Arbitration Case Law UpdateSeptember 27, 2016

American Bar Association

Presenters

• Jim Madison, Neutral & Adjunct Professor, University of San

Francisco School of Law

• Kristen Blankley, Associate Professor, University of

Nebraska College of Law

• Ron Aronovsky, Professor, Southwestern Law School

• Maureen Weston, Professor, Pepperdine School of Law

Supreme Court of the United States

Arbitration Update

FAA Preemption or Choice of Law?

DirectTV, Inc. v. Imburgia, 135 S. Ct. 1347, 577 U.S. -- (Dec. 2015)

Arbitration clause in K w/consumers: ▫ “[I]f the law of your state would find this agreement to dispense

with class arbitration procedures unenforceable, then this entire [arbitration provision] is unenforceable. . . Notwithstanding …. This Agreement is governed by the Federal Arbitration Act.”

• Ct.App.: the “law of your state” meant California state law alone, not the FAA, thus class waiver invalid. ▫ Discover Bank (Cal. 2010) (some class action waivers UnC),

overruled by AT&T v. Concepcion (US 2011)

• Issue: Does the reference to “state law” include state laws preempted by the FAA?

• SCOTUS: Yes. Read “state law” as FAA preempted Class action waiver upheld since federal law applies in every state,

and FAA preempted California’s unconscionability law

Arbitration in California &

Ninth Circuit

2015-16

Jim Madison

California Supreme Court (2015)

• Sanchez v. Valencia Holdings, LLC., 61 Cal. 4th 899 (Cal. 2015)

▫ Car dealership purchase/sale K

▫ FAA preempts anti-waiver provisions of Consumer Legal Remedies Act

▫ Not UnC: one-sided provision

FAA “End Run” or State Police Power?Litigation of (Arbitrable) Claims via PAGA/qui tam?

• PAGA LAW, CAL. LAB. CODE § 2698 ▫ Authorizes private citizens to pursue civil penalties on behalf of the State for

workplace violations. Majority of recovery goes to the State.

• Iskanian v. CLS Transp. LA, 59 Cal. 4th 348 (Cal. 2014), cert. denied (2015); upheld in Bridgestone Retail v. Brown, (Cal. 2014), cert. denied(U.S. 2015)▫ Wage & Hour Class action▫ Contractual waiver of PAGA Claims

Held: No FAA Preemption of PAGA anti-waiver▫ “Deputized” to act on behalf of state; law enforcement▫ Qui Tam; Federalism; Separation of Powers

Sakkab v. Luxottica Retail N. America, 803 F.3d 425 (9th Cir. 2015)▫ FAA does not preempt Iskanian.▫ PAGA claims non-waivable, in arbitration or in court, thus constitutes generally

applicable grounds for the revocation of “any contract▫ State Police Powers

Notable 2016 Cases1. Perez v. U-Haul of California, No. B262029 (2nd Dist. 2016)

* Continuation of PAGA "end run," holding that plaintiff, a U-Haul customer service representative classified as an independent contractor, was entitled to bring a PAGA action without first having to arbitrate individually whether he had standing as "an aggrieved employee."

2. Sundquist v. Lebo Automotive, 1 Cal. 5th 333 (Cal. 2016) (4-3) * For the arbitrator, and not the court, to decide whether an

arbitration agreement that was silent on the point permitted or precluded class arbitration).

3. Tillman v. Rheingold, No. 13-56624 (9th Cir. 2016) ▫ plaintiff whose arbitration was dismissed when she was

financially unable to pay a deposit for arbitrator compensation was entitled to her case tried in the court from which it had been referred to arbitration).

U.S. Circuit Court of Appeals

Arbitration Case Law UpdateRon Aronovsky

Kristen Blankley

In the Federal Circuits

1. Chesapeake Appalachia LLC v. SCOUT Petroleum LLC, 809 F.3d 746 (3rd Cir. 2016)

• A clause “silent” on the issue of availability of class actions is an arbitrability question for the courts, even when incorporating AAA rules.

2. Hayes v. Delbert Corp, 811 F.3d 666 (4th Cir. 2016)

• Clause prohibiting application by the arbitrator of any law other than specified tribal law unenforceable as attempted waiver of federal statutory rights.

In the Federal Circuits

3. Nesbitt v. FCNH, Inc., 811 F.3d 371 (10th Cir. 2016)

• Affirming denial of motion to compel under effective vindication of rights doctrine, Randolph

4. Jones v.Dencel, 792 F.3d 396 (4th Cir. 2015)

* No manifest disregard when arbitrator awarded punitive damages but no actual damages for CROA claim.

5. Richmond Health Facilities v. Nichols, 811 F.3d 192 (6th Cir.2016)

FAA did not preempt KY law providing agreement between deceased and nursing home did not bind non-signatory wrongful death claimant

In the Federal Circuits

6. Parnall v. CashCall, 804 F.3d 1142 (11th Cir. 2016)

* Check-cashing agreement included a broad arbitration clause, including arbitrability. Borrower should have challenged the delegation provision but did not. Case goes to arbitrator.

