The Latest #SCOTUS #Arbitration: Process ‘Preference’; Int’l #Discovery; Federal Courts’ Arb #Jurisdiction

CPR presents on YouTube linked and embedded above a new discussion on the current U.S. Supreme Court hot arbitration topics.  

The discussion is moderated by Russ Bleemer, editor of Alternatives to the High Cost of Litigation (http://altnewsletter.com, and for CPR members at www.cpradr.org/news-publications/alternatives) (@altnewsletter)), who is joined by Angela Downes, Assistant Director of Experiential Education and Professor of Practice Law at the University of North Texas-Dallas College of Law; independent Dallas attorney-arbitrator Richard Faulkner, and arbitration advocate Philip J. Loree Jr., who heads the Loree Law Firm in New York (@PhilLoreeJr). 

Here are the matters discussed, and links on this CPR Speaks blog to details on the cases and potential cases along with resources including links to lower court opinions and briefs.

  1. Morgan v. Sundance Inc., No. 21-328, an employment case on the extent to which a federal court may defer to an arbitration agreement, which the nation’s top Court agreed to hear last week. For details, 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).
  2. The Court has scheduled two cases involving the reach of 28 U.S.C § 1782 for a Dec. 3 conference that will determine whether it should hear the matters or let lower court opinions stand.  The cases examine whether the statute, which authorizes “any interested person” in a proceeding before a “foreign or international tribunal” to ask for and receive discovery from a person in the United States, covers international arbitration tribunals. The cases, AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518, and ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, are discussed at Bryanna Rainwater, “The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court,” CPR Speaks (Oct. 22, 202) (available here).  CPR has filed an amicus brief asking the Supreme Court to accept and decide the AlixPartners case; the NYC-based nonprofit which publishes this blog did not take a position in the case.  The details on the filing can be found at “CPR Asks Supreme Court to Consider Another Foreign Tribunal Evidence Case,” CPR Speaks (Nov. 12) (available here) (containing information and links to CPR’s previous amicus brief in Servotronics v. Rolls Royce PLC, No. 20-794, another Section 1782 case that the Supreme Court dismissed in September and removed from the Court’s October argument calendar).
  3. Badgerow v. Walters, No. 20-1143, an employment discrimination case that dives into the jurisdiction of federal courts under Federal Arbitration Act sections on enforcing and overturning arbitration awards.  The case was most recently discussed on CPR Speaks at 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 video embedded above can be found on YouTube at https://www.youtube.com/watch?v=Sw8ps4vtTfs.

[END]

House Subcommittee Introduces Bill that Would Restrict Arbitration

By Tamia Sutherland

The House Committee on Education and Labor’s Subcommittee on Health, Employment, Labor, and Pensions held a Nov. 4 hearing on employment arbitration to introduce the “Restoring Justice for Workers Act.” The meeting and bill was presented by House Education and Labor Committee Chairman Bobby Scott, D., Va., and House Judiciary Committee Chairman Jerrold Nadler, D., N.Y.

The text of the Restoring Justice for Workers Act is available here. The act would

  • prohibit pre-dispute arbitration agreements that require arbitration of work disputes;
  • prohibit retaliation against workers for refusing to arbitrate work disputes;
  • provide protections to ensure that post-dispute arbitration agreements are truly voluntary and with the informed consent of workers;
  • amend the National Labor Relations Act to prohibit agreements and practices that interfere with employees’ right to engage in concerted activity regarding work disputes, and
  • reverse the U.S. Supreme Court’s 5-4 decision in Epic Systems Corp. v Lewis, available here. (Earlier this week, the Court agreed to hear a case that could clarify the extent of the seminal case’s application. For more, 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 at https://bit.ly/3FnfyGd).

The subcommittee meeting, “Closing the Courthouse Doors: The Injustice of Forced Arbitration Agreements,” began with an opening statement from committee Chairman Mark DeSaulnier, D., Calif. Senior Georgia Republican committee  Rick W. Allan gave an opening statement, and then four witnesses provided testimony:

  1. Alexander Colvin, Dean of the School of Industrial and Labor Relations at Cornell University;
  2. Glenda Perez, Former Implementation Set-Up Representative at Cigna;
  3. G. Roger King, Senior Labor and Employment Counsel at the Arlington, Va.-based HR Policy Association, a nonprofit membership group of “over 390 large” corporations’ chief human resource officers; and
  4. Kalpana Kotagal, a Partner in Cohen Milstein Sellers & Toll’s Washington, D.C., office.

First, Chairman DeSaulnier began by introducing the topic of “forced arbitration” agreements and collective action waivers, explaining that for many employees, employment documents “include an arbitration clause, hidden in the fine print,” which requires workers to sign the document or forgo employment.

Next, he provided data to support the assertion that the use of these agreements is widespread. He explained that “in 1990, 2.1% of non-union employees had an arbitration clause in their employment contracts . . . [and in] 2018, nearly 60% of all nonunionized private-sector employees were covered by forced arbitration agreements.”

Chairman DeSaulnier provided other examples of what he described as unfair practices and, finally, introduced the Restoring Justice for Workers Act as a solution.

Rep. Allan countered in his opening statement that the act is another instance of heavy-handed government reach that will be burdensome to employers and unfairly target job creators. Moreover, he asserted that the act would delay justice and continue to clog an already overrun court system.

Prof. Colvin, a longtime critic of mandatory arbitration processes, was the first witness to provide testimony. He provided statistics from his studies, cited at his link above, to show the increase use of arbitration, and how employees do worse in arbitration as opposed to the court. He also discussed how employees who use the arbitration process for the first time are at a structural disadvantage to companies who repeatedly use the process.

