Kavanaugh on Arbitration

By Russ Bleemer, Sara Higgins & George Somi

President Trump’s nominee to the U.S. Supreme Court, Brett Kavanaugh, has worked on a healthy dose of arbitration cases during his tenure on the federal appeals court following his confirmation, after a three-year Senate battle, in 2006. In this unusually lengthy post, presented in installments this week, CPR has taken a look at 21 of these cases. 

Overview

Kavanaugh’s arbitration decisions mostly adhere to the portrait of the nominee recently presented by both his supporters and detractors—that of a deeply conservative justice who leans hard toward business arguments and away from employees’ interests, and harbors a suspicion of government bureaucracy indicated most prominently by his disdain for federal agency law interpretations. See, e.g., Elliott Ash and Daniel L. Chen, “Kavanaugh is radically conservative. Here’s the data to prove it.” Washington Post (July 10)(available at https://wapo.st/2mdYxrf); Jess Bravin and Brent Kendall, “Who Is Brett Kavanaugh?” Wall Street Journal (July 9)(available at https://on.wsj.com/2NGECOf).

But, characteristic of judiciary views of ADR, Kavanaugh’s work in arbitration cases is less predictable on which party gets his backing, because he tends to stick to a narrow statutory interpretation.  For the Federal Arbitration Act cases, he attributes the stance to reflecting Congress’s preference for the practice. In a case involving another 1940’s labor statute, Kavanaugh joined a panel backing union claims in arbitration, reinstating an award against a big employer.

The arbitration-related decisions below are dominated by labor cases, a function of Kavanaugh’s place on the District of Columbia Circuit Court of Appeals, the federal appellate court which is a frequent site for appeals of National Labor Relations Board cases.

Kavanaugh’s views in those cases have received widespread praise from his conservative backers, and have inspired concerns about the future vitality of unions from the oppositions. Jeff Stein, “3 Ways Trump’s Supreme Court pick could transform U.S. labor law,” Washington Post (July 10)(available at https://wapo.st/2LaIBRN).

Kavanaugh’s views of the law on the relationship between management and labor surely will be a flashpoint during his confirmation hearings. See, e.g., Erin Mulvaney, “Brett Kavanaugh ‘Looks for Ways to Rule for Employers’” Nat’l Law Journal (July 12)(available at https://bit.ly/2Ld4qA8).

One of those cases in particular has fired up labor organizations, who looked beyond the ADR implications and cited an erosion of National Labor Relations Act protections in Kavanaugh’s decision. The case, Verizon New England Inc. v. Nat’l Labor Relations Bd., has been cited as emblematic of the nominee’s anti-worker stance. One major union pointed to the arbitration case as soon as Kavanaugh was nominated, calling on the Senate to vote against the nomination. More below.

Kavanaugh’s arbitration views, if confirmed, will emerge early in his tenure. The U.S. Supreme Court already has scheduled three arbitration cases for the 2018-2019 term scheduled to begin Oct. 1. Lewis Tan, “Ready To Reverse? Supreme Court Will Revisit Class Arbitration,” 36 Alternatives 98 (July/August 2018)(available at https://bit.ly/2JnrFWf).

The following are highlights of cases in which Circuit Judge Kavanaugh participated that involve arbitration based on searches of the D.C. Circuit Court of Appeals website and commercial databases. The first three are authored by the nominee, and the remainder are cases in which he was a panel member. The final entry reviews a brief on a regulatory pricing issue that emanated from arbitrations on which Kavanaugh participated as part of a big legal team in a Fourth U.S. Circuit Court of Appeals case.

  1. Verizon New England Inc. v. Nat’l Labor Relations Bd., 826 F.3d 480 (D.C. Cir. 2016) (available at https://bit.ly/2NKd8Yn).

Kavanaugh began the opinion by setting out the parameters of labor arbitration agreements in a simple-to-understand fashion, stating that unions may collectively bargain to waive certain National Labor Relations Act rights, and agree to arbitration.  He noted that the National Labor Relations Board may intervene by reviewing a decision where the loser says it has been deprived of an NLRA right.

“But consistent with the national labor policy favoring arbitration,” Kavanaugh’s first paragraph concluded, “the Board reviews the arbitration decisions under a highly deferential standard.  . . .”

And, consistent with the conservative justice’s suspicion of the reach of administrative agencies’ powers, the opinion restored an arbitrator’s award in favor of the telecommunications company.  The award had been confirmed by an administrative law judge, but overturned by the National Labor Relations Board.

The opinion is controversial because the union had agreed to bar its members from picketing, and was taken to arbitration by the company.  The union lost because its members put signs in their car windows during a dispute.

Rather than focusing on fundamental NLRA rights, Kavanaugh stuck to arbitration procedure in reversing the NLRB—noting the appellate panel’s review is for reasonableness, not de novo—and adopted a stance in which the union had agreed to the picketing restriction.

He wrote that the NLRB violated its own “highly deferential standard” for reviewing an arbitration decision, known as the Spielberg-Olin standard, when it issued its decision.  Olin Corp., 268 N.L.R.B. 573, 574 (1984); Spielberg Manufacturing Co., 112 N.L.R.B. 1080, 1082 (1955).

The NLRB “misapplied its highly deferential standard for reviewing arbitration decisions,” wrote Kavanaugh. “Under that standard, the Board should have upheld the arbitration decision in this case. The Board acted unreasonably by overturning the arbitration decision.”

He added later in the opinion, “All agree that the National Labor Relations Act allows a union to waive its members’ Section 7 right to display pro-union signs in vehicles parked on company property.” Kavanaugh supported a limited inquiry by the panel into the arbitrator’s decision, but says the award should be restored because it “was not a ‘palpably wrong’ interpretation of the collective bargaining agreement.”

Fellow D.C. Circuit panelists concurred in the result but questioned the appropriate NLRB review standards of the arbitration, and the Kavanaugh’s deferral standard toward the NLRB decision.

The case was cited by the Communications Workers of America on Monday in its announcement asking senators to oppose Kavanaugh’s nomination. See https://bit.ly/2uieX6L.

2. Nat’l Postal Mail Handlers Union v. Am. Postal Workers Union, 589 F.3d 437 (D.C. Cir. 2009) (available at https://bit.ly/2zqyEOB).

In an arbitration case between two unions at odds over their respective division of mail-handling duties, Kavanaugh, writing for a unanimous appellate panel, noted that the arbitrator “probably erred as a matter of contract interpretation,” but backed a federal district court ruling upholding the arbitration award.

He wrote, “[I]n light of the deference courts must afford to a labor arbitrator’s contract interpretation—including an arbitrator’s decision on arbitrability where, as here, the parties agree to present that issue to the arbitrator—we agree with the District Court that we must uphold the arbitrator’s decision in this case.”

3. U.S. Dep’t of the Navy v. Fed. Labor Relations Auth., 665 F.3d 1339 (D.C. Cir. 2012) (available at https://bit.ly/2NaiBpX).

Writing for the panel, Kavanaugh overturned an arbitral decision finding that the Navy had a duty to bargain with unions representing civilian employees before removing free bottled water provided to workers at a Newport, R.I., facility, after the Navy determined that water available from water fountains was no longer unsafe.

In 2005, the Navy had issued an email informing base personnel that previously contaminated drinking water was now safe, and that federal appropriations law precluded the Navy from providing bottled water given that safe and drinkable tap water was available.

Civilian employees at the base are represented by two unions: (i) the National Association of Government Employees, Local R1–134, known as NAGE, and (ii) the Federal Union of Scientists and Engineers, Local R1–144, known as FUSE. NAGE negotiated a collective bargaining agreement with the Navy; FUSE had a grievance procedure agreement with the Navy, but no collective bargaining agreement.

These unions filed grievances under their negotiated dispute resolution procedures, arguing that the Navy had a duty to bargain with them before removing the bottled water. When the grievances were not resolved through negotiation, the unions sought binding arbitration.

The arbitrator found that any change regarding the bottled water “required conferring and negotiating between the parties bound by the Collective Bargaining Agreement(s).”

“The arbitrator declined to consider the Navy’s argument that federal appropriations law barred it from providing bottled water,” according to the Kavanaugh opinion, adding, “The arbitrator said that looking to federal appropriations law ‘would be looking outside of the Collective Bargaining Agreement between the parties.’”

The Navy filed exceptions to the arbitration award with the Federal Labor Relations Authority, arguing that (1) the arbitrator refused to consider its argument that federal appropriations law precluded it from providing bottled water, and (2) the arbitrator’s findings drew no distinction between NAGE and FUSE, even though only NAGE had a collective bargaining agreement with the Navy.

The Federal Labor Relations Authority declined the Navy’s exceptions and affirmed the arbitrator’s conclusion that the Navy was obligated to bargain before removing the bottled water. The Navy petitioned for review in the D.C. Circuit.

Writing for the majority, Kavanaugh vacated the arbitrator’s decision on the grounds that federal appropriations law barred Navy from providing free bottled water to employees when safe drinkable tap water was available. After finding that the statute governing federal labor relations explicitly relieves agencies of the duty to bargain over any matter that would be “inconsistent with any Federal law or any Government-wide rule or regulation” 5 U.S.C. § 7117(a)(1), the Court turned to the issue of whether providing bottled water under these circumstances would violate federal appropriations law.  The panel concluded that it did.

Applying the “necessary expense” doctrine in the construction of appropriations laws, Kavanaugh wrote “[p]roviding bottled water when safe and drinkable tap water is available would serve no purpose other than accommodating employees’ personal tastes—a purpose that generally cannot justify the expenditure of appropriated funds.”

Kavanaugh vacated the arbitral award and remanded to the Federal Labor Relations Authority to determine the more fundamental question of whether the tap water is in fact safe to drink. “If the water at the Newport facilities is safe to drink,” wrote Kavanaugh, “then the Authority must rule for the Navy.” 

4. Kelleher v. Dream Catcher L.L.C., 2018 U.S. App. LEXIS 9831, *1.

This per curiam D.C. Circuit panel decision affirmed a lower court ruling that the petitioner contractor had forfeited its contract right to compel arbitration by delaying its request for eight months after a complaint had been filed. The petitioner had, instead, filed an answer, rather than a pre-answer motion to compel. The district court had found that the delay causes substantial prejudice to the respondent and the court.

The appeals panel, in the unpublished opinion, backed the district court and refused to stay the matter or compel arbitration.

5. Leidos Inc. v. Hellenic Republic, 881 F.3d 213 (Feb. 2, 2018)

Kavanaugh joined a unanimous circuit panel in denying a request to modify a large arbitration award related to services provided by the petitioner to Greece during the 2004 Olympics by allowing a currency conversion, to dollars from Euros, where the Euro had been devalued.  The long history in the case contemplated payment in Euros.

