fees against Big Port, but was awarded just $43.20 in copying and other administrative fees by the report, and the case. See China Shipping Container Lines Co. v. Big Port Service DMCC, 15 Civ. 2006 (AT) (DF) (S.D.N.Y. Aug. 19, 2020) (available at https://bit.ly/36A2Jsi).

The Supreme Court’s Big Port case page, with the cert petition and briefs in the case, is available at https://bit.ly/36yOfJ2.

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The author edits Alternatives to the High Cost of Litigation for CPR.

[END]

Section 1782 Circuit Split Update: 7th Circuit says Law Doesn’t Include Arbitration, as 9th Circuit Hears Arguments

By Joseph Famulari

As the new Supreme Court year has commenced and confirmation hearings for a new justice dominate the legal news this month, federal circuit courts have continued to discuss an arbitration issue getting closer to a Court hearing: Does 28 U.S.C. §1782(a), authorizing “any interested person” in a proceeding before a “foreign or international tribunal” to ask for and receive discovery from a person in the United States, cover private international arbitration tribunals?

There is a lot of activity in this area, including a recently issued Seventh U.S. Circuit Court of Appeals decision; completed arguments in the Ninth Circuit now awaiting decision, and a long-pending Third Circuit appeal.  These are latest additions to the saga concerning an issue once thought to be settled upon more than two decades ago in National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2nd Cir. 1999) and reaffirmed in the Fifth Circuit Republic of Kazakhstan v. Biedermann Int’ l, 168 F.3d 880 (5th Cir. 1999).

These cases excluded private arbitration tribunals from §1782 discovery, indicating that a private international arbitration tribunal was not a “foreign or international tribunal” within the statutory framework.

The current state of the §1782 law has produced a federal circuit court split. The Sixth Circuit and Fourth Circuit have issued opposing decisions finding that discovery for foreign arbitral tribunals was permitted in, respectively, In re Application to Obtain Discovery for Use in Foreign Proceedings (Abdul Latif Jameel Transp. Co. v. FedEx Corp.), 939 F.3d 710 (6th Cir. 2019) (available at https://bit.ly/2AFPIB9), and Servotronics Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020) (available at https://bit.ly/3h7s0P8), using the only §1782 case considered by the Supreme Court, Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) as guidance.

While Intel did not expressly state whether a private international arbitration tribunal would fall under §1782, the late Justice Ruth Bader Ginsberg cited a 1965 Columbia Law Review article written by her former Columbia Law School colleague, Prof. Hans Smit, who participated in the creation of the 1964 update to the law.

The article noted an expanded view of the term “tribunal” in the context of the U.S. Code: “the term ‘tribunal’ includes investigating magistrates, administrative and arbitral tribunals,and quasi-judicial agencies, as well as conventional civil, commercial, criminal, and administrative courts.” Id. at 248-49 (citing Hans Smit, International Litigation Under the United States Code, 65 Colum. L. Rev. 1015, 1026, n.71 (1965)). For a full discussion, see John B. Pinney, “Will the Supreme Court Take Up Allowing Discovery Under Section 1782 for Private International Arbitrations?” 38 Alternatives 103 (July/August 2020) (available at https://bit.ly/38PDOSk).

More recently after Abdul Latif Jameel and Servotronics, in July, Circuit Judge Debra A. Livingston, writing for a Second Circuit panel, reaffirmed its prior decision that foreign arbitration tribunals do not fall under §1782. In re Application and Petition of Hanwei Gup for an Order to take Discovery for Use in a Foreign Proceeding Pursuant to 28 U.S.C. 1782 (Guo v. Deutsche Bank Securities Inc.), No. 19-781, 2020 WL 3816098 (2d Cir. July 8, 2020), as amended (July 9, 2020) (available at https://bit.ly/3j5dUxx);  See also Yixian Sun, “Second Circuit: No U.S. Discovery for Private International Arbitration,” CPR Speaks blog (July 14) (available at https://bit.ly/2PtNSra)  for more on the Second Circuit decision.

Event more recently, the Seventh Circuit provided further guidance in another Servotronics case involving the same parties as the Fourth Circuit. Chief Judge Diane S. Sykes, writing for a unanimous panel, wrote that §1782 does not authorize the district court to compel discovery for use in a private foreign arbitration. Servotronics Inc. v. Rolls Royce PLC, No. 19-1847 2020 U.S. App. (7th Cir. Sept. 22, 2020) (available at https://bit.ly/3dpNyF4).  

As noted, it’s the second federal circuit court decision in the same case in six months—again, Servotronics Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020) (available at https://bit.ly/3h7s0P8)–which held that §1782’s phrase “foreign and international tribunals” included private international arbitral tribunals. Last month’s Seventh Circuit decision reached the opposite conclusion.

In the Seventh Circuit case, after a $12 million settlement between Rolls-Royce and Boeing, arising from damages due to a faulty valve, Rolls-Royce sought indemnification from Servotronics Inc., the valve manufacturer. Id.at 2. Due to an agreement between the companies, the dispute was set for arbitration in Birmingham, England, under the rules of the Chartered Institute of Arbiters. 

During the proceedings, Servotronics invoked §1782 and filed an ex parte application in the Illinois Northern U.S. District Court, asking the court to issue a subpoena compelling Boeing to produce documents for use in the arbitration. Rolls-Royce and Boeing intervened to quash the initially granted subpoena; Servotronics appealed, prompting review from the court. Id.

Chief Judge Sykes laid out multiple reasons for the court’s conclusion. First, the panel assessed whether looking at the various definitions of the word “tribunal” could guide the understanding of the phrase “foreign or international tribunal” as meaning only state-sponsored tribunals, or also include private arbitration panels. Id. at 9. Due to the plausibility of both interpretations, however, the court found assessing dictionary definitions inconclusive. 

Sykes then assessed the word “tribunal” within its statutory §1782 context and noted that the term’s more expansive reading “becomes far less plausible.”  The court looked at the 1958 statutory charge from the Commission on International Rules of Judicial Procedure, the proposal that sparked the 1964 change in §1782. Chief Judge Sykes noted the absence of any instruction to study and recommend improvements in judicial assistance to private arbitration. 

Additionally, when looking at the statutory context, the court assessed the other statutes the 1964 legislation revised besides §1782: 28 U.S.C. §1696, on service of process in foreign litigation and §1781, regarding letters rogatory. The court looked at the phrase “foreign or international tribunal” within those other statutes, which address comity matters between governments.  The opinion states that in the context of those laws, the phrase “means state-sponsored tribunals and does not include private arbitration panels.” Id.at 12.

When looking at the phrase, it appears three times during §1782:

  1. authorizing the district court to order discovery “for use in a proceeding in a foreign or international tribunal.”
  2. Authorizing the court to act on a letter rogatory issued by “a foreign or international tribunal,” and
  3. Where the statute provides that the court’s discovery order “may prescribe the practice and procedure, which may be in whole or part the practice and procedure of the foreign country or international tribunal.” [Emphasis is the court’s.]

The court uses this context to conclude that a limited, governmental-based definition of “foreign tribunal” is likely the intended meaning.

Next, the court addressed how a narrow understanding of the word “tribunal” avoids a severe conflict with the Federal Arbitration Act. The FAA permits the arbitration panel, but not the parties, to summon witnesses before the panel to testify and produce documents and petition the district court to enforce the summons. The opinion lays out how if §1782 were construed to permit federal courts to provide discovery assistance in private foreign arbitrations, then litigants in foreign arbitrations would have access to much more expansive discovery than litigants in domestic arbitrations. 

Finally, Chief Judge Sykes discussed the Intel and the Servotronics courts’ reliance on the reference to Hans Smit’s law review article. She explains that there is no indication that the phrase “arbitral tribunals” includes private tribunals, but even if there were, there is “no reason to believe” that the Supreme Court, “by quoting a law-review article in a passing parenthetical, was signaling its view that §1782(a) authorizes district courts to provide discovery assistance in private foreign arbitrations.” 

* * *

In a recent article, author John Pinney, a senior trial lawyer at Cincinnati’s Graydon law firm, noted that he believes a Seventh Circuit decision in line with the Second and Fifth Circuit courts would increase the likelihood of Supreme Court review for two reasons:

  1. It would create a direct circuit split between the Fourth and Seventh Circuits in the very same case; and
  2. It would mean that Servotronics, as the loser in the Seventh Circuit case, likely would then take that case to the Supreme Court even if the South Carolina district court in the Fourth Circuit dismissed its §1782 proceeding.

John B. Pinney, “Update: The Section 1782 Conflict Intensifies as the International Arbitration Issue Goes to the Supreme Court.” 38 Alternatives 125 (September 2020) (available at https://bit.ly/3k0eNIR).

Servotronics is considering a rehearing or appeal to the U.S. Supreme Court. In an email, Pinney explains that time for filing a certiorari petition for the Second Circuit’s Guo case and the Seventh Circuit version of the Servotronics case “remains open.”

Pinney notes that under the Supreme Court’s Covid-19 order, the deadline for all certiorari petitions has been extended to 150 days from 90 days. It is unknown how long this extension will last but, Pinney notes, for the purposes of the current rule, the Second Circuit’s Guo decision was issued on July 8 and was revised a day later. “Accordingly,” notes Pinney, “the last date for the filing for certiorari is Monday, Dec. 7, 2020.”

Pinney adds that an arbitration award was expected to be issued in August, and it’s likely the case is moot, dampening cert prospects.

With similar math, Pinney says that the Seventh Circuit’s Servotronics case deadline for a cert filing is Feb. 19, 2021. 

