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Arbitration / Court Decisions

New York Federal Court Reduces Arbitration Award in Labor Dispute by 25% Where Arbitrator Exceeds Scope of Authority

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This case arose out of a labor dispute between Charter Communications Inc., successor to Time Warner Cable, and International Brotherhood of Electrical Workers, AFL-CIO, Local Union No. 3, a labor organization that represents employees in the bargaining unit employed by Charter.

On March 28, 2017, Local 3 commenced a strike against Charter. Charter thereafter served Local 3 with an arbitration demand seeking to arbitrate whether Local 3 violated the no-strike clause contained in the collective bargaining agreement (which expired on March 31, 2017) when it commenced a strike on March 28.

The U.S. District Court for the Eastern District of New York addressed whether Local 3 members were bound by a provision in the collective bargaining agreement requiring arbitration of disputes when they were allegedly on strike.

The district court found the parties were bound by the no-strike, arbitration, and grievance provisions in the collective bargaining agreement, and ordered the parties to arbitrate. In its decision, which was confirmed by the circuit court, the district court noted that it was undisputed that on March 31, 2017, the no-strike obligation was not in force, “so the contested strike period up for arbitration on claimed damages by Charter is three days.”

The arbitrator found in favor of Charter and awarded it $968,195 for the violation of the no-strike clause. However, although the arbitrator confirmed the district court’s three-day strike period in its liability decision, she added a day — March 31 — to the strike period in her damage’s decision, stating that “the time frame for purposes of assessing damages in this proceeding is March 28, 29, 30, and 31, 2017.”

Charter moved to confirm the arbitration award in the district court, and Local 3 cross-moved to vacate or modify the award, arguing that the arbitrator exceeded the scope of her authority by extending the strike period from three days to four days. Local 3 also argued that the damages formula used by the arbitrator did not account for alleged savings to Charter during the strike, and resulted in a windfall to Charter, which warranted modification of the award.

On November 4, 2021, the district court agreed with Local 3 and reduced Charter’s arbitration award by 25%, to $726,146.25, finding that the arbitrator exceeded the scope of her authority when she altered the strike period by adding an extra day to the time frame for assessing damages. However, the district court rejected Local 3’s argument as to the damages formula, finding that it did not establish that the arbitrator had shown a manifest disregard for the law when declining to offset the award by Charter’s alleged savings.

International Brotherhood of Electrical Workers, AFL-CIO, Local Union No. 3 v. Charter Communications, Inc., No. 1:17-cv-05357 (E.D.N.Y. Nov. 4, 2021).

Second Circuit Affirms Judgment Confirming Dismissal of Claims on Statute of Limitations Grounds and Order Enjoining Plaintiff From Refiling His Claims

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The Second Circuit recently affirmed the confirmation of an arbitrator’s decision dismissing claims on statute of limitations grounds against a claim that the arbitrator had no authority to consider such a defense and affirmed an order by the district court enjoining the plaintiff from attempting to once again refile his state court complaint regarding the dispute.

In accordance with prior decisions, Matthew Swain’s claims against Hermès of Paris Inc. were referred to arbitration. The arbitrator then granted Hermès’ motion to dismiss on the ground that Swain’s claims were time-barred. Swain responded by asking the district court to vacate the arbitrator’s dismissal on the ground that the arbitrator lacked the authority to consider Hermès’ statute of limitations defense. The district court declined to do that and instead (1) confirmed the arbitrator’s award and (2) enjoined Swain from attempting to once again refile a state court complaint asserting his claims despite the court’s prior rulings regarding arbitration.

