The case highlights law that had long appeared settled on whether foreign tribunals seeking discovery in the United States includes private arbitration panels.
In the past two years, cases on the statute in question–28 U.S.C. § 1782, “Assistance to foreign and international tribunals and to litigants before such tribunals”–have packed federal courts. See Joseph Famulari, “Section 1782 Circuit Split Update: 7th Circuit says Law Doesn’t Include Arbitration, as 9th Circuit Hears Arguments,” CPR Speaks (Oct. 22, 2020) (available at http://bit.ly/38kxyCV), an 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).
Petitioner Servotronics presented the question formally as:
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 U.S. Courts of Appeals for the Fourth and Sixth Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the U.S. Courts of Appeals for the 2nd, 5th and, in the case below, the 7th Circuit, have held.
The question doesn’t reveal the unusual posture of the case, because it literally created its own circuit court split. There are two decisions: The Seventh U.S. Circuit Court of Appeals decision on appeal that was granted today had prohibited Servotronics’ requested discovery for the foreign arbitration tribunal also had been decided in Servotronics’ favor against the same adversaries, Rolls Royce and Boeing, when the case was heard in the Fourth Circuit.
The International Institute for Conflict Prevention and Resolution—CPR, which publishes this blog–submitted an amicus brief asking the Supreme Court to resolve the split in opinions without taking a position on the merits. See “CPR Files Amicus Brief Asking U.S. Supreme Court to Tackle Foreign Discovery for Arbitration,” CPR Speaks (Jan. 6, 2021) (available at http://bit.ly/2PJvzBO) (CPR has created a web page for the brief at http://bit.ly/3nklaYp).
The evolution of the circuit split is described in John B. Pinney, “Will the Supreme Court Take Up Allowing Discovery Under Section 1782 for Private International Arbitrations?” 38 Alternatives 103 (July/August 2020) (https://onlinelibrary.wiley.com/doi/abs/10.1002/alt.21848) (Pinney prepared on behalf of CPR the Supreme Court amicus brief in Servotronics).
Justice Samuel A. Alito Jr. didn’t participate in the consideration of or the decision to accept the petition, according to this morning’s order list, indicating that the case could be decided by eight judges later this year.
In the case the nation’s top Court agree to hear today began in January 2016, during testing at a Boeing facility, when an engine manufactured and installed on an aircraft by Rolls Royce caught fire. Boeing sought reimbursement from Rolls Royce for damage to the aircraft. Boeing and Rolls Royce settled the matter between them.
During the arbitration, Rolls Royce and Boeing declined an invitation to produce evidence that Servotronics insists is critical to its defense, including information about what Rolls Royce and Boeing did after observing certain test results. Servotronics contended those test results presaged the fire and showed a missed opportunity to intervene before the fire.
Rolls Royce countered that the discovery requested by Servotronics was reviewed and denied by the arbitral panel, in part because the request was overly broad. Servotronics applied for leave under 28 U.S.C. §1782 to subpoena records from Boeing’s Illinois headquarters and, in a separate application, to take the depositions of three South Carolina-based Boeing employees, where the test flight went awry.
The South Carolina application was denied, but the denial was overturned by the Fourth Circuit. Servotronics Inc. v. Boeing Co., 954 F.3d 209, 216 (4th Cir. March 30, 2020) (available at https://bit.ly/3h7s0P8). The Fourth Circuit rejected the notion that §1782 is limited to public or state-sponsored tribunals.
Further, the court reasoned, arbitration in the United Kingdom is government-sanctioned and regulated, at least by the U.K. Arbitration Act of 1996. Therefore, a U.K. arbitrator is acting under the authority of the state and would meet Boeing’s proposed restrictions on the scope of §1782.
The appeals court dismissed Boeing and Rolls Royce’s predictions of expanded discovery and increased international arbitration costs if a tribunal is broadly defined in §1782, reasoning that courts have discretion to consider applications for documents or testimony in view of the Congressional purpose of extending aid to a foreign tribunal.
But the case also was being litigated in the Midwest. An Illinois application was initially granted ex parte but was quashed upon intervention by Rolls Royce and Boeing. The denial of discovery in Illinois was upheld by the Seventh Circuit—the case before the Court in Friday’s conference and accepted for argument today. Servotronics Inc. v. Rolls Royce PLC, 975 F.3d 689 (7th Cir. Sept. 22, 2020) (available at https://bit.ly/3ccK7RU).
The Seventh Circuit had followed the Second and Fifth Circuits in finding that a “foreign or international tribunal,” as used in 28 U.S.C. §1782, refers to a state-sponsored tribunal, and private arbitration is not state-sponsored.
The Seventh Circuit opinion noted that a limited definition of “foreign or international tribunal” also avoids an apparent conflict with the Federal Arbitration Act, which permits a district court to order discovery only on request of the arbitrator. The panel observed that including private international arbitral tribunals in the scope of §1782 would result in a prohibition on a party to a domestic arbitration seeking court assistance with discovery under the FAA, while permitting a party to an international arbitration to obtain the same assistance (under §1782).
The case therefore presented the circuit split in stark relief—with discovery granted in the Fourth Circuit, and denied in the Seventh, in the same matter between the same parties before the same foreign arbitral tribunal.
Rolls Royce argued that certiorari should be denied to allow the Circuit Courts continue to consider the issue and because this case would likely be moot before the Supreme Court could complete its review, with the final arbitral hearing scheduled for May.
Today’s order provides further review and clarification by the Supreme Court in an area that had been considered settled law until the flurry of cases hit the circuit courts in recent years. CPR Speaks will provide more analysis later today on the background and the future of Servotronics.
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Author Amy Foust is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021.
Yesterday, the proposed Protecting the Right to Organize Act (PRO Act) passed the U.S. House of Representatives by a 225-206 vote, with five Republicans voting Yay and one Democrat voting Nay. The bill was sent to the U.S. Senate for consideration.
While much arbitration-related attention in the new Congress has focused on the arbitration-only FAIR Act (for details and links, see Mark Kantor, “House Reintroduces a Proposal to Restrict Arbitration at a ‘Justice Restored’ Hearing,” CPR Speaks (Feb. 12) (available at http://bit.ly/3rze7y1)), the PRO Act contains significant provisions that, if finally enacted, would limit employment arbitration.
Most important, the PRO Act would make it an unfair labor practice for an employer to prevent employees requiring arbitration agreements that obligate an employee “not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee in any forum that, but for such agreement, is of competent jurisdiction.”
Note that the coverage of the proposed PRO Act encompasses both employment contracts of adhesion and individually negotiated employment contracts, as well as covering individual independent contractors. See Section 101(b) of the legislation at the act’s link above.
Section 104 of the PRO Act would override Epic Systems v. Lewis,138 S. Ct. 1612 (May 21)(available at https://bit.ly/2rWzAE8), with respect to employment arbitration and class proceedings.
According to the accompanying section-by-section analysis released by the House, “ . . . on May 21, 2018, the Supreme Court held in Epic Systems Corp. v. Lewis that … employers may force workers into signing arbitration agreements that waive the right to pursue work-related litigation jointly, collectively or in a class action. This section overturns that decision by explicitly stating that employers may not require employees to waive their right to collective and class action litigation, without regard to union status.” (The analysis is available at https://bit.ly/2OGrKNj).
The ultimate Senate fate of the PRO Act is linked to the fate of the filibuster. As Politico states:
But the Protecting the Right to Organize Act, which advanced mostly along party lines, is unlikely to win the 60 votes needed for passage in the narrowly controlled Senate. And already, some union leaders — who hold outsize sway in the Biden administration — are amping up pressure on Democrats to eliminate the filibuster so they can see one of their top priorities enacted.
Eleanor Mueller and Sarah Ferris, “House passes labor overhaul, pitting unions against the filibuster,” Politico (March 9) (available at http://politi.co/3vbgFEu). For the latest on the limited prospects for overturning the filibuster in the Senate, see Burgess Everett, “Anti-filibuster liberals face a Senate math problem,” Politico (March 9) (available at http://politi.co/2ObVou0).
The filibuster affects large swaths of proposed legislation coming out of the House of Representatives and the Biden Administration agenda. We can anticipate daily media attention to every word any member of Congress or the administration speaks about the topic for some time to come.
