Regardless of whether one is a proponent or opponent of mandatory arbitration clauses, they have become ubiquitous. According to a March 2015 study performed by the Consumer Financial Protection Bureau, 53% of credit card agreements and 99.9% of all mobile phone agreements contain mandatory arbitration provisions (Consumer Fin. Prot. Bureau, Arbitration Study, Report to Congress, Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(A) (2015), https://files.consumerfinance.gov/f/201503_cfb_arbitration-study-report-to-congress-2015.pdf). A 2017 survey found that approximately half of all private-sector non-union employees are subject to mandatory arbitration agreements. The same survey also found that as the size of the employer increased, the likelihood of a mandatory arbitration agreement also increased. The survey found that 62% of employers with 1,000 to 4,999 employees required arbitration of employee grievances and that 68% of employers with more than 5,000 employees required such arbitration (Alexander J.S. Colvin, The Metastasization of Mandatory Arbitration, 94 Chi.-Kent L. Rev. 3, 9, 11 (2019)). Given the warm reception the Supreme Court of the United States has given to arbitration clauses (see Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1632 (2018) (upholding arbitration agreements that waive an employee’s right to participate in collective action); DIRECTV, Inc. v. Imburgia, 136 S.Ct. 463, 470-71 (2015) (Federal Arbitration Act preempts an invalid state law); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 352 (2011) (Federal Arbitration Act preempts a state rule permitting consumers to demand class-wide arbitration), the prevalence of such clauses will likely increase.
Given the frequency with which arbitration clauses appear in commercial relationships, it is incumbent upon attorneys—both litigators and transactional attorneys—to have at least some familiarity with how the courts have addressed arbitration-related issues. To that end, the following is a summary of the United States Court of Appeals for the Second Circuit’s jurisprudence on arbitration-related issues during 2020. I have broken the cases down into seven categories based on the primary issue before the court: (1) the standard and scope of review of an arbitral award, (2) the effect of an arbitral award, (3) the existence of an arbitration agreement, (4) arbitrability, (5) the adequacy of arbitration as a dispute resolution mechanism, (6) discovery issues related to arbitration and (7) appealability of an order compelling arbitration. Where a summary order’s recitation of the facts did not provide a complete understanding of the case, I have referred to the district court’s decision to fill any gaps.
Standard and Scope of Review of an Arbitral Award
National Retirement Fund v. Metz Culinary Mgm’t, Inc., 946 F.3d 146 (2d Cir. Jan. 2, 2020), cert. denied, No. 19-1336, 2020 WL 5882286 (Oct. 5, 2020): The vast majority of the opinion deals with the arcane subject of the correct interest rate assumptions to be applied in calculating withdrawal liability under the Multiemployer Pension Plan Amendments Act of 1980 as it relates to the Employee Retirement Income Security Act (ERISA). However, in reaching its decision, the Second Circuit briefly noted that an arbitrator’s legal conclusions are subject to de novo review, while an arbitrator’s findings of fact enjoy a presumption of correctness that can be overcome only by a “clear preponderance” of the evidence.
Savine v. Interactive Brokers, LLC, 799 F. App’x 97 (2d Cir. Apr. 3, 2020) (summary order): The unsuccessful party to an arbitration conducted in the United Kingdom sought to vacate the award, and the district court dismissed the petition for lack of subject matter jurisdiction.
The Second Circuit explained that under its precedents interpreting the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), the country in which the award is made has “primary jurisdiction” to set aside or vacate an arbitral award; the courts of signatory states have “secondary jurisdiction” and can only decide whether to enforce the foreign award. Thus, in response to the appellant’s claim that the award was contrary to United States securities laws, the district court had the power to enforce or refuse to enforce the award; it did not have the power to set aside or vacate the award. Thus, the district court’s dismissal was affirmed.
Barnard College v. Transport Workers Union, 801 F. App’x 40 (2d Cir. Apr. 16, 2020) (summary order): Barnard was the unsuccessful party in an arbitration brought by a security guard alleging wrongful termination. The guard had been terminated for sexual harassment; the arbitrator found that the termination lacked just cause and ordered reinstatement despite also expressly finding that the guard had engaged in humiliating and hurtful behavior. Barnard objected to the award, arguing that requiring reinstatement violated the public policy against sexual harassment in the workplace.
Although the court noted that an arbitral award may be vacated if it violates a public policy, it went on to explain that vacatur is appropriate only when the award itself, as opposed to the underlying reasoning, violates public policy. The court went on to state that an arbitral award requiring reinstatement violates the policy against sexual harassment only when the subject of the award has engaged in multiple acts of harassment. In the case before the court, the guard was charged with a single act of harassment, and although other, similar charges were pending, they had not been proven. Thus, the court found that the arbitrator could properly find the guard to be a first offender for whom reinstatement was not precluded.
EB Safe, LLC v. Hurley, 19-3859-cv, 2020 WL 6140616 (2d Cir. Oct. 20, 2020) (summary order): The losing party in an arbitration objected to the prevailing party’s petition to confirm the award on the grounds that the fee award was in “manifest disregard” of the law and that the award was procured through fraud; namely, perjured testimony. The Second Circuit affirmed the district court’s decision confirming the award. Noting the judiciary’s limited role in reviewing arbitration awards, the court stated that a challenge to an arbitration award alleging manifest disregard of the law required a showing that (1) the law that was allegedly ignored was clear and clearly applicable to the disputed issue, (2) the law was applied incorrectly and infected the outcome and (3) the arbitrator knew of the law and its applicability to the matter in issue. With respect to the contention that the award had been procured by fraud, the court reaffirmed long-standing precedent that such a challenge can succeed only where it is “abundantly clear” that the prevailing party offered perjured testimony, that the unsuccessful party could not have reasonably discovered the fraud prior to the issuance of the award and that the perjured testimony related to a material issue.
Pagaduan v. Carnival Corp., No. 19-3400-cv, 2020 WL 6939738 (2d Cir. Nov. 25, 2020) (summary order): Plaintiff, who was injured while serving as a crew member on one of the defendant’s vessels, sought non-enforcement or vacatur of a Philippine arbitral award that granted him $5,100 in sickness allowance and $510 in attorneys’ fees but denied any further relief. Plaintiff claimed that he was entitled to relief under Article V(1)(b) of the New York Convention because he was not given proper notice of the arbitration or was otherwise unable to present his case and under Article V(2)(b) because recognition and enforcement of the award would be contrary to the public policy of the United States.
The Second Circuit affirmed the denial of the plaintiff’s motion. With respect to the plaintiff’s first claim, the court pointed out that the plaintiff had made the tactical decision in the arbitral proceeding to focus primarily on subject matter jurisdiction. Although this decision may have limited his ability to address the merits of his claim, it did not cause him to be unable to present his case. With respect to the plaintiff’s policy argument, the court pointed out that the New York Convention’s “emphasis on enforcing international arbitral awards and ‘considerations of reciprocity’ requires that the ‘public policy defense should be narrowly construed'” and applied only where enforcement of the foreign arbitral award “would violate our most basic notions of morality and justice.” The court found that the fact that the law applied in the foreign arbitration may have provided for lesser remedies than United States law did not meet this standard.