A short new opinion from the Ninth Circuit may run counter to long-standing Supreme Court precedent. In Casa Del Caffe Vergnano v. Italflavors, 2016 WL 1016779 (9th Cir. Mar. 15, 2016), the court refused to enforce an arbitration agreement in a contract that the parties admitted signing, because the parties simultaneously signed a second agreement declaring the first one a sham.

The story is that two undocumented immigrants chose to become a franchisee of an Italian corporation, Caffe Vergnano, and open an Italian-style coffee shop in San Diego. They signed two contracts on the same day: a “commercial contract,” which was a standard franchise agreement including an arbitration clause; and a “hold harmless agreement” that said the commercial contract “does not have any validity” because it was designed simply to allow the immigrants to obtain visas to work in the U.S. The hold harmless agreement stated the parties “will sign a future contract which will regulate their commercial relationship.”

However, the parties did not enter into a new contract. Instead, the franchisees opened their Italian coffee shop and it folded within eight months. The franchisees sued the franchisor for violations of California statutes and the franchisor moved to compel arbitration. The district court compelled arbitration and the Ninth Circuit reversed.

Repeating language from Granite Rock that contract formation is for courts to decide, and relying on federal common law regarding contracts, a majority of the panel concluded that the commercial contract “was a mere sham to help Hector Rabellino obtain a visa” and was therefore unenforceable. The majority reasoned that the hold harmless agreement proved that the parties did not mutually consent to be bound by the commercial contract.

This decision raises a close question between formation and validity, in my view, that the court ignores completely. On questions of a contract’s validity, the severability doctrine, clarified in Buckeye Check Cashing , dictates that a party challenging arbitrability must “challenge[] specifically the validity of the agreement to arbitrate” in order to have that challenge heard by the court. Otherwise, the validity issue will be addressed by the arbitrator. SCOTUS found it was immaterial whether the challenge made the underlying contract void or voidable. In a footnote in Buckeye Check Cashing, however, SCOTUS excluded a limited set of formation issues from the severability doctrine, suggesting those still belong in court:

The issue of the contract’s validity is different from the issue of whether any agreement between the alleged obligor and obligee was ever concluded. Our opinion today addresses only the former, and does not speak to the issue decided in the cases cited by respondents (and by the Florida Supreme Court), which hold that it is for courts to decide whether the alleged obligor ever signed the contract, Chastain v. Robinson-Humphrey Co., 957 F. 2d 851 (CA11 1992), whether the signor lacked authority to commit the alleged principal, Sandvik AB v. Advent Int’l Corp., 220 F. 3d 99 (CA3 2000); Sphere Drake Ins. Ltd. v. All American Ins. Co., 256 F. 3d 587 (CA7 2001), and whether the signor lacked the mental capacity to assent, Spahr v. Secco, 330 F. 3d 1266 (CA10 2003).

Is the franchisee’s argument that the hold harmless agreement nullified the commercial contract really closer to an argument that the franchisee lacked mental capacity, and therefore belonged in court? Or is it closer to an argument that the commercial contract was fraudulently induced? In my view, that is a close call, but fraudulent inducement seems the better fit, meaning this decision belonged to the arbitrator. The line between formation and validity is not clearly drawn in FAA jurisprudence, and this decision blurs it further.

March comes in like a lion, right?  Well, that’s not true with respect to the weather here in Minneapolis.  But it may be true with respect to arbitration decisions from around the country.  This post focuses on two recent decisions from state high courts that refuse to compel arbitration.

In Global Client Solutions, LLC v. Ossello, 2016 WL 825140 (Mont. Mar. 2, 2016), a majority of Montana’s Supreme Court refused to enforce the arbitration clause between a consumer and a financial institution (that set up a bank account for the consumer’s efforts with a debt relief company).  The arbitration clause provided for AAA arbitration of all claims arising out of the agreement, even claims relating to the validity of the agreement, but the bank had the right to bring collections actions in court. The trial court found the arbitration clause was unconscionable and refused to compel arbitration.

