Roundup: Four New Arbitration Petitions Under Consideration at the U.S. Supreme Court

By Mylene Chan

Four recent petitions for writs of certiorari pending before the U.S. Supreme Court raise a number of interesting arbitration issues. While the Court may decline to hear these cases, they are worth following because they could help to define the scope of arbitration in both consumer and commercial contexts.

The cases are being briefed and will be scheduled for conferences.  If accepted, they likely would be argued in the 2021-2022 Court term beginning Oct. 4.

The Court already has two cases that will be argued in the new fall term, and which are awaiting hearing dates:

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Here are the cases the Court will soon be considering:

Shivkov v. Artex Risk Solutions Inc., No. 20-1313

Shivkov centers on the availability of class arbitrations. In the case, the plaintiffs contracted with Artex and TSA Holdings LLC to set up and manage business entities—captive insurance vehicles the small business owner-plaintiffs entered into with the defendants–that the U.S. Internal Revenue Service later determined were illegal tax shelters.  The plaintiffs alleged the captive insurance schemes were “mass-marketed fraud” that caused the plaintiffs to be liable for back taxes, penalties, interest and “significant fees.”

The plaintiffs filed a class action against the defendants, alleging a variety of Arizona state and federal claims for breach of fiduciary duty, negligence, conspiracy and related claims.  Relying on an arbitration clause in the agreements, the defendants moved to compel arbitration.

The Ninth U.S. Court of Appeals ordered individual arbitrations of the plaintiffs’ claims. The appeals court first rejected the plaintiffs’ arguments that the defendants had a fiduciary duty to explain the arbitration clause to the plaintiffs, that the arbitration clause did not survive termination of the contracts, and that the arbitration clause did not cover all of the plaintiffs’ claims.

The appeals court also found that class arbitration was unavailable.  In so ruling, the appellate panel held that the availability of class arbitration is a gateway issue for courts–not arbitrators–to decide that the arbitration agreements did not provide for class arbitration. The Ninth Circuit also rejected the plaintiffs’ argument that the inclusion of the American Arbitration Association as the default arbitration method in the agreements was the equivalent of incorporating AAA rules about class arbitrability by reference into the agreements.

On March 17, the plaintiffs filed a petition for a writ of certiorari and presented two questions: (1) Whether an agreement that specifies arbitration before the AAA as the default dispute resolution method also must specifically mention the AAA rules to avoid being considered ambiguous about whether the parties intended to apply the AAA rules; and (2) Whether the availability of class arbitration is a matter for an arbitrator to decide, or for a court to decide.

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Eni USA Gas Marketing LLC v. Gulf LNG Energy LLC, No. 20-1462

The next case involves an attempt to use arbitration proceedings as a means of collateral attack on a previous arbitration award. In the case, Gulf entered into a Terminal Use Agreement (TUA) with Eni whereby Gulf would construct a natural gas terminal and Eni would use the terminal to deliver natural gas. The TUA contained a broad arbitration clause.

Eni initiated arbitration, alleging breach of contract, and arguing that the TUA was void because of unforeseen changes in the market. The arbitration tribunal found that the TUA had terminated and ordered Eni to pay Gulf for the value of Gulf’s partial performance under the TUA.

Eni then filed a second arbitration alleging a breach of contract claim left undecided from the first arbitration and misrepresentation. Gulf moved to enjoin Eni from pursuing the second arbitration. Eni argued that an arbitrator–rather than a court–should decide whether the first arbitration award precludes the second arbitration.

The Delaware Supreme Court enjoined Eni from pursuing the second arbitration. The Court reasoned that when a party files a second proceeding attacking a prior arbitration award, it circumvents the contractual  Federal Arbitration Act review procedure. The Court held that courts may intervene in a party’s attempt to seek arbitration when the objective is to rectify a prior unfavorable arbitration award by arbitrating claims in new separate arbitration proceedings. 

On April 15, Eni filed a petition for a writ of certiorari in the U.S. Supreme Court presenting the issue of whether the FAA permits a court to refuse to enforce an arbitration agreement delegating all questions, including a question of arbitrability, to an arbitrator where a party contends that the claim sought to be arbitrated represents a “collateral attack” on a prior arbitration award.

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HRB Tax Group v. Snarr, No. 20-1570

This case looks at the scope of the Federal Arbitration Act preemption of state law in cases where plaintiffs seek a remedy of a public injunction. In HRB Tax Group v. Snarr, the plaintiffs sought to stop their tax service provider from continuing business practices they alleged are fraudulent.

HRB and the plaintiffs entered into agreements in which HRB offered the plaintiffs services in filing tax returns. The service agreements required all disputes arising from these agreements to be resolved through individual arbitration.

