Arbitration is meant to be an alternate to litigation. Yet arbitration is itself the subject of much litigation over who must arbitrate, what must be arbitrated, whether and how the arbitration should proceed, and the deference courts must show to arbitration awards. This blog is intended to be a resource for litigators, in-house counsel, arbitrators and anyone else who wants to stay on top of the many thorny issues that arise under the Federal Arbitration Act. Our Bloggers →

Arbitration Information

It’s A Wrap: 2011 in Arbitration Law

As we pile up the cardboard boxes that held holiday gifts for the recycling truck and select our new year’s resolutions for 2012, here are a few reflections on the last twelve months in arbitration law.  I would summarize it as another year where the U.S. Supreme Court was playing whack-a-mole, trying to tamp down all the different ways that courts around the nation are creatively using state common law or statutes to nullify arbitration agreements that they find inequitable.    And the U.S. Supreme Court simply can never keep up (I should specify that the current majority of the Court that reflexively rules in favor of arbitration cannot keep up, because there have been vigorous dissents).

This year’s biggest arbitration “whack” from the Supreme Court was the Concepcion case in April.  That case held that the Federal Arbitration Act preempts a line of California case law that found most “collective-arbitration waivers” in consumer arbitration provisions were unconscionable.   After Concepcion, circuit courts found similar lines of case law in New Jersey and Florida were preempted by the FAA.  (Just last week the Third Circuit remanded another unconscionability case for consideration in light of Concepcion.  Antkowiak v. Taxmasters, 2011 WL 6425567 (3d Cir. Dec. 22, 2011).)  I expect that this trend will continue in 2012, with parties who seek to enforce arbitration agreements arguing that any positions their opponents take based on state contract law are preempted by the FAA.

Of course, federal and state courts spent much of 2012 still trying to figure out how to deal with 2010’s big whack from the Supreme Court: Rent-A-Center.  In that case, the Supreme Court held that because the employee did not challenge the validity of the particular delegation provision within his stand-alone arbitration agreement with his employer, the Court could not address his arguments about the validity of that arbitration agreement as a whole.  The four dissenters, however, worried that the majority’s reasoning could result in a situation where a party who seeks to avoid arbitration is required to prove that the specific sentence calling for arbitration is invalid.  (For example, imagine trying to argue that this phrase is invalid: “any and all disputes arising under this agreement shall be resolved by binding arbitration.”)  In the great majority of 2011 cases that addressed this issue, however, courts interpreted Rent-A-Center as applying only when the arbitration agreement contained a delegation provision (that authorized the arbitrator to decide questions of the agreement’s validity).   I predict that courts will continue to limit Rent-A-Center‘s impact in 2012, although it may lead to some circuit splits about the proper interpretation of the case as well as more litigation to define what is and is not a delegation provision.

Keeping with the theme here, if those were the whacks, what kinds of moles popped up in 2011?  The most interesting fell into these three categories:

  • Protecting Nursing Home Residents.   This year,  West Virginia declared that arbitration agreements executed as part of standard admission packets for nursing home residents are unenforceable, and Florida refused to enforce any arbitration agreement against nursing home residents that curtails their statutory rights .  (A petition for cert has been filed in the West Virginia case, but the Supreme Court has not taken any action on it.)  If the Supreme Court does not intervene, watch for this trend to continue in other state courts, with exceptions made for particularly vulnerable categories of litigants.
  • Finding Legislative Overrides.  Another trend this year was for courts to find that that Congress intended particular federal statutes (enacted or amended after the FAA) to trump the FAA and require disputes be venued in court.  That happened at least twice this year, with the Magnuson-Moss Warranty Act and the Carmack Amendment.  The Supreme Court will either breathe additional life into that type of argument (and encourage Members of Congress who dislike the Supreme Court’s interpretations of the FAA to add similar language in new legislation) with its forthcoming decision in CompuCredit v. Greenwood or suck the life right out of those legislative preclusion arguments by setting an impossibly high standard for how clearly the statute must indicate that it is intended to nullify arbitration agreements.
  • Scope is the New Validity.  There are two broad arguments to make about an arbitration agreement — whether it is a valid agreement and whether the dispute at issue is within the scope of that agreement.  Many of the decisions from the U.S. Supreme Court in recent years have related to the validity of arbitration agreements, and since those have made it increasingly difficult to have a court address the enforceability of arbitration, litigators have begun to focus their arguments on the scope of arbitration agreements.  And some of those arguments have been successful.  For example, the Second Circuit found that the term “customer” — a person or company who can be compelled to arbitrate under FINRA rules — is not broad enough to include an entity with whom the FINRA member lacked any written or oral contract, when there were not enough other facts suggesting a business relationship.  Wachovia Bank, Nat’l Assoc. v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164, 172-74 (2d Cir. 2011).   Furthermore, the Eleventh Circuit found that an employee’s civil sexual assault claims were outside the scope of the arbitration agreement in her employment contract.   Parties who want to evade arbitration are likely to continue making creative arguments about why their dispute is outside the scope of their arbitration agreement in the coming year.

The Arbitration Nation award for the best “mole” of 2011, though, goes to the California courts, who have found creative ways around the Concepcion decision, including finding that it does not apply to suits under California’s Private Attorney General Act, see Brown v. Ralph’s Grocery Co., 197 Cal. App. 4th 489, (Cal. Ct. App. 2011) , and have suggested that Rent-A-Center may not apply in state courts at all, see Chin v. Advanced Fresh Concepts Franchise Corp.,  194 Cal. App. 4th 704, 708-09 (Cal. Ct. App. 2011).

Honorable mention in this category goes to Herron v. Century BMW, 2011 WL 6347845 (S.C. Dec. 19, 2011).   In 2010, the Supreme Court of South Carolina held that as a matter of state public policy, any arbitration agreements prohibiting motor vehicle consumers from bringing class action suits was unenforceable (the decision found the arbitration agreement at issue, which was fairly consumer-friendly, was not unconscionable).  The U.S. Supreme Court then vacated the decision and instructed the South Carolina court to reconsider its decision in light of Concepcion.   Just this month, the Supreme Court of South Carolina refused to reconsider its decision, finding that the question of whether the FAA preempted state public policy was not raised in the trial court or appellate courts of South Carolina:

Because the matter of preemption was not raised to and ruled upon in any of the South Carolina proceedings, we find the issue of preemption is procedurally barred as [a] matter of state law and further consideration in light of AT&T Mobility, LLC v. Concepcion is unwarranted.  We reinstate our original opinion and decline to revisit it.

Id.  I am pretty confident the U.S. Supreme Court was aware that Concepcion had not been decided when Herron was briefed, and therefore no parties had raised the preemption arguments implicated by Concepcion.  I am also pretty confident that the U.S. Supreme Court, in vacating Herron, did not mean to say “reconsider this case in light of Concepcion, if and only if you like the legal result of that reconsideration and/or you can find no legal basis not to do so.”

Happy New Year!

**If you can’t get enough of arbitration case law, please “subscribe” to ArbitrationNation via that button on our blog (www.arbitrationnation.com) and follow @KramerLiz on Twitter (where I share more arbitration-related information than I cover in the blog).

Share