REFRESHER ON ARBITRATION LAWS AND RULES

July 21, 2016 Liz Kramer, Stinson Leonard Street

My crusade: Help lawyers make better arguments about arbitration (leading to better decisions by judges and arbitrators) Why you should care about arbitration law:

• Industry use (securities, labor, employment, franchise, construction, real estate, insurance, pharma, transportation)

• In 2015: 8,360 (B2B) arbitrations filed with AAA; 25,024 private contract disputes filed in all U.S. federal courts.

• Evolving area of law • Traps for unwary

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WHAT LAW APPLIES TO QUESTIONS OF ARBITRABILITY?

• The Federal Arbitration Act (9 USC §§1-16) applies to transactions that involve or affect interstate commerce

• The FAA applies in both state and federal court if the contract at issue “in fact involve[s] interstate commerce.” Onvoy, Inc. v. SHAL, LLC, 669 N.W.2d 344, 351 (Minn. 2003).

• Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003) (FAA reflects “broadest permissible exercise of Congress’ Commerce Clause power.” )

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WHAT LAW APPLIES TO QUESTIONS OF ARBITRABILITY?

• State arbitration acts only apply if: • No conceivable impact on interstate

commerce;

• Parties’ agreement calls for application of state act; or

• State act addresses gap in federal substantive law of arbitration.

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WHAT LAW APPLIES TO QUESTIONS OF ARBITRABILITY?

• The applicable rules of the arbitration administrator may also come into play:

• Many jurisdictions hold that incorporating set of rules is “clear and unmistakable” evidence that parties agree to arbitrate gateway issues. o E.g., Eckert/Wordell Architects, Inc. v. FJM Props. of

Willmar, LLC, 756 F.3d 1098(8th Cir. 2014).

o But see Morgan v. Sanford Brown Institute, 2016 WL 3248016 (N.J. June 14, 2016) (delegation clause).

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WHAT LAW APPLIES TO REST OF THE ARBITRATION?

• The substantive law the parties have selected to govern their dispute.

• Again, the applicable rules of the arbitration administrator may also come into play in defining the scope of the arbitrator’s authority.

• Seagate Technology, LLC v. Western Digital Corp., 854 N.W.2d 750 (Minn. 2014) (finding that both the language of the agreement and the incorporated rule were broad enough to allow the arbitrator to issue sanctions)

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WHAT LAW APPLIES TO REST OF THE ARBITRATION? • FAA will govern subpoenas, or breakdown in

arb selection. • Of course, FAA’s bases for vacatur lurk in

background. • (1) ...award was procured by corruption, fraud, or undue means;

• (2) ...evident partiality or corruption in the arbitrators;

• (3) ... arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

• (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

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TEN SURPRISES IN ARBITRATION LAW

1. The State Acts are almost worthless 2. The Arbitrator likely has authority over

whether must arbitrate (& contract validity) 3. SCOTUS preempts much state judicial hostility

to arbitration jurisprudence (see DirecTV, Concepcion)

4. FAA does not confer federal jurisdiction, limits courts that can compel/confirm arbitration

5. Piecemeal litigation is a-okay (KMPG v. Cocchi)

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TEN SURPRISES IN ARBITRATION LAW

6. Non-signatories may have to arbitrate (equitable estoppel, third-party beneficiaries, agency, etc.)

7. Parties must preserve bases for vacatur by raising with arbitrator (if known or could be known)

8. “Manifest disregard” is dead in many circuits (Judicially-created bases for vacatur generally post Hall Street)

9. Parties can authorize arbitrator through conduct (new claim, atty fees).

10. It is harder than you think to waive right to arbitrate.

*bonus: lack of transcript can doom appeal

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SURPRISES IN ARBITRATION PROCEEDING • No need for thorough complaint. • Rules allow counsel to agree on questions for

potential arbitrator to answer • Counsel may ask follow-up questions about

potential arbitrator disclosures • If no location set in arb clause, and no

agreement, AAA sets using factors similar to forum non conveniens

• Rules of civil procedure don’t apply – discovery likely limited, as are motions

• Parties not obligated to keep proceedings confidential

• Call case manager for help – it’s not ex parte

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NEW SOURCES OF LAW

Lots of agency activity on arbitration • NLRB • CFPB • Centers for Medicare Medicaid Services • Dept. of Education Change on SCOTUS? Congress?

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Q&A

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