Supreme Court Rejects Federal FAA Jurisdiction for Arbitration Award Enforcement and Challenges

By Russ Bleemer & Andrew Ling

The Supreme Court embraced a narrow construction of subject-matter jurisdiction in arbitration matters today, reversing a Fifth U.S. Circuit Court of Appeals decision that a federal trial court had jurisdiction under Sections 9 and 10 of the Federal Arbitration Act to confirm and overturn arbitration awards.

Badgerow v. Walters, No. 20-1143 (today’s decision available here), means that award enforcement processes and efforts to overturn tribunal decisions will continue to be directed state courts as a matter of state contractual law. In other words, FAA Sections 9 and 10 jurisdiction is in state court, and the “look through” federal court jurisdiction analysis steps accorded to FAA Sec. 4–which provides federal courts jurisdiction on getting parties into arbitration–will not apply.

The Fifth Circuit had said that federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under FAA Sections 9 and 10 when the underlying dispute was on a federal question.  The opinion, now reversed, was based on Vaden v. Discover Bank, 556 U. S. 49 (2009) (available at https://bit.ly/3Ca42MA), where the Supreme Court assessed whether there was a jurisdictional basis to decide an FAA Section 4 petition to compel arbitration.

Today’s decision on the arcane subject of jurisdiction clarifies Vaden‘s application with a textual analysis on how FAA Sec. 4 differs from Sections 9 and 10.

The decision comes amidst an unprecedented time for arbitration at the Court. While Court watchers’ eyes have been on the confirmation process for Judge Ketanji Brown Jackson to succeed retiring Justice Stephen G. Breyer, over the past 10 days, the Court has heard four oral arguments covering five arbitration cases.  Highlights of the cases can be found on CPR Speaks, here. The March arbitration cases are expected to be decided before the current Supreme Court term ends in June.

This morning’s 8-1 decision, written by Justice Elena Kagan, declines to extend Vaden to the FAA’s award enforcement and challenge sections. It states, “The question presented here is whether that same ‘look-through’ approach to jurisdiction applies to requests to confirm or vacate arbitral awards under the FAA’s Sections 9 and 10. We hold it does not. Those sections lack Section 4’s distinctive language directing a look-through, on which Vaden rested. Without that statutory instruction, a court may look only to the application actually submitted to it in assessing its jurisdiction.”

Badgerow involves a FINRA arbitration brought by Louisiana petitioner Denise Badgerow, a financial adviser, against the principals of her former employer, REJ Properties Inc. She maintains she was harassed on the job, and filed a complaint with FINRA claiming her employer and its principals violated federal securities laws, U.S. Securities and Exchange Commission regulations, and the rules of FINRA, which regulates the actions of broker-dealers.

After losing the arbitration, Badgerow brought a new claim in a Louisiana state court to vacate the FINRA award that dismissed her complaints. The principals removed the case to Louisiana Eastern U.S. District Court, and both the District Court and the Fifth Circuit upheld federal jurisdiction. REJ Properties and its parent, Ameriprise Financial Inc., an NYSE-traded financial services company, were not part of the state court claim nor today’s Supreme Court decision.

The decision this morning is surprising in light of the Nov. 2 oral arguments. Badgerow’s attorney, Daniel L. Geyser, a Dallas partner in Haynes and Boone, faced strong skepticism from the Court on why the sections on enforcing and overturning awards should be treated differently for federal jurisdictional purposes than the earlier section on compelling parties into arbitration.  See CPR Speaks coverage here.

But the Court today accepted Geyser’s argument that the Sec. 4 language, which specifically says that parties seeking to compel arbitration proceed in federal court, isn’t present for the award enforcement and challenges of the statute’s later sections. “We have no warrant to redline the FAA, importing Section
4’s consequential language into provisions containing nothing like it,” wrote Kagan, adding, “Congress could have replicated Section 4’s look-through instruction in Sections 9 and 10.”

In an email, Geyser writes, “We’re very grateful for the win, and delighted for our client.  We think the Court’s opinion is an important contribution in clarifying the jurisdiction rules for everyday filings under the FAA.”

Walters’ attorney, Washington, D.C.-based Williams & Connolly partner Lisa Blatt, did not immediately reply to an email request for comment.

The opinion concludes noting that “Congress chose to respect the capacity of state courts to properly enforce arbitral awards. In our turn, we must respect that evident congressional choice.”

The Court used the opinion to resolve a circuit split and clarify that the “look through” test needs textual support in the FAA. Under Vaden, a federal court should “look through” the Federal Arbitration Act claims to the “substantive controversy” to determine if they could have been brought in federal court for disputes under Section 4.

* * *

Justice Stephen G. Breyer’s 13-page dissent said that the divergent jurisdiction tests for the different Federal Arbitration Act sections was confusing. “Although this result may be consistent with the statute’s text,” he wrote, “it creates what Vaden feared—curious consequences and artificial distinctions.  . . . It also creates what I fear will be consequences that are overly complex and impractical.”

Instead, Breyer writes that he would use the Vaden look-through approach “to determine jurisdiction under each of the FAA’s related provisions—Sections 4, 5, 7, 9, 10, and 11.”

* * *

For more on the procedural history of the case, see Bryanna Rainwater & Russ Bleemer, “Next at the Supreme Court: Badgerow’s Attempt to Reevaluate FAA Jurisdiction,” CPR Speaks (September 15) (available here).

* * *

Bleemer edits Alternatives to the High Cost of Litigation for CPR at altnewsletter.com. Ling, a third-year law student at the University of Texas School of Law, in Austin, Texas, is a CPR 2022 Spring Intern.

[END]

Adding a Claim, and Avoiding Arbitration:  The Supreme Court Reviews California’s Private Attorneys General Act

By Russ Bleemer

The U.S. Supreme Court Wednesday examined California’s law allowing individuals to stand in for the state and file suits on behalf of coworkers against their employers even when they have arbitration obligations in the employment contracts.

California’s Private Attorneys General Act unquestionably has affected individualized arbitration processes under the Federal Arbitration Act, as a result of the California Supreme Case of Iskanian v. CLS Transp. Los Angeles LLC, 327 P.3d 129 (Cal. 2014) (available at https://stanford.io/3ILcTY5), which authorizes California employees to avoid mandatory arbitration employment contracts requirements by filing representative suits under the PAGA law.  The Court had held that PAGA was not preempted by the FAA.

Employers have said that tens of thousands of suits have been filed under PAGA by employees with arbitration contracts.

That’s not a good look for a Supreme Court which has struck other laws interfering with the FAA, and was a problem this morning for the Court.  The history of the cases that authorized mandatory individualized arbitration with waivers of class actions–AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at http://bit.ly/2VcI4mi), and the case that extended the authorization to employment cases that followed, Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK)–loomed over the arguments.  

California employers want to halt the law being used as an end-run around their workplace dispute programs, which has been used to force them into class processes they seek to avoid with mandatory arbitration dispute resolution procedures. Employment attorneys and consumer advocates have countered that PAGA is a crucial state law that allows people to vindicate their employment rights.

The Court wasn’t called upon to remove the PAGA law today. But there also likely won’t be a compelling reason to keep PAGA claims out of arbitration, or at least, allow the possibility, even though the agreement at issue barred them entirely. Ultimately, the decision will focus on the Court’s Concepcion and Epic Systems arbitration-supportive history.

As a result, in Viking River Cruises v. Moriana, No. 20-1573, the advocates and the Court wrestled with the nature of the PAGA claim—as a procedural move that allows for a different legal claim or claims, or a substantive right under state law.

The Concepcion and Epic Systems cases divided the Court 5-4. It’s a different Court today, with wider ideological lines, but the Court’s three liberal justices are still inclined to back class processes. The justices who were in opposition in Concepcion and Epic Systems—Justices Stephen G. Breyer, Sonia Sotomayor, and Elena Kagan—were most animated today.  They provided the toughest questions to Viking River’s Paul D. Clement, a former U.S. Solicitor General and a partner in the Washington office of Kirkland & Ellis, asking him to justify how the Court can police the laws California provides to its residents for use in vindicating their rights.

The Court’s conservatives mostly took a backseat this morning.

Clement, arguing in the nation’s top Court for the second time in nine days in an arbitration case (details on the previous case on CPR Speaks here), conceded that the state had properly installed the PAGA law, but also insisted that Concepcion had been violated.  He said the law violations that were the basis of original plaintiff Angie Moriana’s claims would have been easily addressed by an arbitrator, even with an award going to the state under PAGA.  But forcing the PAGA claim into courts opens up a flood of claims on behalf of many potential workplace plaintiffs without the guidance of Federal Rule of Civil Procedure 23’s protections for defendants.

Moriana’s lawyer, Scott Nelson, an attorney at Washington, D.C.’s Public Citizen Litigation Group, faced challenges on the FAA end-run by PAGA users by telling the Court that his client’s objection was to Viking River arbitration provisions that explicitly required waiving PAGA claims altogether. Nothing in the FAA, he said, requires the enforcement of such an agreement.

* * *

Paul Clement in his petitioner’s argument faced an immediate challenge from Chief Justice John G. Roberts Jr., who said that respondent Moriana wasn’t acting for herself, but as a delegee of the California Attorney General, securing a recovery for the state and her fellow employees. Clement responded that the setting the chief justice described wasn’t “the critical feature of PAGA.” He objected to Moriana bringing the PAGA claim on the part of the Viking River sales force as a whole, later explaining that the law’s use contravened the customary nature of arbitration as an individualized process.

