Arbitration, Mediation & Alternate Dispute Resolution

Federal question subject matter jurisdiction is easy to describe:  a party can bring an action in federal court if its claim is based on federal law.  However, the determination of whether such a federal question exists is not very easy when a party is seeking to confirm, modify or vacate an arbitration award in federal court pursuant to the Federal Arbitration Act (“FAA”) §§ 9-11.  Does the “federal question” have to be an element of the petition itself?  Or is it enough that a claim in the underlying arbitration is based on federal law?  The federal circuit courts are split on that issue.  Consequently, in the absence of diversity jurisdiction, the determination of whether a post-arbitration award motion under the FAA will have to be made in state court or federal court may depend on the jurisdiction in which the motion is to be made.

For an arbitration agreement to be enforceable, the parties must have a reasonable opportunity to understand its terms.  See Fagerstrom v. Amazon.com, Inc., 141 F. Supp. 3d 1070 (S.D. Cal. 2015).  With this principle in mind, the U.S. Court of Appeals for the Ninth Circuit commented in 2006, regarding the enforceability of an arbitration clause that was prominent in a contract, “You’d have to be blind to miss this warning.  There was no surprise here.”  Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1309-10 (9th Cir. 2006) (en banc) (emphasis added).  But what if the plaintiff in Nagrampa had been blind, or was otherwise unable reasonably to read, or to understand, or to appreciate the significance of the arbitration clause by virtue of a disability or a more temporary impairment?

Want to give up a contractual right to arbitrate?  Easy.  Don’t seek to enforce it.  For example, just litigate for awhile and don’t mention your arbitration clause.  The court has no obligation sua sponte to raise or enforce your contractual right if you choose not to.

The Federal Arbitration Act (“FAA”) §7 (9 U.S.C. §7) enables arbitrators to “summon … any person to attend before them or any of them as a witness and in a proper case to bring with him or them any [document] which may be deemed material as evidence in the case.”

The use of third party funding of arbitration and litigation proceedings provides broader access to formal claim resolution mechanisms, but that benefit may come with some unique issues for the uninitiated.  However, forewarned is forearmed.  In a prior post, we discussed the recoverability in arbitration proceedings of third party funding costs. This post identifies the discoverability issues in arbitration concerning third party funding.

Gateway issues of arbitrability are presumptively for a court, rather than an arbitrator, to decide in the first instance. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). But arbitration is a creature of contract, and the parties to an arbitration agreement ultimately have the power to determine who is to decide such issues. Hence, that presumption may be rebutted by the parties’ clear and unmistakable manifestation of their mutual intention that an arbitral tribunal should have the exclusive authority to decide arbitrability issues in the first instance. Id.; Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 77, 83 (2002). While the federal courts have been identifying examples of the practical application of those principles, many questions are still unanswered and some have barely been posed.

The U.S. Supreme Court has decided that the Federal Arbitration Act (“FAA”) requirement that courts enforce arbitration agreements according to their terms includes the parties’ agreement to have an arbitrator decide “not only the merits of a particular dispute, but also ‘gateway’ questions of ‘arbitrability’....”  Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272 (U.S. Jan. 8, 2019).  (As is customary, the rookie Justice (Kavanaugh, J.) delivered the Court’s unanimous opinion.)  This judgment, issued little more than two months after oral argument, shatters the “wholly groundless” doctrine, which purported to enable federal courts to adjudicate gateway arbitrability issues notwithstanding the parties’ clear and unmistakable delegation of such issues to an arbitral tribunal, if the court decided that the argument for arbitrability was “wholly groundless.”  (The Courts of Appeals were split on the viability of that doctrinal exception.)

In a previous post, we addressed what may happen when a defendant in federal litigation seeks to compel arbitration under Ch. 1 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4, but the applicable arbitration agreement specifies a place of arbitration that is outside the geographic jurisdiction of the federal court.  (See https://www.mintz.com/insights-center/viewpoints/2017-07-spectre-haunts-motions-compel-arbitration-venue.)  But what approaches are available to a defendant when a plaintiff files suit in a state court, the claim is subject to an arbitration agreement, and the agreed place of arbitration is in a different state? 

