2021-2022 SCOTUS Arbitration Wrap-Up

June 16 Scotus Arbitration Cases Wrap-Up

The U.S. Supreme Court yesterday wrapped up its arbitration docket with a decision in Viking River Cruises v. Moriana, No. 20–1573.

That was the last of five arbitration matters scheduled, argued, and decided in the 2021-2022 Court term. It’s an unprecedented amount of cases in the area closely watched by the CPR and ADR communities, even in a term which, to be sure, has been characterized by controversial cases involving emergency orders on Covid-19 vaccinations, and forthcoming decisions on immigration, gun rights, and abortion.

We were joined today by members of our recurring, occasional YouTube panel to talk about Viking River Cruises and the other cases in an attempt to sum up the substantial and substantive arbitration instruction that has emerged from the nation’s top Court over the past several weeks in the five opinions.

University of North Texas Dallas College of Law Professor of Practice and Assistant Director of Experiential Education Angela Downes and veteran Texas attorney-arbitrator Richard Faulkner provide the insight.

With six SCOTUS subjects, there’s a lot of quick references to the cases.  You can find the background case histories in previews, argument analysis, and dissections of the opinions on CPR Speaks here.

And here’s a quick guide to our CPR Speaks decision analysis for each case (containing links to our historical coverage), in the chronological order of Supreme Court decisions:

  • Badgerow v. Walters, No. 20-1143 (March 31), on the limits of federal court jurisdiction under the Federal Arbitration Act. (on CPR Speaks here).
  • Morgan v. Sundance Inc., No. 21-328 (May 23), holding that a party resisting arbitration seeking to show its adversary waived its arbitration right need not prove that the adversary prejudiced the party by its actions (here).
  • Southwest Airlines Co. v. Saxon, No. 21-309 (May 30), holding an airport ramp supervisor qualifies for the Federal Arbitration Act Section 1 exemption from arbitration (here).
  • ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401 (June 13) consolidated with AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign States, No. 21-518 (June 13), holding that 28 U.S.C. § 1728 cannot be used in aiding discovery efforts for overseas arbitration tribunals (here and here).
  • Viking River Cruises Inc. v. Moriana, No. 20–1573 (June 15), holding that the Federal Arbitration Act mostly preempts California’s Private Attorneys General Act of 2004 in that employees who have agreed to mandatory arbitration must arbitrate their individual PAGA claims (here).

The above video can be found directly on YouTube at https://youtu.be/KFV8xIvA_o8.

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Supreme Court Limits California’s PAGA Law on Employment Claims, Preempting It in Part under the Federal Arbitration Act

By Arjan Bir Singh Sodhi & Russ Bleemer

The U.S. Supreme Court ruled this morning that employers may require their workers to arbitrate employment disputes under California’s Private Attorneys General Act, a 2003 law that allows Californians to file suit on behalf of the state for employment-law violations.  

The Federal Arbitration Act, the Court found today in Viking River Cruises Inc. v. Moriana, No. 201573, preempts at least in part the California state PAGA law, which had been the source of tens of thousands of court claims in the face of arbitration requirements, according to an industry interest group formed to fight the PAGA arbitration ban.

This morning’s decision is available on the Supreme Court’s website here.

The dispute traces to the controversial California Supreme Court case of Iskanian v. CLS Transp. Los Angeles LLC, 327 P.3d 129 (Cal. 2014) (available at https://stanford.io/3ILcTY5), where the state’s top Court held “that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

Today’s majority opinion by Justice Samuel A. Alito Jr. does not fully invalidate PAGA, and takes issue with arguments on both sides. In fact, it leaves wiggle room for the California courts and legislature to tinker with PAGA to provide relief for what it terms “non-individual” claims that the original plaintiff no longer has standing to make under the decision.

But it strikes the Iskanian reasoning, and criticizes the PAGA statute’s orientation, noting that it isn’t clear on individual’s claims as opposed to representative actions.  Alito explains that representative actions under the law are not only those of the “individual claims” of employees who seeks to file suit for workplace claims under the state’s Labor Code, but also representative PAGA claims predicated on code violations “sustained by other employees.” The latter, under Iskanian, may not be subject to mandatory arbitration.

That didn’t sit well with the majority opinion, which contrasts PAGA’s single suit involving many claims but solely by an individual on behalf of the California Labor & Workforce Development Agency, as opposed to class-action cases which may involve many claims but also on behalf of many absent plaintiffs who are certified as a class. 

The bottom line is that the representative aspect of PAGA as it applies to arbitration was stricken in today’s Court decision, an 8-1 decision with two concurring opinions. There was a dissent by Justice Clarence Thomas, who maintained his longstanding view–a short dissenting opinion that he has issued on at least seven other occasions–that the Federal Arbitration Act doesn’t apply in state courts.

The results already are seen as a relief by California business interests, with the Iskanian arbitration bar eliminated.  Los Angeles-based Anthony J. Oncidi, a partner and co-chair, of Proskauer Rose’s Labor and Employment Department, writes in an email,

Employers all over California are rejoicing today with the news that this peculiar PAGA exemption from arbitration is finally gone. Employers should run, not walk, to take advantage of this significant new development by immediately reviewing and, if necessary, amending their arbitration agreements to encompass PAGA claims. And as for those employers who, for whatever reason, have not yet availed themselves of an updated arbitration program, this is just the most recent reason to consider doing so.

Another management-side attorney, Christopher C. Murray, an Indianapolis shareholder in Ogletree, Deakins, Nash, Smoak & Stewart, P.C., writes,

Today’s decision is, for now, a victory for employers with well-crafted arbitration agreements containing class action and representative action waivers and severability clauses. However, it’s a nuanced decision that leaves open a number of issues.  One is whether the California legislature can amend PAGA to give a plaintiff standing to bring a representative PAGA action even if the plaintiff cannot pursue an individual claim in the same action. In short, it’s unlikely that today’s opinion will be the final word on representative PAGA actions and arbitration.

[Murray co-chairs the Employment Disputes Committee at the International Institute for Conflict Prevention and Resolution-CPR, which provides this blog.]

“While today’s decision is disappointing and adds new limits, key aspects of PAGA remain in effect and the law of our state,” noted California State Attorney General Rob Bonta in a statement this afternoon. He added: “Workers can continue to bring claims on behalf of the State of California to protect themselves and, in many instances, their colleagues all across California. At the California Department of Justice, we will continue to stand with workers to fight for their rights everywhere.” (The full press release is available here.)

Today’s decision may serve to derail efforts to enact PAGA-like statutes in other states. Had the law stood in its entirety and its arbitration end-run survived, labor likely would have reinvigorated pushes in blue states to add similar laws. See, e.g., Dan Walters, “The Fight Over the Private Attorneys General Act,” Orange County [Calif.] Register (April 5) (available at https://bit.ly/3MOO7s5).

The PAGA law, according to employers, negated the effects of the U.S. Supreme Court cases of Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK), which authorized mandatory predispute arbitration, and AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at http://bit.ly/2VcI4mi), which permits mandatory arbitration backed with class waivers in consumer contracts.

The Court heard the oral arguments on March 30, the last of four arbitration cases argued in nine days at the nation’s top court. See Russ Bleemer, “Adding a Claim, and Avoiding Arbitration: The Supreme Court Reviews California’s Private Attorneys General Act,” CPR Speaks blog (March 30) (available at https://bit.ly/3NWMFoQ).

It’s also the last of the five arbitration cases the nation’s top Court has accepted and decided in its 2021-2022 term, following closely on Monday’s decision in consolidated international arbitration cases focused on cross-border discovery issues.  Links to reports on all of the U.S. Supreme Court decisions, as well as case previews and in-depth reviews of the arguments, can be found on the CPR Speaks blog here.

* * *

Under the PAGA law, employees may bring forth disputes on behalf of similarly situated workers who also allege employment violations. Angie Moriana, who worked as a sales representative for Viking River Cruises in 2016 and 2017, filed suit against the company in a representative action for alleged violations of California labor laws. Moriana alleged that Viking River Cruises violated California wage and hour laws. She had signed a pre-dispute agreement agreeing to file her claims in arbitration individually, and waiving her ability to bring a class action. As a result, Viking River Cruises sought arbitration.

