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Arbitration / Court Decisions

Fourth Circuit Refuses to Create a Less Deferential Standard of Review for Arbitral Decisions That Implicate Res Judicata or Collateral Estoppel

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In a dispute between Constellium Rolled Products Ravenswood LLC and a labor union, Constellium argued that an arbitrator’s award against Constellium was contrary to a prior court decision involving the same parties and therefore violated the doctrine of res judicata. Despite the existence of an arbitration agreement between the parties, Constellium sued in district court seeking a declaratory judgment that it should prevail in the dispute. The district court denied Constellium’s petition and the parties proceeded to arbitration, which resulted in an award in favor of the union. Constellium appealed to the Fourth Circuit Court of Appeals, arguing that the district court should have determined the preclusive effect of the prior decision in the first instance or, in the alternative, that the appellate court should apply a less deferential standard for reviewing res judicata and collateral estoppel errors than applies to other alleged legal errors in an arbitration.

The Fourth Circuit disagreed, noting that the Supreme Court has identified two categories of threshold questions — procedural questions for the arbitrator, and questions of arbitrability for the court. Questions of arbitrability are “quite limited” and include disputes about the existence and scope of a valid and binding arbitration agreement. “Procedural questions,” on the other hand, grow out of the dispute and bear on its final disposition, and include issues such as the application of statutes of limitations, notice requirements, laches, and estoppel. Such procedural questions do not present any legal challenge to the arbitrator’s underlying power and are the types of questions that the parties would likely expect the arbitrator to determine.

The court found that the preclusive effect of a prior judgment is a “procedural question” for the arbitrator. Similar to laches and estoppel, preclusion is an affirmative defense to the underlying dispute and does not implicate the arbitrator’s power, unlike questions related to the existence or scope of an arbitration agreement. Constellium “highlight[ed] older decisions” holding that courts “have the power to defend their judgments as res judicata, including the power to enjoin or stay subsequent arbitrations,” and argued that the court should exercise “plenary review” of an arbitrator’s preclusion decision rather than applying the typical highly deferential standards for review of an arbitration decision. But the Fourth Circuit found no legal basis for such a distinction in the Federal Arbitration Act or case law. Lacking any legal basis for treating such issues differently, the court declined Constellium’s invitation to expand its review of legal errors in arbitration awards beyond that authorized by the FAA, and affirmed the award against Constellium.

Constellium Rolled Products Ravenswood, LLC v. United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union AFL-CIO/CLC, No. 20-1759 (4th Cir. Nov. 29, 2021).

Second Circuit Rejects Arbitration-Ordered Procedure for Determining Religious Exemptions to Vaccines in Favor of Title VII Standards

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The Second Circuit Court of Appeals recently invalidated an arbitrator’s procedure for determining whether New York City Department of Education employees would receive religious accommodations to a vaccine mandate after finding that the arbitrator’s procedure failed to pass constitutional muster.

In August 2021, New York City’s commissioner of health and mental hygiene adopted a vaccine mandate for most New York City employees who work in New York City’s public schools.

The United Federation of Teachers objected to the mandate on the ground that it did not provide for medical or religious accommodations. That objection led to arbitration, where an arbitrator issued an award providing a process for employees to seek religious accommodations.

The arbitrator’s procedure required covered employees to submit a request that was “documented in writing by a religious official (e.g., clergy).” The procedure then provided that requests would be “denied where the leader of the religious organization has spoken publicly in favor of the vaccine, where the documentation [(apparently, documentation from the religious organization supporting the vaccine)] is readily available (e.g., from online sources), or where the objection is personal, political, or philosophical in nature.” The city’s department of education made an initial determination regarding an accommodation. That decision was subject to appeal to a panel of arbitrators. Employees who were granted an accommodation would remain on the payroll but would not be allowed to enter school buildings. The arbitration award also provided a series of deadlines and allowed the city to place unvaccinated employees who were denied an accommodation on unpaid leave by a certain date and allowed employees on unpaid leave to voluntarily resign from their positions, provided they waived their right to challenge their resignation. Employees who resigned would maintain health insurance but would not be paid.