* * *

While the Seventh Circuit joined the Fifth and Second Circuits, the Ninth Circuit is still making its determination on §1782 after hearing arguments on Sept. 14 in HRC-Hainan Holding Co. L.L.C. v. Yihan Hu, No. 20-15371 (video of the arguments is available at https://bit.ly/34V2p6A).

During the arguments last month, both parties explained the importance of the Ninth Circuit ruling on this issue given the circuit split and the likelihood of the issue coming up again in a similar suit between the parties.

Katherine Burghardt Kramer, arguing for the appellant, Yihan Hu, claimed that the phrase “foreign and international tribunal” is ambiguous within the context of §1782. She argued that while the phrase “tribunal” could be interpreted as including arbitration, it also could be interpreted as excluding it. 

Circuit Judge Michelle T. Friedland inquired whether the legislative history should be looked at by the panel. Kramer, a partner in New York’s DGW Kramer LLP, responded that inference from silence could be drawn. She asked that if Congress had intended the 1964 amendment to expand the scope to private arbitration, why wasn’t it mentioned? 

Circuit Judge Paul J. Watford asked why the statute should not include private arbitration. Katherine Kramer explained that the mandate told Congress to look at courts and quasi-judicial agencies. Because arbitration is a “privately constituted body that hears your disputes and then disbands,” it is different from a government-sanctioned court or quasi-judicial agency, she argued.

Watford asked why the court should not view these arbitrations as adjuncts of the countries’ established court systems. He acknowledged it was not a direct relationship, but that these arbitrations provide an auxiliary role, and that he assumes that China, the international venue in question, likely has similar mechanisms.

Attorney Kramer disagreed with linking arbitration to judicial systems, and discussed the finality of arbitrations–that there is no way to remedy a bad decision on the merits within the court system.

Circuit Judge Eric D. Miller also highlighted the relevance of §1781, where, according to Katherine Kramer, the phrase “foreign or international tribunal . . . would not make sense” if it included private arbitrations, creating an implication of governmental involvement. 

Grant Kim, arguing for the appellee, HRC-Hainan Holding, looked at the historical context of the 1964 amendment. He said that in 1958, when the international commission mandate came out, the United States “was just entering the world stage,” coupled with an increase in businesses investing overseas. Kim claims that the government had an incentive to modernize its ability to cope with this expansion of international business activity.

He said that the mandate focused on the private activities of U.S. citizens doing business abroad and that there should be no doubt international arbitrations are a part of this. People would not be investing in China if there was no sound system like CIETAC to handle disputes, highlighting the importance of private arbitrations. 

CIETAC is the China International Economic and Trade Arbitration Commission, which was conducting the arbitration in the case.

While Kim, a partner in the LimNexus law firm in San Francisco, admitted that the statute does not expressly include or exclude private international arbitrations as a “foreign or international tribunal,” he notes the old version of §1782 had language that said, “that is established pursuant to an agreement between the United States and a foreign government.” Kim explained that the statute already had an exemplar but dropped it. He claimed this is the most compelling piece of legislative history there is. 

Judge Watford asked Kim about the context of “foreign or international tribunal” within §1781. Kim noted that terms may have different meanings within different statutes. He also noted the judicial usage of the phrase has not suggested that tribunal can only mean court. 

When speaking on policy, Kim argued it would be a strong position to promote arbitration in this way. He explained that §1782 is typically used for third parties outside of the United States, and the tribunal will likely not have jurisdiction, so assisting in discovery with the U.S. statute would be especially crucial to fair results and efficiency. Ultimately, Kim argued that judges and arbitral tribunals’ discretion should be trusted to handle the process and streamline where they can. 

Both arguments make excellent points, and time will tell where the Ninth Circuit court falls on this issue. A few things are clear beyond the ambiguities in the term “tribunal,” including its context within §1782, and what Intel sought to achieve by referencing Smit’s article, which has been interpreted differently between the Circuit Courts.  Supreme Court clarification on §1782 is much needed, so neutrals, stakeholders, and parties within arbitrations can best prepare themselves and adapt to potential changes in the discovery process that may be looming. 

* * *

Finally, another §1782 case, EWG Gasspeicher GMBH v. Halliburton Co., Case No. 20‐1830, is on appeal but has not yet been taken up by the Third Circuit.  A Notice of Appeal was filed on April 16, 2020, after a March 17 decision (available at https://bit.ly/309GCYb), by Delaware U.S. District Court Judge Richard G. Andrews, who denied §1782 application for use in an arbitration under the German Arbitration Institute (DIA) rules.

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The author, a CPR Institute Fall 2020 intern, is a second-year law student at Brooklyn Law School.

[END]

The Nominee and ADR: Circuit Judge Barrett on Arbitration

By Alice Albl

Seventh U.S. Circuit Court of Appeals Judge Amy Coney Barrett, whose nomination hearings before the Senate Judiciary Committee concluded last week, was on the federal circuit court based in South Bend, Ind., for less than three years before being nominated by President Trump for the Supreme Court on Sept. 26.

This small window has not allowed much time for alternative dispute resolution decisions. There are five opinions involving ADR in which Circuit Judge Barrett participated, four authored by the nominee and one on which she served as a panelist. The cases primarily are centered around employment law.

Barrett is a prolific academic, having written extensively about civil procedure, legal construction, evidence rules, and constitutional originalism over her 23-year career. She has taught at her alma mater, Notre Dame Law School, since 2002. See her University of Notre Dame Faculty Directory page at https://bit.ly/34WMa9h.

Barrett did not mention any work focused on ADR in her self-reported “Questionnaire for Nominee to the Supreme Court” to the U.S. Senate. The questionnaire is posted on the Senate Judiciary Committee’s website at https://bit.ly/3jdqBX1.  

Barrett has given several presentations on her time clerking for the late Justice Antonin Scalia. Her style echoes Scalia’s by favoring a narrow, textualist interpretation of the law. See Imre Szalai, “Judge Amy Coney Barrett & the FAA – A Disciple of Scalia,” Outsourcing Justice blog (Setp. 27) (available at https://bit.ly/2H2hb3K). 

On ADR issues, Barrett also has followed in Scalia’s footsteps by demonstrating a distaste for class actions. But she apparently does not share Justice Scalia’s strong views on the progress of ADR. See George H. Friedman, Securities Arbitration Alert blog (Oct. 1) (available at https://bit.ly/3k8QKYc) (in which Friedman covers the cases here and adds discussion of a Legaspy v. FINRA, No. 1:20-cv-04700, in which Barrett joined a panel denying a motion for a temporary restraining order to stop a pandemic-era video arbitration.)

Apart from her ruling in Herrington v. Waterstone Mortgage Corp. (see below), mirroring Scalia’s perspective on class-action suits, Circuit Judge Barrett’s ADR opinions have been filtered through analyses of civil procedure, textualism, and the rules of evidence. Id. All three are topics heavily present in Barrett’s academic writing. See the Senate link above.

The following is an overview of the five ADR-related decisions in which Circuit Judge Amy Coney Barrett participated, four written by the nominee, and one for which she served as a panelist:

  1. Wallace v. Grubhub Holdings Inc., 970 F.3d 798 (7th Cir. 2020) (available at https://bit.ly/33MvFwX).   

In organizing a class-action suit against defendant Grubhub for an alleged violation of the Fair Labor Standards Act–referred to in this post as the FLSA–plaintiff Wallace had to contend with the fact that all members of the class had signed an agreement to settle disputes with the defendant through arbitration.

Wallace requested to have the class recognized as exempt from arbitration under FAA Section 1, normally reserved for interstate transportation workers, because the class members transported food that generally included ingredients brought across state lines. The plaintiff said that the residual clause in the Section 1 exception, “any other class of workers engaged in foreign or interstate commerce,” applied.

The plaintiff’s request was denied by the lower court. In her Seventh Circuit opinion, Barrett similarly rejected the designation. This firmly placed the Seventh Circuit on one side of a debate about the scope of Section 1 as it applies to workers and interstate commerce. See, e.g., Michael S. Kun, “Ninth Circuit Conclusion that Amazon Delivery Drivers Don’t Need to Arbitrate their Claims under FAA’s ‘Transportation Worker’ Exemption Highlights Conflict among Courts,” Wage and Hour Defense Blog Epstein Becker Green (Aug. 24) (available at https://bit.ly/37hpza1), and Kris Olson, “FAA exemption extend to ‘last mile’ drivers,” New England In-House blog (Aug. 24) (available at https://bit.ly/3lZLYNm).

This issue involves the Supreme Court’s decision in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu), which stated that the Section 1 phrasing—“…nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”–should only be applicable for “transportation workers,” but left the meaning of “transportation workers” open to interpretation.

The Grubhub delivery workers in the case contested that they were independent contractors, and contended they are employees, in suits around the country.

Some courts have allowed the breadth of “transportation workers” to expand through comparison with the FLSA’s use of the term, or a historical analysis.  See, e.g., Waithaka v. Amazon.com, Inc., 966 F.3d 10 (1st Cir. 2020); Rittman v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020). Circuit Judge Barrett wielded textualism to create a test featuring a narrower version of the term.

Her analysis began with the interpretative canon ejusdem generis as defined by Justice Scalia in his book on statutory interpretation. Antonin Scalia, Reading Law: The Interpretation of Legal Texts 199 (2012) (“Where general words follow an enumeration of two or more things, they apply only to persons or things of the same general kind or class specifically mentioned.”) The canon states that generic terms at the end of lists including specific items should be interpreted to only include things similar to the specific items.

