By: Patrick Ouellette

Arbitration Law Review, Senior Editor, 2020-2021

In October of 2019, the California Governor signed into effect AB-51, which prohibited employers from forcing their employees to sign arbitration agreements as a condition for continued employment.[1] Under the law, employees could litigate claims that were previously covered under the strict arbitration agreements, such as harassment, discrimination, and wrongful termination suits.[2] These suits could result in embarrassment or negative publicity for the employer. However, immediately after signing the bill to be effective January 2020, a federal court issued a temporary restraining order (“TRO”) on the bill. After litigating the claim, a judge found the law to be preempted by the FAA.[3]

California legislature passed the bill to undo the unfair bargaining power that employers have over their employees. Although courts have been clear on their position concerning arbitration, California in particular has felt that mandatory arbitration forces employees to waive their rights for nothing in return. Many companies can use the mandatory arbitration as a shield that prevents systemic issues from being litigated in open court. Of course, companies may argue that these agreements prevent a potential adversarial party from using the court of public opinion against the company. However, it is difficult to argue that the employer is the one who holds all the bargaining power with respect to the arbitration agreement.

But was AB-51 the best way to rectify the inequities created by mandatory arbitration agreements? AB-51 had language that clarified that it was not attempting to preempt any cases that would be controlled by the FAA. The FAA itself contains a preemption clause, which states that except “upon grounds as exist at law or in equity for the revocation of contract,” courts are required to enforce arbitration agreements.[4] Since the purview of the FAA is so vast, the FAA would likely control all cases that AB-51 hopes to control. It is likely that AB-51 would have been largely toothless legislation, which may have contributed to the judge’s decision to strike down the order.

California has long been trying to find ways around the FAA’s wide mandate, derived from the expansive language and continued support at the Supreme Court’s level.[5] It is likely that AB-51 represents just another chapter in California’s fight for employee rights. However, due to the overwhelming support that the Supreme Court has shown for arbitration as a way of settling disputes, it is challenging to see how California make any headway in their continued fight.

[1] California Assembly Bill No. 51.

 

[2] Id

 

[3] Chamber of Commerce of the United States v. Becerra, 438 F. Supp. 3d 1078 (E.D. CA 2020)

 

[4] 9 U.S.C. §2

[5] Concepcion v AT&T Mobility LLC, 563 U.S 333 (2011)

By: Kyle Yager

Arbitration Law Review, Senior Editor, 2020-2021

In Lamps Plus, Inc. v. Varela, the Supreme Court of the United States shut off the proverbial light switch on parties’ ability to compel class arbitration when an employment agreement is ambiguous to it.[1] The Court illuminated the uncertainty by explaining that parties have the power to turn on the lights themselves; there simply must be a contractual basis more than ambiguity to enforce class arbitration.[2]

In 2016, a hacker deceived a Lamps Plus, Inc. employee into divulging the tax information of approximately 1300 company employees.[3] This resulted in the fraudulent filing of a federal income tax return in the name of Lamps employee Frank Varela.[4] Varela subsequently filed a putative class action against Lamps representing employees whose information had been compromised.[5]

Relying on an arbitration clause in the employment contract, Lamps moved to compel arbitration on an individual basis and dismiss the suit.[6] The District Court dismissed the suit and granted the motion to compel arbitration, but only on a class wide basis.[7] On appeal, the Ninth Circuit affirmed.[8] Lamps then petitioned for a writ of certiorari, which the Supreme Court granted.[9]

The Court reversed, holding that the Federal Arbitration Act (“FAA”) bars courts from compelling “class arbitration absent an affirmative contractual basis for concluding the parties agreed to do so.”[10] The Court reasoned that class arbitration is both significantly different than “traditional individualized arbitration” and it subverts its most important benefits.[11] Also, the Court explained that its holding “is consistent with a long line of cases holding that the FAA provides the default rule for resolving certain ambiguities in arbitration agreements.”[12] Accordingly, the Court determined that courts may not infer consent to class arbitration from an ambiguous agreement.[13]

Overall, the decision shines light on the uncertainty regarding ambiguous arbitration agreements and class arbitration.[14] “[A] flickering light as to whether an arbitration agreement provides for class arbitration will not do.”[15] Unless the parties make it crystal clear that they “agreed to arbitrate on a class-wide basis, it is going to be lights out for any putative class.”[16]

The Court’s decision marks a win for employers who prefer to arbitrate workplace claims and consumer disputes on an individual basis.[17]

[1]. Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019).