In Iskanian in 2014, the California Supreme Court ruled that though PAGA suits are filed on behalf of the state, employees cannot forgo their ability to file these claims individually. The California Supreme Court decided Iskanian before the U.S. Supreme Court–showing its broad deference to the Federal Arbitration Act’s recognition of the enforcement of arbitration agreements–decided the Epic Systems mandatory employment arbitration case.

This Iskanian mandatory arbitration bar reasoned that PAGA plaintiffs represent the state as private attorneys general even though the state was not a party to the arbitration agreement. In Epic Systems v. Lewis, the U.S. Supreme Court held that mandatory arbitration agreements do not violate employees’ rights under Section 7 of the National Labor Relations Act. 

PAGA supporters argued that the law supplements the California Labor and Workforce Development Agency’s limited enforcement capability by allowing employees to enforce the state labor laws.  Employers contended that the inability to arbitrate workplace disputes cost money and jobs.

During the March 30 Supreme Court oral arguments (full CPR Speaks coverage at the link above), the court’s liberal justices were more animated, and appeared to back the California Supreme Court prohibiting mandatory arbitration of PAGA claims. Justices Sonia Sotomayor and Elena Kagan questioned why the state’s choice to enforce its workplace regulations should be overridden by the FAA, a statute now nearly a century old.

The Court conservatives did not share the same doubts. Contrary to Moriana’s assertion that requiring arbitration essentially waives a PAGA claim, Chief Justice John G. Roberts Jr. stated that a PAGA plaintiff does have a right to pursue the substantive claim, although through a different means. Today’s opinion author, Justice Alito, appeared to imply that the court’s Epic Systems decision supported finding arbitration agreements enforceable in the face of PAGA allegations.

* * *

Alito continued that line of reasoning in this morning’s decision, invoking the Court’s arbitration precedents, and discussing the expected characteristics of arbitration as a bilateral process, not a representative or class proceeding.

Alito criticized the California statute’s structure—”a PAGA action asserting multiple code violations affecting a range of different employees does not constitute ‘a single claim’ in even the broadest possible sense”—and noted that the law prohibited dividing the matter into the constituent individual and representative claims.

The opinion focused on the definitions of representative claims in bilateral arbitration.  It states that while precedents don’t hold “that the FAA allows parties to contract out of anything that might amplify defense risks,”  the practice makes “it . . . impossible to decide representative claims in an arbitration that is ‘bilateral’ in every dimension.” Alito wrote, “[O]ur cases hold that States cannot coerce individuals into forgoing arbitration by taking the individualized and informal procedures characteristic of traditional arbitration off the table.”

The federal-state law conflict, however, was elsewhere.  The majority opinion–in a section where Chief Justice Roberts, and Justices Brett Kavanaugh and Amy Coney Barrett, did not join with the majority—finds a conflict between PAGA and the FAA in PAGA’s “built-in mechanism of claim joinder.”  The Court says that Iskanian’s mandate of joinder of “aggrieved” employees’ “personally suffered” Labor Code violations “as a basis to join to the action any claims that could have been raised by the State in an enforcement proceeding” coerced parties’ PAGA claims out of arbitration.

The majority invoked its historic view of arbitration, holding that “state law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.”

Alito adds that PAGA allowed parties to avoid their agreement to arbitrate their individual claims after the fact and demand court or arbitration that exceeds the scope of the original agreement: “The only way for parties to agree to arbitrate one of an employee’s PAGA claims is to also ‘agree’ to arbitrate all other PAGA claims in the same arbitral proceeding.” [Emphasis is in the opinion.]

That aspect of the California law did not survive. “We hold that the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate,” Alito wrote. The agreement’s severability clause, the opinion concludes, allows Viking River Cruises to compel individual arbitration of respondent Moriana’s claims.

The opinion also dismisses Moriana’s non-individual claims, holding that, with the dismissal, Moriana no longer had standing, leaving those claims–still valid in the majority’s view–in limbo. Instead of court or arbitration, however, the opinion targets the law. Alito concludes, “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.”

* * *

In her concurrence, Justice Sotomayor picks up on the majority’s closing point as well as followed from her oral argument concerns about whether the FAA could eliminate claims chosen by the California Legislature for its constituents via PAGA.

First, she asserts that the majority “makes clear that California is not powerless to address its sovereign concern that it cannot adequately enforce its Labor Code without assistance from private attorneys general.”

But then, returning to Alito’s closing point that the nonindividual claims have no outlet due to Moriana’s apparent lack of standing under California law, Sotomayor agrees, noting that there are options:

Of course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word. Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of stat­utory standing under PAGA within state and federal con­stitutional limits.

Viking River Cruises, says Washington, D.C., arbitrator Mark Kantor, who closely follows the Court’s arbitration jurisprudence and previewed the case for CPR Speaks here, “leaves considerable scope for the California legislature to rework PAGA to reestablish a representative action that could survive FAA preemption and make a waiver of PAGA unenforceable, although possibly enforceable in an arbitral forum if the relevant employment agreements calls for arbitration.”

* * *

Justice Amy Coney Barrett’s additional opinion is brief but goes further–concurring in the judgment, at the same time stepping away from much of the majority’s discussion of representative and individual actions.

She concurs with Section III of the opinion, the FAA-PAGA conflict because of the California law’s mandatory joinder provisions that would bring representative claims to arbitration. Joined by Chief Justice Roberts and Justice Kavanaugh, Barrett writes that she agrees “that reversal is required under our precedent because PAGA’s procedure is akin to other aggregation devices that cannot be imposed on a party to an arbitration agreement,” citing four seminal Supreme Court cases including Epic Systems and AT&T Mobility (see above).

But her one-paragraph concurrence concludes, and could add fuel to moves by the California Legislature to reform PAGA in light of today’s decision:

I would say nothing more than that. The discussion in Parts II and IV of the Court’s opinion is unnecessary to the result, and much of it addresses disputed state-law questions as well as arguments not pressed or passed upon in this case.*

That asterisk is to a footnote, in which Justice Barrett adds, “The same is true of Part I,” which described the PAGA, Iskanian, and case histories.

Chief Justice Roberts dissented from the footnote, and joined in the Alito majority opinion for Parts 1 and III.

* * *

Sodhi, a former CPR intern, last month received his LLM at the Straus Institute for Dispute Resolution, at Malibu, Calif.’s Pepperdine University Caruso School of Law.  Bleemer edits Alternatives to the High Cost of Litigation for CPR.

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More on Section 1782: Why the U.S. Supreme Court Says the Law Doesn’t Permit Discovery Requests from International Arbitrations

By Tamia Sutherland & Russ Bleemer

Here is a deeper dive into today’s U.S. Supreme Court consolidated decision in ZF Automotive US Inc. v. Luxshare Ltd.No. 21-401, which was consolidated with and covers AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign StatesNo. 21-518. Does the new decision, which restricts discovery under a law aiding foreign governmental entities in U.S. courts, also limit discovery under the Federal Arbitration Act?

Our post covering the opinion from this morning can be found on CPR Speaks here.

In today’s unanimous 9-0 opinion, available here, the Court held that the use of 28 U.S.C. § 1782 for discovery in international proceedings was limited. “Only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under 28 U. S. C. §1782,” wrote Justice Amy Coney Barrett in her first arbitration decision since ascending to the bench in 2020, “and the bodies at issue in these cases do not qualify.”

The statute, as the opinion notes, “permits district courts to order testimony or the production of evidence ‘for use in a proceeding in a foreign or international tribunal.’”

Specifically, Section 1782 states:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.

Justice Barrett focused in the opinion on the phrase “foreign or international tribunal,” citing Black’s Law Dictionary and the Court’s only previous Sec. 1782 holding, Intel Corp. v. Advanced Micro Devices Inc., 542 U. S. 241  (2004) (available at https://bit.ly/3xKIMO5), which permitted discovery to a foreign tribunal but didn’t decide the arbitration-application issue. She parses the definitions individually of “foreign,” “international,” and “tribunal.”

Citing the U.S. government’s brief, which sought a limited use of the statute that didn’t include arbitration, Barrett writes,

“Tribunal” is a word with potential governmental or sovereign connotations, so “foreign tribunal” more naturally refers to a tribunal belonging to a foreign nation than to a tribunal that is simply located in a foreign nation. And for a tribunal to belong to a foreign nation, the tribunal must possess sovereign authority conferred by that nation.”