A group of teachers and administrators challenged the vaccine mandate and the arbitrator’s procedures. They claimed the mandate was unconstitutional on its face and as applied to them through the arbitrator’s procedures. The district court denied the plaintiffs’ request for a preliminary injunction and the plaintiffs appealed to the Second Circuit. A motions panel at the Second Circuit heard oral argument on a request by the plaintiffs for interim relief. At that oral argument, the city conceded that the arbitrator’s process was “constitutionally suspect.” The motions panel subsequently granted the plaintiffs partial interim relief, which among other things and in accordance with a proposal from the city, allowed the plaintiffs to receive renewed consideration of their accommodation requests by a citywide panel that applied Title VII’s standards for religious accommodations. The motions panel also stayed the deadlines for resignation and provided that plaintiffs whose requests were granted would receive back pay.

The Second Circuit then addressed the merits of the plaintiffs’ claims, albeit in the context of the plaintiffs’ request for a preliminary injunction. The court first found that the plaintiffs were not likely to succeed on their claim that the vaccine mandate was facially unconstitutional. On its face, the mandate was neutral and generally applicable and therefore subject to rational basis review. The mandate satisfied that standard and the plaintiffs’ facial claim failed.

The court then turned to the arbitrator’s procedure, however, which it noted the city’s defense of was “half-hearted at best.” The court found that, unlike the mandate on its face, that process was neither neutral nor generally applicable. The procedure impermissibly determined an employee’s entitlement to a religious accommodation by reference to another person’s (e.g., a clergy person’s) beliefs. The plaintiffs also submitted evidence that the arbitrators who reviewed decisions under the process had substantial discretion that seemed to result in varying standards and seemingly inconsistent results. The court therefore applied strict scrutiny, which the process failed because “whether an applicant can produce a letter from a religious official … is not narrowly tailored to serve the government’s interest in preventing the spread of COVID-19.”

As a result of its decision, the Second Circuit vacated the district court’s ruling and remanded for further proceedings while leaving the relief ordered by its motion panel in place and refusing to order additional injunctive relief requested by the plaintiffs.

Kane De Blasio, No. 21-2711 (2d Cir. Nov. 28, 2021).

Sixth Circuit Concludes That Kroger Retirement Benefits Dispute Is Governed by Arbitration Clause in Collective Bargaining Agreement

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The Sixth Circuit Court of Appeals recently concluded that a grievance by a Kroger union was included within the scope of an arbitration clause in a collective bargaining agreement.

Kroger and the International Brotherhood of Teamsters, Local Union No. 413, entered into a collective bargaining agreement that contained a broad arbitration clause that covered employee grievances. The agreement defined “grievance” as “a dispute between the Employer and employee as to the interpretation or application of any provisions of th[e] Agreement and is limited to the express terms and provisions of th[e] Agreement.”

The agreement also contained provisions regarding the Kroger Employees Retirement Benefit Plan. Beginning in 2001, Kroger provided retirement benefits through the Kroger Consolidated Retirement Benefit Plan. In 2017, however, Kroger terminated the consolidated benefit plan and replaced it with a spin-off plan for union employees. Kroger also provided other new retirement options – such as lump-sum payments and a 401(k) – to non-union employees.

A union steward filed a grievance regarding the retirement benefit changes, but Kroger refused to arbitrate the grievance. Kroger claimed the grievance did not fall within the scope of the collective bargaining agreement’s arbitration clause. The union then filed suit under the Labor Management Relations Act seeking to compel arbitration. The district court agreed that arbitration was warranted.

Kroger appealed the district court’s judgment to the Sixth Circuit, which affirmed.