Justice Elena Kagan interrupted, and confronted Clement with an objection echoed by her fellow liberal justices. The state, said Kagan, has determined that it needed law for policing that it did not have the capacity to do on its own.  “So this is a state decision to enforce its own labor laws in a particular kind of way that the state has decided is the only way to adequately do it,” she said.

Clement agreed: “At the end of the day, that’s right,” he said. But he insisted that Concepcion set the path for parties to agree to arbitrate such disputes, and the state must conform to the Court’s decision.

Kagan asked whether he thought there would have been views when the FAA was passed in 1925 that the then-new law would preclude the state from structuring its own law enforcement for its labor laws. Clement conceded it was an interesting question what sort of class actions could have been foreseen, but he said, “[C]ertainly, if we take Concepcion and Epic [Systems and Lamps Plus Inc. v. Varela, 139 S. Ct. 1407 (2019) (available at http://bit.ly/2GxwFbC)] as a given, and nobody has asked [the Court] to overrule those cases here. . . This Court said that state policy had to yield. I don’t think the state policy here is any more sacrosanct.”

Clement also noted for the first of repeated mentions that the California law is an outlier. While other states have considered the California law, he said its form is unique, and Clement emphasized that no other states joined in support of California as an amicus. (For details on the 22 amicus filers, as well as case background, see yesterday’s CPR Speaks preview of the argument, here.)

Clement lamented PAGA’s similarity to class actions on two points in particular, the potential dollar amounts that the claims put before the defendants, and the burdensome class discovery. Given the high stakes and the discovery, he said, “if I’m a defendant and you’re telling me I can’t escape this kind of aggregate litigation, . . . then I’m going to pick litigation every time, because I get lots of additional judicial review”  and remedies, and the result means that “arbitration is going to whither on the vine.”

Justice Sonia Sotomayor disputed Clement’s characterization of arbitration claim handling, noting that arbitration historically has handled complex cases, and the Court has backed its use in cases involving racketeering, antitrust and disparate impact claims. She said it’s parties that choose whether to have arbitration class actions, not the Court.

Clement countered that the key question, as raised by Justice Kagan, wasn’t complexity but it was the operation of the PAGA statute as the mechanism providing a cause of action and specifying penalties under it. He said that the FAA doesn’t preempt the statute itself, but the arbitration right under the contract has been cut off.  

Sotomayor pointedly stated that the goal was destroying the state’s mechanism for enforcing labor law violations, and Clement pushed back and said that the plaintiff’s claims could be brought in arbitration. He later noted that the critical part wasn’t calling PAGA a state claim, nor the classification of the claim as a substantive or procedural right, but the fact that the state claim let in many claims that are not customary in bilateral arbitration.

* * *

Public Citizen’s Scott Nelson said in response to the chief justice that the multiple claims of his client, respondent Angie Moriana, could be arbitrated as to her individual claims, and she could pursue others  on her own but under PAGA on behalf of the state and other workers.

He told Justice Amy Coney Barrett in response to a question that the most important part of his client’s claim wasn’t just that the PAGA claim belongs to California, but also that the FAA can’t override the right to pursue the claim that California has provided.

Nelson maintained that the PAGA action is not the kind of aggregated multiparty action on which the Court focused in Concepcion and Epic Systems, but rather the state’s right to civil penalties through its individual representatives. PAGA, he explained, can be brought by the state’s representative as an equally bilateral arbitration or litigation between the representative and the defendant.

The agreement waives Moriana’s right to pursue a statutory remedy, emphasized Nelson.  But Justice Samuel A. Alito Jr. was skeptical, and said that under the arbitration agreement, “she doesn’t have a right to pursue a substantive claim in court, but she does have a right to pursue the substantive claim just in arbitration. I thought that was sort of at the core of our precedents.  . . . Arbitration gets at the remedy. ”

Nelson responded that “the substantive claim . . . is the claim to recover civil penalties for these violations which are available only via PAGA, and the arbitration agreement explicitly prohibits the assertion” of a PAGA claim and a representative claim.  He said that the California Labor Code claim could be pursued in arbitration, but not the PAGA claim for damages.

Justice Breyer pressed Nelson on whether the California rule had special implications for arbitration, and whether the PAGA case could be brought in court if the Supreme Court held PAGA targeted arbitration. Nelson responded that if the law “is inconsistent with the nature of arbitration, then that’s what creates a problem.  . . . [W]hat the state has said is for contracts, whether they are part of an arbitration agreement or not, you can’t waive the right to bring a PAGA claim in an employment agreement before the claim arises. So [it] applies to every kind of agreement.”  

Justice Brett Kavanaugh concluded Scott Nelson’s argument by asking him to react to Viking River attorney Paul Clement’s point that California is alone on having the PAGA law. “It’s certainly true that California is the only state that has this mechanism,” said Nelson, adding “It’s somewhat ironic that one of the arguments made in favor of this Court’s review was that if you let California do it, everyone will do it. Now California is the only state that wants to do it.”

* * *

In his rebuttal, Kirkland & Ellis’s Clement said that the big problem with the law was that the representative could submit a claim on behalf of all of the employees “for all these disparate violations,” and in considering the scope of such an action, “then there is nothing left of Concepcion. ….. It’s too naked a circumvention.”

He re-emphasized his point about California’s outlier status in producing laws that are anti-arbitration. He noted that the substantive-procedural distinction can’t be used to avoid Concepcion/Epic Systems arbitration requirements.

Clement’s last point was on what he termed “practicalities.” He said that if respondent Moriana’s only claim was on timing of her final paycheck, “an arbitrator could dispatch that case in about an hour,” cutting her a check, and cutting a check for the state as well. But to do that in arbitration with many claims would require a claims administrator.  

Before Concepcion, he said, little attention was paid to the 2004 PAGA statute. Now, since Concepcion, Clement concluded, 17 PAGA complaints are being filed daily.

* * *

The official question presented to the Court today is

Whether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.

A decision is expected before the current Court term concludes at the end of June. For more background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

Today’s case concludes a run of four U.S. Supreme Court arbitration cases in nine days. Previews and analysis of the cases can be found on this CPR Speaks blog using the search function in the upper right, and searching for “Supreme Court” and/or “arbitration.” An overview and an analysis of the 2021-2022 Supreme Court arbitration docket, including the cases argued over the past two weeks, can be found at Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022), and Imre Szalai, “Not Like Other Cases: SCOTUS’s Unique Arbitration Year,” 40 Alternatives 28 (February 2022), both available for free at https://bit.ly/3GDEJEK. Argument coverage is available on CPR Speaks, here.

The audio stream archive and the transcript of the March 30 Viking River Cruises argument can be found on the Supreme Court’s website here.

* * *

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

[END]

The Fight over Arbitration and Class-Action Access Returns to the Supreme Court Tomorrow on California’s PAGA Law

By Russ Bleemer

Wednesday’s U.S. Supreme Court oral argument in Viking River Cruises v. Moriana, No. 20-1573, will sort the relationship between the Federal Arbitration Act and California’s Private Attorneys General Act. The case concludes a Supreme Court run of five arbitration cases in four oral arguments over nine days.

The Court tomorrow will likely revisit its extensive history on federal preemption of state laws in deciding whether the state law will continue to allow individuals with arbitration agreements to file suits in courts.

The issue is crucial for California employers, which have argued that the law is used as an end-run around their workplace dispute programs that forces them into class processes they seek to avoid with mandatory arbitration dispute resolution procedures.

Employment attorneys and consumer advocates have countered that PAGA is an essential state law that allows people to vindicate their employment rights.

The result is a return to the nation’s top Court on the broad issue of arbitration fairness. The fight over whether the California representative-class PAGA cases may continue in the place of individual arbitration—business groups say there have been tens of thousands of such cases—is also an amicus battleground among the nation’s leading business and consumer advocacy groups.  The amicus participants include business and consumer groups that have faced off in Washington, D.C., and federal and state courts nationwide on arbitration fairness issues for decades.

There are 22 amicus briefs filed.  Friend of the Court briefs on behalf of business petitioner Viking River Cruises, which is trying to overturn the PAGA law, have been filed by the California New Car Dealers Association; the Washington Legal Foundation and Atlantic Legal Foundation, nonprofit public interest law firms focusing on free marker principles, both based in Washington; the Employers Group, a 126-year-old California-based industry organization; Uber Technologies Inc. and Postmates LLC; the U.S. Chamber of Commerce, California Chamber of Commerce, and the National Federation of Independent Business Small Business Legal Center; the Retail Litigation Center Inc. and the National Retail Federation; the California Employment Law Council, a 29-year-old nonprofit that lobbies and advocates on behalf of employers; the Civil Justice Association of California, a 43-year-old tort reform organization; the Restaurant Law Center; and the California Business and Industrial Alliance, a five-year-old trade group of business executives and entrepreneurs formed specifically to fight the PAGA law.

