Gorsuch

Implications of Henry Schein and New Prime US Supreme Court Decisions

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By Mark Kantor

Kantor Photo (8-2012)

As you know, the US Supreme Court has now issued its opinions in two of the three arbitration-related cases it heard this Term, the 8-0 (with an additional short concurrence by Justice Ginsburg) unanimous decision authored by Justice Gorsuch in New Prime Inc. v. Oliveira and the 9-0 unanimous decision authored by Justice Kavanaugh in Henry Schein v. Archer & White Sales.  Only Lamps Plus Inc. v. Varela remains to be decided this Term (Question Presented: whether the Federal Arbitration Act (FAA) overrides a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements).

The headlines in those decisions relate to excluding from the FAA obligation to enforce arbitration any pre-dispute agreements with independent contractor transportation workers (New Prime v. Oliveira) and the rejection of a “wholly groundless” exception to a court’s obligation to allow the arbitral tribunal to decide jurisdictional disputes where the parties have “clearly and unmistakably” allocated that authority to the arbitrators (Henry Schein v. Archer & White Sales).  But there are other implications of those decisions to which we should pay attention.

First, with respect to the decision in Henry Schein and as discussed on the listserv, the lower courts had relied on the competence-competence Rule 7(a) in the AAA Commercial Arbitration Rules to conclude that the parties had “clearly and unmistakably” allocated that decision-making power to the arbitrators, as required by First Options of Chicago, Inc. v. Kaplan.  However, the Henry Schein Court stated:

We express no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator.  The Court of Appeals did not decide that issue.  Under our cases, courts “should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” First Options, 514 U. S., at 944 (alterations omitted).  On remand, the Court of Appeals may address that issue in the first instance, as well as other arguments that Archer and White has properly preserved.

As has been explained by others, there is an existing Circuit split as to whether a competence-competence provision in arbitration rules is sufficient to satisfy the First Options standard.  Moreover, Prof. George Bermann’s amicus brief on that issue, reflecting the view of the draft Restatement that a provision within the arbitration rules should not by itself be sufficient, triggered critical questioning by the Justices (particularly Justice Ginsburg) at the case’s oral argument.  That issue was not, however, part of the Question Presented on which the Supreme Court had granted certiorari for review.  It thus appears the Justices are preparing themselves to resolve that Circuit split in a future case.  In that regard, you may recall my October 31 post (see below, triggered by Prof. Bermann’s amicus brief) asking whether that question will be “the Next Big Arbitration Issue”.

Second, the New Prime decision makes clear that independent contractors may nevertheless be transportation “workers” with “employment agreements” who cannot be bound by a pre-dispute arbitration agreement enforceable under the FAA.  Mr. Oliveira himself is an independent trucker.  But I suggest to you the bigger practical impact will be to reinvigorate class actions in US courts brought by Uber and Lyft drivers against their respective ride-sharing employers.  Many of those judicial class actions had been dismissed in favor of arbitration due to mandatory arbitration clauses in the drivers’ independent contracts with the ride-sharing companies.

Similarly, seamen on shipping and fishing vessels and working personnel on cruise ships are not often employees of their shipping companies, fishing vessels or cruise lines etc.  Instead, they are regularly engaged under independent contractor agreements containing arbitration clauses.  There too, we can anticipate a resurgence of claims in US courts, rather than in arbitration, including possible class actions against shipping companies and cruise lines on various compensation, hiring and firing, and working conditions issues.  Unlike ride-sharing companies, though, those maritime companies generally operate internationally.  Consequently, we may anticipate as well that even more of those maritime companies will specify in their employment/independent contractor agreements an arbitration situs outside FAA jurisdiction, such as the many maritime employment arbitrations now being conducted in Caribbean seats.

Rail workers may also employ New Prime to move some disputes from arbitration to courts, although much of that field in the US is unionized under collective bargaining agreements for which arbitration is statutorily authorized outside the FAA.  Independent contractor relationships are less common.

But Justice Gorsuch may have gone further in his opinion.  He wrote:

Given the statute’s terms and sequencing, we agree with the First Circuit that a court should decide for itself whether §1’s “contracts of employment” exclusion applies before ordering arbitration. After all, to invoke its statutory powers under §§3 and 4 to stay litigation and compel arbitration according to a contract’s terms, a court must first know whether the contract itself falls within or beyond the boundaries of §§1 and 2. The parties’ private agreement may be crystal clear and require arbitration ofevery question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.

