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Supreme Court’s Grant of Cert Will Examine Difference Between “Arbitrability” and “Jurisdiction”

Mon, 2018-02-26 16:19

The Supreme Court has granted certiorari to review the decision of the 1st Circuit in Oliveira v. New Prime, Inc. (No. 15-2364, May 12, 2017).   One of the issues before the Court is particularly interesting:  Whether a delegation clause vesting in an arbitrator questions of arbitrability of a claim has the effect of removing from a court any power to determine whether the court has jurisdiction to grant a motion to compel arbitration.

In this case, an employer sought an order pursuant to Section 4 of the Federal Arbitration Act to compel arbitration of the claim of a trucker who worked in interstate transportation — a class of claimants expressly excluded from the scope of the FAA.

(A second question arises as to whether an independent contractor is entitled to the same treatment under the FAA as someone with a “contract of employment … engaged in interstate commerce” in transport.  But we set that question aside to simplify the first question before the Court.)

The employee argued that the court had no jurisdiction to issue such an order.  The claim, asserted by a transportation worker, fell outside the FAA, and the court thus could not grant relief pursuant to a statute that excluded its jurisdiction.

The employer argued that the question whether the claim is arbitrable is one of arbitrability, and thus for the arbitrator to decide pursuant to the delegation clause.

The district court determined that a court, not an arbitrator, must determine whether Section 1 exempts the claim of a “worker in interstate transport,” and ordered fact discovery to make that determination.  The employer appealed.

The 1st Circuit distinguished between a court’s power to grant statutory relief — that is, a court’s jurisdiction — and an arbitrator’s power to determine whether a given claim falls within the scope of an arbitration agreement — that is, arbitrability.  To illustrate its analysis, the court posited an instance in which two parties entered into an arbitration agreement with a delegation clause as part of a “contract [that] is clearly a contract of employment of a transportation worker.”  The argument might then be made that a court could grant relief pursuant to a statute that it had no jurisdiction to enforce.  Relief would be granted under the FAA even though “the district court had no authority to act under the FAA in the first place.”

This position cannot be correct.  When the only basis for seeking arbitration in federal court is the FAA, the district court can grant the requested relief only if it has authority to act under the FAA.  If the FAA does not apply, private contracting parties cannot, through the insertion of a delegation clause, confer authority upon a district court [i.e., to compel arbitration under the FAA] that Congress chose to withhold.  Therefore, the district court must make an antecedent determination that a contract is arbitrable under Section 1 of the FAA before ordering arbitration under Section 4.

(citations omitted)

Section 1 analysis is not one of arbitrability — it is one of jurisdiction.  Or so argues the 1st Circuit.

Of course the Supreme Court will reverse.  One does wonder, however, the grounds it will rely on.

Frank Sander Dies

Mon, 2018-02-26 15:08

The word is spreading across the internet and the phone lines that Frank Sander died yesterday.

His profile in our field is of course stupendous, and he is often — with good reason — considered the “father” of the modern ADR movement.

But along with others, I most remember private talks or lunches with him.  Indeed, a lunch ten or so years ago with him and his wife Emily taught me more about Quaker process, and the challenges of clerking monthly meetings, than I ever got from any single conversation.

He was a gift.

Use of JAMS Rules Constitutes Clear and Unmistakable Delegation of Arbitrability to Arbitrator

Sun, 2018-02-25 21:12

A recent Fourth Circuit decision, SIMPLY WIRELESS, INC,  v. T-MOBILE US, INC, (No. 16-1123, December 13, 2017) is the third circuit decision holding that, as between sophisticated commercial parties, the designation of JAMS or AAA Commercial Arbitration Rules constitutes an enforceable delegation to the arbitrator of challenges to arbitrability.

In this case, Simply Wireless brought an action in federal district court seeking relief in connection with certain trademarks, claiming infringement, dilution and unfair competition by virtue of T-Mobile’s use of a similar mark.  T-Mobile moved to dismiss and to compel arbitration, noting (among other points) that the parties’ adoption of JAMS arbitration rules constituted an agreement that an arbitrator, not a court, would determine whether Simply Wireless’ claims are arbitrable.

The District Court ruled on the motion, finding that the claim fell within the scope of the arbitration agreement and dismissing the court action.  Simply Wireless appealed.

JAMS Rule 11(b) provides: “Jurisdictional and arbitrability disputes, including disputes over the formation, existence, validity, interpretation or scope of the agreement under which Arbitration is sought ? shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter.”  This language is similar to AAA Rule R-7, which provides in part: “(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including
any objections with respect to the existence, scope, or validity of the arbitration
agreement or to the arbitrability of any claim or counterclaim.  (b) The arbitrator shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract.”

The Fourth Circuit not having previously ruled on the sufficiency of these two rules as a delegation clause under Rent-a-Center, the court looked to holdings of the 5th and 10th circuits with respect to the incorporation of JAMS rules, and of the 8th, 9th and 11th circuits with respect to AAA rules, and held that the arbitrator’s jurisdictional authority as set forth in the rules constitutes an enforceable delegation of authority that courts must respect.

We agree with our sister circuits and therefore hold that, in the context of a commercial contract between sophisticated parties, the explicit incorporation of JAMS Rules serves as “clear and unmistakable” evidence of the parties’ intent to arbitrate arbitrability. Because the JAMS Rules expressly delegate arbitrability questions to the arbitrator, the district court erred in deciding whether Simply Wireless’s claims fall within the scope of the parties’ arbitration agreement.