Backing Angie Moriana, a sales representative for the cruise line who brought several wage claims against her employer, are consumer and employee association representatives including the National Academy of Arbitrators, a 75-year-old nonprofit professional organization; Steve Chow (who, according to his filing, is “a first-generation American who owns and operates three convenience stores in the San Francisco Bay Area” and who “writes in favor of [PAGA]. Mr. Chow cannot afford to require his few employees to arbitrate, and the [FAA] might not apply to his small business anyway.”); the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO); the California Rural Legal Assistance Inc. (a 56-year-old legal services organization) and the California Rural Legal Assistance Foundation (a legal nonprofit that represents California immigrant farmworkers and others in class processes, including PAGA cases, in front of state agencies); a group of 10 civil procedure and arbitration law professors; the California Employment Lawyers’ Association, the National Employment Law Project, and the National Employment Lawyers’ Association, all nonprofit worker advocacy groups; Public Justice, a Washington nonprofit law firm and consumer advocacy group; the Taxpayers Against Fraud Education Fund (a 36-year-old Washington, D.C., nonprofit “dedicated to preserving effective anti-fraud legislation at the federal and state levels,” focusing on whistleblower statutes); the State of California (which in its statement of interest in the case notes, “In the State’s experience, PAGA is an important law enforcement tool enacted to address serious and widespread violations of the California Labor Code”); “Arbitration Scholar” Imre Stephen Szalai, a Loyola University New Orleans College of Law professor filing his own brief [Szalai recently wrote on the Court’s arbitration caseload for CPR Speaks’ publisher CPR’s monthly newsletter Alternatives; see link below]; Tracy Chen, “in Her Representative Proxy Capacity on Behalf of the State of California” (noting in her interest statement that she is “a proxy of the State of California’s Labor and Workforce Development Agency . . .pursuant to PAGA” and a plaintiff in a securities industry class action case seeking employer reimbursement of investment adviser fees), and the American Association for Justice, the Washington-based trial lawyers’ professional organization.

The PAGA law enables an individual employee to seek a court judgment for breach of California labor laws as a “private attorney general” on behalf of the state of California.

The question presented to the Supreme Court is

Whether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.

The controversial California Supreme Case of Iskanian v. CLS Transp. Los Angeles LLC, 327 P.3d 129 (Cal. 2014) (available at https://stanford.io/3ILcTY5), authorizes California employees to avoid mandatory arbitration employment contracts requirements by filing representatives suits under the PAGA law.  California’s top court held that PAGA was not preempted by the FAA.

As the Supreme Court itself points out in a prelude to the Viking River Cruises question presented, Iskanian has authorized Californians to avoid the Court’s ruling backing mandatory individualized arbitration in consumer cases in the seminal matter preceding Iskanian, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at http://bit.ly/2VcI4mi), and the case that extended the authorization to employment cases that followed, Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK).

For more background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

The audio stream of Wednesday’s argument will be available on the U.S. Supreme Court’s home page at 10 a.m. Eastern, here. Tomorrow afternoon, the Court will make available an archive of the stream and a transcript of the argument here.

* * *

A preview and an analysis of the 2021-2022 Supreme Court arbitration docket, including the cases argued this week and last week, can be found at Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022), and Imre Szalai, “Not Like Other Cases: SCOTUS’s Unique Arbitration Year,” 40 Alternatives 28 (February 2022), both available for free at https://bit.ly/3GDEJEK. Argument coverage is available on CPR Speaks, here.

* * *

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

[END]

Supreme Court Preview: An Airline and an Employee Will Argue Over the Reach of an Exclusion from the Federal Arbitration Act

By Russ Bleemer

The U.S. Supreme Court reconvenes Monday morning to hear oral arguments in the third of four arbitration matters before the justices in a nine-day period.

Southwest Airlines Co. v. Saxon, No. 21-309, may have the biggest impact on workers of any of the cases.  It presents a Federal Arbitration Act Sec. 1 question:

Whether workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport such goods themselves, are interstate ‘transportation workers’ exempt from the Federal Arbitration Act.

The distinction of whether a worker is operating in interstate commerce has a knotty history.  A restrictive reading could eliminate a workplace dispute arbitration obligation for many employees nationwide. An expansive reading could eviscerate employment agreement dispute resolution clauses.

The Court hasn’t been sympathetic to workers avoiding arbitration.  But the view isn’t categorical. A notable exception is the three-year-old FAA Sec. 1 case, New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (available here), in which an 8-0 opinion by Justice Neil Gorsuch held that an independent contractor—a long-haul truck driver—was exempt from arbitration because there was no employer-employee relationship.

FAA Sec. 1 defines the statute’s application to maritime transactions and commerce. The section ends noting that “nothing [in the statute] shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

Southwest Airlines likely will require a similar textual analysis of the so-called Sec. 1 residual clause–which New Prime needed for “contracts of employment”–on “interstate commerce” characteristics.

The Court has interpreted the law to mean that the exception from FAA application is only for transportation workers “engaged in” interstate commerce. Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu).

Original plaintiff Latrice Saxon, now the Supreme Court case respondent, is a “Ramp Agent Supervisor for Southwest Airlines who occasionally loads and unloads passenger baggage from airplanes,” according to Southwest Airlines’ cert petition, which is available at the docket link above.

Saxon works at Chicago’s Midway Airport. She filed a class-action suit against her employer for overtime she contended that the employees were owed under the Fair Labor Standards Act.

The Seventh U.S. Circuit Court of Appeals in the case (available at https://bit.ly/3rRA8Ln) held that the plaintiff was a transportation worker, and therefore exempt from the FAA, and didn’t have to arbitrate. Southwest Airlines requires all workers who aren’t covered by collective bargaining agreements to arbitrate workplace disputes, according to court papers.

Noting a circuit split, Southwest Airlines appealed, and the nation’s top Court agreed to decide whether the local worker was FAA-exempt, which suggests the examination of the plaintiff’s work in relation to interstate commerce.

* * *

That’s the key inquiry for the amicus filings on both sides. The briefs supporting petitioner Southwest Airlines echo the carrier’s position seeking to have a narrow FAA Sec. 1 definition and define being “engaged in foreign or interstate commerce” as meaning moving goods or people across borders. Southwest Airlines and the amicus parties want the Seventh Circuit decision reversed.  Joining the petitioner are six amicus briefs, from the

  • The U.S. Chamber of Commerce and the National Association of Manufacturers;
  • Lyft Inc.;
  • Uber Technologies Inc.;
  • Amazon.com;
  • Washington Legal Foundation, a conservative, free-market think tank and public interest law firm (which notes that “The FAA contains a discrete exemption, in § 1, for a few categories of transportation workers. Congress included the exemption not to excuse these classes of workers from arbitration, but merely to enable them to arbitrate through other congressionally created channels. The respondent here is not subject to an alternative channel of this sort; she just wants to avoid arbitration altogether. She seeks to gut the federal policy in favor of arbitration by expanding the § 1 exemption far beyond its proper bounds.”), and
  • Airlines for America, an 86-year-old trade association, which discusses FAA Sec. 1 but also emphasizes the benefits of arbitration for the airline industry.

There are seven amicus filings backing respondent/original plaintiff Latrice Saxon in asking the Court to uphold the Seventh Circuit and retain the ruling that her Chicago-based transportation work was a part of interstate commerce and she is therefore exempt under FAA Sec. 1 from arbitration in her employment agreement. The briefs are from

  • The National Employment Lawyers Association, whose members focus on representing individual workers;
  • The American Federation of Labor and Congress of Industrial Organizations–the AFL-CIO;
  • The American Association for Justice, a trial lawyers’ professional organization;
  • A brief on behalf of 17 states, their attorneys general, and the District of Columbia;
  • Public Justice, a Washington, D.C., nonprofit law firm, consumer advocacy group, and left-leaning think tank;
  • The National Academy of Arbitrators and the National Association of Railroad Referees, whose brief states, “It may appear puzzling that organizations of professional arbitrators oppose petitioner’s proposal to increase the use of arbitration under the FAA, but it is not. Amici’s position is grounded in their fundamental fidelity to the institution of arbitration, to a clear understanding of Congress’ legislative intent . . ., and to judicial precedent,” and
  • Three legal historians who maintain that the Court has recognized that Congress enacted the FAA Sec. 1 exemption “to avoid unsettling then-established dispute-resolution schemes covering workers like ‘railroad employees’ under Title III of the Transportation Act of 1920 and ‘seamen’ under sections 25-26 of the Shipping Commissioners Act of 1872,” regardless of whether the transportation workers crossed state lines in their employment, relying on Circuit City reasoning. The professors are James Pope, Rutgers Law School, Newark, N.J.; Imre Szalai, Loyola University New Orleans College of Law, and Paul Taillon, University of Auckland, in Auckland, New Zealand.

The parties’ and the amicus briefs are available on the Supreme Court’s docket page, linked at the top of this article.

* * *

While Southwest Airlines may have the biggest direct impact on workers of the 2021-2022 Supreme Court caseload, it isn’t alone in its arbitration consequences. Four of the six matters before the U.S. Supreme Court involve employment cases at their core, though often arcane legal points have brought them to the Court and will be the focus of the decisions, as well as in the two arguments still to be heard. The effect of the opinions could have a profound effect on workplace disputes . . .  or boost Congressional efforts to change arbitration in Congress. (See report on the recently signed-into-law Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 and the push for further reforms on CPR Speaks here.)

