Arbitration right waived by litigation conduct

Vine v. PLS Financial Services presents the infrequently-encountered waiver of arbitration rights by litigation conduct. PLS made a short-term loan to Vine; to obtain such a loan, a PLS customer must present a blank or post-dated check sufficient to cover the loan amount and a finance charge. PLS and Vine had a broad, general arbitration agreement. The Fifth Circuit found that PLS waived that right when it submitted inaccurate “worthless check affidavits” under Texas law after Vine defaulted. It held that the issue of waiver by litigation conduct, as distinct from waiver by failure to comply with a contractual condition precedent, was appropriate for the court rather than an arbitrator. And, the general clause here did not have specific language about that particular waiver issue. A dissent questioned whether submitting the affidavits amounted to “substantial invocation” of the judicial process, as required for waiver of an arbitration right. No. 16-50847 (May 19, 2017, unpublished).

Case goes to arbitration, case stays in arbitration.

The district court in Salas v. GE Oil & Gas ordered arbitration in 2014 and dismissed the case. The arbitration did not proceed. Each side blamed the other; the district court had a status conference in 2016; and afterwards, withdrew its earlier order and reopened the case. The Fifth Circuit found that the district court lacked jurisdiction to do so, as its 2016 order “did not fall within the narrow scope of th[e] ancillary jurisdiction” provided by section 4 of the FAA: “The court neither determined whether the parties’ agreement to arbitrate was valid nor enforced that agreement. Instead, the court found that the parties had ‘failed’ to arbitrate and withdrew its prior order compelling arbitration. This was not permitted under the FAA.” No. 16-20379 (May 12, 2017).

No arbitration in Stanford cases

The receiver of the Allen Stanford businesses sued several investors for receiving fraudulent conveyances. In earlier appeals, the Fifth Circuit resolved other thresehold issues in these cases; in Janvey v. Alguire, the Court reviewed the denials of the defendants’ motions to compel arbitration. It affirmed, rejecting their arguments based on arbitration clauses in various Stanford-related documents: “Because the Receiver may sue on behalf of any of the Stanford entities that has a claim against the defendants, becausehe has chosen to sue on behalf of the Bank, which has not consented to arbitrate claims against any of the defendants [except for one, who waived the issue], and because none of the equitable doctrines urged by the defendants applies, the Receiver cannot be compelled to arbitate his claims against these defendants.” No. 14-10945 et al. (Jan. 31, 2017).

No claim on engagement letter, no arbitration.

Lowe brough a class action, alleging that company management breached its fiduciary duties to the employee pension plan, and that KPMG aided those breaches by ignoring the underfunding of the plan. KPMG contended that these claims necessarily implicated its engagement agreement with the company, which contained an arbitration clause, and thus required arbitration under the “direct-benefit estoppel” doctrine. Here, “Lowe did not know about the Engagement Letters, and has disclaimed any reliance on the Letters, and her claims rely on common law tort theories, not on the Letters.” The Court concluded that “[i]f that choice makes it harder for [Lowe] to prove her case, so be it,” but her claims as currently stated did not depend on KPMG’s engagment agreement and thus did not have to be arbitrated.” Lowe v. KPMG, No. 16-60263 (Jan. 5, 2017, unpublished).

“Intertwined claims” estoppel requires arbitration.

stopsignHays, a cardiologist suffering from epilepsy, sued HCA for wrongful discharge as a result of mishandling his illness. The Fifth Circuit agreed that his tortious interference claim against HCA had to be arbitrated, because its viability depended on reference to the employment agreement between him and the specific hospital where he worked. It also affirmed on the theory of “intertwined claims estoppel,” making an Erie guess that the Texas Supreme Court would recognize this theory, and concluding that “Hays’s current efforts to distinguish amongst defendants and claims are the archetype of strategic pleading intended to avoid the arbitral forum, precisely what intertwined claims estoppel is designed to prevent.” Hays v. HCA Holdings, No. 15-51002 (Sept. 29, 2016).

Be careful what you wish for . . .

carefulwishThe Romans sued Ford Motor Co. and a Houston AutoNation dealer. The dealer moved to compel arbitration; the district court denied the motion; and the dealer appealed. Unfortunately, the Fifth Circuit was “not satisfied, based on the record before it, that [the dealer] does not share citizenship with the Romans.” Reminding that the Federal Arbitration Act is not an independent basis for federal jurisdiction, the Court vacated the district court’s order and remanded for determination of subject matter jurisdiction — with instructions to dismiss if diversity was not established. Roman v. AutoNation Ford Gulf Freeway, No. 16-20047 (Oct. 13, 2016, unpublished).

No, that’s not disqualifying.

4.5.SomePeopleDisQualified_439557577The losing party in an arbitration opposed confirmation on, among other grounds, a challenge to the disclosures made by JAMS. Specifically, the party complained that JAMS had not disclosed a relationship between the other side and another JAMS-affiliated arbitrator. This complaint did not meet the demanding standard for a disqualifying bias: “Here, the Arbitrator explicitly stated that he and Bates had never discussed this arbitration and that Bates did not know the Arbitrator was even at this hearing. In fact, there is no evidence that Bates had any relationship with the Arbitrator other than the fact that both serve as JAMS arbitrators. Most importantly, Cooper points to nothing in the record that would indicate that the Arbitrator had any prejudice against him.” Cooper v. WestEmd Capital Management LLC, No. 15-31068 (Aug. 9, 2016).

Arbitration: delegation means delegation.

1DelegationIn Kubala v. Supreme Production Services, the parties disputed whether an arbitration agreement reached an employment claim that arose before entry into the agreement. The district court found that it did not and denied the motion to compel arbitration. The Fifth Circuit reversed, finding this delegation clause “strikingly similar” to the one at issue in Rent-A-Center v. Jackson, 561 U.S. 63 (2010): “The arbitrator shall have the sole authority to rule on his/her own jurisdiction, including any challenges or objections with respect to the existence, applicability, scope, enforceability, construction, validity and
interpretation of this Policy and any agreement to arbitrate a Covered Dispute.” The Court summarized: “The court appears to have thought that the question at the first step of the analysis is whether there is an agreement to arbitrate the claim currently before the court. But as we have explained, the only issue at the first step is whether there is any agreement to arbitrate any set of claims.” No. 15-41507 (July 20, 2016).

Arbitration award affirmed over procedural objections

arbpictureThe unsuccessful parties in the arbitration of a real estate dispute challenged confirmation of the award. The Fifth Circuit rejected the argument that the phrase “any other misbehavior by which the rights of any party have been prejudiced in 9 USC § 10(a)(3) could be read as applying to the district court. It also rejected a discovery-related argument when “[t]he arbitrator decided not to issue subpoenas when the Investors failed to answer his questions about what evidence they needed from the two witnesses, who were outside the legal subpoena range, and who were less involved in the relevant transactions than the two Rainier witnesses who testified live at the hearing.” Rainier DSC 1 LLC v. Rainier Capital Management LP, No. 15-20383 (July 7, 2016).

