By Stephen Stachowski
ALR Senior Editor, 2017-2018

One of the key, if not predominant, purposes of arbitration is to serve as an effective and efficient form of alternative dispute resolution.[1]  In the world of capitalism such a purpose may even be considered a virtue.  However, this purpose may be especially disheartening because in its pursuit of efficiency arbitration leaves behind another virtue: justice.

So, is justice a pursuit of arbitration at all?  Some scholars may argue that arbitration absolutely cares, or should care, about justice,[2] while others may argue that while justice is important, it is not as important as the efficiency and effectiveness of the arbitral process.[3]  Still others may argue that justice is irrelevant because finality is the main and only concern of the arbitral process.[4]

No matter how one answers this question, arbitration has already decided on whether justice is pursuit of arbitration.  When the use of experts as adjudicators skyrocketed in arbitration, justice was not a forefront purpose or pursuit of the arbitration process.  For if arbitration were concerned about justice, it would permit the common man to administer it in the arbitral process, as the common man is a better administrator of justice than the expert.

G.K. Chesterton’s article “The Twelve Men” illustrates the value of a lay person’s role in administering justice.[5]  In the article, Chesterton recounts and reflects on his jury experiences:

I was put into this box because I lived in Battersea, and my name began with a C. Looking round me, I saw that there were also summoned and in attendance in the court whole crowds and processions of men, all of whom lived in Battersea, and all of whose names began with a C.[6]

He describes how he found it interesting that when fairness and justice are at stake, the law calls ordinary folk to administer said fairness and justice, a process known as the jury system.[7]  In addition, he reflects on the seemingly contrary notion that when society generally needs something, they call on trained professionals.  Chesterton notes:

We tend to have trained soldiers because they fight better, trained singers because they sing better, trained dancers because they dance better, specially instructed laughers because they laugh better, and so on and so on.[8]

Chesterton attempts to reconcile these competing ideas by asking the following questions:  why does the law call upon laypeople to administer justice?  What makes common folk better at pursing justice compared to experts?  Chesterton explains that common folk are better at deciding justice than trained legal experts.[9]  He notes that the virtue of justice is something society values greatly.[10]  However, when a legal expert continuously administers justice he or she becomes desensitized to justice’s great value in society as the administering of justice becomes normal.[11]  This is similar to a person’s everyday use of china, which eventually causes the china to lose its luster or importance in the household: “That the more a man looks at a thing, the less he can see it, and the more a man learns a thing the less he knows it.”[12]  For a society to flourish, the virtue of justice cannot lose its luster, as its pursuit will be less attractive.[13]

Chesterton’s argument supports the claim that common men are more capable and better at administering a just and fair result than trained professionals.  Given the importance of laypersons’ input, it is interesting that arbitration goes against the wisdom of the jury system, subjecting itself solely to the judgment of experts.  In doing so, arbitration decides that justice may not be an important endeavor, which can be a detriment to arbitral longevity and popularity as a form of alternative dispute resolution.  In the future, enforceable arbitration clauses should be required to include a provision that permits either party to the agreement to have their disputes heard and decided by a jury of their peers.

 

[1]  See Thomas J. Stipanowich, Reflections on the State and Future of Commercial Arbitration: Challenges, Opportunities, Proposals, 25 Am. Rev. Int’l Arb. 297, 298 (2014).

 

[2]  Judge Craig Smith & Judge Eric V. Moyé, Outsourcing American Civil Justice: Mandatory Arbitration Clauses in Consumer and Employment Contracts, 44 Tex. Tech L. Rev. 281, 282 (2012).

 

[3]  Linden Fry, Letting the Fox Guard the Henhouse: Why the Fifth Circuit’s Ruling in Positive Software Solutions Sacrifices Procedural Fairness for Speed and Convenience, 58 Cath. U.L. Rev. 599, 620 (2009).

 

[4]  Michael Cavendish, Fortress Arbitration an Exposition of Functus Officio, 80 Fla. B.J. 20, 24 (2006).

 

[5]  G.K. Chesterton was a prominent English writer during the late 1800s and early 1900s.  He published numerous books, short stories, poems, essays, and plays. G.K. Chesterton, Tremendous Trifles XI (1909) (ebook).

 

[6]  Id.

 

[7]  Id.

 

[8]  Id.

 

[9]  Chesterton, supra note 6.

 

[10]  Id.

 

[11]  Chesterton, supra note 6.

 

[12]  Id.

 

[13]  See generally Terence Irwin, Plato’s Ethics 259 (1995).

By Kayla Snowberger
ALR Senior Editor, 2017-2018

Until In re Marriage of Haleas, 79 N.E.3d 271 (2017), Illinois courts have never tackled a case involving arbitration clauses in divorce proceedings. The case iterates a strong policy favoring arbitration and alerts divorcees in Illinois that arbitration leads to a final and binding resolution to disputes. Additionally, the case suggests that Illinois courts are not interested in poking holes in divorce arbitration awards when one party disagrees with that award.

In March 2014, Peter Haleas petitioned to dissolve his marriage to his wife, Fanee Haleas.[1] Before trial on the matter in 2016, the parties entered into an arbitration agreement under the Illinois Uniform Arbitration Act (“Arbitration Act”).[2] Pursuant to that agreement, the matter was arbitrated under a JAMS arbitrator, who issued a 70-page opinion.[3] In that opinion, the arbitrator noted that the arbitration was conducted under Illinois law, and thus the Illinois Marriage and Dissolution of Marriage Act (“Marriage Act”) applied.[4] Therefore, the arbitrator weighed the fourteen maintenance factors of the Marriage Act (including the needs of each party, the income of each party, and the standard of living during the marriage) and found that the husband owed the wife maintenance, to terminate at some time in the future, and awarded the husband various forms of property (including non-marital stock and personal property).[5]

After the arbitration, Mr. Haleas (Petitioner) moved the trial court to confirm the arbitral award; the former Mrs. Haleas (Respondent) filed a response, wherein she requested that the court deny the award, primarily on the grounds that the maintenance she had been awarded was unconscionable.[6] The trial court confirmed the award, finding no unconscionability.[7] Respondent appealed and argued that the arbitrator had erred in several ways, including incorrectly calculating Respondent’s maintenance, setting a termination date for the maintenance, and decreasing the amounts of that maintenance.[8] Petitioner countered that Respondent had failed to assert any valid grounds for vacating or modifying that award.[9] Petitioner further argued that the applicable Arbitration Act provided for only limited review of awards and also asserted that both parties had voluntarily agreed to binding arbitration for their property and maintenance matters.[10]

The appellate court agreed with Petitioner that the Arbitration Act provides for “very limited judicial review” and that this principle embodies a “legislative policy favoring enforcement of arbitration agreements.”[11] Respondent argued that the court should examine the arbitration award because divorce implicates public policy.[12] This particular argument seemed to frustrate the court, as Respondent could cite to no authority that supported her argument with respect to property and maintenance issues.[13] The court noted “that dissolution-of-marriage issues can implicate public policy does not necessarily affect the judicial review of arbitration awards concerning the issues raised here.”[14] This case did not involve any child support or child custody issues, which the court noted would have “severely limit[ed], on public policy grounds, the ability to privately contract away or limit rights.”[15]

Ultimately, the court opined that Respondent had failed to state any grounds under the Arbitration Act to vacate or modify the arbitral award, so, as a result, Respondent’s arguments were “beyond the purview of [the court’s] limited review of arbitration awards.”[16] The trial court’s judgment was affirmed[17], thus upholding the arbitral award. In the coming years, divorcing couples in Illinois who include arbitration clauses in their divorce agreements should be mindful that courts in Illinois will be very reluctant to delve into the details of those arbitration awards and will treat them as final and binding.