While other courts used ejusdem generis to allow FAA Sec. 1 language to include any workers involved in the “flow” of interstate commerce (see Rittman above), Circuit Judge Barrett tested for whether interstate commerce was a “central part of the class members’ job description.”

The plaintiff’s class did not pass the test, and the exception to arbitration under the FAA did not apply. According to Barrett, even though GrubHub workers delivered goods from other states, or even countries, that interstate aspect was characteristic of the goods and not the role served by the worker. This made them unlike railroad workers and seamen whose jobs focused on “the channels of commerce.”

Barrett distinguished the earlier New Prime Inc. v. Oliveira, 139 S.Ct. 532 (2019) (holding that an independent contractor’s contract is a “’contract of employment’ within the FAA Sec. 1 language that excepts such contracts from FAA application), which involved goods in interstate commerce. She wrote that the New Prime distinction between independent contractors and employees wasn’t a part of the case.

Author George Friedman noted last week that Wallace came up at Circuit Judge Barrett’s confirmation hearings.  See his account at “No Surprise Here: Arbitration Comes Up At Coney Barrett Confirmation Hearings,” Securities Arbitration Alert (Oct. 16) (available at https://bit.ly/37gsm3d).

Barrett sat on a panel that issued an opinion on giving notice to employees for a collective-action suit under the FLSA. The panel wrote that when a court considered allowing employees to opt-in to a collective-action FLSA suit, it was the defendant employer’s burden to prove whether those employees were ineligible or already bound to arbitration.

In this case, the plaintiff-employee Bigger brought an action against the defendant-employer Facebook. She alleged that the company should have paid overtime to her position and another, similar role. The plaintiff asked the lower court for authorization to form a collective-action suit. Notice of the suit was to be sent to every individual in the United States who worked in either of the roles. The lower court granted this authorization.

Facebook appealed to the Seventh Circuit, saying the court had erred because most would-be plaintiff employees had already entered arbitration agreements precluding litigation, so giving them notice about the suit would be misinformation. The defendant further argued that an inflated number of employees attempting to enter the collective-action suit would create undue pressure for a settlement.

The Seventh Circuit panel acknowledged the logic of the defendant’s argument but declined its request to deny plaintiff Bigger authorization for the formation of a collective action. Instead, the panel created a set of instructions. After a plaintiff had contested the existence of applicable arbitration agreements, it was the defendant’s responsibility to demonstrate that these agreements not only existed but precluded entrance into the collective action. Proof had to be given for every individual who would be precluded and not receive notice about the collective-action suit.

“Specifically, the court on remand should allow the parties to submit additional evidence on the existence of valid arbitration agreements between Facebook and proposed notice recipients,” wrote Circuit Judge Michael S. Kanne, joined by Supreme Court nominee Barrett and Seventh Circuit Chief Judge Diane P. Wood, adding, “If Facebook proves that certain proposed recipients entered valid arbitration agreements waiving their right to join the action, or if Bigger does not contest that those employees entered such agreements, the court may not authorize notice to those employees.”

In reviewing the enforcement order of a $10 million-plus arbitration award for employees, Circuit Judge Barrett vacated the award entirely. She held for a unanimous panel that “the availability of class or collective arbitration is a threshold question of arbitrability” and therefore, goes to the court, not the arbitrator. In the case, the arbitrator had allowed the plaintiff to pursue a collective action but, as stated in Barrett’s opinion, only the court had the authority to make such a decision.

The defendant argued that, even with the waiver struck, it only agreed to bilateral arbitration, with no consent given to class- or collective-action. Instead, the arbitrator used the rules chosen by the parties to control their arbitration proceedings to justify permitting the plaintiff’s class/collective-action suit. 

Plaintiff Harrington contested the validity of the agreement to arbitrate that she had signed with defendant Waterstone. While the lower court determined that the agreement was valid, it struck a waiver in the contract that barred others from joining the suit. The court gave an order to the arbitrator that the plaintiff “must be allowed to join other employees to her case.” The arbitrator then allowed the plaintiff to proceed with a collective action, in which employees could opt into the matter.

Barrett disagreed with the move. Allowing a class/collective-action was a question of “arbitrability” that bore upon the fundamental terms and legal validity of the arbitration, and was reserved for the court. Although the Seventh Circuit had not previously recognized the authorization of collective action as a question of arbitrability, identifying it this way fell in line with every other circuit court to decide on the matter. See, e.g., Del Webb Communities Inc. v. Carlson, 817 F.3d 867, 877 (4th Cir. 2016), and  Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013), among others Barrett cites. 

According to Circuit Judge Barrett, “The availability of class or collective arbitration involves a foundational question of arbitrability: whether the potential parties to the arbitration agreed to arbitrate.” She noted that decisions on class/collective-action suits were questions of arbitrability in three different ways. First, they affected who would participate in an arbitration. Second, they affected the scope of an arbitration. Third, these decisions affected the structure of an arbitration. 

The late Justice Antonin Scalia had strong opinions on how class-collective-suits affect the structure of an arbitration, and Barrett devoted most of her attention to this factor. Citing heavily Scalia’s AT&T Mobility LLC v. Concepcion opinion, Barrett reiterated her mentor’s viewpoint, stating that the structural shifts caused by switching to class/collective-action gives up the advantage of informality in an arbitration. AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011). She described this as “reduced efficiency.” 

Barrett concluded her analysis of the structural aspect of class/collective-action arbitration by referencing another Scalia misgiving, that the finality of arbitration increases the risk for defendants when facing potentially thousands of plaintiffs in class/collective-suits. Barrett projected the risk of this finality onto arbitration as a whole, an association that Prof. Szalai of Loyola Law School found contentious.

In his blog, “Outsourcing Justice,” linked above, Szalai wrote that Barrett’s arbitration view would be in good company among the conservative justices of the Supreme Court, saying that, overall, the Court’s arbitration decisions have been critiqued as reflecting “an overly-simplistic manner [that] tend to conceptualize arbitration as a homogeneous process, and they sometimes have flawed assumptions or preconceived notions regarding arbitration.“

Nevertheless, plaintiff Herrington’s case was allowed to continue.  Barrett remanded the case on behalf of the appellate panel to the district court, rather than the arbitrator, to evaluate whether Herrington’s contract with Waterstone permitted class or collective arbitration.

  • Webb v. Financial Industry Regulatory Authority Inc., 889 F.3d 853 (7th Cir. 2018), (available at https://bit.ly/3iNuh1l).

In writing for the court, Barrett declined to consider the applicability of arbitral immunity. Instead, she determined that the lower court had erred in allowing the case to be heard at all, because it was not within federal jurisdiction.

Plaintiff Webb and a colleague filed suit when a dispute with their former employer could not be resolved in defendant FINRA’s arbitration forum after two-and-a-half years.

The plaintiffs sought damages “in excess of $50,000” in Illinois state court, alleging that the defendant had mismanaged the arbitration—”including failing  to  properly  train  arbitrators,  failing  to  provide  arbitrators  with  appropriate  procedural  mechanisms,  interfering  with  the  arbitrators’  discretion,  and  failing  to  permit  reasonable  discovery.”

The defendant responded by removing to federal court, then moving to have the case dismissed on multiple grounds, including arbitral immunity. This doctrine protects arbitrators from civil liability when performing their duties as neutrals. The lower court decided that the doctrine was applicable and granted the defendant’s motion. Webb v. Fin. Indus. Regulatory Auth., Inc., No. 16-CV-04664 (N.D. Ill.  2017), vacated, 889 F.3d 853 (7th Cir. 2018). The plaintiffs appealed to the Seventh Circuit.

Barrett declined to apply arbitral immunity, but found that the lower court had erred in allowing the case to be heard at all. The damages the plaintiffs sought either could not be recovered under controlling Illinois law, or did not meet the $75,000 minimum amount necessary to grant federal jurisdiction.

The defendant argued that federal jurisdiction was valid because its U.S. Securities and Exchange Commission-approved Code of Arbitration Procedure was involved in the suit. Barrett rebuffed this by echoing the Supreme Court’s rulings in Grable & Sons Metal Products, Inc. v. Darue Engineering  &  Manufacturing,  545  U.S.  308  (2005) and Merrill  Lynch,  Pierce,  Fenner  &  Smith  v.  Manning,  136  S.  Ct.  1562,  1566  (2016), noting that one party having a “federal role” did not necessarily make a case eligible for federal court consideration.

Defendant WeConnect appealed after the lower court stated that it was not a party to plaintiff Goplin’s arbitration agreement. The agreement compelled the plaintiff to arbitrate with another entity, AEI, and not the defendant.

Although defendant WeConnect’s website stated that AEI was a separate entity, it claimed through an employee affidavit that AEI was actually the defendant’s former name. It further asserted that the lower court was mistaken in considering the website, violating rules of judicial notice by performing its own research.

With a short opinion focused on this evidence issue, Circuit Judge Barrett affirmed the lower court determination. The plaintiff had referenced the website in a brief to the court along with several other examples that provided a more convincing case than the defendant’s single affidavit about a human resources document. The defendant had conclusively portrayed itself as separate from the entity mentioned in plaintiff Goplin’s arbitration agreement.

In reporting Goplin, George Friedman of the Securities Arbitration Alert blog noted that Circuit Judge Barrett maintained a narrow focus on the evidentiary issue, and not on arbitration law. See Friedman’s Oct. 1 blog post linked above.

* * *

The author, a CPR Institute Fall 2020 intern, is a second-year student at Brooklyn Law School in New York.

The CPR European Advisory Board presents: “Meet CPR Distinguished Neutrals Based in Europe: Gill Mansfield”

The CPR European Advisory Board (EAB) continues it series, “Meet CPR’s Distinguished Neutrals in Europe” and today it presents its next Q&A, with Gill Mansfield.

