Federal Arbitration Case Update | The Powers that Be

Following are two interesting and recent federal court rulings related to arbitration.

Arbitrator Has Authority to Rule on Whether He Can Change His Mind
United Brotherhood of Carpenters and Joiners v. Tappan Zee Constructors

Richard Birke

Richard Birke

When the general contractor for the rebuilding of the Tappan Zee Bridge gave a portion of the job to the carpenters (at $70/hr.) rather than the dock builders (at $94/hr.), a jurisdictional dispute arose between two unions. The two unions agreed that the dock builders would get the work, but the GC disagreed and brought the case to arbitration pursuant to the plan agreement covering the project.

In his interim award, the arbitrator stated that he planned to apply the “local standards” test in the plan agreement and that the outcome would favor the dock builders. However, in his final award, nine days later, the arbitrator stated that there were no local standards and that the GC was free to employ the lower-wage carpenters. The district court confirmed the award and the carpenters appealed.

The United States Court of Appeals for the Second Circuit affirmed. The contract governing the arbitration required an interim award and a later final award. By definition, the interim award was not a final award and the arbitrator was free to change his mind based on newly heard evidence or reconsideration of the matter. Moreover, the contract’s language was sufficiently ambiguous to allow the arbitrator to determine the circumstances that would give rise to a permissible re-visitation of his interim award. “It was because he concluded that he had initially failed to consider certain evidence under the Section 8 criteria that he rendered a written decision different from his short-form decision.”

The Court concluded, “Because we must defer to the arbitrator’s interpretation of the rules by which the parties agreed the arbitration would be conducted, and because the arbitrator interpreted the rules as allowing him to fashion the second decision as he saw fit, the order of the District Court confirming the May 13th Award and vacating the May 4th Award is affirmed.”

Arbitrator Who Held He Had Exceeded His Powers in Prior Award Exceeded Them Again in Issuing Second Award
IBEW Local 824 v. Verizon Florida

The CBA between Verizon Florida and its union had a provision that allowed members with one-year seniority to bump existing workers with certain exceptions. When bumps were denied to certain workers, the union sought arbitration.

The theory presented by the union was based on a clause that required a bump be given if the worker needed only “minimal additional training.” The company maintained that was in controversy.

The arbitrator interpreted the “minimal additional training” requirement to mean four weeks or less. As many of the would-be bumpers in the case in arbitration required more, the award was in favor of the company.

The union then sent a letter to the arbitrator asking for a “clarification.” The union argued that two additional would-be bumpers whose bumps were denied fell into the exact categories as the two workers whose bumps were allowed. The company argued that the award be rewritten to exclude consideration of the “previously held” aspects of the case.

The arbitrator then issued a substitute award in which he stated that he had exceeded his powers in the original award and he struck out the portions of the award dealing with the “previously held” clause. The union moved to vacate and when that motion was denied, it appealed.

The company argued that the arbitrator was free to change the opinion, functus officio didn’t apply in a labor context and that the union invited the substitute opinion. However, the U.S. Court of Appeals for the Eleventh Circuit found that the union asked a narrow question that assumed that the award was valid, e.g., if the first two got it, why not the second two? The Court found that the company responded with a full frontal attack on the award itself.

The Court determined that the award was proper in the first instance, and that the arbitrator exceeded his powers by issuing the substitute award.

The company argued that the award be rewritten to exclude consideration of the “previously held” aspects of the case.

The arbitrator then issued a substitute award in which he stated that he had exceeded his powers in the original award and he struck out the portions of the award dealing with the “previously held” clause. The union moved to vacate and when that motion was denied, it appealed.

The company argued that the arbitrator was free to change the opinion, functus officio didn’t apply in a labor context and that the union invited the substitute opinion. However, the U.S. Court of Appeals for the Eleventh Circuit found that the union asked a narrow question that assumed that the award was valid, e.g., if the first two got it, why not the second two? The Court found that the company responded with a full frontal attack on the award itself.

The Court determined that the award was proper in the first instance, and that the arbitrator exceeded his powers by issuing the substitute award.

 

How Likely Am I to Win? Risk, Uncertainty & the Turkey Illusion

Richard Birke

Richard Birke

By Rich Birke

When parties are faced with an attractive settlement offer, they frequently wish to compare the offer to what they might get at trial, which is the product of the odds of winning times the value of the verdict or award.   Naturally, they ask their lawyer “how likely am I to win?”

What kind of answer is called for? Answers to questions like this come in two flavors.  Flavor one – you know the odds – is called decision-making under conditions of RISK.  Flavor two – you don’t know the odds – is called decision-making under conditions of UNCERTAINTY.  The two aren’t at all alike!  The first is more like a slot machine or a lottery.  The second is more like picking stocks, predicting earthquakes and making most business decisions.  Confusing the one for the other can be a disaster.

In his brilliant book Risk Savvy, How to Make Good Decisions, prolific author and scientist Gerd Gigerenzer describes the dangers of confusing one kind of decision with the other.  He says risks can be calculated when there is (1) low uncertainty – a predictable and stable situation (2) few alternatives – not too many factors to estimate (3) a high amount of data available to make these estimations.

However, since at least the 1700s, we’ve known that people prefer risky decisions to uncertain decisions – so much so that they will turn uncertain decisions into risky decisions in their minds, even when reality is different.  An example of this is the “turkey illusion.”

If you want to figure out what is likely to happen tomorrow, you can look at what’s happened in prior days.  If you are in the Gobi Desert and you want to know whether it will rain tomorrow, you can look at the prior day and the day before that, and that data will help you determine tomorrow’s weather.  This “rule of succession” means the past is predictive of the present.