6. Nat’l R.R. Passenger Corp. v. Fraternal Order of Police, Lodge 189 Labor Comm., 855 F.3d 335 (D.C. Cir. 2017)(Available at https://bit.ly/2N4SctW).

Kavanaugh was in the majority on a panel that affirmed, 2-1, a district court’s decision to vacate an arbitration award in favor of a police officer on the grounds that it was contrary to law.  He did not write the decision.

In the case, a union–the Fraternal Order of Police, Lodge 189–brought arbitration on an employee’s behalf against Amtrak. The employee was an Amtrak Police Department in the Canine Unit officer who was fired after Amtrak’s Inspector General found that the officer had lied about co-owning a home in Maryland with her supervisor.

After the officer unsuccessfully appealed the decision within Amtrak, she sought arbitration pursuant to the collective bargaining agreement’s grievance procedure. On her behalf, the Fraternal Order of Police claimed that she had been fired without just cause. Without reaching that claim, the arbitrator determined that the officer should be reinstated because the Inspector General’s investigator, when interviewing her, had not fully complied with the contract’s Rule 50 procedures.

The rule provides procedures for investigating officers—the “Police Officers Bill of Rights”– incorporated into the collective bargaining agreement.

The arbitrator ruled that the National Railroad Passenger Corp., better known as Amtrak, must reinstate, with backpay and lost seniority, the fired employee.

Pursuant to the Railway Labor Act, Amtrak brought an action in district court, seeking an order setting aside the arbitrator’s award. The district court, relying on the Inspector General Act of 1978, 5 U.S.C. app. 3, §§ 1-13, and U.S. Department of Homeland Security v. FLRA (DHS), 751 F.3d 665, 672 (D.C. Cir. 2014), agreed with the railroad, vacating the arbitrator’s award to the officer because the Amtrak Inspector General could not legally be governed by Rule 50 of the contract. Nat’l R.R. Passenger Corp., 142 F. Supp. 3d at 90.

The appellate panel decision cited limited grounds on which a court may set aside an arbitration award, specifically where a contractual provision is contrary to “law or public policy.” United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 42 (1987).

The D.C. Circuit panel agreed with the district court’s finding that the arbitrator had improperly applied Rule 50 of the Collective Bargaining Agreement to the Amtrak Inspector General.

The opinion relied on U.S. Department of Homeland Security v. FLRA, 751 F.3d 665, 672 (D.C. Cir. 2014(“DHS”)), which held that under the Inspector General Act of 1978, “public sector unions and agencies can neither add to nor subtract from the OIG’s investigatory authority through collective bargaining.” 751 F.3d at 671.

7. Newco Ltd. v. Gov’t of Belize, 650 F. App’x 14 (D.C. Cir. 2016)(unpublished), cert. denied, 137 S. Ct. 619 (2017) (available at https://bit.ly/2mkxTxj).

Kavanaugh once again joined a panel decision affirming a district court’s order to enforce an international arbitral award.

The dispute between Newco Limited and the Government of Belize over an agreement to develop the country’s international airport was submitted to arbitration. A Miami arbitral tribunal issued an award in favor of Newco for $4.3 million. Belize agreed to pay the award on the condition that payment be made in Belize dollars rather than in U.S. dollars as required by the agreement, and that the parties first subtract unpaid taxes owed by Newco to Belize before paying the award.

Newco brought suit to enforce the award in the D.C. District Court. Belize brought its own suit in the Belize Supreme Court. Belize obtained an anti-suit injunction against Newco from the Belize court, while Newco’s federal court suit was stayed as Newco litigated in Belize.

The Belize Supreme Court ultimately agreed with Belize that the nation could subtract unpaid taxes and pay the remainder of the award in Belize dollars. But Newco refused to agree to the conditions and renewed its effort to enforce the arbitral award in the D.C. federal district court. Belize moved to dismiss the suit on a variety of grounds, including international comity, public policy, and forum non conveniens. The District Court rejected Belize’s arguments and enforced the award. Newco Ltd. v. Belize, No. 08-2010, 2015 WL 9810457 (D.D.C. Aug. 7, 2015).

The D.C. Circuit Court opinion, joined by Kavanaugh, affirmed this decision. The panel first rejected Belize’s request that the award not be enforced on the basis of international comity, finding that it failed to provide support for its assertion that the doctrine of international comity is a “’rule[] of procedure of the territory’ where the enforcement action is brought”—that is, the United States.

The panel noted that the allegations must be one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the New York Convention.

Belize also alleged that the U.S. federal court should have refused to enforce the arbitral award “based on an alleged public policy interest in international comity.” The opinion noted that under the New York Convention, courts may decline to enforce an arbitral award if “enforcement of the award would be contrary to the public policy of that country.” New York Convention art. V(2)(b).

The opinion added that courts should rely on the public policy exception only “in clear-cut cases” where “enforcement would violate the forum state’s most basic notions of morality and justice.” Termorio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 938 (D.C. Cir. 2007) (citations omitted). In this case, the panel determined that Belize did not show that enforcement “would violate the most basic U.S. notions of morality and justice.”

Finally, the appellate court found Belize’s contention that the district court should have dismissed the enforcement action on forum non conveniens grounds squarely foreclosed by precedent. See TMR Energy Ltd. v. State Property Fund of Ukraine, 411 F.3d 296 (D.C. Cir. 2005)(forum non conveniens does not apply to U.S. actions to enforce arbitral awards against foreign nations).

8BCB Holdings Ltd. v. Gov’t of Belize, 650 Fed. Appx. 17 (D.C. Cir. 2016)(available at https://bit.ly/2umHHuV).

In another 2016 unpublished opinion concerning a disputed Belize arbitration, D.C. Circuit Judge Kavanaugh was on a panel affirming the D.C. District Court’s enforcement of an international arbitral award, this time made in the U.K.

In 2005, BCB Holdings Limited and Belize Bank Limited—two Belize banking companies—signed an agreement with the nation’s prime minister addressing matters like their tax treatment.

In 2008, the firms invoked the agreement’s arbitration clause when the government repudiated the agreement. In 2009, an arbitral tribunal in London ruled against Belize, ordering that the country pay the banking companies about $20.5 million, plus interest and costs. Belize’s high court prevented the award’s enforcement, holding that it contravened the country’s separation-of-powers system.

BCB Holdings and Belize Bank sought to confirm the foreign arbitral award under the Federal Arbitration Act and New York Convention in the U.S. District Court for the District of Columbia. They also sought recognition and enforcement of the foreign money judgment pursuant to the District of Columbia Foreign Money Judgments Recognition Act and to covert the award and its associated costs and interest to U.S. dollars. The District Court enforced the award.

On an appeal by the Belize government, the D.C. Circuit affirmed the federal district court’s ruling. The court held that under the FAA, the doctrine of international comity was not a “rule of procedure” and, therefore, it did not constitute a basis for denying the arbitral award’s enforcement.

Second, in response to Belize’s contention that there was a corrupt bargain between the former Belize prime minister and the two companies, the panel held that Belize had not demonstrated that enforcement “would violate the most basic U.S. notions of morality and justice.” The court reasoned that the arbitral tribunal didn’t find any corruption and that Belize’s high court never contemplated corruption when it refused to enforce the award.

Finally, the court held that while parties are time-barred to enforce arbitral awards within three years, 9 U.S.C. § 207, “the District Court equitably tolled the statute of limitations so that their claims were not time-barred.” The two companies diligently pursued their rights to the arbitral award in the face of a 2010 Belize criminal statute that imposed imprisonment and fines on those who violated an injunction by the country’s highest court—violations which included pursuing enforcement of an arbitration against Belize. Once that statute was deemed unconstitutional in 2014, BCB Holdings and Belize Bank filed the enforcement action in the U.S. district court within six months.

9. GSS Grp. Ltd. v. Nat’l Port Auth. of Liberia, 822 F.3d 598 (D.C. Cir. 2016)(available at https://bit.ly/2L3c7fe).

D.C. Circuit Judge Kavanaugh was on a panel affirming the district court’s denial of motion to enforce an international arbitral award, but did not write the opinion.

The D.C. Circuit agreed with a Washington, D.C., federal district court finding that issue preclusion barred relitigating personal jurisdiction over the Port Authority, and that GSS failed to demonstrate that the government Liberia was liable for the Port Authority’s alleged contract breach.

Following the end of a second civil war in Liberia in 2003, the Liberian Port Authority, a wholly Liberian-owned corporation that manages, operates and maintains all Liberian ports, awarded GSS a multi-million dollar contract to build a container park at the port in the nation’s capital, Monrovia. GSS is a British Virgin Islands corporation based in Israel.

Although Liberia’s Interim Public Procurement Policy and Procedures mandated that the Port Authority award such contracts through “open competitive bidding,” the Port Authority did not do so. As a result, in 2005, the Liberian Contract and Monopolies Commission informed the Port Authority that the GSS contract was invalid and reminded it that all contracts must result from competitive bidding.

The Port Authority subsequently petitioned the commission for a single-source exemption, which allows a Liberian entity to dispense with competitive bidding if, “there is an urgent need” for the contract and “engaging in bid proceedings . . . is impractical due to unforeseeable circumstances.” The commission granted the exemption on Aug. 12, 2005, and the parties re-negotiated the contract 10 days later.

The contract alarmed the International Contact Group on Liberia, a multinational advisory board including representatives of the United States, the United Nations, the European Union, the Economic Community of West African States and the World Bank. In response to concerns over the contract’s validity and monetary value, the Port Authority and GSS amended the contract again.

Nevertheless, on Dec. 30, 2005, the National Transitional Government’s chairman directed the Port Authority to cancel the GSS contract. A Feb. 16, 2006, letter from the Port Authority notified GSS that the single-source exemption to competitive bidding was mistakenly granted, and therefore the Port Authority considered the contract “null and void ab initio.”

On March 15, 2006, GSS invoked the contract’s arbitration clause, which provided that disputes arising under the agreement were to be arbitrated in London and in accordance with the laws of England and Wales, against the Port Authority, but not against Liberia. “Meanwhile,” the D.C. Circuit opinion notes, “a separate Liberian governmental organization—the Liberian Public Procurement and Concession Commission —sought a Liberian-court declaration that the contract, including the arbitration provision, was invalid.”

Because of the Liberian judicial proceedings, the Port Authority refused to participate in the London arbitration; GSS appointed the sole arbitrator. On Feb. 8, 2008, the Liberian court held that the contract was unenforceable.

But one month later, the arbitrator determined that he had jurisdiction. In June 2008, he concluded that the Port Authority was liable for the cancellation. In May 2009, the arbitrator awarded GSS more than $44.3 million.

