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 v. LVI Facility Servcs., No. 14-51269 (May 22, 2015, unpublished).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 OMG, LP v. Heritage Auctions, Inc., No. 14-10403 (May 8, 2015, unpublished).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.”
Chester 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).
Several 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.
Halliburton 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.
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.”