Next, Glenda Perez provided a personal account of her struggles with the arbitration process without a lawyer. Perez reported that she and her husband worked for Bloomfield, Conn.-based insurer Cigna from October 2013 to  July 2017. In April 2017, Cigna put her on a performance correction plan for work “errors” after meeting with her team on pharmacy benefits.

Her husband, a Cigna analyst, found evidence of errors by white women but none by his wife, according to Perez’s witness statement. She filed a discrimination complaint with Cigna’ human resources department. Typically, a full investigation takes 60 days, she reported, but in her statement, Perez said her investigation took one day, with human resources backing her manager’s claim. Two months later, she was fired.

Perez wanted to file a claim for discrimination and retaliation, but could not find an attorney to represent her in mandatory arbitration. She said she was forced to drive to a law library to do research while also taking care of her three children and looking for a new job. She claimed it took several months to choose an arbitrator.

Moreover, Perez reported, the arbitrator selected may have had a conflict of interest that was not disclosed. Perez’s testimony focused on arbitrator’s lack of impartiality. She reported that there are photos online of the arbitrator, and Cigna’s attorney, at the arbitrator’s 50th birthday party, which she filed with her committee testimony. Additionally, she testified, the arbitrator formerly worked for the firm representing Cigna and had Cigna’s counsel as a reference on his CV.

The arbitrator denied Perez’s request for materials to prove her case as Cigna claimed it would cost more than $1 million to retrieve “even though,” she said, “I was only requesting my employee personal profile.” Cigna moved for summary judgment, and then the arbitrator ruled in favor of Cigna, and canceled a hearing that had been scheduled. When Perez filed a motion to vacate the decision in court, she said Cigna fired her husband.

HR Policy Association attorney Roger King said that two of the legislation’s primary objectives are big mistakes and are a substantial overreach of congressional action. He explained that completely eliminating pre-dispute arbitration was a mistake, and a total prohibition on class-action waivers would be burdensome. Also, in response to Glenda Perez’s testimony, he asserted that generally, arbitrators are ethical.

Finally, Kalpana Kotagal testified that the justification for forced arbitration is predicated on myths because (1) there is no equal bargaining power in most forced arbitrations, (2) it burdens those who are already marginalized, (3) it is not speedy, and (4) it deters workers from bringing claims.

The meeting concluded with a Q&A from other committee members.

* * *

A video of the hearing, and witness statements, is available here. The Congressional repository page for the event can be found here.

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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 Fall Intern.

[END]

U.S. Supreme Court Adds an Arbitration Issue: Is Proof of Prejudice Needed to Defeat a Motion to Compel?

By Mark Kantor

This morning, the U.S. Supreme Court granted certiorari and agreed to hear the petition in Morgan v. Sundance, Inc., No. 21-328, in which the Question Presented is:

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?”

In this case, Robyn Morgan, an employee at an Osceola, Iowa, Taco Bell, brought a proposed Fair Labor Standards Act class action in court against employer Sundance Inc., a company that owns more than 150 Taco Bell franchises, according to Morgan’s cert petition.  

Morgan alleged in the class action that Sundance did not pay Taco Bell franchise employees for all the hours they worked. Sundance eventually moved to require Morgan to arbitrate her claims.  

In substance, this dispute involves the question of whether one party arguing that a second party has waived its right to arbitration must show prejudice resulting from the second party’s delay in asserting the right to arbitrate the dispute. 

An Iowa federal district court determined that Sundance had waived its right to require arbitration because the company waited too long, and that Morgan was harmed by costs and efforts in defending the court litigation, instead of getting ready for arbitration.

The requirements to be met to show waiver of a right to arbitrate, said the Eighth U.S. Circuit Court of Appeals, are:

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.”

The Court of Appeals rejected Morgan’s argument that Sundance waited too long and engaged in too much judicial conduct to effectively waive Sundance’s right to arbitrate the dispute.  In doing so, the Court of Appeals held that Morgan had failed to show prejudice sufficient to succeed on the waiver argument. Morgan v. Sundance Inc., 992 F.3d 711 (8th Cir. 2021) (available at https://bit.ly/3nqL7sJ).

The appellate panel–in a 2-1 decision–disagreed with the lower U.S. District Court finding of prejudice, concluding that part of the delay was attributable to the time the district court spent deciding Sundance’s motion to dismiss on quasi-jurisdictional grounds, no discovery was conducted, and the efforts on the motion to dismiss did not duplicate efforts Morgan would have to spend in the arbitration. The majority opinion stated:

The district court found Morgan was prejudiced by having to respond to Sundance’s motion to dismiss over the eight-month span of litigation.  We disagree.  Four months of the delay entailed the parties waiting for disposition of Sundance’s motion to dismiss.  No discovery was conducted.  And, the record lacks any evidence that Morgan would have to duplicate her efforts during arbitration.  Instead, most of Morgan’s work focused on the quasi-jurisdictional issue [addressed by Sundance’s motion to dismiss], not the merits of the case.  For these reasons, we hold Morgan was not prejudiced by Sundance’s litigation strategy.

Morgan then petitioned the Supreme Court in August to determine whether she was required to show prejudice to prove that Sundance waived its right to arbitrate, arguing that she would not be required to make such a showing for other types of contracts under applicable law. 

Morgan has now persuaded the Court to take up the case for a hearing on the extent of AT&T Mobility’s reach sometime in 2022. The Court’s order this morning accepting the case—the sole cert granted in today’s order list—can be found here.

An argument date is expected to be scheduled soon. If argued this term, it will be the second arbitration case to be heard in the 2021-2022 Court year. Earlier this month, the Court heard arguments in Badgerow v. Walters, No. 20-1143, a case involving the federal courts’ jurisdiction under the Federal Arbitration Act. 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, 2021) (available at https://bit.ly/30tIRI5).

