By Mylene Chan
Four recent petitions for writs of certiorari pending before the U.S. Supreme Court raise a number of interesting arbitration issues. While the Court may decline to hear these cases, they are worth following because they could help to define the scope of arbitration in both consumer and commercial contexts.
The cases are being briefed and will be scheduled for conferences. If accepted, they likely would be argued in the 2021-2022 Court term beginning Oct. 4.
The Court already has two cases that will be argued in the new fall term, and which are awaiting hearing dates:
- Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, will examine “[w]hether the discretion granted to district courts in 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in ‘a foreign or international tribunal’ encompasses private commercial arbitral tribunals, as the Fourth and Sixth Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the Second, Fifth, and, in the case below, the Seventh Circuit, have held.” For more on Servotronics, see “YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence,” CPR Speaks (March 22).
- Badgerow v. Walters, No. 20-1143, which will discuss “[w]hether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is that the underlying dispute involved a federal question.” For more on Badgerow, see Mark Kantor, “Supreme Court Adds an Arbitration Case for the 2021-2022 Term,” CPR Speaks (May 17).
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Here are the cases the Court will soon be considering:
Shivkov v. Artex Risk Solutions Inc., No. 20-1313
Shivkov centers on the availability of class arbitrations. In the case, the plaintiffs contracted with Artex and TSA Holdings LLC to set up and manage business entities—captive insurance vehicles the small business owner-plaintiffs entered into with the defendants–that the U.S. Internal Revenue Service later determined were illegal tax shelters. The plaintiffs alleged the captive insurance schemes were “mass-marketed fraud” that caused the plaintiffs to be liable for back taxes, penalties, interest and “significant fees.”
The plaintiffs filed a class action against the defendants, alleging a variety of Arizona state and federal claims for breach of fiduciary duty, negligence, conspiracy and related claims. Relying on an arbitration clause in the agreements, the defendants moved to compel arbitration.
The Ninth U.S. Court of Appeals ordered individual arbitrations of the plaintiffs’ claims. The appeals court first rejected the plaintiffs’ arguments that the defendants had a fiduciary duty to explain the arbitration clause to the plaintiffs, that the arbitration clause did not survive termination of the contracts, and that the arbitration clause did not cover all of the plaintiffs’ claims.
The appeals court also found that class arbitration was unavailable. In so ruling, the appellate panel held that the availability of class arbitration is a gateway issue for courts–not arbitrators–to decide that the arbitration agreements did not provide for class arbitration. The Ninth Circuit also rejected the plaintiffs’ argument that the inclusion of the American Arbitration Association as the default arbitration method in the agreements was the equivalent of incorporating AAA rules about class arbitrability by reference into the agreements.
On March 17, the plaintiffs filed a petition for a writ of certiorari and presented two questions: (1) Whether an agreement that specifies arbitration before the AAA as the default dispute resolution method also must specifically mention the AAA rules to avoid being considered ambiguous about whether the parties intended to apply the AAA rules; and (2) Whether the availability of class arbitration is a matter for an arbitrator to decide, or for a court to decide.
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Eni USA Gas Marketing LLC v. Gulf LNG Energy LLC, No. 20-1462
The next case involves an attempt to use arbitration proceedings as a means of collateral attack on a previous arbitration award. In the case, Gulf entered into a Terminal Use Agreement (TUA) with Eni whereby Gulf would construct a natural gas terminal and Eni would use the terminal to deliver natural gas. The TUA contained a broad arbitration clause.
Eni initiated arbitration, alleging breach of contract, and arguing that the TUA was void because of unforeseen changes in the market. The arbitration tribunal found that the TUA had terminated and ordered Eni to pay Gulf for the value of Gulf’s partial performance under the TUA.
Eni then filed a second arbitration alleging a breach of contract claim left undecided from the first arbitration and misrepresentation. Gulf moved to enjoin Eni from pursuing the second arbitration. Eni argued that an arbitrator–rather than a court–should decide whether the first arbitration award precludes the second arbitration.
