TV Stars and Producers of "Bones" Get $178.7M Arbitration Award Against Fox

While arbitration, including arbitration awards, normally remain confidential, they become public when a disputing party asks a court to confirm or vacate the arbitration award. As today's NYTimes reports, the big arbitration award against Fox "spilled into public view on Wednesday after the plaintiffs in the case filed a petition to confirm the arbitration award in Los Angeles Superior Court.
The arbitrator, Peter D. Lichtman, said that Fox pocketed tens of millions of dollars that should have gone to the 'Bones' team. He ordered Fox to pay the plaintiffs $50 million in damages and an additional $128 million in punitive damages. Fox is contesting the $128 million ruling."

Worker's Claims Sent to Labor Arbitration if "Clear and Unmistakable" Collective Bargaining Agreement

This week the Second Circuit heard argument in Attending Homecare v. Abdullayeva, 2d Cir. App., 18-0651. The case turns on whether "clear and unmistakable" language in the collective bargaining agreement (CBA) requires employees to arbitrate their Fair Labor Standards Act (FLSA) claims.

While the district court said “The arbitration provision relied on is confusing. It does not clearly require Plaintiff to arbitrate her claims”, the Second Circuit might well find that the following CBA language clearly and unmistakably requires Plaintiff to arbitrate FLSA claims: “all claims brought by either the Union or Employees, asserting violations of or arising under the Fair Labor Standards Act ("FLSA'), New York Home Care Worker Wage Parity Law, or New York Labor Law (collectively, the "Covered Statutes"), in any manner, shall be subject exclusively, to the grievance and arbitration procedures described below.”

Bloomberg News story on this case includes analysis by me and Prof. Imre Szalai.

Ninth Circuit Vacates “Completely Irrational” Arbitration Award

While judicial enforcement of arbitrators’ decisions is an essential centerpiece of arbitration law and practice, the Ninth Circuit Court of Appeals recently vacated the district court opinion in Aspic Eng’g & Constr. Co. v. ECC Centcom Constructors, 2019 WL 333339 (9th Cir. Jan. 28, 2019), finding that the arbitrator issued a “completely irrational” award. The Ninth Circuit opinion is unusual in the extent to which it relies on labor arbitration precedents to vacate a non-labor arbitration award.

The underlying dispute in Aspic was between a subcontractor hired to construct facilities in Afghanistan and the general contractor. The sub alleged the GC owed the sub a significant amount and the arbitrator agreed despite the fact the sub failed to perform material provisions of the underlying contract. By ruling for the subcontractor despite these failings, the arbitrator exceeded his authority, according to the Ninth Circuit.

Aspic correctly noted that, under the Federal Arbitration Act, it “may vacate an arbitration award where, among other reasons, ‘the arbitrators exceeded their powers.’” Aspic Eng’g & Constr. Co., 2019 WL 333339 at 8. The Ninth Circuit said that, “arbitrators ‘exceed their powers’ when the award is ‘completely irrational’ or exhibits a ‘manifest disregard of the law.’”

However, the Ninth Circuit cited labor arbitration cases for the proposition that an award is completely irrational when it “fails to draw its essence from the agreement.’” Ninth Circuit labor arbitration case law says a rational award must not “disregard contract provisions to achieve a desired result.” 2019 Wl 3333339 at 11. According the Ninth Circuit, a rational award would consider the terms of the contract as written. The arbitrator cannot “improperly stray[] from the plain text of the contract.”

The court also echoed a sentiment initially made by Liz Kramer of Stinson Leonard Street seven years ago: “we have become an arbitration nation.”

For more in depth coverage, see Liz Kramer’s Arbitration Nation blog here.

