Fishermen Avoid Being Caught In Arbitration’s Net

by Stinson Leonard Street - Arbitration Nation

What are the defining characteristics of an arbitration agreement? The dissent in a new 9th Circuit case took on that vexing issue, while the majority sidestepped it altogether while refusing to compel arbitration.

In Boardman v. Pacific Seafood Group, __ F.3d __, 2016 WL 1743350 (9th Cir. May 3, 2016), a group of fishermen brought antitrust claims against seafood processors in 2010.  They settled in 2012, and Paragraph 3(a) of the settlement agreement provided:

In the event that [] Pacific Seafood and Ocean Gold intend to enter into any new agreement that requires Pacific Seafood Group to act as the exclusive marketer of any seafood product produced by Ocean Gold Seafoods, [defendants] shall first give 60 days’ notice to class counsel and…an opportunity to object to the agreement. In the event of an objection to the new contractual arrangement, Judge Hogan shall determine whether the proposed new agreement…may be approved.

[Hogan was a federal judge in the District of Oregon until 2012.] Pause for a moment. Does that look like an arbitration agreement to you? It never says “arbitrate,” there is no third party administering the dispute, no indication what rules would govern any arbitration, and the decision maker is a federal judge.  But, it also does not require the plaintiffs to institute a new action, and it provides for a swift resolution…

In any case, fast forward to December of 2014, when Pacific Seafood tells the fishermen that it plans to acquire Ocean Gold. The plaintiffs object, but instead of using Judge Hogan to resolve it (who had retired by then), they started a new antitrust action, alleging monopolization and violation of the settlement agreement.  In response, the defendants move to compel arbitration.  The district court denies the motion, saying that the dispute is outside the scope of the arbitration agreement.

The Ninth Circuit affirmed that decision, finding that the fishermen’s new claims were not encompassed by the language about using Judge Hogan to resolve objections. In particular, the court found that the purchase and sale agreements between the processors do not deal with the marketing of Ocean Gold’s products, and do not require that Pacific Seafood act as the exclusive marketer of Ocean Gold’s products.  (Even though Pacific Seafood would own Ocean’ Gold.)

In the words of the majority, “it need not decide whether Paragraph 3(a) of the [settlement] constitutes a valid agreement to arbitrate because we conclude that Plaintiff’s claims are not encompassed by Paragraph 3(a)’s plain language.”

The dissent, however, found that Paragraph 3(a) was an arbitration agreement, and the Plaintiff’s claims fell within it.  The dissent defined arbitration as an agreement: 1) to submit a dispute for decision by a third party; and 2) not to pursue litigation until that third-party process is complete. In this case, the dissent found that because the parties agree to submit disputes to a third party (the judge), and did not allow litigation before the judge made a decision, it “should properly be considered as an arbitration agreement.”  The dissent was unmoved by the lack of the word “arbitrate” and plaintiffs’ arguments that federal judges are precluded from serving as arbitrators.

I have written before about “accidental arbitration” clauses. This case is a reminder that anytime drafters provide for a third party to decide a dispute, that clause may be construed as an arbitration clause, and carry with it all the trappings of the Federal Arbitration Act.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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