Gill is a UK qualified barrister and CEDR accredited commercial mediator with over 20+ years international legal and commercial experience the majority of which has been spent as in-house counsel. She has held Head of Legal, General Counsel & Company Secretary, and Senior Counsel roles across the media, entertainment, creative and digital/technology sectors, negotiating complex deals and resolving international commercial disputes. Her experience includes working with innovative new businesses and disruptive start-ups as well as award winning TV producers, multi-national corporations and household name brands.

How did you get your start as a neutral?

I trained and practised as a barrister before moving in-house, so litigation has always been part of my professional DNA.  Whilst in-house I managed cross-border commercial and intellectual property disputes and litigation in courts throughout the World.  My first experience of mediation was representing a media company as its Head of Legal in a court ordered mediation of a commercial dispute that was being litigated in California.

This judge-led session was very different from the mediation process that I use today.  There was no joint session.  The two sets of parties never met and were never invited to meet at any point during the day.  However, the process was enough to pique my interest in mediation.  A friend later recommended the CEDR mediation training and that, as they say, is history.

It’s fair to say that having experienced mediation as a party has definitely influenced my approach as a mediator.

Who is your dispute resolution hero/heroine?

That would have to be the late and much missed David Richbell.  I, like many other UK mediators, owe a huge debt of gratitude to David as both a trainer and as a mentor. 

David was always enormously generous with his time and his expertise.  He saw any mediation where he didn’t take an assistant mediator as a wasted opportunity, and he encouraged those of us who he felt had promise to be actively involved in his mediations.  I can still vividly recall the excitement when David first suggested that I run one set of mediation meetings solo whilst he ran another set of meetings in parallel.  

He personified all of the character attributes that one aspires to as a mediator and dispute resolver:  warmth, good humour, inexhaustible patience and unassailable positivity, utterly unflappable, respectful and respected.  The things that I learnt at his side during those early years as a mediator continue to inform my mediation practice every day.  A true hero of the mediation profession.

What advice would you give to the younger generation looking for a first appointment as neutral?

It’s important to choose the right mediation training course but taking a five-day training in itself doesn’t make you a mediator.  It’s just the start of your journey.  So many people finish their training completely enamoured with the idea of mediation, passionate about the process and expecting the work to find them.  Sadly, it won’t.  I spent the early part of my mediation career working with some the UK’s most respected mediators first as an observer and then as an assistant.  In dispute resolution, as in any other field, learning your craft is vital.  Seek out people who you can learn from and opportunities to develop your mediation skills.  Working with community mediation organisations can be a great way to continue to build your skills (but don’t be surprised to find that many other aspiring mediators are also seeking this experience too).  The likelihood is that your first paid mediation will come from within your own network and in order for that to happen you need to build credibility and expertise.  You also need to build your network both in the industry and amongst those who instruct mediators.  That takes time and commitment. It’s not going to happen overnight and there is no silver bullet.

What is the most important mistake you see counsel make?

The biggest mistake that I see counsel make is failing to understand that their role in a mediation is very different from their role in the litigation process, and consequently preparing for a mediation in the same way that they would prepare for a trial: adopting a positional and adversarial approach. 

Those counsel who are most successful in representing their clients at mediation are the ones who understand that it requires a shift of mindset and a different set of skills.  I often tell counsel to set their litigator hat aside and put on their negotiator hat.  The mediation process allows everyone to take a step back from the litigation and it creates a real opportunity to explore options and solutions.  The fact that the discussions are confidential and without prejudice creates a safe space to work collaboratively with the mediator (and potentially opposing counsel) but this does require a shift in perspective and approach.

I see this very clearly in the way counsel approach Position Statements and their opening comments at the mediation.  Both of these are opportunities to speak directly to the client on the other side of the dispute.  They are opportunities to engage, persuade and influence the decision makers.  This is something that you don’t have the opportunity to do in the usual course of litigation where everything is filtered via lawyers.  Those counsel who simply rehash the pleadings, or take an adversarial approach, are missing a valuable opportunity.

If you could change one thing about commercial mediation, what would it be?

Commercial mediation still has a problem with the lack ofdiversity.  Perhaps that’s not surprising given that many commercial mediators are drawn from the legal profession where this is also an issue. 


This is slowly changing as the traditional stereotypes of what a mediator looks like are being broken down.  However, we need to be vigilant to make sure that talented mediators who are female, black or from an ethnic minority or who have a disability have the opportunities to advance in the profession.

It’s heartening to see that law firms are increasingly asking mediation providers to recommend mediators beyond those who might be seen as “the usual choices” and asking to see “new faces”, but we still have a long way to go to be a diverse and inclusive profession which properly represents the diversity of the communities that we serve. 

For which types of conflicts would you recommend ADR?

I’m going to focus on commercial mediation here as that is my particular specialism within ADR.  In my view, the vast majority of commercial disputes are suitable for mediation.  There are however certain types of cases where mediation is particularly beneficial.  These include cases where:

  • a speedy and cost-effective resolution of the dispute is desirable;
  • the opportunity cost in terms of wasted management time and legal expenses outweighs the potential benefits of litigation;
  • there are continuing personal or business relationships or ongoing contractual relationships that would be harmed by litigation;
  • a confidential process is required to avoid adverse publicity, preserve client goodwill and protect reputations;
  • control of the outcome of the dispute is important;
  • a party wants an outcome that could not be achieved in court. 

The litigation process is essentially binary: it’s win-lose and a win is usually quantified in purely monetary terms.  In contrast the mediation process allows the parties to craft a settlement agreement that meets their legal, commercial and personal needs.  Whatever those might be.  In a commercial context this could involve renegotiating the terms of a contract or agreeing terms for the transfer or purchase assets.  In terms of meeting personal needs, it might be gaining a better understanding what happened and why and receiving an apology.  These types of outcomes simply can’t be achieved through litigation.  I recently mediated an IP infringement case where much of what was finally agreed between the parties could not have been ordered by a court.

Mediation can also be used in the context of other ADR processes: when used within the context of an arbitration it may resolve the dispute completely or at the very least it can help to clarify and narrow the issues to be resolved. 

In your view, what makes CPR unique?

For me the thing that makes CPR really unique as an ADR provider is that it is not just an organization of neutrals and dispute resolvers.  Its membership and committee structures bring together in-house counsel across a range of different industries, partners and associates from leading law firms, academics and distinguished neutrals in a collaborative environment.   It is this broad stakeholder engagement and dialogue that gives CPR a unique perspective and allows it to be responsive to the needs of users of ADR. 

Lincoln & ADR: Pepperdine’s Stipanowich Discusses Evolution in Arbitration

By Alice Albl

The second series of New York Law School’s Conversations in Conflict drew to a close Sept. 23 with an interview featuring Pepperdine University Caruso School of Law Prof. Thomas J. Stipanowich.

The discussion centered around the progress of arbitration since the release of Stipanowich’s five-volume treatise on federal arbitration law in the 1990s; his expansive view included advancing the practice with lessons taken from the life of Abraham Lincoln.

Stipanowich’s theories focused on a tension between familiarity and efficiency. In drawing from what they know as lawyers, neutrals in arbitration may bind the process too closely to the establishment of litigation, he explained.

While neutrals may believe that apparently tried-and-true procedures inspired by litigation form the best avenues to successful dispute resolution, this mindset hinders the use of more creative, and potentially more effective, methods.

Instead, Stipanowich invited neutrals to follow in the footsteps of President Lincoln, whom he considered to be a “super functional” arbitrator. Like Lincoln, modern ADR community members should seek to work for the parties’ interests and not a nominal win.

But when Stipanowich began studying arbitration in the 1980s, neutrals weren’t the focus. Back then, arbitration suffered from a lack of procedural structure, most notably missing protocols for discovery and case management, he said.

In the ensuing years arbitrators filled these gaps. Stipanowich described this as the “legalization” of ADR, a process by which neutrals appropriated features from the practice of law into their work.

While legal processes may be effective in arbitration, their familiarity causes them to monopolize the roles they serve. Stipanowich cited examples in both the United States and abroad to demonstrate that the dominant legal processes are not necessarily the best.

Domestically, Stipanowich discussed the double-blind arbitration process used in contracts by the Writers’ Guild of America. Under this process, the disputants’ and arbitrators’ identities are not known to each other. This has the practical purpose of preventing conflict in the industry beyond the dispute, but it may also prove for a more equitable resolution beyond the reach of “legalized” ADR.

Abroad, Stipanowich, who is former president and chief executive officer of the CPR Institute, which publishes this blog, looked to the “multi-lane” duties neutrals performed in other cultures, such as the way German arbitrators help craft settlements or Chinese arbitrators often double as mediators.

U.S. arbitrators seem to be gradually warming to the idea of building multi-lane brands, something that Stipanowich encourages. He praised those who use a variety of roles and techniques to find the true conflict in disputes.

Stipanowich emphasized that finding the true conflict as early as possible will allow a neutral to spend more time balancing resolution with the interests and relationships among parties. After 40 years of study, he has found that this balance is key to success in ADR.

For Stipanowich, few could exemplify care for interests and relationships more than Abraham Lincoln. He closed the session by emphasizing the icon’s willingness to look beyond wins and vengeance during the Civil War, instead focusing on a goal of rights and equity. To see beyond the fray toward a fair resolution, Stipanowich says, is what ADR is about.

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Recordings of NYLS’s Conversations in Conflict Resolution series are being posted at the school’s Alternative Dispute Resolution Skills Program at https://bit.ly/32A3aAP.  

