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Arbitration, Mediation & Alternate Dispute Resolution

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The United States Constitution, a U.S. treaty, two federal statutes, a state statute, and a commercial contract walk into a bar.  The federal statutes are arguing.  The Constitution, the treaty, one of the federal statutes, and the state statute are arguing.  The treaty and the other federal statute are arguing.  And the contract and the state statute are arguing.  In what order does the bartender serve them?  Which one does the bartender serve first?
Under both New York and federal law, a party is entitled to seek an order to compel arbitration if it is “aggrieved” by another party’s failure to arbitrate a dispute despite being bound to do so.  But what does it mean for a party to be “aggrieved” for those purposes?  Specifically, is it necessary for a lawsuit to have been commenced by the recalcitrant counter-party?  Or is it enough that a party simply refuses to engage in arbitration voluntarily? 
As discussed in earlier posts, the Federal Arbitration Act (“FAA”), 9 U.S.C.  § 1, et seq., does not provide an independent basis for federal subject matter jurisdiction over federal court proceedings concerning domestic arbitrations.  See Vaden v. Discover Bank, 556 U.S. 44, 50 (2009).  (In the case of international and non-domestic arbitrations, where the New York Convention applies, FAA § 203 (9 U.S.C. § 203) establishes a federal district court’s subject matter jurisdiction.)  Thus, absent diversity jurisdiction in the judicial proceeding in question, a petitioner must show federal question jurisdiction under 28 U.S.C.  § 1331 in order to bring an application to confirm, vacate or modify a domestic arbitral award in federal court.  But, as is frequently the case in the United States regarding such jurisdiction issues, the Federal Courts of Appeals are split on how that can be done.
Predictably, the U.S. Supreme Court has ruled in Lamps Plus, Inc. v. Varela, No. 17-988, 2019 U.S. LEXIS 2943 (U.S. April 24, 2019), that, under the Federal Arbitration Act, neither silence nor “ambiguity” in an arbitration agreement regarding the permissibility of class arbitration enables a court to find that the parties agreed to permit class arbitration.  According to the Court, consent is fundamental to arbitration, and such an agreement must be express and unambiguous because it would so drastically alter the nature of the proceeding from the simple “bilateral” process that was envisioned in the FAA.
Can an arbitrator require an arbitrating party to post collateral prior to a hearing on the merits of the substantive claim(s) as security with respect to payment of a possible final award against that party?  And can such an interim award then be confirmed and enforced by a Federal court?  “Yes” and “yes”.  First, absent an agreed prohibition, it is usually within an arbitrator’s authority to take steps to insure that an eventual merits award will not be rendered meaningless, and requiring the posting of security to insure the payment of such an award is an unremarkable, if not well known, form of interim relief that an arbitrator can grant.  Furthermore, an interim award of this sort is considered final for purposes of judicial review, including confirmation.

What is a “Reasoned” Arbitration Award?

April 8, 2019 | Blog | By Gilbert Samberg

It is not unusual for an arbitration agreement to require, expressly or impliedly, a “reasoned award.”  Indeed, that is very likely.  And if the parties have stipulated that any award is to be “reasoned,” an arbitrator who fails to satisfy that requirement arguably is exceeding his/her powers by rendering an award in a non-compliant form, thereby making it vulnerable to vacatur under FAA § 10(a)(4).  So what is a “reasoned” award?
You are in federal court facing a motion to compel arbitration, and you reach for your well-worn copy of the Federal Rules of Civil Procedure in order to confirm how to go about your next step -- demanding a jury trial for example.  Better reach for your perhaps less well-worn copy of the Federal Arbitration Act (“FAA”) first.  Fed. R. Civ. P. 81 tells you that procedures set out in the FAA supersede the corresponding Federal Rules.  And then the courts weigh in and it gets complicated.

Discoverability of Third Party Funding Documents in Arbitration – Part II

March 21, 2019 | Blog | By Daniel Pascucci, Amanda Talbott Muskat

In January, in Part I of this post, we discussed the “relevance” factor in determining the discoverability of litigation funding agreements and correspondence with funders.  (For these purposes, the word “litigation” means adjudicated dispute resolution generally.)  As we indicated there, efforts to obtain such discovery typically encounter strong objections based on their irrelevance to the parties’ claims and defenses.  In addition, funded parties have typically opposed such discovery by asserting attorney-client privilege and the work product doctrine.  In this post, we discuss developing authority concerning whether a party’s (or its counsel’s) litigation-related communications with a third-party funder -- either prospective or contracted -- are privileged or whether they effect a waiver of the attorney-client privilege and/or work product protection.
Viewpoint General
Federal question subject matter jurisdiction is easy to describe:  a party can bring an action in federal court if its claim is based on federal law.  However, the determination of whether such a federal question exists is not very easy when a party is seeking to confirm, modify or vacate an arbitration award in federal court pursuant to the Federal Arbitration Act (“FAA”) §§ 9-11.  Does the “federal question” have to be an element of the petition itself?  Or is it enough that a claim in the underlying arbitration is based on federal law?  The federal circuit courts are split on that issue.  Consequently, in the absence of diversity jurisdiction, the determination of whether a post-arbitration award motion under the FAA will have to be made in state court or federal court may depend on the jurisdiction in which the motion is to be made.
Viewpoint General
For an arbitration agreement to be enforceable, the parties must have a reasonable opportunity to understand its terms.  See Fagerstrom v. Amazon.com, Inc., 141 F. Supp. 3d 1070 (S.D. Cal. 2015).  With this principle in mind, the U.S. Court of Appeals for the Ninth Circuit commented in 2006, regarding the enforceability of an arbitration clause that was prominent in a contract, “You’d have to be blind to miss this warning.  There was no surprise here.”  Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1309-10 (9th Cir. 2006) (en banc) (emphasis added).  But what if the plaintiff in Nagrampa had been blind, or was otherwise unable reasonably to read, or to understand, or to appreciate the significance of the arbitration clause by virtue of a disability or a more temporary impairment?
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“Just What Was Needed”: Another Way to Waive a Right to Arbitrate