On appeal, the Montana Supreme Court first found there was no enforceable delegation clause in the parties’ arbitration clause, because the language was “ambiguous and confusing” instead of clear and unmistakable, largely due to what appears to be a typo in the clause. (The clause said the parties would arbitrate “the breach, termination, enforcement, interpretation or validity [of the entire agreement], including the termination of the scope or applicability of this Agreement to arbitrate”.  The bank argued “termination” was supposed to be “determination.”)  The court also refused to find that incorporation of the AAA rules constituted an enforceable delegation clause, because it did not specify which AAA rules applied and this was not a contract between two sophisticated commercial parties.

After confirming it could address the validity of the arbitration clause, the court found the clause unconscionable under Montana law because the bank had the right to bring collection matters to court, while the consumer had no similar right. The court reasoned that its holding was not preempted under the Concepcion rule, because other post-Concepcion courts have relied on lack of mutuality to invalidate an arbitration clause.

A concurring justice wrote “The elephant in the room is not state hostility toward arbitration…If there is any hostility, it is toward those who hide behind the FAA…to escape any material consequence of running fraudulent confidence schemes.” [But of course that assumes that a AAA arbitrator would not find wrongdoing when confronted with a “fraudulent confidence scheme”… ] Two justices dissented, asserting that the incorporation of AAA rules was a valid delegation clause, such that the arbitration clause’s validity should have been decided by a AAA arbitrator.

The second case comes from Alabama and is a cautionary tale for companies trying to add arbitration agreements to existing contracts with many consumers.  In Moore v. Franklin, 2016 WL 761698 (Ala. Feb. 26, 2016), the Supreme Court of Alabama found the parties did not form a valid arbitration agreement by virtue of the bank posting a notice to the customer’s online banking profile.  Citing cases from five federal courts, Alabama concluded that in order to form part of the parties’ agreement, there must be proof that the recipient accessed the web page containing the arbitration provision.

What lessons can we give drafters from these two cases?  Well, check for typos.  And then double and triple-check.  Then, and only then, considering increasing the likelihood the arbitration clause will be found enforceable by making any carve-outs mutual.  If the company can bring collection claims in court, then why not let the consumer bring modest claims in small claims court?  Finally, once you drafted the clause, find a way of making sure those customers see it (and hopefully even click a button confirming that they agreed to it).

Showing it will soldier on without Justice Scalia, the Supreme Court granted cert, vacated, and remanded an arbitration decision from West Virginia yesterday.  Because this is the exact same treatment the Court gave a case from Hawaii’s highest court in January (and the same treatment I predicted, ahem), it suggests SCOTUS is trying to go on with business as usual.

So, what was the West Virginia case? It is the Schumacher Homes case I wrote about last July, in which that state’s highest court refused to enforce the parties’ delegation clause, even after acknowledging the rule in Rent-A-Center, because it found the word “arbitrability” was ambiguous.

This GVR (grant, vacate, and remand), although not a summary reversal because it ostensibly leaves it up to the West Virginia courts to decide what to do next, falls in line with recent arbitration summary reversals from SCOTUS.  Prof. Drahozal, in an interesting article called “Error Correction and the Supreme Court’s Arbitration Docket,” helps put it in context (Ohio State Journal on Dispute Resolution, Vol. 29, No. 1, 2014).  

He writes:

Indeed, since O.T. 2000, the proportion of summary reversals that addressed arbitration issues (4 of 83, or 4.8%) is more than double the proportion of argued cases (18 of 948, or 1.9%) that addressed arbitration issues.

What are the common characteristics of cases that receive a summary reversal?  First, they misapply the FAA.  But also, Prof. Drahozal points out:

The summary reversals were all in cases that originated in state rather than federal courts, and often included some suggestion that the state court disagreed with Supreme Court decisions interpreting the FAA.