John B. Pinney, counsel to Cincinnati’s Graydon Head & Ritchey–who is counsel of record on an AlixPartners amicus brief urging the Court to accept the case on behalf of CPR, publisher of this blog (details here)–says that the government’s intervention in the case was pivotal. He cites the government brief and, in particular, Assistant Solicitor General Edwin Kneedler’s participation in the March 23 Supreme Court hearing.

“Between the lines,” notes Pinney in an email, “Kneedler’s argument on behalf of the United States did change the momentum of the proponents’ arguments as well as bolstering the opponents’ arguments.  . . . Justice [Stephen G.] Breyer, whose early questions seemed to put him in the proponent’s camp, appeared to move toward the opponents’ position during Kneedler’s argument when he made a comment that the well-heeled users of international arbitration could petition Congress if they wanted authorization for federal court judicial assistance.  In other words: the view that the operative phrase, ‘foreign or international tribunal,’ in Sec. 1782 ought not be expansively interpreted and that, as a result, it should be up to Congress to be clear if it truly wanted federal courts to have jurisdiction to provide discovery assistance for international arbitral tribunals.”

The Supreme Court opinion’s section on the meaning of the statutory wording concludes by excluding private matters, stating,

“[F]oreign tribunal” and “international tribunal” complement one another; the former is a tribunal imbued with governmental authority by one nation, and the latter is a tribunal imbued with governmental authority by multiple nations.

* * *

The opinion then compares 28 U.S.C. 1782 discovery to the Federal Arbitration Act. It notes that limiting the law’s use to “only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” referring to the Commission on International Rules of Judicial Procedure, which studied U.S. judicial assistance to foreign countries, and recommended improvements, including the law.

Barrett discusses the effects of adopting a broader reading, and, rejecting the plea, notes:

[T]he animating purpose of §1782 is comity: Permitting federal courts to assist foreign and international governmental bodies promotes respect for foreign governments and encourages reciprocal assistance. It is difficult to see how enlisting district courts to help private bodies would serve that end. Such a broad reading of §1782 would open district court doors to any interested person seeking assistance for proceedings before any private adjudicative body—a category broad enough to include everything from a commercial arbitration panel to a university’s student disciplinary tribunal. [The opinion cites petitioner ZF Automotive’s brief.]

An extension to private bodies of Section 1782 would create “significant tension with the FAA” because the discovery allowed under Section 1782 is broader, Barrett explains.

But in discussing the contrast, the passage that followed also appears to refine the FAA’s use, and is sure to raise questions about the limits among veteran practitioners:

Among other differences, the FAA permits only the arbitration panel to request discovery, see 9 U. S. C. §7, while district courts can entertain §1782 requests from foreign or international tribunals or any “interested person,” 28 U. S. C. §1782(a). In addition, prearbitration discovery is off the table under the FAA but broadly available under §1782. See Intel, 542 U. S., at 259 (holding that discovery is available for use in proceedings “within reasonable contemplation”).

“This wouldn’t be the first time the Court made arbitration law via dicta,” notes Fordham University School of Law adjunct George H. Friedman, a former longtime senior vice president of dispute resolution at FINRA in an email, adding, “Manifest disregard” [which had been used in addition to FAA Sec. 10 to overturn awards] was announced via dicta in Wilko v. Swan back in 1953.” For more on the Court’s FAA gloss, see George H. Friedman, “SCOTUS Decides ZF Automotive: Yet Another Unanimous Decision, This One Holding that Section 1782 Discovery in Foreign Arbitrations Applies Only to Governmental Tribunals,” Securities Arbitration Alert (June 13) (available here).

Barrett concludes the Court’s Section 1782 definition by noting,

§1782 requires a “foreign or international tribunal” to be governmental or intergovernmental. Thus, a “foreign tribunal” is one that exercises governmental authority conferred by a single nation, and an “international tribunal” is one that exercises governmental authority conferred by two or more nations. Private adjudicatory bodies do not fall within §1782.

* * *

In looking at the facts in the two arbitration cases on appeal to the Supreme Court, the opinion analyzed whether the “adjudicative bodies” were “governmental or intergovernmental,” concluding that the matters were private arbitration, and not subject to Section 1782 discovery.

It was an easy call on the ZF Automotive case:

[P]rivate entities do not become governmental because laws govern them and courts enforce their contracts—that would erase any distinction between private and governmental adjudicative bodies. [Respondent] Luxshare’s implausibly broad definition of a governmental adjudicative body is nothing but an attempted end run around §1782’s limit.  

The opinion quickly notes, however, that the AlixPartners case involving the Lithuanian government is harder. It features a government on one side of a case where the arbitration option is contained in an international treaty rather than a private contract, making the case appear to be an intergovernmental dispute under Section 1782.

“Yet neither Lithuania’s presence nor the treaty’s existence is dispositive, because Russia and Lithuania are free to structure investor-state dispute resolution as they see fit,” the opinion states.

Instead, wrote Barrett, “What matters is the substance of their agreement: Did these two nations intend to confer governmental authority on an ad hoc panel formed pursuant to the treaty?”

The Supreme Court analyzed the parties’ contractual arbitration options, which included using court-related processes, as well as Arbitration Institute of the Stockholm Chamber of Commerce and the  International Chamber of Commerce’s Court of Arbitration.

But the parties chose “an ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).”

That, wrote Justice Barrett, “by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes. And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority. For instance, the treaty does not itself create the panel; instead, it simply references the set of rules that govern the panel’s formation and procedure if an investor chooses that forum. In addition, the ad hoc panel “functions independently” of and is not affiliated with either Lithuania or Russia.”

The opinion adds, “So inclusion in the treaty does not, as the [respondent] Fund suggests, automatically render ad hoc arbitration governmental.” Still, after its focus on the ad hoc nature of the investor-state bilateral investment treaty dispute resolution process, the opinion notes that in the future, sovereign parties may be able to “imbue an ad hoc arbitration with official authority.”

In reversing the lower court decisions in both consolidated cases, Justice Barrett lays out the new rule of law on overseas discovery under 28 U.S. 1782 succinctly in her conclusion:

In sum, only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” under §1782. Such bodies are those that exercise governmental authority conferred by one nation or multiple nations. Neither the private commercial arbitral panel in the first case nor the ad hoc arbitration panel in the second case qualifies.

* * *

Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.

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Supreme Court Backs Airport Worker, Applies Federal Arbitration Act Sec. 1 Exemption, and Sends Employment Dispute to Court

By Russ Bleemer and R. Daniel Knaap

The U.S. Supreme Court affirmed unanimously a Seventh U.S. Circuit Court of Appeals decision that a worker who loads or unloads goods from vehicles that engage in interstate commerce, but does not physically transport goods, is exempt from the Federal Arbitration Act as a “worker engaged in foreign or interstate commerce” under FAA Sec. 1, resolving a circuit split.

Southwest Airlines Co. v. Saxon, No. 21-309 (today’s decision is available here), involves a Fair Labor Standards Act suit brought by Illinois respondent Latrice Saxon against petitioner Southwest Airlines Co., her employer. Southwest was initially successful, moving to dismiss under the FAA despite Saxon’s argument that she, as a ramp supervisor, is exempt from the FAA under FAA Sec. 1. Case No, 19-cv-0403 (N.D. Ill. Oct. 8, 2019) (available here). The District Court had followed the Fifth U.S. Circuit Court of Appeals.

But the Seventh Circuit reversed, agreeing with Saxon that airplane cargo loaders are engaged in interstate commerce, even though she was located solely at Chicago Midway International Airport. Saxon, in the Seventh Circuit’s view, consequently is a transportation worker whose employment contract is exempt from the FAA. 993 F.3d 492 (7th Cir. 2021) (available here).

That view was affirmed today in the 8-0 opinion by Justice Clarence Thomas, erasing the circuit split with the Fifth Circuit. Justice Amy Coney Barrett didn’t participate.

Southwest “maintain[ed] that §1 ‘exempts classes of workers based on their conduct, not their employer’s,’ and the relevant class therefore includes only those airline employees who are actually engaged in interstate commerce in their day-to-day work,” according to today’s opinion.

The view that the localized worker was not engaged in interstate commerce and was therefore subject to arbitration was soundly rejected in today’s opinion. The case may have implications for app-based companies, like Amazon and Lyft, who strongly urged the Court to back Southwest in amicus briefs and reject the use of the FAA Sec. 1 carve-out exemption from arbitration for Saxon.

* * *

The Court has usually been focused on getting cases into arbitration, and that hasn’t meant success for individuals fighting arbitration and seeking court processes.