In addition to Southwest Airlines,  on Nov. 2 the Court heard Badgerow v. Walters, No. 20-1143, which awaits decision. The case focuses on the limits of state court jurisdiction and the reach of federal court jurisdiction over the provisions of the Federal Arbitration Act.  The case was brought by a financial services employee against her bosses and company for harassment and other workplace claims.  More on the November argument on CPR Speaks here.

Last Monday, the Court examined a suit by a former Taco Bell employee who claimed that the franchise company had waived its right under her employment agreement to arbitrate their wage dispute.  The original plaintiff was contesting an Eighth U.S. Circuit Court of Appeals decision that found for the company because the employee had not been prejudiced by the company’s conduct.  The former employee challenged the prejudice requirement and asked the Court to focus on the company’s actions. The case of Morgan v. Sundance Inc., No. 21-328,  is expected to be decided before the current Court term ends in June; more on the argument earlier this week on CPR Speaks here.

Next Wednesday’s Viking River Cruises v. Moriana, No. 20-1573, focuses on the relationship between the FAA and California’s Private Attorneys General Act. The Court will likely revisit its extensive history on federal preemption of state laws.

The PAGA law enables an individual employee to seek a court judgment for breach of California labor laws as a “private attorney general” on behalf of the state of California. Thousands of cases have been filed under the law and, many employers say, skirt employment agreements requiring arbitration for workplace disputes. For background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

* * *

A preview and an analysis of the 2021-2022 Supreme Court arbitration docket can be found at Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022), and Imre Szalai, “Not Like Other Cases: SCOTUS’s Unique Arbitration Year,” 40 Alternatives 28 (February 2022), both available for free at https://bit.ly/3GDEJEK.

* * *

A live audio stream of Monday’s argument will be available at the Court’s home page, here. Archives of recordings and transcripts for cases this term, including the three arbitration cases argued so far, are available on the Court’s website here.

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

[END]

Supreme Court Hears Arguments on Whether Section 1782 Allows Discovery for Use Before International Arbitration Tribunals

By John Pinney & Russ Bleemer

The U.S. Supreme Court today heard almost two hours of argument on whether 28 U.S.C. § 1782 allows parties to seek a federal district court order for discovery of evidence for use before international arbitral tribunals.  

In consolidated cases this morning, the Court not only heard arguments from the parties’ counsel but also conducted a potentially pivotal discussion with an attorney from the U.S. Solicitor General’s office.  The government sided with the petitioners and argued against Section 1782’s application for both private international and investor-state arbitrations.

A key issue that emerged during today’s argument was whether the phrase “foreign or international tribunal” should be the focus or whether the single word “tribunal” alone should form the basis of the court’s consideration of whether Section 1782 allows U.S. federal district courts to provide judicial assistance to international arbitral tribunals. 

The Court itself was hesitant about arbitration matters’ inclusion in the law, which is titled “Assistance to foreign and international tribunals and to litigants before such tribunals.” There are “too many problems extending this,” said Justice Stephen G. Breyer to respondent counsel urging foreign arbitral tribunals’ access to the law, asking whether the decision should simply be, “[G]o to Congress [and] get it worked out.”

Soon after, Justice Neil Gorsuch said that including arbitration tribunals “runs very counter to our intuitions that arbitration which is that it is supposed to be quick. . . . And [Sec.] 1782 is a very liberal grant of discovery.”

The cases were differentiated by the types of arbitration involved.  ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, is a private arbitration, and AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign States, No. 21-518, is investor-state arbitration, involving the government of Lithuania.

The Court granted certiorari for the two cases argued today in December, shortly after another case addressing the same issue argued today was dismissed in late September.  That case, Servotronics, Inc. v. Rolls-Royce, PLC, No. 20-794, was voluntarily dismissed on the eve of argument that had been set for Oct. 5, during the first week of the Court’s 2021-2022 term. 

[CPR Speaks blog publisher CPR filed an amicus brief in Servotronics and today’s AlixPartners urging the Court to take the cases because of the significance of their issues to international arbitration, but not in support of either side. These briefs were written principally by co-author John Pinney. For details, see John Pinney, “International Arbitration Is Back at the Supreme Court with Today’s Cert Grant on Two Section 1782 Cases,” CPR Speaks (Dec. 10) (available here).]

The first of the two consolidated cases argued today was ZF Automotive, which arises from a private commercial contract with ZF Automotive’s German parent that requires any disputes to be arbitrated before the German Arbitration Institute.  The ZF Automotive case was brought in Detroit prior to commencement of any private international arbitration in Germany.  The district court allowed the requested discovery.  On appeal to the Sixth Circuit, ZF Automotive, in a most unusual move, petitioned for certiorari before judgment to bypass waiting for the Sixth Circuit to decide its appeal. The Supreme Court granted certiorari on Dec. 10.

The second case, AlixPartners, involves an investor-state arbitration arising from a bilateral investment treaty between Russia and Lithuania.  Interestingly, the AlixPartners case is an appeal from the Second Circuit, which in its decision distinguished NBC (see details below), as well as the Second Circuit’s more recent In re Guo, 965 F.3d 96 (2d Cir. 2000), to allow Section 1782 discovery for investor-state cases.

By accepting both a private international arbitration case (ZF Automotive) and an investor-state arbitration case (AlixPartners), the Supreme Court is poised to decide definitively whether any non-governmentally created tribunal can be a “foreign or international tribunal” within the meaning of Section 1782. That was the key focus in today’s arguments.

The cases have attracted 12 amicus briefs – five in support of the petitioners opposing Section 1782 discovery, four in favor of Section 1782 discovery, and three in support of neither side. 

The most significant amici is the United States, which opposes Section 1782 discovery in both private and investor-state arbitrations, arguing that the term “tribunal” does not include international arbitral tribunals, whether they be created either for private international arbitrations or under bilateral or multi-national investment treaties.  The Solicitor General requested and was granted the right to argue orally for the United States today in support of petitioners.

Today’s Arguments

As noted above, a key issue that emerged early in today’s arguments was whether the Section 1782 phrase “foreign or international tribunal” should be the focus or whether the single word “tribunal” alone should form the basis of the court’s consideration of whether the law allows U.S. federal district courts to provide judicial assistance to international arbitral tribunals.   

The 58-year-old statute states, “The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.  . . .”

The petitioners opposing Section 1782 discovery–Roman Martinez, deputy office managing partner in the Washington, D.C. office of Latham & Watkins on behalf of ZF Automotive, and Joseph T. Baio, senior counsel at New York’s Willkie Farr & Gallagher, for AlixPartners–argued that the entire phrase, “foreign or international tribunal,” must be considered, and that the phrase has never been used with respect to an arbitral tribunal.

The respondents, on the other hand, focused on the word “tribunal” and argued that it has frequently been used with respect to arbitral tribunals, both contemporaneously in 1964 when the statute was enacted and in current usage. The respondent attorneys arguing on behalf of, respectively, Luxshare and the Fund for Protection of Investor Rights in Foreign State, were Andrew Rhys Davies, a New York partner at Allen & Overy, and Alexander A. Yanos, a New York and Washington partner in Alston & Bird.

Veteran Assistant Solicitor General Edwin Kneedler’s argument, which split the four party appearances, appeared to be given weight, especially in relation to how allowing discovery under Section 1782 might affect the United States’ relations with foreign governments.  His argument contended that there is no meaningful distinction between private international arbitral tribunals and arbitral tribunals established under investment treaties, mainly because neither are “governmental.” 

If you have a U.S. court engaged in discovery, said Kneedler, “it creates the potential for . . . controversy and . . . for having the United States involved . . . in something that is really none of its business.”

The takeaway from Kneedler’s arguments was that the Court should be cautious in accepting respondents’ arguments because any expansion of the scope of Section 1782’s reach should be addressed by Congress.  Congress “had specifically in mind formality,” he concluded.

Kneedler’s point resonated with both Justices Gorsuch and Breyer in the argument that immediately followed by Andrew Rhys Davies, arguing for Luxshare to allow discovery under Sec. 1782 for the company’s arbitration in Germany.  Davies had a difficult time answering Gorsuch’s repeated inquiries on why a definitive Sec. 1782 extension shouldn’t be left to Congress.  Davies ultimately countered that there was no need because the full statute answers the application question by putting it in the U.S. District Court’s hands.

Breyer shrugged the answer off, and said there may be too many problems extending the statute, referring to timing of the discovery requests in the arbitration proceeding, including before a tribunal is established.

Davies insisted the statute as it currently exists contemplates those decisions by the federal court, but Gorsuch jumped back into the conversation immediately, noting that such moves runs counter what arbitration is supposed to be, characterizing Sec. 1782, as noted, as “a very liberal grant of discovery.”

Source of the Review

The Court’s review on this issue can be attributed to a 3-to 2-circuit split created when the Sixth U.S. Circuit Court of Appeals decided Abdul Latif Jameel Transp. Co. v. FedEx Corp., 939 F.3d 710 (6th Cir. 2019) (“FedEx”).  At the time, the only circuit court decisions on the issue had been decided in 1999 by the Second Circuit (National Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999)) and the Fifth Circuit (Republic of Kazakhstan v. Biedermann Int’l., 168 F.3d 880 (5th Cir. 1999)). In both cases, the courts ruled that the phrase “foreign or international tribunal” in Sec. 1782 did not apply with respect to private international arbitral tribunals. 