“Clickwrap” Arbitration Agreement in Email’s Hyperlink Unenforceable

In Starke v. SquareTrade, Inc., 2019 WL 149628 (2d Cir. Jan. 10, 2019), the 2nd Circuit affirmed a district court ruling that a “clickwrap” arbitration agreement in an email’s hyperlink was unenforceable because it did not give reasonable notice. While “shrinkwrap” was the name given to contracts on the box of tangible products, “clickwrap” is the name for agreements formed when a user clicks a link as opposed to opening some packaging. In Starke, following the consumer’s purchase of a service contract, the seller sent an email to the consumer with a hyperlink that was “inconspicuously placed” at the bottom, according to the court. The court provided guidance as to what can in future transactions be done to ensure the transaction process results in a binding agreement.

Check out Proskauer Rose’s article on Starke for a detailed discussion of the reasoning, images of the screens at issue and a list of the factors the court provided.

A couple weeks later in Sultan v. Coinbase, Inc.,  2019 WL 319391 (2d Cir. Jan 24, 2019), the 2nd Circuit case found enforceable an arbitration agreement that a user agreed to when signing up to use the digital currency exchange Coinbase. Proskauer Rose discusses Sultan and outlines how some of the same factors mentioned in Starke led to enforcement.

I posted on the issue of ‘clickwrap’ agreements previously when discussing what is required to manifest assent. I excerpted an article written by Widener University Law Professor Juliet M. Moringiello entitled “Notice, Assent, and Form in a 140 Character World.”

E-Signature Results in Enforceable Agreement to Arbitrate

The 3rd Circuit affirmed a district court ruling granting Kaplan University's motion to compel the student to arbitrate. The 3rd Circuit concluded that the e-signature was a valid method of assent and the student was bound regardless of whether or not she read the enrollment packet.

Buckley LLP discusses the case further.

SCT Holds Independent Contractors "Workers" Under Federal Arbitration Act

The Supreme Court unanimously today held that independent contractors are "workers" within the meaning of the Federal Arbitration Act and thus typically not covered by that Act when agreeing to arbitrate, but rather covered by state law.

Oliveira was a truck driver for Prime under a contract calling him an independent contractor and containing an arbitration clause. Oliveira filed a class action alleging underpayment of wages. Prime moved to compel arbitration under the FAA. But Oliveira persuaded the Supreme Court that as an independent contractor he was covered by the FAA Section 1 exclusion of "contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce."

Employment arbitration expert Professor Rick Bales explains further.

New Justice Kavanaugh Gets to Write Unanimous Opinion Reaching Predictable Result

New Supreme Court Justice Brett Kavanaugh's opinion for a unanimous Court will interest arbitration nerds. It holds that if an arbitration agreement (or the rules it incorporates) sends to arbitrators (rather than judges) the issue of which disputes the parties agreed to arbitrate, then a court cannot refuse to enforce that agreement by finding "wholly groundless" the argument that the particular dispute is covered by the arbitration agreement.

The Court's opinion in Henry Schein, Inc. v. Archer & White Sales, Inc., is summarized by Law360, the National Law Review, and Squire Patton Boggs

Uber Drivers--12,500 of Them--Demand Individual Arbitrations, Each Paid for by Uber

Uber's arbitration agreements with its drivers precludes class actions and thus requires individual arbitration. "Amazingly," Allison Frankel writes, "thousands of Uber drivers did just that. Between August and November of this year, about 12,500 drivers, many of whom had been class members in cases in which Uber successfully moved to compel arbitration, served individual arbitration demands on Uber ... These thousands of drivers filed their arbitration demands at JAMS, as mandated in Uber’s contracts."

The drivers argue Uber is required to pay for their arbitration because the terms of service say "In all cases where required by law, the Company will pay the Arbitrator's and arbitration fees."

The drivers allege “As of November 13, 2018, 12,501 demands have been filed with JAMS,” the arbitration organization. : “Of those 12,501 demands, in only 296 has Uber paid the initiating filing fees necessary for an arbitration to commence [...] only 47 have appointed arbitrators, and [...] in only six instances has Uber paid the retainer fee of the arbitrator to allow the arbitration to move forward.”

