Federal Arbitration Act

This morning we attended the Supreme Court’s oral arguments in Coinbase, Inc. v. Bielski. The issue presented in Coinbase is a procedural one, but of tremendous practical importance to defendants that seek to enforce arbitration agreements: does an appeal from an order denying a motion to compel arbitration automatically stay further proceedings in the district court during the appeal? Continue Reading Supreme Court hears oral argument in cases involving stays pending appeals of orders denying motions to compel arbitration

Yesterday, the Supreme Court held in Viking River Cruises, Inc. v. Moriana (pdf) that the Federal Arbitration Act preempts a California rule invalidating arbitration agreements that provide for arbitration of an employee’s own claims under California’s Private Attorney General Act (PAGA), but waive the employee’s ability to assert PAGA claims affecting others.

The decision is enormously important to companies seeking to enforce workplace arbitration agreements in California. The decision also provides businesses with powerful arguments that California laws restricting arbitration in the consumer setting are preempted as well. (Disclosure: we filed an amicus brief (pdf) in support of the petition

Continue Reading Supreme Court strikes down California rule barring individualized arbitration of California PAGA claims

The Supreme Court kicked off its October 2017 Term yesterday with a spirited oral argument in the three cases involving the enforceability of arbitration agreements in employment contracts.

As we have explained, these cases—Epic Systems v. Lewis, Ernst & Young LLP v. Morris, and NLRB v. Murphy Oil USA—present the question whether an arbitration agreement in an employment contract that requires bilateral arbitration, and prohibits class procedures, is invalidated by Section 7 of the National Labor Relations Act (NLRA), which gives employees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” According to the National Labor Relations Board, Section 7 protects employees’ right to seek relief on a class-wide basis, and therefore renders unenforceable arbitration agreements that bar class procedures—even though the Supreme Court has twice held that the Federal Arbitration Act (FAA) protects the enforceability of such agreements, in AT&T Mobility LLC v. Concepcion (2011) and American Express Co. v. Italian Colors Restaurant (2013).

The four Justices who dissented in either Concepcion or Italian Colors (or both) aggressively defended the NLRB’s determination. When the dust settled, however, it was not at all clear that they will be able to attract a fifth Justice to their position.Continue Reading Supreme Court Considers Class Waivers in Employment Arbitration Agreements

As we’ve noted in this space before, one of the most persistent efforts to undermine the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion—which held that the Federal Arbitration Act (FAA) generally requires enforcing arbitration agreements that waive class or collective proceedings—has been spearheaded by the National Labor Relations Board. In 2012, the Board concluded in the D.R. Horton case (pdf) that Section 7 of the National Labor Relations Act (NLRA), which protects the ability of employees to engage in “concerted activities” (for example, union organizing), supersedes the Supreme Court’s interpretation of the FAA in Concepcion and its progeny and requires that employees be allowed to bring class actions (either in court or in arbitration).

Until recently, the D.R. Horton rule had been rejected by every appellate court to consider it—the Second Circuit, Fifth Circuit, and Eighth Circuit as well as the California and Nevada Supreme Courts—not to mention numerous federal district courts. But last year, the Seventh Circuit and Ninth Circuit parted ways with this consensus, agreeing with the Board and concluding that (at least in some circumstances) agreements between employers and employees to arbitrate their disputes on an individual basis are unenforceable.

This circuit split all but guaranteed that the Supreme Court would need to step in, and sure enough, last Friday, the Court granted certiorari in three cases involving the validity of the D.R. Horton rule. (We drafted amicus briefs for the U.S. Chamber of Commerce in each case). One case, NLRB v. Murphy Oil USA, Inc., arises out of a Board decision finding that an employer had engaged in an unfair labor practice by entering into arbitration agreements with its employees, and the other two, Epic Systems Corp. v. Lewis and Ernst & Young LLP v. Morris, are private-party disputes in which employees invoked D.R. Horton to challenge their arbitration agreements.Continue Reading Supreme Court Will Review NLRB’s Anti-Arbitration D.R. Horton Rule

In AT&T Mobility LLC v. Concepcion, the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts state-law rules barring enforcement of an arbitration agreement if the agreement does not permit the parties to utilize class procedures in arbitration or in court. Before Concepcion, the law of California included that limitation on the enforceability of arbitration agreements, but Concepcion declared that rule invalid as a matter of federal law. Yesterday, in DIRECTV, Inc. v. Imburgia (pdf), the Supreme Court held that Section 2 preempts a state-law interpretation of an arbitration agreement based on a legal rule that the state’s courts had applied only in the arbitration context, concluding that the state-law ruling “does not rest ‘upon such grounds as exist . . . for the revocation of any contract.’”