The plaintiffs, customers of H&R Block’s accounting services, alleged that the marketing of HRB’s tax filing services violated California’s Consumers Legal Remedies Act, False Advertising Law, Cal. Bus. & Prof. Code, and Unfair Competition Law. They filed a class action suit against HRB and sought a public injunction enjoining HRB’s alleged misleading web services and advertising.

HRB moved to compel arbitration, arguing that the Federal Arbitration Act, which provides that arbitration agreements are presumptively valid, preempts McGill v. Citibank, N.A. 393 P.3d 85 (2017) (which held that a contract is unenforceable when it entirely waives the right to seek public injunctive relief under consumer protection statutes). 

The Ninth Circuit denied HRB’s motion to compel arbitration. The court reasoned that HRB’s argument had been foreclosed by Blair v. Rent-A-Center Inc., 928 F.3d 819 (2019) (holding that the FAA does not preempt McGill.)

HRB’s May 10 U.S. Supreme Court cert petition asks whether California’s public policy rule declining to enforce agreements for individualized arbitration whenever a plaintiff seeks a public injunction is preempted by the Federal Arbitration Act.

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Viking River Cruises v. Moriana, No. 20-1573

The fourth case raises questions about the applicability of agreements for bilateral arbitration to claims brought under California’s Private Attorneys General Act of 2004 (PAGA). In Viking River Cruises, aggrieved employees sought relief from an international cruise line.

Original plaintiff Angie Moriana agreed upon joining Viking as a sales representative to an arbitration agreement providing that any employment-related disputes would be arbitrated. The agreement also required Moriana to waive all rights to bring a class, collective, representative, or private attorney general action in the employment contract.

Moriana filed suit against Viking on behalf of the state and all other similarly situated employees alleging various California Labor Code violations under PAGA.

Viking moved to compel individualized arbitration of Moriana’s PAGA claims, arguing that Epic Systems Corp. v. Lewis 138 S.Ct. 1612 (2018), validates private predispute waivers of such claims. Viking claimed that Epic Systems overruled Iskanian v. CLS Transportation Los Angeles, LLC  59 Cal. 4th 348 (2014), a California Supreme Court decision holding that arbitration agreements that waived the right to bring PAGA actions are unenforceable.

The California Court of Appeal denied Viking’s motion to compel arbitration, reasoning that the real party in a PAGA claim is the state and Moriana was not acting as an agent of the state when she bound herself to arbitrate. The court  explained that Iskanian remains good law because Epic Systems differs fundamentally from a PAGA claim. Epic Systems addressed the enforceability of an individualized arbitration requirement against challenges that such enforcement violated the National Labor Relations Act.

Viking filed a petition for writ of certiorari on May 10. The issue the Court will decide to consider is whether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.

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The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.

Supreme Court Adds an Arbitration Case for the 2021-2022 Term

By Mark Kantor

Today is an important day in the US Supreme Court, as the Court agreed for the first time in many years to hear a case on abortion rights.  Court watchers will rightly focus extensively on that development.

In far-less significant news, but perhaps of interest to the arbitration community, this morning the U.S. Supreme Court also denied certiorari in Selden v. Estate of Silverman, 20-895, a Federal Arbitration Act case involving (1) whether vacatur on public policy grounds is permitted and (2) the proper standard for “evident partiality” vacatur.  The March 2020 Nebraska Supreme Court decision in the matter stands, upholding the confirmation of an arbitration as well as sanctions and attorneys fees.

The Court, however did grant certioraritoday in another FAA case, Badgerow v. Walters, No. 20-1143 (documents available at https://www.scotusblog.com/case-files/cases/badgerow-v-walters/).

The Question Presented in Badgerow is:

Whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is that the underlying dispute involved a federal question.

Badgerow is thus a dispute regarding when, if at all, the U.S. federal courts have “federal question” jurisdiction over an FAA confirmation/vacatur dispute.  It will accordingly be of primary interest for U.S. litigators seeking a court ruling on whether a local state court or a federal court is the proper forum to decide whether an arbitration award can be confirmed or vacated under the FAA when the underlying arbitration award resolves a question of federal law.

Federal courts are forums of limited jurisdiction.  Longstanding jurisprudence holds that the FAA itself does not create federal court jurisdiction.  Rather, a party seeking to have a U.S. federal court forum for an FAA-related dispute must find an independent ground for jurisdiction. 

The implementing statutes for the New York and Panama Conventions do, however, expressly create federal subject matter jurisdiction for their covered international awards.  Consequently, the issue does not arise for those awards.

Badgerow poses the question of whether a federal court may “look through” to see if the underlying subject matter of the arbitration award resolves a “Federal question” and, if the answer is “yes,” take jurisdiction of the case.