Bingo!  That last factor is definitely present in Schumacher Homes.  In addition to calling the rule in Rent-A-Center “absurd” and an “ivory-tower interpretation of the FAA,” the opinion criticized all federal arbitration jurisprudence, explaining that the SCOTUS decisions construing the FAA “create an eye-glazing conceptual framework” that is “a tad oversubtle for sensible application” and that “the rules derived from these decisions are difficult for lawyers and judges—and nearly impossible for people of ordinary knowledge—to comprehend.”

So, here’s a tip for all state courts that want to buck the FAA, but not risk summary reversal or GVR: don’t insult SCOTUS.

Justice Scalia wrote some blockbuster decisions about arbitration, enforcing arbitration agreements regardless of their real-world impact, and making a potentially dry topic exciting and contentious.  Readers of his opinions knew from the first few paragraphs of the analysis how the case was coming out.  If he was bench-slapping a lower court for its interpretation of the FAA, Scalia liked to begin the analysis with this context: “The FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agreements…” (E.g., Italian Colors, Concepcion, Compucredit, Buckeye Check Cashing).  His arbitration opinions are the ones that the New York Times highlighted when it described what is wrong with arbitration jurisprudence.  And they are the decisions that state courts most often balk at applying.

All of which means his decisions made their mark.  Here are key arbitration decisions he authored for the majority, with quotes from those majority decisions.

  • American Express Co. v. Italian Colors Restaurant (2013) (refusing to apply an “effective vindication” exception to enforcement of individual arbitration of low-dollar claims):
  • Compucredit Corp. v. Greenwood (2012) (finding a federal statute — CROA — did not trump the FAA):
    • It is the dissent’s interpretation that effectively reduces a portion of the CROA to a nullity. Interpreting the “right to sue” language in § 1679c(a) to “create” a right to sue in court not only renders it strikingly out of place in a section that is otherwise devoted to giving the consumer notice of rights created elsewhere; it also renders the creation of the “right to sue” elsewhere superfluous.
  • AT&T Mobility v Concepcion (2011) (finding California’s case law declaring it unconscionable to waive class arbitration in the consumer context was preempted by the FAA):
    • Arbitration is poorly suited to the higher stakes of class litigation. . . . We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision.
  • Rent-A-Center, West v. Jackson (2010) (finding that when parties delegate issues of substantive arbitrability to arbitrators,  those delegations must be enforced unless the plaintiff specifically alleges the delegation text itself is unenforceable):
    • To be sure this case differs from Prima Paint, Buckeye, and Preston, in that the arbitration provisions sought to be enforced in those cases were contained in contracts unrelated to arbitration—contracts for consulting services,  check-cashing services, and “personal management” or “talent agent” services. In this case, the underlying contract is itself an arbitration agreement. But that makes no difference.FN3 Application of the severability rule does not depend on the substance of the remainder of the contract. Section 2 operates on the specific “written provision” to “settle by arbitration a controversy” that the party seeks to enforce. [internal citations omitted]
  • Buckeye Check Cashing v. Cardegna (2006) (holding that arbitration clause in illegal contract must be enforced, because plaintiff did not allege the arbitration clause itself was invalid):
    • It is true, as respondents assert, that the Prima Paint rule permits a court to enforce an arbitration agreement in a contract that the arbitrator later finds to be void. But it is equally true that respondents’ approach permits a court to deny effect to an arbitration provision in a contract that the court later finds to be perfectly enforceable. Prima Paint resolved this conundrum—and resolved it in favor of the separate enforceability of arbitration provisions.

[While most of his decisions were staunchly pro-enforcement of arbitration, on at least one occasion, Scalia’s majority opinion decided against arbitration.  In Wright v . Universal Maritime Service Corp., 525 U.S. 70 (1998), the Court found that a longshoreman could sue his employer for ADA violations, despite an arbitration agreement in his union’s collective bargaining agreement, because that agreement did not clearly and unmistakably waive the federal rights.]

