ADR CASELAW UPDATE: selected recent ADR cases of interest to Tennessee attorneys and ADR professionals (last updated May 2018)
by Marnie Huff
In Epic Systems Corp. v. Lewis, No. 16–285, ___ U.S. ___ (May 21, 2018), an employment contract provided for individualized arbitration proceedings to resolve employment disputes between the parties. The employees tried to litigate Fair Labor Standards Act and related state law claims through class or collective actions in federal court. They argued that the Federal Arbitration Act’s “saving clause” enabled them to pursue their suits because the arbitration agreement violated federal law. That is, by requiring individualized proceedings, the employment contracts violated the National Labor Relations Act. In a 5-4 decision, the U.S. Supreme Court held that, under the FAA, arbitration agreements providing for individualized proceedings must be enforced. The FAA’s saving clause and the NLRA do not suggest otherwise.
Selected Recent Cases from U.S. Court of Appeals for the Sixth Circuit
Three month deadline to challenge arbitration award. Tallakoy, LP v. Black Fire Energy, Inc. (6th Cir. February 28, 2017) (not recommended for publication) involved the Federal Arbitration Act’s requirement that a party must challenge an arbitration award “within three months after the award is filed or delivered.” FAA §12. The FAA does not define “filed” or “delivered.” AAA rules (which applied in this case) provide that parties shall accept as notice and delivery “the placing of the award . . . in the mail addressed to the parties or their representatives at their last known addresses, personal or electronic service of the award, or the filing of the award in any other manner that is permitted by law. Am. Arb. Ass’n Com. Arb. R. & Mediation Proc. R. 49. The parties had entered into a Revenue Participation Agreement ("RPA"), in which they agreed that any disputes arising from that contract would be resolved through arbitration. Tallakoy sued Black Fire, alleging that Black Fire induced it to invest in a sham mining operation. Black Fire successfully moved to dismiss that case (Tallakoy I) because the RPA required arbitration of the dispute. Thereafter, an arbitration was conducted without the participation or involvement of Black Fire. On September 23, 2014 an arbitration award was issued in favor of Tallakoy. On October 24, 2014 Tallakoy filed a motion to enforce the award in the previously dismissed case. On December 23, 2014, Tallakoy filed a complaint (in Tallakoy II), with the award attached, seeking to enforce the award. The defendants moved to dismiss Tallakoy II, arguing that the award was invalid and unenforceable. The district court construed this as a motion to vacate the award and denied it as untimely. Defendant Black Fire filed a motion to vacate the judgment and for relief from the judgment. The district court denied both motions. The district court construed the FAA’s term “filed” to mean “issued” by the arbitrator. The Court of Appeals disagreed. AAA Rule 49 does say that placing an award in the mail can be the date of delivery, but there was no evidence that the arbitrator mailed or otherwise “delivered” a copy of the award to Black Fire. Therefore, Tallakoy did not establish that the three month deadline began to run on September 23, 2014. The October 24, 2014 motion did not trigger the three month deadline because it was filed in a dismissed and administratively closed case and was not served on unrepresented parties including Black Fire. The December 23, 2014 complaint was properly served on all parties so it was “delivered” under AAA rules. The December 23 date may be the proper trigger date if no earlier date applies. It is possible that earlier dates do apply, such as the date of certified mail delivery asserted by Tallakoy, but the district court did not address or make any factual findings as to the alternative dates. The Court of Appeals reversed and remanded the case.
Proof of arbitration agreement through exemplar documents; delegation of “gateway decisions” to arbitrator. In Danley v. Encore Capital Grp., Inc. (6th Cir. February 22, 2017) (not recommended for publication), one issue involved an order compelling arbitration. The defendants had purchased plaintiffs' stale credit card debts, and attempted to collect the debts plus post-"charge off" interest. The plaintiffs claimed this violated federal and Michigan debt-collection laws. The plaintiffs' credit card account agreements had arbitration agreements that included delegation clauses. The Court of Appeals affirmed the district court's ruling that the agreements were enforceable and the delegation clause provided that an arbitrator would consider "gateway" challenges to the arbitration provisions. The plaintiffs did not come forward with any rebuttal evidence and thus unsuccessfully challenged the defendants’ evidence of the contracts through use of exemplar agreements instead of original agreements between the plaintiffs and the credit card companies. Although courts generally decide challenges to formation of arbitration agreements per Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 296 (2010), here the plaintiffs did not clearly argue that their challenges involved formation of the agreements. They did attack the validity of the agreements. Given the clear and unmistakable delegation clauses in their agreements, this issue is for the arbitrator to decide. See Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68 (2010).
