US: arbitration round-up 2012/2013

Practical Law UK Articles 3-523-8137 (Approx. 7 pages)

US: arbitration round-up 2012/2013

by PLC Arbitration

Top developments of 2012

Supreme Court emphasises supremacy of the Federal Arbitration Act (FAA)

Nitro-Lift Technologies LLC v Howard

In Nitro-Lift Technologies, LLC v Howard, (U.S. Nov. 26, 2012), the US Supreme Court vacated the Oklahoma Supreme Court's decision declaring a non-competition agreement null and void because, under federal law, the determination should have been left to an arbitrator (see Legal update, Supreme Court vacates state supreme court decision for disregard of federal law favouring arbitration). The Supreme Court therefore underlined the supremacy of the substantive federal law created by the FAA when state courts are assessing contracts with arbitration provisions.

CompuCredit Corp. v Greenwood

In CompuCredit Corp. v Greenwood, (U.S. Jan. 10, 2012), the US Supreme Court vacated a Ninth Circuit Court of Appeals decision that upheld a District Court's dismissal of a motion to compel arbitration because the Supreme Court found a lack of statutory intent in the Credit Repair Organization Act to override the FAA (see Legal update, Supreme Court vacates Ninth Circuit judgment dismissing motion to compel arbitration). This case demonstrates that the federal policy favouring arbitration requires arbitration of even federal statutory claims, unless the FAA's mandate has been expressly overridden by the statute.

Circuit Courts apply Supreme Court's developing jurisprudence on class arbitration

In re American Express Merchants' Litigation

In In re American Express Merchants' Litigation, No. 06-1871-cv (2d Cir. Feb. 1, 2012), the US Court of Appeals for the Second Circuit held that a class action arbitration waiver was void if individual efforts to vindicate federal statutory rights are financially unfeasible (see Legal update, Second Circuit finds arbitration clause with class action waiver unenforceable). Therefore, an explicit class arbitration waiver may make an arbitration clause unenforceable when the prohibitive costs of bringing individual suits effectively deprive plaintiffs of statutory protections. The Supreme Court has granted cert to review this case, which will be heard in 2013 (see Anticipated developments in 2013 below).

Sutter v Oxford Health Plans LLC

In Sutter v Oxford Health Plans LLC, (3d Cir. Apr. 3, 2012), the US Court of Appeals for the Third Circuit upheld an arbitrator's decision to authorise class arbitration, determining that the arbitrator rationally interpreted the parties' broad arbitration agreement (see Legal update, Third Circuit finds arbitrator did not exceed his powers when construing the parties' arbitration agreement to allow class arbitration). Where the parties' intent with respect to class arbitration is in question, the breadth of their agreement can be relevant to the arbitrator's interpretation of the arbitration clause. The Supreme Court has granted cert to review this case, which will be heard in 2013 (see Anticipated developments in 2013 below).

Coneff v AT&T Corp

In Coneff v AT&T Corp., (9th Cir. Mar. 16, 2012), the US Court of Appeals for the Ninth Circuit upheld a class action waiver in an arbitration clause, holding that the FAA pre-empted state substantive unconscionability laws from invalidating class action waivers in arbitration clauses (see Legal update, Ninth Circuit upholds class action waiver in arbitration clause). The court in this case left open the possibility of invalidating class action waivers based on procedural unconscionability.

Reed v Florida Metro. Univ

In Reed v Florida Metro. Univ., No. 11-50509, (5th Cir. May 18, 2012), the US Court of Appeals for the Fifth Circuit reversed a district court's confirmation of an arbitral award where the arbitrator authorised class arbitration, finding the arbitrator exceeded his authority by allowing class arbitration with no contractual basis for doing so (see Legal update, Fifth Circuit finds arbitrator exceeded his powers by authorising class arbitration absent adequate contractual basis). The Fifth Circuit was reluctant to infer consent to class arbitration in this case, but pointed out that the Second Circuit and the Third Circuit have decided this question differently. See Jock v Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011) and Sutter v Oxford Health Plans LLC, (3d Cir. Apr. 3, 2012).