(Emphasis added)

It is certainly possible to interpret that statement to mean that a court must itself determine whether the arbitration agreement falls within or outside §2 of the FAA, not just FAA §1.  FAA Section 1 excludes, according to long-standing precedent, maritime transportation workers from the obligations of the court to stay litigation and compel arbitration.  But FAA §2, the basic provision of the FAA enforcing covered arbitration agreements, contains the well-known savings clause for “such grounds as exist at law or in equity for the revocation of any contract”:

A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

(Emphasis added)

The quoted language authored by Justice Gorsuch (and endorsed by seven other Justices) can be read to suggest that, regardless of any “clear and unmistakable” delegation of jurisdictional decisions to arbitrators by the contracting parties, a supervising court must itself determine whether a challenge to an arbitration agreement on grounds such as unconscionability, duress or mistake is successful before the dispute proceeds to arbitration; i.e., a challenge under FAA §2 on grounds that exist in law or equity for revocation of any contract.  Certainly, counsel for parties seeking to avoid an arbitral forum in favor of a judicial forum will seize upon that language in New Prime to try to place the dispute in the courts.  We do not know if that was what Justice Gorsuch intended, but we can therefore anticipate a string of US court cases addressing the “who decides” issue again from that perspective, ultimately returning to the US Supreme Court for further clarification.

There is also another important conceptual issue embedded in Justice Gorsuch’s New Prime opinion that may affect many other issues relating to the FAA.  Justice Gorsuch spent considerable effort in his opinion focusing on the original legislative intent in 1925 for the FAA.  For example, these selections from the opinion.

Why this very particular qualification?  By the time it adopted the Arbitration Act in 1925, Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers.  And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties’ private contracts might happen to contemplate.

****

In taking up this question, we bear an important caution in mind. “[I]t’s a ‘fundamental canon of statutory construction’ that words generally should be ‘interpreted as taking their ordinary . . . meaning . . . at the time Congress enacted the statute.’” Wisconsin Central Ltd. v. United States, 585 U. S. ___, ___ (2018) (slip op., at 9) (quoting Perrin v. United States, 444 U. S. 37, 42 (1979)). See also Sandifer v. United States Steel Corp., 571 U. S. 220, 227 (2014).  After all, if judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the “single, finely wrought and exhaustively considered, procedure” the Constitution commands. INS v. Chadha, 462 U. S. 919, 951 (1983).  We would risk, too, upsetting reliance interests in the settled meaning of a statute. Cf. 2B N. Singer & J. Singer, Sutherland on Statutes and Statutory Construction §56A:3 (rev. 7th ed. 2012).  Of course, statutes may sometimes refer to an external source of law and fairly warn readers that they must abide that external source of law, later amendments and modifications included. Id., §51:8 (discussing the reference canon).  But nothing like that exists here.  Nor has anyone suggested any other appropriate reason that might allow us to depart from the original meaning of the statute at hand.

****

To many lawyerly ears today, the term “contracts of employment” might call to mind only agreements between employers and employees (or what the common law sometimes called masters and servants).  Suggestively, at least one recently published law dictionary defines the word “employment” to mean “the relationship between master and servant.” Black’s Law Dictionary 641 (10th ed. 2014).  But this modern intuition isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925.  At that time, a “contract of employment” usually meant nothing more than an agreement to perform work.

****

What’s the evidence to support this conclusion?  It turns out that in 1925 the term “contract of employment” wasn’t defined in any of the (many) popular or legal dictionaries the parties cite to us.  And surely that’s a first hint the phrase wasn’t then a term of art bearing some specialized meaning.  It turns out, too, that the dictionaries of the era consistently afforded the word “employment” a broad construction, broader than may be often found in dictionaries today.  Back then, dictionaries tended to treat “employment” more or less as a synonym for “work.”  Nor did they distinguish between different kinds of work or workers: All work was treated as employment, whether or not the common law criteria for a master-servant relationship happened to be satisfied.

What the dictionaries suggest, legal authorities confirm.  This Court’s early 20th-century cases used the phrase “contract of employment” to describe work agreements involving independent contractors.  Many state court cases did the same.  So did a variety of federal statutes.  And state statutes too.  We see here no evidence that a “contract of employment” necessarily signaled a formal employer-employee or master-servant relationship.

****

If courts felt free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal, we would risk failing to “tak[e] . . . account of ” legislative compromises essential to a law’s passage and, in that way, thwart rather than honor “the effectuation of congressional intent.” Ibid.  By respecting the qualifications of §1 today, we “respect the limits up to which Congress was prepared” to go when adopting the Arbitration Act. United States v. Sisson, 399 U. S. 267, 298 (1970).

****

When Congress enacted the Arbitration Act in 1925, the term “contracts of employment” referred to agreements to perform work.  No less than those who came before him, Mr. Oliveira is entitled to the benefit of that same understanding today.

****

(footnotes omitted)

As US arbitration practitioners are aware, the US Federal courts have for many decades strayed from the exact text of the FAA in the course of developing US federal arbitration law.  Instead, the Federal courts have developed a sort of “common law” of arbitration, building on their notions of how to fill legislative gaps or to find modern interpretations to effectuate the FAA’s purposes.  The most obvious example lies in the continuing Circuit split over the meaning of arbitrator “evident partiality” as a ground for vacatur of arbitration awards by arbitrators alleged to have conflicts of interest.  So too, the judicial presumption in favor of arbitration itself.  If Justice Gorsuch’s “1925 legislative intent” approach is applied to such issues, US arbitration jurisprudence on arbitrator conflicts, presumptions of arbitration and many other issues may be in for a vigorous shaking up.