The operative PRO Act text in Sec. 104 overriding Epic Systems reads as follows:
“(e) Notwithstanding chapter 1 of title 9, United States Code (commonly known as the ‘Federal Arbitration Act’), or any other provision of law, it shall be an unfair labor practice under subsection (a)(1) for any employer—
“(1) to enter into or attempt to enforce any agreement, express or implied, whereby prior to a dispute to which the agreement applies, an employee undertakes or promises not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee in any forum that, but for such agreement, is of competent jurisdiction;
“(2) to coerce an employee into undertaking or promising not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee; or
“(3) to retaliate or threaten to retaliate against an employee for refusing to undertake or promise not to pursue, bring, join, litigate, or support any kind of joint, class, or collective claim arising from or relating to the employment of such employee: Provided, That any agreement that violates this subsection or results from a violation of this subsection shall be to such extent unenforceable and void: Provided further, That this subsection shall not apply to any agreement embodied in or expressly permitted by a contract between an employer and a labor organization.”;
Also, according to the proposal’s section-by-section analysis, PRO Act Section 109(c) would create a private right of action in U.S. federal court if the NLRB fails to pursue a retaliation claim.
(c) Private right to civil action. If the NLRB does not seek an injunction to protect an employee within 60 days of filing a charge for retaliation against the employee’s right to join a union or engage in protected activity, that employee may bring a civil action in federal district court. The district court may award relief available to employees who file a charge before the NLRB.
Yesterday’s hearings have gone viral via fiery words backing the act’s passage by Tim Ryan, D., Ohio, who chided Republicans for failing to support workers. “Heaven forbid we pass something that’s going to help the damn workers in the United States of America!” shouted Ryan in the House chambers, adding, “Heaven forbid we tilt the balance that has been going in the wrong direction for 50 years!”
Republican opponents immediately fired back, saying that the bill would hurt workers by hurting business and the economy. For details, see Katie Shepherd, “Tim Ryan berates GOP over labor bill: ‘Stop talking about Dr. Seuss and start working with us,’” Washington Post (March 10) (available at http://wapo.st/3bz2YaF).
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Mark Kantor is a member of CPR-DR’s Panels 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. Alternatives editor Russ Bleemer contributed to the research.
If you missed the 2021 CPR Annual Meeting in January—the first free public meeting held online in the organization’s 40-year history—the videos are being posted on CPR’s YouTube Channel. While additional videos will be posted for CPR members only, the first, linked here on CPR Speaks, is open access and features the keynoters, CNN Anchor and Chief Political Correspondent Dana Bash and General James Mattis, who is former U.S. Defense Secretary. Click the Subscribe button at YouTube for alerts and for more CPR content. For information on full access and joining CPR, please visit CPR’s Membership webpage here.
By Antranik Chekemian
Here are notes on the Jan. 28 closing panel of the second day of CPR’s 2021 Annual Meeting. Moderator Deborah Greenspan, a Washington, D.C. Blank Rome partner focusing on mass torts and complex disputes, served as moderator for the Ethics session.
She introduced the panel, starting with Dana Welch, an arbitrator for nearly 20 years who is based in Berkeley, Calif. Welch focuses on complex commercial and employment matters. She is a fellow of the Chartered Institute of Arbitrators and the College of Commercial Arbitrators, where she is an executive committee member. Before she became an arbitrator, she was the general counsel of a San Francisco-based investment bank, and a Ropes and Gray partner.
The second panelist was David Pryce, the managing partner of Fenchurch Law Ltd. in London, which is the first U.K. law firm to focus exclusively on representing policyholders in insurance disputes. His practice focuses primarily on construction industry risks. Wherever possible, said Greenspan, Pryce tries to approach disputes in a way that maintains or ideally strengthens the commercial relationships between those involved
The third panelist was Adolfo Jimenez, a partner in the Miami office of Holland and Knight. He is a litigation attorney focusing on international disputes. He heads the firm’s International Disputes team, and he is chair of the Miami International Arbitration Society.
Greenspan opened by discussing the ethical challenges faced in arbitration, focusing on disclosure, in a session that provided Ethics continuing legal education to qualifying attendees. The panel’s first topic was the issue of repeat players, where an arbitrator is repeatedly selected or appointed by a particular entity or a law firm.
Pryce started off the conversation by presenting a recent U.K. Supreme Court case, Halliburton v. Chubb. He described the case’s background for the online audience.
Halliburton Co. had provided services for Transocean Ltd., the owner of Deepwater Horizon, the Gulf of Mexico oil rig that exploded in 2010. Halliburton faced various claims along with oil company BP and Transocean. They were all part of the same proceedings. Halliburton settled those claims against it for about $1.1 billion.
Halliburton made a claim under the general liability policy it had with insurer Chubb. Chubb refused to pay the claim on the basis that Halliburton had entered into settlements that were unreasonable. A dispute ensued and the general liability policy provided for an ad hoc London arbitration with three arbitrators, one arbitrator to be chosen by each of the parties and a third arbitrator chosen by the party-appointed arbitrators.
If the arbitrators couldn’t agree, the third arbitrator was to be appointed by the High Court in London. In front of the High Court, each of the parties put forward several candidates. After a contested hearing, the High Court chose Chubb nominee Kenneth Rokison QC, an arbitrator in Reigate, U.K. Rokison was “a regular arbitrator in uniform arbitrations,” explained Pryce, “and Halliburton’s perception . . . was that he was someone that is generally appointed by insurers rather than policyholders.”
Prior to him being appointed, Rokison disclosed relevant points to the proceedings. Rokison said that he previously acted as an arbitrator in several other arbitrations including Chubb. He acted as a party-appointed arbitrator by Chubb and he was currently acting as an arbitrator in relation to references that included Chubb.
The High Court didn’t regard any of those appointments as being an impediment to his appointment in the Halliburton-Chubb dispute and they didn’t call into question Rokison’s impartiality.
Three months after his first appointment in 2015, Rokison accepted a further appointment by Chubb to act as an arbitrator in relation to a claim against it by Transocean, which as the overall owner of Deepwater Horizon was also facing similar claims to the ones that Halliburton had been facing. The dispute between Chubb and Transocean also related to the reasonableness of settlements which Chubb refused to pay on a similar basis for the reasons it refused to pay Halliburton.
Rokison disclosed his involvement in the Halliburton arbitration to Transocean, but he did not disclose to Halliburton that he accepted the Transocean appointment.
The following year, Rokison accepted another appointment in relation to an arbitration between Transocean and different insurers, and that was not disclosed either.
After finding out about the second and third appointments, Halliburton wrote to Rokison and raised concerns about these appointments.
Rokison responded that it had not even occurred to him that he was under any obligation to disclose the second and third appointments to Halliburton. Halliburton called for him to resign, raising concerns about his impartiality with regard to Chubb.
It’s apparent that Halliburton was just as concerned, explained David Pryce, and perhaps even more concerned, about a second issue–that Chubb would potentially gain a tactical advantage as a result of being able to find out what Rokison’s views were on certain issues, because they would be making submissions in the second arbitration which will be relevant to the decision that Rokison was facing in deciding the Halliburton arbitration.
A High Court claim was issued by Halliburton seeking Rokison’s removal under U.K. Arbitration Act Section 24, dealing with situations where circumstances exist for a justifiable doubt about the arbitrator’s impartiality.
The High Court and the Court of Appeal both dismissed Halliburton’s application, so it went to the Supreme Court.
The Supreme Court made the following key observations in reaching the decision:
First, the obligation of an arbitrator to act fairly and impartially is a core principle of arbitration, and under English law, the duty of impartiality applies just as much to party-appointed arbitrators, sole arbitrators, and presiding arbitrators. Presiding arbitrators like Rokison in Halliburton v. Chubb aren’t required to be any more impartial than party-appointed arbitrators–“Everyone is required to be impartial,” explained Pryce.
Second, the Supreme Court confirmed that the test under English law to establish whether an arbitrator had a real possibility of biases is an objective test. “When the fair-minded informed observer is looking at that, they should take into account various considerations including the factual matrix of the case , . . the role of the arbitrator in the case, and expectations regarding what an objective observer may take into account,” said Pryce. In that regard, market practices are relevant, but in some areas, overlapping appointments may be more likely to give rise to an appearance of bias than others.