The Sixth Circuit noted that there is a presumption of arbitration under the LMRA. It also explained that the arbitration clause at issue was broad and that the presumption in favor of arbitration was therefore particularly warranted in this case. Nevertheless, the court found that the collective bargaining agreement was ambiguous with respect to whether the grievance was covered. Applying the presumption in favor of arbitration, the Sixth Circuit therefore analyzed whether the grievance was expressly excluded from the arbitration clause. The court held that it was not because the “arbitration clause [at issue] contain[ed] no specific exclusions exempting specific disputes.” The court also rejected Kroger’s argument that the grievance was exempted by the consolidated benefit plan, which Kroger claimed was incorporated into the collective bargaining agreement. The court explained that Kroger could not “show that the [consolidated benefit plan] was clearly identified in [the collective bargaining agreement] and that the Union would not be surprised or face hardship with its incorporation.” The Sixth Circuit also rejected Kroger’s attempt to rely on extrinsic evidence, explaining that the evidence spoke “to the merits of the case,” not arbitrability.

International Brotherhood of Teamsters, Local Union No. 413 v. Kroger Co., No. 21-3228 (6th Cir. Nov. 24, 2021).

SDNY Confirms $500M Arbitration Award, Rejects Claim of Arbitrator Impartiality

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Petitioner Andes Petroleum Ecuador Ltd. moved to confirm a $500 million arbitration award arising from a contract dispute involving hydrocarbon development in the Ecuadorian Amazon. The respondent, Occidental Exploration and Production Co., moved to vacate the award, citing the alleged impartiality of its own party-appointed arbitrator, Robert Smit. During the selection process, Smit disclosed that he knew Andres Petroleum’s lead counsel, Laurence Shore, from attending arbitration conferences. Occidental took issue with Smit’s failure to disclose that he and Shore were also appointed to serve on the same panel of the International Chamber of Commerce. Noting that a court’s review of an arbitration award is “severely limited,” the district court found no basis for Occidental’s claim of impartiality. The court found no evidence to suggest that any arbitrator acted fraudulently by virtue of his incomplete or nondisclosures. In addition, the court held that there was no indication of arbitrator misconduct or impartiality by virtue of Smit’s professional relationship with Shore, noting that the Federal Arbitration Act “does not proscribe all personal or business relationships between arbitrators and the parties.” Absent evidence that the arbitral proceedings themselves lacked fundamental fairness, the court granted Andres Petroleum’s petition to confirm the award and denied Occidental’s cross-motion to vacate.

 Andes Petroleum Ecuador Ltd. v. Occidental Exploration & Production Co., No. 1:21-cv-03930 (S.D.N.Y. Nov. 15, 2021).

Tenth Circuit Finds Equitable Estoppel Theories Allowed Non-Signatory to Rely on Arbitration Clause, Reverses Order Denying Motion to Compel Arbitration

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Plaintiffs Darrell Reeves and James King worked at Enterprise Products Partners through separate third-party staffing companies. Each plaintiff had a separate employment contract with his respective staffing company, which required the employee to individually arbitrate any claim arising out of the employment with the relevant staffing company. Reeves commenced a collective action claim against Enterprise to collect unpaid overtime wages. King later joined the putative collective action. Enterprise moved to compel arbitration of the action based on the arbitration clauses in the plaintiffs’ individual employment agreements. The district court denied the motion, finding that Enterprise was not a signatory to the employment agreements in which the arbitration clauses were contained.

The issue on appeal was whether certain equitable estoppel theories allowed Enterprise to assert the arbitration clauses in the plaintiffs’ employment agreements, even as a non-signatory to those agreements. Enterprise argued that Oklahoma law required the district court to apply a “concerted misconduct” or “intertwined claims” theory of equitable estoppel. The Tenth Circuit Court of Appeals agreed, finding two Oklahoma appellate courts had already adopted the concerted misconduct theory and that the Oklahoma Supreme Court appeared to approve of the intertwined claims theory. The Tenth Circuit also agreed with Enterprise that these theories are put in use for precisely the circumstances presented here. The court explained that the plaintiffs’ claims alleged substantially interdependent and concerted misconduct by both Enterprise and the respective staffing companies, which were the companies that actually paid the plaintiffs, not Enterprise. The Tenth Circuit therefore reversed and remanded the district court’s order denying Enterprise’s motion to compel arbitration.

Reeves v. Enterprise Products Partners, LP, No. 20-5020 (10th Cir. Nov. 9, 2021).