7. Katz v. Cellco P'ship, 794 F.3d 341 (2d Cir.) cert. denied, 136 S. Ct. 596 (2015)

* The lower court compelled arbitration, finding application of the FAA constitutional, and dismissed the case. Second Circuit follows cases that issue a stay, in part because of appeal rights.

In the Federal Circuits

8. Benzemann v. Citibank N.A., 622 F. App'x 16 (2d Cir. 2015)

* Distinguishing Katz (supra) because the party did not request a stay. No error in dismissing the case.

9. Devon Robotics, LLC v. DeViedma, 798 F.3d

136 (3d Cir. 2015)

* District court granted summary judgment on many claims, but denied request for arbitration. Court did not have jurisdiction because FAA §16 does not include a category for denial of summary judgment. Party did not ask for a stay.

Preliminary Orders in Arbitration

• Benihana, Inc. v. Benihana of Tokyo (2d Cir. 2015)

▫ District court issued an injunction that should have been issued by the arbitrators.

• Question – will the “Rule 7” type of analysis apply now to preliminary injunctions?

▫ Partial Awards & Review

Other Lingering Issues

• Pre-Paid Legal Services, Inc. v. Cahill, No. 15-7032 (10th Cir. 2015)

* Jurisdiction of Arbitrators when fees have not been paid

• Moss v. First Premier Bank, No 15-2513 (2d Cir. 2016)

▫ Contracted for NAF arbitration. Court does not require arbitration b/c NAF not available.

• Goldman v. Citigroup, No. 15-2345 (3d Cir. 2016)

▫ Federal question jurisdiction in post-arbitration cases.

Arbitration in the News,

Regulatory Developments and

Deflategate

Maureen Weston

Arbitration In the News

New York Times on Arbitration:

Beware the Fine Print

I - Arbitration Everywhere, Stacking the Deck of Justice (Oct. 31, 2015)

II - In Arbitration, a ‘Privatization of the Justice System’ (Nov. 1, 2015)

III - In Religious Arbitration, Scripture Is the Rule of Law

1,704 federal class actions filed between 2005 and 2014 in which defendants filed a motion to compel arbitration.

NYT: Religious Arbitration

• “Arbitration shall be by a single arbitrator … selected by principal and agent in accordance with the Rules of Procedure for Christian Conciliation . . . a division of Peacemaker Ministries. The arbitration shall be held in Seattle, Washington and shall be conducted in accordance with the Rules of Procedure for Christian Conciliation.

• “I am being forced to go before a court run by a religion I no longer believe in,” said Mr. Garcia, the former Scientologist. “How could that happen?”

Regulatory Developments

FAA’s Impact on . . .

• Federal Agency Rules • National Labor Relations Board• FINRA • Consumer Financial Protection Bureau (CFPB)• Arbitration Fairness Act of 2015 (proposed)

• State Agency Processes • Administrative Procedures• Representative (PAGA/Qui tam) Claims

• AT&T’s Rippling Effects in 2015

Consumer Financial Protection Bureau

• ARBITRATION STUDY: REPORT TO CONGRESS (March 2015)

▫ 9 of 10 contracts contain class/representative waivers

▫ Few consumers file arbitration cases

Sen. Franken & 56 members urge CFPB to ban MA

• July-Oct 2015 CFPB Hearings

• May 2016 CFPB Proposes Ban on MA & Class Waivers

in consumer financial products

• Aug. 2016 – Over 13,000 public comments

• Constitutionality of CFPB/Dodd-Frank at issue in DC

• Big Spring, Texas v. Lew

• Separation of powers & alleged

“super executive agency”

NLRB & Courts Discord on Class Action Waivers

Nat’l Labor Relations Board &7th Circuit

• Class waivers unenforceable; ULP

• NLRA § 7 collective actions rights;

• 2015 – over 12 NRLB decisions striking down class waivers

• DH Horton (NLRB 2012)

• Murphy Oil (NLRB 2014)

• Chesapeake Energy Corp., (NLRB 2015);

• Employers Resource, (NLRB 2015).

U.S. Circuit Courts - Split

Uphold Waivers

D.R. Horton, Inc. v. Nat’l Labor Relations Bd., & Murphy Oil (5th Cir. (reversing NLRB)

FAA “compatible” w/NLRA

(2nd, 8th, 9th, 4th reject NLRB ruling)

Deny Waiver – 7th Cir

Lewis v. Epic Systems Coprp.

(7th Cir. May 2016)

Employer

Conundrum?

Proposed Arbitration Legislation

FEDERAL STATE

• Arbitration Fairness Act

• Restoring Statutory Rights Act

• Fair Franchise Act

• A few pro-arbitration acts!

• New York A108C

▫ Disclosures & Reporting

• New York A819

▫ Regulate all arbitration

▫ Findings of Fact; Law

▫ Manifest disregard

• Vermont

▫ Prohibit State from K with companies requiring consumer or employee arbitration

Arbitration Fairness Act of 2015

• Re-introduced April 29, 2015 (Sen. Franken)

• Proposes to invalidate pre-dispute agreements requiring arbitration of employment, consumer, antitrust, or civil rights disputes

• n/a to B2B arbitration

Proposed Legislative Reaction?