Here is the Court’s official Morgan v. Sundance docket page, with case materials. More materials and analysis can be found on Scotusblog, here.

* * *

Mark Kantor is a member of CPR-DR’s Panel of Distinguished Neutrals.  Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups.  He currently serves as an arbitrator and mediator.  He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor).  He also is Editor-in-Chief of the online journal Transnational Dispute Management.  He is a frequent contributor to CPR Speaks, and this post originally was circulated to a private list serv and adapted with the author’s permission.

[END]

CPR Asks Supreme Court to Consider Another Foreign Tribunal Evidence Case

The International Institute for Conflict Prevention and Resolution has asked the U.S. Supreme Court to hear a case on the extent of a law allowing U.S. federal courts to grant requests from foreign tribunals for discovery on U.S. persons as defined under the statute.  

The question in AlixPartners LLP, et al. v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518, is whether the law on international tribunals applies to arbitration panel requests.

It’s the second Supreme Court amicus request by CPR in 2021.

CPR didn’t take a position in its Monday amicus filing, but instead asked the Court to hear the matter and clear up a federal circuit split over whether overseas arbitration tribunals may obtain requests for discovery under the law as, say, a foreign court can do.

The reach of 28 U.S.C § 1728 has become a hot topic in federal appellate courts over the past two years.  It was thought to be nearing a conclusion when the nation’s top Court granted cert on the issue in Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794.

But while the parties waited for the October Court argument date, they also proceeded in arbitration.  After a July award by a London tribunal, the Court granted the parties’ request to dismiss the case in September, and it was removed from the docket. For more on Servotronics’ details and history, see Bryanna Rainwater, “Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket,” CPR Speaks (Sept. 8) (available here).

CPR last January also had filed an amicus brief, linked at the CPR Speaks post, urging the Court to accept Servotronics. That brief also can be found at the Court’s docket page here.

CPR’s motion for leave to file the AlixPartners amicus brief, as well as the brief itself, is posted on the Supreme Court’s docket page for the case, linked above, and can be accessed directly here. The matter is expected to be considered by the Court at a conference before year end.

Attorneys at Cincinnati’s Graydon Head & Ritchey LLP prepared and filed the brief on CPR’s behalf.  The counsel of record on the filing is John B. Pinney, and the attorneys on the brief are Roula Allouch and John C. Greiner.

For coverage of CPR’s Alixpartners amicus filing argument, see Victoria McKenzie, “Arbitration Group Urges High Court To Define ‘Tribunal,’” Law360 (Nov. 9, 2021) (available here).

[END]

Supreme Court Hears Badgerow, and Leans to Allowing Federal Courts to Broadly Decide on Arbitration Awards and Challenges

By Russ Bleemer

The U.S. Supreme Court expressed skepticism this morning about a petitioner’s argument that federal court jurisdiction over an arbitration matter under Federal Arbitration Act Sec. 4 on enforcing the submission to the ADR process does not also carry federal jurisdiction over to later FAA sections on confirming and overturning awards.

Today’s arguments in Badgerow v. Walters, No. 20-1143, the sole arbitration case on the current term’s docket, appeared to support the Court affirming a Fifth U.S. Circuit Court of Appeals decision confirming an arbitration award, rather than sending the case back to state court.

Petitioner’s attorney Daniel L. Geyser, a partner in the Denver and Dallas’s offices of Haynes and Boone, addressed opposition for his FAA interpretation from the bench during this morning’s oral arguments, which were streamed at the Court’s website.

His adversary, Washington, D.C., Williams & Connolly partner Lisa Blatt, told the court that confining federal court jurisdiction to arbitration enforcement requests under Sec. 4’s submission coverage but not the Sec. 9 enforcement provision and the Sec. 10 challenge provision would “decapitate the FAA.”

The argument leaned heavily toward allowing federal court jurisdiction for the enforcement questions, with Geyser facing resistance among the members of the Court during his argument.

The Court presented the question starkly, “Whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.”

But it also provided a back story on the docket page:

This case presents a clear and intractable conflict regarding an important jurisdictional question under the Federal Arbitration Act (FAA), 9 U.S.C. 1-16.

As this Court has repeatedly confirmed, the FAA does not itself confer federal question jurisdiction; federal courts must have an independent jurisdictional basis to entertain matters under the Act. In Vaden v. Discover Bank, 556 U.S. 49 (2009), this Court held that a federal court, in reviewing a petition to compel arbitration under Section 4 of the Act, may “look through” the petition to decide whether the parties’ underlying dispute gives rise to federal-question jurisdiction. In so holding, the Court focused on the particular language of Section 4, which is not repeated elsewhere in the Act.

After Vaden, the circuits have squarely divided over whether the same “look through” approach also applies to motions to confirm or vacate an arbitration award under Sections 9 and 10. In Quezada v. Bechtel OG & C Constr. Servs. Inc., 946 F.3d 837 (5th Cir. 2020), the Fifth Circuit acknowledged the 3-2 “circuit split,” and a divided panel held that the “look-through” approach applies under Sections 9 and 10. In the proceedings below, the Fifth Circuit declared itself “bound” by that earlier decision, and applied the “look-through” approach to establish jurisdiction. That holding was outcome determinative, and this case is a perfect vehicle for resolving the widespread disagreement over this important threshold question.

The case involves a FINRA arbitration brought by former Louisiana employee of a unit of Ameriprise Financial Services Inc. against principals in the firm, which accompanied a federal court suit against the employer, as well as an EEOC claim.  The federal courts backed an arbitration award against the employee and for the principals.

In her attempt to overturn the federal courts’ jurisdiction on enforcement of the claim, the employee seeks to return to her state court claims challenging the award based on a fraud allegation against the principals. For full background, see Bryanna Rainwater, “Next at the Supreme Court: Badgerow’s Attempt to Reevaluate FAA Jurisdiction,” CPR Speaks (Sept. 15) (available here).

