Benjamin Stearns

Eighth Circuit: Plaintiff Waives Right to Compel Arbitration by Filing Complaint and Litigating Dispute in Court

November 2, 2023 by Benjamin Stearns

The Eighth Circuit Court of Appeals recently affirmed the denial of a motion to compel arbitration filed by the plaintiff in the matter. The court noted that arbitration “can be waived in a variety of circumstances, including by substantially invoking the litigation machinery rather than promptly seeking arbitration.” Here, the plaintiff filed suit seeking a preliminary injunction and a permanent injunction and participated in court-ordered mediation as well as discovery proceedings before filing a demand for arbitration. The court recognized that section 3 of the Federal Arbitration Act “typically applies to give defendants, not plaintiffs, a right to stay litigation.”

Focusing on the actions of the party demanding arbitration, as required after the U.S. Supreme Court’s decision in Morgan v. Sundance Inc. (which removed consideration of prejudice to the opposing party from the analysis), the court found that the right to arbitration had been waived by acts inconsistent with that right, i.e., litigating the claim in court prior to seeking arbitration of the same claim. In so doing, the court also noted that the opinion of the U.S. Supreme Court in Henry Schein Inc. v. Archer & White Sales Inc. “did not disturb the general principle that arbitration is a waivable contractual right” and, furthermore, that “[c]ourts determine whether a party waives arbitration, not arbitrators.”

Breadeaux’s Pisa v. Beckman Bros. Ltd., No. 22-2835 (8th Cir. Oct. 16, 2023).

“Judicial Statements Privilege” Protects Statements in Court-Ordered Arbitration From Defamation Claims

October 20, 2023 by Benjamin Stearns

The Kentucky Supreme Court affirmed the dismissal of a defamation action based on statements made during a court-ordered arbitration. The “judicial statements privilege,” as it’s known in Kentucky, provides an “absolute privilege” for communications made pursuant to judicial proceedings, even if the statements would otherwise be defamatory. The privilege is more commonly referred to outside of Kentucky as the “litigation privilege” or “judicial privilege.”

A communication must fulfill two requirements to fall within the privilege’s protection: (1) the communication must have been made “preliminary to a proposed judicial proceeding, or in the institution of, or during the course and as part of a judicial proceeding”; and (2) the communication must be material, pertinent, and relevant to the judicial proceeding. The doctrine “rests upon public policy which looks to the free and unfettered administration of justice, though, as an incidental result, it may, in some instances, afford an immunity to the evil-disposed and malignant slanderer.”

The Kentucky Supreme Court was careful to point out that it did “not decide that all arbitrations come within the judicial statements privilege.” Rather, the court held solely that “statements made pursuant to court-ordered arbitrations are protected by the judicial statements privilege to the same extent as statements made in other court proceedings.”

New Albany Main Street Properties, LLC v. Stratton, No. 2022-SC-0254-DG (Ky. Aug. 24, 2023).

FAA’s “Transportation Worker” Exemption Does Not Apply to Contracts Between Businesses

September 21, 2023 by Benjamin Stearns

After a dispute arose between Amazon and one of its “delivery service partners,” Amazon sought to compel arbitration pursuant to an arbitration agreement in the companies’ contract. The district court ordered the parties to arbitrate, and the delivery service partner appealed to the Fourth Circuit Court of Appeals, arguing that arbitration was not required due to the Federal Arbitration Act’s exemption for “contracts of employment” with “transportation workers.” The Fourth Circuit affirmed and compelled the parties to arbitrate.

The FAA’s “transportation worker” exemption specifies that the statute’s arbitration mandate does not apply to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The Fourth Circuit found that the exemption did not apply here for three reasons.

First, the agreement at issue was not a “contract of employment,” as it did not promise work and compensation to an individual employee, or contain any of the hallmarks of a traditional employment contract (i.e., salary, benefits, leave time). Rather, the agreement provided for one business to provide services to another business, and furthermore, both of the parties to the contract were “sizable employers.” The transportation exemption applies to agreements with individual “workers performing work,” not businesses.

Second, the delivery service partner was not within the “class of workers” eligible to benefit from the exemption, which, again, was intended to apply to “individual workers carrying out work.” “Sizable corporate entities are not ‘similar in nature’ to the actual human workers enumerated by the text of the ‘transportation worker’ exemption, and so the arbitration clause at issue here is once again unaffected by the exemption.”

Lastly, the president of the delivery service partner was not a party to the contractual agreement with Amazon, and therefore, she could not claim that she was a “transportation worker” who had a “contract of employment” with Amazon. Here, the relevant contract from which the dispute arose (and which contained the arbitration agreement) was between two business entities. It was the delivery service partner’s status that mattered with regard to the enforceability of the arbitration agreement, not that of its president. As a result, the “transportation worker” exemption of the FAA did not apply.