GSS filed a June 2009 petition in the D.C. federal district court to confirm the London arbitral award. The petition was dismissed for lack of personal jurisdiction. GSS appealed and the D.C. Court of Appeals affirmed.

In March 2012, GSS filed a second district court to confirm the arbitral award, naming Liberia as the sole respondent, and amending three weeks later to add the Port Authority.

GSS’s second petition claimed that the Port Authority was Liberia’s agent and, therefore, Liberia was liable for the big London award. “Because Liberia, as a sovereign, may not assert a personal-jurisdiction defense,” the D.C. Circuit noted, “GSS believed that its second petition cleared the hurdle that blocked its first.”

The district court disagreed and denied GSS’s motion to enforce the award because, it stated, that GSS failed to prove that the Port Authority acted as Liberian government agent. GSS appealed and the D.C. Circuit panel, joined by Circuit Judge Kavanaugh, affirmed, refusing to enforce the arbitral award on the basis of issue preclusion, lack of subject-matter jurisdiction, and a failure to demonstrate an agency relationship between Liberia and the Port Authority.

10. Cont’l Transfert Technique, Ltd. v. Fed. Gov’t of Nigeria, 603 Fed. Appx. 1, (D.C. Cir. 2015)(unpublished).

D.C. Circuit Judge Kavanaugh was on a panel affirming the District Court’s enforcement of an international arbitral award, but he did not write the unpublished opinion.

In 1999, Continental Transfert Technique Ltd., a Nigerian corporation, initiated arbitration against Nigeria’s Ministry of the Interior in a dispute relating to the creation of a computerized residence permit and alien card system.

In 2008, a London arbitration awarded Continental ₦29.6 billion in Nigerian naira in damages—in today’s dollars, more than $82 million—along with $247,500 in legal fees and expenses, and more than £253,000 in arbitral costs.

Continental sought enforcement under the District of Columbia Uniform Foreign Money Judgments Recognition Act at the U.S. District Court for the District of Columbia.

The U.S. federal court confirmed the arbitral award under the New York Convention pursuant to Federal Arbitration Act, recognized the arbitral judgment under the D.C. Recognition Act, converted the award into U.S. dollars, and awarded Continental pre- and post-judgment interest. Nigeria appealed to the D.C. Circuit, arguing that the U.K. court’s order was not a “judgment” under the D.C. Recognition Act and that the U.K. award was obtained fraudulently because Continental had not informed the London court ordering enforcement about a Nigerian court’s restraining order.

The D.C. Circuit, relying on Church of Scientology of California v. United States, 506 U.S. 9, 12 (1992), held that it had no authority to decide legal questions if its judgments cannot provide redress. Since Nigeria had not presented any challenge to the arbitral award’s confirmation under the New York Convention, the court had no appellate jurisdiction to hear Nigeria’s challenges regarding the District Court’s recognition of the U.K. judgment under the D.C. Recognition Act.

Nigeria’s remaining challenges, the D.C. Circuit held, were without merit. For instance, the court, relying on Rule 54(c) of the Federal Rules of Civil Procedure, held that conversion of arbitral awards from a foreign currency into U.S. dollars was warranted even though such relief was not explicitly requested by Continental in its complaint.

11. Nat’l Treasury Employees Union v. Fed. Labor Relations Auth., 754 F.3d 1031 (D.C. Cir. 2014)(available at https://bit.ly/2KOB6Up).

The union petitioned the court for review of the respondent’s determination that overruled an arbitrator’s finding of unfair labor practices against the employer, the Internal Revenue Service, in a dispute over workloads.

In a unanimous panel decision that Kavanaugh joined, the D.C. Circuit held that the Federal Labor Relations Authority correctly determined “that the IRS did not make any unilateral change” in the work rules, a holding “consistent with the Arbitrator’s factual finding that the IRS ‘divide[d] up an ever-growing pool of cases among virtually the same number of existing Case Advocates without making other reasonable adjustments.’” [Citation to the arbitration decision omitted.]

That, the opinion said, “was the critical finding,” under authority precedent, and required no notice to the union or opportunity to bargain.  “The IRS responded to outside factors,” according to the D.C. Circuit, “but initiated no change of its own to its policies, practices, or procedures.”  It denied review of the petition and didn’t reinstate the arbitrator’s unfair practices determination.

12. Oakey v. U.S. Airways Pilots Disability Income Plan, 723 F.3d 227 (D.C. Cir. 2013) (available at https://bit.ly/2L3cs1u).

This is another opinion in which Kavanaugh joined a panel decision but did not write it.  The decision affirms a federal district court’s dismissal of a claim arising under the Employee Retirement Income Security Act for lack of jurisdiction because the claim is grounded in the application and interpretation of a collective bargaining agreement, and would need to be arbitrated if it is unable to be resolved informally.

The appeals panel held that the former pilot Oakey’s dispute fell under the Railway Labor Act, which has been applied to disputes between air carriers and their employees since 1936 and includes a mandatory arbitration provision, depriving the district court of jurisdiction.

Petitioner Oakley submitted a claim for disability benefits under a company plan to the retirement board, which approved the claim effective Jan. 30, 2002. In January 2003, US Airways notified Oakey he was to be “furloughed” on Feb. 4, 2003, as part of a fleet reduction. In March 2003, the plan administrator advised Oakey that, based on his furlough date, his disability benefits had terminated on Feb. 4, 2003.

In November 2003, Oakey filed an action under ERISA against US Airways and the plan for benefits allegedly owed to him. Oakey’s complaint asserts that that the 1997 Amendment was ineffective because it was not signed by an Air Line Pilots Association representative, and that as a result, Oakey’s disability coverage was governed by a 1975 Disability Plan, which didn‘t terminate benefits upon an employee’s furlough.

The district court granted the plan’s motion–on the ground that the RLA’s mandatory arbitration provision deprived the district court of jurisdiction–and dismissed the action in March 2012. Oakey v. U.S. Airways Pilots Disability Income Plan, 839 F. Supp. 2d 225 (D.D.C. 2012).

Upon de novo review of the district court’s grant of a motion to dismiss for lack of subject matter jurisdiction, the D.C. Circuit appellate panel, joined by Judge Kavanaugh, affirmed.

The appeals panel cited earlier opinions in which it addressed the interplay between the RLA and ERISA and “concluded that the latter (and later-enacted) statute, notwithstanding its broad preemption of state law remedies, has no preemptive effect on other federal enactments—including the RLA.” Air Line Pilots Ass’n Int’l v. Northwest Airlines Inc., 627 F.2d 272 (D.C. Cir. 1980)(emphasis is in the opinion).

Given the “strong, comprehensive, express statement that ERISA is not to be read as displacing by implication any pre-existing federal legislation,” the Northwest court concluded that ERISA has no effect on RLA Section 204’s “mandate[ that] the carrier or the union [] refer disputes over the application or interpretation of bargaining agreements covering [rates of pay, rules, or working conditions’ terms including employee pensions], if they cannot be resolved informally, to arbitration.” Id. at 275-76 (quoting 45 U.S.C. § 184)(emphasis in the opinion).

Oakey argued that even if Northwest’s preclusion rule survives, it does not apply to his case because, he contended, that for the rule to apply (1) the claim must involve interpretation or construction of the collective bargaining agreement’s terms, and (2) the interpretative issue must be dispositive or conclusive of the claim.

The Court rejected this argument, holding that Oakey’s dispute, over which version of the plan agreement controls, is plainly such a dispute: regardless of the version of the plan agreement is controlling, its interpretation or application governs the outcome.

13. Belize Soc. Dev. Ltd. v. Gov’t of Belize, 668 F.3d 724 (D.C. Cir. 2012)(available at https://bit.ly/2ufkwTa).

Kavanaugh was in the minority in a 2-1 panel decision backing a writ of mandamus to end a stay of enforcement for an arbitration award.

In his dissent, Kavanaugh wrote that he would dismiss the appeal for lack of appellate jurisdiction and deny the petition for a writ of mandamus.

The case involved a petition to confirm and enforce a London arbitration award against the Government of Belize. The D.C. Circuit panel reversed a federal district court order to stay the proceeding pending the outcome of related litigation in Belize.

Following the respondent’s request, the appellate court opted to treat the appeal as an application for a writ of mandamus. The circuit court concluded that the stay order exceeded the district court’s proper exercise of authority and remanded the case for further proceedings.

In his dissent, Kavanaugh wrote that a mandamus order by the court was an unnecessary step that should be reserved for extraordinary situations. “Even if we think the District Court erred under the Federal Arbitration Act by entering a temporary stay,” he wrote, “its error was hardly ‘extraordinary.’ Mandamus for this case is akin to using a chainsaw to carve your holiday turkey. Indeed, if you ask me which is the more extraordinary–the District Court’s temporary stay or this Court’s invocation of mandamus jurisdiction under these circumstances–I would say the latter.”

14. New York & Presbyterian Hosp. v. N.L.R.B., 649 F.3d 723 (D.C. Cir. 2011) (available at https://bit.ly/2uBhNDd).

 A unanimous D.C. Circuit panel in which Kavanaugh joined rejected arguments by a New York hospital that an NLRB review of an arbitration agreement, backing a finding of a National Labor Relations Act violation, was erroneous. Kavanaugh was not the author of the opinion which supported a determination in favor of a union.

The case provided an interesting look at pre-ADR discovery.

The panel unanimously rejected the New York & Presbyterian Hospital’s petition for review of a decision and order by the NLRB, which found the Hospital in violation of National Labor Relations Act Section 8(a)(5) (at 29 U.S.C. § 158(a)(5)), for failing to produce information requested by the labor union with which the hospital has a collective bargaining agreement, the New York State Nurses Association.

The petition arose from an alleged violation of the collective bargaining agreement. In 2004, the union filed a grievance alleging that the hospital hired nurse practitioners in a nonunion capacity to do bargaining unit work. The employer denied the grievance on May 18, 2005, explaining that the nurse practitioners were “not Hospital employees” and thus did “not fall within the Hospital’s span of control nor [were] they governed by the Hospital’s Policies and Procedures.

NYSNA subsequently filed an unfair labor practice charge with the NLRB against both the Hospital and Columbia University. (The Hospital is affiliated with Columbia University School of Medicine, the opinion notes, adding that nearly all of its physicians are members of Columbia’s faculty and employed directly by Columbia.)  The charged alleged that they were “a single employer or alter egos of one another” responsible for “restrain[ing] and coerc[ing] nurse practitioners at [the Hospital] in exercising their Section 7 rights by employing nurse practitioners to work at [the Hospital] under terms and conditions of employment different from those specified in the collective bargaining agreement . . . covering nurse practitioners who work at the hospital.”