Justice Ginsburg was attentive to the implications of this interpretive approach, although I rather doubt her primary focus was on FAA jurisprudence.  In her short concurrence to the unanimous opinion (in which she also joined), Justice Ginsburg pointed out a more flexible view for interpreting legislative meaning.

Congress, however, may design legislation to govern changing times and circumstances. See, e.g., Kimble v. Marvel Entertainment, LLC, 576 U. S. ___, ___ (2015) (slip op., at 14) (“Congress . . . intended [the Sherman Antitrust Act’s] reference to ‘restraint of trade’ to have ‘changing content,’ and authorized courts to oversee the term’s ‘dynamic potential.’” (quoting Business Electronics Corp. v. Sharp Electronics Corp., 485 U. S. 717, 731‒732 (1988))); SEC v. Zandford, 535 U. S. 813, 819 (2002) (In enacting the Securities Exchange Act, “Congress sought to substitute a philosophy of full disclosure for the philosophy of caveat emptor . . . . Consequently, . . . the statute should be construed not technically and restrictively, but flexibly to effectuate its remedial purposes.” (internal quotation marks and paragraph break omitted)); H. J. Inc. v. Northwestern Bell Telephone Co., 492 U. S. 229, 243 (1989) (“The limits of the relationship and continuity concepts that combine to define a [Racketeer Influenced and Corrupt Organizations] pattern . . . cannot be fixed in advance with such clarity that it will always be apparent whether in a particular case a ‘pattern of racketeering activity’ exists. The development of these concepts must await future cases . . . .”). As these illustrations suggest, sometimes, “[w]ords in statutes can enlarge or contract their scope as other changes, in law or in the world, require their application to new instances or make old applications anachronistic.” West v. Gibson, 527 U. S. 212, 218 (1999).

These different approaches toward divining legislative meaning are part of the basic legal philosophy differences between the conservative and liberal wings of the Supreme Court.  Those differences will play out in many areas of US law but, in light of New Prime, one of them now may be the interpretation of the FAA.

_______________________________________________

Mark Kantor is a CPR Distinguished Neutral. Until he retired from Milbank, Tweed, Hadley & McCloy, Mark was a partner in the Corporate and Project Finance Groups of the Firm. 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). Additionally, Mr. Kantor is Editor-in-Chief of the online journal Transnational Dispute Management.

This material was first published on OGEMID, the Oil Gas Energy Mining Infrastructure and Investment Disputes discussion group sponsored by the on-line journal Transnational Dispute Management (TDM, at https://www.transnational-dispute-management.com/), and is republished with consent.

The Class Waiver-Arbitration Argument: The Supreme Court Transcript

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By Russ Bleemer

There’s no indication, yet, that the newest U.S. Supreme Court Justice, Neil M. Gorsuch, will be the swing vote in the employment arbitration cases that kicked off the Court’s 2017-2018 term yesterday morning.

The justice—who had been active in oral arguments after he was seated in April to fill the Court vacancy created by the death of Justice Antonin Scalia in February 2016—didn’t say a word.

But the liberal and conservative wings of the Court had their say. The former posed tough questions to the employers’ representative and the government, who are fighting against employees joining together under the National Labor Relations Act to file class action suits for workplace disputes, despite the presence in their employment agreements of class waivers and a requirement of individual arbitration.

The Court conservatives who spoke at the hearing seemed skeptical that the NLRA could override the Court’s strong historical backing of the Federal Arbitration Act, and defeat the employers’ requirement that matters proceed one at a time, in arbitration.

Though Justice Clarence Thomas also maintained his customary silence during the arguments, observers saw a 5-4 split yesterday assuming he and Gorsuch joined the conservative block, with Justice Anthony Kennedy leaning toward the business side.

Washington, D.C. neutral and Georgetown University Law Center adjunct Mark Kantor gathered reports and added analysis on CPR Speaks yesterday, here. See also Adam Liptak, “Supreme Court Divided on Arbitration for Workplace Cases,” N.Y. Times (Oct. 2)(available at http://nyti.ms/2fHZ8ya).

The dispute has been running since the National Labor Relations Board ruled that class waivers accompanied by mandatory arbitration provisions were illegal under the NLRA in 2012, and eliminated by the FAA’s Sec. 2 savings clause, which enforces arbitration agreements “save upon such grounds as exist at law or in equity for the revocation of any contract.”

Last winter, the Court accepted three cases on the issue, including one in which the NLRB is a party.  It consolidated them, then announced the argument would be held until the term that began yesterday—presumably to await the new justice for the vacancy eventually taken by Gorsuch, rather than risking a 4-4 split on the issue, which has divided the federal circuit courts that have tackled the issue.

The unusual hour-long argument was notable for other reasons: The federal government was facing off against one of its own agencies. In a June amicus filing, the Justice Department’s acting solicitor general, Jeffrey Wall, told the Court the Trump administration had “reconsidered the issue and has reached the opposite conclusion” from the stance the department had taken under President Obama on the NLRB’s behalf.  [For more information on Justice’s position, see the October issue of Alternatives, which will be posted later soon at https://www.cpradr.org/news-publications/alternatives and http://bit.ly/2kh91YT.]