Amos v. Amazon Logistics, Inc., No. 22-1748 (4th Cir. July 25, 2023).

Court Follows Fifth Circuit Precedent in Enforcing Unsigned Insurance Arbitration Agreement Under New York Convention

September 1, 2023 by Benjamin Stearns

The insured argued that the arbitration agreement at issue was not enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards because the agreement was not signed by both parties and therefore was not “an agreement in writing” as required by Article II of the Convention. The district court disagreed, relying on Sphere Drake Insurance PLC v. Marine Towing Inc., a Fifth Circuit case decided in 1994, which held that an arbitration agreement need not be signed to qualify as an “agreement in writing.”

The insured argued that the court should “depart from this binding precedent because there have been several developments in both the Fifth Circuit and in other circuit courts of appeal that have undermined Sphere Drake’s reasoning.” The district court, however, declined the insured’s invitation, noting that the court was “duty bound” to apply binding Fifth Circuit precedent “absent an intervening change in the law… by a statutory amendment, or the Supreme Court, or [the Fifth Circuit’s] en banc court.” As there had been no qualifying “intervening change in the law,” the court was required to apply the holding of Sphere Drake and thus found that the insurance contract and arbitration agreement therein constituted a sufficient “agreement in writing” to be enforced under the Convention.

The insured also argued that, if the court compelled the parties to arbitrate, it should issue a ruling that Louisiana law governed the dispute. The court noted that the insured sought to preempt an anticipated argument that the language of the arbitration clause precludes the award of penalties and attorneys’ fees for bad faith claims handling, which awards would be available under Louisiana law. The court again declined, noting that the insured cited no authority for the proposition that it could dictate the law to be applied to a future arbitration proceeding, nor did the insured address the fact that the court’s “limited jurisdiction” at this stage of proceedings was confined to determining the applicability of the Convention to the arbitration clause at issue.

Maxwell Heirsch, Inc. v. Velocity Risk Underwriters, LLC, No. 2:23-cv-00495 (E.D. La. July 26, 2023).

Second Circuit Affirms Confirmation of Arbitration Award Issued Under Cyprus-Libya Bilateral Investment Treaty

August 11, 2023 by Benjamin Stearns

The Second Circuit Court of Appeals recently affirmed the confirmation of an arbitration award issued under a bilateral investment treaty between Libya and Cyprus. We previously described the underlying Southern District of New York opinion confirming the award in a prior post.

On appeal to the Second Circuit, Libya primarily argued that the district court erred by declining to independently review the arbitrability of the claims involved before confirming the final award. The Second Circuit disagreed with Libya’s contention that a de novo standard should have been applied to review the arbitral tribunal’s decision because Libya “clearly and unmistakably” agreed to submit questions of arbitrability to the arbitrator. Libya indisputably agreed to arbitrate such issues when it signed the bilateral investment treaty providing Cypriot investors with the option of resolving disputes under the arbitral rules of the International Chamber of Commerce (ICC).

In so holding, the court noted the consistent line of cases holding that “when one party is a signatory to a bilateral investment treaty containing a provision for arbitration, the treaty constitutes a standing offer to arbitrate disputes covered by the treaty, and a foreign investor’s written demand for arbitration completes the agreement in writing to submit the dispute to arbitration.” The bilateral investment treaty simply creates “a framework through which foreign investors can initiate arbitration against parties to the Treaty. Accordingly, all that is necessary to form an agreement to arbitrate is for one party to be a [bilateral investment treaty] signatory and the other to consent to arbitration of an investment dispute in accordance with the Treaty’s terms.”

Having determined that a valid arbitration agreement was formed upon submission of the claim to the arbitral tribunal of the ICC by the Cypriot investor, the court turned next to the question of arbitrability of the dispute. While courts presume that questions of arbitrability are for the court to decide, not the arbitrator, that presumption is overcome where the record “supplies clear and unmistakable evidence that the parties agreed to submit the issue to arbitration.” Such “clear and unmistakable” evidence of intent can be provided by the incorporation of rules that empower an arbitrator to decide issues of arbitrability. To determine whether such rules have been incorporated into the parties’ agreement, the courts look to both the text of the relevant bilateral investment treaty and the procedural rules adopted by the parties at the outset of the arbitration.

Here, the terms of the bilateral investment treaty authorized investors to submit a dispute to the ICC. ICC rules presumptively apply to disputes submitted to the ICC. Accordingly, by signing the bilateral investment treaty, “Libya clearly and unmistakably agreed to send questions of arbitrability” to the arbitrator. As a result, the district court was required to defer to the arbitrator’s determination of the arbitrability of the parties’ dispute. The Second Circuit therefore affirmed the district court’s decision declining de novo review and confirmation of the ICC tribunal’s arbitration award.

Olin Holdings Ltd. v. State of Libya, No. 22-825 (2d Cir. July 12, 2023).