Acting pursuant to board policy, the NLRB’s regional director deferred consideration of the union’s unfair labor practice charge to the arbitration over NYSNA’s grievance. Columbia then informed the union and the hospital that, as a nonsignatory to the collective bargaining agreement, it did not intend to participate in the arbitration.

In preparing for the arbitration, the union made a number of information requests concerning the employment of nurse practitioners who were not designated as union-represented employees working on the hospital premises, but the hospital refused to provide the documentation.  And the arbitrator apparently failed to decide whether the hospital was obligated to produce the requested information.

An administrative law judge subsequently determined that the hospital was obligated to turn over the requested information. The hospital sought review in court, and the NLRB cross-applied for enforcement of its decision and order.

The hospital argued that union failed to demonstrate the relevance of its request; attacked the evidentiary foundation of the Board’s decision and order, and raised a number of additional arguments. But the majority, joined by Kavanaugh, rejected the Hospital’s arguments and denied its petition for review.

15. Winston & Strawn, LLP v. Doley, 384 F. App’x 1 (D.C. Cir. 2010) (unpublished decision available on Westlaw https://bit.ly/2LbfPn9).

Kavanaugh joined a panel decision that affirmed a district court order denying a motion for reconsideration of its summary judgment ruling. In the unpublished opinion, the Court rejected the contention of clients of the Winston & Strawn law firm that the district court erred in not staying the litigation proceedings to allow arbitration to go forward.

The Court held that this argument failed under the rule established in Khan v. Parsons Global Services, Ltd., 521 F.3d 421 (D.C.Cir.2008)–that a party is deemed to have waived the right to compel arbitration if it actively participated in the lawsuit.

Because at the time the client-appellants filed their motion to stay proceedings they already had filed a Federal Rule of Civil Procedure 12(b)(6) motion, the appellants already were actively participating in the suit, and the district court did not err in holding that they had waived their right to compel arbitration.

16. Verizon Washington, D.C. Inc. v. Communications Workers of Am., AFL-CIO, 571 F.3d 1296 (D.C. Cir. 2009) (available at https://bit.ly/2L3un8b).

A panel opinion in which Kavanaugh joined but didn’t write reinstated an arbitrator’s award in favor of union employees which had been overturned by a federal district court. The opinion said that the arbitrator’s award for the union and against Verizon had properly drawn its essence from the collective bargaining agreement in a case under a section of the Labor Management Relations Act of 1947 at 29 U.S.C. § 185(a).

17. Cephas v. MVM Inc., 520 F.3d 480 (D.C. Cir. 2008).

This unanimous panel decision Kavanaugh joined was about a statute of limitations issue that would allow a worker to proceed with a grievance against his employer under a collective bargaining agreement.

A federal district court rejected the filing as out-of-time under, respectively, the Labor Management Relations Act, because it “preempts a claim for breach of a CBA cast in terms of state contract law,”  and the National Labor Relations Act.

But the panel said that the lower court got the applicable limitation period wrong, and ruled it was in the District of Columbia Code. The ruling allowed the grievance by the employee—a federal court worker employed by a government contractor–to proceed, possibly to arbitration. 

18. Am. Postal Workers Union v. U.S. Postal Serv., 550 F.3d 27 (D.C. Cir. 2008)(available at https://bit.ly/2mdhomh).

In a case involving the arcane collective bargaining issue of classifying work roles in bargaining units, a unanimous panel in an opinion in which Kavanaugh joined but did not write conducted a de novo review supporting the arbitrator’s classification. The question was about the interpretation of the award, not its validity. The opinion noted the award was on the classification, not the work undertaken by the jobholder. It stated that the award had that focus, but, ultimately, the panel reversed the district court determination for a further inquiry on whether the award excluded disputed work, rather than the position, from the bargaining unit. 

19. Lessin v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 481 F.3d 813 (D.C. Cir. 2007)(available at https://bit.ly/2uclfVp).

Kavanaugh joined a panel decision affirming the District Court’s denial of petitioner’s motion to vacate an arbitral award in his favor because it didn’t approach the damages he sought, in a straightforward application of the Federal Arbitration Act.

In January 2000, the plaintiff transferred almost $5.3 million in Yahoo! Securities and a $2.1 million margin balance to his Merrill Lynch brokerage account. At Merrill Lynch he executed a Retail Account Profile stating that his investment objective was “growth” and that his risk tolerance was “aggressive.” Less than a year later, by October 2000, Lessin’s account had lost almost 100% of its value.

In February 2003, pursuant to a standard brokerage contract to arbitrate disputes before a panel of the National Association of Securities Dealers, plaintiff Lessin filed a statement of claim against Merrill Lynch and his broker for between $5 million and $10 million in compensatory damages as well as for punitive damages. The three-arbitrator NASD panel heard evidence over a six-day period. The panel found Merrill Lynch, but not the broker, liable to Lessin for nearly $33,000 in compensatory damages, and Lessin filed a motion to vacate the award in the D.C. Superior Court, which Merrill Lynch removed to the federal district court.

Reviewing the district court’s confirmation of the arbitration award for clear error as to findings of fact and de novo questions of law, the D.C. Circuit affirmed the district court’s denial of Lessin’s motion to vacate. The Court noted its limited jurisdiction to review arbitral awards under the Federal Arbitration Act, and rejected Lessin’s contention that the arbitration panel engaged in misconduct by refusing to hear pertinent and material evidence from one of his designated expert witnesses.

The panel also found no evidence on the record that the panel’s refusal to hear testimony from Lessin’s second expert deprived Lessin of a fair hearing, concluding that, given the evidence before the panel, Lessin failed to demonstrate that the award violated an explicit public policy.

20. Democratic Republic of Congo v. FG Hemisphere Assocs. LLC, 508 F.3d 1062 (D.C. Cir. 2007)(https://bit.ly/2Ji1L6p).

D.C. Circuit Judge Kavanaugh joined a panel affirming a federal district court’s denial of motions to vacate default judgments surrounding the enforcement of international arbitration awards, but he did not write the opinion.

FG Hemisphere’s predecessor-in-interest brought action in the district court against the Democratic Republic of Congo under the Foreign Sovereign Immunities Act, seeking to confirm arbitration awards it had secured against the DRC. The DRC failed to appear in court, and default judgment was entered against it in the cases September 2004 and January 2005. The district court denied the DRC’s subsequent motions to vacate the judgments. The D.C. Circuit reversed and remanded for further proceedings.

At that point, the DRC raised its objections about service of process. The lower court denied motions to vacate for faulty service.

The D.C. Circuit Court of Appeals affirmed the district court’s ruling, reasoning that the DRC had waived its right to challenge service of process pursuant to Rules 12(g) and 12(h)(1) of the Federal Rules of Civil Procedure. The DRC had participated in 13 months of post-default judgment litigation to hold off the judgment creditor’s execution against its properties before finally claiming inadequate service of process and making any mention of personal jurisdiction issues.

21. GTE South Inc. v. Morrison, 199 F.3d 733 (4th Cir. 1999)(available at https://bit.ly/2KRa8LT).

In addition to service in the White House under President George W. Bush, Kavanaugh was an attorney at Kirkland & Ellis before ascending to the D.C. Circuit. He participated as one of five Kirkland attorneys named on the brief for the appellant, GTE South Inc., in a Fourth Circuit case, GTE South, Inc. v. Morrison.  A total of 13 attorneys appeared on the brief from Kirkland, co-counsel Hunton & Williams, and the company. Kavanaugh was a team member and not the counsel of record.

At issue was the Virginia State Corporation Commission’s determination of prices in arbitration proceedings brought by new entrants into Virginia’s telephone markets. In an effort to end monopolies by local exchange carriers, Congress enacted the Telecommunications Act of 1996, which required local telephone companies that were monopolies to make available their facilities and services to would-be competitors at “just, reasonable, and nondiscriminatory” negotiated prices. If such negotiations failed, prices would be determined in arbitration before a state utility commission, such as the Virginia state corporation.

GTE, an incumbent company in this scenario, challenged the results of arbitration and filed suit against would-be competitors, Cox Fibernet Commercial Services Inc., AT&T Communications of Virginia Inc., and two MCI units, as well as the Virginia corporation’s commissioners, alleging that the state’s pricing decisions failed to meet the Telecommunications Act requirements. The district court granted summary judgment against GTE.

In its amended brief to the Fourth Circuit, the Kirkland team addressed the Supreme Court’s decision in AT&T Corp. v. Iowa Utils. Bd., 522 U.S. 366 (1999) (confirming FCC rulemaking power with respect to the Telecommunications Act) by arguing that the Federal Communication Commission’s pricing rules could not be applied retroactively.

Second, the team argued that Virginia pricing decisions violated the Telecommunications Act because the act’s plain terms required prices based on all of GTE’s costs, including the recovery of historical costs.

Third, if the rules applied retroactively to GTE, a remand to the Virginia corporation would be necessary.

Fourth, GTE argued that the court had to determine whether the FCC’s pricing methodology was at odds with the Telecommunications Act; if the court were to decide it lacked such jurisdiction, it should stay the appeal until deliberations on the substantive challenges to the rules were completed in the Eighth Circuit.

Finally, the amended brief contended that the Virginia corporation’s “Hatfield Model” pricing—a forward-looking methodology for estimating costs, differing from projections based on GTE’s actual past costs—violates the FCC’s requirements.

The brief was unsuccessful.  The Fourth Circuit affirmed the federal district court’s ruling for summary judgment against GTE, upholding arbitration agreements issued by the Virginia state corporation.  It held that the FCC’s pricing methodology and determinations were not precluded by any retroactivity principles and that the Virginia corporation appropriately relied on the best available information to set prices.

Bleemer edits Alternatives for the CPR Institute; Higgins is a student at the Northeastern University School of Law in Boston and a CPR Institute Summer 2018 intern. Somi, a student at Brooklyn Law School, also is a CPR Institute Summer 2018 intern.

Arbitration Practice After Epic Systems

By Russ Bleemer

Today’s U.S. Supreme Court decision backs the use of employer-imposed bars on class-action processes. See Epic Systems Corp. v. Lewis, No. 16-285 (opinion in the consolidated cases is available at https://bit.ly/2rWzAE8).  The case is summarized on this CPR Speaks blog here: https://bit.ly/2KEuXFN,   with Justice Clarence Thomas’s concurrence summarized the blog at https://bit.ly/2wYEKEB, and Justice Ruth Bader Ginsburg’s dissent examined on CPR Speaks here: https://bit.ly/2rXQFgT.

So what’s next?

Mandatory individual employment arbitration, with a waiver of class/collective processes, means simply that business can require employees to go it alone in addressing problems about the workplace.

