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Arbitration / Court Decisions

New York Appellate Court Reverses Order Compelling Arbitration, Holds Collective Bargaining Agreement Arbitration Provisions Unenforceable

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New York statutes classify certain civil service positions as exempt where such positions are confidential in nature and require personal qualities that cannot practicably be tested by an examination. These positions are typically appointed positions, such as deputies and secretaries to political officers. As such, the nature of the positions requires that the officer exercising the appointment and removal power possess largely unrestricted authority and unlimited responsibility for appointments to positions in that class. As a result, exempt civil service positions are terminable at will, unlike most other New York civil service positions. At-will employment status allows elected officials and political appointees to hire their preferred officers, deputies, and secretaries in place of incumbent exempt class employees.

In 2015, the town of Monroe entered into a collective bargaining agreement with labor union Teamsters Local 445 that provided certain grievance procedures for covered employees, including binding arbitration regarding terminations. The agreement defined the employees covered by its provisions to include the secretary to the town planning board. In 2017, the town fired the employee. The union filed a grievance with the town alleging violations of the collective bargaining agreement’s “just cause” termination provisions and subsequently sought to compel arbitration of the dispute. The New York Supreme Court compelled arbitration of the dispute, and the Appellate Division affirmed. The New York Court of Appeals reversed, holding that for-cause termination protections, including requiring binding arbitration of related disputes, cannot be made applicable to an exempt class employee: “The statutory framework, the criteria for exempting positions, and the policy concerns underlying the exempt class’s historical terminable-at-will status together compel this conclusion.”

The court found that excluding exempt civil service employees from such protections was consistent with the legislature’s omission of such employees from the statutory tenure protections provided to other classes of employees. The exclusion was also consistent with the legislature’s intent to closely guard exempt class positions, which demonstrates an intent that positions properly classified as exempt remain so unless the applicable statutory procedure for reclassification is followed. Lastly, the court stated that public policy weighed against enforcement of the collective bargaining agreement’s termination protections, as “appointing officers must be free to choose their employees as they please. A contrary result would require officers to continue to employ in the most sensitive positions employees who do not meet the officers’ preferred qualifications.”

As a result, the court held the arbitration provisions of the collective bargaining agreement unenforceable as applied to exempt class employees, and reversed the decision to compel arbitration.

In re Teamsters Local 445 v. Town of Monroe, No. 40 (N.Y. Ct. App. May 23, 2023).

SCOTUS Resolves Circuit Split on Whether Mandatory Stay Applies to Interlocutory Appeal of Denial of Motion to Compel Arbitration

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On June 23, 2023, the U.S. Supreme Court issued a 5-4 opinion resolving a circuit split in Coinbase Inc. v. Bielski, in which it held that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. Read our in-depth article on CarltonFields.com.

Alabama Supreme Court Clarifies Courts’ Authority to Issue Preliminary Injunctions in Disputes Subject to Arbitration

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In its recent decision in Hyundai Construction Equipment Americas Inc. v. Southern Lift Trucks LLC, the Alabama Supreme Court considered whether the trial court erred in granting preliminary injunctive relief in a dispute that was otherwise subject to arbitration.

Southern Lift Trucks, a heavy construction equipment dealer, filed a state court action against Hyundai Construction, a construction equipment manufacturer, alleging that Hyundai breached two separate dealership agreements between the parties by forcing unreasonable restrictions on Southern Lift and entering into separate dealership agreements with Southern Lift’s competitors in its sales territory. Southern Lift asserted claims for breach of contract, tort, conspiracy, and declaratory judgment against Hyundai arising from Hyundai’s alleged actions. Southern Lift also sought a preliminary injunction maintaining the status quo and precluding Hyundai from either terminating the dealership agreements or entering into new agreements with Southern Lift’s direct competitors. Hyundai moved to dismiss the complaint and to compel arbitration.

After a hearing, the trial court granted Southern Lift’s motion for a preliminary injunction. The trial court subsequently denied Hyundai’s motion to compel arbitration. Hyundai appealed both decisions.

In reversing in part the trial court’s denial of Hyundai’s motion to compel arbitration, the Alabama Supreme Court held that the parties’ disputes under both dealership agreements were subject to arbitration, except for Southern Lift’s declaratory judgment claim, which fell under a narrow carve-out in the agreements’ arbitration provisions.

Turning to the trial court’s preliminary injunction ruling, the court declared that under established Alabama law, courts have jurisdiction to enter preliminary injunctive relief to maintain the status quo between the parties, even when the dispute is otherwise subject to arbitration. But because the parties’ dispute was subject to two separate lines of business and dealership agreements, the court analyzed Southern Lift’s entitlement to preliminary injunctive relief under each dealership agreement separately.