The Second Circuit affirmed. The Second Circuit noted that, when arbitration is proper, there is a presumption that procedural questions related to the substantive issues to be arbitrated are for the arbitrator to decide. Although the parties can rebut that presumption by adopting “express language” to the contrary, the parties had done no such thing in this case. To the contrary, the arbitration agreement allowed the arbitrator to consider “claims and defenses otherwise available in court,” which included Hermès’ statute of limitations defense. Swain’s argument to the contrary that the parties had listed “disputes covered” by the arbitration agreement and that that list did not include timeliness issues was not persuasive. The list of “disputes covered” identified substantive issues for the arbitrator. The fact that it did not include any procedural issues or defenses did not overcome the presumption that such issues were for the arbitrator.

The Second Circuit also held that the district court did not abuse its discretion when it enjoined Swain from attempting to once again refile his state court complaint. The Second Circuit agreed with the district court that Swain had a “history of vexatious and duplicative lawsuits against Hermès,” including filing two motions to reinstate his state court complaint despite decisions from multiple courts, including the Second Circuit and district court, that his claims were subject to arbitration and that “Swain lacked an objective good faith expectation of prevailing in the instant dispute” and that his actions had “undoubtedly caused needless expense to Hermès and imposed an unnecessary burden on federal and state courts through his repeated filings.”

Hermès of Paris, Inc. v. Swain, No. 20-3451 (2d Cir. Nov. 8, 2021).

Ninth Circuit Swipes Right on Arbitration of Former Tinder Employee’s Sexual Harassment and Retaliation Claims

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The Ninth Circuit Court of Appeals recently held that a former Tinder employee who asserted claims of sexual harassment by her superiors must arbitrate her claims pursuant to an enforceable arbitration agreement she signed during her employment.

The plaintiff filed suit against Tinder in California state court, alleging that she was wrongfully terminated as a result of reporting instances of sexual harassment by her superiors.

Tinder, through its successor Match Group LLC, timely removed the matter to federal court based on diversity jurisdiction. The plaintiff moved to remand the case to California state court, claiming that both she and Tinder, a dissolved Delaware corporation with its principal place of business in California, were citizens of California, thus defeating diversity jurisdiction. Match Group moved to compel arbitration pursuant to the arbitration agreement the plaintiff signed during her employment.

The California district court denied the plaintiff’s motion to remand, finding that Tinder was not a “dissolved corporation” but rather it merged with Match Group, making Match Group the proper party to the suit, and whose Texas citizenship was to be considered for purposes of diversity jurisdiction. The district court also granted Match Group’s motion to compel arbitration based on the enforceable arbitration agreement.

The plaintiff appealed the district court’s decision, arguing that the district court failed to consider Tinder’s citizenship when it determined that diversity jurisdiction existed. The Ninth Circuit held that the district court was correct in considering only Match Group’s citizenship because, following the merger with Match Group, Tinder ceased to exist as a separate entity and continued solely as an unincorporated division of Match Group.

The plaintiff also challenged the district court’s ruling that her claims must be submitted to arbitration, arguing that the arbitration agreement was unconscionable, did not apply retroactively to encompass preexisting claims, and that California law bars retroactive application of the arbitration agreement.

Rejecting each of the plaintiff’s arguments, the Ninth Circuit affirmed the ruling that the arbitration agreement was enforceable. The court reasoned that the arbitration agreement only gave rise to a low degree of procedural unconscionability, not any substantive unconscionability that infected the arbitration agreement as a whole. The court also found that, although the plaintiff signed the arbitration agreement during her employment as a condition of her continued employment, the plaintiff’s preexisting claims fell within the scope of the broad language of the arbitration agreement that reflected an intent to cover claims that had accrued before the effective date of the arbitration agreement. The Ninth Circuit also rejected the plaintiff’s claim that California law bars retroactive application of the arbitration agreement where there was no suggestion that Match Group sought to modify the agreement unilaterally.

Sanfilippo v. Match Group LLC, No. 20-55819 (9th Cir. Sept. 28, 2021).