Daniel Geyser’s argument on behalf of the petitioner that the so-called look-through approach to analyzing federal court jurisdiction doesn’t apply to every FAA section met swift and strong resistance from the bench.  Justice Clarence Thomas led off questioning asking if the jurisdiction provided by the FAA was done in “a roundabout way” under Geyser’s formulation. The attorney countered that Congress could have put deployed “a free-standing provision that applied globally” instead of the designation about jurisdiction on backing arbitration submission agreements under Section 4.

The discussion led to a disagreement with the justices over the jurisdiction of the federal courts in matters with diversity and matters with federal questions. “In a federal question case,” said Geyser in response to skepticism about the difference from Justice Stephen Breyer, “the pleading before the Court under Section 9 and Section 10 is not the underlying case. It’s the attempt to enforce the arbitration contract. It’s saying, I want the arbitration contract enforced, not ‘I want to adjudicate the federal question.’”

But Breyer persisted, citing Vaden where an underlying matter might be employment or antitrust. “It doesn’t seem to make very much sense to say: Okay, go there, get an injunction” to send a case to arbitration, he said, but “when it comes time to enforce it, you can’t go there.  . . . Why you separate [Section 4] from the rest of it, I can’t get it.”

When Breyer conceded that there were language differences in the statute allowing for enforcement, Geyser agreed, noting, “I’d say that there is radically different language between Section 4 and the other sections.”

Geyser discussed with the Court the prospect of the federal courts having jurisdiction over hundreds of thousands of arbitrations after Chief Justice John G. Roberts Jr. questioned whether the problem was the fact that the case presents “the somewhat unusual situation where this is a federal statute that we have said does not give rise to federal jurisdiction.”

* * *

Respondents’ attorney Lisa Blatt faced more discussion and less resistance from the justices. She opened by noting that “the FAA is structured sequentially to facilitate all stages of arbitration to resolve the same underlying controversy,” and the continuing federal jurisdiction–from the early provisions providing for ensuring submission to arbitration to the later enforcement questions–makes sense.

“Congress presumably did not want federal courts to enforce arbitration agreements at the front end,” said Blatt, “only to see state courts to force do-overs at the back end.”

Justice Elena Kagan challenged Blatt on the lack of textual support for federal jurisdiction in FAA Sections 9 and 10. She countered that the statute’s referral to motions makes it procedural, with more of an inquiry needed for full jurisdiction. “It reads like .  . . a federal  . . . arbitration procedural act,” said Blatt, adding that when the act was passed, “The Federal Rules of Procedure didn’t exist.”

Blatt insisted that the statute provided grounds for the federal courts to decide on enforcing arbitration awards by looking at the underlying action. “You have plenty of textual hooks because you’ve got the word ‘motion,’” she explained, “and courts every day understand that motions aren’t — you know, motions don’t need a free standing.  . . .”

She continued, telling Chief Justice Roberts, “[T]his is the Federal Arbitration Act, so they were obviously thinking about cases that could otherwise be litigated in federal court. Whether that’s just diversity or a federal question, these are federal . . . controversies and these are treated as applications or requests to facilitate the arbitration from cradle to grave.”

In his rebuttal, Daniel Geyser warned that finding that the enforcement and challenge FAA sections carry federal jurisdiction, “you’re expanding federal jurisdiction to decide a bunch of cases that–where there is no advantage to having a federal court spend its expertise and bandwidth looking at cases that the state courts have faithfully handled.”

The transcript to today’s arguments are available on the U.S. Supreme Court website here. The Court is expected to decide the case before the term ends at the end of June.

* * *

The author edits Alternatives for CPR Speaks’ publisher, the International Institute for Conflict Prevention and Resolution.

[End]

The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court

By Bryanna Rainwater

The question of whether a foreign or international tribunal includes arbitration panels for the purposes of providing evidence under a federal court order is back before the U.S. Supreme Court. The case is being briefed and is expected to be added for a conference in which the Court’s members will decide whether to hear the case.

The issue had been set as one of the first tasks for the Court in the opening week of the new 2021-2022 term, earlier this month.

 But in September, the Court dismissed the case at the parties’ request, and the issue about the reach of 28 U.S.C. §1782—”Assistance to foreign and international tribunals and to litigants before such tribunals”–disappeared from the court’s docket.

The latest case, ZF Automotive US, Inc., v. Luxshare, Ltd., Docket No. 21-401, filed Sept. 10, presents the identical question as the dismissed case, with one key difference. The issue presented is:

Whether 28 U.S.C. § 1782(a), which permits litigants to invoke the authority of United States courts to render assistance in gathering evidence for use in “a foreign or international tribunal,” encompasses private commercial arbitral tribunals, as the U.S. Courts of Appeals for the 4th and 6th Circuits have held, or excludes such tribunals, as the U.S. Courts of Appeals for the 2nd, 5th and 7th Circuits have held.

The difference in the new version of the case, according to the petitioners, is that it is a “live controversy” and therefore “free from a potential jurisdictional hurdle” that plagued Servotronics, Inc. v. Rolls-Royce PLC, No. 20-794, the case that was dismissed by the nation’s top Court on Sept. 29.

The hurdle referred to by the ZF Automotive petitioners, a Michigan auto parts manufacturer and a subsidiary of Germany’s ZF Friedrichshafen AG, and two executives associated with the company, is Servotronics’ mootness, because the discovery in the case was no longer needed in the face of the arbitration proceedings and the award. (The cert petition is available here.)