(We filed an amicus brief on behalf of the U.S. Chamber of Commerce in support of DTV.)Continue Reading Supreme Court Holds that Federal Arbitration Act Preempts California Court’s Interpretation of Arbitration Clause

The California Supreme Court has a reputation for hostility to arbitration, especially in the consumers and employment context. Much of the arbitration docket of the United States Supreme Court over the past 30 years has involved reversals of California Supreme Court decisions refusing to enforce arbitration agreements, most recently (and perhaps most notably) in AT&T Mobility v. Concepcion (in which the authors were counsel). Even when seemingly compelled to enforce an arbitration provision in the face of recent U.S. Supreme Court authority, the California court has often found a way to carve out some exception to arbitration in the particular case or to offer suggestions to plaintiffs seeking to avoid arbitration in a future case. A prime example is the 2014 decision in Iskanian v. CLS Transportation, which exempted from arbitration all wage-and-hour civil-penalty claims under the Private Attorney General Act.

The decision in Sanchez v. Valencia Holding Co. (pdf) represents a welcome break from this pattern, upholding an arbitration agreement against an array of unconscionability challenges without finding it necessary to sever even a single clause to render the agreement enforceable. Although every point decided in Sanchez is consistent with recent U.S. Supreme Court authority applying the Federal Arbitration Act, however, the opinion’s emphasis on the specific factual setting may seed further efforts to evade arbitration agreements . As so often is the case, the devil is often in the details.Continue Reading Man Bites Dog: California Supreme Court unanimously rejects unconscionability challenge to consumer arbitration provision

As readers of this blog know, prior to the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, the California Supreme Court (and a number of other state courts) had declared that waivers of class-wide arbitration were unenforceable as a matter of state law. But in Concepcion, the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts state-law rules requiring the availability of class-wide arbitration.

How do the FAA and the Supremacy Clause of the U.S. Constitution affect the interpretation of arbitration clauses written prior to Concepcion? The Supreme Court may provide further guidance on that
Continue Reading Supreme Court Grants Certiorari To Address Interplay of Federal Arbitration Act And State-Law Savings Clause In Arbitration Agreement

Today is Halloween, an occasion when our thoughts turn to jack o’lanterns, ghosts, and zombies.  We are particularly fascinated by zombies—the dead returned to life. But we’re not the only ones.  In a decision earlier this week, a majority of the National Labor Relations Board voted to reanimate the dead.

The Board’s zombie of choice?  Its decision nearly three years ago in D.R. Horton (pdf), in which the Board sought to push back on arbitration agreements that require individual arbitration rather than class or collective actions.  As our readers know by now, most courts have accepted the Supreme Court’s clear
Continue Reading NLRB Refuses To Yield On Anti-Arbitration Ruling Despite Near-Unanimous Rejection By Courts

The hostility of some California courts to arbitration—and their resistance to preemption under the Federal Arbitration Act (FAA)—has produced nearly three decades of U.S. Supreme Court reversals. The most recent is AT&T Mobility LLC v. Concepcion, which held that the FAA preempted the Discover Bank rule, under which the California Supreme Court had blocked enforcement of consumer arbitration agreements that required individual rather than class arbitration. Last week’s decision in Imburgia v. DirecTV, Inc. (pdf) demonstrates that resistance to Concepcion lives on in the California courts, even at the cost of creating a split with the Ninth Circuit on
Continue Reading Another California Court Does Backflips to Thwart Arbitration and Elevate The Class-Action Device

Back in 2008, the Supreme Court held in Hall Street Associates, L.L.C. v. Mattel, L.L.C. that parties to an arbitration agreement subject to the Federal Arbitration Act (FAA) cannot agree to empower a federal court with more searching judicial review than section 10 of that Act specifies. According to the Ninth Circuit, just as the FAA doesn’t allow parties to contract for expanded judicial review of arbitral awards, it also forbids parties from contracting for narrower judicial review. The case therefore provides important guidance for parties crafting arbitration agreements.

Here’s some background. Section 10(a) permits a court to vacate an
Continue Reading Hall Street Runs Both Ways: Parties Can Neither Waive Nor Expand Judicial Review of Arbitration Awards, Says Ninth Circuit