The petitioner’s cert petition summarizes the legal issue and circuit split succinctly:

As this Court has repeatedly confirmed, the FAA does not itself confer federal-question jurisdiction; federal courts must have an independent jurisdictional basis to entertain matters under the Act.  In Vaden  v.  Discover Bank, 556 U.S. 49 (2009), this Court held that a federal court, in reviewing a petition to compel arbitration under Section 4 of the Act [failure to arbitrate under agreement; petition to United States court having jurisdiction for order to compel arbitration], may “look through” the petition to decide whether the parties’ underlying dispute gives rise to federal-question jurisdiction.  In so holding, the Court focused on the particular language of Section 4, which is not repeated elsewhere in the Act.

After Vaden, the circuit courts have squarely divided over whether the same “look-through” approach also applies to motions to confirm or vacate an arbitration award under Sections 9 and 10. In Quezada v. Bechtel OG & C Constr. Servs. Inc., 946 F.3d 837 (5th Cir. 2020), the Fifth Circuit acknowledged the 3-2 “circuit split,” and a divided panel held that the “look-through” approach applies under Sections 9 and 10. In the proceedings below, the Fifth Circuit declared itself “bound” by that earlier decision, and applied the “look-through” approach to establish jurisdiction.  That holding was outcome-determinative, and this case is a perfect vehicle for resolving the widespread disagreement over this important threshold question.

The question presented is:

Whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.

[Emphasis is in the brief, which can be found here.]

The dispute will likely come up for oral argument before the U.S. Supreme Court sometime in its October Term.

Badgerow is the second arbitration case slated for the new fall term.  On March 22, the Court agreed to hear Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, which will examine “[w]hether the discretion granted to district courts in 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in ‘a foreign or international tribunal’ encompasses private commercial arbitral tribunals, as the Fourth and Sixth Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the Second, Fifth, and, in the case below, the Seventh Circuit, have held.”

Argument dates for both cases are expected this summer.

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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 Denies Review on the Interplay Between the U.S. Bankruptcy Code and the Federal Arbitration Act

By Amy Foust

The Supreme Court today denied certiorari in GE Capital Retail Bank v. Belton, No. 20-481, an arbitration case in a bankruptcy matter.  The question presented by petitioner GE Capital, and rejected in this morning’s order list by the Court, was “whether provisions of the Bankruptcy Code providing for a statutorily enforceable discharge of a debtor’s debts impliedly repeal the Federal Arbitration Act, 9 U.S.C. § 1 et seq.”

The U.S. Bankruptcy Code section in question, 11 U.S.C. § 524(a)(2), provides in part:

A discharge in a case under this title— …

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived[.]

The case, on cert petition from the Second U.S. Circuit Court of Appeals in New York, suggests a tension between this section of the bankruptcy code and the Federal Arbitration Act, which provides that written agreements to arbitrate are “valid, irrevocable, and enforceable” (9 U.S.C. §2), and that if there is no issue with the making of the agreement, a court “shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.” 9 U.S.C. §4. 

The underlying dispute was a putative class action related to GE Capital’s efforts to collect debts discharged in bankruptcy.  The plaintiffs–the discharged debtors–brought contempt proceedings under § 524 arguing a violation of the injunction against continued recovery.  GE Capital moved to have the dispute referred to arbitration. 

The case of Respondent Belton and two others similarly situated were addressed in a consolidated decision by the federal bankruptcy court in New York’s Southern District, finding that referring these cases to arbitration would defeat the purpose of seeking bankruptcy protections.  The U.S. District Court for the Southern District reversed the bankruptcy court and sent Belton’s case to arbitration. 

But around the same time, the Second Circuit decided Anderson v. Credit One Bank, N.A., 884 F.3d 382 (2d Cir. 2018), a case involving similar facts to GE Capital. In Anderson, an appeals panel found an inherent conflict between § 524 and the FAA because the discharge injunction is critical to the bankruptcy code’s purpose; the contempt claim requires the bankruptcy court’s continuing supervision, and denying the court the power to enforce its own injunctions would undermine bankruptcy code enforcement. 

In response to a request for reconsideration in view of Anderson, the U.S. District Court reversed itself and denied the motion to compel arbitration.  GE Capital appealed to the Second Circuit, which affirmed the district court. 

GE Capital then appealed to the Supreme Court, framing the issue as an implied repeal of the FAA, citing the Court’s support from Epic Systems v. Lewis, 138 S. Ct. 1612, 1627 (2018), where the Court rejected a request to have the National Labor Relations Act override the Federal Arbitration Act. 

In a response to GE Capital’s request asking the nation’s top court to decline to hear the case, Respondent Belton had argued that the Second Circuit was correct in its analysis of this narrow issue, which is not the subject of any circuit split and did not merit the Court’s attention.

So the Second Circuit decision stands, allowing the respondents to proceed with contempt sanctions against major banks for continuing attempts to recover debts that had been subject of a bankruptcy discharge.

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The author is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021.

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