[1] In re Marriage of Haleas, 79 N.E.3d 271, 273 (2017).

[2] Id.

[3] Id. at 273-74.

[4] See also Illinois Marriage and Dissolution of Marriage Act, 750 Ill. Comp. Stat. Ann. 5/101 (West 2017); Haleas, 79 N.E.3d at 274.

 

[5] See also Illinois Marriage and Dissolution of Marriage Act, 750 Ill. Comp. Stat. Ann. 5/504 (West 2017) (delineating the factors Illinois courts weigh in divorce proceedings); Haleas, 79 N.E.3d at 275.

[6] Haleas, 79 N.E.3d at 275.

 

[7] Id.

[8] Id. at 275-76.

[9] See also Uniform Arbitration Act, 710 Ill. Comp. Stat. Ann. 5/12 (West 2017) (delineating the factors for vacatur or modification – Respondent could have shown arbitrator partiality; excess of authority; evident miscalculation; or an award based upon matters not submitted, among others); Haleas, 79 N.E.3d at 276.

 

[10] Haleas, 79 N.E.3d at 276.

[11] Id.

[12] Haleas, 79 N.E.3d at 279.

[13] Id.

[14] Id.

[15] Id.

[16] Id. at 280.

[17] Haleas, 79 N.E.3d at 280.

By Seung-Woon Lee
ALR Senior Editor, 2017-2018

Enforcing annulled arbitral awards in the United States remains difficult. In July 2017, the United States Court of Appeals for the District of Columbia (“D.C.”) Circuit affirmed the District Court’s decision denying to enforce an annulled arbitral award. The Supreme Court of the United States did not address this issue yet, only the Second Circuit and the District Court of the D.C. have addressed it.[1] The current standard established by the Second Circuit and the D.C. Circuit Court is that the courts will enforce the annulled arbitral award only if the annulment of arbitral awards is against the fundamental public policy of the United States.^[2] The D.C. Circuit Court’s decision highlights the high standard parties must meet in showing that the annulment of arbitral awards is against fundamental U.S. public policy.

The primary source of law governing the enforcement of annulled arbitral awards is the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).[3] Under Article V(1)(e) of the New York Convention, the court “may refuse to enforce a foreign award if ‘a competent authority’ has set it aside under the law of the country in which the award was made.”[4] Despite this discretion, the current U.S. standard on this issue is that the court will “enforce an annulled award only if the annulment is ‘repugnant to fundamental notions of what is decent and just’ in the United States.”[5]

Getma illustrates the difficulty of meeting this standard.[6] In 2008, Getma International, a French company, entered into a twenty-five-year Concession Agreement with the Republic of Guinea.[7] The parties agreed on an arbitral clause providing that any contractual disputes between the parties would be resolved by the Common Court of Justice and Arbitration (“CCJA”) arbitration rules.[8] The CCJA set the arbitrators’ fees to approximately €61,000.[9] Fourteen months after the commencement of the arbitral procedure, the arbitral tribunal contacted the CCJA’s Office of the Secretary General to increase the arbitrators’ fee to €450,000.[10] The CCJA denied the request in written order, establishing a precedent that “arbitrator’s fees and expenses are set exclusively by” the CCJA.[11] Disregarding the CCJA’s order, the arbitrators informed the parties that “they would withhold the arbitral award until the parties paid them €450,000.”[12]

Subsequently, the Secretary General “formally prohibited” the tribunal’s effort to increase its fees, warning Getma that the arbitral award would be “subject to invalidation” if the award contained the “invalid arrangement.”[13] The tribunal eventually issued a final award in favor of Getma, which did not include any increased fees, but collected half of the increased arbitrators’ fees from Getma (approximately € 225,000).[14] Subsequently in July 2014, Guinea successfully challenged the arbitral award.[15] Despite the annulment, Getma sought to enforce the annulled arbitral award in the D.C. District Court, and the district court denied Getma’s petition.[16] Getma appealed the decision to the Circuit Court.[17]

On appeal, the D.C. Court of Appeals stated that the current U.S. standard of review “‘is high, and infrequently met,’ such that [the court] cannot enforce an annulled award on a mere showing that the annulment is erroneous or conflicts with the United State’s [sic] public policy.”[18] Rather, the court noted that it will only enforce an annulled arbitral award only if “it violates this country’s ‘most basic notions of morality and justice.’”[19] In Getma, the court held that “even if the parties intended to opt out of the CCJA’s fee schedule, the CCJA’s decision to enforce its set fees for arbitrators is not ‘repugnant to fundamental notions of what is decent and just in the United States.’”[20] The court noted that Getma received notice from the CCJA that the award would “potentially be subject to invalidation” if the arbitrators’ fee increased to €450,000.[21] And, in response to Getma’s argument that “the CCJA misinterpreted its own law in annulling the arbitral award,”[22] the Court found that “erroneous legal reasoning” is not by itself sufficient for a claim that there was “a violation of public policy.[23]

Thus, the United States Court of Appeals for the D.C. Circuit once again presents the difficulty in enforcing annulled arbitral awards. The current standard places a high burden on parties who are seeking to enforce annulled arbitral awards. The courts’ tendency to use limited discretion in enforcing annulled arbitral awards will most likely continue.

[1] See TermoRio S.A. E.S.P v. Electranta S.P., 487 F.3d 928, 938 (D.C. Cir. 2007); Corp. Mexicana de Mantenimiento Integral, S. de R.L. de C.V. v. Pemex-Exploracion y Prod., 832 F.3d 92, 106-107 (2d Cir. 2016); Thai-Lao Lignite (Thail.) Co., Ltd. v. Gov’t of the Lao People’s Democratic Republic, 997 F. Supp. 2d 214, 230 (S.D.N.Y. 2014).

 

[2] Getma Int’l v. Republic of Guinea, 862 F.3d 45, 48 (D.C. Cir. 2017) (citing TermoRio, 487 F.3d at 938).

 

[3] Getma Int’l v. Republic of Guinea, 191 F. Supp. 3d 43, 48 (D.D.C. 2016).

 

[4] Getma Int’l, 862 F.3d at 48 (citing Convention on the Recognition and Enforcement of Foreign Arbitral Awards Art. V(1)(e), June 10, 1958, 21 U.S.T. 2517) (emphasis added).

 

[5] Id. (emphasis added).

 

[6] Getma Int’l, 862 F.3d at 45.

 

[7] Id. at 47.

 

[8] Id.

 

[9] Id.

 

[10] Id.

 

[11] Getma Int’l, 862 F.3d at 47.

 

[12] Id.

[13] Getma Int’l, 191 F. Supp. 3d at 48.

 

[14] Getma Int’l, 862 F.3d at 48.

 

[15] Id.

 

[16] Id. at 47.

 

[17] Getma Int’l, 862 F.3d at 45.

 

[18] Id. at 48-49.

 

[19] Id. at 49.

 

[20] Id.

[21] Getma Int’l, 862 F.3d at 50.

 

[22] Id.

 

[23] Id.