Plaintiff fails to show denial of regular and timely processing of her grievances. In Toni Horn v. City of Cleveland, No. 16-3175 (6th Cir. January 5, 2017) (not recommended for publication), one of the issues relates to an arbitrated failure-to-promote grievance filed under a collective bargaining agreement. The grievance procedure took years (from approximately November 2012 until March 2015). The arbitrator found that the delay was influenced by pending court litigation involving similar factual issues. The Court of Appeals, affirming the district court, rejected the employee's retaliation claim that she was denied regular and timely processing of her grievances.
Victory against robo-caller. In Kasie Stevens-Bratton v. Trugreen, Inc., No. 16-5161 (6th Cir. January 11, 2017) (not recommended for publication), a lawn care company’s former customer filed a complaint alleging violations of the Telephone Consumer Protection Act. She also sought class certification. The Court of Appeals rejected the customer’s unconscionability claim. But distinguishing Huffman v. Hilltop Cos., LLC, 747 F.3d 391, 393 (6th Cir. 2014), the Court reversed the district court’s order compelling arbitration and denying class certification. The agreement to arbitrate in the lawn care agreement had expired before the majority of relevant events had occurred. All of the offending telemarketing calls occurred after termination of the agreement. The agreement did provide that the company could call the customer about possible future services, but the Court determined that this provision was ambiguous as to whether “future services” meant only future services prior to termination of the agreement or gave the company the right to contact the former customer indefinitely. Construing the ambiguous contract against its drafter, the Court read the provision with the interpretation that favored the customer. The lower court had not made findings of fact or conclusions of law on the plaintiff’s motion for class certification, so the case was remanded for a hearing on that motion.
Court lacked appellate jurisdiction over interlocutory appeal of arbitration order. The Court in Preferred Care of Del., Inc. v. Estate of Hopkins, ___ F.3d ___ (6th Cir. 2017) dismissed the case for lack of appellate jurisdiction. The lower court had granted a motion to compel arbitration, enjoin the plaintiff from proceeding in a parallel state court action, and stay the federal case until the arbitration was completed. Given the provisions in the district court's order, no interlocutory appeal is permitted under 9 U.S.C. §16. The more general statute regarding appeals from injunction orders, 28 U.S.C. §1292(a), does not apply in this case.
Court lacked appellate jurisdiction over interlocutory appeal of arbitration order. In Brandenburg Health Facilities v. Mattingly, No. 16-6168 (6th Cir. February 24, 2017) (not recommended for publication), the district court granted a motion to compel arbitration and enjoin state court proceedings. The arbitration clause in the parties's agreement did not allow litigation to proceed while arbitration was ongoing. The district court had not issued a final order, and did not state that his order involved a controlling question of law whose resolution may materially advance completion of the litigation. Accordingly, the subsequent appeal was dismissed for lack of jurisdiction pursuant to 9 U.S.C. §16(b)(2).
Federal court abstains after state court rules arbitration agreement is unenforceable. Preferred Care of Del., Inc. v. VanArsdale, No. 16-5209 (6th Cir. January 13, 2017) (not recommended for publication) involved parallel proceedings in state and federal court. In the state court action, which was filed first, the plaintiff sued Preferred Care for negligence and wrongful death. Preferred Care then filed an action in federal district court seeking an order compelling arbitration and an injunction enjoining the plaintiff from proceeding in state court. Before any federal court ruling, the state court granted summary judgment on the arbitrability issue, holding that the plaintiff had lacked authority to sign an arbitration agreement on his mother's behalf, so the agreement was unenforceable. Citing Colorado River Water Conservation District v. United States, 424 U.S. 820 (1976), and applying the eight-factor test under Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983), the district court decided to abstain in the federal case. The Sixth Circuit affirmed on appeal.