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The author, a CPR Institute Fall 2020 intern, is a second-year student at Brooklyn Law School in New York.

[END]

Supreme Court Rejects Decade-Old Class Arbitration Employment Discrimination Case

By Cristina Carvajal

A contentious employment discrimination case now focusing on whether an arbitrator is within her authority to bind a class of employees who did not affirmatively opt-in or consent to class arbitration will not resurface now at the Supreme Court.

This morning, in its first 2020-2021 term order list (available at https://bit.ly/3la3Y72), declined to hear Jock v. Sterling Jewelers Inc., 942 F.3d 617 (2d Cir. 2019) (available at https://bit.ly/30yP3eZ).

The Second Circuit decision in the case last year will return the case to federal district court in New York for more proceedings ahead of arbitration in the 12-year-old-case.

The nation’s top Court today denied cert in Sterling Jewelers Inc. v. Jock, No. 1382 (Supreme Court case page available at https://bit.ly/3lgflL2). While the opt-in is the issue most recently litigated, the Court considered and rejected today a petition by the national jewelry chain on an event broader question presented,

Whether an arbitrator may compel class arbitration—binding the parties and absent class members—without finding actual consent, and instead based only on a finding that the agreement does not unambiguously prohibit class arbitration and should be construed against the drafter.

The employment case’s gender-based discrimination claim was first filed in 2008 by then-present and former women Sterling Jewelers employees. All workers were required to sign its Resolve agreement subject to American Arbitration Association rules, which included a mandatory arbitration clause, as well as a litigation waiver. For more, see Anne Muenchinger, “Still No Arbitration: In Its latest Jock decision, Second Circuit Reverses for More Contract Interpretation,” 38 Alternatives 77 (2020) (available at https://bit.ly/2GuxplA).

Not only has this case been moved from New York’s Southern U.S. District Court to the Second U.S. Circuit Court of Appeals four times, but today’s rejection was its second at the Supreme Court. Today’s decision puts the case back on a road to the case’s arbitrator, former New York Southern District magistrate Kathleen A. Roberts, now a JAMS Inc. neutral in the firm’s New York office.

David Bouffard, vice president of corporate affairs at Signet Jewelers Ltd.in Akron, Ohio, notes in a statement,

While we respect the Court’s decision, we believe the claims in this matter are without merit and are not substantiated the relevant facts and statistics. We will continue to vigorously defend against these claims, which do not accurately reflect our company or our culture. Indeed, we have long been committed to fostering a culture of respect, integrity, diversity, and inclusion where all employees feel safe, supported, and empowered—this is a tenet of who we are. In particular, Signet is a recognized leader among companies for gender diversity, with women filling 74% of store management positions and gender parity in both the C-Suite and Board of Directors. Under the leadership of our CEO, Gina Drosos, we continue to champion diversity and inclusion as a strategic priority, as we have been honored to be included on the Bloomberg Gender Equality Index for two consecutive years.

Plaintiffs’ attorney, Joseph M. Sellers, a Washington, D.C., partner in Cohen Milstein Sellers & Toll, declined to comment on the cert denial.

In its latest decision last year, the Second Circuit reversed the lower court’s judgment and held “that the arbitrator was within her authority in purporting to bind the absent class members to class proceedings because, by signing the operative arbitration agreement, the absent class members no less than the parties, bargained for the arbitrator’s construction of their agreement with respect to class arbitrability.” Jock v. Sterling Jewelers Inc., 942 F.3d 617 (2d Cir. 2019) (available at https://bit.ly/30yP3eZ).

The Second Circuit referred to its previous decisions as Jock I, Jock II and Jock III. (For more on the case’s knotty procedural history, see the Alternatives’ link above). Noting that a court’s standard of review of arbitrator decisions is highly deferential, the unanimous panel in the opinion written by Circuit Judge Peter W. Hall reasoned that the arbitration agreement’s incorporation of the AAA Rules, in particular the Supplementary Rules which give an arbitrator authority to decide if an arbitration clause permits class arbitration, makes it clear that the arbitrator can decide on the question of class arbitrability.

The panel further noted the arbitration agreement itself provides that “’[q]uestions of arbitrability’ and ‘procedural questions’ shall be decided by the arbitrator.” Id.at 624.

The decision underscored that while in Jock II the panel pointed out that Jock I did not address “whether the arbitrator had the power to bind absent class members to class arbitration given that they . . . never consented to the arbitrator determining whether class arbitration was permissible under the agreement in the first place.” (Quoting an earlier decision in the case.)

That fact, however, was not a basis to alter the Second Circuit’s analysis given that class actions in arbitration and courts may bind absent class members as part of mandatory or opt-out classes.

 The Second Circuit noted that its “use of ‘consent’ as shorthand” left unclear “the possibility that the absent class members consented in a different way to the arbitrator’s authority to decide class arbitrability.” Id.at 626.

In remanding the case, the Second Circuit left open for the District Court to decide “whether the arbitrator exceeded her authority in certifying an opt-out, as opposed to a mandatory, class for injunctive and declaratory relief.” The Second Circuit already reversed an affirmative determination on that issue, but in the 2019 decision, the panel states that the lower court may revisit the issue “after allowing the parties an opportunity to present renewed argument in light of any subsequent developments in the law.”

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The author, a third-year student at the City University of New York School of Law, is a Fall 2020 CPR Institute student intern.  Alternatives to the High Cost of Litigation editor Russ Bleemer assisted with reporting for this post.

[END]

How Litigants View the ADR Options in Courts

By Alice Albl

At the Sept. 17 online CPR Institute Mediation Committee meeting, University of California, Davis, School of Law School Prof. Donna Shestowsky presented her research about the role courts play in encouraging alternative dispute resolution over a trial.

The study revealed that litigants seem to be unaware of ADR options when going to court, although knowing about some of these options—specifically, mediation–improve litigants’ opinions of the court itself.

This lack of awareness stayed relatively consistent among demographics, even among those with legal representation.  

“Repeat player” litigants were less likely than first timers to report uncertainty or confusion whether ADR options were available.

Shestowsky’s research observed the experiences of more than 350 litigants spread among the court systems of three different states.

The first system, in California, allowed litigants to choose between a trial, or opting into mediation or arbitration.

The second system, in Utah, assigned mediation as the default option but allowed litigants to convert their cases into an arbitration or trial.

The third system, in Oregon, statutorily required nonbinding arbitration for cases involving amounts in controversy less than $50,000. Litigants could opt-out by filing a “Motion for Exemption from Arbitration,” or by agreeing with their opposition to enter mediation.

All three court systems posted information online about available ADR programs and kept a list of approved neutrals on file. None required attorneys to educate their clients about the available ADR options.

Litigants in the study took a survey before and after their journey through the courts. The questions sought to gauge litigants’ awareness about relevant court-sponsored ADR programs, whether legal representation affected their awareness, and how awareness of court-sponsored ADR affected litigants’ opinions of the court offering the options.

The data Shestowsky reaped from these surveys revealed some unexpected findings. While roughly half of the litigants were unsure whether mediation and arbitration were available to them, another 20% wrongly stated these options were unavailable.

Without knowledge of the court systems’ sponsorship for mediation or arbitration, litigants most often considered negotiation as a means for dispute resolution, even before the prospect of a trial.  

While about a third of litigants considered mediation, knowing that the method was a court-sponsored option generally improved their opinion of the sponsoring court system.

Arbitration was only considered by about one quarter of the litigants, and knowledge of court sponsorship did little to affect litigants’ opinions of sponsoring courts. Shestowsky attributed this to the possibility that litigants had low opinions of arbitration as an option for their court-filed cases, which aligned with findings from her past research.

Having a lawyer did not make litigants more aware of ADR options, even when those options were offered, or even mandated, by the court system.

Shestowsky pointed out this universally low awareness rate of ADR options as an issue to address among courts, especially given how awareness seemed to improve court favorability.

One possible solution would be rules that require attorneys to properly educate clients about ADR options before engaging the courts, which could be enforced using penalty fees or an affidavit.

Shestowsky also suggested that courts implement “direct education.” This could involve bolstered advertisement of ADR options, a dedicated ADR helpdesk, and periodic information sessions. The professor, who serves as UC Davis School of Law’s Director of the Lawyering Skills Education Program, even envisioned an artificial intelligence-powered digital aide that could recommend options based on litigants’ specific needs.

While Shestowsky cautioned that her research focusing on three court systems may not perfectly reflect the general state of ADR awareness, the consistency of data among the diverse systems could point to a greater trend. To gauge this, the professor recommended that courts across the nation buck the trend of measuring success for ADR programs by their usage rates, and first look to their awareness rates by surveying those who do not use their ADR programs.

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Donna Shestowsky previously discussed her research at “New Research Sheds Light on How Litigants Evaluate the Characteristics of Legal Procedures,” 34 Alternatives 145 (November 2016) (available at https://bit.ly/2ScA71w), which adapted and updated material from Donna Shestowsky, “How Litigants Evaluate the Characteristics of Legal Procedures: A Multi-Court Empirical Study,” 49 U.C. Davis L. Rev. 3 (2016) (available at http://ssrn.com/abstract=2729893).

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The author, a CPR Institute Fall 2020 intern, is a second-year student at Brooklyn Law School in New York.

‘VUCA’ in the EU and Beyond: Highlights from a CPR European Conference Session

By Joseph Famulari

Volatility, uncertainty, complexity, and ambiguity.