By Eric Schleich
ALR Senior Editor, 2017-2018

The National Hockey League’s (“NHL”) Las Vegas Golden Knights became the first major professional sports franchise to be based in Las Vegas after league expansion was unanimously approved by league owners on June 22, 2016.[1] An expansion draft was scheduled for June 20, 2017, allowing the Golden Knights to pick players from other NHL teams in order to create their roster.[2] The expansion draft created major roster shakeups across the NHL and resulted in a salary arbitration proceeding between the Golden Knights and one of their valuable and newly acquired players, Nate Schmidt.[3] NHL salary arbitrations rarely take place; Schmidt’s case was the only one out of thirty filed in the 2017 offseason to reach arbitration and the first to reach a ruling since 2015.[4]

Schmidt was one of Vegas’ most valuable pick-ups in the expansion draft. Schmidt’s career was on an obvious upward trend and he was poised for a breakout season in Washington before Vegas acquired him.[5] Schmidt was looking forward to a large payday through a long-term, guaranteed contract in free-agency in 2018, and his strategy was to get a one-year, $2.75 million deal with Vegas for the 2017-18 season, leaving him available to play the market in 2018.[6] Meanwhile, Vegas’ General Manager George McPhee, realizing Schmidt’s talent and potential, wanted to lock him into a two-year, $1.9 million deal.[7] Both sides were unwilling to budge, leading Schmidt to elect for salary arbitration.

The NHL Collective Bargaining Agreement (“CBA”) provides for a salary arbitration process, allowing Restricted Free Agents to elect to take their club to final and binding arbitration to settle contract disputes involving player salaries.[8] When a case reaches arbitration, both parties submit briefs to the Salary Arbitrator forty-eight hours prior to the hearing.[9] At the hearing, the union for NHL players, the National Hockey League Players’ Association (NHLPA), and its player jointly present their case against the club and the League for a total of ninety minutes for each joint party, including rebuttals.[10] Each side argues why it believes the player should be paid a certain amount of money over a certain period of time. Each side may present evidence allowed by the CBA, such as the player’s various career statistics and the salary of comparable players.[11] The Salary Arbitrator issues its decision within forty-eight hours of the end of the hearing, which will include the term of the contract, the yearly salary, any minor league clauses, and a brief explanation for the decision.[12]

The Salary Arbitrator awarded Schmidt a two-year, $4.45 million contract.[13] While the decision may seem like a drastic deviation from the first two proposed deals, the outcome is fair when one considers the rules of the arbitration and the various interests of both parties. For example, Vegas gets to keep their star for two seasons at a slightly higher price, and Schmidt receives a solid salary for spending two years with Vegas while retaining the opportunity to enter free agency in his prime. This case presents a perfect example of how an in-house alternative dispute resolution process can simplify, streamline, and bring finality to various issues facing sports organizations.            

 

 

[1] Adam Gretz, Las Vegas NHL expansion team approved, will begin play in 2017-2018, CBS Sports (June 22, 2016), https://www.cbssports.com/nhl/news/las-vegas-nhl-expansion-team-approved-will-begin-play-in-2017-18/.

 

[2] Id. (explaining that NHL’s league and draft expanded for the first time since 1997 and 2000, respectively).

 

[3] Jesse Granger, Why Nate Schmidt and Golden Knights went rare NHL arbitration route, Las Vegas Sun (Aug. 8, 2017), https://lasvegassun.com/news/2017/aug/08/why-nate-schmidt-golden-knights-went-rare-nhl-arbi/.

 

[4] Id.

 

[5] Id.

 

[6] Granger, supra note 3; Keith Scheessele, Meet the Golden Knights: Nate Schmidt, The Hockey Writers (Aug. 22, 2017), https://thehockeywriters.com/vegas-golden-knights-nate-schmidt-2/.

 

[7] Scheessele, supra note 6.

 

[8] Nat’l Hockey League Collective Bargaining Agreement art. 12 (2012) (hereinafter “NHL CBA”).

 

[9] Id. art. 12, § 12.9 (b).

 

[10] Id. art. 12, § 12.9 (d).

 

[11]  See Dan Ryan, Spooner vs. the Bruins: How does NHL Arbitration work?, SBNATION: Stanley Cup of Chowder (July 25, 2017), https://www.stanleycupofchowder.com/2017/7/25/16023102/ryan-spooner-arbitration-hearing-how-does-nhl-arbitration-work-nhl-average-salary-arbitration-rights.

 

[12] Id.

 

[13] Granger, supra note 3.

By Chuong Nguyen
ALR Senior Editor, 2017-2018

On the first Monday of each October, the Supreme Court begins a new session.[1] These annual sessions are carefully arranged with cases that have far reaching implications on the future of American jurisprudence. This year Ernst & Young v. Morris (“Morris”), an employment class action waiver case involving the Federal Arbitration Act (FAA), will take center stage as the very first case to be argued in front of the brand-new court.[2]

I.    Background

In Morris, as a condition of employment, Ernst & Young required employees to sign agreements stating that all legal claims against Ernst & Young must be brought through arbitration and in “separate proceedings.”[3]  Despite signing this agreement, two plaintiffs brought a wage and hour collective action suit in New York against Ernst & Young, which was later transferred to the United States District Court for the Northern District of California.[4]  In response, Ernst & Young filed a motion to compel arbitration, which the district court granted.[5]  The Ninth Circuit Court held that an employer violates the National Labor Relations Act (NLRA) if it requires employees to sign a class action waiver as a condition of employment because such requirement interferes with an employee’s right to act in concert under § 7 of the NLRA for the purpose of mutual aid or protection.[6]  The court also held that § 2 of the FAA does not require the enforcement of the class action waiver because the illegality of the waiver stems from the separate proceedings requirement of the waiver and not the requirement to arbitrate itself.[7]

II.  The Stakes are High

With five circuits already weighing in on the enforcement of class action waivers, three in favor[8] and two—including the Ninth—against[9], the writing is on the wall for a Supreme Court showdown. In American Express v. Italian Colors, the Supreme Court essentially prevented courts from invalidating consumer class action waivers—for better or for worse—when it held that no federal statutory right to collective action exists for consumer contracts that require mandatory arbitration.[10] Absent a violation of the law by the service provider, a consumer will be bound by the class action waiver and be forced into arbitration.[11] A similar ruling in this case would undoubtedly bind employees to employment contracts containing class action waivers.

The Petitioner, Ernst & Young, has experience with employee class action waivers. The company recently won on a similar dispute before the Second Circuit.[12] Using the strategy that worked in prior cases—specifically cases in the Second Circuit—the Petitioner in Morris argues that the Supreme Court has repeatedly emphasized a liberal federal policy favoring arbitration agreements.[13] Such policy suggests that the FAA must only be overridden by a contrary congressional command.[14] The Petitioner argues that the Ninth Circuit erred when it failed to use the “contrary congressional command” mode of analysis.[15] The Ninth Circuit skirts this mode of analysis by recognizing employees’ substantive rights to pursue legal claims collectively and thus, finding no contradictions between the NLRA and the FAA.[16]

Not surprisingly, the Respondents, Stephen Morris and Kelly McDaniel, disagree. They argue that a “contrary congressional command” mode of analysis conflicts with Supreme Court precedent.[17] The Respondents contend that, where a term of the arbitration agreement is alleged to be illegal, the only sensible way to commence an analysis of enforceability is to determine if there is illegality.[18] According to the Respondents and the Ninth Circuit, this is more sensible because illegal and unenforceable contract terms do not “magically become legal and enforceable” when they are included in an arbitration agreement.[19]

In a curious move, the Respondents try to defeat the FAA altogether by citing the Norris-LaGuardia Act.[20] They claim that under the plain language of the Norris-LaGuardia Act, the courts of the United States may not enter an order enforcing the separate proceedings clause or compel individual arbitration.[21] The Respondents point to the fact that the Norris-LaGuardia Act contains an express repeal of prior inconsistent statutes, and that the Act was passed by Congress after the FAA, thus repealing any conflicts with the FAA.[22]

With a nod to the United States’ political system of governance, the U.S. Solicitor officially switched the Government’s stance from supporting the Respondents—the employees—to supporting the Petitioner—the employers.[23]

III.            How Will This End?

Based on the questions presented during the oral argument, the Justices seem to be split down their respective ideological lines.[24]  However, the Justices do appear to share a common concern. They are concerned about the unequal bargaining powers inherent in employment contracts.[25] This concern is similar to the concerns expressed in Italian Colors.[26] However, unlike in a consumer contract, the choice of getting another job to avoid a class action waiver may not be a feasible choice. If Ernst & Young prevails in this case, the choice itself may be illusory if all employers add class action waivers into their employee arbitration agreements.