Finally, in relation to the arbitrator’s duty of disclosure, the Supreme Court held the disclosures are not a question of best practices and that disclosures can only be made if the parties that confidentiality obligations are owed give their consent.
The key takeaway from this case is that “disclosure is not an option,” said Pryce, because disclosure doesn’t trump confidentiality.
“The unfair advantage is not the same thing as a lack of impartiality,” Pryce said, adding, “There is just no remedy for unfair advantage.” Even though repeat business might suggest bias in some cases, it is going to depend on market practice.
He further added that in some areas like treaty reinsurance, overlapping appointments are commonplace and parties are not concerned as there are repeat users “all the time.”
Pryce added that it is much more challenging when where there is a one-off user in a dispute with a repeated user. “From the perspective of someone who was a policyholder such as Halliburton,” said Pryce, “a one-time user in this situation, against an insurer who’s going to be a repeat user, the Supreme Court decision for me feels a little bit tougher.”
Panelist Dana Welch said, “I’m not sure a U.S court would have reached the same decision. . . . We take it for granted in the United States that you have to disclose every business relationship that comes to mind.”
She then shared that California’s Judicial Council has enacted a rule that requires that the arbitrators not only have to disclose looking backward, but they have a duty to disclose looking forward. Arbitrators are required to disclose at the time of appointment whether they are willing to take future business from either a party who is appearing in that case or a law firm that is appearing in that case.
If the arbitrator discloses that they can take future business, they can be disqualified at that point if someone objects. Once the arbitrator accepts the possibility of future business, and then proceeds in the future to take that business, they must provide notice to the previous parties and the law firm that they have done so. At that point, the parties have no right to disqualify the arbitrator.
Panelist Adolfo Jimenez also shared that from an ethical perspective, repeat business in arbitration presents two problems that also were identified in the Halliburton case.
“You can have a situation where you’re going to have one party that’s better informed and an arbitrator that’s hearing evidence that is related to two separate cases,” said Jimenez, “but they are related cases that may influence their view while a set of attorneys who aren’t parties to that other proceeding is ignorant of all . . . that evidence, all that information.”
Second, Jimenez noted, is the risk of inappropriate communications. “Simply because you can does not mean that you should,” said Jimenez, noting that there can be as a result of such contacts an erosion of trust in the process, with one of the parties believing that they’re being affected.
Dana Welch also emphasized that the arbitrators should be careful in order to preserve the integrity of the process in the face of repeat business. She said:
There is a financial incentive if you get repeat business. And for each one of us who serves as a neutral, every time we get repeat business, we really need to think long and hard about whether we can truly serve as a neutral in a proceeding with a law firm that appoints us a lot or a party that appoints us a lot. . . . What Adolfo said is right: There’s a difference between ‘can’ and ‘should,’ and it’s an extremely important difference in order to preserve the integrity of the process.
After a participant asked about the future of London-based insurance arbitration in light of the Halliburton decision, David Pryce responded that a single decision shouldn’t call into question the city’s role in insurance arbitration. He said that when there is a situation with a “one-off” buyer of arbitration services and a repeat user of arbitration services, the court should be extra careful not to go for the appointment of someone who is used frequently by repeat buyers.
“It was an unfortunate choice by the High Court,” said Pryce, adding that if that sort of choice is repeated again and again, “it looks like the deck is being stacked against policyholders,” and that would be a problem for insurance arbitration in London. But he added that as a policyholders’ representative, he did not think the deck is usually stacked against his clients.
Moderator Deborah Greenspan then invited panelists to discuss the expectations parties have about the status of a party-appointed arbitrator.
Panelist Adolfo Jimenez started off the conversation by saying that the duty of impartiality permeates throughout the entire U.K. and U.S. legal systems, and that most arbitral institutions require that arbitrators be neutral.
Jimenez also noted, however, that there sometimes are justifications for repeat businesses–for example, specialized arbitration proceedings such as those at the London Maritime Society of Arbitrators, where parties prefer arbitrators that are particularly qualified. When there is a limited number of qualified individuals, repeat business is an option, said Jimenez.
A second justification is to allow for party autonomy.
Panelist Dana Welch also noted an important reality in arbitration. She said, “When a party chooses an arbitrator, even if it’s a sole arbitrator and not a party-appointed arbitrator, all parties hope that the arbitrator is going to rule on their behalf. Therefore, they are looking for somebody who is going to see things from their point of view.”
She further noted that CPR Dispute Resolution rules provide a process for challenging a party-appointed arbitrator if either side believes that a party appointed arbitrator is not neutral. Reading from CPR Administered Arbitration Rule 7.5, she said: “Any arbitrator may be challenged if circumstances exist or arise that give rise to justifiable doubt regarding that arbitrator’s independence or impartiality. . . .” She praised the rule and its challenge process for when neutrality isn’t observed.
Greenspan then asked the panelists about the ideal steps parties should take when selecting arbitrators.
Welch said she is a strong advocate of both parties interviewing the arbitrators to understand their management style or their approach to the issues.
Jimenez added that one should be allowed to communicate with an arbitrator to make sure that the arbitrator is comfortable with the cases’ technical issues but should not get into discussing the substance or facts of the case, noting that a red line exists in between.
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Moderator Greenspan then asked the panelists on how to deal with the reality that people from different backgrounds and different jurisdictions have different expectations when it comes to ethical challenges.
Jimenez agreed that different jurisdictions have different norms. He suggested that practitioners can look to journal articles and general expectations of limits that are employed for international disputes. He pointed out that “what may be improper or incorrect in one place is going to be perfectly acceptable [elsewhere]–that’s a real challenge when you’re dealing with a cross-border dispute.”
Greenspan then discussed how parties can enhance trust when implicit or explicit biases exist. When arbitrators are appointed by a party, Welch responded, “it would be the height of denial, to say that there isn’t some impetus that you feel or allegiance that you feel to that party. You really have to struggle against that and understand that you’re a neutral in all senses.”
Welch added that arbitrators need to be conscious of the kind of bias that arises when a party picks them just like they need to be conscious of the kind of bias that can arise when they have repeat businesses.
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The next topic of the panel was about disclosures.
Welch first expressed that the level of disclosure is an interesting question in this age “where everything is known about everybody,” and so much information is out already on social networks. The question, she asked, is “How much is there an obligation for us to disclose versus a party to investigate?”
She then presented two cases.
In the first case, an arbitrator ruled against a claimant, and the respondent was a law firm. Afterward, the claimant did an Internet search and revealed a 10-year-old resume of the arbitrator with a recommendation from a partner from the respondent’s firm. An appellate court decided this was enough to vacate the award.
Welch concluded, “What it shows is that the courts will look at the arbitrator for disclosure rather than . . . say to the parties to investigate that.”
The second case she presented was decided just a month ago, she said. An arbitrator rendered an award against the claimant. The claimant then found on the Internet that the arbitrator was a founding member of GLAAD, an organization supporting gay rights. The claimant then argued that because he was active in the Catholic Church, and because the arbitrator is active in social justice causes like gay and lesbian rights, the arbitrator had an inherent bias against the claimant.
The Court of Appeals rejected this claim, Welch reported, as it could not find any relationship between the claimant’s allegation and facts of the case. She noted that “even California” has limits on challenging impartiality. Welch concluded:
What you need to draw from these cases is that the main obligation of disclosure is on the arbitrator, not on the parties. You need to disclose everything that comes to mind. If it comes to mind, you should be disclosing it, but you don’t need to disclose who you voted for president, or what you are active in unless there is a specific issue in that case before you.
Fenchurch’s David Pryce said that “there is a dividing line between . . . bias, something that gives the appearance of bias and what is simply just having better knowledge.” Having better knowledge on its own, he said, doesn’t give rise to either risk of or appearance of bias.
He further reflected on Halliburton v. Chubb. The disclosures, which relate to the same party in another “really high-stakes arbitration . . . about sums over a billion dollars” and issues that are almost exactly the same in both arbitrations, “aren’t insignificant things.”
But, said Pryce, “if we get to a situation where arbitrators feel they need to disclose lots of insignificant things, then I think everyone’s time is just going to be wasted unnecessarily.”
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Greenspan presented the ethics panel’s final topic: “If you’re a mediator in a case and then you are later asked [in a case that doesn’t settle] to be an arbitrator, or if you are an arbitrator and then you’re asked to mediate the case,” how should such a situation be approached?