Wall presented an amicus argument yesterday, facing off against the NLRB’s general counsel, two of four advocates in the argument.

The discussion highlights below come from the Court’s transcript, posted late yesterday, available at http://bit.ly/2yFDsKA.

* * *

First, frequent Supreme Court argument participant and former U.S. Solicitor General Paul D. Clement, a Washington, D.C. partner at Kirkland & Ellis, faced tough questions and skepticism from the Court in his argument on behalf of the petitioner-employers in Epic Systems Corp. v. Lewis, No. 16-285 and Ernst & Young LLP v. Morris, No. 16-300, as well as the respondent employer in NLRB v. Murphy Oil USA Inc., No. 16-307.

Clement opened by noting the employees’ claims that arbitration agreements providing for individual arbitration that are enforceable under the Federal Arbitration Agreement are invalidated by another federal statute, the National Labor Relations Act.

But, he said, ‘this Court’s cases provide a well-trod path for resolving such claims.” Clement explained that “[b]ecause of the clarity with which the FAA speaks to enforcing arbitration agreements as written, the FAA will only yield in the face of a contrary congressional command[,] and the tie goes to arbitration.”

Justice Stephen G. Breyer soon said that he didn’t accept the argument, or the premise. “You started out saying this is an arbitration case,” said Breyer.  “I don’t know that it is. I thought these contracts would forbid . . . joint action, which could be just two people joining a case in judicial, as well as arbitration forums.”

Breyer continued: “Regardless, I’m worried about what you are saying is overturning labor law that goes back to, for FDR at least, the entire heart of the New Deal.”

The justice explained that the NLRA “protects the worker when two workers join together to go into a judicial or administrative forum for the purpose of improving working conditions, and the employers here all said, we will employ you only if you promise not to do that.”

Breyer concluded, “I haven’t seen a way that you can . . . win the case, . . . without undermining and changing radically what has gone back to the New Deal.”

“For 77 years,” countered Paul Clement, “the NLRB did not find anything incompatible about Section 7 and bilateral arbitration agreements, and that includes in 2010 when the NLRB general counsel looked at this precise issue.”

NLRA Sec. 7 permits concerted action by employees “for the purposes of collective bargaining or other mutual aid or protection.”

Clement also explained, at length, that “from the very beginning, the most that has been protected is the resort to the forum, and then, when you get there, you are subject to the rules of the forum.”

He later added, “[T]he NLRA in no other context extends beyond the workplace to dictate the rules of the forum.”

Said Clement, “I think the way to think about the Section 7 right is it gets you to the courthouse, it gets you to the Board, it gets you to the arbitrator. But once you are there.  . . .”

* * *

Deputy Solicitor General Jeffrey B. Wall, who led the Justice Department’s reversal of position in the case, followed Clement with an amicus argument supporting the employers. “[I]f you understand Section 7 to protect you from retaliation when you seek class treatment but not to give you an entitlement to proceed as a class in the forum, then . . . everything fits together perfectly fine, and these arbitration agreements are enforced.”

Wall concluded, “[O]ur simple point is this case is at the heartland of the FAA. It is, at best, at the periphery of the NLRA, on the margins of its ambiguity, and you simply can’t get there under the court’s cases.”

* * *

Under questioning from Chief Justice John G. Roberts Jr. at the beginning of his argument, NLRB General Counsel Richard F. Griffin Jr., arguing in support of the employees, said that the employers needed to keep open access in the forum so that the employees can proceed jointly—in arbitration or litigation.

But Roberts pressed, and Griffin agreed, that judicial options can be waived because the Court has recognized the equivalence of arbitration.  “I don’t understand how that is consistent with your position that these rights can’t be waived,” said the Chief Justice.

Griffin countered that the NLRB’s position that the right to a class process can’t be waived “takes into account this Court’s view with respect to the ability to effectively vindicate these rights in an arbitral forum.”

Justice Anthony Kennedy said that Griffin’s argument meant that employers “are now constrained in the kind of arbitration agreements they can have.” Griffin responded that they are “constrained with respect to limiting employees’ ability to act concertedly in the same way that, from the beginning of the National Labor Relations Act, individual agreements could not be used to require employees to proceed individually in dealing with their employers.”

Under tough questioning by Roberts and Kennedy, Richard Griffin stuck to his positon that the rules of the forum—arbitral or court—must be followed, but an arbitration agreement that violates the NLRA by limiting the employees’ right to proceed must fall. He suggested that ADR provider rules could limit the procedures, but the employers couldn’t because if they did, it would be limiting employees’ access to justice.