When reading these words, one may assume they mean to describe 2020’s chaotic nature. But while this may be partly true, the acronym serves as an example for how leaders across the commercial spectrum, including in the ADR community, look to reflect, learn and adapt to the circumstances living in a “VUCA” world entail.

The overall theme of this year’s CPR European Conference on Business Dispute Management, held online, was present during “Evaluating and learning from disputes in a VUCA world,” a seminar that took place on the conference’s first day, Sept. 15.

Moderated by Noradèle Radjai, a partner in the international arbitration team at the Swiss Law firm Lalive, the panel explored how unpredictable conflict requires agile thinking, adaptability, and a growth mindset. Panelists answered vital questions such as “How do companies learn?” “What is the role of firms and in-house counsel in promoting learning?” and “How does one grow a learning mindset among dispute specialists?”

Laura Abrahamson, former Senior Vice President, Deputy General Counsel, and Head of Litigation for AECOM, an engineering and infrastructure company based in Los Angeles, led the panelists to emphasize “presentness” to counter the world’s hectic nature–that is, problem-solving strategies should be implemented in real-time, to get ahead of issues that may arise, rather than tackling issues far after the fact.

She stressed that corporations must have the vision to align stakeholders against a common goal, to counter volatility and display agility to adapt and counter ambiguity. By scaling back in real-time problems present in disputes, companies can achieve adapt by adopting practices of collaboration, and reflecting and measuring the outcome against agreed-to metrics.

Abrahamson emphasized that organizational learning must take place to learn from disputes and speed best practice adoption. Using slides, Abrahamson highlighted that organizational learning should be a critical role of inside and outside counsel to speed best practices adoption; by developing a root-cause analysis capability, counsel can convert findings to actionable improvements.

Also, organizational learning involves developing a post-mortem after disputes to establish and communicate lessons learned. Once these learnings are channeled to continuing or new projects, the root-cause analysis can promote corrective action to the prior failures, build upon the successes, and speed best practices adoption for the company.

Next, Mallory B. Silberman, a partner at Arnold & Porter in Washington, D.C., led with an explanation of how the VUCA world is present all around us–including her dogs waiting anxiously for her just outside the confines of the virtual panel. Silberman explained that the solution to VUCA—again volatility, uncertainty, complexity, and ambiguity–is a different VUCA: Vision, Understanding, Clarity, and Agility, with an emphasis on understanding.

Through this, Silberman expanded on how teaching is complex, and detailed how this complexity comes into play through education roles’ fluidity and how the role between teachers and students often becomes interchangeable.

She explained three types of students in her experience: The first type is actual students, the ones she teaches in the classroom, developing practical skills in advocacy. Next are clients that are advised on practical and procedural issues, how to conduct virtual hearings, and who counsel details on how to bring fair and equitable treatment to investors. The third category is colleagues and peers–meaning that everyone can learn from everyone’s experiences, through teaching colleagues within the firm and organizing hearing simulations, and a platform for improved empathy and more precise expectations develops.  The student/teacher relationship is essential to maintaining and streamlining information.

Focusing on these relationships adequately and improving methods of conveying and receiving new information is vital to a firm’s success in an ever-increasing VUCA world.

Silberman highlighted the receptivity of the student categories, and expanded on the point by stating, “Will this benefit them somehow?” She concluded by saying, “If you follow up with a quick check-in after a filing/hearing, it is more likely to promote learning going forward.”

Finally, Reza Mohtashami, a London partner at the Three Crowns LLP law firm, addressed how dispute specialists embrace a learning mindset. “Every dispute arises in a volatile, complex set of parameters,” he said.

In Mohtashami’s eyes, every day operates in a VUCA world. To highlight this, he went on to discuss the most cataclysmic events in the Middle East and MENA (Middle East, North Africa)  region:

  • The events of the Arab Spring, which were not widely predicted and understood at the time;
  • The nuclear accord entered into by the U.S. and other nations with Iran, and the Trump administration’s rollback of the deal, with foreign investors realizing the possibility of reimplementation and maintaining their own levels of protection, and
  • The Qatar blockade, highlighting the capacity of the Qatar government to retool its economy in the face of isolation by four big regional powers.

He discussed how dispute lawyers are adapting their practices always under scrutiny; with the contentious process making dispute lawyers more nimble than transactional lawyers. In highlighting these instances, Mohtashami painted a picture of how events such as these can foster a learning mindset among dispute specialists.  In tune with the prior speakers, an emphasis on quick-thinking, self-preservation, and adaptability are key. Though about the Qatar blockade, he says another lesson learned is, “if the country affected has deep pockets and is able to cushion the blow from an embargo on its economy, it will always be ready.”

Noradèle Radjai asked, “Do we first have to unlearn some practices” to succeed in a VUCA world? Mohtashami answered, “To some extent, yes, experienced arbitrators have a set way of conducting their arbitrations. But on the whole, people learn to adapt with best practices because it’s a competitive practice, and if you don’t do that, you get left behind.”

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The author, a CPR Institute Fall 2020 intern, is a second-year student at Brooklyn Law School in New York. CPR Institute Fall 2020 intern Cristina Carvajal, a student at the City University of New York School of Law, assisted with the research and writing of this article.

[END]

Dispositive Motions in Arbitration: Authority, Rules and Practical Tips

head shot 1By Janice L. Sperow

As companies, parties, and their lawyers across the nation debate whether they may, or even should, resolve their disputes in court or arbitration, courts and arbitrators—both faced with pandemic-generated, unprecedented backlogs—seem more willing to entertain docket clearing motions.

For some practitioners, dispositive motion practice in arbitration presents a new challenge. Yet, dispositive motions have existed in arbitration almost as long as arbitration itself. Now, however, both parties have embraced them. Recently, arbitrators have witnessed an increase in requests for leave to file them as parties dealing with the economic fallout of the pandemic attempt to resolve disputes sooner, more efficiently, and more cost-effectively. As more practitioners turn to arbitration to resolve disputes, they increasingly look to dispositive motion practice to promptly adjudicate them.

Still, some arbitrators have questioned their authority to entertain dispositive motions. Others hesitate to dispose of the arbitration before it really starts when it may well be the claimant’s only course of redress. Still others, like the author, view dispositive motions as a potential opportunity to narrow and resolve issues fairly and efficiently for both parties. So where do arbitrators obtain the power to consider dispositive motions?

The Parties’ Contract

Like the arbitration itself, the authority often starts with the parties’ contract. The arbitrator can and will allow dispositive motions if the parties’ arbitration clause provides for them. Many litigants now specifically provide in their arbitration agreements that the arbitrator shall have the authority to resolve jurisdiction, arbitrability, and many other threshold or dispositive issues. Indeed, astute drafters will frame their arbitration clauses to include the right to bring a dispositive or threshold motion to avoid the arbitrator’s exercise of discretion. Arbitrators will typically enforce such clauses if both parties may reciprocally invoke them.

Practical Tip: Explicitly provide the arbitrator with the authority to entertain dispositive and threshold motions directly into the parties’ arbitration agreement rather than incorporating them indirectly by reference to court rules, civil procedure rules, or forum administration rules. Court, civil procedure, and forum rules might include other provisions, which the parties may consider less desirable and which they may not want to incorporate wholesale into their agreement. The parties should also determine if they want to have the automatic right to bring such motions or merely grant the arbitrator the authority to entertain them at her discretion or upon a specified showing. If the parties intend to provide contractually for the application of a specific arbitral forum’s rules, review that forum’s dispositive motion rule and determine if the parties wish to modify it in the contract. Most arbitral fora expressly allow the parties to modify in writing the application of any rule. Finally, provide for reciprocity to enhance the clause’s enforceability.

Post-Dispute Agreement

If the contract itself does not mention the authority to hear dispositive motions, the parties may always agree to them in a written stipulation or even orally after the dispute has arisen or after the arbitration has begun. Contentious litigants may yet find common ground and agree to resolution of a threshold issue upfront if it will save time and expense. They will also routinely agree post-dispute to motions to resolve choice of law, jurisdiction, contract formation, forum rule applicability, and other threshold issues which will govern the rest of the case moving forward.

Practical Tip: Reduce the post-dispute agreement to writing whether by stipulation or in the arbitrator’s order. Identify the specific scope of the agreement including the precise issues to be determined by motion, page limits, and a briefing schedule. Decide if, pending the motion’s resolution, discovery should be stayed, continued, or restricted to information necessary to adjudicate the motion. Agree upon an early deadline for the resolution of the motion to maximize its cost savings and efficiency. Also set a cutoff date by which all dispositive or threshold issues must be brought. Early resolution saves the most time and expense; a dispositive motion brought on the eve of arbitration merely disrupts the process and often adds to, rather than minimizes, the costs of arbitration. Finally, proffer a dispositive motion agreement in writing to opposing counsel even if he will not likely agree; then track the fees spent on that issue at hearing and seek to recover them if the arbitrator rules in your favor on that point. Even if your side loses on the ultimate merits of a claim, the arbitrator may offset the prevailing party’s fee award if the other side incurred unnecessary fees on an issue, which could have been summarily adjudicated.

The Arbitral Forum’s Rules

The arbitration rules applicable to the dispute will usually permit dispositive motion practice. For example, in 2011, the pioneering  International Institute for Conflict Prevention & Resolution (CPR) specifically allowed for dispositive motion practice in the arbitral forum when it issued its 2011 Guidelines. In 2013, the American Arbitration Association also championed the arbitrator’s authority to entertain dispositive motions when it amended its rules to explicitly permit the filing of dispositive motions. Likewise, CPR’s first edition of Administered Rules promulgated in 2013 expressly authorized dispositive motions. Now, most arbitration associations include a dispositive motion rule. For example, JAMS’ Comprehensive Rule 18 explicitly authorizes them. Only the Financial Industry Neutral Regulatory Authority (FINRA), which involves primarily customer complaints, generally prohibits them; but even FINRA allows them under a few exceptions. We will explore the AAA and CPR rules in more depth because they provide parties with the most specific and comprehensive guidance.

