Arbitration, FINRA, Rules: Ninth Circuit Reverses District Court’s Denial Of Bank’s Motion For Prelim Injunction Against Arbitration By FINRA
Bank Likely To Succeed On Merits As To Whether It, Or Its Corporate Trust Department, Was A "Municipal Securities Dealer" Subject To FINRA Arbitration.
If your eyes begin to glaze over when reading about the Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB) rules, conduit municipal bonds, indenture trustees, Institutional Investment Departments (IIDs), Corporate Trust Departments (CTDs), and the Securities Exchange Act of 1934, then this case is not your meat. But if you are interested in FINRA arbitration and a close reading of rules, perhaps this case is meant for you. The case is BOKF, NA v. Estes, et al., No. 18-15369 (9th Cir. 5/2/19) (Berzon, J., Friedlan, Dominguez).
The panel held that the Bank of Oklahoma, National Association (BOKF) was likely to succeed on the merits by showing that it and its CTD were not a "municipal securities dealer" and thus not compelled to arbitrate with a group of unhappy municipal bond holders. The Bank's IID was registered as a municipal securities dealer, but the bank, and the CTD were not registered. The CTD did not buy or sell bonds for its own account or for any other division of the bank. Nor was the bank, as a whole, a municipal securities dealer on the basis that one of its component parts, the IID, was a dealer. Conclusion: reverse the district court's denial of the bank's motion for a preliminary injunctions against arbitration. This is all based on a close reading of some very technical rules.
Arbitration, Collective Bargaining: Cal Supremes Hold Labor Management Relations Act Does Not Require Arbitration Between Giants And Baseball Security Guards
Dispute Only Required Reference To Collective Bargaining Agreement (CBA), Not Interpretation Of It.
I blogged about Melendez v. San Francisco Baseball Associates LLC, on December 18, 2017, when it was still in the Court of Appeal. Baseball security guards had sued the Giants, alleging that the guards were intermittent employees, entitled to be paid after they were discharged after every Giants homestand, after the end of the baseball season, and after other park events. The trial court had held that, despite the CBA between the Giants and the guards, their wage dispute was not preempted by the Labor Management Relations Act of 1947, and therefore, did not need to be arbitrated. The Court of Appeal disagreed, holding that even though the claims involved state labor law, the dispute required interpretation of the CBA, resulting in preemption, and therefore requiring arbitration.
Now the California Supreme Court has reversed the Court of Appeal. Melendez v. San Francisco Baseball Associates LLC, S245607 (Sup. Ct. 4/25/19). Justice Chin authored the unanimous opinion. The Supreme Court's analysis depends on the distinction between interpretation of the CBA, and reference to it. Balcorta v. Twentieth Century-Fox Film Corp., 208 F.3d 1102 (9th Cir. 2000) is the key case setting forth the analysis upon which Justice Chin relied.
Merely because the CBA had to be read and referenced did not mean that it had to be interpreted; its terms were not in dispute. Thus, because the claims involved independent state labor law, and not a breach of contract, and because interpretation of the CBA was not required, there was no preemption, and arbitration was not required. So: A win, at this stage, for the baseball security guards, leaving the merits to be resolved when the matter is remanded to the trial court.
Arbitration, Choice Of Law, Claim Preclusion: 9th Circuit Rules That In Diversity Case, State Law Governs Claim Preclusion As Applied To Confirmed Arbitration Award
An Issue Of First Impression.
In NTCH-WA, Inc. v. ZTE Corporation, Inc. v. ZTE Corporation, No. 17-35833 (9th Cir. 4/25/19) (Gould, Paez, Pregerson), the Court of Appeals held that an arbitration award and its confirmation by a district court in Florida, barred plaintiff NTCH-WA from pursuing claims against ZTE Corp. under the doctrine of claim preclusion. ZTE Corp.'s subsidiary, ZTE USA, had previously obtained an adverse arbitration award against NTCH-WA and the Florida district court had confirmed the award. Applying principles of claim preclusion taken from Florida state law, the district court concluded that NTCH-WA, Inc., was barred from pursuing the same claims, seeking the same remedies, based on the same evidence, against the parent corporation. The 9th Circuit affirmed.
Curiously, the issue was one of first impression in the 9th Circuit. The application of state law preclusion principles in a diversity case, where the district court has confirmed the arbitration award, "properly mirrors the rule that applies when a federal court is asked to give preclusive effect to an arbitration award that has been confirmed by a state court." Also, the rule serves to avoid forum shopping between federal and state courts.