Manifest disregard of manifest disregard

touched up signAfter Hall Street Associates LLC v. Mattel, Inc., 552 U.S. 576 (2008), the Fifth Circuit concluded that “manifest disregard of the law” was no longer available as a nonstatutory ground for vacatur of an arbitration award under the FAA. Since then, other circuits have considered whether “manifest disregard” can be a statutory basis for vacatur. In McKool Smith PC v. Curtis Int’l, the losing party in an attorneys fee dispute TexasBarToday_TopTen_Badge_Smallmounted such a challenge to the arbitrator’s award in favor of the firm, but the Court sidestepped the issue, finding support for the arbitrator’s rulings in the applicable Texas case law. No. 15-11140 (May 23, 2016, unpublished) (Almost simultaneously, the Texas Supreme Court rejected the “statutory basis” argument in Hoskins v. Hoskins, No. 15-0046 (May 20, 2016)).

What is an arbitration worth?

stanford bankAppellants, investors who lost money in their dealings with Allen Stanford, began a FINRA arbitration against Pershing LLC, a clearing broker. The panel rejected appellants’ $80 million claim, awarding only $10,000 in arbitration-related expenses. Pershing sought confirmation in federal court and encountered a split in authority about the amount-in-controversy requirement — the “demand” approach, which would allow jurisdiction, and the “award” approach, which would not. The Fifth Circuit sided with the “demand” approach, finding that it “recognizes the true scope of the controversy between the parties,” and was consistent with the corresponding test for claims filed in district court. A lengthy concurrence suggested that a “general approach” was not needed, given the different fact patterns that can give rise to this kind of dispute about the amount in controversy. Pershing LLC v. Kiebach, No. 15-30396 (April 6, 2016).

To be an agent, or not to be an agent, that is the fact question —

agent smithThe issue in Gross v. GGNSC Southaven, LLC was whether two nursing home residents had granted powers of attorney that authorized a third party to agree to arbitration on their behalf.  The Fifth Circuit concluded that (a) Mississippi law allows proof of an express OR implied agency relationship, even in this context, and (b) testimony of the alleged agent is relevant to whether an implied agency relationship exists.  Accordingly, it reversed the denial of the defendants’ motions to compel arbitration for further proceedings.  No. 15-60124 & 60248 (March 14, 2016).

Illusionist trick: No savings clause, no arbitration — UPDATED

iillusionistIn the latest of a long line of cases about arbitration clauses in employment documents that the employer can amend at will, the Fifth Circuit reversed the grant of a motion to compel arbitration in Nelson v. Watch House Int’l, LLC: “Here, the Plan provides that Watch House may make unilateral changes to the Plan, purportedly including termination, and that such a change ‘shall be immediately effective upon notice to’ employees.  Watch House’s retention of this unilateral power to terminate the Plan without advance notice renders the plan illusory under a plain reading of Lizalde [v. Vista Quality Markets, 746 F.3d 222 (5th Cir. 2014)].”  The opinion details recent cases about a “savings clause” in employee manuals that limit the power to change as to present disputes, following the analysis of In re: Halliburton Co., 80 S.W.3d 566 (Tex. 2002).  I am interviewed about this line of cases in this Legal News Line article.

Litigation triple-header

cerebrusIn a followup to Al Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416 (5th Cir. 2014), the Fifth Circuit confronted a situtation where the plaintiffs’ claims against National Oilwell Varco Norway would be arbitrated before the ICC; claims against NOV LP, an American affiliate would be arbitrated in the Southern District of Texas; and claims against other NOV entities that did not sign the relevant arbitration agreement would proceed in Texas state court. The Court declined jurisdiction over NOV LP’s appeal because the district court granted its TexasBarToday_TopTen_Badge_Smallmotion to compel arbitration, leaving no statutory basis for an otherwise interlocutory appeal.  As to the nonsignatories, the Court affirmed, finding that the plaintiffs were not seeking to enforce either contract that implicated arbitration.  Acknowledging that the litigation would be “fragmented,” the Court observed: “This is an inevitable and permissible consequence where one of multiple defendants asserts a right to arbitrate.”  Al Rushaid v. National Oilwell Varco, No. 15-20260 (Feb. 17, 2016).  [On the issue of “fragmentation,” consider the dueling opinions in the recent case of In re: Rolls-Royce Corp., 775 F.3d 671 (5th Cir. 2014)]

Beyond the outer bound of arbitrability theories . . .

limit-signIn USHealth Group v. South, applying Texas law, the Fifth Circuit rejected the use of “concerted misconduct estoppel” to compel arbitration against a nonsignatory (citing In re: Merrill Lynch Trust Co. FSB, 235 S.W.3d 185 (Tex. 2007)), and also found no basis for “direct benefits estoppel” because the claims did not arise solely from the contracts with the arbitration clause, and the issues in dispute could be resolved without reference to those contracts (citing In re: Weekley Homes, L.P., 180 S.W.3d 127 (Tex. 2005)).  No. 15-10117 (Dec. 8, 2015, unpublished).

I have to arbitrate, you have to arbitrate.

seabreezeA general contractor began an arbitration against several subcontractors about problems with the Sea Breeze Condominiums and Resort in Biloxi, Mississippi.  One of the subcontractors resisted the arbitration demand; while it won in district court, the Fifth Circuit reversed, based on this contract language: “If the Contractor has a claim or dispute involving the same general subject matter, either in whole or in part, with any third party if elected by the Contractor, the Subcontractor shall assert its claims and defenses in and shall be bound TexasBarToday_TopTen_Badge_Smallby the same forum and in the same proceeding which has jurisdiction over the claims or disputes between the Contractor and such third party.” Unlike other contract terms about arbitration, this clause had no limitation as to the Subcontractor’s claims against a particular party.  New Orleans Glass Co. Roy Anderson Corp., No. 15-60083 (Dec. 1, 2015, unpublished).

“Related to” and arbitration

Vocada sued Nuance for securities fraud.  They had a merger agreement in which they agreed to arbitrate “any . . . dispute relating to the Earnout Consideration.”  The Fifth Circuit found that this claim had to be arbitrated, noting: “Although the arbitration clause as a whole is narrow, the ‘relates to’ language is broad.  The clause does not require that the remedy sought in arbitration be the earnout consideration or that the claim relate to how the earnout consideration is calculated or distributed.”  Accordingly, “this securities fraud ‘dispute’ is arbitrable because it ‘relates to’ the representations that Nuance made about how to achieve the Earnout Consideration.”  Murchison Capital Partners, L.P. v. Nuance Communications, Inc., No. 14-1819 (Aug. 11, 2015).

Arbitration, I presume?

TRC Environmental Corporation, the contractor on a project to decommission a power plant, sued LVI Facilities Services for breach of its subcontract with TRC.  The subcontract said that “All disputes arising under the Contract Documents will be resolved in accordance with the terms of the Project Agreement”; otherwise, they would be arbitrated.  The Project Agreement spelled out various ADR processes but did not require arbitration.  In affirming the rejection of LVI’s motion to compel arbitration, the Fifth Circuit reminded: “The Federal Arbitration Act codifies a ‘liberal federal policy favoring arbitration agreements.’  But, this presumption applies when a court evaluates the scope of an arbitration under the second step of the arbitration analysis, not when a court is determining whether a valid arbitration agreement exists at all.”  TRC Environmental Corp. v. LVI Facility Servcs., No. 14-51269 (May 22, 2015, unpublished).

Challenge to arbitration award shot down as untimely

texas patersonHeritage and OMG disputed their commissions related to the auction of high-end firearms (such as Colt’s Texas Paterson, right).  They arbitrated and Heritage won.  OMG successfully opposed confirmation in the district court, which concluded: “By finding that the [parties contracts]  never came into existence, the arbitrator intruded on an issue that was reserved for an alternative decision-maker and thereby exceeded his authority.”  OMG, LP v. Heritage Auctions, Inc., No. 14-10403 (May 8, 2015, unpublished).