* * *

The employees’ attorney, Daniel R. Ortiz, director of the Supreme Court Litigation Clinic at the University of Virginia School of Law in Charlottesville, Va., began his argument by addressing an earlier question posed by Justice Sonia Sotomayor to Richard Griffin.  Ortiz said that about 55% of nonunion private employees have contracts with mandatory arbitration agreements, covering 60 million workers, with about 25 million people covered by the equivalent of class wavers.

The key part of Ortiz’s argument, which emerged in discussions with a skeptical Chief Justice Roberts, was that the employers’ conduct was clearly illegal under NLRA Sec. 7, and thereby removed the enforcement of the arbitration agreement under FAA Sec. 2’s savings clause, because the section makes illegality of a contract provision a basis for striking an obligation to arbitrate.

* * *

In his rebuttal, Paul Clement picked up on comments by Justice Kennedy earlier that, even if they have waived class litigation and arbitration, employees still have the right to concerted activity by choosing the same lawyer to represent them in an arbitral forum, even if they proceeded individually.  He also said that they can take their pay claims to the Labor Department, which would allow employees to proceed without arbitration.

In response to a question by Justice Ruth Bader Ginsburg, Clement said that confidentiality agreements wouldn’t affect a lawyer’s ability to take multiple arbitration matters.

 

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

Gorsuch on Mediation

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By Russ Bleemer

U.S. Circuit Court cases referencing mediation aren’t unusual. Since most cases settle before they get to a courthouse, and long before they reach the appellate levels, the intervention of a third-party neutral is commonplace part of the recounting of the case histories that ultimately appear before appeals courts.

But it’s comparatively rare for a U.S. Circuit Court to write and rule on mediation mechanics.

Last night’s nominee to the U.S. Supreme Court, Tenth U.S. Circuit Court Judge Neil M. Gorsuch, of Denver, has written about the mechanics and effects of mediation in his decade on the bench at the circuit’s home in Denver.

In Hand v. Walnut Valley Sailing Club, Case No. 11-3228 (10th Cir. April 4, 2012)(available at http://bit.ly/2jVWsO7), a unanimous Tenth Circuit panel strongly backed mediation confidentiality in an order and judgment written by Gorsuch—a rare pronouncement on mediation and how it works by a federal circuit court.

For fans of mediation, it’s an instructive and fun read for its support of the ADR process, even though the appeals court’s support of a district court dismissal because a litigant abused mediation confidentiality rules was focused on a pleading technicality.

In the unanimous, three-judge panel order, Gorsuch details a move by the plaintiff, a member of the defendant sailing club, to tell “at least” 44 club members and others why a mediation of the plaintiff’s suit against the club failed.

The email sent by the plaintiff “disparage[ed] the club’s positions and relat[ed] all the details of the mediation, including what the mediator said and the amount of the club’s settlement offer,” the order states.

The plaintiff, according to the Gorsuch judgment, had complained to Kansas’s governor “that a storage shed owned by [the] sailing club didn’t comply with the Americans with Disabilities Act.” The club revoked the plaintiff’s membership, and the plaintiff filed suit.

The plaintiff had claimed ignorance of the mediation confidentiality law, but in dismissing the case, Gorsuch pointed out that the issue hadn’t been briefed in the district court.  The Tenth Circuit order says that the plaintiff’s contention that his lack of knowledge of the law was in an accompanying affidavit wasn’t sufficient where “both sides’ briefing, all prepared by retained counsel, proceeded on the premise that he knew the mediation was supposed to remain confidential. [The plaintiff] argued merely that the club’s request for dismissal was a disproportionate sanction.”

That was the sole issue, Gorsuch wrote, that the appeals panel saw as “worthy of mention,” noting that without the briefing, the issue couldn’t be considered.

But that conclusion followed the Tenth Circuit panel’s strong endorsement of mediation confidentiality. “Our review confirms that the district court did not abuse its discretion,” wrote Gorsuch, adding that the plaintiff

committed a serious violation of the confidentiality rule. He didn’t just share a few tidbits about the mediation with a friend, he revealed extensive and prejudicial details about the mediation to over forty people, many likely witnesses in the case. And he did so not accidentally but intentionally. In his deposition, [he] explained that he “absolutely” disclosed mediation information because he believed club members “had a right to know.”

Earlier in the order, Gorsuch reiterated the U.S. District Court holding that his panel was affirming, boosting the ADR process and noting that the plaintiff’s disclosures

“demonstrated complete disrespect for the confidential mediation process.” [Citation omitted.] In discussing the importance confidentiality plays under the congressional scheme created by the Alternative Dispute Resolution Act of 1998, see 28 U.S.C. § 652(d) (requiring district courts to “provide for the confidentiality of the alternative dispute resolution processes and to prohibit disclosure of confidential dispute resolution communications”), the court recognized that an assurance of confidentiality encourages parties to participate in mediation with candor and is essential to the success of mediation programs. The need for confidentiality, the court said, is particularly strong where a mediation program is, as here, mandatory, “because participants are often assured that all discussions and documents related to the proceeding will be protected from forced disclosure.” [Citation omitted.]

Still, the Gorsuch-written Hand order isn’t a published opinion and comes with a caveat:  “This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.”