Yet the three arbitration cases decided this term, all based in employment matters, backed the workers. In addition to affirming today’s employee victory in the Seventh Circuit, last month, the Court ruled in favor of a Taco Bell worker resisting her employer’s motion to compel arbitration in a unanimous opinion by Justice Elena Kagan. The Court found that a party need not show it was prejudiced by the moving party’s actions, but instead focuses on the employer’s actions to indicate whether the employer had waived its right to arbitration. Details on Morgan v. Sundance Inc., No. 21-328 (available at https://bit.ly/3NywXj5) are available on CPR Speaks here.

In the first of the 2021-2022 arbitration cases to be decided, the Court embraced a narrow construction of subject-matter jurisdiction in arbitration matters. The March 31 decision reversed a Fifth U.S. Circuit Court of Appeals opinion that a federal trial court had jurisdiction under Sections 9 and 10 of the Federal Arbitration Act to confirm and overturn arbitration awards. The decision in Badgerow v. Walters, No. 20-1143 (available here) potentially gave the employee, who filed suit over workplace discrimination, a new shot at overturning an arbitration award in state court.

* * *

So in today’s case, the Court also backs a worker trying to avoid arbitration, following similarly the 2019 New Prime v. Oliveira case, where Justice Neil Gorsuch, in his first Supreme Court arbitration opinion, read FAA Sec. 1 to exempt an independent contractor/interstate truck driver from arbitration. The Court has limited the exemption from FAA application to transportation workers “engaged in” interstate commerce only in Circuit City Stores Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu). But since then, the Court has only recognized an FAA Sec. 1 exemption for an independent contractor—a long-haul truck driver—in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (available here).

Today’s decision revisits the limited scope of the FAA Sec. 1 exemption, and says it applies to the original plaintiff/respondent in the case.

First, Justice Thomas notes that Saxon, who is a Southwest ramp supervisor located solely at Chicago Midway, belongs to a class of workers who physically load and unload cargo on and off airplanes, using plain language and textual analysis to put the respondent/original plaintiff in the FAA Sec. 1 exemption. He finds that such workers are “as a practical matter, part of the interstate transportation of goods.” (Citation omitted.)

He used the Circuit City Sec. 1 analysis holding that the exemption applies only to transportation workers to establish the backing for Saxon’s position, finding, “Cargo loaders exhibit this central feature of a transportation worker.”

In analyzing the nature of interstate commerce in a key part of the opinion, Thomas notes, “any class of workers that loads or unloads cargo on or off airplanes bound for a different State or country is ‘engaged in foreign or interstate commerce’”—a point sure to refocus attorneys on the employment arbitration policies of app-based commerce. Amazon, for example, strongly urged the Court to reverse and back Southwest in an amicus brief, available here. (See the docket link above for more amicus briefs supporting both sides.) In a footnote, the Court notes that the issues most important to delivery companies weren’t needed to be addressed to decide Southwest Airlines.

Still, Thomas stopped short of including all airline industry employees as “transportation workers” for purposes of the FAA Sec. 1 exemption, which states, “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

In a painstaking dictionary analysis, Thomas notes that seamen and railroad workers are not industry-wide categories, and therefore don’t include the entire industry workforces. The implication is that a job-by-job, task-by-task analysis with the effects on interstate commerce, will be required for exempting workers from arbitration under FAA Sec. 1.

At the same time, the Thomas opinion rejects three Southwest points that sought to keep Saxon out of the exemption and require her to arbitrate under her employment agreement. Similar to the opinion’s rejection of the generalized interpretation of transportation workers that would include all airline workers by Saxon, the Court also states that the idea that the employee must ride on transportation in interstate commerce is too broad a reading of the FAA Sec. 1 language.

Next, Thomas notes that the goods that Saxon loaded only in Illinois were destined for interstate commerce, pointedly rejecting other Southwest-cited cases where the Court found localized activity was not in interstate commerce.

Finally, the opinion rejects a “statutory purpose” argument by Southwest, which claimed that the Seventh Circuit’s Sec. 1 interpretation hurts the pro-arbitration lean of the rest of the statute, particularly FAA Sec. 2, which “broadly requires courts to enforce arbitration agreements in any ‘contract evidencing a transaction involving commerce.'”

“Here,” countered Justice Thomas, “§1’s plain text suffices to show that airplane cargo loaders are exempt from the FAA’s scope, and we have no warrant to elevate vague invocations of statutory purpose over the words Congress chose.”

The opinion concludes, “Latrice Saxon frequently loads and unloads cargo on and off airplanes that travel in interstate commerce. She therefore belongs to a ‘class of workers engaged in foreign or interstate commerce’ to which §1’s exemption applies.”

* * *

While the nation awaits decisions on abortion and gun rights, the decision comes in an unprecedented time for arbitration at the Court. While there are usually one or two arbitration decisions per term, the Court has heard six cases—two consolidated–on how arbitration works during the 2021-2022 term, four of which were argued in March alone.  Highlights of the cases can be found on CPR Speaks, here, including with the preview and argument reports for the three cases already decided, including today’s case. Detailed oral argument coverage for Southwest Airlines v. Saxon can be found on CPR Speaks here; and the preview with background can be found here. The remaining two 2021-2022 Supreme Court arbitration cases are expected to be decided before the current term ends at the end of this month.

* * *

Bleemer edits Alternatives to the High Cost of Litigation for CPR; Knaap, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern.

[END]

Supreme Court Rejects Federal FAA Jurisdiction for Arbitration Award Enforcement and Challenges

By Russ Bleemer & Andrew Ling

The Supreme Court embraced a narrow construction of subject-matter jurisdiction in arbitration matters today, reversing a Fifth U.S. Circuit Court of Appeals decision that a federal trial court had jurisdiction under Sections 9 and 10 of the Federal Arbitration Act to confirm and overturn arbitration awards.

Badgerow v. Walters, No. 20-1143 (today’s decision available here), means that award enforcement processes and efforts to overturn tribunal decisions will continue to be directed state courts as a matter of state contractual law. In other words, FAA Sections 9 and 10 jurisdiction is in state court, and the “look through” federal court jurisdiction analysis steps accorded to FAA Sec. 4–which provides federal courts jurisdiction on getting parties into arbitration–will not apply.

The Fifth Circuit had said that federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under FAA Sections 9 and 10 when the underlying dispute was on a federal question.  The opinion, now reversed, was based on Vaden v. Discover Bank, 556 U. S. 49 (2009) (available at https://bit.ly/3Ca42MA), where the Supreme Court assessed whether there was a jurisdictional basis to decide an FAA Section 4 petition to compel arbitration.

Today’s decision on the arcane subject of jurisdiction clarifies Vaden‘s application with a textual analysis on how FAA Sec. 4 differs from Sections 9 and 10.

The decision comes amidst an unprecedented time for arbitration at the Court. While Court watchers’ eyes have been on the confirmation process for Judge Ketanji Brown Jackson to succeed retiring Justice Stephen G. Breyer, over the past 10 days, the Court has heard four oral arguments covering five arbitration cases.  Highlights of the cases can be found on CPR Speaks, here. The March arbitration cases are expected to be decided before the current Supreme Court term ends in June.

This morning’s 8-1 decision, written by Justice Elena Kagan, declines to extend Vaden to the FAA’s award enforcement and challenge sections. It states, “The question presented here is whether that same ‘look-through’ approach to jurisdiction applies to requests to confirm or vacate arbitral awards under the FAA’s Sections 9 and 10. We hold it does not. Those sections lack Section 4’s distinctive language directing a look-through, on which Vaden rested. Without that statutory instruction, a court may look only to the application actually submitted to it in assessing its jurisdiction.”

Badgerow involves a FINRA arbitration brought by Louisiana petitioner Denise Badgerow, a financial adviser, against the principals of her former employer, REJ Properties Inc. She maintains she was harassed on the job, and filed a complaint with FINRA claiming her employer and its principals violated federal securities laws, U.S. Securities and Exchange Commission regulations, and the rules of FINRA, which regulates the actions of broker-dealers.

After losing the arbitration, Badgerow brought a new claim in a Louisiana state court to vacate the FINRA award that dismissed her complaints. The principals removed the case to Louisiana Eastern U.S. District Court, and both the District Court and the Fifth Circuit upheld federal jurisdiction. REJ Properties and its parent, Ameriprise Financial Inc., an NYSE-traded financial services company, were not part of the state court claim nor today’s Supreme Court decision.