Even those of us who disagree with the result of some of these decisions have to acknowledge they are highly logical, clear, and surprisingly passionate.  There is no doubt that Justice Scalia was critical to the development of the Court’s current arbitration jurisprudence.

Most questions of arbitrability can be resolved on motion, using a summary judgment-like standard.  However, just like summary judgment, if there are genuine disputes of material fact about whether a claim must be arbitrated — like competing evidence about whether the parties ever formed an arbitration agreement — those should be determined by a trial.  That is the lesson of three recent cases from the Third Circuit, the Ninth Circuit, and the Supreme Court of Alabama.

The two federal court opinions are short and sweet.  In Gib, LLC v. Salon Ware, Inc., 2016 WL 463429 (9th Cir. Feb. 5, 2016), the district court granted a motion to compel arbitration, despite the undisputed fact that the plaintiff never signed the written agreement and the fact that the plaintiff “raised a genuine issue of material fact by submitting a sworn declaration denying that the parties had entered into a written agreement.”  Because of that genuine issue of fact, the Ninth Circuit reversed and remanded for either a court or jury trial under Section 4 of the FAA.

In Guidotti v. Legal Helpers Debt Resolution, 2016 WL 521173 (3d Cir. Feb. 10, 2016), the Third Circuit is hoping that the third time is a charm for the district court.  (This same case has previously been remanded to the district court, so this remand will be the district court’s third attempt to resolve the arbitration issue.)  The plaintiffs asserted statutory claims against many defendants who had pledged to offer debt relief.  This order relates to whether two of those defendants could compel arbitration.  Plaintiffs had signed one agreement with those defendants: an account application (without any arbitration clause).  The dispute was over whether she also received an account agreement (which contained an arbitration clause) or whether that was otherwise validly incorporated into the application.  After seven months of discovery on those issues, the district court denied the motion to compel discovery.  It concluded that genuine issues of fact persisted about whether the account agreement was incorporated, but that was immaterial because the district court found the arbitration clause invalid under New Jersey law.  The Third Circuit vacated that order and remanded the case for a jury trial, noting that the factual dispute must be resolved, and only then should the court consider whether New Jersey law invalidates the arbitration agreement (and whether that New Jersey law is preempted by the FAA).

Apparently, the problem of lower courts rushing to resolution of disputed issues on arbitrability is not unique to the federal courts.  In Dannelly Enterprises, LLC v. Palm Beach Grading, Inc., 2016 WL 360668 (Ala. Jan. 29, 2016), the Supreme Court of Alabama also remanded a case for a jury trial on the disputed issue of whether a sub-subcontractor agreed to arbitrate disputes.  In Dannelly, a sub-subcontractor (Dannelly) submitted a bid to the grading subcontractor (PBG), the bid was accepted, and PBG issued a work order.  Neither the bid or the work order had arbitration clauses.  However, PBG’s “standard subcontract” has an arbitration clause, and PBG’s contract with the general contractor also called for arbitration.  PBG submitted an affidavit stating that Dannelly had agreed to the standard subcontract, but PBG was unable to locate the signed copy.  Dannelly submitted a competing affidavit swearing that it had never signed the standard subcontract or otherwise agreed to its terms.

The trial court granted PBG’s motion to compel arbitration.  The Alabama Supreme Court reversed and remanded for a jury trial.  It found there was a genuine dispute of material fact about whether Dannelly had ever agreed to arbitrate disputes with PBG, because both parties had submitted contradictory testimony and there were no other objective manifestations of Dannelly’s assent.  In addition, it found Dannelly was not a third-party beneficiary of the contract between PBG and the general contractor, because the arbitration language in that contract was specific to PBG and the general contractor and did not demonstrate any intent to bind third parties.  Similarly, the court rejected an equitable estoppel argument, finding no evidence that Dannelly received benefits under PBG’s contract with the general contractor.