The Fifth Circuit disagreed.  It reminded: “By submitting issues for an arbitrator’s consideration, parties may expand an arbitrator’s authority beyond that provided by the original arbitration agreement such that we need not address whether the original agreement encompassed such authority.”  Here, “the parties agreed to arbitrate the issue of contract formation by submitting, briefing, and generally disputing that issue throughout the arbitration proceedings, with the plaintiffs never contesting the arbitrator’s authority to decide contract formation until he issued an adverse award.”

To compel arbitration, do not misplace the arbitration agreement.

lostlogoChester sued DIRECTV for age discrimination; it moved to compel arbitration.  Chester swore: “I do not remember signing any arbitration agreement, and dispute that I signed an arbitration agreement with Directv, LLC at anytime. . . . Had I been offered an arbitration agreement I would have attempted to continue my employment without signing it, and only would have signed it if the employer threatened to terminate me if it was not signed. . . . If I was threatened with termination if I did not sign an arbitration agreement I would remember it. Since I do not remember any such threat I am sure I did not sign an arbitration agreement.”

DIRECTV, admitting that it lost the arbitration agreement, argued that it had a practice of having employees sign one of two form agreements.  The Fifth Circuit was unimpressed, noting that the two agreements contained substantial substantive differences.  DIRECTV sought solace in the fact that it had lost Chester’s entire file, not just the arbitration agreement; the Court noted that DIRECTV was unable to provide arbitration agreements for 26 of the 87 other employees in the relevant office.  In sum: “Considering the entire record, it is clear that, somewhere along the way, DIRECTV’s purported practice of collecting and filing arbitration agreements for all new employees broke down . . . .” Chester v. DIRECTV, LLC, No. 14-60247 (April 29, 2015, unpublished).

No estoppel, so no arbitration

finraSeveral investors in the ill-fated Stanford scheme sued Pershing LLC, who provided clearing services to the Stanford Group.  Many of the investors had contracts with Pershing that required arbitration with FINRA, but one group did not, and sought to compel arbitration based on estoppel theories.  As to a “direct benefits” theory, the Fifth Circuit found “no evidence that Pershing was aware that [the investors] had executed contracts to purchase CDs from the Stanford entities,” reminding that “a nonsignatory’s generalized sense that the two contracting parties have a course of dealing will not satisfy this requirement.”  Accordingly, the Court affirmed the denial of the plaintiffs’ motion to compel arbitration.

How to enjoin a former employee

stopsignHalliburton obtained an injunction in an arbitration against a former employee.  The employee sought vacatur under the FAA, arguing that it allows judicial review of an injunction for vagueness.  After reviewing some dispute as to whether such review is allowed after Hall Street, the Court rejected the challenge.  The employee challenged a provision that enjoined him from “utilizing in any fashion” certain documents “that concern [Halliburton’s] products or services, arguing that “utilization” was undefined, the limitation had no time period, and the document description was vague.  The Court found that, “read in context,” it was clear that the arbitrator was referring to material that the employee had improperly taken from Halliburton.  Because this gave the employee “fair notice of what he may, and must not, do,” it was “clearly capable of being implemented and enforced.” McVay v. Halliburton Energy Services, No. 10-10172 (April 22, 2015).  The entire injunction appears on pages 6-7 of the opinion and is of general interest to noncompete and trade secret litigation.

Public policy challenge to arbitration award sinks at sea

rickmers_dailanLito Asignacion, a Filipino seaman, worked aboard the M/V RICKMERS DALIAN (right, en route to Antwerp at the time of this post) – a “superflex heavy” container ship owned by a German company and flying the flag of the Marshall Islands.  Severely burned in an onboard accident, he went to arbitration in the Phillippines under Filipino law, and received an award of $1,700 — significantly less than U.S. maritime law would afford.  The district court refused to enforce the award on public policy grounds, and the Fifth Circuit reversed.  Asignacion v. Rickmers Genoa, No. 14-30132 (April 16, 2015).  Acknowledging the strong U.S. policy that gives “special solicitude to seamen” and treats them as “wards of admiralty,” the Court found it outweighed by the policy in favor of arbitration, coupled with unique considerations about the legal arrangements under which Filipino citizens find employment at sea.  It also rejected a challenge based on the “prospective waiver” doctrine, finding that the Supreme Court had not extended it beyond purely statutory rights.

Error in arbitrator appointment = vacated award

BWIFLAGSeveral insurance-related businesses had a dispute. The businesses were not all parties to all relevant agreements, leading to confusion about whether arbitration should proceed with the AAA or ICC, and about how to select an arbitrator. The district court found that the arbitrator was not appointed correctly, vacated the award, and the Fifth Circuit affirmed: “Arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes — but only those disputes — that the parties have agreed to submit to arbitration.”  Poolre Ins. Corp. v. Organizational Strategies, Inc., No. 14-20433 (April 7, 2015).   Interestingly, the relevant contract required arbitrator selection “by the Anguilla, [British West Indies] Director of Insurance” — a nonexistent position.  This error did not moot that provision, however, but simply implicated the section 5 of the FAA, which lets a district judge appoint an arbitrator if “a lapse in the naming of an arbitrator” arises.

Arbitration award affirmed in attorneys fee dispute

A law firm and its client arbitrated a fee dispute.  While the arbitrators ruled for the firm, the district court vacated the award as to the contingent fee on the grounds that the fee was unconscionable.  The Fifth Circuit reinstated the arbitration award, noting the “extraordinarily narrow” standard of review and the arbitrators’ specific fact findings on the relevant considerations.  Campbell Harrison & Dagley LLP v. Hill, No. 14-10631 (April 2, 2015, unpublished).  The Court acknowledged, but concluded that it did not need to address, the question whether the ability to vacate an arbitration award on public policy grounds survived Hall Street Associates v. Mattel, 128 S. Ct. 1396 (2008).

Review of arbitration awards is deferential. Really. No kidding.

BNSF TrainBNSF Railway Co. v. Alstom Transportation presented a challenge to an arbitration award, in a contract dispute about the maintenance of rail cars.  No. 13-11274 (Feb. 5, 2015).  The Fifth Circuit brushed aside a number of challenges to the arbitrator’s legal analysis, quoting the Seventh Circuit: “As we have said too many times to want to repeat again, the question for decision by a federal court asked to set aside an arbitration award . . . is not whether the arbitrator or arbitrators erred in interpreting the contract; it is not whether they clearly erred in interpreting the contract; it is not whether they grossly erred in interpreting the contract; it is whether they interpreted the contract.”

imageAlso, on procedural grounds, the Court rejected a challenge to the propriety of having arbitrated “gateway questions” of arbitrability.  The district court had partially vacated the arbitrator’s award, the appellant (successfully) challenged that ruling, and BNSF had considerable latitude to defend it.  But the “gateway” argument that arbitration should never have occurred, and that the award should thus be vacated in full, could not be presented on appeal absent a cross-appeal because it “asks for an expansion of the judgment.”