Courts address issue of whether agreement to arbitral institution rules constitutes "clear and unmistakable" evidence of intent to leave questions of arbitrability to the arbitrators

In Petrofac, Inc. v DynMcDermott Petroleum Operations Co., (5th Cir. July 17, 2012), the US Court of Appeals for the Fifth Circuit affirmed a district court's confirmation of an arbitral award, finding that the arbitration agreement's incorporation of the American Arbitration Association (AAA) Arbitration Rules showed that the parties "clearly and unmistakably" intended to leave the question of arbitrability to an arbitrator (see Legal update, Fifth Circuit finds incorporation of AAA rules shows clear and unmistakable intent to arbitrate threshold question of arbitrability). Many circuit courts have taken the position that "clear and unmistakable" intent to arbitrate arbitrability can be established through agreement to a set of institutional rules that authorise the panel to rule on its own jurisdiction.

Similarly, in Werner Schneider, acting in his capacity as insolvency administrator of Walter Bau AG (In Liquidation) v The Kingdom of Thailand, No. 11-1458-cv (2d Cir. Aug. 8, 2012), the US Court of Appeals for the Second Circuit affirmed a district court's confirmation of an arbitral award, finding that the arbitration agreement's incorporation of the UNCITRAL Arbitration Rules showed that the parties "clearly and unmistakably" intended to leave the question of arbitrability to an arbitrator (see Legal update, Second Circuit finds acceptance of UNCITRAL Arbitral Rules as "clear and unmistakable" intent to arbitrate threshold question of arbitrability).

However, a different view was reached in Bayer Cropscience AG v Dow Agrosciences LLC, (E.D. Va. July 13, 2012). In that case, the US District Court for the Eastern District of Virginia declined to recognise incorporation of the International Chamber of Commerce (ICC) Arbitration Rules in an agreement to arbitrate as "clear and unmistakable" intent to let the arbitral panel decide threshold questions of arbitrability (see Legal update, District Court finds incorporation of ICC arbitration rules insufficient to show intent to arbitrate threshold question of arbitrability).

These decisions illustrate the uncertainty over what constitutes "clear and unmistakable" intent to submit the threshold question of arbitrability to the arbitral panel.

Anticipated developments in 2013

Class arbitration

The law governing class arbitration waivers is dynamic and rapidly evolving. There is still uncertainty over the Supreme Court's class arbitration jurisprudence in the leading cases of AT&T v Concepcion LLC, 131 S. Ct. 1740 (2011) and Stolt-Nielsen SA, et al. v AnimalFeeds Int'l Corp., ). The Supreme Court will re-address the issue in 2013, as it has granted cert to review Sutter v Oxford Health Plans LLC, (3d Cir. Apr. 3, 2012) and In re American Express Merchants' Litigation, No. 06-1871-cv (2d Cir. Feb. 1, 2012) (see Top developments of 2012 above). The Supreme Court's decision in these two cases will help guide counsel on how to apply the Concepcion and Stolt-Nielsen decisions when drafting the relevant clauses in arbitration agreements.

Discovery in support of international arbitration

In Consorcio Ecuatoriano de Telecomunicaciones v JAS Forwarding [2012] WL 2369166 (11th Cir. 25 Jun 2012), the Eleventh Circuit Court of Appeals upheld a district court's grant of an application to obtain discovery under 28 U.S.C. § 1782 for arbitral proceedings in Ecuador, holding that the arbitral tribunal was a foreign tribunal within the scope of section 1782 (see Legal update, Court of Appeals holds that private arbitral tribunal is a "foreign tribunal" for the purposes of 28 United States Code Section 1782). Following that decision, it is hoped that the issues around whether section 1782 can be invoked in respect of foreign-seated arbitrations will be referred to the Supreme Court for final clarification when the opportunity arises. For further detail, see also Practice note, International Litigation: Discovery in the US in Aid of Proceedings Held Abroad.

"Clear and unmistakable" intent to arbitrate

There is still some disagreement between the Circuits over what constitutes "clear and unmistakable" intent to arbitrate questions of arbitrability (see Top developments of 2012 above). It is likely that this area of the law will develop further in the upcoming year.

US: arbitration round-up 2012/2013 | Practical Law