Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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).

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).