These cases serve as an important reminder that the very existence of an arbitration agreement can be hotly disputed.  For contract negotiators, that means it is critical to obtain (and retain) a signed copy of the final agreement including the arbitration clause.  For advocates trying to enforce agreements, that means it is critical to recognize when to give up on motion practice and ask for a trial on the issue, so that you don’t waste years on appeal, only to get sent back to square one.

This week, the Fourth Circuit found an arbitration agreement invalid because it waived all federal and state laws.  Although two other federal circuit courts had already found the same company’s arbitration agreement unenforceable because it called for an impossible arbitration process, the Fourth Circuit found it invalid for a new reason.

The issue in Hayes v. Delbert Services Corp., __ F.3d___, 2016 WL 386016 (4th Cir. Feb. 2, 2016), was whether a putative class of plaintiffs could assert violations of two federal statutes (Fair Debt Collection Practices Act and Telephone Consumer Protection Act) by the servicing agent of a payday lender in court, or whether they had to arbitrate the claims.  The servicer relied on the arbitration clause in the loan agreement to compel arbitration.  The arbitration clause called for arbitration by the Cheyenne River Sioux Tribal Nation, in accordance with the Tribe’s “consumer dispute rules.”  However, the Tribe had no arbitration rules and no capacity to administer arbitrations.  Those failures had led the Second and Seventh Circuits to find the arbitration agreement in the same lender’s loan agreement unenforceable.  But, the arbitration clause in this case was slightly different, as it allowed the borrower the right to select either AAA or JAMS to “administer the arbitration.”  So, the question in this case seemed to be whether that could save the arbitration clause, by providing a real arbitration forum.

The Fourth Circuit did not answer that question, however.  Instead, it issued a much bolder decision.  It focused on the fact that the loan agreement “purports to disavow the authority of all state or federal law.”  In its “Governing Law” section, for example, the loan agreement states “this Agreement shall be subject to and construed in accordance only with the provisions of the laws of the Cheyenne River Sioux Tribe, and that no United States state or federal law applies to this Agreement.”  (Similar language was repeated within the arbitration clauses, so there is no severability doctrine problem here.)

Those provisions really raised the court’s hackles.  It held that:

[A] party may not underhandedly convert a choice of law clause into a choice of no law clause–it may not flatly and categorically renounce the authority of the federal statutes to which it is and must remain subject.  Because the arbitration agreement in this case takes this plainly forbidden step, we hold it invalid and unenforceable.

To support that holding, the court cited 14 Penn Plaza, for the idea that arbitration agreements cannot waive federally protected civil rights, and to Italian Colors, for the proposition that the FAA precludes “an arbitration agreement forbidding the assertion of certain statutory rights.”  Because it found the rejection of all federal law to be at the “core of the arbitration agreement,” the court would not sever those provisions.

In closing, the court issued a bench-slap to the servicer, and a warning to drafters of arbitration agreements:

rather than use arbitration as a just and efficient means of dispute resolution, Delbert seeks to deploy it to avoid state and federal law and to game the entire system.  Perhaps in the future companies will craft arbitration agreements on the up-and-up and avoid the kind of mess that Delbert is facing here.

This opinion is interesting mostly because it could have been predictable and easy.  The Fourth Circuit could have just said “two of our sister circuits have already found this clause invalid, and the add-on language about allowing the AAA to “administer” the arbitration doesn’t save it”.  But instead, the court seems to expand on the existing case law regarding federal statutory rights and takes a strong stance against allowing corporations to use arbitration to circumvent federal claims.

Lots of interesting arbitration law has been made already in 2016, so here is a roundup from the first four weeks of the year. As a teaser, courts have breathed life into the effective vindication doctrine, found arbitrators cannot determine the availability of class actions, and found state laws not preempted.  More surprisingly, state courts are following SCOTUS’s interpretations of the FAA.