Regarding the first dealership agreement, which dealt with construction equipment sales, the court noted that no such construction equipment had been sold under the agreement for more than two years, such that Southern Lift could not establish irreparable harm or difficulty in calculating damages as required to obtain a preliminary injunction. The court thus reversed the trial court’s grant of a preliminary injunction as to the construction equipment agreement.

As to the second dealership agreement, which dealt with forklift sales, the court noted that Southern Lift had provided evidence of significant and consistent sales of forklifts and other equipment subject to the agreement. Southern Lift also presented evidence that its reputation, goodwill, and customer base were being negatively affected by Hyundai’s complained-of actions. The court found that if it were to reverse the trial court’s entry of a preliminary injunction as to the forklift agreement on these facts, the court risked providing a “hollow victory” to Southern Lift should it ultimately prevail, whether in arbitration or before the court. As such, the court affirmed the trial court’s entry of a preliminary injunction as to the forklift agreement. This was so, notwithstanding the court’s determination that the majority of the dispute with respect to both agreements was subject to arbitration.

First Circuit Holds That New York Convention Preempts Puerto Rican Law

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The First Circuit Court of Appeals has held that the New York Convention applies to an insurance arbitration dispute between a Puerto Rican company and Lloyd’s of London and that the convention preempts a Puerto Rican law seemingly banning arbitration in insurance coverage disputes.

Green Enterprises LLC, a Puerto Rican recycling company, submitted a claim to its insurer, Lloyd’s of London, after a fire destroyed one of its plants. Lloyd’s denied Green’s claim and Green filed suit. Lloyd’s moved to compel arbitration. The district court granted Lloyd’s motion and Green appealed to the First Circuit, which affirmed.

Green argued that arbitration was improper under a Puerto Rican law prohibiting provisions that deprive an insured of access to the courts and that the Federal Arbitration Act did not preempt that law because the McCarran-Ferguson Act allows state law to supersede federal law when it comes to insurance matters. Lloyd’s responded that the New York Convention applied to the dispute, trumped the Puerto Rican law, and was not subject to the McCarran-Ferguson Act because the New York Convention is a multinational treaty, not an act of Congress.

The First Circuit agreed with Lloyd’s. It rejected Green’s arguments that the New York Convention was not “self-executing” such that it required an act of Congress governed by the McCarran-Ferguson Act to implement, meaning that the McCarran-Ferguson Act’s reverse preemption provision applied to the New York Convention. The First Circuit concluded:

[N]one of Green’s arguments can overcome the self-executing nature of the plain text of Article II(3) [of the New York Convention]. That article, which is not an act of Congress, has the force of law and applies directly to preempt Puerto Rico law.

Green Enterprises, LLC v. Hiscox Syndicates Ltd. at Lloyd’s of London, No. 21-1542 (1st Cir. May 19, 2023).

California District Court Finds Defendants’ Conduct Was Not Arbitrary and Capricious Under Administrative Procedure Act

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Citing the Administrative Procedure Act (APA), and recognizing the role of the district court in reviewing a final agency determination under the act, the U.S. District Court for the Northern District of California granted summary judgment to defendants Federal Crop Insurance Corp. (FCIC) and the U.S. Department of Agriculture’s Risk Management Agency (RMA), finding that the defendants’ determination was not plainly erroneous, arbitrary, or capricious.

Plaintiff M&T Farms purchased a crop protection insurance policy from Producers Agriculture Insurance Co. (ProAg) to insure its products from loss of revenue. The insurance policy issued by ProAg was reinsured by defendant FCIC. M&T submitted a claim under the policy, after which ProAg canceled the policy on the grounds that M&T was not a “qualifying person” under the policy and was not entitled to coverage. M&T then filed for arbitration challenging ProAg’s cancellation of the policy. As part of the arbitration, the arbitrator authorized M&T and ProAg to seek an interpretation of the policy from RMA in accordance with federal regulations. After seeking interpretations from the parties on the relevant issues, RMA accepted ProAg’s interpretation, which resulted in a determination of no coverage under the policy.

After an unsuccessful appeal to the National Appeals Division of the Department of Agriculture, M&T filed an action against FCIC and RMA seeking a declaratory judgment regarding the administrative determinations issued by RMA rejecting the claim for coverage under the policy. In granting the motion for summary judgment filed on behalf of defendants RMA and FCIC, the district court first noted that the arbitrator’s factual findings during the arbitration were not the subject of the present lawsuit, and the court’s review was limited to determining whether the defendants’ interpretations of the policy and handbook were arbitrary and capricious. The court first noted that FCIC’s interpretations should be given “substantial deference” given the broad grant of authority to the FCIC. The court then found the defendants’ interpretation of the policy and handbook was reasonable and was not arbitrary or capricious. In confirming the applicable standard of review, the court found that the determinations were not plainly erroneous and should not be vacated.

M&T Farms v. Federal Crop Insurance Corp., No. 5:21-cv-09590 (N.D. Cal. Mar. 9, 2023).