Fifth Circuit Affirms Order Confirming International Arbitration Award, Ending Decades-Old Maritime Injury Litigation

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Vinod Kumar Dahiya was injured in late 1999 while on a ship en route to Louisiana. At the time, he was employed by Neptune Shipmanagement Services and assigned to a vessel with interests held by the remaining plaintiffs. An arbitration clause in Dahiya’s employment contract required arbitrating any dispute arising out of the contract in Singapore or India. Following a rollercoaster of litigation in Louisiana state and federal courts over the course of two decades, including a state court trial and judgment for Dahiya that was later reversed, the dispute was ultimately arbitrated in India. In 2020, Dahiya obtained an arbitration award against Neptune for roughly $130,000. Neptune and the other plaintiffs later filed this action in Louisiana district court to confirm the award and enjoin Dahiya from pursuing further litigation against the non-Neptune plaintiffs. The district court granted summary judgment to the plaintiffs.

On appeal, Dahiya challenged the Indian award on the following grounds: (1) the district court lacked subject matter jurisdiction; (2) the arbitration clause was unenforceable because Neptune never signed the employment contract; and (3) the district court erred in finding the award prevented him from pursuing litigation against non-Neptune plaintiffs that were not parties in the arbitration. The Fifth Circuit disagreed in all respects. On the jurisdictional point, the court rejected the notion that the district court lost jurisdiction when it remanded the pre-arbitration litigation to state court in 2002, finding that a remand order in an earlier case had no preclusive effect with respect to a new case, with new issues, and thus a new basis for conferring federal jurisdiction. Conversely, the court found that earlier state court rulings did have preclusive effects as to Dahiya’s second and third arguments. Unlike the jurisdictional issue, the court explained that Louisiana state courts had already addressed and rejected the exact arguments Dahiya was now raising. The court therefore affirmed the district court order in its entirety.

Neptune Shipmanagement Services PTE, Ltd. v. Dahiya, No. 20-30776 (5th Cir. Oct. 1, 2021).

Illinois Federal Court Leaves Issues of Venue and Contractual Attorneys’ Fees to Be Decided by the Arbitrator

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This matter concerns a dispute between a securities clearing firm and commodities futures investors over the investors’ losses sustained while trading options on the clearing firm’s e-trading platform. Both parties agreed the dispute should be resolved through arbitration but disagreed as to whether the National Futures Association (NFA) should serve as their arbitrator. An Illinois district court judge resolved the issue by compelling the parties to arbitrate before the NFA and to cease all other arbitrations pending before other arbitral bodies. The investors appealed the nonfinal arbitration order.

During the pendency of the appeal, the clearing firm requested the district court issue a briefing schedule for a proposed motion that it intended to bring seeking certain contractually mandated attorneys’ fees. The investors objected that the arbitrator, not the court, should decide the issue concerning contractually mandated fees.

The Seventh Circuit dismissed the investors’ appeal of the district court’s arbitration order, and the clearing firm filed a motion to enforce the arbitration order, complaining that the investors had violated the order by demanding and obtaining from NFA final hearings and proceedings, including final evidentiary hearings, outside the Northern District of Illinois — the judicial district that ordered arbitration. In turn, the investors filed a motion to stay the case arguing that the venue decision should be made by the arbitrator in the first instance.

The district court denied the clearing firm’s motion to enforce the arbitration order, noting that the arbitration order did not address the issue of venue. The district court held that under section 4 of the Federal Arbitration Act, it only had the power to compel arbitration before the NFA in the Northern District of Illinois and that the interpretation of the arbitration agreement’s venue selection clause is a procedural question that should be decided by the arbitrator.

The district court similarly declined to decide the issue whether the clearing firm was entitled to contractually mandated fees under the arbitration agreement for bringing the action, holding again that the arbitrator, not a federal court, should determine whether the clearing firm is entitled under the arbitration agreement to reimbursement of attorneys’ fees incurred in compelling the investors to arbitrate in the proper forum.

Accordingly, the district court stayed the case.

INTL FCStone Financial, Inc. v. Jacobson, No. 1:19-cv-01438 (N.D. Ill. Sept. 30, 2021)