New York Bill A0819

• Introduced June 11, 2015 (Assemblyman Titone)

• Amend New York Arbitration Act, CPLR § 7500

▫ Require NY State Attorney General to promulgate “regulations” governing all arbitrations

▫ Require in all arbitrations that arbitrator’s award contain “findings of fact and conclusions of law”

▫ Allow judicial vacatur of arbitration award where “the arbitrator evidenced a manifest disregard of the law.”

Financial Industry Regulatory Authority Rules

(FINRA)

* Require arbitration in securities broker/dealer Ks with customers

* Exempt class actions

Schwab v. FINRA (2014)

* no FAA preemption of FINRA rules that do not allow class waivers

Lloyd v. JP Morgan Chase (2nd Cir. 2015)

* Arbitration K per FINRA Rules

* Contrary Congressional Command

* Thus class action proceeds in fed. Ct.

Arbitration of Sports Disputes

NFL Mgt. Council v. NFLPA (SDNY 2015), pending 2nd Cir. 2016

• Deflategate – $3M Wells Report Re: Brady.

• CBA Art. 46 – appeals of disciplinary decisions, Commish or designee may preside

• RG upholds 4 game suspension + fines on team failure to cooperate

• NFL Motion to Confirm Commish“arbitration” award v. Vacate

• Evident Partiality or Collectively Bargained?

• SDNY: vacate

▫ Violated Notions of Industrial Justice; law of shop … lacked notice, fairness

• 820 F.3d 527 (2nd Cir. 2016)

▫ Deference to arbitrator.

▫ Commish powers?

Olympic & International Sporting Disputes

Olympic Charter Rule 61(2) (1995) “Any dispute arising on the occasion of or in connection with the Olympic Games shall be submitted exclusively to the Court of Arbitration for Sport in accordance with the Code of Sports-Related Arbitration.”

U.S. Amateur Sports Act, 36 U.S.C. § 220529

USOC to institute DR process – final & binding arbitration to AAA (domestic) Section 9 Hearings

Court of Arbitration for Sport

“Supreme Court for Sport”

• Private Swiss Organization (Lausanne)

• Divisions:

(1) Appeals Arbitration (sport body decisions)

(2) Ordinary Arbitration (commercial disputes)

(3) Olympic Ad Hoc (on site during Games)

Final & Binding Decisions (SFT)

Questions?

Thank you!

Deleted slides:

UBER Drivers Wage Claims in

“Sharing” Economy

• Classifies drivers as “independent contractors” yet “on demand”

• UBER takes share of tips• Drivers pay own gas, mileage, cars• Hours may not stack up to minimum wage (FLSA, state)• No employment benefits• June 2015 – Calif. Labor Comm’n deemed Uber driver an

employee, not I/C; ordered reimburse single driver $4,152. Uber de novo appeal to d/ct

• DCT: certified “as many as 160,000 drivers• in Calif. Seeking mileage and tip reimbursement from

Uber” 2009-2014• Since June 2014: Arbitration Ks• Go Directly to Arbitration

Other Trends in Arbitration?

• Screaming Arbitration Clauses

▫ “conspicuous”

▫ Bizarre Forum Selection and Choice of Law Clauses

▫ “Arbitration in Belize” Under the law of Moldova

Armstrong Arbitration & “Continuing J”

• 2006 Arbitration - Armstrong v. SCA ▫ Prize $ due v. doping allegations▫ $7.5M settlement

• 2015 SCA returned to same Arbitral Panel ▫ Award (20-1): $10M Sanctions due to LA perjury

• “Continuing Jurisdiction” vs. Funtcus Officio

• Sept. 2015 – Motion to Confirm• Oct - Armstrong settled w/SCA; apology

• Jan. 2016 Landis whistleblower Qui Tam v. Armstrong dismissed

Post-Iskanian Practical Issues in Litigating and Settling

PAGA and Individual Wage Claims

1) Which goes 1st or can claims be combined?

Bifurcate PAGA & Individual claims

Arbitrate individual claims 1st; Stay PAGA; not a class action so no Rule 23 requirements

2) What can plaintiffs recover?

Civil penalties – generally 25% to plaintiff (or class), and 75% to State

4) Court approval required for PAGA settlements

5) Mediating/Settling PAGA & Wage claim* but PAGA claims may be released via individual settlements and do not require State a party. Waisbeinv. UBS Fin. Svce

FAA Preemption v. State Agency

Cal. Labor Code: Administrative Procedure

• Wage & Hour; Health & Safety Claims

• Dep’t for Labor Standards Enforcement

• Process for administrative hearing with Labor Commish

▫ online, free, LC reps EE if ER appeal, bond, 1 way atty fee;

▫ Regardless of immigration status

• Sonic Calabasas v. Moreno, 311 P.3d 184 (Cal. Oct. 2013) (Sonic II), cert. denied (June 2014)

▫ FAA preempts agency procedure per AT&T v. Concepcion

2015 Impact: LC intervenes in MTC Arbitration to assess UnC of waiving “Berman” hearing (2-3 year process)