A recent study found that mandatory arbitration use already had been soaring on its own over the long-term—see Alexander J.S. Colvin, “The growing use of mandatory arbitration,” Economic Policy Institute (April 6, 2018)(available at https://bit.ly/2HxgQUL–even as earlier studies found that employers prefer more conciliatory processes (see the Alternatives article cited below).

Employers surely will continue to restrict class processes.  For many, the ADR process was a sideshow to the ability to limit class actions. New employment arbitration programs will be faced with the same legitimacy questions that adopters over the past 20 years have had to address, and now, with the higher-profile, perhaps more worker skepticism.

Plaintiffs’ lawyers will be forced to assess new approaches for dealing with clients’ work problems without the prospects of bigger matters.

The bottom line, of course, is that leading lawyers on both sides have been ready for today’s decision in the consolidated cases. Both already have begun maneuvering while now facing the decision they are still analyzing.

* * *

The cases involve arbitration provisions that kick in due to class waivers which prohibit employees from joining class processes—litigation or arbitration—in favor of mandatory, predispute, individualized arbitration to resolve disputes with their employers.

The decision is actually on three cases—NLRB v. Murphy Oil (No. 16-307), from the Fifth U.S. Circuit Court of Appeals; Ernst & Young v. Morris (No. 16-300), from the Ninth Circuit, and the Seventh Circuit’s Epic Systems—that had been consolidated into the Court’s 2017-2018 term’s kickoff argument on Oct. 2, with four attorneys arguing the case on behalf of the parties in all three cases.

The long-contested issue began with the release in 2012 of an opinion by the National Labor Relations Board. The administrative decision, which found that class waivers illegally violated the National Labor Relations Act’s Sec. 7 allowing employees to take concerted action to confront their employer, was overturned repeatedly by the Fifth U.S. Circuit Court of Appeals in numerous cases.  See below.

The NLRB ruled that the class waivers 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.” The Fifth Circuit rejected that view on the ground it infringed on arbitration under the Federal Arbitration Act, a position strongly echoed today by the U.S. Supreme Court in the majority opinion written by Justice Neil Gorsuch.

The class waivers in question require workers, from collectively bargained rank-and file to executive suites, to address disputes with their employers in individual arbitration. While unions can agree to mandatory predispute arbitration on behalf of their members, the cases involved white-collar employees and nonunion workers with little bargaining power.

The Court had definitively permitted mandatory arbitration contract clauses accompanied by class waivers for products and services contracts where consumers have little or no bargaining power. See AT&T Mobility LLC v. Concepcion, 563 U. S. 333 (2011)(available at https://bit.ly/2KJc8RE).

The Federal Arbitration Act-focused decision today now settles how arbitration is used in workplace matters.

Cases challenging the class waivers that provided for mandatory arbitration flooded the federal courts, starting in the Fifth Circuit, which reversed the NLRB’s 2012 decision, In re D.R. Horton, 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013)(Graves, J., dissenting)(PDF download link at http://bit.ly/1XRvjrM), reh’g denied, No. 12-60031 (Apr. 16, 2014).

The Fifth Circuit became the venue of choice for employers seeking to reverse the NLRB’s finding that they had violated labor law by requiring class waivers and arbitration as a condition of employment. The New Orleans-based federal appeals court issued dozens of opinions countering in their reasoning, and then officially reversing in their holdings, the many NLRB decisions in which the board, an independent Washington agency, followed its D.R. Horton decision.  The reversal, however, only applied to law in the circuit in which the decision was made.

A circuit split emerged, from the Seventh and Ninth Circuits–first the Seventh Circuit’s Epic Systems Corp. v. Lewis (No. 16-285), which became today’s lead Supreme Court case won by the employer, then with the case of Ernst & Young v. Morris (No. 16-300), from the Ninth Circuit.

The Court accepted the cases, along with NLRB v. Murphy Oil (No. 16-307), one of those Fifth Circuit decisions reversing the NLRB–which itself is a party in the case–and then consolidated the three cases with Epic Systems as the lead more than a year ago.  The argument in the cases kicked off the Court’s current term on Oct. 2.

For details on the arguments, see the blog by Alternatives’ publisher, the CPR Institute, CPR Speaks, at Mark Kantor, “Supreme Court Oral Argument on NLRB Class Actions vs. Arbitration Policy,” CPR Speaks (Oct. 2)(available at http://bit.ly/2fLwU9C), and Russ Bleemer, “The Class Waiver-Arbitration Argument: The Supreme Court Transcript,” CPR Speaks (Oct. 3) (available at http://bit.ly/2yWjWuf).

Kantor noted that the NLRB’s ruling that mandatory arbitration teamed with class waivers were illegal might have disappeared on its own with Trump administration appointees now installed as commissioners ready to reverse the Obama-era D. R. Horton administrative decision.

Regardless, Kantor noted, “This dispute is a reminder that many aspects of arbitration in the U.S. are now a partisan political issue, with regulatory measures addressing arbitration shifting back and forth as political party control shifts back and forth.”

In his majority opinion, Gorsuch used almost the same language.  See the end of CPR Speaks post on the dissent and the majority reaction here: https://bit.ly/2rXQFgT

* * *

For now, today’s Supreme Court has cleared up history’s questions by resolving the overarching issue, with the details to be worked out in employment policies, ADR sessions and, eventually, courtrooms nationwide.

Still, how that plays out in practice is far more in question than it was even a few months ago.

Arbitration has been under attack recently for its frequent use of confidentiality provisions by the #MeToo movement.  The ADR process has been a target in high-profile matters such as Gretchen Carlson’s settlement with her former employer, Fox News.

Microsoft CEO Brad Smith announced that the company would stop using mandatory employment arbitration with respect to sexual harassment claims (which was shortly followed by Uber and Lyft) and legislation barring the process has been proposed. Elena Gurevich, “Predispute Arbitration Would be Barred for Sex Harassment Claims under Legislative Proposal,” CPR Speaks blog (Jan. 25)(available at http://bit.ly/2FUyv4V).

And yet, the license to use arbitration has produced unintended consequences for employers.  A class of employees decertified by a California federal court bombarded national health club 24-Hour Fitness with hundreds of individual arbitrations earlier in the decade, forcing the company to settle all at once.  The decertification–over the claims’ content and unrelated to the class waiver issue—pushed the company to be more aggressive about defending its arbitration clauses, though the Supreme Court didn’t accept its case as part of the consolidated cases decided today. Jessica Goodheart, “Why 24 Hour Fitness Is Going to the Mat against Its Own Employees,” Fast Company (March 13)(available at http://bit.ly/2pkDPIm)

That hardline stance may be an anachronism, despite apparent backing from the Supreme Court today. Employers five years ago were exhibiting a much stronger preference for “mediation and other interest-based processes over mandatory arbitration and other rights-based processes.” David B. Lipsky, J. Ryan Lamare and Michael D. Maffie, “Mandatory Employment Arbitration:  Dispelling the Myths,” 32 Alternatives 133 (October 2014)(available at https://bit.ly/2s11Aqd).

That article also questioned whether employees were increasingly being subject to mandatory arbitration.  And new data from the same source, the Cornell University ILR School—see Colvin article linked above–indicates that the number has soared, more than tripling since the 1990s.  According to Colvin, more than half of employers now have mandatory arbitration, both with and without class waivers, with more than half the nation’s nonunion workers covered by the agreements.  That’s up from only two percent in 1992. Alexander J.S. Colvin, “The growing use of mandatory arbitration,” Economic Policy Institute (April 6, 2018)(available at https://bit.ly/2HxgQUL).

Whether more workplace conflict is diverted to resolution methods via human-resource departments’ open-door policies or mediation remains to be seen.  But the growing presence of mandatory arbitration at least guarantees more court cases that will drill down into finer points involving arbitration use—the limits and parameters will be under scrutiny more than the extent of the practice.

Next up for the Supreme Court’s arbitration scrutiny is Oliveira v. New Prime Inc., No. 17-340, which will investigate whether courts or arbitrators decide the arbitrability of a case where Federal Arbitration Act Sec. 1 exemption removing a case from arbitration applies. The case, which will be heard in the fall, could authorize further expansion of the reach of class waivers and mandatory arbitration to independent contractors from today’s employees’ decision. Early speculation is that Epic Systems makes Oliveira an easy call for the employers.

And three weeks ago, the Court took a second arbitration case for next year, Lamps Plus Inc. v. Varela, No. 17-988, which will examine the issue of whether the Federal Arbitration Act “forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.”

Today’s Epic Systems decision will overshadow whatever happens in those cases for human resources executives and in employment lawyers’ offices for longer.  The battleground may move to legislatures.

* * *

Meantime, players on both sides have begun to assess it. They are elated—or searching for words, depending on their side of the employment fence.

Referring to the FAA, Cliff Palefsky, of San Francisco’s McGuinn Hillsman & Palefsky, who has represented employees in the 24- Hour Fitness litigation above, says that the Court “took a statute that Congress expressly said doesn’t apply to employment and used it to preempt the nation’s most significant labor and civil rights laws.”

Palefsky, who worked on an amicus brief filed in the consolidated cases on behalf of 10 labor unions and the National Employment Lawyers Association, and who is has been active on the employees’ side in the cases for years, says he’s still reviewing the decision, but adds, “It was an intellectually and legally indefensible political assault on worker’s rights.”

On the other side, Evan M. Tager, a Washington, D.C., Mayer Brown partner who has argued many arbitration cases on employers’ behalf, says, “The Court reaffirmed in the strongest possible terms that conditioning the enforcement of arbitration provisions on the availability of class-like procedures frustrates the purposes of arbitration and is not permissible absent a clear congressional command.”

Tager worked on Mayer Brown’s amicus brief on behalf of the U.S. Chamber of Commerce in the consolidated cases.  He also represented the petitioner in AT&T Mobility, and says he was glad that the Court decision today reasserted that case’s view that FAA Sec. 2 doesn’t save the NLRB’s view that class waivers violated public policy, which he notes was “indistinguishable” from the rule invalidated 2011 case.

Christopher Murray, an Indianapolis shareholder in Ogletree Deakins–the firm that brought D.R. Horton to the Fifth U.S. Circuit Court of Appeals where it was overturned, leading to today’s decision (the firm also submitted an amicus brief on behalf of trade associations in the consolidated cases)—says, “Today’s decision affirms what almost everyone already knew before the NLRB’s 2012 D.R  Horton decision: The NLRA has nothing to do with class-action procedures used by other decision makers to adjudicate claims under other statutes. Rather, the FAA gives parties the right to determine the procedures they’ll use in arbitration, including the right to arbitrate individually.”