David Pryce said the moves are uncommon in the United Kingdom. He added that huge challenges for the med-arb, mixed-mode ADR setup exist, because in mediation, parties are hoping to take advantage of the ability to share things with a mediator that they wouldn’t share with their opponent–and certainly not with the person that needs to make a decision about their case where the neutral is acting as an arbitrator.
The next question was about a situation where somebody had assisted an entity with developing its internal resolution guidelines or contractual terms to use to resolve disputes, and then also became the arbitrator or the mediator in a dispute which is affected by those guidelines. The question was whether this would constitute a problem.
Dana Welch noted that such a situation raises fewer ethical issues as the person only designed the process, as opposed to being involved in a dispute, and that the person does not know confidential information about the dispute—he or she just comes in understanding the process. Welch says that courts have backed such arbitrators but the focus must be on extensive consents after disclosure.
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The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.
Below are notes from the 2021 CPR Annual Meeting third-day panel, “Hot Topics In ADR And Year-End Wrap Up,” an hour-long Jan. 29 afternoon event.
Moderator Ana Reyes, a partner in Washington, D.C.’s Williams & Connolly, provided questions to three panels members, opening by noting that the effect of the pandemic on litigation and dispute resolution–including the adjustments the legal profession has taken, and which practices will be continuing–was the key hot topic that came up for the panel in preparing for the CPR Annual Meeting session.
Reyes’ first question for the panel was to comment on trends. She said, “I have read that in this world of COVID that there are two recent trends in dispute resolution: more not less dispute resolution, and sooner not later.”
Panelist Thomas J. Roberts, Chief Counsel, Litigation, Boeing Defense, Space & Security, in Arlington, Va., noted that he has seen a marginal increase toward more alternative dispute resolution. Initially there was hesitation to do mediation in a virtual setting, but he reported that his department has learned that virtual mediation works well. An in-house counsel, he said, should always think about resolution through mediation whenever a dispute arises. It is the best way to have a settlement conversation, he said, and the dispute will benefit from the guidance of a third-party neutral.
There are right and wrong reasons to mediate. Covid-19 has delayed dispute resolution, more so for courts than for arbitration. And he said you don’t want to mediate for the wrong reasons, focusing on entering and using the process solely because of the delays.
Still, with the delays, the windows for engaging in mediation are a little bit wider, which is lessening the hesitancy to mediate, giving people more time to consider it.
Question for Panelist Yvette Ostolaza, a Sidley Austin partner in the Dallas and Houston offices: Has the pandemic changed your clients’ desire to avoid a virtual hearing that they might not be able to delay? Are they trying to mediate where they would not before?
Virtual hearings are effective. Some clients said to wait, but the parties tried it “because there were bankruptcy issues.” After a securities class-action case mediation with 10 people, she said, “I found it way more effective to be by virtual and by a video than if I had been at an office.” So, efficiency was much better virtually than in person.
In virtual arbitration, there were differences in terms of the strengths of the party presentations, and more training is encouraged for participants.
There is something about video that makes it so obvious about who is not engaged. Participants need to behave as if they were in the courtroom. “We had one arbitrator that was clearly not paying attention and the client was pretty disappointed.”
“We need to remember this is a professional environment, . . . and not be too casual.”
“I think there is a lot of cost-saving in the virtual world.”
Question on arbitrators pushing hearing forward virtually, even if that might not be best for the client.
Panelist J. Michael McNutt, senior litigation advisor and of counsel at the Paris law firm of Lazareff Le Bars:
ADR for his clients, who invest in multi-jurisdiction projects, virtual hearings adds a lot more complexity, said McNutt.
He said he has been working under new International Chamber of Commerce Court of Arbitration pandemic policies, which in certain circumstances pushes virtual hearings when the matter is not ready or too complex. For example, in one matter, among other logistical cross-border concerns, the parties needed translations for four languages. With due process considerations, the parties he is representing will proceed, but they will reserve their rights, noting also that there is a counterclaim. “With international arbitration, it is a lot more complex.”
Moderator Reyes asked about cross-examination over video as opposed to in-person. McNutt replied, “It is very very difficult to have an effective cross examination because you can’t assume the other side is going to be honest or act properly. You have to put another body in the room.” He says he is concerned about protecting the integrity of the proceeding.
Question: Are hearings different than mediations virtually?
“I wholeheartedly agree . . . that when it comes to depositions and . . . a hearing with live witnesses that you are cross examining it is very difficult.”
At a minimum, the attorney has a right to be with the client in person, and the other side should be socially distanced.
Mediators can juggle multiple rooms better virtually than in person, knocking on doors and waiting.
Question to Tom Roberts of Boeing: What is one thing missing from the virtual mediation as opposed to the in-person mediation? Moderator Ana Reyes proposes that the key missing element is the mediator’s power to communicate with the individuals.
“The best value that the mediator can bring” is to “credibly deliver the substance of . . . his or her view of the merits of the legal claims.” He added, “that communicates pretty well virtually.”
On the downside, “there is a bit of easy-come, easy-go with virtual mediations.” No travel needed, just click in and click out, he said, concluding that it is easier now for parties to stop mediating.
A mediator that is committed to the process will have the people skills to stop today, but will catch up with the parties after—a mediator who wants to see it through.
She said her matters are starting earlier, with three or four calls before the actual mediation day, to go through the parameters and make the client feel comfortable so that the mediation will work.
For arbitration hearings, she advises practicing on exhibits and the process with the tribunal administrator
Question: Mediations don’t generally occur in international arbitrations—for example, the ICC does not require pre-mediations–perhaps because of a lack of availability of mediators that can work on the cross-cultural issues at play. Discuss these cultural factors.
J. Michael McNutt:
The reason the firm has offices in Dubai is for Chinese investors investing in Africa, who use arbitration in Abu Dhabi, in the United Arab Emirates, for those disputes.
The mentality and the civil law upon entering the contract is a fundamental issue when you have to interpret the contract in these international cases. In mediation it is difficult to find someone that “both parties would agree could accurately boil down” the essence of the dispute. He says that he cannot find qualified mediators– “Mediation is tough.”
For international mediation to become more relevant, it needs the ability to address these broad issues.
Question to Tom Roberts: Boeing is an international entity–Is that something Boeing has had to face, cross-cultural issues?
He agrees with McNutt, saying, “If you can find the right person then there is real value [to mediation].”
“The cultural differences, expectations, [and] legal understandings are very different in different parts of the world, so [finding the right person is] a big challenge.”
Question: Is there some loss in connecting in mediations virtually?
“There are differences in America” in negotiate style depending on the part of the country. “The art of being a great lawyer is understanding and embracing those differences and being good at it and being able to be a chameleon.”
She said she and her clients had discussions after virtual mediations by staying on the video for purposes of recapping client communications.
There can be a lack of buy-in without the travel and the commitment of an in-person mediation. But the counter is that it was “a little bit” friendlier not being in the same room with participants “hating” each other. It counterbalanced.
Question: Often at the end of a mediation, noted Mediator Reyes, the mediator will ask parties to sign on to the terms of the mediation so the settlement will not unravel. How have you addressed the technical request to sign on to the terms?
She had a term sheet at the outset for one pandemic mediation—she says she brings one to every mediation—and the parties were able to sign it two days after the conclusion of the session.
In another recent case, the mediation term sheet was signed with DocuSign—virtually–and no one left until it was done. That, she said, was the agreement about the deal going into the session, and it worked.
Question: Do you have a feeling that a couple years from now we will see a developing body of law about awards being enforced that were made in a virtual hearing?
If necessary, he says his firm will resist enforcement if it serves their clients.
He says he is a proponent of civil law issues, but in cross-border disputes, it is about the will of the parties and not the type of analysis of a common-law setting.
In a virtual hearing, he said, you do not know if the other lawyer is sitting across the table handing the answer to the witnesses. We have that problem even in in person hearings, said McNutt.
He said he looks forward to challenging the validity of awards where due process rights were abused, for example, in France, where process is fundamental to enforcement. Such challenges are “not good for arbitration,” he conceded, because finality of the award is the core reason clients turn to arbitration.
Tribunals need to render awards that can be enforced.
“The tribunal works for the parties, . . . and people need to hold tribunals accountable,” he said, for producing awards that can be enforced.