“Sham” arbitration = Attorneys fee award

Many personal injury claims are resolved by a “structured settlement,” in which the plaintiff receives a large sum in installments over his or her lifetime.  Symetra is a company that contracts with tort defendants to fund those settlements.  Rapid is a company that offers large lump sum payments to the beneficiaries of those settlements, seeking to profit by the time value of money.  In many states, offers such as Rapid’s are regulated by Structured Settlement Payment Acts (“SSPAs”), and Rapid’s noncompliance with those laws gave rise to Symetra Life Ins. Co. v. Rapid Settlements, Ltd., No. 13-20412 (Dec. 23, 2014).

The trial court found that when Rapid had a dispute with an annuitant, it invoked an arbitration right that “w[as] a sham — designed to circumvent the SSPA’s exclusive method for transferring future payments.”  The first issue on appeal related to the accompanying award of attorneys fees.  The Fifth Circuit remanded for further consideration under Texas law, focusing on the distinction between claims involving present disputes with annuitants (fees allowed), and for future injuctive relief (not allowed). The Court also held that attorneys fees were recoverable as direct damages on Symetra’s claims for tortious interference, when it was “completely foreseeable” to Rapid that its arbitration practices would involve Symetra in state court litigation.

A pilot is not a labor union.

Several labor unions arbitrated disputes with American Airlines about pilot seniority. Mackenzie v. Air Lines Pilots Association, No. 11-11098 (Dec. 23, 2014, unpublished). Two pilots sought to bring a class action to challenge the arbitration award.  The Fifth Circuit dismissed for lack of standing: “[W]hen a CBA formed pursuant to the RLA establishes a mandatory, binding grievance procedure and vests the union with the exclusive right to pursue claims on behalf of aggrieved employees, an aggrieved employee whose employment is governed by the CBA lacks standing to attack the results of the grievance process in court—the sole exception being the authorization of an aggrieved employee to bring an unfair representation claim.”  (citing Mitchell v. Continental Airlines, 481 F.3d 225 (5th Cir. 2007)).  The Court’s analysis of this issue resembles discussion about the broader topic of claim preclusion, arising from a privity relationship, based on another party’s litigation activity.

No final order, no appeal.

In Southwestern Elec. Power Co. v. Certain Underwriters at Lloyds, No. 13-31130 (Nov. 24, 2014), the trial court entered this order on September 25, 2013:

“IT IS ORDERED that the Motion to Compel Arbitration and Stay Proceedings (Doc. 16) is granted and the parties are ordered to resolve the claim presented in an arbitration conducted in accordance with the terms of their insurance policy.  IT IS FURTHER ORDERED that this civil action is stayed, and the Clerk of Court is directed to close the case for administrative purposes given the unlikelihood that further proceedings in this action will be necessary.”

Several months later, the trial court further ordered:

“This court finds that pursuant to Freudensprung and American Heritage Ins. Co. v. Orr, 294 F.3d 702 (5th Cir. 2002), the September 25, 2013 order compelling arbitration and staying the underlying proceeding operates as a final, appealable decision within the statutory framework of the Federal Arbitration Act, 9 U.S.C. § 1-16.”

The Fifth Circuit gave little weight to that further order:

”In a later ruling on SWEPCO’s Rule 58(d) motion for a separate judgment, the district court carefully construed its earlier ruling. Notably, the district court considered case law to construe the prior order ‘as a final, appealable decision within the statutory framework of the [FAA].’ It did not issue a clarification that its prior order was intended to be final and appealable, did not purport to grant SWEPCO’s motion, and did not issue a new order with the necessary trappings of finality.”

Accordingly, because the previous order only stayed and administratively closed the matter — as opposed to dismissing it — the order was interlocutory and the Court lacked appellate jurisdiction.

Arbitration here, there, or nowhere.

TexasBarToday_TopTen_Badge_SmallSharpe v. Ameriplan re-engages the recurring problem of an arbitration agreement governed by multiple documents.  No. 13-10922 (Oct. 16, 2014).  Specifically:

— A Policy Manual contained an arbitration clause;

— A Broker Agreement, which incorporated the Policy Manual.  This Agreement said that the Agreement could not be changed except by written agreement, but acknowledged that the Manual could be changed at will; and

–3 of 4 plaintiffs had Sales Director Agreements that contained a lengthy dispute resolution provision, which began with a commitment to nonbinding mediation and concluded with detailed language that “claims, controversies, or disputes” be “submitted . . . to the jurisdiction” of courts in Dallas (a fourth had a much shorter provision that was simply a Dallas forum selection provision for “any action” on the agreement).

The Court held that that shorter provision did not trump the arbitration clause, but that the longer one did: “The language in Guarisco’s agreement demonstates that AmeriPlan knew how to draft a narrow forum selection clause, and its decision in later Sales Director Agreements to add far more extensive language establishing a full dispute resolution process must be given effect as creating something beyond that.”  The Court distinguished its recent opinion of Klein v. Nabors Drilling USA, L.P., 710 F.3d 234 (5th Cir. 2013), in which it read language about nonbinding mediation as not conflicting with “an exclusive procedural mechanism for the final resolution of all Disputes falling within its terms.”  (See also Lizalde v. Vista Quality Markets,  No. 13-50015 (March 25, 2014) (enforcing an arbitration agreement in the face of a benefit plan with a broad termination right, noting that both agreements’ termination provisions were limited to “this Agreement” and “this Plan” respectively and thus “clearly demarcate their respective applications”)).

Settlement agreement isn’t an arbitration award

The plaintiffs’ employment lawsuit in Arce v. Austin Industries was stayed in favor of arbitration.  No. 14-20098 (Aug. 28, 2014, unpublished).  While the parties then reached a settlement agreement, the district court would not dismiss the lawsuit without review and approval of the settlement.  The district court found the attorneys fees excessive and only dismissed the case after modifying that aspect of the settlement.  The plaintiffs appealed, noting the deference given to arbitration awards, and the Fifth Circuit rejected that argument: “The plaintiffs have not shown that the arbitrator imposed the terms of the settlement on the parties through any order or award.  Furthermore, the plaintiffs have cited no authority holding that a private settlement that happens to take place while the parties are in arbitration is tantamount to an arbitration award.”

Injunction ended, so should the appeal.

Claimants in the compensation system created by BP after the Deepwater Horizon accident received an award in October 2013.  Lake Eugenie Land & Development v. BP Exploration & Production,  No. 14-30398 (Aug. 25, 2014, unpublished).  Unpaid by March 2014, they filed a “Motion to Confirm Award and Order Payment,” which the district court denied because an interim injunction had stayed the entire program while aspects of it were under legal challenge.  After appealing, the injunction lifted.  The Fifth Circuit dismissed for lack of jurisdiction, finding that the trial court’s ruling was neither an order that “vacates, modifies, or corrects” an arbitration award, nor an “interlocutory order . . . continuing . . . an injunction against an arbitration.”

Federal jurisdiction in labor dispute, somehow.

In Houston Refining, LP v. United Steel Workers, an arbitrator found that the suspension of a company’s 401(k) plan, after its bankruptcy filing, violated the company’s CBA with a union.  No. 13-20384 (Aug. 25, 2014).  Two judges agreed that the parties had not “clearly and unmistakably” allowed the arbitrator to decide arbitrability, noting this provision of the parties agreement: “At arbitration, the parties shall reserve all rights to present any and all arguments and advance any and all defenses to them including, without limitation, arguments concerning whether or not an applicable collective bargaining agreement was in effect at the time that a particular grievance arose.”  A dissent stressed other provisions of the agreement and the limited scope of review in the CBA context.  All three judges agreed that the court had subject matter jurisdiction, but differed on the rationales, in the specific context of an alleged breach of a contract controlled by federal labor law.