The AAA Dispositive Motion Rules

Notably, the AAA did not adopt a uniform dispositive motion rule. Instead, it wisely chose to tailor its rules to the type of arbitration. The AAA Commercial Rule 33 now provides: “[t]he arbitrator may allow the filing of and make rulings upon a dispositive motion only if the arbitrator determines that the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case.” Likewise, the AAA Consumer Rule 33 and Employment Rule 27 state: “[t]he arbitrator may allow the filing of a dispositive motion if the arbitrator determines that the moving party has shown substantial cause that the motion is likely to succeed and dispose of or narrow the issues in the case.” The AAA Construction Rule 34 provides: “[u]pon prior written application, the arbitrator may permit motions that dispose of all or part of a claim or narrow the issues in a case.”

Interestingly, the dispositive motion rule applicable to consumer and employment cases, which involve individuals arbitrating against companies, require a higher initial showing than the dispositive motion rule applicable to commercial cases, which involve two companies arbitrating against each other. The consumer and employment rules require the moving party to show “substantial cause” that the motion is likely to succeed while the commercial rule only requires the moving party to show that the motion is likely to succeed. “Substantial cause” suggests more ample, considerable, or abundant cause whereas “likely to succeed” evokes mere feasibility and reasonableness – a fair chance rather than a good chance.

Conversely, the construction rule does not require proof of a likelihood of success but merely a written application showing that the motion will “dispose of all or part of a claim or narrow the issues in a case.” Of course, the written application itself will be more persuasive if it demonstrates the motion’s likely success. Unlike the construction rule, the AAA employment, commercial, and consumer dispositive motion rules do not technically require a written application. However, most arbitrators require them, nonetheless. At a minimum, arbitrators will expect an email requesting leave, not just an oral request.

While the specific rules differ in some key respects, they also share some important commonalities. For example, all the AAA dispositive motion rules – and indeed many if not most arbitral fora rules – allow dispositive motion practice only at the arbitrator’s discretion. AAA Commercial Rule 33, Consumer Rule 33, and Employment Rule 27 (“arbitrator may allow”); Construction Rule 34 (“arbitrator may permit”). Unlike civil litigation, arbitration does not include an automatic right to file a dispositive motion. Parties must request leave to file a motion, which the arbitrator may grant or deny within her discretion.

The three rules all also require the moving party to make some initial showing to convince the arbitrator why she should exercise her discretion to permit the dispositive motion. AAA Commercial Rule 33 (“only if the arbitrator determines that the moving party has shown”); AAA Consumer Rule 33 and Employment Rule 27 (“if the arbitrator determines that the moving party has shown substantial cause”); AAA Construction Rule 34 (“upon prior written application”).

All three also require the moving party to show that the motion will “dispose of or narrow the issues in the case.” Hence, in addition to the required degree of success, the moving party must demonstrate that the motion, if granted, will eliminate an issue, or at least narrow the scope of the hearing. Basically, the AAA’s rules all require two different types of proof: merit and efficiency – some likelihood of success and some cost savings over a hearing on the issue or claim.

But the AAA’s rules all require only either disposition or narrowing of the issues, not both. Accordingly, if the motion will achieve some economies of scale, the arbitrator can and should properly entertain the motion even if it does not completely dispose of an issue.

Practical Tip: Practitioners who wish to use the rules to narrow, rather than dispose of, issues should still present adequate proof of efficiency. For example, the moving party may want to demonstrate that early resolution of the issue may eliminate the need for expert or other witnesses who would not otherwise testify, may reduce the number of exhibits, may limit the necessary scope of discovery, or may reduce hearing time in some other way or even encourage settlement. 

Arguably, the rules do not require the complete disposition of a claim. For example, Construction Rule 34 explicitly provides that the motion may dispose of all “or part” of a claim. While the AAA’s Commercial, Employment, and Consumer Rules do not contain the same express language, they likely also permit partial disposition of a claim because they all permit the motion if it would narrow an issue and an arbitrator will likely find that partial resolution of a claim will indeed narrow the issues in the case.

Practical Tip: As noted, the parties can choose to include the right to file motions in their arbitration clause or post-dispute agreement rather than leave it to the arbitrator’s discretion. They can also set the applicable standard that they want to govern the grant or denial of the motion if they do so in writing. If the rules apply as written, consider a two-step proffer to save costs: during the first step, the moving party shows the rule’s satisfaction in a short letter or email without a response from the opposing party during which time the case and discovery proceed; then, in the second step, if the arbitrator finds that the moving party has satisfied the applicable standard, the parties set a full briefing schedule and suspend all or some discovery pending the motion’s resolution. In whatever manner litigants decide to tackle dispositive motion practice in arbitration, plan ahead and raise the issue early in the initial case management conference to allow sufficient time to schedule the motion(s) well before the hearing date in order to maximize cost savings for all parties. Consider the desirability of two different deadlines: an early one for purely legal or threshold questions and a later one at the close of discovery, if appropriate, for remaining disputes.

CPR’s Dispositive Motion Rule

In 2013, ADR industry leader CPR also issued its rules to expressly provide for dispositive motion practice. Under Rule 12.6, a party may apply to file “a motion for early disposition of issues, including claims, counterclaims, defenses, and other legal and factual questions.” CPR 2019 Administered Arbitration Rules, Rule 12.6(a). Rule 12.6 then instructs the applicant to include the issues to be resolved, the basis for the motion, the relief requested, how early disposition would “advance efficient resolution of the overall dispute” and a proposed procedure for resolving the issues. Rule 12.6(b).

CPR’s standard for the granting of the application differs slightly from the AAA’s Rules. CPR requires the arbitrator to find “a reasonable likelihood that hearing the motion for early disposition may result in increased efficiency in resolving the overall dispute while not unduly delaying the rendering of a final award.” Rule 12.6(c). If the arbitrator finds the motion “appropriate,” she will then establish the governing procedure, which may involve “written submissions, witness testimony by affidavit or other written form, limited hearings, or in any other manner.” Rule 12.6(d).

While the CPR and AAA Rules may differ somewhat in terminology, they represent a fairly uniform standard at least in the commercial arbitration context. The AAA Commercial Rule 33 requires “likely” success whereas the CPR Rule 12.6(c) requires “reasonable” success. Yet, they essentially require the arbitrator to undertake the same analysis in evaluating the burden of proof since “likely” evokes a fair, reasonable chance of success, whereas the AAA Consumer Rule 33 and the AAA Employment Rule 27 with their “substantial cause” requirement demand a higher quantum of proof.

But the rules do differ slightly more when it comes to what the applicant must prove: under the AAA Rules, the arbitrator will determine if the applicant has shown that the motion will dispose of or narrow the issues whereas the CPR Rule requires the arbitrator to focus on the motion’s overall efficiency without added delay. The CPR Rule technically does not focus on the likely success of the motion itself but rather reasonable likelihood of gaining efficiencies if the arbitrator grants the motion. The difference is nuanced, however, and may ultimately result in the same outcome as motions which dispose of or narrow the issues will necessarily promote efficiency.

The real difference between the AAA and CPR rules centers on the concept of delay. CPR specifically directs the arbitrator to consider the potential delay caused by adding a dispositive motion practice to the arbitration process, while the AAA rules do not mention delay to the final award as a specific consideration. Under the CPR Rule, an arbitrator may rightfully deny an application for leave to file a dispositive motion if it would unduly delay the rendering of the final award. Thus, under the CPR Rule, an arbitrator is much more likely to deny leave to file a dispositive motion the closer the parties get to the scheduled hearing. Indeed, CPR’s emphasis on “early” disposition of issues encourages the parties to use dispositive motions during the preliminary stages of the arbitration before or after limited discovery.

Practical Tip: As the applicant, counsel should consider raising issue identification and disposition, especially of legal questions, at the very first case management conference to forestall any delay argument. If the parties and the arbitrator calendar the motion from the outset of the case, the nonmoving party will be hard pressured to argue undue delay. To further minimize delay, allow discovery to proceed on the factual issues while the arbitrator considers the legal issues. Conversely, as the nonmoving party, counsel should insist on the discovery necessary to fully adjudicate the issues before any motion practice. Be prepared to identify with particularity the discovery needed on each issue for which the applicant seeks early disposition.  

CPR’s Dispositive Motion Guidelines

More than just a rule, CPR provides arbitrators and parties well-considered guidelines on the process. CPR issued formal “Guidelines on Early Disposition of Issues in Arbitration,” (“Guidelines”), which strike a fair balance between unmeritorious motions and issue winnowing. The Guidelines clarify that the parties may use dispositive motion practice to narrow and simplify the issues for hearing and not just to dispose of the entire case. They also encourage arbitrators to take an active role in promoting early issue identification and disposition. Guideline 1.1. They also warn the parties and the arbitrator to consider efficiency to the case overall. In other words, the arbitrator may properly deny leave to file a dispositive motion if, even if granted, it would not materially reduce the total time and cost involved in the arbitration. Guideline 2.4.

