Arbitration Process Issues

PARTICIPATION IN LITIGATION TO AVOID A DEFAULT JUDGMENT DOES NOT WAIVE A PARTY’S RIGHT TO COMPEL ARBITRATION

March 5, 2018 by Carlton Fields

An employer did not waive its right to compel arbitration under an employment agreement by seeking to set aside a default in an employment discrimination suit brought against it by its employee. Due to an “administrative oversight,” the employer’s counsel did not become aware it had been served with a complaint until after a default had been entered. The employer was successful in its effort to set aside the default, however, the employee argued that the employer’s participation in the litigation resulted in a waiver of its right to compel arbitration.

The Eleventh Circuit disagreed. A two-part test controls whether a party has waived its right to arbitration. The first prong inquires whether, under the totality of the circumstances, the party has “acted inconsistently with the arbitration right.” This occurs when the party “substantially invokes the litigation machinery prior to demanding arbitration.” The second prong asks whether the invocation of litigation has prejudiced the other party.

The employer’s participation in the litigation was not substantial enough to be considered inconsistent with an intent to arbitrate. In so holding, the court noted that moving to set aside the default was the only procedure the employer could have used to permit it to seek arbitration of the employee’s claims. Because the employer’s participation in the litigation failed to satisfy the first prong of the two-part test, the employer did not waive and was permitted to enforce its right to compel arbitration. Sherrard v. Macy’s Sys. and Tech. Inc., Case No. 17-11766 (11th Cir. Feb. 5, 2018).

This post written by Benjamin E. Stearns.
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U.K. COURT FINDS ARBITRATION RESPONDENT DID NOT WAIVE OBJECTION TO JURISDICTION OF ARBITRATION TRIBUNAL

March 1, 2018 by John Pitblado

The Queen’s Bench Division of the U.K.’s High Court of Justice has reversed a partial award by a tribunal of the London Court of International Arbitration (“LCIA”), which held that an arbitration respondent lost its right to challenge the validity of a request for arbitration by failing to object until after serving its Response and shortly before its Statement of Defence was due. The court agreed with the tribunal that the request for arbitration violated LCIA Rules by seeking to join two disputes arising under separate contracts in a single proceeding. The court disagreed, however, with the conclusion that the respondent untimely challenged the tribunal’s jurisdiction based on the invalid request. Reading Section 31 of the 1996 Arbitration Act together with Article 23.3 of the LCIA Rules, the court found that objections to jurisdiction must be made no later than the time for the Statement of Defence.

A v. B, [2017] EWHC 3417 (Comm)

This post written by Alex Silverman.

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FOURTH CIRCUIT FINDS INCORPORATION OF JAMS RULES CONSTITUTES PARTIES’ INTENT TO DELEGATE QUESTION OF ARBITRABILITY TO ARBITRATOR

February 26, 2018 by John Pitblado

The Fourth Circuit, noting that expansive general arbitration clauses will not suffice to force the arbitration of arbitrability disputes, looked at whether the parties’ express incorporation of JAMS Rules constituted “clear and unmistakable evidence of the parties’ intent to delegate to the arbitrator questions of arbitrability.”

Though not previously addressed by the Fourth Circuit, both the Tenth and Fifth Circuits have concluded that the incorporation of JAMS Rules constitutes “clear and unmistakable” evidence of intent to delegate arbitrability to the arbitrator. Other circuits – the First, Second, Eighth, Ninth, Eleventh, D.C. and Federal circuits – “have concluded that the incorporation of arbitral rules substantively identical to those found in JAMS Rule 11(b) constitutes clear and unmistakable evidence of the parties’ intent to arbitrate arbitrability.”

Adopting its sister circuit courts’ reasoning, the Fourth Circuit similarly held that “the explicit incorporation of JAMS Rules serves as ‘clear and unmistakable’ evidence of the parties’ intent to arbitrate arbitrability. Because the JAMS Rules expressly delegate arbitrability questions to the arbitrator,” the matter should have been referred to the arbitrator on that basis.

