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).

* * *

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

[END]

US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement

By Mark Kantor

Continuing its focus on arbitration, the U.S. Supreme Court yesterday granted certiorari in Viking River Cruises v. Moriana, No. 20-1573, where the question presented is whether the Federal Arbitration Act requires enforcement of an arbitration agreement that waives a signatory’s ability to bring a labor law claim on behalf of California labor law agencies in court pursuant to California’s Private Attorneys General Act (PAGA).

The official issue presented:

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

PAGA 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. 

An employee bringing a PAGA action does so as the “proxy” or “agent” of California’s labor law enforcement agencies, who are the real parties in interest.  A successful employee-plaintiff may obtain civil penalties under PAGA for violations committed against similarly placed employees, Cal. Lab. Code § 2699(g)(1), just as the state could if it brought the enforcement action directly.   Civil penalties recovered in a PAGA representative action must be allocated 75% to the state enforcement agency and 25% to the aggrieved employee. Cal. Lab. Code § 2699(i).

California state courts, and federal courts applying the California law, have held that a PAGA representative claim in court cannot be overcome by an arbitration agreement.  Employers consider that jurisprudence to be contrary to U.S. Supreme Court precedent.

The Supreme Court will now take up that issue for review.

The Court’s docket page for Viking River Cruises with filings is linked above. The Scotusblog page containing the lower court opinion and amicus briefs can be found here.

* * *

It has been a busy week for arbitration at the Supreme Court, and with recent moves, the Court has provided itself a full arbitration docket, with six separate cases pending in five matters, only one of which has been argued, as the others await argument dates.

Last Friday, the Court accepted two cases and consolidated them into one argument, date to be announced, on a long-running issue about the reach of a federal law that provides discovery in foreign matters. Details on the Dec. 10 cert grant on the consolidated cases, which will determine whether the law applies to discovery in international arbitration matters, can be found 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) (available here).

The Court on Friday also accepted a case on  Federal Arbitration Act Sec. 1 that will examine the extent of the exception from the FAA involving workers in interstate commerce. For details on that new case, as well as a roundup of the six arbitration cases now at the U.S. Supreme Court, see Russ Bleemer, “Court Adds a Third Arbitration Case in Friday’s Cert Granted Order List,” CPR Speaks (Dec. 10) (available 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]

Court Adds a Third Arbitration Case in Friday’s Cert Granted Order List

By Russ Bleemer

In addition to the two cert grants this afternoon on the international arbitration discovery issue in 28 U.S.C. § 1782, the U.S. Supreme Court accepted a third arbitration case for oral arguments.

Southwest Airlines Co. v. Saxon, No. 21-309, 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.”

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.”

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).

The original plaintiff in the case, now the respondent, is a “Ramp Agent Supervisor for Southwest who occasionally loads and unloads passenger baggage from airplanes,” according to Southwest’s cert petition, which is available at the docket link above. The original plaintiff works at Chicago’s Midway Airport.

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.  

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

The case has not yet been scheduled; schedules for winter and spring 2022 argument dates in the current 2021-2022 term have yet to be released, and the case could be added before the Court’s year ends in June.

* * *

Southwest Airlines Co. v. Saxon, and the two new international arbitration cases on 28 U.S.C. § 1782, 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, contribute to an already busy 2021-2022 Supreme Court arbitration docket.

The Court had scheduled an arbitration case to be argued the first week of the term, but it dismissed the matter shortly before the arguments at the parties’ request after an award was issues and the case concluded.  For details, 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).

But two more arbitration cases quickly followed last month. The Court heard Nov. 2 arguments in Badgerow v. WaltersNo. 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.  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).

And on Nov. 15, the Court accepted an employment arbitration case, Morgan v. Sundance Inc.No. 21-328, on the extent to which a federal court may defer to an arbitration agreement. The case will return to the scope of a decade-old case,  AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), which permits mandatory arbitration backed with class waivers in consumer contracts. 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).

Like today’s three-case addition to the Court docket, Morgan awaits an argument date.

* * *

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

[END]

International Arbitration Is Back at the Supreme Court with Today’s Cert Grant on Two Section 1782 Cases

By John Pinney

The U.S. Supreme Court this afternoon granted certiorari on two Section 1782 cases, 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.