Question: A new issue developing, med-arb, in which you have a session with a single mediator and if a claim does not settle, then the mediator becomes the sole arbitrator, converting the matter to an arbitration from mediation. Comments?
She said she was not in a med-arb matter, but a client as part of the mediation agreed that if there is a dispute the neutral would arbitrate the mediation issues covered. She said she thought it would not work, because the mediator would think the entire time to protect himself. “I am not a fan,” she said, “Heck, I am not a fan of doing the federal magistrates’ [mediation] when they are mandatory and then going to the federal judge,” noting that she is skeptical that they will refrain from talking as the magistrate sheds the settlement role and the judge moves in to adjudicate.
“I am generally down on the idea, but it also sort of depends on what the alternative is.” He agreed with Ostolaza’s concerns. It is impossible to not have the arbitrator contaminated by what they learned in the mediation process, said, adding he might be open to med-arb in a smaller case “where you really just want to get an answer.”
Moderator Reyes noted a 2021 CPR Annual Meeting chat comment advising that mediation is an old process with deep tribal roots that is common in most indigenous populations.
J. Michael McNutt:
“Mediation works when the community has already established who the mediator should be. That’s fundamentally different than a judge, of course.”
The skillset for arbitration: “We are hired to protect our clients and defend and win in the client’s interest. Prior to commencing arbitration there is a conversation of what is the client’s interests so that we know what they are and what to fight for.”
To mediate in arbitration is different, concluded McNutt, adding that the skillset is different.
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The author, a third-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.Videos from #CPRAM21 will be posted soon at www.cpradr.org.
On Thursday, Feb. 11, the U.S. House of Representatives Judiciary Committee’s Subcommittee on Antitrust, Commercial and Administrative Law held a hearing, “Justice Restored: Ending Forced Arbitration and Protecting Fundamental Rights.”
This hearing was held in connection with the same-day reintroduction of the “Forced Arbitration Injustice Repeal Act” or the “FAIR Act” (See press release here). That proposed act, co-sponsored by 155 House Members, would ban mandatory pre-dispute arbitration agreements in cases of employment, consumer, antitrust and civil rights disputes.
In the previous Congress, the FAIR Act passed the House by a 225-to-186 vote, with virtually all Democrats and a number of Republicans in support. The U.S. Senate, however, then controlled by the Republicans, did not take up the legislation. The FAIR Act thus died at the end of term in that Congress, to be revived as a proposal in the current Congress that convened last month.
The hearing was chaired by Rep. Hank Johnson, D., Ga., a leading FAIR Act sponsor. Johnson strongly supported prohibiting such pre-dispute arbitration agreements. In addition to employment, consumer, antitrust and civil rights disputes, Johnson also criticized the impact of mandatory arbitration on small business disputes with large businesses.
After Johnson’s opening statement, Ranking Minority Member Rep. Ken Buck, R., Colo., made his own opening remarks. Buck opposed the FAIR Act’s general ban on pre-dispute arbitration clauses, arguing that arbitration is a fair system.
It is very interesting to note that he did, however, offer support for reviewing coverage of sexual predation claims in arbitration and “doing away with the secrecy provisions in contracts” when workplace predatory conduct exists–“those are two issues I want to make sure we distinguish in the employment context. . . .”
Buck stated his particular interest in hearing the testimony from Gretchen Carlson, the former Fox News anchor who made public her story of sexual harassment and filed suit against her boss at Fox News. Other Republican members raised the prospect of excluding “sex and race discrimination” from mandatory arbitration and for overriding class action waivers for a “pattern of behavior” by a “bad actor” rather than individual claims.
That focus on employment discrimination/harassment claims and overriding related confidentiality provisions may signal a possible path for narrower bipartisan legislation. A narrower approach may arise if, as many anticipate, the broader approach of the FAIR Act fails again in the Senate for lack of the 60 cloture votes necessary to overcome a filibuster or a Senate decision to eliminate the filibuster.
Four witnesses testified at the hearing:
Gretchen Carlson, Journalist, Author, and Advocate
Myriam Gilles, Paul R. Verkuil Chair in Public Law, Benjamin N. Cardozo School of Law
G. Roger King, Senior Labor and Employment Counsel, The HR Policy Association
Jacob Weiss, Founder and President, OJ Commerce
Carlson spoke about the adverse impact of “forced arbitration” on her sexual harassment claims, as well as the barrier federal arbitration law poses to implementation of local State laws seeking to move similar claims out of arbitration.
Gilles spoke more broadly in opposition to mandatory arbitration in employment, consumer, antitrust, civil rights and small business/big business disputes, areas of her scholarship for many years.
Weiss spoke in criticism of Amazon’s arbitration policy in contracts with its small business counterparties. Notably, Weiss was discussing a category of B-to-B commercial claims where there is an imbalance of bargaining power, not claims involving individuals.
King testified in support of positive aspects of arbitration, the inclusion of due process rights for claimants based on procedures adopted by U.S. arbitral institutions, and reform of class action procedures. Like Rep. Buck, he contended that concerns about confidentiality and nondisclosure agreements can be addressed separately from arbitration.
Readers should note that other legislation has also been introduced in the new Congress focusing among other matters on banning pre-dispute mandatory arbitration clauses in employment arrangements. The most notable legislation in that respect is the proposed Protecting the Right to Organize Act. Among as many as 50 pro-employee proposals in the PRO Act, it would prohibit employers from using mandatory arbitration agreements with employees.
Senate control has shifted to the Democrats in this Congress, even though by the narrowest of margins. We can therefore anticipate hearings and committee activity in both the House and the Senate for these legislative proposals. In each case, though, the fundamental political calculus in the U.S. Congress will be driven by the role of the Senate’s filibuster.
A video of the hearing, statements from House Members, witness written testimony and statements from interested parties can be found here.
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Mark Kantor is a member of CPR-DR’s Panels 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 has contributed frequently to CPR Speaks, and this post originally was circulated to a private list serv and adapted with the author’s permission.
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For more from author Mark Kantor, join CPR’s Employment Disputes Committee and Government & ADR Task Force for a free public online panel discussion on Feb. 24 on labor and employment ADR under the Biden Administration. Kantor and other experts will discuss how the current composition of the Supreme Court, the new Democratic majority in Congress, and the new leadership of the NRLB and EEOC will affect arbitration and mediation of U.S. labor and employment disputes. For a list of Kantor’s co-panelists and registration information, please visit the CPR website at https://bit.ly/3nV4fgf.
The panel returns to CPR Speaks and YouTube to analyze the Monday Henry Schein dismissal–a one-line decision–just a month after the Court heard oral arguments on the issue of how a contract carve-out removing injunctions from arbitration affects the delegation of the entire matter to arbitration.
In fact, the Dec. 8, 2020, Henry Schein oral argument repeatedly turned to an issue in the rejected Piersing case on the effectiveness of the incorporation by reference of arbitration rules in designating an arbitration tribunal to decide whether a case is arbitrated, rather than a court deciding whether the matter is to be arbitrated. A cross-petition by Archer and White asking for review of the incorporation by reference of the arbitration contract’s American Arbitration Association rules was declined by the Supreme Court the same day it agreed to hear the carve-out issue last June.
Our panel discussed these issues after the oral argument on this blog. See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa) (in which the panelists also discuss their work on an amicus brief in the case, a subject that arose in this post’s video).
You can see today’s per curiam decision on the Supreme Court’s website here.
Monday’s Henry Schein dismissal ends a long period of Supreme Court litigation in the case that also included a 2019 U.S. Supreme Court decision. For now, the case returns to the Fifth Circuit for proceedings on whether the parties properly intended to arbitrate the case.
Details on the Supreme Court’s Monday cert denial in Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, are available on CPR Speaks here.
For more analysis on the Henry Schein dismissal, see Ronald Mann, “Justices dismiss arbitrability dispute,” Scotusblog (Jan. 25, 2021) (available at http://bit.ly/2Yh9U4O), in which the Columbia University professor and Scotusblog analyst concludes that
it seems likely that the justices ultimately decided that they couldn’t sensibly say anything about this matter without addressing the question of whether the contract called for arbitration of the gateway question. Because they had declined to call for briefs on that question, it did not make sense to address it here. A logical course of action, then, was to dismiss the matter from the docket, providing a rare victory for a party opposing arbitration.