Court Approval & Inherent Authority

The Sixth Circuit recently relied upon AAA Rule 27 to uphold an arbitral tribunal’s summary judgment disposition in a AAA employment arbitration. McGee v. Armstrong No. 18-3886, October 29, 2019. McGee did not explicitly address Rule 27’s language. McGee merely cited R-27 and held “as such, the arbitrators did not exceed their power.” While the court based its decision upon Ohio’s state vacatur statute, the statute contains nearly identical grounds for vacatur as the FAA. Consequently, McGee teaches us that courts will not likely vacate a dispositive award by arbitrators under the FAA or state law as an excess of power if it satisfies the requirements of the applicable arbitration rules authorizing arbitrators to summarily dispose of matters. However, even before the AAA and the CPR adopted their dispositive motion rules, the courts routinely held that arbitrators had inherent authority to entertain dispositive motions. See, e.g., Schlessinger v. Rosenfeld, Meyer & Susman, 40 Cal. App. 4th 1096 (Cal. App. Ct. 1995).

Types of Dispositive Motions

Dispositive motions typically fall into three groups: (1) threshold or pre-discovery motions; (2) post-discovery summary adjudication motions; or (3) tactical motions. Threshold motions often raise procedural issues, such as venue, necessary parties, arbitrability, jurisdiction, applicable arbitral rules, scope of the arbitration, mootness, standing, res judicata, collateral estoppel, joinder, small claims election, or consolidation. But they can present substantive issues as well, such as contract formation, contract existence, contract validity, waiver, laches, plain meaning, estoppel, choice of law, failure to state a claim, right to punitive damages, right to attorneys’ fees, statute of limitations, tolling, statutory construction, statute applicability, consent, irrevocable consent, contract provision enforceability, liquidated damages availability, injunctive relief, defenses based upon contractual covenants, statutes of fraud, release, and more.

Substantive post-discovery motions are akin to partial or complete summary adjudication but can also include a motion to amend the claim based upon newly discovered facts, a failure to state a claim based upon undisputed facts, or even a motion on the pleadings.

Parties sometimes use tactical motions, not necessarily for their merits, but to educate the arbitrator early on about a key issue or to get a pre-mediation or pre-settlement “read” from the arbitrator on a key issue. They may seek to eliminate an expert or other witness by removing the issue from the arbitration’s scope. They may simply hope to delay the proceedings, raise the costs to the underfunded party, or disqualify counsel. Fortunately, CPR’s rule specifically considers any delay caused by the motion as an explicit factor in denying leave to seek a dispositive ruling. Some have even used AAA Commercial Rule 57 to defeat jurisdiction: they move to amend the claim, increasing the amount of damages, which in turn increases the AAA administrative fees, which defeats jurisdiction pending payment of the augmented fees.

Practical Tip: Regardless of the type of motion, all should result in a written award or order, which specifies the basis for the denial or grant of the motion. The movant should craft a well-written proposed order for the arbitrator as part of the motion but so should the opponent. Consider whether to request an opportunity for renewal after the completion of discovery or an aspect of discovery if the arbitrator denies the motion. The proposal should also identify the discovery completed up to the motion to circumvent an attack based on incomplete discovery or evidence. The opponent should identify the discovery still needed before the arbitrator can fairly resolve the issue. If the motion only partially disposes of the dispute, identify the remaining issues to be decided at the hearing.

Bottom line: As long as an arbitrator provides the parties a fair opportunity to present their cases, she can grant a dispositive motion without violating the right to a fundamentally fair hearing—the touchstone for whether or not a court will vacate an arbitral award. So, when you can, consider threshold and dispositive motion practice in arbitration as a way to cost-effectively narrow or resolve the arbitration.

The views expressed in this article are those of the author(s) and do not necessarily reflect the views of The CPR Institute.

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Janice Sperow is a full-time arbitrator, mediator, hearing officer, and prevention facilitator. She serves on the CPR’s mass claims, employment, commercial, banking, financial services, dispute prevention, mediation, flat fee mediation, and pro bono panels as well as the AAA’s commercial, large case, employment, technology, healthcare, consumer, pro se, and workplace investigation panels. Also serves as a neutral for the San Diego Superior Court (where she sits as a Judge Pro Tem), the Financial Industry Neutral Regulatory Authority, the National Arbitration FORUM, the World Intellectual Property Organization, the National Futures Association, the National Association of Arbitrators and Mediators, and the Better Business Bureau. Member, National Academy of Distinguished Neutrals. Serves as Hearing Officer for the Port of San Diego. Former President of the National Association of Women Lawyers and Vice-President of California Women Lawyers, Member, ABA Dispute Resolution and Business Law Sections. www.sperowadr.com.

A Boxer’s Day: First Circuit Refuses to Compel the WBO’s In-House Arbitration Scheme

By Alice Albl

The First U.S. Circuit Court of Appeals has vacated a judgement to enforce an arbitration agreement, ruling that the contract between a professional boxer and sanctioning organization was unconscionable because it allowed the organization to select arbitrators from its own staff. 

In Trout v. Organización Mundial de Boxeo Inc., 965 F.3d 71 (1st Cir. 2020) (available at https://bit.ly/2FNdUEF), the First Circuit Court remanded a case against the World Boxing Organization to the U.S. District Court of Puerto Rico. The court called the arbitrator-selection provision in the WBO’s Appeal Regulations “unconscionable.”

After declaring this selection process invalid, Circuit Judge David Barron, writing for a unanimous panel, left it to the federal district court to determine whether a severability clause from the separate but applicable WBO Championship Regulations would allow arbitration under the Appeal Regulations to continue.

In a concurring opinion, Circuit Judge Timothy Dyk wrote that, though the panel had declared the WBO arbitration setup unconscionable, it had omitted saying whether that determination would have to fall under state or federal law. Dyk noted that the court had avoided contribution to the thorny debate over how the Federal Arbitration Act may preempt state arbitration laws.

For now, according to the WBO’s attorney, Edward Ricco, a director at the Rodey Law firm in Albuquerque, N.M., the case can either proceed in the district court or transition into litigation. Ricco did not mention any plans to seek certiorari or a rehearing.

Professional boxer and World Boxing Organization member Austin Trout filed suit in a New Mexico state court in November 2015 alleging that “the WBO’s decision to remove him from its rankings for a certain weight class cost him a chance to pursue the world championship in that class,” as described in the opinion. Trout called the act a violation of the Muhammed Ali Boxing Reform Act (“MABRA”), and added claims under Puerto Rico law for breach of contract, fraud and negligence.

The WBO claimed that Trout had caused his own removal by committing to another fight while scheduled for a ranking match. The WBO invoked its Championship Regulations, which bound Trout as an organization member, and transferred venue to the U.S. District Court of Puerto Rico.

There, the WBO filed a motion to compel arbitration. It cited a provision of the Championship Regulations that required disputes to be arbitrated under its separate Appeal Regulations.

The motion was granted despite Trout’s insistence that a MABRA complaint was entitled to federal court adjudication. Trout included this contention along with three others in an appeal to the First Circuit.

While the First Circuit was quick to disarm Trout’s claim about MABRA requirements, along with two other claims, it focused on his assertion that a provision in the Appeal Regulations was unfair.

 This provision notes that arbitrators are gathered into a Grievance Committee of “[t]hree persons designated by the President” of the WBO. Those chosen served for “indeterminate terms” and were “subject to replacement by the nomination of the President of the WBO.”

Trout contested the WBO’s President’s power to freely choose and replace arbitrators as unconscionable.

The WBO countered by indicating additional language stating: “the Grievance Committee shall act as a fair and independent arbitrator of any grievance arising out of WBO Participation and it shall conduct all of its proceedings as Amiable Compositeur, Ex Aequo et Bono.”

It drew parallels between the regulations’ phrasing, and clauses deemed acceptable by other courts. Those clauses required the selection of arbitrators who were “qualified and independent.’”

That, held the First Circuit, was the problem. While cited precedent called for individuals who were “independent,” the WBO only required that an arbitrator’s performance be independent. Its selection provision called for “[t]hree persons designated by the President” of the WBO, none of whom may be members of the WBO Executive Committee.”

But the contract permitted the president to select biased individuals, even from within the WBO itself. “In fact,” the First Circuit opinion notes, “at oral argument the WBO conceded that the Appeal Regulations give the WBO’s president the power to nominate his or her own assistant to serve on the Grievance Committee.”

Allowing arbitrators to be biased toward one side of a dispute, even if expected to perform in an “independent” manner, was unconscionable, according to the First Circuit opinion.

With the selection provision struck as unconscionable, the First Circuit sent the case back to the district court to determine whether a severability clause that would allow the arbitration to continue applied. The severability clause was written not among the terms of the Appeal Regulations it was intended to preserve, but in the Championship Regulations which compelled WBO members to arbitrate.

In his concurring opinion, Circuit Judge Dyk, sitting by designation from the Federal Circuit Court of Appeals, commented on an issue unaddressed by the court. Although the WBO’s selection provision was soundly unconscionable, he wrote: “whether arbitration-clause-specific issues of unconscionability (and certain related defenses) are governed by individual state law or federal common was up for debate.”

Dyk’s comment referred to a fiery debate ignited by the U.S. Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at https://bit.ly/363u7jW) centered around whether the FAA preempts conflicting state law defense arbitration or rather acts a guideline for it. This topic, he concluded, “we appropriately leave to another day the question[…].”

While Trout awaits further action in the San Juan federal court, WBO counsel Edward Ricco says that he believes that the case’s impact on ADR practice will go back to contract construction. “I imagine the case will warn drafters away from the sort of arbitrator-selection provision at issue,” he said, “certainly in the First Circuit and presumably in other jurisdictions where the Trout decision may have persuasive value.”

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The author, a CPR Institute Fall 2020 intern, is a second-year student at Brooklyn Law School in New York.

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