The decision this morning is surprising in light of the Nov. 2 oral arguments. Badgerow’s attorney, Daniel L. Geyser, a Dallas partner in Haynes and Boone, faced strong skepticism from the Court on why the sections on enforcing and overturning awards should be treated differently for federal jurisdictional purposes than the earlier section on compelling parties into arbitration.  See CPR Speaks coverage here.

But the Court today accepted Geyser’s argument that the Sec. 4 language, which specifically says that parties seeking to compel arbitration proceed in federal court, isn’t present for the award enforcement and challenges of the statute’s later sections. “We have no warrant to redline the FAA, importing Section
4’s consequential language into provisions containing nothing like it,” wrote Kagan, adding, “Congress could have replicated Section 4’s look-through instruction in Sections 9 and 10.”

In an email, Geyser writes, “We’re very grateful for the win, and delighted for our client.  We think the Court’s opinion is an important contribution in clarifying the jurisdiction rules for everyday filings under the FAA.”

Walters’ attorney, Washington, D.C.-based Williams & Connolly partner Lisa Blatt, did not immediately reply to an email request for comment.

The opinion concludes noting that “Congress chose to respect the capacity of state courts to properly enforce arbitral awards. In our turn, we must respect that evident congressional choice.”

The Court used the opinion to resolve a circuit split and clarify that the “look through” test needs textual support in the FAA. Under Vaden, a federal court should “look through” the Federal Arbitration Act claims to the “substantive controversy” to determine if they could have been brought in federal court for disputes under Section 4.

* * *

Justice Stephen G. Breyer’s 13-page dissent said that the divergent jurisdiction tests for the different Federal Arbitration Act sections was confusing. “Although this result may be consistent with the statute’s text,” he wrote, “it creates what Vaden feared—curious consequences and artificial distinctions.  . . . It also creates what I fear will be consequences that are overly complex and impractical.”

Instead, Breyer writes that he would use the Vaden look-through approach “to determine jurisdiction under each of the FAA’s related provisions—Sections 4, 5, 7, 9, 10, and 11.”

* * *

For more on the procedural history of the case, see Bryanna Rainwater & Russ Bleemer, “Next at the Supreme Court: Badgerow’s Attempt to Reevaluate FAA Jurisdiction,” CPR Speaks (September 15) (available here).

* * *

Bleemer edits Alternatives to the High Cost of Litigation for CPR at altnewsletter.com. Ling, a third-year law student at the University of Texas School of Law, in Austin, Texas, is a CPR 2022 Spring Intern.

[END]

Adding a Claim, and Avoiding Arbitration:  The Supreme Court Reviews California’s Private Attorneys General Act

By Russ Bleemer

The U.S. Supreme Court Wednesday examined California’s law allowing individuals to stand in for the state and file suits on behalf of coworkers against their employers even when they have arbitration obligations in the employment contracts.

California’s Private Attorneys General Act unquestionably has affected individualized arbitration processes under the Federal Arbitration Act, as a result of the California Supreme Case of Iskanian v. CLS Transp. Los Angeles LLC, 327 P.3d 129 (Cal. 2014) (available at https://stanford.io/3ILcTY5), which authorizes California employees to avoid mandatory arbitration employment contracts requirements by filing representative suits under the PAGA law.  The Court had held that PAGA was not preempted by the FAA.

Employers have said that tens of thousands of suits have been filed under PAGA by employees with arbitration contracts.

That’s not a good look for a Supreme Court which has struck other laws interfering with the FAA, and was a problem this morning for the Court.  The history of the cases that authorized mandatory individualized arbitration with waivers of class actions–AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at http://bit.ly/2VcI4mi), and the case that extended the authorization to employment cases that followed, Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK)–loomed over the arguments.  

California employers want to halt the law being used as an end-run around their workplace dispute programs, which has been used to force them into class processes they seek to avoid with mandatory arbitration dispute resolution procedures. Employment attorneys and consumer advocates have countered that PAGA is a crucial state law that allows people to vindicate their employment rights.

The Court wasn’t called upon to remove the PAGA law today. But there also likely won’t be a compelling reason to keep PAGA claims out of arbitration, or at least, allow the possibility, even though the agreement at issue barred them entirely. Ultimately, the decision will focus on the Court’s Concepcion and Epic Systems arbitration-supportive history.

As a result, in Viking River Cruises v. Moriana, No. 20-1573, the advocates and the Court wrestled with the nature of the PAGA claim—as a procedural move that allows for a different legal claim or claims, or a substantive right under state law.

The Concepcion and Epic Systems cases divided the Court 5-4. It’s a different Court today, with wider ideological lines, but the Court’s three liberal justices are still inclined to back class processes. The justices who were in opposition in Concepcion and Epic Systems—Justices Stephen G. Breyer, Sonia Sotomayor, and Elena Kagan—were most animated today.  They provided the toughest questions to Viking River’s Paul D. Clement, a former U.S. Solicitor General and a partner in the Washington office of Kirkland & Ellis, asking him to justify how the Court can police the laws California provides to its residents for use in vindicating their rights.

The Court’s conservatives mostly took a backseat this morning.

Clement, arguing in the nation’s top Court for the second time in nine days in an arbitration case (details on the previous case on CPR Speaks here), conceded that the state had properly installed the PAGA law, but also insisted that Concepcion had been violated.  He said the law violations that were the basis of original plaintiff Angie Moriana’s claims would have been easily addressed by an arbitrator, even with an award going to the state under PAGA.  But forcing the PAGA claim into courts opens up a flood of claims on behalf of many potential workplace plaintiffs without the guidance of Federal Rule of Civil Procedure 23’s protections for defendants.

Moriana’s lawyer, Scott Nelson, an attorney at Washington, D.C.’s Public Citizen Litigation Group, faced challenges on the FAA end-run by PAGA users by telling the Court that his client’s objection was to Viking River arbitration provisions that explicitly required waiving PAGA claims altogether. Nothing in the FAA, he said, requires the enforcement of such an agreement.

* * *

Paul Clement in his petitioner’s argument faced an immediate challenge from Chief Justice John G. Roberts Jr., who said that respondent Moriana wasn’t acting for herself, but as a delegee of the California Attorney General, securing a recovery for the state and her fellow employees. Clement responded that the setting the chief justice described wasn’t “the critical feature of PAGA.” He objected to Moriana bringing the PAGA claim on the part of the Viking River sales force as a whole, later explaining that the law’s use contravened the customary nature of arbitration as an individualized process.

Justice Elena Kagan interrupted, and confronted Clement with an objection echoed by her fellow liberal justices. The state, said Kagan, has determined that it needed law for policing that it did not have the capacity to do on its own.  “So this is a state decision to enforce its own labor laws in a particular kind of way that the state has decided is the only way to adequately do it,” she said.

Clement agreed: “At the end of the day, that’s right,” he said. But he insisted that Concepcion set the path for parties to agree to arbitrate such disputes, and the state must conform to the Court’s decision.

Kagan asked whether he thought there would have been views when the FAA was passed in 1925 that the then-new law would preclude the state from structuring its own law enforcement for its labor laws. Clement conceded it was an interesting question what sort of class actions could have been foreseen, but he said, “[C]ertainly, if we take Concepcion and Epic [Systems and Lamps Plus Inc. v. Varela, 139 S. Ct. 1407 (2019) (available at http://bit.ly/2GxwFbC)] as a given, and nobody has asked [the Court] to overrule those cases here. . . This Court said that state policy had to yield. I don’t think the state policy here is any more sacrosanct.”

Clement also noted for the first of repeated mentions that the California law is an outlier. While other states have considered the California law, he said its form is unique, and Clement emphasized that no other states joined in support of California as an amicus. (For details on the 22 amicus filers, as well as case background, see yesterday’s CPR Speaks preview of the argument, here.)

Clement lamented PAGA’s similarity to class actions on two points in particular, the potential dollar amounts that the claims put before the defendants, and the burdensome class discovery. Given the high stakes and the discovery, he said, “if I’m a defendant and you’re telling me I can’t escape this kind of aggregate litigation, . . . then I’m going to pick litigation every time, because I get lots of additional judicial review”  and remedies, and the result means that “arbitration is going to whither on the vine.”

Justice Sonia Sotomayor disputed Clement’s characterization of arbitration claim handling, noting that arbitration historically has handled complex cases, and the Court has backed its use in cases involving racketeering, antitrust and disparate impact claims. She said it’s parties that choose whether to have arbitration class actions, not the Court.

