While fully in step with the encouragement of arbitration called for by the Federal Arbitration Act, the Fifth Circuit has set boundaries for arbitration in recent cases:
- Estoppel. Noble Drilling v. Certex USA rejected an effort to compel arbitration against a nonsignatory based on estoppel: “As plaintiff, Noble is not required to base its claims on the Purchase Order Agreements and can, as it has, disclaim any reliance thereon. Noble’s claims — by its own admission — rise or fall on the pre-purchase representations and whatever duties a manufacturer and distributor have by law. We thus conclude that the theory of direct benefits estoppel is not applicable, and Noble is not obligated to arbitrate its claims.” 620 F.3d 469 (5th Cir. 2010). Cf. McKnight v. Dresser, Inc., 676 F.3d 426 (5th Cir. 2012) (applying similar analysis to reject an argument, in the removal context, that a state law claim was inextricable from the interpretation of a collective bargaining agreeement).
- Employee handbook and illusory promise. The Court also found an arbitration clause illusory and thus unenforceable when the handbook containing it gave the employer “the right to revise, delete, and add to the employee handbook.” Carey v. 24 Hour Fitness, 669 F.3d 202 (5th Cir. 2012). It reached a similar result in Scuderio v. Radio One of Texas II, LLC, noting a distinction between such a handbook, and an arbitration clause that is separate from a general handbook of company policies. No. 13-20114 (Oct. 24, 2013, unpublished) (applying In re 24R, Inc., 324 S.W.3d 564 (Tex. 2010)). And, in Klein v. Nabors Drilling, the Court found that a dispute had to be arbitrated even though the employee manual containing the arbitration clause encouraged early negotiation and mediation as preferred forms of dispute resolution. 710 F.3d 234 (5th Cir. 2013). Similarly, in Lizalde v. Vista Quality Markets, the Court found an arbitration agreement enforceable 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.” No. 13-50015 (March 25, 2014). But see Sharpe v. Ameriplan, No. 13-10922 (Oct. 16, 2014) (declining to enforce arbitration clause in the face of a later, detailed, court-specific forum selection provision).
- Signatures. On the other hand, in Tricon Energy Ltd. v. Vinmar Int’l, Ltd., the Court affirmed an award confirmation over a dispute about signature: “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.” No. 12-20100 (May 3, 2013).
- Class arbitation. In an important opinion about the hot issue of class arbitration, the Court found that a standard “any dispute” clause did not let an arbitrator resolve the question of class certification. Reed v. Florida Metropolitan University, 681 F.3d 630 (5th Cir. 2012).
- Empirical data. The plaintiff in Diggs v. Citigroup, Inc. sought to resist arbitration of an employment dispute, relying upon a study that found “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.
- Reviewability. The Court remains deferential, recently rejecting two court challenges to a $17 million arbitration award in a dispute about coal pricing. Rain CII Carbon, LLC v. ConocoPhillips Co., 674 F.3d 469 (5th Cir. 2012). The losing party argued that the arbitrator did not follow a specified “baseball” procedure, but the Court found that his treatment of the proposed award was within his power to correct clerical issues. Id. at 5. The Court also found that the award “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.'” (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.
- Interest. The Court addressed the distinction between post-award and post-judgment interest, as well as arbitral authority over postjudgment interest, in Tricon Energy Ltd. v. Vinmar Int’l, Ltd., supra. See also Bain Cotton Co. v. Chesnutt Cotton Co., No. 12-1138 (June 24, 2013, unpublished) (“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.’”)
- Standard of review. The Court recently reminded of the distinction between the usual de novo review standard for arbitration rulings, and the abuse-of-discretion standard used when arbitration is compelled under an estoppel theory. VT Halter Marine v. Wartsila North America, No. 12-60051 (Feb. 8, 2013, unpublished).
- Discovery. 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.’”
JURISDICTION AND PROCEDURE
- Appellate stay. Procedurally, the Court has recently clarified the standard for an interim stay during the appeal of the denial of a motion to compel arbitration, holding that a stay is not automatic with the filing of a notice of appeal. Weingarten Realty v. Miller, 661 F.3d 904 (5th Cir. 2011).
- Petition to compel. The Court reviewed the unusual test for jurisdiction over a petition to compel arbitration under section 4 of the Federal Arbitration Act in Volvo Trucks v. Crescent Ford Truck Sales, 666 F.3d 932 (5th Cir. 2012) (applying the “look-through” test from Vaden v. Discover Bank, 556 U.S. 49 (2009), under which a court “assume[s] the absence of the arbitration agreement” to determine if federal jurisdiction would exist without it).
- Ancillary jurisdiction. In 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.
- Arbitral v. judicial authority. The unpublished case of Allen v. Regions Bank, No. 09-60705 (5th Cir. Aug. 11, 2010) provides a crisp summary of the issue of the arbitrator’s authority, compared to a court’s, that the Supreme Court addressed in Rent-A-Center v. Jackson, 130 S. Ct. 2772 (2010). See also ConocoPhillips, Inc. v. Local 13-0555 United Steelworkers Int’l Union, No. 12-31225 (Jan. 30, 2014) (affirming a decision not to confirm an award, as no provision in the Collective Bargaining Agreement let the arbitrator decide his jurisdiction over a grievance related to alleged drug use, as opposed to chain-of-custody issues about such claims).