Servotronics had sought to end the Circuit split about the interpretation of the meaning “foreign international tribunal.” The Fourth and Sixth U.S. Circuit Courts of Appeals have held that 28 U.S.C. § 1782 encompasses private commercial arbitrable tribunals, as noted in the new ZF Automotive petition and its question presented, while the Second, Fifth, and Seventh Circuits have gone with a more limited approach which does not consider these private arbitrable tribunals to fit within the meaning of  the statute and, therefore, have denied discovery requests.

Servotronics was scheduled for oral argument on Oct. 5, the second day of the Court’s term, but removed from the calendar after the arbitration in the case was conducted in the spring, and the parties moved to dismiss the case in the wake of a July award.

For more on the Servotronics case dismissal and the case history, see Bryanna Rainwater, “Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket,” CPR Speaks (Sept. 8) (available here).

The ZF Automotive petitioners urge the Court to clear up the circuit split and decide the true interpretative meaning of §1782. They argue that Servotronics amicus briefs warn that without resolving the §1782 issue for private international tribunals, there could be a disincentive for parties from entering into international contractual agreements.

Respondent Luxshare, a Hong Kong limited liability company, bought ZF AG’s Global Body Control Systems business in August 2017. During this transaction, the parties signed a Master Purchase Agreement which provides that disputes are to be governed under German law. The petitioners noted that Luxshare waited to file a §1782 application for discovery for more than two years after the transaction’s closing in pursuit of the purchaser’s fraud allegations.

Because the arbitration agreement specified that the DIS—that is, the German Arbitration Institute–would provide the panel to arbitrate the issues between the parties, the petitioner argues that the panel does not satisfy the requirement of being a “tribunal” within the meaning of §1782.

Luxshare filed the original claim in Michigan’s federal Eastern U.S. District Court under §1728 to seek discovery—documents and testimony–from ZF Automotive US and the officers before the arbitration. U.S. Magistrate Judge Anthony P. Patti granted the discovery in a limited scope, and ZF Automotive US’s subsequent motion to stay was denied by the district court.

Arguing that the interpretation of the Sixth Circuit—which oversees Michigan cases–is mistaken, the petitioners cite legal scholars, the Court’s own precedent and dictionary definitions to support their proposition that §1728(a) “includes only governmental or intergovernmental adjudicative bodies, and excludes private arbitrators that have no sovereign authority.”

In its reply brief, Luxshare counters that the case is a poor vehicle to examine the statute. “[T]he question presented may not be dispositive of this case, and may not even be necessary to resolve this case,” the reply notes, because even if the foreign tribunal definition included the DIS arbitration panel, their adversaries maintain that there are case-specific reasons for vacating discovery in the case. (The reply brief in opposition to certiorari is available here.)

Moreover, the reply notes that, like Servotronics, the case is likely to become moot before the Court can rule due to the unlikelihood of the petitioners agreeing to extend the time for arbitration.

In fact, the petitioners filed an Oct. 15 application for a Supreme Court stay on discovery to avoid the mootness issue with Associate Justice Brett Kavanaugh, who is the Court’s justice for the Sixth Circuit. (Available here.)

In a response filed yesterday, Luxshare contended that the ZF Automotive petitioners had not met the standards to grant a stay, and added that the stay would injure the company because it “will deny Luxshare the basic right to have its fraud claims against ZF US adjudicated based on the evidence.” 

Luxshare also wrote in its reply that the Court should deny the stay “for the additional reason that it would disserve the public interest, by both frustrating Congress’s purpose in enacting § 1782(a) and permitting fraud to go unremedied.”

An order had not been issued as of this post.

In addition:  ZF Automotive is no longer alone before the Court on § 1782.  The Luxshare brief advocating that the Court deny the cert petition points out that AlixPartners, LLC v. Fund for Protection of Investor Rights in Foreign States, No. 21-518, covers the same turf.  The Oct. 5 petition (available here) for certiorari asks, similarly, “Whether an ad hoc arbitration to resolve a commercial dispute between two parties is a ‘foreign or international tribunal’ under 28 U.S.C. § 1782(a) where the arbitral panel does not exercise any governmental or quasi-governmental authority.”

* * *

The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern. Alternatives editor Russ Bleemer contributed to this post.

[END]

Next at the Supreme Court: Badgerow’s Attempt to Reevaluate FAA Jurisdiction

By Bryanna Rainwater

The U.S. Supreme Court has set the oral argument for Nov. 2 in Badgerow v. Walters, No. 20-1143, now the sole remaining arbitration case on the docket for the new term beginning next month.

The issue the nation’s top Court will examine is whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is a dispute regarding a federal question.

Section 9 deals with confirming an award, and Section 10 provides the limited grounds that can overturn an award and thereby defeat a move to confirm.

Last week, the Court removed the first arbitration case it had taken for the term from its argument schedule and dismissed the case after a party request.  The case, Servotronics Inc. v. Rolls-Royce PLC, et al., Docket No. 20-794, would have examined the parameters of the discretion granted to district courts under 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” by determining whether the statute includes private commercial arbitral tribunals.

For more details on the dismissal on this blog, see Bryanna Rainwater, “Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket,” CPR Speaks (Sept. 8) (available at https://bit.ly/39oFdAx).

The Fifth U.S. Circuit Court of Appeals in Badgerow affirmed the district court’s decision that exercised subject-matter jurisdiction over the plaintiff’s petition to vacate an arbitral award stemming from an employment dispute, denying remand of the issue. Badgerow v. Walters, 975 F.3d 469 (5th Cir. Sept. 15, 2020) (available at https://bit.ly/394xUh3).

Petitioner Denise Badgerow–a former employee of REJ Properties Inc., a Louisiana-based financial services firm that was a unit of Ameriprise Financial Services Inc.–signed an agreement to arbitrate any employment disputes with Ameriprise and any of its affiliates.