February 25, 2019 | Blog | By Gilbert Samberg

Want to give up a contractual right to arbitrate?  Easy.  Don’t seek to enforce it.  For example, just litigate for awhile and don’t mention your arbitration clause.  The court has no obligation sua sponte to raise or enforce your contractual right if you choose not to.
Viewpoint General

How to Enforce an Arbitration Subpoena: Jurisdiction and Venue Basics

February 11, 2019 | Blog | By Gilbert Samberg

The Federal Arbitration Act (“FAA”) §7 (9 U.S.C. §7) enables arbitrators to “summon … any person to attend before them or any of them as a witness and in a proper case to bring with him or them any [document] which may be deemed material as evidence in the case.”
Viewpoint General

Discoverability of Third Party Funding Agreements in Arbitration – Part I

January 29, 2019 | Blog | By Daniel Pascucci, Amanda Talbott Muskat

The use of third party funding of arbitration and litigation proceedings provides broader access to formal claim resolution mechanisms, but that benefit may come with some unique issues for the uninitiated.  However, forewarned is forearmed.  In a prior post, we discussed the recoverability in arbitration proceedings of third party funding costs. This post identifies the discoverability issues in arbitration concerning third party funding.
Viewpoint General
Gateway issues of arbitrability are presumptively for a court, rather than an arbitrator, to decide in the first instance. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). But arbitration is a creature of contract, and the parties to an arbitration agreement ultimately have the power to determine who is to decide such issues. Hence, that presumption may be rebutted by the parties’ clear and unmistakable manifestation of their mutual intention that an arbitral tribunal should have the exclusive authority to decide arbitrability issues in the first instance. Id.; Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 77, 83 (2002). While the federal courts have been identifying examples of the practical application of those principles, many questions are still unanswered and some have barely been posed.
Viewpoint General
The U.S. Supreme Court has decided that the Federal Arbitration Act (“FAA”) requirement that courts enforce arbitration agreements according to their terms includes the parties’ agreement to have an arbitrator decide “not only the merits of a particular dispute, but also ‘gateway’ questions of ‘arbitrability’....”  Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272 (U.S. Jan. 8, 2019).  (As is customary, the rookie Justice (Kavanaugh, J.) delivered the Court’s unanimous opinion.)  This judgment, issued little more than two months after oral argument, shatters the “wholly groundless” doctrine, which purported to enable federal courts to adjudicate gateway arbitrability issues notwithstanding the parties’ clear and unmistakable delegation of such issues to an arbitral tribunal, if the court decided that the argument for arbitrability was “wholly groundless.”  (The Courts of Appeals were split on the viability of that doctrinal exception.)
Viewpoint General
Since arbitration is a process of dispute resolution in accordance with a private agreement, the question of consolidation of arbitral proceedings ought to be determined in the same manner as other procedural issues.  In short, no agreement to permit consolidation, no consolidation.
Viewpoint General
In a previous post, we addressed what may happen when a defendant in federal litigation seeks to compel arbitration under Ch. 1 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4, but the applicable arbitration agreement specifies a place of arbitration that is outside the geographic jurisdiction of the federal court.  (See https://www.mintz.com/insights-center/viewpoints/2017-07-spectre-haunts-motions-compel-arbitration-venue.)  But what approaches are available to a defendant when a plaintiff files suit in a state court, the claim is subject to an arbitration agreement, and the agreed place of arbitration is in a different state? 
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The Hong Kong International Arbitration Centre (“HKIAC”) has promulgated a new set of Administered Arbitration Rules (“AAR”), effective November 1, 2018.  Among those rules are Articles 27-30 concerning the HKIAC’s powers to join additional parties in an arbitration, to consolidate arbitrations, to consolidate related claims in a single arbitration, and to coordinate related unconsolidated arbitral proceedings.  Those powers, which the HKIAC can exercise without the consents of the parties to any bilateral arbitration agreement, are not trivial; among other things, they arguably institutionalize pathways to collective or opt-in class arbitration proceedings.
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The Seventh Circuit Court of Appeals has joined five other Circuits in determining, unremarkably, that class or collective arbitrability is a gateway question that is presumptively for the court to decide.  It then apparently ignored the issue of whether the parties delegated such arbitrability questions to an arbitrator.  See Herrington v. Waterstone Mortgage Corp., No. 17-3609 (7th Cir. Oct. 22, 2018).  (Yet we may infer from the Court’s decision that incorporation by reference in an arbitration agreement of the Employment Arbitration Rules of the American Arbitration Association does not constitute a clear and unmistakable manifestation of the parties’ intent to delegate the class/collective arbitrability question to an arbitrator.)
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The Eleventh Circuit Court of Appeals held recently that it could not compel arbitration demanded by a non-signatory to an arbitration agreement when the New York Convention applied.  See Outokumpu Stainless USA, LLC v. Converteam SAS (c/k/a GE Energy Power Conversion France SAS, Corp., No. 17-10944, 2018 WL 4122807 (11th Cir. Aug. 30, 2018).

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