[1] Supreme Court of the United States, https://www.supremecourt.gov/about/procedures.aspx (last visited Oct. 23, 2017).

[2] Supreme Court of the United States, https://www.supremecourt.gov/oral_arguments/argument_cale ndars.aspx (last visited Oct. 23, 2017) (resulting in the first Supreme Court session where newly appointed Justice Neil Gorsuch will preside).

[3] See Morris v. Ernst & Young, LLP, No. 13-16599, 2016 U.S. App. LEXIS 15638, at *4 (9th Cir. Aug. 22, 2016).

[4] Id., at *5.

[5] Id.

[6] Id., at *14 (stating that the NLRA guaranteed an employee’s “right to . . . engage in . . . concerted activities for the purpose of . . . mutual aid and protection”).

[7] Morris, 2016 U.S. App. LEXIS 15638, at *14-17.

[8] See Sutherland v. Ernst & Young LLP, 726 F.3d 290, 299 (2d Cir. 2013); D.R. Horton, Inc. v. NLRB, 737 F.3d 344, 362 (5th Cir. 2013); Cellular Sales of Mo., LLC v. NLRB, 824 F.3d 772, 778 (8th Cir. 2016).

[9] See Lewis v. Epic Sys. Corp., 823 F.3d 1147, 1154 (7th Cir. 2016); Morris, 2016 U.S. App. LEXIS 15638, at *4.

[10] Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2310-11 (2013).

[11] Id. at 2311-12.

[12] See Sutherland, 726 F.3d at 299 (2d Cir. 2013).

[13] Petition for Writ of Certiorari at 15, Morris v. Ernst & Young, LLP (No. 16-300) (U.S. Sept. 8, 2016), 2016 WL 4710181.

[14] Id.

[15] Id. at 15-17.

[16] Id.

[17] Brief of Respondents at 9, Morris v. Ernst & Young, LLP, No. 16-300 (9th Cir. Nov. 21, 2016), 2016 WL 6916215.

[18] Brief of Respondents, supra note 17, at 10-15.

[19] Id.

[20] Id. at 15.

[21] Id. at 15-17.

[22] Id.

[23] Transcript of Oral Argument at 20, Morris v. Ernst & Young, LLP (2017) (No. 16-300), 2017 WL 5629802.

[24] Id.

[25] Id.

[26] Italian Colors, 133 S. Ct. at 2310-11.

By Peter Nelson
ALR Senior Editor, 2017-2018

I.           Introduction and Background

A recent Ninth Circuit case has undercut the enforceability of arbitral awards by allowing for increased judicial scrutiny of arbitral awards. In McProud v. Siller, the Ninth Circuit held that a bankruptcy court was to “give full faith and credit” to a California Superior Court’s ruling confirming the award of attorney’s fees in an arbitration proceeding “to the same extent that California res judicata law would give that judgment preclusive effect.”[1] Broadly, where an arbitration proceeding was later confirmed, issue preclusion applied to any further challenges to the specific proceedings decided by arbitration.[2] In McProud, Charles Siller refused to pay attorney’s fees which were awarded by arbitration and later confirmed by a California Superior Court, and he filed for Chapter 11 bankruptcy.[3] The bankruptcy court disregarded the arbitral award and determined that it was unreasonably high.[4]

On appeal, the district court reversed the decision of the bankruptcy court and decided that “the similarity between the standard for determining the unconscionability of a contingent fee agreement . . . and the bankruptcy court’s standard for determining the reasonable value of the fees suggest[ed] that the issue of an appropriate fee for appellant’s work was necessarily determined and actually litigated in the formal arbitration that took place here.”[5] After a second appeal by Siller, the district court determined that the arbitrator applied a test equivalent to the federal reasonableness test, entitling the award to preclusive effect.[6] Siller appealed the ruling to the Ninth Circuit.

II.  Ninth Circuit’s Analysis

Siller argued that the specific reasonableness standard he was due was under the bankruptcy statute in 11 U.S.C. § 502(b)(4).[7] The Ninth Circuit dismissed this contention by stating that the bankruptcy code offers no novel definition of “reasonable.”[8] Furthermore, the Ninth Circuit exclaims that “[d]etermining a ‘reasonable’ contingent fee cannot be reduced to a mechanical formulation.”[9] In the case of arbitration, “overall reasonableness” is the major criterion in resolving fee disputes.[10]

At the arbitration proceeding, Siller was given an opportunity to present evidence and arguments showing that his fee contract was unconscionable.[11] After considering these arguments, the arbitrator decided that the parties’ fee agreement would determine the amount owed, rather than quantum meruit.[12] The Ninth Circuit saw the arbitrator’s considerations as legitimate and later rejected Siller’s plea to adopt the bankruptcy court’s use of the lodestar method of determining attorney’s fees.[13] In the present case, the Ninth Circuit concluded that a lodestar fee would have been inappropriate “where the client had been litigating for decades, had no money to pay, and had a history of declining to pay his lawyers and suing them for malpractice.”[14] Though denying Siller’s claims, the Ninth Circuit kept the door ajar to potential reductions of future arbitral awards in fee disputes where the issue of the bankruptcy standard of reasonableness would not be identical to any of the issues arbitrated.[15]

III.            Analysis

The Ninth Circuit Court’s analysis in McProud seemingly fails to consider the language of the Federal Arbitration Act (“FAA”), namely § 2, concerning the validity, enforceability and irrevocability of agreements to arbitrate, and § 10, addressing the enforcement of arbitration awards and establishing that there shall be no merits reviews of arbitral decisions by outside courts.[16] The decision seems to ignore the language of § 2 concerning the “irrevocable” status of contractual arbitration agreements to decide disputes by introducing the possibility of reductions to arbitral awards in future cases. By furthering the bankruptcy court’s analysis of the legitimacy of the arbitral award, the Ninth Circuit seems to promote merits review of arbitral decisions, which is against the language of the FAA. Additionally, under § 10 of the FAA,[17] only where it is shown that an award is the product of corruption, fraud, undue means, evident partiality or corruption of the arbitrators, arbitrator misconduct, or where arbitrators seemingly exceed their powers may an arbitration award be vacated.[18] This section makes clear that only flagrant procedural abuse by an arbitrator is grounds for appeal. Though American courts have recognized a common law right to seek clarification of awards, the recognition does not create a right for merits review on appeal.[19] Here, Siller made no such allegation of arbitrator corruption or procedural abuse, and the court should have avoided examining the merits of the arbitrator’s decision.