Jay-Z and Arbitration

Jay-Z persuaded New York Judge Saliann Scarpulla to stay an arbitration because of a lack of black arbitrators. Jay-Z argued that his company's arbitration agreement with Iconix Brand Group violated New York's public policy against discrimination.

Jay-Z (Shawn C. Carter), through his lawyers, argued "When Mr. Carter began reviewing arbitrators on the American Arbitration Association’s Search Platform ... he could not identify a single African-American arbitrator on the 'Large and Complex Cases' roster, composed of hundreds of arbitrators, that had the background and experience to preside over the Arbitration. After repeated requests to the AAA for diverse arbitrators with expertise in complex commercial law, the AAA was able to provide only three neutrals it identified as African-American: two men — one of whom was a partner at the law firm representing Iconix in this arbitration and thus had a glaringly obvious conflict of interest — and one woman."

However, the transcript suggests Judge Scarpulla's skepticism toward Jay-Z's argument and that she only granted a temporary stay of arbitration until the main judge on the case (Judge Barry Ostrager) hears the merits of the case.

Hat tip to Mark Kantor

International Arbitration Program at the World Bank

Three leading international arbitral institutions annually co-sponsor a joint colloquium. Leaders of  the International Centre for Settlement of Investment Disputes (ICSID), the Int'l Chamber of Commerce International Court of Arbitration, and the American Arbitration Association's International Centre for Dispute Resolution will discuss priorities and trends at their respective institutions, in Washington, DC, December 7, 2018.

Other sessions will address practical challenges faced by practitioners—i.e. ethical dilemmas, media scrutiny, compliance with awards—and offer guidance from experts in the field on how to manage these effectively.

Missouri Supreme Court Holds Unavailability of National Arbitration Forum Prevents Enforcement of Arbitration Agreement

The Missouri Supreme Court in A-1 Premium Acceptance, Inc. vs. Meeka Hunter affirmed a decision denying arbitration when a chosen arbitration forum was unavailable. The parties’ agreement, contained in a lender’s contract of adhesion, stipulated that the National Arbitration Forum (“NAF”) would resolve any disputes. However, the NAF reached an agreement with the Minnesota Attorney General and agreed not to arbitrate consumer disputes, including the one at issue here. The Missouri Supreme Court held that nothing in the Federal Arbitration Act created an obligation of the court to appoint a substitute arbitration forum or arbitrator.

However, the Missouri Supreme Court recognizes several disparate results in footnote four. In Green v. U.S. Cash Advance Ill., LLC, the 7th Circuit uses § 5 of the FAA to appoint a substitute arbitration forum reasoning that, “[the contract] makes one thing clear: These parties selected private dispute resolution. Courts should not use uncertainty in just how that would be accomplished to defeat the evident choice.” Green v. U.S. Cash Advance Ill., LLC, 724 F.3d 787, 793 (7th Cir. 2013).

Maurice Wutscher LLP provides a more detailed discussion of the procedural history and reasoning.

Kentucky’s Non-Enforcement of Employment Arbitration Agreement Preempted by Federal Arbitration Act?

The Kentucky Supreme Court unanimously refused to enforce an agreement conditioning employment on an agreement to arbitrate. Kentucky Statute 336.700(2) “prohibits employers from conditioning employment on an existing employee’s or prospective employee’s agreement to ‘waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled . . . .’ ”, according to Northern Kentucky Area Development District v. Danielle Snyder

Several commentators have observed conflict between this Kentucky Supreme Court ruling, and the U.S. Supreme Court’s broad holding on Federal Arbitration Act (FAA) preemption of such anti-arbitration state law:

Jackson Lewis PC said “[t]he Kentucky Supreme Court’s opinion appears to be at odds with recent U.S. Supreme Court rulings on FAA preemption of state laws that treat arbitration agreements differently than other contracts, see, e.g., Kindred Nursing Centers Lmtd P’ship v. Clark, 137 S. Ct. 368 (2016).”

