Lito 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.
Several 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.
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).
BNSF 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.”
Also, 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.”
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.
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.
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.
Sharpe 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”)).
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.”
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.”
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.
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.
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).
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).
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.
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.”
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.”
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).
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)).
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).
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.”
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.’”
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.
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.
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.