She was terminated and initiated arbitration against company officials alleging gender discrimination and other Title VII and equal pay claims before a Financial Industry Regulatory Authority panel. Ameriprise successfully moved to compel arbitration in a separate federal suit and Badgerow added a declaratory judgment claim against Ameriprise to the FINRA arbitration. 

Badgerow sought damages against the REJ principals for tortious interference of contract for a violation of Louisiana’s “whistleblower” law. Id. at 471. The FINRA panel dismissed all of Badgerow’s claims against the principals and Ameriprise with prejudice.

In May 2019, Badgerow brought a new Louisiana state court action to vacate the FINRA award that dismissed her complaints, alleging fraud by the principals against the FINRA arbitrators. The principals removed the case to Louisiana’s Eastern U.S. District Court. Badgerow filed a motion to remand, asserting the lack of federal subject-matter jurisdiction.

The district court held that there was federal subject matter jurisdiction, and Badgerow appealed the denial of her motion to remand to state court.

The Fifth Circuit relied upon the approach in Vaden v. Discover Bank, in which the Supreme Court adopted the “look through” approach to determining federal jurisdiction in actions that compel arbitration under FAA Section 4. Vaden v. Discover Bank, 556 U.S. 49 (2009) (available at https://bit.ly/3Ca42MA). Under this approach, 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.

Badgerow disagreed with the district court’s four-step analysis for conveying federal jurisdiction in her case because she did not include Ameriprise in her state-court action, but the district court rejected this argument, holding, “’Badgerow cannot deprive the Court of subject matter jurisdiction over an action to vacate the award by stripping off a single state law claim.’” Id. at 474 (quoting the district court opinion).

The Fifth Circuit noted that a close reading of Vaden vindicated the district court’s reasoning. Since Vaden’s rule is “if, save for” the arbitration agreement, a claim could be held in federal court, then there is federal jurisdiction.

The Fifth Circuit agreed that this analysis does not fail in an action to vacate the award by “stripping off a single state law claim.” Id. The court decided that since Badgerow’s claims “all arose from the same common nucleus of operative fact” that “the district court correctly found that the federal claim against Ameriprise in the FINRA arbitration proceeding meant that there was federal subject-matter jurisdiction over the removed petition to vacate the FINRA arbitration dismissal award.” Id.

The case now stands before the Supreme Court, which granted cert on May 17.

In her petition, Badgerow lays out the clear question of “whether Vaden’s ‘look through’ approach applies to motions to enforce or vacate arbitration awards under [FAA] Sections 9 and 10.”

The petitioner noted that there is disagreement among district judges regarding the Vaden analysis as it relates to FAA enforcement of arbitral awards, and that the Fifth Circuit itself divided 2-1 on the Vaden look-through approach for motions to confirm in a case addressed while Badgerow was pending. Quezada v. Bechtel OG & C Constr. Servs. Inc., 946 F.3d 837 (5th Cir. 2020) (available at https://bit.ly/3lrMZ1X).

The cert petition says that the divisiveness between the courts and the confusion surrounding the FAA language are reasons to question the Fifth Circuit’s decision in asking the Supreme Court to clarify whether Vaden’s approach to federal jurisdiction extends from FAA Section 4 to Sections 9 and 10.

While the steady stream of Supreme Court arbitration cases has generated a concurrent steady stream of regularly appearing parties as amicus curiae, oddly, at this writing, less than two months ahead of arguments, no friend-of-the-court briefs have been filed either on the successful cert petition or the case itself. The case documents, including the party briefs and any future amicus filings, can be found on the Supreme Court docket page at https://bit.ly/3zfSqps.

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The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern.

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Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket

By Bryanna Rainwater

The U.S. Supreme Court has dismissed the first arbitration case it had accepted for this fall’s term.

Servotronics Inc. v. Rolls-Royce PLC, et al., Docket No. 20-794, has been officially removed from the Supreme Court’s docket as of today, with the Oct. 5 opening week oral argument wiped off the schedule.  You can see the Court’s order in the docket here.

Petitioner Servotronics’ counsel, issued a Sept. 8 letter to the Court stating it would file a formal dismissal request “within the next few days” per Rule 46 of the Rules of the Court.

The dismissal follows the completion of arbitration in London this summer. The U.S. Solicitor General’s office had requested and been granted permission to participate in the oral arguments.

The issue that was awaiting the Supreme Court was whether the discretion granted to district courts in 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” encompasses private commercial arbitral tribunals, as the Fourth and Sixth U.S. Circuit Courts of Appeal have held, or excludes such tribunals without expressing an exclusionary intent, as the Second, Fifth, and, in the case below, the Seventh Circuit, have held.  See Servotronics Inc. v. Rolls Royce PLC, No. 19-1847 (7th Cir. Sept. 22, 2020) (available at https://bit.ly/3dpNyF4).   

Since the Court has declined to hear this case, the future of international private commercial arbitration discovery is still unclear, with pending cases in federal circuit courts.

For more background on the Servotronics history, please see CPR’s coverage:

  1. Cai Phillips-Jones, “United States Submits Amicus Brief in Servotronics International Arbitration Supreme Court Case,” CPR Speaks (July 8) (available here).
  2. Amy Foust, “The Next Arbitration Matter: Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers,” (March 22) (available here).
  3. “YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence,” CPR Speaks (March 22) (available here).
  4. “CPR Files Amicus Brief Asking U.S. Supreme Court to Tackle Foreign Discovery for Arbitration,” CPR Speaks (Jan. 6) (available here).
  5. John B. Pinney, “Will the Supreme Court Take Up Allowing Discovery Under Section 1782 for Private International Arbitrations?” 38 Alternatives 103 (July/August 2020) (available at https://bit.ly/38PDOSk).
  6. John B. Pinney, “Update: The Section 1782 Conflict Intensifies as the International Arbitration Issue Goes to the Supreme Court,” 38 Alternatives 125 (September 2020) (available at https://bit.ly/3tbgFCX).