***

Gorsuch also had to address the effect of a mediation settlement agreement in A.F. v. Espanola Public Schools, No. 14-2139 (Sept. 15, 2015)(available at http://bit.ly/2ki2QAa).

The case was mediated as per the requirements of the Individuals with Disabilities Education Act, and settled.  But the IDEA’s procedures contemplate moves for further relief under other statutes, but only after the act’s procedures have been exhausted.

Both parties took advantage of the mediation step in the act, according to the 2-1 Gorsuch opinion.  The case settled.

Then, the plaintiff filed suit on behalf of her daughter under the Americans with Disabilities Act, the Rehabilitation Act, and 42 U.S.C. § 1983, making the same allegations in federal court that she had made in her original administrative complaint, and which were successfully resolved in mediation.

The Gorsuch opinion affirmed a district court decision that said the plaintiff hadn’t exhausted her remedies under the IDEA scheme for the second suit.

The plaintiff claimed that because she had mediated her claim under the IDEA procedure scheme, the procedures’ application to her new claim had been exhausted, or were inapplicable.

Gorsuch’s opinion didn’t take issue with the mediation results itself, and even agreed that the plaintiff’s court case could proceed under the other statutes, so long as it followed the IDEA procedures required for the other laws.

But the opinion said that the IDEA procedure enabling the subsequent suit also required exhaustion of the claims, under the statute’s plain terms.  The mediation wasn’t enough. For those claims using the statute to launch the plaintiff’s subsequent lawsuit, the opinion said, more is required for exhaustion of the IDEA resolution procedures than the mediation for the first IDEA claim.

A dissent stated that a more reasonable interpretation of the IDEA is that a mediated resolution constitutes exhaustion for the pursuit of other permitted claims.

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

See also: “Gorsuch on Arbitration”

Gorsuch on Arbitration

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By Russ Bleemer

A review of the arbitration opinions involving Tenth U.S. Circuit Court Judge Neil M. Gorsuch, who last night was nominated to fill the U.S. Supreme Court vacancy, doesn’t provide a definitive indication on how his arbitration votes might fall if the U.S. Senate approves of his nomination.

The 49-year-old Gorsuch, who has been on the Tenth Circuit bench since President George W. Bush nominated him and he was confirmed by the Senate in 2006, has participated in appellate panels that have backed awards, compelled arbitration and reversed a failure to compel arbitration.

But the narrow scope of arbitration cases in which the circuit judge has participated, and the issues on which the cases were decided, don’t show a pronounced tilt toward business or consumers.

Adherence to Contract Law Principles, Combined with Customary View of FAA

In his most arbitration-centric decision, Gorsuch’s preferred path is adherence to contract law principles, combined with a customary view of the Federal Arbitration Act among federal judges.

“Everyone knows the Federal Arbitration Act favors arbitration,” Gorsuch wrote in the opening to Howard v. Ferrellgas Partners, No. 13-3061 (10th Cir. April 8, 2014)(available at http://bit.ly/2jTm6Wi), but, he emphasized, “before the Act’s heavy hand in favor of arbitration swings into play, the parties themselves must agree to have their disputes arbitrated.”

He continued, “While Congress has chosen to preempt state laws that aim to channel disputes into litigation rather than arbitration, even under the FAA it remains a ‘fundamental principle’ that ‘arbitration is a matter of contract,’ not something to be foisted on the parties at all costs.”

Possible Role in Employment Contract Class Action Waiver Cases

There is little in the 38 arbitration opinions that the Tenth Circuit website produces in a search of Gorsuch’s work—mostly incidental mentions–that rises to the level of significance of the preemption of state law and class waiver issues that have steadily appeared at the U.S. Supreme Court in its recent history.

But if confirmed quickly, Gorsuch could find himself participating in the decisions on three cases taken by the Court on Jan. 13 that will be argued together this term, and will settle whether employees can be required as a condition of employment to arbitrate their workplace disputes individually, while waiving their rights to a class process.

The long-simmering group of cases is a clash between the National Labor Relations Act and the Federal Arbitration Act, and an extension to the employment arena of the leading class waiver/mandatory arbitration case in consumer contracts, AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which Gorsuch was quoting directly in the passage above.

Arbitration watchers who want to try to handicap the Court’s path likely will need to become acquainted with Gorsuch’s by now well-publicized animosity toward the so-called Chevron Doctrine, in which the U.S. Supreme Court has backed deference to administrative agency determinations.  See Chevron v. National Resources Defense Council, 467 U.S. 837 (1984)(available at http://bit.ly/1EirXXt).

In an immigration law decision last year, Gutierrez-Brizuela v. Lynch, No. 14-9585  (Aug. 23, 2016)(available at http://bit.ly/2kPDvh5), Gorsuch blasted Chevron in a concurrence, writing that its deference to the executive branch agencies in derogation of legislative power runs counter to the Constitution’s separation of powers checks-and-balance system.