After the Sixth Circuit decided FedEx, the Fourth Circuit followed the Sixth Circuit in Servotronics Inc. v. Boeing Co., 954 F.3d 209 (4th Cir. 2020), but in a parallel case also brought by Servotronics, the Seventh Circuit instead followed the Second and Fifth Circuits in Servotronics Inc. v. Rolls-Royce PLC, 975 F.3d 689 (7th Cir. 2021), holding that Sec. 1782 did not apply with respect to private international arbitral tribunals.

All of these cases came in the wake of the only U.S. Supreme Court facing Section 1782 head on, Intel Corp. v. Advanced Micro Devices Inc., 542 U.S. 241 (2004). Today’s arguments discussed extending discovery to arbitration tribunals in light of Intel’s inclusion of matters quasi-judicial and administrative bodies.

* * *

For an amicus argument against allowing Sec. 1782 discovery, see analysis by Derek T. Ho & Eliana M. Pfeffer, “Discovery in Aid of Foreign Arbitration Proceedings Unfairly Imposes Tremendous Costs on U.S. Companies,” 40 Alternatives 58 (April 2022) (available at https://bit.ly/3JUXs13).

* * *

Today’s consolidated cases are expected to be decided before the Court’s term ends at the end of June. The transcript and audio of the Sec. 1782 arguments are available on the Supreme Court’s website here. Justice Clarence Thomas has missed this week’s arguments — hospitalized with an infection, according to the Court’s Sunday announcement — but will participate using the briefs and the transcript.

While Court watchers’ eyes this week have been on the confirmation hearings in the U.S. Senate Judiciary Committee, the continuing business of the nation’s top Court is a two-week deep dive into arbitration. The arbitration focus will resume with arguments on Monday morning with Southwest Airlines Co. v. Saxon, No. 21-309. That employment case will consider whether workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport such goods themselves, are interstate ‘transportation workers’ exempt from the Federal Arbitration Act.

Highlights from Morgan v. Sundance Inc.No. 21-328 — an employment arbitration case that was the first of the March arbitration cases, argued earlier this week — can be found on CPR Speaks here. The four-case run will conclude next Wednesday with Viking River Cruises v. MorianaNo. 20-1573, which focuses on the relationship between the FAA and California’s Private Attorneys General Act. For background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

And one 2021-2022 term arbitration case, Badgerow v. Walters, No. 20-1143, awaits decision. Details on the case from the Nov. 2 arguments is available on CPR Speaks here.

* * *

Pinney is counsel to Graydon Head & Ritchey in Cincinnati. On CPR’s behalf, he acted as counsel of record in an amicus brief urging the U.S. Supreme Court to accept the Servotronics and AlixPartners cases, as detailed above. Details on the brief can be found on CPR Speaks here. His AlixPartners brief on CPR’s behalf can be found on the Supreme Court docket page linked at the top or directly at https://bit.ly/3pzZpHj. Bleemer edits Alternatives to the High Cost of Litigation for CPR at altnewsletter.com.  Tamia Sutherland, a second-year law student at the Howard University School of Law, in Washington, D.C., assisted with the preparation of this post.

[END]

Supreme Court Preview: Wednesday’s Combined Arguments Will Seek to Extend Federal Discovery Law to Arbitration Tribunals

By Tamia Sutherland

The U.S. Supreme Court will continue its two-week, four-argument deep dive into arbitration law and practice on Wednesday morning with an international law case.  It will consider the consolidated arguments in ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, and AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign States, No. 21-518.

The issue that the Court has agreed to decide is whether 28 U.S.C. § 1782 can be invoked in international arbitrations to obtain U.S.-style discovery for evidence. The question is whether the statutory language—“foreign or international tribunal”—extends to arbitration panels.

There is a circuit split on the issue, which is detailed at length at John Pinney, “International Arbitration Is Back at the Supreme Court with Today’s Cert Grant on Two Section 1782 Cases,” CPR Speaks (Dec 10, 2021) (available here).

ZF Automotive US, ZF Friedrichshafen AG (ZF AG) is a German corporation. It sold its Global Body Control Systems business unit to respondent Luxshare, a Hong Kong limited liability company. Luxshare alleges that after the deal with ZF AG closed, it learned that ZF US―a Michigan-based automotive parts manufacturer and a subsidiary of ZF AG―fraudulently concealed material facts during the negotiation and diligence process.

The Master Purchase Agreement provided that the transaction is to be governed by German law, and requires that all disputes be resolved “by three (3) arbitrators in accordance with the Arbitration Rules of the German Institution of Arbitration (DIS).”

In contrast to the private arbitration of ZF Automotive, AlixPartners focuses on investor-state arbitration, in which one of the parties is the government. In AlixPartners, the respondent Fund now before the Supreme Court is a Russian entity pursuing claims before an ad hoc UNCITRAL-rules arbitral tribunal against Lithuania for investors’ financial losses resulting from the insolvency of a Lithuanian bank.

The Fund brought its § 1782 request for discovery in New York against AlixPartners, a financial consulting firm that had advised the Lithuanian government regarding the bank’s insolvency.

More information on the cases and their parallels to Servotronics, Inc. v. Rolls-Royce, PLC, No. 20-794 , a case dismissed by the Court last September before its hearing in the wake of an arbitration award, is available in John Pinney’s post linked above. [The post also contains links to a CPR amicus brief in AlixPartners authored principally by Pinney urging the Court to take the case, but not in support of either side.]

On Wednesday, the consolidated arguments will include an argument by the U.S. Solicitor General, Elizabeth Barchas Prelogar.  In an amicus brief in support of the petitioners, Prelogar and her office argue that Section 1782 “does not authorize judicial assistance to obtain discovery for use in an arbitration, before a nongovernmental adjudicator, to which the parties consent.”

The amicus defines a foreign or international tribunal under the law as “a governmental adjudicator that exercises authority on behalf of one or more nation-states. It criticizes the approaches of the two federal circuits courts permitting arbitration discovery as “unsound.”

The Court’s calendar with the arguments’ timing is available here; the arguments will be available live, audio-only, via www.supremecourt.gov.

* * *

For an amicus argument against allowing Sec. 1782 discovery, see analysis by Derek T. Ho & Eliana M. Pfeffer, “Discovery in Aid of Foreign Arbitration Proceedings Unfairly Imposes Tremendous Costs on U.S. Companies,” 40 Alternatives 58 (April 2022) (available at https://bit.ly/3JUXs13).

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The author, a second-year law student at the Howard University School of Law, in Washington, D.C., is a CPR 2021-22 intern.

[END]

Supreme Court Reviews the Role of Prejudice to a Party in Determining Arbitration Waiver

By Russ Bleemer

This morning’s U.S. Supreme Court arbitration arguments in Morgan v. Sundance Inc., No. 21-328, reviewed what appeared to be a simple case of whether a plaintiff needs to show prejudice as a pivotal factor in claiming that a defendant has waived its right to arbitration.

But it wasn’t so simple. The arguments ranged over multiple possible standards for including the factor, as well as how to do so if it stays.

The question of whether the Federal Arbitration Act supports prejudice as a factor in waiving the right to arbitration stood next to evaluating the defendant’s actions for waiver in the arguments, with the petitioner soon attacking whether prejudice should be a part of the determination.

The solution likely will be anything but simple. Today expansive arguments lasted nearly an hour and a half–wiith just two attorneys–showed the Court wrestling with the need and content of a prejudice evaluation that has split the circuits.  The Eighth U.S. Circuit Court of Appeals decision on review today had held that “[a] party waives its right to arbitration if it: (1) knew of an existing right to arbitration; (2) acted inconsistently with that right; and (3) prejudiced the other party by these inconsistent acts.” 

In its summary ahead of the question presented, the Supreme Court noted that eight other federal courts of appeals and most state supreme include the requirement that the waiving party’s inconsistent acts caused prejudice in the waiver analysis, while three federal courts of appeal, and at least four state supreme courts  “do not include prejudice as an essential element of proving waiver of the right to arbitrate.

With nearly everyone in the courtroom stressing the need for a simple evaluation, both sides missed opportunities to offer one.  Karla Gilbride, co-Director of the Access to Justice Project at Washington, D.C., a nonprofit public interest law firm Public Justice, and attorney for petitioner Robyn Morgan, compellingly noted that the prejudice requirement was “atextual” and “all over the place.”

But she didn’t draw a bright line by noting that employees would be prejudiced by expending time or money on cases where employers delayed their arbitration requests until after they took litigation steps.

Former U.S. Solicitor General Paul D. Clement, a partner in the Washington office of Kirkland & Ellis, facing Justice Neil Gorsuch’s option that the Court eschew a Federal Arbitration Act analysis and send the case back to the lower court for a pure Iowa state law analysis, said that if that path is taken, the Court instead of offering a ruling, should dismiss Morgan entirely as improvidently granted.

And the Court wasn’t helping the advocates by invoking layers of state contract law doctrines, federal statutes, and case interpretations in order to establish a standard for evaluating waiver and whether to include prejudice.

Every member of the Court had pointed questions for the advocates in today’s arguments.  Justice Clarence Thomas didn’t participate, however; the Court announced Sunday that he had been hospitalized with an infection, but it noted this morning that he would participate in the case based on the filings and the arguments’ transcript.