Clement countered that the key question, as raised by Justice Kagan, wasn’t complexity but it was the operation of the PAGA statute as the mechanism providing a cause of action and specifying penalties under it. He said that the FAA doesn’t preempt the statute itself, but the arbitration right under the contract has been cut off.  

Sotomayor pointedly stated that the goal was destroying the state’s mechanism for enforcing labor law violations, and Clement pushed back and said that the plaintiff’s claims could be brought in arbitration. He later noted that the critical part wasn’t calling PAGA a state claim, nor the classification of the claim as a substantive or procedural right, but the fact that the state claim let in many claims that are not customary in bilateral arbitration.

* * *

Public Citizen’s Scott Nelson said in response to the chief justice that the multiple claims of his client, respondent Angie Moriana, could be arbitrated as to her individual claims, and she could pursue others  on her own but under PAGA on behalf of the state and other workers.

He told Justice Amy Coney Barrett in response to a question that the most important part of his client’s claim wasn’t just that the PAGA claim belongs to California, but also that the FAA can’t override the right to pursue the claim that California has provided.

Nelson maintained that the PAGA action is not the kind of aggregated multiparty action on which the Court focused in Concepcion and Epic Systems, but rather the state’s right to civil penalties through its individual representatives. PAGA, he explained, can be brought by the state’s representative as an equally bilateral arbitration or litigation between the representative and the defendant.

The agreement waives Moriana’s right to pursue a statutory remedy, emphasized Nelson.  But Justice Samuel A. Alito Jr. was skeptical, and said that under the arbitration agreement, “she doesn’t have a right to pursue a substantive claim in court, but she does have a right to pursue the substantive claim just in arbitration. I thought that was sort of at the core of our precedents.  . . . Arbitration gets at the remedy. ”

Nelson responded that “the substantive claim . . . is the claim to recover civil penalties for these violations which are available only via PAGA, and the arbitration agreement explicitly prohibits the assertion” of a PAGA claim and a representative claim.  He said that the California Labor Code claim could be pursued in arbitration, but not the PAGA claim for damages.

Justice Breyer pressed Nelson on whether the California rule had special implications for arbitration, and whether the PAGA case could be brought in court if the Supreme Court held PAGA targeted arbitration. Nelson responded that if the law “is inconsistent with the nature of arbitration, then that’s what creates a problem.  . . . [W]hat the state has said is for contracts, whether they are part of an arbitration agreement or not, you can’t waive the right to bring a PAGA claim in an employment agreement before the claim arises. So [it] applies to every kind of agreement.”  

Justice Brett Kavanaugh concluded Scott Nelson’s argument by asking him to react to Viking River attorney Paul Clement’s point that California is alone on having the PAGA law. “It’s certainly true that California is the only state that has this mechanism,” said Nelson, adding “It’s somewhat ironic that one of the arguments made in favor of this Court’s review was that if you let California do it, everyone will do it. Now California is the only state that wants to do it.”

* * *

In his rebuttal, Kirkland & Ellis’s Clement said that the big problem with the law was that the representative could submit a claim on behalf of all of the employees “for all these disparate violations,” and in considering the scope of such an action, “then there is nothing left of Concepcion. ….. It’s too naked a circumvention.”

He re-emphasized his point about California’s outlier status in producing laws that are anti-arbitration. He noted that the substantive-procedural distinction can’t be used to avoid Concepcion/Epic Systems arbitration requirements.

Clement’s last point was on what he termed “practicalities.” He said that if respondent Moriana’s only claim was on timing of her final paycheck, “an arbitrator could dispatch that case in about an hour,” cutting her a check, and cutting a check for the state as well. But to do that in arbitration with many claims would require a claims administrator.  

Before Concepcion, he said, little attention was paid to the 2004 PAGA statute. Now, since Concepcion, Clement concluded, 17 PAGA complaints are being filed daily.

* * *

The official question presented to the Court today is

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

A decision is expected before the current Court term concludes at the end of June. For more background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

Today’s case concludes a run of four U.S. Supreme Court arbitration cases in nine days. Previews and analysis of the cases can be found on this CPR Speaks blog using the search function in the upper right, and searching for “Supreme Court” and/or “arbitration.” An overview and an analysis of the 2021-2022 Supreme Court arbitration docket, including the cases argued over the past two weeks, can be found at Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022), and Imre Szalai, “Not Like Other Cases: SCOTUS’s Unique Arbitration Year,” 40 Alternatives 28 (February 2022), both available for free at https://bit.ly/3GDEJEK. Argument coverage is available on CPR Speaks, here.

The audio stream archive and the transcript of the March 30 Viking River Cruises argument can be found on the Supreme Court’s website here.

* * *

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

[END]

The Fight over Arbitration and Class-Action Access Returns to the Supreme Court Tomorrow on California’s PAGA Law

By Russ Bleemer

Wednesday’s U.S. Supreme Court oral argument in Viking River Cruises v. Moriana, No. 20-1573, will sort the relationship between the Federal Arbitration Act and California’s Private Attorneys General Act. The case concludes a Supreme Court run of five arbitration cases in four oral arguments over nine days.

The Court tomorrow will likely revisit its extensive history on federal preemption of state laws in deciding whether the state law will continue to allow individuals with arbitration agreements to file suits in courts.

The issue is crucial for California employers, which have argued that the law is used as an end-run around their workplace dispute programs that forces them into class processes they seek to avoid with mandatory arbitration dispute resolution procedures.

Employment attorneys and consumer advocates have countered that PAGA is an essential state law that allows people to vindicate their employment rights.

The result is a return to the nation’s top Court on the broad issue of arbitration fairness. The fight over whether the California representative-class PAGA cases may continue in the place of individual arbitration—business groups say there have been tens of thousands of such cases—is also an amicus battleground among the nation’s leading business and consumer advocacy groups.  The amicus participants include business and consumer groups that have faced off in Washington, D.C., and federal and state courts nationwide on arbitration fairness issues for decades.

There are 22 amicus briefs filed.  Friend of the Court briefs on behalf of business petitioner Viking River Cruises, which is trying to overturn the PAGA law, have been filed by the California New Car Dealers Association; the Washington Legal Foundation and Atlantic Legal Foundation, nonprofit public interest law firms focusing on free marker principles, both based in Washington; the Employers Group, a 126-year-old California-based industry organization; Uber Technologies Inc. and Postmates LLC; the U.S. Chamber of Commerce, California Chamber of Commerce, and the National Federation of Independent Business Small Business Legal Center; the Retail Litigation Center Inc. and the National Retail Federation; the California Employment Law Council, a 29-year-old nonprofit that lobbies and advocates on behalf of employers; the Civil Justice Association of California, a 43-year-old tort reform organization; the Restaurant Law Center; and the California Business and Industrial Alliance, a five-year-old trade group of business executives and entrepreneurs formed specifically to fight the PAGA law.

Backing Angie Moriana, a sales representative for the cruise line who brought several wage claims against her employer, are consumer and employee association representatives including the National Academy of Arbitrators, a 75-year-old nonprofit professional organization; Steve Chow (who, according to his filing, is “a first-generation American who owns and operates three convenience stores in the San Francisco Bay Area” and who “writes in favor of [PAGA]. Mr. Chow cannot afford to require his few employees to arbitrate, and the [FAA] might not apply to his small business anyway.”); the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO); the California Rural Legal Assistance Inc. (a 56-year-old legal services organization) and the California Rural Legal Assistance Foundation (a legal nonprofit that represents California immigrant farmworkers and others in class processes, including PAGA cases, in front of state agencies); a group of 10 civil procedure and arbitration law professors; the California Employment Lawyers’ Association, the National Employment Law Project, and the National Employment Lawyers’ Association, all nonprofit worker advocacy groups; Public Justice, a Washington nonprofit law firm and consumer advocacy group; the Taxpayers Against Fraud Education Fund (a 36-year-old Washington, D.C., nonprofit “dedicated to preserving effective anti-fraud legislation at the federal and state levels,” focusing on whistleblower statutes); the State of California (which in its statement of interest in the case notes, “In the State’s experience, PAGA is an important law enforcement tool enacted to address serious and widespread violations of the California Labor Code”); “Arbitration Scholar” Imre Stephen Szalai, a Loyola University New Orleans College of Law professor filing his own brief [Szalai recently wrote on the Court’s arbitration caseload for CPR Speaks’ publisher CPR’s monthly newsletter Alternatives; see link below]; Tracy Chen, “in Her Representative Proxy Capacity on Behalf of the State of California” (noting in her interest statement that she is “a proxy of the State of California’s Labor and Workforce Development Agency . . .pursuant to PAGA” and a plaintiff in a securities industry class action case seeking employer reimbursement of investment adviser fees), and the American Association for Justice, the Washington-based trial lawyers’ professional organization.