Door swings shut on a “gateway arbitration”

1.  In 2002, Douglas opened a checking account with Union Planters Bank and signed a signature card with an arbitration provision.  That clause included a “delegation provision,” delegating the question of a dispute’s arbitrability to an arbitrator.  She closed the account a year later.  Douglas v. Regions Bank, No. 12-60877 (July 7, 2014).

2.  In 2007, Douglas was injured in a car accident, after which she brought suit against her lawyer and his bank for allegedly embezzling her settlement funds.  That bank – Regions Bank – had acquired Union Planters in a 2005 transaction.

3.  Regions Bank moved to compel arbitration.  The district court denied the motion on a “successor-in-interest” theory that Douglas did not defend on appeal.  She argued that the delegation provision was not relevant to this dispute, and the Fifth Circuit agreed, adopting a standard under which Douglas would “only . . . bind herself to arbitrate gateway questions of arbitrability if the argument that the dispute falls within the scope of the agreement is not wholly groundless.”  A dissent argued that this test was foreclosed by recent Supreme Court authority on related issues about an arbitrator’s authority.

Remand to arbitration panel not appealable, dissent warns of “mischief”

In Muchison Capital Partners, L.P. v. Nuance Communications, Inc., the district court remanded a case to an arbitration panel for further consideration of damages, making clear that it was not vacating the award.  No. 13-10852 (July 25, 2014).  Appeal ensued. Acknowledging that an order vacating an award and remanding is final, the majority concluded that this order was not final (and thus not appealable) as a matter of precedent and the general policy favoring arbitration and discouraging piecemeal appeals.  A dissent warned that “mischief will come of this error,” pointing out that the district judge closed the case, issued a final judgment, and did not stay or retain jurisdiction over the case after the remand.  The dissenting judge would take the appeal, reach the merits, and affirm the award.  A main point of difference between the majority and dissent was the holding of of Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000).

Arbitrator authority

The Fifth Circuit revisited the issue of an arbitrator’s authority to fashion a remedy — nominally an issue of labor union law, but of broader general interest — that it recently addressed in Albermarle Corp. v. United Steel Workers, 703 F.3d 821 (5th Cir. 2013). Observing that the parties’ CBA “did not establish criteria for determining cause to discharge,” it found that the arbitrator’s decision to suspend rather than discharge was within the bounds of an arguable construction of the contract.  United Steel v. Delek Refining, Ltd., No. 12-41119 (July 14, 2014, unpublished).

Does “based on the attached” mean “we agree to arbitration”?

The parties’ contract said: “Terms and conditions are based on the general conditions stated in the enclosed ORGALIME S200.”  The ORGALIME, in turn, had an arbitration clause.  The Fifth Circuit found that the above language incorporated the arbitration clause into the contract, acknowledging that “multiple interpretations of ‘based on’ might be possible in the abstract,” the length and scope of the ORGALIME compared to the contract showed the parties’ intent to incorporate its terms.  Al Rushaid v. National Oilwell Varco, Inc., 757 F.3d 416 (2014).  The Court also rejected a waiver argument, finding that the acts of the party’s co-defendants could not be imputed to it absent a reason to pierce the corporate veil.  Here, “there is no evidence in the record that [the party] has abused its corporate form.  It merely declined to become a party to litigation without being formally served.”  The Court also rejected an argument, based on equitable estoppel, to stay the ongoing litigation until the conclusion of the arbitration.

Of Terrebonne Bay, LA and Marshall, TX

The short opinion in Navigators Ins. Co. v. Moncla Marine Operations LLC rejected the appeal of a decision to continue a stay of court proceedings, involving the proceeds from the sale of a barge, in favor of arbitration.  No. 13-30975 (May 8, 2014, unpublished).  The Court reminded: (1) a stay is not an appealable final order (citing Apache Bohai Corp. v. Texaco China, B.V., 330 F.3d 307 (5th Cir. 2003)); (2) absent a clear identification of an “important issue . . . completely separate from the merits,” the collateral order doctrine does not allow appeal either; and (3) neither does mandamus, distinguishing a D.C. Circuit case involving a court’s statutory authority over enforcement of a foreign arbitral award.  In a footnote, the Court noted a citation by the movant to In re Radmax, 720 F.3d 285 (5th Cir. 2013), and made the understated observation: “The factors that must be demonstrated to obtain mandamus relief in a venue transfer case are not the same as the factors in an arbitration case.”

Arbitrating arbitrability

In Aviles v. Russell Stover Candies, the Fifth Circuit again engaged the issue of whether the unilateral power to change an arbitration clause makes it illusory and unenforceable. No. 12-11227 (April 4, 2014, unpublished).  This time, however, the Court observed that the agreement subjected to arbitration “any and all claims challenging the validity or enforceability of the [Waiver and Arbitration] Agreement.”   Accordingly, the Court affirmed the dismissal of her case in favor of arbitration, but vacated the magistrate judge’s resolution of the enforceability issue because it “should have declined to decide either of those two issues.”

Three Steps to Arbitration

The parties’ letter agreement incorporated “AIA Document B51” with respect to “the services provided . . . under this Agreement.”  That document states that all claims shall be adopted under the AAA’s Construction Industry Arbitration Rules. Those Rules state that “the arbitrator shall have the power to rule on his or her own jurisdiction.”  The Fifth Circuit found the agreement’s incorporation of the other documents to be effective, and accordingly the arbitrator had jurisdiction to determine arbitrability — including, whether the parties’ dispute involved “services.”  RW Development, LLC v. Cunningham Group Architecture, P.A., 13-60010 (April 11, 2014, unpublished).

Arbitration, the Best Medicine — UPDATED

Several operators of drug stores sued pharmacy chains for misappropriating confidential information.  The defendants successfully compelled arbitration and the Fifth Circuit affirmed.  Crawford Professional Drugs v. CVS Caremark Corp., 748 F.3d 249 (5th Cir.
2014). Specifically (applying Arizona law), the Court found that the plaintiffs’ allegations sufficiently invoked the terms of a contract that contained an arbitration agreement, allowing arbitration to be compelled against nonsignatories on an equitable estoppel theory.  The Court went on to reject the plaintiffs’ argument that the contract, and its arbitration clause, were procedurally unconscionable contracts of adhesion.  It also found insufficient evidence to support their argument that the clause imposed substantively unconscionable litigation costs.  (The Court recently revisited this topic in Muecke Co. v. CVS Caremark Corp., No. 14-41213 (Aug. 25, 2015)).

How much negotiation is required before arbitration?

This language — “the parties agree to negotiate in good faith toward resolution of the issues, and to escalate the dispute to senior management personnel in the event that the dispute cannot be resolved at the operational level” — does not create (1) a requirement of negotiation by senior management before arbitration is invoked, or (2) a condition that any senior management negotiation fail before arbitratation is invoked.  It simply requires negotiation at the operational level.  21st Century Financial Services v. Manchester Financial, No. 13-50389 (March 31, 2014).