Petitioner attorney Gilbride opened, with an argument that centered around the case issue of whether the the Eighth Circuit ruling favored arbitration, in violation of AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011), and FAA Sec. 2, which says that arbitration contracts are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”

She maintained that the prejudice requirement has become specific to arbitration. She said there was a lot of discussion in the briefs about waiver and default, but the Eighth Circuit should have applied generally applicable Iowa law.  Then, she explained, if it found waiver, the court would still have to assess if the actions of employer Sundance, which owns Taco Bell franchises, were in default of proceeding.

“So whether Sundance’s actions constituted default is a secondary question,” said Gilbride, “not a replacement for the first-order waiver inquiry.”

Gilbride was moving from her FAA Sec. 2 analysis to FAA Sec. 3, and urging the Court to adopt a two-step analysis for evaluating waiving a right to arbitration. She was countering an argument made by Paul Clement in his Court briefs, who maintained that FAA Sec. 3 could be dispositive.

FAA Sec. 3 deals with motions to stay proceedings in favor of arbitration:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

“Prejudice,” declared Gilbride, “has no part to play in either of these inquiries.”

Under initial questioning from Chief Justice John G. Roberts Jr. and Justice Elena Kagan, Gilbride offered that the Court could remand for analysis of Iowa’s generally applicable waiver doctrines, but instead the Eighth Circuit looked at federal law and erroneously required prejudice. See Morgan v. Sundance Inc., 992 F.3d 711 (8th Cir. 2021) (available at https://bit.ly/3nqL7sJ). She conceded that prejudice could be a part of the state contract law, and that each case needed individual determination at the trial court level. 

At the same time, she noted that there could be a statutory default under federal law in FAA Sec. 3.

Justice Samuel A. Alito Jr. pressed Gilbride on how state law would affect the analysis if it in some way provided something different for arbitration cases than for other contract cases. She warned that arbitration-specific standards wouldn’t likely survive in analyzing three hypothetical Alito treatments of state law.

Justice Sonia Sotomayor told Gilbride her analysis was confusing, with the FAA Sec. 3 default meshing with FAA Sec. 4 on federal court jurisdiction over parties who refuse to honor arbitration agreements for purposes of compelling the process. Sotomayor appeared uncomfortable with the need to find a federal law default standard under Sec. 3 after finding the state law waiver standard needed for Sec. 2 in Gilbride’s sequential analysis proposal.

Sotomayor summarized, noting, “Some of my colleagues are troubled by the fact that states differ in how they define waiver.  I am troubled by the fact that the circuits define prejudice in different ways.”

At that point, Gilbride offered a bright-line standard. She noted that the requirement is “atextual” and not applied uniformly. “A presumption that a party should raise their defense of arbitration . . . by the time they file their first responsive pleading, by the time of their answer . . . before their answer if they file a motion,” she said, “that would be presumptively enough to get someone not to be in default in proceeding.”

The analysis Gilbride proposed, countered Chief Justice Roberts, will “increase the complexity and delay in arbitration proceedings.  . . . [It is] creating a whole new battleground before you even get to arbitration about whether or not there’s been . . waiver under state law. It seems quite contrary to the policy behind the FAA.”

Gilbride quickly countered that the prejudice requirement “actually increases delay and increases the sort of skirmishing in court . . . before anyone resorts to the arbitral forum that the FAA was designed eliminate.

In response to a comment by Justice Stephen G. Breyer that delay cases are fact intensive, Public Justice’s Karla Gilbride insisted that the analysis isn’t “any more complicated than questions about . . . who is bound by the contract or whether a particular dispute fall within the terms of the contract.  . . . State courts and federal courts applying state law answer those questions . . . within the parameters of the FAA all the time . . . without anything seeming to have ground to a halt.”

* * *

Sundance’s Paul Clement said that his client wasn’t in default under FAA Sec. 3, because there was no violation of a contract or a law. “[U]under all relevant state law doctrines, one has to show prejudice before a contractual right is lost because you litigated or waited too long to assert it,” he said at the outset, adding, “The most straightforward way to affirm the decision below is to apply Section 3 and its stay absent default direction.”

Client Sundance, Clement explained, moved under FAA Sec. 3 to stay the litigation, and “it is not in violation of any contractual deadline, any court rule, or any other legal obligation.”

He said the problem wasn’t a waiver by the respondent of its right to arbitrate.  “[W]hat is at issue is simply not asserting a right soon enough,” he said.

Chief Justice Roberts was skeptical, asking, “Waiver plays no role in regard–evaluating that situation at all?”

Clement said that in the absence of filing deadlines, courts will assess a variety of factors–including prejudice to the other side.  

Justice Neil Gorsuch pressed him on assessing a waiver in the absence of an intentional act, and Clement said that the lower court really meant a forefeiture. 

At that point, Gorsuch suggested it would make sense to send the case back for that state law analysis stating that the Eighth Circuit made a mistake using a federal law analysis.  That’s when Clement said that the Court should dismiss the case instead.

“The Eighth Circuit wasn’t saying this is absolutely waiver and ‘that’s why we’re applying this three-factor test,’” explained Clement.

The circuit court, he continued, “applied the three-factor test presumably as–if you go back in their case law . . .– as a gloss on the [FAA Sec. 3] statutory phrase ‘in default.’ And [the appeals panel] said, as a general matter, ‘This is when it’s too late to invoke your right to arbitrate, and we have a three-factor test, and the plaintiff in this case fails under the third factor.’ Importantly, [the Eighth Circuit] didn’t even definitively resolve the second factor [acting inconsistently with the right to arbitration], which is the only thing that actually even goes to an inconsistency that possibly could get to an implied waiver. And there’s not a hint in the decision that they thought they were talking about the explicit waiver that your question alludes to.”

Clement emphasized under tough questioning from Justices Breyer and Kagan that there was no dispute about the arbitration agreement’s existence, and attempts to resolve state law issues preliminarily under such circumstances belong with arbitrators, at one point invoking to Breyer the opinion the justice wrote on arbitrator versus court determinations in Howsam v. Dean Witter Reynolds Inc., 537 U.S. 79 (2002) (available at https://bit.ly/2yiejeh).

“The arbitration agreement is valid,” said Clement. “Nobody questions that.”

Justice Brett Kavanaugh asked whether the failure to raise the arbitration defense to a court action in the first responsive pleading could be a review standard for waiver, but Clement rejected it. He said it wasn’t fair to his client. “[If you want to write an opinion in my client’s favor and suggest to the rules committee that they amend the rules to give clear notice to parties, then I could live with that.”

Clement followed up when Kavanaugh pressed further to note that the line drawn by courts generally isn’t the first responsive pleading, but when there already has been extensive discovery.

Kagan returned to Clement’s point that missing a deadline would satisfy FAA Sec. 3’s requirement that a stay wouldn’t be issued if the party asking for the stay was in default. “Where does this federal common law rule come from as to what counts as default?” she asked.

“It’s a gloss on the statutory phrase ‘in default,’” responded the former solicitor general, “and I think everybody agrees ‘default’ means you violated a legal obligation.”

Justice Sotomayor recounted Sundance’s moves in the matter, and maintained that the company intentionally waived arbitration to see how it would do in litigation, and then reversed course.  Clement resisted, but noted also countered that the strategy was sound and adhered to its arbitration contract.  

He responded:

I think what the parties bargained for here was not just arbitration but bilateral arbitration. And when the other side decides not just to violate the arbitration agreement but to seek a nationwide collective action, I think my client is perfectly within its rights, and it’s what I would advise my client to do under the circumstances[–]don’t make a motion to compel arbitration because you might get a motion to compel nationwide collective arbitration, and pretty much every defendant on the planet agrees that’s the worst of both worlds. So you wait.

Sotomayor said that Sundance should have raised that objection in its motion to compel.

“I suppose we could have,” responded Kirkland’s Paul Clement, “and with the benefit of that additional advice, maybe that’s what I’d tell my clients to do. But I’d still say, OK, at worst, we failed to make a motion. At worst, we’re in the realm of forfeiture, and we still have the ability to make this motion under [FAA] Sec. 3.”

The case is expected to be decided before the Court’s current term ends in June.  The audio of Supreme Court oral arguments, as well as transcripts, can be found here. For more background on Morgan, see Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022) (available here), and Mark Kantor, “U.S. Supreme Court Adds an Arbitration Issue: Is Proof of Prejudice Needed to Defeat a Motion to Compel?” CPR Speaks (Nov. 15, 2021) (available here).

* * *

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

[END]

Supreme Court Preview:  Monday’s Morgan Argument Expected to Define When a Party Waives Its Contractual Rights, Kicking Off Two Weeks of #Scotus #Arbitration Cases

By Russ Bleemer

Monday morning’s U.S. Supreme Court arguments in Morgan v. Sundance Inc., No. 21-328, are the opening act for two weeks in which the nation’s top Court will take a deep dive into arbitration law and practice.

The Court’s unprecedented 2021-2022 term arbitration docket includes six cases, two of which are consolidated into one argument which also will take place next week.

Morgan involves the extent to which a federal court may defer to an arbitration agreement under the Federal Arbitration Act. 