[1] McProud v. Siller, No. 14-17045, 2017 U.S. App. LEXIS 17897, at *29 (9th Cir. Sept. 14, 2017).

[2] See id.

[3] Id., at *15.

[4] Id.

[5] Siller, 2017 U.S. App. LEXIS 17897, at *16.

[6] Id., at *17-18.

[7] Id., at *30-31.

[8] Siller, 2017 U.S. App. LEXIS 17897, at *31.

[9] Id.

[10] Id., at *31-32.

[11] Id., at *32.

[12] Siller, 2017 U.S. App. LEXIS 17897, at *32.

[13] Id., at *33.

[14] Id.

[15] Id., at *34-35.

[16] See 9 U.S.C. § 2 (2017).

[17] See 9 U.S.C. § 10 (2017).

[18] See 9 U.S.C. § 10 (2017).

[19] See Hardy v. Walsh Manning Sec., L.L.C., 341 F.3d 126, 134 (2d Cir. 2003).

By Alessandra Emini
ALR Senior Editor, 2017-2018

On November 22, 2017, Congress repealed the Consumer Financial Protection Bureau’s (“CFPB”) Arbitration Agreements Rule (“AAR”).[1] Finalized just four months earlier, the AAR prohibited the inclusion of pre-dispute arbitration clauses in contracts for consumer financial products and services that would bar consumers from seeking class action litigation.[2] The final rule would have regulated providers of financial products and services in two significant ways. First, although the rule permitted arbitration clauses, the rule prohibited using pre-dispute arbitration clauses to avoid class action litigation and required providers to disclose this limitation to consumers. Second, providers would be required to “redact and submit to the [CFPB] certain records relating to arbitral proceedings and relating to the use of pre-dispute arbitration agreements in court[,]” and the CFPB would be permitted to publish such records online.[3]  Before the rule could even go into effect, however, Congress passed Joint Resolution 111, which was later signed by President Trump, and effectively repealed the AAR.[4]

This post will discuss why Congress’s first big “legislative win”[5] was not in the best interest of consumers and how Congress effectively disregarded CFPB findings that should have struck people as alarming.  I will focus principally on the AAR’s prohibition of using pre-dispute arbitration clauses to avoid class actions and will argue that proponents of the rule’s removal overestimate the benefits of unilateral, mandatory no-class arbitration when dealing with financial service providers. This post will not, however, discuss the appropriateness of publishing records from arbitral proceedings on a public forum.[6]

1. Arbitration Fees are Larger for Consumers than Class Action Fees and Arbitration Awards Pale in Comparison to Class Action Recovery

Mandatory arbitration costs consumers more money in fees collectively than do class action lawsuits.  On their face, arbitration filing fees appear more favorable to consumers because filing fees are capped at $200, whereas the cost to initiate a class action lawsuit in federal court is $400.[7]  The $400 federal court filing cost, however, is typically fronted by the class counsel, and those consumers who join a class action pay no fees at all.[8]  Furthermore, class counsel’s fees are paid as a percentage of the class’s aggregate recovery, so class members are able to walk away from the class with compensation and no out-of-pocket expense.[9]  In contrast, arbitration requires consumers to pay their own attorney’s fees unless the arbitration agreement or the arbitrators stipulate otherwise.[10]  In some cases, as the CFPB discovered, arbitration clauses awarded the financial service provider’s attorneys’ fees to the consumer if the consumer prevailed.[11]

Proponents of the rule’s removal also incorrectly tout that arbitration provides a greater payout to consumers than class action litigation.  On an individual basis, this is true – the average award for consumers in arbitration was $5,400[12] during the two years the CFPB studied, whereas the average award for consumers in class action litigation was $32.[13]  Looking at the consumer base as a whole, however, shows the lackluster reality of arbitral awards.  Only seventy-eight consumers recovered a combined total of $360,000 in arbitration over the two years studied.[14]  In contrast, thirty-four million consumers recovered a combined total of $1 billion in class actions over the five years studied.[15]  The stark difference in aggregate consumer recovery is evidence enough that financial service providers are incentivized to avoid class actions at the expense of consumers.

2. The Prospect of Arbitration does not Effectively Deter Misconduct by Financial Service Providers

Lawmakers Senator Tom Cotton and Representative Keith Rothfus publicly expressed fear that class actions are such an effective deterrent that financial service providers will set aside larger reserves for litigation, thereby lending less money to small businesses and families.[16]  While no direct proof for this exists—Senator Cotton and Representative Rothfus also provide none—the lawmakers’ article does refer to The Office of the Comptroller of the Currency’s (“OCC”) findings that contradict the CFPB’s results and claim that statistically significant evidence suggests financial service providers will increase the total cost of credit (“TCC”) if mandatory arbitration clauses are eliminated.[17]  Yet, even if the elimination of mandatory arbitration clauses increased the TCC on average by 3.43%, no evidence suggests that consumers would not be willing to pay this price increase to ensure financial service providers are held accountable for abusive and deceptive conduct that consumers would not otherwise pursue absent a class action.  In fact, the OCC even admits that its analysis did not explore how this increase would affect consumer payments or the availability of financial products.[18]

Permitting mandatory no-class arbitration clauses effectively removes the financial incentive for financial service providers to refrain from harming or cheating consumers.[19]  For years, class counsel has served as the private attorney general in protecting consumers.  Even though exorbitant class counsel contingency fees fuel the AAR opponents’ concerns about class litigation, such concerns are not to be dealt with through permitting unilateral, mandatory no-class arbitration clauses.  These concerns are better addressed by amendments to Rule 23 of the Federal Rules of Civil Procedure.  Arbitration is not a resolution for poor lawmaking.

[1] See 12 C.F.R. § 1040 (repealed 2017).

 

[2] Id.

 

[3] Id.

 

[4] Id.

 

[5] Maria B. Earley & Ashley Shively, Senate Nullifies Arbitration Rule in Huge Setback to CFPB, Fin. Reg. Rep. (Oct. 24, 2017), https://www.financialregulatoryreport.com/cfpbupdates/cfpb-rulemaking/senate-nullifies-arbitration-rule-in-huge-setback-to-cfpb/ (“[T]his action in Congress marks the first significant legislative win for the Trump administration.”).

 

[6] See generally Arb. Study: Rep. to Cong., Pursuant to Dodd-Frank Wall Street Reform & Consumer Prot. Act § 1028(a), Consumer Fin. Prot. Bureau (2015), http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf (contributing to the implementation of 12 C.F.R. § 1040) [hereinafter CFPB Arbitration Study].

 

[7] Alan Kaplinsky & Mark Levin, Consumer Arbitration Rule is a Bust, USA Today (July 23, 2017, 4:27 PM), https://www.usatoday.com/story/opinion/2017/07/23/consumer-arbitration-rule-good-for-class-action-lawyers-editorials-debates/103939426/.

 

[8] See, e.g., Law Offices of Michael L. Carver, Class Actions, http://carverlaw.com/wordpress/practice-areas-html/class-actions/ (last visited Dec. 13, 2017) (“We advance costs and filing fees, often amounting to thousands of dollars, on the belief that your case has merit.”).

 

[9] Does Joining a Class Action Lawsuit Cost Me Anything?, ClassAction.com, https://www.classaction.com/faqs/joining-class-action-lawsuit-cost-anything/ (last visited Dec. 14, 2017).

 

[10] CFPB Arbitration Study, supra note 6, at 89.

 

[11] Id. at 90.