Arbitration clause not illusory

In Lizalde v. Vista Quality Markets, the Fifth Circuit revisited the recurring issue of whether an arbitration agreement becomes illusory because of an employer’s right to amend the terms of employment.  No. 13-50015 (March 25, 2014).The parties’ Arbitration Agreement gave the employer the power to terminate that agreement after following several procedural prerequisites, which made that agreement non-illusory.  In contrast, the parties’ Benefit Plan had a “completely unrestrained” termination power.  And, the Arbitration Agreement acknowledged: “this Agreement is presented in connection with the Company’s [Benefit Plan].  Payments made under the [Benefit Plan] also constitute consideration for this Agreement.”  The district court found the arbitration agreement illusory, based on that connection.  The Fifth Circuit reversed, nothing that both agreements’ termination provisions were limited to “this Agreement” and “this Plan” respectively and thus “clearly demarcate their respective applications.”

No collateral estoppel from railroad arbitration

In Grimes v. BNSF Railway, the district court applied collateral estoppel to a Federal Railway Safety Act (“FRSA”) suit, based on a fact finding made by a type of arbitral panel called a Public Law Board (“PLB”) after an investigation and hearing by railroad personnel. No. 13-60382 (Feb. 17, 2014).  The Fifth Circuit reversed, noting: (1) the hearing was conducted by the railroad; (2) the plaintiff was represented by the union rather than an attorney; (3) the termination decision was made by a railroad employee, not by “an impartial fact finder such as a judge or jury”; (4) the rules of evidence did not appear to have controlled in the arbitral proceedings; and (5) “most crucially,” the PLB’s affirmance was based solely on the record developed at the hearing administered by the railroad.  The Court noted authority that rejects res judicata in this context, but also noted that “estoppel may apply in federal-court litigation to facts found in arbitral proceedings as long as the court considers the ‘federal interests warranting protection.’”

Arbitrability issue not arbitrable

The company’s Collective Bargaining Agreement said: “Discharge for a confirmed positive test under the substance abuse policy shall not be subject to grievance or arbitration. However, relative to such discharge the union continues to maintain the right to grieve and arbitrate issues around the integrity of the chain of custody.”  The union began an arbitration to challenge an employee’s termination for failing a drug test.  ConocoPhillips, Inc. v. Local 13-0555 United Steelworkers Int’l Union, No. 12-31225 (Jan. 30, 2014).  The arbitrator concluded that he had jurisdiction over that claim.  The company successfully opposed confirmation on the ground that he lacked power to decide jurisdiction, and the Fifth Circuit affirmed, finding no provision that “clearly and unmistakably” granted such authority.

Arbitration > Empiricism

The plaintiff in Diggs v. Citigroup, Inc. sought to resist arbitration of an employment dispute, relying upon a study by Cornell professor Alex Colvin that concluded: “there is a large gap in outcomes between the employment arbitration and litigation forums, with employees obtaining significantly less favorable outcomes in arbitration.”  No. 13-10138 (Jan. 8, 2014, unpublished).  The Fifth Circuit affirmed the district court’s decision to exclude the study under Daubert, noting that the study was not connected to this dispute and examined data from 5 years before its initiation.  The Court also questioned — without resolving — the validity of comparing arbitration statistics from 2003-07 with litigation statistics from the late 1990s.

NLRB reversed; can arbitrate collective claims

In D.R. Horton Inc. v. NLRB, the Fifth Circuit reviewed an NLRB decision that invalidated an arbitration agreement as to collective or class claims related to employment.  No. 12-60031 (Dec. 3, 2013).  The court deftly sidestepped a difficult constitutional issue, presently before the Supreme Court, about President Obama’s “recess appointments” to the NLRB.  On the merits, the Court reversed the NLRB.  The Board relied upon Section 7 of the NLRA, which guarantees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  The Court found that this statute did not create a right to pursue collective or class claims in court that trumped the language and policy goals of the Federal Arbitration Act.  A recent Texas Lawbook article discusses the significance of this opinion for employers.

For Halloween, an illusory arbitration clause

Employer sought to enforce two arbitration agreements in an employee handbook, which also gave Employer the right to unilaterally “supersede, modify, or eliminate existing policies.”  Scuderio v. Radio One of Texas II, LLC, No. 13-20114 (Oct. 24, 2013, unpublished).  Applying In re 24R, Inc., 324 S.W.3d 564 (Tex. 2010), the Fifth Circuit noted a distinction between an arbitration clause that is in a separate instrument from a handbook with such a provision, and a clause that is part of the handbook.  Here, “because the arbitration provision is in the handbook that contains the language allowing the employer to unilaterally revise the handbook, the agreement to arbitrate is illusory and unenforceable.”  See also Carey v. 24 Hour Fitness, 669 F.3d 202 (5th Cir. 2012) (finding another arbitration provision illusory in an employment setting).

Ancillary Arbitration

As part of a complicated battle about arbitrability and arbitrator selection, a district court ruled: “Plaintiff’s claims are dismissed for resolution by arbitration.”  Later, the district court rejected a challenge to the arbitrator selection process.  Adam Technologies Int’l v. Sutherland Global Services, No. 12-10760 (Sept. 5, 2013).  The panel divided over how to apply Kokkonen v. Guardian Life, 511 U.S. 375 (1994), which held that a court lacked ancillary jurisdiction to hear a dispute about the enforcement of a settlement provision in a dismissed action.  The majority reasoned: “The judgment dismissing [plaintiff’s] initial lawsuit operated, in all practical effect, as the functional equivalent of an order compelling arbitration between these parties.  We conclude that ancillary jurisdiction existed to allow the district court later to evaluate whether the dismissal that allowed the dispute to be taken to arbitration was being thwarted.”  The dissent did not read the district court’s ruling as retaining jurisdiction.    

Discovery rulings do not require vacating arbitration award

Bain Cotton Co. v. Chesnutt Cotton Co. involved a challenge to an arbitration award based on the arbitrators’ denial of discovery.  No. 12-1138 (June 24, 2013, unpublished).  In affirming the district court’s rejection of the challenge, the Fifth Circuit stated: “This appeal presents a quintessential example of a principal distinction between arbitration and litigation, especially in the scope of review. Had this discovery dispute arisen in and been ruled on by the district court, it is not unlikely that the denial of Bain’s pleas would have led to reversal; however, under the ‘strong federal policy favoring arbitration, judicial review of an arbitration award is extremely narrow.’”

Res judicata from arbitration

The parties arbitrated whether certain offshore oil dealings violated RICO.  Grynberg v. BP, PLC, No. 12-20291 (June 7, 2013, unpublished).  The arbitrator found that the claimant did not establish damage and dismissed that claim, noting that he lacked authority to determine whether any criminal violation of RICO occurred. The Fifth Circuit affirmed the dismissal of a subsequent RICO lawsuit on the grounds of res judicata, finding that the arbitrator’s ruling was on the merits and not jurisdictional.

Blimp dispute grounded for lack of jurisdiction.

A dispute about guaranty obligations related to the purchase of a blimp was removed to federal court.  The district court granted a motion to compel arbitration, stayed the case, and administratively closed it.  McCardell v. Regent Private Capital LLC, No. 12-31089 (June 7, 2013, unpublished).  The Fifth Circuit reminded that administrative closure does not create a final judgment, and thus dismissed for lack of appellate jurisdiction over the interlocutory appeal.