Simply Wireless, Inc. v. T-Mobile US, Inc., No. 16-1123 (4th Cir. Dec. 13, 2017)

This post written by Nora A. Valenza-Frost.

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LOUISIANA LOSES BID TO VACATE DENIAL OF RECONSIDERATION OF ARBITRAL DECISION IN FEMA ASSISTANCE DISPUTE

February 21, 2018 by Rob DiUbaldo

FEMA denied a request by the Louisiana Department of Natural Resources (“LDNR”) for assistance restoring barrier islands following Hurricanes Rita and Katrina. LDNR appealed the decision via arbitration, but the arbitral panel upheld FEMA’s denial and dismissed the arbitration entirely. LDNR moved for reconsideration on the grounds the panel did not provide LDNR an opportunity for oral presentation and did not have all the available evidence at the time it made its decision. The panel denied reconsideration because LDNR failed to indicate any new evidence it intended to produce or prove that any such evidence would be material and change the arbitral outcome.

In a lawsuit, LDNR sought vacatur of the panel’s denial of reconsideration—not the underlying arbitral award. The district court refused to vacate the decision and LDNR appealed. The Fifth Circuit declined to disturb the district court’s decision. Because LDNR did not challenge the arbitral panel’s merits decision, the court narrowly reviewed the denial of reconsideration for whether the panel deprived LDNR of a fair hearing. The court concluded that LDNR failed to show the arbitral panel refused to hear any of its evidence, failed to claim any of that evidence was even material, and failed to demonstrate any prejudice as a result.

La. Dep’t of Natural Res. v. Fed. Emergency Mgmt. Agency, No. 17-30140 (5th Cir. Jan. 29, 2018).

This post written by Thaddeus Ewald .

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SECOND CIRCUIT REBUFFS ATTEMPT TO ADDRESS IN FEDERAL COURT ACTION RELIEF PREVIOUSLY DENIED IN STATE COURT SUIT

February 20, 2018 by Rob DiUbaldo

The Second Circuit has held that a federal district court reached the correct result but for the wrong reason when it dismissed a complaint seeking a declaratory judgment that the plaintiff was not subject to a contract containing an arbitration clause.

The complaint, filed by KIPP Academy Charter School, arose out of a dispute between KIPP and the United Federation of Teachers (UFT) regarding whether KIPP teachers were represented by the UFT. In an attempt to settle this dispute, UFT served KIPP with a demand for arbitration under the provisions of the UFT’s collective bargaining agreement (CBA) with the New York City Department of Education. KIPP filed a complaint in New York state court seeking a stay of arbitration on the basis that it was not subject to the CBA, and the court dismissed that complaint. KIPP then filed a complaint in federal district court in which it sought a declaratory judgment that it was not subject to the CBA. The UFT moved to dismiss on the basis that the action was barred by res judicata and by the Rooker-Feldman doctrine, which, broadly speaking, prevents parties from using federal suits to reverse state court judgments. The district court dismissed KIPP’s complaint based on the Rooker-Feldman doctrine without deciding whether res judicata would also bar the suit.

On appeal, the Second Circuit explained that the Rooker-Feldman doctrine applies only when “(1) the plaintiff lost in state court; (2) the plaintiff complains of injuries caused by the state court judgment; (3) the plaintiff invites district court review of that judgment; and (4) the state court judgment was entered before the plaintiff’s federal suit commenced.” The court found that the second factor was not satisfied, because KIPP’s alleged injury was caused by the UFT’s arbitration demand, not by the state court judgment, which merely ratified the UFT’s allegedly injurious conduct. However, the court found that the suit was barred by res judicata. While KIPP argued that its claim for declaratory relief was unique to the federal court action, the Second Circuit found that the state court action was a final judgment on the merits by a court of competent jurisdiction involving the same parties and the same cause of action, while the claim for declaratory relief was “unique in name only,” based on substantially identical facts, and thus duplicative for res judicata purposes.

KIPP Acad. Charter Sch. v. United Fed’n of Teachers, AFT NYSUT, AFL-CIO, 17-1905-CV (2d Cir. Jan. 30, 2018)

This post written by Jason Brost.

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