Effective Vindication Lives On

Although I thought Italian Colors was an “effective elimination” of the effective vindication doctrine, the Tenth Circuit affirmed its use as a defense to a motion to compel arbitration this month in Nesbitt v. FCNH, Inc., 2016 WL 53816 (10th Cir. Jan. 5, 2016).  [Side note to WestLaw: can there really have been 53,816 cases by January 5th of the year??  Or do I misunderstand the numbering system?]  In that case, class action plaintiffs in a Fair Labor Standards Act case defeated a motion to compel individual arbitrations by asserting that under the AAA Commercial Rules, each plaintiff would have to pay between $2,300 and $12,500 in arbitrator fees and could not recover attorneys’ fees.  The appellate court affirmed.

Incorporation of AAA Rules Can “Unmistakably” Delegate Some Gateway Issues, But Maybe Not the Availability of Class Actions

The Third Circuit drew what seems to me a questionable distinction between parties’ ability to delegate some substantive issues of arbitrability from others. Despite acknowledging that federal courts of appeals have universally found that when parties agree to be bound by the AAA rules, they delegate substantive arbitrability to arbitrators, the Third Circuit found that does not extend to the availability of class arbitration. Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 2016 WL 53806 (3d Cir. Jan. 5, 2015).  Recall that in general, courts are presumed to have authority to determine whether an arbitration exists, whether it is valid, and whether it covers the scope of the parties’ dispute.  But, under First Options of Chicago, a SCOTUS opinion, parties can delegate even those issues to arbitrators as long as their intent to do so is “clear and unmistakable.”  In Chesapeake Appalachia, the court repeats its pronouncement from Opalinski that the “availability of classwide arbitration” is one of those substantive questions of arbitrability that courts presumptively decide, unless parties clearly and unmistakably state otherwise.  And then it further protects courts’ ability to make that determination by holding that the parties’ incorporation of AAA rules, which explicitly allow arbitrators to determine their own jurisdiction and contain supplementary rules about class arbitration, is not sufficient to delegate the availability of classwide arbitration to arbitrators.  Drawing on statements from Sutter, the court leaned on the “great” procedural differences between bilateral and class-action arbitration to support its distinction.

Waiver of the Right to Arbitrate is an Issue Presumptively for Courts

Maybe Bryan Garner can come up with a new term for “waiving” the right to arbitrate, so that it is not the same verb as waiving the substantive claim being arbitrated. If so, that would alleviate the problem that the Supreme Court of Nevada addressed in Principal Investments, Inc. v. Harrison, 2016 WL 166011 (Nev. Jan. 14, 2016).  That court wrestled with the issue of whether a court or an arbitrator should decide if a party has waived its right to arbitrate by participating in litigation.  In other words, is that type of waiver a substantive question of arbitrability (like whether there is a valid arbitration agreement) that is presumptively for courts, or a procedural question of arbitrability that is presumptively for arbitrators?  Adding to the confusion is language from Howsam and BG Group characterizing “waiver” as an issue presumptively for arbitrators.  After canvassing other courts and finding the majority have concluded that waiver-by-litigation is presumptively for courts, the Nevada Supreme Court followed the herd.

Missouri Enforces Prima Paint’s Severability Doctrine

As I have picked on Missouri for bucking federal arbitration law, I owe it to the Show-Me State to point out that it recently (but reluctantly) followed federal precedent on severability. In Ellis v. JF Enterprises, LLC, 2016 143281 (Mo. Jan. 12, 2016), the Supreme Court of Missouri recognized that under federal precedent, a plaintiff cannot avoid an arbitration agreement by asserting the contract as a whole is void, it must point to a deficiency with the arbitration clause specifically.  As a result, the court held that “no matter what logic or fairness” undergirded the plaintiff’s argument that her auto sale was invalid, she had to arbitrate that claim.