News: Two Employment Cases Involving Enforceability Of Arbitration Provisions Reach Different Results
Quinn Emanuel And Spin-off LawFirm Selendy and Gay.
Jack Newsham authored an April 24, 2019 article, appearing in New York Law Journal, and entitled, "Judge Dismisses Suit Against Quinn Emanuel by Partners of Spinoff, Sends to Arbitration." Newsham begins by quoting the judge, who wrote, "It is for the arbitrator in the first instance to [determine] whether the provision at issue is an unenforceable forfeiture-for-competition clause. Any further inquiry on my part is precluded by the broad arbitration provision and the strong public policy compelling its enforcement." And Newsham ends by quoting John Quinn, "The dispute is only about money and will eventually be resolved one way or another for an immaterial amount." [emphasis added].
Note: A 2017 article reported that JD Journal reported the previous year that of all law firms, "Quinn Emanuel topped the list with $1,077,586 per non-equity partner." [emphasis added]. Evidently "immaterial" is a relative term.
Cantor Fitzgerald.
In 2018, Lee Stowell, a junk-bond saleswoman at Cantor Fitzgerald, sued her former employer, after being dismissed as "part of a round of layoffs." She alleged that she had been subjected to a pattern of sexual harassment at Cantor Fitzgerald. Katia Porzecanski and Max Abelson reported on April 25, 2019 in Bloomberg News about Lee Stowell's experience as an employee, her lawsuit, and Cantor Fitzgerald's thus far unsuccessful effort to enforce its arbitration agreement. The article is entitled, "Cantor Fitzgerald Doesn't Want This Woman Talking About Her Mug in Court." The title of the article is a reference to Stowell's mug at work, which she found filled with feces one day. Whether or not she gets her day in court — Cantor Fitzgerald is appealing — you and I now know about the mug.
Comment.
Porzecanski and Abelson write about Stowell, "She says she wants to help harassment victims escape forced arbitration." Similarly, in 2018, the California Legislature sought to pass AB 3080, a bill that, had it become law, would have prohibited an applicant for employment or employee from being required to waive his or her right to a judicial forum as a condition of employment or continued employment. The theory behind the bill was that it did not invalidate arbitration agreements, but rather made it illegal to require entry into an arbitration agreement as a condition of employment. However, Gov. Brown, at the end of his term, vetoed the bill, explaining, "Since this bill plainly violates federal law, I cannot sign this measure." In 2019, AB 51, a do-over of efforts to end mandatory arbitration, is currently placed in a legislative suspense file.
Arbitration, Class Actions, Waiver, Construction of Agreement: SCOTUS Rules That Class Arbitration Is Not Allowed When Agreement Is Ambiguous
Majority Rejects State Law Rule That Ambiguous Contracts Are Interpreted Against The Drafter Because . . .
Frank Varela, an employee of Petitioner Lamps Plus, Inc., sued Lamps Plus because a hacker tricked Varela's employer into disclosing tax information about 1,300 employees. Mr. Varela was understandably miffed after a fraudulent income tax return was filed in his name. Lamps Plus sought to compel arbitration on an individual basis, relying on an arbitration provision. The District Court rejected the request for individual arbitration, but authorized class arbitration, and the Ninth Circuit affirmed. So Lamps Plus petitioned to the Supreme Court. Lamps Plus, Inc., et al. v. Varela, No. 17-988 (S.Ct. 4/24/19).
It is established law that classwide arbitration may not be compelled when an agreement is silent about its availability. Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662 (2010). However, the Ninth Circuit believed that Stolt-Nielsen was not controlling, because in that case, the parties stipulated the agreement was silent, but here, the agreement was ambiguous. Therefore, the rule of interpreting an agreement against the drafter (contra proferentem) allowed the court to interpret the ambiguity against the draftsman/employer, and in favor of the employee.
AT&T v. Concepcion, 559 U.S. 333 (2011) allowed for the application of defenses to arbitration when the defenses were neutral and did not uniquely burden arbitration. And it would seem that the contra preferentem rule of contractual interpretation, applied here by the employee to defend against individual arbitration, and to use in favor of class arbitration, would qualify as a neutral rule, since the rule applies to arbitration clauses as well as to other contractual clauses.
However, the SCOTUS majority, which is very much in favor of arbitration and specifically, individual arbitration, concluded that under the Federal Arbitration Act, an ambiguous agreement cannot provide a basis for class arbitration.