The PAGA law enables an individual employee to seek a court judgment for breach of California labor laws as a “private attorney general” on behalf of the state of California.

The question presented to the Supreme Court is

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

The controversial California Supreme Case of Iskanian v. CLS Transp. Los Angeles LLC, 327 P.3d 129 (Cal. 2014) (available at https://stanford.io/3ILcTY5), authorizes California employees to avoid mandatory arbitration employment contracts requirements by filing representatives suits under the PAGA law.  California’s top court held that PAGA was not preempted by the FAA.

As the Supreme Court itself points out in a prelude to the Viking River Cruises question presented, Iskanian has authorized Californians to avoid the Court’s ruling backing mandatory individualized arbitration in consumer cases in the seminal matter preceding Iskanian, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at http://bit.ly/2VcI4mi), and the case that extended the authorization to employment cases that followed, Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK).

For more background on Viking River, see Mark Kantor, “US Supreme Court to Review Whether Private Attorney General Action Can Be Waived by an Arbitration Agreement,” CPR Speaks (Dec. 16) (available here).

The audio stream of Wednesday’s argument will be available on the U.S. Supreme Court’s home page at 10 a.m. Eastern, here. Tomorrow afternoon, the Court will make available an archive of the stream and a transcript of the argument here.

* * *

A preview and an analysis of the 2021-2022 Supreme Court arbitration docket, including the cases argued this week and last week, can be found at Russ Bleemer, “The Supreme Court’s Six-Pack Is Set to Refine Arbitration Practice,” 40 Alternatives 17 (February 2022), and Imre Szalai, “Not Like Other Cases: SCOTUS’s Unique Arbitration Year,” 40 Alternatives 28 (February 2022), both available for free at https://bit.ly/3GDEJEK. Argument coverage is available on CPR Speaks, here.

* * *

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

[END]

Second Circuit Affirms on Sending a Contract’s Arbitrability to a Court, Not a Tribunal

By Mark Kantor 

It has become common to report on federal circuit court decisions deferring “who decides” gateway arbitrability issues to arbitrators based on the adoption by contract parties of a set of arbitration rules containing a “competence-competence” clause, as well as the U.S. Supreme Court consistently declining to take on that question. 

On Friday, though, the Second U.S. Circuit Court of Appeals decided that the existence of such a clause in the American Arbitration Association Commercial Arbitration Rules (here, R-7(a)) was not per se sufficient to satisfy the Supreme Court’s “clear and unmistakable” gateway test from First Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995) (available at http://bit.ly/2WEXGnF).

 In DDK Hotels LLC et al v. Williams-Sonoma Inc., et al, No. 20-2748-cv (2d Cir. July 23) (available at https://bit.ly/3zIUIhv), a unanimous three-judge appeals panel concluded that the gateway question of whether a dispute about “prevailing party” fees was arbitrable under a joint venture agreement was “one for the district court, not the arbitrator, to decide.” 

The manner in which the U.S. District Court, and then the Second Circuit, reached this conclusion is an interesting approach toward limiting the impact of the rulings in all but one of the circuits (including the Second Circuit) that a “competence-competence” clause in arbitration rules–a provision that the tribunal decides its own jurisdiction as to whether a case is arbitrated–constitutes a “clear and unmistakable” showing that the contract parties intended for gateway arbitrability issues to be decided by the arbitral tribunal.

The core U.S. Federal Arbitration Act  (at 9 U.S.C. § 1, et seq.) test for allocating gateway issues between courts and arbitral tribunals is well known.  Gateway issues are to be decided by the courts unless there is clear and unmistakable evidence that the contracting parties intended to allocate the gateway issue to the arbitrator.  Ordinary contract law principles apply to that inquiry.

Writing for the unanimous panel, Second Circuit Senior Judge Robert D. Sack noted, “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so. First Options, 514 U.S. at 944 (alterations in original) (quoting AT & T Techs. Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)).  . . .  We ‘apply ordinary state-law principles that govern the formation of contracts’ in conducting this inquiry into the parties’ intent. First Options, 514 U.S. at 944.”

Like every other circuit court that has ruled on the question, the Second Circuit has held that “[w]here the parties explicitly incorporate procedural rules that empower an arbitrator to decide issues of arbitrability, that incorporation may serve ‘as clear and unmistakable evidence of the parties’ intent to delegate arbitrability to an arbitrator.’” Citing Contec Corp. v. Remote Sol. Co., 398 F.3d 205, 208 (2d Cir. 2005).

The DDK Hotels appeals court, however, went on to point out a limiting aspect of those decisions: “[C]ontext matters,” such that incorporation of such rules does not per se show satisfaction with the First Options “clear and unmistakable” standard if other aspects of the parties’ agreement create ambiguity as to the requisite intent. Specifically, opinion states,

We have also advised, however, that in evaluating the import of incorporation of the AAA Rules (or analogous rules) into an arbitration agreement, context matters. 

Incorporation of such rules into an arbitration agreement does not, per se, demonstrate clear and unmistakable evidence of the parties’ intent to delegate threshold questions of arbitrability to the arbitrator where other aspects of the contract create ambiguity as to the parties’ intent.

The appellate panel stated that, “where the arbitration agreement is broad and expresses the intent to arbitrate all aspects of all disputes,” then the First Options test will be met to allocate issues of arbitrability to an arbitrator.  If, however, “the arbitration agreement is narrower, vague, or contains exclusionary language” that the parties intended to arbitrate “only a limited subset of disputes,” then “incorporation of rules that empower an arbitrator to decide issues of arbitrability, standing alone, does not suffice to establish the requisite clear and unmistakable inference of intent to arbitrate arbitrability.” (Emphasis added.)  

Senior Circuit Judge Sack pointed to a Second Circuit ruling in NASDAQ OMX Grp. Inc. v. UBS Sec. LLC, 770 F.3d 1010, 1031 (2d Cir. 2014), to reinforce this conclusion: “[W]here a broad arbitration clause is subject to a qualifying provision that at least arguably covers the present dispute . . . we have identified ambiguity as to the parties’ intent to have questions of arbitrability . . . decided by an arbitrator.”

The Court of Appeals then applied these principles to the joint venture contract at issue in DDK Hotels.  Section 16(b) of the joint venture agreement limited arbitration solely to “Disputed Matters”:

“(b) Arbitration. The parties unconditionally and irrevocably agree that, with the exception of injunctive relief as provided herein, and except as provided in Section 16(c), all Disputed Matters that are not resolved pursuant to the mediation process provided in Section 16(a) may be submitted by either Member to binding arbitration administered by the American Arbitration Association (“AAA”) for resolution in accordance with the Commercial Arbitration Rules and Mediation Procedures of the AAA then in effect.  . . .” (Emphasis added by Court of Appeals.)”

The term “Disputed Matters” was defined in the JV agreement to cover corporate governance “deadlock” issues requiring Board or LLC Member approval or on which the Board was unable to reach agreement.

The “Deadlock” section is a corporate governance mechanism that applies only to “Disputed Matters,” which are defined as matters “requiring Board or Member approval” on which the board is unable to reach agreement.

Looking at that definition and at other provisions of the contract giving content to the term “Disputed Matters,” the Second Circuit found ambiguity as to the parties’ intent.

Payment of prevailing party fees pursuant to Section 21(h) is not on that list, the opinion notes, suggesting that disputes under Section 21(h), on prevailing party fees, may very well fall outside the scope of Section 16’s arbitration provision.

Nothing in Section 21(h), the opinion states, “suggests that such relief [compelling payment of prevailing party fees] is contingent upon board approval; to the contrary, it unambiguously directs the non-prevailing member to pay such costs and fees ‘upon demand.’”