The Court recently scheduled its second–and suddenly, sole–arbitration matter for the new term.  Badgerow v. Walters, No. 20-1143, will discuss “[w]hether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is that the underlying dispute involved a federal question.”  It will be argued on Nov. 2.

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The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern.

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United States Submits Amicus Brief in Servotronics International Arbitration Supreme Court Case

By Cai Phillips-Jones

Multiple parties have filed briefs concerning arbitration discovery rules in a case now before the U.S. Supreme Court for fall argument, Servotronics v. Rolls Royce, No. 794 (see the Court’s official docket at https://bit.ly/3ysbMrL).  

In the case, the Court will decide the question of whether federal district courts can assist with obtaining evidence in foreign arbitration cases at the parties’ request. The argument date has not yet been set.

The U.S. Solicitor General’s office in the Justice Department has filed an amicus brief advocating on behalf of the U.S. government for a narrow interpretation of 28 U.S.C. 1782, a law that has created a split among federal circuit courts. The law allows circuit courts to authorize discovery for litigation originating in “foreign tribunals,” including compelling testimony from witnesses residing in the United States. 

But circuit courts have not been able to agree about whether the law pertains to arbitration taking place in foreign countries: The Fourth and Sixth U.S. Circuit Courts of Appeals support court involvement in discovery for these arbitrations under Section 1782, and the Second, Fifth and Seventh Circuits reject this interpretation of the law.

The Fourth and Seventh Circuits both heard the same Servotronics case that is now on the Supreme Court docket. The circuit courts reached opposite conclusions. For background on the cases’ paths and how the current Seventh Circuit case made it to the Supreme Court, see Amy Foust, “The Next Arbitration Matter: Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers,” CPR Speaks (March 22) (available at https://bit.ly/36cp27K), and “YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence,” CPR Speaks (March 22) (available at https://bit.ly/3jLbVT3).

CPR, which publishes CPR Speaks, submitted an amicus brief in support of the Servotronics certiorari request in January, which also was the subject of an amicus brief by the Atlanta International Arbitration Society. Since the petition was granted, 11 additional amicus briefs, including the brief of the Solicitor General’s office, have been filed.

Of the group, two state that they do no support either party–those of Prof. Yanbai Andrea Wang, of Philadelphia’s University of Pennsylvania Carey Law School, who asks the Court to clarify the scope of Section 1782, previously interpreted in the Intel case discussed below; and the International Court of Arbitration of the International Chamber of Commerce, which discusses the ICC’s international law views.

Two briefs support the petitioner, submitted on behalf of Columbia Law School Prof. George A. Bermann; and Palo Alto, Calif.-based ADR provider Federal Arbitration Inc.

Seven of the briefs support the respondent in seeking a narrow scope for Section 1782 discovery to exclude international arbitrations. In addition to the U.S. government’s brief, they include briefs submitted on behalf of China and Hong Kong-based arbitrators Dr. Xu Guojian, Li Hongji, Zhu Yongrui, Tang Qingyang, Chi Manjiao, Ronald Sum, and Dr. Zhang Guanglei; the U.S. Chamber of Commerce and the Business Roundtable; International Arbitration Center in Tokyo;  the General Aviation Manufacturers Association Inc. and the Aerospace Industries Association; Halliburton Co., which is facing a Section 1782 issue in a separate case, and the Institute of International Bankers, a New York City-based industry association of international banks operating in the United States.

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In its brief, the government reviews the history of requests for discovery from foreign parties.

According to the amicus brief, prior to 1855, federal courts did not have the authority to compel a witness to testify in a case involving a foreign state party. In 1855, an act was passed by Congress to remedy this, but in a strange twist this law was subsequently “buried in oblivion” due to “a succession of errors in indexing and revising the statutes” and lost to the courts. A similar law was passed in 1877 and, in 1948, the law was broadened to include discovery for non-state parties.

In 1964, the language in the law was broadened again, applying to “a proceeding in a foreign or international tribunal” compared to the previous version’s “any judicial proceeding in any court in a foreign country.” Since then, only one Supreme Court case has discussed the scope of the law, Intel Corp. v. Advanced Micro Devices Inc., 542 U.S. 241 (2004).

The case concerned the distinction between judicial and administrative processes and whether Section 1782 applied to the latter. The Court found it applied. But recently, disagreement  has sprung up about whether the “foreign tribunal” language includes arbitrations involving foreign parties. The U.S. government has now taken the position that the law should not apply to private foreign arbitrations.

In its brief, United States argues (1) that such discovery functions were not within the scope of Congress’ intent when it passed 28 U.S.C 1782; (2) that interpreting the law to apply to international commercial arbitrations would create asymmetry with the domestic rules of arbitration incorporated in the Federal Arbitration Act; and (3) such an interpretation would create additional problems if extended to investor-state arbitration.

Noting that previous versions of the law clearly referred to only courts, the government acknowledges that the 1964 revision changed this language from “any judicial proceeding in any court in a foreign country,” to “a proceeding in a foreign or international tribunal.” This change, according to the government, and in contrast to the Fourth Circuit’s interpretation, was “only a measured expansion of the provision’s scope to capture quasi-judicial entities (such as investigating magistrates) and certain intergovernmental bodies (such as state-to-state claims commissions).” As the government points out, at the time the 1964 law was passed, international commercial arbitration was still novel, and thus likely outside Congress’s intent.

The government’s second argument discusses the incongruence of the limited discovery available under the FAA to arbitrators, in contrast to the discovery requests available to parties under Section 1782. Interpreting the law to apply to commercial arbitrations would “[allow] more expansive discovery in foreign disputes than what is permitted domestically,” the government’s amicus brief states.

