The Louisiana Department of Natural Resources complained that it was not able to call live witnesses at an arbitration with FEMA, conducted under federal regulations by the Civilian Board of Contract Appeals. Agreeing that the regulations allowed oral presentation of evidence, but also noting the fulsome written submission received without objection, the Fifth Circuit observed: “Vacatur . . . is warranted when the panel refuses to hear material, not just any, evidence; similarly, there is no indication oral presentation ‘might have altered the outcome of the arbitration.'” Louisiana Dep’t of Natural Resources v. FEMA, No. 17-30140 (Jan. 29, 2018, unpublished) (emphasis added).
Plaintiffs alleged antitrust violations by distributors of dental equipment; seeking damages and injunctive relief. The defendants sought to compel arbitration, based on this arbitration clause in a relevant contract:
Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Pelton & Crane), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [(AAA)]. The place of arbitration shall be in Charlotte, North Carolina.
The issue was whether arbitrability was for the courts to decide or the arbitrator. The Fifth Circuit applied “the two-step inquiry adoped in Douglas v. Regions Bank[, 757 F.3d 460 (5th Cir. 2014),] under which the first question is whether the parties “clearly and unmistakably” intended to delegate the question of arbitrability to an arbitrator. Finding that “the interaction between the AAA Rules and the [injunctive relief] carve-out is at best ambiguous,” the Court chose not to resolve that issue, concluding that the second Douglas question was dispositive. That question asks whether the “assertion of arbitrability is wholly groundless,” which the Court found to be the case:
The arbitration clause creates a carve-out for ‘actions seeking injunctive relief.’ It does not limit the exclusion to ‘actions seeking only injunctive relief,’ nor ‘actions for injunction in aid of an arbitrator’s award.’ Nor does it limit itself to only claims for injunctive relief. . . . The mere fact that the arbitration clause allows Archer to avoid arbitration by adding a claim for injunctive relief does not change the clause’s plain meaning.
Archer & White Sales v. Henry Schein, Inc., No. 16-41674 (Dec. 21, 2017) (emphasis added).
In a 2-1 decision, the Fifth Circuit found that Ezekiel Elliott failed to exhaust remedies within the NFL’s dispute-resolution process before filing suit, meaning that the federal courts lacked subject matter jurisdiction over his complaints. A dissent found a sufficient question about the adequacy of the process to justify the exercise of jurisdiction under the relevant authorities. NFLPA v. NFL, No. 17-40936 (Oct. 12, 2017). While of enormous interest to Cowboys fans, so far as arbitration goes, the opinion is centered on issues unique to collective bargaining agreements.
The parties in IQ Products Co. v. WD-40 Co.disputed whether an arbitration agreement was limited to “propane/butane-propelled produicts” or also “carbon dioxide-propelled products.” The party who prevailed in the arbitration relied mainly on the parties’ subsequent conduct to justify the broader reading, and the Fifth Circuit agreed (applying California law): “Considering . . . ‘the words used . . . as well as extrinsic evidence of such objective matters and the surrounding circumstances under which the parties negotiated [and] entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties . . . WD-40’s assertion is . . . not wholly groundless.” No. 16-20595 (Sept. 13, 2017).
The high-profile dispute between Dallas Cowboys star Ezekiel Elliott and the NFL Players’ Association, on the one hand, and the NFL on the other, has reached the Fifth Circuit after the district court’s grant of a preliminary injunction against Elliott’s suspension by the league. The NFL has moved for an interim stay; the successful plaintiffs have responded; and a motions panel of the Court will consider that issue in the week ahead.
Addressing a novel but important question, the Fifth Circuit found in that a state law attachment remedy was available to faciliate an international arbitration about a shipment of pig iron, and that federal courts had removal jurisdiction over the proceedings under the Convention on the Recognition and Enforcement of Foreign Arbital Awards. Stemcor USA v. CIA Siderurgica do Para Cosipar, No. 16-30984 (Sept. 1, 2017).
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).
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).
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).
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).
Hays, 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).
The 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).
The 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).
In 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).
The 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).
After 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 mounted 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)).
Appellants, 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).
The 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).
In 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.
In 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 motion 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)]
In 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).
A 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 by 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).
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).
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).
Heritage 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.”