Murray–who authored this month’s Alternatives cover story, “No Longer Silent: How Accurate Are Recent Criticisms of Employment Arbitration?” 38 Alternatives 65 (May 2018)(available at https://bit.ly/2rYmned), and who co-chairs his firm’s Arbitration and ADR Practice Group—adds, “This is a good decision for parties interested in any form of alternative dispute resolution because it confirms those parties are best situated to agree on the procedures to be used to resolve their disputes quickly, effectively, and fairly, and courts are generally not permitted under the FAA to second-guess those procedures.”

.

 

Russ Bleemer is the editor of CPR’s award-winning publication, Alternatives.

Future Challenges Nixed? Thomas Writes That Public Policy is Not FAA Illegality

By Russ Bleemer

There were two opinions in addition to the five-justice majority opinion this morning in Epic Systems Corp. v. Lewis, No. 16-285, covering three consolidated cases that declared that employers may require their employees to use mandatory individual arbitration to resolve workplace disputes, and waive their rights to class processes in either traditional litigation class actions, or in class arbitration processes.

[Our first blog post on the majority opinion here: https://bit.ly/2KEuXFN  Opinion here: https://www.supremecourt.gov/opinions/17pdf/16-285_q8l1.pdf.%5D

Justice Clarence Thomas, who joined the majority, wrote separately to explain why he believes that the Federal Arbitration Act Sec. 2 savings clause relied upon by the employees didn’t apply.

Thomas’s concurrence explains that the Sec. 2 ground for revocation of an arbitration agreement—“valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract” (9 U. S. C. §2)—concern the contract’s formation.

But the employees, Thomas writes, said the National Labor Relations Act makes the class waivers illegal, which is a public policy defense.

Because “‘[r]efusal to enforce a contract for public-policy reasons does not concern whether the contract was properly made,’ the saving clause does not apply here,” according to Thomas, quoting his concurrence in AT&T Mobility LLC v. Concepcion, 563 U. S. 333, 353, 357 (2011).

The position is a significant distinction and expands the majority opinion’s view that there was no Sec. 2 violation because the National Labor Relations Board interfered with a fundamental attribute of arbitration, also from AT&T Mobility.  Thomas’s position could be used by the Court to reject future challenges to arbitration contracts.

AT&T Mobility was the case in which the Court permitted mandatory individual arbitration with class waivers in consumer contracts.  Today’s Epic Systems decision mirrors AT&T Mobility in the workplace.

More on the Justice Ruth Bader Ginsburg-authored dissent soon.

 

Russ Bleemer is editor of CPR’s award-winning publication, Alternatives.

Court Backs Award for Class Arbitration, Refusing to Wait for Supreme Court’s Decision

By Shravanthi Suresh-Silver

A recent Wisconsin federal trial court decision backs confirmation of an arbitration award even though the defendant asked for it to be stayed until the class waivers-arbitration cases currently before the U.S. Supreme Court are decided.

The arbitrator in the case had backed a class arbitration process on behalf of employees, who said that the defendant, Waterstone Mortgage Corp., a Pewaukee, Wis.-based lender, failed to pay its loan officers overtime.

The three consolidated cases on waivers that ban class processes in favor of mandatory individual arbitration were argued together in the Supreme Court on Oct. 2. A decision on the relationship between the Federal Arbitration Act and the National Labor Relations Act is expected soon.

In Herrington v. Waterstone Mortgage Corp., No. 11-cv-779-bbc (U.S.W.D Dec. 4)(available at http://bit.ly/2BgULTT), U.S. District Court Senior Judge Barbara B. Crabb, based in Madison, Wis., concluded that plaintiff’s claims would have to be resolved through arbitration under the parties’ agreement, and that the NLRA gave the plaintiff the right to join other employees in her case.

Herrington also is notable because the court rejected an arbitrator bias argument and addressed claims that the arbitrator, former Second U.S. Circuit Court of Appeals Judge George Pratt, slept through key proceedings.

Plaintiff Herrington commenced arbitration on March 23, 2012, under her employment contract. Arbitrator Pratt issued an order determining that the arbitration could proceed as a collective action. Ultimately, the Wisconsin federal court opinion by Senior Judge Crabb notes, 174 class members opted into the arbitration.

On July 5, 2017, Pratt issued a final decision, holding that Waterstone was liable under the Fair Labor Standards Act for unpaid minimum wages and overtime and attorney fees and costs, but not liable under Wisconsin statutory or contract law. He ordered Waterstone to pay nearly $7.3 million in damages; $3.3 million in attorney fees and costs and an incentive fee of $20,000 to be paid to Herrington.

The plaintiff moved for confirmation of the award under 9 U.S.C. § 9 in the Wisconsin federal court, while the mortgage company moved to vacate or modify the award, asking Senior Judge Bragg to stay any action relating to the award until the U.S. Supreme Court reaches a decision in the consolidated cases of Ernst & Young LLP v. Morris; Epic Systems Corp. v. Lewis, and NLRB v. Murphy Oil USA Inc. (For more information on the cases, see CPR Speaks at http://bit.ly/2yWjWuf.). In the cases, the Court is considering whether class and collective action waivers in arbitration agreements violate the National Labor Relations Act.

The plaintiff countered by asking for sanctions against the defendant lender, arguing that the objections to the award’s confirmation were frivolous.

The court denied the defendant’s motions to stay and to vacate the arbitration award, as well as Herrington’s sanctions motion. The court confirmed the arbitration award, with one modification to correct the mathematical error identified by both parties.

In arguing to stay any action relating to the award until the Supreme Court reaches its decision in the consolidated cases, Waterstone suggested that if the Supreme Court concludes that class and collective action waivers do not violate the National Labor Relations Act, the defendant will be able to rely on that decision to file a motion under Federal Rule of Civil Procedure 60(b)(6) challenging Bragg’s March 2012 decision in the case striking the class waiver in the company’s employment agreement.

In noting that the defendant’s assumption was flawed, the Wisconsin court reemphasized that “a change in law showing that a previous judgment may have been incorrect is not an ‘extraordinary circumstance’ justifying relief under Rule 60(b)(6).” (Quoting Nash v. Hepp, 740 F.3d 1075, 1078 (7th Cir. 2014)(“Rule 60(b) cannot be used to reopen the judgment in a civil case just because later authority shows that the judgment may have been incorrect.” (Internal citation omitted.)), Bragg noted in her opinion that the defendant “made no attempt to explain why a change in the law would justify reconsideration of a decision made in this case five years ago.”

The court also noted that the ultimate decision allowing the case to proceed on a collective basis was made by Arbitrator Pratt, not the court. Bragg noted that Pratt said he was bound by her finding that the class waiver provision was invalid under the National Labor Relations Act.

But the opinion also says that Pratt found the employment agreement’s arbitration clause was ambiguous. Despite the waiver, he noted, the clause also stated that arbitration should proceed “in accordance with the rules of the American Arbitration Association,” which permits class arbitration.

The arbitrator noted that the defendant “at the very least created an ambiguity, which must be construed against [Waterstone,] the party who drafted the Agreement.”

The opinion says that the arbitrator “also noted plaintiff’s argument that the language of the so-called ‘waiver’ clause should actually be read as permitting class or collective arbitration, rather than prohibiting it, though the arbitrator chose not to resolve that dispute.”

Wrote Senior Judge Bragg,

In other words, the arbitrator’s discussion suggests that he believed there were independent bases for permitting collective arbitration, aside from this court’s previous decision. Thus, it is far from clear that the Supreme Court’s decision . . . would cause the arbitrator to change his decision to permit collective arbitration.

The court also stated that the case had been pending since 2011 and that it was not at an early stage. It was noted that a further delay would prejudice the plaintiff, who had been waiting several years through numerous delays to recover unpaid wages.

Additionally, despite the defendant’s assertion that a stay would “greatly simplify the issues and reduce the burden of litigation,” Bragg wrote that she was not persuaded that the Supreme Court’s decision will necessarily simplify the issues in this case, however it rules.

There were other significant issues. The defendant argued that Arbitrator Pratt “demonstrated bias in favor of plaintiff when he sent a survey to potential class members as part of his decision whether to certify a class.” The defendant stated that when the survey was submitted, discovery on class certification was closed and the arbitrator had said that the plaintiff’s evidence supporting class certification was insufficient.

Additionally, Waterstone argued that the phrasing of the survey was biased in favor of plaintiff.

But Bragg dismissed the bias claims.  She held that “there is nothing about the arbitrator’s decision to send out the survey and consider the responses that suggests bias in favor of plaintiff or against defendant.” The inquiries, the opinion noted, were “simply ‘yes’ and ‘no’ questions regarding the experiences of putative class members.”

Furthermore, the arbitrator permitted the parties to argue and brief their views regarding the survey, “and issued a written decision explaining his reasons for considering the results.” Pratt “later issued a well-reasoned 16-page written decision on class certification,” Bragg noted in her opinion, “explaining the survey results and his conclusion that the results supported class certification.”

Finally, the arbitrator was clear that he understood the evidentiary limitations of the survey results. Therefore, the court dismissed the defendant’s allegations of arbitrator bias.

The defendant also argued that the award should be vacated because Arbitrator Pratt “slept through portions of the evidentiary hearing,” the opinion says.

Waterstone argued that the arbitrator’s “alleged sleeping amounts to abdication of his duties and qualifies as misconduct sufficient to justify vacating the arbitration award,” the opinion says.

Senior Judge Bragg said she agreed with Plaintiff Herrington that if the defense believed Pratt slept during the hearing, it should have asked for a break. The court noted that there appeared to be a factual dispute regarding whether Pratt dozed. “To raise this issue now seems far too late,” the opinion says.

Bragg emphasized that even if the arbitrator dozed off, the defendant “had pointed to nothing suggesting that the arbitrator was prejudiced by the alleged napping.” While Waterstone claimed that Pratt slept during important testimony, it failed to identify any specific testimony that he missed.

In dismissing the defendant’s motion that the arbitration award should be vacated, the court noted that the defendant’s arguments about prejudice are based entirely on speculation.

* * *

The author is a CPR intern.

The Class Waiver-Arbitration Argument: The Supreme Court Transcript

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. 

Supreme Court Oral Argument on NLRB Class Actions vs. Arbitration Policy

By Mark Kantor

The US Supreme Court heard oral argument this morning in the three consolidated cases involving the policy of the National Labor Relations Board (NLRB) prohibiting arbitration clauses in employment agreements that bar class actions (Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris and National Labor Relations Board v. Murphy Oil USA).  The transcript of that oral argument will be available here later this afternoon – https://www.supremecourt.gov/oral_arguments/argument_transcript/2017

Many observers believe the Court’s decision in these cases will come down to Justice Anthony Kennedy’s vote.  For what it is worth, Reuters characterized Justice Kennedy’s questions as “pro-employer” (https://www.reuters.com/article/us-usa-court-labor/u-s-supreme-court-divided-over-key-employment-dispute-idUSKCN1C71RP).