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The author edits Alternatives for the CPR Institute.
If the U.S. Supreme Court appeared frustrated at last month’s arbitration argument in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, this morning’s one-line decision confirmed it.
The Court today dismissed the entire case without a decision on the merits. The entire per curiam decision: “The writ of certiorari is dismissed as improvidently granted.”
You can view it on the Supreme Court’s website here.
The immediate effect is that respondent Archer and White Sales sees a big win: It will get the determination of whether its long-running case over a medical equipment contract dispute is to be arbitrated made by a judge, not an arbitrator. A Fifth U.S. Circuit Court of Appeals decision now stands. See Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir. 2019) (available at http://bit.ly/2NC7EmL).
Archer and White contended that a delegation agreement sending a matter to arbitration did not “clearly and unmistakably” send the case to arbitration because of a contract carve-out for injunctions.
With a one-line dismissal, it’s unknown why the Court did what it did. In shutting down the case, it may be backing Archer and White’s and the Fifth Circuit’s view.
Or it may have reconsidered a point that Henry Schein’s successor status to the contract didn’t sustain its arbitration demand.
Or, in a point returned to repeatedly in last month’s argument, the Court may have botched the case on its own. When it granted Henry Schein’s cert petition on June 15 on the carve-out issue, the Supreme Court simultaneously rejected Archer and White’s cross petition challenging the determination of arbitrability of the case on a question of incorporation by reference. The cross petition contended that the “clear and unmistakable” evidence of an intent to arbitrate was insufficient; the contract incorporated American Arbitration Association rules that include a provision that arbitrators decide arbitrability.
Even though the Court rejected the cross-petition, the issue returned in the December arguments, at times overwhelming the discussion of the question of the carve-out’s effect. For more on the argument, see “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa).
One thing is certain: The Court won’t use a follow-up petition to address the incorporation-by-reference issue, which would have interpreted the standard from the Court’s seminal decision on arbitrability, First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).
That’s because a case that a petitioner and an amicus stated presented the issue cleanly—unencumbered by the carve-out issue and Henry Schein’s long history, including a 2019 U.S. Supreme Court decision—was denied certiorari 30 minutes ahead of today’s one-line opinion. Details on the Court’s cert denial in Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, are available on CPR Speakshere.
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The author edits Alternatives for the CPR Institute.
The U.S. Supreme Court this morning declined to hear a case that presented a persistent arbitration issue: whether the incorporation of a set of arbitration rules that state that an arbitrator decides whether a case goes to arbitration, instead of a court making the arbitrability decision, provides sufficient “clear and unmistakable evidence” that the parties agreed for the tribunal to make the decision.
It was the second time in eight months that the Court has rejected a significant case on the issue.
Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, would have analyzed the clear-and-unmistakable evidence standard for delegation to arbitrability from the Court’s First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).
The question presented by the petitioner, a former employee of two Domino’s franchisers who had a claim against the parent company, was:
In the context of a form employment agreement, is providing that a particular set of rules will govern arbitration proceedings, without more, “clear and unmistakable evidence” of the parties’ intent to have the arbitrator decide questions of arbitrability?
Last June, the Court declined to hear the question on arbitrability in a cross-petition in Henry Schein Inc. v. Archer & White Sales Inc., No. 19-1080 (June 15, 2020), while accepting the case on the original cert petition on another, close issue involving the reach of carve-out provisions in arbitration agreements.
In its December arguments in Schein, which awaits decision, the discussion of incorporation by reference on arbitrability arose. See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa). In its brief in Piersing, the petitioner “acknowledges that [the] Court recently denied certiorari of a cross-petition presenting a similar question,” citing Schein, adding, “however, the question is presented in this case cleanly and as a stand-alone question.”
In Piersing, the petitioner worked as a delivery driver for a franchisee of respondent Domino’s, and later got an employment offer from Carpe Diem, another Washington state Domino’s franchisee. While the petitioner intended to increase his hours and earnings, the first franchisee fired him based on a no-poach clause in his employment agreement.
He eventually brought a U.S. District Court class-action suit against Domino’s alleging that the hiring rules violated, among other things, antitrust laws.
Domino’s sought to compel arbitration of Piersing’s claims based on the arbitration agreement between the employee and Carpe Diem. Domino’s asked for arbitration, according to the Sixth Circuit opinion in the case that was the subject of the cert petition (see Blanton v. Domino’s Pizza Franchising LLC, 962 F.3d 842 (6th Cir. 2020) (available at http://bit.ly/3sWDlrg)), “because the agreement’s reference to the AAA rules constituted a delegation clause in that the AAA rules supposedly provide for delegation.”
The district court held that equitable estoppel applies to permit franchiser Domino’s to enforce franchisee Carpe Diem’s agreement against Piersing and, according to the petitioner’s cert petition brief, “that the clause providing the AAA rules would govern any arbitration amounted to ‘clear and unmistakable’ evidence of Piersing’s and Carpe Diem’s intent to delegate questions of arbitrability to the arbitrator.”
Piersing appealed the district court’s decision. Relying on Rent-a-Center, West Inc. v. Jackson, 561 U.S. 63 (2010), and more, the Sixth Circuit held that the incorporation of arbitration rules that permit the arbitrator to resolve questions of arbitrability is sufficient to delegate those questions to the arbitrator.
Piersing’s Supreme Court cert petition brief analyzed the holdings in First Options,Rent-a-Center, West, and the first Henry Schein decision, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019), which wrestled with the question of and the standard for who decides arbitrability, the tribunal or the court.
Based on these precedents, the petitioner argued that the existing circuit court analysis allowing for incorporation of rules that included arbitrators determining arbitrability wasn’t “clear and unmistakable evidence” of the parties’ intent to arbitrate. It emphasized that, particularly for consumers and employees, the cases weren’t sufficiently thorough in light of the First Options standard. The petitioner also noted that the Sixth Circuit’s decision conflicts with the holdings of several state high courts.
Domino’s countered that an agreement incorporating privately promulgated arbitral rules that assign questions of arbitrability to the arbitrator clearly and unmistakably show the parties’ agreement that an arbitrator, not the court, will resolve whether the case is suitable for arbitration.
Domino’s successfully argued for the nation’s top Court to reject the petition and thereby uphold the Sixth Circuit.
An amicus brief in support of the petitioner was filed by Columbia University Law School Prof. George Bermann, who described the issue in the appeal as “a central but unsettled issue of domestic and international arbitration.” Echoing the petitioner, the brief noted the importance of the issue in both Henry Schein Supreme Court cases, but stated that “the delegation question is presented front and center for review in this case.” It also cited the divergence between state and federal court views.
The amicus brief discussed the principle of “competence-competence” in international commercial law—the international equivalent of the arbitrability question under which the tribunal is presumed to be in a position to determine its jurisdiction, and which the Sixth Circuit invoked. Bermann’s brief discussed the concept under the “clear and unmistakable” agreement standard of parties to arbitrate.
The amicus noted that the competence-competence language does not constitute “clear and unmistakable” evidence. “[A]ll modern arbitral procedure rules contain a ‘competence-competence’ clause,” the brief argued, “so that treating such language as clear and unmistakable evidence of a delegation means that parties will almost invariably lose their right to a judicial determination of what this Court has multiple times referred to as the very cornerstone of arbitration, viz. consent to arbitrate.”
Noting the state-federal divide in the interpretation of whether the incorporation of rules satisfies First Options, the brief concluded, “Only this Court can definitively resolve that issue and ensure that parties do not forfeit their right to a judicial determination of arbitrability unless they manifest that intention clearly and unmistakably.”
For more information on the case and an in-depth discussion of the issues involved, see the Supreme Court’s docket page at http://bit.ly/39Zxed1.
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Akande, who received a Master of Laws in Alternative Dispute Resolution last May at the University of Southern California Gould School of Law in Los Angeles, is volunteering with the CPR Institute through Spring 2021. Bleemer edits Alternatives for the CPR Institute.
The International Institute for Conflict Prevention and Resolution has filed an amicus brief requesting that the U.S. Supreme Court grant certiorari to resolve a federal circuit court split on whether 28 U.S.C. § 1782 allows federal district courts to order discovery for private commercial arbitration abroad.
CPR did not take a position on the merits of the case.
