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.”

Federal Case Update| Mail and Carrier

Richard Birke

Richard Birke

By Richard Birke

Court Dashes Postmaster General’s Hopes That New Argument to Avoid Administrative Arbitration, Not Raised Below, Is Unwaivable Because It Goes to Subject-Matter Jurisdiction
Ruiz v. Donahoe
2015 WL 1811810
United States Court of Appeals, Fifth Circuit

Blanca Ruiz worked for the post office. She sued Postmaster General Donahoe in a putative class action. The district court dismissed the case for lack of subject matter jurisdiction, but the United States Court of Appeals for the Fifth Circuit reversed and remanded the case for a determination regarding an administrative class action.

Donahue petitioned for rehearing, arguing that the CBA covering Ruiz’ employment bars litigation of her claims. He argued that despite the fact that he is raising this matter for the first time on the petition, he did not waive the argument because the matter goes to subject-matter jurisdiction.

The Court disagreed. It wrote “[M]andatory grievance and arbitration procedures in contracts, such as the CBA [in prior cases] are waivable and do not affect this court’s subject-matter jurisdiction. If a dispute is subject to mandatory grievance and arbitration procedures, then the proper course of action is usually to stay the proceedings pending arbitration. However, a dismissal may be appropriate ‘when all of the issues raised in the district court must be submitted to arbitration.’ In any event, agreements to arbitrate implicate forum selection and claims-processing rules not subject-matter jurisdiction….Donahoe has waived his argument regarding the CBA’s mandatory grievance and arbitration procedures by failing to raise it before the district court or this court prior to the present petition for rehearing.”

Public Policy Defense Fails to Overturn Foreign Arbitral Award
Asignacion v. Rickmers Genoa Schiffahrtsgesellschaft MBH
2015 WL 1840880
United States Court of Appeals, Fifth Circuit

Lito Asignacion sustained injuries while working aboard a vessel operated by Rickmers Genoa Schiffahrtsgesellschaft MBH (Rickmers). The injury occurred in Louisiana and he filed suit in court there. Rickmers moved to compel arbitration.

Asignacion’s employment was governed by terms and conditions, which included the following:

“In cases of claims and disputes arising from this employment, the parties covered by a collective bargaining agreement shall submit the claim or dispute to the original and exclusive jurisdiction of the voluntary arbitrator or panel of arbitrators. If the parties are not covered by a collective bargaining agreement, the parties may at their option submit the claim or dispute to either the original and exclusive jurisdiction of the National Labor Relations Commission (NLRC), pursuant to Republic Act of 1995 or to the original and exclusive jurisdiction of the voluntary arbitrator or panel of arbitrators….Any unresolved dispute, claim or grievance arising out of or in connection with this Contract, including the annexes thereof, shall be governed by the laws of the Republic of the Philippines, international conventions, treaties and covenants where the Philippines is a signatory.”

The state court stayed the matter and ordered arbitration in the Phillipines. The panel determined that it could use only Phillipine law to determine the dispute, and it awarded the lowest grade of compensable disability, entitling Asignacion to $1,870.

Asignacion filed a motion to set the award aside as a violation of United States public policy.  Asignacion pointed to Article V(2)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which “allows a signatory country to refuse enforcement if recognition or enforcement of the award would be contrary to the public policy of that country.” The district court refused to enforce the award and Rickmers appealed.

The United States Court of Appeals for the Fifth Circuit noted that the burden of proof was on Asignacion. The Court rehearsed his main argument. “Asignacion’s counsel also urged that United States public policy requires that foreign arbitral panels give seamen an adequate choice-of-law determination; he argued that the arbitrators’ exclusive reliance on the choice-of-law provision in Asignacion’s contract did not constitute a choice-of-law determination, let alone a fair one.”

The Court was unpersuaded, and it reversed. Noting that the law does not require that U.S. courts apply U.S. standards to all foreign awards, it found that the court below had gone a step too far. “[T]he district court only determined that the arbitration and award ‘effective[ly] deni[ed]’ Asignacion the right to pursue his general maritime remedies. But that finding is insufficient to support the conclusion that the public policy of the United States requires refusing to enforce the award.”

Federal Arbitration Case Update | Bound and Determined

Richard Birke

Richard Birke

By Richard Birke

Owner Not Bound by Arbitration Clause in Engagement Agreement between Contractor and Law Firm
Auto Parts Manufacturing Mississippi v. King Construction
2015 WL 1379980
United States Court of Appeals, Fifth Circuit

APMM contracted with Noatex to build a building and Noatex subcontracted with King. When Noatex deemed King’s work inadequate, King filed a stop work notice and informed APMM that Noatex owed King $260,000. This matter resulted in APMM’s interpleading the money while the federal court in Mississippi figured out who was entitled to what.

Meanwhile, Noatex’ lawyer, Kohn, filed suit in California against APMM alleging that an engagement agreement between Kohn and King conferred a lien over the money APMM owed to Noatex. The suit was stayed pending the resolution of the Mississippi suit.

Noatex and Kohn (but not King) moved the Mississippi court to compel arbitration against APMM pursuant to the arbitration clause found in the fee agreement between King and Kohn.  They argued that equitable estoppel prevented APMM from opposing the motion to arbitrate. The district court denied the motion and Noatex and Kohn appealed.