The Delaware Supreme Court enjoined Eni from pursuing the second arbitration. The Court reasoned that when a party files a second proceeding attacking a prior arbitration award, it circumvents the contractual Federal Arbitration Act review procedure. The Court held that courts may intervene in a party’s attempt to seek arbitration when the objective is to rectify a prior unfavorable arbitration award by arbitrating claims in new separate arbitration proceedings.
On April 15, Eni filed a petition for a writ of certiorari in the U.S. Supreme Court presenting the issue of whether the FAA permits a court to refuse to enforce an arbitration agreement delegating all questions, including a question of arbitrability, to an arbitrator where a party contends that the claim sought to be arbitrated represents a “collateral attack” on a prior arbitration award.
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HRB Tax Group v. Snarr, No. 20-1570
This case looks at the scope of the Federal Arbitration Act preemption of state law in cases where plaintiffs seek a remedy of a public injunction. In HRB Tax Group v. Snarr, the plaintiffs sought to stop their tax service provider from continuing business practices they alleged are fraudulent.
HRB and the plaintiffs entered into agreements in which HRB offered the plaintiffs services in filing tax returns. The service agreements required all disputes arising from these agreements to be resolved through individual arbitration.
The plaintiffs, customers of H&R Block’s accounting services, alleged that the marketing of HRB’s tax filing services violated California’s Consumers Legal Remedies Act, False Advertising Law, Cal. Bus. & Prof. Code, and Unfair Competition Law. They filed a class action suit against HRB and sought a public injunction enjoining HRB’s alleged misleading web services and advertising.
HRB moved to compel arbitration, arguing that the Federal Arbitration Act, which provides that arbitration agreements are presumptively valid, preempts McGill v. Citibank, N.A. 393 P.3d 85 (2017) (which held that a contract is unenforceable when it entirely waives the right to seek public injunctive relief under consumer protection statutes).
The Ninth Circuit denied HRB’s motion to compel arbitration. The court reasoned that HRB’s argument had been foreclosed by Blair v. Rent-A-Center Inc., 928 F.3d 819 (2019) (holding that the FAA does not preempt McGill.)
HRB’s May 10 U.S. Supreme Court cert petition asks whether California’s public policy rule declining to enforce agreements for individualized arbitration whenever a plaintiff seeks a public injunction is preempted by the Federal Arbitration Act.
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Viking River Cruises v. Moriana, No. 20-1573
The fourth case raises questions about the applicability of agreements for bilateral arbitration to claims brought under California’s Private Attorneys General Act of 2004 (PAGA). In Viking River Cruises, aggrieved employees sought relief from an international cruise line.
Original plaintiff Angie Moriana agreed upon joining Viking as a sales representative to an arbitration agreement providing that any employment-related disputes would be arbitrated. The agreement also required Moriana to waive all rights to bring a class, collective, representative, or private attorney general action in the employment contract.
Moriana filed suit against Viking on behalf of the state and all other similarly situated employees alleging various California Labor Code violations under PAGA.
Viking moved to compel individualized arbitration of Moriana’s PAGA claims, arguing that Epic Systems Corp. v. Lewis 138 S.Ct. 1612 (2018), validates private predispute waivers of such claims. Viking claimed that Epic Systems overruled Iskanian v. CLS Transportation Los Angeles, LLC 59 Cal. 4th 348 (2014), a California Supreme Court decision holding that arbitration agreements that waived the right to bring PAGA actions are unenforceable.
The California Court of Appeal denied Viking’s motion to compel arbitration, reasoning that the real party in a PAGA claim is the state and Moriana was not acting as an agent of the state when she bound herself to arbitrate. The court explained that Iskanian remains good law because Epic Systems differs fundamentally from a PAGA claim. Epic Systems addressed the enforceability of an individualized arbitration requirement against challenges that such enforcement violated the National Labor Relations Act.
Viking filed a petition for writ of certiorari on May 10. The issue the Court will decide to consider is whether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.
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The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.