Here's the scorecard with a brief summary of the opinions:
1. Chief Justice Roberts delivered the Court's opinion, in which Thomas, Alito, Gorsuch, and Kavanaugh joined. The majority held that it had jurisdiction to hear the appeal, because even though the District Court compelled arbitration, the fact that it allowed for class arbitration instead of individual arbitration, meant a "fundamental" change, and resulted in a denial of the relief Lamps Plus was requesting. The FAA, rather than the state rule of contract interpretation, provided the default rule for resolving ambiguities in arbitration agreements, and here the majority concluded that ambiguity meant a lack of consent to class arbitration.
2. Justice Thomas filed a concurring opinion. Thomas remains "skeptical of this Court's implied pre-emption precedents." But he remained comfortable with the majority opinion, because he believed that the contract was silent about class action, and thus Stolt-Nielsen applied, and he believed that California law would also reach the conclusion that the arbitration provision did not provide a basis for class arbitration.
3. Justice Ginsburg, with whom Justices Breyer and Sotomayor joined, dissented, and joined Justice Kagan's dissent in full. The thrust of Ginsburg's dissent is that the FAA was intended "to enable merchants of roughly equal bargaining power to enter into binding agreements to arbitrate commercial disputes" (quoting from her own dissent in Epic Systems Corp.), and current jurisprudence has taken a turn to thwart "effective access to justice" for those who lack power and encounter violations of their rights (to quote another Ginsburg dissent in DIRECTV).
4. Justice Breyer dissented, believing that there was no jurisdiction, based on Lamps Plus' appeal from an order allowing arbitration. Typically, there is no appeal from an order allowing arbitration, because such an order is interlocutory, rather than final, unlike a district court order refusing to compel arbitration. And because the order granting Lamps Plus' motion to compel was interlocutory, the District Court's dismissal of the case in the very same order was improper, according to Breyer. Lastly, Breyer disagreed with the majority's conclusion that class arbitration is so "fundamental[l]y" different from individual arbitration, that the District Court did not really grant a motion to arbitrate (which would be interlocutory), but rather denied the relief Lamps Plus really wanted. While class arbitration may be different than individual arbitration, Breyer argued that class arbitration was still arbitration, and that an order allowing class arbitration was still interlocutory.
5. Justice Sotomayor dissented, joining Justice Ginsburg's dissent in full and Part II of Justice Kagan's dissent. She believed "[t]his Court went wrong years ago in concluding that a 'shift from bilateral arbitration to class-action arbitration' imposes such 'fundamental changes,' . . . that class-action arbitration 'is not arbitration as envisioned by the' Federal Arbitration Act. . . " She also disagreed that the FAA could be read "to pre-empt the neutral principle of state contract law on which the court below relied."
6. Justice Kagan, dissenting, is joined by Justices Ginsburg and Breyer, and as to Part II, by Justice Sotomayor. Part I of Kagan's dissent explains why she believes the arbitration provision authorizes class arbitration, and Part II explains why, even if the provision is ambiguous, California law provides a clear answer by construing ambiguities against the drafter. Justice Kagan explains that the FAA does not federalize basic contract law, except when state contract law discriminates against arbitration agreements. She happens to interpret the arbitration clause as allowing for class arbitration, and even if it doesn't unambiguously do so, then "a plain-vanilla rule of contract interpretation" applied in California and all other states, requires interpretation against the drafter. In effect, the majority has made a policy decision that class arbitration "undermine[s] the central benefits of arbitration itself" — a policy decision with which Kagan disagrees, and that in she believes does not justify displacing applicable state law regarding the interpretation of ambiguous contracts.
COMMENT. Back in December 2016, I wrote an article entitled "The Politics of Arbitration," describing how arbitration had become one more "hot button" issue for the Supreme Court, dividing the Justices along political lines. Notwithstanding the six different opinions described above in Lamps Plus, the fault line is along predictable political lines: Justices Roberts, Thomas, Alito, Gorsuch and Kavanaugh, all appointed by Republican presidents, formed the majority, while the dissenters, Justices Ginsburg, Breyer, Sotomayor, and Kagan, were all appointed by Democratic presidents.
The majority's opinion brought to mind the title of David Lodge's satirical novel, How Far Can You Go? (1980). If the majority's policy decision that class arbitration is (fundamentally) not arbitration means it will not countenance a state rule of contract interpretation leading to a different result, just how far will it go to discard other background principles of contract law in arbitration cases?
Celebrities: ADR And Peace Comes To Westeros In Game Of Thrones
Alternative Dispute Resolution And Alternative Facts, As Peace Comes To Westeros.
Elmo of Sesame Street has provided us with a model for dispute resolution between Queen Cersei and Tyrion Lannaster in Game of Thrones:
The best alternative to a negotiated agreement (BATNA) is never a pretty picture in Game of Thrones.