 

[12] Note that I chose to use the average award rather than the mean for consistency.  In reality, the mean of $2,700 suggests that it is a more accurate depiction of standard arbitral awards and the average of $5,400 is significantly larger due to one or more outliers. Id. at 170.

 

[13] The Editorial Board, Let Consumers Sue Banks, USA Today (July 23, 2017, 4:24 PM), https://www.usatoday.com/story/opinion/2017/07/23/let-consumers-sue-banks-editorials-debates/493084001/.

 

[14] Note that arbitrations were only studied for a total of two years and class actions were studied for a total of five.  This is likely due to the length of time it takes for a class action to be resolved. CFPB Issues Rule to Ban Companies from Using Arbitration Clauses to Deny Groups of People Their Day in Court, Consumer Fin. Prot. Bureau (July 10, 2017), https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-rule-ban-companies-using-arbitration-clauses-deny-groups-people-their-day-court/.

 

[15] Id.

 

[16] Sen. Tom Cotton & Rep. Keith Rothfus, Repeal the CFPB’s Anti-Consumer Ban on Mandatory Arbitration Clauses, Forbes (July 25, 2017, 12:32 PM), https://www.forbes.com/sites/realspin/2017/07/25/repeal-the-cfpbs-anti-consumer-ban-on-mandatory-arbitration-clauses/#966fc6f7fb06.

 

[17] Off. of the Comptroller of the Currency, Probable Cost to Consumers Resulting from the Consumer Fin. Prot. Bureau’s Final Rule on Arb. Agreements 1 (2017); but see CFPB Arbitration Study, supra note 6, at 396-97.

 

[18] Off. of the Comptroller of the Currency, supra note 17, at 5 (2017).

 

[19] See, e.g., Oren Bar-Gill & Elizabeth Warren, Making Credit Safer, 157 U. Pa. L. Rev. 1, 22 (2008) (“[In 2006,] a credit card issuer . . . raised every customer’s interest rate by 2%.  The rate increase was not tied to changes in the cost of funds or any difference in the customers’ ability to repay. . . . When a handful of customers called to complain, the company immediately apologized and rescinded the increase.  For everyone else – those who were not sophisticated enough to call – the increase stuck.”).

By Theresa Dorsainvil
ALR Senior Editor, 2017-2018

The Third Circuit’s decision in White v. Sunoco highlights the effects of distinguishing signatories and non-signatories and how equitable estoppel affects the arbitrability of claims. The decision shows courts and parties that non-signatories cannot compel arbitration under equitable estoppel, but also that there may be ways of getting around this restriction by highlighting potential loopholes in how other parties may seek to compel arbitration under these circumstances. This case is significant because despite the fact that the court does not enforce the arbitration agreement, the decision nevertheless places arbitration clauses on equal footing with other contracts, thus complying with the Federal Arbitration Act (“FAA”).

The issue in White v. Sunoco was whether Sunoco, as a non-signatory to the Citibank Card Agreement and its arbitration clause, could compel Donald White to arbitrate.[1] White brought a lawsuit against the gasoline company, Sunoco, alleging fraud.[2] White acquired a Sunoco Rewards Card from Citibank in 2013 because Sunoco advertised that users of this rewards card would get a 5-cent per gallon discount either at the pump or on their monthly billing statements.[3] In accordance with the advertisement, White made fuel purchases with the card at various Sunoco gas station locations.[4] After White made these various purchases, he alleged that “‘[c]ontrary to its clear and express representations, Sunoco does not apply a 5¢/gallon discount on all fuel purchases made by cardholders at every Sunoco location. Sunoco omits this material information to induce customers to sign-up for the Sunoco Rewards Credit Card so they frequent Sunoco locations.’”[5] White brought suit against Sunoco arguing that he would not have applied for a Sunoco card or made various gas purchases had he not been under the impression that he would receive these discounts.[6]

Sunoco filed a motion to compel arbitration and attempted to base its standing on the arbitration clause that was in the Citibank Card Agreement.[7] White’s Sunoco rewards card is governed by a card agreement, which he received when he first obtained the card from Citibank.[8] The Citibank card agreement does not mention the word “Sunoco” or a 5-cent per gallon discount,[9] but the account statements that were mailed to White had the Sunoco logo and included e-mail and mailing information for Sunoco. The court found that Sunoco was not a signatory to the card agreement, and White and Citibank were the only parties.[10] Thus, the Third Circuit held that Sunoco was not entitled to compel arbitration of White’s claim under the FAA because it was not a signatory to the Citibank credit card agreement, which was between the consumer and the bank.[11] The court also noted that arbitration involving a non-signatory was not warranted under principles of equitable estoppel.[12]

This court’s decision reminds us that there are many different factors outside of the FAA that affect whether or not a court can compel arbitration. The first factor in this case was whether or not the company was a signatory to the credit card agreement. In this case, the credit card agreement was between the consumer and the bank, so this was undisputed.[13] The next issue addressed was whether arbitration involving a non-signatory is warranted under principles of equitable estoppel.[14] As the court explained, a consumer cannot be forced to arbitrate against a non-signatory according to equitable estoppel because there were no “allegations of concerted conduct” or misconduct.[15] The court also pointed out that the consumer’s claims did not even rely on any of the terms in the credit card agreement with the bank.[16] In pointing out that there were no allegations of concerted conduct or misconduct on behalf of the gasoline company and the bank and also that the consumer’s claims did not rely on any of the terms in the credit card agreement with the bank, the court highlighted potential loopholes in how other parties may seek to compel arbitration under these circumstances.

 

 

[1] White v. Sunoco, Inc., 870 F.3d 257, 261 (3d Cir. 2017).

[2] Id. at 259.

 

[3] Id. at 260.

 

[4] Id.

 

[5] White, 870 F.3d at 260.

 

[6] Id.

 

[7] Id. at 261.

 

[8] Id.

 

[9] Id.

 

[10] White, 870 F.3d at 260-61.

 

[11] Id. at 265.

 

[12] White, 870 F.3d at 265.

 

[13] Id. at 260.

 

[14] Id. at 262-63.

 

[15] Id. at 264.

 

[16] Id.

By Krista Dean
ALR Senior Editor, 2017-2018

One arbitration, countless hearings, and two Circuit Court of Appeals: the suspension of Ezekiel Elliott was a rollercoaster. The following is a breakdown of what happened at each step of the suspension and how small decisions can have a great outcome on the end result.

In September 2017, running back Ezekiel Elliott came off of a sensational rookie season for the Dallas Cowboys. However, Elliott’s sophomore season hung in the balance of arbitrator Harold Henderson. Elliott was suspended by the National Football League (“NFL”) in August of 2017 for alleged domestic violence against Tiffany Thompson. Under NFL policy for allegations of domestic violence, the NFL shall suspend the accused player for six games.[1] The decision to suspend a player is made after the NFL conducts its own investigation, which in this case was led by Kia Roberts and Lisa Friel, as per the NFL Personal Conduct Policy.[2] Roberts and Friel’s investigation determined that there was enough evidence to suspend Elliott, which is what Commissioner Roger Goodell did in the summer of 2017. Elliott appealed his suspension, and pursuant to Article 46 of the collective bargaining agreement (“CBA”), Elliott filed an arbitration claim to determine if his suspension was proper.[3] Goodell appointed Henderson to serve as the hearing officer.