Kentucky’s Precedent on Wrongful Death Actions is not Preempted by FAA

In Richmond Health Facilities v. Nichols, 2016 WL 192004 (6th Cir. Jan. 15, 2016), the Sixth Circuit analyzed Kentucky’s state law rule, which holds that wrongful-death claims belong only to beneficiaries, and therefore any arbitration agreement signed by a decedent cannot bind a beneficiary bringing a wrongful death claim.  The Sixth Circuit found that state law rule does not stand as an obstacle to the FAA, because it does not categorically prohibit arbitration of wrongful death claims, so was not preempted.

Lots of Action on Attorneys’ Fees

The Supreme Court of Utah held that an arbitrator cannot award attorneys’ fees incurred in confirming the arbitration award, under the Uniform Arbitration Act. Westgate Resorts, Ltd. V. Adel, 2016 WL 67717 (Utah Jan. 5, 2016).

Massachusetts’ highest court also found an arbitrator is not authorized to award attorneys’ fees due to one party’s assertion of frivolous defenses (unless the parties specifically granted the arbitrator that authority). Beacon Towers Condominium Trust v. Alex, 2015 WL 9646024 (Mass. January 7, 2016).

Similarly, the Second Circuit held that a federal district court erred in awarding attorneys’ fees and costs to the party that successfully confirmed its arbitration award. Zurich Am. Ins. Co. v. Team Tankers (2d Cir. Jan. 28, 2016).  As part of its contractual analysis, the court repeated that parties may not contract around Section Ten of the FAA.  In other words, it would not read the parties’ contract as precluding an attempt to vacate the award.

PHEW. I have now alleviated the guilt that has been weighing on me for not blogging about these cases yet.  Hope February brings a more reasonable stream of opinions!

The actual and potential arbitration docket at the Supreme Court contracted in the last week due to three events.

First, SCOTUS made quick work of an appeal from the Hawaii Supreme Court.  Remember when I predicted that the DIRECTV case was going to make it even harder for state courts to find arbitration agreements unenforceable under state law?  Well, that must have been exactly the point.  Because less than a month later, on Jan. 11, SCOTUS granted cert, vacated, and then remanded this series of decisions from the Hawaii Supreme Court.  What helpful instructions did SCOTUS offer to Hawaii’s highest court?  Just this: “further consideration in light of DIRECTV, Inc. v. Imburgia, 577 U.S. __ (2015).”  If history is any guide (see West Virginia, and Missouri), Hawaii will find a safer basis to uphold its initial decision.  That is especially likely in this case, since Hawaii hedged its bets from the get-go, by identifying two bases for not enforcing the arbitration agreement: there was no arbitration agreement; and, if there was, it was unconscionable.

Second, a pending arbitration matter, scheduled to be argued at SCOTUS just next month, settled. It was the California case about whether invalid aspects of an arbitration agreement should be severed.  But, the parties resolved the matter after DIRECTV.

Finally, SCOTUS denied cert in a Texas arbitration decision this week.

What’s still left?  Well, I know of at least one petition in an arbitration case that will be conferenced in coming weeks.  It is this case from West Virginia, a state with a history of bucking the federal arbitration system.  Surely you remember this memorable decision, where the West Virginia Supreme Court called SCOTUS’s arbitration precedent  “absurd” and an “ivory-tower interpretation of the FAA”??!  West Virginia basically invited the same GVR treatment as Hawaii.

Post Script (added 1/15/16): A reader informed me of an interesting second petition for cert in an arbitration case.  In the franchise context, the case presents the question of whether a state can require franchisors to include an addendum to their franchise agreement that negates the arbitration clause in that franchise agreement without running afoul of the FAA.

**Thanks to Mark Kantor and Karl Bayer for being the first to alert me to some of these events.

The Alabama Supreme Court has followed the Eighth Circuit’s lead, concluding that when the parties agree to arbitrate pursuant to the AAA Rules, they have clearly and unmistakably authorized the arbitrator to determine who is bound by that arbitration agreement.  Federal Ins. Co. v. Reedstrom, __ So. 3d __, 2015 WL 9264282 (Ala. Dec. 18, 2015).