Yesterday’s filing in Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, highlights the circuit split underlying the case. Petitioner Servotronics presents the question,
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 U.S. Courts of Appeals for the 4th and 6th Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the U.S. Courts of Appeals for the 2nd, 5th and, in the case below, the 7th Circuit, have held.
CPR urged the Court to resolve this circuit court split, noting in the brief that “the question of whether United States district courts may entertain applications for judicial assistance in obtaining evidence for presentation in arbitral proceedings before international tribunals is one of great relevance to CPR and its constituents.”
The friend-of-the-Court brief states that the “current existence of opposite rules on whether district courts have jurisdiction to render assistance under Section 1782 in gathering evidence for international arbitral tribunals creates both the opportunity for blatant forum shopping and the likelihood of protracted litigation on the threshold jurisdictional question in each of the seven remaining regional circuits that have not decided the question.”
CPR also argues that the court should set the case for argument this term to avoid the likelihood that it will become moot prior to decision.
Section 1782 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. But the conflicting federal circuit cases differ on whether the statute’s definition of tribunals would cover arbitration matters. The Servotronics parties have decisions going both ways, one in the Fourth Circuit, and the second, the subject of the cert petition, in the Seventh Circuit.
CPR Speaks has addressed the issues in this case as they arose. John Pinney, counsel to Graydon in Cincinnati who prepared the amicus filing on CPR’s behalf, discusses the case in a video post here. Updates on the circuit split as it developed in 2020’s second half are available here and here.
You can find the CPR amicus filing, as well as other filings in the case, on the Supreme Docket page, here. Law360 covered the filing here, available with a subscription.
Alternatives to the High Cost of Litigation Editor Russ Bleemer hosts analysis by Prof. Angela Downes, University of North Texas-Dallas College of Law, and arbitrator-advocate-amicus brief contributors Richard Faulkner, also of Dallas, and Philip J. Loree Jr. in New York.
Court’s Rejected Cert Request Is Argued Anyway
By Russ Bleemer
Was the U.S. Supreme Court having second thoughts about how it has approached Tuesday’s arbitration case?
Back for its second round of arguments at the Court after a decision just last year, Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, returned to explore the issue, “Whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.”
Schein’s attorney, Kannon K. Shanmugam, a partner in the Washington, D.C., office of Paul Weiss, Rifkind, Wharton & Garrison, argued that the Fifth U.S. Circuit Court of Appeals, in deciding not to compel arbitration in the case, misapplied the historical presumption of arbitrability.
He also emphasized that “clear and unmistakable” evidence that the parties delegated the matter to arbitration puts the initial question of arbitrability to an arbitrator, even with the carveout for injunctions.
The appeals court had said that clear and unmistakable evidence that the parties wanted to arbitrate existed, but not to arbitrate the injunctive relief—a drafting issue that justified sending the case to the courts.
In his counterargument, respondent attorney Daniel L. Geyser, of Dallas’s Alexander Dubose & Jefferson, countered with, among other things, a focus on the delegation to arbitration by the parties.
That focus produced an usual argument. It wasn’t because many of the justices also focused on the particulars of the clause delegating the matter to arbitration. In fact, Geyser and Archer and White had cross-petitioned the Court to take on the issue of the delegation clause’s incorporation by reference of arbitration rules.
The Court granted certiorari on June 15 on Shanmugam and Henry Schein’s issue on the sweep of the injunction carveout. But the Court rejected the cross petition on delegation and incorporation of rules.
Yet at times, the rejected clause delegation issue was the argument’s primary focus.
“I want you to assume that we are not going to decide the question that you wanted us to decide in the cross-petition,” said Justice Samuel A. Alito Jr. during Geyser’s argument. “And if we make that assumption, I really don’t know how to answer the question that we granted review on because it does seem to turn on the degree of the delegation to the arbitrator of the power to decide whether the arbitrator can decide.”
Alito wasn’t the only one.
Archer and White had persisted with the question in its brief in the case even after the cert denial. More significantly, the failed cross-petition or the delegation clause itself was raised directly or in passing by nearly every one of the nine justices, who argued the case in an online broadcast, as has become the custom in the pandemic since May.
The cert grant, and simultaneous cert denial, made sense on paper. The Fifth Circuit had said the delegation was valid, putting the focus on the appellate court’s interpretation that the carveout for injunctions preceded the arbitrator’s work and had to be decided by a court.
But even Shanmugam’s argument on behalf of the petitioner anticipated the presence of his adversaries’ rejected issue. Before facing a single question, Shanmugam took on the cert denial himself, noting that 12 circuit courts agree that a delegation clause incorporating rules is sufficient.
The contract in the matter incorporated American Arbitration Association rules that give arbitrability decisions to the arbitrator.
Shanmugam opened his argument on behalf of petitioners Henry Schein stating that the Fifth Circuit review hierarchy was wrong for two reasons. “First, a delegation is simply an antecedent agreement that is subject to the rules governing arbitration agreements more generally,” he said, continuing, “Second, any doubts concerning the scope of arbitration agreements are resolved in favor of arbitration.”
If that arbitration presumption had been applied correctly, he argued, a carveout that doesn’t speak specifically to the delegation to an arbitrator cannot interfere with the overall delegation of a case to an arbitrator. “The Court should stick to the question it agreed to decide,” advised Shanmugam on behalf of Henry Schein, “and it should decide that question in petitioner’s favor.”
The argument highlights below are based on the audio feed of the case, available on the Supreme Court’s webpage at https://bit.ly/3m2RCxz, and the transcript, also on the Court’s site at https://bit.ly/3a6xDMv. For background on the case, including links to key documents and the 2019 Supreme Court decision in the same matter, see “Supreme Court Argument Preview: Looking Ahead to Round 2 on Schein and Arbitrability,” CPR Speaks blog (Dec. 3) (available at https://bit.ly/2VyD1z6) (The CPR Speaks link also contains information on the participants in the accompanying YouTube video discussion, conducted on Tuesday, Dec. 8.).
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The Supreme Court generally seemed to agree with Kannon Shanmugam’s opening words, but still returned to the delegation and rules’ incorporation questions almost as much as the Fifth Circuit’s denial of arbitration.
“They don’t want arbitrators deciding this,” said Chief Justice John G. Roberts Jr. in opening the questioning, referring to the presence of the contract clause carveout sending injunctions to court, adding, “Why would they want arbitrators to decide who gets to decide it?”
Shanmugam said that the Fifth Circuit divided the responsibility of who decides between the court and the arbitrator, while the contract was a clear delegation of the case to arbitration. The result of the appeals court opinion was negating that arbitration intention because of the carveout sending the case to court instead.
He returned repeatedly to a need to assert the presumption of arbitrability in viewing the parties’ arbitration clause and the context for the carveout.
The contract clause states, “Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property . . .), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [the “AAA”].”
Justice Clarence Thomas focused on the delegation clause, asking Shanmugam to walk the Court through its use in the case. “I don’t see the word ‘delegation’ at all or a verb ‘delegate’ at all,” said Thomas.
Shanmugam replied that the Supreme Court “has never required magic words on the face of the agreement. Instead, all that the Court has said is that you have to have clear and unmistakable evidence. And under ordinary objective principles of contract formation, the incorporation of a document [referring to the arbitration agreement’s AAA rules referral] suffices in order to render that document part of the contract.”
Borrowing from labor law and referencing key Supreme Court precedents, Justice Stephen G. Breyer said that the presumption of arbitration still requires a deciding court to judge the scope of that arbitration. Shanmugam said that the delegation is “a kind of miniature contract formation,” that contemplates whether there was “a meeting of the minds that the arbitrator should decide questions concerning the scope of the arbitration agreement.”
The incorporation of the AAA rules, he said, was sufficient under ordinary contract formation principles.
Justice Samuel A. Alito Jr. asked Henry Schein’s attorney about the basis for the presumption for arbitration. Shanmugam replied it rested in the Federal Arbitration Act’s Section 2, as well as “flowing from the policy underlying the arbitration act as a whole.” He added, “if I were pressed, I would say it’s probably ultimately a matter of federal common law” as well as emanating from statute.
Justice Sonia Sotomayor returned immediately to the cross-petition on the delegation agreement’s incorporation of rules by reference, and said that the Henry Schein brief conceded that the Court could reach the issue to decide the case. She questioned whether the delegation to arbitration was clear for the injunction and all other issues.