No signature required

The Fifth Circuit affirmed the district court’s confirmation of an arbitration award against challenges by both sides.  One party argued that there was no agreement to arbitrate, and the Court resolved that issue under general contract law principles: “Signature[] lines may be strong evidence that the parties did not intend to be bound by a contract until they signed it. But the blank signature blocks here are insufficient, by themselves, to raise a genuine dispute of material fact.”  The other party disputed the handling of postjudgment interest, but the Court concluded that the panel had only awarded post-award interest, leaving the district court free to impose the statutory postjudgment rate upon confirmation. The Court noted that parties may contract to have the arbitrator resolve the appropriate postjudgment rate.  Tricon Energy Ltd. v. Vinmar Int’l, Ltd., No. 12-20100 (May 3, 2013).

Race to courthouse; arbitration wins

The plaintiffs in AFLAC v. Biles sued in state court, alleging that AFLAC paid death benefits to the wrong person, and that the signature on the policy application was forged.  No. 12-60235 (April 30, 2013).  AFLAC moved to compel arbitration in the state court case and simultaneously filed a new federal action to compel arbitration. The state court judge denied AFLAC’s motion without prejudice to refiling after discovery on the issue of the signatures’ validity.  In the meantime, the federal court granted AFLAC’s summary judgment motion and compelled arbitration after hearing expert testimony from both sides on the forgery issue.  The Fifth Circuit affirmed, finding that Colorado River abstention in favor of the state case was not required, and that the order compelling arbitration was allowed by the Anti-Injunction Act because it was “necessary to protect or effectuate [the federal] order compelling arbitration.”  The Court also found no abuse of discretion in the denial of the respondents’ FRCP 56(e) motion, since it sought testimony that would only be relevant if the witness admitted outright to forgery.

Perpetual license was permissible exercise of arbitral authority

Arbitrators awarded a videogame developer a perpetual license in certain intellectual property.  The district court vacated the award on the ground that the award went against the essence of the developer’s contractual relationship with the game publisher.  Timegate Studios, Inc. v. Southpeak Interactive, LLC (April 9, 2013).  The Fifth Circuit acknowledged that the FAA’s deference to arbitrators reaches its boundary if they “utterly contort[] the evident purpose and intent of the parties” with an award that does not “draw its essence” from the parties’ contract.  Here, particularly in light of the arbitrator’s findings about the publisher’s intentional wrongdoing, the Court found the license “was a permissible exercise of the arbitrator’s creative remedial powers” even if it was not wholly consistent with the parties’ contract.  The Court reviewed cases about arbitrators who exceeded their given authority and found them inapplicable to this situation: “Timegate committed an extraordinary breach of the Agreement, and an equally extraordinary realignment of the parties’ original rights [was] necessary to preserve the essence of the Agreement.”

Agreement to arbitrate in form employment documents

The employee in Klein v. Nabors Drilling signed an Employee Acknowledgement Form that agreed to resolve disputes through the Nabors Dispute Resolution Program, describing the Program as “a process that may include mediation and/or arbitration.”  No. 11-30824 (Feb. 26, 2013).  The Fifth Circuit reminded that the basic legal framework asks: (1) is there a valid agreement to arbitrate? and (2) does the dispute fall within the scope of the agreement?  Here, the parties did not dispute that they had a valid agreement, or that Klein’s age discrimination claim was a “dispute” within the meaning of the Program — the novel issue was whether the parties agreed that arbitration was mandatory.  The Court carefully reviewed the Program and found that while it “preserve[d] options for nonbinding dispute resolution before final, binding arbitration,” it clearly stated that it “create[d] an exclusive procedural mechanism for the final resolution of all Disputes” and thus required arbitration of Klein’s claim.

Arbitration: agreement v. estoppel

A manufacturer of ship propulsion systems contracted with a ship operator, who in turn contracted with a shipbuilder.  The manufacturer and the operator had a sales contract (with an arbitration clause), and the operator and the shipbuilder had a separate contract.  VT Halter Marine v. Wartsila North America, No. 12-60051 (Feb. 8, 2013, unpublished).  The component manufacturer and shipbuilder had dealings as part of the overall relationship but did not have a direct contract.  The shipbuilder sued the manufacturer for supplying allegedly defective parts.  Its breach of warranty claim, derivative of the operator’s rights, was conceded to be arbitrable.  The tortious interference claim, however, could only be arbitrated under an estoppel theory since the shipbuilder was not a party to the manufacturer-shipbuilder contract.  The district court’s order was not clear about the basis for ordering arbitration of that claim, and the Fifth Circuit remanded for resolution of whether estoppel applied.  The Court reminded that while orders compelling arbitration are usually reviewed de novo, an order compelling a third party to arbitrate under an estoppel theory is reviewed for abuse of discretion (citing Noble Drilling v. Certex USA, 620 F.3d 469, 472 n.4 (5th Cir. 2010)).

Arbitral authority and “cause” for termination

An employer terminated two employees for safety violations.  An arbitrator, appointed under the parties’ collective bargaining agreement, ordered them reinstated after a suspension.  The district court vacated the award, and the Fifth Circuit reversed and reinstated.  Albermarle Corp. v. United Steelworkers, 703 F.3d 821 (2013).  The Court found that “explicating broad CBA terms like ’cause,’ when left undefined by contract, is the arbitrator’s charge.”  Id. at 7.  It distinguished prior cases that left an arbitrator no discretion as to whether certain rule violations required discharge.  Id. at 5-6 (citing E.I. DuPont de Nemours & Co. v. Local 900, 968 F.2d 456 (5th Cir. 1992)).  The Court also rejected a challenge to the award on public policy grounds, reminding that “any such public policy must be explicit, well defined, and dominant.”  Id. at 10.  Cf. Horton Automatics v. Industrial Division of the Communication Workers of America, No. 12-40576 (Jan. 4, 2013, unpublished) (reversing confirmation when labor arbitrator exceeded limited scope).

No port for $26 million arbitration award in shipping dispute

Denied enforcement of a $26 million arbitration award in China’s Fujian Province (that court finding the award invalid because an arbitrator was imprisoned during the proceedings), the plaintiff sought recognition in the Eastern District of Louisiana.  First Investment Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding,  No. 12-30377 (Dec. 21, 2012, revised Jan. 17, 2013). The Fifth Circuit affirmed dismissal for lack of personal jurisdiction with three holdings: (1) the recent case of Goodyear Dunlop Tires v. Brown, 131 S. Ct. 2846 (2011), removed doubt as to whether foreign corporations could invoke due process protection about jurisdiction; (2) the New York Convention did not abrogate those rights; and (3) no “alter ego” relationship among the relevant companies was shown that could give rise to jurisdiction.  In a companion case, the Court affirmed a ruling that denied jurisdictional discovery based on “sparse allegations” of alter ego.    Covington Marine v. Xiamen Shipbuilding, No. 12-30383 (Dec. 21, 2012); cf.Blake Box v. Dallas Mexican Consulate, No. 11-10126 (Aug. 21, 2012) (reversing jurisdictional discovery ruling).

FINRA arbitration award reinstated

An unpublished opinion reversed the vacating of a FINRA arbitration award in Morgan Keegan v. Garrett, No. 11-20736 (Oct. 23, 2012).  The Court reversed a finding of fraudulent testimony “because the grounds for [the alleged] fraud were discoverable by due diligence before or during the . . . arbitration.”  Id. at 8.  The Court also deferred to the panel’s conclusions about the scope of the arbitration as consistent with the authority given by the FINRA rules.  Id. at 10-12.  Throughout, the opinion summarizes Circuit authority about the appropriate level of deference to the panel in a confirmation seting.

