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  No. 13-10138 (Jan. 8, 2014, unpublished).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.

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).

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.    

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.’”

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.

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.

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).

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.

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.”

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.

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)).

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).

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).

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.

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).

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.

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.  

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.

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.

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.

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.

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.

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. Miller.  The 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.