 

[2]. Id. at

 

[3]. Id. at 1412.

 

[4]. Id.

 

[5]. Id. at 1413.

 

[6]. Lamps Plus, 139 S. Ct. at 1413.

 

[7]. Id.

 

[8]. Id.

 

[9]. Id.

 

[10]. Id. at 1416.

 

[11]. Lamps Plus, 139 S. Ct. at 1415.

 

[12]. Id. at 1418.

[13]. Id. at 1419.

 

[14]. See Pravin R. Patel, Lamps Plus: Supreme Court Turns Out the Lights on Class Arbitration, ABA (April 30, 2019), https://www.americanbar.org/groups/litigation/committees/mass-torts/practice/2019/lamps-plus-supreme-court-turns-out-the-lights-on-class-arbitration/.

 

[15]. Id.

 

[16]. Id.

 

[17]. See id.

 

By: Patrick Brogan

Arbitration Law Review, Senior Editor, 2020-2021

The Fourth Circuit Court of Appeals vacated a Northern District Court of West Virginia’s denial of DIRECTTV’s motion to compel arbitration.[1]

Diana Mey sued DIRECTV alleging that the company violated the Telephone Consumer Protection Act (TCPA) by calling her cell phone to advertise DIRECTV products and services even though her phone number was listed on the National Do Not Call Registry. DIRECTV moved to compel arbitration, asserting that the dispute was covered by an arbitration agreement in the contract governing Mey’s cellular phone service from DIRECTTV affiliate: AT&T Mobility (“AT&T”).

The arbitration agreement in question was extremely broad in both scope and duration. The relevant language of the agreement stated: AT&T and you agree to arbitrate all disputes and claims arising out of or relating to any aspect of the relationship between us, whether based in contract, tort, statute, fraud, misrepresentation or any other legal theory; claims that arose before this or any prior Agreement; and claims that may arise after the termination of this Agreement. Finally, the agreement defines any references to AT&T to also include any affiliates of AT&T.

Federal District Judge John Preston Bailey of the Northern District Court of West Virginia expressed his concern with the broad arbitration agreement, which has been referred to as an “infinite arbitration clause.”^[2] In denying DIRECTTV’s motion to compel arbitration, Judge Bailey stated that enforcing this arbitration clause would pave the road to more absurd results that the parties could not have reasonably anticipated when entering the contract.

DIRECTTV appealed the decision to the Fourth Circuit Court of Appeals, where the court ultimately vacated the district court’s order. Writing for the majority, Judge Allison Jones Rushing acknowledged the broad nature of the arbitration agreement, but quickly noted that Ms. Mey did willingly enter into a contract that included an agreement to arbitrate. In vacating the district court’s decision, Judge Rushing stated that the lower court applied the wrong standard when asking whether the arbitration agreement could be interpreted not to cover this dispute (emphasis added). Rather, the standard to apply, based in precedent, was whether the arbitration agreement is “‘susceptible of an interpretation that covers the asserted dispute.”^[3] The Circuit Court, applying this standard and interpreting the arbitration agreement based on its plain language, ruled that Mey’s TCPA claims concerning DIRECTV’s advertising calls fell within its scope of the arbitration agreement.

The favorable ruling for DIRECTTV in this case showcases the contractual nature of arbitration agreements and a court’s commitment to resolving disputes regarding the scope of arbitrable issues in favor of arbitration. With this ruling now in the pocket of corporations, consumers who actually take the time to read sales contracts should be on the lookout for agreements to arbitrate “all disputes” involving “all affiliates.”

[1] Mey v. DIRECTV, 971 F.3d 284 (4th Cir. 2020).

[2] See Infinite Arbitration Clauses, 168 U. Pa. L. Rev., at 639.

 

[3] Am. Recovery Corp. v. Computerized Thermal Imaging, Inc., 96 F.3d 88, 92 (4th Cir. 1996).