No arbitration under “estoppel” theory

Several months ago, the Court held that a stay is not automatic during an appeal about arbitrability, weighing in on an important procedural issue addressed by several other Circuits.  Weingarten Realty v. Miller, 661 F.3d 904 (5th Cir. 2011).  In an unpublished opinion, the Court has now addressed the merits and affirmed the denial of the motion to compel arbitration under an “equitable estoppel” theory, offering a basic reminder about that concept — arbitration is not proper when the guaranty as to which the plaintiff sought a declaration was distinct from the loan agreement that contained the arbitration clause.  Weingarten Realty v. Miller (2), No. 11-20676 (Oct. 22, 2012).

Two-party contract, three-party dispute, federal court selects arbitrators

BP and Exxon disputed the condition of an offshore rig operated by Noble off the coast of Libya; Noble sought payment from either of them.  BP Exploration Libya Ltd. v. ExxonMobil Libya Ltd., No. 11-20547 (July 30, 2012).  The resulting three-party dispute ran into practical problems because the arbitration clause had a procedure for selecting three arbitrators that was only workable in a two-party dispute.  The Fifth Circuit found that a “mechanical breakdown” had occurred that justified federal court intervention under the FAA, 9 U.S.C. § 5, but that the district court exceeded its authority by ordering that arbitration proceed with five arbitrators rather than the three specified by the agreement.  The Court remanded with instructions as to the process for the district court to follow in forming a three-arbitrator panel.

Arbitration award confirmed

The confirmation of an arbitration award in a construction dispute was affirmed in Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., No. 11-20141 (July 17, 2012).  The Court found: (1) that the arbitrator had authority, based on the parties’ agreement to AAA rules, to determine whether a particular damages issue was arbitrable; (2) the award was not procured by fraud, rejecting an argument that the claimant’s damage calculation involved a “bait-and-switch” that pretended to abandon one theory; and (3)  the district court properly awarded prejudgment interest, particularly in light of the arbitration panel creating “a thirty-day interest-free window from the date of the award” for payment.  

Award vacated, no agreement to class arbitration

In a significant case applying Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010), the Court vacated a class arbitration award as exceeding the arbitrator’s authority.  Reed v. Florida Metropolitan University, No. 11-50509 (May 18, 2012).   The Court found that the “any dispute” and “any remedy” clauses in the parties’ agreement did not authorise class arbitration, acknowledging a different conclusion by the Second Circuit in Jock v. Sterling Jewelers, Inc., 646 F.3d 113 (2011).  Op. at 19-22.   Before reaching that result, the Court reviewed the applicable AAA rules and concluded that they allowed the threshold matter of class arbitration to be reviewed by the arbitrator.  Id. at 8.

“Extraordinarily narrow” review affirms $17 million arbitration award

As a counterpoint to some recent cases that have set limits on arbitrability, the Court rejected two court challenges to a $17 million arbitration award in a dispute about coal pricing.  Rain CII Carbon, LLC v. ConocoPhillips Co., No. 11-30669 (March 9, 2012).  The losing party argued that the arbitrator had failed to follow a specified “baseball” procedure, but the Court found that the arbitrator’s treatment of the proposed award was within the scope of his power to correct clerical issues.  Op. at 5.  The Court also found that the award was “reasoned” under prior case law: “The only description of a reasoned award in this circuit was rendered in a footnote: . . . ‘[A] reasoned award is something short of findings and conclusions but more than a simple result.'”  Id. (citing Sarofim v. Trust Co. of the West, 440 F.3d 213, 215 n.1 (5th Cir. 2006)).  The Court suggested that the parties could have contracted for more detailed findings and conclusions.   Op. at 8.

Attorneys fee award about “malicious” claims not dischargeable in bankruptcy

In Shcolnik v. Rapid Settlements, bankruptcy creditors had obtained a $50,000 arbitration award of attorneys fees against the debtor, and appealed a summary judgment that the award was dischargeable.  No. 10-20800 (Feb. 8, 2012).  The Fifth Circuit reversed, finding an issue of fact as to whether the fee award arose from “willful and malicious injury by the debtor” in pursuing meritless claims, and was thus nondischargeable.  Op. at 5-6 (citing 11 U.S.C. § 523(a)(6)).  (The debtor’s threats included a “massive series of legal attacks . . . which will likely leave you disbarred, broke, professionally disgraced, and rotting in a prison cell.”  A thoughtful dissent questioned whether the majority’s ruling would deter legitimate litigation demands, and whether the Court was inserting itself into matters resolved by the arbitrator.  Op. at 9.

Arbitration clause held illusory and unenforceable

The employee handbook in Carey v. 24 Hour Fitness contained an arbitration provision and a “Change-in-Terms” clause giving the employer “the right to revise, delete, and add to the employee handbook.”  No. 10-20845 (Jan. 25, 2012).  The  Court affirmed a finding that the arbitration provision was illusory, and thus unforceable.  Op. at 4 (citing  Morrison v. Amway Corp., 517 F.3d 248, 257 (5th Cir. 2008)).  The Court contrasted In re Halliburton Co., 80 S.W.3d 566, 569-70 (Tex. 2002), in which a clause was enforced when the employer’s right to amend the arbitration provision was specifically limited as to present disputes,  and favorably cited Weekley Homes v. Rao, 336 S.W.3d 413, 415 (Tex. App.–Dallas 2011, pet. denied), in which a provision requiring notice of a handbook was not sufficient to make an arbitration provision non-illusory.

No jurisdiction over petition to compel arbitration

In a dispute about termination of a Volvo truck franchise, Volvo sued the dealership under section 4 of the Federal Arbitration Act to compel arbitration.  Volvo Trucks v. Crescent Ford Truck Sales, No. 09-30782 (Jan. 5, 2012).  Both businesses were Delaware corporations.  The district court found federal question jurisdiction because some relief requested involved interpretation of a federal statute.  The Fifth Circuit applied the “look-through” approach of the Supreme Court in Vaden v. Discover Bank, 556 U.S. 49 (2009), under which a court first “assume[s] the absence of the arbitration agreement” to determine if federal jurisdiction would exist without it.  Under Vaden, the Court found that the substantive issues in dispute were governed by state law.  Op. at 6-9.  It also found that the federal issue on which declaratory relief was requested did not create jurisdiction because it “arises only as a defense or in anticipation of a defense.”  Op. at 12.

Stay denied during arbitrability appeal

In a case of considerable practical importance as to litigation about arbitration clauses and appellate procedure generally, the Fifth Circuit addressed a party’s motion for a stay of district court proceedings during an appeal about the arbitrability of the matter in Weingarten Realty v. MillerThe Court acknowledged a significant circuit split as to whether a notice of appeal automatically stayed district court decisions during an arbitrability appeal, with one school of thought (two circuits) holding that a case’s merit is a distinct matter from whether it is arbitrable, and another school (five circuits) holding that a notice of appeal automatically stays district court proceedings for efficiency reasons.  Op. at 3-4.   Recognizing that this issue turns on the application of Griggs v. Provident Consumer Discount, 459 U.S. 56 (1982), and its holding that a district court may adjudicate matters not involved in the appeal, the Court concluded that under prior Circuit precedent a notice of appeal did not create an automatic stay.  Op. at 7.  The Court went on to review the motion under the general four-factor test for a discretionary stay during appeal, and again declined to order a stay, primarily because it believed the movant had a low chance of success on the merits under the contract documents and the doctrine of equitable estoppel.  Op. at 7-8.