Justice Anthony Kennedy, often the swing vote in major cases, asked questions that appeared to favor employers, as did two fellow conservatives, Chief Justice John Roberts and Justice Samuel Alito.

Kennedy indicated that a loss for workers would not prevent them from acting in concert because they would still be able to join together to hire the same lawyer to bring claims, even though the claims would be arbitrated individually. That would provide “many of the advantages” of collective action, Kennedy said.

See also Bloomberg’s take, which picked up on the same Kennedy comment –  https://www.bloomberg.com/news/articles/2017-10-02/justices-suggest-they-will-divide-on-worker-class-action-rights.

Anne Howe, the respected Court-watcher writing on her own blog Howe on the Court and on Scotusblog, started her review of the proceedings with her bottom line; “In the first oral argument of the new term, a divided Supreme Court seemed likely to uphold employment agreements that require an an employee to resolve a dispute with an employer through individual arbitration, waiving the possibility of proceeding collectively.” (http://amylhowe.com/2017/10/02/argument-analysis-epic-day-employers-arbitration-case/, republished at www.scotusblog.com/2017/10/argument-analysis-epic-day-employers-arbitration-case/#more-262296 ).

Not often noted in the analyses of these cases, the NLRB regulatory policy at issue in Epic Systems et al may in any event become moot.  Effective just a few days ago, the Board of the NLRB now has a Republican majority (http://fortune.com/2017/09/26/nlrb-labor-workers-rights-william-emanuel/).  Moreover, the incumbent NLRB General Counsel (a separate position appointed directly by the President, not the NLRB Board, and subject to Senate confirmation), who actually argued the cases for the NLRB, is scheduled to leave his post in November, thereby opening up that position to a Republican nominee who has apparently already been identified (http://www.insidecounsel.com/2017/09/19/peter-robb-trumps-pick-for-nlrb-general-counsel-is).  It would not at all be surprising for Republican control of the NLRB to result in a reversal of this NLRB policy, just as Democratic control of the NLRB led to promulgation of the policy in the first place.  This dispute is a reminder that many aspects of arbitration in the US are now a partisan political issue, with regulatory measures addressing arbitration shifting back and forth as political party control shifts back and forth.

More broadly, for those of you who feel that these individual employment cases (and similar measures by Federal regulators, under general regulatory statutes, preferring class actions in court over mandatory arbitration of individual claims) are not relevant to your commercial or investment arbitration practice, the precedential impact of a Supreme Court ruling overturning the NLRB’s pro-class action policy may extend far beyond employment and consumer-related claims.  Illustratively, for many years, the U.S. Securities Exchange Commission (SEC) has maintained an informal policy of refusing to register public offerings of stock by companies that include mandatory arbitration clauses in their charter documents for disputes between shareholders and the issuing company.  As a result, shareholder law suits (such as shareholder class actions) are brought in the US courts.

In July of this year, Republican SEC Commissioner Michael Piwowar stated publicly that the SEC is now open to the idea of allowing companies contemplating initial public securities offerings to include mandatory shareholder arbitration provisions in their company charter documents.  That idea, if implemented, could arguably kill off shareholder securities class actions in the US courts.  One might think that a Republican majority of Commissioners on the SEC would be amenable to changing the SEC’s shareholder claims policy barring arbitration.  It is not, however, yet clear whether the SEC’s new Republican Chairman Jay Clayton is also receptive to the idea. See  https://www.reuters.com/article/us-otc-arbitration/shareholder-alert-sec-commissioner-floats-class-action-killing-proposal-idUSKBN1A326T .

The SEC’s unwritten policy barring mandatory arbitration of shareholder claims came under interest group pressure in 2006-2007.  It was also the subject of several corporate efforts to cause a change in the SEC’s policy, most notably in connection with a 2012 proposed share offering by the Carlyle Group.  But the SEC policy survived due to inter alia push-back from the Democratic-controlled Congress.  A broad pro-arbitration decision by the US Supreme Court, rejecting the NLRB’s regulatory effort to preserve employment class actions by prohibiting mandatory arbitration, could easily have a significant impact on the SEC’s unwritten policy to deny registration of securities offerings covered by a mandatory arbitration provision in the issuer’s charter documents.

The SEC question is sure to trigger aggressive lobbying by both sides as it arises again – indeed, it has already done so in the blogosphere.  Illustratively:

For shareholder arbitration and against class actions  – http://clsbluesky.law.columbia.edu/2017/08/21/shareholders-deserve-right-to-choose-mandatory-arbitration/

Against shareholder arbitration and for class actions – http://clsbluesky.law.columbia.edu/2017/08/28/mandatory-arbitration-does-not-give-stockholders-a-choice/

 

Mark Kantor is a CPR Distinguished Neutral and a regular contributor to CPR Speaks. 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.

DOJ to NLRB: You’re On Your Own in the Supreme Court

CLASS WAIVER/MANDATORY ARBITRATION CASES

By Nicholas Denny

In the clearest illustration so far of the Trump Administration’s evolving hands-off policy toward mandatory arbitration clauses and class action waivers, the U.S. Solicitor General authorized the National Labor Relations Board (NLRB) last week to represent itself in one of three consolidated arbitration cases to be heard by the U.S. Supreme Court this fall.

At the same time, the U.S. Department of Justice, which had been representing the board in NLRB v. Murphy Oil USA Inc., No. 16-307 (U.S. Supreme Court docket page at http://bit.ly/2kOPxal) until last week, switched sides in the case, filing an amicus brief backing the employer in the matter.

Justice, via the friend-of-the-court briefs, is now advocating against the NLRB, and against its previous position.

The case—along with its companions, Ernst & Young v. Morris, No. 16-300 (Docket page at http://bit.ly/2kLxCEg) and Epic Systems Corp. v. Lewis, No. 16-285 (Docket page at http://bit.ly/2kFVxm6)—asks whether mandatory arbitration clauses as a condition of employment bar individual employees from pursuing work-related claims on a collective or class basis under the National Labor Relations Act (NLRA). Mandatory arbitration clauses are used throughout employment settings and apply to employees regardless of titles or union affiliation; two of the three cases involve white-collar office workers.

The Supreme Court will hear the consolidated cases in the term beginning in October.

The issue in the consolidated cases is whether employers can continue to unilaterally require that employees agree to a mandatory arbitration clause in employment contracts. Often, these clauses are non-negotiable: either employees accept the employer’s terms or the employer finds someone else to hire.

The Supreme Court must decide which of two laws controls: the National Labor Relations Act, 29 U.S.C. § 151, et seq., or the Federal Arbitration Act, at 9 U.S.C. § 1 et seq. Under the NLRA, an employee’s rights to collective bargaining and action are protected. Under the FAA, however, an employment contract that includes a mandatory arbitration clause binds the worker to arbitrate with the employer instead of litigating in court, and is accompanied by a waiver barring the employee from bringing a class-action suit in favor of an individualized process.

As a result, arbitration clauses can deliver a one-two punch: (1) workers arbitrating individually may have less power, because they are not operating as part of a collective whole as contemplated by the NLRA, and (2) a worker may be less likely to find counsel because arbitration awards are perceived to be much smaller than court and class-action outcomes—meaning a lawyer working for a portion of the settlement would be less likely to take the case.

On the other hand, employers contend that mandatory arbitration clauses protect the company and benefit the employee. They argue that arbitration clauses ensure a speedier and more cost-effective conclusion to conflicts: class actions are harder and more costly to fight than arbitrations.

The disagreement over the use of mandatory arbitration clauses has arisen in the political arena, too. While the Obama Administration focused on pro-employee, anti-mandatory arbitration policies that prohibited employers from unilaterally waiving workers’ rights to concerted action under the NLRA, the Trump Administration is leaning toward an employer-centric policy by permitting mandatory arbitration clauses in employment contracts and as a condition of hiring.

This drastic shift in policy culminated with Friday’s news that the NLRB will represent itself, and that the Department of Justice would switch sides. The NLRB, as an autonomous government entity, is tasked with protecting “the right of employees to engage in protected concerted activities—group action to improve wages, benefits, and working conditions and to engage in union activities and support a union,” according to its website, as well as protecting the right of workers to refrain from engaging in protected concerted or union activities.

While the Justice Department prosecutes on behalf of the nation as well as defends government agencies, it is exceedingly rare for it to withdraw its representation of an agency it had been representing and subsequently file a brief in opposition to the position had it previously taken.

The Justice Department amicus brief switching sides in Murphy Oil is available at http://bit.ly/2sUnFbL.  The NLRB’s June 16 announcement that it would represent itself without Justice Department support can be found on the board’s website at http://bit.ly/2traH2s.

The move, however, is consistent with another recent Trump Administration policy shift on arbitration. In early June, the Centers for Medicare and Medicaid Services, an arm of the U.S. Department of Health and Human Services, withdrew a 2016 Obama Administration position prohibiting mandatory arbitration clauses in long-term care nursing home contracts.

CMS’s new position allows arbitration agreements provided that the provisions are written in plain language, and explained to and accepted by the applying resident.  Among other conditions, the CMS requires that the nursing home retain a copy of the signed agreement and post a notice that details the nursing home’s arbitration policy.

In addition, House Republicans introduced the “Financial CHOICE Act” earlier this month, a proposed law that aims to dismantle the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank is an extensive law that was passed to ensure higher accountability in the U.S. financial sector after the economic recession of 2008 and it was endorsed by former President Obama.

Among its many goals, Dodd-Frank pointed its then-new Consumer Financial Protection Bureau at pre-dispute mandatory arbitration clauses in consumer finance contracts. A lengthy study concluded last year by the CFPB resulted in a promise to finalize regulations that would ban the use of predispute mandatory arbitration in consumer financial contracts, such as cellphone agreements.

But should the “Financial CHOICE Act” become law, it likely would allow financial institutions to include mandatory arbitration clauses in their consumer contracts and agreements, and negate the CFPB efforts.

President Trump’s stance on mandatory arbitration clauses is becoming clear. Whether the clauses are legal in the employment context, and whether they will withstand Supreme Court scrutiny, are developing issues that are expected to be answered within the year. Watch CPR Speaks for updates.


The author is a CPR Institute Summer 2017 intern.

Ninth Circuit Backs NLRB’s View Barring Mandatory Pre-dispute Class Waivers, Deepening a Circuit Split

By Ksenia Koriukalova

The Ninth U.S. Court of Appeals Monday joined the Seventh Circuit in supporting the position of the National Labor Relations Board against “concerted action waivers” in employment agreements

Morris v. Ernst & Young LLP, No. 13-16599 (9th Cir. August 22, 2016) (available at http://bit.ly/2bqiU0k) contributes to deepening the circuit split regarding the enforceability of class waivers that compel employees to take their employment disputes to individual arbitration.