But not for a turkey.  If every day the farmer feeds and pets the turkey, the turkey could calculate the odds starting with the fourth Friday in November and conclude “I’ve been fed and petted 159 days in a row – the odds of being fed and petted on the 160th day are 160/161 or 99+%.”  And that logic will hold true all the way to 364/365…and then Thanksgiving will come and the poor turkey will have logically concluded that morning that it has nothing to fear – because a savvy risk-taker would deem the odds of death as vanishingly small.

Gigerenzer attacks this topic from many vantage points. He analyzes leadership decisions and the work of CEOs (ch. 6), medical decisions and the ploys used by and on doctors (ch. 9), consumer decision-making and the effects of misleading ads (ch. 5) and more.  Each time, there are simple tips and rules of thumb to help navigate through these sometimes murky waters.

Can a lawyer predict with accuracy the outcome of a potential case? Let’s analyze that question further, together, in the days to come.  For now, I strongly recommend you go out, buy and read Risk Savvy.  It might just save your neck come Thanksgiving.

Risk Savvy: How to Make Good Decisions is available from Viking Press and was published in hardback in 2014.

Federal Arbitration Case Update | Cox and the Courtroom

Richard Birke

Richard Birke

By Richard Birke

Following is an interesting and recent federal court ruling related to arbitration.

Litigation Activity Results in Waiver of Right to Arbitrate
Healy v. Cox Communications
United States Court of Appeals, Tenth Circuit
June 24, 2015

In 2009, Cox’s cable service subscribers sued, arguing that Cox had illegally tied premium cable to its “set-box” rental. Cox moved to dismiss. While the motion was pending, Cox inserted mandatory arbitration clauses and a class waiver in all its contracts, including those of putative class members.

Class certification failed, but smaller sub-classes began to file many class actions – each of which was designed to overcome the objections the court had with the original, national attempt to certify a class.

Richard Healy became the lead plaintiff in an Oklahoma-based case. Cox moved to dismiss, and when that was unsuccessful, the parties agreed to stay other cases and use Oklahoma as a bellwether.

After substantial activity, including a grant of class certification, Cox moved again to compel arbitration. The district court denied the motion, ruling that Cox’s litigation activity amounted to a waiver. Cox appealed.

The Court of Appeals for the Tenth Circuit affirmed. It found that “the parties then engaged in extensive pre-trial discovery, issuing interrogatories, submitting declarations, exchanging 10s of thousands of documents, locating and hiring experts, and deposing witnesses. In September 2013, named plaintiff Healy moved to certify a class. Cox opposed the motion and moved to exclude the testimony of Healy’s experts in support of the motion. Nowhere in its answer did Cox inform the district court of its arbitration agreements or raise the presence of these agreements as an impediment to the alleged numerosity, typicality, and commonality of the class. During the pendency of the motion for class certification, the parties continued to engage in discovery. Cox also filed a surreply in opposition to the motion for certification, which again did not mention the arbitration provisions.”

The Court used a six-part test to determine waiver.  The factors are “(1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.”

The Court analyzed each and found that they “strongly cut against Cox.”  The district court’s denial of the motion to compel arbitration was affirmed, and the case remanded for an increasingly rare class action trial on the merits.

Federal Arbitration Case Update | Compelling and Appealing

Richard Birke

Richard Birke

By Richard Birke

Following are two recent federal court rulings related to arbitration.

Acknowledgement of Dispute Resolution Policy Sufficient to Compel Arbitration of Retaliation Claim
Ashbey v. Archstone Property Management, Inc.
United States Court of Appeals, Ninth Circuit

Michael Ashbey worked as an at-will employee at Archstone since 1996. In 2009, he acknowledged in writing that he understood and accepted the company’s dispute resolution policy, which included a requirement that any unresolved disputes go to binding arbitration.

In 2006, Ashbey’s wife, also an Archstone employee, complained that a fellow employee was sexually harassing her. In 2010, Archstone terminated Ashbey’s wife’s employment. Shortly thereafter, Archstone terminated Ashbey as well.

In 2011, Ashbey filed a complaint in state court (quickly removed to federal court) alleging unlawful retaliation.  Archstone filed a motion to compel arbitration. The district court denied the motion on the ground that Ashbey did not knowingly waive his right to a jury trial for Title VII claims. Archstone appealed.

The United States Court of Appeal for the Ninth Circuit reversed. They reviewed the evidence of Ashbey’s acceptance of the arbitration clause and concluded that “Ashbey knowingly waived his right to a judicial forum for his Title VII claim and equivalent state-law claims.”

District Court Ordered to Review Its Determination that Party Failed to Prove Existence of Agreement to Arbitrate
Dillon v. BMO Harris Bank
United States Court of Appeals, Fourth Circuit

James Dillon took out an online payday loan in North Carolina. He later filed a putative class action lawsuit alleging that the interest rates violated North Carolina usury law. The banks involved in processing and administrating the local aspects of the loans were named as defendants, and they responded by moving to compel arbitration of the dispute pursuant to the arbitration agreements between Dillon and the online lenders.

The district court held that the banks had failed to demonstrate the existence of an agreement to arbitrate between themselves and Dillon, given that they presented no contract that both had signed containing such an agreement. The banks gathered evidence and submitted a renewed motion to compel arbitration. The court deemed this motion something to reconsider and denied it. The banks appealed.

The United States Court of Appeal for the Fourth Circuit vacated and remanded, finding that the lower court should have considered the evidence in the renewed motion. The Court found that the FAA contemplated more than one “bite at the apple” and that the renewed motion was not a motion to reconsider. “The court’s prior ruling—that the pleadings did not establish arbitrability—did not determine whether Dillon consented to arbitration. Accordingly, the district court should have resolved the Renewed Motions on the merits.”