Following the March 21 Morgan case arguments, and before the calendar turns to April, the Court will hear

  • On Wednesday, March 23, the consolidated arguments, including the U.S. Solicitor General, in ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, and AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign States, No. 21-518, international cases on the application of 28 U.S.C. § 1782 discovery to overseas arbitration;
  • On Monday, March 28, Southwest Airlines Co. v. Saxon, No. 21-309, an FAA Sec. 1 question, “Whether workers who load or unload goods from vehicles that travel in interstate commerce, but do not physically transport such goods themselves, are interstate ‘transportation workers’ exempt from the Federal Arbitration Act.”
  • On Wednesday, March 31, Viking River Cruises Inc. v. Moriana, 20-1573, whether the FAA requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims under the California Private Attorneys General Act, which, like a class action, allows employees to seek monetary awards on a representative basis on behalf of other employees.      

A Nov. 3 arbitration case, Badgerow v. Walters, No. 20-1143, awaits decision.  The case is expected to address the limits of federal court jurisdiction on confirming and overturning arbitration awards under the FAA. For more, see Russ Bleemer, “Supreme Court Hears Badgerow, and Leans to Allowing Federal Courts to Broadly Decide on Arbitration Awards and Challenges,” CPR Speaks (Nov. 2) (available here).

The Court’s calendar with the arguments’ timing is available here; the arguments will be available live, audio only, via www.supremecourt.gov.

The first of this month’s arbitration matters, Morgan, will examine the question whether a defendant’s actions are enough to constitute a waiver of a contractual arbitration, or if the plaintiff must show prejudice to his, her or its case.  The matter is expected to decide a circuit split.

The specific issue will be “Does the arbitration-specific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court’s instruction [in AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011)] that lower courts must ‘place arbitration agreements on an equal footing with other contracts?’”

The plaintiff is a former Taco Bell employee who is arguing that the defendant franchise owner had forfeited its right to arbitrate her wage claims by litigating the case.  An Eighth U.S. Circuit Court of Appeals decision held that the employee was not prejudiced by the franchise owner’s pursuit of litigation before arbitration.

Business groups have filed amicus briefs backing the Taco Bell franchisee.  They include the Washington Legal Foundation, the Restaurant Law Center, and the U.S. Chamber of Commerce. 

The petitioner-employee is supported by five amicus briefs. The briefs are from the American Association for Justice; the National Academy of Arbitrators; state attorneys general representing 18 states and the District of Columbia; Public Citizen; and a group of 31 U.S. law professors.  For more on the law professors’ views, see Richard Frankel, “Working with Waiver: Supreme Court to Review Law on When an Employer Drops and then Reinstates Arbitration,” 40 Alternatives 43 (March 2022) (available here). All of the amicus briefs are available on the Supreme Court’s Morgan docket page, linked at the top of this page.

For more on Morgan, see Mark Kantor, “U.S. Supreme Court Adds an Arbitration Issue: Is Proof of Prejudice Needed to Defeat a Motion to Compel?” CPR Speaks (Nov. 15) (available here).

For articles on the individual cases the Court will hear discussed above, use the CPR Speaks search function and search on the case names and/or Supreme Court on the upper right of this page.  For a summary and discussion of all of the cases, and an analysis of the Court’s arbitration caseload, see Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022), and Imre Szalai, “Not Like Other Cases: SCOTUS’s Unique Arbitration Year,” 40 Alternatives 28 (February 2022), both available for free at https://bit.ly/3GDEJEK.

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The author edits Alternatives for the International Institute for Conflict Prevention and Resolution, which is published with John Wiley & Sons in print, on Lexis and Westlaw, and archived in the Wiley Online Library at altnewsletter.com.

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Nominee Ketanji Brown Jackson’s ADR Work

By Tamia Sutherland and Russ Bleemer

President Biden’s nominee to the U.S. Supreme Court, U.S. District of Columbia Circuit Court of Appeals Judge Ketanji Brown Jackson, is well acquainted with conflict resolution’s role in legal practice from her law firm days.

The 51-year-old was elevated just last June to the appeals court by Biden, but has been on the bench since 2013, serving as a U.S. District Court judge in Washington, D.C. She would be the first black woman Supreme Court justice if she is confirmed.

While her ADR-centric cases on the bench were few, Jackson–who clerked in 1999-2000 for Justice Stephen G. Breyer, whom she would replace, though she wasn’t at the Court for the justice’s seminal arbitration cases–has significant commercial conflict resolution work in her CV.

Most notably, while of counsel in the Washington office of Morrison & Foerster, Jackson did extensive work on the seminal case of Hall Street Associates LLC v. Mattel Inc., 552 U.S. 576 (2008) (available at http://bit.ly/38ELtSU), successfully preserving respondent Mattel’s arbitration award (pending additional court review) and standing for the proposition that the parties cannot expand the scope of review for an award because it is contrary to the Federal Arbitration Act’s mission.

Jackson’s MoFo litigation department work, on both the civil and criminal sides, was preceded by two years as an associate at one of the nation’s highest-profile commercial conflict resolution practices with mediator Kenneth Feinberg.  Jackson was an associate in Feinberg’s Washington firm, then known as the Feinberg Group, in 2002-2003, in the midst of Feinberg’s best-known case, when he served as special master of the September 11th Victim Compensation Fund of 2001. Congress established the fund to aid victims and survivors of the 9/11 attacks; the fund used mediation-style processes to reach out to potential claimants, and evaluated applications, determined appropriate compensation, and disseminated awards.

Judge Jackson described her work at the firm in her Senate Judiciary Committee Questionnaire for Judicial Nominees ahead of a hearing on her nomination last April:

While at the Feinberg Group, I assisted in the negotiated (non-litigation) resolution of mass tort claims. I attended arbitration proceedings and advised client corporations regarding trust payment structures for
resolving mass-tort liability, such as asbestos claims.

She noted later in her disclosure, “my typical clients were large corporations facing mass tort liability. I specialized in mediation and arbitration procedures and in the evaluation of trust structures for the settlement of current and potential (future) tort claims.” She noted that she did not appear in court while working at the firm.

“I recall quite well the superlative legal skills of Judge Jackson while a member of the Feinberg Group Law Firm,” notes Ken Feinberg in an email. He continues:

Ketanji was involved in a series of matters relating to ADR: asbestos mediation, Dow-Corning breast implants mediations and some work on the 9/11 Victim Compensation Fund. Quite apart from her obvious legal skills, she proved to be a creative lawyer looking for paths to resolve complex mass tort litigation outside of the conventional legal system. She quickly recognized that mediation, arbitration and negotiation were cost effective, efficient and an abbreviated way to “get to yes.”

Feinberg concludes, “It was clear to me some 20 years ago that she was destined for greatness.”

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Jackson was confirmed to the D.C. Circuit Court by the Senate 53-44 on June 14. In a statement this morning, the White House noted that the president “sought a candidate with exceptional credentials, unimpeachable character, and unwavering dedication to the rule of law,” but also noted, in anticipation of a close confirmation vote, that “Judge Jackson has been confirmed by the Senate with votes from Republicans as well as Democrats three times.”

Senate Majority Leader Chuck Schumer, D., N.Y., told reporters Friday afternoon he will seek “a prompt hearing” by the Senate Judiciary Committee, to be followed quickly by Senate confirmation to the U.S. Supreme Court seat.

* * *

Judge Jackson further detailed her ADR work in her Senate Judiciary Committee questionnaire. She listed on her questionnaire the sole arbitration case for which she wrote an opinion, CEF Energia B.V. v. Italian Republic, No. 19-cv-3443 (KBJ) (D.D.C. Jul. 23, 2020).  In the case, Jackson granted Italy’s request to decline to confirm arbitration awards.  The two awards in favor of four energy companies against the Italian government were stayed in a Sweden court pending Italy’s challenge to the award, and the companies sought enforcement before Judge Jackson.

Jackson conducted an analysis of the power to stay proceedings in the United States while a foreign arbitral matter is continuing under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention. 

Noting “the ongoing set-aside proceedings that are taking place in Sweden (the primary jurisdiction of the parties’ arbitrations) and the significant interests in judicial economy and international comity that weigh in favor of staying this case,” Jackson stayed the confirmation decision pending the outcome in Sweden.

She wrote that a federal district court “must recognize and enforce a foreign arbitral award ‘unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.’” 9 U.S.C. § 207. Furthermore, Jackson found that “a court ‘may refuse to enforce the award only on the grounds explicitly set forth in Article V of the Convention.’”

The applicable grounds for refusal Jackson highlighted from Article V of the New York Convention, were that the agreement is not valid if (1) “award …has been set aside or suspended by a competent authority of the country in which … that award was made[,]” or (2) recognition or enforcement… would be contrary to the public policy of that country. New York Convention Art. V(1)(e), Art. V(2)(b).

But Judge Jackson’s holding to stay the confirmation was supported by her findings that the interest of the judicial economy, and the test in Europcar Italia S.P.A. v. Maiellano Tours, 156 F.3d 310 (2d Cir. 1998), which she wrote weighed in favor of staying the case. Quoting Naegele v. Albers, 355 F. Supp.2d 129, 141 (D.D.C. 2005), Jackson stated that  “[l]itigating essentially the same issues in two separate forums is not in the interest of judicial economy or in the parties’ best interests.”

In concluding her point that the interest of the judicial economy weighed in favor of staying the case, she acknowledged the length of time that had elapsed and wrote:

This Court fully understands that Petitioners have been pursuing recompense from Italy since 2015 and that the resolution in the [Sweden] Court may take one to two more years. . . . But it is not at all clear that proceeding with the instant litigation will necessarily lead to a faster resolution of the complex issues that must be determined prior to enforcing the awards. …

Judge Jackson carefully analyzed each of the six Europcar factors in deciding whether to stay an action under Article VI of the New York Convention in relation to the CEF Energia B.V. facts, concluding that the Europcar factors weighed in favor of staying the case.