Morris v. Ernst & Young was the first case in which the NLRB intervened as amicus curiae to urge the court to support its view on the issue, which has been rejected by the Fifth and Eighth Circuits, but backed by the Seventh Circuit in Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016) (available at http://bit.ly/1U8lhTW).

Lewis, the first in which the NLRB argued, caused the split.  The Lewis parties requested and received an extension to decide upon and prepare a petition for certiorari to the U.S. Supreme Court.  Arbitration experts and analysts expect that employer Epic Systems will file for an appeal sometime next month.

On Monday, in the 2-1 Morris opinion written by Chief Circuit Judge Sidney R. Thomas, the Ninth Circuit vacated a federal district court order compelling individual arbitration in a class and collective action brought by Ernst & Young employees.

The action was originally brought in New York for the alleged misclassification of employees and violation of the Fair Labor Standards Act. After the case was transferred to California’s Northern District, Ernst & Young filed a motion to compel arbitration in accordance with the agreements executed by the plaintiffs as a condition of their employment.

The agreements contained provisions requiring the employees to pursue their legal claims against the accounting and consulting giant exclusively through arbitration, and to arbitrate only in their individual capacity and in “separate proceedings.”

The plaintiffs argued that the “separate proceedings” clause of their agreements violated federal law, in particular the National Labor Relations Act, or NLRA. The district court granted the employer’s motion to compel individual arbitration. The appellate court disagreed with that decision.

For full details on the November 2015 Morris argument in the Ninth Circuit, as well as information on the background of the case and resources on the class waivers-NLRA issue, see “Cutting Arbitration Classes: Facing Court Defeats on Workplace Waivers, the NLRB Refuses To Back Down,” 34 Alternatives 1 (January 2016)(available at http://bit.ly/2c3hewf).

This week, the Ninth Circuit overturned the district court decision and joined the Seventh Circuit view that class waivers mandating arbitration violate federal labor law.

Specifically, the Ninth Circuit panel held that by requiring employees to sign agreements containing “concerted action waivers,” the employer interfered with the employees’ “essential, substantive right” to “engage in concerted activity” granted by the NLRA § 7.

The panel relied on the NLRB’s decision D.R. Horton, Inc., 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012)(PDF download link at http://1.usa.gov/1IMkHn8), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013) (Graves, J., dissenting)(PDF download link at http://bit.ly/1XRvjrM), reh’g denied, No. 12-60031 (Apr. 16, 2014).

In its original D.R. Horton decision, the NLRB concluded that an employer’s requirement that an employee sign a waiver as a condition of employment violated the NLRA. The Ninth Circuit analyzed NLRA § 7, which establishes an employees’ rights to engage in concerted activities, and NLRA § 8, which enforces collective action rights.  The circuit appeals court agreed with the NLRB’s D.R. Horton interpretation of these statutory provisions.

“This case turns on a well-established principle,” wrote Chief Circuit Judge Thomas, “employees have the right to pursue work-related legal claims together.  . . . Concerted activity—the right of employees to act together—is the essential, substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in ‘separate proceedings.’” [Citations omitted.]

Moreover, the Ninth Circuit also held that the application of the Federal Arbitration Act did not change its conclusion. The panel found that the requirement to pursue legal claims against an employer in “separate proceedings” violated the NLRA, irrespective of whether employees were required to bring their complaints in arbitration or in court.

Circuit Judge Sandra Ikuta dissented, concluding that that the arbitration agreements signed by Ernst & Young employees were enforceable, because the NLRA did not contain a “contrary congressional command” overriding the FAA.

Morris v. Ernst & Young deepens the circuit split on enforceability of class action waivers in employment agreements. In addition to D.R. Horton, the Fifth Circuit also has reversed the NLRB’s decision repeatedly, most notably in Murphy Oil USA Inc., Case 10–CA–038804, 361 NLRB No. 72, 2014 WL 5465454 (Oct. 28, 2014) (PDF download link at http://bit.ly/1LVnR8d), enforcement denied in relevant part, 2015 WL 6457613 (5th Cir. Oct. 26, 2015)(PDF download link at http://bit.ly/1TMfDFO).

The Eighth Circuit followed the Fifth Circuit’s view in Cellular Sales of Missouri LLC v. NLRB, 824 F.3d 772 (8th Cir. 2016).  Earlier the Second Circuit also found class action waiver provisions in employment-related arbitration agreements to be enforceable. (see Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013)) But the viability of Sutherland decision is in question following the oral argument in Patterson v. Raymours Furniture Co. heard by the Second Circuit this past Friday.

The Seventh Circuit supported the NRLB’s interpretation in Lewis v. Epic Systems Corp., where the appeals court reaffirmed the NLRB’s position that class action waivers contained in arbitration agreements employees were required to sign as a condition of their employment violated the NLRA.

Monday’s Ninth Circuit Morris decision is powerful support for Lewis. As a result, while the concerted action waivers in employment-related agreements are considered incompatible with the federal labor law in the Seventh and the Ninth Circuit, the Fifth, the Eighth and the Second Circuits render them enforceable–that is, until the Supreme Court of the United States addresses the issue of the compatibility of the NLRA and the FAA nationwide.

The author is a Fall 2016 CPR Legal Intern. And please stay tuned: there will be more on the Patterson case posted here before the weekend! 

2nd Update*: Class Waivers and Arbitration: The Battleground Focus Moves to Labor and Employment Law

*The area of class action waivers and employment law saw an absolutely whirlwind close to 2015, with the NLRB releasing yet another decision midday, on 12/31, following two weeks that saw 16 decisions restricting arbitration practices. Please see below for an up-to-date summary of these rapidly breaking developments.

By Russ Bleemer

The emphasis on the law and politics of consumer arbitrations, and their relationship to class waivers, has overshadowed developments in another closely related area of conflict resolution law.

But the time has come for finality on the legality of employment law class-action waivers.  Developments in 2015’s final quarter indicate that decisive events are coming in the area, which involves the intersection of U.S. labor law and the Federal Arbitration Act.

On the first day of December, the National Labor Relations Board issued two decisions finding labor law violations against companies for using mandatory pre-dispute class action waivers with their arbitration agreements requiring individual processes.  The waivers, the NLRB said, violate Sections 7 and 8 of the National Labor Relations Act, which allows employees, among other things, “to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

That was only the beginning:  By Christmas, the NLRB had issued at least 16 more decisions striking down mandatory pre-dispute arbitration clauses that coupled class waivers as a condition of employment.

The decisions are crucial because the rights of collective action under the NLRA address far more than union workplaces. The law applies to most employees, and key cases that have arisen in this area focus on white-collar employees.

It’s a major statement by the Board. The NLRB decisions’ reasoning—that the NLRA and the FAA co-exist compatibly but the latter isn’t preferred over workers’ rights to act in concert—had already been rejected by the Fifth U.S. Circuit Court of Appeals.  Twice, in fact, including in a decision just five weeks before the December Board decisions, in Murphy Oil Inc. v. NLRB, No. 14-60800, 2015 WL 6457613 (5th Cir. Oct. 26, 2015).

The Fifth Circuit relied on the U.S. Supreme Court’s high-profile consumer-contract arbitration decision–AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), along with the business-to-business class waiver in American Express Co., et al. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013)—to justify rulings that mandatory individualized arbitrations are authorized by the FAA.

Consumer arbitration controversy has rolled over into politics in 2015, when the Consumer Financial Protection Bureau moved to regulate the process by barring waivers of all class processes. Congressional Republicans introduced legislation to hamper the regulation efforts directly, as well as defund the federal agency.

In November, the NLRB said it would request a rehearing in Murphy Oil, but it did not appeal the Fifth Circuit reversal of its first case on the subject, D.R. Horton Inc., 357 NLRB No. 184, 2012 WL 36274 (Jan. 3, 2012), enforcement denied in relevant part, 737 F.3d 344 (5th Cir. 2013) (Graves, J., dissenting), reh’g denied, No. 12-60031 (Apr. 16, 2014).

December’s stream of cases from Board decisions backing its Murphy Oil and D.R. Horton decisions mostly occurred mid-month, leading up to Christmas.  But for good measure, just hours before the close of business on Dec. 31, the Board added its final 2015 decision, again affirming its view in the cases already rejected by the Fifth Circuit.  The decision, GameStop Corp., 363 NLRB No. 89, 20-CA-080497 (Dec. 15, 2015), went even further, affirming a line in those cases barring class waivers in employment arbitration agreements that provide an “opt out” allowing employees to waive participation in the ADR scheme.

“Regardless of the procedures required, the fact that employees must take any steps to preserve their Section 7 rights burdens the exercise of those rights,” the decision states.

It’s clear that the NLRB, an independent federal agency that oversees workplace conduct by enforcing the National Labor Relations Act, is picking and choosing its battles, which experts on both sides of the argument agree will be finalized by a U.S. Supreme Court decision.  The NLRB appears to be seeking a suitable case to ask the Supreme Court to hear, unloading years of litigation in December sourced from a variety of forums that reject the FAA’s predominance over the NLRA.

And while it awaited Murphy Oil’s Fifth Circuit fate, and while preparing the Board decisions it released in December maintaining its insistence on the NLRA’s vitality in the face of required arbitration clauses, the NLRB for the first time filed an amicus brief in a court case on the subject in the Ninth U.S. Circuit Court of Appeals, in Morris v. Ernst & Young LLP, No. 13-16599.

The November filing, just a week after the Fifth Circuit decided Murphy Oil, noted that the Board would seek en banc review of that decision, and strongly defended its own D.R. Horton/Murphy Oil lineage.

At the oral argument on Nov. 18, Ninth Circuit Judge Andrew D. Hurwitz prodded the attorneys on both sides to come up with a formula for NLRA and FAA co-existence.  He suggested severing the waiver clause, but keeping arbitration decisions for a tribunal, rather than blowing up the entire ADR process in favor of litigation.

The Ninth Circuit argument also dissected the class rights being waived by the pre-dispute mandatory arbitration agreement in the context of Federal Rule of Civil Procedure 23, which establishes the ground rules for court class actions.

The details on the December NLRB decisions; the Fifth Circuit’s Murphy Oil reversal; the NLRB Morris amicus filing, and highlights of the Morris oral argument are the subject of the January 2016 cover article in Alternatives, out this week.

Alternatives is available HERE for CPR Institute members after logging into the CPR website.  The newsletter, marking its 33rd year of publication with the January issue, is available to nonmembers at altnewsletter.com.

 

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