During the arbitration proceedings, Henderson allowed Roberts to testify, and during her testimony, the National Football League Players Association (“NFLPA”) discovered that she did not recommend discipline for Elliott.  Henderson denied the NFLPA’s motion to have Thompson and Goodell testify, and also denied the NFLPA access to the NFL investigation notes.[4] Despite the new information that was released, on September 5, 2017, Henderson affirmed Commissioner Goodell’s suspension of Elliott.[5] For those keeping track: as of September 5, Elliott’s suspension was ON.

Before Henderson ruled on Elliott’s arbitration, Elliott filed suit in the Eastern District of Texas challenging the undetermined hearing. Elliott claimed he was given a fundamentally unfair trial and that the arbitration decision should be vacated. Elliott sought a preliminary injunction, which would allow him to continue playing during his appeal. To succeed in proving that a preliminary injunction is necessary, the NFLPA must show that there is (1) substantial likelihood on the merits; (2) irreparable harm; (3) harm that outweighs the injury of granting an injunction; and (4) a public interest which supports an injunction.[6] In the court’s limited role overseeing arbitrations, Judge Amos Mazzant ruled that “a cloud of fundamental unfairness followed Elliott,” and Henderson’s actions denying key witnesses and documents from being heard at the hearing was considered serious misconduct.[7] Additionally, because Elliott would miss a substantial portion of the sixteen-game season and lose out on the chance to win potential awards and have individual success, Elliott would suffer irreparable harm.[8] Judge Mazzant ruled that the public interest involved the need for the court to step in during particular situations and decide private matters, satisfying the fourth prong to secure a preliminary injunction.

Judge Mazzant acknowledged that the NFLPA did not exhaust all of its remedies before filing suit in district court, a reason that normally calls for dismissal. However, there are three exceptions to this rule, and Judge Mazzant found one in particular persuasive: the employer’s repudiation of the remedial procedures specified in the contract.[9] Because the NFL attempted to hide Roberts’ recommendation against suspension from Commissioner Goodell, the Eastern District of Texas granted Elliott a preliminary injunction, and the suspension was enjoined until a final ruling was made.[10] Judge Mazzant thought that Henderson breached the CBA by denying access to the procedural requests that were filed by the NFLPA. Since the NFL and Henderson both avoided responsibilities in the arbitration process, the exhaustion requirement was unnecessary. Three days after the suspension was affirmed, Elliott’s suspension was now OFF.

The NFL appealed the lower court’s decision to the Fifth Circuit, which found the NFL’s argument that the NFLPA had not exhausted all of its remedies before filing persuasive. Because Elliott and the NFLPA filed for an injunction prior to Henderson rendering his decision, they filed prematurely, and therefore, their injunction claim should not be heard.[11] There existed the possibility that Henderson could have found for Elliott; had that happened, Elliott’s suit would have been inappropriate. Additionally, the Fifth Circuit clarified the repudiation exception, stating if the NFL had not granted Elliott a hearing, then the NFL would have repudiated by not abiding by the arbitration process established. Since the NFL complied with arbitration proceedings, the NFL did not repudiate the contract and therefore no exception existed. For these reasons, the Fifth Circuit vacated the lower court’s decision and remanded to the lower court so that the suit could properly be dismissed.[12] After the Fifth Circuit vacated the lower court’s preliminary injunction on October 12 (week five of the NFL season), Elliott’s suspension was ON.

When Henderson affirmed Commissioner Goodell’s decision, the NFL filed in the Southern District of New York, where the NFL is headquartered, to affirm the suspension. The district court decided, using the previously mentioned prongs of the preliminary injunction elements, that Elliott would sustain irreparable harm from an improper suspension because the balancing factors weighed heavily in Elliott’s favor. Elliott was “deprived of the opportunities to explore pertinent and material evidence” when Henderson denied him access to the investigation notes and allowed Thompson and Goodell to testify at the trial.[13] As a result, a preliminary injunction was granted, but was not effective until either October 30 or at the time another motion for a preliminary injunction was heard and decided by another judge in New York, whichever was earlier. At this point, it seemed Elliott’s suspension would be OFF.

Judge Katherine Polk Failla appeared to be one of the last hills on the Elliott rollercoaster. Judge Failla’s opinion regarding the injunction, however, was far different from what Judge Mazzant decided. There has never been a ‘fundamental fairness’ award applied to the Labor Management Relations Act in the Second Circuit, like it is applied to the Federal Arbitration Act.[14] Judge Failla concluded that the NFLPA did not establish that Henderson’s decision was fundamentally unfair for three reasons: (1) Friel testified that Roberts clearly communicated her concern with Thompson’s credibility to the Commissioner; (2) the CBA does not require an arbitrator to compel anyone to testify in a hearing; and (3) the CBA does not compel the Commissioner to testify in a hearing.[15] Judge Failla rejected the NFLPA’s argument that Elliott would suffer irreparable harm by missing out on awards, because those effects are either “speculative or deserving of a monetary award rather than an injunction.”[16] The balancing test would favor the NFL because it collectively bargained for a process that was being obstructed by the courts. For those reasons, the entire league’s concerns were found to be more important than Elliott’s personal concerns of possibly not receiving individual awards. The public interest weighs in favor of the NFL because the public is concerned about the NFL’s ability to control its members for their off-field misconduct. Because the NFLPA did not meet its burden in proving the elements, the NFLPA’s preliminary injunction was denied.[17] On October 30, 2017 (week eight of the NFL season) Elliott’s appeal was ON.

Elliott appealed Judge Failla’s order denying Elliott a preliminary injunction to the Second Circuit, but in a two-paragraph decision, he was denied by the appellate court because he “failed to meet the requisite standard” under Second Circuit law.[18] As of November 9th (week ten of the NFL season), Elliott’s opinion remained ON. Elliott appealed this decision; however, on November 15, 2017, Elliott dropped his appeal. By dropping his appeal, this marked the end of the road for the legal saga of Ezekiel Elliott. The final decision: Elliott’s suspension is ON and will be served until Christmas Eve.

Elliott has not yet come forward to explain his reasoning for dropping his appeal, but this saga can teach many lessons: wait to challenge an administrative decision in judicial court until the administrative decision is rendered, and always remember the relevant case law in the state where your adversary is located. The rollercoaster ride has finally ended, and Elliott has now exited the ride of his legal campaign, accepting the full six-game suspension.

[1] Roger Goodell, Letter to NFL Owner, NFL.com (Aug. 28, 2014), http://www.nfl.com/static/content/public/photo/2014/08/28/0ap3000000384873.pdf.

 

[2] Nat’l Football League Personal Conduct Policy, NFL Labor (2013), https://nfllabor.files.wordpress.com/2013/06/personal-conduct-policy.pdf.

 

[3] 2011 Nat’l Football League Collective Bargaining Agreement art. 46, § 1(a) (Aug. 4, 2011), archived at https://nfllabor.files.wordpress.com/2010/01/collective-bargaining-agreement-2011-2020.pdf.

 

[4] NFL Players Ass’n v. NFL, No. 4:17-CV-00615, 2017 U.S. Dist. LEXIS 146027, at *4-5 (E.D. Tex. Sept. 8, 2017).

 

[5] NFL Players Ass’n, 2017 U.S. Dist. LEXIS 146027, at *6.

 

[6] Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th Cir. 2008).

 

[7] NFL Players Ass’n, 2017 U.S. Dist. LEXIS 146027, at *24.

 

[8] NFL Players Ass’n, 2017 U.S. Dist. LEXIS 146027, at *26-27.

 

[9] Id., at *9-10.

 

[10] Id., at *30.

 

[11] NFL Players Ass’n v. NFL, No. 17-40936, 2017 U.S. App. LEXIS 20052, at *10-11 (5th Cir. Oct. 12, 2017).