By accepting these cases, the nation’s top Court has again agreed to decide whether 28 U.S.C. § 1782 can be invoked by parties in international arbitrations to obtain U.S.-style discovery to obtain evidence for use in such proceedings.

It is the second time this year that the Court has taken on the issue. Today’s cert grants follow the voluntary dismissal in September just six days before the scheduled argument for Servotronics, Inc. v. Rolls-Royce, PLC, No. 20-794, a case that the court had agreed to hear on the same issue last March.  For details on the dismissal, 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).

As it had done in Servotronics, the International Institute for Conflict Prevention and Resolution, which publishes CPR Speaks, filed an amicus brief in support of the AlixPartners certiorari petition. [Editor’s note: John Pinney, author of this CPR Speaks blog post, also is counsel of record on both amicus briefs on CPR’s behalf. See the credit line for links below.]

In its order granting cert on the two cases, the Court formally granted CPR’s leave to file an amicus brief in AlixPartners. The Court consolidated the two cases and allotted an hour for an oral argument. The order is available here.  The case has not yet been scheduled; schedules for winter and spring 2022 argument dates in the current 2021-2022 term have yet to be released, and the case could be added before the Court’s year ends in June.

The specific issue before the Supreme Court is whether the critical phrase in § 1782, “foreign or international tribunal,” includes international arbitral tribunals. As readers who have been following the cases addressing § 1782 over the past two years know—see links to key CPR Speaks blog posts below–there is a circuit split regarding the applicability of § 1782 for private international arbitrations. The Second, Fifth and Seventh U.S. Circuit Courts of Appeals have held that an international arbitral tribunal is not a “tribunal” within the meaning of the statute, while the Fourth and Sixth Circuits have decided it is.

There was widespread disappointment in the international arbitration community when Servotronics was officially dismissed in late September after a party requested the dismissal shortly after an award was issued in the underlying London arbitration that mooted the § 1782 case before the Supreme Court.

The ZF Automotive case is virtually identical to Servotronics in that it involves a private international arbitration. It is noteworthy, however, that the ZF Automotive petition was brought before judgment out of the Sixth Circuit, one the two circuit courts allowing § 1782 discovery for a private international arbitral tribunal.

On the other hand, AlixPartners presents a significantly different issue than the Servotronics matter.

AlixPartners arises not from a private international arbitration but instead from an investment case brought under the Russian-Lithuanian bilateral investment treaty. 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 the 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. The case comes to the Supreme Court after the Second Circuit, applying criteria established in a recent case that denied discovery for a case before a private international arbitration tribunal–see In re Hanwei Guo for an Order to take Discovery for Use in a Foreign Proceeding Pursuant to 28 U.S.C. 1782, 965 F.3d 96 (2d Cir. 2020), as amended (July 9, 2020) (available at https://bit.ly/3IxxzUK)–allowed discovery for the investment case because of the degree of governmental involvement due to the investment treaty. 

For more on ZF Automotive, see Bryanna Rainwater, “The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court,” CPR Speaks (Oct. 22, 202) (available here). For a CPR YouTube discussion of the cases and two other pending U.S. Supreme Court arbitration matters, see “The Latest #SCOTUS #Arbitration: Process ‘Preference’; Int’l #Discovery; Federal Courts’ Arb #Jurisdiction,” CPR Speaks (Nov. 23) (available here).

By taking both ZF Automotive and AlixPartners, the Supreme Court will now decide the scope of § 1782 for both private international and investment arbitrations.

* * *

John 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 AlixPartners case, but not taking a position on behalf of either party. Details on the brief can be found on CPR Speaks here. His AlixPartners brief on CPR’s behalf can be found at on the Supreme Court docket page linked at the top or directly at https://bit.ly/3pzZpHj. Earlier this year, he filed a similar friend-of-the-Court brief asking the Supreme Court to accept the Servotronics case, which was accepted and later dismissed ahead of a scheduled argument. Details on the dismissal can be found in the CPR Speaks Sept. 8 posting cited above, and here. He discusses the Servotronics brief in a CPR YouTube analysis here. His Servotronics brief on CPR’s behalf can be found on the Supreme Court docket page linked at the top of this post or directly at https://bit.ly/3Ez58U4.

[END]

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.

* * *

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.

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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).

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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.”

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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]