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FIFTH CIRCUIT CONTINUES TO APPROVE CLASS ACTION ARBITRATION WAIVERS OVER NLRB OBJECTIONS

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The opening case of the United States Supreme Court’s October 2017 term is a consolidation of three cases that present a Circuit conflict on the issue of whether the collective-bargaining provisions of the National Labor Relations Act (“NLRA”) prohibit the enforcement under the Federal Arbitration Act of an agreement requiring an employee to arbitrate claims against an employer on an individual, rather than collective, basis.  Several opinions from the Fifth Circuit, including D. R. Horton and Murphy Oil, provide part of the foundation for the Circuit conflict.  The Fifth Circuit recently published two additional opinions siding with the camp holding that such waivers are enforceable, and do not violate the NLRA.  Logisticare Solutions, Inc. v. NLRB, No. 16-60029 (5th Cir. Aug. 9, 2017) and Convergys Corp. v. NLRB, No. 15-60860 (5th Cir. Aug. 7, 2017).  These two new cases arguably are a bit different, because the class action waivers are stand-alone waivers of the right to be part of a class action, and are not contained in arbitration agreements.  The Fifth Circuit followed its prior precedent and held that the waivers did not violate the NLRA.

This post written by Rollie Goss.
See our disclaimer.

SECOND CIRCUIT UPHOLDS ARBITRATION AWARD OVER CHARGES OF FRAUD AND PERJURY IN THE ARBITRATION PROCEEDINGS

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A former bond trader for Odeon Capital Group obtained an arbitration award against Odeon for $1,102,193.00 on a claim for unpaid wages.  Odeon then brought a petition to vacate the award on the ground of fraud, contending that the bond trader committed perjury at arbitration by falsely stating that no FINRA investigations into his business were then ongoing.  The trial court denied vacatur ruling that Odeon failed to demonstrate that the alleged perjury was material to the award of unpaid wages.  The court explained that in order for fraud to be material within the meaning of Section 10(a)(1) of the FAA, a petitioner must demonstrate a nexus between the alleged fraud and the decision made by the arbitrators (although a petitioner need not demonstrate that the arbitrators would have reached a different result).  On appeal, the Second Circuit agreed that the trader failed to demonstrate materiality.  The Second Circuit also reversed the lower court’s denial of the bond trader’s motion for attorneys’ fees incurred litigating the petition to vacate the award.  The lower court had erred by denying the fees as a matter of discretion under its equitable powers; the fees were mandatory under New York Labor Law.  Odeon Capital Group LLC v. Ackerman, Case No. 16‐1545‐cv (2d Cir. July 21, 2017).

This post written by Gail Jankowski.
See our disclaimer.

STATE CONTRACT LAW GOVERNS WHICH PARTIES MAY ENFORCE AN ARBITRATION AGREEMENT

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Courts must apply state contract law principles to determine who may enforce an arbitration agreement.  These “background principles of state contract law regarding the scope of agreements (including the question of who is bound by them)” are not altered by substantive federal arbitration law.  Applying Wisconsin law to a claim for equitable estoppel, the court held that a company may not enforce an arbitration agreement contained in a contract between an employee and a second company, where the first company did not know of the arbitration agreement and therefore could not have relied on it in employing the individual.  In this case, the employing company was not permitted to force an employee to arbitrate a sexual harassment claim where the employee had actually contracted with a staffing company, rather than the employing company.  The employing company did not know of the agreement until discovery, and therefore could not possibly have relied on it in choosing to employ the individual.

The court distinguished another case in which a non-party to an arbitration agreement was permitted to compel arbitration, where the plaintiff employee sued both the staffing company she had actually contracted with and the employing company.  “Once a court knows a dispute is going to be arbitrated, the reasons for requiring claims against affiliated parties to be arbitrated become more powerful.”  Here, the employee did not sue the staffing company, only the employing company, therefore this enhanced basis for compelling arbitration did not exist.   Scheurer v. Fromm Family Foods, LLC, No. 16-3327 (7th Cir. July 17, 2017).

This post written by Benjamin E. Stearns.
See our disclaimer.

COURT FAVORS CANDIDATE’S EXPERIENCE IN SELECTING UMPIRE FOR INSURANCE ARBITRATION

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The court was petitioned to appoint an umpire when the arbitrators appointed by the litigants – an insurer and certain insureds – failed to do so. The insureds opposed the petition, arguing that the party arbitrators should be ordered to select one of the candidates that the arbitrators had been proposing. The arbitration agreement stated, however, that “if the two arbitrators fail to agree on a third party arbitrator within 30 days of their appointment, [then] either party may make application to a court of competent jurisdiction in . . . New York.” Section 5 of the FAA also directs the district court to “designate and appoint an arbitrator . . . or umpire, as the case may require,” following “a lapse in the naming of an arbitrator . . . or umpire.” The court thus held that the arbitration agreement and the FAA authorized the court to appoint an umpire.

The court then considered the field of proposed candidates, and selected one of the individuals proposed by the insurer. The court rejected the insureds’ argument that the selected umpire was likely to be partial to the insurer due to his certification by ARIAS (which, according to the insureds, could be biased towards insurance companies). The court found that the insureds’ candidates were less qualified in that they did not have any personal experience serving as an arbitrator or as an umpire. The insurer’s candidates, in contrast, had previously served as umpires in numerous arbitrations. The court selected the most experienced candidate among the group proposed by the insurer, explaining that, while certification with a particular organization or specific arbitration experience is not required to serve as an umpire, “reason dictates” that those credentials should be determinative. Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Beelman Truck Co., Case No. 17-CV-2946 (USDC S.D.N.Y. July 17, 2017).

This post written by Gail Jankowski.
See our disclaimer.

CFPB ISSUES FINAL RULE PROHIBITING CLASS ACTION WAIVER ARBITRATION AGREEMENTS IN CERTAIN CONSUMER FINANCIAL CONTRACTS

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The Consumer Financial Protection Bureau issued a final rule on July 10, 2017, prohibiting providers of certain consumer financial products and services from including within consumer agreements a requirement that any future disputes that might otherwise be the basis of a class action to instead be arbitrated on an individual basis. The rule also requires providers to insert a provision into their arbitration agreements acknowledging this limitation. The rule is based on the Bureau’s finding that pre-dispute arbitration agreements “are being widely used to prevent consumers from seeking relief from legal violations on a class basis, and that consumers rarely file individual lawsuits or arbitration cases to obtain such relief.”

The final rule also requires providers that use pre-dispute arbitration agreements to submit records relating to arbitral and court proceedings to the Bureau. The rule applies to providers engaged in extending consumer credit, extending or brokering automobile leases, providing debt management or debt settlement services, providing assistance in avoiding foreclosure or modifying consumer credit, providing check cashing, collection or guaranty services, and collecting debt arising from any of these services, among other consumer services and products. The rule becomes effective September 18, 2017, and consumer agreements entered into as of March 19, 2018, must comply with the rule. 12 C.F.R. Part 1040 (July 10, 2017).

This post written by Benjamin E. Stearns.
See our disclaimer.