For the Second Circuit, that ambiguity blocked a conclusion that the “competence-competence” provision in AAA Rule R-7(a) clearly allocated the “who decides” gateway decision to the arbitrator.  Consequently, under First Options, the gateway decision lay with the courts:

“While the arbitration agreement does indeed incorporate the AAA Rules, which empower the arbitrator to resolve questions of arbitrability, Section 16(b) provides that the AAA Rules ‘apply to such arbitrations as may arise under the [JV] Agreement.’ See NASDAQ OMX, 770 F.3d at 1032; SA.16.  Because Section 16(b)’s arbitration clause applies only to ‘Disputed Matters’ not resolved pursuant to the mediation process outlined in Section 16(a), the AAA Rules do not apply ‘until a decision is made as to whether [DDK Hospitality’s supplemental claim] does or does not fall within the intended scope of arbitration[.]’ NASDAQ OMX, 770 F.3d at 1032.  In other words, whether the AAA Rules, including Rule 7(a), apply turns on the conditional premise that the dispute falls within the definition of ‘Disputed Matter.’ If it does not, then the AAA Rules do not govern and no delegation of authority to the arbitrator to resolve questions of arbitrability arises.  The narrow scope of the arbitration provision therefore obscures the import of the incorporation of the AAA Rules and creates ambiguity as to the parties’ intent to delegate arbitrability to the arbitrator.”

Thus, the Second Circuit held in DDK Hotels that the contractual agreement in the JV agreement limiting arbitration to “Disputed Matters” operated to prevent allocation of the arbitrability decision to the arbitrator under the “clear and unmistakable” First Options test.  Accordingly, “[t]he district court therefore correctly determined that it, rather than the arbitrator, should decide whether the supplemental claim [for prevailing party fees] was arbitrable.”

One might reasonably ask how DDK Hotels squares with the unanimous 2019 U.S. Supreme Court decision, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019) (available at http://bit.ly/2YLDkWQ), rejecting a “wholly groundless” basis for declining to forward a gateway question to arbitrators for decision. 

In Henry Schein, the Court’s summary does a good job of setting out the core of that ruling:

“Held: The ‘wholly groundless’ exception to arbitrability is inconsistent with the Federal Arbitration Act and this Court’s precedent.  Under the Act, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.  . . . The parties to such a contract may agree to have an arbitrator decide not only the merits of a particular dispute, but also ‘’gateway’ questions of ‘arbitrability.’’ . . . Therefore, when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is  wholly groundless.”

Under the doctrine rejected by the Supreme Court in Henry Schein, the courts would have construed the parties’ contract to determine if the claimant’s arbitrability argument was “wholly groundless.”  Even in the face of a “clear and unmistakable” agreement to delegate arbitrability issues to the arbitrator, if the court was satisfied the arbitrability argument was “wholly groundless” under the contract, then the court could determine the arbitrability issue itself instead of referring the gateway question to the arbitrator.

In DDK Hotels, the district court and the Second Circuit again construed the parties’ contract, this time to determine if the parties’ intention to delegate the gateway issue to the arbitrator was ambiguous rather than clear and unmistakable.

To distinguish DDK Hotels from Henry Schein, one must come up with a persuasive explanation for how (i) the 2nd Circuit Court of Appeals’ inquiry into whether the dispute at issue in DDK Hotels arguably fell outside the meaning of the contract term “Disputed Matters” differs from (ii) the judicial inquiry into the contract terms in Henry Schein to determine if the claim of arbitrability was “wholly groundless.” 

This is perhaps a task the US Supreme Court declined to take on when it dismissed certiorari in Henry Schein II as improvidently granted earlier this year?

Any volunteers to tackle that job? Please feel free to comment below.

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

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

By Russ Bleemer

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

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

This morning’s order can be found here.

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

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

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

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

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

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

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

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

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

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

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

* * *

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

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Court Declines Question on Email Service, Leaving an International Arbitration Award Confirmation Intact

By Jacqueline Perrotta

Today, the Supreme Court declined to hear Grupo Cementos de Chihuahua S.A.B. de C.V., et al. v. Compañía de Inversiones Mercantiles S.A., No. 20-1033, an international arbitration case regarding a breached stock-purchase agreement. The petitioner had asked the Supreme Court whether service of process by email, in line with Federal Rules of Civil Procedure 4(f)(3), to a foreign entity’s U.S. counsel violates the Hague Service Convention.

This morning’s order list denying cert in Grupo Cementos can be found here.

The Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil and Commercial Matters, Nov. 15, 1965, 20 U.S.T. 361, better known as the Hague Service Convention, details what constitutes valid service on parties in another country. The petitioner argued that the dispute falls under the Hague Service Convention and “service,” as instructed by the convention, does not include service by email.

The parties are a Bolivian company, Compañía de Inversions Mercantiles S.A. (“Cimsa”), the respondent in the U.S. Supreme Court case and the original plaintiff, and Mexican companies Grupo Cementos de Chihuahua, S.A.B. de C.V. and GCC Latinoamerica, S.A. de C.V. (collectively “GCC”), which appealed the case to the Court (cert petition available here) and who are the original defendants.

GCC had agreed to give Cimsa a right of first refusal if GCC decided to sell shares it acquired in a third-party cement company. GCC sold shares to a Peruvian company, and Cimsa alleged the sale breached its right of first refusal.

The companies had agreed to arbitrate disagreements arising from the stock deal. In a Bolivian arbitration, Cimsa was awarded several million dollars for the breach of its right of first refusal. GCC challenged this decision; litigation over the arbitration damages award is continuing in Bolivia.

This case came before a Colorado U.S. District Court when Cimsa filed an arbitral award confirmation action through the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which recognizes and enforces foreign arbitral awards.

Cimsa received court permission to serve GCC through its U.S. counsel, which GCC claimed was improper service. The district court found that alternative service through the GGC’s U.S. Counsel was proper under the Hague Service Convention, and confirmed the award.

The Tenth U.S. Circuit Court of Appeals affirmed that service was proper, and also affirmed the district court’s decision to back the Bolivian arbitration tribunal’s decision. Compania De Inversiones v. Grupo Cementos de Chihuahua, No. 19-1151 (10th Cir. 2020) (available at https://bit.ly/3vBlh65).

In holding that the district court correctly confirmed the arbitration tribunal, the Tenth Circuit found that courts construe the New York Convention defenses to enforcing awards “`narrowly’ to ‘encourage recognition and enforcement of commercial arbitration contracts’ citing OJSC Ukrnafta v. Carpatsky Petroleum Corp., 957 F.3d 487, 497 (5th Cir. 2020).

By affirming the district court’s decision, the Tenth Circuit has found that proper service under the Hague Convention includes service by email. By this morning’s Supreme Court action, that case stands, and the arbitration award’s confirmation will not be affected.

At the same time, in its cert petition, GCC had challenged the U.S. award confirmation on the basis that the U.S. courts did not have sufficient contacts for personal jurisdiction, which was also the subject of then-pending U.S. Supreme Court cases, Ford Motor Co. v. Montana Eighth Judicial District Court, No. 19-368 and Ford Motor Co. v. Bandemer, No. 19-369 (S. Ct.).  The Court decided the consolidated cases in Ford Motor Co. v. Montana Eighth Judicial District Court, No. 19-368 (March 25, 2021) (available at https://bit.ly/3wU5sbO).

With today’s cert denial, the Court also declined the petitioners’ suggestion to grant certiorari, vacate the matter, and remand for a decision on personal jurisdiction in accordance with the Ford Motor decision.

GCC’s Supreme Court cert petition can be found at https://bit.ly/2SOkTnl

* * *

The Court today declined to hear a second arbitration case, Amazon.com Inc., et al. v. Bernard Waithaka, No. 20-1077.

Amazon had asked the Court to consider ” Whether the Federal Arbitration Act’s exemption for classes of workers engaged in foreign or interstate commerce, 9 U.S.C. 1, prevents the Act’s application to local transportation workers who, as a class, are not engaged to transport goods or passengers across state or national boundaries.”

Amazon had cited conflicting lower court authority on whether drivers who signed up for an Amazon distribution program and who stayed within state lines could avoid arbitration provisions under the FAA exemption in their disputes with online retailing giant.

Both the federal district court and appeals court declined to compel arbitration. Those decisions stand, with other cases still pending. Earlier this year, in a similar case Amazon linked to today’s decision, the Court declined cert in Amazon.com Inc. v. Rittmann, No. 20-622 (Feb. 22).

* * *

The author, a J.D. student who will enter her second year this fall at Brooklyn Law School, is a 2021 CPR Summer Intern.

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