The issue could control the arbitration outcome in the three employment arbitration cases at the Court, which currently are being briefed and not yet scheduled for oral argument. They emanate from a January 2012 opinion by the National Labor Relations Board.

In one of the three cases, the Board itself is a party, appealing a Fifth Circuit decision which overturned its earlier administrative decision. See NLRB v. Murphy Oil USA Inc., No. No. 16-307 (U.S. Supreme Court case page is available here: http://bit.ly/2kOPxal. Scotusblog’s page including briefs and a link to the Fifth Circuit opinion is available here: http://bit.ly/2kPvTyi).

If the Chevron Doctrine doesn’t figure in a Gorsuch view of the current arbitration cases, the NLRB’s moves to preserve class actions by forbidding mandatory arbitration may be another hot button for the former U.S. Supreme Court clerk.

Gorsuch on Class Actions

Gorsuch has problems with class actions in securities cases.  When he was in private practice, he wrote that “economic incentives unique to securities litigation encourage class action lawyers to bring meritless claims and prompt corporate defendants to pay dearly to settle such claims.” Neil M. Gorsuch and Paul B. Matey, “Settlements in Securities Fraud Class Actions: Improving Investor Protection,” Critical Legal Issues–Working Paper Series No. 128 (Washington Legal Foundation April 2005)(available at http://bit.ly/2kTBDCZ).

Two Opinions, One Dissent

Despite involvement as a panel member in cases producing about a dozen opinions or orders, the Howard case discussed above is one of only three arbitration writings exclusively by Gorsuch in his decade-long tenure on the court.  One of the three is a dissent.

The Tenth Circuit website revealed Gorsuch’s opinions, and orders with judgments, but didn’t produce unpublished opinions in which Gorsuch may have participated.

In Howard, Gorsuch wrote that the customarily swift determination by a lower court of whether the parties in the suit agreed to arbitration didn’t take place—fast or slow.

The plaintiff had filed a class action for overcharges against the propane supplier defendant.  The defense asked for arbitration, and Gorsuch described how the lower court botched its inquiry.  He first noted that the district court, “[u]nsure whether [defendant] Ferrellgas had shown an agreement to arbitrate in its initial motion, . . . entertained discovery and further motions practice.”

The trial court, Gorsuch reported, found “too many unresolved factual questions remained and proceeded to invite yet more discovery followed by yet more motions practice.”

Nearly a year and half after the defendant filed its motion to compel arbitration, the district court, Gorsuch wrote, “issued an order in which it found that material disputes of fact still prevented it from saying for certain whether or not the parties had agreed to arbitrate. But rather than proceeding to resolve the conflicting factual accounts through trial as the Act requires, the court entered an order denying arbitration outright.” [Emphasis is Circuit Judge Gorsuch’s.]

“That was error,” continued Gorsuch, exhibiting his breezy writing style in an area dry even by circuit law standards, explaining, “In these circumstances, the [Federal Arbitration] Act’s summary trial can look a lot like summary judgment. But when, as in this case, a quick look at the case suggests material disputes of fact do exist on the question whether the parties agreed to arbitrate, round after round of discovery and motions practice isn’t the answer. Parties should not have to endure years of waiting and exhaust legions of photocopiers in discovery and motions practice merely to learn where their dispute will be heard. The Act requires courts process the venue question quickly so the parties can get on with the merits of their dispute in the right forum. It calls for a summary trial—not death by discovery.”

Then, Gorsuch spread the blame around for arbitration disaster.  “Of course, the parties here didn’t exactly help themselves,” he wrote, adding, “They were anything but quick to seek the trial promised by the Act. In fact, they seemed content enough to haggle along together in the usual way of contemporary civil litigation, all about discovery disputes and motions practice and with only the most glancing consideration given to the possibility of trial.”

The case is a war over a contract, and whether and when it took effect.  Gorsuch explained that it was unclear from the record whether an oral contract for the propane tank and initial delivery was followed by a written contract for future deliveries containing the arbitration clause—and restricting it to the subsequent deliveries.

Regardless, Gorsuch–joined by his two fellow appeals panel members–ruled that with material facts in dispute, the district court should have proceeded to a trial on whether an arbitration agreement existed, and should not have denied the request to arbitration.

He wrote that the Federal Arbitration Act should have shown the path to the case’s resolution.  “We appreciate both sides’ evident frustration at how long this case has lingered at the transom without having entered either the door into arbitration or litigation,” Gorsuch concluded, adding, “It’s understandable that everyone might want us to give the case a firm nudge (one way or the other) so the parties’ dispute can finally progress past preliminary venue questions to the merits. But unresolved material disputes of fact block our way—disputes that could and should have been resolved years ago according to the procedures the FAA provides.”

Taking a Broader FAA View

Gorsuch took a broader FAA view in a dissent in a 2-1 Tenth Circuit arbitration case, Ragab v. Howard, No. 15-1444 (Nov. 21, 2016)(available at http://bit.ly/2gCL3pn).  The dissent—in a case where his panel affirmed a lower court’s ruling that conflicting arbitration agreements in six contracts between two parties should not be arbitrated because there was no meeting of the minds as to conducting the arbitration—appears to be is his most demonstrative view of the FAA’s effect on state laws.