While the court acknowledges that Section 1782 is not coextensive with domestic discovery rules, the “stake asymmetry” produced by a broad interpretation of the law “should [be taken] into account” in determining the law’s scope.

Finally, the government discusses a particular type of arbitration, investor-state arbitration, which gives investors who have claims against a foreign state in which they held an investment a private remedy for losses allegedly caused by the state. Arbitration in this context replaced a more time-consuming and expensive process, diplomatic protection, involving a government negotiating a resolution on behalf of one of its citizens who has suffered an economic injury.

The solicitor general’s amicus brief argues that investor-state arbitrations would be hampered by additional discovery procedures and “upset settled expectations” of investor and state parties entering contracts.

The U.S. government, in addition to filing a brief, has requested permission from the court to argue the case with the parties this fall The Court has not yet acted on the oral argument request, which is expected to be granted.

Meantime, the underlying arbitration in Servotronics has been conducted in London the week of May 10. If a decision emerges before the Court hears the arguments, the existence of an arbitration award could raise questions of mootness.

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The author, a J.D. student who will enter his third year this fall at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.

[END]

Supreme Court Again Declines a “Who Decides?” Case in Class Arbitration

By Russ Bleemer

The U.S. Supreme Court this morning declined to hear a case that would have covered two issues that are familiar arbitration turf at the nation’s top court—whether rules incorporated into an ADR agreement are a specific-enough designation for the arbitration to go forward, and whether arbitrators can invoke class processes.

The court denied cert in Shivkov v. Artex Risk Solutions Inc., 20-1313, where an appeals court, compelling arbitration, also held that “the availability of class arbitration is a gateway issue that a court must presumptively decide,” but because the agreements “do not clearly and unmistakably delegate that issue to the arbitrator,” and “[b]ecause the Agreements are silent on class arbitration, they do not permit class arbitration.” Shivkov v. Artex Risk Sols. Inc., 974 F.3d 1051 (9th Cir. 2020) (available at https://bit.ly/3y6e9jL).

This morning’s order can be found here.

The issues presented challenging the Ninth Circuit petition to the Supreme Court by the petitioners—more than 80 individual and business plaintiffs who had filed suit against insurance management companies that set up captive insurance firms for the petitioners that were audited and held liable for unpaid federal taxes—covered the incorporation by reference rules question, and class arbitration.  The specific questions presented by the petitioners that the Court declined today were:

1. The parties’ arbitration clause expressly designates the American Arbitration Association (“AAA”) as their default dispute-resolution method. The clause did not also specifically mention the AAA Rules themselves, which, according to the AAA, apply whenever parties select a AAA arbitration. Must an agreement that specifies arbitration before the AAA as the default dispute-resolution method also specifically mention the AAA Rules to avoid being considered ambiguous about whether the parties intended to apply the AAA Rules?

2. Under the plain text of the Federal Arbitration Act, courts—not arbitrators—decide gateway issues, such as whether there is an agreement to arbitrate and what controversies does it cover. Procedural questions, however, are reserved for arbitrators. Is the availability of class arbitration a matter for an arbitrator to decide, or for a court to decide?

The Shivkov cert denial isn’t surprising because the incorporation of AAA rules issue that the petitioner attempted to have the Court examine already was rejected, indirectly, in a startling move earlier this term.  The Court heard arguments in December in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963 on whether a contract’s delegation agreement sending a matter to arbitration “clearly and unmistakably” designated the case for arbitration because the contract had a carve-out provision from arbitration for injunctions.

But in January, just a month after the oral arguments, the Court dismissed the case as improvidently granted, after justices at the hearing appeared to get stuck on whether the incorporation by reference to the AAA rules was sufficient for the clear and unmistakable delegation to arbitration.

The Court a year ago, in focusing on the Henry Schein contract carve-out language in granting certiorari, had denied a cross petition in the case on the incorporation-by-reference issue. The cross petition had asked the Court to address the AAA rules that encompassed a provision that arbitrators decide arbitrability. That denial appeared to have a hand in the Court’s January dismissal of the carve-out language interpretation issue.

At the same time in Shivkov, on the petitioners’ second issue, there have been attempts to revisit class arbitration at the U.S. Supreme Court periodically since the Court’s recent seminal cases reviewing and restricting arbitrators’ power to use a class process without a contract authorization. See Lamps Plus Inc. v. Varela, 139 S. Ct. 1407 (2019); Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013); Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010).

The Shivkov petitioners contended that the Court has left open the class arbitration determination. They urged the Court to preserve the decision for judges.

For example, last year, the Court declined to hear a case asking whether an arbitrator may compel class arbitration—binding the parties and absent class members—without finding actual consent, instead based only on a finding that the agreement does not unambiguously prohibit class arbitration and should be construed against the drafter. See Cristina Carvajal, “Supreme Court Rejects Decade-Old Class Arbitration Employment Discrimination Case,” CPR Speaks (Oct. 5, 2020) available at https://bit.ly/35WsvHm) (discussing the Court’s second cert denial in the history of Jock v. Sterling Jewelers Inc., 942 F.3d 617 (2d Cir. 2019) (available at https://bit.ly/30yP3eZ)).

The Shivkov petition contended that the agreement to use the AAA means agreeing to the AAA rules, which put the arbitrability question in the arbitration tribunal’s hands–a cousin to the Jock argument, and which achieved the same cert-denied result. 

The Ninth Circuit Shivkov decision linked above stands, and the case, at least for now, is headed for arbitration under the AAA rules, with the appeals court, not the arbitration tribunal, determining that there will not be a class process.

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The author edits Alternatives to the High Cost of Litigation, which CPR Speaks’ owner, the International Institute for Conflict Prevention & Resolution publishes with John Wiley & Sons.

[END]