If I were to characterize all the arbitration case law of 2011 in one image, it would be that of the U.S. Supreme Court playing whack-a-mole at the arbitration arcade, 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 rule in favor of arbitration cannot keep up because there have been vigorous dissents). With that image in mind, here are some of the biggest cases and trends from arbitration case law in 2011.
This year’s biggest arbitration “whack” from the Supreme Court was the April decision in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011). That case held that the Federal Arbitration Act (FAA) preempts a line of California case law that found most “collective-arbitration waivers” in consumer arbitration provisions unconscionable. After Concepcion, circuit courts found similar lines of case law in New Jersey and Florida were preempted by the FAA. I expect that this trend will continue in 2012, with parties who seek to enforce arbitration agreements arguing that any state contract law position on which their opponents rely 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, West Inc. v. Jackson, 130 S. Ct. 2772 (2010). In that case, the Supreme Court held that it could not address an employee’s arguments about the validity of his stand-alone arbitration agreement as a whole because the employee did not challenge the validity of the particular delegation provision within that arbitration agreement. (The Court used “delegation provision” to refer to the part of the arbitration agreement that authorized the arbitrator to decide any dispute about the enforceability of the arbitration agreement.) 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 common 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. 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 what 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. Brown v. Genesis Healthcare Corp., et al, __ S.E.2d ___, 2011 WL 2611327 (W. Va. 2011); Shotts v. OP Winter Haven, Inc., __ So. 3d __, 2011 WL 5864830 (Fla. 2011); Gessa v. Manor Care of Fla., Inc., __ So. 3d. __, 2011 WL 5864823 (Fla. 2011). If the Supreme Court does not intervene, watch for this trend to continue in other state courts, with arbitration exceptions made for particularly vulnerable categories of litigants.
• Finding Legislative Overrides. Another trend this year was for courts to find that Congress intended particular federal statutes (enacted or amended after the FAA) to trump the FAA and require disputes under those statutes be venued in court. The Ninth Circuit did that at least twice this year, with the Magnuson-Moss Warranty Act and the Carmack Amendment. Kolev v. Euromotors West/The Auto Gallery, __ F.3d ___, 2011 WL 4359905 (9th Cir. 2011); Smallwood v. Allied Van Lines, Inc., ___ F.3d ___, 2011 WL 4927404 (9th Cir. 2011). The Supreme Court will either breathe additional life into that type of argument with its forthcoming decision in CompuCredit v. Greenwood (heard on October 11, 2011, the case poses the question: did Congress intend to preclude arbitration of claims under the Credit Repair Organizations Act?) or will the Supreme Court suck the life right out of those legislative preclusion arguments by setting an impossibly high standard for courts to find Congress intended to override the FAA.
• 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. Because those decisions 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. Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204 (11th Cir. 2011). 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.
Watch for those trends to continue in 2012 and for creative new trends to pop up throughout the year as litigants and courts continue their efforts to determine the appropriate boundaries between courts and arbitrators, as well as between valid and invalid arbitration agreements.