Gorsuch strongly rejects the majority’s use of a New Jersey case that struck arbitration where multiple contracts conflicted on the terms of arbitration.  He notes that the New Jersey ruling had little application to Colorado laws, but also explains that it may not pass muster with the Supreme Court for its disregard of the FAA.

The New Jersey ruling, he explains, was a deep dive into the state’s consumer protection laws, in a case where the Tenth Circuit Colorado plaintiff more closely resembled a merchant.  But he noted that federal preemption is a big issue:  “Whether or not the FAA would preempt New Jersey’s special ‘extra clarity’ rule for certain kinds of arbitration agreements, that possibility undoubtedly exists and seems to me to counsel against endorsing it without a good deal more careful investigation than the parties offer us in this case.”

He wrote that with six of the parties’ interrelated commercial agreements containing arbitration clauses, and other circumstances, “In my view, parties to a commercial deal could have hardly demonstrated with greater clarity an intention to arbitrate their disputes and I see no way we might lawfully rescue them from their choice.”

Procedural holes are frequently filled by the parties, he explained, in providing “two easy workarounds that I believe would be more consistent with the parties’ expressed purposes than the course my colleagues chart.”

Additional Arbitration Work

Gorsuch was the author of one additional unanimous panel order and judgment on the Tenth Circuit’s website that backed a lower court’s refusal to compel arbitration for a former top executive who was fired by a pharmaceutical company. Genberg v. Porter, No. 13-1140 (May 12, 2014)(available at http://bit.ly/2kpuRs7).

The bulk of Gorsuch’s arbitration work appearing on the Tenth Circuit website, at www.ca10.uscourts.gov, was as part of a panel where others wrote the opinion or order. Among the opinions, Gorsuch joined his fellow circuit judges in backing a lower court ruling that a suit by a union under the Railway Labor Act  belonged in mandatory arbitration (BMWE v. BNSF Railway, No. 12-3061 (March 2, 2010)(available at http://bit.ly/2kpIwif).

In addition, he participated in panels in the following cases but didn’t write the unanimous opinion or order and judgment:

  • An order noting that an arbitration acts as a res judicata bar against a subsequent suit related to the wrongful discharge suit by an ex-Department of Veterans Affairs employee, backing a Merits Systems Protection Board order. Johnson v. DOVA, No. 14-9619 (May 22, 2015)(available at http://bit.ly/2kOYaBK).
  • An order strongly backing a major defense contractor’s mandatory arbitration clause contained in its employment dispute resolution program. Pennington v. Northrop Grumman Space & Mission Systems Corp., No. 07-2250 (March 14, 2008)(available at http://bit.ly/2jTh49F).
  • An affirmance of a Colorado court that overturned an arbitration award against a company which claimed that an arbitration notice presented by its Chinese business partner didn’t put the company on notice of a deadline it missed to participate in the ADR process. CEEG (Shanghai) Solar Science v. Lumos, No. 15-1256 (July 19, 2016)(available at http://bit.ly/2kOUorT).
  • An nonprecedential order and judgment as to arbitration backing a lower court that refused to compel arbitration, noting that the defendants seeking ADR didn’t establish that an arbitration agreement existed. Bellman v. i3Carbon, No. 12-1275 (May 2, 2014)(available at http://bit.ly/2kp3FJT).
  • An order, also nonprecedential as to the FAA, sending a case to arbitration and entitling the party to attorneys’ fees and costs “incurred in enforcing its right to arbitrate.” The order reversed a federal district court denial of arbitration. The winning defendant in the Tenth Circuit was a builder that sold the plaintiffs two condominiums with a mediation and arbitration clause in the sales agreement. Lamkin v. Morinda Properties Weight Parc, No. 11-4022 (Sept. 19, 2011)(available at http://bit.ly/2jTdKeS).
  • A case affirming dismissal of an employee’s wrongful termination suit after it had been arbitrated, citing claims preclusion under the arbitration award. Lewis v. Circuit City Stores, 05-3383 (Aug. 31, 2007)(available at http://bit.ly/2keVY6J).
  • A decision reversing two federal district court denials of arbitration against an employer charged by workers with violations of the Fair Labor Standards Act and an Oklahoma labor law, focusing on the scope of an arbitration clause, but in the remand order asking the lower court to consider whether the arbitration agreement preserves FLSA rights. Sanchez v. Nitro Lift Technologies, 12-7046 (Aug. 8, 2014)(available at http://bit.ly/2kT2Ple).
  • A determination that one of “two factually distinct injuries” related to a commercial contract fell under an arbitration clause, reversing in part a magistrate judge and a federal district court which had found that the case couldn’t be arbitrated. Chelsea Family Pharmacy PLLC v. Medco Health Solutions Inc., No. 08-5103 (June 2, 2009)(available at http://bit.ly/2jtiefT).

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

*Updated at 12 p.m.