 

[12] NFL Players Ass’n, 2017 U.S. App. LEXIS 20052, at *10-11.

 

[13] NFL Mgmt. Council v. NFL Players Ass’n, No.: 17-cv-06761-KPF, 2017 U.S. Dist. LEXIS 171995, at *5 (S.D.N.Y. Oct. 17, 2017).

 

[14] NFL Mgmt. Council v. NFL Players Ass’n, 17 Civ. 6761 (KPF), 2017 U.S. Dist. LEXIS 179714, at *18-19 (S.D.N.Y. Oct. 30, 2017).

 

[15] Id., at *22-25.

 

[16] Id., at *26.

 

[17] Id., at *31.

 

[18] NFL Mgmt. Council v. NFL Players Ass’n, 17 Civ. 6761 (KPF), 2017 U.S. Dist. LEXIS 179714 (2017) (No. 17-3510) (denying injunction pending appeal).

By Calla Abrunzo
ALR Senior Editor, 2017-2018

The Supreme Court of India (the “Supreme Court”) recently ruled in TRF Limited v. Energo Engineering Projects Limited that an individual who is ineligible to be appointed as an arbitrator is also barred from nominating someone as an arbitrator.[1]  Energo Engineering Projects Limited (“Energo”) is in the business of acquiring thermal power plant equipment for installation. The arbitration clause that led to the dispute was a unilateral arbitration clause within the purchase order Energo furnished to TRF Limited (“TRF”).  When disputes over TRF’s encashment of a bank guarantee arose between the parties, TRF invoked arbitration on December 28, 2015.[2]

The arbitration clause provided that any dispute connected to the agreement was to be submitted to arbitration where the sole arbitrator would be Energo’s Managing Director, or such Managing Director’s nominee.[3]  TRF objected to the arbitrator appointment procedure provided for in the purchase order and requested the appointment of an arbitrator outside of the specific terms of the purchase order.  Energo rejected TRF’s request and appointed an arbitrator pursuant to the contractual terms on January 27, 2016.[4]  TRF thereafter filed an application for the appointment of an arbitrator pursuant to the relevant provisions of India’s Arbitration and Conciliation Act (the “Act”).[5]  In confirming the arbitrator’s appointment, the Delhi High Court concluded that because Energo’s appointed arbitrator provided the proper disclosures, there were no doubts about his impartiality and that the power to nominate was not affected.[6]  TRF questioned the correctness of the Delhi High Court’s order and raised certain claims for the Supreme Court’s review.[7]

The Act was amended in 2015 to ensure neutrality of arbitrators, among other things.[8]  The amendment most pertinent to this case appears in Section 12(5) of the Act.  Section 12(5) provides that:

Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. . . .[9]

For example, an individual who is an employee, consultant, or advisor for either of the parties to the dispute cannot act as an arbitrator for that dispute.[10]  Here, Energo’s Managing Director was ineligible to be appointed as an arbitrator pursuant to the Seventh Schedule of the Act, and neither of the parties contested this ineligibility.[11]  Instead, the prevailing question before the Indian Supreme Court was whether an individual who is an “ineligible arbitrator” is further ineligible to nominate an arbitrator.[12]

The Supreme Court ultimately held that where an arbitrator is found to be ineligible by operation of law, the ineligible arbitrator is also precluded from nominating an arbitrator for the dispute.[13]  The three-judge panel reasoned that if nomination of an arbitrator by an ineligible arbitrator were allowed, that would be equivalent to the ineligible arbitrator conducting the arbitration proceedings himself.[14]  The Supreme Court relied on various precedents, as well as the Latin maxim “qui facit per alium facit per se,” which means “what one does through another is done by oneself,” in reaching its holding.[15]  Therefore, in situations such as this, the parties must mutually agree on a choice of arbitrator or request that the Supreme Court appoint one for them.[16]

 

This ruling clarifies certain procedural aspects of appointment, especially with respect to the 2015 amendments to the Act, given the conflicting judicial decisions[17] prior to the Supreme Court decision.[18]  Although some may believe legislative intervention would provide better clarification for such issues, the Supreme Court’s judgment in this case is a positive step toward increasing the impartiality of India’s arbitration system.[19]

[1] TRF Ltd. v. Energo Eng’g Projects Ltd., (2017) SCC OnLine SC 692, 55-56 (India), https://indiacorplaw.in/wp-content/uploads/2017/07/23898_2016_Order_03-Jul-2017-1.pdf.

 

[2] Arjun Gupta & Moazzam Khan, Curtain Calls of Disqualified Arbitrators, Nishith Desai Associates (July 21, 2017), http://www.nishithdesai.com/information/news-storage/news-details/article/curtain-calls-of-disqualified-arbitrators.html.

 

[3] Pranav Rai, Ineligible Arbitrator Also Ineligible to Nominate Arbitrator: Indian Supreme Court – Does Judgment Open Pandora’s Box?, Kluwer Arb. Blog (Oct. 18, 2017), http://arbitrationblog.kluwerarbitration.com/2017/10/18/ineligible-arbitrator-also-ineligible-nominate-arbitrator-indian-supreme-court-judgement-opens-pandoras-box/.

 

[4] See Gupta & Khan, supra note 2.

 

[5] Gupta & Khan, supra note 2.

 

[6] See TRF Ltd., (2017) SCC OnLine SC 692, at 6.

 

[7] Id.

 

[8] Vikas Goel, India: Highlights of Amendment to the Arbitration and Conciliation Act 1996 Via Arbitration Ordinance 2015, Mondaq (Dec. 2, 2015), http://www.mondaq.com/india/x/448666/Arbitration+Dispute+Resolution/Highlights+Of+Amendment+To+The+Arbitration+And+Conciliation+Act+1996+Via+Arbitration+Ordinance+2015.

 

[9] The Arbitration and Conciliation (Amendment) Act, No. 3 of 2016, India Code (2015), http://www.indiacode.nic.in/acts-in-pdf/2016/201603.pdf.

 

[10] Asha Treesa Joseph, Judgment Analysis: Ineligible Arbitrator Cannot Nominate Another Arbitrator Says the Supreme Court, LiveLaw (July 29, 2017, 12:53 PM), http://www.livelaw.in/ineligible-arbitrator-cannot-nominate-another-arbitrator-says-supreme-court/.

 

[11] See Rai, supra note 3 (adapting the Seventh Schedule from the International Bar Association Guidelines on Conflicts of Interest in International Arbitration and outlining specific criteria that make candidates ineligible to be appointed as arbitrators).

 

[12] Id.

 

[13] See TRF Ltd., (2017) SCC OnLine SC 692, at 55-56.

 

[14] Id.

 

[15] See Rai, supra note 3.

 

[16] See Gupta & Khan, supra note 2.

 

[17] See TRF Ltd., (2017) SCC OnLine SC 692, at 22-35 (distinguishing the following cases and explaining which reasoning the panel was persuaded to follow: Deep Trading Co. v. Indian Oil Corp., (2013) 4 SCC 35 (India); Newton Eng’g & Chems. Ltd. v. Indian Oil Corp. Ltd., (2013) 4 SCC 44 (India); Mun. Corpn., Jabalapur et al. v. Rajesh Constr. Co., (2007) 5 SCC 344 (India); and N. Ry. Admin. v. Patel Eng’g Co. Ltd., (2008) 10 SCC 240 (India)).

 

[18] Id.

 

[19] See Rai, supra note 3.