This principle seems so broadly recognized by this time, that drafters should be aware that the mere designation of an arbitral institution may well have the consequence of rendering moot the principles of First Options v Kaplan, and delegating threshold authority to the arbitrator.

ADR and Diversity

Sun, 2018-01-14 16:07

Last year, New York Law School and the ABA Business Law Section convened all three of the CEOs of the national ADR organizations, plus other leaders, to address persistent issues of lack of diversity in the mediation and arbitration profession.  This year, on the afternoon of January 17, 2018, the same event will take place, featuring the past president and the current House of Delegate Chair of the ABA; the Chair of the ABA Dispute Resolution Section; Tom Stipanowich of Pepperdine; Judge Elizabeth Stong of EDNY; Jim Tricarico of Edward Jones; Bill Johnston of the ABA Business Law Section; and experienced facilitators from the leading ADR organizations and court programs around the New York region.

If you are in the New York area on Wednesday afternoon January 17, you should come by.  Three CLE credits, including one hour of the new required category, “Diversity, Inclusion and Elimination of Bias.”  Registration is available here.

Arbitration of Criminal Plea Bargains? A Step Too Far Says Ninth Circuit

Thu, 2017-12-28 10:48

Thanks to Loyola Prof. Imre Szalai for bringing to our attention the interesting Ninth Circuit decision in Breazeale v. Victim Services, Inc., holding that disputes between a putative criminal defendant and a private company contracted by a prosecutor pursuant to a criminal diversion process are not subject to arbitration.

Victim Services Inc. (VSI), a Delaware corporation, is contracted by the offices of various California District Attorneys to resolve suspected violations of California’s Bad Check Statute, which criminalizes the writing of bad checks with an intent to defraud.  The putative violator is contacted by mail on District Attorney stationery and offered the opportunity to avoid criminal prosecution by entering into a program of restitution and fees that is administered by VSI.  The letter also provides that any dispute between the violator and the program administrator VSI would be subject to arbitration pursuant to AAA rules.  That “agreement” (really, an announcement) also provides that “no arbitrator or court can permit or certify a class action, representative action, private attorney-general action or consolidated arbitration in connection with [the] arbitration

Plaintiffs brought this action in federal district court,  alleging “that VSI’s use of official district attorney letterhead conveys the false impression the letters were sent by law enforcement, that the letters contained the false threat that failure to pay would result in arrest or imprisonment, and that the initial form letter failed to contain statutorily required
notices, all in violation of” state law.  VSI moved to compel arbitration.  The district court denied the motion and the Ninth Circuit affirmed the denial, on the ground that the putative arbitration provision of the letter was not a “contract evidencing a transaction involving commerce” within the meaning of the Federal Arbitration Act.

The holding: An agreement between an individual and a state prosecutor addressing criminal liability is not a private commercial contract and therefore not arbitrable pursuant to the FAA.  “A plea bargain is not a commercial exchange.”

It will be interesting to see the convoluted logic that the Supreme Court will employ if and when this question is before them and, consistent with its ever-broadening interpretation of arbitration law, the Ninth Circuit is reversed.

Metrics on Arbitration Efficiency

Thu, 2017-12-07 10:24

The current issue of New York Dispute Resolution Lawyer — really a very good publication of the New York State Bar Association’s Dispute Resolution Section — includes a brief article by Roy Weinstein of the economic research and consulting firm Micronomics.  The article summarizes certain findings of a study comparing the length of time to trial and through appeal in U.S. federal courts, to the length of time to issuance of final awards in commercial arbitrations at the American Arbitration Association.

Weinstein picks New York as his first example, being a state with high judicial and arbitral caseloads, and finds that, in 2015, the median (not the mean) time required from filing to the beginning of trial in district courts was 30.9 months, while the median (not mean) time from arbitration filing to final award was 12.5 months.

Comparisons across the eight most active state jurisdictions yielded similar stark results, with time to final AAA award ranging from 10.2 months to 13.7 months, and time to start of trial in federal courts ranging from 7.2 months to 24.1 months.  Weinstein assumes that delays in state courts are more, not less, pronounced.

Helpful as these metrics are, Weinstein then goes the next step and addresses the economic impact of delay in resolution of commercial disputes.  These include withholding of investment of resources and other behaviors that can be lumped under the term “opportunity costs.”  He concludes that “[d]irect losses associated with additional time to trial required for district court cases compared with AAA arbitration are approximately $10.9 billion to $13.6 billion between 2011 and 2015.”  Add to this the multiplier effect of losses of economic activity that would result from the uses of these “locked” resources, and of course the transaction costs represented by the expenses of maintaining litigation services for the added time, and (as Everett Dirksen never said) we’re starting to talk about real money.

The full study is available here.

Special ADR Event at New York Law School November 15

Wed, 2017-11-08 20:25

The James F. Henry Speaker Series at New York Law School’s ADR Skills Program will offer its third event of the year on Wednesday, November 15, 2017, when CPR President Noah Hanft joins panelists Greg Gallopoulos (GC of General Dynamics) and Prof. Joan Stearns Johnsen to discuss how vital commercial contracts are “Built to Last.”

It’s never been more important that transactional attorneys think though conflict contingencies to ensure that critical projects go through with minimal interruption and maximum ultimate value.  The program, co-presented by New York Law School and CPR Institute, takes place at 5:30 p.m. at the School’s events center, 185 West Broadway, New York City.

A special event at this program:  James F. Henry, founder of the CPR Institute, will be in attendance to receive acknowledgement of his achievements in creating the nonprofit coalition of business and legal leaders that designed the “CPR Corporate Pledge” and brought ADR into the mainstream of American legal practice.

To register for this event click here.