 

 

By: Kyle Yager

Arbitration Law Review, Senior Editor, 2020-2021

On January 15, 2019, the Supreme Court of the United States unanimously ruled in favor of a long-haul truck driver, Dominic Oliviera, who filed a putative class action against his employer for failing to pay employees minimum wage.[1] The Court was tasked with deciding (1) whether a court has the authority to determine if a section 1 exclusion of the Federal Arbitration Act (“FAA”) applies before ordering arbitration, and (2) whether Oliviera’s classification as an independent contractor fell within the FAA’s exclusion of coverage of certain employment contracts.[2] The Court answered both questions in the affirmative.[3] As a result, economists have speculated about a potential ripple effect on consumer prices.[4]

Oliviera filed suit against New Prime, an interstate trucking company and his employer, alleging that, notwithstanding his employment contract labelling him an independent contractor, the company treated its drivers as employees and failed to pay them the statutorily due minimum wages.[5] New Prime responded by requesting the district court to invoke its statutory authority under the FAA and compel arbitration pursuant to the parties’ contract.[6] Notably, the FAA generally requires courts to enforce private arbitration agreements.[7]

The main dispute between the two parties hinged on section 1 of the FAA and court’s authority over it.[8] Oliviera argued that, regardless of his classification as an employee or independent contractor, he was exempted from the FAA’s coverage because his agreement with New Prime was a “contract of employment of a worker engaged in interstate commerce.”[9] Thus, Oliveira contended, the district court had no authority to compel arbitration.[10]

Conversely, New Prime contended that Oliviera’s status as an independent contract did not qualify him for the exemption, and, more importantly, that determination should be left to the arbitrator and not the court.[11]

The district court ultimately sided with Oliviera, and the First Circuit affirmed on appeal.[12] The First Circuit held that, in conflicts such as this one, court’s should determine whether the parties’ contract is included within the FAA’s scope prior to compelling arbitration pursuant to the statute.[13] The First Circuit also held that the FAA’s section 1 exclusion removed both employee-employer relationships and independent contractors from coverage.[14] New Prime subsequently appealed to the Supreme Court.[15]

The Supreme Court agreed and affirmed the First Circuit’s ruling.[16] The Court reasoned that, in order to compel arbitration, courts must first “know whether the contract itself” is covered by the FAA.[17] Further, the Court relied on the historical definition and context of “contracts of employment” at the time of the FAA’s drafting to determine that independent contractors were intended to be included in the FAA’s exclusionary provision.[18]

The Court’s decision “marks a rare win for workers at the high court.”[19] However, “[t]his is only the first phase of a battle.” [20] The next phase will be to determine whether these agreements would be enforceable under state law.[21]

Notably, the Court’s decision may have a significant causal sequence in the economy.[22] Some speculate that the decision’s impact could result in higher wages for truckers. [23] Further, if companies are forced to treat these independent contractors as employees, it could result in higher operating costs. This, in turn, could result in a considerable increase in consumer prices. [24]

[1]. New Prime Inc. v. Oliveira, 139 S. Ct. 532, 544 (2019).

[2]. Id. at 536.

[3]. Id. at 534.

[4]. See Tucker Higgins, Supreme Court, missing a justice, considers trucking case that could rattle the economy, CNBC (Oct. 3, 2018), https://www.cnbc.com/2019/01/15/transportation-stocks-sink-after-scotus-sides-with-trucker-against-employer.html.

[5]. New Prime, 139 S. Ct. at 536.

[6]. Id.

[7]. Id.

[8]. Id.

[9]. Id. (alterations omitted).

[10]. New Prime, 139 S. Ct. at 536.

[11]. Id. at 567.

[12]. Id.

[13]. Id.

[14]. Id.

[15]. Id.

[16]. Id. at 544.

[17]. Id. at 537.

[18]. Id. at 542–44.

[19]. Higgins, supra note 4.

[20]. Id.

[21]. Id.

[22]. See id.

[23]. Id.

[24]. Higgins, supra note 4.

 

By: Patrick Ouellette

Arbitration Law Review, Senior Editor, 2020-2021

Arbitration was designed to follow a reliable cycle. The parties would mutually agree to an arbitrator to settle disputes in lieu of going to court. Once a dispute arises, one or both of the parties would exercise the arbitration clause, where a previously agreed on party would step in to settle the disagreement. Following the parties presenting their case, the arbitrator makes a ruling, which is considered final in the eyes of the court. The court can only step in to modify or vacate an award when an arbitrator has overstepped their authority. Following the award, the arbitrator’s authority is completely dismissed, as their position is considered functus officio.

However, arbitration has likely evolved to a level that the drafters of the FAA could not have anticipated. Supreme Court decisions have validated the use of arbitration to resolve disputes in almost any area of life.[1] As a result, arbitration is being used to decide complex issues in highly regulated and complex fields. These complex arbitration proceedings likely come with equally lengthy rulings. Under the rules of arbitration, once the arbitrator issues the ruling, the position should be functus officio.