The dispute in Reedstrom centered on whether an executive liability insurance policy covered a judgment against a former executive for misconduct.  The executive sued the insurance company for breach of contract, and the company moved to compel arbitration.  The trial court denied the motion without any rationale.

The Alabama Supreme Court reversed.  On appeal, two key issues were analyzed: whether the insurance company could compel arbitration with the executive, even though he did not sign the insurance policy (his former employer did); and whether the insurance company had waived its right to arbitrate.  The court noted that the default rule is that courts generally decide both those issues, unless the arbitration provision “clearly and unmistakably” delegates them to the arbitrator.  And in this case, the majority found the arbitration provision did exactly that by agreeing to arbitrate pursuant to the current AAA commercial rules, which allow the arbitrator to rule on his or her own jurisdiction.

Three justices dissented from the opinion, generally concluding that incorporating the AAA rules is not enough, by itself, to constitute clear and unmistakable evidence that parties intend to submit arbitrability to an arbitrator.

Arbitration case law did not break any new ground in 2015.  Instead, a larger sector of the public became aware of the ground already broken in 2011 and 2013, as well as how common arbitration is in professional sports.

Let’s review some of the attention-grabbing arbitration headlines of 2015.  There was:

  • That time in February when the arbitration award in Lance Armstrong’s favor got reversed, ten years after the fact.
  • Also in February, the arbitration award against Adrian Peterson (a football star, my fellow arbitration nerds) was vacated.
  • Then in March, the CFPB (a new federal agency, you football nerds) issued an insanely long report, finding, in short, that it is nearly impossible to avoid arbitration agreements (with their waivers of class actions) in consumer financial products, consumers have no idea they are subject to arbitration, and consumers seem to get higher awards in federal court than in arbitration when they challenge financial institutions.
  • In April, Missouri’s high court found it was unconscionable to allow the NFL Commissioner to serve as the arbitrator deciding an employee’s age discrimination claims.
  • Acting against type, in August the California Supreme Court applied SCOTUS opinions and upheld an arbitration agreement in a consumer clause, despite two lower courts having found it unenforceable. (Okay, that was not headline-grabbing, except in select legal publications.  But it should have been.)
  • Back to football again, in September a federal judge vacated the arbitration award against Tom Brady.  (He’s the quarterback who sells Wrangler jeans, right?  Just kidding, football fans, just kidding.)
  • In October, the CFPB started its pre-rulemaking process by describing two ways it plans to change consumer financial arbitration.  It is likely to: 1) invalidate arbitration agreements for any members of a putative class action “unless and until class certification is denied or the class claims are dismissed;” and 2) collect and publish consumer financial claims filed in arbitration.
  • In November, the New York Times published a three-part series on arbitration, which was generally unflattering.  It focused on the impact of SCOTUS’s decisions, especially in Concepcion and Italian Colors, on individuals’ ability to obtain redress for claims.  More than any court decision in the last five years, this newspaper series got lots of people talking about arbitration and reacting to the series.
  • Finally, in December, SCOTUS capped off this year of arbitration headlines by reversing California’s intermediate appellate court , which had refused to uphold a class action waiver in arbitration.  SCOTUS’s “eye of Sauron” is stuck on California.  Despite evidence that California is (begrudgingly?) enforcing federal decisions interpreting the Federal Arbitration Act (see bullet point five above and this decision from 2014), SCOTUS still sees California as the black sheep of the national arbitration family.  (This year, I nominate Kentucky for that role.  Didn’t SCOTUS see this opinion comparing arbitration to abortion?)

What would casual observers learn from this year of arbitration headlines?  Two lessons: first, famous athletes have an uncanny knack for vacating arbitration awards; and second, there is a real battle brewing between SCOTUS and the executive branch (CFPB as well as NLRB) over enforcement of class action waivers in arbitration agreements.  If that battle erupts in 2016, then arbitration will really take center stage in our national debate.  As usual, you can monitor the drama right here at www.arbitrationnation.com.

Happy New Year everyone!