She also noted that the European litigation over the awards stemmed from the controversial European Court decision in Slovak Republic v. Achmea B.V., Case C-284/16 (2018) (available at https://bit.ly/2Kf8OmM), in which the court found that “intra-[European Union] treaty arbitration provisions are invalid to the extent that they prohibit judicial review of EU law by EU courts.” Achmea concerned cases under the Energy Charter Treaty—the treaty under which the CEF Energia B.V. arbitrations were conducted.

* * *

In addition to CEF Energia, B.V. v. Italian Republic, Judge Jackson had eight other arbitration-focused cases on her docket covering a range of arbitration issues. In Metropolitan Municipality of Lima v. Rutas De Lima S.A.C. Jackson presided over an issue regarding Federal Arbitration Act Section 10, where the city of Lima, Peru, petitioned and moved for an order vacating an arbitral award that was rendered in favor of the respondent, a contractor. The matter was reassigned to Judge Florence Y. Pan before Jackson could rule on the merits.  

The other cases mostly involved confirmation proceedings.

* * *

Here is how Judge Jackson described her work on Hall Street Associates from her Senate Judiciary questionnaire:

From 2007 to 2008, I was part of a litigation team that represented respondent Mattel in a Supreme Court case involving the section of the Federal Arbitration Act that grants expedited judicial review to confirm, vacate, or modify an arbitration award. I was responsible for reviewing the factual record related to the subject matter of the underlying arbitration, and I drafted parts of both the primary brief for respondent and two supplemental briefs on specified issues the Supreme Court ordered. I also assisted in the preparation of oral argument counsel. The Supreme Court ultimately agreed with Mattel’s argument that the Act’s grounds for vacatur and modification of arbitration awards are exclusive for parties seeking expedited review under the FAA, but remanded the case for a determination regarding whether the parties did, in fact, intend for the arbitration proceeding at issue to be governed by the FAA.

She listed the case as one the 10 most significant litigated matters she has worked on in her career on the Senate Judiciary questionnaire.

The case is often cited for limiting the ability of parties to contract for review of their arbitration awards, though it does not apply to arbitration awards written solely under state laws, where, at least theoretically, parties could contract for expanded review under some circumstances.

Hall Street Associates also left alive the judicial standard of “manifest disregard” of the law for overturning awards under FAA Section 10, which commentators have urged needs clarification.  See, e.g., Stuart M. Boyarsky, “The Uncertain Status of the Manifest Disregard Standard One Decade after Hall Street,” 123 Dick. L. Rev. 167 (2018) (available at https://bit.ly/3slmLTk), and Michael H. LeRoy, “Are Arbitrators Above the Law? The ‘Manifest Disregard of the Law’ Standard,” 52 B.C. L.Rev. 137 (2011) (available at https://bit.ly/3ImK05i).  

The 116-page Senate Judiciary Questionnaire prepared by Judge Jackson containing descriptions of her professional work and education history can be found at https://bit.ly/35vbFSJ.

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Sutherland, a second-year law student at the Howard University School of Law, in Washington, D.C., is a CPR 2021-22 intern. Bleemer edits Alternatives to the High Cost of Litigation for CPR.

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Justice Breyer’s ADR Legacy

By Andrew Ling

U.S. Supreme Court Justice Stephen G. Breyer’s retirement announcement last month puts the focus on his replacement, but it also requires looking back at the justice’s record. Serving more than two decades on the Court, he has made important contributions to U.S. jurisprudence on arbitration, in both domestic and international contexts.

Breyer officially retired on Jan. 27, just ahead of the Court’s winter recess.  It returns this week, with an opinion expected soon on the one arbitration case argued so far this year, Badgerow v. Walters, No. 20-1143 (see Russ Bleemer, “Supreme Court Hears Badgerow, and Leans to Allowing Federal Courts to Broadly Decide on Arbitration Awards and Challenges,” CPR Speaks (Nov. 2)), and four more arbitration arguments slated for next month.  See Russ Bleemer, “The Supreme Court’s Six‐Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022) (available on open access at https://bit.ly/3GDEJEK).

In 1995, in his second year on the bench, Breyer drafted two frequently cited Federal Arbitration Act opinions. In the first, Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265 (1995) (available at https://bit.ly/3uUcJu5), Breyer wrote that the FAA applies to all transactions involving interstate commerce, even if the parties did not contemplate an interstate commerce connection.

The holding endorsed a broad FAA reading—specifically on 9 U. S. C. § 2,  which “makes enforceable a written arbitration provision in “a contract evidencing a transaction involving commerce.”

In First Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995) (available at http://bit.ly/2WEXGnF), Breyer set up the general principle that courts, not arbitrators, should decide whether a dispute is subject to arbitration, phrased as the “question of arbitrability.”

To submit questions of arbitrability to arbitration, there must be clear and unmistakable evidence indicating such intent from the parties. As Columbia Law Prof. George Bermann commented, First Options recognizes “the fundamental importance of consent to arbitrate,” and guarantees parties’ rights to an independent judicial determination. See George A. Bermann, “After First Options: Delegation Run Amok,” American Review of International Arbitration (Sep. 2021) (available at https://bit.ly/3oV54bb).

By contrast, when an issue does not raise a question of arbitrability, it should be presumptively decided by an arbitrator. In Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (available at https://bit.ly/2yiejeh), Justice Breyer wrote that a FINRA time-limit rule for submission to arbitration is a procedural issue that an arbitral tribunal should decide. This approach achieves a balance between respecting arbitrators’ authority and parties’ consent to arbitrate.

Justice Breyer is recognized as an international arbitration authority. As he argued in his 2015 book, “The Court and The World: American Law and the New Global Realities” (Penguin Random House), the Court must look at foreign and international laws in today’s increasingly interdependent world.

Breyer put his philosophy to use in the investment treaty case of BG Group PLC v. Argentina, 572 U.S. 25 (2014) (available at https://bit.ly/3LIfLb8). The matter dealt with an enforcement action of a foreign investment arbitral award. Breyer, writing for the 6-2 Court, held that a treaty precondition to arbitration is a procedural issue that usually leaves the arbitral tribunal to decide, and the court should defer to the tribunal’s decision on that matter.

But the view was expansive. Breyer cited multiple international authorities and wrote that a bilateral investment treaty should not be treated differently from a contract.

Washington, D.C.-based Paul Hastings partner Igor Timofeyev praised the opinion for bringing predictability to the enforcement of investment arbitral awards in the U.S. See Caroline Simson, “Justice Breyer Set Many Standards for Arbitration Community,” Law 360 (Jan. 27) (available at https://bit.ly/3oSQoJO).

Justice Breyer’s arbitration opinions also reflect his often-noted pragmatic streak. He drafted majority opinions on class arbitration, such as Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) (available at https://bit.ly/33putSQ) (designating that the decision on the contract in the case about the applicability of class arbitration was for the arbitrators, not the court), and Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019) (available at https://bit.ly/3696Cb2) (finding that “Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[ ] the principal advantage of arbitration,’” and reaffirming that “courts may not infer consent to participate in class arbitration absent an affirmative ‘contractual basis for concluding that the party agreed to do so.’”)

But Justice Breyer also sometimes found himself in the minority. In the seminal consumer arbitration case, AT&T Mobility LLC v. Concepcion, 563 U.S. 133 (2011) (available at https://bit.ly/3LEpkHV), the Court ruled that the Federal Arbitration Act preempted California arbitration law, which barred class arbitration. While Breyer drafted a dissenting opinion in the case, he upheld and applied Concepcion in his majority decision in DIRECTV Inc. v. Imburgia, 577 U.S. 47 (2015) (available at https://bit.ly/3gS8DKQ). He wrote,

No one denies that lower courts must follow this Court’s holding in Concepcion. The fact that Concepcion was a closely divided case, resulting in a decision from which four Justices dissented, has no bearing on that undisputed obligation. Lower court judges are certainly free to note their disagreement with a decision of this Court. But the “Supremacy Clause forbids state courts to dissociate themselves from federal law because of disagreement with its content or a refusal to recognize the superior authority of its source.” . . . The Federal Arbitration Act is a law of the United States, and Concepcion is an authoritative interpretation of that Act. Consequently, the judges of every State must follow it.

For Justice Breyer, “it’s the court’s job to help make government work for real people,” according to a former law clerk. See Richard Wolf, “After 20 Years, Breyer Is High Court’s Raging Pragmatist,” USA Today (Aug. 7, 2014) (available at https://bit.ly/3GTfu1m).

In Breyer’s view, by following judicial precedents, the Court contributes to social stability and allows people to plan their lives. He said, “The law might not be perfect but if you’re changing it all the time people won’t know what to do, and the more you change it the more people will ask to have it changed, and the more the court hears that, the more they’ll change it.” Andrew Chung, “U.S. Justice Breyer Touts Compromise, Democracy, Adherence to Precedent,” Reuters (May 28, 2021) (available at https://reut.rs/3Ju4Wr4).

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The author, a third-year law student at the University of Texas School of Law, in Austin, Texas, is a CPR 2022 Spring Intern.

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