Vorys Sater Seymour and Pease LLP said “[i]t seems difficult to reconcile the Snyder decision with the United States Supreme Court’s 2018 decision in Epic Systems Corp. v. Lewis … that expressly upheld mandatory arbitration agreements or its 2017 decision in Kindred Nursing Centers v. Clark that prohibits rules that single out arbitration for unfavorable treatment.”

Stoll Keenon Ogden PLLC said “[i]mportantly, the Supreme Court of Kentucky’s decision appears to conflict with recent U.S. Supreme Court precedent upholding the FAA’s broad preemptive effect. See, e.g., Kindred Nursing Centers Ltd. Partnership v. Clark, 137 S.Ct. 1421 (2017).”

I commented on Epic Systems here and on Kindred Nursing here. Kindred Nursing also involved a decision by Kentucky’s Supreme Court.

Supreme Court Hearing Three Arbitration Cases in October

On October 3rd the Court heard oral arguments in New Prime, Inc. v. Oliveira, asking whether  FAA section 1, which excludes certain transportation “workers” from the FAA’s reach, applies to independent contractors, in addition to the employees, of a transportation company.  Ogletree Deakins writes: “Given the justices’ seeming alignment with Oliveira at the oral argument, it is anticipated that the Supreme Court will ultimately issue a decision allowing truck drivers and others independent contractors in the transportation industry to avoid arbitration.”

In late October the Court will hear Lamps Plus, Inc. v. Varela in which the Ninth Circuit held the agreement permitted class arbitration.

The Court will also hear Henry Schein v. Archer & White Sales, Inc. This contract provided for arbitration of all disputes, except claims for injunctive relief and involving intellectual property rights. Plaintiff sought injunctive relief and argued the case should be litigated, but defendants argued the arbitration agreement sends to the arbitrator any questions about the arbitrability of some or all of the case. The Fifth Circuit ruled that the court should decide arbitrability, and affirmed denial of the motion to compel arbitration.

The National Law Review provides a more detailed discussion of the issues.

California Supreme Court Vacates Arbitration Award and Refuses to Enforce Arbitration Clause in Void Contract

The California Supreme Court held that a law firm’s failure to disclose to the firm’s client the firm’s conflict of interest violated Rules of Professional Conduct and thus rendered the firm’s engagement agreement with its client, including the arbitration clause, unenforceable in its entirety.

This decision is interesting for:

1. applying state arbitration law rather than the Federal Arbitration Act;
2. vacating an arbitration award on the merits; and
3. not applying the separability doctrine of Prima Paint v. Flood & Conklin (1967) 388 U.S. 395.

On the first of these topics, the court said: “the parties’ agreement calls for application of California law, including the CAA, and both parties agree that the CAA governs. This case thus presents no question concerning application of the Federal Arbitration Act, 9 United States Code section 1 et seq. (See Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 470; Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 387.)”

On the second, the court said: a court may vacate an arbitration award when “[t]he arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the

decision upon the controversy submitted.” (Code Civ. Proc., § 1286.2, subd. (a)(4) (section 1286.2(a)(4)).) And: “the merits of an arbitral award are not generally subject to judicial review, but ... “the rules which give finality to the arbitrator’s determination of ordinary questions of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised in a proceeding for the enforcement of the arbitrator’s award.”

Law 360 discusses the case

California Legislature Opens Door to Out of State Lawyers in Arbitration

California Governor Jerry Brown signed into law Senate Bill 766, which allows out of state lawyers to represent parties in commercial arbitrations located in California. The previous restriction on out of state lawyers stemmed from the California Supreme Court decision in Birbrower, Montalbano, Condo & Frank v. Superior Court of Santa Clara County, 17 Cal. 4th 119 (1998). As I pointed out in a past post, the extra burden imposed by that decision may have led some parties to draft arbitration clauses to steer arbitration away from California. 

Dixon Dern, a California attorney, arbitrator, and mediator, offers a more detailed discussion of the bill and its requirements.