With difficult rulings on esoteric subjects, it is not a surprise that frequently an arbitrator’s rulings are considered ambiguous and require clarification on the ruling the arbitrator delivered. Parties have frequently asked the courts to clarify an arbitrator’s decision.[2] However, parties typically find this a fruitless avenue, as courts have been extremely reluctant to clarify or interpret decisions from an arbitrator.[3] The most recent example comes from the Second Circuit, where courts have instructed the parties to reenter arbitration to allow the arbitrator to be the final voice on an ambiguous decision.[4] The court decided that this line of reasoning keeps with other circuits rulings, joining the Third, Fifth, Sixth, Seventh, and Ninth circuit in further insulating arbitration proceedings from the purview of traditional litigation.[5]

It will be interesting to see is how courts will deal with situations where the original arbitrator will not be available to clarify on a decision when ambiguity arises. With complex issues being litigated, it is likely that issues related to the ambiguity of a decision will not be discovered until months or years after the arbitration proceedings. Original arbitrators may have moved on, retired, or passed away before ambiguity needs to be rectified. It remains to be seen how courts will decide on clarification issues when the only party that can clarify no longer is available to provide this service. Regardless, it is certain that arbitrators who arbitrate complex issues can expect not to remain functus officio for a long period of time.

[1] Doctor’s Associates Inc. v. Cassarotto, 517 U.S. 681 (1996)

[2] General Re Life Corp. v. Lincoln National Life Insurance Company, 909 F.3d 544, 546 (2d Cir., 2018)

[3] 9 U.S.C. §10(4)

[4] General Re Life Corp., 909 F.3d 546

[5] Id. at 548-59

By: Patrick Brogan,

ALR Senior Editor, 2020-2021

The Eleventh Circuit Court of Appeals reversed a District Court for the Southern District of Florida decision granting a motion to vacate an arbitration award on the grounds that the arbitrators exceeded their powers.[1]

The arbitration award recipient, Christian Gherardi, was an employee of appellee, Citigroup Global Markets Inc. (“Citi”), for nearly twenty years prior to Citi’s 2015 termination of Gherardi for alleged abusive behavior towards colleagues. Citi and Gherardi were parties to an arbitration agreement requiring “all employment-related disputes” to be arbitrated “under the auspices of the Financial Industry Regulatory Authority, Inc.”

Gherardi initiated arbitration against Citi claiming defamation and wrongful termination in violation of both the anti-retaliation provision of Citi’s employee handbook and the common law of securities arbitration.

The arbitration panel awarded Gherardi nearly $4 million, including $3,452,000 as compensatory damages for wrongful termination and the arbitrators did not provide their findings or reasoning for the award to the parties. Citi moved to vacate the award in federal district court and the district court granted the motion to vacate the wrongful termination portion of the award. In granting the motion to vacate, the district court, citing Section 10(a)(4) of the Federal Arbitration Act (“FAA”), determined that the arbitrators “exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.”

On appeal, the Eleventh Circuit Court reversed the district court’s decision to grant the motion to vacate the award. Writing for the majority, Circuit Judge Britt C. Grant stated that “[t]he district court erred by substituting its own legal judgment for that of the arbitrators” when reviewing the merits of the arbitration ruling. Citing the FAA, Judge Grant claimed that “some interpretive errors will go uncorrected,” however, when Citi chose to sign the arbitration agreement, they agreed to live with the results of any subsequent arbitral decision and is not entitled to a mulligan in federal court.

In response to the district court’s determination that the arbitrator’s exceeded their powers, the Eleventh Circuit stated that arbitrators do not exceed their powers when they make errors, even “a serious error.”[2] The court acknowledged that it may be difficult for individuals involved in the adjudicative process of litigation to defer entirely to the arbitrator’s interpretation of a contract, but the FAA demands that they do just that. Therefore, Gherardi’s appeal turned on whether the arbitrator interpreted the parties’ contract, not whether the arbitrator got its meaning right or wrong. In answering this question, Judge Grant stated that “if an agreement assigns a dispute to arbitration, the arbitrators do not exceed their authority when they resolve that dispute—regardless of the outcome.”[3]

The Eleventh Circuit’s decision in this case is a reminder of the binding nature of arbitration awards required by the FAA. The court characterized a losing party’s inability to appeal an arbitrator’s decision in court as a tough pill to swallow. Be that as it may, it is the pill the party agreed to take when signing the agreement to arbitrate.

[1] Gherardi v. Citigroup Global Mkts. Inc., No. 18-13181 (11th Cir. Sept. 17, 2020).

[2] Id. citing StoltNielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671 (2010).