ArbitrationNation’s Third Anniversary Threesome

by Stinson Leonard Street - Arbitration Nation
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Vegetables, Bulgarian PepperThis week marks the third anniversary of this blog devoted to interpretations of the Federal Arbitration Act.  (Here’s the first post.)  After 155 posts, can there possibly be more to say?  Yes, indeed.  Three new opinions from federal courts of appeals demonstrate how new issues keep “cropping” up in arbitration law each week.

The first case has to do with crop insurance and whether an arbitrator exceeded his power.  In Davis v. Producers Agricultural Ins. Co., __ F.3d__ 2014 WL3844815 (11th Cir. Aug. 6, 2014), the district court vacated the arbitrator’s award and the Eleventh Circuit reversed.  The decision revolved around two legal issues.  One is not likely to come up for many of us (whether the arbitrator exceeded his authority by interpreting an aspect of a crop reinsurance policy that is reserved to the Federal Crop Insurance Corporation; he didn’t because the FCIC had already approved the arbitrator’s interpretation).  But the second is a harsh result that could impact many parties in arbitration.  The applicable AAA rules provided that the arbitrator must issue his opinion within 30 days of closing the proceeding, but the arbitrator did not issue the award until the 33rd day.  The losing party argued that by issuing the award late, the arbitrator had exceeded his power under Section 10, and the award should be vacated.  The Eleventh Circuit relied on a 1969 case from the 5th Circuit to find that the losing party had waived his right to argue timeliness by failing to “object at the expiration of the thirty-day period.”  This strikes me as an unrealistic standard.  What party in their right mind would aggravate an arbitrator who is about to issue an award by complaining that the decision is tardy?  None, unless that party already knew it was going to lose.

The second case is about whether an arbitration clause in a non-compete agreement is broad enough to require arbitration of claims under the Fair Labor Standards Act.  In Sanchez v. Nitro-Lift Technologies, LLC, __ F.3d__, 2014 WL 3882543 (10th Cir. Aug. 8, 2014), employees sued Nitro-Lift for violating the FLSA by not paying overtime wages.  Those employees had each signed a “Confidentiality/Non-Compete Agreement” with an arbitration clause calling for arbitration of “any dispute, difference or unresolved question” between the parties.  The district court denied Nitro-Lift’s motion to compel arbitration, finding that an arbitration clause in a non-compete can only cover issues of competition, not overtime wages.  The Tenth Circuit disagreed, finding that the arbitration clause was as broad as possible and its placement within a non-compete agreement only made it ambiguous whether the arbitration clause was intended to cover broader disputes.  Because federal law requires all ambiguities about scope to be resolved in favor of arbitration, the dispute had to be arbitrated.  The court did, however, remand the issue to the district court to determine whether the fees of arbitration precluded the plaintiffs from effectively vindicating their federal statutory rights.  (Does Nitro-Lift ring a bell?  It could be because of another time the company had its arbitration clause saved by an appellate court.)

Finally, the third case for today is about non-signatories.  In Griswold v. Coventry First LLC, __ F.3d__, 2014 WL3892995 (3d Cir. Aug. 11, 2014), Mr. Griswold bought a large life insurance policy on himself. He set up a trust to own the policy and set up Griswold LLP as the beneficiary of the trust.  About two years after purchasing the policy, Mr. Griswold used a broker to sell the policy to Coventry.  That purchase agreement between the trust and Coventry had an arbitration clause.  After disbursing the funds, Griswold LLP dissolved.  Later, Mr. Griswold sued Coventry alleging that it colluded with the broker to be the sole bidder on his policy (getting it cheap).  Coventry moved to compel arbitration, but the district court denied its motion because Mr. Griswold was not a signatory to the purchase agreement.  The Third Circuit agreed. It found that equitable estoppel did not apply to bind Mr. Griswold to the arbitration agreement in the purchase agreement because his complaint did not mention or rely on the purchase agreement.  In fact, the fraud and collusion he alleged took place before the purchase agreement was executed.  That result was particularly important in this case, because Mr. Griswold wanted to proceed as a class action, which was unavailable in arbitration.

I look forward to another year of analyzing the evolving jurisprudence under the FAA!  Thanks for joining me on the journey.

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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