The United States Court of Appeals for the Fifth Circuit affirmed.  The Court wrote “this case does not fit the rationale of the equitable estoppel exception. APMM is not trying to ‘hav[e] it both ways’ by seeking to hold Noatex and Kohn liable pursuant to a contract that contains an arbitration provision and, at the same time, deny arbitration’s applicability.  We see no unfairness in refusing to compel a non-signatory party to arbitrate a dispute based on an arbitration clause contained in an attorney engagement agreement signed by two other parties. Because APMM has not agreed to arbitrate disputes with Noatex and Kohn, and is not required by equitable estoppel to arbitrate, we affirm the district court’s denial of appellants’ motion to compel arbitration and to stay the proceedings.”

District Court Affirmed on Finding Validity of Arbitration Clause, Reversed on Finding of Waiver
Shy v. Navistar International Corp.
2015 WL 1383106
United States Court of Appeals, Sixth Circuit

As part of the settlement of a class action, Navistar entered into a consent decree that required it to participate in a program overseen by a Supplemental Benefits Committee (SBC).  When the SBC disputed some of Navistar’s financial records relating to Medicare payments, Navistar rejected requests for clarification.  The parties wrangled in court over Navistar’s obligations under the consent decree, until Navistar invoked an arbitration clause found in the consent decree specifically designating arbitration by accountants in disputes about financial information.  The district court found the dispute subject to arbitration, but also noted “Navistar’s reluctance to enter into arbitration over the Medicare subsidy payments prior to litigation, and the fact that Navistar did not seek to arbitrate the SBC’s first claim requesting information until after the court granted the SBC’s motion to intervene and found that these decisions were ‘completely inconsistent with any reliance on the [consent decree’s] dispute resolution procedures,’ and also caused a delay that prejudiced the SBC by delaying the resolution of the dispute and any payments that the SBC might be entitled to.”

The United States Court of Appeals affirmed the lower court’s finding that the dispute was subject to arbitration but reversed the finding that Navistar had waived its right to arbitrate.  As to the first point, the Court wrote “the contract disputes involved in the SBC’s classification-based arguments are relatively simple and closely related to accounting; it is reasonable to suppose that the parties to the agreement intended such disputes to be arbitrated.”  As to the second, it wrote “Navistar’s pre-litigation conduct and failure to raise arbitration in its response to the SBC’s motion to intervene at the start of litigation did not constitute a waiver of its right to arbitrate the claims raised by the SBC.”  The Court detailed Navistar’s actions and found them to be “completely consistent with a willingness to arbitrate.”

Federal Employment Case Update | Pizza and Beer

Richard Birke

Richard Birke

By Richard Birke

Members of Certified Class Lack Standing to Challenge Class Arbitration Ban
Conners v. Gusano’s Chicago Style Pizzeria
United States Court of Appeals, Eighth Circuit

When Jacqueline Conners brought a class action lawsuit against her employer Gusano’s (alleging unlawful tip pooling practices), Gusano’s instituted an arbitration policy that required individual arbitration of any disputes.  Conners filed a motion seeking to have the court declare the new policy invalid because it interfered with the right of class members to communicate with other potential class members.  The trial court found this persuasive and granted the motion.  Gusano’s appealed.

The United States Court of Appeals for the Eighth Circuit vacated the lower court’s order, finding that Conners and the other members of the class lacked standing to contest a work requirement that did not apply to them. The Court wrote that “the former employees cannot gain standing here by defending the rights of current employees, not yet joined in the action.”

District Court Unjustified in Vacating Award
Raymond James Financial v. Fenyk
United States Court of Appeals, First Circuit

Robert Fenyk worked as a broker for Raymond James Financial (RJF) until he was terminated for alleged problems with alcohol. Fenyk filed a complaint in Vermont state court alleging he was fired because of his sexual orientation and his status as a recovering alcoholic. The complaint sought $665,000 in back pay, $588,000 in front pay, and $250,000 in punitive damages, with attorney’s fees and costs.  RJF argued that Fenyk was not an employee (but rather, an independent contractor) and therefore the Vermont employment laws didn’t apply to the case. They also moved to compel arbitration of all the remaining claims.

On the first day of arbitration, Fenyk moved to add a complaint under Florida law. The panel denied the motion as untimely. The panel issued an award of $600,000 for back pay based on discrimination and about $55,000 in fees.

RJF moved to vacate the award, arguing that the panel awarded damages under Florida law even though Fenyk brought no claims under Florida law, and even if he would have brought claims under Florida law, those claims would be time-barred. The district court granted the motion to vacate.

On appeal, Fenyk argued “that the district court erred in construing the Florida statute of limitations to bar his claim and improperly failed to defer to the arbitrators’ good faith effort to resolve the dispute.”  The United States Court of Appeals for the First Circuit held that the Florida statute of limitations should apply, but the Florida law did not apply the civil statute to arbitration until several weeks after the award and there was an open question about whether the statute applied to this kind of case. The Court concluded “any error by the panel in refusing to dismiss Fenyk’s claims as untimely does not rise to the level necessary to justify vacatur.”

The Court dealt with the claim that it was a mistake to apply Florida law in a similar way. They wrote “In the final analysis, the panel apparently decided that Fenyk’s mistake in labeling his claims did not justify denying him relief. Where the arbitrators applied the substantive law that RJFS agreed would govern its conduct, that choice to apply Florida law falls within the category of judgments—even if erroneous—that we may not disturb.”

The Court found that the award drew its essence from the contract and was therefore valid.  The Court concluded by writing “Accordingly, we reverse the decision of the district court and remand the case for entry of an order confirming the arbitration award.”