The Hong Kong International Arbitration Centre (“HKIAC”) has promulgated a new set of Administered Arbitration Rules (“AAR”), effective November 1, 2018.  Among those rules are Articles 27-30 concerning the HKIAC’s powers to join additional parties in an arbitration, to consolidate arbitrations, to consolidate related claims in a single arbitration, and to coordinate related unconsolidated arbitral proceedings.  Those powers, which the HKIAC can exercise without the consents of the parties to any bilateral arbitration agreement, are not trivial; among other things, they arguably institutionalize pathways to collective or opt-in class arbitration proceedings.

The Seventh Circuit Court of Appeals has joined five other Circuits in determining, unremarkably, that class or collective arbitrability is a gateway question that is presumptively for the court to decide.  It then apparently ignored the issue of whether the parties delegated such arbitrability questions to an arbitrator.  See Herrington v. Waterstone Mortgage Corp., No. 17-3609 (7th Cir. Oct. 22, 2018).  (Yet we may infer from the Court’s decision that incorporation by reference in an arbitration agreement of the Employment Arbitration Rules of the American Arbitration Association does not constitute a clear and unmistakable manifestation of the parties’ intent to delegate the class/collective arbitrability question to an arbitrator.)

The Eleventh Circuit Court of Appeals held recently that it could not compel arbitration demanded by a non-signatory to an arbitration agreement when the New York Convention applied.  See Outokumpu Stainless USA, LLC v. Converteam SAS (c/k/a GE Energy Power Conversion France SAS, Corp., No. 17-10944, 2018 WL 4122807 (11th Cir. Aug. 30, 2018).

The U.S. Supreme Court has pointed out consistently in recent years that the relatively new construct of “class arbitration” is very different from your uncle’s classic bilateral arbitration. (“Class arbitration” signifies the utilization of a class action protocol (Fed. R. Civ. P. 23) in an arbitration proceeding.) One might expect, therefore, that the adjudication of issues concerning the one would differ from the adjudication of the same issues concerning the other. Delegation of the arbitrability question is one such issue. Have the lower federal courts adopted such a view? Count the Eleventh Circuit Court of Appeals as another that has decided against it, and that whether the “class arbitrability” issue has been delegated to an arbitrator should be adjudicated using the same criteria as are applied to that issue with respect to bilateral arbitration.

In an unusual decision in an unusual case—a dispute between sovereigns—a U.S. appellate court recently vacated a domestic arbitration award on grounds other than those provided in Section 10 of the Federal Arbitration Act (“FAA”). In Citizen Potawatomi Nation v. Oklahoma, 881 F.3d 1226 (10th Cir. 2018), the appellate court vacated the award because the parties’ agreement to arbitrate was deemed unenforceable. While the outcome of that case is, in considerable part, fact-specific, it involves issues having broader applicability.

In our sister blog, ADR: Advice from the Trenches, Gil Samberg explains the Sixth Circuit’s ruling, applying the Supreme Court’s reasoning in the recent Epic Systemscase, that the “collective action” provision of the FLSA does not render a collective action waiver in an arbitration agreement unenforceable.

When the Supreme Court ruled recently that the “concerted activities” provision of the National Labor Relations Act (“NLRA”) did not make a contractual waiver of “class arbitration” unenforceable, it provided an extensive analysis that included comments regarding the interaction of the Federal Arbitration Act (“FAA”), the NLRA, and the Fair Labor Standards Act (“FLSA”).

The Federal Arbitration Act (“FAA”) reflects a strong federal policy in favor of arbitration.  In extraordinary cases, however, a dispute that otherwise would be arbitrable under the FAA could be rendered non-arbitrable by the operation of another federal statute.  The

After granting a motion to compel arbitration, should a court operating under the FAA stay or dismiss the pending judicial proceeding?  While the federal circuit courts are split on the question, the better rule seems to be that after granting a defendant’s motion to compel arbitration, FAA §4 (9 U.S.C. §4), the court should stay the judicial proceeding pending the arbitration.

Who may determine whether “class arbitration” has been authorized by the parties to an arbitration agreement — a court, an arbitrator, either? Considering the nature of “class arbitration,” is this a special case of the arbitrability delegation issue, or is this issue sui generis?

Third-party litigation and arbitration funding is increasingly being utilized in the United States. Are the corresponding financing costs recoverable in arbitrations?

The U.S. Supreme Court has ruled that “class arbitration” may be permitted if an arbitration agreement authorizes it, Stolt-Nielsen v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010), and that state contract law governs the interpretation of the parties’ arbitration agreement. A proposal: that an agreement to permit class arbitration must be “clear and unmistakable” to be enforceable.