Echoing the Fifth Circuit, Sotomayor agreed there was a clear delegation, but suggested she found ambiguity on the injunction’s decision maker. Shanmugam said that the appeals court incorrectly considered the presumption for arbitrability. Even with an unclear scope of arbitration, he explained, the Fifth Circuit should have applied a presumption that the case was to be arbitrated once it found that valid delegation.
Justice Elena Kagan was focused on the injunction carveout, posing a hypothetical change in the contract wording, and concluding, “if you have something which at least arguably seeks injunctive relief, the court should deal with the question of whether it does and then should go on to decide the issue.”
Justice Neil Gorsuch pressed Shanmugam on the point discussed with Alito on a statutory basis for the presumption for arbitration. The Henry Schein attorney stuck to FAA Section 2.
Justice Brett Kavanaugh retraced Shanmugam’s argument points with the attorney, and asked about “real world” contracting situations–“how people draft these contracts, what they expect, my understanding was that the question of who decides arbitrability, the who-decides question, is almost never divided between a court and an arbitrator because that would be almost nonsensical in the real world because you need one person to decide, and it’s either going to be the court or the arbitrator, not both the court and the arbitrator.”
Though the question initially ignored the existence of the injunction carveout, Shanmugam quickly agreed. “That’s correct. And I’m aware of no examples of such a division.” Kavanaugh responded, “Right. Nor am I.”
Then, Kavanaugh tackled the contract carveout in the case sending the injunction to the court, noting that every contract has them. “And so, if that alone means the Court decides what is arbitrable, then the Court will always decide arbitrability and really eradicate the idea that arbitrators can ever decide arbitrability,” he said.
Justice Amy Coney Barrett also restated Shanmugam’s argument, acknowledging the cross-petition issue’s denial and accepting the delegation to the AAA rules as sending arbitrability to the arbitrator. But echoing Shanmugam, she indicated that it would be nonsensical “to carve up arbitrability questions.” She continued, “If that’s true, why isn’t that reason to interpret this clause as not being a clear and unmistakable delegation of all questions of arbitrability?”
“As a matter of contract formation,” concluded Shanmugam, focusing on the presumption of arbitration, “there is an agreement to arbitrate arbitrability. At that point, Justice Barrett, everything else that we’re talking about is a question of interpretation. It’s a question of the scope of the delegation.”
Shanmugam summarized his argument for the Court, once again directing his attack on the delegation argument incorporating the AAA rules. He noted that the “[r]espondent is really asking the Court to decide this case based on a different question, the incorporation question. And that would be a bold strategy in any case, but I would submit it’s a particularly bold strategy here because Respondent asked the Court to decide that question at the cert stage, and the Court seemingly consciously made the decision not to add it.”
He again asked the Court to avoid the issue it already declined to hear, noting, “All that the Court need do in this case is to hold that the court of appeals’ actual reasoning is inconsistent with this Court’s decisions applying familiar Federal Arbitration Act principles.”
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Respondent attorney Daniel Geyser immediately attacked the delegation and incorporation points on behalf of his client Archer and White in his opening statement. “It is simply not plausible that anyone would recognize this issue and choose to resolve it by relying on an oblique reference to the AAA rules rather than a simple, explicit sentence delegating the gateway issue,” he told the justices in his opening statement.
He added that the injunction falls within the carveout from arbitration, and therefore isn’t subject to arbitration under the American Arbitration Association rules. “It makes no difference what those rules say because the condition for activating them is unmet,” he said.
Using a hypothetical and invoking Justice Kavanaugh’s discussion, Chief Justice Roberts began questioning Daniel Geyser by asking why the carveout’s arbitrability should be treated differently than arbitrability issues in an arbitration contract with no express carveout.
“[N]ormally,” replied Geyser, “when parties include an express delegation provision, it’s unconditional and it’s categorical. It’s not like what you have here.”
Roberts asked Geyser to leave the AAA rules’ delegation out of his answer. “I think that’s what we tried to do when we denied cert on that question,” said the chief justice.
Geyser countered that the default is that the court decides the arbitrability issue. He said, “The only time an arbitrator decides whether a dispute falls within the scope of the agreement is if there is, in fact, a delegation provision.”
Geyser suggested the problem was drafting: “We absolutely concede that if the exception is limited solely to the scope of arbitration and there is a separate unconditional delegation provision, that the arbitrator gets to make that determination. “
He continued on the theme, telling Justice Thomas that phrasing matters, and the Court should focus on the delegation and the wording of exceptions. He said Archer and White would lose if there was a second sentence that said that arbitrator shall decide arbitrability—“an express unconditional delegation of the issue of arbitrability to the arbitrator.”
Geyser continued: “[U]nless there’s clear and unmistakable evidence that the parties wanted the arbitrator to decide arbitrability, then the default is with the court, and the court has to first identify a delegation agreement and identify any limits to that delegation agreement. “
Thomas was skeptical. He noted that Geyser’s construction limits an arbitrator’s authority on arbitrability after it had been granted by the contract. “I don’t know how you can have it both ways,” said Thomas, “You [can’t] say he has the authority, and in these limited circumstances, he doesn’t.”
Geyser countered that the Court has “never” issued a “binary rule.” He said, “Parties are perfectly free under the Federal Arbitration Act to delegate some issues to arbitration and to delegate some arbitrability issues to arbitration.”
Facing Justice Alito’s concerns about the posture of the case, Geyser said the Court, in the face of the question of whether there was a clear and unmistakable delegation to arbitration of arbitrability, “could dismiss the case as improvidently granted,” or request additional briefing, though he quickly added that he thought the case was fully briefed.
But he also explained to Alito that he believed even in the face of a clear delegation, a plain-text reading of the agreement shows that the carveout for injunctions removes the case from the arbitrator. “[It’s] the most straightforward way to affirm in this case,” he said.
Justice Sotomayor said that Geyser’s argument falls short because of a clear delegation to the AAA rule for arbitrability matters. Geyser countered that the delegation was limited by the injunction carveout.
In response to Justice Kagan’s questioning, Dan Geyser said that court decision for the gateway-to-arbitration issues is “traditionally what parties expect.” He continued, “It provides a critical judicial safeguard and it avoids the situation where the arbitrator is deciding the scope of his or her own jurisdiction.”
He added that the FAA backed delegating “certain issues but not others to the arbitrator.” He urged the Court to support the requirement that “unless parties clearly and unmistakably override the strong presumption in favor of courts acting as gatekeepers, that Congress imagined in the Federal Arbitration Act, in Sections 3 and 4, that, in fact, the courts keep that gateway role.”
Justice Kavanaugh returned to the purpose of contracting, saying he had a problem with Geyser’s conception that contracting parties divvy up arbitrable matters and court matters. “[T]hat’s just not how it works in the real world, nor could it [realistically] work that way in the real world,” he said.
Kavanaugh asked Geyser if the justice’s interpretation was wrong. “In the real world,” Geyser replied, “parties sometimes do limit a delegation. They might say that the court decides whether class arbitration is appropriate. And parties are perfectly free to do that.”
He told Cavanaugh, “I don’t see any way to read the actual text of this agreement to say that the carveout wouldn’t include a carveout to the AAA rules.”
Geyser conceded to Justice Barrett that his client would lose if the Court does not agree that there was no clear and unmistakable delegation to arbitration and declines “to get into the question that we denied cert on, [and instead] assume[s] that incorporating the AAA rules by reference is enough to constitute a clear and unmistakable delegation. . . .”
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Dan Geyser began his summation on behalf of respondent Archer and White noting, “[W]e apologize for trying to get the Court back into an issue that maybe it doesn’t wish to address.” He warned against “a profoundly atextual construction of the plain text of this agreement,” and said, “I think it would be very difficult to construe this language in a sensible way without getting into the delegation.”
In his rebuttal, Henry Schein attorney Kannon Shanmugam urged the Court to reverse the Fifth Circuit, noting, “[I]t’s one thing to say that parties may want to divide up responsibility for different types of questions of arbitrability such as who is subject to the arbitration agreement or whether a class action waiver is valid, but as I’ve pointed out in my earlier colloquy with Justice Kavanaugh, we are not aware of any actual agreement in the real world that divides up responsibility for a particular question of arbitrability and in particular the paramount question of the scope of the arbitration agreement.”